Calendar No. 374

104TH CONGRESS

2D SESSION H. R. 2337

AN ACT

To amend the Internal Revenue Code of 1986 to

provide for increased taxpayer protections.

APRIL 17, 1996

Received; read twice and placed on the calendar
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Calendar No. 374

104TH CONGRESS

2D SESSION H. R. 2337

IN THE SENATE OF THE UNITED STATES

APRIL 17, 1996

Received; read twice and placed on the calendar

AN ACT

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,
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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 other6 wise expressly provided, whenever in this Act an amend7 ment or repeal is expressed in terms of an amendment

8 to, or repeal of, a section or other provision, the reference

9 shall be considered to be made to a section or other provi10 sion of the Internal 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.
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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.
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Sec. 1207. Disclosure of returns and return information to designee of taxpayer.

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

6 Commissioner of Internal Revenue; Assistant Commis7 sioner (Employee Plans and Exempt Organizations)) is

8 amended by adding at the end the following new sub9 section:

10 ‘‘(d) OFFICE OF TAXPAYER ADVOCATE.—

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

12 Internal Revenue Service an office to be known as

13 the ‘Office of the Taxpayer Advocate’. Such office

14 shall be under the supervision and direction of an of15 ficial to be known as the ‘Taxpayer Advocate’ who
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1 shall be appointed by and report directly to the

2 Commissioner of Internal Revenue. The Taxpayer

3 Advocate shall be entitled to compensation at the

4 same rate as the highest level official reporting di5 rectly to the Deputy Commissioner of the Internal

6 Revenue Service.

7 ‘‘(2) FUNCTIONS OF OFFICE.—

8 ‘‘(A) IN GENERAL.—It shall be the func9 tion of the Office of Taxpayer Advocate to—

10 ‘‘(i) assist taxpayers in resolving prob11 lems with the Internal Revenue Service,

12 ‘‘(ii) identify areas in which taxpayers

13 have problems in dealings with the Internal

14 Revenue Service,

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

16 changes in the administrative practices of

17 the Internal Revenue Service to mitigate

18 problems identified under clause (ii), and

19 ‘‘(iv) identify potential legislative

20 changes which may be appropriate to miti21 gate such problems.

22 ‘‘(B) ANNUAL REPORTS.—

23 ‘‘(i) OBJECTIVES.—Not later than

24 June 30 of each calendar year after 1995,

25 the Taxpayer Advocate shall report to the
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1 Committee on Ways and Means of the

2 House of Representatives and the Commit3 tee on Finance of the Senate on the objec4 tives of the Taxpayer Advocate for the fis5 cal year beginning in such calendar year.

6 Any such report shall contain full and sub7 stantive analysis, in addition to statistical

8 information.

9 ‘‘(ii) ACTIVITIES.—Not later than De10 cember 31 of each calendar year after

11 1995, the Taxpayer Advocate shall report

12 to the Committee on Ways and Means of

13 the House of Representatives and the

14 Committee on Finance of the Senate on

15 the activities of the Taxpayer Advocate

16 during the fiscal year ending during such

17 calendar year. Any such report shall con18 tain full and substantive analysis, in addi19 tion to statistical information, and shall—

20 ‘‘(I) identify the initiatives the

21 Taxpayer Advocate has taken on im22 proving taxpayer services and Internal

23 Revenue Service responsiveness,

24 ‘‘(II) contain recommendations

25 received from individuals with the au-
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1 thority to issue Taxpayer Assistance

2 Orders under section 7811,

3 ‘‘(III) contain a summary of at

4 least 20 of the most serious problems

5 encountered by taxpayers, including a

6 description of the nature of such prob7 lems,

8 ‘‘(IV) contain an inventory of the

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

10 and (III) for which action has been

11 taken and the result of such action,

12 ‘‘(V) contain an inventory of the

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

14 and (III) for which action remains to

15 be completed and the period during

16 which each item has remained on such

17 inventory,

18 ‘‘(VI) contain an inventory of the

19 items described in subclauses (II) and

20 (III) for which no action has been

21 taken, the period during which each

22 item has remained on such inventory,

23 the reasons for the inaction, and iden24 tify any Internal Revenue Service offi-
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1 cial who is responsible for such inac2 tion,

3 ‘‘(VII) identify any Taxpayer As4 sistance Order which was not honored

5 by the Internal Revenue Service in a

6 timely manner, as specified under sec7 tion 7811(b),

8 ‘‘(VIII) contain recommendations

9 for such administrative and legislative

10 action as may be appropriate to re11 solve problems encountered by tax12 payers,

13 ‘‘(IX) describe the extent to

14 which regional problem resolution offi15 cers participate in the selection and

16 evaluation of local problem resolution

17 officers, and

18 ‘‘(X) include such other informa19 tion as the Taxpayer Advocate may

20 deem advisable.

21 ‘‘(iii) REPORT TO BE SUBMITTED DI22 RECTLY.—Each report required under this

23 subparagraph shall be provided directly to

24 the Committees referred to in clauses (i)

25 and (ii) without any prior review or com-
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1 ment from the Commissioner, the Sec2 retary of the Treasury, any other officer or

3 employee of the Department of the Treas4 ury, or the Office of Management and

5 Budget.

6 ‘‘(3) RESPONSIBILITIES OF COMMISSIONER.—

7 The Commissioner of Internal Revenue shall estab8 lish procedures requiring a formal response to all

9 recommendations submitted to the Commissioner by

10 the Taxpayer Advocate within 3 months after sub11 mission to the Commissioner.’’.

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 7811 (relating to Taxpayer Assist14 ance Orders) is amended—

15 (A) by striking ‘‘the Office of Ombuds16 man’’ in subsection (a) and inserting ‘‘the Of17 fice of the Taxpayer Advocate’’, and

18 (B) by striking ‘‘Ombudsman’’ each place

19 it appears (including in the headings of sub20 sections (e) and (f)) and inserting ‘‘Taxpayer

21 Advocate’’.

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

23 read as follows:
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1 ‘‘SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; AS2 SISTANT COMMISSIONERS; TAXPAYER ADVO3 CATE.’’.

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

5 chapter 80 is amended by striking the item relating

6 to section 7802 and inserting the following new

7 item:

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

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

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

10 of this Act.

11 SEC. 102. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER

12 ASSISTANCE ORDERS.

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

14 7811 (relating to terms of Taxpayer Assistance Orders)

15 is amended—

16 (1) by inserting ‘‘within a specified time pe17 riod’’ after ‘‘the Secretary’’, and

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

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

20 (b) LIMITATION ON AUTHORITY TO MODIFY OR RE21 SCIND.—Section 7811(c) (relating to authority to modify

22 or rescind) is amended to read as follows:
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1 ‘‘(c) AUTHORITY TO MODIFY OR RESCIND.—Any

2 Taxpayer Assistance Order issued by the Taxpayer Advo3 cate under this section may be modified or rescinded—

4 ‘‘(1) only by the Taxpayer Advocate, the Com5 missioner of Internal Revenue, or the Deputy Com6 missioner of Internal Revenue, and

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

8 for the modification or rescission is provided to the

9 Taxpayer Advocate.’’.

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

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

12 of this Act.

13 TITLE II—MODIFICATIONS TO

14 INSTALLMENT AGREEMENT

15 PROVISIONS

16 SEC. 201. NOTIFICATION OF REASONS FOR TERMINATION

17 OF INSTALLMENT AGREEMENTS.

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

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

20 is amended by adding at the end the following new para21 graph:

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

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

24 or (4) unless—
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1 ‘‘(A) a notice of such action is provided to

2 the taxpayer not later than the day 30 days be3 fore the date of such action, and

4 ‘‘(B) such notice includes an explanation

5 why the Secretary intends to take such action.

6 The preceding sentence shall not apply in any case

7 in which the Secretary believes that collection of any

8 tax to which an agreement under this section relates

9 is in jeopardy.’’.

10 (b) CONFORMING AMENDMENT.—Paragraph (3) of

11 section 6159(b) is amended to read as follows:

12 ‘‘(3) SUBSEQUENT CHANGE IN FINANCIAL CON13 DITIONS.—If the Secretary makes a determination

14 that the financial condition of a taxpayer with whom

15 the Secretary has entered into an agreement under

16 subsection (a) has significantly changed, the Sec17 retary may alter, modify, or terminate such agree18 ment.’’.

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

20 this section shall take effect on the date 6 months after

21 the date of the enactment of this Act.

