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[House Report 106-566]
[From the U.S. Government Publishing Office]

                                                                       
106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-566

======================================================================

 
                      TAXPAYER BILL OF RIGHTS 2000
                                _______
                                

 April 10, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Archer, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4163]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4163) to amend the Internal Revenue Code of 1986 to 
provide for increased fairness to taxpayers, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................14
          A. Purpose and Summary.................................    14
          B. Background and Need for Legislation.................    19
          C. Legislative History.................................    19
 II. Explanation of the Bill.........................................21
     Title I--Penalties and Interest.................................21
          A.  Failure to Pay Estimated Tax (sec. 101)............    21
          B. Exclusion From Gross Income for Interest on 
              Overpayments of Income Tax by Individuals (sec. 
              102)...............................................    24
          C. Partial Repeal and Reduction in the Penalty for 
              Failure to Pay Tax (sec. 103)......................    26
          D.  Abatement of Interest (sec. 104)...................    28
          E. Deposits Made to Stop the Running of Interest on 
              Potential Underpayments (sec. 105).................    34
          F. Expansion of Interest Netting for Individuals (sec. 
              106)...............................................    38
     Title II--Confidentiality and Disclosure........................39
          A. Disclosure and Privacy Rules Relating to Returns and 
              Return Information (sec. 201)......................    39
          B. Expansion of Type of Advice Available for Public 
              Inspection (sec. 202)..............................    43
          C. Collection of Activities With Respect to Joint 
              Return Disclosable Based on Oral Request (sec. 203)    45
          D. Taxpayer Representatives Not Subject to Examination 
              Without Supervisor Approval (sec. 204).............    46
          E. Disclosure in Judicial or Administrative Tax 
              Proceedings of Return and Return Information of 
              Persons Who Are Not Party to Such Proceedings (sec. 
              205)...............................................    47
          F. Prohibition of Disclosure of Taxpayer Identification 
              Information With Respect to Disclosure of Accepted 
              Offers-In-Compromise (sec. 206)....................    49
          G. Compliance by State Contractors With Confidentiality 
              Safeguards (sec. 207)..............................    49
          H. Higher Standards for Requests for and Consents to 
              Disclosure (sec. 208)..............................    51
          I. Notice to Taxpayer Concerning Administrative 
              Determination of Browsing; Annual Report (sec. 209)    54
          J. Disclosure of Taxpayer Identity for Tax Refund 
              Purposes (sec. 210)................................    55
     Title III--Other Requirements...................................56
          A. Clarification of Definition of Church Tax Inquiry 
              (sec. 301).........................................    56
          B. Expansion of Declaratory Judgment Remedy to Tax-
              exempt Organizations (sec. 302)....................    57
          C. Employee Misconduct Report to Include Summary of 
              Complaints by Category (sec. 303)..................    59
          D. Increase Joint Committee on Taxation Refund Review 
              Threshold to $2 Million (sec. 304).................    60
          E. Annual Report on Awards of Costs and Certain Fees in 
              Administrative and Court Proceedings (sec. 305)....    60
          F. Annual Report on Abatement of Penalties (sec. 306)..    61
          G. Better Means of Communicating with Taxpayers (sec. 
              307)...............................................    62
          H. Information Regarding Statute of Limitations (sec. 
              308)...............................................    63
III. Votes of the Committee..........................................64
 IV. Budget Effects of the Bill......................................65
          A. Committee Estimates of Budgetary Effects............    65
          B. Budget Authority and Tax Expenditures...............    67
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    67
  V. Other Matters To Be Discussed Under The rules of the House......69
          A.  Committee Oversight Findings and Recommendations...    69
          B. Summary of Findings and Recommendations of the 
              Committee on Government Reform and Oversight.......    69
          C. Constitutional Authority Statement..................    69
          D. Information Relating to Unfunded Mandates...........    70
          E. Applicability of House Rule XXI5(b).................    70
          F.  Tax Complexity Analysis............................    70
VII. Changes in Existing Law Made by the Bill as Reported............73

      The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Taxpayer Bill of 
Rights 2000''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--

Sec. 1. Short title; etc.

                    TITLE I--PENALTIES AND INTEREST

Sec. 101. Failure to pay estimated tax penalty converted to interest 
charge on accumulated unpaid balance.
Sec. 102. Exclusion from gross income for interest on overpayments of 
income tax by individuals.
Sec. 103. Reductions of penalty for failure to pay tax.
Sec. 104. Abatement of interest.
Sec. 105. Deposits made to stop the running of interest on potential 
underpayments.
Sec. 106. Expansion of interest netting for individuals.

                TITLE II--CONFIDENTIALITY AND DISCLOSURE

Sec. 201. Disclosure and privacy rules relating to returns and return 
information.
Sec. 202. Expansion of type of advice available for public inspection.
Sec. 203. Collection activities with respect to joint return 
disclosable to either spouse based on oral request.
Sec. 204. Taxpayer representatives not subject to examination on sole 
basis of representation of taxpayers.
Sec. 205. Disclosure in judicial or administrative tax proceedings of 
return and return information of persons who are not party to such 
proceedings.
Sec. 206. Prohibition of disclosure of taxpayer identification 
information with respect to disclosure of accepted offers-in-
compromise.
Sec. 207. Compliance by State contractors with confidentiality 
safeguards.
Sec. 208. Higher standards for requests for and consents to disclosure.
Sec. 209. Notice to taxpayer concerning administrative determination of 
browsing; annual report.
Sec. 210. Disclosure of taxpayer identity for tax refund purposes.

                     TITLE III--OTHER REQUIREMENTS

Sec. 301. Clarification of definition of church tax inquiry.
Sec. 302. Expansion of declaratory judgment remedy to tax-exempt 
organizations.
Sec. 303. Employee misconduct report to include summary of complaints 
by category.
Sec. 304. Increase in threshold for Joint Committee reports on refunds 
and credits.
Sec. 305. Annual report on awards of costs and certain fees in 
administrative and court proceedings.
Sec. 306. Annual report on abatement of penalties.
Sec. 307. Better means of communicating with taxpayers.
Sec. 308. Explanation of statute of limitations and consequences of 
failure to file.

                    TITLE I--PENALTIES AND INTEREST

SEC. 101. FAILURE TO PAY ESTIMATED TAX PENALTY CONVERTED TO INTEREST 
                    CHARGE ON ACCUMULATED UNPAID BALANCE.

  (a) Penalty Moved to Interest Chapter of Code.--The Internal Revenue 
Code of 1986 is amended by redesignating section 6654 as section 6641 
and by moving section 6641 (as so redesignated) from part I of 
subchapter A of chapter 68 to the end of subchapter E of chapter 67 (as 
added by subsection (e)(1) of this section).
  (b) Penalty Converted to Interest Charge.--The heading and 
subsections (a) and (b) of section 6641 (as so redesignated) are 
amended to read as follows:

``SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
                    TAX.

  ``(a) In General.--Interest shall be paid on any underpayment of 
estimated tax by an individual for a taxable year for each day of such 
underpayment. The amount of such interest for any day shall be the 
product of the underpayment rate established under subsection (b)(2) 
multiplied by the amount of the underpayment.
  ``(b) Amount of Underpayment; Interest Rate.--For purposes of 
subsection (a)--
          ``(1) Amount.--The amount of the underpayment on any day 
        shall be the excess of--
                  ``(A) the sum of the required installments for the 
                taxable year the due dates for which are on or before 
                such day, over
                  ``(B) the sum of the amounts (if any) of estimated 
                tax payments made on or before such day on such 
                required installments.
          ``(2) Determination of interest rate.--
                  ``(A) In general.--The underpayment rate with respect 
                to any day in an installment underpayment period shall 
                be the underpayment rate established under section 6621 
                for the first day of the calendar quarter in which such 
                installment underpayment period begins.
                  ``(B) Installment underpayment period.--For purposes 
                of subparagraph (A), the term `installment underpayment 
                period' means the period beginning on the day after the 
                due date for a required installment and ending on the 
                due date for the subsequent required installment (or in 
                the case of the 4th required installment, the 15th day 
                of the 4th month following the close of a taxable 
                year).
                  ``(C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily basis and 
                shall be based on the assumption of 365 days in a 
                calendar year.
          ``(3) Termination of estimated tax interest.--No day after 
        the end of the installment underpayment period for the 4th 
        required installment specified in paragraph (2)(B) for a 
        taxable year shall be treated as a day of underpayment with 
        respect to such taxable year.''.
  (c) Increase in Safe Harbor Where Tax is Small.--
          (1) In general.--Clause (i) of section 6641(d)(1)(B) (as so 
        redesignated) is amended to read as follows:
                          ``(i) the lesser of--
                                  ``(I) 90 percent of the tax shown on 
                                the return for the taxable year (or, if 
                                no return is filed, 90 percent of the 
                                tax for such year), or
                                  ``(II) the tax shown on the return 
                                for the taxable year (or, if no return 
                                is filed, the tax for such year) 
                                reduced (but not below zero) by $2,000, 
                                or''.
          (2) Conforming amendment.--Subsection (e) of section 6641 (as 
        so redesignated) is amended by striking paragraph (1) and 
        redesignating paragraphs (2) and (3) as paragraphs (1) and (2), 
        respectively.
  (d) Conforming Amendments.--
          (1) Paragraphs (1) and (2) of subsection (e) (as redesignated 
        by subsection (c)(2)) and subsection (h) of section 6641 (as so 
        designated) are each amended by striking ``addition to tax'' 
        each place it occurs and inserting ``interest''.
          (2) Section 167(g)(5)(D) is amended by striking ``6654'' and 
        inserting ``6641''.
          (3) Section 460(b)(1) is amended by striking ``6654'' and 
        inserting ``6641''.
          (4) Section 3510(b) is amended--
                  (A) by striking ``section 6654'' in paragraph (1) and 
                inserting ``section 6641'',
                  (B) by amending paragraph (2)(B) to read as follows:
                  ``(B) no interest would be required to be paid (but 
                for this section) under 6641 for such taxable year by 
                reason of the $2,000 amount specified in section 
                6641(d)(1)(B)(i)(II).'',
                  (C) by striking ``section 6654(d)(2)'' in paragraph 
                (3) and inserting ``section 6641(d)(2)'', and
                  (D) by striking paragraph (4).
          (5) Section 6201(b)(1) is amended by striking ``6654'' and 
        inserting ``6641''.
          (6) Section 6601(h) is amended by striking ``6654'' and 
        inserting ``6641''.
          (7) Section 6621(b)(2)(B) is amended by striking ``addition 
        to tax under section 6654'' and inserting ``interest required 
        to be paid under section 6641''.
          (8) Section 6622(b) is amended--
                  (A) by striking ``Penalty for'' in the heading, and
                  (B) by striking ``addition to tax under section 6654 
                or 6655'' and inserting ``interest required to be paid 
                under section 6641 or addition to tax under section 
                6655''.
          (9) Section 6658(a) is amended--
                  (A) by striking ``6654, or 6655'' and inserting ``or 
                6655, and no interest shall be required to be paid 
                under section 6641,'', and
                  (B) by inserting ``or paying interest'' after ``the 
                tax'' in paragraph (2)(B)(ii).
          (10) Section 6665(b) is amended--
                  (A) in the matter preceding paragraph (1) by striking 
                ``, 6654,'', and
                  (B) in paragraph (2) by striking ``6654 or''.
          (11) Section 7203 is amended by striking ``section 6654 or 
        6655'' and inserting ``section 6655 or interest required to be 
        paid under section 6641''.
  (e) Clerical Amendments.--
          (1) Chapter 67 is amended by inserting after subchapter D the 
        following:

  ``Subchapter E--Interest on Failure by Individual to Pay Estimated 
                               Income Tax

                              ``Sec. 6641. Interest on failure by 
                                        individual to pay estimated 
                                        income tax.''.
          (2) The table of subchapters for chapter 67 is amended by 
        adding at the end the following new items:
                              ``Subchapter D. Notice requirements.
                              ``Subchapter E. Interest on failure by 
                                        individual to pay estimated 
                                        income tax.''.
          (3) The table of sections for part I of subchapter A of 
        chapter 68 is amended by striking the item relating to section 
        6654.
  (f) Effective Date.--The amendments made by this section shall apply 
to installment payments for taxable years beginning after December 31, 
2000.

SEC. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF 
                    INCOME TAX BY INDIVIDUALS.

  (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 139 as section 139A and by inserting after 
section 138 the following new section:

``SEC. 139. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF 
                    INCOME TAX BY INDIVIDUALS.

  ``(a) In General.--In the case of an individual, gross income shall 
not include interest paid under section 6611 on any overpayment of tax 
imposed by this subtitle.
  ``(b) Exception.--Subsection (a) shall not apply in the case of a 
failure to claim items resulting in the overpayment on the original 
return if the Secretary determines that the principal purpose of such 
failure is to take advantage of subsection (a).
  ``(c) Special Rule for Determining Modified Adjusted Gross Income.--
For purposes of this title, interest not included in gross income under 
subsection (a) shall not be treated as interest which is exempt from 
tax for purposes of sections 32(i)(2)(B) and 6012(d) or any computation 
in which interest exempt from tax under this title is added to adjusted 
gross income.''.
  (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 139 and inserting the following new items:

                              ``Sec. 139. Exclusion from gross income 
                                        for interest on overpayments of 
                                        income tax by individuals.
                              ``Sec. 139A. Cross references to other 
                                        Acts.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to interest received in calendar years beginning after the date of the 
enactment of this Act.

SEC. 103. REDUCTIONS OF PENALTY FOR FAILURE TO PAY TAX.

  (a) Reductions of Penalty for Failure To Pay Tax.--
          (1) Reduction of penalty by 50 percent.--
                  (A) In general.--Paragraphs (2) and (3) of section 
                6651(a) are each amended by striking ``0.5'' each place 
                it appears and inserting ``0.25''.
                  (B) Conforming amendment.--Paragraph (1) of section 
                6651(d) is amended by striking ``by substituting `1 
                percent' for `0.5 percent' '' and inserting ``by 
                substituting `0.5 percent' for `0.25 percent' ''.
          (2) Reduction of penalty to zero during period of installment 
        agreement.--Subsection (h) of section 6651 is amended by 
        striking ``by substituting `0.25' for `0.5' '' and inserting 
        ``by substituting `zero' for `0.25' ''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply for purposes of determining additions to tax for 
        months beginning after December 31, 2000.
  (b) Prohibition of Fee for Installment Agreements Using Automated 
Withdrawals.--
          (1) In general.--Section 6159 (relating to agreements for 
        payment of tax liability in installments) is amended by 
        redesignating subsection (e) as subsection (f) and by inserting 
        after subsection (d) the following new subsection:
  ``(e) Prohibition of Fee for Installment Agreements Using Automated 
Withdrawals.--The Secretary may not charge a taxpayer a fee for 
entering into an agreement with the Secretary under this section only 
for so long as payments under such agreement are made by means of 
electronic transfer or by similar automated means.''.
          (2) Effective date.--The amendments made by this subsection 
        shall apply to installment agreements entered into more than 30 
        days after the date of the enactment of this Act.

SEC. 104. ABATEMENT OF INTEREST.

  (a) Abatement of Interest if Gross Injustice Would Otherwise 
Result.--Section 6404 is amended by redesignating subsection (i) as 
subsection (j) and by inserting after subsection (h) the following new 
subsection:
  ``(i) Abatement of Interest if Gross Injustice Would Otherwise 
Result.-- The Secretary may abate the assessment of all or any part of 
interest on any amount of tax imposed by this title for any period if 
the Secretary determines that--
          ``(1) a gross injustice would otherwise result if interest 
        were to be charged, and
          ``(2) no significant aspect of the events giving rise to the 
        accrual of the interest can be attributed to the taxpayer 
        involved.''.
  (b) Abatement of Interest for Periods Attributable to Any 
Unreasonable IRS Error or Delay.--Subparagraphs (A) and (B) of section 
6404(e)(1) are each amended by striking ``in performing a ministerial 
or managerial act''.
  (c) Abatement of Interest With Respect to Erroneous Refund Check 
Without Regard to Size of Refund.--Paragraph (2) of section 6404(e) is 
amended by striking ``unless--'' and all that follows and inserting 
``unless the taxpayer (or a related party) has in any way caused such 
erroneous refund.''
  (d) Abatement of Interest to Extent Interest is Attributable to 
Taxpayer Reliance on Written Statements of the IRS.--Subsection (f) of 
section 6404 is amended--
          (1) in the subsection heading, by striking ``Penalty or 
        Addition'' and inserting ``Interest, Penalty, or Addition'', 
        and
          (2) in paragraph (1) and in subparagraph (B) of paragraph 
        (2), by striking ``penalty or addition'' and inserting 
        ``interest, penalty, or addition''.
  (e) Effective Date.--The amendments made by this section shall apply 
with respect to interest accruing on or after the date of the enactment 
of this Act.

SEC. 105. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL 
                    UNDERPAYMENTS.

  (a) In General.--Subchapter B of chapter 67 (relating to interest on 
overpayments) is amended by redesignating section 6612 as section 6613 
and by inserting after section 6611 the following new section:

``SEC. 6612. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL 
                    UNDERPAYMENTS, ETC.

  ``(a) Authority To Make Deposits Other Than As Payment of Tax.--Any 
taxpayer may make a cash bond deposit with the Secretary to offset any 
potential underpayment of tax imposed by this title for any taxable 
period. Such a deposit shall be made in such manner as the Secretary 
shall prescribe.
  ``(b) Deposits Used To Pay Underpayment Also Offset Running of 
Interest on Underpayment.--Any cash bond deposit used to pay tax under 
this title shall offset interest under subchapter A during the period 
of such deposit on such tax under such procedures as the Secretary 
shall prescribe.
  ``(c) Taxpayer May Request Return of Cash Bond Deposit.--
          ``(1) In general.--On written request of a taxpayer who made 
        a cash bond deposit, the Secretary shall return to the taxpayer 
        any amount of such deposit specified by the taxpayer.
          ``(2) No interest.--In the case of a deposit which is so 
        returned--
                  ``(A) the amount returned shall not offset interest 
                under subchapter A for any period, and
                  ``(B) except as provided in subsection (d), no 
                interest shall be allowed on such amount.
          ``(3) Exceptions.--Paragraph (1) shall not apply to any 
        amount if--
                  ``(A) such amount has been treated by the Secretary 
                as a payment of tax after a final determination of the 
                disputed items to which such amount relates,
                  ``(B) such amount has been designated by the taxpayer 
                as being a payment of tax,
                  ``(C) the Secretary determines that assessment or 
                collection of tax is in jeopardy, or
                  ``(D) the amount is applied in accordance with 
                section 6402.
        Subparagraph (D) shall not apply to a payment to a taxpayer if 
        the taxpayer is entitled to be paid interest under subsection 
        (d) on such payment.
  ``(d) Interest on Amounts Returned in Certain Circumstances.--
          ``(1) In general.--Interest shall be allowed and paid on the 
        amount of any cash bond deposit for a taxable period which is 
        returned to the taxpayer only if the deposit is attributable to 
        a dispute reserve account for such period.
          ``(2) Attribution to dispute reserve account.--For purposes 
        of paragraph (1), an amount is attributable to a dispute 
        reserve account for any taxable period only to the extent that 
        the aggregate of the cash bond deposits for such period 
        (reduced by the amount of such deposits which has been 
        previously returned to the taxpayer or treated as a payment of 
        tax) does not exceed the deposit limit for such period.
          ``(3) Deposit limit.--For purposes of paragraph (2)--
                  ``(A) In general.--The deposit limit for any taxable 
                period is the amount specified by the taxpayer at the 
                time of the deposit as the taxpayer's reasonable 
                estimate of the potential underpayment for such period 
                with respect to disputable items identified (at such 
                time) by the taxpayer with respect to such deposit.
                  ``(B) Safe harbor based on 30-day letter.--In the 
                case of a taxpayer who is issued a 30-day letter for 
                any taxable period, the deposit limit for such period 
                shall not be less than the amount of the proposed 
                deficiency specified in such letter.
          ``(4) Definitions.--For purposes of paragraph (3)--
                  ``(A) Disputable item.--The term `disputable item' 
                means any item if the taxpayer--
                          ``(i) has a reasonable basis for its 
                        treatment of such item, and
                          ``(ii) reasonably believes that the Secretary 
                        also has a reasonable basis for disallowing the 
                        taxpayer's treatment of such item.
                  ``(B) 30-day letter.--The term `30-day letter' means 
                the first letter of proposed deficiency which allows 
                the taxpayer an opportunity for administrative review 
                in the Internal Revenue Service Office of Appeals.
          ``(5) Rate and period of interest.--
                  ``(A) Rate.--The rate of interest allowable under 
                this subsection shall be the Federal short-term rate 
                determined under section 6621(b), compounded daily.
                  ``(B) Period.--Interest under this subsection on any 
                payment to a taxpayer shall be payable from the date of 
                the deposit to which such payment is attributable to a 
                date (to be determined by the Secretary) preceding the 
                date of the check making such payment by not more than 
                30 days. For purposes of the preceding sentence, cash 
                bond deposits for any taxable period shall be treated 
                as used and returned on a last-in first-out basis.
  ``(e) Cash Bond Deposit.--For purposes of this section--
          ``(1) In general.--The term `cash bond deposit' means any 
        payment which is designated by the taxpayer as being a cash 
        bond deposit for a specified taxable period.
          ``(2) Amounts designated or used as payment of tax.--A cash 
        bond deposit shall cease to be treated as such for purposes of 
        this section beginning on the date that the taxpayer designates 
        such deposit as a payment of tax for purposes of this title, 
        or, if earlier, on the date such deposit is so used.
  ``(f) Change in Period for Which Deposit Made.--Subject to the 
requirements of subsection (d), a taxpayer may change the taxable 
period to which a cash bond deposit relates.''
  (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 67 is amended by striking the last item and inserting the 
following new items:

                              ``Sec. 6612. Deposits made to stop the 
                                        running of interest on 
                                        potential underpayments, etc.
                              ``Sec. 6613. Cross references.''

  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to interest for periods after the date of the enactment 
        of this Act.
          (2) Specification of disputed items.--In the case of amounts 
        held by the Secretary of the Treasury on the date of the 
        enactment of this Act as a deposit in the nature of a cash bond 
        pursuant to Revenue Procedure 84-58, the date that the taxpayer 
        makes the identification under subsection (d)(3)(A) of section 
        6612 of the Internal Revenue Code of 1986, as added by this 
        section) shall be treated as the date such amounts were 
        deposited for purposes of such section 6612.

SEC. 106. EXPANSION OF INTEREST NETTING FOR INDIVIDUALS.

  (a) In General.--Subsection (d) of section 6621 (relating to 
elimination of interest on overlapping periods of tax overpayments and 
underpayments) is amended by adding at the end the following: ``Solely 
for purposes of the preceding sentence, section 6611(e) shall not apply 
in the case of an individual.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to interest accrued after December 31, 2000.

                TITLE II--CONFIDENTIALITY AND DISCLOSURE

SEC. 201. DISCLOSURE AND PRIVACY RULES RELATING TO RETURNS AND RETURN 
                    INFORMATION.

  (a) In General.--Subsection (a) of section 6103 (relating to general 
rule for confidentiality and disclosure of returns and return 
information) is amended by striking ``title--'' and inserting ``title 
and notwithstanding any other provision of law--''.
  (b) Procedural and Jurisdictional Rules.--Subsection (p) of section 
6103 (relating to procedure and recordkeeping) is amended by adding at 
the end the following new paragraph:
          ``(9) Procedural rules applicable to certain disclosures.--
                  ``(A) In general.--The Secretary shall prescribe 
                regulations for purposes of providing for disclosures 
                of return and return information under subsections (c), 
                (e), and (k) (1) and (2). Such regulations shall 
                include a schedule of fees, and waivers and reductions 
                of such fees, applicable to the processing of requests 
                for such disclosures.
                  ``(B) Determinations of whether to comply with 
                disclosure requests.--
                          ``(i) Initial requests.--In response to a 
                        request that reasonably describes the return or 
                        return information sought and is made in 
                        accordance with the published rules, the 
                        Secretary shall--
                                  ``(I) determine within 20 days after 
                                the receipt of any request for 
                                disclosure of return or return 
                                information under subsections (c), (e), 
                                and (k) (1) and (2) whether to comply 
                                with such request, and
                                  ``(II) immediately notify the person 
                                making such request of such 
                                determination and the reasons therefor, 
                                and of the right of such person to 
                                appeal to the Commissioner any adverse 
                                determination.
                          ``(ii) Appeal.--The Commissioner shall--
                                  ``(I) make a determination with 
                                respect to any appeal of any adverse 
                                determination under clause (i)(I) 
                                within 20 days after the receipt of 
                                such appeal, and
                                  ``(II) if on appeal the denial of the 
                                request for disclosure of such return 
                                or return information is in whole or in 
                                part upheld, the Commissioner shall 
                                notify the person making such request 
                                of the provisions for judicial review 
                                of that determination under 
                                subparagraph (D).
                          ``(iii) Extension of periods for unusual 
                        circumstances.--
                                  ``(I) In general.--The time limits 
                                prescribed in clause (i) and clause 
                                (ii) (as the case may be) may be 
                                extended for not more than 10 days in 
                                unusual circumstances by providing to 
                                the person making such request for 
                                disclosure written notice which sets 
                                forth the unusual circumstances for 
                                such extension and the date on which a 
                                determination is expected to be 
                                dispatched. No such notice shall 
                                specify a date that would result in an 
                                extension for more than 10 working 
                                days, except as provided in subclause 
                                (II).
                                  ``(II) Modification of request or 
                                time period.--If, with respect to a 
                                request for which the time limits are 
                                extended under subclause (I), the 
                                Secretary determines that the request 
                                cannot be processed within the time 
                                limit so specified, the Secretary shall 
                                notify the person making the request 
                                and shall provide the person an 
                                opportunity to limit the scope of the 
                                request so that it may be processed 
                                within that time limit or an 
                                opportunity to arrange with the agency 
                                an alternative time frame for 
                                processing the request or a modified 
                                request. Refusal by the person to 
                                reasonably modify the request or 
                                arrange such an alternative time frame 
                                shall be considered as a factor in 
                                determining whether exceptional 
                                circumstances exist for purposes of 
                                subparagraph (C).
                          ``(iv) Unusual circumstances defined.--For 
                        purposes of clause (iii), the term `unusual 
                        circumstances' means, but only to the extent 
                        reasonably necessary to the proper processing 
                        of the particular requests--
                                  ``(I) the need to search for and 
                                collect the requested records from 
                                field facilities or other 
                                establishments that are separate from 
                                the office processing the request,
                                  ``(II) the need to search for, 
                                collect, and appropriately examine a 
                                voluminous amount of separate and 
                                distinct records which are demanded in 
                                a single request, or
                                  ``(III) the need for consultation, 
                                which shall be conducted with all 
                                practicable speed, with another agency 
                                having a substantial interest in the 
                                determination of the request or among 
                                two or more components of the agency 
                                having substantial subject-matter 
                                interest therein.
                          ``(v) 20-day period excludes certain days.--
                        The 20-day periods referred to in clauses (i) 
                        and (ii) shall not include Saturdays, Sundays, 
                        and legal public holidays.
                  ``(C) Failure to meet time limits.--
                          ``(i) In general.--Any person making a 
                        request for the disclosure of return or return 
                        information which is subject to this paragraph 
                        shall be deemed to have exhausted his 
                        administrative remedies with respect to such 
                        request if the Secretary fails to comply with 
                        the applicable time limit provisions of this 
                        paragraph. If the Secretary can show exceptional 
                        circumstances exist and that the agency is 
                        exercising due diligence in responding to the 
                        request, the court may retain jurisdiction and 
                        allow the agency additional time to complete 
                        its review of the records. Upon any 
                        determination by the Secretary to comply with 
                        a request for records, the records shall be 
                        made promptly available to such person making 
                        such request. Any notification of denial of 
                        any request for records under this subsection 
                        shall set forth the names and titles or 
                        positions of each person responsible for the 
                        denial of such request.
                          ``(ii) Exceptional circumstances defined.--
                        For purposes of clause (i), the term 
                        `exceptional circumstances' does not include a 
                        delay that results from a predictable workload 
                        of the Secretary relating to requests subject 
                        to this paragraph, unless the Secretary 
                        demonstrates reasonable progress in reducing 
                        its backlog of pending requests.
                          ``(iii) Refusal to modify request or time 
                        frame.--Refusal by a person to reasonably 
                        modify the scope of a request or arrange an 
                        alternative time frame for processing a request 
                        (or a modified request) under subparagraph 
                        (B)(ii) after being given an opportunity to do 
                        so by the agency to whom the person made the 
                        request shall be considered as a factor in 
                        determining whether exceptional circumstances 
                        exist for purposes of this subparagraph.
                  ``(D) Judicial proceedings.--
                          ``(i) Jurisdiction of the district courts.--
                                  ``(I) In general.--On complaint, the 
                                district courts of the United States in 
                                the district in which the complainant 
                                resides, or has his principal place of 
                                business, or in which his return or 
                                return information is situated, or in 
                                the District of Columbia, shall have 
                                jurisdiction to enjoin the Secretary 
                                from withholding return or return 
                                information which is subject to 
                                disclosure under subsection (c), (e), 
                                or (k) (1) or (2), and to order the 
                                production of any return or return 
                                information improperly withheld from 
                                the complainant.
                                  ``(II) Expedited processing.--No 
                                district court of the United States 
                                shall have jurisdiction to review a 
                                denial by the Secretary of expedited 
                                processing of a request for return or 
                                return information after the Secretary 
                                has provided a complete response to the 
                                request.
                          ``(ii) Procedural matters.--In a case arising 
                        under clause (i), the court shall determine the 
                        matter de novo (on the record before the 
                        Secretary at the time of the determination in 
                        the case of a request for expedited 
                        processing), and may examine the contents of 
                        such return or return information in camera to 
                        determine whether such return or return 
                        information or any part thereof shall be 
                        withheld under any of the provisions of this 
                        title, and the burden shall be on the Secretary 
                        to sustain its action. In addition to any other 
                        matters to which a court accords substantial 
                        weight, a court shall accord substantial weight 
                        to an affidavit of the Secretary concerning the 
                        Secretary's determination as to technical 
                        feasibility relating to, and reproducibility 
                        of, such return and return information.
                  ``(E) Deadline for secretary to answer complaint.--
                Notwithstanding any other provision of law, the 
                Secretary shall serve an answer or otherwise plead to 
                any complaint made under this paragraph within 30 days 
                after service upon the Secretary of the pleading in 
                which such complaint is made, unless the court 
                otherwise directs for good cause shown.''.
  (c) Attorney Fees.--Subsection (a) of section 7430 (relating to 
general rule for awarding of costs and certain fees) is amended by 
inserting after ``title,'' the following: ``and in any court proceeding 
in connection with the disclosure of return and return information 
under section 6103(p)(9),''.
  (d) Effective Date.--The amendments made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 202. EXPANSION OF TYPE OF ADVICE AVAILABLE FOR PUBLIC INSPECTION.

