Union Calendar No. 240

104TH CONGRESS

2D SESSION H. R. 2337

[Report No. 104–506]

A BILL

To amend the Internal Revenue Code of 1986 to

provide for increased taxpayer protections.

MARCH 28, 1996

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 240

104TH CONGRESS

2D SESSION H. R. 2337

[Report No. 104–506]

To amend the Internal Revenue Code of 1986 to provide for increased

taxpayer protections.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 14, 1995

Mrs. JOHNSON of Connecticut (for herself and Mr. MATSUI) introduced the

following bill; which was referred to the Committee on Ways and Means

MARCH 28, 1996

Additional sponsors: Mr. SPRATT, Mr. SCHIFF, Mr. WICKER, and Mr.

CRAMER

MARCH 28, 1996

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

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

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

[For text of introduced bill, see copy of bill as introduced on September 14, 1995]

A BILL

To amend the Internal Revenue Code of 1986 to provide

for increased taxpayer protections.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
2

•HR 2337 RH

1 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;

2 TABLE OF CONTENTS.

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

4 ‘‘Taxpayer Bill of Rights 2’’.

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

6 expressly provided, whenever in this Act an amendment or

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

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

11 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; amendment of 1986 Code; table of contents.

TITLE I—TAXPAYER ADVOCATE

Sec. 101. Establishment of position of Taxpayer Advocate within Internal Revenue Service.

Sec. 102. Expansion of authority to issue Taxpayer Assistance Orders.

TITLE II—MODIFICATIONS TO INSTALLMENT AGREEMENT

PROVISIONS

Sec. 201. Notification of reasons for termination of installment agreements.

Sec. 202. Administrative review of termination of installment agreement.

TITLE III—ABATEMENT OF INTEREST AND PENALTIES

Sec. 301. Expansion of authority to abate interest.

Sec. 302. Review of IRS failure to abate interest.

Sec. 303. Extension of interest-free period for payment of tax after notice and demand.

Sec. 304. Abatement of penalty for failure to make required deposits of payroll

taxes in certain cases.

TITLE IV—JOINT RETURNS

Sec. 401. Studies of joint return-related issues.

Sec. 402. Joint return may be made after separate returns without full payment

of tax.

Sec. 403. Disclosure of collection activities.

TITLE V—COLLECTION ACTIVITIES

Sec. 501. Modifications to lien and levy provisions.

Sec. 502. Modifications to certain levy exemption amounts.
3

•HR 2337 RH

Sec. 503. Offers-in-compromise.

TITLE VI—INFORMATION RETURNS

Sec. 601. Civil damages for fraudulent filing of information returns.

Sec. 602. Requirement to conduct reasonable investigations of information returns.

TITLE VII—AWARDING OF COSTS AND CERTAIN FEES

Sec. 701. United States must establish that its position in proceeding was substantially justified.

Sec. 702. Increased limit on attorney fees.

Sec. 703. Failure to agree to extension not taken into account.

Sec. 704. Award of litigation costs permitted in declaratory judgment proceedings.

TITLE VIII—MODIFICATION TO RECOVERY OF CIVIL DAMAGES FOR

UNAUTHORIZED COLLECTION ACTIONS

Sec. 801. Increase in limit on recovery of civil damages for unauthorized collection actions.

Sec. 802. Court discretion to reduce award for litigation costs for failure to exhaust administrative remedies.

TITLE IX—MODIFICATIONS TO PENALTY FOR FAILURE TO COLLECT

AND PAY OVER TAX

Sec. 901. Preliminary notice requirement.

Sec. 902. Disclosure of certain information where more than 1 person liable for

penalty for failure to collect and pay over tax.

Sec. 903. Right of contribution where more than 1 person liable for penalty for

failure to collect and pay over tax.

Sec. 904. Volunteer board members of tax-exempt organizations exempt from penalty for failure to collect and pay over tax.

TITLE X—MODIFICATIONS OF RULES RELATING TO SUMMONSES

Sec. 1001. Enrolled agents included as third-party recordkeepers.

Sec. 1002. Safeguards relating to designated summonses.

Sec. 1003. Annual report to Congress concerning designated summonses.

TITLE XI—RELIEF FROM RETROACTIVE APPLICATION OF

TREASURY DEPARTMENT REGULATIONS

Sec. 1101. Relief from retroactive application of Treasury Department regulations.

TITLE XII—MISCELLANEOUS PROVISIONS

Sec. 1201. Phone number of person providing payee statements required to be

shown on such statement.

Sec. 1202. Required notice of certain payments.

Sec. 1203. Unauthorized enticement of information disclosure.

Sec. 1204. Annual reminders to taxpayers with outstanding delinquent accounts.

Sec. 1205. 5-year extension of authority for undercover operations.

Sec. 1206. Disclosure of Form 8300 information on cash transactions.

Sec. 1207. Disclosure of returns and return information to designee of taxpayer.
4

•HR 2337 RH

Sec. 1208. Study of netting of interest on overpayments and liabilities.

Sec. 1209. Expenses of detection of underpayments and fraud, etc.

Sec. 1210. Use of private delivery services for timely-mailing-as-timely-filing rule.

Sec. 1211. Reports on misconduct of IRS employees.

TITLE XIII—REVENUE OFFSETS

Subtitle A—Application of Failure-to-Pay Penalty to Substitute Returns

Sec. 1301. Application of failure-to-pay penalty to substitute returns.

Subtitle B—Excise Taxes on Amounts of Private Excess Benefits

Sec. 1311. Excise taxes for failure by certain charitable organizations to meet certain qualification requirements.

Sec. 1312. Reporting of certain excise taxes and other information.

Sec. 1313. Exempt organizations required to provide copy of return.

Sec. 1314. Increase in penalties on exempt organizations for failure to file complete and timely annual returns.

1 TITLE I—TAXPAYER ADVOCATE

2 SEC. 101. ESTABLISHMENT OF POSITION OF TAXPAYER AD3 VOCATE WITHIN INTERNAL REVENUE SERV4 ICE.

5 (a) GENERAL RULE.—Section 7802 (relating to Com6 missioner of Internal Revenue; Assistant Commissioner

7 (Employee Plans and Exempt Organizations)) is amended

8 by adding at the end the following new subsection:

9 ‘‘(d) OFFICE OF TAXPAYER ADVOCATE.—

10 ‘‘(1) IN GENERAL.—There is established in the

11 Internal Revenue Service an office to be known as the

12 ‘Office of the Taxpayer Advocate’. Such office shall be

13 under the supervision and direction of an official to

14 be known as the ‘Taxpayer Advocate’ who shall be ap15 pointed by and report directly to the Commissioner of

16 Internal Revenue. The Taxpayer Advocate shall be en17 titled to compensation at the same rate as the highest
5

•HR 2337 RH

1 level official reporting directly to the Deputy Com2 missioner of the Internal Revenue Service.

3 ‘‘(2) FUNCTIONS OF OFFICE.—

4 ‘‘(A) IN GENERAL.—It shall be the function

5 of the Office of Taxpayer Advocate to—

6 ‘‘(i) assist taxpayers in resolving prob7 lems with the Internal Revenue Service,

8 ‘‘(ii) identify areas in which taxpayers

9 have problems in dealings with the Internal

10 Revenue Service,

11 ‘‘(iii) to the extent possible, propose

12 changes in the administrative practices of

13 the Internal Revenue Service to mitigate

14 problems identified under clause (ii), and

15 ‘‘(iv) identify potential legislative

16 changes which may be appropriate to miti17 gate such problems.

18 ‘‘(B) ANNUAL REPORTS.—

19 ‘‘(i) OBJECTIVES.—Not later than

20 June 30 of each calendar year after 1995,

21 the Taxpayer Advocate shall report to the

22 Committee on Ways and Means of the

23 House of Representatives and the Committee

24 on Finance of the Senate on the objectives

25 of the Taxpayer Advocate for the fiscal year
6

•HR 2337 RH

1 beginning in such calendar year. Any such

2 report shall contain full and substantive

3 analysis, in addition to statistical informa4 tion.

5 ‘‘(ii) ACTIVITIES.—Not later than De6 cember 31 of each calendar year after 1995,

7 the Taxpayer Advocate shall report to the

8 Committee on Ways and Means of the

9 House of Representatives and the Committee

10 on Finance of the Senate on the activities of

11 the Taxpayer Advocate during the fiscal

12 year ending during such calendar year. Any

13 such report shall contain full and sub14 stantive analysis, in addition to statistical

15 information, and shall—

16 ‘‘(I) identify the initiatives the

17 Taxpayer Advocate has taken on im18 proving taxpayer services and Internal

19 Revenue Service responsiveness,

20 ‘‘(II) contain recommendations

21 received from individuals with the au22 thority to issue Taxpayer Assistance

23 Orders under section 7811,

24 ‘‘(III) contain a summary of at

25 least 20 of the most serious problems
7

•HR 2337 RH

1 encountered by taxpayers, including a

2 description of the nature of such prob3 lems,

4 ‘‘(IV) contain an inventory of the

5 items described in subclauses (I), (II),

6 and (III) for which action has been

7 taken and the result of such action,

8 ‘‘(V) contain an inventory of the

9 items described in subclauses (I), (II),

10 and (III) for which action remains to

11 be completed and the period during

12 which each item has remained on such

13 inventory,

14 ‘‘(VI) contain an inventory of the

15 items described in subclauses (II) and

16 (III) for which no action has been

17 taken, the period during which each

18 item has remained on such inventory,

19 the reasons for the inaction, and iden20 tify any Internal Revenue Service offi21 cial who is responsible for such inac22 tion,

23 ‘‘(VII) identify any Taxpayer As24 sistance Order which was not honored

25 by the Internal Revenue Service in a
8

•HR 2337 RH

1 timely manner, as specified under sec2 tion 7811(b),

3 ‘‘(VIII) contain recommendations

4 for such administrative and legislative

5 action as may be appropriate to re6 solve problems encountered by tax7 payers,

8 ‘‘(IX) describe the extent to which

9 regional problem resolution officers

10 participate in the selection and evalua11 tion of local problem resolution officers,

12 and

13 ‘‘(X) include such other informa14 tion as the Taxpayer Advocate may

15 deem advisable.

16 ‘‘(iii) REPORT TO BE SUBMITTED DI17 RECTLY.—Each report required under this

18 subparagraph shall be provided directly to

19 the Committees referred to in clauses (i)

20 and (ii) without any prior review or com21 ment from the Commissioner, the Secretary

22 of the Treasury, any other officer or em23 ployee of the Department of the Treasury,

24 or the Office of Management and Budget.
9

•HR 2337 RH

1 ‘‘(3) RESPONSIBILITIES OF COMMISSIONER.—The

2 Commissioner of Internal Revenue shall establish pro3 cedures requiring a formal response to all rec4 ommendations submitted to the Commissioner by the

5 Taxpayer Advocate within 3 months after submission

6 to the Commissioner.’’

