69–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 110–584 

TAXPAYER ASSISTANCE AND SIMPLIFICATION ACT OF 

2008 

APRIL 14, 2008.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. RANGEL, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

together with 

DISSENTING VIEWS 

[To accompany H.R. 5719] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 5719) to amend the Internal Revenue Code of 1986 to 

conform return preparer penalty standards, delay implementation 

of withholding taxes on government contractors, enhance taxpayer 

protections, assist low-income taxpayers, and for other purposes, 

having considered the same, reports favorably thereon with an 

amendment and recommends that the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE, ETC. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Taxpayer Assistance and Simplification Act of 2008’’. 

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment 

to, or repeal of, a section or other provision, the reference shall be considered to be 

made to a section or other provision of the Internal Revenue Code of 1986. 

(c) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title, etc. 

Sec. 2. Modification of penalty on understatement of taxpayer’s liability by tax return preparer. 

Sec. 3. Removal of cellular telephones (or similar telecommunications equipment) from listed property. 

Sec. 4. Delay of application of withholding requirement on certain governmental payments for goods and services. 


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Sec. 5. Elderly and disabled individuals receiving in-home care under certain government programs not subject 

to employment tax provisions. 

Sec. 6. Referrals to low income taxpayer clinics permitted. 

Sec. 7. Programs for the benefit of low-income taxpayers. 

Sec. 8. EITC outreach. 

Sec. 9. Prohibition on IRS debt indicators for predatory refund anticipation loans. 

Sec. 10. Study on delivery of tax refunds. 

Sec. 11. Extension of time for return of property for wrongful levy. 

Sec. 12. Individuals held harmless on wrongful levy, etc., on individual retirement plan. 

Sec. 13. Taxpayer notification of suspected identity theft. 

Sec. 14. Repeal of authority to enter into private debt collection contracts. 

Sec. 15. Clarification of IRS unclaimed refund authority. 

Sec. 16. Prohibition on misuse of Department of the Treasury names and symbols. 

Sec. 17. Substantiation of amounts paid or distributed out of health savings account. 

Sec. 18. Certain domestically controlled foreign persons performing services under contract with United States 

Government treated as American employers. 

Sec. 19. Time for payment of corporate estimated tax. 

SEC. 2. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY 

TAX RETURN PREPARER. 

(a) IN GENERAL.—Subsection (a) of section 6694 (relating to understatement due 

to unreasonable positions) is amended to read as follows: 

‘‘(a) UNDERSTATEMENT DUE TO UNREASONABLE POSITIONS.—

‘‘(1) IN GENERAL.—If a tax return preparer—

‘‘(A) prepares any return or claim of refund with respect to which any 

part of an understatement of liability is due to a position described in paragraph (2), and 

‘‘(B) knew (or reasonably should have known) of the position, 

such tax return preparer shall pay a penalty with respect to each such return 

or claim in an amount equal to the greater of $1,000 or 50 percent of the income 

derived (or to be derived) by the tax return preparer with respect to the return 

or claim. 

‘‘(2) UNREASONABLE POSITION.—

‘‘(A) IN GENERAL.—Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position. 

‘‘(B) DISCLOSED POSITIONS.—If the position was disclosed as provided in 

section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) 

applies, the position is described in this paragraph unless there is a reasonable basis for the position. 

‘‘(C) TAX SHELTERS AND REPORTABLE TRANSACTIONS.—If the position is 

with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position 

would more likely than not be sustained on its merits. 

‘‘(3) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under this 

subsection if it is shown that there is reasonable cause for the understatement 

and the tax return preparer acted in good faith.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply—

(1) in the case of a position described in subparagraph (A) or (B) of section 

6694(a)(2) of the Internal Revenue Code of 1986 (as amended by this section), 

to returns prepared after May 25, 2007, and 

(2) in the case of a position described in subparagraph (C) of such section (as 

amended by this section), to returns prepared for taxable years ending after the 

date of the enactment of this Act. 

SEC. 3. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNICATIONS EQUIPMENT) FROM LISTED PROPERTY. 

(a) IN GENERAL.—Subparagraph (A) of section 280F(d)(4) (defining listed property) 

is amended by inserting ‘‘and’’ at the end of clause (iv), by striking clause (v), and 

by redesignating clause (vi) as clause (v). 

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2008. 

SEC. 4. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES. 

(a) IN GENERAL.—Subsection (b) of section 511 of the Tax Increase Prevention and 

Reconciliation Act of 2005 is amended by striking ‘‘December 31, 2010’’ and inserting ‘‘December 31, 2011’’. 

(b) REPORT TO CONGRESS.—Not later than 6 months after the date of the enactment of this Act, the Secretary of the Treasury shall submit to the Committee on 

Ways and Means of the House of Representatives and the Committee on Finance 

of the Senate a report with respect to the withholding requirements of section 

3402(t) of the Internal Revenue Code of 1986, including a detailed analysis of—


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(1) the problems, if any, which are anticipated in administering and complying with such requirements, 

(2) the burdens, if any, that such requirements will place on governments and 

businesses (taking into account such mechanisms as may be necessary to administer such requirements), and 

(3) the application of such requirements to small expenditures for services 

and goods by governments. 

SEC. 5. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN 

GOVERNMENT PROGRAMS NOT SUBJECT TO EMPLOYMENT TAX PROVISIONS. 

(a) IN GENERAL.—Chapter 25 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section: 

‘‘SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN GOVERNMENT PROGRAMS. 

‘‘(a) IN GENERAL.—In the case of amounts paid under a home care service program to a home care service provider by the fiscal administrator of such program— ‘‘(1) the home care service recipient shall not be liable for the payment of any 

taxes imposed under this subtitle with respect to amounts paid for the provision 

of services under such program, and ‘‘(2) the fiscal administrator shall be so liable. ‘‘(b) DEFINITIONS.—For purposes of this section— ‘‘(1) HOME CARE SERVICE PROGRAM.—The term ‘home care service program’ means a State or local government program— ‘‘(A) any portion of which is funded with Federal funds, and 

‘‘(B) under which domestic services are provided to elderly or disabled individuals in their homes. 

Such term shall not include any program to the extent home care service recipients make payments to the home care service providers for such in-home domestic services. ‘‘(2) HOME CARE SERVICE PROVIDER.—The term ‘home care service provider’ means any individual who provides domestic services to a home care service recipient under a home care service program. ‘‘(3) HOME CARE SERVICE RECIPIENT.—The term ‘home care service recipient’ means any individual receiving domestic services under a home care service 

program. ‘‘(4) FISCAL ADMINISTRATOR.—The term ‘fiscal administrator’ means any person or governmental entity who pays amounts under a home care service program to home care service providers for the provision of domestic services under 

such program. ‘‘(c) RETURNS BY FISCAL ADMINISTRATOR.—For purposes of this section— ‘‘(1) IN GENERAL.—Returns relating to taxes imposed or amounts required to 

be withheld under this subtitle shall be made under the identifying number of 

the fiscal administrator. ‘‘(2) IDENTIFICATION OF SERVICE RECIPIENT.—The fiscal administrator shall, to 

the extent required under regulations prescribed by the Secretary, make a return setting forth— ‘‘(A) the name, address, and identifying number of each home care service 

recipient for whom amounts are paid by such fiscal administrator under the 

home care services program, and ‘‘(B) such other information as the Secretary may require. ‘‘(d) REGULATIONS.—The Secretary may prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including requiring deposits of any tax imposed under this subtitle.’’. 

(b) SERVICE RECIPIENT IDENTIFICATION RETURN TREATED AS INFORMATION RETURN.—Paragraph (3) of section 6724(d) is amended by striking ‘‘and’’ at the end of 

subparagraph (C)(ii), by striking the period at the end of subparagraph (D)(ii) and 

inserting ‘‘, and’’, and by adding at the end the following new subparagraph: 

‘‘(E) any requirement under section 3511(c)(2).’’. 

(c) CLERICAL AMENDMENT.—The table of sections for chapter 25 is amended by 

adding at the end the following new item: 

‘‘Sec. 3511. Elderly and disabled individuals receiving in-home care under certain government programs.’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to 

amounts paid after December 31, 2008. 

SEC. 6. REFERRALS TO LOW INCOME TAXPAYER CLINICS PERMITTED. 

(a) IN GENERAL.—Subsection (c) of section 7526 of the Internal Revenue Code of 

1986 is amended by adding at the end the following new paragraph: 

‘‘(6) TREASURY EMPLOYEES PERMITTED TO REFER TAXPAYERS TO QUALIFIED

LOW-INCOME TAXPAYER CLINICS.—Notwithstanding any other provision of law, 


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officers and employees of the Department of the Treasury may refer taxpayers 

for advice and assistance to qualified low-income taxpayer clinics receiving 

funding under this section.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to referrals made after the date of the enactment of this Act. 

SEC. 7. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS. 

(a) VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.—Chapter 77 (relating to miscellaneous provisions) is amended by inserting after section 7526 the following new 

section: 

‘‘SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS. 

‘‘(a) IN GENERAL.—The Secretary may, subject to the availability of appropriated 

funds, make grants to provide matching funds for the development, expansion, or 

continuation of volunteer income tax assistance programs. ‘‘(b) VOLUNTEER INCOME TAX ASSISTANCE PROGRAM.—For purposes of this section, 

the term ‘volunteer income tax assistance program’ means a program— ‘‘(1) which does not charge taxpayers for its return preparation services, 

‘‘(2) which operates programs to assist low and moderate-income (as determined by the Secretary) taxpayers in preparing and filing their Federal income 

tax returns, and ‘‘(3) in which all of the volunteers who assist in the preparation of Federal 

income tax returns meet the requirements prescribed by the Secretary. ‘‘(c) SPECIAL RULES AND LIMITATIONS.— ‘‘(1) AGGREGATE LIMITATION.—Unless otherwise provided by specific appro- priation, the Secretary shall not allocate more than $10,000,000 per year (exclusive of costs of administering the program) to grants under this section. ‘‘(2) OTHER APPLICABLE RULES.—Rules similar to the rules under paragraphs 

(2) through (6) of section 7526(c) shall apply with respect to the awarding of 

grants to volunteer income tax assistance programs.’’. (b) INCREASE IN AUTHORIZED GRANTS FOR LOW-INCOME TAXPAYER CLINICS.—Paragraph (1) of section 7526(c) (relating to aggregate limitation) is amended by striking 

‘‘$6,000,000’’ and inserting ‘‘$10,000,000’’. 

(c) CLERICAL AMENDMENTS.—

(1) Section 7526(c)(5) is amended by inserting ‘‘qualified’’ before ‘‘low-income’’. 

(2) The table of sections for chapter 77 is amended by inserting after the item 

relating to section 7526 the following new item: 

‘‘Sec. 7526A. Volunteer income tax assistance programs.’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall take effect on 

the date of the enactment of this Act. 

SEC. 8. EITC OUTREACH. 

(a) IN GENERAL.—Section 32 (relating to earned income) is amended by adding at 

the end the following new subsection: 

‘‘(n) NOTIFICATION OF POTENTIAL ELIGIBILITY FOR CREDIT AND REFUND.—

‘‘(1) IN GENERAL.—To the extent possible and on an annual basis, the Secretary shall provide to each taxpayer who—

‘‘(A) for any preceding taxable year for which credit or refund is not precluded by section 6511, and 

‘‘(B) did not claim the credit under subsection (a) but may be allowed 

such credit for any such taxable year based on return or return information 

(as defined in section 6103(b)) available to the Secretary, 

notice that such taxpayer may be eligible to claim such credit and a refund for 

such taxable year. 

‘‘(2) NOTICE.—Notice provided under paragraph (1) shall be in writing and 

sent to the last known address of the taxpayer.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall take effect on 

the date of the enactment of this Act. 

SEC. 9. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND ANTICIPATION 

LOANS. 

(a) IN GENERAL.—Subsection (f) of section 6011 (relating to promotion of electronic 

filing) is amended by adding at the end the following new paragraph: 

‘‘(3) PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND ANTICIPATION LOANS.—

‘‘(A) IN GENERAL.—In carrying out any program under this subsection, the 

Secretary shall not provide a debt indicator to any person with respect to 

any refund anticipation loan if the Secretary determines that the business 

practices of such person involve refund anticipation loans and related 

charges and fees that are predatory. 


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‘‘(B) REFUND ANTICIPATION LOAN.—For purposes of this paragraph, the 

term ‘refund anticipation loan’ means a loan of money or of any other thing 

of value to a taxpayer secured by the taxpayer’s anticipated receipt of a 

Federal tax refund. 

‘‘(C) IRS DEBT INDICATOR.—For purposes of this paragraph, the term ‘debt 

indicator’ means a notification provided through a tax return’s acknowledgment file that a refund will be offset to repay debts for delinquent Federal 

or State taxes, student loans, child support, or other Federal agency debt.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall take effect on 

the date of the enactment of this Act. 

SEC. 10. STUDY ON DELIVERY OF TAX REFUNDS. 

(a) IN GENERAL.—The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall conduct a study on the feasibility of delivering tax 

refunds on debit cards, prepaid cards, and other electronic means to assist individuals that do not have access to financial accounts or institutions. 

(b) REPORT.—Not later than 1 year after the date of the enactment of this Act, 

the Secretary of the Treasury shall submit a report to Congress containing the results of the study conducted under subsection (a). 

SEC. 11. EXTENSION OF TIME FOR RETURN OF PROPERTY FOR WRONGFUL LEVY. 

(a) EXTENSION OF TIME FOR RETURN OF PROPERTY SUBJECT TO LEVY.—Subsection 

(b) of section 6343 (relating to return of property) is amended by striking ‘‘9 months’’

and inserting ‘‘2 years’’. 

(b) PERIOD OF LIMITATION ON SUITS.—Subsection (c) of section 6532 (relating to 

suits by persons other than taxpayers) is amended—

(1) in paragraph (1) by striking ‘‘9 months’’ and inserting ‘‘2 years’’, and 

(2) in paragraph (2) by striking ‘‘9-month’’ and inserting ‘‘2-year’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to—

(1) levies made after the date of the enactment of this Act, and 

(2) levies made on or before such date if the 9-month period has not expired 

under section 6343(b) of the Internal Revenue Code of 1986 (without regard to 

this section) as of such date. 

SEC. 12. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., ON INDIVIDUAL RETIREMENT PLAN. 

(a) IN GENERAL.—Section 6343 (relating to authority to release levy and return 

property) is amended by adding at the end the following new subsection: 

‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC. ON INDIVIDUAL RETIREMENT PLAN.—

‘‘(1) IN GENERAL.—If the Secretary determines that an individual retirement 

plan has been levied upon in a case to which subsection (b) or (d)(2)(A) applies, 

an amount equal to the sum of—

‘‘(A) the amount of money returned by the Secretary on account of such 

levy, and 

‘‘(B) interest paid under subsection (c) on such amount of money, 

may be deposited into such individual retirement plan or any other individual 

retirement plan (other than an endowment contract) to which a rollover from 

the plan levied upon is permitted. An amount may not be deposited into a Roth 

IRA under the preceding sentence unless the individual retirement plan levied 

upon was a Roth IRA at the time of such levy. 

‘‘(2) TREATMENT AS ROLLOVER.—If amounts are deposited into an individual 

retirement plan under paragraph (1) not later than the 60th day after the date 

on which the individual receives the amounts under paragraph (1)—

‘‘(A) such deposit shall be treated as a rollover described in section 

408(d)(3)(A)(i), 

‘‘(B) to the extent the deposit includes interest paid under subsection (c), 

such interest shall not be includible in gross income, and 

‘‘(C) such deposit shall not be taken into account under section 

408(d)(3)(B). 

For purposes of subparagraph (B), an amount shall be treated as interest only 

to the extent that the amount deposited exceeds the amount of the levy. 

‘‘(3) REFUND, ETC., OF INCOME TAX ON LEVY.—If any amount is includible in 

gross income for a taxable year by reason of a levy referred to in paragraph (1) 

and any portion of such amount is treated as a rollover under paragraph (2), 

any tax imposed by chapter 1 on such portion shall not be assessed, and if assessed shall be abated, and if collected shall be credited or refunded as an overpayment made on the due date for filing the return of tax for such taxable year. 

‘‘(4) INTEREST.—Notwithstanding subsection (d), interest shall be allowed 

under subsection (c) in a case in which the Secretary makes a determination 


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described in subsection (d)(2)(A) with respect to a levy upon an individual retirement plan.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to 

amounts paid under subsections (b), (c), and (d)(2)(A) of section 6343 of the Internal 

Revenue Code of 1986 after the date of the enactment of this Act. 

SEC. 13. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT. 

(a) IN GENERAL.—Chapter 77 (relating to miscellaneous provisions) is amended by 

adding at the end the following new section: 

‘‘SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT. 

‘‘If, in the course of an investigation under the internal revenue laws, the Secretary determines that there was or may have been an unauthorized use of the 

identity of the taxpayer or a dependent of the taxpayer, the Secretary shall, to the 

extent permitted by law—

‘‘(1) as soon as practicable and without jeopardizing such investigation, notify 

the taxpayer of such determination, and 

‘‘(2) if any person is criminally charged by indictment or information with respect to such unauthorized use, notify such taxpayer as soon as practicable of 

such charge.’’. 

(b) CLERICAL AMENDMENT.—The table of sections for chapter 77 is amended by 

adding at the end the following new item: 

‘‘Sec. 7529. Notification of suspected identity theft.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to determinations made after the date of the enactment of this Act. 

SEC. 14. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION CONTRACTS. 

(a) IN GENERAL.—Subchapter A of chapter 64 is amended by striking section 6306. 

(b) CONFORMING AMENDMENTS.—

(1) Subchapter B of chapter 76 is amended by striking section 7433A. 

(2) Section 7811 is amended by striking subsection (g). 

(3) Section 1203 of the Internal Revenue Service Restructuring Act of 1998 

is amended by striking subsection (e). 

(4) The table of sections for subchapter A of chapter 64 is amended by striking the item relating to section 6306. 

(5) The table of sections for subchapter B of chapter 76 is amended by striking the item relating to section 7433A. 

(c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall take effect on the date of the enactment of 

this Act. 

(2) EXCEPTION FOR EXISTING CONTRACTS, ETC.—The amendments made by this 

section shall not apply to any contract which was entered into before March 1, 

2008, and is not renewed or extended on or after such date. 

(3) UNAUTHORIZED CONTRACTS AND EXTENSIONS TREATED AS VOID.—Any qualified tax collection contract (as defined in section 6306 of the Internal Revenue 

Code of 1986, as in effect before its repeal) which is entered into on or after 

March 1, 2008, and any extension or renewal on or after such date of any qualified tax collection contract (as so defined), shall be void. 

SEC. 15. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY. 

Paragraph (1) of section 6103(m) (relating to tax refunds) is amended by inserting 

‘‘, and through any other means of mass communication,’’ after ‘‘media’’. 

SEC. 16. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY NAMES AND SYMBOLS. 

(a) IN GENERAL.—Subsection (a) of section 333 of title 31, United States Code, is 

amended by inserting ‘‘Internet domain address,’’ after ‘‘solicitation,’’ both places it 

appears. 

(b) PENALTY FOR MISUSE BY ELECTRONIC MEANS.—Subsections (c)(2) and (d)(1) of 

section 333 of such Code are each amended by inserting ‘‘or any other mass communications by electronic means,’’ after ‘‘telecast,’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to violations occurring after the date of the enactment of this Act. 

SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH SAVINGS ACCOUNT. 

(a) IN GENERAL.—Paragraph (1) of section 223(f) (relating to amounts used for 

qualified medical expenses) is amended by inserting ‘‘(and, in the case of amounts 

paid or distributed after December 31, 2010, substantiated in a manner similar to 


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the substantiation required for flexible spending arrangements)’’ after ‘‘account beneficiary’’. (b) REPORTS.—Subsection (h) of section 223 (relating to reports) is amended— (1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively, 

(2) by moving the text of subparagraphs (A) and (B) (as so redesignated) and 

the last sentence 2 ems to the right, 

(3) by striking ‘‘(h) REPORTS.—The Secretary may require—’’ and inserting the 

following: ‘‘(h) REPORTS.— ‘‘(1) IN GENERAL.—The Secretary may require—’’, and 

(4) by adding at the end the following new paragraph: 

‘‘(2) RELATING TO SUBSTANTIATION.—Not later than January 15 of each calendar year after 2011, the trustee of a health savings account shall make a report regarding such account to the Secretary and the account beneficiary setting 

forth—

‘‘(A) the name, address, and identifying number of the account beneficiary, and ‘‘(B) the amount paid or distributed out of such account for the preceding 

calendar year not substantiated in accordance with subsection (f)(1).’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to amounts paid or distributed out of health savings accounts after December 

31, 2010. 