  (a) In General.--Subparagraph (A) of section 6110(i)(1) is amended--
          (1) by striking ``national office component of the Office of 
        Chief Counsel'' and inserting ``component of the Office of 
        Chief Counsel or of the Service'', and
          (2) in clause (i) by striking ``field or service center 
        employees of the Service or regional or district'' and 
        inserting ``employees of the Service or''.
  (b) Conforming Amendments.--
          (1) Section 6110(i)(2) is amended by inserting ``or the 
        Service'' after ``Office of Chief Counsel''.
          (2) The following provisions of section 6110 are amended by 
        striking ``Chief Counsel advice'' each place it appears and 
        inserting ``official advice'':
                  (A) Paragraph (1) of subsection (b).
                  (B) Subparagraph (A) of subsection (i)(1).
                  (C) Paragraphs (3) and (4) of subsection (i).
          (3) Subparagraph (A) of section 6110(g)(5) is amended by 
        inserting ``official advice and'' before ``technical advice''.
          (4) The heading for subsection (i) of section 6110 is amended 
        by striking ``Chief Counsel'' and inserting ``Official''.
          (5) The heading for paragraph (1) of section 6110(i) is 
        amended by striking ``Chief counsel'' and inserting 
        ``Official''.
          (6) The headings for paragraphs (2) and (3) of section 
        6110(i), and for subparagraphs (A) and (B) of paragraph (4) of 
        such section, are each amended by striking ``chief counsel'' 
        and inserting ``official''.
  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to any official advice issued more than 90 days after the 
        date of the enactment of this Act.
          (2) Documents treated as official advice.--If the Secretary 
        of the Treasury by regulation provides pursuant to section 
        6110(i)(2) of the Internal Revenue Code of 1986, that any 
        additional advice or instruction issued by the Office of Chief 
        Counsel shall be treated as official advice, such additional 
        advice or instruction shall be made available for public 
        inspection pursuant to section 6110 of such Code, as amended by 
        this section, only in accordance with the effective date set 
        forth in such regulation.
          (3) Official advice to be available electronically.--The 
        Internal Revenue Service shall make any official advice issued 
        more than 90 days after the date of the enactment of this Act 
        and made available for public inspection pursuant to section 
        6110 of the Internal Revenue Code of 1986, as amended by this 
        section, also available by computer telecommunications within 1 
        year after issuance.

SEC. 203. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
                    DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.

  (a) In General.--Paragraph (8) of section 6103(e) (relating to 
disclosure of collection activities with respect to joint return) is 
amended by striking ``in writing'' the first place it appears.
  (b) Effective Date.--The amendment made by this section shall apply 
to requests made after the date of the enactment of this Act.

SEC. 204. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION ON SOLE 
                    BASIS OF REPRESENTATION OF TAXPAYERS.

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

SEC. 205. DISCLOSURE IN JUDICIAL OR ADMINISTRATIVE TAX PROCEEDINGS OF 
                    RETURN AND RETURN INFORMATION OF PERSONS WHO ARE 
                    NOT PARTY TO SUCH PROCEEDINGS.

  (a) In General.--Paragraph (4) of section 6103(h) (relating to 
disclosure to certain Federal officers and employees for purposes of 
tax administration, etc.) is amended by adding at the end the following 
new subparagraph:
                  ``(B) Disclosure in judicial or administrative tax 
                proceedings of return and return information of persons 
                not party to such proceedings.--
                          ``(i) Notice.--Return or return information 
                        of any person who is not a party to a judicial 
                        or administrative proceeding described in 
                        paragraph (4) shall not be disclosed under 
                        clause (ii) or (iii) of subparagraph (A) until 
                        after the Secretary makes a reasonable effort 
                        to give notice to such person and an 
                        opportunity for such person to request the 
                        deletion of matter from such return or return 
                        information, including any of the items 
                        referred to in paragraphs (1) through (7) of 
                        section 6110(c). Such notice shall include a 
                        statement of the issue or issues the resolution 
                        of which is the reason such return or return 
                        information is sought. In the case of S 
                        corporations, partnerships, estates, and trusts, 
                        such notice shall be made at the entity level.
                          ``(ii) Disclosure limited to pertinent 
                        portion.--The only portion of a return or 
                        return information described in clause (i) 
                        which may be disclosed under subparagraph (A) 
                        is that portion of such return or return 
                        information that directly relates to the 
                        resolution of an issue in such proceeding.
                          ``(iii) Exceptions.--Clause (i) shall not 
                        apply to--
                                  ``(I) any ex parte proceeding for 
                                obtaining a search warrant, order for 
                                entry on premises or safe deposit 
                                boxes, or similar ex parte proceeding,
                                  ``(II) disclosure of third party 
                                return information by indictment or 
                                criminal information, or
                                  ``(III) if the Secretary determines 
                                that the application of such clause 
                                would seriously impair a criminal tax 
                                investigation.''.
  (b) Conforming Amendments.--Paragraph (4) of section 6103(h) is 
amended by--
          (1) by striking ``proceedings.--A return'' and inserting 
        ``proceedings.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), a return'',
          (2) by redesignating subparagraphs (A), (B), (C), and (D) 
        clauses (i), (ii), (iii), and (iv), respectively, and
          (3) in the matter following clause (iv) (as so redesignated), 
        by striking ``subparagraph (A), (B), or (C)'' and inserting 
        ``clause (i), (ii) or (iii)'' and by moving such matter two ems 
        to the right.
  (c) Effective Date.--The amendments made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

SEC. 206. PROHIBITION OF DISCLOSURE OF TAXPAYER IDENTIFICATION 
                    INFORMATION WITH RESPECT TO DISCLOSURE OF ACCEPTED 
                    OFFERS-IN-COMPROMISE.

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

SEC. 207. COMPLIANCE BY STATE CONTRACTORS WITH CONFIDENTIALITY 
                    SAFEGUARDS.

  (a) In General.--Paragraph (8) of section 6103(p) (relating to State 
law requirements) is amended by redesignating subparagraph (B) as 
subparagraph (C) and by inserting after subparagraph (A) the following 
new subparagraph:
                  ``(B) Disclosure to contractors.--Notwithstanding any 
                other provision of this section, no return or return 
                information shall be disclosed by any officer or 
                employee of any State to any contractor of the State 
                unless such State--
                          ``(i) has requirements in effect which 
                        require each contractor of the State which 
                        would have access to returns or return 
                        information to provide safeguards (within the 
                        meaning of paragraph (4)) to protect the 
                        confidentiality of such returns or return 
                        information,
                          ``(ii) agrees to conduct an annual, on-site 
                        review (mid-point review in the case of 
                        contracts of less than 1 year in duration) of 
                        each contractor to determine compliance with 
                        such requirements,
                          ``(iii) submits the findings of the most 
                        recent review conducted under clause (ii) to 
                        the Secretary as part of the report required by 
                        paragraph (4)(E), and
                          ``(iv) certifies to the Secretary for the 
                        most recent annual period that all contractors 
                        are in compliance with all such requirements.
                The certification required by clause (iv) shall include 
                the name and address of each contractor, a description 
                of the contract of the contractor with the State, and 
                the duration of such contract.''.
  (b) Conforming Amendment.--Subparagraph (C) of section 6103(p)(8), as 
amended by subsection (a), is amended by striking ``subparagraph (A)'' 
and inserting ``subparagraphs (A) and (B)''.
  (c) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to disclosures made after December 31, 2001.
          (2) The first certification under section 6103(p)(8)(B)(iv) 
        of the Internal Revenue Code of 1986, as added by subsection 
        (a), shall be made with respect to calendar year 2002.

SEC. 208. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO DISCLOSURE.

  (a) In General.--Subsection (c) of section 6103 (relating to 
disclosure of returns and return information to designee of taxpayer) 
is amended by adding at the end the following new paragraphs:
          ``(2) Requirements for valid requests and consents.--A 
        request for or consent to disclosure under paragraph (1) shall 
        only be valid for purposes of this section or sections 7213, 
        7213A, or 7431 if--
                  ``(A) at the time of execution, such request or 
                consent designates a recipient of such disclosure and 
                is dated, and
                  ``(B) at the time such request or consent is 
                submitted to the Secretary, the submitter of such 
                request or consent certifies, under penalty of perjury, 
                that such request or consent complied with subparagraph 
                (A).
          ``(3) Restrictions on persons obtaining information.--Any 
        person shall, as a condition for receiving return or return 
        information under paragraph (1)--
                  ``(A) ensure that such return and return information 
                is kept confidential,
                  ``(B) use such return and return information only for 
                the purpose for which it was requested, and
                  ``(C) not disclose such return and return information 
                except to accomplish the purpose for which it was 
                requested, unless a separate consent from the taxpayer 
                is obtained.
          ``(4) Requirements for form prescribed by secretary.--For 
        purposes of this subsection, the Secretary shall prescribe a 
        form for requests and consents which shall--
                  ``(A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not be 
                signed unless it is completed,
                  ``(B) state that if the taxpayer believes there is an 
                attempt to coerce him to sign an incomplete or blank 
                form, the taxpayer should report the matter to the 
                Treasury Inspector General for Tax Administration, and
                  ``(C) contain the address and telephone number of the 
                Treasury Inspector General for Tax Administration.''.
  (b) Report.--Not later than 18 months after the date of the enactment 
of this Act, the Treasury Inspector General for Tax Administration 
shall submit a report to the Congress on compliance with the 
designation and certification requirements applicable to requests for 
or consent to disclosure of returns and return information under 
section 6103(c) of the Internal Revenue Code of 1986, as amended by 
subsection (a). Such report shall--
          (1) evaluate (on the basis of random sampling) whether--
                  (A) the amendments made by subsection (a) are 
                achieving the purposes of this section,
                  (B) requesters and submitters for such disclosure are 
                continuing to evade the purposes of this section and, 
                if so, how, and
                  (C) the sanctions for violations of such requirements 
                are adequate, and
          (2) include such recommendations that the Treasury Inspector 
        General for Tax Administration considers necessary or 
        appropriate to better achieve the purposes of this section.
  (c) Conforming Amendment.--Section 6103(c) is amended by striking 
``Taxpayer.--The Secretary'' and inserting ``Taxpayer.--
          ``(1) In General.--The Secretary''.
  (d) Effective Date.--The amendments made by this section shall apply 
to requests and consents made after 3 months after the date of the 
enactment of this Act.

SEC. 209. NOTICE TO TAXPAYER CONCERNING ADMINISTRATIVE DETERMINATION OF 
                    BROWSING; ANNUAL REPORT.

  (a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating to 
notification of unlawful inspection and disclosure) is amended by 
adding at the end the following: ``The Secretary shall also notify such 
taxpayer if the Treasury Inspector General for Tax Administration 
determines that such taxpayer's return or return information was 
inspected or disclosed in violation of any of the provisions specified 
in paragraph (1), (2), or (3).''.
  (b) Reports.--Subsection (p) of section 6103 (relating to procedure 
and recordkeeping), as amended by section 201(b), is further amended by 
adding at the end the following new paragraph:
          ``(10) Report on unauthorized disclosure and inspection.--As 
        part of the report required by paragraph (3)(C) for each 
        calendar year, the Secretary shall furnish information 
        regarding the unauthorized disclosure and inspection of returns 
        and return information, including the number, status, and 
        results of--
                  ``(A) administrative investigations,
                  ``(B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits were 
                settled and the amounts of damages awarded), and
                  ``(C) criminal prosecutions.''.
  (c) Effective Date.--
          (1) Notice.--The amendment made by subsection (a) shall apply 
        to determinations made after the date of the enactment of this 
        Act.
          (2) Reports.--The amendment made by subsection (b) shall 
        apply to calendar years ending after the date of the enactment 
        of this Act.

SEC. 210. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND PURPOSES.

  Paragraph (1) of section 6103(m) (relating to disclosure of taxpayer 
identity information for tax refunds) is amended by inserting ``, and 
through any other means of mass communication,'' after ``media''.

                     TITLE III--OTHER REQUIREMENTS

SEC. 301. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

  Subsection (i) of section 7611 (relating to section not to apply to 
criminal investigations, etc.) is amended by striking ``or'' at the end 
of paragraph (4), by striking the period at the end of paragraph (5) 
and inserting ``, or'', and by inserting after paragraph (5) the 
following:
          ``(6) information provided by the Secretary related to the 
        standards for exemption from tax under this title and the 
        requirements under this title relating to unrelated business 
        taxable income.''.

SEC. 302. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
                    ORGANIZATIONS.

  (a) In General.--Paragraph (1) of section 7428(a) (relating to 
creation of remedy) is amended--
          (1) in subparagraph (B) by inserting after ``509(a))'' the 
        following: ``or as a private operating foundation (as defined 
        in section 4942(j)(3))'', and
          (2) by amending subparagraph (C) to read as follows:
                  ``(C) with respect to the initial qualification or 
                continuing qualification of an organization as an 
                organization described in section 501(c) (other than 
                paragraph (3)) which is exempt from tax under section 
                501(a), or''.
  (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended in 
the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
  (c) Failure of Service To Act on Determinations Treated as Exhaustion 
of Remedies.--The second sentence of paragraph (2) of section 7428(b) 
(relating to exhaustion of administrative remedies) is amended to read 
as follows: ``An organization requesting the determination of an issue 
referred to in subsection (a)(1) shall be deemed to have exhausted its 
administrative remedies with respect to--
                  ``(A) a failure by the Secretary to make a 
                determination with respect to such issue at the 
                expiration of 270 days after the date on which the 
                request for such determination was made if the 
                organization has taken, in a timely manner, all 
                reasonable steps to secure such determination, and
                  ``(B) a failure by any office of the Service (other 
                than the office which is responsible for initial 
                determinations with respect to such issue (hereinafter 
                in this subparagraph referred to as the `initial 
                office'), to make a determination with respect to such 
                issue at the expiration of 180 days after the date on 
                which any request for such determination was made by 
                the initial office if the organization has taken, in a 
                timely manner, all reasonable steps to secure such 
                determination.''.
  (d) Effective Dates.--
          (1) Declaratory judgment.--The amendments made by subsections 
        (a) and (b) shall apply to pleadings filed with respect to 
        determinations (or requests for determinations) made after the 
        date of the enactment of this Act.
          (2) Failure of service to act.--The amendments made by 
        subsection (c) shall apply to applications received in the 
        national office of the Internal Revenue Service after the date 
        of the enactment of this Act.

SEC. 303. EMPLOYEE MISCONDUCT REPORT TO INCLUDE SUMMARY OF COMPLAINTS 
                    BY CATEGORY.

  (a) In General.--Clause (ii) of section 7803(d)(2)(A) is amended by 
inserting before the semicolon at the end the following: ``, including 
a summary (by category) of the 10 most common complaints made and the 
number of such common complaints''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
with respect to reporting periods ending after the date of the 
enactment of this Act.

SEC. 304. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS 
                    AND CREDITS.

  (a) General Rule.--Subsections (a) and (b) of section 6405 are each 
amended by striking ``$1,000,000'' and inserting ``$2,000,000''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act, except that such 
amendment shall not apply with respect to any refund or credit with 
respect to a report that has been made before such date of the 
enactment under section 6405 of the Internal Revenue Code of 1986.

SEC. 305. ANNUAL REPORT ON AWARDS OF COSTS AND CERTAIN FEES IN 
                    ADMINISTRATIVE AND COURT PROCEEDINGS.

  Not later than 3 months after the close of each Federal fiscal year 
after fiscal year 1999, the Treasury Inspector General for Tax 
Administration shall submit a report to Congress which specifies for 
such year--
          (1) the number of payments made by the United States pursuant 
        to section 7430 of the Internal Revenue Code of 1986 (relating 
        to awarding of costs and certain fees),
          (2) the amount of each such payment,
          (3) an analysis of any administrative issue giving rise to 
        such payments, and
          (4) changes (if any) which will be implemented as a result of 
        such analysis and other changes (if any) recommended by the 
        Treasury Inspector General for Tax Administration as a result 
        of such analysis.

SEC. 306. ANNUAL REPORT ON ABATEMENT OF PENALTIES.

  Not later than 6 months after the close of each Federal fiscal year 
after fiscal year 1999, the Treasury Inspector General for Tax 
Administration shall submit a report to Congress on abatements of 
penalties under the Internal Revenue Code of 1986 during such year, 
including information on the reasons and criteria for such abatements.

SEC. 307. BETTER MEANS OF COMMUNICATING WITH TAXPAYERS.

  Not later than 18 months after the date of the enactment of this Act, 
the Treasury Inspector General for Tax Administration shall submit a 
report to Congress evaluating whether technological advances, such as 
e-mail and facsimile transmission, permit the use of alternative means 
for the Internal Revenue Service to communicate with taxpayers.

SEC. 308. EXPLANATION OF STATUTE OF LIMITATIONS AND CONSEQUENCES OF 
                    FAILURE TO FILE.

  The Secretary of the Treasury or the Secretary's delegate shall, as 
soon as practicable but not later than 180 days after the date of the 
enactment of this Act, revise the statement required by section 6227 of 
the Omnibus Taxpayer Bill of Rights (Internal Revenue Service 
Publication No. 1), and any instructions booklet accompanying a general 
income tax return form for taxable years beginning in 2000 and later 
(including forms 1040, 1040A, 1040EZ, and any similar or successor 
forms relating thereto), to provide for an explanation of--
          (1) the limitations imposed by section 6511 of the Internal 
        Revenue Code of 1986 on credits and refunds, and
          (2) the consequences under such section 6511 of the failure 
        to file a return of tax.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

                                PURPOSE

    The bill, H.R. 4163, as amended, (the ``Taxpayer Bill of 
Rights 2000'') provides increased fairness to taxpayers and 
enhances the confidentiality of returns and return information.

                                SUMMARY

                    TITLE I--PENALTIES AND INTEREST

A. Convert Penalty for Failure To Pay Estimated Tax into an Interest 
        Provision and Increase and Modify Threshold

    The provision converts the present-law penalty for failure 
to pay estimated tax into an interest provision for 
individuals, estates, and trusts; increases the threshold for 
underpayment of estimated tax from $1,000 to $2,000; and allows 
both tax withheld and estimated tax paid equally throughout the 
year to be considered in determining whether the threshold has 
been met.

B. Simplify Estimated Tax Calculation for Individuals, Estates, and 
        Trusts

    The provision provides one interest rate per underpayment 
period for individuals, estates, and trusts. The provision also 
simplifies the calculation of estimated tax by eliminating the 
requirement to track each underpayment separately and providing 
that underpayment balances are cumulative. In addition, under 
the provision, a 365-day year is used for all estimated tax 
underpayment calculations regardless of whether the taxable 
year is a leap year.

C. Exclude Interest on Individual Federal Income Tax Overpayments

    The bill excludes from gross income interest that is paid 
by the IRS to individual taxpayers on overpayments of Federal 
income tax. However, the exclusion will not apply if the 
taxpayer's principal purpose in filing a claim for refund or 
amended return is to take advantage of the exclusion.

D. Partial Repeal and Reduction in Penalty for Failure To Pay Tax

    The bill repeals the present-law penalty for failure to pay 
tax for taxpayers for whom an installment payment agreement 
with the IRS is in effect, provided that the taxpayer filed the 
tax return in a timely manner (including extensions). For all 
other taxpayers, the rate of the penalty is cut in half. For 
those taxpayers who agree to an automated withdrawal of each 
installment payment directly from their bank account, the $43 
fee on installment agreements is waived.

E. Abatement of Interest

    The bill expands the circumstances in which interest on an 
underpayment of tax may be abated. Interest is required to be 
abated on any erroneous refund that was not caused by the 
taxpayer and on underpayments that are attributable to 
erroneous written advice furnished by the IRS. Abatement also 
is authorized to the extent the interest is attributable to any 
unreasonable IRS error or delay or if a gross injustice would 
result if interest were to be charged.

F. Qualified Dispute Reserve Accounts

    The bill would allow taxpayers to limit their exposure to 
underpayment interest through the use of a qualified reserve 
account. Amounts deposited in a qualified reserve account could 
either be withdrawn with interest or used to offset an 
underpayment of tax. The use of a qualified reserve account 
would not affect the ability of the taxpayer to be heard by the 
Tax Court.

G. Modification of Interest Netting Rules for Individuals

    For individual taxpayers, the bill would apply the interest 
netting rules without regard to the 45-day period in which the 
Secretary may refund an overpayment of tax without the payment 
of interest under section 6611(e). Solely for the purpose of 
applying the interest netting rules, individual taxpayers may 
treat such period as a period for which interest is allowable 
on an overpayment at a zero percent rate.

                TITLE II--CONFIDENTIALITY AND DISCLOSURE

A. Disclosure and Privacy Rules Relating to Returns and Return 
        Information

    The provision clarifies that the Internal Revenue Code 
exclusively governs the disclosure and inspection of returns 
and return information. Under the provision, administrative and 
judicial appeal process are available with respect to requests 
made to the IRS for returns and return information.

B. Expansion of Type of Advice Available for Public Inspection

    The provision requires the IRS to disclose all advice or 
instructions (``official advice'') issued by a component of the 
IRS or Chief Counsel to IRS or Chief Counsel employees. To 
qualify as official advice, such advice must convey (1) a legal 
interpretation of a revenue provision, (2) an IRS or Chief 
Counsel policy concerning a revenue provision, or (3) a legal 
interpretation of State law, foreign law, or other Federal law 
relating to the assessment or collection of any liability under 
a revenue provision. The IRS and Chief Counsel are permitted to 
delete certain matters, such as deliberative material, from 
official advice prior to disclosure. Such deletions are subject 
to challenge via judicial review.

C. Disclosure Upon Oral Request of Collection Activities with Respect 
        to a Joint Return

    The provision eliminates the requirement that requests of 
former spouses be made in writing for disclosure of collection 
activities with respect to a joint return.

D. Taxpayer Representatives Not Subject to Inspection Without 
        Supervisor Approval

    The provision clarifies that an IRS employee conducting an 
examination of a taxpayer is not authorized to inspect a 
taxpayer representative's return or return information solely 
on the basis of the representative relationship to the 
taxpayer. Under the provision, the supervisor of the IRS 
employee would have to approve such inspection after making a 
determination that other grounds justified such an inspection.

E. Restrictions on Disclosure in Judicial or Administrative Tax 
        Proceedings of Return and Return Information of Persons Who Are 
        Not Party to Such Proceedings

    The provision requires that only the portions of a nonparty 
return or return information that directly relate to the 
resolution of an issue in the proceeding would be disclosed in 
such proceeding. The nonparty is to be given reasonable notice 
prior to the disclosure and the opportunity to request that 
certain material be deleted from the information to be 
disclosed.

F. Prohibition in Disclosing Taxpayer Identification Information with 
        Respect to Disclosure of Accepted Offers-in-Compromise

    The provision prohibits the disclosure of the taxpayer's 
address and taxpayer identification number as part of the 
publicly available summaries of accepted offers-in-compromise.

G. Compliance By State Contractors With Confidentiality Safeguards

    The provision requires that a State conduct annual on-site 
reviews of all contractors receiving Federal returns and return 
information as agents of the State tax administration agency. 
The reviews are to assess the contractors' efforts to safeguard 
Federal returns and return information. The State is required 
to submit a report of its findings to the IRS and certify 
annually that all contractors are in compliance with the 
requirements to safeguard the confidentiality of Federal 
returns and return information.

H. Requests and Consents to Disclosure Must Contain Recipient and Be 
        Dated When Executed

    The provision renders invalid a consent that does not 
designate a recipient or is not dated at the time of execution. 
The person submitting the consent to the IRS is required to 
verify under penalties of perjury that the form was complete 
and dated at the time it was signed by the taxpayer. The 
provision requires the consent form to contain a warning, 
prominently displayed, informing the taxpayer that he or she 
should not sign the form unless it is complete and dated. The 
provision requires the consent form to state that the taxpayer 
should report any attempts to coerce the signing of an 
incomplete form to the Treasury Inspector General for Tax 
Administration. The telephone number for the Treasury Inspector 
General for Tax Administration is required to be included on 
the form. All third parties receiving returns and return 
information by consent are required to: (1) ensure that the 
information received will be kept confidential; (2) use the 
information only for the purpose for which it was requested; 
and (3) not further disclose the information except to 
accomplish that purpose, unless a separate consent from the 
taxpayer is obtained. The Treasury Inspector General for Tax 
Administration is required to investigate a random sampling of 
consents and report on the effectiveness of the provision 
eighteen months after the date of enactment.

I. Notice to Taxpayer Concerning Administrative Determination of 
        Browsing; Annual Report

    The IRS is required to notify a taxpayer after the Treasury 
Inspector General for Tax Administration determines that a 
taxpayer's return or return information has been disclosed or 
inspected without authorization. The IRS is required to provide 
information on unauthorized disclosures or inspections of 
return and return information in its public annual report to 
the Joint Committee on Taxation.

J. Disclosure of Taxpayer Identity for Tax Refund Purposes

    The provision allows the IRS to use any means of ``mass 
communication,'' including the Internet, to notify the taxpayer 
of an undelivered refund.

                     TITLE III--OTHER REQUIREMENTS

A. Clarification of Definition of Church Tax Inquiry

    The bill clarifies that the church tax inquiry procedures 
do not apply to contacts made by the IRS for the purpose of 
educating churches with respect to the law governing tax-exempt 
organizations. For example, the bill clarifies that the IRS 
would not violate the church tax inquiry procedures when 
written materials are provided to a church for the purpose of 
educating the church with respect to the types of activities 
that are not permissible under section 501(c)(3).

B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
        exempt Organizations and Failure of IRS To Act on 
        Determinations Treated as Exhaustion of Remedies

    The provision extends declaratory judgment procedures 
similar to those currently available only to charities under 
section 7428 to other section 501(c) determinations. In 
addition, the provision modifies the present-law declaratory 
judgment procedures to provide that an organization is deemed 
to have exhausted its administrative remedies under the 
declaratory judgment procedures at the expiration of (1) 270 
days after the date on which the request for a determination 
was made if the organization has taken, in a timely manner, all 
reasonable steps to secure such determination, or (2) in the 
case of a failure by any office of the IRS (other than the 
office responsible for initial determinations with respect to 
the organization (the ``initial office''), 180 days after any 
request with respect to such determination was made by the 
initial office if the organization has taken, in a timely 
manner, all reasonable steps to secure such determination.

C. Treasury Inspector General for Tax Administration Semi-Annual Report 
        on Employee Misconduct

    The bill modifies the present-law requirement that the 
Treasury Inspector General for Tax Administration include a 
summary of allegations of employee misconduct in its semi-
annual report. Under the bill, the Treasury Inspector General 
for Tax Administration, in its semi-annual report, is required 
to include a description of the ten most common complaints of 
employee misconduct and the number of complaints made in each 
such category.

D. Increase Joint Committee Refund Review Threshold to $2 million

    The bill increases the threshold above which refunds must 
be submitted to the Joint Committee on Taxation for review from 
$1 million to $2 million.

E. Annual Report on IRS Payment of Attorney's Fees

    The bill directs the Treasury Inspector General for Tax 
Administration to submit to Congress annually a report on 
awards of costs and certain fees (such as attorney's fees) in 
administrative and court proceedings. The report must include 
an analysis of administrative issues giving rise to such 
payments and changes that would be made as a result of such 
analysis.

F. Annual Report on Abatement of Penalties

    The bill directs the Treasury Inspector General for Tax 
Administration to submit to Congress annually a report on 
abatements of penalties under the Internal Revenue Code.

G. Better Means of Communicating with Taxpayers

    The bill requires the Treasury Inspector General for Tax 
Administration to submit to Congress a report evaluating 
whether technological advances, such as e-mail and facsimile 
transmission, permit the use of alternative means for the IRS 
to communicate with taxpayers.

H. Information Regarding Statute of Limitations

    The bill requires the IRS to revise Publication 1 (``Your 
Rights as a Taxpayer'') and the instructions for Form 1040 
packages to add a description of the statute of limitations and 
an explanation of the consequences of failing to file within 
the prescribed time period.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for providing increased fairness to taxpayers and enhancing the 
confidentiality of returns and return information.

                         C. Legislative History

                            COMMITTEE ACTION

    The Committee on Ways and Means marked up the provisions of 
the bill on April 5, 2000, and approved the provisions, as 
amended, by a voice vote with a quorum present.

                           COMMITTEE HEARINGS

    The following Subcommittee hearings related to provisions 
in the bill were held during the 106th Congress.

Subcommittee hearings

    The Oversight Subcommittee held related hearings as 
follows:
    Annual Report of the Internal Revenue Service National 
Taxpayer Advocate (February 10, 1999).
    1999 Tax Return Filing Season and the IRS Budget for Fiscal 
Year 2000 (April 13, 1999).
    Impact of Complexity in the Tax Code on Individual 
Taxpayers and Small Businesses (May 25, 1999).
    Implementation of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (July 22, 1999).
    Penalty and Interest Provisions in the Internal Revenue 
Code (January 27, 2000).
    2000 Tax Return Filing Season and the IRS Budget for Fiscal 
Year 2001 (March 28, 2000).