22 SEC. 202. ADMINISTRATIVE REVIEW OF TERMINATION OF

23 INSTALLMENT AGREEMENT.

24 (a) GENERAL RULE.—Section 6159 (relating to

25 agreements for payment of tax liability in installments)
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1 is amended by adding at the end the following new sub2 section:

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

4 establish procedures for an independent administrative re5 view of terminations of installment agreements under this

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

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

8 subsection (a) shall take effect on January 1, 1997.

9 TITLE III—ABATEMENT OF

10 INTEREST AND PENALTIES

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

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

13 6404(e) (relating to abatement of interest in certain cases)

14 is amended—

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

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

17 and

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

19 act’’ each place it appears and inserting ‘‘in per20 forming a ministerial or managerial act’’.

21 (b) CLERICAL AMENDMENT.—The subsection head22 ing for subsection (e) of section 6404 is amended—

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

24 ‘‘ABATEMENT’’, and
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1 (2) by inserting ‘‘UNREASONABLE’’ before ‘‘ER2 RORS’’.

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

4 this section shall apply to interest accruing with respect

5 to deficiencies or payments for taxable years beginning

6 after the date of the enactment of this Act.

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

8 (a) IN GENERAL.—Section 6404 is amended by add9 ing at the end the following new subsection:

10 ‘‘(g) REVIEW OF DENIAL OF REQUEST FOR ABATE11 MENT OF INTEREST.—

12 ‘‘(1) IN GENERAL.—The Tax Court shall have

13 jurisdiction over any action brought by a taxpayer

14 who meets the requirements referred to in section

15 7430(c)(4)(A)(iii) to determine whether the Sec16 retary’s failure to abate interest under this section

17 was an abuse of discretion, and may order an abate18 ment, if such action is brought within 180 days after

19 the date of the mailing of the Secretary’s final deter20 mination not to abate such interest.

21 ‘‘(2) SPECIAL RULES.—

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

23 the rules of section 6213 shall apply for pur24 poses of determining the date of the mailing re25 ferred to in paragraph (1).
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1 ‘‘(B) RELIEF.—Rules similar to the rules

2 of section 6512(b) shall apply for purposes of

3 this subsection.

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

5 under this subsection shall be reviewable in the

6 same manner as a decision of the Tax Court,

7 but only with respect to the matters determined

8 in such order.’’.

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

10 this section shall apply to requests for abatement after the

11 date of the enactment of this Act.

12 SEC. 303. EXTENSION OF INTEREST-FREE PERIOD FOR PAY13 MENT OF TAX AFTER NOTICE AND DEMAND.

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

15 6601(e) (relating to payments made within 10 days after

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

17 ‘‘(3) PAYMENTS MADE WITHIN SPECIFIED PE18 RIOD AFTER NOTICE AND DEMAND.—If notice and

19 demand is made for payment of any amount and if

20 such amount is paid within 21 calendar days (10

21 business days if the amount for which such notice

22 and demand is made equals or exceeds $100,000)

23 after the date of such notice and demand, interest

24 under this section on the amount so paid shall not
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1 be imposed for the period after the date of such no2 tice and demand.’’.

3 (b) CONFORMING AMENDMENTS.—

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

5 amended by striking ‘‘10 days from the date of no6 tice and demand therefor’’ and inserting ‘‘21 cal7 endar days from the date of notice and demand

8 therefor (10 business days if the amount for which

9 such notice and demand is made equals or exceeds

10 $100,000)’’.

11 (2) Paragraph (3) of section 6651(a) is amend12 ed by striking ‘‘10 days of the date of the notice and

13 demand therefor’’ and inserting ‘‘21 calendar days

14 from the date of notice and demand therefor (10

15 business days if the amount for which such notice

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

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

18 this section shall apply in the case of any notice and de19 mand given after December 31, 1996.

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

21 REQUIRED DEPOSITS OF PAYROLL TAXES IN

22 CERTAIN CASES.

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

24 to make deposit of taxes) is amended by adding at the

25 end the following new subsections:
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1 ‘‘(c) EXCEPTION FOR FIRST-TIME DEPOSITORS OF

2 EMPLOYMENT TAXES.—The Secretary may waive the pen3 alty imposed by subsection (a) on a person’s inadvertent

4 failure to deposit any employment tax if—

5 ‘‘(1) such person meets the requirements re6 ferred to in section 7430(c)(4)(A)(iii),

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

8 that such person was required to deposit any em9 ployment tax, and

10 ‘‘(3) the return of such tax was filed on or be11 fore the due date.

12 For purposes of this subsection, the term ‘employment

13 taxes’ means the taxes imposed by subtitle C.

14 ‘‘(d) AUTHORITY TO ABATE PENALTY WHERE DE15 POSIT SENT TO SECRETARY.—The Secretary may abate

16 the penalty imposed by subsection (a) with respect to the

17 first time a depositor is required to make a deposit if the

18 amount required to be deposited is inadvertently sent to

19 the Secretary instead of to the appropriate government de20 pository.’’.

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

22 subsection (a) shall apply to deposits required to be made

23 after the date of the enactment of this Act.
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1 TITLE IV—JOINT RETURNS

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

3 The Secretary of the Treasury or his delegate and

4 the Comptroller General of the United States shall each

5 conduct separate studies of—

6 (1) the effects of changing the liability for tax

7 on a joint return from being joint and several to

8 being proportionate to the tax attributable to each

9 spouse,

10 (2) the effects of providing that, if a divorce de11 cree allocates liability for tax on a joint return filed

12 before the divorce, the Secretary may collect such li13 ability only in accordance with the decree,

14 (3) whether those provisions of the Internal

15 Revenue Code of 1986 intended to provide relief to

16 innocent spouses provide meaningful relief in all

17 cases where such relief is appropriate, and

18 (4) the effect of providing that community in19 come (as defined in section 66(d) of such Code)

20 which, in accordance with the rules contained in sec21 tion 879(a) of such Code, would be treated as the

22 income of one spouse is exempt from a levy for fail23 ure to pay any tax imposed by subtitle A by the

24 other spouse for a taxable year ending before their

25 marriage.
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1 The reports of such studies shall be submitted to the Com2 mittee on Ways and Means of the House of Representa3 tives and the Committee on Finance of the Senate within

4 6 months after the date of the enactment of this Act.

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

6 RETURNS WITHOUT FULL PAYMENT OF TAX.

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

8 6013(b) (relating to limitations on filing of joint return

9 after filing separate returns) is amended by striking sub10 paragraph (A) and redesignating the following subpara11 graphs accordingly.

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

13 subsection (a) shall apply to taxable years beginning after

14 the date of the enactment of this Act.

15 SEC. 403. DISCLOSURE OF COLLECTION ACTIVITIES.

16 (a) IN GENERAL.—Subsection (e) of section 6103

17 (relating to disclosure to persons having material interest)

18 is amended by adding at the end the following new para19 graph:

20 ‘‘(8) DISCLOSURE OF COLLECTION ACTIVITIES

21 WITH RESPECT TO JOINT RETURN.—If any defi22 ciency of tax with respect to a joint return is as23 sessed and the individuals filing such return are no

24 longer married or no longer reside in the same

25 household, upon request in writing by either of such
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1 individuals, the Secretary shall disclose in writing to

2 the individual making the request whether the Sec3 retary has attempted to collect such deficiency from

4 such other individual, the general nature of such col5 lection activities, and the amount collected. The pre6 ceding sentence shall not apply to any deficiency

7 which may not be collected by reason of section

8 6502.’’.

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

10 this section shall apply to requests made after the date

11 of the enactment of this Act.

12 TITLE V—COLLECTION

13 ACTIVITIES

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

15 (a) WITHDRAWAL OF CERTAIN NOTICES.—Section

16 6323 (relating to validity and priority against certain per17 sons) is amended by adding at the end the following new

18 subsection:

19 ‘‘(j) WITHDRAWAL OF NOTICE IN CERTAIN CIR20 CUMSTANCES.—

21 ‘‘(1) IN GENERAL.—The Secretary may with22 draw a notice of a lien filed under this section and

23 this chapter shall be applied as if the withdrawn no24 tice had not been filed, if the Secretary determines

25 that—
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1 ‘‘(A) the filing of such notice 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 lien was imposed by

7 means of installment payments, unless such

8 agreement provides otherwise,

9 ‘‘(C) the withdrawal of such notice will fa10 cilitate the collection of the tax liability, or

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

12 the Taxpayer Advocate, the withdrawal of such

13 notice would be in the best interests of the tax14 payer (as determined by the Taxpayer Advo15 cate) and the United States.