SEC. 18. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS PERFORMING SERVICES 

UNDER CONTRACT WITH UNITED STATES GOVERNMENT TREATED AS AMERICAN 

EMPLOYERS. 

(a) FICA TAXES.—Section 3121 (relating to definitions) is amended by adding at 

the end the following new subsection: ‘‘(z) TREATMENT OF CERTAIN FOREIGN PERSONS AS AMERICAN EMPLOYERS.— ‘‘(1) IN GENERAL.—If any employee of a foreign person is performing services 

in connection with a contract between the United States Government (or any 

instrumentality thereof) and any member of any domestically controlled group 

of entities which includes such foreign person, such foreign person shall be 

treated for purposes of this chapter as an American employer with respect to 

such services performed by such employee. ‘‘(2) DOMESTICALLY CONTROLLED GROUP OF ENTITIES.—For purposes of this 

subsection— ‘‘(A) IN GENERAL.—The term ‘domestically controlled group of entities’ means a controlled group of entities the common parent of which is a domestic corporation. ‘‘(B) CONTROLLED GROUP OF ENTITIES.—The term ‘controlled group of entities’ means a controlled group of corporations as defined in section 

1563(a)(1), except that— ‘‘(i) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears therein, and ‘‘(ii) the determination shall be made without regard to subsections 

(a)(4) and (b)(2) of section 1563. 

A partnership or any other entity (other than a corporation) shall be treated as a member of a controlled group of entities if such entity is controlled 

(within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence). 

‘‘(3) LIABILITY OF COMMON PARENT.—In the case of a foreign person who is a 

member of any domestically controlled group of entities, the common parent of 

such group shall be jointly and severally liable for any tax under this chapter 

for which such foreign person is liable by reason of this subsection, and for any 

penalty imposed on such person by this title with respect to any failure to pay 

such tax or to file any return or statement with respect to such tax or wages 

subject to such tax. No deduction shall be allowed under this title for any liability imposed by the preceding sentence. 

‘‘(4) COORDINATION.—Paragraph (1) shall not apply to any services which are 

covered by an agreement under subsection (l). 

‘‘(5) CROSS REFERENCE.—For relief from taxes in cases covered by certain 

international agreements, see sections 3101(c) and 3111(c).’’. 

(b) SOCIAL SECURITY BENEFITS.—Subsection (e) of section 210 of the Social Security Act (42 U.S.C. 410(e)) is amended—

(1) by striking ‘‘(e) The term’’ and inserting ‘‘(e)(1) The term’’, 

(2) by redesignating clauses (1) through (6) as clauses (A) through (F), respectively, and 


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(3) by adding at the end the following new paragraph: ‘‘(2)(A) If any employee of a foreign person is performing services in connection 

with a contract between the United States Government (or any instrumentality 

thereof) and any member of any domestically controlled group of entities which includes such foreign person, such foreign person shall be treated as an American employer with respect to such services performed by such employee. ‘‘(B) For purposes of this paragraph— ‘‘(i) The term ‘domestically controlled group of entities’ means a controlled 

group of entities the common parent of which is a domestic corporation. ‘‘(ii) The term ‘controlled group of entities’ means a controlled group of corporations as defined in section 1563(a)(1) of the Internal Revenue Code of 1986, 

except that—

‘‘(I) ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’

each place it appears therein, and 

‘‘(II) the determination shall be made without regard to subsections (a)(4) 

and (b)(2) of section 1563 of such Code. 

A partnership or any other entity (other than a corporation) shall be treated as 

a member of a controlled group of entities if such entity is controlled (within 

the meaning of section 954(d)(3) of such Code) by members of such group (including any entity treated as a member of such group by reason of this sentence).’’. 

(c) EFFECTIVE DATE.—The amendment made by this section shall apply to services 

performed after the date of the enactment of this Act. 

SEC. 19. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX. 

The percentage under subparagraph (C) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this 

Act is increased by 0.25 percentage points. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

PURPOSE

The bill, H.R. 5719, as amended, includes provisions to enhance 

taxpayer protections and outreach, delay implementation of withholding taxes on government payments, and repeal the authority of 

the Internal Revenue Service (‘‘IRS’’) to use private debt collection 

companies, among other purposes. 

SUMMARY

Effective as of the date of enactment of the Small Business and 

Work Opportunity Tax Act of 2007 (May 25, 2007), the bill generally conforms the understatement penalty standards for tax return preparers with those for taxpayers. Effective for taxable years 

beginning after December 31, 2008, the bill removes cellular telephones and similar telecommunications equipment from the definition of listed property and the corresponding heightened substantiation requirements. The bill delays until January 1, 2012, the effective date of section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, which imposes withholding at the rate of 

three percent on certain government payments. Effective for 

amounts paid after December 31, 2008, the bill provides that fiscal 

administrators directly paying wages to a home care worker under 

certain State and local programs are liable for employment taxes, 

not the home care recipients. Effective for referrals made after the 

date of enactment, the bill allows IRS employees to refer taxpayers 

to qualified low-income taxpayer clinics. The bill codifies volunteer 

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ing qualified low-income taxpayer clinics. Effective after the date of 

enactment, the bill expands IRS notice requirements relating to 

EIC outreach. Effective on the date of enactment, the bill prohibits 

the IRS from providing a debt indicator to any person with respect 

to a refund anticipation loan determined by the Secretary to be 

predatory. The bill requires an IRS study of the feasibility of delivering tax refunds on debit cards and by other means. Generally effective for levies made after the date of enactment, the bill extends 

from nine months to two years the time limits for returning money 

and the monetary proceeds from the sale of property that has been 

wrongfully levied, and for bringing a civil action for wrongful levy, 

respectively. Effective for levied amounts returned to individuals 

after the date of enactment, the bill holds individuals harmless on 

the improper levy on an individual retirement plan. Effective for 

determinations made after the date of enactment, the bill requires 

the IRS to (1) notify a taxpayer if the IRS determines during a tax 

investigation that there may have been an unauthorized use of a 

taxpayer’s identity or that of the taxpayer’s dependents (if disclosure will not jeopardize a tax investigation); and (2) notify the taxpayer if any person is criminally charged by indictment or information relating to such unauthorized use The bill repeals the authority for the IRS to enter into, renew, or extend any private debt collection contract, except that existing contracts may continue 

through their current term without renewal. Effective on the date 

of enactment, the bill allows the IRS to use any means of mass 

communication, including the internet, to notify taxpayers of undelivered refunds. The bill clarifies the penalties for the misuse of Department of the Treasury names and symbols. Effective for 

amounts paid or distributed out of a health savings account after 

December 31, 2010, the bill requires substantiation of qualified 

medical expenses and requires reporting of unsubstantiated distributions. With respect to services performed after the date of enactment, the bill provides that wages paid for services performed 

by a U.S. citizen or resident outside the United States under a U.S. 

Government contract are subject to employment taxes if the employer is a foreign subsidiary of a U.S. parent company. Finally, 

the bill modifies the July, August, and September 2013 estimated 

tax payments requirements for corporations with assets of at least 

$1 billion. 

B. BACKGROUND AND NEED FOR LEGISLATION

Oversight of the IRS’s administration of the tax laws often requires legislative action to enhance taxpayer protections and facilitate IRS operations. The IRS in administering the Federal tax laws 

needs additional tools to assist and reach out to taxpayers. Moreover, the collection of Federal income taxes is a core governmental 

function that should be restricted to IRS employees. The bill protects taxpayers by repealing the authorization for the IRS to use 

private contractors to collect Federal income taxes, by providing additional taxpayer protections, and generally bolstering the outreach 

efforts of the IRS. 


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1Treas. Reg. sec 1.6662–4(g). 

C. LEGISLATIVE HISTORY

Background 

H.R. 5719 was introduced in the House of Representatives on 

April 8, 2008; and was referred to the Committee on Ways and 

Means. 

Subcommittee action 

On February 13, 2007, the Subcommittee on Oversight of the 

Committee on Ways and Means held a hearing on Earned Income 

Tax Credit outreach, and took testimony from invited witnesses. 

On March 13, 2008, the Subcommittee held a hearing on IRS operations, budget proposals, and the IRS National Taxpayer Advocate’s annual report. 

Committee action 

On May 23, 2007, the Committee on Ways and Means held a 

hearing on the IRS’s use of private debt collection companies to collect Federal income taxes. 

The Committee on Ways and Means marked up the bill, H.R. 

5719, on April 9, 2008, and ordered the bill, as amended, favorably 

reported. 

II. EXPLANATION OF THE BILL 

A. MODIFIED STANDARD FOR IMPOSITION OF TAX RETURN PREPARER

PENALTIES (SEC. 2 OF THE BILL AND SEC. 6694 OF THE CODE) 

PRESENT LAW

Taxpayer standards 

Present law imposes accuracy-related penalties on a taxpayer at 

a rate of 20 percent of the portion of any underpayment that is attributable to any substantial understatement of income tax. In determining whether a substantial understatement exists, the 

amount of the understatement generally is reduced by any portion 

attributable to an item if (1) the treatment of the item is supported 

by substantial authority, or (2) facts relevant to the tax treatment 

of the item were adequately disclosed and there was a reasonable 

basis for its tax treatment. 

In the case of a tax shelter item of a non-corporate taxpayer, the 

substantial understatement penalty does not apply if the taxpayer 

had substantial authority for the tax position and the taxpayer can 

demonstrate that he or she had a reasonable belief that the position is ‘‘more likely than not’’ the proper treatment. A taxpayer will 

be considered to have a reasonable belief that the treatment is 

more likely than not the proper treatment if the taxpayer relies 

upon the opinion of a professional advisor and the opinion is based 

upon the pertinent facts and authorities analyzed similar to the 

manner described in the substantial authority standard.1

Tax return preparer standards 

Prior to enactment of the Small Business and Work Opportunity 

Tax Act of 2007, an income tax return preparer who prepared a tax 


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2Sec. 7701(a)(36)(A). 

return with respect to which there was an understatement of tax 

that was due to an undisclosed position for which there was not a 

realistic possibility of being sustained on its merits was liable for 

a $250 penalty. For a disclosed position, the preparer was liable 

only if the position was frivolous. 

Legislation enacted as part of the Small Business and Work Opportunity Tax Act of 2007 broadened the scope of the preparer penalty by applying it to all tax return preparers and altered the 

standards of conduct a tax return preparer is required to meet in 

order to avoid the imposition of penalties for the preparation of a 

return with respect to which there is an understatement of tax. A 

tax return preparer now can be penalized for preparing a return 

on which there is an understatement of tax liability as a result of 

an ‘‘unreasonable position.’’ Any position that a return preparer 

does not reasonably believe is more likely than not to be sustained 

on its merits is an ‘‘unreasonable position’’ unless the position is 

disclosed on the return and there is a reasonable basis for the position. 

In general, the term ‘‘tax return preparer’’ is broadly defined as 

any person who prepares for compensation, or who employs one or 

more persons to prepare for compensation, any return of tax or any 

claim for refund of tax.2 Preparation of a substantial portion of a 

return is treated as if it were the preparation of such return. 

REASONS FOR CHANGE

The Committee believes that the standards of conduct for taxpayers and return preparers generally should be uniform. The 

Committee believes that the present-law standard for return preparers, which is generally higher than that for taxpayers, can result in a conflict of interest for return preparers. The conflict of interest arises because it is in the interest of a preparer to advise his 

taxpayer client to either disclose a tax position or alter such position in order to avoid the preparer penalty, even though the taxpayer could legally and appropriately take the position without disclosure or facing penalties. This may have the unintended consequence of causing taxpayers to be less inclined to use the services 

of professional tax preparers, which could harm the system of tax 

collections. Thus, the Committee believes the standards of conduct 

for taxpayers and return preparers generally should be uniform. 

EXPLANATION OF PROVISION

The provision changes the standards for imposition of the tax return preparer penalty. The preparer standard for undisclosed positions is reduced to ‘‘substantial authority.’’ The preparer standard 

for disclosed positions is ‘‘reasonable basis.’’ For tax shelters and 

reportable transactions to which section 6662A applies (i.e., listed 

transactions and reportable transactions with significant avoidance 

or evasion purposes), a tax return preparer is required to have a 

reasonable belief that such a transaction was more likely than not 

to be sustained on its merits. 


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3Sec. 212 allows deductions for ordinary and necessary expenses paid or incurred for the production or collection of income. 4 Cellular telephones (or other similar telecommunications equipment) were added as listed 

property as part of the Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101–239, sec. 

7643 (1989). 5Sec. 280F(d)(4)(A). 

6Sec. 274(d)(4). 

7Temp. Reg. sec. 1.274–5T(b)(6). 8Temp. Reg. sec. 1.274–5T(c)(2)(ii)(C). 

EFFECTIVE DATE

The provision generally is effective with respect to returns prepared after May 25, 2007. In the case of tax shelters and reportable 

transactions, the provision is effective for returns prepared for taxable years ending after the date of enactment. 

B. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNI- CATIONS EQUIPMENT) FROM LISTED PROPERTY (SEC. 3 OF THE

BILL AND SEC. 280F OF THE CODE) 

PRESENT LAW

Employer deduction 

Property, including cellular telephones and similar equipment, 

used in carrying on a trade or business is subject to the general 

rules for deducting ordinary and necessary expenses under section 

162. Under these rules, a taxpayer may properly claim depreciation 

deductions under the applicable cost recovery rules for only the 

portion of the cost of the property that is attributable to use in a 

trade or business.3 Similarly, the business portion of monthly telecommunication service is generally deductible, subject to capitalization rules, as an ordinary and necessary expense of carrying on a 

trade or business. 

In the case of certain listed property, special rules apply. Listed 

property generally is defined as (1) any passenger automobile; (2) 

any other property used as a means of transportation; (3) any property of a type generally used for purposes of entertainment, recreation; or amusement; (4) any computer or peripheral equipment; (5) 

any cellular telephone (or other similar telecommunications equipment); 4 and (6) any other property of a type specified in Treasury 

regulations.5

For listed property, no deduction is allowed unless the taxpayer 

adequately substantiates the expense and business usage of the 

property.6 Under the applicable regulations, a taxpayer must substantiate the elements of each expenditure or use of listed property, 

including (1) the amount (e.g., cost) of each separate expenditure 

and the amount of business or investment use, based on the appropriate measure (e.g., mileage for automobiles), and the total use of 

the property for the taxable period, (2) the date of the expenditure 

or use, and (3) the business purposes for the expenditure or use.7

The level of substantiation for business or investment use of listed 

property varies depending on the facts and circumstances. In general, the substantiation must contain sufficient information as to 

each element of every business or investment use.8

With regard to the business use of listed property made available 

by an employer for use by an employee, the employer generally 

may rely on adequate records maintained and retained by the employee or on the employee’s own statement if it is corroborated by 


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9Temp. Reg. sec. 1.274–5T(e)(2)(ii). 10Sec. 61. 11Sec. 132. 12Sec. 132(a)(3). 13Sec. 132(d). 14Temp. Reg. sec. 1.274–5T(e)(1). 15Temp. Reg. sec. 1.274–5T(e)(2). 

other sufficient evidence, unless the employer knows or has reason 

to know that the statement, records, or other evidence are not accurate.9

Taxation of employee 

Gross income includes all income unless a specific exclusion applies.10 Exclusions from gross income are provided in the case of 

certain fringe benefits.11 Gross income does not include the value 

of de minimis fringe benefits. A de minimis fringe is any property 

or service the value of which is (after taking into account the frequency in which similar fringes are provided by the employer to 

the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable. An exclusion from 

employee gross income also is provided in the case of a working 

condition fringe.12 A working condition fringe is any property or 

services provided to an employee of the employer to the extent 

that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.13

Treasury regulations provide that an employee may not exclude 

from gross income as a working condition fringe the value of listed 

property provided by an employer to the employee, unless the employee substantiates for the period of availability the amount of the 

exclusion in accordance with the substantiation requirements discussed above.14 In general, under such requirements, in the case 

of listed property, the working condition fringe exception is allowed 

only in the case of substantiation of the employee’s personal use of 

the property and the employer’s inclusion of an appropriate amount 

(based on such personal use) in the employee’s come.15

Cost recovery 

A taxpayer is allowed to recover through annual depreciation deductions the cost of certain property used in a trade or business or 

for the production of income. The amount of the depreciation deduction allowed with respect to tangible property for a taxable year 

is determined under the modified accelerated cost recovery system 

(‘‘MACRS’’). Under MACRS, different types of property generally 

are assigned applicable recovery periods and depreciation methods. 

The recovery periods applicable to most tangible personal property 

range from three to 25 years. The depreciation methods generally 

applicable to tangible personal property are the 200-percent and 

150-percent declining balance methods, switching to the straightline method for the taxable year in which the taxpayer’s depreciation deduction would be maximized. 

In the case of certain listed property, special depreciation rules 

apply. First, if for the taxable year that the property is placed in 

service the use of the property for trade or business purposes does 

not exceed 50 percent of the total use of the property, then the depreciation deduction with respect to such property is determined 


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16Sec. 280F(b)(1). If for any taxable year after the year in which the property is placed in 

service the use of the property for trade or business purposes decreases to 50 percent or less 

of the total use of the property, than the amount of depreciation allowed in prior years in excess 

of the amount of depreciation that would have been allowed for such prior years under the alternative depreciation system is recaptured (i.e., included in gross income) for such taxable year. 17Sec. 168(g). 18Sec. 280F(d)(3). 

under the alternative depreciation system.16 The alternative depreciation system generally requires the use of the straight-line method and a recovery period equal to the class life of the property.17

Second, if an individual owns or leases listed property that is used 

by the individual in connection with the performance of services as 

an employee, no depreciation deduction, expensing allowance, or 

deduction for lease payments is available with respect to such use 

unless the use of the property is for the convenience of the employer and required as a condition of employment.18

REASONS FOR CHANGE

In 1989, when Congress passed a law requiring taxpayers to document cellular telephone use, cellular telephones were an expensive perk for executives. Over time, the usage of these communication devices has become ubiquitous with the availability of less expensive airtime and unlimited usage plans. Today, in many cases, 

these communication devices simply represent an extension of the 

business day and workplace. As a result, the Committee believes 

that the present law heightened substantiation requirements place 

an unnecessary and time-consuming administrative burden upon 

taxpayers and should be eliminated. 

EXPLANATION OF PROVISION

The provision removes cellular telephones (or other similar telecommunications equipment) from the definition of listed property. 

Thus, under the provision, the heightened substantiation requirements that apply to listed property do not apply to cellular telephones (or other similar telecommunications equipment). 

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2008. 

C. DELAYED IMPLEMENTATION OF GOVERNMENT WITHHOLDING

REQUIREMENT (SEC. 4 OF THE BILL AND SEC. 3402(t) OF THE CODE) 

PRESENT LAW

For payments made after December 31, 2010, the Code requires 

withholding at a three-percent rate on certain payments to persons 

providing property or services made by the Government of the 

United States, every State, every political subdivision thereof, and 

every instrumentality of the foregoing (including multi-State agencies). The withholding requirement applies regardless of whether 

the government entity making such payment is the recipient of the 

property or services. Political subdivisions of States (or any instrumentality thereof) with less than $100 million of annual expenditures for property or services that would otherwise be subject to 


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withholding under this provision are exempt from the withholding 

requirement. 

Payments subject to the three-percent withholding include any 

payment made in connection with a government voucher or certificate program which functions as a payment for property or services. For example, payments to a commodity producer under a government commodity support program are subject to the withholding requirement. The provision imposes information reporting 

requirements on the payments that are subject to withholding 

under the provision. 

The three-percent withholding requirement does not apply to any 

payments made through a Federal, State, or local government public assistance or public welfare program for which eligibility is determined by a needs or income test. The three-percent withholding 

requirement also does not apply to payments of wages or to any 

other payment with respect to which mandatory (e.g., U.S.-source 

income of foreign taxpayers) or voluntary (e.g., unemployment benefits) withholding applies under present law. The provision does 

not exclude payments that are potentially subject to backup withholding under section 3406. If, however, payments are actually 

being withheld under backup withholding, withholding does not 

apply. 

The three-percent withholding requirement also does not apply to 

the following: payments of interest; payments for real property; 

payments to tax-exempt entities or foreign governments; intra-governmental payments; payments made pursuant to a classified or 

confidential contract (as defined in section 6050M(e)(3)); and payments to government employees that are not otherwise excludable 

from the new withholding provision with respect to the employees’ services as employees. 