Reports and studies

    The following reports and studies assisted the Committee in 
developing the Taxpayer Bill of Rights 2000:
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 1998 (January 8, 1999).
    Joint Committee on Taxation, Study of Present-Law Penalty 
and Interest Provisions as Required by Section 3801 of the 
Internal Revenue Service Restructuring and Reform Act of 1998 
(July 22, 1999).
    Department of the Treasury, Report to the Congress on 
Penalty and Interest Provisions of the Internal Revenue Code 
(October 25, 1999).
    National Taxpayer Advocate's Annual Report to Congress for 
Fiscal Year 1999 (January 4, 2000).
    Joint Committee on Taxation, Study of Present-Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by 
Section 3802 of the Internal Revenue Service Restructuring and 
Reform Act of 1998 (January 28, 2000).
    Joint Committee on Taxation, Report of Investigation of 
Allegations Relating to Internal Revenue Service Handling of 
Tax-Exempt Organization Matters (March 16, 2000).

Requests for comments

    The Committee on Ways and Means solicited written comments 
as follows:
    Request for Written Comments on Recent Recommendations on 
Tax Penalty and Interest Provisions (November 15, 1999).
    Request for Written Comments on Joint Committee on Taxation 
Disclosure Study (February 3, 2000).

                      II. EXPLANATION OF THE BILL

                    TITLE I--PENALTIES AND INTEREST

A. Failure to Pay Estimated Tax (Sec. 101 of the Bill and New Sec. 6641 
                              of the Code)

1. Convert estimated tax penalty into an interest provision for 
        individuals, estates, and trusts

                              Present Law

    The Federal income tax system is designed to ensure that 
taxpayers pay taxes throughout the year based on their income 
earned and expenses. To the extent that tax is not collected 
through withholding, taxpayers are required to make quarterly 
estimated payments of tax. If an individual fails to make the 
required estimated tax payments under the rules, a penalty is 
imposed under section 6654. The amount of the penalty is 
determined by applying the underpayment interest rate to the 
amount of the underpayment for the period of the underpayment. 
The amount of the underpayment is the excess of the required 
payment over the amount (if any) of the installment paid on or 
before the due date of the installment. The period of the 
underpayment runs from the due date of the installment to the 
earlier of (1) the 15th day of the fourth month following the 
close of the taxable year or (2) the date on which each portion 
of the underpayment is made. The penalty for failure to pay 
estimated tax is literally interest, which is based on the time 
value of money.

                           Reasons for Change

    The present-law penalties for failure to pay estimated tax 
are essentially a time value of money calculation which is not 
punitive in nature, but rather compensatory. Because the 
penalties for failure to pay estimated tax are calculated as 
interest charges, the Committee believes that conforming their 
title to the substance of the provision will improve taxpayers' 
perceptions of the fairness of the estimated tax payment 
system. Therefore, the Committee finds that the effect of the 
estimated tax penalties for individuals, estates, and trusts is 
more appropriately described as interest.

                        Explanation of Provision

    The penalty for failure to pay estimated tax is converted 
into an interest provision for individuals, estates, and 
trusts.

                             Effective Date

    The provision is effective for estimated tax payments made 
for taxable years beginning on or after December 31, 2000.

2. Increase and revise estimated tax threshold

                              Present Law

    Taxpayers are not liable for a penalty for the failure to 
pay estimated tax when the tax shown on the return for the 
taxable year (or, if no return is filed, the tax), reduced by 
withholding, is less than $1,000. This safe harbor does not 
apply, however, when a taxpayer has paid tax throughout the 
year solely through estimated tax payments. For such taxpayers, 
any tax shown on the return for the taxable year, net of 
estimated tax paid, could subject the taxpayer to the penalty 
for failure to pay estimated tax (unless another safe harbor 
applies).

                           Reasons for Change

    The Committee believes that by increasing the estimated tax 
payment threshold, fewer taxpayers will be required to make 
estimated tax payments. In addition, by including equally-paid 
estimated tax in the threshold calculation, the de minimis safe 
harbor will be available to more taxpayers, such as those who 
pay throughout the year exclusively through estimated tax.

                        Explanation of Provision

    Under the provision, there is no interest charged for 
underpayments of estimated tax if the tax shown on the return 
for the taxable year (or, if no return is filed, the tax), 
reduced by both withholding and/or equally-paid estimated tax 
is less than $2,000.

                             Effective Date

    The provision is effective for estimated tax payments made 
for taxable years beginning on or after December 31, 2000.

3. Apply one interest rate per estimated tax underpayment period for 
        individuals, estates, and trusts

                              Present Law

    The present-law penalty for failure to pay estimated tax is 
equal to the underpayment interest rate multiplied by the 
number of days the underpayment is outstanding, which is the 
number of days between when the taxpayer should have made the 
estimated payment and the earlier of (1) the 15th day of the 
fourth month following the close of the taxable year or (2) the 
date on which each portion of the underpayment is made. The 
interest rate, which equals the Federal short-term rate plus 
three percentage points, is subject to change on the first day 
of each quarter, which is January 1, April 1, July 1, and 
October 1.
    If interest rates change while an underpayment of estimated 
tax is outstanding, then taxpayers are required to make 
separate calculations for the periods before and after the 
interest rate change. Such calculations generally are needed to 
cover 15-day periods. For example, the July 1 interest rate 
occurs 15 days after the June 15 payment date (for calendar-
year taxpayers). A change in interest rates, which occurs on 
the first day of each calendar quarter, would require the use 
of different interest rates during one estimated tax 
underpayment period and would increase the number of 
calculations that a taxpayer must make in calculating a penalty 
for failure to pay estimated tax.

                           Reasons for Change

    When interest rates change during an underpayment period, 
taxpayers must perform multiple calculations to account for the 
change in interest rate. Thus, the Committee finds that, if 
only one interest rate applied per underpayment period, 
complexity would be reduced because there generally would be 
only one interest calculation required per underpayment period.

                        Explanation of Provision

    The interest rates are aligned so that, for any given 
estimated tax underpayment period, only one interest rate will 
apply. The underpayment interest rate in effect on the first 
day of the quarter in which the pertinent estimated payment due 
date arises is the interest rate that will apply during an 
entire underpayment period.

                             Effective Date

    The provision is effective for estimated tax payments made 
for taxable years beginning on or after December 31, 2000.

4. Provide that underpayment balances are cumulative

                              Present Law

    Section 6654(b)(1) defines ``underpayment'' as the amount 
of an installment due over the amount of any installment paid 
(including withholding) on or before the due date of the 
installment. In determining an underpayment penalty for a 
calendar year taxpayer, the period of underpayment runs for 
each underpayment from the payment's due date through the 
earlier of the date on which any portion of the payment is made 
or the 15th day of the fourth month following the close of the 
taxable year. Underpayment balances are not cumulative and must 
be tracked separately for each estimated tax underpayment 
period.

                           Reasons for Change

    Tracking underpayments separately results in additional 
complexity in calculating interest on underpayments of 
estimated tax. The Committee thus finds that the calculation of 
interest on underpayments of estimated tax would be simplified 
by providing that underpayment balances would roll into the 
next estimated tax period so that interest would be calculated 
once per cumulative underpayment, per period.

                        explanation of provision

    The definition of ``underpayment'' is changed to allow 
existing underpayment balances to be used in underpayment 
calculations for succeeding estimated payment periods. 
Taxpayers will now calculate a cumulative underpayment at the 
end of each underpayment period.

                             effective date

    The provision is effective for estimated tax payments made 
for taxable years beginning on or after December 31, 2000.

5. Require 365-day year for all estimated tax interest calculations for 
        individuals, estates, and trusts

                              present law

    Under current IRS procedures, taxpayers with outstanding 
underpayment balances that extend from a leap year through a 
non-leap year are required to make separate calculations solely 
to account for the different number of days in the two 
different years. For example, if a taxpayer has an underpayment 
outstanding from September 15, 2000, through January 15, 2000, 
then the taxpayer must account for the period from September 
15, 2000, through December 31, 2000, by using a 366-day 
formula.\1\ The taxpayer then must account for the period from 
January 1, 2001, through January 15, 2001, under a 365-day 
formula. This calculation is required regardless of whether the 
interest rate changes on January 1, 2001.
---------------------------------------------------------------------------
    \1\ The year 2000 is a leap year; the year 2001 is not.
---------------------------------------------------------------------------

                           reasons for change

    The Committee finds that complexity in calculating interest 
on underpayments of estimated tax would be reduced by 
eliminating the extra calculation that is required for 
underpayment balances that extend from a leap year to a non-
leap year or from a non-leap year to a leap year.

                        explanation of provision

    A 365-day year will be used for all individual, estate, and 
trust estimated tax interest calculations.

                             effective date

    The provision is effective for estimated tax payments made 
for taxable years beginning on or after December 31, 2000.

 B. Exclusion From Gross Income for Interest on Overpayments of Income 
 Tax by Individuals (Sec. 102 of the Bill and New Sec. 139 of the Code)

                              present law

Overpayment interest

    Interest is included in the list of items that are required 
to be included in gross income (sec. 61(a)(4)). Interest on 
overpayments of Federal income tax is required to be included 
in taxable income in the same manner as any other interest that 
is received by the taxpayer.\2\
---------------------------------------------------------------------------
    \2\ Treas. Reg. sec. 1.61-7.
---------------------------------------------------------------------------
    Cash basis taxpayers are required to report overpayment 
interest as income in the period the interest is received. 
Accrual basis taxpayers are required to report overpayment 
interest as income when all events fixing the right to the 
receipt of the overpayment interest have occurred and the 
amount can be estimated with reasonable accuracy.\3\ Generally, 
this occurs on the date the appropriate IRS official signs the 
pertinent schedule of overassessments.\4\
---------------------------------------------------------------------------
    \3\ Treas. Reg. sec. 1.451-1(a).
    \4\ Rev. Rul. 62-160, 1962-2 C.B. 451.
---------------------------------------------------------------------------

Underpayment interest

    A corporate taxpayer is allowed to currently take into 
account interest paid on underpayments of Federal income tax as 
an ordinary and necessary business expense. Typically, this 
results in a current deduction. However, the deduction may be 
deferred if the interest is required to be capitalized \5\ or 
may be disallowed if and to the extent it is determined to be a 
cost of earning tax exempt income under section 265.
---------------------------------------------------------------------------
    \5\ Interest may be required to be capitalized under section 263A 
and similar sections.
---------------------------------------------------------------------------
    Section 163(h) of the Code prohibits the deduction of 
personal interest by taxpayers other than corporations. 
Noncorporate taxpayers, including individuals, generally are 
not allowed to deduct interest on the underpayment of Federal 
income taxes.
    Temporary regulations \6\ provide that personal interest 
includes interest paid on underpayments of individual Federal, 
State or local income taxes, regardless of the source of the 
income generating the tax liability. This is consistent with 
the statement in the General Explanation of the Tax Reform Act 
of 1986 that ``(p)ersonal interest also includes interest on 
underpayments of individual Federal, State, or local income 
taxes notwithstanding that all or a portion of the income may 
have arisen in a trade or business, because such taxes are not 
considered derived from conduct of a trade or business.'' \7\ 
The validity of the temporary regulation has been upheld in 
those Circuits that have considered the issue, including the 
Fourth,\8\ Sixth,\9\ Eighth,\10\ and Ninth Circuits.\11\
---------------------------------------------------------------------------
    \6\ Treas. Regs. sec. 1.163-9T.
    \7\ Joint Committee on Taxation, General Explanation of the Tax 
Reform Act of 1986 (JCS-10-87), p. 266.
    \8\ Allen v. U.S., 173 F. 3d 533 (1999).
    \9\ McDonnell v. U.S., 1999 U.S. App. LEXIS 10842 (1999).
    \10\ Miller v. U.S., 65 F. 3d 687 (1995).
    \11\ Redlark v. U.S., 141 F. 3d 936 (1998).
---------------------------------------------------------------------------
    Personal interest also includes interest that is paid by a 
trust, S corporation, or other pass-through entity on 
underpayments of State or local income taxes. Personal interest 
does not include interest that is paid with respect to sales, 
excise or similar taxes that are incurred in connection with a 
trade or business or an investment activity.\12\
---------------------------------------------------------------------------
    \12\ Treas. Regs. sec. 1.163-9T(b)(2)(iii)(A).
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that there should be consistency in 
the treatment of interest paid by the Federal government to an 
individual taxpayer and interest paid by an individual taxpayer 
to the Federal government. Allowing individual taxpayers to 
exclude interest on overpayments will treat all individual 
taxpayers consistently, whether or not they itemize deductions.

                        explanation of provision

    The provision excludes overpayment interest that is paid to 
individual taxpayers on overpayments of Federal income tax from 
gross income. Interest excluded under the provision is not 
considered disqualified income that could limit the earned 
income credit. Interest excluded under the provision is also 
not considered in determining what portion of a taxpayer's 
social security or tier 1 railroad retirement benefits are 
subject to tax (sec. 86), whether a taxpayer has sufficient 
taxable income to be required to file a return (sec. 6012(d)), 
or for any other computation in which interest exempt from tax 
is otherwise required to be added to adjusted gross income.
    The exclusion from income of overpayment interest does not 
apply if the Secretary determines that the taxpayer's principal 
purpose for overpaying his or her tax is to take advantage of 
the exclusion.
    For example, a taxpayer prepares his return without taking 
into account significant itemized deductions of which he is, or 
should be, aware. Before the expiration of the statute of 
limitations, the taxpayer files an amended return claiming 
these itemized deductions and requesting a refund with 
interest. Unless the taxpayer can establish a principle purpose 
for originally overpaying the tax other than collecting 
excludible interest, the Secretary may determine that the 
principal purpose of waiting to claim the deductions on an 
amended return was to earn interest that would be excluded from 
income. In that case, the interest on the underpayment could 
not be excluded from income.
    It is expected that the Secretary will indicate whether the 
interest is eligible to be excluded from income on the Form 
1099 it provides that taxpayer for taxable year in which the 
underpayment interest is paid.

                             effective date

    The provision is effective for interest that would 
otherwise be required to be included in income in calendar 
years beginning after the date of enactment.

 C. Partial Repeal and Reduction in the Penalty for Failure To Pay Tax 
            (Sec. 103 of the Bill and Sec. 6651 of the Code)

                              present law

    Taxpayers who fail to pay their taxes are generally subject 
to a penalty of 0.5 percent per month on the unpaid amount, up 
to a maximum of 25 percent.\13\ If a penalty for failure to 
file and a penalty for failure to pay tax shown on a return 
both apply for the same month, the amount of the penalty for 
failure to file for such month is reduced by the amount of the 
penalty for failure to pay tax shown on a return. If a return 
is filed more than 60 days after its due date, then the penalty 
for failure to pay tax shown on a return may not reduce the 
penalty for failure to file below the lesser of $100 or 100 
percent of the amount required to be shown on the return. For 
any month in which an installment payment agreement with the 
IRS is in effect, the rate of the penalty is half the usual 
rate (0.25 percent instead of 0.5 percent), provided that the 
taxpayer filed the tax return in a timely manner (including 
extensions).\14\ The rate of the penalty is twice the usual 
rate (1.0 percent instead of 0.5 percent) for months beginning 
after the IRS notifies the taxpayer that the IRS will levy upon 
the assets of the taxpayer.\15\
---------------------------------------------------------------------------
    \13\ Sec. 6651(a)(2) and (3).
    \14\ Sec. 6651(h). This provision was added by sec. 3303 of the IRS 
Reform Act, effective for purposes of determining additions to the tax 
for months beginning after December 31, 1999.
    \15\ Sec. 6651(d). This provision was added by sec. 1502 of the Tax 
Reform Act of 1986.
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that, in general, it is 
inappropriate to apply the penalty for failure to pay taxes to 
taxpayers who are in fact paying their taxes through an 
installment agreement. The repeal of the penalty for failure to 
pay tax for taxpayers with respect to whom an installment 
payment agreement with the IRS is in effect, provided that the 
taxpayer filed the tax return in a timely manner (including 
extensions), continues a policy initiative begun by the IRS 
Reform Act, in which this penalty was reduced by half for these 
taxpayers.\16\
---------------------------------------------------------------------------
    \16\ Sec. 6651(h).
---------------------------------------------------------------------------
    The elimination of the $43 user fee for installment 
agreements for taxpayers who both enter into installment 
agreements and who agree to use automated mechanisms to pay 
their installment payments is designed to increase the 
certainty of timely payment, simplify the payment process for 
taxpayers, and decrease administrative costs of collection for 
the IRS.\17\
---------------------------------------------------------------------------
    \17\ The cost to the IRS of administering these automated payment 
mechanisms is less than a dollar a payment. See, Tax Notes, June 14, 
1999, at 1544.
---------------------------------------------------------------------------

                        explanation of provision

    The bill partially repeals and reduces the penalty for 
failure to pay tax. The first element of the bill repeals the 
penalty for failure to pay tax for taxpayers for whom an 
installment payment agreement with the IRS is in effect, 
provided that the taxpayer filed the tax return in a timely 
manner (including extensions). Thus, for any month in which an 
installment payment agreement with the IRS is in effect, the 
rate of the penalty is zero (instead of 0.25 percent), provided 
that the taxpayer filed the tax return in a timely manner 
(including extensions).
    The second element of the bill reduces by half the failure 
to pay tax penalty for all other taxpayers (generally, those 
who have not entered into an installment payment agreement with 
the IRS). Thus, in general, the rate of the penalty is 0.25 
percent per month instead of 0.5 percent per month. The special 
rate for months beginning after the IRS notifies the taxpayer 
that the IRS will levy upon the assets of the taxpayer is also 
reduced by half (0.5 percent per month instead of 1.0 percent 
per month).
    The third element of the bill provides that taxpayers who 
enter into installment agreements are not required to pay the 
present-law $43 fee for installment agreements \18\ while 
automated withdrawals of installment payments are made directly 
from their bank account.
---------------------------------------------------------------------------
    \18\ The IRS charges a user fee of $43 upon approval of an 
application to enter into an installment agreement.
---------------------------------------------------------------------------

                             effective date

    The repeal of the penalty for failure to pay tax for 
taxpayers for whom an installment payment agreement with the 
IRS is in effect, provided that the taxpayer filed the tax 
return in a timely manner (including extensions), is effective 
for purposes of determining additions to tax for months 
beginning after December 31, 2000.
    The reduction by half of the failure to pay tax penalty for 
all other taxpayers also is effective for purposes of 
determining additions to tax for months beginning after 
December 31, 2000.
    The prohibition on the fee for installment agreements using 
automated withdrawals is effective for installment agreements 
entered into more than 30 days after the date of enactment.

  D. Abatement of Interest (Sec. 104 of the bill and Sec. 6404 of the 
                                 Code)

                              present law

In general

    The Secretary of the Treasury can abate or suspend the 
accrual of interest in a number of situations. In general, the 
Secretary is authorized to abate interest that is not owed by 
the taxpayer, either because the interest was erroneously or 
illegally assessed, or because the interest was assessed after 
the expiration of the period of limitations. The Secretary also 
may abate interest that is attributable to certain unreasonable 
errors and delays by the Internal Revenue Service. The 
Secretary may abate interest where, in his judgment, the 
administration and collection costs involved do not warrant the 
collection of the amount due.
    The Secretary is required to abate interest in the case of 
a declared disaster or certain erroneous refunds attributable 
solely to errors made by the IRS. The Secretary is required to 
suspend the accrual of interest if the IRS fails to contact the 
taxpayer in a timely manner and in the case of taxpayers 
serving in a combat zone.
    Interest that is abated is not owed by the taxpayer and 
does not accrue additional interest through compounding or 
result in any additional penalties. If the accrual of interest 
is suspended for a period, then that period is not taken into 
account in determining the interest owed on an underpayment.

Abatement of interest that is erroneously or illegally assessed

    Most abatements of interest are a result of adjustments to 
the underlying tax liability. Underpayment interest is assessed 
any time an underpayment is assessed. If the underlying tax 
liability is later adjusted, resulting in a reduction in the 
amount of the underpayment, the portion of the interest 
attributable to such adjustment must be abated.

Abatements due to unreasonable error or delay by the IRS

    If any part of an underpayment of a tax described in 
section 6212(a) \19\ is attributable to an unreasonable error 
or delay by an officer or employee of the Internal Revenue 
Service, acting in his official capacity, in the performance of 
a ministerial or managerial act, the Secretary may abate all or 
a part of the interest on the underpayment. Similarly, if a 
delay in the payment of tax is attributable to such an officer 
or employee being erroneous or dilatory in performing a 
ministerial or managerial act, the Secretary may abate all the 
interest that would otherwise accrue for that period.
---------------------------------------------------------------------------
    \19\ The taxes described in section 6212(a) are those with respect 
to which a deficiency may be assessed. These include the income, 
estate, gift, generation skipping, and certain excise taxes.
---------------------------------------------------------------------------
    Prior to 1986, the IRS generally did not have the authority 
to abate interest charges that were properly calculated and 
based on a correctly determined underpayment. This was the case 
even if the IRS errors or delays had prevented the earlier 
satisfaction of the taxpayer's underpayment and resulted in the 
accrual of additional interest. The Tax Reform Act of 1986 
provided the IRS the authority to abate interest where an IRS 
official fails either to perform a ministerial act in a timely 
manner or makes an error in performing a ministerial act. The 
term `ministerial act' means ``a nondiscretionary act when all 
of the prerequisites to the (a)ct, such as fact gathering, 
analysis, decision-making, and conferencing and review by 
supervisors, have taken place.'' \20\ Abatement is available 
under this authority only where ``no significant aspect of the 
error or delay can be attributable to the taxpayer'' \21\ and 
relates only to periods after the taxpayer has been contacted 
for examination.\22\ The rule authorizes, but does not require 
the abatement of interest. Abatement is at the discretion of 
the Secretary. ``Congress did not intend that this provision be 
used routinely to avoid the payment of interest; rather, it 
intended that the provision be utilized in instances where 
failure to perform a ministerial act results in the imposition 
of interest, and the failure to abate the interest would be 
widely perceived as grossly unfair.'' \23\
---------------------------------------------------------------------------
    \20\ Joint Committee on Taxation, General Explanation of the Tax 
Reform Act of 1986 (``Bluebook'') (JCS-10-87), at 1310.
    \21\ H.Rept. No. 99-841 (Conference Report on the Tax Reform Act of 
1986), at II-811.
    \22\ Id.
    \23\ Joint Committee on Taxation, General Explanation of the Tax 
Reform Act of 1986 (``Bluebook'') (JCS-10-87), at 1310.
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    In 1996, the authority to abate interest was expanded to 
permit the IRS to abate interest with respect to any 
unreasonable error or delay resulting from the managerial as 
well as ministerial acts. A managerial act is an administrative 
act that occurs during the processing of a taxpayer's case 
involving the temporary or permanent loss of records or the 
exercise of judgement or discretion relating to the management 
of personnel.\24\ This allows interest to be abated where 
extensive delays result from managerial acts such as the loss 
of records by the IRS, IRS personnel transfers, extended 
illnesses, extended personnel training, or extended leave. 
``For this purpose, delays resulting from managerial acts do 
not include delays resulting from general administrative 
decisions. For example, the taxpayer could not claim that the 
IRS's decision on how to organize the processing of tax returns 
or its delay in implementing an improved computer system 
resulted in an unreasonable delay in the Service's action on 
the taxpayer's tax return, and so the interest on any 
subsequent deficiency should be waived.'' \25\
---------------------------------------------------------------------------
    \24\ Treas. Regs. sec. 301.6404-2(b).
    \25\ H.Rept. 104-506 (Taxpayer Bill of Rights 2).
---------------------------------------------------------------------------
    The authority to abate interest under this rule does not 
apply where an underpayment or delay in payment of tax is 
attributable to an error or delay by an officer or employee of 
the IRS in the performance of an act that is not managerial or 
ministerial. Ministerial and managerial acts do not include a 
decision as to the application of any Federal or state law, 
including any Federal tax law.\26\
---------------------------------------------------------------------------
    \26\ Treas. Reg. sec. 301.6404-2(b).
---------------------------------------------------------------------------
    The proposed regulations provide a number of examples of 
situations in which abatement of interest under this rule would 
or would not be allowed. Abatement is generally limited to 
situations where resolution of the taxpayer's liability is 
delayed because the IRS has failed to assign appropriate 
personnel to a taxpayer's case (a managerial act), there is an 
unaccountable delay in the issuance of a notice by the IRS (a 
ministerial act), an IRS employee requests an insufficient 
amount of payment because he misreads the amount on the 
taxpayer's master file (a ministerial act), or the IRS loses or 
misplaces vital information (a managerial act). Abatement is 
not available where the delay in resolving the taxpayer's 
liability is attributable to excessive time spent by the IRS in 
interpreting the tax laws, to erroneous interpretations and 
calculations made by the IRS, to the IRS' decision to examine 
other returns prior to the examination of the taxpayer's 
return, or to other failures to resolve a taxpayer's liability 
in a timely manner.

Abatement of interest on erroneous refunds

    The Secretary is required to abate interest on an erroneous 
refund for the period from the issuance of the refund until its 
return is demanded.\27\ Since the taxpayer has 21 days from the 
date of demand to pay without interest,\28\ no interest must be 
paid as the result of an erroneous refund if the taxpayer 
repays the refund within 21 days of the IRS asking for its 
return. If the taxpayer does not repay the refund within the 21 
day grace period, interest must be paid from the date the 
return of the refund is demanded. The rule abating interest in 
the case of erroneous refunds does not apply if the taxpayer 
(or a related party) has in any way caused the erroneous refund 
or if the amount of the erroneous refund exceeds $50,000.
---------------------------------------------------------------------------
    \27\ 27 Sec. 6404(e)(2).
    \28\ Sec. 6601(e)(3).
---------------------------------------------------------------------------

Abatement of penalties and additions to tax attributable to erroneous 
        written advice given by the IRS

    The Secretary is required to abate any portion of any 
penalty or addition to tax attributable to erroneous advice 
furnished to the taxpayer in writing by an officer or employee 
of the IRS acting in his or her official capacity. The 
abatement applies only if (1) the advice is given in response 
to a specific written request made by the taxpayer, (2) the 
taxpayer reasonably relied on the advice, and (3) the taxpayer 
provided adequate and accurate information.\29\
---------------------------------------------------------------------------
    \29\ Sec. 6404(f).
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    Only penalties and additions to tax that are attributable 
to erroneous written advice given by the IRS are abated under 
this rule. Interest is abated only to the extent that it is 
attributable to abated penalties and additions to tax. Interest 
attributable to an underpayment of tax, where such underpayment 
is the result of the taxpayer's proper reliance on written 
advice of the IRS, is not eligible for abatement.

Suspension of the accrual of interest for taxpayers serving in a combat 
        zone \30\
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    \30\ The relief available to taxpayers serving in combat zones is 
discussed more fully in Joint Committee on Taxation, Description of 
Present Law and a Proposal Relating to Tax Relief for Personnel in the 
Federal Republic of Yugoslavia (Serbia/Montenegro), Albania, the 
Adriatic Sea, and the Northern Ionian Sea (JCX-18-99).
---------------------------------------------------------------------------
    Taxpayers serving in a combat zone generally are not 
required to file tax returns or pay taxes until 180 days after 
their service in the combat zone is completed. Accordingly, the 
accrual of interest on any underpayment is suspended during 
that period.\31\ This suspension of interest applies to the 
underpayment of any tax, whether or not related to a return 
that would otherwise have been due while the taxpayer was 
serving in the combat zone.
---------------------------------------------------------------------------
    \31\ Sec. 7508.
---------------------------------------------------------------------------
    A taxpayer is serving in a combat zone if serving in the 
Armed Forces of the United States in an area designated as a 
``combat zone'' during the period of combatant activities. An 
individual who becomes a prisoner of war is considered to 
continue in such active service. An individual serving in 
support of the Armed Forces of the United States in the combat 
zone, such as Red Cross personnel, accredited correspondents, 
and civilian personnel acting under the direction of the Armed 
Forces, are also considered to be serving in the combat zone 
for this purpose. The designation of a combat zone may be made 
by the President in an Executive Order, or may be declared 
legislatively by the Congress. The President must also 
designate the period of combatant activities in the combat zone 
(the starting date and the termination date of combat).
    The suspension of interest applies during the period of 
combatant activities in the combat zone, as well as (1) any 
time of continuous qualified hospitalization resulting from 
injury received in the combat zone or (2) time in missing in 
action status, plus the next 180 days.