16 Any such withdrawal shall be made by filing notice

17 at the same office as the withdrawn notice. A copy

18 of such notice of withdrawal shall be provided to the

19 taxpayer.

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

21 Upon written request by the taxpayer with respect

22 to whom a notice of a lien was withdrawn under

23 paragraph (1), the Secretary shall promptly make

24 reasonable efforts to notify credit reporting agencies,

25 and any financial institution or creditor whose name
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1 and address is specified in such request, of the with2 drawal of such notice. Any such request shall be in

3 such form as the Secretary may prescribe.’’.

4 (b) RETURN OF LEVIED PROPERTY IN CERTAIN

5 CASES.—Section 6343 (relating to authority to release

6 levy and return property) is amended by adding at the

7 end the following new subsection:

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

9 If—

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

11 ‘‘(2) the Secretary determines that—

12 ‘‘(A) the levy on such property was pre13 mature or otherwise not in accordance with ad14 ministrative procedures of the Secretary,

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

16 agreement under section 6159 to satisfy the tax

17 liability for which the levy was imposed by

18 means of installment payments, unless such

19 agreement provides otherwise,

20 ‘‘(C) the return of such property will facili21 tate the collection of the tax liability, or

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

23 the Taxpayer Advocate, the return of such

24 property would be in the best interests of the
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1 taxpayer (as determined by the Taxpayer Advo2 cate) and the United States,

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

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

5 except that no interest shall be allowed under subsection

6 (c).’’.

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

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

9 of this Act.

10 SEC. 502. MODIFICATIONS TO CERTAIN LEVY EXEMPTION

11 AMOUNTS.

12 (a) FUEL, ETC.—Paragraph (2) of section 6334(a)

13 (relating to fuel, provisions, furniture, and personal effects

14 exempt from levy) is amended—

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

16 a family, so’’ and inserting ‘‘So’’,

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

18 ‘‘the taxpayer’s household’’, and

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

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

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

22 (relating to books and tools of a trade, business, or profes23 sion) is amended by striking ‘‘$1,100 ($1,050 in the case

24 of levies issued during 1989)’’ and inserting ‘‘$1,250’’.
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1 (c) INFLATION ADJUSTMENT.—Section 6334 (relat2 ing to property exempt from levy) is amended by adding

3 at the end the following new subsection:

4 ‘‘(f) INFLATION ADJUSTMENT.—

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

6 year beginning after 1997, each dollar amount re7 ferred to in paragraphs (2) and (3) of subsection (a)

8 shall be increased by an amount equal to—

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

10 ‘‘(B) the cost-of-living adjustment deter11 mined under section 1(f)(3) for such calendar

12 year, by substituting ‘calendar year 1996’ for

13 ‘calendar year 1992’ in subparagraph (B)

14 thereof.

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

16 being increased under paragraph (1) is not a mul17 tiple of $10, such dollar amount shall be rounded to

18 the nearest multiple of $10.’’.

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

20 this section shall take effect with respect to levies issued

21 after December 31, 1996.

22 SEC. 503. OFFERS-IN-COMPROMISE.

23 (a) REVIEW REQUIREMENTS.—Subsection (b) of sec24 tion 7122 (relating to records) is amended by striking

25 ‘‘$500.’’ and inserting ‘‘$50,000. However, such com-
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1 promise shall be subject to continuing quality review by

2 the Secretary.’’.

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

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

5 of this Act.

6 TITLE VI—INFORMATION

7 RETURNS

8 SEC. 601. CIVIL DAMAGES FOR FRAUDULENT FILING OF IN9 FORMATION RETURNS.

10 (a) GENERAL RULE.—Subchapter B of chapter 76

11 (relating to proceedings by taxpayers and third parties)

12 is amended by redesignating section 7434 as section 7435

13 and by inserting after section 7433 the following new

14 section:

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

16 INFORMATION RETURNS.

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

18 fraudulent information return with respect to payments

19 purported to be made to any other person, such other per20 son may bring a civil action for damages against the per21 son so filing such return.

22 ‘‘(b) DAMAGES.—In any action brought under sub23 section (a), upon a finding of liability on the part of the

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

25 an amount equal to the greater of $5,000 or the sum of—
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1 ‘‘(1) any actual damages sustained by the plain2 tiff as a proximate result of the filing of the fraudu3 lent information return (including any costs attrib4 utable to resolving deficiencies asserted as a result

5 of such filing),

6 ‘‘(2) the costs of the action, and

7 ‘‘(3) in the court’s discretion, reasonable attor8 neys fees.

9 ‘‘(c) PERIOD FOR BRINGING ACTION.—Notwith10 standing any other provision of law, an action to enforce

11 the liability created under this section may be brought

12 without regard to the amount in controversy and may be

13 brought only within the later of—

14 ‘‘(1) 6 years after the date of the filing of the

15 fraudulent information return, or

16 ‘‘(2) 1 year after the date such fraudulent in17 formation return would have been discovered by ex18 ercise of reasonable care.

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

20 person bringing an action under subsection (a) shall pro21 vide a copy of the complaint to the Internal Revenue Serv22 ice upon the filing of such complaint with the court.

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

24 AMOUNT OF PAYMENT.—The decision of the court award25 ing damages in an action brought under subsection (a)
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1 shall include a finding of the correct amount which should

2 have been reported in the information return.

3 ‘‘(f) INFORMATION RETURN.—For purposes of this

4 section, the term ‘information return’ means any state5 ment described in section 6724(d)(1)(A).’’.

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

7 for subchapter B of chapter 76 is amended by striking

8 the item relating to section 7434 and inserting the follow9 ing:

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

‘‘Sec. 7435. Cross references.’’.

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

11 this section shall apply to fraudulent information returns

12 filed after the date of the enactment of this Act.

13 SEC. 602. REQUIREMENT TO CONDUCT REASONABLE IN14 VESTIGATIONS OF INFORMATION RETURNS.

15 (a) GENERAL RULE.—Section 6201 (relating to as16 sessment authority) is amended by redesignating sub17 section (d) as subsection (e) and by inserting after sub18 section (c) the following new subsection:

19 ‘‘(d) REQUIRED REASONABLE VERIFICATION OF IN20 FORMATION RETURNS.—In any court proceeding, if a tax21 payer asserts a reasonable dispute with respect to any

22 item of income reported on an information return filed

23 with the Secretary under subpart B or C of part III of

24 subchapter A of chapter 61 by a third party and the tax-
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1 payer has fully cooperated with the Secretary (including

2 providing, within a reasonable period of time, access to

3 and inspection of all witnesses, information, and docu4 ments within the control of the taxpayer as reasonably re5 quested by the Secretary), the Secretary shall have the

6 burden of producing reasonable and probative information

7 concerning such deficiency in addition to such information

8 return.’’.

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

10 subsection (a) shall take effect on the date of the enact11 ment of this Act.

12 TITLE VII—AWARDING OF COSTS

13 AND CERTAIN FEES

14 SEC. 701. UNITED STATES MUST ESTABLISH THAT ITS POSI15 TION IN PROCEEDING WAS SUBSTANTIALLY

16 JUSTIFIED.

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

18 7430(c)(4) (defining prevailing party) is amended by

19 striking clause (i) and by redesignating clauses (ii) and

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

21 (b) BURDEN OF PROOF ON UNITED STATES.—Para22 graph (4) of section 7430(c) is amended by redesignating

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

24 after subparagraph (A) the following new subparagraph:
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1 ‘‘(B) EXCEPTION IF UNITED STATES ES2 TABLISHES THAT ITS POSITION WAS SUBSTAN3 TIALLY JUSTIFIED.—

4 ‘‘(i) GENERAL RULE.—A party shall

5 not be treated as the prevailing party in a

6 proceeding to which subsection (a) applies

7 if the United States establishes that the

8 position of the United States in the pro9 ceeding was substantially justified.

10 ‘‘(ii) PRESUMPTION OF NO JUSTIFICA11 TION IF INTERNAL REVENUE SERVICE DID

12 NOT FOLLOW CERTAIN PUBLISHED GUID13 ANCE.—For purposes of clause (i), the po14 sition of the United States shall be pre15 sumed not to be substantially justified if

16 the Internal Revenue Service did not follow

17 its applicable published guidance in the ad18 ministrative proceeding. Such presumption

19 may be rebutted.

