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[Senate Report 108-42]
[From the U.S. Government Publishing Office]

                                                        Calendar No. 84
108th Congress                                                   Report
                                 SENATE
 1st Session                                                     108-42

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

 
                      TAX COURT MODERNIZATION ACT

                                _______
                                

                  May 5, 2003.--Ordered to be printed

                                _______
                                

  Mr. Grassley, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 753]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill 
(S. 753) to amend the Internal Revenue Code of 1986 to provide 
for the modernization of the United States Tax Court, and for 
other purposes, having considered the same, reports favorably 
thereon without amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Legislative Background............................................2
II. Explanation of the Bill...........................................2
    Title I. Tax Court Procedure......................................2
        A. Consolidate Review of Collection Due Process Cases in 
            the Tax Court (sec. 101 of the bill and sec. 6330 of 
            the Code)............................................     2
        B. Extend Authority for Special Trial Judges to Hear and 
            Decide Certain Employment Status Cases (sec. 102 of 
            the bill and sec. 7443A(b) of the Code)..............     3
        C. Confirmation of Tax Court Authority to Apply Equitable 
            Recoupment (sec. 103 of the bill and sec. 6214 of the 
            Code)................................................     4
        D. Tax Court Filing Fee (sec. 104 of the bill and sec. 
            7451 of the Code)....................................     5
        E. Employees of the Tax Court (sec. 105 of the bill and 
            sec. 7471(a) of the Code)............................     5
        F. Use of Practitioner Fee (sec. 106 of the bill and sec. 
            7475 of the Code)....................................     7
    Title II. Tax Court Pension and Compensation......................8
        A. Judges of the Tax Court (secs. 201-207 and 213 of the 
            bill and secs. 7443, 7447, 7448, and 7472 of the 
            Code)................................................     8
        B. Special Trial Judges of the Tax Court (secs. 208-213 
            of the bill, and sec. 7448 and new secs. 7443A, 
            7443B, and 7443C of the Code)........................    10
III.Budget Effects of the Bill.......................................13

        A. Committee Estimates...................................    13
        B. Budget Authority and Tax Expenditures.................    15
        C. Consultation with Congressional Budget Office.........    15
IV. Votes of the Committee...........................................18
 V. Regulatory Impact and Other Matters..............................18
        A. Regulatory Impact.....................................    18
        B. Unfunded Mandates Statement...........................    19
        C. Tax Complexity Analysis...............................    19
VI. Changes in Existing Law Made by the Bill as Reported.............19

                       I. LEGISLATIVE BACKGROUND

    The Senate Committee on Finance marked up S. 753 (the ``Tax 
Court Modernization Act'') on April 2, 2003, and ordered the 
bill favorably reported by voice vote.

                      II. EXPLANATION OF THE BILL

                      TITLE I. TAX COURT PROCEDURE

 A. Consolidate Review of Collection Due Process Cases in the Tax Court

(Sec. 101 of the bill and sec. 6330 of the Code)

                              PRESENT LAW

    In general, the Internal Revenue Service (``IRS'') is 
required to notify taxpayers that they have a right to a fair 
and impartial hearing before levy may be made on any property 
or right toproperty.\1\ Similar rules apply with respect to 
liens.\2\ The hearing is held by an impartial officer from the IRS 
Office of Appeals, who is required to issue a determination with 
respect to the issues raised by the taxpayer at the hearing. The 
taxpayer is entitled to appeal that determination to a court. The 
appeal must be brought to the Tax Court, unless the Tax Court does not 
have jurisdiction over the underlying tax liability. If that is the 
case, then the appeal must be brought in the district court of the 
United States.\3\ If a court determines that an appeal was not made to 
the correct court, the taxpayer has 30 days after such determination to 
file with the correct court.
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    \1\ Sec. 6330(a).
    \2\ Sec. 6320.
    \3\ Sec. 6330(d).
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    The Tax Court is established under Article I of the United 
States Constitution \4\ and is a court of limited 
jurisdiction.\5\ Thus, the Tax Court may not have jurisdiction 
over the underlying tax liability with respect to an appeal of 
a due process hearing relating to a collections matter. As a 
practical matter, many cases involving such appeals (whether 
within the jurisdiction of the Tax Court or a district court) 
do not involve the underlying tax liability.
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    \4\ Sec. 7441.
    \5\ Sec. 7442.
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                           REASONS FOR CHANGE

    The Tax Court does not have jurisdiction over all of the 
tax issues underlying collection due process cases (such as 
issues involving most excise taxes). The judicial appeals 
structure of present law was designed in recognition of these 
jurisdictional limitations; however, in many cases the 
underlying taxes are not involved in determining the due 
process issue. The present-law structure can lead to confusion 
over which court is the proper court in which to file an 
appeal. Some believe that this confusion may also be used by 
some taxpayers seeking to delay the collection process. 
Accordingly, the Committee believes that the Tax Court should 
have jurisdiction over all appeals of collection due process 
determinations. The simplification provided will both benefit 
the taxpayers involved and the IRS by eliminating confusion 
over which court is the proper venue for appeal and will reduce 
the period of time before judicial review. This provision will 
also eliminate the opportunity to use the present-law rules in 
unintended ways to delay or defeat the collection process.