REASONS FOR CHANGE

The Committee understands that the three-percent withholding 

requirement presents a number of challenges for the government 

entities and taxpayers subject to the requirement. The Committee 

believes the Treasury should conduct a study of the issues confronting both businesses and governments in complying with the 

three-percent requirement, as well as the issues confronting Treasury and the IRS in administering such requirement: Thus, the 

Committee believes it is appropriate to delay the effective date of 

the three-percent withholding requirement by one year to allow the 

Secretary further time to study issues associated with the requirement and to provide Congress with time to review and respond to 

the results of such study. 

EXPLANATION OF PROVISION

The provision delays the effective date for the three-percent withholding requirement. Under the provision, the requirement applies 

to payments made after December 31, 2011. 

The provision directs the Secretary to study issues associated 

with the three-percent withholding requirement, including (1) the 

problems, if any, which are anticipated in administering and complying with such requirement, (2) the burdens, if any, that such requirements will place on small businesses (taking into account such 

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19Secs. 3101–3128 (FICA), 3201–3241 (the Railroad Retirement Tax Act), 3301–3311 (FUTA), 

and 3401–3404 (income tax withholding). Sections 3501–3510 provide additional rules. 20Secs. 6011 and 6051. 

ments), and (3) the application of such requirements to small expenditures for services and goods by governments. 

The Secretary is to submit his report to the Senate Committee 

on Finance and House Committee on Ways and Means no later 

than six months after the date of enactment. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

D. EMPLOYMENT TAX TREATMENT OF HOME CARE SERVICE

RECIPIENTS (SEC. 5 OF THE BILL AND SEC. 3511 OF THE CODE) 

PRESENT LAW

In general 

Employment taxes generally consist of the taxes under the Federal Insurance Contributions Act (‘‘FICA’’), the tax under the Federal Unemployment Tax Act (‘‘FUTA’’), and income taxes required 

to be withheld by employers from wages paid to employees (‘‘income tax withholding’’).19

FICA tax consists of two parts: (1) old age, survivor, and disability insurance (‘‘OASDI’’), which correlates to the Social Security 

program that provides monthly benefits after retirement, disability, 

or death; and (2) Medicare hospital insurance (‘‘HI’’). The OASDI 

tax rate is 6.2 percent on both the employee and employer (for a 

total rate of 12.4 percent). The OASDI tax rate applies to wages 

up to the OASDI wage base ($102,000 for 2008). The HI tax rate 

is 1.45 percent on both the employee and the employer (for a total 

rate of 2.9 percent). Unlike the OASDI tax, the HI tax is not limited to a specific amount of wages, but applies to all wages. 

Under FUTA, employers must pay a tax of 62 percent of wages 

up to the FUTA wage base of $7,000. An employer may take a 

credit against its FUTA tax liability for its contributions to a State 

unemployment fund and, in certain cases, an additional credit for 

contributions that would have been required if the employer had 

been subject to a higher contribution rate under State law. For purposes of the credit, contributions means payments required by 

State law to be made by an employer into an unemployment fund, 

to the extent the payments are made by the employer without 

being deducted or deductible from employees’ remuneration. 

Employers generally are required to withhold income taxes from 

wages paid to employees. Withholding rates vary depending on the 

amount of wages paid, the length of the payroll period, and the 

number of withholding allowances claimed by the employee. 

Wages paid to employees, and FICA and income taxes withheld 

from the wages, are required to be reported on employment tax returns (Forms 940 and 941) and on Form W–2.20

A number of special rules apply in the case of household employees. An exception from FICA exists in the case of domestic service 

in a private home if the cash remuneration paid during the year 


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21Sec. 3121(a)(7)(B). 22Sec. 3306(a)(3). 23Sec. 3401(a)(3). 24Treas. Reg. secs. 31.3121(d)–l(c)(1), 31.3306(i)–1(a), and 31.3401(c)–l. 25 Issues relating to the classification of workers as employees or independent contractors are 

discussed in Joint Committee on Taxation, Present Law and Background Relating to Worker 

Classification for Federal Tax Purposes (JCX–26–07), May 2007. These issues are also discussed 

in Joint Committee on Taxation, Study of the Overall State of the Federal Tax System and Recommendations for Simplification, Pursuant to Section 8022(3)(B) of the Internal Revenue Code 

of 1986 (JCS–3–01), April 2001, at Vol. III, Part XV.A, at 539–550. 26Sec. 3401(d)(1) (for purposes of income tax withholding, if the employer does not have control of the payment of wages, the person having control of the payment of such wages is treated 

as the employer); Otte v. United States, 419 U.S. 43 (1974) (the person who has the control of 

the payment of wages is treated as the employer for purposes of withholding the employee’s share of FICA from wages); and In re Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), 

and In re The Laub Baking Company v United States, 642 F.2d 196 (6th Cir. 1981) (the person 

who has control of the payment of wages is the employer for purposes of the employer’s share 

of FICA and FUTA). The mere fact that wages are paid by a person other than the employer 

does not necessarily mean that the payor has control of the payment of the wages. Rather, control depends on the facts and circumstances. See, e.g., Consolidated Flooring Services v. U.S., 

38 Fed. Cl. 450 (1997), and Winstead v. U.S., 109 F. 3d 989 (4th Cir. 1997). 

by the employer to the employee for such service is less than 

$1,600 (for 2008).21

An employer of a household employee is liable for FUTA if the employer paid wages of $1,000 for such service in any calendar 

quarter in the calendar year or the preceding calendar year.22 An 

employer of a household employee is not required to withhold Federal income taxes from wages paid to household employees.23

Household employers may report employment taxes annually on 

Schedule H (filed with their annual Federal income tax return) 

rather than quarterly on Form 941. 

Responsibility for employment tax compliance 

Employment tax responsibility generally rests with the person 

who is the employer of an employee under a common-law test that 

has been incorporated into Treasury regulations.24 Under the regulations, an employer-employee relationship generally exists if the 

person for whom services are performed has the right to control 

and direct the individual who performs the services, not only as to 

the result to be accomplished by the work, but also as to the details 

and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer, not only 

as to what is to be done, but also as to how it is to be done. It is 

not necessary that the employer actually control the manner in 

which the services are performed, rather it is sufficient that the 

employer have a right to control. Whether the requisite control exists is determined on the basis of all the relevant facts and circumstances. The test of whether an employer-employee relationship exists is relevant in determining whether a worker is an employee or an independent contractor. However, the same test applies in determining whether a worker is an employee of one person or another.25

In some cases, a person other than the common-law employer 

maybe liable for employment taxes. For example, if wages are paid 

to an employee by a person other than the employer and the payor, 

rather than the employer, has control of the payment of the wages, 

the payor is responsible for complying with the applicable employment tax requirements.26 There are also special rules under which 

if a lender, surety or other person pays wages directly to an employee or group of employees, the lender, surety, or other person is 


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27Sec. 3505 28Sec. 3508 29Sec. 3504. The designated payroll agent rules do not apply for FUTA purposes. 30The employer’s name, address, and employer identification number, as well as the agent’s, 

are provided when the agent is designated by the employer. Form 2678 is used to designate an 

agent. 31Secs. 6721–6724. 32Sec. 6723. 33See National Taxpayer Advocate 2007 Annual Report to Congress, December 31, 2007 at 

355. 34See Notice 2003–70, 2003–2 C.B. 916 (providing a proposed revenue procedure). See also, 

Rev. Proc. 76–6, 1970–1 C.B. 420, as modified by Rev. Proc. 80–4, 1980–1 C.B. 581. 35 Notice 2003–70, 2003–2 C.B. 916. This is not the case if the independent third party is designated as the agent directly by the employer. 

responsible for employment taxes. 27 There is also a special rule 

under which a qualified real estate agent, or direct seller of certain 

consumer products, performing services is not treated as an employee with respect to the person for whom the services are performed.28

In addition, certain designated agents are jointly and severally 

liable with the employer for FICA tax and income tax withholding 

with respect to wages paid to the employer’s employees.29 These 

designated agents prepare and file employment tax returns using 

their own names and employer identification numbers.30 In contrast, reporting agents (often referred to as payroll service providers) are generally not liable for the employment taxes reported 

on their clients’ returns. Reporting agents prepare and file employment tax returns for their clients using the client’s name and employer identification number. 

Penalties apply in the case of failures to comply with information 

reporting requirements.31 In the case of failure to file a specified information return, a penalty of $50 for each return (not to exceed 

$100,000) is imposed.32

Home-care services, 

Many elderly and disabled individuals receive in-home care 

through state and local government health and welfare programs.33

These programs generally are funded at least in part with Federal 

funds. In most cases, the service recipient (i.e., the elderly or disabled individual) is the common law employer. 

IRS guidance provides rules for State and local government agencies as to how they can serve as agents for disabled individuals and 

other welfare recipients who employ home-care service providers to 

assist them in their homes.34 In general, these rules provide that 

the elderly or disabled individual must complete a form designating 

the State or local government as their agent for employment tax 

purposes. Under IRS guidance, unlike the general rule for designated agents, a State that furnishes home-care service providers 

(or a third party subagent of the State) can act as an agent on behalf of the service recipient for FUTA purposes.35 As previously 

discussed, in the case of a State or local government or independent third party serving as an agent on behalf of the service recipient, the service recipient remains liable for payment of the employment taxes and for any associated penalties for noncompliance. 

REASONS FOR CHANGE

Many elderly and disabled individuals receive in-home care 

through State and local government health and welfare programs. 


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These elderly and disabled individuals are the common law employer of their service provider even though the payment for these 

services is handled by a fiscal administrator of the relevant State 

or local government agency. The administrator often pays the employment taxes to the IRS and handles any required IRS information reporting (for example, Form W–2) as an agent for the elderly 

and disabled individual. To allow the fiscal administrator to handle 

the employment tax responsibilities, the service recipients must 

designate the administrator as their agent in a cumbersome process that is confusing for the service recipients. In addition, this 

agency designation does not eliminate the liability of the service recipient, who as the common law employer, is ultimately liable for 

unpaid employment taxes. It is difficult for IRS systems to accurately reconcile information returns with respect to these taxes. In 

many cases; the inability to reconcile the information has resulted 

in the IRS contacting the service recipient for payment of the employment taxes even though, under the government program, the 

elderly or disabled individual does not have responsibility, or direct 

access to the funds, for paying the wages to the service provider. 

The Committee believes that, in these situations, the home care 

service recipient should be relieved of any potential liability for employment taxes, and responsibility for information reporting. 

EXPLANATION OF PROVISION

The provision provides that, in the case of amounts paid under 

a home care service program to a home care service provider by the 

fiscal administrator of such program, the fiscal administrator is 

solely liable for the payment of employment taxes with respect to 

amounts paid for services under the program. In such case, the 

home care service recipient is not liable for the payment of employment taxes. 

A home care service program is a State or local government program which is funded in whole or part by Federal funds and under 

which domestic services are provided to elderly or disabled individuals in their home. A home care service program does not include 

any program to the extent home care service recipients make payments to the home care service providers for such in-home domestic 

services. 

A home care service provider is an individual who provides domestic services to a home care service recipient under a home care 

service program. A home care service recipient is an individual receiving domestic services under a home care service program. A fiscal administrator is any person or governmental entity who pays 

amounts under a home care service program to home care service 

providers for the provision of domestic services under such program. 

Employment tax returns (i.e., Forms W–2, 940 and 941) must be 

made under the name and employer identification number of the 

fiscal administrator rather than that of the common law employer, 

the service recipient. The fiscal administrator is required, as prescribed by the Secretary, to report to the IRS the name, address, 

and social security number of each home care service recipient for 

whom amounts are paid by such fiscal administrator under the 

home care services program. This is intended to assist the IRS in 

preventing collection action against the elderly or disabled common 


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36Section 6723 imposes a penalty of $50 per report (not to exceed $100,000 per calendar year). 37Sec. 7526. 

law employer. In the case of failure to file the required report, a 

penalty is imposed.36

Under the provision, the Secretary may prescribe regulations or 

other guidance as may be necessary to carry out the purposes of 

the provision, including rules for timing of employment tax deposits. 

It is intended that the present law rules that apply in the case 

of household employees continue to apply under the provision. Relevant thresholds under these rules are also determined with respect to each home care recipient. For example, it is intended that 

the exception from FICA for domestic service in a private home if 

cash remuneration, paid during the year by the employer to the 

employee for such service is less than $1,600 (for 2008) would continue to apply. Similarly, FUTA would be required only if the employer paid wages of $1,000 for household service in any calendar 

quarter in the calendar year or the preceding calendar year. In addition, the present law exception from Federal income tax withholding for household employees would continue to apply. 

EFFECTIVE DATE

The provision is effective for amounts paid after December 31, 

2008. 

E. REFERRALS TO LOW-INCOME TAXPAYER CLINICS (SEC. 6 OF THE

BILL) 

PRESENT LAW

The Code provides that the Secretary is authorized to provide up to $6 million per year in matching grants to certain qualified lowincome taxpayer clinics.37 Eligible clinics are those that charge no 

more than a nominal fee to either represent low-income taxpayers 

in controversies with the IRS or provide tax information to individuals for whom English is a second language. No clinic can receive 

more than $100,000 per year. 

A qualified low-income taxpayer clinic. includes (1) a clinical program at an accredited law, business, or accounting school, in which 

students represent low-income taxpayers, or (2) an organization described in section 501(c) which either represents low-income taxpayers as described above or provides referrals to qualified representatives. A low-income taxpayer is an individual whose income 

does not exceed 250 percent of the poverty level, as determined in 

accordance with criteria established by the Director of the Office of 

Management and Budget (‘‘OMB’’). 

The Department of the Treasury prohibits its officers and employees from referring taxpayers to qualified low-income taxpayer 

clinics for advice and assistance. 

REASONS FOR CHANGE

The Committee believes that qualified low-income taxpayer clinics contribute to compliance with the tax laws by providing representation to taxpayers who might otherwise be uncertain about 

their rights and obligations under the law and lack the means to 


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38Sec. 7526. 

secure adequate representation. Accordingly, the Committee believes that officers and employees of the Department of the Treasury should be permitted to inform taxpayers of the existence of 

these clinics and refer taxpayers to such clinics for assistance. 

EXPLANATION OF PROVISION

The provision allows officers and employees of the Department of 

the Treasury to refer taxpayers for advice and assistance to qualified low-income taxpayer clinics that receive funding, notwithstanding any other provision of law. 

EFFECTIVE DATE

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

F. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS (SEC. 

7 OF THE BILL AND SEC. 7526 AND NEW SEC. 7526A OF THE CODE) 

PRESENT LAW

The Code provides that the Secretary is authorized to provide up 

to $6 million per year in. matching grants to certain qualified lowincome taxpayer clinics.38 Eligible clinics are those that charge no 

more than -a nominal fee to either represent low-income taxpayers 

in controversies with the IRS or provide tax information to individuals for whom English is a second language. No clinic can receive 

more than $100,000 per year. 

A qualified low-income taxpayer clinic includes (1) a clinical program at an accredited law, business, or accounting school, in which 

students represent low-income taxpayers, or (2) an organization described in section 501(c) which either represents low-income taxpayers as described above or provides referrals to qualified representatives. A low-income taxpayer is an individual whose income 

does not exceed 250 percent of the poverty level, as determined in 

accordance with criteria established by the Director of the Office of 

Management and Budget (‘‘OMB’’). 

REASONS FOR CHANGE

The Committee believes that taxpayer clinics contribute to compliance with the tax laws by providing representation to taxpayers 

who might otherwise be uncertain about their rights and obligations under the law and lack the means to secure adequate representation. Accordingly, the Committee believes that the work of 

the volunteer income tax assistance program should be encouraged 

to increase assistance provided to low- and moderate-income taxpayers. The Committee also believes that an increase in grants to 

qualified low-income taxpayer clinics is needed to improve the level 

of assistance provided to taxpayers unable to obtain representation 

for Federal tax disputes. 

EXPLANATION OF PROVISION

The provision authorizes the Secretary to make $10 million in 

matching grants for volunteer income tax assistance programs. VolVerDate Aug 31 2005 13:40 Apr 15, 2008 Jkt 069006 PO 00000 Frm 00021 Fmt 6659 Sfmt 6602 E:\HR\OC\HR584.XXX HR584

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39The EIC is a refundable credit, meaning that if the amount of the credit exceeds the taxpayer’s Federal income tax liability, the excess is payable to the taxpayer as a direct transfer 

payment. Under an advance payment system, eligible taxpayers may elect to receive a portion 

of the credit in their paychecks, rather than waiting to claim a refund on their tax return filed 

by April 15 of the following year. 40 Earned income is defined as (1) wages, salaries, tips, and other employee compensation, but 

only if such amounts are includible in gross income, plus (2) the amount of the taxpayer’s net 

self-employment earnings. 41 In general, a child is a qualifying child of a taxpayer if the child satisfies each of three tests: 

(1) the child has the same principal place of abode as the taxpayer for more than one-half of 

the taxable year; (2) the child has a specified relationship to the taxpayer; and (3) the child has 

not yet attained a specified age. A tie-breaking rule applies if more than one taxpayer claims 

a child as a qualifying child. 

unteer income tax assistance programs are programs that provide 

tax return preparation and filing services to low- and moderate-income (as determined by the Secretary) taxpayers. Under the provision, volunteer income tax assistance programs may not charge 

taxpayers for return preparation services. Volunteers assisting taxpayers through such programs must meet training requirements 

established by the Secretary. The authorization of $6 million for qualified low-income taxpayer clinics under present law also is increased to $10 million. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

G. EARNED INCOME CREDIT OUTREACH (SEC. 8 OF THE BILL AND

SEC. 32 OF THE CODE) 

PRESENT LAW

In general 

Low and moderate-income taxpayers may be eligible for the refundable earned income credit (‘‘EIC’’).39 Generally, the amount of 

the EIC is based on the presence and number of qualifying children 

in the taxpayer’s family, as well as on adjusted gross income 

(‘‘AGI’’) and earned income.40 Other rules also apply. 

Three separate schedules apply in computing the taxpayer’s EIC: 

(1) one schedule for taxpayers with no qualifying children; (2) one 

schedule for taxpayers with one qualifying child; and (3) one schedule for taxpayers with more than one qualifying child.41

The EIC generally equals a specified percentage of earned income up to a maximum dollar amount. The maximum amount applies over a certain income range and then diminishes to zero over 

a specified phaseout range. For taxpayers with earned income (or 

AGI, if greater) in excess of the beginning of the phaseout range, 

the maximum EIC amount is reduced by the phaseout rate multiplied by the amount of earned income (or AGI, if greater) in excess 

of the beginning of the phaseout range. For taxpayers with earned 

income (or AGI, if greater) in excess of the end of the phaseout 

range, no credit is allowed. All income thresholds are adjusted annually for inflation. 

Wage withholding 

In general, the Code requires employers to withhold income tax 

on wages paid to employees, including wages and salaries of employees or elected officials of Federal, State, and local government 

units. Withholding rates vary depending on the amount of wages 


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42 Information returns, such as Form W–2, are returns within the meaning of section 

6103(b)(1). 

paid, the length of the payroll period, and the number of withholding allowances claimed by the employee. The Code also requires that employers report wage withholding information annually to the IRS and their employees (e.g., Form W–2 and Form W– 3).42

EIC outreach and assistance 

Pre-tax return filing 

The IRS has developed an outreach effort to inform taxpayers potentially eligible for the EIC and their employers about the EIC 

and how to claim the credit. One such public notice, contained in 

IRS Notice 797 (Rev. 12–2006), explains the EIC, its eligibility 

rules, and how to claim the credit. In addition, the IRS works with 

employers, community groups and other stakeholders to inform eligible taxpayers of the EIC. The IRS also helps taxpayers below certain income levels compute their Federal income tax liability, including the amount of EIC, if any. 

Post-tax return filing 

The IRS sends out notice letters addressed to taxpayers who it 

has identified as potentially eligible for the EIC in the immediately 

prior taxable year. 

The notice letters are different depending on the presence of a 

qualifying child or children in the taxpayer’s household. If the IRS 

identifies a taxpayer with one or more qualifying children as potentially eligible for the EIC, the notice letter informs the taxpayer 

that IRS records indicate that: (1) the taxpayer’s income falls in the 

eligible range to receive the EIC; (2) the taxpayer has one or more 

dependents who may be an ETC qualifying child; and (3) the taxpayer did not claim the EIC for the applicable taxable year on his 

or her return filed with the IRS. If the IRS identifies a taxpayer 

without qualifying children as potentially eligible for the EIC, the 

notice letter informs the taxpayer that IRS records indicate that: 

(1) the taxpayer’s income falls in the eligible range to receive the 

EIC and (2) the taxpayer did not claim the EIC for the applicable 

taxable year on his or her return filed with the IRS. 