20 ‘‘(iii) APPLICABLE PUBLISHED GUID21 ANCE.—For purposes of clause (ii), the

22 term ‘applicable published guidance’

23 means—

24 ‘‘(I) regulations, revenue rulings,

25 revenue procedures, information re-
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1 leases, notices, and announcements,

2 and

3 ‘‘(II) any of the following which

4 are issued to the taxpayer: private let5 ter rulings, technical advice memo6 randa, and determination letters.’’.

7 (c) CONFORMING AMENDMENTS.—

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

9 amended by striking ‘‘paragraph (4)(B)’’ and insert10 ing ‘‘paragraph (4)(C)’’.

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

12 redesignated by subsection (b), is amended by strik13 ing ‘‘subparagraph (A)’’ and inserting ‘‘this para14 graph’’.

15 (3) Sections 6404(g) and 6656(c)(1), as amend16 ed by this Act, are each amended by striking ‘‘sec17 tion 7430(c)(4)(A)(iii)’’ and inserting ‘‘section

18 7430(c)(4)(A)(ii)’’.

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

20 this section shall apply in the case of proceedings com21 menced after the date of the enactment of this Act.

22 SEC. 702. INCREASED LIMIT ON ATTORNEY FEES.

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

24 (defining reasonable litigation costs) is amended—
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1 (1) by striking ‘‘$75’’ in clause (iii) of subpara2 graph (B) and inserting ‘‘$110’’,

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

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

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

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

7 1996, the dollar amount referred to in clause (iii)

8 shall be increased by an amount equal to such dollar

9 amount multiplied by the cost-of-living adjustment

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

11 year, by substituting ‘calendar year 1995’ for ‘cal12 endar year 1992’ in subparagraph (B) thereof. If

13 any dollar amount after being increased under the

14 preceding sentence is not a multiple of $10, such

15 dollar amount shall be rounded to the nearest mul16 tiple of $10.’’.

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

18 this section shall apply in the case of proceedings com19 menced after the date of the enactment of this Act.

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

21 INTO ACCOUNT.

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

23 (relating to requirement that administrative remedies be

24 exhausted) is amended by adding at the end the following

25 new sentence: ‘‘Any failure to agree to an extension of the
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1 time for the assessment of any tax shall not be taken into

2 account for purposes of determining whether the prevail3 ing party meets the requirements of the preceding sen4 tence.’’.

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

6 this section shall apply in the case of proceedings com7 menced after the date of the enactment of this Act.

8 SEC. 704. AWARD OF LITIGATION COSTS PERMITTED IN DE9 CLARATORY JUDGMENT PROCEEDINGS.

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

11 amended by striking paragraph (3) and by redesignating

12 paragraph (4) as paragraph (3).

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

14 this section shall apply in the case of proceedings com15 menced after the date of the enactment of this Act.

16 TITLE VIII—MODIFICATION TO

17 RECOVERY OF CIVIL DAM18 AGES FOR UNAUTHORIZED

19 COLLECTION ACTIONS

20 SEC. 801. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAM21 AGES FOR UNAUTHORIZED COLLECTION AC22 TIONS.

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

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

25 and inserting ‘‘$1,000,000’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply to actions by officers or employ3 ees of the Internal Revenue Service after the date of the

4 enactment of this Act.

5 SEC. 802. COURT DISCRETION TO REDUCE AWARD FOR

6 LITIGATION COSTS FOR FAILURE TO EX7 HAUST ADMINISTRATIVE REMEDIES.

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

9 7433(d) (relating to civil damages for certain unauthor10 ized collection actions) is amended to read as follows:

11 ‘‘(1) AWARD FOR DAMAGES MAY BE REDUCED

12 IF ADMINISTRATIVE REMEDIES NOT EXHAUSTED.—

13 The amount of damages awarded under subsection

14 (b) may be reduced if the court determines that the

15 plaintiff has not exhausted the administrative rem16 edies available to such plaintiff within the Internal

17 Revenue Service.’’.

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

19 this section shall apply in the case of proceedings com20 menced after the date of the enactment of this Act.
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1 TITLE IX—MODIFICATIONS TO

2 PENALTY FOR FAILURE TO

3 COLLECT AND PAY OVER TAX

4 SEC. 901. PRELIMINARY NOTICE REQUIREMENT.

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

6 to collect and pay over tax, or attempt to evade or defeat

7 tax) is amended by redesignating subsection (b) as sub8 section (c) and by inserting after subsection (a) the follow9 ing new subsection:

10 ‘‘(b) PRELIMINARY NOTICE REQUIREMENT.—

11 ‘‘(1) IN GENERAL.—No penalty shall be im12 posed under subsection (a) unless the Secretary noti13 fies the taxpayer in writing by mail to an address as

14 determined under section 6212(b) that the taxpayer

15 shall be subject to an assessment of such penalty.

16 ‘‘(2) TIMING OF NOTICE.—The mailing of the

17 notice described in paragraph (1) shall precede any

18 notice and demand of any penalty under subsection

19 (a) by at least 60 days.

20 ‘‘(3) STATUTE OF LIMITATIONS.—If a notice

21 described in paragraph (1) with respect to any pen22 alty is mailed before the expiration of the period

23 provided by section 6501 for the assessment of such

24 penalty (determined without regard to this para25 graph), the period provided by such section for the
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1 assessment of such penalty shall not expire before

2 the later of—

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

4 which such notice was mailed, or

5 ‘‘(B) if there is a timely protest of the pro6 posed assessment, the date 30 days after the

7 Secretary makes a final administrative deter8 mination with respect to such protest.

9 ‘‘(4) EXCEPTION FOR JEOPARDY.—This sub10 section shall not apply if the Secretary finds that the

11 collection of the penalty is in jeopardy.’’.

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

13 subsection (a) shall apply to proposed assessments made

14 after June 30, 1996.

15 SEC. 902. DISCLOSURE OF CERTAIN INFORMATION WHERE

16 MORE THAN 1 PERSON LIABLE FOR PENALTY

17 FOR FAILURE TO COLLECT AND PAY OVER

18 TAX.

19 (a) IN GENERAL.—Subsection (e) of section 6103

20 (relating to disclosure to persons having material interest),

21 as amended by section 403, is amended by adding at the

22 end the following new paragraph:

23 ‘‘(9) DISCLOSURE OF CERTAIN INFORMATION

24 WHERE MORE THAN 1 PERSON SUBJECT TO PEN25 ALTY UNDER SECTION 6672.—If the Secretary deter-
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1 mines that a person is liable for a penalty under sec2 tion 6672(a) with respect to any failure, upon re3 quest in writing of such person, the Secretary shall

4 disclose in writing to such person—

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

6 the Secretary has determined to be liable for

7 such penalty with respect to such failure, and

8 ‘‘(B) whether the Secretary has attempted

9 to collect such penalty from such other person,

10 the general nature of such collection activities,

11 and the amount collected.’’.

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

13 subsection (a) shall take effect on the date of the enact14 ment of this Act.

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

16 PERSON LIABLE FOR PENALTY FOR FAILURE

17 TO COLLECT AND PAY OVER TAX.

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

19 to collect and pay over tax, or attempt to evade or defeat

20 tax) is amended by adding at the end the following new

21 subsection:

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

23 1 PERSON LIABLE FOR PENALTY.—If more than 1 person

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

25 to any tax, each person who paid such penalty shall be
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1 entitled to recover from other persons who are liable for

2 such penalty an amount equal to the excess of the amount

3 paid by such person over such person’s proportionate

4 share of the penalty. Any claim for such a recovery may

5 be made only in a proceeding which is separate from, and

6 is not joined or consolidated with—

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

8 brought by the United States, or

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

10 files a counterclaim or third-party complaint for the

11 collection of such penalty.’’.

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

13 subsection (a) shall apply to penalties assessed after the

14 date of the enactment of this Act.

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

16 ORGANIZATIONS EXEMPT FROM PENALTY

17 FOR FAILURE TO COLLECT AND PAY OVER

18 TAX.

19 (a) IN GENERAL.—Section 6672 is amended by add20 ing at the end the following new subsection:

21 ‘‘(e) EXCEPTION FOR VOLUNTARY BOARD MEMBERS

22 OF TAX-EXEMPT ORGANIZATIONS.—No penalty shall be

23 imposed by subsection (a) on any unpaid, volunteer mem24 ber of any board of trustees or directors of an organization

25 exempt from tax under subtitle A if such member—
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1 ‘‘(1) is solely serving in an honorary capacity,

2 ‘‘(2) does not participate in the day-to-day or

3 financial operations of the organization, and

4 ‘‘(3) does not have actual knowledge of the fail5 ure on which such penalty is imposed.

