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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1321 Reported in Senate (RS)]

                                                       Calendar No. 614
109th CONGRESS
  2d Session
                                S. 1321

                          [Report No. 109-336]

To amend the Internal Revenue Code of 1986 to repeal the excise tax on 
              telephone and other communications services.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             June 28, 2005

Mr. Santorum (for himself, Mr. Crapo, Mr. Smith, Mr. Hagel, Mr. Ensign, 
  Mr. Allen, Mr. Coburn, Mr. Thune, Mr. Chambliss, Mr. Sessions, Mr. 
Allard, Mr. Cochran, Mr. Isakson, Mr. Hatch, Mr. Craig, Mr. Brownback, 
Mr. Talent, and Mr. Kyl) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

                           September 15, 2006

  Reported by Mr. Grassley, with an amendment and an amendment to the 
                                 title
 [Strike out all after the enacting clause and insert the part printed 
                               in italic]

_______________________________________________________________________

                                 AN ACT

 
To amend the Internal Revenue Code of 1986 to repeal the excise tax on 
              telephone and other communications services.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

<DELETED>SECTION 1. SHORT TITLE.</DELETED>

<DELETED>    This Act may be cited as the ``Telephone Excise Tax Repeal 
Act of 2005''.</DELETED>

<DELETED>SEC. 2. REPEAL OF EXCISE TAX ON TELEPHONE AND OTHER 
              COMMUNICATIONS SERVICES.</DELETED>

<DELETED>    (a) In General.--Chapter 33 of the Internal Revenue Code 
of 1986 (relating to facilities and services) is amended by striking 
subchapter B.</DELETED>
<DELETED>    (b) Conforming Amendments.--</DELETED>
        <DELETED>    (1) Section 4293 of such Code is amended by 
        striking ``chapter 32 (other than the taxes imposed by sections 
        4064 and 4121) and subchapter B of chapter 33,'' and inserting 
        ``and chapter 32 (other than the taxes imposed by sections 4064 
        and 4121),''.</DELETED>
        <DELETED>    (2)(A) Paragraph (1) of section 6302(e) of such 
        Code is amended by striking ``section 4251 or''.</DELETED>
        <DELETED>    (B) Paragraph (2) of section 6302(e) of such Code 
        is amended--</DELETED>
                <DELETED>    (i) by striking ``imposed by--'' and all 
                that follows through ``with respect to'' and inserting 
                ``imposed by section 4261 or 4271 with respect to'', 
                and</DELETED>
                <DELETED>    (ii) by striking ``bills rendered 
                or''.</DELETED>
        <DELETED>    (C) The subsection heading for section 6302(e) of 
        such Code is amended by striking ``Communications Services 
        and''.</DELETED>
        <DELETED>    (3) Section 6415 of such Code is amended by 
        striking ``4251, 4261, or 4271'' each place it appears and 
        inserting ``4261 or 4271''.</DELETED>
        <DELETED>    (4) Paragraph (2) of section 7871(a) of such Code 
        is amended by inserting ``or'' at the end of subparagraph (B), 
        by striking subparagraph (C), and by redesignating subparagraph 
        (D) as subparagraph (C).</DELETED>
        <DELETED>    (5) The table of subchapters for chapter 33 of 
        such Code is amended by striking the item relating to 
        subchapter B.</DELETED>
<DELETED>    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid pursuant to bills first rendered more than 
90 days after the date of the enactment of this Act.</DELETED>

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

    (a) Short Title.--This Act may be cited as the ``Telephone Excise 
Tax Repeal and Taxpayer Protection and Assistance Act of 2006''.
    (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 for this Act is as 
follows:

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

                  TITLE I--TELEPHONE EXCISE TAX REPEAL

Sec. 101. Repeal of excise tax on telephone and other communications 
                            services.

              TITLE II--TAXPAYER PROTECTION AND ASSISTANCE

Sec. 201. Low-income taxpayer clinics.
Sec. 202. Clarification of enrolled agent credentials.
Sec. 203. Regulation of Federal tax return preparers.
Sec. 204. Contract authority for examinations of preparers.
Sec. 205. Regulation of refund anticipation loan facilitators.
Sec. 206. Taxpayer access to financial institutions.

 TITLE III--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

Sec. 301. Waiver of user fee for installment agreements using automated 
                            withdrawals.
Sec. 302. Termination of installment agreements.
Sec. 303. Individuals held harmless on improper levy on individual 
                            retirement plan.
Sec. 304. Office of Chief Counsel review of offers-in-compromise.
Sec. 305. Elimination of restriction on offsetting refunds from former 
                            residents.
Sec. 306. Revisions relating to termination of employment of IRS 
                            employees for misconduct.
Sec. 307. Modification of collection due process procedures for 
                            employment tax liabilities.
Sec. 308. Extension of time limit for contesting IRS levy.
Sec. 309. Authorization for IRS to require increased electronic filing 
                            of returns prepared by paid return 
                            preparers.
Sec. 310. Direct access to e-file Federal income tax returns.
Sec. 311. Modifications and report regarding Free File program.
Sec. 312. Study on clarifying recordkeeping responsibilities.
Sec. 313. Modification of TIGTA reporting requirements.
Sec. 314. Streamline reporting process for National Taxpayer Advocate.
Sec. 315. Whistleblower reforms.
Sec. 316. Authorization for Financial Management Service retention of 
                            transaction fees from levied amounts.
Sec. 317. Clarification of definition of church tax inquiry.
Sec. 318. Treatment of funds from Indian tribal governments as public 
                            support for purposes of public charity-
                            private foundation classification.
Sec. 319. Tax court review of requests for equitable relief from joint 
                            and several liability.
Sec. 320. Authorization of appropriations for tax law enforcement 
                            relating to human sex trafficking.
Sec. 321. Regulation of payroll tax deposit agents.
Sec. 322. Special period of limitation when uniformed services retired 
                            pay is reduced as a result of award of 
                            disability compensation.

                TITLE IV--REFORM OF PENALTY AND INTEREST

Sec. 401. Individual estimated tax.
Sec. 402. Corporate estimated tax.
Sec. 403. Increase in large corporation threshold for estimated tax 
                            payments.
Sec. 404. Expansion of interest netting.
Sec. 405. Clarification of application of Federal tax deposit penalty.
Sec. 406. Frivolous tax submissions.
Sec. 407. Understatement of taxpayer liability by return preparers.
Sec. 408. Penalty for aiding and abetting the understatement of tax 
                            liability.
Sec. 409. Increase in criminal monetary penalty limitation for the 
                            underpayment or overpayment of tax due to 
                            fraud.
Sec. 410. Doubling of certain penalties, fines, and interest on 
                            underpayments related to certain offshore 
                            financial arrangements.
Sec. 411. Increase in penalty for bad checks and money orders.
Sec. 412. Increase in penalty excise taxes on the political and excess 
                            lobbying activities of section 501(c)(3) 
                            organizations.
Sec. 413. Penalty for filing erroneous refund claims.

                TITLE V--CONFIDENTIALITY AND DISCLOSURE

Sec. 501. Collection activities with respect to joint return 
                            disclosable to either spouse based on oral 
                            request.
Sec. 502. Prohibition of disclosure of taxpayer identification 
                            information with respect to disclosure of 
                            accepted offers-in-compromise.
Sec. 503. Compliance by contractors with confidentiality safeguards.
Sec. 504. Higher standards for requests for and consents to disclosure.
Sec. 505. Civil damages for unauthorized disclosure or inspection.
Sec. 506. Expansion of disclosure in emergency circumstances.
Sec. 507. Disclosure of taxpayer identity for tax refund purposes.
Sec. 508. Treatment of public records.
Sec. 509. Taxpayer identification number matching.
Sec. 510. Form 8300 disclosures.
Sec. 511. Expansion of penalty for disclosure or use of information by 
                            tax return preparer.
Sec. 512. Restrictions on disclosure and use of tax return information.