In all cases, the notice letters ask the taxpayers to complete an ‘‘EIC Eligibility Check-Sheet’’ and, if the check-sheet indicates eligibility for the EIC, to return it to the IRS. The EIC Eligibility 

Check-Sheet requests the taxpayer to provide all the information 

necessary to determine EIC eligibility. The EIC Eligibility CheckSheet is completed under penalty of perjury by the taxpayer (and 

the taxpayer’s spouse in the case of a joint return). The IRS reviews the information submitted by the taxpayer and either: (1) 

sends any applicable refund within eight weeks (net of any other 

amounts the IRS is required to collect), or (2) sends an explanation 

to the taxpayer stating why the taxpayer does not qualify for the 

EIC. 

The notice letters also provide information to help eligible taxpayers correctly claim the EIC in future taxable years. 

Under present law, these notice letters are sent by the IRS only 

to individuals who have filed a tax return for the applicable taxable 


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43 It is anticipated that the type of available return information and available IRS resources 

will affect the IRS’s ability to issue the additional notice letters contemplated under this proposal. 

year. The absence of the taxpayer’s filed tax return, notwithstanding the receipt by the IRS of return information or an information return (e.g., Form W–2 indicating wage withholding on the 

taxpayer) from the taxpayer’s employer does not trigger—a notice 

letter to the taxpayer. 

Limitations on credits and refunds 

Under section 6511, a claim for credit or refund of overpayment 

of tax with respect to which a return must be filed must be made 

within the later of: (1) three years from the time the return was 

filed or (2) two years from the time the tax was paid. If no return 

was filed by the taxpayer, then the applicable time period ends two 

years, after the tax was paid. 

REASONS FOR CHANGE

The Committee believes that all taxpayers who are eligible for 

the EIC should receive it. The IRS estimates that. 20–25 percent 

of taxpayers eligible for the EIC do not claim the credit. The Committee believes that the IRS should enhance its efforts to identify 

and contact taxpayers who are eligible for the EIC, particularly in 

the case of taxpayers who have had taxes withheld on their wages 

but who have not filed a tax return. In some instances, taxpayers 

who have incomes below tax filing thresholds and may not realize 

that they are eligible for the EIC. The Committee realizes that improving EIC outreach is an important component in ensuring that 

those who are eligible claim the credit. 

EXPLANATION OF PROVISION

The provision requires the IRS to provide annually, and to the 

extent possible,43 notice to all taxpayers who have-been identified 

based on return or return information as being potentially eligible 

for the EIC in any taxable year for which a claim for credit or refund is not barred by the limitation period under section 6511. 

Such notice must be in writing, address all. open tax years, and be 

sent to the last known address of such taxpayers: (1) who did not 

file a claim for the EIC for such taxable year, and (2) who the IRS 

identified as potentially eligible for the EIC for such taxable year 

based on a return or return information (as defined in sec. 6103(b)). 

Upon receipt of this notice letter, the taxpayer who had filed a 

return for the applicable taxable years would complete the applicable EIC Eligibility Check-Sheet for each of the applicable taxable 

years. It is anticipated that this Check-Sheet would ask for all the 

information relating to the taxpayer’s eligibility for the EIC (e.g., 

earned income, AGI, presence and number of qualifying children, 

and taxpayer identification numbers). If eligible for the EIC, in one 

or more of the applicable taxable years, the taxpayer would return 

the EIC Eligibility Check-Sheet to the IRS for any refund (including wages withheld by the taxpayer’s employer). In the case of an 

eligible taxpayer who had not filed a return for the applicable taxable years, the taxpayer would be instructed to file a tax return 

claiming the EIC with the IRS for any refund (including wages 


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44See e.g., National Taxpayer Advocate, 2005 Annual Report to Congress, Publication 2104 

(Rev. 12–2005), at 162. 

withheld by the taxpayer’s employer) for each of the applicable taxable years. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

H. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND

ANTICIPATION LOANS (SEC. 9 OF THE BILL AND SEC. 6011 OF THE

CODE) 

PRESENT LAW

A refund anticipation loan is a loan made by a commercial lender 

to a taxpayer based on the refund the taxpayer expects to receive. 

The loan is a private contract between the taxpayer and a commercial lender. The Code does not regulate the making of refund anticipation loans, but consumer groups, the Commissioner of the 

IRS, and the National Taxpayer Advocate all have raised concerns 

over the high interest rates and fees associated with such loans.44

Certain tax practitioners that file returns electronically and financial institutions may obtain a debt indicator from the IRS for 

their customer taxpayers. A debt indicator facilitates the making of 

refund anticipation loans because it tells whether or not a taxpayer 

has any scheduled offsets against a claimed refund. Thus, a debt 

indicator reduces the lender’s risk of making a refund anticipation 

loan because it informs the lender whether the taxpayer’s refund 

will be paid or reduced for certain debts. 

REASONS FOR CHANGE

The Committee understands that the majority of refund anticipation loans are made to low-income families, including EIC claimants. The Committee also understands that the providers of refund 

anticipation loans often charge exorbitantly high fees and interest 

rates for such loans, at times in excess of 100 percent. The Committee is concerned that these high-cost, short-term loans unfairly 

siphon millions of dollars from low-income taxpayers. Moreover, the 

Committee is concerned that debt indicators are being used as a 

means to enable these predatory refund anticipation loans to taxpayers. The Committee believes that the Department of the Treasury should not be facilitating predatory refund anticipation loans 

by reducing the lender’s risk of making such loans. Thus, the Committee believes that prohibiting debt indicators with respect to 

predatory refund anticipation loans will decrease the viability of 

such loans and provide additional protection to taxpayers. 

EXPLANATION OF PROVISION

The provision prohibits the Secretary from providing a debt indicator to any person with respect to any refund anticipation loan if 

the Secretary determines that the business practices of such person 

involve refund anticipation loans and related charges and fees that 

are predatory. Under the provision, a refund anticipation loan is 

any loan of money or any other thing of value to a taxpayer secured by the taxpayer’s anticipated receipt of a Federal tax refund. 


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45Sec. 6343. 

For purposes of the provision, a debt indicator means a notification 

provided to a tax practitioner or financial institution pursuant to 

a program or procedure that a taxpayer’s refund will be reduced or 

offset to repay debts for delinquent Federal or State taxes, strident 

loans, child support, or other Federal agency debt. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

I. STUDY ON DELIVERY OF TAX REFUNDS (SEC. 10 OF THE BILL) 

PRESENT LAW

A large number of individual taxpayers do not have bank accounts. These taxpayers are unable to participate fully in electronic 

filing, because the IRS cannot electronically transmit to them their 

tax refunds. 

REASONS FOR CHANGE

The Committee believes that the attractiveness of electronic filing and faster deposit of direct deposited refunds is diminished 

when individuals do not have an account at a financial institution. 

These individuals rely on alternative financial service providers to 

cash checks, pay bills, send remittances, and obtain credit. The cost 

of these alternative services reduces benefits received through the 

tax system, such as the earned income tax credit. The Committee 

believes the Secretary should study alternative means of delivering 

tax refunds to taxpayers to reduce the cost and refund processing 

time for those taxpayers who do not have access to financial institutions. 

EXPLANATION OF THE PROVISION

The provision requires the Secretary to conduct a study, in consultation with the National Taxpayer Advocate, of the implementation of a program to deliver tax refunds through debit cards or 

other electronic means. The provision requires the Secretary to 

submit a report to Congress on the results of such study no later 

than one year after the date of enactment. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

J. EXTENSION OF TIME LIMIT FOR RETURN OF PROPERTY FOR

WRONGFUL LEVY (SEC. 11 OF THE BILL AND SECS. 6343 AND 6532 

OF THE CODE) 

PRESENT LAW

The IRS is authorized to return property that has been wrongfully levied.45 In general, monetary proceeds from the sale of levied 

property, or an amount equal to the amount of money levied, may 

be returned within nine months of the date of the levy. 

Generally, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest 


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46Sec. 7426(a)(1). 47Sec. 6532. 48Sec. 6532(c)(2). 

in levied property may bring a civil action for wrongful levy in a 

district court of the United States.46 Generally, an action for 

wrongful levy must be brought within nine months from the date 

of levy.47 However, if a claim for a return of property is made to 

the IRS, the nine-month period is extended for the shorter of a period of 12 months from the date of filing of such request or six 

months from the date of mailing of an IRS notice of disallowance 

of such request.48

REASONS FOR CHANGE

The Committee understands that, in many cases, the time period 

for bringing an action may be insufficient for third parties to discover a wrongful or mistaken levy and seek to remedy it. Accordingly, the Committee believes it is appropriate to provide for a 

longer period of time within which a person may contest a wrongful 

IRS levy. 

EXPLANATION OF PROVISION

The provision extends from nine months to two years the period 

for returning money and the monetary proceeds from the sale of 

property that has been wrongfully levied. 

The provision also extends from nine months to two years the period for bringing a civil action for wrongful levy. 

EFFECTIVE DATE

The provision is effective with respect to: (1) levies made after 

the date of enactment and (2) levies made on or before the date of 

enactment provided that the nine-month period has not expired as 

of the date of enactment. 

K. INDIVIDUALS HELD HARMLESS ON IMPROPER LEVY ON INDIVIDUAL

RETIREMENT PLAN (SEC. 12 OF THE BILL AND SEC. 6343 OF THE

CODE) 

PRESENT LAW

Distributions from an individual retirement arrangement (‘‘IRA’’) 

made on account of an IRS levy are includible in the gross income 

of the individual under the rules applicable to the IRA subject to 

the levy. Thus, in the case of a traditional IRA, the amount distributed as a result of a levy is includible in gross income except to 

the extent such amount represents a return of nondeductible contributions (i.e., basis). In the case of a Roth IRA, earnings on a distribution are excludable from gross income if the distribution is 

made: (1) after the five-taxable year period beginning with the first 

taxable year for which the individual made a contribution to a Roth 

IRA and (2) after attainment of age 591⁄2 or on account of certain 

other circumstances. Amounts withdrawn from an IRA due to a 

levy are not subject to the 10 percent early withdrawal tax, regardless of whether the amount is includible in income. 

Present law provides rules under which the IRS returns amounts 

subject to an incorrect levy. For example, amounts withdrawn from 


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an IRA pursuant to a levy are returned to the individual owning 

the IRA in the case of a wrongful levy or if the levy was not in accordance with IRS administrative procedures. In the case of a 

wrongful levy, the IRS is required to pay interest on the amount 

returned to the individual at the overpayment rate. The IRS is not 

required to pay interest if the levy was not in accordance with IRS 

administrative procedures. 

Present law does not provide special rules to allow an individual 

to recontribute to an IRA amounts withdrawn from an IRA pursuant to a levy and later returned to the individual by the IRS (or 

interest thereon). Thus, if an individual wishes to contribute such 

returned amounts to an IRA, the contribution is subject to the normally applicable rules for IRA contributions. 

REASONS FOR CHANGE

IRA assets provide an important source of retirement income for 

many Americans. Under present law, if the IRS improperly levies 

on an IRA, the individual owning the IRA may not be made whole, 

even if the IRS returns the amount levied, with interest, because 

the individual may lose the opportunity to have those funds accumulate on a tax-favored basis until retirement. The Committee believes that improper levies should not reduce retirement income security for IRA owners. Thus, the Committee bill provides that IRA 

funds that are withdrawn pursuant to an improper IRS levy and 

returned by the IRS may be recontributed to the IRA. 

EXPLANATION OF PROVISION

Under the provision, an individual is able to recontribute to an 

IRA amounts withdrawn pursuant to a levy and returned by the 

IRS (and any interest thereon) within 60 days of receipt by the individual, without regard to the normally applicable limits on IRA 

contributions and rollovers. The provision applies to levied 

amounts returned to the individual because the levy (1) was wrongful or (2) is determined to be premature or otherwise not in accordance with administrative procedures. The recontribution may be 

made to the same IRA or to any other individuated retirement plan 

(other than an endowment contract) to which a rollover from the 

IRA levied upon is permitted. That is, the recontribution may be 

made to the same IRA or to an IRA of the same type. 

Under the provision, the IRS is required to pay interest on 

amounts returned to the individual at the overpayment rate in the 

case of a levy that is determined to be premature or otherwise not 

in accordance with administrative procedures (as well as in the 

case of a wrongful levy under present law). Interest paid by the 

IRS on the amount returned to the individual is excludable from 

gross income if the interest is contributed to an IRA under the provision. An amount contributed to an IRA under the provision will 

only be treated as interest paid by the IRS to the extent the total 

amount contributed under the provision exceeds the amount of the 

levy. 

Any tax attributable to an amount distributed from an IRA by 

reason of a levy is abated if the amount is recontributed to an IRA 

pursuant to the provision. 


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49Sec. 6103(a). 50Sec. 6103(b)(2). Return information is 

• a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is being, or will 

be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or 

with respect to the determination of the existence, or possible existence, of liability (or the 

amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or 

other imposition, or offense, 

• any part of any written determination or any background file document relating to such 

written determination (as such terms are defined in section 6110(b)) which is not open to public 

inspection under section 6110, 

• any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to such agreement or any application for an advance pricing agreement, and 

• any closing agreement under section 7121, and any similar agreement, and any background 

information related to such an agreement or request for such an agreement. 

Return information does not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer. 

EFFECTIVE DATE

The provision is effective for levied amounts (and interest thereon) returned to individuals after the date of enactment. 

L. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT (SEC. 13 

OF THE BILL AND NEW SEC. 7529 OF THE CODE) 

PRESENT LAW

Section 6103 provides that returns and return information are 

confidential and may not be disclosed by the Internal Revenue 

Service (‘‘IRS’’), other Federal employees, State employees, and certain others having access to the information except as provided in 

the Code.49 The definition of ‘‘return information’’ is very broad and 

includes any information gathered by the IRS with respect to a person’s liability or possible liability under the Code for any tax, penalty, interest, fine, forfeiture, or other imposition or offense.50

Thus, information gathered by the IRS in connection with an investigation of a person for an offense under the Code, such as fraud, 

is return information of the person being investigated and is subject to the confidentiality restrictions of section 6103. 

In July 2007, the IRS established the Privacy, Information Protection, and Data Security Office. Within that office is the Identity 

Theft and Incident Management office, which is responsible for implementing the IRS identity theft strategy and coordinating efforts 

within the IRS to provide assistance and consistent treatment to 

taxpayers who are victims of identity theft. 

The IRS also recently implemented a pilot program to notify IRSidentified tax fraud victims of identity theft. 

REASONS FOR CHANGE

Identity theft is a growing concern for the Committee. Identity 

thieves can use a taxpayer’s identity, or the identity of their dependents, including their social security numbers, to file fraudulent 

tax returns and obtain fraudulent refunds. The Committee believes 

it is important for the IRS to promptly notify a taxpayer of potential identity theft so that the taxpayer can take measures to prevent the misuse of his identity. 


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51Persons bound by the rule of grand jury secrecy in Fed. R. Crim. P. 6(e)(2) are subject to 

prosecution for criminal contempt under 18 U.S.C. sec. 401 for the unauthorized disclosure of 

grand jury information. Thus, under the provision, a notification that was in violation of the 

grand jury secrecy rules would not be ‘‘permitted by law’’ within the meaning of the provision. 52 H.R. Rep. No. 43–559, 1st Sess. (1874). 

EXPLANATION OF PROVISION

The provision provides that if, in the course of an investigation 

under the internal revenue laws, the Secretary determines that 

there was, or may have been, an unauthorized use of a taxpayer’s 

identity or that of a dependent of the taxpayer, the Secretary shall, 

to the extent permitted by law, (1) as soon as practicable and without jeopardizing such investigation, notify the taxpayer of such determination, and (2) if any person is criminally charged by indictment or information with respect to such unauthorized use, notify 

such taxpayer as soon as practicable of such charge. Under the provision, the IRS is not required to make such notification if disclosure would be barred by any statute (other than Title 26) or would 

be, for example, in violation of grand jury secrecy rules.51 Further, 

notification is not required if the IRS is unable to obtain an address or other contact information for the taxpayer. In such case 

notification would not be practicable because the IRS would not 

have the necessary information to notify that person. 

EFFECTIVE DATE

The provision applies to determinations made after the date of 

enactment. 

M. REPEAL OF PRIVATE TAX COLLECTION CONTRACTS (SEC. 14 OF

THE BILL AND SEC. 6306 OF THE CODE) 

PRESENT LAW

Under present law, the IRS may use private debt collection companies to locate and contact taxpayers owing outstanding tax liabilities of any type and to arrange payment of those taxes by the taxpayers. 

REASONS FOR CHANGE

Over 130 years ago, this Committee stated that ‘‘any system of 

farming the collection of any portion of the revenue of the Government is fundamentally wrong * * *. No necessity for such laws 

exist * * * the Secretary of the Treasury and the head of the Internal Revenue Bureau are empowered by law to make all collections 

of taxes * * *. The Internal Revenue Bureau is possessed of full 

knowledge of the laws relating to the collection of the revenue 

* * * and has all the machinery necessary for their full and complete enforcement.’’ 52 The Committee believes these words remain 

true today. 

The Committee believes that the collection of Federal income 

taxes is an inherently governmental function that should be restricted to IRS employees. The Committee believes that the use of 

private contractors to collect Federal tax debt violates the special 

and confidential relationship between taxpayers and the Federal 

government. The Committee believes that the use of private conVerDate Aug 31 2005 13:40 Apr 15, 2008 Jkt 069006 PO 00000 Frm 00030 Fmt 6659 Sfmt 6602 E:\HR\OC\HR584.XXX HR584

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53Sec. 6103(b)(6). 

tractors jeopardizes the privacy of taxpayers and undermines longterm taxpayer compliance. 

The IRS Commissioner has stated on numerous times before the 

Committee that IRS employees can collect Federal taxes more efficiently than private debt collection companies. IRS employees have 

access to a taxpayer’s complete file and history, including the most 

recent information relating to tax filings and compliance data. Access to the taxpayer’s complete file allows IRS employees to collect 

outstanding tax debt more efficiently and in a manner that ensures 

long-term compliance with the tax laws. The Committee believes 

that only IRS employees should be allowed to perform tax collection 

activities. 

EXPLANATION OF PROVISION

The provision repeals the authority for the IRS to enter into, 

renew, or extend any private debt collection contract. The provision 

allows the IRS’s existing contracts with private debt collection companies to continue through the end of their term. 

EFFECTIVE DATE

The provision generally is effective on the date of enactment, except for any contract which was entered into before March 1, 2008, 

and is not renewed or extended on or after such date. The provision 

also provides that any private debt collection contract which is entered into on or after March 1, 2008, and any extension or renewal 

of any private debt collection contract on or after such date, shall 

be void. 

N. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY (SEC. 15 

OF THE BILL AND SEC. 6103 OF THE CODE) 

PRESENT LAW

When the IRS is unable to find a taxpayer due a refund, present 

law provides that the IRS may use ‘‘the press or other media’’ to 

notify the taxpayer of the refund. Section 6103(m) allows the IRS 

to give the press taxpayer identity information for this purpose. 

Taxpayer identity includes, among other items, name and mailing 

address.53

The IRS believes that the current statutory framework of ‘‘press 

and other media’’ does not permit disclosures via the Internet on 

the IRS website (www.irs.gov). The legislative history of the 

present-law provision does not address the meaning of ‘‘press and 

other media.’’ At the time enactment of section 6103(m) in 1976, 

the press (newspapers and periodicals) and other traditional media 

were the only means available for the IRS to distribute undelivered 

refund information to the public. Thus, the IRS interprets the term 

‘‘other media’’ to exclude the Internet. 

REASONS FOR CHANGE

In November 2007, the IRS announced that it is searching for 

115,478 taxpayers whose income tax refund checks could not be deVerDate Aug 31 2005 13:40 Apr 15, 2008 Jkt 069006 PO 00000 Frm 00031 Fmt 6659 Sfmt 6602 E:\HR\OC\HR584.XXX HR584

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54 Internal Revenue Service, IRS Has $110 Million in Refund Checks Looking for a Home (IR–

2007–189, November 14, 2007). 55 Internal Revenue Service, IRS Urges Caution about Internet Sites that Resemble the Official IRS Site (IR–2007–58, March 13, 2007). 

livered.54 These checks are worth a total of approximately $110 

million. It is the understanding of the Committee that the current 

method of notifications, by newspaper, is ineffective. The Committee believes that the IRS should be able to use any method of 

mass communication, including the Internet, to reach taxpayers 

who are due refunds. 

EXPLANATION OF PROVISION

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

EFFECTIVE DATE

The provision is effective on the date of enactment. 

O. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY

NAMES AND SYMBOLS (SEC. 16 OF THE BILL AND SEC. 333 OF

TITLE 31) 

PRESENT LAW

Section 333 of Title 31 of the United States Code prohibits the 

use, in connection with advertisements, solicitations, and other 

business activities, of the words, abbreviations, titles, letters, symbols, or emblems associated with the Department of the Treasury 

(and services, bureaus, offices, or subdivisions of the Department, 

including the IRS) in a manner which could reasonably be interpreted as conveying a connection with or approval by the Department of the Treasury (or one of its bureaus, offices, or subdivisions) 

in the absence of such connection or approval 

The provision provides for a civil penalty of not more than $5,000 

per violation (or not more than $25,000 in the case of a broadcast 

or telecast). In addition, the provision provides a criminal penalty 

of not more than $10,000 (or not more than $50,000 in the case of 

a broadcast or telecast) or imprisonment of not more than one year, 

or both, in any case in which the prohibition is knowingly violated. 

Any determination of whether there is a violation is made without 

regard to the use of a disclaimer of affiliation with the Federal 

Government. 

The IRS has issued warnings to taxpayers about Internet sites 

that resemble the official IRS site: 

Taxpayers may be confused by the proliferation of Internet sites that contain some form of the Internal Revenue 

Service name or IRS acronym with a .com, .net, .org or 

other designation in the address instead of gov. Since 

many of these sites also bear a striking resemblance to the 

real IRS site, taxpayers may be misled into thinking that 

the site they have accessed is indeed the official IRS government site. These sites are not the official IRS Web site 

and have no connection to the official IRS site or to the 

IRS.55


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56 Internal Revenue Service, Identity Theft E-mail Scams a Growing Problem (FS–2008–9, 

January 2008). 57 Id. 58 An individual with other coverage in addition to a high deductible health plan is still eligible for an HSA if such other coverage is certain permitted insurance or permitted coverage. Permitted insurance is: (1) insurance if substantially all of the coverage provided under such insurance relates to (a) liabilities incurred under worker’s compensation law, (b) tort liabilities, (c) 

Continued 

The IRS also has issued a number of warnings regarding ongoing 

Internet scams.56 The e-mails claim to be from the IRS and direct 

the consumer to a link (often resembling the IRS website) that requests personal and financial information. The practice is called 

‘‘phishing’’ for information. Once the information is obtained, it 

could be used in identity theft and stealing a taxpayer’s financial 

assets. Taxpayers who receive an unsolicited e-mail communication 

claiming to be from-the IRS can forward the message to the IRS. 

The IRS reports it has received almost 33,000 forwarded e-mail 

scams.57

REASONS FOR CHANGE

The Committee is aware of Internet sites that misuse the Department of Treasury and Internal Revenue Service names. Use of 

an Internet domain name in this manner is misleading and confusing. Taxpayers may believe that they will access, or may have 

accessed, the official IRS site. In addition, the Committee is aware 

of the use of e-mail, purporting to be from the IRS, and websites 

resembling the IRS website to obtain personal or financial information from taxpayers. The Committee believes such practices should 

be subject to significant penalties to deter such conduct and that 

the statute should be clarified accordingly. 

EXPLANATION OF PROVISION

The provision clarifies that ‘‘phishing,’’ misleading websites, and 

other misleading mass communications by electronic means using 

the name or symbols of the Department of the Treasury (or its 

components), are subject to the civil penalty of $25,000 per violation and criminal penalty of $50,000 per violation. The provision 

reaffirms that the use of the words, abbreviations, titles, letters, 

symbols, or emblems associated with the Department of the Treasury (and services, bureaus, offices or subdivisions of the Department, including the IRS) in an Internet domain name is misleading 

and covered by section 333 of Title 31 of the United States Code. 

EFFECTIVE DATE

The provision is effective for violations occurring after the date 

of enactment. 

P. HEALTH SAVINGS ACCOUNT SUBSTANTIATION REQUIREMENT (SEC. 

17 OF THE BILL AND SEC. 223(f) OF THE CODE) 

PRESENT LAW

Health savings accounts 

Present law section 223 provides that individuals with a high deductible health plan (and no other health plan other than a plan 

that provides certain permitted coverage).58 may establish a health 


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liabilities relating to ownership or use of property (e.g., auto insurance), or (d) such other similar 

liabilities as the Secretary may prescribe by regulations; (2) insurance for a specified disease 

or illness; and (3) insurance that provides a fixed payment for hospitalization. Permitted coverage is coverage (whether provided through insurance or otherwise) for accidents, disability, 

dental care, vision care, or long-term care. Effective after December 20, 2006, with respect to 

coverage for years beginning after December 31, 2006, certain coverage under an FSA is disregarded in determining eligibility for an HSA. 59Other tax-favored vehicles may also be used to save for future medical expenses, but do not 

provide the same tax benefits. For example, funds in an IRA may be used to pay medical expenses, but distributions for medical expenses are includible in gross income to the same extent 

as other IRA distributions. 60These amounts are indexed for inflation. 61These amounts are the same as the maximum deductible amounts permitted under a high 

deductible plan for purposes of Archer medical savings accounts (‘‘MSAs’’) and are indexed for 

savings account (‘‘HSA’’). An HSA is a tax-exempt trust or custodial 

account. Subject to certain limitations, contributions made to an 

HSA by an individual are deductible above-the-line for income tax 

purposes and contributions made by an employer (including contributions made through a cafeteria plan through salary reduction) 

are excludable from income and wages. Earnings on amounts in an 

HSA accumulate on a tax-free basis. 

Distributions from an HSA that are for qualified medical expenses are excludable from gross income. Distributions from an 

HSA that are not used for qualified medical expenses are includible 

in gross income and are subject to an additional tax of 10-percent. 

However, the additional 10-percent tax does not apply if the distribution is made after death, disability, or the individual attains 

the age of Medicare eligibility (i.e., age 65). Under present law, the 

individual maintaining the HSA is responsible for determining if 

the distribution was made for a qualified medical expense and 

whether the amount should be included in income and subject to 

the 10-percent additional tax. 

HSAs provide the opportunity to pay for current out-of-pocket 

medical expenses on a tax-favored basis, as well as the ability to 

save for future medical and nonmedical expenses on a tax-favored 

basis. To the extent that amounts in an HSA are not used for 

qualified expenses, an HSA provides tax benefits similar to an individual retirement arrangement (‘‘IRA’’).59

Qualified medical expenses generally are defined as under section 213(d) and include expenses for diagnosis, cure, mitigation, 

treatment, or prevention of disease, including prescription drugs; 

transportation primarily for and essential to such care, and qualified long-term care expenses. Qualified medical expenses do not include expenses for insurance other than for (1) long-term care insurance, (2) premiums for health coverage during any period of 

continuation coverage required by Federal law, (3) premiums for 

health care coverage while an individual is receiving unemployment compensation under Federal or State law, and (4) premiums 

for individuals who have attained the age of Medicare eligibility, 

other than premiums for Medigap policies. 

A high deductible health plan is a health plan that has a deductible that is at least $1,100 for self only coverage or $2,200 for family coverage (for 2008) and that has an out-of-pocket expense limit 

that is no more than $5,600 in the case of self-only coverage and 

$11,200 in the case of family coverage (for 2008).60

For 2008 the maximum aggregate annual contribution that can 

be made to an HSA is $2,900 in the case of self-only coverage and 

$5,800 in the case of family coverage.61 The annual contribution 


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inflation. In the case of individuals who are married to each other, if either spouse has family 

coverage, both spouses are treated as only having the family coverage with the lowest deductible 

and the contribution limit is divided equally between them unless they agree on a different division. Limitations based on the amount of the deductible under the high deductible plan applied 

to years beginning before January 1, 2007. 62Sec. 125(4)(2). 63This requirement has been interpreted to mean that amounts remaining in a health FSA 

as of the end of a plan year must be forfeited by the employee. However, Treasury guidance 

allows a grace period not to exceed two and one-half months immediately following the end of 

the plan year during which unused amounts may be used. Notice 2005–42, 2005–23 I.RB.1204. 

Prop. Treas. Reg. sec. 1.125–1. 64See Prop. Treas. Reg. sec. 1.125–6. See also, Notice 2002–45, 2002–2 C.B. 93, Rev. Rul. 

2003–43, 2003–1 C.B. 935; Notice 2006–69, 2006.2 C.B. 107; and Notice 2007–2, 2007–1 C.B. 

254. 

limits are increased for individuals who have attained age 55 by 

the end of the taxable year (referred to as ‘‘catch up contributions’’). 

In the case of policyholders and covered spouses who are age 55 or 

older, the HSA annual contribution limit is greater than the otherwise applicable limit by $900 in 2008, and $1,000 in 2009 and 

thereafter. Contributions, including catch-up contributions, cannot 

be made once an individual is enrolled in Medicare. 

Health flexible spending arrangements 

Health flexible spending arrangements (‘‘FSAs’’) are commonly 

used by employers to reimburse medical expenses of their employees (and their spouses and dependents). Health FSAs typically are 

funded on a salary reduction basis, meaning that employees are 

given the option to reduce current compensation and instead have 

the compensation used to reimburse the employee for medical expenses. If the health FSA meets certain requirements, the compensation that is forgone is not includible in gross income or wages 

for employment tax purposes and reimbursements for medical care 

from the health FSA are excludable from gross income and wages. 

Health FSAs are subject to the requirements relating to cafeteria 

plans generally, including a requirement that a cafeteria plan generally may not provide deferred compensation.62 This requirement 

is often referred to as, the ‘‘use-it-or-lose-it-rule.’’ 63 Health FSAs 

are subject to certain other requirements, including rules that require that the FSA have certain characteristics similar to insurance. In addition, health FSAs are also subject to certain requirements relating to substantiation of expenses.64

REASONS FOR CHANGE

The Committee believes that it is appropriate to require trustee 

reporting of health savings account distributions that are used for 

nonqualified purposes. Under present law, the determination of 

whether an expense is a nonqualified medical expense, reported on 

an income tax return, and subject to tax and penalty, is made by 

the individual taxpayer. The Committee is aware of the effectiveness of third party reporting in improving compliance and addressing the $345 billion tax gap. A requirement for individuals to substantiate medical expenses to the HSA trustee (or its designee) 

would ensure that, in the case of a withdrawal for a nonqualitled 

medical expense, the appropriate amount is included in gross income and the additional tax is imposed. A delayed effective date is 

provided to allow the development of systems and procedures to 

properly substantiate expenses efficiently. The Committee does not 

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65Secs. 3101–3128 (FICA). Sections 3501–3510 provide additional rules. 

ligations in respect of HSAs of employees unless such employers 

are trustees of these accounts. The Committee intends for the favorable substantiation rules applicable to FSAs (such as ‘‘real-time 

substantiation’’) to apply to reduce the substantiation requirements 

on individuals. The Committee does not intend that substantiation 

must be made in advance of distributions from HSAs. 

EXPLANATION OF PROVISION

The provision provides that in the case of a health savings account distribution, in order to be a qualified medical expense, the 

amount must be substantiated in a manner similar to that required 

for health flexible spending arrangements. It is intended that substantiation is required by the individual to the trustee (or to a 

party—designated by the trustee). As under present law, distributions from a HSA would be allowed for any purpose. Substantiated 

expenses would be excludable from income. Expenses not substantiated would be includible in income and subject to the 10 percent 

additional tax. Under the provision, not later than January 15 of 

each calendar year, the HSA trustee is required to report to the account beneficiary and to the Secretary, the name, address and identifying number of the account beneficiary and the amount paid or 

distributed out of the HSA for the preceding year not substantiated. 

EFFECTIVE DATE

The provision is effective with respect to amounts paid or distributions made out of a health savings account after December 31, 

2010. 

Q. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS PERFORMING SERVICES UNDER CONTRACT WITH UNITED STATES GOVERNMENT TREATED AS AMERICAN EMPLOYERS (SEC. 18 OF THE

BILL AND SEC. 3121 OF THE CODE) 

PRESENT LAW

In general 

Under the Federal Insurance Contributions Act (‘‘FICA’’), separate taxes are imposed on every employer and employee with respect to wages paid to such employer’s employees.65 These two 

taxes are commonly referred to as the employer’s and the employee’s share of FICA. The employee’s share of FICA is collected by 

means of payroll withholding by the employee’s employer. 

For both the employer and the employee’s share of FICA, the tax 

consists of two parts: (1) old age, survivor, and disability insurance 

(‘‘OASDI’’), which correlates to the Social Security program that 

provides monthly benefits after retirement, disability, or death; and 

(2) Medicare hospital insurance (‘‘HI’’). The OASDI tax rate is 6.2 

percent on both the employee and employer (for a total rate of 12.4 

percent). The OASDI tax rate applies to wages up to the OASDI 

wage base ($102,000 for 2008). The HI tax rate is 1.45 percent on 

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66Sec. 3121(a). 67Sec. 3121(b). For example, employment for FICA purposes includes certain service with respect to American vessels or aircrafts and also includes service that is designated as employment under an agreement entered into under section 233 of the Social Security Act. 68Sec. 3121(h). 69Sec. 3121(l). 70Sec. 3121(l)(6). 71Sec. 3121(l)(1). 72Sec. 3121(l)(3). 

cent). Unlike the OASDI tax, the HI tax is not limited to a specific 

amount of wages, but applies to all wages. 

For purposes of the employer’s and employee’s share of FICA, 

wages generally means all remuneration for employment including 

the cash value of all remuneration paid in a medium other than 

cash. However, the general definition of wages is subject to a number of special rules and exceptions.66

Employment for FICA purposes generally means any service of 

whatever nature performed by an employee for the employer (irrespective of the citizenship or residence of either) within the United 

States. In the case of service outside the United States, employment also includes service performed by a United States citizen or 

resident as an employee for an American employer. As in the case 

of the definition of wages, the definition of employment is also subject to a number of exceptions and special rules.67 An American 

employer is defined as an employer which is: (1) the United States 

or any instrumentality thereof; (2) an individual who is a resident 

of the United States; (3) a partnership, if at least two-thirds of the 

partners are United States residents; (4) a trust, if all of the trustees are United States residents; or (5) a corporation organized 

under the laws of the United States or any of the States.68

Section 3121(l) agreements 

An American employer may enter into a voluntary agreement 

with the Secretary of the ‘‘ Treasury to extend coverage of the insurance system of Title II of the Social Security Act to service performed outside the United States in the case of certain employees. 

Specifically, such an agreement may be entered into with respect 

to employees of a foreign affiliate of the American employer who 

are United States citizens or residents.69 Such an agreement is 

commonly referred to as a ‘‘section 3121(l) agreement’’, and is entered into by completing Internal Revenue Service Form 2032. A 

foreign affiliate for purposes of the section 3121(l) agreement is any 

foreign entity in which the American employer has at least a 10- 

percent interest.70

If a section 3121(l) agreement is entered into, the American employer agrees to pay the Secretary of the Treasury amounts equivalent to the employer and employee’s share of FICA (including 

amounts equivalent to interest, additional taxes, and penalties 

which would be applicable) with respect to the remuneration which 

would be wages if the services covered by the agreement constituted employment for purposes of FICA. In addition, the American employer agrees to comply with such regulations relating to 

payments and reports as the Secretary of the Treasury may prescribe.71 A section 3121(l) agreement may not be terminated with 

respect to a foreign affiliate after June 15, 1989.72

In the case of a domestic corporation, a deduction is allowed for 

amounts paid or incurred pursuant to a section 3121(l) agreement 


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73Sec. 176. 74 42 U.S.C. sec. 433. 75Secs. 3101(c) and 3111(c). 

with respect to services performed by United States citizens employed by foreign subsidiary corporations.73 Any reimbursement of 

any amount previously allowed as a deduction is included in gross 

income in the year received. 

Totalization agreements 

Under section 233 of the Social Security Act, the President of the 

United States is authorized to enter into agreements establishing 

totalization arrangements between the social security system of the 

United States and the social security system of a foreign country 

(referred to as a ‘‘totalization agreement’’).74 The purposes of a totalization agreement are (1) to establish entitlement to and the 

amount of old-age, survivors, disability, or derivative benefits based 

on a combination of an individual’s periods of coverage under the 

United States social security system and the social security system 

of a foreign country, and (2) to prevent imposition of employment 

taxes by two countries on the same wages. 

For purposes of FICA, during any period in which a totalization 

agreement is in effect, wages paid to an individual are exempt from 

the employer’s and employee’s share of FICA to the extent such 

wages are subject under the agreement exclusively to the laws applicable to the foreign country’s social security system.75

REASONS FOR CHANGE

The Committee is aware that certain U.S. companies that contract with the United States government for the performance of 

services abroad are using controlled foreign entities as the employers of U.S. citizens and residents performing services under the 

contracts. This structure is undertaken, in part, to avoid liability 

for the employer and employee’s share of FICA and other employment taxes. The Committee believes that these structures are abusive. The Committee believes that services performed under a contract with the U.S. government should be counted toward eligibility 

for U.S. Social Security benefits regardless of whether the services 

are performed for a U.S. company or for a foreign entity controlled 

by that company. 

EXPLANATION OF PROVISION

Under the provision, a foreign person is treated as an American 

employer with respect to certain employees for purposes of determining whether their employment is subject to the employer’s and 

employee’s share of FICA. Specifically, a foreign person is treated 

as an American employer with respect to an employee of the foreign person who is performing services in connection with a contract between the United States government (or any instrumentality thereof) and any member of any domestically controlled 

group of entities which includes such foreign person. Thus, under 

the provision, service performed as an employee for such an employer outside of the United States by a United States citizen or 

resident in connection with such a contract is employment that is 

subject to FICA. A domestically controlled group of entities is a 


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controlled group of entities the common parent of which is a domestic corporation. For this purpose, a controlled group of entities is 

as defined in section 1563(a)(l) except that the ownership threshold 

is 50 percent rather than 80 percent and certain other changes are 

made, including that certain partnerships may be considered members of a controlled group. The sections 3101(c) and 3111(c) exceptions for wages not subject to FICA as a result of a totalization 

agreement apply under the provision. Also, this provision does not 

apply to any services covered by an agreement under section 

3121(l). 

The provision provides that the common parent of the domestically controlled group of entities is jointly and severally liable for 

the FICA taxes for which the foreign person is liable as a result 

of the provision. In addition; the common parent is liable for any 

penalty imposed on the foreign person with respect to any failure 

to pay the FICA taxes or any failure to file any return or statement 

with respect to such tax or wages subject to such tax. No deduction 

is allowed for any liability imposed on the common parent as a result of these joint and several liability rules. 

EFFECTIVE DATE

The provision is effective for services performed after the date of 

enactment of the provision. 

R. MODIFICATIONS TO CORPORATE ESTIMATED TAX PAYMENTS (SEC. 

19 OF THE BILL) 

PRESENT LAW

In general 

In general, corporations are required to make-quarterly estimated tax payments of their income tax liability. For a corporation 

whose taxable year is a calendar year, these estimated tax payments must be made by April 15, June 15, September 15, and December 15. 

Tax Increase Prevention and Reconciliation Act of 2005 (‘‘TIPRA’’) 

TIPRA provided the following special rules: 

In case of a corporation with assets of at least $1 billion, the payments due in July, August, and September, 2012, shall be increased to 106.25 percent of the payment otherwise due and the 

next required payment shall be reduced accordingly. 

In case of a corporation with assets of at least $1 billion, the payments due in July, August, and September, 2013, shall be increased to 100.75 percent of the payment otherwise due and the 

next required payment shall be reduced accordingly. 

Subsequent legislation 

Several public laws have been enacted since TIPRA which further increase the percentage of payments due under each of the 

two special rules enacted by TIPRA described above. 

REASONS FOR CHANGE

The Committee believes it is appropriate to adjust the corporate 

estimated tax payments. 


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EXPLANATION OF PROVISION

Under the provision, in the case of a corporation with assets of 

at least $1 billion, the payments due in July, August, and September, 2013, the otherwise applicable payment is increased by 

0.25 percent of the payment otherwise due and the next required 

payment shall be reduced accordingly. 

EFFECTIVE DATE

The provision is effective on the date of enactment. 

III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statements are made concerning the vote of the Committee on Ways and Means in its consideration of H.R. 5719, the ‘‘Taxpayer Assistance and Simplification Act of 2008’’. 