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

7 person being liable for the penalty imposed by subsection

8 (a).’’.

9 (b) PUBLIC INFORMATION REQUIREMENTS.—

10 (1) IN GENERAL.—The Secretary of the Treas11 ury or the Secretary’s delegate (hereafter in this

12 subsection referred to as the ‘‘Secretary’’) shall take

13 such actions as may be appropriate to ensure that

14 employees are aware of their responsibilities under

15 the Federal tax depository system, the circumstances

16 under which employees may be liable for the penalty

17 imposed by section 6672 of the Internal Revenue

18 Code of 1986, and the responsibility to promptly re19 port to the Internal Revenue Service any failure re20 ferred to in subsection (a) of such section 6672.

21 Such actions shall include—

22 (A) printing of a warning on deposit cou23 pon booklets and the appropriate tax returns

24 that certain employees may be liable for the

25 penalty imposed by such section 6672, and
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1 (B) the development of a special informa2 tion packet.

3 (2) DEVELOPMENT OF EXPLANATORY MATE4 RIALS.—The Secretary shall develop materials ex5 plaining the circumstances under which board mem6 bers of tax-exempt organizations (including vol7 untary and honorary members) may be subject to

8 penalty under section 6672 of such Code. Such ma9 terials shall be made available to tax-exempt organi10 zations.

11 (3) IRS INSTRUCTIONS.—The Secretary shall

12 clarify the instructions to Internal Revenue Service

13 employees on the application of the penalty under

14 section 6672 of such Code with regard to voluntary

15 members of boards of trustees or directors of tax-ex16 empt organizations.

17 TITLE X—MODIFICATIONS OF

18 RULES RELATING TO SUM19 MONSES

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

21 RECORDKEEPERS.

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

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

24 by striking ‘‘and’’ at the end of subparagraph (G), by

25 striking the period at the end of subparagraph (H) and
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1 inserting ‘‘; and’’, and by adding at the end the following

2 the subparagraph:

3 ‘‘(I) any enrolled agent.’’.

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

5 subsection (a) shall apply to summonses issued after the

6 date of the enactment of this Act.

7 SEC. 1002. SAFEGUARDS RELATING TO DESIGNATED SUM8 MONSES.

9 (a) STANDARD OF REVIEW.—Subparagraph (A) of

10 section 6503(k)(2) (defining designated summons) is

11 amended by redesignating clauses (i) and (ii) as clauses

12 (ii) and (iii), respectively, and by inserting before clause

13 (ii) (as so redesignated) the following new clause:

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

15 preceded by a review of such issuance by

16 the regional counsel of the Office of Chief

17 Counsel for the region in which the exam18 ination of the corporation is being con19 ducted,’’.

20 (b) LIMITATION ON PERSONS TO WHOM DES21 IGNATED SUMMONS MAY BE ISSUED.—Paragraph (1) of

22 section 6503(k) is amended by striking ‘‘with respect to

23 any return of tax by a corporation’’ and inserting ‘‘to a

24 corporation (or to any other person to whom the corpora25 tion has transferred records) with respect to any return
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1 of tax by such corporation for a taxable year (or other

2 period) for which such corporation is being examined

3 under the coordinated examination program (or any suc4 cessor program) of the Internal Revenue Service’’.

5 (c) CLERICAL AMENDMENT.—Section 6503 is

6 amended by redesignating subsections (k) and (l) (as

7 amended by this section) as subsections (j) and (k), re8 spectively.

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

10 this section shall apply to summonses issued after the date

11 of the enactment of this Act.

12 SEC. 1003. ANNUAL REPORT TO CONGRESS CONCERNING

13 DESIGNATED SUMMONSES.

14 Not later than December 31 of each calendar year

15 after 1995, the Secretary of the Treasury or his delegate

16 shall report to the Committee on Ways and Means of the

17 House of Representatives and the Committee on Finance

18 of the Senate on the number of designated summonses (as

19 defined in section 6503(j) of the Internal Revenue Code

20 of 1986) which were issued during the preceding 12

21 months.
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1 TITLE XI—RELIEF FROM RETRO2 ACTIVE APPLICATION OF

3 TREASURY DEPARTMENT

4 REGULATIONS

5 SEC. 1101. RELIEF FROM RETROACTIVE APPLICATION OF

6 TREASURY DEPARTMENT REGULATIONS.

7 (a) IN GENERAL.—Subsection (b) of section 7805

8 (relating to rules and regulations) is amended to read as

9 follows:

10 ‘‘(b) RETROACTIVITY OF REGULATIONS.—

11 ‘‘(1) IN GENERAL.—Except as otherwise pro12 vided in this subsection, no temporary, proposed, or

13 final regulation relating to the internal revenue laws

14 shall apply to any taxable period ending before the

15 earliest of the following dates:

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

17 filed with the Federal Register.

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

19 the date on which any proposed or temporary

20 regulation to which such final regulation relates

21 was filed with the Federal Register.

22 ‘‘(C) The date on which any notice sub23 stantially describing the expected contents of

24 any temporary, proposed, or final regulation is

25 issued to the public.
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1 ‘‘(2) EXCEPTION FOR PROMPTLY ISSUED REGU2 LATIONS.—Paragraph (1) shall not apply to regula3 tions filed or issued within 18 months of the date of

4 the enactment of the statutory provision to which

5 the regulation relates.

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

7 may provide that any regulation may take effect or

8 apply retroactively to prevent abuse.

9 ‘‘(4) CORRECTION OF PROCEDURAL DE10 FECTS.—The Secretary may provide that any regu11 lation may apply retroactively to correct a proce12 dural defect in the issuance of any prior regulation.

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

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

15 relating to internal Treasury Department policies,

16 practices, or procedures.

17 ‘‘(6) CONGRESSIONAL AUTHORIZATION.—The

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

19 legislative grant from Congress authorizing the Sec20 retary to prescribe the effective date with respect to

21 any regulation.

22 ‘‘(7) ELECTION TO APPLY RETROACTIVELY.—

23 The Secretary may provide for any taxpayer to elect

24 to apply any regulation before the dates specified in

25 paragraph (1).
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1 ‘‘(8) APPLICATION TO RULINGS.—The Sec2 retary may prescribe the extent, if any, to which any

3 ruling (including any judicial decision or any admin4 istrative determination other than by regulation) re5 lating to the internal revenue laws shall be applied

6 without retroactive effect.’’.

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

8 subsection (a) shall apply with respect to regulations

9 which relate to statutory provisions enacted on or after

10 the date of the enactment of this Act.

11 TITLE XII—MISCELLANEOUS

12 PROVISIONS

13 SEC. 1201. PHONE NUMBER OF PERSON PROVIDING PAYEE

14 STATEMENTS REQUIRED TO BE SHOWN ON

15 SUCH STATEMENT.

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

17 each amended by striking ‘‘name and address’’ and insert18 ing ‘‘name, address, and phone number of the information

19 contact’’:

20 (1) Section 6041(d)(1).

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

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

23 (4) Section 6044(e)(1).

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

25 (6) Section 6049(c)(1)(A).
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1 (7) Section 6050B(b)(1).

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

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

4 (10) Section 6050J(e).

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

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

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

8 subsection (a) shall apply to statements required to be fur9 nished after December 31, 1996 (determined without re10 gard to any extension).

11 SEC. 1202. REQUIRED NOTICE OF CERTAIN PAYMENTS.

12 If any payment is received by the Secretary of the

13 Treasury or his delegate from any taxpayer and the Sec14 retary cannot associate such payment with such taxpayer,

15 the Secretary shall make reasonable efforts to notify the

16 taxpayer of such inability within 60 days after the receipt

17 of such payment.

18 SEC. 1203. UNAUTHORIZED ENTICEMENT OF INFORMATION

19 DISCLOSURE.

20 (a) IN GENERAL.—Subchapter B of chapter 76 (re21 lating to proceedings by taxpayers and third parties), as

22 amended by section 601(a), is amended by redesignating

23 section 7435 as section 7436 and by inserting after section

24 7434 the following new section:
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1 ‘‘SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICE2 MENT OF INFORMATION DISCLOSURE.