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 7811 (relating to Taxpayer Assist9 ance Orders) is amended—

10 (A) by striking ‘‘the Office of Ombudsman’’

11 in subsection (a) and inserting ‘‘the Office of the

12 Taxpayer Advocate’’, and

13 (B) by striking ‘‘Ombudsman’’ each place it

14 appears (including in the headings of subsections

15 (e) and (f)) and inserting ‘‘Taxpayer Advocate’’.

16 (2) The heading for section 7802 is amended to

17 read as follows:

18 ‘‘SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; AS19 SISTANT COMMISSIONERS; TAXPAYER ADVO20 CATE.’’

21 (3) The table of sections for subchapter A of

22 chapter 80 is amended by striking the item relating

23 to section 7802 and inserting the following new item:

‘‘Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioners; Taxpayer Advocate.’’
10

•HR 2337 RH

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

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

3 Act.

4 SEC. 102. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER

5 ASSISTANCE ORDERS.

6 (a) TERMS OF ORDERS.—Subsection (b) of section

7 7811 (relating to terms of Taxpayer Assistance Orders) is

8 amended—

9 (1) by inserting ‘‘within a specified time period’’

10 after ‘‘the Secretary’’, and

11 (2) by inserting ‘‘take any action as permitted

12 by law,’’ after ‘‘cease any action,’’.

13 (b) LIMITATION ON AUTHORITY TO MODIFY OR RE14 SCIND.—Section 7811(c) (relating to authority to modify

15 or rescind) is amended to read as follows:

16 ‘‘(c) AUTHORITY TO MODIFY OR RESCIND.—Any Tax17 payer Assistance Order issued by the Taxpayer Advocate

18 under this section may be modified or rescinded—

19 ‘‘(1) only by the Taxpayer Advocate, the Com20 missioner of Internal Revenue, or the Deputy Com21 missioner of Internal Revenue, and

22 ‘‘(2) only if a written explanation of the reasons

23 for the modification or rescission is provided to the

24 Taxpayer Advocate.’’
11

•HR 2337 RH

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

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

3 Act.

4 TITLE II—MODIFICATIONS TO IN5 STALLMENT AGREEMENT

6 PROVISIONS

7 SEC. 201. NOTIFICATION OF REASONS FOR TERMINATION

8 OF INSTALLMENT AGREEMENTS.

9 (a) TERMINATIONS.—Subsection (b) of section 6159

10 (relating to extent to which agreements remain in effect)

11 is amended by adding at the end the following new para12 graph:

13 ‘‘(5) NOTICE REQUIREMENTS.—The Secretary

14 may not take any action under paragraph (2), (3),

15 or (4) unless—

16 ‘‘(A) a notice of such action is provided to

17 the taxpayer not later than the day 30 days be18 fore the date of such action, and

19 ‘‘(B) such notice includes an explanation

20 why the Secretary intends to take such action.

21 The preceding sentence shall not apply in any case in

22 which the Secretary believes that collection of any tax

23 to which an agreement under this section relates is in

24 jeopardy.’’
12

•HR 2337 RH

1 (b) CONFORMING AMENDMENT.—Paragraph (3) of sec2 tion 6159(b) is amended to read as follows:

3 ‘‘(3) SUBSEQUENT CHANGE IN FINANCIAL CONDI4 TIONS.—If the Secretary makes a determination that

5 the financial condition of a taxpayer with whom the

6 Secretary has entered into an agreement under sub7 section (a) has significantly changed, the Secretary

8 may alter, modify, or terminate such agreement.’’

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

10 section shall take effect on the date 6 months after the date

11 of the enactment of this Act.

12 SEC. 202. ADMINISTRATIVE REVIEW OF TERMINATION OF

13 INSTALLMENT AGREEMENT.

14 (a) GENERAL RULE.—Section 6159 (relating to agree15 ments for payment of tax liability in installments) is

16 amended by adding at the end the following new subsection:

17 ‘‘(c) ADMINISTRATIVE REVIEW.—The Secretary shall

18 establish procedures for an independent administrative re19 view of terminations of installment agreements under this

20 section for taxpayers who request such a review.’’

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall take effect on January 1, 1997.
13

•HR 2337 RH

1 TITLE III—ABATEMENT OF

2 INTEREST AND PENALTIES

3 SEC. 301. EXPANSION OF AUTHORITY TO ABATE INTEREST.

4 (a) GENERAL RULE.—Paragraph (1) of section

5 6404(e) (relating to abatement of interest in certain cases)

6 is amended—

7 (1) by inserting ‘‘unreasonable’’ before ‘‘error’’

8 each place it appears in subparagraphs (A) and (B),

9 and

10 (2) by striking ‘‘in performing a ministerial

11 act’’ each place it appears and inserting ‘‘in perform12 ing a ministerial or managerial act’’.

13 (b) CLERICAL AMENDMENT.—The subsection heading

14 for subsection (e) of section 6404 is amended—

15 (1) by striking ‘‘ASSESSMENTS’’ and inserting

16 ‘‘ABATEMENT’’, and

17 (2) by inserting ‘‘UNREASONABLE’’ before ‘‘ER18 RORS’’.

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

20 section shall apply to interest accruing with respect to defi21 ciencies or payments for taxable years beginning after the

22 date of the enactment of this Act.

23 SEC. 302. REVIEW OF IRS FAILURE TO ABATE INTEREST.

24 (a) IN GENERAL.—Section 6404 is amended by adding

25 at the end the following new subsection:
14

•HR 2337 RH

1 ‘‘(g) REVIEW OF DENIAL OF REQUEST FOR ABATE2 MENT OF INTEREST.—

3 ‘‘(1) IN GENERAL.—The Tax Court shall have ju4 risdiction over any action brought by a taxpayer who

5 meets the requirements referred to in section

6 7430(c)(4)(A)(iii) to determine whether the Sec7 retary’s failure to abate interest under this section

8 was an abuse of discretion, and may order an abate9 ment, if such action is brought within 180 days after

10 the date of the mailing of the Secretary’s final deter11 mination not to abate such interest.

12 ‘‘(2) SPECIAL RULES.—

13 ‘‘(A) DATE OF MAILING.—Rules similar to

14 the rules of section 6213 shall apply for purposes

15 of determining the date of the mailing referred to

16 in paragraph (1).

17 ‘‘(B) RELIEF.—Rules similar to the rules of

18 section 6512(b) shall apply for purposes of this

19 subsection.

20 ‘‘(C) REVIEW.—An order of the Tax Court

21 under this subsection shall be reviewable in the

22 same manner as a decision of the Tax Court, but

23 only with respect to the matters determined in

24 such order.’’
15

•HR 2337 RH

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

2 section shall apply to requests for abatement after the date

3 of the enactment of this Act.

4 SEC. 303. EXTENSION OF INTEREST-FREE PERIOD FOR PAY5 MENT OF TAX AFTER NOTICE AND DEMAND.

6 (a) GENERAL RULE.—Paragraph (3) of section

7 6601(e) (relating to payments made within 10 days after

8 notice and demand) is amended to read as follows:

9 ‘‘(3) PAYMENTS MADE WITHIN SPECIFIED PE10 RIOD AFTER NOTICE AND DEMAND.—If notice and de11 mand is made for payment of any amount and if

12 such amount is paid within 21 calendar days (10

13 business days if the amount for which such notice and

14 demand is made equals or exceeds $100,000) after the

15 date of such notice and demand, interest under this

16 section on the amount so paid shall not be imposed

17 for the period after the date of such notice and de18 mand.’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (A) of section 6601(e)(2) is

21 amended by striking ‘‘10 days from the date of notice

22 and demand therefor’’ and inserting ‘‘21 calendar

23 days from the date of notice and demand therefor (10

24 business days if the amount for which such notice and

25 demand is made equals or exceeds $100,000)’’.
16

•HR 2337 RH

1 (2) Paragraph (3) of section 6651(a) is amended

2 by striking ‘‘10 days of the date of the notice and de3 mand therefor’’ and inserting ‘‘21 calendar days from

4 the date of notice and demand therefor (10 business

5 days if the amount for which such notice and demand

6 is made equals or exceeds $100,000)’’.

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

8 section shall apply in the case of any notice and demand

9 given after December 31, 1996.

10 SEC. 304. ABATEMENT OF PENALTY FOR FAILURE TO MAKE

11 REQUIRED DEPOSITS OF PAYROLL TAXES IN

12 CERTAIN CASES.

13 (a) IN GENERAL.—Section 6656 (relating to failure to

14 make deposit of taxes) is amended by adding at the end

15 the following new subsections:

16 ‘‘(c) EXCEPTION FOR FIRST-TIME DEPOSITORS OF

17 EMPLOYMENT TAXES.—The Secretary may waive the pen18 alty imposed by subsection (a) on a person’s inadvertent

19 failure to deposit any employment tax if—

20 ‘‘(1) such person meets the requirements referred

21 to in section 7430(c)(4)(A)(iii),

22 ‘‘(2) such failure occurs during the 1st quarter

23 that such person was required to deposit any employ24 ment tax, and
17

•HR 2337 RH

1 ‘‘(3) the return of such tax was filed on or before

2 the due date.

3 For purposes of this subsection, the term ‘employment taxes’

4 means the taxes imposed by subtitle C.

5 ‘‘(d) AUTHORITY TO ABATE PENALTY WHERE DE6 POSIT SENT TO SECRETARY.—The Secretary may abate the

7 penalty imposed by subsection (a) with respect to the first

8 time a depositor is required to make a deposit if the amount

9 required to be deposited is inadvertently sent to the Sec10 retary instead of to the appropriate government deposi11 tory.’’

12 (b) EFFECTIVE DATE.—The amendment made by sub13 section (a) shall apply to deposits required to be made after

14 the date of the enactment of this Act.

15 TITLE IV—JOINT RETURNS

16 SEC. 401. STUDIES OF JOINT RETURN-RELATED ISSUES.

17 The Secretary of the Treasury or his delegate and the

18 Comptroller General of the United States shall each conduct

19 separate studies of—

20 (1) the effects of changing the liability for tax on

21 a joint return from being joint and several to being

22 proportionate to the tax attributable to each spouse,

23 (2) the effects of providing that, if a divorce de24 cree allocates liability for tax on a joint return filed
18

•HR 2337 RH

1 before the divorce, the Secretary may collect such li2 ability only in accordance with the decree,

3 (3) whether those provisions of the Internal Reve4 nue Code of 1986 intended to provide relief to inno5 cent spouses provide meaningful relief in all cases

6 where such relief is appropriate, and

7 (4) the effect of providing that community in8 come (as defined in section 66(d) of such Code) which,

9 in accordance with the rules contained in section

10 879(a) of such Code, would be treated as the income

11 of one spouse is exempt from a levy for failure to pay

12 any tax imposed by subtitle A by the other spouse for

13 a taxable year ending before their marriage.