                        EXPLANATION OF PROVISION

    The provision modifies the jurisdiction of the Tax Court by 
providing that all appeals of collection due process 
determinations are to be made to the United States Tax Court.

                             EFFECTIVE DATE

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

B. Extend Authority for Special Trial Judges to Hear and Decide Certain 
                        Employment Status Cases

(Sec. 102 of the bill and sec. 7443A(b) of the Code)

                              PRESENT LAW

    In connection with the audit of any person, if there is an 
actual controversy involving a determination by the IRS as part 
of an examination that (1) one or more individuals performing 
services for that person are employees of that person or (2) 
that person is not entitled to relief under section 530 of the 
Revenue Act of 1978, the Tax Court has jurisdiction to 
determine whether the IRS is correct and the proper amount of 
employment tax under such determination.\6\ Any redetermination 
by the Tax Court has the force and effect of a decision of the 
Tax Court and is reviewable.
---------------------------------------------------------------------------
    \6\ Sec. 7436.
---------------------------------------------------------------------------
    An election may be made by the taxpayer for small case 
procedures if the amount of the employment taxes in dispute is 
$50,000 or less for each calendar quarter involved.\7\ The 
decision entered under the small case procedure is not 
reviewable in any other court and should not be cited as 
authority.
---------------------------------------------------------------------------
    \7\ Sec. 7436(c).
---------------------------------------------------------------------------
    The chief judge of the Tax Court may assign proceedings to 
special trial judges. The Code enumerates certain types of 
proceedings that may be so assigned and may be decided by a 
special trial judge. In addition, the chief judge may designate 
any other proceeding to be heard by a special trial judge.\8\
---------------------------------------------------------------------------
    \8\ Sec. 7443A.
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                           REASONS FOR CHANGE

    The Committee believes that clarifying that special trial 
judges may decide proceedings involving a determination of 
employment status in which the amount of employment taxes in 
dispute is $50,000 or less for each calendar quarter involved 
will improve the operations and internal functioning of the Tax 
Court.

                        EXPLANATION OF PROVISION

    The provision clarifies that the chief judge of the Tax 
Court may assign to special trial judges any employment tax 
cases that are subject to the small case procedure and may 
authorize special trial judges to decide such small tax cases.

                             EFFECTIVE DATE

    The provision is effective for any action or proceeding in 
the Tax Court with respect to which a decision has not become 
final as of the date of enactment.

  C. Confirmation of Tax Court Authority to Apply Equitable Recoupment

(Sec. 103 of the bill and sec. 6214 of the Code)

    Equitable recoupment is a common-law equitable principle 
that permits the defensive use of an otherwise time-barred 
claim to reduce or defeat an opponent's claim if both claims 
arise from the same transaction. U.S. District Courts and the 
U.S. Court of Federal Claims, the two Federal tax refund 
forums, may apply equitable recoupment in deciding tax refund 
cases.\9\ In Estate of Mueller v. Commissioner,\10\ the Court 
of Appeals for the Sixth Circuit held that the Tax Court may 
not apply the doctrine of equitable recoupment. More recently, 
the Court of Appeals for the Ninth Circuit, in Branson v. 
Commissioner,\11\ held that the Tax Court may apply the 
doctrine of equitable recoupment.
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    \9\ See Stone v. White, 301 U.S. 532 (1937); Bull v. United States, 
295 U.S. 247 (1935).
    \10\ 153 F.3d 302 (6th Cir.), cert. den., 525 U.S. 1140 (1999).
    \11\ 264 F.3d 904 (9th Cir.), cert. den., 2002 U.S. LEXIS 1545 
(U.S. Mar. 18, 2002).
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                           REASONS FOR CHANGE

    The Committee believes that it is important to resolve the 
conflict among the circuit courts by eliminating the 
uncertainty or confusion of differing results in differing 
circuits. The Committee also believes that the provision will 
provide simplification benefits to both taxpayers and the IRS.

                        EXPLANATION OF PROVISION

    The provision confirms that the Tax Court may apply the 
principle of equitable recoupment to the same extent that it 
may be applied in Federal civil tax cases by the U.S. District 
Courts or the U.S. Court of Claims. No implication is intended 
as to whether the Tax Court has the authority to continue to 
apply other equitable principles in deciding matters over which 
it has jurisdiction.

                             EFFECTIVE DATE

    The provision is effective for any action or proceeding in 
the Tax Court with respect to which a decision has not become 
final as of the date of enactment.