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

4 United States intentionally compromises the determina5 tion or collection of any tax due from an attorney, certified

6 public accountant, or enrolled agent representing a tax7 payer in exchange for information conveyed by the tax8 payer to the attorney, certified public accountant, or en9 rolled agent for purposes of obtaining advice concerning

10 the taxpayer’s tax liability, such taxpayer may bring a civil

11 action for damages against the United States in a district

12 court of the United States. Such civil action shall be the

13 exclusive remedy for recovering damages resulting from

14 such actions.

15 ‘‘(b) DAMAGES.—In any action brought under sub16 section (a), upon a finding of liability on the part of the

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

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

19 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.

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

25 civil or criminal penalties, or other losses attributable to

26 incarceration or the imposition of other criminal sanctions.
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1 ‘‘(c) PAYMENT AUTHORITY.—Claims pursuant to

2 this section shall be payable out of funds appropriated

3 under section 1304 of title 31, United States Code.

4 ‘‘(d) PERIOD FOR BRINGING ACTION.—Notwith5 standing any other provision of law, an action to enforce

6 liability created under this section may be brought without

7 regard to the amount in controversy and may be brought

8 only within 2 years after the date the actions creating such

9 liability would have been discovered by exercise of reason10 able care.

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

12 Commissioner or the Commissioner’s delegate that there

13 is an ongoing investigation or prosecution of the taxpayer,

14 the district court before which an action under this section

15 is pending shall stay all proceedings with respect to such

16 action pending the conclusion of the investigation or pros17 ecution.

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

19 shall not apply to information conveyed to an attorney,

20 certified public accountant, or enrolled agent for the pur21 pose of perpetrating a fraud or crime.’’.

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

23 for subchapter B of chapter 76, as amended by section

24 601(b), is amended by striking the item relating to section

25 7435 and by adding at the end the following new items:
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‘‘Sec. 7435. Civil damages for unauthorized enticement of information disclosure.

‘‘Sec. 7436. Cross references.’’.

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

2 this section shall apply to actions after the date of the

3 enactment of this Act.

4 SEC. 1204. ANNUAL REMINDERS TO TAXPAYERS WITH OUT5 STANDING DELINQUENT ACCOUNTS.

6 (a) IN GENERAL.—Chapter 77 (relating to mis7 cellaneous provisions) is amended by adding at the end

8 the following new section:

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

10 ‘‘Not less often than annually, the Secretary shall

11 send a written notice to each taxpayer who has a tax delin12 quent account of the amount of the tax delinquency as

13 of the date of the notice.’’.

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

15 for chapter 77 is amended by adding at the end the follow16 ing new item:

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

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

18 this section shall apply to calendar years after 1996.

19 SEC. 1205. 5-YEAR EXTENSION OF AUTHORITY FOR UNDER20 COVER OPERATIONS.

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

22 of the Anti-Drug Abuse Act of 1988 is amended by strik23 ing all that follows ‘‘this Act’’ and inserting a period.
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1 (b) RESTORATION OF AUTHORITY FOR 5 YEARS.—

2 Subsection (c) of section 7608 is amended by adding at

3 the end the following new paragraph:

4 ‘‘(6) APPLICATION OF SECTION.—The provi5 sions of this subsection—

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

7 and before January 1, 1990, and

8 ‘‘(B) shall apply after the date of the en9 actment of this paragraph and before January

10 1, 2001.

11 All amounts expended pursuant to this subsection

12 during the period described in subparagraph (B)

13 shall be recovered to the extent possible, and depos14 ited in the Treasury of the United States as mis15 cellaneous receipts, before January 1, 2001.’’.

16 (c) ENHANCED OVERSIGHT.—

17 (1) ADDITIONAL INFORMATION REQUIRED IN

18 REPORTS TO CONGRESS.—Subparagraph (B) of sec19 tion 7608(c)(4) is amended—

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

21 clause (ii),

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

23 (ii), and

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

25 the following:
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1 ‘‘(iii) the number, by programs, of un2 dercover investigative operations closed in

3 the 1-year period for which such report is

4 submitted, and

5 ‘‘(iv) the following information with

6 respect to each undercover investigative op7 eration pending as of the end of the 1-year

8 period for which such report is submitted

9 or closed during such 1-year period—

10 ‘‘(I) the date the operation began

11 and the date of the certification re12 ferred to in the last sentence of para13 graph (1),

14 ‘‘(II) the total expenditures

15 under the operation and the amount

16 and use of the proceeds from the op17 eration,

18 ‘‘(III) a detailed description of

19 the operation including the potential

20 violation being investigated and

21 whether the operation is being con22 ducted under grand jury auspices, and

23 ‘‘(IV) the results of the operation

24 including the results of criminal pro25 ceedings.’’.
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1 (2) AUDITS REQUIRED WITHOUT REGARD TO

2 AMOUNTS INVOLVED.—Subparagraph (C) of section

3 7608(c)(5) is amended to read as follows:

4 ‘‘(C) UNDERCOVER INVESTIGATIVE OPER5 ATION.—The term ‘undercover investigative op6 eration’ means any undercover investigative op7 eration of the Service; except that, for purposes

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

9 such term only includes an operation which is

10 exempt from section 3302 or 9102 of title 31,

11 United States Code.’’.

12 (3) EFFECTIVE DATE.—The amendments made

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

14 enactment of this Act.

15 SEC. 1206. DISCLOSURE OF FORM 8300 INFORMATION ON

16 CASH TRANSACTIONS.

17 (a) IN GENERAL.—Subsection (l) of section 6103 (re18 lating to disclosure of returns and return information for

19 purposes other than tax administration) is amended by

20 adding at the end the following new paragraph:

21 ‘‘(15) DISCLOSURE OF RETURNS FILED UNDER

22 SECTION 6050I.—The Secretary may, upon written

23 request, disclose to officers and employees of—

24 ‘‘(A) any Federal agency,
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1 ‘‘(B) any agency of a State or local govern2 ment, or

3 ‘‘(C) any agency of the government of a

4 foreign country,

5 information contained on returns filed under section

6 6050I. Any such disclosure shall be made on the

7 same basis, and subject to the same conditions, as

8 apply to disclosures of information on reports filed

9 under section 5313 of title 31, United States Code;

10 except that no disclosure under this paragraph shall

11 be made for purposes of the administration of any

12 tax law.’’.

13 (b) CONFORMING AMENDMENTS.—

14 (1) Subsection (i) of section 6103 is amended

15 by striking paragraph (8).

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

17 amended—

18 (A) by striking ‘‘(7)(A)(ii), or (8)’’ and in19 serting ‘‘or (7)(A)(ii)’’, and

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

21 ‘‘(14), or (15)’’.

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

23 section 6103(p)(4) is amended—

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

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

2 inserting ‘‘(i)(3)(B)(i),’’, and

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

4 ‘‘(12), or (15)’’.

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

6 amended—

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

8 ‘‘or (5)’’, and

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

10 ‘‘(14), or (15)’’.

11 (5) Paragraph (2) of section 7213(a) is amend12 ed by striking ‘‘or (12)’’ and inserting ‘‘(12), or

13 (15)’’.

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

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

16 of this Act.

17 SEC. 1207. DISCLOSURE OF RETURNS AND RETURN INFOR18 MATION TO DESIGNEE OF TAXPAYER.

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

20 of returns and return information to designee of taxpayer)

21 is amended by striking ‘‘written request for or consent to

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

23 such disclosure’’.
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1 SEC. 1208. STUDY OF NETTING OF INTEREST ON OVERPAY2 MENTS AND LIABILITIES.

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

4 his delegate shall—

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

6 Internal Revenue Service has implemented the net7 ting of interest on overpayments and underpayments

8 and of the policy and administrative implications of

9 global netting, and

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

11 hold a public hearing to receive comments on the

12 matters included in such study.

13 (b) REPORT.—The report of such study shall be sub14 mitted not later than 6 months after the date of the enact15 ment of this Act to the Committee on Ways and Means

16 of the House of Representatives and the Committee on

17 Finance of the Senate.

18 SEC. 1209. EXPENSES OF DETECTION OF UNDERPAYMENTS

19 AND FRAUD, ETC.

20 (a) IN GENERAL.—Section 7623 (relating to ex21 penses of deduction and punishment of frauds) is amended

22 to read as follows:
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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

5 necessary 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

11 for by law. Any amount payable under the preceding sen12 tence shall be paid from the proceeds of amounts (other

13 than interest) collected by reason of the information pro14 vided, and any amount so collected shall be available for

15 such payments.’’.