MOTION TO REPORT RECOMMENDATIONS 

The Chairman’s Amendment in the Nature of a Substitute, as 

amended, was ordered favorably reported by a rollcall vote of 23 

yeas and 17 nays (with a quorum being present). The vote was as 

follows: 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Rangel ............................ X Mr. McCrery .......................... X 

Mr. Stark ............................... X Mr. Herger ............................ X 

Mr. Levin ............................... X Mr. Camp ............................. X 

Mr. McDermott ...................... X Mr. Ramstad ........................ X 

Mr. Lewis (GA) ...................... X Mr. Johnson .......................... X 

Mr. Neal ................................ X Mr. English ........................... X 

Mr. McNulty ........................... X Mr. Weller ............................. X 

Mr. Tanner ............................ X Mr. Hulshof .......................... X 

Mr. Becerra ........................... X Mr. Lewis (KY) ...................... X 

Mr. Doggett ........................... X Mr. Brady ............................. X 

Mr. Pomeroy .......................... X Mr. Reynolds ........................ X 

Ms. Tubbs Jones ................... X Mr. Ryan ............................... X 

Mr. Thompson ....................... X Mr. Cantor ............................ X 

Mr. Larson ............................. Mr. Linder ............................. X 

Mr. Emanuel ......................... X Mr. Nunes ............................. X 

Mr. Blumenauer .................... X Mr. Tiberi .............................. X 

Mr. Kind ................................ X Mr. Porter ............................. X 

Mr. Pascrell ........................... X 

Ms. Berkley ........................... X 

Mr. Crowley ........................... X 

Mr. Van Hollen ...................... X 

Mr. Meek ............................... X 

Ms. Schwartz ........................ X 

Mr. Davis .............................. X 

VOTES ON AMENDMENTS 

A roll-call vote was conducted on the following amendments to 

the Chairman’s Amendment in the Nature of a Substitute. 

An amendment by Mr. Herger which would replace Section 4 of 

the Taxpayer Assistance and Simplification Act of 2008, dealing 

with the application of the 3 percent withholding requirement on 

payments to government contractors, was defeated by a vote of 17 

yeas and 24 nays. The vote was as follows: 


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Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Rangel ............................ X Mr. McCrery .......................... X 

Mr. Stark ............................... X Mr. Herger ............................ X 

Mr. Levin ............................... X Mr. Camp ............................. X 

Mr. McDermott ...................... X Mr. Ramstad ........................ X 

Mr. Lewis (GA) ...................... X Mr. Johnson .......................... X 

Mr. Neal ................................ X Mr. English ........................... X 

Mr. McNulty ........................... X Mr. Weller ............................. X 

Mr. Tanner ............................ X Mr. Hulshof .......................... X 

Mr. Becerra ........................... X Mr. Lewis (KY) ...................... X 

Mr. Doggett ........................... X Mr. Brady ............................. X 

Mr. Pomeroy .......................... X Mr. Reynolds ........................ X 

Ms. Tubbs Jones ................... X Mr. Ryan ............................... X 

Mr. Thompson ....................... X Mr. Cantor ............................ X 

Mr. Larson ............................. Mr. Linder ............................. X 

Mr. Emanuel ......................... X Mr. Nunes ............................. X 

Mr. Blumenauer .................... X Mr. Tiberi .............................. X 

Mr. Kind ................................ X Mr. Porter ............................. X 

Mr. Pascrell ........................... X 

Ms. Berkley ........................... X 

Mr. Crowley ........................... X 

Mr. Van Hollen ...................... X 

Mr. Meek ............................... X 

Ms. Schwartz ........................ X 

Mr. Davis .............................. X 

An amendment by Mr. Brady and Mr. Reynolds which would 

strike Section 14 of the Taxpayer Assistance and Simplification Act 

of 2008 (H.R. 5719) to retain the statutory authority that allows 

the IRS to enter into qualified collection contracts with private collection agencies (PCS). These PCA(s) would locate and contact taxpayers with outstanding tax liabilities, as well as arrange for payment of those outstanding taxes to the IRS by the taxpayer. The 

amendment was defeated by a vote of 18 yeas and 22 nays. The 

vote was as follows: 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Rangel ............................ X Mr. McCrery .......................... X 

Mr. Stark ............................... X Mr. Herger ............................ X 

Mr. Levin ............................... X Mr. Camp ............................. X 

Mr. McDermott ...................... X Mr. Ramstad ........................ X 

Mr. Lewis (GA) ...................... X Mr. Johnson .......................... X 

Mr. Neal ................................ X Mr. English ........................... X 

Mr. McNulty ........................... X Mr. Weller ............................. X 

Mr. Tanner ............................ X Mr. Hulshof .......................... X 

Mr. Becerra ........................... X Mr. Lewis (KY) ...................... X 

Mr. Doggett ........................... X Mr. Brady ............................. X 

Mr. Pomeroy .......................... X Mr. Reynolds ........................ X 

Ms. Tubbs Jones ................... X Mr. Ryan ............................... X 

Mr. Thompson ....................... X Mr. Cantor ............................ X 

Mr. Larson ............................. Mr. Linder ............................. X 

Mr. Emanuel ......................... X Mr. Nunes ............................. X 

Mr. Blumenauer .................... X Mr. Tiberi .............................. X 

Mr. Kind ................................ X Mr. Porter ............................. X 

Mr. Pascrell ........................... X 

Ms. Berkley ........................... X 

Mr. Crowley ........................... X 

Mr. Van Hollen ...................... X 

Mr. Meek ............................... X 

Ms. Schwartz ........................ X 

Mr. Davis .............................. X 

An amendment by Mr. Ryan would strike Section 17 of the Manager’s Amendment, requiring Health Savings Account holders to reVerDate Aug 31 2005 13:40 Apr 15, 2008 Jkt 069006 PO 00000 Frm 00041 Fmt 6659 Sfmt 6602 E:\HR\OC\HR584.XXX HR584

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port on the distributions from these accounts was defeated by a roll 

call vote of 16 yeas and 24 nays. The vote was as follows: 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Rangel ............................ X Mr. McCrery .......................... X 

Mr. Stark ............................... X Mr. Herger ............................ X 

Mr. Levin ............................... X Mr. Camp ............................. X 

Mr. McDermott ...................... X Mr. Ramstad ........................ X 

Mr. Lewis (GA) ...................... X Mr. Johnson .......................... X 

Mr. Neal ................................ X Mr. English ........................... X 

Mr. McNulty ........................... X Mr. Weller ............................. X 

Mr. Tanner ............................ X Mr. Hulshof .......................... X 

Mr. BeCerra ........................... X Mr. Lewis (KY) ...................... X 

Mr. Doggett ........................... X Mr. Brady ............................. X 

Mr. Pomeroy .......................... X Mr. Reynolds ........................ X 

Ms. Tubbs Jones ................... X Mr. Ryan ............................... X 

Mr. Thompson ....................... X Mr. Cantor ............................ X 

Mr. Larson ............................. Mr. Linder ............................. X 

Mr. Emanuel ......................... X Mr. Nunes ............................. X 

Mr. Blumenauer .................... X Mr. Tiberi .............................. X 

Mr. Kind ................................ X Mr. Porter ............................. X 

Mr. Pascrell ........................... X 

Ms. Berkley ........................... X 

Mr. Crowley ........................... X 

Mr. Van Hollen ...................... X 

Mr. Meek ............................... X 

Ms. Schwartz ........................ X 

Mr. Davis .............................. X 

IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the revenue provisions of the 

bill, H.R. 5719 as reported. 

The bill is estimated to have the following effects on Federal 

budget receipts for fiscal years 2008–2018: 


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B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue-reducing tax provisions involve increased tax expenditures. (See amounts in table in Part IV.A., 

above.) 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by CBO is provided. 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, April 14, 2008. 

Hon. CHARLES B. RANGEL, 

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5719, the Taxpayer Assistance and Simplification Act of 2008. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Zachary Epstein. 

Sincerely, 

ROBERT A. SUNSHINE

(For Peter R. Orszag, Director). 

Enclosure. 

H.R. 5719—Taxpayer Assistance and Simplification Act of 2008 

Summary: H.R. 5719 would make several changes to tax law. 

The bill would reduce revenues by modifying standards placed on 

preparers of tax returns, by loosening the restrictions on deducting 

cellular phone costs as a business expense, by delaying the withholding of taxes on payments for certain government contracts, and 

by repealing the Internal Revenue Service’s (IRS’s) authority to 

hire private debt collectors. H.R. 5719 would raise revenues by requiring additional information from preparers of tax returns regarding the use of health savings accounts (HSAs) and subjecting 

the wages of certain employees working under U.S. government 

contracts to payroll taxes. The bill also would shift some corporate 

receipts from 2014 into 2013. 

The Joint Committee on Taxation (JCT) and the Congressional 

Budget Office (CBO) estimate that enacting H.R. 5719 would increase revenues by $41 million and reduce direct spending by $247 

million over the 2008–2018 period. 

JCT reviewed the tax provisions of the bill and determined that 

they contain no private-sector or intergovernmental mandates as 

defined in the Unfunded Mandates Reform Act (UMRA). CBO has 

reviewed the nontax provisions of H.R. 5719 and determined that 

they contain no intergovernmental mandates as defined in UMRA. 


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CBO has determined that the nontax provisions contain a private-sector mandate as defined is UMRA. The bill would prohibit 

anyone from using words, abbreviations, titles, or letters associated 

with the Department of the Treasury (or one of its bureaus, offices, 

or subdivisions) as a part of an Internet domain address in a manner that could be reasonably interpreted as conveying the false impression that the domain address is connected to or authorized by 

the department. Based on information from industry sources, CBO 

expects the total direct cost of the mandate would fall below the 

annual threshold established by UMRA ($136 million in 2008, adjusted annually for inflation) in the first five years the mandate is 

in effect. 

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 5719 is shown in the following table. The costs 

of this legislation fall within budget functions 800 (general government) and 650 (Social Security). 

By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008– 

2013 

2008– 

2018 

CHANGES IN REVENUES 

Standards for 

Tax Return 

Preparers ...... 0 ¥1 ¥1 ¥2 ¥2 ¥2 ¥2 ¥2 ¥3 ¥3 ¥3 ¥9 ¥22 

Expensing of 

Cellular 

Phone Use .... 0 ¥3 ¥8 ¥13 ¥18 ¥22 ¥26 ¥30 ¥34 ¥39 ¥44 ¥63 ¥237 

Delay in Implementing Government Withholding ......... 0 0 0 ¥6,313 5,998 0 0 0 0 0 0 ¥316 ¥316 

Repeal of Private 

Debt Collection Contracting Authority ........... 0 ¥26 ¥54 ¥59 ¥59 ¥59 ¥59 ¥59 ¥59 ¥59 ¥59 ¥257 ¥552 

Substantiation 

of HSA Distributions ...... 0 0 0 61 59 31 25 28 31 33 39 151 308 

Employment 

Taxes on 

Wages Paid 

Under Certain 

Government 

Contracts ...... 14 81 80 81 83 84 85 86 88 89 90 422 860 

Corporate Estimated Tax 

Payment Due 

in 2013 ......... 0 0 0 0 0 147 ¥147 0 0 0 0 147 0 

Total Change in 

Revenues ...... 14 51 17 ¥6,245 6,061 179 ¥124 23 23 21 23 75 41 

On-Budget 

Revenues ..... ¥1 ¥37 ¥70 ¥6,333 5,972 88 ¥216 ¥71 ¥72 ¥75 ¥75 ¥383 ¥891 

Off-Budget 

Revenues ..... 15 88 87 88 89 91 92 94 95 96 98 458 932 

CHANGES IN DIRECT SPENDING (OUTLAYS) 2

Wages Paid 

Under Certain 

Government 

Contracts 1 .... * * * * 1 1 1 2 2 3 4 2 14 


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By fiscal year, in millions of dollars—

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008–

2013 

2008–

2018 

Private Debt Collection Authority ........... 0 ¥12 ¥25 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥121 ¥261 

Total Changes in 

Direct Spending ................ * ¥12 ¥25 ¥28 ¥27 ¥27 ¥27 ¥26 ¥26 ¥25 ¥24 ¥119 ¥247 

On-Budget 

Spending ....... 0 ¥12 ¥25 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥28 ¥121 ¥261 

Off-Budget 

Spending ....... * * * * 1 1 1 2 2 3 4 2 14 

NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING 

Net Change in 

the Deficit or 

Surplus 3 ....... 14 63 42 ¥6,217 6,088 206 ¥97 49 49 46 47 194 288 

On-Budget ¥1 ¥25 ¥45 ¥6,305 6,000 116 ¥188 ¥43 ¥44 ¥47 ¥47 ¥262 ¥630 

Off-Budget 15 88 87 88 88 90 91 92 93 93 94 456 918 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

Low-Income Taxpayer Clinics: 

Estimated 

Authorization 

Level .... 0 4 4 4 4 4 4 4 4 4 4 20 40 

Estimated 

Outlays 0 4 4 4 4 4 4 4 4 4 4 20 40 

Other Provisions: 

Estimated 

Authorization 

Level .... 0 3 2 2 2 2 2 2 2 2 2 11 21 

Estimated 

Outlays 0 3 2 2 2 2 2 2 2 2 2 11 21 

Total Changes: 

Estimated 

Authorization 

Level .... 0 7 6 6 6 6 6 6 6 6 6 31 61 

Estimated 

Outlays 0 7 6 6 6 6 6 6 6 6 6 31 61 

1 A portion of the estimated effects on revenues, and all of the estimated effects on direct spending, are off-budget. 

2 Changes in direct spending budget authority would be identical ot the changes in outlays for each year. 

3 Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in surpluses). 

Sources: Congressional Budget Office and Joint Committee on Taxation. 

Notes: HSA = health savings account; * = less than $500,000. 

Basis of the estimate: JCT estimated the effects of H.R. 5719 on 

revenues, and CBO estimated the effects on direct spending. 

Revenues 

H.R. 5719 would affect revenues through a number of changes to 

tax law, some of which, JCT estimates, would have a negligible effect on revenues. Those provisions with measurable effects are described below. 

Standards for Preparers of Tax Returns. Under current law, a 

preparer of tax returns can be subject to a penalty for understating 

an income tax liability if the justification for the tax position does 

not meet a certain standard. H.R. 5719 would reduce the standards 


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that such preparers must meet when not providing justification for 

a tax position. JCT estimates that this provision would decrease 

revenues by $22 million over the 2009–2018 period. 

Expensing of Cellular Phone Use. Taxpayers can deduct business 

expenses associated with the use of cellular telephones only if they 

substantiate the use with detailed information, including the date 

and amount of each use in a tax year. Under the bill, the use of 

cellular telephones would not be subject to such information requirements. JCT estimates that this provision would decrease revenues by $237 million over the 2009–2018 period. 

Delay on Implementation of Government Withholding. After December 31, 2010, federal, state, and local government entities making payments to persons providing goods and services will be required to withhold for income tax purposes 3 percent of those payments. Under H.R. 5719, that witholding would begin after December 31, 2011. JCT estimates that this provision would decrease revenues in 2011 and increase them in 2012, with a net reduction in 

revenues of $316 million over the 2011–2012 period. 

Repeal of IRS’s Authority to Contract with Private Debt Collectors. The bill would repeal the IRS’s authority to enter into qualified tax collection contracts with private collection firms to collect 

delinquent tax liabilities. Any existing contracts entered into after 

February 29, 2008, would be void, as would any extensions or renewals occurring after such date. JCT estimates that this change 

would reduce revenues by $552 million over the 2009–2018 period. 

The provision also would affect direct spending (see ‘‘Direct Spending’’ section). 

Substantiation of USA Distributions. Individuals who maintain a 

health savings account must determine whether money disbursed 

from the account and used to pay for a medical expense should be 

included in their taxable income. Under the bill, such persons 

would need to provide additional substantiation that an HSA distribution qualifies as excludable from taxable income. The additional requirements would apply to amounts disbursed after December 31, 2010. JCT estimates that this provision would increase 

revenues by $308 million over the 2011–2018 period. 

Employment Taxes on Wages Paid Under Certain Government 

Contracts. For the purposes of determining one’s employment tax 

liability, H.R. 5719 would extend the definition of a U.S. employer 

to include foreign subsidiaries of U.S. parent companies that employ a U.S. citizen working in connection with a U.S. government 

contract. The controlling parent entity and the employee of the foreign subsidiary would be liable for employment taxes. JCT estimates that this change would increase revenues by $860 million 

over the 2008–2018 period. Off-budget revenues would increase by 

an estimated $932 million, and on-budget revenues would decrease 

by an estimated $72 million over that period. The provision also 

would affect direct spending (see ‘‘Direct Spending’’ section). 

Shifts in Corporate Estimated Payments. H.R. 5719 would shift 

revenues between 2013 and 2014. For corporations with at least $1 

billion in assets, the bill would increase the portion of corporate estimated tax payments due in July through September of 2013. JCT 

estimates that this change would increase revenues by $147 million 

in 2013 and decrease revenues by $147 million in 2014. 


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Direct spending 

Prohibition on the Use of Treasury Names and Symbols. The bill 

would establish a new federal crime for the misuse of Treasury 

names and symbols on the Internet. The bill also would apply and 

increase civil and criminal penalties (that are already levied on 

misuse of Treasury names in other mediums) to such Internet misuse. Enacting the provision could increase federal revenues and direct spending as a result of the collection of additional civil and 

criminal penalties. (Collections of civil penalties are recorded in the 

budget as revenues, deposited in the Crime Victims Fund, and 

later spent without further appropriation.) CBO estimates, however, that any additional revenues and direct spending that would 

result from enacting the bill would not be significant because of the 

relatively small number of cases likely to be involved. 

Repeal of IRS’s Authority to Contract with Private Debt Collectors. As discussed above in the ‘‘Revenues’’ section, the bill, would 

repeal the authority for the IRS to enter into any new or extended 

contracts for private debt collection. Under current law, the IRS enters into contracts with private collection firms to collect delinquent 

tax liabilities owed to the federal government. Under those contracts, the IRS may allow those firms to retain up to 25 percent 

of the amounts they collect. Another 25 percent of amounts collected is available to IRS to spend on collection enforcement activities. Based on information from the IRS, CBO estimates that 47 

percent of the amounts collected are retained by either the IRS or 

the private collection firms. Thus, CBO estimates that repealing 

the private debt collection authority and allowing the current contracts to expire would reduce direct spending by $261 million over 

the 2009–2018 period. 

Employment Taxes on Wages Paid Under Certain Government 

Contracts. As discussed above, the bill would require certain U.S. 

parent companies with foreign subsidiaries to pay employment 

taxes on behalf of some employees. Those employees also would be 

liable for their share of employment taxes. Because Social Security 

benefits are calculated by a formula that is based on lifetime earnings subject to employment taxes, increasing the amount of earnings counted in the benefit formula would increase Social Security 

benefits. CBO estimates that enacting the provision would increase 

direct spending for Social Security benefits by less than $500,000 

in 2008 and by $14 million over the 2009–2018 period. 

Spending subject to appropriation 

Clinics for Low-Income Taxpayers. Under current law, the Sec- retary of the Treasury is authorized to provide up to $6 million per 

year to clinics for low-income taxpayers. The bill would increase 

this authorization to $10 million per year and allow volunteers who 

provide income tax assistance to receive grants. Assuming appropriation of the specified amounts beginning in 2009, CBO estimates 

that implementing this provision would cost $40 million over the 

2009–2018 period. 

Other Provisions. H.R. 5719 would require the IRS to notify any 

taxpayer when the agency determines that the taxpayer has been 

a victim of identity theft and when any criminal charges have been 

filed. The bill also would require, to the extent possible, that the 

IRS annually provide written notice to taxpayers who may qualify 


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for an earned income tax credit or refund. In addition, H.R. 5719 

would require a report by the Treasury on the feasibility to delivering tax refunds through electronic means to individuals who do 

not have a bank account. Based on information from IRS, and assuming the appropriation of the necessary amounts, CBO estimates 

that implementing those provisions would cost $3 million in 2009 

and $2 million in each subsequent year. 

Intergovernmental and private-sector impact: JCT reviewed the 

tax provisions of the bill and determined that they contain no private-sector or intergovernmental mandates as defined in UMRA. 

CBO has reviewed the nontax provisions and determined that they 

contain no intergovernmental mandates as defined in UMRA. 

CBO has determined that the nontax provisions of H.R. 5719 

contain a private-sector mandate as defined in UMRA. The bill 

would prohibit anyone from using words, abbreviations, titles, or 

letters associated with the Department of the Treasury (or one of 

its bureaus, offices, or subdivisions) as a part of an Internet domain address in a manner that could be reasonably interpreted as 

conveying the false impression that the domain address is connected to or authorized by the department. 

The costs of the mandate would be the expenditures incurred to 

bring such an Internet domain address into compliance, added to 

any loss of net income associated with those changes. Current law 

already prohibits the use of words or symbols related to the Department of the Treasury in connection with advertisements, solicitations, or other business activities in such a manner. Based on information from industry sources, CBO expects the total direct cost 

of the mandate would fall below the annual threshold established 

by UMRA ($136 million in 2008, adjusted annually for inflation). 

Estimate prepared by: Federal Revenues: Zachary Epstein; Federal Spending: Matthew Pickford and Sheila Dacey; Impact on 

State, Local, and Tribal Governments: Elizabeth Cove; and Impact 

on the Private Sector: Jacob Kuipers. 