Taxpayers located in a Presidentially declared disaster area

    In the case of a Presidentially declared disaster, the 
Secretary of the Treasury has the authority to extend the 
filing date for returns of taxpayers that are located in the 
disaster area. The Secretary may also extend the payment date 
for any taxes shown on such an extended return. If the 
Secretary extends the filing and payment dates, any interest 
that would otherwise be accrued during the period of the 
extension must be abated.\32\
---------------------------------------------------------------------------
    \32\ Sec. 6404(h).
---------------------------------------------------------------------------

Suspension of interest where the Secretary fails to contact a taxpayer

    For individual taxpayers who have filed a timely Federal 
income tax return, the accrual of interest is suspended after 1 
year if the IRS has not sent the taxpayer a notice specifically 
stating the taxpayer's liability and the basis for the 
liability within the specified period. With respect to taxable 
years beginning before January 1, 2004, the 1-year period is 
increased to 18 months. Interest and penalties resume 21 days 
after the IRS sends the required notice to the taxpayer. The 
rule applies separately with respect to each item or adjustment 
\33\ and does not apply where a taxpayer has self-assessed the 
tax. The suspension does not apply in the case of fraud.\34\ 
Any interest that is assessed with respect to the suspension 
period is required to be abated.
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    \33\ For example, if the IRS sends a math error notice to a 
taxpayer 2 months after the return is filed and also sends a notice of 
deficiency related to a different item 2 years later, the suspension of 
interest applies to the item reflected on the second notice 
(notwithstanding that the first notice was sent within the applicable 
time period).
    \34\ Sec. 6404(g).
---------------------------------------------------------------------------

Procedures for the abatement of interest

    Taxpayers may apply for the abatement of interest by filing 
a claim on Form 843 with the Internal Revenue Service Center 
that has assessed the interest the taxpayer seeks to have 
abated.\35\
---------------------------------------------------------------------------
    \35\ Rev. Proc. 87-43, 1987-2 C.B. 590.
---------------------------------------------------------------------------
    Typically, interest is abated when the amount of tax 
assessed is reduced. Thus, any procedure that may result in the 
reduction of assessed tax may also result in an abatement of 
interest.
    Where abatement of interest is sought separate from any 
redetermination of tax the availability of judicial review 
depends upon the basis on which abatement is sought. If the IRS 
is required to abate the interest, judicial review is available 
to determine if the facts exist that mandate abatement. The 
Taxpayer Bill of Rights 2 specifically granted jurisdiction to 
the Tax Court to review for abuse of discretion any decision by 
the IRS not to abate interest that is attributable to 
unreasonable error or delay by Service employees in the 
performance of a ministerial or managerial act, effective for 
requests for abatement filed after July 30, 1996.\36\ 
Otherwise, review of the Secretary's failure to use his or her 
discretion to abate interest may not be available. The courts 
have held that judicial review of the IRS' failure to use its 
discretion to abate interest is generally not available, unless 
jurisdiction is specifically granted by statute or a standard 
for review has been established.\37\
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    \36\ Sec. 6404 (as amended by section 301 of the Taxpayer Bill of 
Rights 2).
    \37\ Horton Homes, Inc. v. United States, 727 F. Supp. 1450 (M.D. 
Ga. 1990) aff'd., 936 F.2d 548 (11th Cir. 1991).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that there are additional situations 
in which it is not appropriate for the Secretary to collect 
interest on an underpayment of tax.

                        Explanation of Provision

Allow the abatement of interest if a gross injustice would otherwise 
        result if interest were to be charged

    The bill grants the Secretary the authority to abate 
interest if a gross injustice would otherwise result if 
interest were to be charged and no significant aspect of the 
events giving rise to the accrual of the interest can be 
attributed to the taxpayer. This authority is intended to allow 
the Secretary to address those extraordinary situations where 
normally appropriate rules could result in a gross injustice if 
strictly applied. It is anticipated that such authority will be 
used infrequently and will be determined on a case-by-case 
basis.
    Abatement under this authority is solely within the 
discretion of the Secretary.

Allow the abatement of interest for periods attributable to any 
        unreasonable IRS error or delay

    The bill grants the Secretary the authority to abate 
interest for any period that is attributable to unreasonable 
IRS errors or delays, whether or not related to managerial or 
ministerial acts. Abatement is not expected to be available to 
the extent the taxpayer contributes to the delay by providing 
erroneous information or failing to provide reasonably 
requested information within a reasonable period, or otherwise 
failing to timely disclose information or cooperate with 
reasonable IRS requests.
    The bill allows the Secretary to consider abatement of 
interest in situations where unreasonable errors or delays 
occur in the context of the consideration of a legal position. 
Forexample, an IRS field agent refers a complicated issue to 
the IRS National Office. The National Office attorney misplaces the 
file and is then transferred to a different branch without either 
notifying his superiors that the file is missing or arranging for the 
transfer of the issue to his replacement. Some time later, the file is 
found and the issue reassigned. Assuming that this results in an 
unreasonable delay in the resolution of the taxpayer's liability, 
interest for the period from the original misplacing of the file until 
the issue is reassigned may be abated.
    The bill also allows the Secretary to consider abatement in 
situations where an IRS employee gives erroneous advice or 
information that the employee knows, or should know, will cause 
the taxpayer to believe that his liability is resolved. For 
example, an IRS employee tells a taxpayer by telephone that a 
payment will be satisfactory to settle his liability for a 
taxable year. In fact, the IRS employee has made a error in 
calculating the amount owed by the taxpayer and the amount he 
requests is insufficient.\38\ The taxpayer makes the requested 
payment and is surprised some time later to discover that the 
IRS is seeking an additional payment for the year. The bill 
allows the Secretary to abate the interest attributable to the 
period that occurs after the taxpayer had made the payment he 
was led to believe would satisfy his liability, provided the 
taxpayer did not contribute to the error in any significant 
way, such as by providing erroneous information that was used 
by the IRS employee to determine the insufficient payment 
amount.
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    \38\ Abatement could be allowed under present law if the error were 
in the performance of a ministerial act, such as reading the taxpayer's 
transcript.
---------------------------------------------------------------------------
    It is not expected that this expansion of authority will 
result in an abatement of interest solely because the taxpayer 
is not able to resolve its tax liability as quickly as the 
taxpayer would like. Interest owed by a taxpayer will not be 
abated because other taxpayers have their returns examined 
first, or because the determination of the taxpayer's liability 
proves difficult and requires additional time. Abatement is 
expected to be available only where the additional time needed 
to resolve the taxpayer's liability is the result of 
unreasonable error or delay by the IRS, considering all the 
facts and circumstances applicable to the taxpayer's case.

Allow for the abatement of interest in situations where the taxpayer is 
        repaying an excessive refund based on IRS calculations without 
        regard to the size of the refund

    The bill eliminates the $50,000 threshold for abatement of 
interest on erroneous refunds. Under the bill, the Secretary is 
required to abate interest on any erroneous refund, provided 
the taxpayer has not in any way caused the erroneous refund to 
occur.

Allow the abatement of interest to the extent the interest is 
        attributable to taxpayer reliance on written statements of the 
        IRS

    The bill requires the Secretary to abate interest on an 
underpayment where the underpayment is attributable to 
erroneous advice furnished to the taxpayer in writing by an 
officer or employee of the IRS acting in his or her official 
capacity. It is anticipated that the abatement would apply to 
interest attributable to the period of time from the issuance 
of the erroneous advice through the day that is 21 days (10 
days in the case of an underpayment in excess of $100,000) 
after the day the IRS gives written notice that its advice was 
erroneous. The bill does not eliminate the taxpayer's 
obligation to satisfy any underpayment of tax attributable to 
such erroneous advice.

                             Effective Date

    The changes made by these provisions are effective with 
respect to interest accruing on or after the date of enactment.

E. Deposits To Stop the Running of Interest on Potential Underpayments 
          (Sec. 105 of the Bill and New Sec. 6612 of the Code)

                              Present Law

    Generally, interest on underpayments and overpayments 
continues to accrue during the period that a taxpayer and the 
IRS dispute a liability. The accrual of interest on an 
underpayment is suspended if the IRS fails to notify an 
individual taxpayer in a timely manner,\39\ but interest will 
begin to accrue once the taxpayer is properly notified. No 
similar suspension is available for other taxpayers.
---------------------------------------------------------------------------
    \39\ Sec. 6404(g).
---------------------------------------------------------------------------
    A taxpayer that wants to limit its exposure to underpayment 
interest has a limited number of options. The taxpayer can 
continue to dispute the amount owed and risk paying a 
significant amount of interest. If the taxpayer continues to 
dispute the amount and ultimately loses, the taxpayer will be 
required to pay interest on the underpayment from the original 
due date of the return until the date of payment.
    In order to avoid the accrual of underpayment interest, the 
taxpayer may choose to pay the disputed amount and immediately 
file a claim for refund. Payment of the disputed amount will 
prevent further interest from accruing if the taxpayer loses 
(since there is no longer any underpayment) and the taxpayer 
will earn interest on the resultant overpayment if it wins. 
However, the taxpayer will generally lose access to the Tax 
Court if it follows this alternative.\40\ Amounts paid 
generally cannot be recovered by the taxpayer on demand, but 
must await final determination of the taxpayer's liability. 
Even if an overpayment is ultimately determined, overpaid 
amounts may not be refunded if they are eligible to be offset 
against other liabilities of the taxpayer.\41\
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    \40\ The taxpayer may, however, sue the IRS for the refund in 
either the U.S. District Court or the U.S. Court of Federal Claims.
    \41\ The amount of any overpayment, including interest thereon, may 
be credited against any other internal revenue tax liability of the 
taxpayer (sec. 6402(a)). In addition, the overpayment and any 
overpayment interest may be used to offset past due support payments 
(sec. 6402(c)), debts owed to other Federal agencies (sec. 6402(d)), 
and past due, legally enforceable State income tax obligations of 
residents of the same State (sec. 6402(e)).
---------------------------------------------------------------------------
    The taxpayer may also make a deposit in the nature of a 
cash bond. The procedures for making a deposits in the nature 
of a cash bond are provided in Rev. Proc. 84-58.\42\
---------------------------------------------------------------------------
    \42\ 1984-2 C.B. 501.
---------------------------------------------------------------------------
    A deposit in the nature of a cash bond will stop the 
running of interest on an amount of underpayment equal to the 
deposit, but the deposit does not itself earn interest. A 
deposit in the nature of a cash bond is not a payment of tax 
and is not subject to a claim for credit or refund. A deposit 
in the nature of a cash bond may be made for all or part of the 
disputed liability and generally may be recovered by the 
taxpayer prior to a final determination. However, a deposit in 
the nature of a cash bond need not be refunded to the extent 
the Secretary determines that the assessment or collection of 
the tax determined would be in jeopardy, or that the deposit 
should be applied against another liability of the taxpayer in 
the same manner as an overpayment of tax.\43\ If the taxpayer 
recovers the deposit prior to final determination and a 
deficiency is later determined, the taxpayer will not receive 
credit for the period in which the funds were held as a 
deposit. The taxable year to which the deposit in the nature of 
a cash bond relates must be designated, but the taxpayer may 
request that the deposit be applied to a different year under 
certain circumstances.\44\
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    \43\ Rev. Proc. 84-58, sec. 4.02(1).
    \44\ Id. sec. 4.02(4).
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                           Reasons for Change

    The Committee believes that an improved deposit system that 
allows for the payment of interest on amounts that are not 
ultimately needed to offset tax liability when the taxpayer's 
position is upheld, as well as allowing for the offset of tax 
liability when the taxpayer's position fails, will provide a 
more effective way for taxpayers to manage their exposure to 
underpayment interest. However, the Committee believes that 
such an improved deposit system should be reserved for the 
issues that are known to both parties, either through IRS 
examination or voluntary taxpayer disclosure.

                        Explanation of Provision

In general

    The bill allows a taxpayer to deposit funds in a qualified 
dispute reserve account. The taxpayer may subsequently 
designate all or a part of such deposit to offset an 
underpayment of tax. Interest will not be charged on the 
portion of the underpayment that is offset by the designated 
amount for the period the amount designated as an offset was on 
deposit. Generally, funds deposited in a qualified dispute 
reserve account may be withdrawn at any time and will earn 
interest at the applicable Federal rate if they are not used to 
offset underpayments of tax.
    The amount of funds that may be deposited in a qualified 
dispute reserve account is generally limited to the amount 
potentially in dispute with respect to disclosed issues for the 
taxable year. Amounts deposited in excess of this limit will be 
treated in the same manner as a deposit in the nature of a cash 
bond under present law.

Use of a qualified dispute reserve fund to offset underpayments of tax

    The taxpayer may designate any amounts in a qualified 
dispute reserve account to offset an underpayment of tax that 
is ultimately determined for the taxable year to which the 
deposit relates. If an underpayment is offset in this manner, 
the taxpayer will not be charged underpayment interest on the 
portion of the underpayment that is offset for the period the 
funds were on deposit in a qualified dispute reserve account.
    For example, a calendar year individual taxpayer identifies 
sufficient disputable issues and deposits $20,000 in a dispute 
reserve account that relates to taxable year 2000 on May 15, 
2001. On April 15, 2003, an examination of the taxpayer's 
return is completed, the taxpayer and the IRS agree that the 
taxable year 2000 taxes were underpaid by $25,000, the taxpayer 
designates the amount in the qualified dispute reserve account 
as an offset to the underpayment, and the taxpayer pays the 
balance. In this case, the taxpayer will owe underpayment 
interest from April 15, 2001 (the original due date of the 
return) to the date of payment (April 15, 2003) only with 
respect to the $5,000 of the underpayment that is not offset by 
the dispute reserve account. The taxpayer will owe underpayment 
interest on the remaining $20,000 of the underpayment only from 
April 15, 2001 to May 15, 2001, the date the $20,000 was 
deposited in the qualified dispute reserve account.

Withdrawal of amounts

    A taxpayer may request the withdrawal of any amount in a 
qualified dispute reserve account at any time. The Secretary 
must comply with the withdrawal request unless the amount has 
already been designated to offset an underpayment of tax or the 
Secretary properly determines that assessment and collection of 
tax is in jeopardy. Interest is paid on amounts that are 
withdrawn from a dispute reserve account at a rate equal to the 
short-term applicable Federal rate for the period from the date 
of deposit to a date not more than 30-days preceding the date 
of the check paying the withdrawal.\45\
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    \45\ This 30-day period is consistent with other determinations of 
interest owed to a taxpayer.
---------------------------------------------------------------------------
    For example, a calendar year individual taxpayer receives a 
30-day letter showing a deficiency of $20,000 for taxable year 
2000 and deposits $20,000 in a qualified dispute reserve 
account that relates to taxable year 2000 on May 15, 2002. On 
April 15, 2003, an administrative appeal is completed, the 
taxpayer and the IRS agree that the 2000 taxes were underpaid 
by $15,000, and the taxpayer designates $15,000 of the amount 
in the qualified dispute reserve account as an offset to the 
underpayment. In this case, the taxpayer will owe underpayment 
interest from April 15, 2001 (the original due date of the 
return) to May 15, 2002, the date the $20,000 was deposited in 
the dispute reserve account. Simultaneously with the 
designation of the $15,000 to offset the deficiency, the 
taxpayer requests the return of the remaining $5,000 in the 
qualified dispute reserve account. This amount must be returned 
to the taxpayer with interest determined at the short-term 
applicable Federal rate from the May 15, 2002 to a date not 
more than 30 days preceding the date of the check repaying the 
$5,000 to the taxpayer.

Limitations on amounts deposited in a qualified dispute reserve account

    The amount on deposit in a qualified dispute reserve 
account for any taxable year may not exceed the amount 
necessary to offset the disputable items for the taxable year 
that have been identified by the taxpayer. A disputable item is 
any item for which the taxpayer (1) has a reasonable basis for 
the treatment used on its return and (2) reasonably believes 
that the Secretary also has a reasonable basis for disallowing 
the taxpayer's treatment of such item. The taxpayer must 
include a reasonable estimate of the potential underpayment as 
part of its identification of the disputable item. The amount 
on deposit in the qualified dispute reserve account for the 
taxable year may not exceed the sum of such reasonable 
estimates.
    All items included in a 30-day letter to a taxpayer are 
deemed to be identified for this purpose. Thus, once a 30-day 
latter has been issued, the deposit limit cannot be less than 
the amount of the deficiency shown in the 30-day letter. A 30-
day letter is the first letter of proposed deficiency that 
allows the taxpayer an opportunity for administrative review in 
the Internal Revenue Service Office of Appeals.
    If the taxpayer deposits an amount in excess of the limit, 
that amount will be a cash bond deposit that is not part of a 
qualified dispute reserve account. Such amounts will be treated 
in the same manner as deposits in the nature of a cash bond 
under present law.

Deposits in dispute reserve accounts are not payments of tax

    An amount deposited in a dispute reserve account is not a 
payment of tax prior to the time it is designated to offset an 
underpayment. Thus, the interest earned on withdrawn amounts 
would not be eligible for the proposed exclusion from income of 
an individual. Similarly, withdrawal of an amount from a 
qualified dispute reserve account will not establish a period 
for which interest was allowable at the short-term applicable 
Federal rate for the purpose of establishing a net zero rate 
interest rate on a similar amount of underpayment for the same 
period.

Application of amounts to different years

    A taxpayer may change the taxable year to which an amount 
in a qualified dispute reserve account relates. Such an amount 
will continue to be considered to have been deposited on its 
original deposit date for the purpose of determining the period 
of interest on any underpayment it is designated to offset or 
the period for which interest is owed to the taxpayer should 
the deposit be withdrawn.
    For example, a calendar year individual taxpayer receives a 
30-day letter showing a deficiency of $20,000 of taxable year 
2000 and deposits $20,000 in a qualified dispute reserve 
account that relates to taxable year 2000 on May 15, 2002. On 
April 15, 2003, an administrative appeal is completed, the 
taxpayer and the IRS agree that the 2000 taxes were underpaid 
by $15,000, and the taxpayer designates $15,000 of the amount 
in the qualified dispute reserve account as an offset to the 
underpayment. Simultaneously with the designation of the 
$15,000 to offset the deficiency, the taxpayer requests the 
remaining $5,000 in the qualified dispute reserve account 
relate to taxable year 2001, and identifies sufficient 
disputable items for taxable year 2001. This $5,000 amount will 
be considered to have been deposited on May 15, 2002, the date 
of original deposit, for the purpose of offsetting underpayment 
interest owed with respect to taxable year 2001, or for 
determining the interest owed the taxpayer should the amount be 
withdrawn.

                             Effective Date

    The provision applies to periods after the date of 
enactment. Amounts already on deposit as of the date of 
enactment will be treated as deposited in a qualified dispute 
reserve account as of the date the disputable issues are 
identified by the taxpayer.

F. Expansion of Interest Netting for Individuals (Sec. 106 of the Bill 
                       and Sec. 6404 of the Code)

                              Present Law

    A special net interest rate of zero applies to the extent 
that, for any period, interest is payable under subchapter A 
and allowable under subchapter B on equivalent underpayments 
and overpayments by the same taxpayer.\46\ If both the 
underpayment and overpayment are unsatisfied, the interest rate 
applied to both will be zero. If either the underpayment or 
overpayment has previously been satisfied, the interest rate 
applicable to the unsatisfied amount will be equal to the 
interest rate applicable to the satisfied amount to the extent 
that interest was allowable or payable on both the underpayment 
and the overpayment for the same period.
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    \46\ This provision was enacted in section 3301 of the IRS Reform 
Act.
---------------------------------------------------------------------------
    Interest must be both payable and allowable for interest 
netting to apply. If interest is not payable by the taxpayer 
with respect to an underpayment of tax, or interest is not 
allowable to the taxpayer on an overpayment of tax, the 
interest netting rules will not apply.
    For example, on July 1, 2003, a deficiency of $1,500 is 
determined with respect to an individual taxpayer's 2000 
Federal income tax return, which the taxpayer pays within 21 
days. In the meantime, the taxpayer has filed returns for 2001 
and 2002, showing a refund due to overwithholding each year of 
$1,000. The IRS issues the appropriate refund checks on May 15 
of each year, within 45 days of the due date of the return. 
Thus, interest is not allowable to the taxpayer with respect to 
either 2001 or 2002.\47\ In this case, the taxpayer owes 
interest on the $1500 year 2000 underpayment from the original 
due date of the return (April 15, 2001) until the underpayment 
is satisfied.\48\ Although, there are offsetting periods of 
overpayment (April 15, 2002 to May 15, 2002 and April 15, 2003 
to May 15, 2003), there is no offsetting period for which 
interest is allowable on an overpayment.
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    \47\ Sec. 6611(e)(1) provides that no interest will be allowable if 
any overpayment of tax is refunded within 45 days after the return is 
filed.
    \48\ If the underpayment is satisfied within 21 days of the 
determination on July 1, 2003, the taxpayer does not owe interest for 
any portion of time after that date (sec. 6601(e)(3)).
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                           Reasons for Change

    The Committee believes that individual taxpayers should be 
allowed to consider the period of time the Secretary is allowed 
to process a refund in determining a net interest rate.

                        Explanation of Provision

    In the case of an individual taxpayer, the interest netting 
rules are to be applied without regard to the 45-day period in 
which the Secretary may refund an overpayment of tax without 
the payment of interest under section 6611(e). Solely for the 
purpose of the interest netting computation, the portion of the 
45-day period before repayment of the overpayment will be 
considered as a period for which overpayment interest was 
allowable at a zero rate. The bill does not modify the period 
for which interest is payable or allowable for any other 
purpose.
    In the example discussed as part of present law, above, a 
net interest rate of zero would be applied to $1,000 of the 
taxpayer's year 2000 underpayment for the periods between the 
due date of the 2002 and 2003 returns and the dates on which 
the refunds are made. The taxpayer in the example would owe 
interest at the underpayment rate for the periods from April 
16, 2001 to April 16, 2002; May 16, 2002 to April 16, 2003; and 
from May 16, 2003 to July 1, 2003. For the periods April 16 to 
May 15, 2002 and April 16, 2003 to May 15, 2003, a zero net 
interest rate will apply.

                             Effective Date

    The provision is effective for interest accrued for periods 
beginning on or after the date of enactment.

                TITLE II--CONFIDENTIALITY AND DISCLOSURE

    A. Disclosure and Privacy Rules Relating to Returns and Return 
    Information (Sec. 201 of the Bill and Sec. 6103(a) and New Sec. 
                        6103(p)(9) of the Code)

                              Present Law

Section 6103

    Under section 6103, returns and return information are 
confidential and cannot be disclosed unless authorized by the 
Internal Revenue Code.\49\ The Code defines return information 
broadly. Return information includes:
---------------------------------------------------------------------------
    \49\ Sec. 6103(a).
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     a taxpayer's identity, the nature, source or 
amount of income, payments, receipts, deductions, exemptions, 
credits, assets, liabilities, net worth, tax liability, tax 
withheld, deficiencies, overassessments, or tax payments;
     whether the taxpayer's return was, is being, or 
will be examined or subject to other investigation or 
processing; or
     any other data, received by, recorded by, prepared 
by, furnished to, or collected by the Secretary with respect to 
a return or with respect to the determination of the existence, 
or possible existence, of liability (or the amount thereof) of 
any person under this title for any tax, penalty, interest, 
fine, forfeiture, or other imposition, or offense,
     any part of any written determination or any 
background file document relating to such written determination 
which is not open to public inspection under section 6110; and
     any advance pricing agreement entered into by a 
taxpayer and the IRS and any background information related to 
such agreement or any application for an advance pricing 
agreement.\50\
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    \50\ Sec. 6103(b)(2)(A)-(C).
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    Section 6103 contains a number of exceptions to the general 
rule of confidentiality, which authorize disclosure in 
particular circumstances.\51\ The IRS may disclose returns and 
return information to, among others, the taxpayer, the 
taxpayer's designee, and to certain other persons having a 
material interest.\52\ The IRS may withhold return information 
when disclosure would ``seriously impair federal tax 
administration.'' \53\
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    \51\ Sec. 6103(c) through (o).
    \52\ Sec. 6103(c) and (e).
    \53\ Sec. 6103(c) and (e)(7).
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Freedom of Information Act

    The Freedom of Information Act (``FOIA''), enacted in 1966, 
established a statutory right to access government 
information.\54\ While the purpose of section 6103 is to 
restrict access to returns and return information, the basic 
purpose of the FOIA is to ensure that the public has access to 
government documents. In general, the FOIA provides that any 
person has a right of access to Federal agency records, except 
to the extent that such records (or portions thereof) are 
protected from disclosure by one of nine exemptions or by one 
of three special law enforcement record exclusions. Returns and 
return information that cannot be disclosed under section 6103 
are exempt from disclosure under the FOIA.\55\ However, persons 
seeking access to information have used the FOIA as a method to 
attempt to compel disclosure of information arguably protected 
under section 6103.
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    \54\ 5 U.S.C. sec. 552.
    \55\ Courts use two approaches to reach this result. Some courts 
have held that section 6103 preempts the FOIA. Most courts, however, 
have held that section 6103 meets the requirements of exemption 3 of 
the FOIA, which allows the withholding of information prohibited from 
disclosure by another statute if certain requirements are met.
---------------------------------------------------------------------------
    Under the FOIA, the IRS (as do other agencies) has twenty 
days (excluding Saturdays, Sundays, and legal holidays) to 
respond to a FOIA request. The IRS can respond either by 
providing the records sought or by notifying the requestor of 
the reasons why the IRS is denying access and the right to 
appeal such denial.\56\ If the requestor appeals, the IRS has 
twenty days to rule on such appeal.\57\ If the IRS upholds the 
denial on administrative appeal, the IRS then notifies the 
requestor of his or her right to seek judicial review in a 
United States District Court.\58\
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    \56\ 5 U.S.C. sec. 552(a)(6)(A)(i).
    \57\ 5 U.S.C. sec. 552(a)(4)(A)(ii). The average FOIA request to 
the IRS takes six months to process and appeals can take nearly a year. 
National Commission on Restructuring the Internal Revenue Service, 
Report of the National Commission on Restructuring the Internal Revenue 
Service: A Vision for a New IRS at 47 (June 25, 1997).
    \58\ 5 U.S.C. sec. 552(a)(4)(A)(ii).
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The Privacy Act

    The Privacy Act was enacted in 1974 to regulate the 
collection, use, dissemination, and maintenance of personal 
information about individuals by Federal agencies.\59\ The 
Privacy Act applies only to the records of individuals. Thus, 
the Privacy Act does not protect records of corporations. The 
Privacy Act has four principal provisions. These provisions: 
(1) restrict the disclosure of personally identifiable records 
maintained by agencies; (2) allow individuals to access agency 
records maintained about the individual; (3) allow an 
individual to request amendment of agency records pertaining to 
the individual if the individual believes the records are not 
accurate, relevant, timely, or complete; and (4) require 
agencies to comply with statutory guidelines for collection, 
maintenance, and dissemination of records. In general, the 
provisions of the Privacy Act prohibit the disclosure of an 
individual's records without the consent of the individual. 
Section 7852(e) of the Code provides that certain provisions of 
the Privacy Act cannot be applied directly or indirectly to the 
determination of the existence or possible existence of 
liability (or amount thereof) of any person for any tax, 
penalty interest, fine forfeiture, or other imposition or 
offense to which the Code applies. The Privacy Act provisions 
specified by section 7852(e) are (d)(2), (3) and (4) (amendment 
provisions), and (g) (civil remedies for an agency's failure to 
comply with a provision of the Privacy Act). The Privacy Act 
predated section 6103 by two years. Courts disagree on whether 
the Privacy Act is preempted by section 6103.
---------------------------------------------------------------------------
    \59\ 5 U.S.C. sec. 552a.
---------------------------------------------------------------------------

                           Reasons for Change

    Present law states that no disclosures of returns and 
return information can be made unless authorized by Title 26. 
However, the FOIA, the Privacy Act and other laws have sought 
to authorize disclosure. The Committee believes that it should 
be clarified that the Code is the sole authority for the 
disclosure of returns and return information.
    The purpose of the FOIA is to shed light on the operations 
of government. The FOIA presumes that records are subject to 
disclosure unless they fall within certain exemptions. Section 
6103 takes the opposite approach. It presumes that returns and 
return information are confidential unless disclosure is 
authorized by the Code. Section 6103 provides a comprehensive 
system for releasing information to discrete identified parties 
under section 6103. In contrast, the general rule under the 
FOIA is to release information to the public at large with no 
showing of need. The Committee recognizes that the FOIA 
contains significant administrative and judicial review 
mechanisms not available under section 6103. The Committee 
believes it is appropriate to incorporate those mechanisms into 
section 6103.
    The purpose of the Privacy Act is to safeguard an 
individual's personal privacy against unwarranted invasions 
through the misuse of Federal records, and, among other things, 
to provide an individual with access to agency records 
concerning that individual.\60\ Generally, with specified 
exceptions, the Privacy Act prohibits an agency from disclosing 
an individual's records without that individual's consent. A 
comparison of the Privacy Act and section 6103 reveals that 
while similar, the disclosure provisions of section 6103 are 
more detailed and allow less disclosure than the Privacy Act. 
Thus, section 6103 provides more protection for the privacy of 
a taxpayer's return or return information. The Committee 
believes that the confidentiality provisions and restrictions 
on disclosure contained in section 6103 preempt the Privacy Act 
as to access and restriction on disclosure.
---------------------------------------------------------------------------
    \60\ Pub. L. No. 93-579, sec. 2(b) (1974).
---------------------------------------------------------------------------
    The Committee believes that centralizing the authority for 
the disclosure of returns and return information in the Code 
will reduce conflicts over the governing law. For example, as 
noted above, section 6103 provides that no disclosures of 
returns and return information are to be made unless authorized 
by the Code. To verify information reported by applicants on 
student financial aid applications, the Higher Education Act 
Amendments of 1998 (``the Higher Education Act'') authorized 
the Department of Education to confirm with the IRS four 
discrete items of return information.\61\ The Higher Education 
Act, however, did not amend the Code to permit disclosures for 
this purpose. This has caused the two agencies to disagree as 
to whether the required disclosures can be made by the IRS.
---------------------------------------------------------------------------
    \61\ Pub. L. No. 105-244, sec. 483 (1998).
---------------------------------------------------------------------------
    Centralizing the disclosure authority in the Code will also 
ensure consistent application of privacy and confidentiality 
principles to returns and return information. For example, when 
a statute authorizes the disclosure of returns and return 
information notwithstanding the provisions of section 6103, it 
relieves an agency from having to comply with the safeguards 
and record keeping requirements for returns and return 
information provided by that section.\62\
---------------------------------------------------------------------------
    \62\ See generally sec. 6103(p).
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                        Explanation of Provision

    The provision clarifies that the Internal Revenue Code 
exclusively governs the disclosure and inspection of returns 
and return information. The effect of the provision would be to 
provide that the Internal Revenue Code provision preempts the 
FOIA, the Privacy Act, and other laws solely with respect to 
the confidentiality and disclosure of returns and return 
information. The provision would not affect the ability of 
persons to make a FOIA request for information that does not 
fall within the definition of a return or return information. 
Such FOIA requests would still be made of the IRS under the 
FOIA. The provision would not affect the disclosure of written 
determinations under section 6110.
    The provision provides a 20-day period in which the IRS 
must respond to requests by the taxpayer, and persons with a 
material interest in such information, and an administrative 
appeal process to contest the IRS decision to withhold 
information. Under the provision, de novo judicial review of 
the IRS decision to withhold returns and return information is 
provided.Attorneys fees to the prevailing party under section 
7430 are also available. The provision authorizes the Secretary of the 
Treasury to issue regulations to implement the provision and to set 
fees applicable to the processing of requests for disclosure.