                        D. Tax Court Filing Fee

(Sec. 104 of the bill and sec. 7451 of the Code)

                              PRESENT LAW

    The Tax Court is authorized to impose a fee of up to $60 
for the filing of any petition for the redetermination of a 
deficiency or for declaratory judgments relating to the status 
and classification of 501(c)(3) organizations, the judicial 
review of final partnership administrative adjustments, and the 
judicial review of partnership items if an administrative 
adjustment request is not allowed in full.\12\ The statute does 
not specifically authorize the Tax Court to impose a filing fee 
for the filing of a petition for review of the IRS's failure to 
abate interest or for failure to award administrative costs and 
other areas of jurisdiction for which a petition may be filed. 
The practice of the Tax Court is to impose a $60 filing fee in 
all cases commenced by petition.\13\
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    \12\ Sec. 7451.
    \13\ See Rule 20(a) of the Tax Court Rules of Practice and 
Procedure.
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                           REASONS FOR CHANGE

    The Committee believes it is appropriate to clarify that 
the Tax Court filing fee applies to any case commenced by the 
filing of a petition.

                        EXPLANATION OF PROVISION

    The provision provides that the Tax Court is authorized to 
charge a filing fee of up to $60 in all cases commenced by the 
filing of a petition.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                     E. Employees of the Tax Court

(Sec. 105 of the bill and sec. 7471(a) of the Code)

                              PRESENT LAW

    The Tax Court is a legislative court established by the 
Congress pursuant to Article I of the U.S. Constitution (an 
``Article I'' court).\14\ The Tax Court is authorized to 
appoint employees, subject to the rules applicable to 
employment with the Executive Branch of the Federal Government 
(generally referred to as ``competitive service''), as 
administered by the Office of Personnel Management.\15\
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    \14\ Sec. 7441.
    \15\ Sec. 7471.
---------------------------------------------------------------------------
    Employment with the Federal Executive Branch is governed by 
certain general statutory principles, such as recruitment of 
qualified individuals, fair and equitable treatment of 
employees and applicants, maintenance of high standards of 
employee conduct, and protection of employees against arbitrary 
action. The rules for employment in the Federal Executive 
Branch address various aspects of such employment, including: 
(1) procedures for the appointment of employees in the 
competitive service, including preferences for certain 
individuals (e.g., veterans); (2) compensation, benefits, and 
leave programs for employees; (3) appraisals of employee 
performance; (4) disciplinary actions; and (5) employee rights, 
including appeal rights. In addition, employees are protected 
from certain personnel practices (referred to as ``prohibited 
personnel practices''), such as discrimination on the basis of 
race, color, religion, age, sex, national origin, political 
affiliation, marital status, or handicapping condition.

                           REASONS FOR CHANGE

    The Tax Court was established as an Article I court in part 
because of its need for independence from the Executive Branch 
and its responsibility for reviewing determinations of a 
Federal Executive Branch agency (i.e., the Internal Revenue 
Service).\16\ Accordingly, the Committee believes that the Tax 
Court should have the authority to establish its own personnel 
system, rather than being subject to the rules administered by 
the Federal Executive Branch. Similar authority has previously 
been provided to other Article I courts and to courts 
established under Article III of the U.S. Constitution. The 
Committee also believes that a personnel system established by 
the Tax Court should be consistent with the general principles 
that govern other employment with the Federal Government and 
should provide certain protections to employees.
---------------------------------------------------------------------------
    \16\ See, e.g., S. Rep. No. 91-552, at 302 (1969).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision extends to the Tax Court authority to 
establish its own personnel management system. Any personnel 
management system adopted by the Tax Court must: (1) include 
the merit system principles that govern employment with the 
Federal Executive Branch; (2) prohibit personnel practices that 
are prohibited in the Federal Executive Branch; and (3) in the 
case of an individual eligible for preference for employment in 
the Federal Executive Branch, provide preference for that 
individual in a manner and to an extent consistent with 
preference in the Federal Executive Branch.
    The provision requires the Tax Court to prohibit 
discrimination on the basis of race, color, religion, age, sex, 
national origin, political affiliation, marital status, or 
handicapping condition. The Tax Court is also required to 
promulgate procedures for resolving complaints of 
discrimination by employees and applicants for employment.
    The provision allows the Tax Court to appoint a clerk 
without regard to the Federal Executive Branch rules regarding 
appointments in the competitive service. Under the provision, 
the clerk serves at the pleasure of the Tax Court.
    The provision allows the clerk of the Tax Court to appoint 
deputies and other employees without regard to the Federal 
Executive Branch rules regarding appointments in the 
competitive service. Under the provision, these deputies and 
employees are subject to removal by the clerk.
    The provision allows judges and special trial judges of the 
Tax Court to appoint law clerks and secretaries, in such 
numbers as the Tax Court may approve, without regard to the 
Federal Executive Branch rules regarding appointments in the 
competitive service. Under the provision, a law clerk or 
secretary serves at the pleasure of the appointing judge.
    The provision exempts law clerks from the sick leave and 
annual leave provisions applicable to employees of the Federal 
Executive Branch. Any unused sick or annual leave to the credit 
of a law clerk as of the effective date of the provision 
remains credited to the individual and is available to the 
individual upon separation from the Federal Government, or upon 
transfer to a position subject to such sick leave and annual 
leave provisions.
    The provision allows the Tax Court to fix and adjust the 
compensation of the clerk and other employees without regard to 
the Federal Executive Branch rules regarding employee 
classifications and pay rates. To the maximum extent feasible, 
Tax Court employees are to be compensated at rates consistent 
with those of employees holding comparable positions in the 
Federal Judicial Branch. The Tax Court may also establish 
programs for employee evaluations, premium pay, and resolution 
of employee grievances.
    In the case of an individual who is an employee of the Tax 
Court on the day before the effective date of the provision, 
the provision preserves certain rights that the employee is 
entitled to as of that day. The provision preserves the right 
to: (1) appeal a reduction in grade or removal; (2) appeal an 
adverse action; (3) appeal a prohibited personnel practice; (4) 
make an allegation of a prohibited personnel practice; or (5) 
file an employment discrimination appeal. These rights are 
preserved for as long as the individual remains an employee of 
the Tax Court.
    Under the provision, a Tax Court employee who completes at 
least 1 year of continuous service under a nontemporary 
appointment with the Tax Court acquires competitive service 
status for appointment to any position in the Federal Executive 
Branch competitive service for which the employee possesses the 
required qualifications.
    The provision also allows the Tax Court to procure the 
services of experts and consultants in accordance with Federal 
Executive Branch rules.