Estimate approved by: G. Thomas Woodward, Assistant Director 

for Tax Analysis and Peter H. Fontaine, Assistant Director for 

Budget Analysis. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee advises that it is appropriate and timely to enact the revenue provisions included in the bill as reported. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for which any measure authorizes funding is required. 


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C. CONSTITUTIONAL AUTHORITY STATEMENT

With respect to clause 3(d)(1) of rule XIII of the Rules of the 

House of Representatives (relating to Constitutional Authority), the 

Committee states that the Committee’s action in reporting this bill 

is derived from Article I of the Constitution, Section 8 (‘‘The Congress shall have Power To lay and collect Taxes, Duties, Imposts 

and Excises’’), and from the 16th Amendment to the Constitution. 

D. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the revenue provisions of 

the bill contain no Federal private sector mandates or Federal 

intergovernmental mandates on State, local, or tribal governments. 

E. APPLICABILITY OF HOUSE RULE XXI 5(b) 

Clause 5 of rule XXI of the Rules of the House of Representatives 

provides, in part, that ‘‘A bill or joint resolution, amendment, or 

conference report carrying a Federal income tax rate increase may 

not be considered as passed or agreed to unless so determined by 

a vote of not less than three-fifths of the Members voting, a 

quorum being present.’’ The Committee has carefully reviewed the 

provisions of the bill, and states that the provisions of the bill do 

not involve any Federal income tax rate increases within the meaning of the rule. 

F. 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 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. 

G. LIMITED TAX BENEFITS

Pursuant to clause 9 of rule XXI of the Rules of the House of 

Representatives, the Ways and Means Committee has determined 

that the bill as reported contains no congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of 

that rule. 


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

REPORTED 

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter A—Determination of Tax Liability 

* * * * * * * 

PART IV—CREDITS AGAINST TAX 

* * * * * * * 

Subpart C—Refundable Credits 

* * * * * * * 

SEC. 32. EARNED INCOME. 

(a) * * * 

* * * * * * * 

(n) NOTIFICATION OF POTENTIAL ELIGIBILITY FOR CREDIT AND REFUND.—

(1) IN GENERAL.—To the extent possible and on an annual 

basis, the Secretary shall provide to each taxpayer who—

(A) for any preceding taxable year for which credit or refund is not precluded by section 6511, and 

(B) did not claim the credit under subsection (a) but may 

be allowed such credit for any such taxable year based on 

return or return information (as defined in section 6103(b)) 

available to the Secretary, 

notice that such taxpayer may be eligible to claim such credit 

and a refund for such taxable year. 

(2) NOTICE.—Notice provided under paragraph (1) shall be in 

writing and sent to the last known address of the taxpayer. 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 


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PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR 

INDIVIDUALS 

* * * * * * * 

SEC. 223. HEALTH SAVINGS ACCOUNTS. 

(a) * * * 

* * * * * * * 

(f) TAX TREATMENT OF DISTRIBUTIONS.— (1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—Any 

amount paid or distributed out of a health savings account 

which is used exclusively to pay qualified medical expenses of 

any account beneficiary (and, in the case of amounts paid or 

distributed after December 31, 2010, substantiated in a manner 

similar to the substantiation required for flexible spending arrangements) shall not be includible in gross income. 

* * * * * * * 

ø(h) REPORTS.—The Secretary may require—¿ 

(h) REPORTS.— (1) IN GENERAL.—The Secretary may require— ø(1)¿ (A) the trustee of a health savings account to make 

such reports regarding such account to the Secretary and 

to the account beneficiary with respect to contributions, 

distributions, the return of excess contributions, and such 

other matters as the Secretary determines appropriate, 

and 

ø(2)¿ (B) any person who provides an individual with a 

high deductible health plan to make such reports to the 

Secretary and to the account beneficiary with respect to 

such plan as the Secretary determines appropriate. 

The reports required by this subsection shall be filed at such 

time and in such manner and furnished to such individuals at 

such time and in such manner as may be required by the Secretary. 

(2) RELATING TO SUBSTANTIATION.—Not later than January 

15 of each calendar year after 2011, the trustee of a health savings account shall make a report regarding such account to the 

Secretary and the account beneficiary setting forth—

(A) the name, address, and identifying number of the account beneficiary, and 

(B) the amount paid or distributed out of such account 

for the preceding calendar year not substantiated in accordance with subsection (f)(1). 

* * * * * * * 

PART IX—ITEMS NOT DEDUCTIBLE 

* * * * * * * 

SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; LIMITATION WHERE CERTAIN PROPERTY USED 

FOR PERSONAL PURPOSES. 

(a) * * * 

* * * * * * * 

(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section—


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(1) * * * 

* * * * * * * 

(4) LISTED PROPERTY.—

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the term ‘‘listed property’’ means—

(i) any passenger automobile, 

* * * * * * * 

(iv) any computer or peripheral equipment (as defined in section 168(i)(2)(B)), and 

ø(v) any cellular telephone (or other similar telecommunications equipment), and¿ 

ø(vi)¿ (v) any other property of a type specified by 

the Secretary by regulations. 

* * * * * * * 

Subtitle C—Employment Taxes 

* * * * * * * 

CHAPTER 21—FEDERAL INSURANCE 

CONTRIBUTIONS ACT 

* * * * * * * 

Subchapter C—General Provisions 

* * * * * * * 

SEC. 3121. DEFINITIONS. 

(a) * * * 

* * * * * * * 

(z) TREATMENT OF CERTAIN FOREIGN PERSONS AS AMERICAN EM- PLOYERS.— (1) IN GENERAL.—If any employee of a foreign person is performing services in connection with a contract between the 

United States Government (or any instrumentality thereof) and 

any member of any domestically controlled group of entities 

which includes such foreign person, such foreign person shall 

be treated for purposes of this chapter as an American employer 

with respect to such services performed by such employee. 

(2) DOMESTICALLY CONTROLLED GROUP OF ENTITIES.—For 

purposes of this subsection—

(A) IN GENERAL.—The term ‘‘domestically controlled 

group of entities’’ means a controlled group of entities the 

common parent of which is a domestic corporation. 

(B) CONTROLLED GROUP OF ENTITIES.—The term ‘‘controlled group of entities’’ means a controlled group of corporations as defined in section 1563(a)(1), except that— (i) ‘‘more than 50 percent’’ shall be substituted for ‘‘at 

least 80 percent’’ each place it appears therein, and 

(ii) the determination shall be made without regard 

to subsections (a)(4) and (b)(2) of section 1563. 


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A partnership or any other entity (other than a corporation) 

shall be treated as a member of a controlled group of entities if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any 

entity treated as a member of such group by reason of this 

sentence). 

(3) LIABILITY OF COMMON PARENT.—In the case of a foreign 

person who is a member of any domestically controlled group 

of entities, the common parent of such group shall be jointly 

and severally liable for any tax under this chapter for which 

such foreign person is liable by reason of this subsection, and 

for any penalty imposed on such person by this title with respect to any failure to pay such tax or to file any return or statement with respect to such tax or wages subject to such tax. No 

deduction shall be allowed under this title for any liability imposed by the preceding sentence. 

(4) COORDINATION.—Paragraph (1) shall not apply to any 

services which are covered by an agreement under subsection 

(l). 

(5) CROSS REFERENCE.—For relief from taxes in cases covered 

by certain international agreements, see sections 3101(c) and 

3111(c). 

* * * * * * * 

CHAPTER 25—GENERAL PROVISIONS 

RELATING TO EMPLOYMENT TAXES 

Sec. 3501. Collection and payment of taxes. 

* * * * * * * 

Sec. 3511. Elderly and disabled individuals receiving in-home care under certain 

government programs. 

* * * * * * * 

SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME 

CARE UNDER CERTAIN GOVERNMENT PROGRAMS. 

(a) IN GENERAL.—In the case of amounts paid under a home care 

service program to a home care service provider by the fiscal administrator of such program— (1) the home care service recipient shall not be liable for the 

payment of any taxes imposed under this subtitle with respect 

to amounts paid for the provision of services under such program, and 

(2) the fiscal administrator shall be so liable. 

(b) DEFINITIONS.—For purposes of this section—

(1) HOME CARE SERVICE PROGRAM.—The term ‘‘home care 

service program’’ means a State or local government program—

(A) any portion of which is funded with Federal funds, 

and 

(B) under which domestic services are provided to elderly 

or disabled individuals in their homes. 

Such term shall not include any program to the extent home 

care service recipients make payments to the home care service 

providers for such in-home domestic services. 

(2) HOME CARE SERVICE PROVIDER.—The term ‘‘home care 

service provider’’ means any individual who provides domestic 


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services to a home care service recipient under a home care service program. 

(3) HOME CARE SERVICE RECIPIENT.—The term ‘‘home care 

service recipient’’ means any individual receiving domestic services under a home care service program. 

(4) FISCAL ADMINISTRATOR.—The term ‘‘fiscal administrator’’ means any person or governmental entity who pays amounts 

under a home care service program to home care service providers for the provision of domestic services under such program. 

(c) RETURNS BY FISCAL ADMINISTRATOR.—For purposes of this 

section—

(1) IN GENERAL.—Returns relating to taxes imposed or 

amounts required to be withheld under this subtitle shall be 

made under the identifying number of the fiscal administrator. 

(2) IDENTIFICATION OF SERVICE RECIPIENT.—The fiscal administrator shall, to the extent required under regulations prescribed by the Secretary, make a return setting forth—

(A) the name, address, and identifying number of each 

home care service recipient for whom amounts are paid by 

such fiscal administrator under the home care services program, and 

(B) such other information as the Secretary may require. 

(d) REGULATIONS.—The Secretary may prescribe such regulations 

or other guidance as may be necessary to carry out the purposes of 

this section, including requiring deposits of any tax imposed under 

this subtitle. 

* * * * * * * 

Subtitle F—Procedure and Administration 

* * * * * * * 

CHAPTER 61—INFORMATION AND RETURNS 

* * * * * * * 

Subchapter A—Returns and Records 

* * * * * * * 

PART II—TAX RETURNS OR STATEMENTS 

* * * * * * * 

Subpart A—General Requirement 

* * * * * * * 

SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR 

LIST. 

(a) * * * 

* * * * * * * 

(f) PROMOTION OF ELECTRONIC FILING.—


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(1) * * * 

* * * * * * * 

(3) PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND ANTICIPATION LOANS.—

(A) IN GENERAL.—In carrying out any program under 

this subsection, the Secretary shall not provide a debt indicator to any person with respect to any refund anticipation 

loan if the Secretary determines that the business practices 

of such person involve refund anticipation loans and related charges and fees that are predatory. 

(B) REFUND ANTICIPATION LOAN.—For purposes of this 

paragraph, the term ‘‘refund anticipation loan’’ means a 

loan of money or of any other thing of value to a taxpayer 

secured by the taxpayer’s anticipated receipt of a Federal 

tax refund. 

(C) IRS DEBT INDICATOR.—For purposes of this paragraph, the term ‘‘debt indicator’’ means a notification provided through a tax return’s acknowledgment file that a refund will be offset to repay debts for delinquent Federal or 

State taxes, student loans, child support, or other Federal 

agency debt. 

* * * * * * * 

Subchapter B—Miscellaneous Provisions 

* * * * * * * 

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

(a) * * * 

* * * * * * * 

(m) DISCLOSURE OF TAXPAYER IDENTITY INFORMATION.— (1) TAX REFUNDS.—The Secretary may disclose taxpayer 

identity information to the press and other media, and through 

any other means of mass communication, for purposes of notifying persons entitled to tax refunds when the Secretary, after 

reasonable effort and lapse of time, has been unable to locate 

such persons. 

* * * * * * * 

CHAPTER 64—COLLECTION 

* * * * * * * 

Subchapter A—General Provisions 

* * * * * * * 

Sec. 6301. Collection authority. 

* * * * * * * 

øSec. 6306. Qualified tax collection contracts.¿ 

* * * * * * * 


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øSEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS. 

ø(a) IN GENERAL.—Nothing in any provision of law shall be construed to prevent the Secretary from entering into a qualified tax 

collection contract. 

ø(b) QUALIFIED TAX COLLECTION CONTRACT.—For purposes of 

this section, the term ‘‘qualified tax collection contract’’ means any 

contract which— ø(1) is for the services of any person (other than an officer 

or employee of the Treasury Department)— ø(A) to locate and contact any taxpayer specified by the 

Secretary, 

ø(B) to request full payment from such taxpayer of an 

amount of Federal tax specified by the Secretary and, if 

such request cannot be met by the taxpayer, to offer the 

taxpayer an installment agreement providing for full payment of such amount during a period not to exceed 5 

years, and 

ø(C) to obtain financial information specified by the Secretary with respect to such taxpayer, 

ø(2) prohibits each person providing such services under 

such contract from committing any act or omission which employees of the Internal Revenue Service are prohibited from 

committing in the performance of similar services, 

ø(3) prohibits subcontractors from— ø(A) having contacts with taxpayers, 

ø(B) providing quality assurance services, and 

ø(C) composing debt collection notices, and 

ø(4) permits subcontractors to perform other services only 

with the approval of the Secretary. 

ø(c) FEES.—The Secretary may retain and use— ø(1) an amount not in excess of 25 percent of the amount collected under any qualified tax collection contract for the costs 

of services performed under such contract, and 

ø(2) an amount not in excess of 25 percent of such amount 

collected for collection enforcement activities of the Internal 

Revenue Service. 

The Secretary shall keep adequate records regarding amounts so 

retained and used. The amount credited as paid by any taxpayer 

shall be determined without regard to this subsection. 

ø(d) NO FEDERAL LIABILITY.—The United States shall not be liable for any act or omission of any person performing services under 

a qualified tax collection contract. 

ø(e) APPLICATION OF FAIR DEBT COLLECTION PRACTICES ACT.—

The provisions of the Fair Debt Collection Practices Act (15 U.S.C. 

1692 et seq.) shall apply to any qualified tax collection contract, except to the extent superseded by section 6304, section 7602(c), or 

by any other provision of this title. 

ø(f) CROSS REFERENCES.—

ø(1) For damages for certain unauthorized collection actions 

by persons performing services under a qualified tax collection 

contract, see section 7433A. 

ø(2) For application of Taxpayer Assistance Orders to persons performing services under a qualified tax collection contract, see section 7811(g).¿ 

* * * * * * * 


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Subchapter D—Seizure of Property for Collection 

of Taxes 

* * * * * * * 

PART II—LEVY 

* * * * * * * 

SEC. 6343. AUTHORITY TO RELEASE LEVY AND RETURN PROPERTY. 

(a) * * * 

(b) RETURN OF PROPERTY.—If the Secretary determines that 

property has been wrongfully levied upon, it shall be lawful for the 

Secretary to return— (1) * * * 

* * * * * * * 

Property may be returned at any time. An amount equal to the 

amount of money levied upon or received from such sale may be 

returned at any time before the expiration of ø9 months¿ 2 years 

from the date of such levy. For purposes of paragraph (3), if property is declared purchased by the United States at a sale pursuant 

to section 6335(e) (relating to manner and conditions of sale), the 

United States shall be treated as having received an amount of 

money equal to the minimum price determined pursuant to such 

section or (if larger) the amount received by the United States from 

the resale of such property. 

* * * * * * * 

(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC. ON

INDIVIDUAL RETIREMENT PLAN.— (1) IN GENERAL.—If the Secretary determines that an individual retirement plan has been levied upon in a case to which 

subsection (b) or (d)(2)(A) applies, an amount equal to the sum 

of—

(A) the amount of money returned by the Secretary on account of such levy, and 

(B) interest paid under subsection (c) on such amount of 

money, 

may be deposited into such individual retirement plan or any 

other individual retirement plan (other than an endowment 

contract) to which a rollover from the plan levied upon is permitted. An amount may not be deposited into a Roth IRA under 

the preceding sentence unless the individual retirement plan 

levied upon was a Roth IRA at the time of such levy. 

(2) TREATMENT AS ROLLOVER.—If amounts are deposited into 

an individual retirement plan under paragraph (1) not later 

than the 60th day after the date on which the individual receives the amounts under paragraph (1)—

(A) such deposit shall be treated as a rollover described 

in section 408(d)(3)(A)(i), 

(B) to the extent the deposit includes interest paid under 

subsection (c), such interest shall not be includible in gross 

income, and 

(C) such deposit shall not be taken into account under 

section 408(d)(3)(B). 


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For purposes of subparagraph (B), an amount shall be treated 

as interest only to the extent that the amount deposited exceeds 

the amount of the levy. 

(3) REFUND, ETC., OF INCOME TAX ON LEVY.—If any amount 

is includible in gross income for a taxable year by reason of a 

levy referred to in paragraph (1) and any portion of such 

amount is treated as a rollover under paragraph (2), any tax 

imposed by chapter 1 on such portion shall not be assessed, and 

if assessed shall be abated, and if collected shall be credited or 

refunded as an overpayment made on the due date for filing the 

return of tax for such taxable year. 

(4) INTEREST.—Notwithstanding subsection (d), interest shall 

be allowed under subsection (c) in a case in which the Secretary 

makes a determination described in subsection (d)(2)(A) with respect to a levy upon an individual retirement plan. 

* * * * * * * 

CHAPTER 66—LIMITATIONS 

* * * * * * * 

Subchapter D—Periods of Limitation in Judicial 

Proceedings 

* * * * * * * 

SEC. 6532. PERIODS OF LIMITATION ON SUITS. 

(a) * * * 

* * * * * * * 

(c) SUITS BY PERSONS OTHER THAN TAXPAYERS.— (1) GENERAL RULE.—Except as provided by paragraph (2), no 

suit or proceeding under section 7426 shall be begun after the 

expiration of ø9 months¿ 2 years from the date of the levy or 

agreement giving rise to such action. 

(2) PERIOD WHEN CLAIM IS FILED.—If a request is made for 

the return of property described in section 6343(b), the ø9- 

month¿ 2-year period prescribed in paragraph (1) shall be extended for a period of 12 months from the date of filing of such 

request or for a period of 6 months from the date of mailing 

by registered or certified mail by the Secretary to the person 

making such request of a notice of disallowance of the part of 

the request to which the action relates, whichever is shorter. 

* * * * * * * 

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

* * * * * * * 

Subchapter B—Assessable Penalties 

* * * * * * * 


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PART I—GENERAL PROVISIONS 

* * * * * * * 

SEC. 6694. UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY TAX RETURN PREPARER. 

ø(a) UNDERSTATEMENT DUE TO UNREASONABLE POSITIONS.— ø(1) IN GENERAL.—Any tax return preparer who prepares 

any return or claim for refund with respect to which any part 

of an understatement of liability is due to a position described 

in paragraph (2) shall pay a penalty with respect to each such 

return or claim in an amount equal to the greater of— ø(A) $1,000, or 

ø(B) 50 percent of the income derived (or to be derived) 

by the tax return preparer with respect to the return or 

claim. 

ø(2) UNREASONABLE POSITION.—A position is described in 

this paragraph if—

ø(A) the tax return preparer knew (or reasonably should 

have known) of the position, 

ø(B) there was not a reasonable belief that the position 

would more likely than not be sustained on its merits, and 

ø(C)(i) the position was not disclosed as provided in section 6662(d)(2)(B)(ii), or (ii) there was no reasonable basis 

for the position. 

ø(3) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer 

acted in good faith.¿ 

(a) UNDERSTATEMENT DUE TO UNREASONABLE POSITIONS.—

(1) IN GENERAL.—If a tax return preparer—

(A) prepares any return or claim of refund with respect 

to which any part of an understatement of liability is due 

to a position described in paragraph (2), and 

(B) knew (or reasonably should have known) of the position, 

such tax return preparer shall pay a penalty with respect to 

each such return or claim in an amount equal to the greater of 

$1,000 or 50 percent of the income derived (or to be derived) by 

the tax return preparer with respect to the return or claim. 

(2) UNREASONABLE POSITION.—

(A) IN GENERAL.—Except as otherwise provided in this 

paragraph, a position is described in this paragraph unless 

there is or was substantial authority for the position. 

(B) DISCLOSED POSITIONS.—If the position was disclosed 

as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis 

for the position. 

(C) TAX SHELTERS AND REPORTABLE TRANSACTIONS.—If 

the position is with respect to a tax shelter (as defined in 

section 6662(d)(2)(C)(ii)) or a reportable transaction to 

which section 6662A applies, the position is described in 

this paragraph unless it is reasonable to believe that the 

position would more likely than not be sustained on its 

merits. 


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(3) REASONABLE CAUSE EXCEPTION.—No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer 

acted in good faith. 

* * * * * * * 

PART II—FAILURE TO COMPLY WITH CERTAIN 

INFORMATION REPORTING REQUIREMENTS 

* * * * * * * 

SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES. 