                             effective date

    The provision is effective for requests made after the date 
of enactment.

 B. Expansion of Type of Advice Available for Public Inspection (Sec. 
             202 of the Bill and Sec. 6110(i) of the Code)

                              present law

    Section 6110 makes the text of any written determination 
issued by the IRS (and related background file document) 
available for public inspection. A written determination is any 
ruling, determination letter, technical advice memorandum, or 
Chief Counsel advice. Before making written determinations and 
background file documents available for public inspection, 
section 6110 requires the IRS to delete specific categories of 
information. Any part of a written determination or background 
file that is not disclosed under section 6110 constitutes 
confidential ``return information'' under section 6103.\63\ 
Section 6110 also provides administrative and judicial 
procedures to resolve disputes over the scope of the 
information the IRS will disclose.\64\
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    \64\ 63 Section 6103(b)(2)(B) provides that the term ``return 
information'' means any part of any written determination or any 
background file document relating to such written determination (as 
such terms are defined in section 6110(b)) which is not open to public 
inspection under section 6110.
    \64\ Sec. 6110(d)(3), (d)(4), (f), and (j).
---------------------------------------------------------------------------
    Section 6110 defines Chief Counsel advice as that issued by 
the national office component of the Office of Chief Counsel to 
IRS field or service center employees, or regional or district 
employees of the Office of Chief Counsel.\65\ By definition, 
Chief Counsel advice conveys: (1) a legal interpretation of a 
revenue provision, (2) the IRS or Chief Counsel position or 
policy concerning a revenue provision, or (3) a legal 
interpretation of any law (Federal, State, or foreign) relating 
to the assessment or collection of liability under a revenue 
provision.\66\ The definition of Chief Counsel advice does not 
encompass advice issued from one National Office component of 
the Office of Chief Counsel to another. Nor does it encompass 
advice issued by the regional or district office of the Office 
of Chief Counsel to IRS employees. The term ``Chief Counsel 
advice'' also does not encompass any advice or instructions 
issued by persons other than Chief Counsel personnel. The 
Secretary is permitted to delete certain material, and such 
deletions can be challenged judicially.
---------------------------------------------------------------------------
    \65\ Sec. 6110(i)(A)(i).
    \66\ Sec. 6110(i)(A)(ii).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee believes that the working law of the IRS 
should be publicly available. Such interpretations should not 
be limited to issuances from certain IRS offices (such as the 
national office of IRS Chief Counsel) but should also include 
issuances from other offices, such as from District Counsel to 
IRS administrative personnel in the field, which are currently 
not covered by the definition of Chief Counsel advice. The 
Committee also believes that when one division of the IRS 
Office of the Chief Counsel requests legal advice on a subject 
matter within the jurisdiction of another Chief Counsel 
division, that intra-office advice should be disclosed once the 
final advice is given if it was incorporated in or served as 
the basis of the outgoing advice. The Committee recognizes the 
necessity of free flow of information and opinions in the 
decision-making process. However, once a decision is made, it 
affects a member of the public. The public is entitled to know 
of the rules being applied in its dealings with the IRS and the 
underlying rationale for the course of action. The public is 
also entitled to know whether the laws are being applied 
uniformly.

                        Explanation of Provision

Definition of official advice

    The bill modifies the current provision relating to Chief 
Counsel advice. It removes the limitation that advice be issued 
by a national office component of the Office of Chief Counsel. 
It also eliminates the requirement that the recipient of the 
advice be either an IRS field or service center employee or an 
Office of Chief Counsel district or regional employee.
    The bill requires disclosure of all advice and instructions 
(``official advice'') that meet certain substantive 
requirements and are issued by a component of the Office of 
Chief Counsel or Internal Revenue Service to an employee. A 
``component'' is any IRS or Chief Counsel component above 
front-line employee, unless such employee is authorized to act 
on behalf of the component above him in providing a legal 
interpretation to another employee. For example, a District 
counsel office would be a component, whereas an individual 
district counsel attorney ordinarily would not. One exception 
is for an individual district counsel attorney who had the 
authority to issue legal advice without securing the approval 
of the District Counsel. In that capacity he would be acting on 
behalf of the District Counsel component. In the national 
office, a component would be the branch chief. Under the 
provision, official advice is issued when the advice is signed 
or otherwise approved for distribution by the person authorized 
to do so, and sent to the employee.
    The bill is designed to reach legal analysis and 
interpretation of the tax laws to be applied to a taxpayer or 
group of taxpayers. Thus, in order to qualify as official 
advice such advice must convey: (1) a legal interpretation of a 
revenue provision, (2) an IRS or Chief Counsel policyconcerning 
a revenue provision, or (3) a legal interpretation of State law, 
foreign law, or other Federal law relating to the assessment or 
collection of any liability under a revenue provision. Under this rule, 
a communication would not be required to be disclosed if it concerns 
factual issues with regard to a particular taxpayer and does not 
discuss the interpretation of and the application of law to those 
facts. The provision is not intended to cover documents that are 
largely administrative without legal analysis. In addition, for 
purposes of this provision ``any Internal Revenue Service or Office of 
Chief Counsel position or policy concerning a revenue provision'' means 
positions or policies of the organization, adopted formally or 
informally, which function as guidance to IRS or Chief Counsel 
employees.
    The Committee notes that the IRS is in the process of a 
reorganization. Thus, the bill allows the Secretary with 
authority to promulgate regulations providing that additional 
types of advice or instructions will be treated as official 
advice and subject to public inspection under this provision.

Redaction process

    The provision retains the present law redaction 
process.\67\ Under the bill, as under present law, the IRS and 
the Office of Chief Counsel will be able to delete identifying 
details under section 6110(c)(1), and material that would be 
exempt under subsections (b) and (c) of the FOIA (except with 
respect to 5 U.S.C. sec. 552(b)(3), only that material required 
to be withheld under a Federal statute other than title 26, may 
be redacted). This includes the ability to redact material that 
would be protected by the deliberative process privilege or 
other privileges encompassed in Exemption 5 of the FOIA. The 
deliberative process privilege protects material which is pre-
decisional and deliberative. It protects material that reflects 
the give and take of the consultative process prior to a final 
decision. The bill does not encompass deliberative and pre-
decisional material to the extent it does not provide the basis 
for a final decision. Thus, legal arguments that are rejected 
during the consultative process would not be required to be 
disclosed. As under current section 6110, an opportunity is 
afforded to challenge judicially the redaction determinations.
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    \67\ Sec. 6110(i)(3).
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                             effective date

    The provision is effective for official advice issued more 
than 90 days after the date of enactment. Under the provision, 
if by regulation the Secretary determined that additional 
advice or instructions would be treated as official advice, 
such additional official advice would be made available for 
public inspection in accordance with the effective date set 
forth in the regulation.

  C. Collection Activities with Respect to a Joint Return Disclosable 
Based on Oral Request (Sec. 203 of the Bill and Sec. 6103(e)(8) of the 
                                 Code)

                              present law

    Section 6103(e) concerns disclosures to persons with a 
material interest. Section 6103(e)(7) permits the IRS to 
disclose return information to the same persons who may have 
access to a return under the other provisions of section 
6103(e). Pursuant to this section 6103(e)(7) and section 
6103(e)(1)(B), either spouse may obtain return information 
regarding a joint return. This includes collection information. 
Requests for information pursuant to this section do not have 
to be in writing.
    In response to concerns that former spouses were not able 
to obtain information regarding collection activities relating 
to a joint return, the Taxpayer Bill of Rights 2 added section 
6103(e)(8).\68\ When a deficiency is assessed with respect to a 
joint return, upon written request, section 6103(e)(8) permits 
the IRS to disclose: (1) whether the IRS has attempted to 
collect such deficiency from the other individual; (2) the 
general nature of such collection activities; and (3) the 
amount collected.\69\ This provision applies if individuals who 
filed the joint return are no longer married or no longer 
reside in the same household. Requests under this section must 
be in writing.
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    \68\ ``The IRS does not routinely disclose collection information 
to a former spouse that relates to tax liabilities attributable to a 
joint return that was filed when married.'' Joint Committee on 
Taxation, General Explanation of Tax Legislation Enacted in the 104th 
Congress (JCS-12-96), December 18, 1996 at 29.
    \69\ Sec. 6103(e)(8).
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                           reasons for change

    The Committee believes that former spouses should be able 
to receive collection information with respect to a joint 
return in the same manner as if they were current spouses. 
Thus, a former spouse should not be required to make a written 
request because if the spouses were still married, a written 
request would not be required.

                        explanation of provision

    The provision eliminates the requirement for former spouses 
to make a written request for disclosure of collection 
activities with respect to a joint return.

                             effective date

    The provision applies to requests made after the date of 
enactment.

    D. Taxpayer Representatives Not Subject to Examination Without 
 Supervisor Approval (Sec. 204 of the Bill and Sec. 6103(h)(1) of the 
                                 Code)

                              Present Law

    Under section 6103(h)(1), returns and return information 
are, without written request, open to inspection by or 
disclosure to officers and employees of the Department of the 
Treasury, including IRS employees, whose official duties 
require such inspection or disclosure for tax administration 
purposes. The Office of Chief Counsel issued an opinion stating 
that it was appropriate for a local IRS employee to examine tax 
records to determine whether taxpayer representatives who 
submit Form 2848 (Power of Attorney) are current in their tax 
obligations.\70\ The opinion concluded that section 6103(h)(1) 
permits local IRS employees to access the Integrated Data 
Retrieval System \71\ to determine whether a taxpayer's 
representative is current in his or her tax obligations.
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    \70\ Internal Revenue Service, IRS Legal Memorandum ILM 199941038 
(August 19, 1999) reprinted in Disclosure Provisions Don't Bar IRS 
Access to Integrated Data Retrieval System, Tax Notes Today, 1999 TNT 
200-54 (October 18, 1999).
    \71\ The Integrated Data Retrieval System (commonly referred to as 
``IDRS'') is the IRS' primary computer database for return information.
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                           reasons for change

    The Committee believes that the official duties of the IRS 
employee examining a taxpayer concern the tax affairs of the 
taxpayer, not the taxpayer's representative. The taxpayer is 
under audit, not the taxpayer's representative. Whether the 
representative has filed his or her returns ordinarily has no 
bearing on the IRS's determination of the liability of the 
taxpayer. An IRS employee should make a referral to the 
Director of Practice, if the employee has reason to believe the 
taxpayer's representative has engaged in inappropriate 
behavior.

                        explanation of provision

    The provision clarifies that an IRS employee conducting an 
examination of a taxpayer is not authorized to inspect a 
taxpayer representative's return or return information solely 
on the basis of the representative relationship to the 
taxpayer. Under the provision, the supervisor of the IRS 
employee must approve such inspection after making a 
determination that other grounds justified such an inspection. 
The provision does not affect the ability of employees of the 
IRS Director of Practice, or other employees whose assigned 
duties concern the regulation of practice before the IRS, to 
access returns and return information of a representative.

                             effective date

    The provision is effective on the date of enactment.

 E. Disclosure in Judicial or Administrative Tax Proceedings of Return 
and Return Information of Persons Who Are Not Party to Such Proceedings 
         (Sec. 205 of the Bill and Sec. 6103(h)(4) of the Code)

                              present law

    Under section 6103(h)(4), a return or return information 
may be disclosed in a Federal or State judicial or 
administrative proceeding pertaining to tax administration 
under certain circumstances. Under section 6103(h)(4)(A), such 
information may be disclosed if the taxpayer is a party to the 
proceeding or if the proceeding arose out of, or in connection 
with, determining the taxpayer's liability with respect to any 
tax. Under section 6103(h)(4)(B), such information may be 
disclosed if the treatment of an item reflected on a return is 
directly related to the resolution of an issue in the 
proceeding. Under section 6103(h)(4)(C), such information may 
be disclosed if the return or return information directly 
relates to a transactional relationship between a person who is 
a party to the proceeding and the taxpayer which directly 
affects the resolution of an issue in the proceeding. Thus, the 
returns and return information of a nonparty taxpayer may be 
disclosed if one of these requirements are met. The statute 
does not require that the nonparty taxpayer be given notice or 
be consulted prior to disclosure.

                           reasons for change

    The Committee believes that nonparty taxpayers should be 
afforded notice of when their returns or return information is 
disclosed in a judicial or administrative proceeding pertaining 
to tax administration. The Committee also believes that such 
nonparty taxpayers should be consulted regarding the disclosure 
of sensitive information in such a proceeding. The purpose of 
the provision is to give notice to a nonparty prior to the 
disclosure of a return or return information. The nonparty 
notification requirements are not intended to adversely affect 
the parties to the litigation.

                        explanation of provision

    The provision requires that only the portions of a nonparty 
return or return information that directly relate to the 
resolution of an issue in the proceeding would be disclosed in 
such proceeding. When nonparty returns and return information 
are to be disclosed under section 6103(h)(4) (B) and (C) \72\, 
the provision requires that an effort be made to give notice to 
the taxpayer prior to the disclosure. The notice would include 
a statement of the issue or issues for which such return or 
return information affects resolution. Finally, the nonparty 
taxpayer is given an opportunity to request the deletion of 
certain matters from the return or return information that 
would be disclosed. For purposes of S corporations, 
partnerships, estates, and trusts, the notice is to be made at 
the entity level.
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    \72\ Under the proposal these provisions would be redesignated as 
clauses ii and iii of section 6103(h)(4)(A).
---------------------------------------------------------------------------
    The provision does not afford a right to intervene or for 
judicial review of the requested redactions. The notification 
requirements are not intended to apply to ex parte proceedings 
for securing a search warrant, orders for entry on premises or 
safe deposit boxes, or similar ex parte proceedings. The 
notification requirements do not apply to the disclosure of 
third party return information by indictment or criminal 
information. The notice provision is also not intended to apply 
if it would seriously impair a criminal tax investigation.

                             effective date

    The provision applies to proceedings commenced after the 
date of enactment.

  F. Prohibition of Disclosure of Taxpayer Identification Information 
 With Respect to Disclosure of Accepted Offers-in-Compromise (Sec. 206 
              of the Bill and Sec. 6103(k)(1) of the Code)

                              present law

    Section 6103 permits the IRS to disclose return information 
to members of the general public to permit inspection of 
accepted offers in compromise.\73\ The IRS makes summaries of 
the accepted offers in compromise, Form 7249--Offer Acceptance 
Report, available for public inspection in the IRS district 
offices. Currently, this form contains the taxpayer 
identification number of the taxpayer, e.g., the social 
security number in the case of an individual taxpayer, along 
with the taxpayer's name and full address.
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    \73\ Sec. 6103(k)(1).
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                           reasons for change

    Summaries of accepted offers in compromise, Form 7249--
Offer Acceptance Report, are available for public inspection in 
the IRS district offices. Currently, this form contains the 
taxpayer identification number of the taxpayer, e.g., the 
social security number in the case of an individual taxpayer, 
along with the taxpayer's name and full address. The Committee 
believes that the disclosure of a taxpayer's taxpayer 
identification number and address is unnecessary and an 
unwarranted invasion of privacy. In addition, the Committee 
believes such disclosure provides an opportunity for identity 
fraud and abuse.

                        explanation of provision

    The provision prohibits the disclosure of the taxpayer's 
address and taxpayer identification number as part of the 
publicly available summaries of accepted offers in compromise.

                             effective date

    The provision applies to disclosures made after the date of 
enactment.

  G. Compliance By State Contractors With Confidentiality Safeguards 
         (Sec. 207 of the Bill and Sec. 6103(p)(8) of the Code)

                              Present Law

    Section 6103(d) permits the disclosure of returns and 
return information to State tax agencies. Section 6103(p)(4) 
requires, as conditions of receiving returns and return 
information, that State agencies (and others) provide 
safeguards as prescribed the Secretary of the Treasury by 
regulation to be necessary or appropriate to protect the 
confidentiality of returns or return information.\74\ It also 
requires that a report be furnished to the Secretary at such 
time and containing such information as prescribed by the 
Secretary regarding the procedures established and utilized for 
ensuring the confidentiality of returns and return 
information.\75\ After an administrative review, the Secretary 
may take such actions as are necessary to ensure these 
requirements are met, including the refusal to disclose returns 
and return information.\76\
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    \74\ Sec. 6103(p)(4)(D).
    \75\ Sec. 6103(p)(4)(E).
    \76\ Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec. 
301.6103(p)(7)-1.
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    Under present law, employees of a State tax agency may 
disclose returns and return information to contractors for tax 
administration purposes.\77\ These disclosures can be made only 
to the extent necessary to procure contractually equipment, 
other property, or the providing of services, related to tax 
administration.\78\
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    \77\ Sec. 6103(n) and Treas. Reg. sec. 301.6103(n)-1(a). ``Tax 
administration'' includes ``the administration, management, conduct, 
direction, and supervision of the execution and application of internal 
revenue laws or related statutes (or equivalent laws and statutes of a 
State) * * *'' Sec. 6103(b)(4).
    \78\ Treas. Reg. sec. 301.6103(n)-1(a). Such services include the 
processing, storage, transmission or reproduction of such returns or 
return information, the programming, maintenance, repair, or testing of 
equipment or other property, or the providing of other services for 
purposes of tax administration.
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    The contractors can make redisclosures of returns and 
return information to their employees as necessary to 
accomplish the tax administration purposes of the contract, but 
only to contractor personnel whose duties require 
disclosure.\79\ Treasury regulations prohibit redisclosure to 
anyone other than contractor personnel without the written 
approval of the IRS.\80\
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    \79\ Treas. Reg. sec. 301.6103(n)-1(a) and (b). A disclosure is 
necessary if such procurement or the performance of such services 
cannot otherwise be reasonably, properly, or economically accomplished 
without such disclosure. Treas. Reg. sec. 301.6103(n)-1(b). The 
regulations limit the quantity of information to that needed to perform 
the contract.
    \80\ Treas. Reg. sec. 301.6103(n)-1(a).
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    By regulation, all contracts must provide that the 
contractor will comply with all applicable restrictions and 
conditions for protecting confidentiality prescribed by 
regulation, published rules or procedures, or written 
communication to the contractor.\81\ Failure to comply with 
such restrictions or conditions may cause the IRS to terminate 
or suspend the duties under the contract or the disclosures of 
returns and return information to the contractor.\82\ In 
addition, the IRS can suspend disclosures to the State tax 
agency until the IRS determines that the conditions are or will 
be satisfied.\83\ The IRS may take such other actions as deemed 
necessary to ensure that such conditions or requirements are or 
will be satisfied.\84\
---------------------------------------------------------------------------
    \81\ Treas. Reg. sec. 301.6103(n)-1(d).
    \82\ Treas. Reg. sec. 301.6103(n)-1(d)(1).
    \83\ Treas. Reg. sec. 301.6103(n)-1(d)(2).
    \84\ Treas. Reg. sec. 301.6103(n)-1(d).
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                           Reasons for Change

    The Committee notes the increasing use of contractors by 
government agencies to perform the work of the government. 
Twenty-nine IRS district offices have responsibilities for 
overseeing safeguard reviews at State and local agencies.\85\ 
As of June 1999, there were 230 professional and 24 support 
staff assigned to IRS national and district disclosure 
offices.\86\ In addition to overseeing the safeguard program, 
disclosure offices conduct a variety of other disclosure 
activities. In the Committee's view, the IRS has insufficient 
resources to monitor the compliance of every contractor of 
every State tax agency in addition to its other duties. 
Further, the Committee finds that it is appropriate to require 
that the States monitor and certify that their contractors have 
in place adequate safeguards to protect this information.
---------------------------------------------------------------------------
    \85\ General Accounting Office, Taxpayer Confidentiality: Federal, 
State, and Local Agencies Receiving Taxpayer Information (GAO-GGD-99-
164, August 1999) at 13.
    \86\ Id.
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision requires that a State conduct annual on-site 
reviews of all of its contractors receiving Federal returns and 
return information. If the duration of the contract is less 
than one year, a review is required at the mid-point of the 
contract. The purpose of the review is to assess the 
contractor's efforts to safeguard Federal returns and return 
information. The Committee intends that such review cover 
secure storage, restricting access, computer security, and 
other safeguards deemed appropriate by the Secretary. Under the 
provision, the State is required to submit a report of its 
findings to the IRS and certify annually that all contractors 
are in compliance with the requirements to safeguard the 
confidentiality of Federal returns and return information. The 
certification includes the name and address of each contractor, 
the duration of the contract, and a description of its contract 
with the State.
    This provision does not alter or affect in any way the 
right of the IRS to conduct safeguard reviews of State 
contractors. It also does not affect the right of the IRS to 
initially approve the safeguard language in the contract and 
the safeguards in place prior to any disclosures made in 
connection with such contracts.

                             Effective Date

    The provision is effective for disclosures made after 
December 31, 2001. The first certification is required to be 
made with respect to calendar year 2002.

 H. Higher Standards for Requests for and Consents to Disclosure (Sec. 
             208 of the Bill and Sec. 6103(c) of the Code)

                              Present Law

    Under section 6103(c), a taxpayer may designate in a 
request or consent to the disclosure by the IRS of his or her 
return or return information to a third party. Treasury 
regulations set forth the requirements for such consent.\87\ 
The Treasury regulations require that the taxpayer sign and 
date the consent. The taxpayer must also indicate in the 
written document: (1) the taxpayer's taxpayer identity 
information; (2) the identity of the person to whom disclosure 
is to be made; (3) the type of return (or specified portion of 
the return) or return information (and the particular data) 
that is to be disclosed; and (4) the taxable year covered by 
the return or return information. The regulations also require 
that the consent be submitted within 60 days of the date signed 
and dated, however, at the time of submission, the IRS 
generally is unaware of whether a consent form was completed or 
dated after the taxpayer signs it. Present law does not require 
that a recipient receiving returns or return information by 
consent maintain the confidentiality of the information 
received. Under present law, the recipient is also free to use 
the information for purposes other than for which the 
information was solicited from the taxpayer.
---------------------------------------------------------------------------
    \87\ Treas. Reg. 301.6103(c)-1.
---------------------------------------------------------------------------
    Section 6103(c) consents are often used in connection with 
mortgage loan applications. Mortgage originators qualify loan 
applicants as meeting or not meeting the requirements for loan 
approval. This process involves the verification and 
investigation of information and conditions. If the loan is 
granted, the mortgage originator may use its own money to fund 
the loan. Alternatively, another entity, an ``investor,'' may 
buy the loan and provide the money. Investors typically perform 
a re-investigation of loans received for funding. Such re-
investigations may include verification through the IRS of the 
tax return provided by the taxpayer to the mortgage originator.
    Usually the mortgage originator does not know which 
investor will ultimately fund the loan. Thus, at the time of 
application, the originator asks the borrower/taxpayer to sign 
a consent (Form 4506) designating the originator as the third 
party to receive the taxpayer's returns. Subsequently, at 
closing, the investor may request that the originator obtain 
another Form 4506 naming the investor as the third party to 
receive the taxpayer's return.
    Ostensibly to avoid confusion over why the taxpayer would 
be authorizing a party other than the originator to receive his 
tax return, the taxpayer may be asked to sign a blank Form 4506 
at closing. In some cases, mortgage originators ask taxpayers 
not to date the Form 4506. This allows the form to be submitted 
to the IRS at a later date, often months or years later, for 
purposes of mortgage resale.
    Under section 7206, it is a felony to willfully make and 
subscribe any document that contains or is verified by a 
written declaration that it is made under penalties of perjury 
and which such person does not believe to be true and correct 
as to every material matter.\88\ Upon conviction, such person 
may be fined up to $100,000 ($500,000 in the case of a 
corporation) or imprisoned up to 3 years, or both, together 
with the costs of prosecution.
---------------------------------------------------------------------------
    \88\ Sec. 7206(1).
---------------------------------------------------------------------------

                           Reasons for Change

    The Committee does not believe that the practice of asking 
taxpayers to sign blank or undated consent forms is 
appropriate. While recognizing that investors may want to 
minimize their risks in buying a loan, the Committee finds that 
these practices can abuse the taxpayer consent process. It is 
doubtful that a taxpayer is aware that by not dating the form, 
it could be used months or years after the date it is executed. 
Taxpayers may be unaware that a blank consent form which does 
not designate a recipient can be used for purposes other than 
those related to the transaction under which the request for 
consent arose.
    In addition, the IRS does not have the resources to verify 
that the return information was used solely for the stated 
purpose. The IRS estimates that it receives annually more than 
800,000 requests from taxpayers directing that their returns or 
return information be sent to a third party. Examples of third 
party entities to which the IRS provides information include 
financialinstitutions (including the mortgage banking 
industry), colleges and universities, and Federal, State, and local 
governmental entities.
    The Committee believes that to preserve the integrity of 
the consent process, a penalty must be placed on the third 
party soliciting a taxpayer to sign an undated or otherwise 
incomplete consent. Consistent with a taxpayer's reasonable 
expectation of privacy, the Committee believes that limitations 
should be placed on the use of returns and return information 
obtained by consent.

                        Explanation of Provision

    The provision renders invalid a consent that does not 
designate a recipient or is not dated at the time of execution. 
The person submitting the consent to the IRS is required to 
verify under penalties of perjury that the form was complete 
and dated at the time it was signed by the taxpayer. Inspection 
or disclosure of a return or return information pursuant to an 
invalid consent will be unauthorized under section 6103. Thus, 
a person making such unauthorized disclosure or inspection 
could be liable for civil damages under section 7431, and 
criminal penalties under section 7213 or 7213A for willful 
unauthorized disclosure or inspection. The Committee does not 
intend to validate consents that do not otherwise comply with 
the Treasury regulations. For example, a consent that does not 
contain tax years or type of tax at the time of execution is 
not valid, and this provision does not authorize disclosures 
pursuant to such consents.
    The provision requires the consent form prescribed by the 
IRS to contain a warning, prominently displayed, informing the 
taxpayer that he or she should not sign the form unless it is 
complete. The provision requires the consent form to state that 
if the taxpayer believes there is an attempt to coerce him to 
sign an incomplete or blank form, the taxpayer should report 
the matter to the Treasury Inspector General for Tax 
Administration. The telephone number and address for the 
Treasury Inspector General for Tax Administration would be 
included on the form. Under the provision, all third parties 
receiving returns and return information by consent would be 
required to: (1) ensure that the information received will be 
kept confidential; (2) use the information only for the purpose 
for which it was requested; and (3) not further disclose the 
information except to accomplish that purpose, unless a 
separate consent from the taxpayer is obtained.
    The Treasury Inspector General for Tax Administration is 
required to submit a report to Congress on compliance with the 
designation and certification requirements no later than 18 
months after the date of enactment. Such report will evaluate 
(on the basis of random sampling) whether the proposal is 
achieving its purpose, whether requesters and submitters are 
continuing to evade the purpose of the proposal, whether the 
sanctions are adequate, and such recommendations as considered 
necessary or appropriate to better achieve the purposes of the 
proposal.

                             Effective Date

    The provision applies to requests and consents made after 
six months after the date of enactment.

   I. Notice to Taxpayer Concerning Administrative Determination of 
Browsing; Annual Report (Sec. 209 of the Bill and Sec. 7431(e) and New 
                     Sec. 6103(p)(10) of the Code)

                              Present Law

    Present law requires the IRS to notify a taxpayer that an 
unlawful disclosure or inspection of the taxpayer's return or 
return information has occurred when the offender has been 
charged by criminal indictment or information.\89\ If the 
offender is not so charged, present law does not require the 
IRS to give notice to the taxpayer, even though the Treasury 
Inspector General for Tax Administration has concluded that an 
inspection or disclosure in violation of section 6103 has 
occurred.
---------------------------------------------------------------------------
    \89\ Sec. 7431(e).
---------------------------------------------------------------------------
    The IRS is required under present law to provide, for 
disclosure to the public, an annual report to the Joint 
Committee on Taxation regarding authorized disclosures of 
returns and return information \90\ The IRS is not required to 
submit a report to Congress on unauthorized disclosures or 
inspections of returns and return information.
---------------------------------------------------------------------------
    \90\ See sec. 6103(p)(3)(C).
---------------------------------------------------------------------------

                           Reasons for Change

    Currently, the IRS is not required to notify a taxpayer 
that an unlawful disclosure or inspection of the taxpayer's 
return or return information has occurred until the offender 
has been charged by criminal indictment or information.\91\ The 
Treasury Inspector General for Tax Administration investigates 
and substantiates more unlawful access (browsing) and 
disclosure cases than are accepted for prosecution by U.S. 
Attorneys.\92\ The staff of the Joint Committee on Taxation 
recently reported that the U.S. Attorneys declined to prosecute 
more than 80 percent of the cases referred.\93\
---------------------------------------------------------------------------
    \91\ Sec. 7431(e).
    \92\ See Joint Committee on Taxation, Study of Present-Law Taxpayer 
Confidentiality and Disclosure Provisions as Required by Section 3802 
of the Internal Revenue Service Restructuring and Reform Act of 1998, 
Volume I: Study of General Disclosure Provisions (JCS-1-00) January 28, 
2000 at 175-176.
    \93\ Id.
---------------------------------------------------------------------------
    Notwithstanding the lack of a criminal prosecution, the 
Committee believes that the IRS should make taxpayers aware 
that their returns or return information has been unlawfully 
accessed or disclosed. Thus, the IRS should notify the taxpayer 
at the time Treasury Inspector General for Tax Administration 
administratively determines that returns and return information 
have been unlawfully accessed or disclosed.
    The Committee also believes that the IRS should provide as 
part of its public annual report to the Joint Committee on 
Taxation information on unauthorized disclosures or inspections 
of return and return information. The Committee believes such 
information will allow review of the enforcement efforts in 
this area and the extent to which taxpayer privacy is being 
protected.