14 The reports of such studies shall be submitted to the Com15 mittee on Ways and Means of the House of Representatives

16 and the Committee on Finance of the Senate within 6

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

18 SEC. 402. JOINT RETURN MAY BE MADE AFTER SEPARATE

19 RETURNS WITHOUT FULL PAYMENT OF TAX.

20 (a) GENERAL RULE.—Paragraph (2) of section

21 6013(b) (relating to limitations on filing of joint return

22 after filing separate returns) is amended by striking sub23 paragraph (A) and redesignating the following subpara24 graphs accordingly.
19

•HR 2337 RH

1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply to taxable years beginning after the

3 date of the enactment of this Act.

4 SEC. 403. DISCLOSURE OF COLLECTION ACTIVITIES.

5 (a) IN GENERAL.—Subsection (e) of section 6103 (re6 lating to disclosure to persons having material interest) is

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

8 ‘‘(8) DISCLOSURE OF COLLECTION ACTIVITIES

9 WITH RESPECT TO JOINT RETURN.—If any deficiency

10 of tax with respect to a joint return is assessed and

11 the individuals filing such return are no longer mar12 ried or no longer reside in the same household, upon

13 request in writing by either of such individuals, the

14 Secretary shall disclose in writing to the individual

15 making the request whether the Secretary has at16 tempted to collect such deficiency from such other in17 dividual, the general nature of such collection activi18 ties, and the amount collected. The preceding sentence

19 shall not apply to any deficiency which may not be

20 collected by reason of section 6502.’’

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

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

23 enactment of this Act.
20

•HR 2337 RH

1 TITLE V—COLLECTION

2 ACTIVITIES

3 SEC. 501. MODIFICATIONS TO LIEN AND LEVY PROVISIONS.

4 (a) WITHDRAWAL OF CERTAIN NOTICES.—Section

5 6323 (relating to validity and priority against certain per6 sons) is amended by adding at the end the following new

7 subsection:

8 ‘‘(j) WITHDRAWAL OF NOTICE IN CERTAIN CIR9 CUMSTANCES.—

10 ‘‘(1) IN GENERAL.—The Secretary may with11 draw a notice of a lien filed under this section and

12 this chapter shall be applied as if the withdrawn no13 tice had not been filed, if the Secretary determines

14 that—

15 ‘‘(A) the filing of such notice was premature

16 or otherwise not in accordance with administra17 tive procedures of the Secretary,

18 ‘‘(B) the taxpayer has entered into an

19 agreement under section 6159 to satisfy the tax

20 liability for which the lien was imposed by

21 means of installment payments, unless such

22 agreement provides otherwise,

23 ‘‘(C) the withdrawal of such notice will fa24 cilitate the collection of the tax liability, or
21

•HR 2337 RH

1 ‘‘(D) with the consent of the taxpayer or the

2 Taxpayer Advocate, the withdrawal of such no3 tice would be in the best interests of the taxpayer

4 (as determined by the Taxpayer Advocate) and

5 the United States.

6 Any such withdrawal shall be made by filing notice

7 at the same office as the withdrawn notice. A copy of

8 such notice of withdrawal shall be provided to the

9 taxpayer.

10 ‘‘(2) NOTICE TO CREDIT AGENCIES, ETC.—Upon

11 written request by the taxpayer with respect to whom

12 a notice of a lien was withdrawn under paragraph

13 (1), the Secretary shall promptly make reasonable ef14 forts to notify credit reporting agencies, and any fi15 nancial institution or creditor whose name and ad16 dress is specified in such request, of the withdrawal

17 of such notice. Any such request shall be in such form

18 as the Secretary may prescribe.’’

19 (b) RETURN OF LEVIED PROPERTY IN CERTAIN

20 CASES.—Section 6343 (relating to authority to release levy

21 and return property) is amended by adding at the end the

22 following new subsection:

23 ‘‘(d) RETURN OF PROPERTY IN CERTAIN CASES.—If—

24 ‘‘(1) any property has been levied upon, and

25 ‘‘(2) the Secretary determines that—
22

•HR 2337 RH

1 ‘‘(A) the levy on such property was pre2 mature or otherwise not in accordance with ad3 ministrative procedures of the Secretary,

4 ‘‘(B) the taxpayer has entered into an

5 agreement under section 6159 to satisfy the tax

6 liability for which the levy was imposed by

7 means of installment payments, unless such

8 agreement provides otherwise,

9 ‘‘(C) the return of such property will facili10 tate the collection of the tax liability, or

11 ‘‘(D) with the consent of the taxpayer or the

12 Taxpayer Advocate, the return of such property

13 would be in the best interests of the taxpayer (as

14 determined by the Taxpayer Advocate) and the

15 United States,

16 the provisions of subsection (b) shall apply in the same

17 manner as if such property had been wrongly levied upon,

18 except that no interest shall be allowed under subsection

19 (c).’’

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

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

22 Act.
23

•HR 2337 RH

1 SEC. 502. MODIFICATIONS TO CERTAIN LEVY EXEMPTION

2 AMOUNTS.

3 (a) FUEL, ETC.—Paragraph (2) of section 6334(a) (re4 lating to fuel, provisions, furniture, and personal effects ex5 empt from levy) is amended—

6 (1) by striking ‘‘If the taxpayer is the head of a

7 family, so’’ and inserting ‘‘So’’,

8 (2) by striking ‘‘his household’’ and inserting

9 ‘‘the taxpayer’s household’’, and

10 (3) by striking ‘‘$1,650 ($1,550 in the case of

11 levies issued during 1989)’’ and inserting ‘‘$2,500’’.

12 (b) BOOKS, ETC.—Paragraph (3) of section 6334(a)

13 (relating to books and tools of a trade, business, or profes14 sion) is amended by striking ‘‘$1,100 ($1,050 in the case

15 of levies issued during 1989)’’ and inserting ‘‘$1,250’’.

16 (c) INFLATION ADJUSTMENT.—Section 6334 (relating

17 to property exempt from levy) is amended by adding at the

18 end the following new subsection:

19 ‘‘(f) INFLATION ADJUSTMENT.—

20 ‘‘(1) IN GENERAL.—In the case of any calendar

21 year beginning after 1997, each dollar amount re22 ferred to in paragraphs (2) and (3) of subsection (a)

23 shall be increased by an amount equal to—

24 ‘‘(A) such dollar amount, multiplied by

25 ‘‘(B) the cost-of-living adjustment deter26 mined under section 1(f)(3) for such calendar
24

•HR 2337 RH

1 year, by substituting ‘calendar year 1996’ for

2 ‘calendar year 1992’ in subparagraph (B) there3 of.

4 ‘‘(2) ROUNDING.—If any dollar amount after

5 being increased under paragraph (1) is not a mul6 tiple of $10, such dollar amount shall be rounded to

7 the nearest multiple of $10.’’.

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

9 section shall take effect with respect to levies issued after

10 December 31, 1996.

11 SEC. 503. OFFERS-IN-COMPROMISE.

12 (a) REVIEW REQUIREMENTS.—Subsection (b) of sec13 tion 7122 (relating to records) is amended by striking

14 ‘‘$500.’’ and inserting ‘‘$50,000. However, such compromise

15 shall be subject to continuing quality review by the Sec16 retary.’’.

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

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

19 Act.

20 TITLE VI—INFORMATION

21 RETURNS

22 SEC. 601. CIVIL DAMAGES FOR FRAUDULENT FILING OF IN23 FORMATION RETURNS.

24 (a) GENERAL RULE.—Subchapter B of chapter 76 (re25 lating to proceedings by taxpayers and third parties) is
25

•HR 2337 RH

1 amended by redesignating section 7434 as section 7435 and

2 by inserting after section 7433 the following new section:

3 ‘‘SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF

4 INFORMATION RETURNS.

5 ‘‘(a) IN GENERAL.—If any person willfully files a

6 fraudulent information return with respect to payments

7 purported to be made to any other person, such other person

8 may bring a civil action for damages against the person

9 so filing such return.

10 ‘‘(b) DAMAGES.—In any action brought under sub11 section (a), upon a finding of liability on the part of the

12 defendant, the defendant shall be liable to the plaintiff in

13 an amount equal to the greater of $5,000 or the sum of—

14 ‘‘(1) any actual damages sustained by the plain15 tiff as a proximate result of the filing of the fraudu16 lent information return (including any costs attrib17 utable to resolving deficiencies asserted as a result of

18 such filing),

19 ‘‘(2) the costs of the action, and

20 ‘‘(3) in the court’s discretion, reasonable attor21 neys fees.

22 ‘‘(c) PERIOD FOR BRINGING ACTION.—Notwithstand23 ing any other provision of law, an action to enforce the

24 liability created under this section may be brought without
26

•HR 2337 RH

1 regard to the amount in controversy and may be brought

2 only within the later of—

3 ‘‘(1) 6 years after the date of the filing of the

4 fraudulent information return, or

5 ‘‘(2) 1 year after the date such fraudulent infor6 mation return would have been discovered by exercise

7 of reasonable care.

8 ‘‘(d) COPY OF COMPLAINT FILED WITH IRS—Any

9 person bringing an action under subsection (a) shall pro10 vide a copy of the complaint to the Internal Revenue Service

11 upon the filing of such complaint with the court.

12 ‘‘(e) FINDING OF COURT TO INCLUDE CORRECT

13 AMOUNT OF PAYMENT.—The decision of the court awarding

14 damages in an action brought under subsection (a) shall

15 include a finding of the correct amount which should have

16 been reported in the information return.

17 ‘‘(f) INFORMATION RETURN.—For purposes of this sec18 tion, the term ‘information return’ means any statement

19 described in section 6724(d)(1)(A).’’

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

21 subchapter B of chapter 76 is amended by striking the item

22 relating to section 7434 and inserting the following:

‘‘Sec. 7434. Civil damages for fraudulent filing of information returns.

‘‘Sec. 7435. Cross references.’’
27

•HR 2337 RH

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

2 section shall apply to fraudulent information returns filed

3 after the date of the enactment of this Act.

4 SEC. 602. REQUIREMENT TO CONDUCT REASONABLE INVES5 TIGATIONS OF INFORMATION RETURNS.

6 (a) GENERAL RULE.—Section 6201 (relating to assess7 ment authority) is amended by redesignating subsection (d)

8 as subsection (e) and by inserting after subsection (c) the

9 following new subsection:

10 ‘‘(d) REQUIRED REASONABLE VERIFICATION OF IN11 FORMATION RETURNS.—In any court proceeding, if a tax12 payer asserts a reasonable dispute with respect to any item

13 of income reported on an information return filed with the

14 Secretary under subpart B or C of part III of subchapter

15 A of chapter 61 by a third party and the taxpayer has fully

16 cooperated with the Secretary (including providing, within

17 a reasonable period of time, access to and inspection of all

18 witnesses, information, and documents within the control

19 of the taxpayer as reasonably requested by the Secretary),

20 the Secretary shall have the burden of producing reasonable

21 and probative information concerning such deficiency in

22 addition to such information return.’’