(a) * * * 

* * * * * * * 

(d) DEFINITIONS.—For purposes of this part—

(1) * * * 

* * * * * * * 

(3) SPECIFIED INFORMATION REPORTING REQUIREMENT.—The 

term ‘‘specified information reporting requirement’’ means— (A) * * * 

* * * * * * * 

(C) any requirement contained in the regulations prescribed under section 215 that a person—

(i) * * * 

(ii) include on his return the TIN of another person, 

øand¿ 

(D) any requirement under section 6109(h) that—

(i) * * * 

(ii) a person furnish his TIN to another personø.¿, 

and 

(E) any requirement under section 3511(c)(2). 

* * * * * * * 

CHAPTER 76—JUDICIAL PROCEEDINGS 

* * * * * * * 

Subchapter B—Proceedings by Taxpayers and 

Third Parties 

* * * * * * * 

Sec. 7421. Prohibition of suits to restrain assessment or collection. 

* * * * * * * 

øSec. 7433A. Civil damages for certain unauthorized collection actions by persons 

performing services under qualified tax collection contracts.¿ 

* * * * * * * 

øSEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS BY PERSONS PERFORMING SERVICES 

UNDER QUALIFIED TAX COLLECTION CONTRACTS. 

ø(a) IN GENERAL.—Subject to the modifications provided by subsection (b), section 7433 shall apply to the acts and omissions of 

any person performing services under a qualified tax collection contract (as defined in section 6306(b)) to the same extent and in the 


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same manner as if such person were an employee of the Internal 

Revenue Service. 

ø(b) MODIFICATIONS.—For purposes of subsection (a): 

ø(1) Any civil action brought under section 7433 by reason 

of this section shall be brought against the person who entered 

into the qualified tax collection contract with the Secretary and 

shall not be brought against the United States. 

ø(2) Such person and not the United States shall be liable 

for any damages and costs determined in such civil action. 

ø(3) Such civil action shall not be an exclusive remedy with 

respect to such person. 

ø(4) Subsections (c), (d)(1), and (e) of section 7433 shall not 

apply.¿ 

* * * * * * * 

CHAPTER 77—MISCELLANEOUS PROVISIONS 

Sec. 7501. Liability for taxes withheld or collected. 

* * * * * * * 

Sec. 7526. Low-income taxpayer clinics. 

Sec. 7526A. Volunteer income tax assistance programs. 

* * * * * * * 

Sec. 7529. Notification of suspected identity theft. 

* * * * * * * 

SEC. 7526. LOW-INCOME TAXPAYER CLINICS. 

(a) * * * 

* * * * * * * 

(c) SPECIAL RULES AND LIMITATIONS.—

(1) AGGREGATE LIMITATION.—Unless otherwise provided by 

specific appropriation, the Secretary shall not allocate more 

than ø$6,000,000¿ $10,000,000 per year (exclusive of costs of 

administering the program) to grants under this section. 

* * * * * * * 

(5) REQUIREMENT OF MATCHING FUNDS.—A qualified low-income taxpayer clinic must provide matching funds on a dollarfor-dollar basis for all grants provided under this section. 

Matching funds may include— (A) * * * 

* * * * * * * 

(6) TREASURY EMPLOYEES PERMITTED TO REFER TAXPAYERS

TO QUALIFIED LOW-INCOME TAXPAYER CLINICS.—Notwithstanding any other provision of law, officers and employees of 

the Department of the Treasury may refer taxpayers for advice 

and assistance to qualified low-income taxpayer clinics receiving funding under this section. 

* * * * * * * 

SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS. 

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

of appropriated funds, make grants to provide matching funds for 

the development, expansion, or continuation of volunteer income tax 

assistance programs. 


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(b) VOLUNTEER INCOME TAX ASSISTANCE PROGRAM.—For purposes of this section, the term ‘‘volunteer income tax assistance program’’ means a program—

(1) which does not charge taxpayers for its return preparation 

services, 

(2) which operates programs to assist low and moderate-income (as determined by the Secretary) taxpayers in preparing 

and filing their Federal income tax returns, and 

(3) in which all of the volunteers who assist in the preparation of Federal income tax returns meet the requirements prescribed by the Secretary. 

(c) SPECIAL RULES AND LIMITATIONS.—

(1) AGGREGATE LIMITATION.—Unless otherwise provided by 

specific appropriation, the Secretary shall not allocate more 

than $10,000,000 per year (exclusive of costs of administering 

the program) to grants under this section. 

(2) OTHER APPLICABLE RULES.—Rules similar to the rules 

under paragraphs (2) through (6) of section 7526(c) shall apply 

with respect to the awarding of grants to volunteer income tax 

assistance programs. 

* * * * * * * 

SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT. 

If, in the course of an investigation under the internal revenue 

laws, the Secretary determines that there was or may have been an 

unauthorized use of the identity of the taxpayer or a dependent of 

the taxpayer, the Secretary shall, to the extent permitted by law—

(1) as soon as practicable and without jeopardizing such investigation, notify the taxpayer of such determination, and 

(2) if any person is criminally charged by indictment or information with respect to such unauthorized use, notify such taxpayer as soon as practicable of such charge. 

* * * * * * * 

CHAPTER 80—GENERAL RULES 

* * * * * * * 

Subchapter A—Application of Internal Revenue 

Laws 

* * * * * * * 

SEC. 7811. TAXPAYER ASSISTANCE ORDERS. 

(a) * * * 

* * * * * * * 

ø(g) APPLICATION TO PERSONS PERFORMING SERVICES UNDER A

QUALIFIED TAX COLLECTION CONTRACT.—Any order issued or action taken by the National Taxpayer Advocate pursuant to this section shall apply to persons performing services under a qualified 

tax collection contract (as defined in section 6306(b)) to the same 


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extent and in the same manner as such order or action applies to 

the Secretary.¿ 

* * * * * * * 

SECTION 511 OF THE TAX INCREASE PREVENTION AND 

RECONCILIATION ACT OF 2005 

SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS 

MADE BY GOVERNMENT ENTITIES. 

(a) * * * 

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

apply to payments made after øDecember 31, 2010¿ December 31, 

2011. 

SECTION 1203 INTERNAL REVENUE SERVICE 

RESTRUCTURING AND REFORM ACT OF 1998 

SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT. 

(a) * * * 

* * * * * * * 

ø(e) INDIVIDUALS PERFORMING SERVICES UNDER A QUALIFIED TAX

COLLECTION CONTRACT.—An individual shall cease to be permitted 

to perform any services under any qualified tax collection contract 

(as defined in section 6306(b) of the Internal Revenue Code of 

1986) if there is a final determination by the Secretary of the 

Treasury under such contract that such individual committed any 

act or omission described under subsection (b) in connection with 

the performance of such services.¿ 

* * * * * * * 

SECTION 333 OF TITLE 31, UNITED STATES CODE 

§ 333. Prohibition of misuse of Department of the Treasury 

names, symbols, etc 

(a) GENERAL RULE.—No person may use, in connection with, or 

as a part of, any advertisement, solicitation, Internet domain address, business activity, or product, whether alone or with other 

words, letters, symbols, or emblems—

(1) * * * 

* * * * * * * 

in a manner which could reasonably be interpreted or construed as 

conveying the false impression that such advertisement, solicitation, Internet domain address, business activity, or product is in 

any manner approved, endorsed, sponsored, or authorized by, or associated with, the Department of the Treasury or any entity referred to in paragraph (1) or any officer or employee thereof. 

* * * * * * * 

(c) CIVIL PENALTY.—

(1) * * * 

(2) AMOUNT OF PENALTY.—The amount of the civil penalty 

imposed by paragraph (1) shall not exceed $5,000 for each use 


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of any material in violation of subsection (a). If such use is in 

a broadcast or telecast, or any other mass communications by 

electronic means, the preceding sentence shall be applied by 

substituting ‘‘$25,000’’ for ‘‘$5,000’’. 

* * * * * * * 

(d) CRIMINAL PENALTY.—

(1) IN GENERAL.—If any person knowingly violates subsection 

(a), such person shall, upon conviction thereof, be fined not 

more than $10,000 for each such use or imprisoned not more 

than 1 year, or both. If such use is in a broadcast or telecast, 

or any other mass communications by electronic means, the 

preceding sentence shall be applied by substituting ‘‘$50,000’’

for ‘‘$10,000’’. 

* * * * * * * 

SECTION 210 OF THE SOCIAL SECURITY ACT 

DEFINITION OF EMPLOYMENT

SEC. 210. For the purposes of this title—

Employment 

(a) * * * 

* * * * * * * 

American Employer 

(e)(1) The term ‘‘American employer’’ means an employer which 

is ø(1)¿ (A) the United States or any instrumentality thereof, ø(2)¿ 

(B) a State or any political subdivision thereof, or any instrumentality of any one or more of the foregoing, ø(3)¿ (C) an individual 

who is a resident of the United States, ø(4)¿ (D) a partnership, if 

two-thirds or more of the partners are residents of the United 

States, ø(5)¿ (E) a trust, if all of the trustees are residents of the 

United States, or ø(6)¿ (F) a corporation organized under the laws 

of the United States or of any State. 

(2)(A) If any employee of a foreign person is performing services 

in connection with a contract between the United States Government 

(or any instrumentality thereof) and any member of any domestically controlled group of entities which includes such foreign person, 

such foreign person shall be treated as an American employer with 

respect to such services performed by such employee. 

(B) For purposes of this paragraph—

(i) The term ‘‘domestically controlled group of entities’’ means 

a controlled group of entities the common parent of which is a 

domestic corporation. 

(ii) The term ‘‘controlled group of entities’’ means a controlled 

group of corporations as defined in section 1563(a)(1) of the Internal Revenue Code of 1986, except that—

(I) ‘‘more than 50 percent’’ shall be substituted for ‘‘at 

least 80 percent’’ each place it appears therein, and 

(II) the determination shall be made without regard to 

subsections (a)(4) and (b)(2) of section 1563 of such Code. 


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A partnership or any other entity (other than a corporation) 

shall be treated as a member of a controlled group of entities 

if such entity is controlled (within the meaning of section 

954(d)(3) of such Code) by members of such group (including 

any entity treated as a member of such group by reason of this 

sentence). 

* * * * * * * 


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VI. DISSENTING VIEWS 

Last year, each of us voted for H.R. 1677, a bill containing many 

of the same provisions as were included in this bill. That measure 

passed by a vote of 407 to 7, showing many of the items enjoy 

strong, bipartisan support. And we were pleased by the inclusion 

of new language this year related to tax return preparers and employer-provided cell phones. Many of us have been advocates for 

those changes for some time. 

It was thus disappointing that the Majority elected to turn what 

should have been a triumph of bipartisanship into a highly partisan exercise by including two items to which we strongly object. 

PRIVATE TAX COLLECTION

On Wednesday, May 23, 2007, the Ways and Means Committee 

held a hearing on the Internal Revenue Service’s use of private collection agencies (PCAs) to collect Federal income taxes. During the 

hearing we heard repeated assurances from the IRS that the tax 

liabilities assigned to PCAs for collection would otherwise go uncollected even if the IRS had a greater enforcement budget. Turning 

a deaf ear, last year the Democrats put forth H.R. 3056 with repeal 

of the IRS’s authority to. use PCAs as the bill’s centerpiece. We opposed passage of that bill. With this bill, HR. 5719, once again, the 

Majority is proposing to terminate the private collection agency 

program. They already passed a bill on the floor of the House this 

Congress to repeal the program, but here we are again, wasting 

time doing the same thing. 

As before, we strongly oppose the provision killing the private 

collection agency program. The hearing we held last year showed 

the skill and patience PCA employees employ to avoid disclosing 

any confidential taxpayer information. Even though the PCAs lack 

many of the enforcement-enhancing tools of the IRS, such as lien 

and levy, they are successfully collecting millions of dollars in unpaid taxes that the IRS would not otherwise pursue. 

These are liabilities which are not in dispute. The taxpayer simply chose not to pay, even after the IRS sent multiple notices reminding the affected taxpayers of their unpaid obligation. During 

consideration of the bill, Members of the Majority spoke of the 

‘‘special relationship’’ between taxpayers and the IRS. Most taxpayers we talk to would—hardly consider that relationship special. 

And for those who have ignored multiple. notices from the IRS 

about the delinquent liabilities, it-is even harder to characterize 

the relationship that way. 

The Majority attempted to argue the cost to taxpayers would be 

even less if the IRS went after these obligations,. This is not true. 

The IRS is presently ill-equipped to engage in the massive outbound call operations the PCAs use to collect these obligations. The 

Majority cited poorly designed estimates that compared the effiVerDate Aug 31 2005 13:40 Apr 15, 2008 Jkt 069006 PO 00000 Frm 00068 Fmt 6604 Sfmt 6604 E:\HR\OC\HR584.XXX HR584

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ciency of the IRS with PCAs on an apples-to-oranges basis which 

fail to account for the large costs the IRS would have to incur to 

tackle these cases and other factors. In fact, a GAO report (GAO– 04–492) looked to an apples-to-apples comparison ‘‘. . . under 

which the IRS would hire additional staff to work on the same volume for selected types of cases on which the PCAs would work. According to the report, PCAs would generate $4.6 in revenue for 

every dollar in cost and IRS employees would generate $4.1.’’ As of February 23, 2008, 98,000 cases have been placed with the 

PCAs. Full payment has been received for more than 12,000 tax 

debts. In addition, more than 5,000 debts are being paid through 

installment agreements. The PCAs have already collected more 

than $46 million in gross revenue that would not have been collected otherwise, making this a tax-gap closing program with a 

proven track record. 

The PCA program has done all of this while preserving confidential taxpayer information. In fact, on March 26, 2008, the Treasury 

Inspector General for Tax Administration (TIGTA) issued a report 

titled ‘‘Private Collection Agencies Adequately Protected Taxpayer 

Data.’’ In the report TIGTA says: 

We reviewed the computer security controls over taxpayer data provided to the two current PCAs and determined that the controls were adequate. In particular, files 

were securely transmitted from the IRS to the contractors 

and adequately secured on the contractors’ systems. In addition, workstations used by contractor collection personnel 

were adequately controlled to prevent unauthorized copying of taxpayer information to removable media or transfer 

via email. The contractors. also maintained adequate audit 

trails and performed periodic reviews, including reviews to 

identify unauthorized access to taxpayer data. 

In contrast to this report, TIGTA issued a report after investigating IRS computer security controls on the same date titled ‘‘Inadequate Controls over Routers and Switches Jeopardize Sensitive 

Taxpayer Information.’’ This report once again cited the IRS for not 

having adequate controls over their computer systems placing confidential taxpayer information at risk of theft or other misuse. We 

do not mention this to embarrass the many responsible public servants that work at the IRS, but to highlight the competent and responsible nature of the PCA professionals working for this program. 

According to the Joint Committee on Taxation, killing the program will reduce Federal budget receipts by approximately $600 

million during the 2008 to 2018 period. We continue to be amazed 

that the Majority, despite their zeal to reduce the deficit and ensure everyone pays their fair share of taxes, is moving in the opposite direction in its attempt to kill this program. 

SUBSTANTIATION OF HSA DISTRIBUTIONS

We also object to the majority’s imposition of a new substantiation requirement for withdrawing money from Health Savings 

Accounts. The provision amends current law to specify that withdrawals from an HSA are only tax-exempt if they are for health 


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purposes and ‘‘substantiated in a manner similar to the substantiation required for flexible spending accounts.’’ Further, the bill allows Treasury to require account custodians to report, on an annual basis, amounts withdrawn from an HSA that were not substantiated as being for a qualified medical expense. The provision 

is effective January 1, 2010. 

There is simply not enough information about this issue. The 

committee has not held a single hearing to examine the issue of 

substantiation, and we have little or no reliable data on the scope 

of any potential problem. One company has distributed anecdotal 

information that suggests significant amounts of money are being 

spent at non-medical merchants. However, under current law, it is 

permissible to withdraw funds from one’s HSA for any purpose as 

long as the appropriate taxes and penalties are paid. Unfortunately, no information has been provided to Members that discusses whether or not any taxes and penalties were paid. 

Further, the anecdotal information provides no details on what 

was purchased with the HSA funds. Clearly, it is possible and permissible to spend one’s HSA on qualifying products, such as on prescription and over-the-counter drugs, at a grocery store. Individuals 

are also allowed to reimburse themselves with HSA funds for outof-pocket expenses. If an HSA account holder wishes to withdraw 

money from an ATM to do so, they can. Supporters of substantiation imply that all ATM withdrawals must be for improper purposes, but yet they presented no evidence to support such an assumption. We are troubled, therefore, that the Majority’s proposal 

would attempt to address an undefined problem, while drawing 

support principally from anecdotes that do not necessarily prove 

noncompliance. 

A new requirement that all HSA withdrawals be substantiated 

would impose significant burdens on account custodians to review 

transactions and make determinations about their validity. This 

new obligation could expose them to liability for decisions about 

whether an expense is qualified. Substantiation could also require 

account custodians, many of whom are banking institutions, to receive and review sensitive medical information. This new requirement would then force these institutions to comply with the complex and expensive privacy standards outlined in the Health Insurance Portability and Accountability Act. 

Beyond the legal ramifications, a new substantiation requirement could force HSA account custodians to eliminate many convenient withdrawal methods, such as ATM access, because of the 

difficulties associated with substantiating these types of transactions. In a system where 90 percent of all transactions are done 

electronically, substantiation could have the unintended effect of 

pushing some HSA custodians away from a paperless health care 

system. Either way, health insurers and account custodians alike 

have indicated that this provision will substantially increase the 

administrative costs associated with Health Savings Accounts. 

These costs will ultimately be passed along to account holders, 

meaning enrollees will spend more money on overhead and, therefore, will have less in their account to pay for health care. Higher 

costs for HSA enrollees could lead to a reduction in the number of 


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people in HSAs. The program might still continue to grow, but at 

a slower pace than under the current baseline. 

HSAs were designed to allow consumers to be more involved in 

decisions about their health care. It is a well-known fact that 

paper-based substantiation systems increase the amount of time it 

takes to receive reimbursements for qualified health expenses. 

With other health savings programs, such as Flexible Spending Accounts, this is less of a concern because the consumer is using account funds to supplement existing health coverage. However, an 

HSA is the consumer’s primary health coverage and all expenses 

must be paid for out-of-pocket at the time service is rendered. 

Debit card technology was designed by account custodians to address the uniqueness of this situation by allowing HSA account 

holders to access funds to pay health care providers immediately. 

If account holders were suddenly forced to substantiate expenses 

before they could be reimbursed, this could make them liable for 

hundreds or even thousands of dollars in out-of-pocket costs. 

It is not clear why HSAs are being singled out for substantiation, 

especially since we did not hold a hearing to establish whether 

there is a problem or whether this solution is appropriate. There 

are many other areas in the tax code involving more tax returns 

and more dollars, which do not require substantiation. One example is the deduction for charitable contributions, which is claimed 

on 40 million returns and resulted in $39 billion in tax expenditures in 2006. We can also point to the deduction for medical expenses in excess of 7.5% of adjusted gross income, which was 

claimed on 8.9 million returns; and resulted in almost $8 billion in 

tax expenditures in 2006. There is no evidence that noncompliance 

with respect to HSA spending is any worse than in these or other 

tax return items that do not require substantiation by a third 

party, but for which a taxpayer must provide documentation if audited. 

These concerns should not be misconstrued as the minority’s support for fraudulent use of HSA funds. We certainly believe that 

HSA money should be used first and foremost to cover health expenditures. However, at the end of the day, the money in an HSA, 

account belongs to the account holder. They should continue to be 

able to use the money as they see fit, as long as the letter of the 

law is followed and the applicable taxes and penalties are paid. 

CONCLUSION

The tax gap, estimated at nearly $300 billion per year, can’t be 

closed by waving a magic wand. Rather, ensuring that all taxes 

owed are actually paid requires many small steps to target facets 

of the problem. By terminating a proven method of ensuring all 

Americans pay their fair share, H.R. 5719 takes a giant step in the 

opposite direction. In addition, the juxtaposition between the repeal 

of the PCA program and imposing new burdensome HSA substantiation requirements reveals the fickle and inconsistent nature of 

the Majority. The Majority objects to the IRS using private collection agencies yet they want the IRS to ‘‘employ’’ private administrators to review the health spending of HSA enrollees? Surely the 

irony is not lost on us. We urge our colleagues to vote against it. 


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JIM MCCRERY. WALLY HERGER. DAVE CAMP. JIM RAMSTAD. SAM JOHNSON. PHIL ENGLISH. RON LEWIS. KEVIN BRADY. TOM REYNOLDS. ERIC CANTOR. DEVIN NUNES. PAT TIBERI. 

Æ 


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