                             EFFECTIVE DATE

    The provision is effective on the date that the Tax Court 
adopts a personnel management system after date of enactment of 
the provision.

                       F. Use of Practitioner Fee

(Sec. 106 of the bill and sec. 7475 of the Code)

                              PRESENT LAW

    The Tax Court is authorized to impose on practitioners 
admitted to practice before the Tax Court a fee of up to $30 
per year.\17\ These fees are to be used to employ independent 
counsel to pursue disciplinary matters.
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    \17\ Sec. 7475.
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                           REASONS FOR CHANGE

    The Committee understands that many pro se taxpayers are 
not familiar with Tax Court procedures and applicable legal 
requirements. The Committee believes it is beneficial for Tax 
Court fees imposed on practitioners also to be available to 
provide services to pro se taxpayers.

                        EXPLANATION OF PROVISION

    The provision provides that Tax Court fees imposed on 
practitioners also are available to provide services to pro se 
taxpayers.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

              TITLE II. TAX COURT PENSION AND COMPENSATION

                       A. Judges of the Tax Court

(Secs. 201-207 and 213 of the bill and secs. 7443, 7447, 7448, and 7472 
        of the Code)

                              PRESENT LAW

    The Tax Court is established by the Congress pursuant to 
Article I of the U.S. Constitution.\18\ The salary of a Tax 
Court judge is the same salary as received by a United States 
District Court judge.\19\ Present law also provides Tax Court 
judges with some benefits that correspond to benefits provided 
to United States District Court judges, including specific 
retirement and survivor benefit programs for Tax Court 
judges.\20\
---------------------------------------------------------------------------
    \18\ Sec. 7441.
    \19\ Sec. 7443(c).
    \20\ Secs. 7447 and 7448.
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    Under the retirement program, a Tax Court judge may elect 
to receive retirement pay from the Tax Court in lieu of 
benefits under another Federal retirement program. A Tax Court 
judge may also elect to participate in a plan providing annuity 
benefits for the judge's surviving spouse and dependent 
children (the ``survivors' annuity plan''). Generally, benefits 
under the survivors' annuity plan are payable only if the judge 
has performed at least 5 years of service. Cost-of-living 
increases in benefits under the survivors' annuity plan are 
generally based on increases in pay for active judges.
    Tax Court judges participate in the Federal Employees Group 
Life Insurance program (the ``FEGLI'' program). Retired Tax 
Court judges are eligible to participate in the FEGLI program 
as the result of an administrative determination of their 
eligibility, rather than a specific statutory provision.
    Tax Court judges are not covered by the leave system for 
Federal Executive Branch employees. As a result, an individual 
who works in the Federal Executive Branch before being 
appointed to the Tax Court does not continue to accrue annual 
leave under the same leave program and may not use leave 
accrued prior to his or her appointment to the Tax Court.
    Tax Court judges are not eligible to participate in the 
Thrift Savings Plan.
    Tax Court judges are subject to limitations on outside 
earned income under the Ethics in Government Act of 1978.

                           REASONS FOR CHANGE

    Tax Court judges receive compensation at the same rate as 
United States District Court judges. In addition, the benefit 
programs for Tax Court judges are intended to accord with 
similar programs applicable to District Court judges.\21\ 
However, subsequent legislative changes in the benefits 
provided to District Court judges have not applied to Tax Court 
judges, thus creating disparities between the treatment of Tax 
Court judges and the treatment of District Court judges. The 
Committee believes that parity should exist between the 
benefits provided to Tax Court judges and those provided to 
District Court judges.
---------------------------------------------------------------------------
    \21\ See, e.g., S. Rep. No. 91-552, at 303 (1969).
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                        EXPLANATION OF PROVISION

Survivor annuities for assassinated judges

    Under the provision, benefits under the survivors' annuity 
plan are payable if a Tax Court judge is assassinated before 
the judge has performed 5 years of service.