23 (b) EFFECTIVE DATE.—The amendment made by sub24 section (a) shall take effect on the date of the enactment

25 of this Act.
28

•HR 2337 RH

1 TITLE VII—AWARDING OF COSTS

2 AND CERTAIN FEES

3 SEC. 701. UNITED STATES MUST ESTABLISH THAT ITS POSI4 TION IN PROCEEDING WAS SUBSTANTIALLY

5 JUSTIFIED.

6 (a) GENERAL RULE.—Subparagraph (A) of section

7 7430(c)(4) (defining prevailing party) is amended by strik8 ing clause (i) and by redesignating clauses (ii) and (iii)

9 as clauses (i) and (ii), respectively.

10 (b) BURDEN OF PROOF ON UNITED STATES.—Para11 graph (4) of section 7430(c) is amended by redesignating

12 subparagraph (B) as subparagraph (C) and by inserting

13 after subparagraph (A) the following new subparagraph:

14 ‘‘(B) EXCEPTION IF UNITED STATES ESTAB15 LISHES THAT ITS POSITION WAS SUBSTANTIALLY

16 JUSTIFIED.—

17 ‘‘(i) GENERAL RULE.—A party shall

18 not be treated as the prevailing party in a

19 proceeding to which subsection (a) applies if

20 the United States establishes that the posi21 tion of the United States in the proceeding

22 was substantially justified.

23 ‘‘(ii) PRESUMPTION OF NO JUSTIFICA24 TION IF INTERNAL REVENUE SERVICE DID

25 NOT FOLLOW CERTAIN PUBLISHED GUID-
29

•HR 2337 RH

1 ANCE.—For purposes of clause (i), the posi2 tion of the United States shall be presumed

3 not to be substantially justified if the Inter4 nal Revenue Service did not follow its ap5 plicable published guidance in the adminis6 trative proceeding. Such presumption may

7 be rebutted.

8 ‘‘(iii) APPLICABLE PUBLISHED GUID9 ANCE.—For purposes of clause (ii), the term

10 ‘applicable published guidance’ means—

11 ‘‘(I) regulations, revenue rulings,

12 revenue procedures, information re13 leases, notices, and announcements,

14 and

15 ‘‘(II) any of the following which

16 are issued to the taxpayer: private let17 ter rulings, technical advice memo18 randa, and determination letters.’’

19 (c) CONFORMING AMENDMENTS.—

20 (1) Subparagraph (B) of section 7430(c)(2) is

21 amended by striking ‘‘paragraph (4)(B)’’ and insert22 ing ‘‘paragraph (4)(C)’’.

23 (2) Subparagraph (C) of section 7430(c)(4), as

24 redesignated by subsection (b), is amended by striking

25 ‘‘subparagraph (A)’’ and inserting ‘‘this paragraph’’.
30

•HR 2337 RH

1 (3) Sections 6404(g) and 6656(c)(1), as amended

2 by this Act, are each amended by striking ‘‘section

3 7430(c)(4)(A)(iii)’’ and inserting ‘‘section

4 7430(c)(4)(A)(ii)’’.

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

6 section shall apply in the case of proceedings commenced

7 after the date of the enactment of this Act.

8 SEC. 702. INCREASED LIMIT ON ATTORNEY FEES.

9 (a) IN GENERAL.—Paragraph (1) of section 7430(c)

10 (defining reasonable litigation costs) is amended—

11 (1) by striking ‘‘$75’’ in clause (iii) of subpara12 graph (B) and inserting ‘‘$110’’,

13 (2) by striking ‘‘an increase in the cost of living

14 or’’ in clause (iii) of subparagraph (B), and

15 (3) by adding after clause (iii) the following:

16 ‘‘In the case of any calendar year beginning after

17 1996, the dollar amount referred to in clause (iii)

18 shall be increased by an amount equal to such dollar

19 amount multiplied by the cost-of-living adjustment

20 determined under section 1(f)(3) for such calendar

21 year, by substituting ‘calendar year 1995’ for ‘cal22 endar year 1992’ in subparagraph (B) thereof. If any

23 dollar amount after being increased under the preced24 ing sentence is not a multiple of $10, such dollar
31

•HR 2337 RH

1 amount shall be rounded to the nearest multiple of

2 $10.’’

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

4 section shall apply in the case of proceedings commenced

5 after the date of the enactment of this Act.

6 SEC. 703. FAILURE TO AGREE TO EXTENSION NOT TAKEN

7 INTO ACCOUNT.

8 (a) IN GENERAL.—Paragraph (1) of section 7430(b)

9 (relating to requirement that administrative remedies be ex10 hausted) is amended by adding at the end the following new

11 sentence: ‘‘Any failure to agree to an extension of the time

12 for the assessment of any tax shall not be taken into account

13 for purposes of determining whether the prevailing party

14 meets the requirements of the preceding sentence.’’

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

16 section shall apply in the case of proceedings commenced

17 after the date of the enactment of this Act.

18 SEC. 704. AWARD OF LITIGATION COSTS PERMITTED IN DE19 CLARATORY JUDGMENT PROCEEDINGS.

20 (a) IN GENERAL.—Subsection (b) of section 7430 is

21 amended by striking paragraph (3) and by redesignating

22 paragraph (4) as paragraph (3).

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

24 section shall apply in the case of proceedings commenced

25 after the date of the enactment of this Act.
32

•HR 2337 RH

1 TITLE VIII—MODIFICATION TO

2 RECOVERY OF CIVIL DAM3 AGES FOR UNAUTHORIZED

4 COLLECTION ACTIONS

5 SEC. 801. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAM6 AGES FOR UNAUTHORIZED COLLECTION AC7 TIONS.

8 (a) GENERAL RULE.—Subsection (b) of section 7433

9 (relating to damages) is amended by striking ‘‘$100,000’’

10 and inserting ‘‘$1,000,000’’.

11 (b) EFFECTIVE DATE.—The amendment made by sub12 section (a) shall apply to actions by officers or employees

13 of the Internal Revenue Service after the date of the enact14 ment of this Act.

15 SEC. 802. COURT DISCRETION TO REDUCE AWARD FOR LITI16 GATION COSTS FOR FAILURE TO EXHAUST

17 ADMINISTRATIVE REMEDIES.

18 (a) GENERAL RULE.—Paragraph (1) of section

19 7433(d) (relating to civil damages for certain unauthorized

20 collection actions) is amended to read as follows:

21 ‘‘(1) AWARD FOR DAMAGES MAY BE REDUCED IF

22 ADMINISTRATIVE REMEDIES NOT EXHAUSTED.—The

23 amount of damages awarded under subsection (b)

24 may be reduced if the court determines that the plain25 tiff has not exhausted the administrative remedies
33

•HR 2337 RH

1 available to such plaintiff within the Internal Reve2 nue Service.’’

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

4 section shall apply in the case of proceedings commenced

5 after the date of the enactment of this Act.

6 TITLE IX—MODIFICATIONS TO

7 PENALTY FOR FAILURE TO

8 COLLECT AND PAY OVER TAX

9 SEC. 901. PRELIMINARY NOTICE REQUIREMENT.

10 (a) IN GENERAL.—Section 6672 (relating to failure to

11 collect and pay over tax, or attempt to evade or defeat tax)

12 is amended by redesignating subsection (b) as subsection

13 (c) and by inserting after subsection (a) the following new

14 subsection:

15 ‘‘(b) PRELIMINARY NOTICE REQUIREMENT.—

16 ‘‘(1) IN GENERAL.—No penalty shall be imposed

17 under subsection (a) unless the Secretary notifies the

18 taxpayer in writing by mail to an address as deter19 mined under section 6212(b) that the taxpayer shall

20 be subject to an assessment of such penalty.

21 ‘‘(2) TIMING OF NOTICE.—The mailing of the no22 tice described in paragraph (1) shall precede any no23 tice and demand of any penalty under subsection (a)

24 by at least 60 days.
34

•HR 2337 RH

1 ‘‘(3) STATUTE OF LIMITATIONS.—If a notice de2 scribed in paragraph (1) with respect to any penalty

3 is mailed before the expiration of the period provided

4 by section 6501 for the assessment of such penalty

5 (determined without regard to this paragraph), the

6 period provided by such section for the assessment of

7 such penalty shall not expire before the later of—

8 ‘‘(A) the date 90 days after the date on

9 which such notice was mailed, or

10 ‘‘(B) if there is a timely protest of the pro11 posed assessment, the date 30 days after the Sec12 retary makes a final administrative determina13 tion with respect to such protest.

14 ‘‘(4) EXCEPTION FOR JEOPARDY.—This sub15 section shall not apply if the Secretary finds that the

16 collection of the penalty is in jeopardy.’’

17 (b) EFFECTIVE DATE.—The amendment made by sub18 section (a) shall apply to proposed assessments made after

19 June 30, 1996.

20 SEC. 902. DISCLOSURE OF CERTAIN INFORMATION WHERE

21 MORE THAN 1 PERSON LIABLE FOR PENALTY

22 FOR FAILURE TO COLLECT AND PAY OVER

23 TAX.

24 (a) IN GENERAL.—Subsection (e) of section 6103 (re25 lating to disclosure to persons having material interest), as
35

•HR 2337 RH

1 amended by section 403, is amended by adding at the end

2 the following new paragraph:

3 ‘‘(9) DISCLOSURE OF CERTAIN INFORMATION

4 WHERE MORE THAN 1 PERSON SUBJECT TO PENALTY

5 UNDER SECTION 6672.—If the Secretary determines

6 that a person is liable for a penalty under section

7 6672(a) with respect to any failure, upon request in

8 writing of such person, the Secretary shall disclose in

9 writing to such person—

10 ‘‘(A) the name of any other person whom

11 the Secretary has determined to be liable for such

12 penalty with respect to such failure, and

13 ‘‘(B) whether the Secretary has attempted to

14 collect such penalty from such other person, the

15 general nature of such collection activities, and

16 the amount collected.’’

17 (b) EFFECTIVE DATE.—The amendment made by sub18 section (a) shall take effect on the date of the enactment

19 of this Act.