  TITLE VI--UNITED STATES TAX COURT EMPLOYEE APPOINTMENT MODERNIZATION

Sec. 601. Amendments to appoint employees.

                  TITLE VII--MISCELLANEOUS PROVISIONS

Sec. 701. Expensing of broadband Internet access expenditures.
Sec. 702. Modification of refunds for kerosene used in aviation.
Sec. 703. Declarations on Federal corporate income tax returns.
Sec. 704. Certified professional employer organizations.
Sec. 705. Study on collecting estimated tax payments through the 
                            electronic fund transfer system.
Sec. 706. Study on use of voluntary withholding agreements.
Sec. 707. Offset of State judicial debts against income tax refund.
Sec. 708. Clarification of responsibilities of United States marshals 
                            attending the Tax Court.
Sec. 709. Authorization of appropriations to combat the tax gap and for 
                            tax law enforcement.
Sec. 710. Annual tax gap report.
Sec. 711. Operations for the enforcement of tax laws relating to hiring 
                            and continued employment of undocumented 
                            workers.
Sec. 712. Repeal of dollar limitation on contributions to funeral 
                            trusts.
Sec. 713. Administrative relief for certain late qualified terminable 
                            interest property elections.
Sec. 714. Disclosure of written determinations.
Sec. 715. Disclosure of Internet web site and name under which 
                            organization does business.
Sec. 716. Modification to reporting capital transactions.
Sec. 717. Disclosure that Form 990 is publicly available.
Sec. 718. Expedited review process for certain tax-exemption 
                            applications.
Sec. 719. Expansion of declaratory judgment remedy to tax-exempt 
                            organizations.
Sec. 720. Wireless telecommunications equipment.
Sec. 721. Permanent extension of Internet tax moratorium.
Sec. 722. Simplification through elimination of inoperative provisions.

                 TITLE VIII--REVENUE OFFSET PROVISIONS

Sec. 801. Clarification of economic substance doctrine.
Sec. 802. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 803. Application of rules treating inverted corporations as 
                            domestic corporations to certain 
                            transactions occurring after March 20, 
                            2002.

                  TITLE I--TELEPHONE EXCISE TAX REPEAL

SEC. 101. REPEAL OF EXCISE TAX ON TELEPHONE AND OTHER COMMUNICATIONS 
              SERVICES.

    (a) In General.--Chapter 33 (relating to facilities and services) 
is amended by striking subchapter B.
    (b) Conforming Amendments.--
            (1) Section 4293 is amended by striking ``chapter 32 (other 
        than the taxes imposed by sections 4064 and 4121) and 
        subchapter B of chapter 33,'' and inserting ``and chapter 32 
        (other than the taxes imposed by sections 4064 and 4121),''.
            (2)(A) Section 6302(e)(1) is amended by striking ``section 
        4251 or''.
            (B) Section 6302(e)(2)(A) is amended--
                    (i) by striking ``imposed by--'' and all that 
                follows through ``with respect to'' and inserting 
                ``imposed by section 4261 or 4271 with respect to'', 
                and
                    (ii) by striking ``bills rendered or''.
            (C) The heading for subsection (e) of section 6302 is 
        amended by striking ``Communications Services''.
            (3) Section 6415 is amended by striking ``4251, 4261, or 
        4271'' each place it appears and inserting ``4261 or 4271''.
            (4) Section 7871(a)(2) is amended by adding ``or'' at the 
        end of subparagraph (B), by striking subparagraph (C), and by 
        redesignating subparagraph (D) as subparagraph (C).
            (5) The table of subchapters for chapter 33 is amended by 
        striking the item relating to subchapter B.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid pursuant to bills first rendered more than 90 
days after the date of the enactment of this Act.
    (d) Authorization for Refund Program.--There is authorized to be 
appropriated $49,000,000 to the Internal Revenue Service to implement 
the telephone excise tax refund program under Internal Revenue Service 
Notice 2006-50.

              TITLE II--TAXPAYER PROTECTION AND ASSISTANCE

SEC. 201. LOW-INCOME TAXPAYER CLINICS.

    (a) Grants for Return Preparation Clinics.--
            (1) In general.--Chapter 77 (relating to miscellaneous 
        provisions) is amended by inserting after section 7526 the 
        following new section:

``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME TAXPAYERS.

    ``(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 qualified return preparation 
clinics.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified return preparation clinic.--
                    ``(A) In general.--The term `qualified return 
                preparation clinic' means a clinic which--
                            ``(i) does not charge more than a nominal 
                        fee for its services (except for reimbursement 
                        of actual costs incurred), and
                            ``(ii) operates programs which assist low-
                        income taxpayers, including individuals for 
                        whom English is a second language, in preparing 
                        and filing their Federal income tax returns, 
                        including schedules reporting sole 
                        proprietorship or farm income.
                    ``(B) Assistance to low-income taxpayers.--A clinic 
                is treated as assisting low-income taxpayers under 
                subparagraph (A)(ii) if at least 90 percent of the 
                taxpayers assisted by the clinic have incomes which do 
                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.
            ``(2) Clinic.--The term `clinic' includes--
                    ``(A) a clinical program at an eligible educational 
                institution (as defined in section 529(e)(5)) which 
                satisfies the requirements of paragraph (1) through 
                student assistance of taxpayers in return preparation 
                and filing, and
                    ``(B) an organization described in section 501(c) 
                and exempt from tax under section 501(a) which 
                satisfies the requirements of paragraph (1).
    ``(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 (7) of section 7526(c) shall apply 
        with respect to the awarding of grants to qualified return 
        preparation clinics.''.
            (2) Clerical amendment.--The table of sections for chapter 
        77 is amended by inserting after the item relating to section 
        7526 the following new item:

``Sec. 7526A. Return preparation clinics for low-income taxpayers.''.
    (b) Grants for Taxpayer Representation and Assistance Clinics.--
            (1) Increase in authorized grants.--Section 7526(c)(1) 
        (relating to aggregate limitation) is amended by striking 
        ``$6,000,000'' and inserting ``$10,000,000''.
            (2) Use of grants for overhead expenses prohibited.--
                    (A) In general.--Section 7526(c) (relating to 
                special rules and limitations) is amended by adding at 
                the end the following new paragraph:
            ``(6) Use of grants for overhead expenses prohibited.--No 
        grant made under this section may be used for the overhead 
        expenses of any clinic or of any institution sponsoring such 
        clinic.''.
                    (B) Conforming amendments.--Section 7526(c)(5) is 
                amended--
                            (i) by inserting ``qualified'' before 
                        ``low-income'', and
                            (ii) by striking the last sentence.
            (3) Promotion of clinics.--Section 7526(c), as amended by 
        paragraph (2), is amended by adding at the end the following 
        new paragraph:
            ``(7) Promotion of clinics.--The Secretary is authorized to 
        promote the benefits of and encourage the use of low-income 
        taxpayer clinics through the use of mass communications, 
        referrals, and other means.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to grants made after the date of the enactment of this Act.

SEC. 202. CLARIFICATION OF ENROLLED AGENT CREDENTIALS.

    (a) In General.--Chapter 77 (relating to miscellaneous provisions) 
is amended by adding at the end the following new section:

``SEC. 7529. ENROLLED AGENTS.