                        Explanation of Provision

    Under the provision, the IRS is required to notify a 
taxpayer at the point the Treasury Inspector General for Tax 
Administration determines that a taxpayer's return or return 
information has been disclosed or inspected without 
authorization. The provision further requires the IRS to 
provide information on unauthorized disclosures or inspections 
of return and return information in its public annual report to 
the Joint Committee on Taxation.

                             Effective Date

    The provision is effective upon date of enactment as it 
relates to notifying the taxpayer determinations of an unlawful 
disclosure or inspection. As to the annual report requirement, 
the provision is effective for calendar years ending after the 
date of enactment.

J. Disclosure of Taxpayer Identity for Tax Refund Purposes (Sec. 210 of 
               the Bill and Sec. 6103(m)(1) of the Code)

                              Present Law

    When the IRS is unable to find a taxpayer due a refund, 
present law provides that the IRS may use ``the press or other 
media'' to notify the taxpayer of the refund.\94\ Section 
6103(m) allows the IRS to give the press taxpayer identity 
information for this purpose.\95\
---------------------------------------------------------------------------
    \94\ Sec. 6103(m)(1). This section provides: The Secretary may 
disclose taxpayer identity information to the press or other media for 
purposes of notifying persons entitled to tax refunds when the 
Secretary, after reasonable effort and lapse of time, has been unable 
to locate such persons.
    \95\ Sec. 6103(m)(1), and (b)(6) (definition of ``taxpayer 
identity'').
---------------------------------------------------------------------------
    The IRS believes that the current statutory framework of 
``press and other media'' does not permit disclosures via the 
Internet. The legislative history of the present-law provision 
does not address the meaning of ``press and other media.'' At 
the time of the statute's enactment in 1976, the press 
(newspapers and periodicals) and other traditional media were 
the only means available for the IRS to distribute undelivered 
refund information to the public. Thus, the IRS interprets the 
term ``other media'' to exclude the Internet.

                           Reasons for Change

    The National Taxpayer Advocate noted that ``[e]very year 
many taxpayers move, do not give the IRS their new address, and 
thousands of refund checks are returned by the post office 
because they are undeliverable.'' \96\ In November 1999, the 
IRS announced that the U.S. Postal Service returned 102,840 
more refund checks as undeliverable.\97\ These checks totaled 
$72 million, averaging almost $700 per check.\98\
---------------------------------------------------------------------------
    \96\ Internal Revenue Service, Publication 2104, FY 1999: National 
Taxpayer Advocate's Annual Report to Congress, at IV-30 (December 
1999).
    \97\ Internal Revenue Service, Information Release IR-999-91 
(November 9, 1999).
    \98\ Id.
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    Based on the National Taxpayer Advocate's report, it is the 
understanding of the Committee that the current method of 
notification, by newspaper, is ineffective.\99\ The Committee 
believes that the IRS should be able to use any method of mass 
communication, including the Internet, to reach a taxpayer who 
is due a refund.
---------------------------------------------------------------------------
    \99\ Internal Revenue Service, Publication 2104, FY 1999: National 
Taxpayer Advocate's Annual Report to Congress, at IV-31 (December 
1999).
---------------------------------------------------------------------------

                        Explanation of Provision

    The provision allows the IRS to use any means of ``mass 
communication,'' including the Internet, to notify the taxpayer 
of an undelivered refund.

                             Effective Date

    The provision would be effective upon date of enactment.

                     TITLE III--OTHER REQUIREMENTS

 A. Clarification of Definition of Church Tax Inquiry (Sec. 301 of the 
                    Bill and Sec. 7611 of the Code)

                              Present Law

    Under present law, the IRS may begin a church tax inquiry 
only if the IRS regional commissioner (or a higher official) 
reasonably believes, on the basis of facts and circumstances 
recorded in writing, that an organization (1) may not qualify 
for tax exemption as a church, (2) may be carrying on an 
unrelated trade or business, or (3) otherwise may be engaged in 
taxable activities.\100\ A church tax inquiry is defined as any 
inquiry to a church (other than an examination) that serves as 
a basis for determining whether the organization qualified for 
tax exemption as a church or whether it is carrying on an 
unrelated trade or business or otherwise is engaged in taxable 
activities. An inquiry is considered to commence when the IRS 
request information or materials from a church or a type 
contained in church records, other than routine requests for 
information or inquiries regarding matters that do not 
primarily concern the tax status or liability of the church 
itself.
---------------------------------------------------------------------------
    \100\ Sec. 7611.
---------------------------------------------------------------------------

                           reasons for change

    The Committee believes that the present-law church tax 
inquiry procedures provide important safeguards against the IRS 
engaging in unnecessary and intrusive examinations of churches. 
However, the church tax inquiry procedures also have the effect 
of hampering IRS efforts to educate churches with respect to 
actions that are not permissible under section 501(c)(3). The 
Committee believes that a clarification of the scope of the 
church tax inquiry procedures to make it clear that the IRS may 
undertake educational outreach efforts with respect to specific 
churches (e.g., initiating meetings with representatives of a 
particular church to discuss the rules that apply to such 
church) will improve compliance with the law by churches.

                        explanation of provision

    The provision clarifies that the present-law church tax 
inquiry procedures do not apply to contacts made by the IRS for 
the purpose of educating churches with respect to the law 
governing tax-exempt organizations. For example, the provision 
clarifies that the IRS does not violate the church tax inquiry 
procedures when written materials are provided to a church or 
churches for the purpose of educating such church or churches 
with respect to the types of activities that are not 
permissible under section 501(c)(3).

                             effective date

    The provision is effective on the date of enactment.

 B. Extension of Declaratory Judgment Procedures to Non-501(c)(3) Tax-
   Exempt Organizations and Failure of IRS To Act on Determinations 
 Treated as Exhaustion of Remedies (Sec. 302 of the Bill and Sec. 7428 
                              of the Code)

                              Present Law

    In order for an organization to be granted tax exemption as 
a charitable entity described in section 501(c)(3), it 
generally must file an application for recognition of exemption 
with the IRS and receive a favorable determination of its 
status. Similarly, for most organizations, a charitable 
organization's eligibility to receive tax-deductible 
contributions is dependent upon its receipt of a favorable 
determination from the IRS. In general, a section 501(c)(3) 
organization can rely on a determination letter or ruling from 
the IRS regarding its tax-exempt status, unless there is a 
material change in its character, purposes, or methods of 
operation. In cases in which an organization violates one or 
more of the requirements for tax exemption under section 
501(c)(3), the IRS is authorized to revoke an organization's 
tax exemption, notwithstanding an earlier favorable 
determination.
    In situations in which the IRS denies an organization's 
application for recognition of exemption under section 
501(c)(3) or fails to act on such application, or in which the 
IRS informs a section 501(c)(3) organization that it is 
considering revoking or adversely modifying its tax-exempt 
status, present law authorizes the organization to seek a 
declaratory judgment regarding its tax status (sec. 7428). 
Section 7428 provides a remedy in the case of a dispute 
involving a determination by the IRS with respect to: (1) the 
initial qualification or continuing qualification of an 
organization as a charitable organization for tax exemption 
purposes or for charitable contribution deduction purposes; (2) 
the initial classification or continuing classification of an 
organization as a private foundation; (3) the initial 
classification or continuing classification of an organization 
as a private operating foundation; or (4) the failure of the 
IRS to make a determination with respect to (1), (2), or (3). A 
``determination'' in this context generally means a final 
decision by the IRS affecting the tax qualification of a 
charitable organization, although it also can include a 
proposed revocation of an organization's tax-exempt status or 
public charity classification. Section 7428 vests jurisdiction 
over controversies involving such a determination in the U.S. 
District Court for the District of Columbia, the U.S. Court of 
Federal Claims, and the U.S. Tax Court.
    Prior to utilizing the declaratory judgment procedure, an 
organization must have exhausted all administrative remedies 
available to it within the IRS. An organization is deemed to 
have exhausted its administrative remedies at the expiration of 
270 days after the date on which the request for a 
determination was made if the organization has taken, in a 
timely manner, all reasonable steps to secure such 
determination.
    If an organization (other than a section 501(c)(3) 
organization) files an application for recognition of exemption 
and receives a favorable determination from the IRS, the 
determination of tax-exempt status is usually effective as of 
the date of formation of the organization if its purposes and 
activities during the period prior to the date of the 
determination letter were consistent with the requirements for 
exemption. However, if the organization files an application 
for recognition of exemption and later receives an adverse 
determination from the IRS, the IRS may assert that the 
organization is subject to tax on some or all of its income for 
open taxable years. In addition, as with charitable 
organizations, the IRS may revoke or modify an earlier 
favorable determination regarding an organization's tax-exempt 
status.
    Under present law, a non-charity (i.e., an organization not 
described in section 501(c)(3)) may not seek a declaratory 
judgment with respect to an IRS determination regarding its 
tax-exempt status. The only remedies available to such an 
organization are to petition the U.S. Tax Court for relief 
following the issuance of a notice of deficiency or to pay any 
tax owed and sue for refund in federal district court or the 
U.S. Court of Federal Claims.

                           reasons for change

    The Committee believes that it is important to provide 
certainty for organizations that have sought a determination of 
their tax-exempt status. Thus, the Committee finds it 
appropriate to extend the present-law declaratory judgment 
procedures to all organizations that apply for tax-exempt 
status as organizations described in section 501(c). In 
addition, the Committee is aware that certain issues relating 
to determinations of tax-exempt status are forwarded to the IRS 
National Office and certain of these determinations may take 
extensive time to resolve by the IRS National Office. The 
Committee finds it appropriate to permit an organization to 
seek a declaratory judgment if a determination has been pending 
in the IRS National Office for more than 180 days after the 
organization has taken, in a timely manner, all reasonable 
steps to secure such determination, if that period is shorter 
than the normal 270 day period.

                        explanation of provision

    The provision extends declaratory judgment procedures 
similar to those currently available only to charities under 
section 7428 to other section 501(c) determinations. The 
provision limits jurisdiction over controversies involving such 
determinations to the United States Tax Court.\101\
---------------------------------------------------------------------------
    \101\ This limitation currently applies to declaratory judgments 
relating to tax qualification for certain employee retirement plans 
(sec. 7476).
---------------------------------------------------------------------------
    In addition, the provision modifies the present-law 
declaratory judgment procedures to provide that an organization 
is deemed to have exhausted its administrative remedies under 
the declaratory judgment procedures at the expiration of (1) 
270 days after the date on which the request for a 
determination was made if the organization has taken, in a 
timely manner, all reasonable steps to secure such 
determination, or (2) in the case of a failure by any office of 
the IRS (other than the office responsible for initial 
determinations with respect to the organization (the ``initial 
office'')), 180 days after any request with respect to such 
determination was made by the initial office if the 
organization has taken, in a timely manner, all reasonable 
steps to secure such determination.

                             effective date

    The extension of the declaratory judgment procedures to 
organizations other than section 501(c)(3) organizations is 
effective for pleadings with respect to determinations made 
after the date of enactment. The provision modifying the time 
that an organization is deemed to have exhausted it 
administrative remedies is effective on the date of enactment.

   C. Employee Misconduct Report To Include Summary of Complaints by 
    Category (Sec. 303 of the Bill and Sec. 7803(d)(2) of the Code)

                              present law

    The Treasury Inspector General for Tax Administration is 
subject to the semi-annual reporting requirements set forth in 
section 5 of the Inspector General Act of 1978. Under present 
law, reports are made to the Committees on Government Reform 
and Oversight and Ways and Means in the House of 
Representatives and the Committees on Governmental Affairs and 
Finance in the Senate. Each semi-annual report is required to 
include information regarding the source, nature and status of 
taxpayer complaints and allegations of serious misconduct by 
IRS employees received by the IRS or by the Treasury Inspector 
General for Tax Administration.

                           reasons for change

    The Committee believes that the information available to 
the Congress and the public under present law would be enhanced 
by additional reporting of the types of allegations made with 
respect to IRS employee misconduct and the number of complaints 
made with respect to the most common types of allegations.

                        explanation of provision

    The provision modifies the semi-annual reporting 
requirement for the Treasury Inspector General for Tax 
Administration to require that the reporting with respect to 
allegations of serious IRS employee misconduct include a 
summary (by category) of the 10 most common complaints made and 
the number of such common complaints (by category).

                             effective date

    The provision is effective for reporting periods ending 
after the date of enactment.

 D. Increase Joint Committee on Taxation Refund Review Threshold to $2 
        Million (Sec. 304 of the Bill and Sec. 6405 of the Code)

                              Present Law

    No refund or credit in excess of $1,000,000 of any income 
tax, estate or gift tax, or certain other specified taxes, may 
be made until 30 days after the date a report on the refund is 
provided to the Joint Committee on Taxation (sec. 6405). A 
report is also required in the case of certain tentative 
refunds. Additionally, the staff of the Joint Committee on 
Taxation conducts post-audit reviews of large deficiency cases 
and other select issues.

                           Reasons for Change

    The Committee believes that it is appropriate to increase 
the refund review threshold, which has been set at $1,000,000 
since 1990. Increasing it will accelerate the issuance of 
refunds between $1,000,000 and $2,000,000 to the taxpayers 
involved. In addition, this increase will free up significant 
resources of both the Internal Revenue Service and the staff of 
the Joint Committee on Taxation, without materially impairing 
the ability to monitor problems in the administration of the 
tax laws.

                        Explanation of Provision

    The provision increases the threshold above which refunds 
must be submitted to the Joint Committee on Taxation for review 
from $1,000,000 to $2,000,000. The staff of the Joint Committee 
on Taxation would continue to exercise its existing statutory 
authority to conduct a program of expanded post-audit reviews 
of large deficiency cases and other select issues, and the IRS 
is expected to cooperate fully in this expanded program.

                             Effective Date

    The provision is effective on the date of enactment, except 
that the higher threshold does not apply to a refund or credit 
with respect to which a report was made before the date of 
enactment.

E. Annual Report on Awards of Costs and Certain Fees in Administrative 
              and Court Proceedings (Sec. 305 of the Bill)

                              Present Law

    The Code requires that the IRS pay a taxpayer's reasonable 
administrative and litigation expenses under specified 
circumstances.\102\ Among other requirements, the IRS is not 
required to pay these amounts if the IRS can demonstrate that 
its position was substantially justified.
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    \102\ Sec. 7430.
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                           Reasons for Change

    The fact that the IRS paid these expenses may be an 
indication that its position was not substantially justified, 
as well as an indication that the IRS may be inappropriately 
pursuing an issue. The lack of published statistics and 
analytical information hinders the Congress and taxpayers from 
assessing the extent to which the IRS may be inappropriately 
pursuing an issue and from pursuing potential remedies to 
alleviate this problem.

                        Explanation of Provision

    The bill requires TIGTA to publish annually statistics on 
the number of payments (whether as a result of a settlement or 
judicial decision) made pursuant to section 7430 and the amount 
of each such payment. TIGTA would also be required to publish 
an analysis of the administrative issues that gave rise to the 
necessity of making these payments and the changes (if any) 
that will be implemented by the IRS as a result of TIGTA's 
analysis, as well as any other changes that TIGTA recommends on 
the basis of its analysis. This will permit the Congress to 
assess the extent to which the IRS may be inappropriately 
pursuing an issue and to pursue potential remedies to alleviate 
this problem.

                             Effective Date

    The first annual report is required for fiscal year 2000. 
The reports must be published no later than three months 
following the close of the fiscal year.

   F. Annual Report on Abatements of Penalties (Sec. 306 of the Bill)

                              Present Law

    Some penalties in the Code are imposed automatically (such 
as for failure to file or failure to pay), while others are 
imposed in response to the specific factual situation presented 
on a tax return (such as negligence). In addition, some 
penalties can be abated automatically, while others are abated 
in response to a specific factual presentation made by the 
taxpayer. In general, most penalties can be abated for 
reasonable cause, but the details of what constitutes 
reasonable cause can vary somewhat from penalty to penalty as a 
reflection of the differences in the types of behaviors that 
the different penalties are designed to deter.

                           Reasons for Change

    Both the manner in which penalties are imposed and the 
manner in which they are abated can present issues for 
consideration with respect to the uniformity of penalty 
administration. The system of penalty administration has a 
number of goals and it is not always possible to reconcile them 
completely. One goal is uniformity of application of penalties 
(both in their original imposition and in their abatement) for 
similarly situated taxpayers. Another goal is to reflect the 
individual circumstances surrounding the failure for which the 
taxpayer is being penalized. Another goal is to provide rapid 
resolution for taxpayers of disputes with the IRS, including 
disputes over penalties. Accomplishing this goal entails giving 
``front line'' IRS employees the authority to resolve disputes 
(within certain parameters) on their own authority.
    One challenge in providing proper tax administration is 
balancing all of these goals so that one does not predominate 
at the expense of the others. For example, one theoretical way 
to maximize uniformity might be to centralize the 
administration of penalties in one office. This would, however, 
make it more difficult for taxpayers to reach a rapid 
resolution of their disputes with the IRS, because it could be 
more difficult for taxpayers to deal with a centralized penalty 
administration structure than with the current locally-based 
structure. It could also present administrative difficulties, 
such as divorcing decisions concerning penalties from decisions 
concerning the underlying liability, when in reality the two 
may be inextricably interconnected. On the other hand, the 
maximization of the goal of reflecting individual circumstances 
could adversely affect both uniformity and the rapid resolution 
of disputes. Similarly, maximizing the rapid resolution of 
disputes could adversely affect both uniformity and 
individualization.
    Balancing these goals necessarily means that any one of 
them will not be maximized. Accordingly, a balanced approach 
means that some compromises will have to be made to permit the 
most appropriate balancing of these goals.

                        Explanation of Provision

    The bill requires TIGTA to report to the Congress annually 
on penalty abatements and the reasons and criteria for 
abatements. Better statistical information will enable more 
rigorous analysis of the systems to occur, which will provide 
the opportunity for problems to surface and be dealt with in a 
systematic manner.

                             Effective Date

    The first annual report is required for fiscal year 2000. 
The reports must be provided to the Congress no later than six 
months following the close of the fiscal year.

 G. Better Means of Communicating with Taxpayers (Sec. 307 of the Bill)

                              Present Law

    The IRS generally communicates with taxpayers (or their 
designated representatives) in one of three methods: by mail, 
by telephone, or in person. Many telephone or in person 
contacts are initiated by the taxpayer, whereas many mail 
contacts are initiated by the IRS.

                           Reasons for Change

    Many of the difficulties taxpayers encounter in the course 
of communicating with the IRS are inherent to mail 
communications: documents missing in the mail, difficulties in 
forwarding documents, maintaining updated address records, etc. 
The Committee believes that it will be beneficial to receive an 
evaluation of whether technological advances, such as e-mail 
and the fax, could permit the utilization of alternate means of 
communicating with taxpayers, which in turn could eliminate 
some of the difficulties with the present system.

                        Explanation of Provision

    The bill requires TIGTA to issue a report to the Congress 
evaluating whether technological advances, such as e-mail and 
the fax, permit the utilization of alternate means of 
communicating with taxpayers to eliminate some of the 
difficulties with the present system.

                             Effective Date

    The report must be issued no later than 18 months after the 
date of enactment.

 H. Information Regarding Statute of Limitations (Sec. 308 of the Bill)

                              Present Law

    In general, a taxpayer must file a refund claim within 
three years of the filing of the return or within two years of 
the payment of the tax, whichever period expires later (if no 
return is filed, the two-year limit applies).\103\ A refund 
claim that is not filed within these time periods is rejected 
as untimely.
---------------------------------------------------------------------------
    \103\ Sec. 6511(a).
---------------------------------------------------------------------------
    A special rule applies during periods of disability. 
Equitable tolling of the statute of limitations for refund 
claims of an individual taxpayer applies during any period in 
which an individual is unable to manage his or her financial 
affairs by reason of a medically determinable physical or 
mental impairment that can be expected to result in death or to 
last for a continuous period of not less than 12 months. 
Equitable tolling does not apply during periods in which the 
taxpayer's spouse or another person is authorized to act on the 
taxpayer's behalf in financial matters.
    There is no requirement that IRS publications contain 
information that both describes this statute of limitations 
provision and explains the consequences of failing to file 
within the time period prescribed by the statute of 
limitations.

                           Reasons for Change

    Some taxpayers who are due refunds fail to file tax returns 
by the due date. Several years later they realize that they owe 
additional taxes to the IRS for that later year and attempt to 
offset the amount that they owe against the refund that they 
were due for the earlier year. They are unable to do so, 
however, if their claim for the refund is filed beyond the 
statutorily specified deadline. The Committee recognizes that 
in general statutes of limitations promote important policy 
goals of repose and certainty. The Committee also believes that 
it is important that taxpayers be adequately informed of the 
operation of these provisions so that they are not 
inadvertently disadvantaged by consequences that they did not 
foresee.

                        Explanation of Provision

    The bill requires the IRS to revise Publication 1 (``Your 
Rights as a Taxpayer'') by adding an explanation of the 
consequences of failing to file within the time period 
prescribed by the statute of limitations to the section on 
refunds that describes the statute of limitations. The bill 
also requires the IRS to revise the instructions that accompany 
all of the Form 1040 packages (including 1040A and 1040EZ) in a 
similar manner to add a description of this statute of 
limitations and an explanation of the consequences of failing 
to file within the time period prescribed by the statute of 
limitations.

                             Effective Date

    The revisions to Publication 1 are required to be made as 
soon as practicable, but not later than 180 days after the date 
of enactment. The revisions to the Form 1040 instructional 
packages are required to be made for instructions for taxable 
years beginning after December 31, 1999.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4163.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 4163, as amended, was ordered favorably 
reported by voice vote.

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Doggett, relating to disclosure 
requirements for political organizations under Section 527 of 
the Internal Revenue Code, was defeated by a rollcall vote of 
15 yeas to 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Archer.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........        X   ........  .........
Mr. Thomas.....................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........  ........  ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........  ........  .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Watkins....................  ........        X   .........
Mr. Hayworth...................  ........        X   .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 4163, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2000-2005:

 ESTIMATED BUDGET EFFECTS OF THE ``TAXPAYER BILL OF RIGHTS 2000,'' AS ORDERED TO BE REPORTED BY THE COMMITTEE ON
                                         WAYS AND MEANS ON APRIL 5, 2000
                                [Fiscal years 2000-2005 in [millions of dollars]
----------------------------------------------------------------------------------------------------------------
          Provision                Effective       2000     2001     2002     2003     2004     2005    2000-05
----------------------------------------------------------------------------------------------------------------
Penalties and Interest
 Provisions:
    1. Convert penalty for    tyba 12/31/00.....  ......      -66      -68      -70      -72      -74       -348
     failure to pay
     estimated tax into an
     interest provision and
     increase and mostly
     threshold.
    2. Simplify estimated     tyba 12/31/00.....                     Negligible Revenue Effect
     tax calculation.
    3. Exclude interest on    ipi cyba DOE......  ......    1,902      -85      -87      -88      -91      1,552
     individual Federal
     income tax overpayments.
    4. Failure to pay
     penalty:
    a. Repeal penalty in      pma 12/31/00......  ......     -144     -178     -184     -189     -195       -890
     installment agreements.
    b. Reduce penalty by one  pma 12/31/00......  ......     -145     -458     -472     -486     -501     -2,362
     half for all other
     taxpayers.
    5. Abatement of interest  iao/a DOE.........  ......       -3       -6      -10      -15      -23        -56
    6. Qualified reserve      ipa DOE...........     100       49       -4       -4       -4       -4        137
     account.
    7. Apply interest         iao/a 12/31/00....  ......      -25      -26      -27      -28      -28       -134
     netting to individuals
     without regard to 45-
     day period of section
     6611(e).
                                                 ---------------------------------------------------------------
      Total of Penalties and  ..................  ......    1,319     -772     -854     -882     -916     -2,101
       Interest Provisions.
Confidentiality and           ..................                         No Revenue Effect
 Disclosure Provisions.
Other Requirements
 Provisions:
    1. Expansion of           generally DOE.....                     Negligible Revenue Effect
     declaratory judgment
     remedy to tax-exempt
     organizations.
    2. Increase in threshold  DOE...............                     Negligible Revenue Effect
     for Joint Committee
     reports on refunds and
     credits.
    3. Other provisions.....  ..................                     Negligible Revenue Effect
      Total of Other          ..................                     Negligible Revenue Effect
       Requirements
       Provisions.
      Net Total.............  ..................  ......    1,319     -772     -854     -882     -916     -2,101
----------------------------------------------------------------------------------------------------------------
Legend for ``Effective'' column: DOE=date of enactment; cyba=calendar years beginning after; iao/a=interest
  accruing on or after; ipa=interest for periods after; ipi=interest paid in; pma=payments made after;
  tyba=taxable years beginning after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

    B. Statement Regarding New Budget Authority and Tax Expenditures

Budget authority

    In compliance with clause 3(c)(2) of Rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

Tax expenditures

    In compliance with clause 2(c)(2) of Rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
revenue-reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of Rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the Congressional Budget Office (``CBO''), the 
following statement by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 10, 2000.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4163, the Taxpayer 
Bill of Rights 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Hester 
Grippando (for revenues) and John Righter (for direct 
spending).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4163--Taxpayer Bill of Rights 2000

    Summary: H.R. 4163 would impose new confidentiality and 
disclosure requirements on the government with regard to 
taxpayer information. In addition, the bill would reduce or 
repeal certain penalties for failure to pay taxes; allow 
taxpayers to exclude interest earned from overpayments of 
federal income tax from their income; allow the Secretary of 
Treasury to abate interest on overdue tax payments in certain 
additional situations; allow taxpayers to create dispute-
reserve accounts whose funds may be applied to offset a tax 
underpayment; and apply interest netting rules without regard 
to the 45-day period during which the Treasury may refund 
overpayments without interest.
    The Joint Committee on Taxation (JCT) estimates that the 
bill would increase revenues by $1.3 billion in 2001, reduce 
revenues by about $2.1 billion over the 2001-2005 period, and 
reduce revenues by about $7.3 billion over the 2001-2010 
period. In addition, the bill would affect direct spending, but 
CBO estimates that such amounts would total less than $500,000 
each year. Because the bill would affect direct spending and 
receipts, pay-as-you-go procedures would apply.
    H.R. 4163 contains one new intergovernmental mandate, the 
costs of which would not exceed the threshold for 
intergovernmental mandates ($55 million in fiscal year 2000, 
adjusted annually for inflation) established in the Unfunded 
Mandates Reform Act (UMRA). H.R. 4163 contains no private-
sector mandates as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4163 is shown in the following table.

----------------------------------------------------------------------------------------------------------------
                                                       By fiscal year, in millions of dollars--
                                                -----------------------------------------------------
                                                   2000     2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------- -------------
                                               CHANGES IN REVENUES

Estimated revenues.............................        0    1,319     -772     -854     -882     -916
                                           CHANGES IN DIRECT SPENDING

Estimated budget authority.....................        0    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)
Estimated outlays..............................        0    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.

Sources: Joint Committee on Taxation and Congressional Budget Office.

Basis of Estimate

            Revenues
    Estimates of all revenue provisions in H.R. 4163 were 
provided by JCT.

                            direct spending

    In addition to the bill's estimated effect on revenues, 
enacting H.R. 4163 would affect direct spending, but CBO 
estimates that the net effect of such changes would be less 
than $500,000 each year.
    Under current law, taxpayers can elect to pay their taxes 
through installments. The Internal Revenue Service (IRS) 
charges a fee of $43 for each installment agreement, which it 
can retain and spend without further appropriation action. For 
those taxpayers who allow the IRS to automatically withdraw 
each installment payment directly from their bank account, H.R. 
4163 would waive the payment of the processing fee. Because the 
IRS can retain and spend such amounts, the loss of offsetting 
receipts (a form of direct spending) from not collecting the 
fees would be offset by an equivalent reduction in spending, 
resulting in a net budgetary impact of less than $500,000 each 
year.
    In addition, enacting H.R. 4613 could increase the amount 
of penalties awarded taxpayers in administrative or court 
proceedings. CBO estimates that the amount of such penalties, 
which would be paid for from the permanent, indefinite 
appropriation for claims and judgments, would total less than 
$500,000 each year.
    Pay-as-you-go consideration: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects in the current year, the budget year, and the 
succeeding four years are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                      2000     2001     2002     2003     2004     2005     2006     2007     2008      2009      2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................        0        0        0        0        0        0        0        0         0         0         0
Changes in receipts...............................        0    1,319     -772     -854     -882     -916     -953     -993    -1,040    -1.090    -1,146
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on State, local and tribal governments: 
The provision in H.R. 4163 that would ensure compliance by 
state contractors with confidentiality safeguards on tax return 
information would impose a mandate on state, local, and tribal 
governments. JCT estimates the costs of this mandate would not 
exceed the threshold for intergovernmental mandates ($55 
million in fiscal year 2000, adjusted annually for inflation) 
established in UMRA.
    Estimated impact on the private sector: As estimated by 
JCT, the bill contains no private-sector mandates as defined in 
UMRA.
    Estimate prepared by: Federal revenues: Hester Grippando; 
Federal spending: John Righter.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis; G. Thomas Woodward, Assistant 
Director for Tax Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning fairness to individual taxpayers 
that the Committee concluded that it is appropriate and timely 
to enact the revenue provisions included in the bill as 
reported.

    B. Summary of Findings and Recommendations of the Committee on 
                           Government Reform

    With respect to clause 3(c)(4) of rule XII of the Rules of 
the House of Representatives, the Committee advises that no 
oversight findings or recommendations have been submitted to 
this Committee by the Committee on Government Reform with 
respect to the provisions contained in the bill.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises * * *''), and 
from the 16th Amendment to the Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The provision that 
ensures compliance by State contractors with confidentiality 
safeguards (sec. 207) imposes Federal intergovernmental 
mandates on State, local and tribal governments. The staff of 
the Joint Committee on Taxation estimates that the direct costs 
of complying with these Federal intergovernmental mandates will 
not exceed $50,000,000 in either the first fiscal year or in 
any of the 4 fiscal years following the first fiscal year.