20 SEC. 903. RIGHT OF CONTRIBUTION WHERE MORE THAN 1

21 PERSON LIABLE FOR PENALTY FOR FAILURE

22 TO COLLECT AND PAY OVER TAX.

23 (a) IN GENERAL.—Section 6672 (relating to failure to

24 collect and pay over tax, or attempt to evade or defeat tax)
36

•HR 2337 RH

1 is amended by adding at the end the following new sub2 section:

3 ‘‘(d) RIGHT OF CONTRIBUTION WHERE MORE THAN

4 1 PERSON LIABLE FOR PENALTY.—If more than 1 person

5 is liable for the penalty under subsection (a) with respect

6 to any tax, each person who paid such penalty shall be enti7 tled to recover from other persons who are liable for such

8 penalty an amount equal to the excess of the amount paid

9 by such person over such person’s proportionate share of

10 the penalty. Any claim for such a recovery may be made

11 only in a proceeding which is separate from, and is not

12 joined or consolidated with—

13 ‘‘(1) an action for collection of such penalty

14 brought by the United States, or

15 ‘‘(2) a proceeding in which the United States

16 files a counterclaim or third-party complaint for the

17 collection of such penalty.’’

18 (b) EFFECTIVE DATE.—The amendment made by sub19 section (a) shall apply to penalties assessed after the date

20 of the enactment of this Act.
37

•HR 2337 RH

1 SEC. 904. VOLUNTEER BOARD MEMBERS OF TAX-EXEMPT

2 ORGANIZATIONS EXEMPT FROM PENALTY

3 FOR FAILURE TO COLLECT AND PAY OVER

4 TAX.

5 (a) IN GENERAL.—Section 6672 is amended by adding

6 at the end the following new subsection:

7 ‘‘(e) EXCEPTION FOR VOLUNTARY BOARD MEMBERS

8 OF TAX-EXEMPT ORGANIZATIONS.—No penalty shall be im9 posed by subsection (a) on any unpaid, volunteer member

10 of any board of trustees or directors of an organization ex11 empt from tax under subtitle A if such member—

12 ‘‘(1) is solely serving in an honorary capacity,

13 ‘‘(2) does not participate in the day-to-day or fi14 nancial operations of the organization, and

15 ‘‘(3) does not have actual knowledge of the fail16 ure on which such penalty is imposed.

17 The preceding sentence shall not apply if it results in no

18 person being liable for the penalty imposed by subsection

19 (a).’’

20 (b) PUBLIC INFORMATION REQUIREMENTS.—

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

22 or the Secretary’s delegate (hereafter in this subsection

23 referred to as the ‘‘Secretary’’) shall take such actions

24 as may be appropriate to ensure that employees are

25 aware of their responsibilities under the Federal tax

26 depository system, the circumstances under which em-
38

•HR 2337 RH

1 ployees may be liable for the penalty imposed by sec2 tion 6672 of the Internal Revenue Code of 1986, and

3 the responsibility to promptly report to the Internal

4 Revenue Service any failure referred to in subsection

5 (a) of such section 6672. Such actions shall include—

6 (A) printing of a warning on deposit cou7 pon booklets and the appropriate tax returns

8 that certain employees may be liable for the pen9 alty imposed by such section 6672, and

10 (B) the development of a special informa11 tion packet.

12 (2) DEVELOPMENT OF EXPLANATORY MATE13 RIALS.—The Secretary shall develop materials ex14 plaining the circumstances under which board mem15 bers of tax-exempt organizations (including voluntary

16 and honorary members) may be subject to penalty

17 under section 6672 of such Code. Such materials shall

18 be made available to tax-exempt organizations.

19 (3) IRS INSTRUCTIONS.—The Secretary shall

20 clarify the instructions to Internal Revenue Service

21 employees on the application of the penalty under sec22 tion 6672 of such Code with regard to voluntary

23 members of boards of trustees or directors of tax-ex24 empt organizations.
39

•HR 2337 RH

1 TITLE X—MODIFICATIONS OF

2 RULES RELATING TO SUM3 MONSES

4 SEC. 1001. ENROLLED AGENTS INCLUDED AS THIRD-PARTY

5 RECORDKEEPERS.

6 (a) IN GENERAL.—Paragraph (3) of section 7609(a)

7 (relating to third-party recordkeeper defined) is amended

8 by striking ‘‘and’’ at the end of subparagraph (G), by strik9 ing the period at the end of subparagraph (H) and inserting

10 ‘‘; and’’, and by adding at the end the following the sub11 paragraph:

12 ‘‘(I) any enrolled agent.’’

13 (b) EFFECTIVE DATE.—The amendment made by sub14 section (a) shall apply to summonses issued after the date

15 of the enactment of this Act.

16 SEC. 1002. SAFEGUARDS RELATING TO DESIGNATED SUM17 MONSES.

18 (a) STANDARD OF REVIEW.—Subparagraph (A) of sec19 tion 6503(k)(2) (defining designated summons) is amended

20 by redesignating clauses (i) and (ii) as clauses (ii) and

21 (iii), respectively, and by inserting before clause (ii) (as so

22 redesignated) the following new clause:

23 ‘‘(i) the issuance of such summons is

24 preceded by a review of such issuance by the

25 regional counsel of the Office of Chief Coun-
40

•HR 2337 RH

1 sel for the region in which the examination

2 of the corporation is being conducted,’’.

3 (b) LIMITATION ON PERSONS TO WHOM DESIGNATED

4 SUMMONS MAY BE ISSUED.—Paragraph (1) of section

5 6503(k) is amended by striking ‘‘with respect to any return

6 of tax by a corporation’’ and inserting ‘‘to a corporation

7 (or to any other person to whom the corporation has trans8 ferred records) with respect to any return of tax by such

9 corporation for a taxable year (or other period) for which

10 such corporation is being examined under the coordinated

11 examination program (or any successor program) of the In12 ternal Revenue Service’’.

13 (c) CLERICAL AMENDMENT.—Section 6503 is amended

14 by redesignating subsections (k) and (l) (as amended by this

15 section) as subsections (j) and (k), respectively.

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

17 section shall apply to summonses issued after the date of

18 the enactment of this Act.

19 SEC. 1003. ANNUAL REPORT TO CONGRESS CONCERNING

20 DESIGNATED SUMMONSES.

21 Not later than December 31 of each calendar year after

22 1995, the Secretary of the Treasury or his delegate shall

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

24 of Representatives and the Committee on Finance of the

25 Senate on the number of designated summonses (as defined
41

•HR 2337 RH

1 in section 6503(j) of the Internal Revenue Code of 1986)

2 which were issued during the preceding 12 months.

3 TITLE XI—RELIEF FROM RETRO4 ACTIVE APPLICATION OF

5 TREASURY DEPARTMENT

6 REGULATIONS

7 SEC. 1101. RELIEF FROM RETROACTIVE APPLICATION OF

8 TREASURY DEPARTMENT REGULATIONS.

9 (a) IN GENERAL.—Subsection (b) of section 7805 (re10 lating to rules and regulations) is amended to read as fol11 lows:

12 ‘‘(b) RETROACTIVITY OF REGULATIONS.—

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

14 in this subsection, no temporary, proposed, or final

15 regulation relating to the internal revenue laws shall

16 apply to any taxable period ending before the earliest

17 of the following dates:

18 ‘‘(A) The date on which such regulation is

19 filed with the Federal Register.

20 ‘‘(B) In the case of any final regulation, the

21 date on which any proposed or temporary regu22 lation to which such final regulation relates was

23 filed with the Federal Register.

24 ‘‘(C) The date on which any notice substan25 tially describing the expected contents of any
42

•HR 2337 RH

1 temporary, proposed, or final regulation is is2 sued to the public.

3 ‘‘(2) EXCEPTION FOR PROMPTLY ISSUED REGU4 LATIONS.—Paragraph (1) shall not apply to regula5 tions filed or issued within 18 months of the date of

6 the enactment of the statutory provision to which the

7 regulation relates.

8 ‘‘(3) PREVENTION OF ABUSE.—The Secretary

9 may provide that any regulation may take effect or

10 apply retroactively to prevent abuse.

11 ‘‘(4) CORRECTION OF PROCEDURAL DEFECTS.—

12 The Secretary may provide that any regulation may

13 apply retroactively to correct a procedural defect in

14 the issuance of any prior regulation.

15 ‘‘(5) INTERNAL REGULATIONS.—The limitation

16 of paragraph (1) shall not apply to any regulation

17 relating to internal Treasury Department policies,

18 practices, or procedures.

19 ‘‘(6) CONGRESSIONAL AUTHORIZATION.—The

20 limitation of paragraph (1) may be superseded by a

21 legislative grant from Congress authorizing the Sec22 retary to prescribe the effective date with respect to

23 any regulation.

24 ‘‘(7) ELECTION TO APPLY RETROACTIVELY.—The

25 Secretary may provide for any taxpayer to elect to
43

•HR 2337 RH

1 apply any regulation before the dates specified in

2 paragraph (1).

3 ‘‘(8) APPLICATION TO RULINGS.—The Secretary

4 may prescribe the extent, if any, to which any ruling

5 (including any judicial decision or any administra6 tive determination other than by regulation) relating

7 to the internal revenue laws shall be applied without

8 retroactive effect.’’

9 (b) EFFECTIVE DATE.—The amendment made by sub10 section (a) shall apply with respect to regulations which

11 relate to statutory provisions enacted on or after the date

12 of the enactment of this Act.

13 TITLE XII—MISCELLANEOUS

14 PROVISIONS

15 SEC. 1201. PHONE NUMBER OF PERSON PROVIDING PAYEE

16 STATEMENTS REQUIRED TO BE SHOWN ON

17 SUCH STATEMENT.

18 (a) GENERAL RULE.—The following provisions are

19 each amended by striking ‘‘name and address’’ and insert20 ing ‘‘name, address, and phone number of the information

21 contact’’:

22 (1) Section 6041(d)(1).

23 (2) Section 6041A(e)(1).

24 (3) Section 6042(c)(1).

25 (4) Section 6044(e)(1).
44

•HR 2337 RH

1 (5) Section 6045(b)(1).

2 (6) Section 6049(c)(1)(A).

3 (7) Section 6050B(b)(1).

4 (8) Section 6050H(d)(1).

5 (9) Section 6050I(e)(1).

6 (10) Section 6050J(e).

7 (11) Section 6050K(b)(1).

8 (12) Section 6050N(b)(1).

9 (b) EFFECTIVE DATE.—The amendments made by sub10 section (a) shall apply to statements required to be fur11 nished after December 31, 1996 (determined without regard

12 to any extension).

13 SEC. 1202. REQUIRED NOTICE OF CERTAIN PAYMENTS.

14 If any payment is received by the Secretary of the

15 Treasury or his delegate from any taxpayer and the Sec16 retary cannot associate such payment with such taxpayer,

17 the Secretary shall make reasonable efforts to notify the tax18 payer of such inability within 60 days after the receipt of

19 such payment.

20 SEC. 1203. UNAUTHORIZED ENTICEMENT OF INFORMATION

21 DISCLOSURE.

22 (a) IN GENERAL.—Subchapter B of chapter 76 (relat23 ing to proceedings by taxpayers and third parties), as

24 amended by section 601(a), is amended by redesignating
45

•HR 2337 RH

1 section 7435 as section 7436 and by inserting after section

2 7434 the following new section:

3 ‘‘SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICE4 MENT OF INFORMATION DISCLOSURE.