Cost-of-living adjustments for survivor annuities

    The provision provides that cost-of-living increases in 
benefits under the survivors' annuity plan are generally based 
on cost-of-living increases in benefits paid under the Civil 
Service Retirement System.

FEGLI program

    Under the provision, a judge or retired judge of the Tax 
Court is deemed to be an employee continuing in active 
employment for purposes of participation in the FEGLI program. 
In addition, in the case of a Tax Court judge age 65 or over, 
the Tax Court is authorized to pay on behalf of the judge any 
increase in employee premiums under the FEGLI program that 
occur after April 24, 1999,\22\ including expenses generated by 
such payment, as authorized by the chief judge of the Tax Court 
in a manner consistent with payments authorized by the Judicial 
Conference of the United States (i.e., the body with 
policymaking authority over the administration of the courts of 
the Federal Judicial Branch).
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    \22\ This date relates to changes in the FEGLI program, including 
changes to premium rates to reflect employees' ages.
---------------------------------------------------------------------------

Accrued annual leave

    Under the provision, in the case of a judge who is employed 
by the Federal Executive Branch before appointment to the Tax 
Court, the judge is entitled to receive a lump-sum payment for 
the balance of his or her accrued annual leave on appointment 
to the Tax Court.

Thrift Savings Plan participation

    Under the provision, Tax Court judges are permitted to 
participate in the Thrift Savings Plan. A Tax Court judge is 
not eligible for agency contributions to the Thrift Savings 
Plan.

Exemption for teaching compensation from outside earned income 
        limitations

    Under the provision, compensation earned by a retired Tax 
Court judge for teaching is not treated as outside earned 
income for purposes of limitations under the Ethics in 
Government Act of 1978.

                             EFFECTIVE DATE

    The provisions are effective on the date of enactment, 
except that: (1) the provision relating to cost-of-living 
increases in benefits under the survivors' annuity plan applies 
with respect to increases in Civil Service Retirement benefits 
taking effect after the date of enactment; (2) the provision 
relating to payment of accrued annual leave applies to any Tax 
Court judge with an outstanding leave balance as of the date of 
enactment and to any individual appointed to serve as a Tax 
Court judge after such date; (3) the provision relating to 
participation by Tax Court judges in the Thrift Savings Plan 
applies as of the next open season; and (4) the provision 
relating to teaching compensation of a retired Tax Court judge 
applies to any individual serving as a retired Tax Court judge 
on or after the date of enactment.

                B. Special Trial Judges of the Tax Court

(Secs. 208-213 of the bill, and sec. 7448 and new secs. 7443A, 7443B, 
        and 7443C of the Code)

                              PRESENT LAW

    The Tax Court is established by the Congress pursuant to 
Article I of the U.S. Constitution.\23\ The chief judge of the 
Tax Court may appoint special trial judges to handle certain 
cases.\24\ Special trial judges serve for an indefinite term. 
Special trial judges receive a salary of 90 percent of the 
salary of a Tax Court judge and are generally covered by the 
benefit programs that apply to Federal Executive Branch 
employees, including the Civil Service Retirement System or the 
Federal Employees' Retirement System.
---------------------------------------------------------------------------
    \23\ Sec. 7441.
    \24\ Sec. 7443A.
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                           REASONS FOR CHANGE

    Special trial judges of the Tax Court perform a role 
similar to that of magistrate judges in courts established 
under Article III of the U.S. Constitution (``Article III'' 
courts). However, disparities exist between the positions of 
magistrate judges of Article III courts and special trial 
judges of the Tax Court. For example, magistrate judges of 
Article III courts are appointed for a specific term, are 
subject to removal only in limited circumstances, and are 
eligible for coverage under special retirement and survivor 
benefit programs. The Committee believes that special trial 
judges of the Tax Court and magistrate judges of Article III 
courts should receive comparable treatment as to the status of 
the position, salary, and benefits.

                        EXPLANATION OF PROVISION

Magistrate judges of the Tax Court

    Under the provision, the position of special trial judge of 
the Tax Court is renamed as magistrate judge of the Tax Court. 
Magistrate judges are appointed (or reappointed) to serve for 
8-year terms and are subject to removal in limited 
circumstances.
    Under the provision, a magistrate judge receives a salary 
of 92 percent of the salary of a Tax Court judge.
    The provision exempts magistrate judges from the leave 
program that applies to employees of the Federal Executive 
Branch and provides rules for individuals who are subject to 
such leave program before becoming exempt.