    ``(a) In General.--The Secretary may prescribe such regulations as 
may be necessary to regulate the conduct of enrolled agents in regards 
to their practice before the Internal Revenue Service.
    ``(b) Use of Credentials.--Any enrolled agents properly licensed to 
practice as required under rules promulgated under subsection (a) shall 
be allowed to use the credentials or designation as `enrolled agent', 
`EA', or `E.A.'.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

``Sec. 7529. Enrolled agents.''.
    (c) Prior Regulations.--The authority to prescribe regulations 
under the amendments made by this section may not be construed to have 
any effect on part 10 of title 31, Code of Federal Regulations, or any 
other related Federal rule or regulation issued before the date of the 
enactment of this Act.

SEC. 203. REGULATION OF FEDERAL TAX RETURN PREPARERS.

    (a) Authorization.--Section 330(a)(1) of title 31, United States 
Code, is amended by inserting ``(including compensated preparers of 
Federal tax returns, documents, and other submissions)'' after 
``representatives''.
    (b) Requirement.--
            (1) In general.--Not later than 1 year after the date of 
        the enactment of this Act, the Secretary of the Treasury shall 
        prescribe regulations under section 330 of title 31, United 
        States Code--
                    (A) to regulate those compensated preparers not 
                otherwise regulated under regulations promulgated under 
                such section on the date of the enactment of this Act, 
                and
                    (B) to carry out the provisions of, and amendments 
                made by, this section.
            (2) Examination.--
                    (A) In general.--In promulgating the regulations 
                under paragraph (1), the Secretary shall develop (or 
                approve) and administer an eligibility examination 
                designed to test--
                            (i) the technical knowledge and competency 
                        of each preparer described in paragraph 
                        (1)(A)--
                                    (I) to prepare Federal tax returns, 
                                including individual and business 
                                income tax returns, and
                                    (II) to properly claim the earned 
                                income tax credit under section 32 of 
                                the Internal Revenue Code of 1986 with 
                                respect to such individual returns, and
                            (ii) the knowledge of each such preparer 
                        regarding such ethical standards for the 
                        preparation of such returns as determined 
                        appropriate by the Secretary.
                    (B) State licensing or state registration 
                programs.--In promulgating the regulations under 
                paragraph (1), the Secretary shall accept the 
                credentials of any State licensing or State 
                registration program for any preparer described in 
                paragraph (1)(A) in lieu of the administration of an 
                eligibility examination to such preparer under 
                subparagraph (A) if such program has an eligibility 
                examination which is comparable to the eligibility 
                examination under subparagraph (A).
            (3) Continuing eligibility.--
                    (A) In general.--The regulations under paragraph 
                (1) shall require a renewal of eligibility every 3 
                years and shall set forth the manner in which a 
                preparer described in paragraph (1)(A) must renew such 
                eligibility.
                    (B) Continuing education requirements.--As part of 
                the renewal of eligibility, such regulations shall 
                require that each such preparer show evidence of 
                completion of such continuing education requirements as 
                specified by the Secretary.
                    (C) Nonmonetary sanctions.--The regulations under 
                paragraph (1) shall provide for the suspension or 
                termination of such eligibility in the event of any 
                failure to comply with the requirements for such 
                eligibility.
            (4) Penalty for unauthorized preparation of returns, etc.--
        In promulgating the regulations under paragraph (1), the 
        Secretary shall impose a penalty of $1,000 for each Federal tax 
        return, document, or other submission prepared by a preparer 
        described in paragraph (1)(A) who is not in compliance with the 
        requirements of paragraph (2) or (3) or who is suspended or 
        disbarred from practice before the Department of the Treasury 
        under such regulations. Such penalty shall be in addition to 
        any other penalty which may be imposed.
    (c) Office of Professional Responsibility.--Section 330 of title 
31, United States Code, is amended by adding at the end the following 
new subsection:
    ``(e) Office of Professional Responsibility.--
            ``(1) In general.--There shall be in the Internal Revenue 
        Service an Office of Professional Responsibility the functions 
        of which shall be as prescribed by the Secretary of the 
        Treasury, including the carrying out of the purposes of this 
        section.
            ``(2) Director.--
                    ``(A) In general.--The Office of Professional 
                Responsibility shall be under the supervision and 
                direction of an official known as the `Director, Office 
                of Professional Responsibility'. The Director, Office 
                of Professional Responsibility, shall report directly 
                to the Commissioner of Internal Revenue and shall be 
                entitled to compensation at the same rate as the 
                highest rate of basic pay established for the Senior 
                Executive Service under section 5382 of title 5, or, if 
                the Secretary of the Treasury so determines, at a rate 
                fixed under section 9503 of such title.
                    ``(B) Appointment.--The Director, Office of 
                Professional Responsibility, shall be appointed by the 
                Secretary of the Treasury without regard to the 
                provisions of title 5 relating to appointments in the 
                competitive service or the Senior Executive Service.
            ``(3) Hearing.--Any hearing on an action initiated by the 
        Director, Office of Professional Responsibility, to impose a 
        sanction under regulations promulgated under this section shall 
        be conducted in accordance with sections 556 and 557 of title 5 
        by 1 or more administrative law judges appointed by the 
        Secretary of the Treasury under section 3105 of title 5.
            ``(4) Coordination with state sanction programs.--In 
        carrying out the purposes of this section, the Director, Office 
        of Professional Responsibility shall coordinate with 
        appropriate State officials in order to collect information 
        regarding representatives, employers, firms and other entities 
        which have been disciplined or suspended under State or local 
        rules.
            ``(5) Information on sanctions to be available to the 
        public.--
                    ``(A) Sanctions initiated by action.--When an 
                action is initiated by the Director, Office of 
                Professional Responsibility, to impose a sanction under 
                regulations promulgated under this section, the 
                pleadings and the record of the proceeding and hearing 
                shall be open to the public (subject to restrictions 
                imposed under subparagraph (C)).
                    ``(B) Sanction not initiated by action.--When a 
                sanction under regulations promulgated under this 
                section (other than a private reprimand) is imposed 
                without initiation of an action, the Director, Office 
                of Professional Responsibility, shall make available to 
                the public information identifying the representative, 
                employer, firm, or other entity sanctioned, as well as 
                information about the conduct which gave rise to the 
                sanction (subject to restrictions imposed under 
                subparagraph (C)).
                    ``(C) Restrictions on release of information.--
                Information about clients of the representative, 
                employer, firm, or other entity and medical information 
                with respect to the representative shall not be 
                released to the public or discussed in an open hearing, 
                except to the extent necessary to understand the 
                nature, scope, and impact of the conduct giving rise to 
                the sanction or proposed sanction. Disagreements 
                regarding the application of this subparagraph shall be 
                resolved by the administrative law judge or, when a 
                sanction is imposed without initiation of an action, by 
                the Director, Office of Professional Responsibility.
            ``(6) Fees.--Any fees imposed under regulations promulgated 
        under this section shall be available without fiscal year 
        limitation to the Office of Professional Responsibility for the 
        purpose of reimbursement of the costs of administering and 
        enforcing the requirements of such regulations.''.
    (d) Ban on Audit Insurance.--Section 330 of title 31, United States 
Code, as amended by subsection (c), is amended by adding at the end the 
following new subsection:
    ``(f) Ban on Audit Insurance.--No person admitted to practice 
before the Department of the Treasury may directly or indirectly offer 
or provide insurance to cover professional fees and other expenses 
incurred in responding to or defending an audit by the Internal Revenue 
Service.''.
    (e) Penalties.--
            (1) Increase in certain penalties.--Subsections (a), (b), 
        and (c) of section 6695 (relating to other assessable penalties 
        with respect to the preparation of income tax returns for other 
        persons) are each amended striking ``a penalty of $50'' and all 
        that follows and inserting ``a penalty equal to--
            ``(1) $1,000, or
            ``(2) in the case of 3 or more such failures in a calendar 
        year, $500 for each such failure.
The preceding sentence shall not apply with respect to any failure if 
such failure is due to reasonable cause and not due to willful 
neglect.''.
            (2) Use of penalties.--Unless specifically appropriated 
        otherwise, there is authorized to be appropriated and is 
        appropriated to the Office of Professional Responsibility for 
        each fiscal year for the administration of the public awareness 
        campaign described in subsection (g) an amount equal to the 
        penalties collected during the preceding fiscal year under 
        sections 6694 and 6695 of the Internal Revenue Code of 1986 and 
        under the regulations promulgated under section 330 of title 
        31, United States Code (by reason of subsection (b)(1)).
    (f) Coordination With Section 6060(a).--The Secretary of the 
Treasury shall coordinate the requirements under the regulations 
promulgated under section 330 of title 31, United States Code, with the 
return requirements of section 6060 of the Internal Revenue Code of 
1986.
    (g) Public Awareness Campaign.--The Secretary of the Treasury or 
the Secretary's delegate shall conduct a public information and 
consumer education campaign, utilizing paid advertising--
            (1) to encourage taxpayers to use for Federal tax matters 
        only professionals who establish their competency under the 
        regulations promulgated under section 330 of title 31, United 
        States Code, and
            (2) to inform the public of the requirements that any 
        compensated preparer of tax returns, documents, and submissions 
        subject to the requirements under the regulations promulgated 
        under such section must sign the return, document, or 
        submission prepared for a fee and display notice of such 
        preparer's compliance under such regulations.
    (h) Additional Funds Available for Compliance Activities.--The 
Secretary of the Treasury may use any specifically appropriated funds 
for earned income tax credit compliance to improve and expand 
enforcement of the regulations promulgated under section 330 of title 
31, United States Code.
    (i) Additional Certification on Documents Other Than Returns.--The 
Secretary of the Treasury shall require that each document or other 
submission filed with the Internal Revenue Service (other than a return 
signed by the taxpayer) shall be signed under penalty of perjury and 
the identifying number of any paid preparer who prepared such document 
(if any) under rules similar to the rules under section 6109(a)(4).