                 E. Applicability of House Rule XXI5(b)

    Rule XXI5(b) of the Rules of the House of Representatives 
provides, in part, that ``No bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase shall be considered as passed or agreed to unless 
determined by a vote of not less than three-fifths of the 
Members.'' The Committee has carefully reviewed the provisions 
of the bill, and states that the provisions of the bill do not 
involve any Federal income tax rate increase within the meaning 
of the rule.

                       F. Tax Complexity Analysis

    The following tax complexity analysis is provided pursuant 
to section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998, which requires the staff of the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service (``IRS'') and the Treasury Department) to 
provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided, along with an estimate of the number and the type 
of affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS regarding each of the 
provisions included in the complexity analysis, including a 
discussion of the likely effect on IRS forms and any expected 
impact on the IRS.

 1. Partial Repeal and Reduction in the Penalty for Failure to Pay Tax

Summary description of provision

    The bill repeals the penalty for failure to pay tax for 
taxpayers with respect to whom an installment payment agreement 
with the IRS is in effect, provided that the taxpayer filed the 
tax return in a timely manner (including extensions). The bill 
also reduces by half the failure to pay tax penalty for all 
other taxpayers (generally, those who have not entered into an 
installment payment agreement with the IRS). In addition, the 
bill provides that taxpayers who enter into installment 
agreements are not required to pay the present-law $43 fee for 
installment agreements while automated withdrawals of 
installment payments are made directly from their bank account.

Number of affected taxpayers

    It is estimated that the provision will affect 
approximately thirteen million taxpayers.

Discussion

    The provision should not result in an increase in disputes 
with the IRS. Regulatory guidance may be useful to taxpayers in 
explaining this provision. In addition, the provision should 
not increase individuals' tax preparation costs.
    In general, the provision either eliminates or reduces by 
half the penalty for failure to pay tax. It does not increase 
the penalty for any taxpayer. Accordingly, taxpayers are 
directly benefitted by the provision.
    It is anticipated that some individuals will need to keep 
additional records due to this provision. There are two reasons 
for this. First, the provision repeals the penalty for failure 
to pay tax for taxpayers with respect to whom an installment 
payment agreement with the IRS is in effect, provided that the 
taxpayer filed the tax return in a timely manner (including 
extensions). Thus, taxpayers will have an added incentive to 
enter into an installment payment agreement with the IRS. 
Accordingly, taxpayers who respond to the provision by entering 
into installment agreements who would not otherwise have done 
so will be required to complete and keep the additional 
paperwork that is prerequisite to obtaining an installment 
agreement. It is anticipated that these taxpayers will view the 
benefit of eliminating the penalty for failure to pay tax as 
outweighing the recordkeeping requirement. Second, the bill 
provides that taxpayers who enter into installment agreements 
are not required to pay the present-law $43 fee for installment 
agreements while automated withdrawals of installment payments 
are made directly from their bank account. To avail themselves 
of this provision, taxpayers will have to complete and keep the 
additional paperwork that is prerequisite to establishing the 
automated withdrawal of payments. It is anticipated that 
taxpayers will view the benefit of not having to pay the $43 
fee (and of not having to write and mail monthly checks) as 
outweighing the recordkeeping requirement.
                        Department of the Treasury,
                                  Internal Revenue Service,
                                     Washington, DC, April 6, 2000.
Ms. Lindy L. Paull,
Chief of Staff, Joint Committee on Taxation,
Washington, DC.
    Dear Ms. Paull: Enclosed are the combined comments of the 
Internal Revenue Service and the Treasury Department on the 
amendments to the failure to pay penalty in the House Committee 
on Ways and Means markup of the ``Taxpayer Bill of Rights 
2000,'' that you identified for complexity analysis in your 
letter of April 4, 2000. Our comments are based on the 
description of those amendments in JCX-43-00, Joint Committee 
on Taxation, An Amendment in the Nature of a Substitute to the 
Provisions of the ``Taxpayer Bill of Rights 2000,'' April 4, 
2000.
    Due to the short turnaround time, our comments are 
provisional and subject to change upon a more complete and in-
depth analysis of the provisions.
            Sincerely,
                                               Charles O. Rossotti.
    Enclosure.

 COMPLEXITY ANALYSIS OF FAILURE TO PAY AMENDMENTS IN THE TAXPAYER BILL 
                             OF RIGHTS 2000

Provisions

    Reduce the current 0.5 percent per month failure to pay 
penalty and 1.0 percent a month special rate for months after 
the IRS informs the taxpayer that IRS will levy upon the 
taxpayer's assets, to 0.25 and 0.5 percent per month, 
respectively. Reduce to zero the current 0.25 percent per month 
failure to pay penalty for individuals during periods an 
installment agreement is in effect. Prohibit the IRS from 
charging taxpayers a fee for entering into an installment 
agreement so long as payments under the agreement are made by 
means of electronic transfer or by similar automated means. The 
reduced penalty rates apply to months beginning after December 
31, 2000. The prohibition on fees for installment agreements 
using automated withdrawals applies to agreements entered into 
more than 30 days after date of enactment.

IRS and Treasury comments

    All tax form instructions that currently mention the 
failure to pay rates would have to be modified to reflect the 
reduced rates. In addition, the instructions to Form 9465, 
Installment Agreement Request, would have to be revised to 
reflect the prohibition on installment agreement user fees 
(i.e., a zero user fee) where taxpayers agreed to make payments 
by means of electronic transfer or by similar automated means. 
The provisions would not require new tax forms.
    All taxpayer notices, Internal Revenue manuals, and 
taxpayer information materials that currently mention the 
failure to pay rates or installment agreement user fees, would 
have to be revised to reflect the reduced failure to pay rates 
and zero user fees for installment agreements where the 
taxpayer agrees to make payments by means of electronic 
transfer. Regulations or other published guidance may be 
needed.
    The programming changes needed to reflect the failure to 
pay reductions are comprehensive and affect a significant 
number of MasterFile and Compliance systems programs. Current 
programming resources are fully allocated to implementation of 
other legislatively mandated changes, including those required 
by the IRS Restructuring and Reform Act of 1998. To fully test 
and implement the programming changes for the failure to pay 
reductions, IRS would need at least 12 months lead time. Since 
most MasterFile and Compliance systems program updates reflect 
calendar changes, IRS recommends that the failure to pay 
reductions be effective at the beginning of a calendar year.

       VII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *

                       Subtitle A--Income Taxes

           *       *       *       *       *       *       *

CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

        Sec. 101. Certain death benefits.
     * * * * * * *
        [Sec. 139. Cross References to other Acts.]
        Sec. 139. Exclusion from gross income for interest on 
                  overpayments of income tax by individuals.
        Sec. 139A. Cross references to other Acts.

           *       *       *       *       *       *       *

SEC. 139. EXCLUSION FROM GROSS INCOME FOR INTEREST ON OVERPAYMENTS OF 
                    INCOME TAX BY INDIVIDUALS.

  (a) In General.--In the case of an individual, gross income 
shall not include interest paid under section 6611 on any 
overpayment of tax imposed by this subtitle.
  (b) Exception.--Subsection (a) shall not apply in the case of 
a failure to claim items resulting in the overpayment on the 
original return if the Secretary determines that the principal 
purpose of such failure is to take advantage of subsection (a).
  (c) Special Rule for Determining Modified Adjusted Gross 
Income.--For purposes of this title, interest not included in 
gross income under subsection (a) shall not be treated as 
interest which is exempt from tax for purposes of sections 
32(i)(2)(B) and 6012(d) or any computation in which interest 
exempt from tax under this title is added to adjusted gross 
income.

SEC. [139.] 139A. CROSS REFERENCES TO OTHER ACTS.

  (a) For exemption of--

           *       *       *       *       *       *       *

     PART IV--TAX EXEMPTION REQUIREMENT FOR STATE AND LOCAL BONDS

           *       *       *       *       *       *       *

SEC. 167. DEPRECIATION.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Depreciation Under Income Forecast Method.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Collection of interest.--For purposes of 
                subtitle F (other than sections [6654] 6641 and 
                6655), any interest required to be paid by the 
                taxpayer under paragraph (1) for any 
                recomputation year shall be treated as an 
                increase in the tax imposed by this chapter for 
                such year.

           *       *       *       *       *       *       *

Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *

                    PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *

Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *

SEC. 460. SPECIAL RULES FOR LONG-TERM CONTRACTS.

  (a) * * *
  (b) Percentage of Completion Method.--
          (1) Requirements of percentage of completion 
        method.--Except as provided in paragraph (2), in the 
        case of any long-term contract with respect to which 
        the percentage of completion method is used--
                  (A) * * *

           *       *       *       *       *       *       *

        For purposes of subtitle F (other than sections [6654] 
        6641 and 6655) any interest required to be paid by the 
        taxpayer under subparagraph (B) shall be treated as an 
        increase in the tax imposed by this chapter for the 
        taxable year in which the contract is completed (or, in 
        the case of interest payable with respect to any amount 
        properly taken into account after completion of the 
        contract, for the taxable year in which the amount is 
        so properly taken into account).

           *       *       *       *       *       *       *

Subtitle C--Employment Taxes

           *       *       *       *       *       *       *

      CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES

           *       *       *       *       *       *       *

SEC. 3510. COORDINATION OF COLLECTION OF DOMESTIC SERVICE EMPLOYMENT 
                    TAXES WITH COLLECTION OF INCOME TAXES.

  (a)  * * *

           *       *       *       *       *       *       *

  (b) Domestic Service Employment Taxes Subject to Estimated 
Tax Provisions.--
          (1) In general.--Solely for purposes of [section 
        6654] section 6641, domestic service employment taxes 
        imposed with respect to any calendar year shall be 
        treated as a tax imposed by chapter 2 for the taxable 
        year of the employer which begins in such calendar 
        year.
          (2) Employers not otherwise required to make 
        estimated payments.--Paragraph (1) shall not apply to 
        any employer for any calendar year if--
                  (A) no credit for wage withholding is allowed 
                under section 31 to such employer for the 
                taxable year of the employer which begins in 
                such calendar year, and
                  [(B) no addition to tax would (but for this 
                section) be imposed under section 6654 for such 
                taxable year by reason of section 6654(e).]
                  (B) no interest would be required to be paid 
                (but for this section) under 6641 for such 
                taxable year by reason of the $2,000 amount 
                specified in section 6641(d)(1)(B)(i)(II).
          (3) Annualization.--Under regulations prescribed by 
        the Secretary, appropriate adjustments shall be made in 
        the application of [section 6654(d)(2)] section 
        6641(d)(2) in respect of the amount treated as tax 
        under paragraph (1).
          [(4) Transitional rule.--In the case of any taxable 
        year beginning before January 1, 1998, no addition to 
        tax shall be made under section 6654 with respect to 
        any underpayment to the extent such underpayment was 
        created or increased by this section.]

           *       *       *       *       *       *       *

Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *

                  CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *

Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *

SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
                    INFORMATION.

  (a) General Rule.--Returns and return information shall be 
confidential, and except as authorized by this [title--] title 
and notwithstanding any other provision of law--
          (1)  * * *

           *       *       *       *       *       *       *

  (c) Disclosure of Returns and Return Information to Designee 
of Taxpayer.--[The Secretary]
          (1) In General.--The Secretary may, subject to such 
        requirements and conditions as he may prescribe by 
        regulations, disclose the return of any taxpayer, or 
        return information with respect to such taxpayer, to 
        such person or persons as the taxpayer may designate in 
        a request for or consent to such disclosure, or to any 
        other person at the taxpayer's request to the extent 
        necessary to comply with a request for information or 
        assistance made by the taxpayer to such other person. 
        However, return information shall not be disclosed to 
        such person or persons if the Secretary determines that 
        such disclosure would seriously impair Federal tax 
        administration.
          (2) Requirements for valid requests and consents.--A 
        request for or consent to disclosure under paragraph 
        (1) shall only be valid for purposes of this section or 
        sections 7213, 7213A, or 7431 if--
                  (A) at the time of execution, such request or 
                consent designates a recipient of such 
                disclosure and is dated, and
                  (B) at the time such request or consent is 
                submitted to the Secretary, the submitter of 
                such request or consent certifies, under 
                penalty of perjury, that such request or 
                consent complied with subparagraph (A).
          (3) Restrictions on persons obtaining information.--
        Any person shall, as a condition for receiving return 
        or return information under paragraph (1)--
                  (A) ensure that such return and return 
                information is kept confidential,
                  (B) use such return and return information 
                only for the purpose for which it was 
                requested, and
                  (C) not disclose such return and return 
                information except to accomplish the purpose 
                for which it was requested, unless a separate 
                consent from the taxpayer is obtained.
          (4) Requirements for form prescribed by secretary.--
        For purposes of this subsection, the Secretary shall 
        prescribe a form for requests and consents which 
        shall--
                  (A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not 
                be signed unless it is completed,
                  (B) state that if the taxpayer believes there 
                is an attempt to coerce him to sign an 
                incomplete or blank form, the taxpayer should 
                report the matter to the Treasury Inspector 
                General for Tax Administration, and
                  (C) contain the address and telephone number 
                of the Treasury Inspector General for Tax 
                Administration.

           *       *       *       *       *       *       *

  (e) Disclosure to Persons Having Material Interest.--
          (1)  * * *

           *       *       *       *       *       *       *

          (8) Disclosure of collection activities with respect 
        to joint return.--If any deficiency of tax with respect 
        to a joint return is assessed and the individuals 
        filing such return are no longer married or no longer 
        reside in the same household, upon request [in writing] 
        by either of such individuals, the Secretary shall 
        disclose in writing to the individual making the 
        request whether the Secretary has attempted to collect 
        such deficiency from such other individual, the general 
        nature of such collection activities, and the amount 
        collected. The preceding sentence shall not apply to 
        any deficiency which may not be collected by reason of 
        section 6502.

           *       *       *       *       *       *       *

  (h) Disclosure to Certain Federal Officers and Employees for 
Purposes of Tax Administration, Etc.--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) Disclosure in judicial and administrative tax 
        proceedings.--[A return]
                  (A) In general.--Except as provided in 
                subparagraph (B), a return or return 
                information may be disclosed in a Federal or 
                State judicial or administrative proceeding 
                pertaining to tax administration, but only--
                          [(A)] (i) if the taxpayer is a party 
                        to the proceeding, or the proceeding 
                        arose out of, or in connection with, 
                        determining the taxpayer's civil or 
                        criminal liability, or the collection 
                        of such civil liability, in respect of 
                        any tax imposed under this title;
                          [(B)] (ii) if the treatment of an 
                        item reflected on such return is 
                        directly related to the resolution of 
                        an issue in the proceeding;
                          [(C)] (iii) if such return or return 
                        information directly relates to a 
                        transactional relationship between a 
                        person who is a party to the proceeding 
                        and the taxpayer which directly affects 
                        the resolution of an issue in the 
                        proceeding; or
                          [(D)] (iv) to the extent required by 
                        order of a court pursuant to section 
                        3500 of title 18, United States Code, 
                        or rule 16 of the Federal Rules of 
                        Criminal Procedure, such court being 
                        authorized in the issuance of such 
                        order to give due consideration to 
                        congressional policy favoring the 
                        confidentiality of returns and return 
                        information as set forth in this title.
                However, such return or return information 
                shall not be disclosed as provided in 
                [subparagraph (A), (B), or (C)] clause (i), 
                (ii) or (iii) if the Secretary determines that 
                such disclosure would identify a confidential 
                informant or seriously impair a civil or 
                criminal tax investigation.
                  (B) Disclosure in judicial or administrative 
                tax proceedings of return and return 
                information of persons not party to such 
                proceedings.--
                          (i) Notice.--Return or return 
                        information of any person who is not a 
                        party to a judicial or administrative 
                        proceeding described in paragraph (4) 
                        shall not be disclosed under clause 
                        (ii) or (iii) of subparagraph (A) until 
                        after the Secretary makes a reasonable 
                        effort to give notice to such person 
                        and an opportunity for such person to 
                        request the deletion of matter from 
                        such return or return information, 
                        including any of the items referred to 
                        in paragraphs (1) through (7) of 
                        section 6110(c). Such notice shall 
                        include a statement of the issue or 
                        issues the resolution of which is the 
                        reason such return or return 
                        information is sought. In the case of S 
                        corporations, partnerships, estates, 
                        and trusts, such notice shall be made 
                        at the entity level.
                          (ii) Disclosure limited to pertinent 
                        portion.--The only portion of a return 
                        or return information described in 
                        clause (i) which may be disclosed under 
                        subparagraph (A) is that portion of 
                        such return or return information that 
                        directly relates to the resolution of 
                        an issue in such proceeding.
                          (iii) Exceptions.--Clause (i) shall 
                        not apply to--
                                  (I) any ex parte proceeding 
                                for obtaining a search warrant, 
                                order for entry on premises or 
                                safe deposit boxes, or similar 
                                ex parte proceeding,
                                  (II) disclosure of third 
                                party return information by 
                                indictment or criminal 
                                information, or
                                  (III) if the Secretary 
                                determines that the application 
                                of such clause would seriously 
                                impair a criminal tax 
                                investigation.

           *       *       *       *       *       *       *

          (7) Taxpayer representatives.--Notwithstanding 
        paragraph (1), the return of the representative of a 
        taxpayer whose return is being examined by an officer 
        or employee of the Department of the Treasury shall not 
        be open to inspection by such officer or employee on 
        the sole basis of the representative's relationship to 
        the taxpayer unless a supervisor of such officer or 
        employee has approved the inspection of the return of 
        such representative on a basis other than by reason of 
        such relationship.

           *       *       *       *       *       *       *

  (k) Disclosure of Certain Returns and Return Information for 
Tax Administration Purposes.--
          (1) Disclosure of accepted offers-in-compromise.--
        Return information (other than address and TIN) shall 
        be disclosed to members of the general public to the 
        extent necessary to permit inspection of any accepted 
        offer-in-compromise under section 7122 relating to the 
        liability for a tax imposed by this title.

           *       *       *       *       *       *       *

  (m) Disclosure of taxpayer identity information.--
          (1) Tax refunds.--The Secretary may disclose taxpayer 
        identity information to the press and other media, and 
        through any other means of mass communication, for 
        purposes of notifying persons entitled to tax refunds 
        when the Secretary, after reasonable effort and lapse 
        of time, has been unable to locate such persons.

           *       *       *       *       *       *       *

  (p) Procedure and recordkeeping.--
          (1)  * * *

           *       *       *       *       *       *       *

          (8) State law requirements.--
                  (A)  * * *
                  (B) Disclosure to contractors.--
                Notwithstanding any other provision of this 
                section, no return or return information shall 
                be disclosed by any officer or employee of any 
                State to any contractor of the State unless 
                such State--
                          (i) has requirements in effect which 
                        require each contractor of the State 
                        which would have access to returns or 
                        return information to provide 
                        safeguards (within the meaning of 
                        paragraph (4)) to protect the 
                        confidentiality of such returns or 
                        return information,
                          (ii) agrees to conduct an annual, on-
                        site review (mid-point review in the 
                        case of contracts of less than 1 year 
                        in duration) of each contractor to 
                        determine compliance with such 
                        requirements,
                          (iii) submits the findings of the 
                        most recent review conducted under 
                        clause (ii) to the Secretary as part of 
                        the report required by paragraph 
                        (4)(E), and
                          (iv) certifies to the Secretary for 
                        the most recent annual period that all 
                        contractors are in compliance with all 
                        such requirements.
                The certification required by clause (iv) shall 
                include the name and address of each 
                contractor, a description of the contract of 
                the contractor with the State, and the duration 
                of such contract.
                  [(B)] (C) Disclosure of returns or return 
                information in State returns.--Nothing in 
                [subparagraph (A)] subparagraphs (A) and (B) 
                shall be construed to prohibit the disclosure 
                by an officer or employee of any State of any 
                copy of any portion of a Federal return or any 
                information on a Federal return which is 
                required to be attached or included in a State 
                return to another officer or employee of such 
                State (or political subdivision of such State) 
                if such disclosure is specifically authorized 
                by State law.
          (9) Procedural rules applicable to certain 
        disclosures.--
                  (A) In general.--The Secretary shall 
                prescribe regulations for purposes of providing 
                for disclosures of return and return 
                information under subsections (c), (e), and (k) 
                (1) and (2). Such regulations shall include a 
                schedule of fees, and waivers and reductions of 
                such fees, applicable to the processing of 
                requests for such disclosures.
                  (B) Determinations of whether to comply with 
                disclosure requests.--
                          (i) Initial requests.--In response to 
                        a request that reasonably describes the 
                        return or return information sought and 
                        is made in accordance with the 
                        published rules, the Secretary shall--
                                  (I) determine within 20 days 
                                after the receipt of any 
                                request for disclosure of 
                                return or return information 
                                under subsections (c), (e), and 
                                (k) (1) and (2) whether to 
                                comply with such request, and
                                  (II) immediately notify the 
                                person making such request of 
                                such determination and the 
                                reasons therefor, and of the 
                                right of such person to appeal 
                                to the Commissioner any adverse 
                                determination.
                          (ii) Appeal.--The Commissioner 
                        shall--
                                  (I) make a determination with 
                                respect to any appeal of any 
                                adverse determination under 
                                clause (i)(I) within 20 days 
                                after the receipt of such 
                                appeal, and
                                  (II) if on appeal the denial 
                                of the request for disclosure 
                                of such return or return 
                                information is in whole or in 
                                part upheld, the Commissioner 
                                shall notify the person making 
                                such request of the provisions 
                                for judicial review of that 
                                determination under 
                                subparagraph (D).
                          (iii) Extension of periods for 
                        unusual circumstances.--
                                  (I) In general.--The time 
                                limits prescribed in clause (i) 
                                and clause (ii) (as the case 
                                may be) may be extended for not 
                                more than 10 days in unusual 
                                circumstances by providing to 
                                the person making such request 
                                for disclosure written notice 
                                which sets forth the unusual 
                                circumstances for such 
                                extension and the date on which 
                                a determination is expected to 
                                be dispatched. No such notice 
                                shall specify a date that would 
                                result in an extension for more 
                                than 10 working days, except as 
                                provided in subclause (II).
                                  (II) Modification of request 
                                or time period.--If, with 
                                respect to a request for which 
                                the time limits are extended 
                                under subclause (I), the 
                                Secretary determines that the 
                                request cannot be processed 
                                within the time limit so 
                                specified, the Secretary shall 
                                notify the person making the 
                                request and shall provide the 
                                person an opportunity to limit 
                                the scope of the request so 
                                that it may be processed within 
                                that time limit or an 
                                opportunity to arrange with the 
                                agency an alternative time frame for 
                                processing the request or a modified 
                                request. Refusal by the person to 
                                reasonably modify the request or arrange 
                                such an alternative time frame shall be 
                                considered as a factor in determining 
                                whether exceptional circumstances exist 
                                for purposes of subparagraph (C).
                          (iv) Unusual circumstances defined.--
                        For purposes of clause (iii), the term 
                        ``unusual circumstances'' means, but 
                        only to the extent reasonably necessary 
                        to the proper processing of the 
                        particular requests--
                                  (I) the need to search for 
                                and collect the requested 
                                records from field facilities 
                                or other establishments that 
                                are separate from the office 
                                processing the request,
                                  (II) the need to search for, 
                                collect, and appropriately 
                                examine a voluminous amount of 
                                separate and distinct records 
                                which are demanded in a single 
                                request, or
                                  (III) the need for 
                                consultation, which shall be 
                                conducted with all practicable 
                                speed, with another agency 
                                having a substantial interest 
                                in the determination of the 
                                request or among two or more 
                                components of the agency having 
                                substantial subject-matter 
                                interest therein.
                          (v) 20-day period excludes certain 
                        days.--The 20-day periods referred to 
                        in clauses (i) and (ii) shall not 
                        include Saturdays, Sundays, and legal 
                        public holidays.
                  (C) Failure to meet time limits.--
                          (i) In general.--Any person making a 
                        request for the disclosure of return or 
                        return information which is subject to 
                        this paragraph shall be deemed to have 
                        exhausted his administrative remedies 
                        with respect to such request if the 
                        Secretary fails to comply with the 
                        applicable time limit provisions of 
                        this paragraph. If the Secretary can 
                        show exceptional circumstances exist 
                        and that the agency is exercising due 
                        diligence in responding to the request, 
                        the court may retain jurisdiction and 
                        allow the agency additional time to 
                        complete its review of the records. 
                        Upon any determination by the Secretary 
                        to comply with a request for records, 
                        the records shall be made promptly 
                        available to such person making such 
                        request. Any notification of denial of 
                        any request for records under this 
                        subsection shall set forth the names 
                        and titles or positions of each person 
                        responsible for the denial of such 
                        request.
                          (ii) Exceptional circumstances 
                        defined.--For purposes of clause (i), 
                        the term ``exceptional circumstances'' 
                        does not include a delay that results 
                        from a predictable workload of the 
                        Secretary relating to requests subject 
                        to this paragraph, unless the Secretary 
                        demonstrates reasonable progress in 
                        reducing its backlog of pending 
                        requests.
                          (iii) Refusal to modify request or 
                        time frame.--Refusal by a person to 
                        reasonably modify the scope of a 
                        request or arrange an alternative time 
                        frame for processing a request (or a 
                        modified request) under subparagraph 
                        (B)(ii) after being given an 
                        opportunity to do so by the agency to 
                        whom the person made the request shall 
                        be considered as a factor in 
                        determining whether exceptional 
                        circumstances exist for purposes of 
                        this subparagraph.
                  (D) Judicial proceedings.--
                          (i) Jurisdiction of the district 
                        courts.--
                                  (I) In general.--On 
                                complaint, the district courts 
                                of the United States in the 
                                district in which the 
                                complainant resides, or has his 
                                principal place of business, or 
                                in which his return or return 
                                information is situated, or in 
                                the District of Columbia, shall 
                                have jurisdiction to enjoin the 
                                Secretary from withholding 
                                return or return information 
                                which is subject to disclosure 
                                under subsection (c), (e), or 
                                (k) (1) or (2), and to order 
                                the production of any return or 
                                return information improperly 
                                withheld from the complainant.
                                  (II) Expedited processing.--
                                No district court of the United 
                                States shall have jurisdiction 
                                to review a denial by the 
                                Secretary of expedited 
                                processing of a request for 
                                return or return information 
                                after the Secretary has 
                                provided a complete response to 
                                the request.
                          (ii) Procedural matters.--In a case 
                        arising under clause (i), the court 
                        shall determine the matter de novo (on 
                        the record before the Secretary at the 
                        time of the determination in the case 
                        of a request for expedited processing), 
                        and may examine the contents of such 
                        return or return information in camera 
                        to determine whether such return or 
                        return information or any part thereof 
                        shall be withheld under any of the 
                        provisions of this title, and the 
                        burden shall be on the Secretary to 
                        sustain its action. In addition to any 
                        other matters to which a court accords 
                        substantial weight, a court shall 
                        accord substantial weight to an 
                        affidavit of the Secretary concerning 
                        the Secretary's determination as to 
                        technical feasibility relating to, and 
                        reproducibility of, such return and 
                        return information.
                  (E) Deadline for Secretary to answer 
                complaint.--Notwithstanding any other provision 
                of law, the Secretary shall serve an answer or 
                otherwise plead to any complaint made under 
                this paragraph within 30 days after service 
                upon the Secretary of the pleading in which 
                such complaint is made, unless the court 
                otherwise directs for good cause shown.
        (10) Report on unauthorized disclosure and 
        inspection.--As part of the report required by 
        paragraph (3)(C) for each calendar year, the Secretary 
        shall furnish information regarding the unauthorized 
        disclosure and inspection of returns and return 
        information, including the number, status, and results 
        of--
                  (A) administrative investigations,
                  (B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits 
                were settled and the amounts of damages 
                awarded), and
                  (C) criminal prosecutions.

           *       *       *       *       *       *       *

SEC. 6110. PUBLIC INSPECTION OF WRITTEN DETERMINATIONS.

  (a)  * * *
  (b) Definitions.--For purposes of this section--
          (1) Written determination.--The term ``written 
        determination'' means a ruling, determination letter, 
        technical advice memorandum, or [Chief Counsel advice] 
        official advice. Such term shall not include any 
        advance pricing agreement entered into by a taxpayer 
        and the Secretary and any background information 
        related to such agreement or any application for an 
        advance pricing agreement.

           *       *       *       *       *       *       *

  (g) Time for Disclosure.--
          (1)  * * *

           *       *       *       *       *       *       *

          (5) Special rules for certain written determinations, 
        etc.--Notwithstanding the provisions of paragraph (1), 
        the Secretary shall not be required to make available 
        to the public--
                  (A) any official advice and technical advice 
                memorandum and any related background file 
                document involving any matter which is the 
                subject of a civil fraud or criminal 
                investigation or jeopardy or termination 
                assessment until after any action relating to 
                such investigation or assessment is completed, 
                or

           *       *       *       *       *       *       *

  (i) Special Rules for Disclosure of [Chief Counsel] Official 
Advice.--
          (1) [Chief counsel] Official advice defined.--
                  (A) In general.--For purposes of this 
                section, the term ``[Chief Counsel advice] 
                official advice'' means written advice or 
                instruction, under whatever name or 
                designation, prepared by any [national office 
                component of the Office of Chief Counsel] 
                component of the Office of Chief Counsel or of 
                the Service which--
                          (i) is issued to [field or service 
                        center employees of the Service or 
                        regional or district] employees of the 
                        Service or employees of the Office of 
                        Chief Counsel; and

           *       *       *       *       *       *       *

          (2) Additional documents treated as [chief counsel] 
        official advice.--The Secretary may by regulation 
        provide that this section shall apply to any advice or 
        instruction prepared and issued by the Office of Chief 
        Counsel or the Service which is not described in 
        paragraph (1).
          (3) Deletions for [chief counsel] official advice.--
        In the case of [Chief Counsel advice] official advice 
        open to public inspection pursuant to this section--

           *       *       *       *       *       *       *

          (4) Notice of intention to disclose.--
                  (A) Nontaxpayer-specific [chief counsel] 
                official advice.--In the case of [Chief Counsel 
                advice] official advice which is written 
                without reference to a specific taxpayer or 
                group of specific taxpayers--
                          (i) subsection (f)(1) shall not 
                        apply; and
                          (ii) the Secretary shall, within 60 
                        days after the issuance of the [Chief 
                        Counsel advice] official advice, 
                        complete any deletions described in 
                        subsection (c)(1) or paragraph (3) and 
                        make the [Chief Counsel advice] 
                        official advice, as so edited, open for 
                        public inspection.
                  (B) Taxpayer-specific [chief counsel] 
                official advice.--In the case of [Chief Counsel 
                advice] official advice which is written with 
                respect to a specific taxpayer or group of 
                specific taxpayers, the Secretary shall, within 
                60 days after the issuance of the [Chief 
                Counsel advice] official advice, mail the 
                notice required by subsection (f)(1) to each 
                such taxpayer. The notice shall include a copy 
                of the [Chief Counsel advice] official advice 
                on which is indicated the information that the 
                Secretary proposes to delete pursuant to 
                subsection (c)(1). The Secretary may also 
                delete from the copy of the text of the [Chief 
                Counsel advice] official advice any of the 
                information described in paragraph (3), and 
                shall delete the names, addresses, and other 
                identifying details of taxpayers other than the 
                person to whom the advice pertains, except that 
                the Secretary shall not delete from the copy of 
                the [Chief Counsel advice] official advice that 
                is furnished to the taxpayer any information of 
                which that taxpayer was the source.