Survivors' annuity plan

    Under the provision, magistrate judges of the Tax Court may 
elect to participate in the survivors' annuity plan for Tax 
Court judges. An election to participate in the survivors' 
annuity plan must be filed not later than the latest of 6 
months after: (1) the date of enactment of the provision; (2) 
the date the judge takes office; or (3) the date the judge 
marries.

Retirement annuity program for magistrate judges

    The provision establishes a new retirement annuity program 
for magistrate judges of the Tax Court, under which a 
magistrate judge may elect to receive a retirement annuity from 
the Tax Court in lieu of benefits under another Federal 
retirement program. A magistrate judge may elect to be covered 
by the retirement program within 5 years of appointment or 5 
years of date of enactment. A magistrate judge who elects to be 
covered by the retirement program generally receives a refund 
of contributions (with interest) made to the Civil Service 
Retirement System or the Federal Employees' Retirement System.
    A magistrate judge may retire at age 65 with 14 years of 
service and receive an annuity equal to his or her salary at 
the time of retirement. For this purpose, service may include 
service performed as a special trial judge or a magistrate 
judge, provided the service is performed no earlier than 9\1/2\ 
years before the date of enactment of the provision. The 
provision also provides for payment of a reduced annuity in the 
case of a magistrate judge with at least 8 years of service or 
in the case of disability or failure to be reappointed.
    A magistrate judge receiving a retirement annuity is 
entitled to cost-of-living increases based on cost-of-living 
increases in benefits paid under the Civil Service Retirement 
System. However, such an increase cannot cause the retirement 
annuity to exceed the current salary of a magistrate judge.
    Contributions of 1 percent of salary are withheld from the 
salary of a magistrate judge who elects to participate in the 
retirement annuity program. Such contributions must be made 
also with respect to prior service for which the magistrate 
judge elects credit under the retirement annuity program. No 
contributions are required after 14 years of service. A lump 
sum refund of the magistrate judge's contributions (with 
interest) is made if no annuity is payable, for example, if the 
magistrate judge dies before retirement.
    The provision includes rules under which annuity payments 
may be made to a person other than the magistrate judge in 
certain circumstances, such as divorce or legal separation.
    A magistrate judge's right to a retirement annuity is 
generally suspended or reduced in the case of employment 
outside the Tax Court.
    The provision establishes the Tax Court Judicial Officers' 
Retirement Fund (the ``Fund''). Amounts in the Fund are 
authorized to be appropriated for the payment of annuities, 
refunds, and other payments under the retirement annuity 
program. Contributions withheld from a magistrate judge's 
salary are deposited in the Fund. In addition, the provision 
authorizes to be appropriated to the Fund amounts required to 
reduce the Fund's unfunded liability to zero. For this purpose, 
the Fund's unfunded liability means the estimated excess, 
actuarially determined on an annual basis, of the present value 
of benefits payable from the Fund over the sum of (1) the 
present value of contributions to be withheld from the future 
salary of the magistrate judges and (2) the balance in the Fund 
as of the date the unfunded liability is determined.
    Under the provision, a magistrate judge who elects to 
participate in the retirement annuity program is also permitted 
to participate in the Thrift Savings Plan. Such a magistrate 
judge is not eligible for agency contributions to the Thrift 
Savings Plan.

Special retirement annuity rule for incumbent magistrate judges

    The provision provides a special rule under which a 
magistrate judge in active service on the date of enactment of 
the provision may elect to receive both an annuity under the 
Civil Service Retirement System or the Federal Employees' 
Retirement System (as applicable to the magistrate judge) and 
an annuity under the magistrate judges' retirement program.
    Under the special rule, such a magistrate judge is entitled 
to an annuity under the Civil Service Retirement System or the 
Federal Employees' Retirement System based on prior service 
that is not credited under the magistrate judges' retirement 
annuity program. If the magistrate judge made contributions to 
the Civil Service Retirement System or the Federal Employees' 
Retirement System with respect to service that is credited 
under the magistrate judges' retirement annuity program, such 
contributions are refunded (with interest).
    A magistrate judge who elects the special rule is also 
entitled to the annuity payable under the magistrate judges' 
retirement program in the case of retirement with at least 8 
years of service or on failure to be reappointed. This annuity 
is based on service as a magistrate judge or special trial 
judge of the Tax Court that is performed no earlier than 9\1/2\ 
years before the date of enactment of the provision and for 
which the magistrate judge makes contributions of 1 percent of 
salary.

Recall of retired magistrate judges

    The provision provides rules under which a retired 
magistrate judge may be recalled to perform services for a 
limited period.

                             EFFECTIVE DATE

    The provisions are effective on date of enactment.

                    III. BUDGET EFFECTS OF THE BILL

                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the provisions of 
the bill as reported.