5 ‘‘(a) IN GENERAL.—If any officer or employee of the

6 United States intentionally compromises the determination

7 or collection of any tax due from an attorney, certified pub8 lic accountant, or enrolled agent representing a taxpayer

9 in exchange for information conveyed by the taxpayer to

10 the attorney, certified public accountant, or enrolled agent

11 for purposes of obtaining advice concerning the taxpayer’s

12 tax liability, such taxpayer may bring a civil action for

13 damages against the United States in a district court of

14 the United States. Such civil action shall be the exclusive

15 remedy for recovering damages resulting from such actions.

16 ‘‘(b) DAMAGES.—In any action brought under sub17 section (a), upon a finding of liability on the part of the

18 defendant, the defendant shall be liable to the plaintiff in

19 an amount equal to the lesser of $500,000 or the sum of—

20 ‘‘(1) actual, direct economic damages sustained

21 by the plaintiff as a proximate result of the informa22 tion disclosure, and

23 ‘‘(2) the costs of the action.
46

•HR 2337 RH

1 Damages shall not include the taxpayer’s liability for any

2 civil or criminal penalties, or other losses attributable to

3 incarceration or the imposition of other criminal sanctions.

4 ‘‘(c) PAYMENT AUTHORITY.—Claims pursuant to this

5 section shall be payable out of funds appropriated under

6 section 1304 of title 31, United States Code.

7 ‘‘(d) PERIOD FOR BRINGING ACTION.—Notwithstand8 ing any other provision of law, an action to enforce liability

9 created under this section may be brought without regard

10 to the amount in controversy and may be brought only

11 within 2 years after the date the actions creating such li12 ability would have been discovered by exercise of reasonable

13 care.

14 ‘‘(e) MANDATORY STAY.—Upon a certification by the

15 Commissioner or the Commissioner’s delegate that there is

16 an ongoing investigation or prosecution of the taxpayer, the

17 district court before which an action under this section is

18 pending shall stay all proceedings with respect to such ac19 tion pending the conclusion of the investigation or prosecu20 tion.

21 ‘‘(f) CRIME-FRAUD EXCEPTION.—Subsection (a) shall

22 not apply to information conveyed to an attorney, certified

23 public accountant, or enrolled agent for the purpose of per24 petrating a fraud or crime.’’
47

•HR 2337 RH

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

2 subchapter B of chapter 76, as amended by section 601(b),

3 is amended by striking the item relating to section 7435

4 and by adding at the end the following new items:

‘‘Sec. 7435. Civil damages for unauthorized enticement of information disclosure.

‘‘Sec. 7436. Cross references.’’

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

6 section shall apply to actions after the date of the enactment

7 of this Act.

8 SEC. 1204. ANNUAL REMINDERS TO TAXPAYERS WITH OUT9 STANDING DELINQUENT ACCOUNTS.

10 (a) IN GENERAL.—Chapter 77 (relating to miscellane11 ous provisions) is amended by adding at the end the follow12 ing new section:

13 ‘‘SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

14 ‘‘Not less often than annually, the Secretary shall send

15 a written notice to each taxpayer who has a tax delinquent

16 account of the amount of the tax delinquency as of the date

17 of the notice.’’

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

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

20 new item:

‘‘Sec. 7524. Annual notice of tax delinquency.’’

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

22 section shall apply to calendar years after 1996.
48

•HR 2337 RH

1 SEC. 1205. 5-YEAR EXTENSION OF AUTHORITY FOR UNDER2 COVER OPERATIONS.

3 (a) IN GENERAL.—Paragraph (3) of section 7601(c)

4 of the Anti-Drug Abuse Act of 1988 is amended by striking

5 all that follows ‘‘this Act’’ and inserting a period.

6 (b) RESTORATION OF AUTHORITY FOR 5 YEARS.—Sub7 section (c) of section 7608 is amended by adding at the end

8 the following new paragraph:

9 ‘‘(6) APPLICATION OF SECTION.—The provisions

10 of this subsection—

11 ‘‘(A) shall apply after November 17, 1988,

12 and before January 1, 1990, and

13 ‘‘(B) shall apply after the date of the enact14 ment of this paragraph and before January 1,

15 2001.

16 All amounts expended pursuant to this subsection

17 during the period described in subparagraph (B) shall

18 be recovered to the extent possible, and deposited in

19 the Treasury of the United States as miscellaneous re20 ceipts, before January 1, 2001.’’

21 (c) ENHANCED OVERSIGHT.—

22 (1) ADDITIONAL INFORMATION REQUIRED IN RE23 PORTS TO CONGRESS.—Subparagraph (B) of section

24 7608(c)(4) is amended—

25 (A) by striking ‘‘preceding the period’’ in

26 clause (ii),
49

•HR 2337 RH

1 (B) by striking ‘‘and’’ at the end of clause

2 (ii), and

3 (C) by striking clause (iii) and inserting

4 the following:

5 ‘‘(iii) the number, by programs, of un6 dercover investigative operations closed in

7 the 1-year period for which such report is

8 submitted, and

9 ‘‘(iv) the following information with

10 respect to each undercover investigative op11 eration pending as of the end of the 1-year

12 period for which such report is submitted or

13 closed during such 1-year period—

14 ‘‘(I) the date the operation began

15 and the date of the certification re16 ferred to in the last sentence of para17 graph (1),

18 ‘‘(II) the total expenditures under

19 the operation and the amount and use

20 of the proceeds from the operation,

21 ‘‘(III) a detailed description of the

22 operation including the potential viola23 tion being investigated and whether the

24 operation is being conducted under

25 grand jury auspices, and
50

•HR 2337 RH

1 ‘‘(IV) the results of the operation

2 including the results of criminal pro3 ceedings.’’

4 (2) AUDITS REQUIRED WITHOUT REGARD TO

5 AMOUNTS INVOLVED.—Subparagraph (C) of section

6 7608(c)(5) is amended to read as follows:

7 ‘‘(C) UNDERCOVER INVESTIGATIVE OPER8 ATION.—The term ‘undercover investigative oper9 ation’ means any undercover investigative oper10 ation of the Service; except that, for purposes of

11 subparagraphs (A) and (C) of paragraph (4),

12 such term only includes an operation which is

13 exempt from section 3302 or 9102 of title 31,

14 United States Code.’’

15 (3) EFFECTIVE DATE.—The amendments made

16 by this subsection shall take effect on the date of the

17 enactment of this Act.

18 SEC. 1206. DISCLOSURE OF FORM 8300 INFORMATION ON

19 CASH TRANSACTIONS.

20 (a) IN GENERAL.—Subsection (l) of section 6103 (re21 lating to disclosure of returns and return information for

22 purposes other than tax administration) is amended by

23 adding at the end the following new paragraph:
51

•HR 2337 RH

1 ‘‘(15) DISCLOSURE OF RETURNS FILED UNDER

2 SECTION 6050I.—The Secretary may, upon written re3 quest, disclose to officers and employees of—

4 ‘‘(A) any Federal agency,

5 ‘‘(B) any agency of a State or local govern6 ment, or

7 ‘‘(C) any agency of the government of a for8 eign country,

9 information contained on returns filed under section

10 6050I. Any such disclosure shall be made on the same

11 basis, and subject to the same conditions, as apply to

12 disclosures of information on reports filed under sec13 tion 5313 of title 31, United States Code; except that

14 no disclosure under this paragraph shall be made for

15 purposes of the administration of any tax law.’’

16 (b) CONFORMING AMENDMENTS.—

17 (1) Subsection (i) of section 6103 is amended by

18 striking paragraph (8).

19 (2) Subparagraph (A) of section 6103(p)(3) is

20 amended—

21 (A) by striking ‘‘(7)(A)(ii), or (8)’’ and in22 serting ‘‘or (7)(A)(ii)’’, and

23 (B) by striking ‘‘or (14)’’ and inserting

24 ‘‘(14), or (15)’’.
52

•HR 2337 RH

1 (3) The material preceding subparagraph (A) of

2 section 6103(p)(4) is amended—

3 (A) by striking ‘‘(5), or (8)’’ and inserting

4 ‘‘or (5)’’,

5 (B) by striking ‘‘(i)(3)(B)(i), or (8)’’ and

6 inserting ‘‘(i)(3)(B)(i),’’, and

7 (C) by striking ‘‘or (12)’’ and inserting

8 ‘‘(12), or (15)’’.

9 (4) Clause (ii) of section 6103(p)(4)(F) is

10 amended—

11 (A) by striking ‘‘(5), or (8)’’ and inserting

12 ‘‘or (5)’’, and

13 (B) by striking ‘‘or (14)’’ and inserting

14 ‘‘(14), or (15)’’.

15 (5) Paragraph (2) of section 7213(a) is amended

16 by striking ‘‘or (12)’’ and inserting ‘‘(12), or (15)’’.

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

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

19 Act.

20 SEC. 1207. DISCLOSURE OF RETURNS AND RETURN INFOR21 MATION TO DESIGNEE OF TAXPAYER.

22 Subsection (c) of section 6103 (relating to disclosure

23 of returns and return information to designee of taxpayer)

24 is amended by striking ‘‘written request for or consent to
53

•HR 2337 RH

1 such disclosure’’ and inserting ‘‘request for or consent to

2 such disclosure’’.

3 SEC. 1208. STUDY OF NETTING OF INTEREST ON OVERPAY4 MENTS AND LIABILITIES.

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

6 his delegate shall—

7 (1) conduct a study of the manner in which the

8 Internal Revenue Service has implemented the netting

9 of interest on overpayments and underpayments and

10 of the policy and administrative implications of glob11 al netting, and

12 (2) before submitting the report of such study,

13 hold a public hearing to receive comments on the mat14 ters included in such study.

15 (b) REPORT.—The report of such study shall be sub16 mitted not later than 6 months after the date of the enact17 ment of this Act to the Committee on Ways and Means of

18 the House of Representatives and the Committee on Finance

19 of the Senate.

20 SEC. 1209. EXPENSES OF DETECTION OF UNDERPAYMENTS

21 AND FRAUD, ETC.

22 (a) IN GENERAL.—Section 7623 (relating to expenses

23 of deduction and punishment of frauds) is amended to read

24 as follows:
54

•HR 2337 RH

1 ‘‘SEC. 7623. EXPENSES OF DETECTION OF UNDERPAYMENTS

2 AND FRAUD, ETC.

3 ‘‘The Secretary, under regulations prescribed by the

4 Secretary, is authorized to pay such sums as he deems nec5 essary for—

6 ‘‘(1) detecting underpayments of tax, and

7 ‘‘(2) detecting and bringing to trial and punish8 ment persons guilty of violating the internal revenue

9 laws or conniving at the same,

10 in cases where such expenses are not otherwise provided for

11 by law. Any amount payable under the preceding sentence

12 shall be paid from the proceeds of amounts (other than in13 terest) collected by reason of the information provided, and

14 any amount so collected shall be available for such pay15 ments.’’.