           *       *       *       *       *       *       *

               CHAPTER 62--TIME AND PLACE FOR PAYING TAX

           *       *       *       *       *       *       *

Subchapter A--In General

           *       *       *       *       *       *       *

SEC. 6159. AGREEMENTS FOR PAYMENT OF TAX LIABILITY IN INSTALLMENTS.

  (a)  * * *

           *       *       *       *       *       *       *

  (e) Prohibition of Fee for Installment Agreements Using 
Automated Withdrawals.--The Secretary may not charge a taxpayer 
a fee for entering into an agreement with the Secretary 
underthis section only for so long as payments under such agreement are 
made by means of electronic transfer or by similar automated means.
  [(e)] (f) Cross Reference.--

          For rights to administrative review and appeal, see section 
        7122(d).

           *       *       *       *       *       *       *

                        CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *

                        Subchapter A--In General

           *       *       *       *       *       *       *

SEC. 6201. ASSESSMENT AUTHORITY.

  (a)  * * *

           *       *       *       *       *       *       *

  (b) Amount Not to Be Assessed.--
          (1) Estimated income tax.--No unpaid amount of 
        estimated income tax required to be paid under section 
        [6654] 6641 or 6655 shall be assessed.

           *       *       *       *       *       *       *

              CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *

                  Subchapter A--Procedure in General

           *       *       *       *       *       *       *

SEC. 6404. ABATEMENTS.

  (a)  * * *

           *       *       *       *       *       *       *

  (e) Abatement of Interest Attributable to Unreasonable Errors 
and Delays by Internal Revenue Service.--
          (1) In general.--In the case of any assessment of 
        interest on--
                  (A) any deficiency attributable in whole or 
                in part to any unreasonable error or delay by 
                an officer or employee of the Internal Revenue 
                Service (acting in his official capacity) [in 
                performing a ministerial or managerial act], or
                  (B) any payment of any tax described in 
                section 6212(a) to the extent that any 
                unreasonable error or delay in such payment is 
                attributable to such officer or employee being 
                erroneous or dilatory [in performing a 
                ministerial or managerial act],
        the Secretary may abate the assessment of all or any 
        part of such interest for any period. For purposes of 
        the preceding sentence, an error or delay shall be 
        taken into account only if no significant aspect of 
        such error or delay can be attributed to the taxpayer 
        involved, and after the Internal Revenue Service has 
        contacted the taxpayer in writing with respect to such 
        deficiency or payment.
          (2) Interest abated with respect to erroneous refund 
        check.--The Secretary shall abate the assessment of all 
        interest on any erroneous refund under section 6002 
        until the date demand for repayment is made, [unless--
                  [(A) the taxpayer (or a related party) has in 
                any way caused such erroneos refund, or
                  [(B) such erroneous refund exceeds $50,000.] 
                unless the taxpayer (or a related party) has in 
                any way caused such erroneous refund.
  (f) Abatement of Any [Penalty or Addition] Interest, Penalty, 
or Addition to Tax Attributable to Erroneous Written Advice by 
the Internal Revenue Service.--
          (1) In general.--The Secretary shall abate any 
        portion of any [penalty or addition] interest, penalty, 
        or addition to tax attributable to erroneous advice 
        furnished to the taxpayer in writing by an officer or 
        employee of the Internal Revenue Service, acting in 
        such officer's or employee's official capacity.
          (2) Limitations.--Paragraph (1) shall apply only if--
                  (A)  * * *
                  (B) the portion of the [penalty or addition] 
                interest, penalty, or addition to tax did not 
                result from a failure by the taxpayer to 
                provide adequate or accurate information.

           *       *       *       *       *       *       *

  (i) Abatement of Interest if Gross Injustice Would Otherwise 
Result.-- The Secretary may abate the assessment of all or any 
part of interest on any amount of tax imposed by this title for 
any period if the Secretary determines that--
          (1) a gross injustice would otherwise result if 
        interest were to be charged, and
          (2) no significant aspect of the events giving rise 
        to the accrual of the interest can be attributed to the 
        taxpayer involved.
  [(i)] (j) Review of Denial of Request for Abatement of 
Interest.--
          (1) * * *

           *       *       *       *       *       *       *

SEC. 6405. REPORTS OF REFUNDS AND CREDITS.

  (a) By Treasury to Joint Committee.--No refund or credit of 
any income, war profits, excess profits, estate, or gift tax, 
or any tax imposed with respect to public charities, private 
foundations, operators' trust funds, pension plans, or real 
estate investment trusts under chapter 41, 42, 43, or 44, in 
excess of [$1,000,000] $2,000,000 shall be made until after the 
expiration of 30 days from the date upon which a report giving 
the name of the person to whom the refund or credit is to be 
made, the amount of such refund or credit, and a summary of the 
facts and the decision of the Secretary, is submitted to the 
Joint Committee on Taxation.
  (b) Tentative Adjustments.--Any credit or refund allowed or 
made under section 6411 shall be made without regard to the 
provisions of subsection (a) of this section. In any such case, 
if the credit or refund, reduced by any deficiency in such tax 
thereafter assessed and by deficiencies in any other tax 
resulting from adjustments reflected in the determination of 
the credit or refund, is in excess of [$1,000,000] $2,000,000, 
there shall be submitted to such committee a report containing 
the matter specified in subsection (a) at such time after the 
making of the credit or refund as the Secretary shall determine 
the correct amount of the tax.

           *       *       *       *       *       *       *

                          CHAPTER 67--INTEREST

        Subchapter A. Interest on underpayments.
     * * * * * *
        Subchapter D. Notice requirements.
        Subchapter E. Interest on failure by individual to pay estimated 
                  income tax.

           *       *       *       *       *       *       *

Subchapter A--Interest on Underpayments

           *       *       *       *       *       *       *

SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR EXTENSIONS OF TIME 
                    FOR PAYMENT, OF TAX.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Exception as to Estimated Tax.--This section shall not 
apply to any failure to pay any estimated tax required to be 
paid by section [6654] 6641 or 6655.

           *       *       *       *       *       *       *

                 Subchapter B--Interest on Overpayments

        Sec. 6611. Interest on overpayments.
        [Sec. 6612. Cross references.]
        Sec. 6612. Deposits made to stop the running of interest on 
                  potential underpayments, etc.
        Sec. 6613. Cross references.
     * * * * * * *

SEC. 6612. DEPOSITS MADE TO STOP THE RUNNING OF INTEREST ON POTENTIAL 
                    UNDERPAYMENTS, ETC.

  (a) Authority To Make Deposits Other Than As Payment of 
Tax.--Any taxpayer may make a cash bond deposit with the 
Secretary to offset any potential underpayment of tax imposed 
by this title for any taxable period. Such a deposit shall be 
made in such manner as the Secretary shall prescribe.
  (b) Deposits Used To Pay Underpayment Also Offset Running of 
Interest on Underpayment.--Any cash bond deposit used to pay 
tax under this title shall offset interest under subchapter A 
during the period of such deposit on such tax under such 
procedures as the Secretary shall prescribe.
  (c) Taxpayer May Request Return of Cash Bond Deposit.--
          (1) In general.--On written request of a taxpayer who 
        made a cash bond deposit, the Secretary shall return to 
        the taxpayer any amount of such deposit specified by 
        the taxpayer.
          (2) No interest.--In the case of a deposit which is 
        so returned--
                  (A) the amount returned shall not offset 
                interest under subchapter A for any period, and
                  (B) except as provided in subsection (d), no 
                interest shall be allowed on such amount.
          (3) Exceptions.--Paragraph (1) shall not apply to any 
        amount if--
                  (A) such amount has been treated by the 
                Secretary as a payment of tax after a final 
                determination of the disputed items to which 
                such amount relates,
                  (B) such amount has been designated by the 
                taxpayer as being a payment of tax,
                  (C) the Secretary determines that assessment 
                or collection of tax is in jeopardy, or
                  (D) the amount is applied in accordance with 
                section 6402.
        Subparagraph (D) shall not apply to a payment to a 
        taxpayer if the taxpayer is entitled to be paid 
        interest under subsection (d) on such payment.
  (d) Interest on Amounts Returned in Certain Circumstances.--
          (1) In general.--Interest shall be allowed and paid 
        on the amount of any cash bond deposit for a taxable 
        period which is returned to the taxpayer only if the 
        deposit is attributable to a dispute reserve account 
        for such period.
          (2) Attribution to dispute reserve account.--For 
        purposes of paragraph (1), an amount is attributable to 
        a dispute reserve account for any taxable period only 
        to the extent that the aggregate of the cash bond 
        deposits for such period (reduced by the amount of such 
        deposits which has been previously returned to the 
        taxpayer or treated as a payment of tax) does not 
        exceed the deposit limit for such period.
          (3) Deposit limit.--For purposes of paragraph (2)--
                  (A) In general.--The deposit limit for any 
                taxable period is the amount specified by the 
                taxpayer at the time of the deposit as the 
                taxpayer's reasonable estimate of the potential 
                underpayment for such period with respect to 
                disputable items identified (at such time) by 
                the taxpayer with respect to such deposit.
                  (B) Safe harbor based on 30-day letter.--In 
                the case of a taxpayer who is issued a 30-day 
                letter for any taxable period, the deposit 
                limit for such period shall not be less than 
                the amount of the proposed deficiency specified 
                in such letter.
          (4) Definitions.--For purposes of paragraph (3)--
                  (A) Disputable item.--The term ``disputable 
                item'' means any item if the taxpayer--
                          (i) has a reasonable basis for its 
                        treatment of such item, and
                          (ii) reasonably believes that the 
                        Secretary also has a reasonable basis 
                        for disallowing the taxpayer's 
                        treatment of such item.
                  (B) 30-day letter.--The term ``30-day 
                letter'' means the first letter of proposed 
                deficiency which allows the taxpayer an 
                opportunity for administrative review in the 
                Internal Revenue Service Office of Appeals.
          (5) Rate and period of interest.--
                  (A) Rate.--The rate of interest allowable 
                under this subsection shall be the Federal 
                short-term rate determined under section 
                6621(b), compounded daily.
                  (B) Period.--Interest under this subsection 
                on any payment to a taxpayer shall be payable 
                from the date of the deposit to which such 
                payment is attributable to a date (to be 
                determined by the Secretary) preceding the date 
                of the check making such payment by not more 
                than 30 days. For purposes of the preceding 
                sentence, cash bond deposits for any taxable 
                period shall be treated as used and returned on 
                a last-in first-out basis.
  (e) Cash Bond Deposit.--For purposes of this section--
          (1) In general.--The term ``cash bond deposit'' means 
        any payment which is designated by the taxpayer as 
        being a cash bond deposit for a specified taxable 
        period.
          (2) Amounts designated or used as payment of tax.--A 
        cash bond deposit shall cease to be treated as such for 
        purposes of this section beginning on the date that the 
        taxpayer designates such deposit as a payment of tax 
        for purposes of this title, or, if earlier, on the date 
        such deposit is so used.
  (f) Change in Period for Which Deposit Made.--Subject to the 
requirements of subsection (d), a taxpayer may change the 
taxable period to which a cash bond deposit relates.

SEC. [6612.] 6613. CROSS REFERENCES.

  (a) * * *

           *       *       *       *       *       *       *

 Subchapter C--Determination of Interest Rate; Compounding of Interest

SEC. 6621. DETERMINATION OF RATE OF INTEREST.

  (a) * * *
  (b) Federal Short-Term Rate.--For purposes of this section--
          (1) * * *
          (2) Period during which rate applies.--
                  (A) * * *
                  (B) Special rule for individual estimated 
                tax.--In determining the [addition to tax under 
                section 6654] interest required to be paid 
                under section 6641 for failure to pay estimated 
                tax for any taxable year, the Federal short-
                term rate which applies during the 3rd month 
                following such taxable year shall also apply 
                during the first 15 days of the 4th month 
                following such taxable year.

           *       *       *       *       *       *       *

  (d) Elimination of Interest on Overlapping Periods of Tax 
Overpayments and Underpayments.--To the extent that, for any 
period, interest is payable under subchapter A and allowable 
under subchapter B on equivalent underpayments and overpayments 
by the same taxpayer of tax imposed by this title, the net rate 
of interest under this section on such amounts shall be zero 
for such period. Solely for purposes of the preceding sentence, 
section 6611(e) shall not apply in the case of an individual.

           *       *       *       *       *       *       *

SEC. 6622. INTEREST COMPOUNDED DAILY.

  (a) * * *
  (b) Exception for [Penalty for] Failure to File Estimated 
Tax.--Subsection (a) shall not apply for purposes of computing 
the amount of any [addition to tax under section 6654 or 6655] 
interest required to be paid under section 6641 or addition to 
tax under section 6655.

           *       *       *       *       *       *       *

Subchapter E--Interest on Failure by Individual to Pay Estimated Income 
                                  Tax

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

[SEC. 6654. FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME TAX.

  [(a) Addition to the Tax.--Except as otherwise provided in 
this section, in the case of any underpayment of estimated tax 
by an individual, there shall be added to the tax under chapter 
1 and the tax under chapter 2 for the taxable year an amount 
determined by applying--
          [(1) the underpayment rate established under section 
        6621,
          [(2) to the amount of the underpayment,
          [(3) for the period of the underpayment.
  [(b) Amount of Underpayment; Period of Underpayment.--For 
purposes of subsection (a)--
          [(1) Amount.--The amount of the underpayment shall be 
        the excess of--
                  [(A) the required installment, over
                  [(B) the amount (if any) of the installment 
                paid on or before the due date for the 
                installment.
          [(2) Period of underpayment.--The period of the 
        underpayment shall run from the due date for the 
        installment to whichever of the following dates is the 
        earlier--
                  [(A) the 15th day of the 4th month following 
                the close of the taxable year, or
                  [(B) with respect to any portion of the 
                underpayment, the date on which such portion is 
                paid.
          [(3) Order of crediting payments.--For purposes of 
        paragraph (2)(B), a payment of estimated tax shall be 
        credited against unpaid required installments in the 
        order in which such installments are required to be 
        paid.]

SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY ESTIMATED INCOME 
                    TAX.

  (a) In General.--Interest shall be paid on any underpayment 
of estimated tax by an individual for a taxable year for each 
day of such underpayment. The amount of such interest for any 
day shall be the product of the underpayment rate established 
under subsection (b)(2) multiplied by the amount of the 
underpayment.
  (b) Amount of Underpayment; Interest Rate.--For purposes of 
subsection (a)--
          (1) Amount.--The amount of the underpayment on any 
        day shall be the excess of--
                  (A) the sum of the required installments for 
                the taxable year the due dates for which are on 
                or before such day, over
                  (B) the sum of the amounts (if any) of 
                estimated tax payments made on or before such 
                day on such required installments.
          (2) Determination of interest rate.--
                  (A) In general.--The underpayment rate with 
                respect to any day in an installment 
                underpayment period shall be the underpayment 
                rate established under section 6621 for the 
                first day of the calendar quarter in which such 
                installment underpayment period begins.
                  (B) Installment underpayment period.--For 
                purposes of subparagraph (A), the term 
                `installment underpayment period' means the 
                period beginning on the day after the due date 
                for a required installment and ending on the 
                due date for the subsequent required 
                installment (or in the case of the 4th required 
                installment, the 15th day of the 4th month 
                following the close of a taxable year).
                  (C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily 
                basis and shall be based on the assumption of 
                365 days in a calendar year.
          (3) Termination of estimated tax interest.--No day 
        after the end of the installment underpayment period 
        for the 4th required installment specified in paragraph 
        (2)(B) for a taxable year shall be treated as a day of 
        underpayment with respect to such taxable year.

           *       *       *       *       *       *       *

  (d) Amount of Required Installments.--For purposes of this 
section--
          (1) Amount.--
                  (A) In general.--Except as provided in 
                paragraph (2), the amount of any required 
                installment shall be 25 percent of the required 
                annual payment.
                  (B) Required annual payment.--For purposes of 
                subparagraph (A), the term ``required annual 
                payment'' means the lesser of--
                          [(i) 90 percent of the tax shown on 
                        the return for the taxable year (or, if 
                        no return is filed, 90 percent of the 
                        tax for such year), or]
                          (i) the lesser of--
                                  (I) 90 percent of the tax 
                                shown on the return for the 
                                taxable year (or, if no return 
                                is filed, 90 percent of the tax 
                                for such year), or
                                  (II) the tax shown on the 
                                return for the taxable year 
                                (or, if no return is filed, the 
                                tax for such year) reduced (but 
                                not below zero) by $2,000, or

           *       *       *       *       *       *       *

  (e) Exceptions.--
          [(1) Where tax is small amount.--No addition to tax 
        shall be imposed under subsection (a) for any taxable 
        year if the tax shown on the return for such taxable 
        year (or, if no return is filed, the tax), reduced by 
        the credit allowable under section 31, is less than 
        $1,000.]
          [(2)] (1) Where no tax liability for preceding 
        taxable year.--No [addition to tax] interest shall be 
        imposed under subsection (a) for any taxable year if--
                  (A) the preceding taxable year was a taxable 
                year of 12 months,
                  (B) the individual did not have any liability 
                for tax for the preceding taxable year, and
                  (C) the individual was a citizen or resident 
                of the United States throughout the preceding 
                taxable year.
          [(3)] (2) Waiver in certain cases.--
                  (A) In general.--No [addition to tax] 
                interest shall be imposed under subsection (a) 
                with respect to any underpayment to the extent 
                the Secretary determines that by reason of 
                casualty, disaster, or other unusual 
                circumstances the imposition of such addition 
                to tax would be against equity and good 
                conscience.
                  (B) Newly retired or disabled individuals.--
                No [addition to tax] interest shall be imposed 
                under subsection (a) with respect to any 
                underpayment if the Secretary determines that--
                          (i) * * *

           *       *       *       *       *       *       *

  (h) Special Rule Where Return Filed on or Before January 
31.--If, on or before January 31 of the following taxable year, 
the taxpayer files a return for the taxable year and pays in 
full the amount computed on the return as payable, then no 
[addition to tax] interest shall be imposed under subsection 
(a) with respect to any underpayment of the 4th required 
installment for the taxable year.

 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
                               PENALTIES

           *       *       *       *       *       *       *

       Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *

                       PART I--GENERAL PROVISIONS

        Sec. 6651. Failure to file tax return or to pay tax.
     * * * * * * *
        [Sec. 6654. Failure by individual to pay estimated income tax.]

           *       *       *       *       *       *       *

SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.

  (a) Addition to the Tax.--In case of failure--
          (1) * * *
          (2) to pay the amount shown as tax on any return 
        specified in paragraph (1) on or before the date 
        prescribed for payment of such tax (determined with 
        regard to any extension of time for payment), unless it 
        is shown that such failure is due to reasonable cause 
        and not due to willful neglect, there shall be added to 
        the amount shown as tax on such return [0.5] 0.25 
        percent of the amount of such tax if the failure is for 
        not more than 1 month, with an additional [0.5] 0.25 
        percent for each additional month or fraction thereof 
        during which such failure continues, not exceeding 25 
        percent in the aggregate; or
          (3) to pay any amount in respect of any tax required 
        to be shown on a return specified in paragraph (1) 
        which is not so shown (including an assessment made 
        pursuant to section 6213(b)) within 21 calendar days 
        from the date of notice and demand therefor (10 
        business days if the amount for which such notice and 
        demand is made equals or exceeds $100,000), unless it 
        is shown that such failure is due to reasonable cause 
        and not due to willful neglect, there shall be added to 
        the amount of tax stated in such notice and demand 
        [0.5] 0.25 percent of the amount of such tax if the 
        failure is for not more than 1 month, with an 
        additional [0.5] 0.25 percent for each additional month 
        or fraction thereof during which such failure 
        continues, not exceeding 25 percent in the aggregate.

           *       *       *       *       *       *       *

  (d) Increase in Penalty for Failure To Pay Tax in Certain 
Cases.--
          (1) In general.--In the case of each month (or 
        fraction thereof) beginning after the day described in 
        paragraph (2) of this subsection, paragraphs (2) and 
        (3) of subsection (a) shall be applied [by substituting 
        ``1 percent'' for ``0.5 percent''] by substituting 
        ``0.5 percent'' for ``0.25 percent'' each place it 
        appears.

           *       *       *       *       *       *       *

  (h) Limitation on Penalty on Individual's Failure To Pay for 
Months During Period of Installment Agreement.--In the case of 
an individual who files a return of tax on or before the due 
date for the return (including extensions), paragraphs (2) and 
(3) of subsection (a) shall each be applied [by substituting 
``0.2'' for ``0.5''] by substituting ``zero'' for ``0.25'' each 
place it appears for purposes of determining the addition to 
tax for any month during which an installment agreement under 
section 6159 is in effect for the payment of such tax.

           *       *       *       *       *       *       *

SEC. 6658. COORDINATION WITH TITLE 11.

  (a) Certain Failures to Pay Tax.--No addition to the tax 
shall be made under section 6651, [6654, or 6655] or 6655, and 
no interest shall be required to be paid under section 6641, 
for failure to make timely payment of tax with respect to a 
period during which a case is pending under title 11 of the 
United States Code--
          (1) if such tax was incurred by the estate and the 
        failure occurred pursuant to an order of the court 
        finding probable insufficiency of funds of the estate 
        to pay administrative expenses, or
          (2) if--
                  (A) such tax was incurred by the debtor 
                before the earlier of the order for relief or 
                (in the involuntary case) the appointment of a 
                trustee, and
                  (B)(i) the petition was filed before the due 
                date prescribed by law (including extensions) 
                for filing a return of such tax, or
                  (ii) the date for making the addition to the 
                tax or paying interest occurs on or after the 
                day on which the petition was filed.

           *       *       *       *       *       *       *

                       PART III--APPLICABLE RULES

           *       *       *       *       *       *       *

SEC. 6665. APPLICABLE RULES.

  (a) * * *
  (b) Procedure for assessing certain additions to tax.--For 
purposes of subchapter B of chapter 63 (relating to deficiency 
procedures for income, estate, gift, and certain excise taxes), 
subsection (a) shall not apply to any addition to tax under 
section 6651[, 6654,] or 6655; except that it shall apply--
          (1) in the case of an addition described in section 
        6651, to that portion of such addition which is 
        attributable to a deficiency in tax described in 
        section 6211; or
          (2) to an addition described in section [6654 or] 
        6655, if no return is filed for the taxable year.

           *       *       *       *       *       *       *

                   CHAPTER 76--JUDICIAL PROCEEDINGS

           *       *       *       *       *       *       *

        Subchapter B--Proceedings by Taxpayers and Third Parties

           *       *       *       *       *       *       *

SEC. 7428. DECLARATORY JUDGMENTS RELATING TO STATUS AND CLASSIFICATION 
                    OF ORGANIZATIONS UNDER SECTION 501(C)(3), ETC.

  (a) Creation of Remedy.--In a case of actual controversy 
involving--
          (1) a determination by the Secretary--
                  (A) with respect to the initial qualification 
                or continuing qualification of an organization 
                as an organization described in section 
                501(c)(3) which is exempt from tax under 
                section 501(a) or as an organization described 
                in section 170(c)(2),
                  (B) with respect to the initial 
                classification or continuing classification of 
                an organization as a private foundation (as 
                defined in section 509(a)) or as a private 
                operating foundation (as defined in section 
                4942(j)(3)), or
                  [(C) with respect to the initial 
                classification or continuing classification of 
                an organization as a private operating 
                foundation (as defined in section 4942(j)(3)), 
                or]
                  (C) with respect to the initial qualification 
                or continuing qualification of an organization 
                as an organization described in section 501(c) 
                (other than paragraph (3)) which is exempt from 
                tax under section 501(a), or
          (2) a failure by the Secretary to make a 
        determination with respect to an issue referred to in 
        paragraph (1),
upon the filing of an appropriate pleading, the [United States 
Tax Court, the United States Claims Court, or the district 
court of the United States for the District of Columbia] United 
States Tax Court (in the case of any such determination or 
failure) or the United States Claims Court or the district 
court of the United States for the District of Columbia (in the 
case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)), may 
make a declaration with respect to such initial qualification 
or continuing qualification or with respect to such initial 
classification or continuing classification. Any such 
declaration shall have the force and effect of a decision of 
the Tax Court or a final judgment or decree of the district 
court or the Claims Court, as the case may be, and shall be 
reviewable as such. For purposes of this section, a 
determination with respect to a continuing qualification or 
continuing classification includes any revocation of or other 
change in a qualification or classification.
  (b) Limitations.--
          (1) Petitioner.--A pleading may be filed under this 
        section only by the organization the qualification or 
        classification of which is at issue.
          (2) Exhaustion of administrative remedies.--A 
        declaratory judgment or decree under this section shall 
        not be issued in any proceeding unless the Tax Court, 
        the Claims Court, or the district court of the United 
        States for the District of Columbia determines that the 
        organization involved has exhausted administrative 
        remedies available to it within the Internal Revenue 
        Service. [An organization requesting the determination 
        of an issue referred to in subsection (a)(1) shall be 
        deemed to have exhausted its administrative remedies 
        with respect to a failure by the Secretary to make a 
        determination with respect to such issue at the 
        expiration of 270 days after the date on which the 
        request for such determination was made if the 
        organization has taken, in a timely manner, all 
        reasonable steps to secure such determination.] An 
        organization requesting the determination of an issue 
        referred to in subsection (a)(1) shall be deemed to 
        have exhausted its administrative remedies with respect 
        to--
                  (A) a failure by the Secretary to make a 
                determination with respect to such issue at the 
                expiration of 270 days after the date on which 
                the request for such determination was made if 
                the organization has taken, in a timely manner, 
                all reasonable steps to secure such 
                determination, and
                  (B) a failure by any office of the Service 
                (other than the office which is responsible for 
                initial determinations with respect to such 
                issue (hereinafter in this subparagraph 
                referred to as the ``initial office''), to make 
                a determination with respect to such issue at 
                the expiration of 180 days after the date on 
                which any request for such determination was 
                made by the initial office if the organization 
                has taken, in a timely manner, all reasonable 
                steps to secure such determination.

           *       *       *       *       *       *       *

SEC. 7430. AWARDING OF COSTS AND CERTAIN FEES.

  (a) In General.--In any administrative or court proceeding 
which is brought by or against the United States in connection 
with the determination, collection, or refund of any tax, 
interest, or penalty under this title, and in any court 
proceeding in connection with the disclosure of return and 
return information under section 6103(p)(9), the prevailing 
party may be awarded a judgment or a settlement for--
          (1) * * *

           *       *       *       *       *       *       *

SEC. 7431. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OR DISCLOSURE OF 
                    RETURNS AND RETURN INFORMATION.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Notification of unlawful inspection and disclosure.--If 
any person is criminally charged by indictment or information 
with inspection or disclosure of a taxpayer's return or return 
information in violation of--
          (1) * * *
The Secretary shall also notify such taxpayer if the Treasury 
Inspector General for Tax Administration determines that such 
taxpayer's return or return information was inspected or 
disclosed in violation of any of the provisions specified in 
paragraph (1), (2), or (3).

      CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

           *       *       *       *       *       *       *

                Subchapter A--Examination and Inspection

           *       *       *       *       *       *       *

SEC. 7611. RESTRICTIONS ON CHURCH TAX INQUIRIES AND EXAMINATIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Section Not to Apply to Criminal Investigations, Etc.--
This section shall not apply to--
          (1) * * *

           *       *       *       *       *       *       *

          (4) any willful attempt to defeat or evade any tax 
        imposed by this title, [or]
          (5) any knowing failure to file a return of tax 
        imposed by this title[.], or
          (6) information provided by the Secretary related to 
        the standards for exemption from tax under this title 
        and the requirements under this title relating to 
        unrelated business taxable income.

           *       *       *       *       *       *       *

                       CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *

          Subchapter A--Application of Internal Revenue Laws

           *       *       *       *       *       *       *

SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Additional Duties of the Treasury Inspector General for 
Tax Administration.--
          (1) * * *
          (2) Semiannual reports.--
                  (A) In general.--The Treasury Inspector 
                General for Tax Administration shall include in 
                each semiannual report under section 5 of the 
                Inspector General Act of 1978--
                          (i) the number of taxpayer complaints 
                        during the reporting period;
                          (ii) the number of employee 
                        misconduct and taxpayer abuse 
                        allegations received by the Internal 
                        Revenue Service or the Inspector 
                        General during the period from 
                        taxpayers, Internal Revenue Service 
                        employees, and other sources, including 
                        a summary (by category) of the 10 most 
                        common complaints made and the number 
                        of such common complaints;

           *       *       *       *       *       *       *

                                  
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