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

17 for subchapter B of chapter 78 is amended by striking

18 the item relating to section 7623 and inserting the follow19 ing new item:

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

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

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

22 after 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

25 on Ways and Means of the House of Representatives and
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1 the Committee on Finance of the Senate on the payments

2 under section 7623 of the Internal Revenue Code of 1986

3 during the year and on the amounts collected for which

4 such payments were made.

5 SEC. 1210. USE OF PRIVATE DELIVERY SERVICES FOR TIME6 LY-MAILING-AS-TIMELY-FILING RULE.

7 Section 7502 (relating to timely mailing treated as

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

9 the following new subsection:

10 ‘‘(f) TREATMENT OF PRIVATE DELIVERY SERV11 ICES.—

12 ‘‘(1) IN GENERAL.—Any reference in this sec13 tion to the United States mail shall be treated as in14 cluding a reference to any designated delivery serv15 ice, and any reference in this section to a postmark

16 by the United States Postal Service shall be treated

17 as including a reference to any date recorded or

18 marked as described in paragraph (2)(C) by any

19 designated delivery service.

20 ‘‘(2) DESIGNATED DELIVERY SERVICE.—For

21 purposes of this subsection, the term ‘designated de22 livery service’ means any delivery service provided by

23 a trade or business if such service is designated by

24 the Secretary for purposes of this section. The Sec25 retary may designate a delivery service under the
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1 preceding sentence only if the Secretary determines

2 that such service—

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

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

5 a 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

11 business 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 Commit23 tee on Ways and Means of the House of Representatives

24 and the Committee on Finance of the Senate a report

25 on—
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1 (1) all categories of instances involving the mis2 conduct of employees of the Internal Revenue Serv3 ice during the preceding calendar year, and

4 (2) the disposition during the preceding cal5 endar year of any such instances (without regard to

6 the 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 fail14 ure to file tax return or to pay tax) is amended by adding

15 at the end the following new subsection:

16 ‘‘(g) TREATMENT OF RETURNS PREPARED BY SEC17 RETARY UNDER SECTION 6020(b).—In the case of any

18 return 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

25 (3) of subsection (a).’’.
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1 (b) EFFECTIVE DATE.—The amendment made by

2 subsection (a) shall apply in the case of any return the

3 due date for which (determined without regard to exten4 sions) 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)

12 is amended by redesignating subchapter D as subchapter

13 E and by inserting after subchapter C the following new

14 subchapter:

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

23 tax imposed by this paragraph shall be paid by any
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1 disqualified person referred to in subsection (f)(1)

2 with 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,

7 knowing that it is such a transaction, a tax equal to

8 10 percent of the excess benefit, unless such partici9 pation is not willful and is due to reasonable cause.

10 The tax imposed by this paragraph shall be paid by

11 any organization manager who participated in the

12 excess benefit 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

19 tax imposed by this subsection shall be paid by any dis20 qualified person referred to in subsection (f)(1) with re21 spect to such transaction.

22 ‘‘(c) EXCESS BENEFIT TRANSACTION; EXCESS BEN23 EFIT.—For purposes of this section—

24 ‘‘(1) EXCESS BENEFIT TRANSACTION.—
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1 ‘‘(A) IN GENERAL.—The term ‘excess ben2 efit transaction’ means any transaction in

3 which an economic benefit is provided by an ap4 plicable tax-exempt organization directly or in5 directly to or for the use of any disqualified

6 person if the value of the economic benefit pro7 vided exceeds the value of the consideration (in8 cluding the performance of services) received

9 for providing such benefit. For purposes of the

10 preceding sentence, an economic benefit shall

11 not be treated as consideration for the perform12 ance of services unless such organization clearly

13 indicated its intent to so treat such benefit.

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

15 benefit’ means the excess referred to in sub16 paragraph (A).

17 ‘‘(2) AUTHORITY TO INCLUDE CERTAIN OTHER

18 PRIVATE INUREMENT.—To the extent provided in

19 regulations prescribed by the Secretary, the term

20 ‘excess benefit transaction’ includes any transaction

21 in which the amount of any economic benefit pro22 vided to or for the use of a disqualified person is de23 termined in whole or in part by the revenues of 1

24 or more activities of the organization but only if

25 such transaction results in inurement not permitted
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1 under paragraph (3) or (4) of section 501(c), as the

2 case may be. In the case of any such transaction,

3 the excess benefit shall be the amount of the

4 inurement not so permitted.

5 ‘‘(d) SPECIAL RULES.—For purposes of this sec6 tion—

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

8 than 1 person is liable for any tax imposed by sub9 section (a) or subsection (b), all such persons shall

10 be jointly and severally liable for such tax.

11 ‘‘(2) LIMIT FOR MANAGEMENT.—With respect

12 to any 1 excess benefit transaction, the maximum

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

14 not exceed $10,000.

15 ‘‘(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—

16 For purposes of this subchapter, the term ‘applicable tax17 exempt organization’ means—

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

19 any excess benefit) would be described in paragraph

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

21 under section 501(a), and

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

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

24 ending on the date of the transaction.
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1 Such term shall not include a private foundation (as de2 fined in section 509(a)).

3 ‘‘(f) OTHER DEFINITIONS.—For purposes of this sec4 tion—

5 ‘‘(1) DISQUALIFIED PERSON.—The term ‘dis6 qualified person’ means, with respect to any trans7 action—

8 ‘‘(A) any person who was, at any time dur9 ing the 5-year period ending on the date of

10 such transaction, in a position to exercise sub11 stantial influence over the affairs of the organi12 zation,

13 ‘‘(B) a member of the family of an individ14 ual described in subparagraph (A), and

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

16 ‘‘(2) ORGANIZATION MANAGER.—The term ‘or17 ganization manager’ means, with respect to any ap18 plicable tax-exempt organization, any officer, direc19 tor, or trustee of such organization (or any individ20 ual having powers or responsibilities similar to those

21 of officers, directors, or trustees of the organiza22 tion).

23 ‘‘(3) 35-PERCENT CONTROLLED ENTITY.—

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

25 controlled entity’ means—
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1 ‘‘(i) a corporation in which persons

2 described in subparagraph (A) or (B) of

3 paragraph (1) own more than 35 percent

4 of the total combined voting power,

5 ‘‘(ii) a partnership in which such per6 sons own more than 35 percent of the

7 profits interest, and

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

9 persons own more than 35 percent of the

10 beneficial interest.

11 ‘‘(B) CONSTRUCTIVE OWNERSHIP

12 RULES.—Rules similar to the rules of para13 graphs (3) and (4) of section 4946(a) shall

14 apply for purposes of this paragraph.

15 ‘‘(4) FAMILY MEMBERS.—The members of an

16 individual’s family shall be determined under section

17 4946(d); except that such members also shall in18 clude the brothers and sisters (whether by the whole

19 or half blood) of the individual and their spouses.

20 ‘‘(5) TAXABLE PERIOD.—The term ‘taxable pe21 riod’ means, with respect to any excess benefit

22 transaction, the period beginning with the date on

23 which the transaction occurs and ending on the ear24 liest of—
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1 ‘‘(A) the date of mailing a notice of defi2 ciency under section 6212 with respect to the

3 tax imposed by subsection (a)(1), or

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

5 subsection (a)(1) is assessed.

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

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

8 transaction, undoing the excess benefit to the extent

9 possible, and taking any additional measures nec10 essary to place the organization in a financial posi11 tion not worse than that in which it would be if the

12 disqualified person were dealing under the highest fi13 duciary standards.’’.

14 (b) APPLICATION OF PRIVATE INUREMENT RULE TO

15 TAX-EXEMPT ORGANIZATIONS DESCRIBED IN SECTION

16 501(c)(4).—

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

18 501(c) is amended by inserting ‘‘(A)’’ after ‘‘(4)’’

19 and by adding at the end the following:

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

21 entity unless no part of the net earnings of such en22 tity inures to the benefit of any private shareholder

23 or individual.’’.

24 (2) SPECIAL RULE FOR CERTAIN COOPERA25 TIVES.—In the case of an organization operating on
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1 a cooperative basis which, before the date of the en2 actment of this Act, was determined by the Sec3 retary of the Treasury or his delegate, to be de4 scribed in section 501(c)(4) of the Internal Revenue

5 Code of 1986 and exempt from tax under section

6 501(a) of such Code, the allocation or return of net

7 margins or capital to the members of such organiza8 tion in accordance with its incorporating statute and

9 bylaws shall not be treated for purposes of such

10 Code as the inurement of the net earnings of such

11 organization to the benefit of any private share12 holder or individual. The preceding sentence shall

13 apply only if such statute and bylaws are substan14 tially as such statute and bylaws were in existence

15 on the date of the enactment of this Act.