SEC. 204. CONTRACT AUTHORITY FOR EXAMINATIONS OF PREPARERS.

    The Secretary of the Treasury is authorized to contract for the 
development or administration, or both, of any examinations under the 
regulations promulgated under section 330 of title 31, United States 
Code.

SEC. 205. REGULATION OF REFUND ANTICIPATION LOAN FACILITATORS.

    (a) Regulation of Refund Anticipation Loan Facilitators.--
            (1) In general.--Chapter 77 (relating to miscellaneous 
        provisions), as amended by this Act, is amended by inserting at 
        the end the following new section:

``SEC. 7530. REFUND ANTICIPATION LOAN FACILITATORS.

    ``(a) Registration.--Each refund loan facilitator shall register 
with the Secretary on an annual basis. As a part of such registration, 
each refund loan facilitator shall provide the Secretary with the name, 
address, and taxpayer identification number of such facilitator and the 
fee schedule of such facilitator for the year of such registration.
    ``(b) Disclosure.--Each refund loan facilitator shall disclose to a 
taxpayer both orally and on a separate written form at the time such 
taxpayer applies for a refund anticipation loan the following 
information:
            ``(1) Nature of the transaction.--The refund loan 
        facilitator shall disclose--
                    ``(A) that the taxpayer is applying for a loan that 
                is based upon the taxpayer's anticipated income tax 
                refund,
                    ``(B) the expected time within which the loan will 
                be paid to the taxpayer if such loan is approved,
                    ``(C) the time frame in which income tax refunds 
                are typically paid based upon the different filing 
                options available to the taxpayer,
                    ``(D) that there is no guarantee that a refund will 
                be paid in full or received within a specified time 
                period and that the taxpayer is responsible for the 
                repayment of the loan even if the refund is not paid in 
                full or has been delayed,
                    ``(E) if the refund loan facilitator has an 
                agreement with another refund loan facilitator (or any 
                lender working in conjunction with another refund loan 
                facilitator) to offset outstanding liabilities for 
                previous refund anticipation loans provided by such 
                other refund loan facilitator, that any refund paid to 
                the taxpayer may be so offset and the implication of 
                any such offset,
                    ``(F) that the taxpayer may file an electronic 
                return without applying for a refund anticipation loan 
                and the fee for filing such an electronic return, and
                    ``(G) that the loan may have substantial fees and 
                interest charges that may exceed those of other sources 
                of credit and the taxpayer should carefully consider--
                            ``(i) whether such a loan is appropriate 
                        for the taxpayer, and
                            ``(ii) other sources of credit.
            ``(2) Fees and interest.--The refund loan facilitator shall 
        disclose all refund anticipation loan fees with respect to the 
        refund anticipation loan. Such disclosure shall include--
                    ``(A) a copy of the fee schedule of the refund loan 
                facilitator,
                    ``(B) the typical fees and interest rates (using 
                annual percentage rates as defined by section 107 of 
                the Truth in Lending Act (15 U.S.C. 1606)) for several 
                typical amounts of such loans and of other types of 
                consumer credit,
                    ``(C) typical fees and interest charges if a refund 
                is not paid or delayed, and
                    ``(D) the amount of a fee (if any) that will be 
                charged if the loan is not approved.
            ``(3) Other information.--The refund loan facilitator shall 
        disclose any other information required to be disclosed by the 
        Secretary.
    ``(c) Fines and Sanctions.--
            ``(1) In general.--The Secretary may impose a monetary 
        penalty on any refund loan facilitator who--
                    ``(A) fails to register under subsection (a), or
                    ``(B) fails to disclose any information required 
                under subsection (b).
            ``(2) Maximum monetary penalty.--Any monetary penalty 
        imposed under paragraph (1) shall not exceed--
                    ``(A) in the case of a failure to register, the 
                gross income derived from all refund anticipation loans 
                made during the period the refund loan facilitator was 
                not registered, and
                    ``(B) in the case of a failure to disclose 
                information, the gross income derived from all refund 
                anticipation loans with respect to which such failure 
                applied.
            ``(3) Reasonable cause exceptions.--No penalty may be 
        imposed under this subsection with respect to any failure if it 
        is shown that such failure is due to reasonable cause.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Refund loan facilitator.--
                    ``(A) In general.--The term `refund loan 
                facilitator' means any electronic return originator 
                who--
                            ``(i) solicits for, processes, receives, or 
                        accepts delivery of an application for a refund 
                        anticipation loan, or
                            ``(ii) facilitates the making of a refund 
                        anticipation loan in any other manner.
                    ``(B) Electronic return originator.--For purposes 
                of subparagraph (A), the term `electronic return 
                originator' means a person who originates the 
                electronic submission of income tax returns for another 
                person.
            ``(2) Refund anticipation loan.--The term `refund 
        anticipation loan' means any loan of money or any other thing 
        of value to a taxpayer in connection with the taxpayer's 
        anticipated receipt of a Federal tax refund. Such term includes 
        a loan secured by the tax refund or an arrangement to repay a 
        loan from the tax refund.
            ``(3) Refund anticipation loan fees.--The term `refund 
        anticipation loan fees' means the fees, charges, interest, and 
        other consideration charged or imposed by the lender or 
        facilitator for the making of a refund anticipation loan.
    ``(e) Regulations.--The Secretary may prescribe such regulations as 
necessary to implement the requirements of this section.''.
            (2) Clerical amendment.--The table of sections for chapter 
        77, as amended by this Act, is amended by adding at the end the 
        following new item:

``Sec. 7530. Refund anticipation loan facilitators.''.
    (b) Disclosure of Penalty.--Section 6103(k) (relating to disclosure 
of certain returns and return information for tax administration 
purposes) is amended by adding at the end the following new paragraph:
            ``(10) Disclosure of penalties on refund anticipation loan 
        facilitators.--The Secretary may disclose the name and employer 
        (including the employer's address) of any person with respect 
        to whom a penalty has been imposed under section 7530 and the 
        amount of any such penalty.''.
    (c) Use of Penalties.--Unless specifically appropriated otherwise, 
there is authorized to be appropriated and is appropriated to the 
Internal Revenue Service for each fiscal year for the administration of 
the public awareness campaign described in subsection (d) an amount 
equal to the penalties collected during the preceding fiscal year under 
section 7530 of the Internal Revenue Code of 1986.
    (d) Public Awareness Campaign.--The Secretary of the Treasury or 
the Secretary's delegate shall conduct a public information and 
consumer education campaign, utilizing paid advertising, to educate the 
public on making sound financial decisions with respect to refund 
anticipation loans (as defined under section 7530 of the Internal 
Revenue Code of 1986), including the need to compare--
            (1) the rates and fees of such loans with the rates and 
        fees of conventional loans; and
            (2) the amount of money received under the loan after 
        taking into consideration such costs and fees with the total 
        amount of the refund.
    (e) Effective Date.--The amendments made by this section shall take 
effect on the date that is 1 year after the date of the enactment of 
this Act.
    (f) Termination of Debt Indicator Program.--The Secretary of the 
Treasury shall terminate the Debt Indicator program announced in 
Internal Revenue Service Notice 99-58 and may not implement any similar 
program.

SEC. 206. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS.

    (a) Establishment of Program.--The Secretary of the Treasury is 
authorized to award demonstration project grants (including multi-year 
grants) to eligible entities which partner with volunteer and low-
income preparation organizations to provide tax preparation services 
and assistance in connection with establishing an account in a 
federally insured depository institution for individuals that currently 
do not have such an account.
    (b) Eligible Entities.--
            (1) In general.--An entity is eligible to receive a grant 
        under this section if such an entity is--
                    (A) an organization described in section 501(c)(3) 
                of the Internal Revenue Code of 1986 and exempt from 
                tax under section 501(a) of such Code,
                    (B) a federally insured depository institution,
                    (C) an agency of a State or local government,
                    (D) a community development financial institution,
                    (E) an Indian tribal organization,
                    (F) an Alaska Native Corporation,
                    (G) a Native Hawaiian organization,
                    (H) a labor organization, or
                    (I) a partnership comprised of 1 or more of the 
                entities described in the preceding subparagraphs.
            (2) Definitions.--For purposes of this section--
                    (A) Federally insured depository institution.--The 
                term ``federally insured depository institution'' means 
                any insured depository institution (as defined in 
                section 3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813)) and any insured credit union (as defined 
                in section 101 of the Federal Credit Union Act (12 
                U.S.C. 1752)).
                    (B) Community development financial institution.--
                The term ``community development financial 
                institution'' means any organization that has been 
                certified as such pursuant to section 1805.201 of title 
                12, Code of Federal Regulations.
                    (C) Alaska native corporation.--The term ``Alaska 
                Native Corporation'' has the same meaning as the term 
                ``Native Corporation'' under section 3(m) of the Alaska 
                Native Claims Settlement Act (43 U.S.C. 1602(m)).
                    (D) Native hawaiian organization.--The term 
                ``Native Hawaiian organization'' means any organization 
                that--
                            (i) serves and represents the interests of 
                        Native Hawaiians, and
                            (ii) has as a primary and stated purpose 
                        the provision of services to Native Hawaiians.
                    (E) Labor organization.--The term ``labor 
                organization'' means an organization--
                            (i) in which employees participate,
                            (ii) which exists for the purpose, in whole 
                        or in part, of dealing with employers 
                        concerning grievances, labor disputes, wages, 
                        rates of pay, hours of employment, or 
                        conditions of work, and
                            (iii) which is described in section 
                        501(c)(5) of the Internal Revenue Code of 1986.
    (c) Application.--An eligible entity desiring a grant under this 
section shall submit an application to the Secretary of the Treasury in 
such form and containing such information as the Secretary may require.
    (d) Limitation on Administrative Costs.--A recipient of a grant 
under this section may not use more than 6 percent of the total amount 
of such grant in any fiscal year for the administrative costs of 
carrying out the programs funded by such grant in such fiscal year.
    (e) Evaluation and Report.--For each fiscal year in which a grant 
is awarded under this section, the Secretary of the Treasury shall 
submit a report to Congress containing a description of the activities 
funded, amounts distributed, and measurable results, as appropriate and 
available.
    (f) Authorization of Appropriations.--There is authorized to be 
appropriated to the Secretary of the Treasury, for the grant program 
described in this section, $10,000,000, or such additional amounts as 
deemed necessary, to remain available until expended.
    (g) Regulations.--The Secretary of the Treasury is authorized to 
promulgate regulations to implement and administer the grant program 
under this section.
    (h) Study on Delivery of Tax Refunds.--
            (1) In general.--The Secretary of the Treasury, in 
        consultation with the National Taxpayer Advocate, shall conduct 
        a study on the payment of tax refunds through debit cards or 
        other electronic means to assist individuals that do not have 
        access to financial accounts or institutions.
            (2) 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 result of the study 
        conducted under subsection (a).

 TITLE III--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS

SEC. 301. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED 
              WITHDRAWALS.

    (a) In General.--Section 6159 (relating to agreements for payment 
of tax liability in installments) is amended by redesignating 
subsections (e) and (f) as subsections (f) and (g), respectively, and 
by inserting after subsection (d) the following new subsection:
    ``(e) Waiver of User Fees for Installment Agreements Using 
Automated Withdrawals.--In the case of a taxpayer who enters into an 
installment agreement in which automated installment payments are 
agreed to, the Secretary shall waive the fee (if any) for entering into 
the installment agreement.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to agreements entered into on or after the date which is 180 days 
after the date of the enactment of this Act.

SEC. 302. TERMINATION OF INSTALLMENT AGREEMENTS.

    (a) In General.--Section 6159(b)(4) (relating to failure to pay an 
installment or any other tax liability when due or to provide requested 
financial information) is amended by striking ``or'' at the end of 
subparagraph (B), by redesignating subparagraph (C) as subparagraph 
(E), and by inserting after subparagraph (B) the following new 
subparagraphs:
                    ``(C) to make a Federal tax deposit under section 
                6302 at the time such deposit is required to be made,
                    ``(D) to file a return of tax imposed under this 
                title by its due date (including extensions), or''.
    (b) Conforming Amendment.--The heading for paragraph (4) of section 
6159(b) is amended by striking ``Failure to pay an installment or any 
other tax liability when due or to provide requested financial 
information'' and inserting ``Failure to make payments or deposits or 
file returns when due or to provide requested financial information''.
    (c) Effective Date.--The amendments made by this section shall 
apply to failures occurring on or after the date of the enactment of 
this Act.