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

17 subchapter B of chapter 78 is amended by striking the item

18 relating to section 7623 and inserting the following new

19 item:

‘‘Sec. 7623. Expenses of detection of underpayments and fraud,

etc.’’.

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

21 section shall take effect on the date which is 6 months after

22 the date of the enactment of this Act.

23 (d) REPORT.—The Secretary of the Treasury or his

24 delegate shall submit an annual report to the Committee
55

•HR 2337 RH

1 on Ways and Means of the House of Representatives and

2 the Committee on Finance of the Senate on the payments

3 under section 7623 of the Internal Revenue Code of 1986

4 during the year and on the amounts collected for which such

5 payments were made.

6 SEC. 1210. USE OF PRIVATE DELIVERY SERVICES FOR TIME7 LY-MAILING-AS-TIMELY-FILING RULE.

8 Section 7502 (relating to timely mailing treated as

9 timely filing and paying) is amended by adding at the end

10 the following new subsection:

11 ‘‘(f) TREATMENT OF PRIVATE DELIVERY SERVICES.—

12 ‘‘(1) IN GENERAL.—Any reference in this section

13 to the United States mail shall be treated as includ14 ing a reference to any designated delivery service, and

15 any reference in this section to a postmark by the

16 United States Postal Service shall be treated as in17 cluding a reference to any date recorded or marked as

18 described in paragraph (2)(C) by any designated de19 livery service.

20 ‘‘(2) DESIGNATED DELIVERY SERVICE.—For pur21 poses of this subsection, the term ‘designated delivery

22 service’ means any delivery service provided by a

23 trade or business if such service is designated by the

24 Secretary for purposes of this section. The Secretary

25 may designate a delivery service under the preceding
56

•HR 2337 RH

1 sentence only if the Secretary determines that such

2 service—

3 ‘‘(A) is available to the general public,

4 ‘‘(B) is at least as timely and reliable on a

5 regular basis as the United States mail,

6 ‘‘(C) records electronically to its data base,

7 kept in the regular course of its business, or

8 marks on the cover in which any item referred

9 to in this section is to be delivered, the date on

10 which such item was given to such trade or busi11 ness for delivery, and

12 ‘‘(D) meets such other criteria as the Sec13 retary may prescribe.

14 ‘‘(3) EQUIVALENTS OF REGISTERED AND CER15 TIFIED MAIL.—The Secretary may provide a rule

16 similar to the rule of paragraph (1) with respect to

17 any service provided by a designated delivery service

18 which is substantially equivalent to United States

19 registered or certified mail.’’

20 SEC. 1211. REPORTS ON MISCONDUCT OF IRS EMPLOYEES.

21 On or before June 1 of each calendar year after 1996,

22 the Secretary of the Treasury shall submit to the Committee

23 on Ways and Means of the House of Representatives and

24 the Committee on Finance of the Senate a report on—
57

•HR 2337 RH

1 (1) all categories of instances involving the mis2 conduct of employees of the Internal Revenue Service

3 during the preceding calendar year, and

4 (2) the disposition during the preceding calendar

5 year of any such instances (without regard to the

6 year of the misconduct).

7 TITLE XIII—REVENUE OFFSETS

8 Subtitle A—Application of Failure9 to-Pay Penalty to Substitute Re10 turns

11 SEC. 1301. APPLICATION OF FAILURE-TO-PAY PENALTY TO

12 SUBSTITUTE RETURNS.

13 (a) GENERAL RULE.—Section 6651 (relating to failure

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

15 the end the following new subsection:

16 ‘‘(g) TREATMENT OF RETURNS PREPARED BY SEC17 RETARY UNDER SECTION 6020(b).—In the case of any re18 turn made by the Secretary under section 6020(b)—

19 ‘‘(1) such return shall be disregarded for pur20 poses of determining the amount of the addition

21 under paragraph (1) of subsection (a), but

22 ‘‘(2) such return shall be treated as the return

23 filed by the taxpayer for purposes of determining the

24 amount of the addition under paragraphs (2) and (3)

25 of subsection (a).’’.
58

•HR 2337 RH

1 (b) EFFECTIVE DATE.—The amendment made by sub2 section (a) shall apply in the case of any return the due

3 date for which (determined without regard to extensions)

4 is after the date of the enactment of this Act.

5 Subtitle B—Exicse Taxes on

6 Amounts of Private Excess Benefits

7 SEC. 1311. EXCISE TAXES FOR FAILURE BY CERTAIN CHARI8 TABLE ORGANIZATIONS TO MEET CERTAIN

9 QUALIFICATION REQUIREMENTS.

10 (a) IN GENERAL.—Chapter 42 (relating to private

11 foundations and certain other tax-exempt organizations) is

12 amended by redesignating subchapter D as subchapter E

13 and by inserting after subchapter C the following new sub14 chapter:

15 ‘‘Subchapter D—Failure by Certain Chari16 table Organizations To Meet Certain

17 Qualification Requirements

‘‘Sec. 4958. Taxes on excess benefit transactions.

18 ‘‘SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

19 ‘‘(a) INITIAL TAXES.—

20 ‘‘(1) ON THE DISQUALIFIED PERSON.—There is

21 hereby imposed on each excess benefit transaction a

22 tax equal to 25 percent of the excess benefit. The tax

23 imposed by this paragraph shall be paid by any dis-
59

•HR 2337 RH

1 qualified person referred to in subsection (f)(1) with

2 respect to such transaction.

3 ‘‘(2) ON THE MANAGEMENT.—In any case in

4 which a tax is imposed by paragraph (1), there is

5 hereby imposed on the participation of any organiza6 tion manager in the excess benefit transaction, know7 ing that it is such a transaction, a tax equal to 10

8 percent of the excess benefit, unless such participation

9 is not willful and is due to reasonable cause. The tax

10 imposed by this paragraph shall be paid by any orga11 nization manager who participated in the excess ben12 efit transaction.

13 ‘‘(b) ADDITIONAL TAX ON THE DISQUALIFIED PER14 SON.—In any case in which an initial tax is imposed by

15 subsection (a)(1) on an excess benefit transaction and the

16 excess benefit involved in such transaction is not corrected

17 within the taxable period, there is hereby imposed a tax

18 equal to 200 percent of the excess benefit involved. The tax

19 imposed by this subsection shall be paid by any disqualified

20 person referred to in subsection (f)(1) with respect to such

21 transaction.

22 ‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BENE23 FIT.—For purposes of this section—

24 ‘‘(1) EXCESS BENEFIT TRANSACTION.—
60

•HR 2337 RH

1 ‘‘(A) IN GENERAL.—The term ‘excess benefit

2 transaction’ means any transaction in which an

3 economic benefit is provided by an applicable

4 tax-exempt organization directly or indirectly to

5 or for the use of any disqualified person if the

6 value of the economic benefit provided exceeds the

7 value of the consideration (including the per8 formance of services) received for providing such

9 benefit. For purposes of the preceding sentence,

10 an economic benefit shall not be treated as con11 sideration for the performance of services unless

12 such organization clearly indicated its intent to

13 so treat such benefit.

14 ‘‘(B) EXCESS BENEFIT.—The term ‘excess

15 benefit’ means the excess referred to in subpara16 graph (A).

17 ‘‘(2) AUTHORITY TO INCLUDE CERTAIN OTHER

18 PRIVATE INUREMENT.—To the extent provided in reg19 ulations prescribed by the Secretary, the term ‘excess

20 benefit transaction’ includes any transaction in which

21 the amount of any economic benefit provided to or for

22 the use of a disqualified person is determined in

23 whole or in part by the revenues of 1 or more activi24 ties of the organization but only if such transaction

25 results in inurement not permitted under paragraph
61

•HR 2337 RH

1 (3) or (4) of section 501(c), as the case may be. In

2 the case of any such transaction, the excess benefit

3 shall be the amount of the inurement not so per4 mitted.

5 ‘‘(d) SPECIAL RULES.—For purposes of this section—

6 ‘‘(1) JOINT AND SEVERAL LIABILITY.—If more

7 than 1 person is liable for any tax imposed by sub8 section (a) or subsection (b), all such persons shall be

9 jointly and severally liable for such tax.

10 ‘‘(2) LIMIT FOR MANAGEMENT.—With respect to

11 any 1 excess benefit transaction, the maximum

12 amount of the tax imposed by subsection (a)(2) shall

13 not exceed $10,000.

14 ‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—For

15 purposes of this subchapter, the term ‘applicable tax-exempt

16 organization’ means—

17 ‘‘(1) any organization which (without regard to

18 any excess benefit) would be described in paragraph

19 (3) or (4) of section 501(c) and exempt from tax

20 under section 501(a), and

21 ‘‘(2) any organization which was described in

22 paragraph (1) at any time during the 5-year period

23 ending on the date of the transaction.

24 Such term shall not include a private foundation (as de25 fined in section 509(a)).
62

•HR 2337 RH

1 ‘‘(f) OTHER DEFINITIONS.—For purposes of this sec2 tion—

3 ‘‘(1) DISQUALIFIED PERSON.—The term ‘dis4 qualified person’ means, with respect to any trans5 action—

6 ‘‘(A) any person who was, at any time dur7 ing the 5-year period ending on the date of such

8 transaction, in a position to exercise substantial

9 influence over the affairs of the organization,

10 ‘‘(B) a member of the family of an individ11 ual described in subparagraph (A), and

12 ‘‘(C) a 35-percent controlled entity.

13 ‘‘(2) ORGANIZATION MANAGER.—The term ‘orga14 nization manager’ means, with respect to any appli15 cable tax-exempt organization, any officer, director,

16 or trustee of such organization (or any individual

17 having powers or responsibilities similar to those of

18 officers, directors, or trustees of the organization).

19 ‘‘(3) 35-PERCENT CONTROLLED ENTITY.—

20 ‘‘(A) IN GENERAL.—The term ‘35-percent

21 controlled entity’ means—

22 ‘‘(i) a corporation in which persons de23 scribed in subparagraph (A) or (B) of para24 graph (1) own more than 35 percent of the

25 total combined voting power,
63

•HR 2337 RH

1 ‘‘(ii) a partnership in which such per2 sons own more than 35 percent of the prof3 its interest, and

4 ‘‘(iii) a trust or estate in which such

5 persons own more than 35 percent of the

6 beneficial interest.

7 ‘‘(B) CONSTRUCTIVE OWNERSHIP RULES.—

8 Rules similar to the rules of paragraphs (3) and

9 (4) of section 4946(a) shall apply for purposes of

10 this paragraph.