                    ESTIMATED BUDGET EFFECTS OF S. 753, THE ``TAX COURT MODERNIZATION ACT,'' AS REPORTED BY THE COMMITTEE ON FINANCE
                                                    [Fiscal years 2003-2013, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Provision               Effective     2003    2004    2005    2006    2007    2008    2009    2010    2011    2012    2013   2003-08  2003-13
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tax Court Procedure............  various......                                          Negligible Revenue Effect
Tax Court Pension and            various......  ......      -3   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)      -1       -4       -6
 Compensation \1\ \2\.
      Net Total................  .............   (\4\)      -3   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)   (\3\)      -1       -4       -6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Certain portions of the estimate were provided by the Congressional Budget Office.
\2\ Includes the following outlay effects--2003: .....; 2004: -3; 2005:(\3\); 2006:(\3\); 2007:(\3\); 2008:(\3\); 2009:(\3\); 2010:(\3\); 2011:(\3\);
  2012:(\3\); 2013:(\3\); 2003-08: -3; 2003-13: -5.
\3\ Loss of less than $500,000.
\4\ Negligible revenue effect.
 Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

                B. Budget Authority and Tax Expenditures

Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the revenue provisions of the bill 
involve new or increased budget authority with respect to the 
Tax Court Judicial Officers' Retirement Fund.

Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the revenue reduction provided for by the 
bill involves increased tax expenditures (see revenue table in 
Part III.A, above).

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office 
submitted the following statement on this bill.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 24, 2003.
Hon. Charles E. Grassley,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 753, the Tax Court 
Modernization Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Geoffrey 
Gerhardt.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

S. 753--Tax Court Modernization Act

    Summary: Enacting S. 753 would establish a new retirement 
program for certain employees of the U.S. Tax Court. The bill 
would give all current and future special trial judges of the 
Tax Court the option of being covered by this new retirement 
program in lieu of another federal retirement system. The 
program established under S. 753 would provide retirement and 
survivor benefits similar to those accrued under retirement 
programs that cover regular Tax Court judges. Retirement 
benefits for regular Tax Court judges are more generous than 
those under the Civil Service Retirement System (CSRS) and the 
Federal Employees' Retirement System (FERS).
    CBO estimates that enacting the bill would increase direct 
spending by $3 million in 2004 and by $5 million over the 2004-
2013 period. CBO and the Joint Committee on Taxation (JCT) 
estimate S. 753 would decrease revenue by $1 million over the 
2004-2013 period. In addition, implementing the bill would 
increase spending subject to appropriation by $2 million each 
year during the 2004-2013 period.
    JCT has reviewed the tax provisions of S. 753 and has 
determined they contain no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
CBO has reviewed the nontax provisions of the bill and 
determined that they contain no intergovernmental or private-
sector mandates as defined in UMRA and would have no 
significant impact on the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 753 is shown in the following table. The 
costs of this legislation fall within budget function 600 
(income security).

----------------------------------------------------------------------------------------------------------------
                                                          By fiscal year, in millions of dollars--
                                           ---------------------------------------------------------------------
                                             2004   2005   2006   2007   2008   2009   2010   2011   2012   2013
----------------------------------------------------------------------------------------------------------------
                                           Changes in Direct Spending

Estimated Budget Authority................      3      *      *      *      *      *      *      *      *      *
Estimated Outlays.........................      3      *      *      *      *      *      *      *      *      *

                                               Changes in Revenues

Various Taxes and Fees....................      *     -*     -*     -*     -*     -*     -*     -*     -*     -*

                                  Changes in Spending Subject to Appropriation

Estimated Authorization Level.............      2      2      2      2      2      2      2      2      2      2
Estimated Outlays.........................      2      2      2      2      2      2      2      2      2      2
----------------------------------------------------------------------------------------------------------------
*Less than $500,000.

    Basis of estimate: For this estimate, CBO assumes the 
legislation will be enacted in September 2003.

Direct spending

    S. 753 would establish a new retirement program for special 
judges of the U.S. Tax Court and renames those positions to be 
magistrate judges of the Tax Court. Under current law, most 
special trial judges participate in either CSRS or FERS, 
depending on when they first entered government service. The 
bill would provide all current and future magistrate judges the 
option of being covered by the new retirement program or 
continuing their coverage under CSRS or FERS. Information 
provided by the U.S. Tax Court indicate that 10 special trial 
judges currently work for the court and that these judges have 
been employed by the government for an average of 33 years. All 
10 of these special trial judges are covered under CSRS and 
earn about $140,000 annually.
    Current or newly appointed judges who opt to be covered by 
the new retirement program would be entitled to refunds of 
employee contributions made to either CSRS or FERS. The 
employee contribution rate for most workers covered by CSRS is 
7 percent, while the rate for FERS is 0.8 percent. CBO assumes 
that all of the special judges employed by the courtwould elect 
to have their retirement contributions refunded and be covered by the 
new retirement program. Based on this assumption, CBO estimates that 
enacting S. 753 would increase direct spending for refunds of employee 
contributions by $3 million in 2004 and less than $50,000 for each year 
thereafter.
    Both CSRS and FERS are defined benefit pension programs 
that provide retirement annuities based on the final years of 
salary and amount of creditable service. For workers with the 
age and service history of the current special judges of the 
Tax Court, CSRS replaces about 60 percent of a retiree's salary 
and FERS replaces about 30 percent, although those in CSRS do 
not earn Social Security credits while those in FERS do. The 
new retirement program for special trial judges, like that for 
regular Tax Court judges, would replace 100 percent of a 
judge's final salary upon retirement. CBO estimates that the 
difference between what these judges would have gotten under 
CSRS and what they would get under the new retirement program 
would increase federal spending by less than $500,000 annually 
during the 2004-2013 period, but total nearly $2 million over 
the 10-year period.
    Section 106 of the bill would allow the tax court to use 
fees collected from attorneys before the court to pay for 
services for taxpayers who represent themselves. Under current 
law, such fees may only be used to employ independent counsel 
to pursue disciplinary matters. Based on information from the 
Tax Court, CBO estimates that enacting section 106 would 
increase direct spending from the fund in the first few years 
of the period. However, such increase would not be significant.
    S. 753 also contains several other proposals that could 
have an effect on direct spending. These include provisions to 
provide survivor annuities for assassinated Tax Court judges 
and changes the eligibility standards for Tax Court judges 
under the Federal Employees' Group Life Insurance program. CBO 
estimates each of these provisions would increase federal 
spending by less than $500,000 annually.