SEC. 303. INDIVIDUALS HELD HARMLESS ON IMPROPER LEVY 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 and an amount is 
        returned to the individual who is the beneficiary of such plan, 
        the individual may deposit 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,
        into an individual retirement plan (other than an endowment 
        contract) to which a rollover from the plan levied upon is 
        permitted.
            ``(2) Treatment as rollover.--The distribution on account 
        of the levy and any deposit under paragraph (1) with respect to 
        such distribution shall be treated for purposes of this title 
        as if such distribution and deposit were part of a rollover 
        described in section 408(d)(3)(A)(i); except that--
                    ``(A) interest paid under subsection (c) shall be 
                treated as part of such distribution and as not 
                includible in gross income,
                    ``(B) the 60-day requirement in such section shall 
                be treated as met if the deposit is made not later than 
                the 60th day after the day on which the individual 
                receives an amount under paragraph (1) from the 
                Secretary, and
                    ``(C) such deposit shall not be taken into account 
                under section 408(d)(3)(B).
            ``(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.''.
    (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 December 31, 2005.

SEC. 304. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS-IN-COMPROMISE.

    (a) In General.--Section 7122(b) (relating to record) is amended by 
striking ``Whenever a compromise'' and all that follows through ``his 
delegate'' and inserting ``If the Secretary determines that an opinion 
of the General Counsel for the Department of the Treasury, or the 
Counsel's delegate, is required with respect to a compromise, there 
shall be placed on file in the office of the Secretary such opinion''.
    (b) Conforming Amendments.--Section 7122(b) is amended by striking 
the second and third sentences.
    (c) Effective Date.--The amendments made by this section shall 
apply to offers-in-compromise submitted or pending on or after the date 
of the enactment of this Act.

SEC. 305. ELIMINATION OF RESTRICTION ON OFFSETTING REFUNDS FROM FORMER 
              RESIDENTS.

    (a) In General.--Section 6402(e) (relating to collection of past-
due, legally enforceable State income tax obligations) is amended by 
striking paragraph (2) and by redesignating paragraphs (3), (4), (5), 
(6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.
    (b) Effective Date.--The amendments made by this section shall 
apply to refunds payable for taxable years ending after the date of the 
enactment of this Act.

SEC. 306. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF IRS 
              EMPLOYEES FOR MISCONDUCT.

    (a) In General.--Subchapter A of chapter 80 (relating to 
application of internal revenue laws) is amended by inserting after 
section 7804 the following new section:

``SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

    ``(a) In General.--Subject to subsection (c), the Commissioner 
shall terminate the employment of any employee of the Internal Revenue 
Service if there is a final administrative or judicial determination 
that such employee committed any act or omission described under 
subsection (b) in the performance of the employee's official duties. 
Such termination shall be a removal for cause on charges of misconduct.
    ``(b) Acts or Omissions.--The acts or omissions described under 
this subsection are--
            ``(1) willful failure to obtain the required approval 
        signatures on documents authorizing the seizure of a taxpayer's 
        home, personal belongings, or business assets,
            ``(2) providing a false statement under oath with respect 
        to a material matter involving a taxpayer or taxpayer 
        representative,
            ``(3) with respect to a taxpayer, taxpayer representative, 
        or other employee of the Internal Revenue Service, the 
        violation of--
                    ``(A) any right under the Constitution of the 
                United States, or
                    ``(B) any civil right established under--
                            ``(i) title VI or VII of the Civil Rights 
                        Act of 1964,
                            ``(ii) title IX of the Education Amendments 
                        of 1972,
                            ``(iii) the Age Discrimination in 
                        Employment Act of 1967,
                            ``(iv) the Age Discrimination Act of 1975,
                            ``(v) section 501 or 504 of the 
                        Rehabilitation Act of 1973, or
                            ``(vi) title I of the Americans with 
                        Disabilities Act of 1990,
            ``(4) falsifying or destroying documents to conceal 
        mistakes made by any employee with respect to a matter 
        involving a taxpayer or taxpayer representative,
            ``(5) assault or battery on a taxpayer or taxpayer 
        representative, but only if there is a criminal conviction, or 
        a final judgment by a court in a civil case, with respect to 
        the assault or battery,
            ``(6) violations of this title, Department of the Treasury 
        regulations, or policies of the Internal Revenue Service 
        (including the Internal Revenue Manual) for the purpose of 
        retaliating against, or harassing, a taxpayer, taxpayer 
        representative, or other employee of the Internal Revenue 
        Service,
            ``(7) willful misuse of the provisions of section 6103 for 
        the purpose of concealing information from a congressional 
        inquiry,
            ``(8) willful failure to file any return of tax required 
        under this title on or before the date prescribed therefor 
        (including any extensions) when a tax is due and owing, unless 
        such failure is due to reasonable cause and not due to willful 
        neglect,
            ``(9) willful understatement of Federal tax liability, 
        unless such understatement is due to reasonable cause and not 
        due to willful neglect,
            ``(10) threatening to audit a taxpayer for the purpose of 
        extracting personal gain or benefit, and
            ``(11) unauthorized inspection of return or return 
        information under section 7213A.
    ``(c) Determinations of Commissioner.--
            ``(1) In general.--The Commissioner may take a personnel 
        action other than termination for an act or omission described 
        under subsection (b).
            ``(2) Discretion.--The exercise of authority under 
        paragraph (1) shall be at the sole discretion of the 
        Commissioner and may not be delegated to any other officer. The 
        Commissioner, in the Commissioner's sole discretion, may 
        establish a procedure which will be used to determine whether 
        an individual should be referred to the Commissioner for a 
        determination by the Commissioner under paragraph (1).
            ``(3) No appeal.--Any determination of the Commissioner 
        under this subsection may not be appealed in any administrative 
        or judicial proceeding.
    ``(d) Definition.--For the purposes of the provisions described in 
clauses (i), (ii), and (iv) of subsection (b)(3)(B), references to a 
program or activity receiving Federal financial assistance or an 
education program or activity receiving Federal financial assistance 
shall include any program or activity conducted by the Internal Revenue 
Service for a taxpayer.''.
    (b) Clerical Amendment.--The table of sections for chapter 80 is 
amended by inserting after the item relating to section 7804 the 
following new item:

``Sec. 7804A. Termination of employment for misconduct.''.
    (c) Repeal of Superseded Section.--Section 1203 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-
206; 112 Stat. 720) is repealed.

SEC. 307. MODIFICATION OF COLLECTION DUE PROCESS PROCEDURES FOR 
              EMPLOYMENT TAX LIABILITIES.

    (a) In General.--Section 6330(f) (relating to jeopardy and State 
refund collection) is amended--
            (1) by striking ``; or'' at the end of paragraph (1) and 
        inserting a comma,
            (2) by adding ``or'' at the end of paragraph (2), and
            (3) by inserting after paragraph (2) the following new 
        paragraph:
            ``(3) the Secretary has served a levy in connection with 
        the collection of taxes under chapter 21, 22, 23, or 24,''.
    (b) Effective Date.--The amendments made by this section shall 
apply to levies issued after December 31, 2006.

SEC. 308. EXTENSION OF TIME LIMIT FOR CONTESTING IRS 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. 309. AUTHORIZATION FOR IRS TO REQUIRE INCREASED ELECTRONIC FILING 
              OF RETURNS PREPARED BY PAID RETURN PREPARERS.

    (a) In General.--Section 6011(e) (relating to regulations requiring 
returns on magnetic media, etc.) is amended--
            (1) by striking the second sentence in paragraph (1), and
            (2) by striking ``250'' in paragraph (2)(A) and inserting 
        ``5''.
    (b) Penalty for Failure to File Electronically.--
            (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by inserting 
        after section 6695A the following new section:

``SEC. 6695B. FAILURE OF PAID RETURN PREPARERS TO FILE RETURNS 
              ELECTRONICALLY.