11 ‘‘(4) FAMILY MEMBERS.—The members of an in12 dividual’s family shall be determined under section

13 4946(d); except that such members also shall include

14 the brothers and sisters (whether by the whole or half

15 blood) of the individual and their spouses.

16 ‘‘(5) TAXABLE PERIOD.—The term ‘taxable pe17 riod’ means, with respect to any excess benefit trans18 action, the period beginning with the date on which

19 the transaction occurs and ending on the earliest of—

20 ‘‘(A) the date of mailing a notice of defi21 ciency under section 6212 with respect to the tax

22 imposed by subsection (a)(1), or

23 ‘‘(B) the date on which the tax imposed by

24 subsection (a)(1) is assessed.
64

•HR 2337 RH

1 ‘‘(6) CORRECTION.—The terms ‘correction’ and

2 ‘correct’ mean, with respect to any excess benefit

3 transaction, undoing the excess benefit to the extent

4 possible, and taking any additional measures nec5 essary to place the organization in a financial posi6 tion not worse than that in which it would be if the

7 disqualified person were dealing under the highest fi8 duciary standards.’’

9 (b) APPLICATION OF PRIVATE INUREMENT RULE TO

10 TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SECTION

11 501(c)(4).—

12 (1) IN GENERAL.—Paragraph (4) of section

13 501(c) is amended by inserting ‘‘(A)’’ after ‘‘(4)’’ and

14 by adding at the end the following:

15 ‘‘(B) Subparagraph (A) shall not apply to an

16 entity unless no part of the net earnings of such en17 tity inures to the benefit of any private shareholder

18 or individual.’’

19 (2) SPECIAL RULE FOR CERTAIN COOPERA20 TIVES.—In the case of an organization operating on

21 a cooperative basis which, before the date of the enact22 ment of this Act, was determined by the Secretary of

23 the Treasury or his delegate, to be described in section

24 501(c)(4) of the Internal Revenue Code of 1986 and

25 exempt from tax under section 501(a) of such Code,
65

•HR 2337 RH

1 the allocation or return of net margins or capital to

2 the members of such organization in accordance with

3 its incorporating statute and bylaws shall not be

4 treated for purposes of such Code as the inurement

5 of the net earnings of such organization to the benefit

6 of any private shareholder or individual. The preced7 ing sentence shall apply only if such statute and by8 laws are substantially as such statute and bylaws

9 were in existence on the date of the enactment of this

10 Act.

11 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

12 (1) Subsection (e) of section 4955 is amended—

13 (A) by striking ‘‘SECTION 4945’’ in the

14 heading and inserting ‘‘SECTIONS 4945 AND

15 4958’’, and

16 (B) by inserting before the period ‘‘or an ex17 cess benefit for purposes of section 4958’’.

18 (2) Subsections (a), (b), and (c) of section 4963

19 are each amended by inserting ‘‘4958,’’ after ‘‘4955,’’.

20 (3) Subsection (e) of section 6213 is amended by

21 inserting ‘‘4958 (relating to private excess benefit),’’

22 before ‘‘4971’’.

23 (4) Paragraphs (2) and (3) of section 7422(g)

24 are each amended by inserting ‘‘4958,’’ after ‘‘4955,’’.
66

•HR 2337 RH

1 (5) Subsection (b) of section 7454 is amended by

2 inserting ‘‘or whether an organization manager (as

3 defined in section 4958(f)(2)) has ‘knowingly’ partici4 pated in an excess benefit transaction (as defined in

5 section 4958(c)),’’ after ‘‘section 4912(b),’’.

6 (6) The table of subchapters for chapter 42 is

7 amended by striking the last item and inserting the

8 following:

‘‘SUBCHAPTER D. Failure by certain charitable organizations to

meet certain qualification requirements.

‘‘SUBCHAPTER E. Abatement of first and second tier taxes in certain cases.’’

9 (d) EFFECTIVE DATES.—

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

11 this section (other than subsection (b)) shall apply to

12 excess benefit transactions occurring on or after Sep13 tember 14, 1995.

14 (2) BINDING CONTRACTS.—The amendments re15 ferred to in paragraph (1) shall not apply to any

16 benefit arising from a transaction pursuant to any

17 written contract which was binding on September 13,

18 1995, and at all times thereafter before such trans19 action occurred.

20 (3) APPLICATION OF PRIVATE INUREMENT RULE

21 TO TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SEC22 TION 501(c)(4).—
67

•HR 2337 RH

1 (A) IN GENERAL.—The amendment made

2 by subsection (b) shall apply to inurement occur3 ring on or after September 14, 1995.

4 (B) BINDING CONTRACTS.—The amendment

5 made by subsection (b) shall not apply to any

6 inurement occurring before January 1, 1997,

7 pursuant to a written contract which was bind8 ing on September 13, 1995, and at all times

9 thereafter before such inurement occurred.

10 SEC. 1312. REPORTING OF CERTAIN EXCISE TAXES AND

11 OTHER INFORMATION.

12 (a) REPORTING BY ORGANIZATIONS DESCRIBED IN

13 SECTION 501(c)(3).—Subsection (b) of section 6033 (relat14 ing to certain organizations described in section 501(c)(3))

15 is amended by striking ‘‘and’’ at the end of paragraph (9),

16 by redesignating paragraph (10) as paragraph (14), and

17 by inserting after paragraph (9) the following new para18 graphs:

19 ‘‘(10) the respective amounts (if any) of the taxes

20 paid by the organization during the taxable year

21 under the following provisions:

22 ‘‘(A) section 4911 (relating to tax on excess

23 expenditures to influence legislation),
68

•HR 2337 RH

1 ‘‘(B) section 4912 (relating to tax on dis2 qualifying lobbying expenditures of certain orga3 nizations), and

4 ‘‘(C) section 4955 (relating to taxes on po5 litical expenditures of section 501(c)(3) organiza6 tions),

7 ‘‘(11) the respective amounts (if any) of the taxes

8 paid by the organization, or any disqualified person

9 with respect to such organization, during the taxable

10 year under section 4958 (relating to taxes on private

11 excess benefit from certain charitable organizations),

12 ‘‘(12) such information as the Secretary may re13 quire with respect to any excess benefit transaction

14 (as defined in section 4958),

15 ‘‘(13) such information with respect to disquali16 fied persons as the Secretary may prescribe, and’’.

17 (b) ORGANIZATIONS DESCRIBED IN SECTION

18 501(c)(4).—Section 6033 is amended by redesignating sub19 section (f) as subsection (g) and by inserting after sub20 section (e) the following new subsection:

21 ‘‘(f) CERTAIN ORGANIZATIONS DESCRIBED IN SECTION

22 501(c)(4).—Every organization described in section

23 501(c)(4) which is subject to the requirements of subsection

24 (a) shall include on the return required under subsection
69

•HR 2337 RH

1 (a) the information referred to in paragraphs (11), (12) and

2 (13) of subsection (b) with respect to such organization.’’

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

4 section shall apply to returns for taxable years beginning

5 after the date of the enactment of this Act.

6 SEC. 1313. EXEMPT ORGANIZATIONS REQUIRED TO PRO7 VIDE COPY OF RETURN.

8 (a) REQUIREMENT TO PROVIDE COPY.—

9 (1) Subparagraph (A) of section 6104(e)(1) (re10 lating to public inspection of annual returns) is

11 amended to read as follows:

12 ‘‘(A) IN GENERAL.—During the 3-year pe13 riod beginning on the filing date—

14 ‘‘(i) a copy of the annual return filed

15 under section 6033 (relating to returns by

16 exempt organizations) by any organization

17 to which this paragraph applies shall be

18 made available by such organization for in19 spection during regular business hours by

20 any individual at the principal office of

21 such organization and, if such organization

22 regularly maintains 1 or more regional or

23 district offices having 3 or more employees,

24 at each such regional or district office, and
70

•HR 2337 RH

1 ‘‘(ii) upon request of an individual

2 made at such principal office or such a re3 gional or district office, a copy of such an4 nual return shall be provided to such indi5 vidual without charge other than a reason6 able fee for any reproduction and mailing

7 costs.

8 The request described in clause (ii) must be made

9 in person or in writing. If the request under

10 clause (ii) is made in person, such copy shall be

11 provided immediately and, if made in writing,

12 shall be provided within 30 days.’’

13 (2) Clause (ii) of section 6104(e)(2)(A) is amend14 ed by inserting before the period at the end the follow15 ing: ‘‘(and, upon request of an individual made at

16 such principal office or such a regional or district of17 fice, a copy of the material requested to be available

18 for inspection under this subparagraph shall be pro19 vided (in accordance with the last sentence of para20 graph (1)(A)) to such individual without charge other

21 than reasonable fee for any reproduction and mailing

22 costs)’’.

23 (3) Subsection (e) of section 6104 is amended by

24 adding at the end the following new paragraph:
71

•HR 2337 RH

1 ‘‘(3) LIMITATION.—Paragraph (1)(A)(ii) (and

2 the corresponding provision of paragraph (2)) shall

3 not apply to any request if, in accordance with regu4 lations promulgated by the Secretary, the organiza5 tion has made the requested documents widely avail6 able, or, the Secretary determines, upon application

7 by an organization, that such request is part of a

8 harassment campaign and that compliance with such

9 request is not in the public interest.’’

10 (b) INCREASE IN PENALTY FOR WILLFUL FAILURE TO

11 ALLOW PUBLIC INSPECTION OF CERTAIN RETURNS, ETC.—

12 Section 6685 is amended by striking ‘‘$1,000’’ and insert13 ing ‘‘$5,000’’.

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

15 section shall apply to requests made on or after the 60th

16 day after the Secretary of the Treasury first issues the regu17 lations referred to section 6104(e)(3) of the Internal Reve18 nue Code of 1986 (as added by subsection (a)(3)).

19 SEC. 1314. INCREASE IN PENALTIES ON EXEMPT ORGANIZA20 TIONS FOR FAILURE TO FILE COMPLETE AND

21 TIMELY ANNUAL RETURNS.

22 (a) IN GENERAL.—Subparagraph (A) of section

23 6652(c)(1) (relating to annual returns under section 6033)

24 is amended by striking ‘‘$10’’ and inserting ‘‘$20’’ and by

25 striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.
72

•HR 2337 RH

1 (b) LARGER PENALTY ON ORGANIZATIONS HAVING

2 GROSS RECEIPTS IN EXCESS OF $1,000,000.—Subpara3 graph (A) of section 6652(c)(1) is amended by adding at

4 the end the following new sentence: ‘‘In the case of an orga5 nization having gross receipts exceeding $1,000,000 for any

6 year, with respect to the return required under section 6033

7 for such year, the first sentence of this subparagraph shall

8 be applied by substituting ‘$100’ for ‘$20’ and, in lieu of

9 applying the second sentence of this subparagraph, the max10 imum penalty under this subparagraph shall not exceed

11 $50,000.’’

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

13 section shall apply to returns for taxable years ending on

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