16 (c) TECHNICAL AND CONFORMING AMENDMENTS.—

17 (1) Subsection (e) of section 4955 is amend18 ed—

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

20 heading and inserting ‘‘SECTIONS 4945 AND

21 4958’’, and

22 (B) by inserting before the period ‘‘or an

23 excess benefit for purposes of section 4958’’.
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1 (2) Subsections (a), (b), and (c) of section 4963

2 are each amended by inserting ‘‘4958,’’ after

3 ‘‘4955,’’.

4 (3) Subsection (e) of section 6213 is amended

5 by inserting ‘‘4958 (relating to private excess bene6 fit),’’ before ‘‘4971’’.

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

8 are each amended by inserting ‘‘4958,’’ after

9 ‘‘4955,’’.

10 (5) Subsection (b) of section 7454 is amended

11 by inserting ‘‘or whether an organization manager

12 (as defined in section 4958(f)(2)) has ‘knowingly’

13 participated in an excess benefit transaction (as de14 fined in section 4958(c)),’’ after ‘‘section 4912(b),’’.

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

16 amended by striking the last item and inserting the

17 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.’’.

18 (d) EFFECTIVE DATES.—

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

20 this section (other than subsection (b)) shall apply

21 to excess benefit transactions occurring on or after

22 September 14, 1995.
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1 (2) BINDING CONTRACTS.—The amendments

2 referred to in paragraph (1) shall not apply to any

3 benefit arising from a transaction pursuant to any

4 written contract which was binding on September

5 13, 1995, and at all times thereafter before such

6 transaction occurred.

7 (3) APPLICATION OF PRIVATE INUREMENT

8 RULE TO TAX-EXEMPT ORGANIZATIONS DESCRIBED

9 IN SECTION 501(c)(4).—

10 (A) IN GENERAL.—The amendment made

11 by subsection (b) shall apply to inurement oc12 curring on or after September 14, 1995.

13 (B) BINDING CONTRACTS.—The amend14 ment made by subsection (b) shall not apply to

15 any inurement occurring before January 1,

16 1997, pursuant to a written contract which was

17 binding on September 13, 1995, and at all

18 times thereafter before such inurement oc19 curred.

20 SEC. 1312. REPORTING OF CERTAIN EXCISE TAXES AND

21 OTHER INFORMATION.

22 (a) REPORTING BY ORGANIZATIONS DESCRIBED IN

23 SECTION 501(c)(3).—Subsection (b) of section 6033 (re24 lating to certain organizations described in section

25 501(c)(3)) is amended by striking ‘‘and’’ at the end of
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1 paragraph (9), by redesignating paragraph (10) as para2 graph (14), and by inserting after paragraph (9) the fol3 lowing new paragraphs:

4 ‘‘(10) the respective amounts (if any) of the

5 taxes paid by the organization during the taxable

6 year under the following provisions:

7 ‘‘(A) section 4911 (relating to tax on ex8 cess expenditures to influence legislation),

9 ‘‘(B) section 4912 (relating to tax on dis10 qualifying lobbying expenditures of certain or11 ganizations), and

12 ‘‘(C) section 4955 (relating to taxes on po13 litical expenditures of section 501(c)(3) organi14 zations),

15 ‘‘(11) the respective amounts (if any) of the

16 taxes paid by the organization, or any disqualified

17 person with respect to such organization, during the

18 taxable year under section 4958 (relating to taxes on

19 private excess benefit from certain charitable organi20 zations),

21 ‘‘(12) such information as the Secretary may

22 require with respect to any excess benefit trans23 action (as defined in section 4958),

24 ‘‘(13) such information with respect to disquali25 fied persons as the Secretary may prescribe, and’’.
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1 (b) ORGANIZATIONS DESCRIBED IN SECTION

2 501(c)(4).—Section 6033 is amended by redesignating

3 subsection (f) as subsection (g) and by inserting after sub4 section (e) the following new subsection:

5 ‘‘(f) CERTAIN ORGANIZATIONS DESCRIBED IN SEC6 TION 501(c)(4).—Every organization described in section

7 501(c)(4) which is subject to the requirements of sub8 section (a) shall include on the return required under sub9 section (a) the information referred to in paragraphs (11),

10 (12) and (13) of subsection (b) with respect to such orga11 nization.’’.

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

13 this section shall apply to returns for taxable years begin14 ning after the date of the enactment of this Act.

15 SEC. 1313. EXEMPT ORGANIZATIONS REQUIRED TO PRO16 VIDE COPY OF RETURN.

17 (a) REQUIREMENT TO PROVIDE COPY.—

18 (1) Subparagraph (A) of section 6104(e)(1) (re19 lating to public inspection of annual returns) is

20 amended to read as follows:

21 ‘‘(A) IN GENERAL.—During the 3-year pe22 riod beginning on the filing date—

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

24 under section 6033 (relating to returns by

25 exempt organizations) by any organization
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1 to which this paragraph applies shall be

2 made available by such organization for in3 spection during regular business hours by

4 any individual at the principal office of

5 such organization and, if such organization

6 regularly maintains 1 or more regional or

7 district offices having 3 or more employees,

8 at each such regional or district office, and

9 ‘‘(ii) upon request of an individual

10 made at such principal office or such a re11 gional or district office, a copy of such an12 nual return shall be provided to such indi13 vidual without charge other than a reason14 able fee for any reproduction and mailing

15 costs.

16 The request described in clause (ii) must be

17 made in person or in writing. If the request

18 under clause (ii) is made in person, such copy

19 shall be provided immediately and, if made in

20 writing, shall be provided within 30 days.’’.

21 (2) Clause (ii) of section 6104(e)(2)(A) is

22 amended by inserting before the period at the end

23 the following: ‘‘(and, upon request of an individual

24 made at such principal office or such a regional or

25 district office, a copy of the material requested to be
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1 available for inspection under this subparagraph

2 shall be provided (in accordance with the last sen3 tence of paragraph (1)(A)) to such individual with4 out charge other than reasonable fee for any repro5 duction and mailing costs)’’.

6 (3) Subsection (e) of section 6104 is amended

7 by adding at the end the following new paragraph:

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

9 the corresponding provision of paragraph (2)) shall

10 not apply to any request if, in accordance with regu11 lations promulgated by the Secretary, the organiza12 tion has made the requested documents widely avail13 able, or, the Secretary determines, upon application

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

15 harassment campaign and that compliance with such

16 request is not in the public interest.’’.

17 (b) INCREASE IN PENALTY FOR WILLFUL FAILURE

18 TO ALLOW PUBLIC INSPECTION OF CERTAIN RETURNS,

19 ETC.—Section 6685 is amended by striking ‘‘$1,000’’ and

20 inserting ‘‘$5,000’’.

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

22 this section shall apply to requests made on or after the

23 60th day after the Secretary of the Treasury first issues

24 the regulations referred to section 6104(e)(3) of the Inter25 nal Revenue Code of 1986 (as added by subsection (a)(3)).
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1 SEC. 1314. INCREASE IN PENALTIES ON EXEMPT ORGANIZA2 TIONS FOR FAILURE TO FILE COMPLETE AND

3 TIMELY ANNUAL RETURNS.

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

5 6652(c)(1) (relating to annual returns under section

6 6033) is amended by striking ‘‘$10’’ and inserting ‘‘$20’’

7 and by striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.

8 (b) LARGER PENALTY ON ORGANIZATIONS HAVING

9 GROSS RECEIPTS IN EXCESS OF $1,000,000.—Subpara10 graph (A) of section 6652(c)(1) is amended by adding at

11 the end the following new sentence: ‘‘In the case of an

12 organization having gross receipts exceeding $1,000,000

13 for any year, with respect to the return required under

14 section 6033 for such year, the first sentence of this sub15 paragraph shall be applied by substituting ‘$100’ for ‘$20’

16 and, in lieu of applying the second sentence of this sub17 paragraph, the maximum penalty under this subparagraph

18 shall not exceed $50,000.’’.

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

20 this section shall apply to returns for taxable years ending

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

Passed the House of Representatives April 16, 1996.

Attest: ROBIN H. CARLE,

Clerk.