    ``(a) In General.--Any person who fails to comply with section 
6011(e) with respect to any return shall pay a penalty of--
            ``(1) $1,000, or
            ``(2) in the case of 10 or more such failures in a calendar 
        year, $100 for each such failure.
    ``(b) Reasonable Cause.--Subsection (a) shall not apply with 
respect to any failure if such failure is due to reasonable cause and 
not due to willful neglect.''.
            (2) Rules applicable to penalty.--Section 6696 (relating to 
        rules applicable with respect to sections 6694, 6695, and 
        6695A) is amended--
                    (A) by striking ``and 6695A'' each place it appears 
                and inserting ``6695A, and 6695B'',
                    (B) by striking ``or 6695A'' each place it appears 
                and inserting ``6695A, or 6695B'',
                    (C) by striking ``under section 6694(a) or under 
                section 6695'' in subsection (d)(1) and inserting 
                ``under section 6694(a), 6695, 6695A, or 6695B'', and
                    (D) by striking ``and 6695a'' in the heading and 
                inserting ``6695a, and 6695b''.
            (3) Conforming amendment.--The table of sections for part I 
        of subchapter B of chapter 68 is amended by striking the item 
        relating to section 6696 and inserting the following new items:

``Sec. 6695B. Failure of paid return preparers to file returns 
                            electronically.
``Sec. 6696. Rules applicable with respect to sections 6694, 6695, 
                            6695A, and 6695B.''.

SEC. 310. DIRECT ACCESS TO E-FILE FEDERAL INCOME TAX RETURNS.

    (a) In General.--The Secretary of the Treasury shall provide 
individual taxpayers with the ability to electronically file their 
Federal income tax returns through the Internal Revenue Service website 
without the use of an intermediary or with the use of an intermediary 
which is contracted by the Internal Revenue Service to provide free 
universal access for such filing (hereafter in this section referred to 
as the ``direct e-file program'') for taxable years beginning after the 
date which is not later than 3 years after the date of the enactment of 
this Act.
    (b) Development and Operation of Program.--In providing for the 
development and operation of the direct e-file program, the Secretary 
of the Treasury--
            (1) shall consult with--
                    (A) the National Taxpayer Advocate,
                    (B) nonprofit organizations representing the 
                interests of taxpayers as well as other organizations 
                as determined appropriate by the Secretary, and
                    (C) Federal, State, and local agencies as 
                determined appropriate by the Secretary,
            (2) may develop electronic filing products for use in such 
        program,
            (3) shall provide that if intermediaries are used in such 
        program that such intermediaries may not advertise, market, or 
        offer to sell any products or services,
            (4) promulgate such regulations as necessary to administer 
        such program, and
            (5) conduct a public information and consumer education 
        campaign to encourage taxpayers to use the direct e-file 
        program.
    (c) Authorization of Appropriations.--There is authorized to be 
appropriated such sums as are necessary to carry out the direct e-file 
program. Any sums so appropriated shall remain available until 
expended.
    (d) Reports to Congress Regarding Direct e-File Program.--
            (1) Report on implementation.--The Secretary of the 
        Treasury shall report to the Committee on Finance of the Senate 
        and the Committee on Ways and Means of the House of 
        Representatives every 6 months regarding the status of the 
        implementation of the direct e-file program.
            (2) Report on usage.--Not later than June 30 of each year 
        after the implementation of the direct e-file program, the 
        Secretary of the Treasury, in consultation with the National 
        Taxpayer Advocate, shall report to the Committee on Finance of 
        the Senate and the Committee on Ways and Means of the House of 
        Representatives on taxpayer usage of the direct e-file program.

SEC. 311. MODIFICATIONS AND REPORT REGARDING FREE FILE PROGRAM.

    (a) Modifications.--In providing for the operation of the Free File 
program, the Secretary of the Treasury shall--
            (1) provide that intermediaries may not advertise, market, 
        or offer to sell products or services that are not directly 
        related to the preparation of tax returns, and
            (2) encourage intermediaries to provide access to such 
        program to the blind.
    (b) Report.--Not later than 270 days after the date of the 
enactment of this Act, the Secretary of the Treasury shall report to 
the Committee on Finance of the Senate and the Committee on Ways and 
Means of the House of Representatives--
            (1) regarding the status of the implementation of the 
        modifications described in paragraph (1),
            (2) on the feasibility of ensuring that intermediaries in 
        the Free File program that have contracted separately with a 
        State be required to provide free Federal and State preparation 
        and electronic filing directly through the Internal Revenue 
        Service Free File website for those taxpayers who qualify, and
            (3) on the most optimal manner of alerting such taxpayers 
        that such taxpayers qualify for both free Federal and State 
        preparation and electronic filing directly through the Internal 
        Revenue Service Free File website.

SEC. 312. STUDY ON CLARIFYING RECORDKEEPING RESPONSIBILITIES.

    (a) Study.--The Secretary of the Treasury shall study--
            (1) the scope of the records required to be maintained by 
        taxpayers under section 6001 of the Internal Revenue Code of 
        1986,
            (2) the utility of requiring taxpayers to maintain all 
        records indefinitely, including consideration of whether such a 
        requirement would necessitate the upgrading of technological 
        storage for outdated records,
            (3) the number of negotiated records retention agreements 
        requested by taxpayers and the number entered into by the 
        Internal Revenue Service, and
            (4) proposals regarding taxpayer record-keeping.
    (b) Report.--Not later than the date which is 1 year after the date 
of the enactment of this Act, the Secretary of the Treasury shall 
transmit a report of the study described in subsection (a), including 
recommendations, to the Committee on Finance of the Senate and the 
Committee on Ways and Means of the House of Representatives.

SEC. 313. MODIFICATION OF TIGTA REPORTING REQUIREMENTS.

    (a) In General.--Paragraph (1) of section 7803(d) (relating to 
additional duties of the Treasury Inspector General for Tax 
Administration) is amended--
            (1) by striking ``Annual'' in the heading and inserting 
        ``Biennial'',
            (2) by inserting ``filed for an even-numbered year 
        (beginning with 2006)'' after ``one of the semiannual reports'' 
        in the matter preceding subparagraph (A),
            (3) by striking clause (ii) of subparagraph (A),
            (4) by redesignating clauses (iii), (iv), and (v) of 
        subparagraph (A) as clauses (ii), (iii), and (iv) of 
        subparagraph (A), respectively,
            (5) by striking subparagraph (B),
            (6) by striking ``and'' at the end of subparagraph (F),
            (7) by redesignating subparagraphs (C), (D), (E), and (F) 
        as subparagraphs (B), (C), (D), and (E), respectively, and
            (8) by striking subparagraph (G) and inserting the 
        following new subparagraphs:
                    ``(F) the number of employee misconduct and 
                taxpayer abuse allegations received by the Internal 
                Revenue Service or the Inspector General during the 
                period from taxpayers, Internal Revenue Service 
                employees, and other sources; and
                    ``(G) with respect to allegations of serious 
                employee misconduct--
                            ``(i) a summary of the status of such 
                        allegations; and
                            ``(ii) a summary of the disposition of such 
                        allegations, including the outcome of any 
                        Department of Justice action and any monies 
                        paid as a settlement of such allegations.''.
    (b) Conforming Amendments.--Section 7803(d) is amended by striking 
paragraph (2) and by redesignating paragraph (3) as paragraph (2).