Revenues

    The bill would require that judges who elect to be covered 
by the new retirement program contribute 1 percent of their 
salary toward the program. Judges also would have to make a 
lump-sum contribution--at 1 percent of salary--for previous 
years they worked for the court equal to what they would have 
contributed if the new retirement program had been in 
existence. CBO estimates these changes in employee 
contributions would have a negligible effect on receipts.
    S. 753 also would make several changes to existing Tax 
Court procedure and modify laws relating to Tax Court pensions 
and compensation. Title I of the bill would expand filing fees 
to include petition cases and expand use of practice fees to 
include pro se taxpayers. In addition, title I would provide 
the Tax Court with jurisdiction over all appeals of collection 
due process determinations. JCT estimates that these provisions 
would have a negligible effect on federal revenues. Title II 
would allow Tax Court judges to participate in the Thrift 
Savings Plan (TSP), which JCT estimates would decrease 
governmental receipts by about $1 million over the 2004-2013 
period.

Spending subject to appropriation

    S. 753 also would require that the Secretary of the 
Treasury establish a new trust fund for the new retirement 
program. This fund, to be called the Tax Court Judicial 
Officers' Retirement Fund, would receive agency and employee 
contributions and pay out benefits to retirees and survivors. 
the bill specifies that the Tax Court would make adequate 
contributions to eliminate the program's unfunded liability, 
taking employee contributions into account. Information 
provided to CBO by the Tax Court indicates that this payment 
would amount to about $2 million annually during the 2004-2013 
period, subject to the availability of appropriated funds.
    In addition, the bill allows those employed by the Federal 
Executive Service before appointment to the Tax Court the right 
to collect a lump-sum payment for all unused annual leave. CBO 
estimates that this provision would have a negligible effect on 
outlays.
    Intergovernmental and private-sector impact: JCT has 
reviewed the tax provisions of S. 753 and has determined they 
contain no intergovernmental or private-sector mandates as 
defined in UMRA. CBO has reviewed the nontax provisions of the 
bill and determined that they contain no intergovernmental or 
private-sector mandates as defined in UMRA and would have no 
significant impact on the budgets of state, local, or tribal 
governments.
    Estimate prepared by: Federal Spending: Geoffrey Gerhart; 
Federal Revenue: Annabelle Bartsch; Impact on State, Local, and 
Tribal Governments: Leo Lex; and Impact on the Private Sector: 
Kate Bloniarz.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
bill was, with a quorum present, ordered favorably reported by 
voice vote on April 2, 2003.

                 V. REGULATORY IMPACT AND OTHER MATTERS

                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill.

Impact on individuals and businesses

    The bill includes provisions relating to the jurisdiction 
and procedures of the Tax Court relating to taxpayer appeals of 
collection due process determinations, employment status cases, 
application of the principle of equitable recoupment, authority 
to charge filing fees, and the use of practitioner fees. The 
bill also gives the Tax Court the authority to establish its 
own personnel system, makes changes to the benefit programs and 
outside compensation limitations for Tax Court judges, renames 
the position of special trial judge of the Tax Court as 
magistrate judge of the Tax Court, and provides new 
compensation and benefits rules for magistrate judges. The 
provisions of the bill are not expected to impose additional 
administrative requirements or regulatory burdens on 
individuals or businesses.

Impact on personal privacy and paperwork

    The provisions of the bill do not impact personal privacy.
    The provisions of the bill do not impose increased 
paperwork burdens on individuals.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).
    The Committee has determined that the revenue provisions of 
the bill do not contain Federal mandates on the private sector. 
The Committee has determined that the revenue provisions of the 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the IRS Reform Act) requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the Code) and has widespread applicability to individuals or 
small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

        VI. CHANGES IN EXISTING LAW MADE BY THE BILL AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                
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