SEC. 314. STREAMLINE REPORTING PROCESS FOR NATIONAL TAXPAYER ADVOCATE.

    (a) One Annual Report.--Subparagraph (B) of section 7803(c)(2) 
(relating to functions of Office) is amended--
            (1) by striking all matter preceding subclause (I) of 
        clause (ii) and inserting the following:
                    ``(B) Annual report.--
                            ``(i) In general.--Not later than December 
                        31 of each calendar year, the National Taxpayer 
                        Advocate shall report to the Committee on Ways 
                        and Means of the House of Representatives and 
                        the Committee on Finance of the Senate on the 
                        objectives of the Office of the Taxpayer 
                        Advocate for the fiscal year beginning in such 
                        calendar year and the activities of such Office 
                        during the fiscal year ending during such 
                        calendar year. Any such report shall contain 
                        full and substantive analysis, in addition to 
                        statistical information, and shall--'',
            (2) by striking ``clause (ii)'' in clause (iv) and 
        inserting ``clause (i)'', and
            (3) by redesignating clauses (iii) and (iv) as clauses (ii) 
        and (iii), respectively.
    (b) Additional Reports.--Section 7803(c)(2)(C) (relating to other 
responsibilities) is amended by striking ``and'' at the end of clause 
(iii), by striking the period at the end of clause (iv) and inserting 
``; and'', and by adding at the end the following new clause:
                            ``(v) at the discretion of the National 
                        Taxpayer Advocate, report at any time to the 
                        Committee on Ways and Means of the House of 
                        Representatives and the Committee on Finance of 
                        the Senate on significant issues affecting 
                        taxpayer rights.''.
    (c) Effective Dates.--
            (1) Annual reports.--The amendments made by subsection (a) 
        shall apply to reports in calendar year 2007 and thereafter.
            (2) Additional reports.--The amendments made by subsection 
        (b) shall take effect on the date of the enactment of this Act.

SEC. 315. WHISTLEBLOWER REFORMS.

    (a) In General.--Section 7623 (relating to expenses of detection of 
underpayments and fraud, etc.) is amended--
            (1) by striking ``The Secretary'' and inserting ``(a) In 
        General.--The Secretary'',
            (2) by striking ``and'' at the end of paragraph (1) and 
        inserting ``or'',
            (3) by striking ``(other than interest)'', and
            (4) by adding at the end the following new subsections:
    ``(b) Awards to Whistleblowers.--
            ``(1) In general.--If the Secretary proceeds with any 
        administrative or judicial action described in paragraph (5) 
        based on information brought to the Secretary's attention by an 
        individual, the Secretary shall, as determined by the 
        Whistleblower Office and subject to paragraph (2), pay such 
        individual as an award at least 15 percent but not more than 30 
        percent of the collected proceeds (including penalties, 
        interest, additions to tax, and additional amounts) resulting 
        from the action (including any related actions) or from any 
        settlement in response to such action. The Whistleblower Office 
        shall determine the amount of such award on the basis of the 
        extent to which the individual substantially contributed to 
        such action.
            ``(2) Award in case of less substantial contribution.--
                    ``(A) In general.--If the Whistleblower Office 
                determines that the action described in paragraph (1) 
                is based principally on disclosures of specific 
                allegations (other than information provided by the 
                individual described in paragraph (1)) resulting from a 
                judicial or administrative hearing, from a governmental 
                report, hearing, audit, or investigation, or from the 
                news media, the Whistleblower Office may award such 
                sums as it considers appropriate, but in no case more 
                than 10 percent of the collected proceeds (including 
                penalties, interest, additions to tax, and additional 
                amounts) resulting from the action (including any 
                related actions) or from any settlement in response to 
                such action, taking into account the significance of 
                the individual's information and the role of such 
                individual and any legal representative of such 
                individual in contributing to such action.
                    ``(B) Nonapplication of paragraph where individual 
                is original source of information.--Subparagraph (A) 
                shall not apply if the information resulting in the 
                initiation of the action described in paragraph (1) was 
                originally provided by the individual described in 
                paragraph (1).
            ``(3) Reduction in or denial of award.--If the 
        Whistleblower Office determines that the claim for an award 
        under paragraph (1) or (2) is brought by an individual who 
        planned and initiated the actions that led to the underpayment 
        of tax or actions described in subsection (a)(2), then the 
        Whistleblower Office may appropriately reduce such award. If 
        such individual is convicted of criminal conduct arising from 
        the role described in the preceding sentence, the Whistleblower 
        Office shall deny any award.
            ``(4) Appeal of award determination.--Any determination 
        regarding an award under paragraph (1), (2), or (3) may, within 
        30 days of such determination, be appealed to the Tax Court 
        (and the Tax Court shall have jurisdiction with respect to such 
        matter).
            ``(5) Application of this subsection.--This subsection 
        shall apply with respect to any action--
                    ``(A) against any taxpayer, but in the case of any 
                individual, only if such individual's gross income 
                exceeds $200,000 for any taxable year subject to such 
                action, and
                    ``(B) if the tax, penalties, interest, additions to 
                tax, and additional amounts in dispute exceed $20,000.
            ``(6) Additional rules.--
                    ``(A) No contract necessary.--No contract with the 
                Internal Revenue Service is necessary for any 
                individual to receive an award under this subsection.
                    ``(B) Representation.--Any individual described in 
                paragraph (1) or (2) may be represented by counsel.
                    ``(C) Submission of information.--No award may be 
                made under this subsection based on information 
                submitted to the Secretary unless such information is 
                submitted under penalty of perjury.
    ``(c) Whistleblower Office.--
            ``(1) In general.--There is established in the Internal 
        Revenue Service an office to be known as the `Whistleblower 
        Office' which--
                    ``(A) shall at all times operate at the direction 
                of the Commissioner and coordinate and consult with 
                other divisions in the Internal Revenue Service as 
                directed by the Commissioner,
                    ``(B) shall analyze information received from any 
                individual described in subsection (b) and either 
                investigate the matter itself or assign it to the 
                appropriate Internal Revenue Service office,
                    ``(C) shall monitor any action taken with respect 
                to such matter,
                    ``(D) shall inform such individual that it has 
                accepted the individual's information for further 
                review,
                    ``(E) may require such individual and any legal 
                representative of such individual to not disclose any 
                information so provided,
                    ``(F) in its sole discretion may ask for additional 
                assistance from such individual or any legal 
                representative of such individual, and
                    ``(G) shall determine the amount to be awarded to 
                such individual under subsection (b).
            ``(2) Request for assistance.--
                    ``(A) In general.--Any assistance requested under 
                paragraph (1)(F) shall be under the direction and 
                control of the Whistleblower Office or the office 
                assigned to investigate the matter under paragraph 
                (1)(A). No individual or legal representative whose 
                assistance is so requested may by reason of such 
                request represent himself or herself as an employee of 
                the Federal Government.
                    ``(B) Funding of assistance.--From the amounts 
                available for expenditure under subsection (b), the 
                Whistleblower Office may, with the agreement of the 
                individual described in subsection (b), reimburse the 
                costs incurred by any legal representative of such 
                individual in providing assistance described in 
                subparagraph (A).
    ``(d) Report by Secretary.--The Secretary shall each year conduct a 
study and report to Congress on the use of this section, including--
            ``(1) an analysis of the use of this section during the 
        preceding year and the results of such use, and
            ``(2) any legislative or administrative recommendations 
        regarding the provisions of this section and its 
        application.''.
    (b) Assignment to Special Trial Judges.--
            (1) In general.--Section 7443A(b) (relating to proceedings 
        which may be assigned to special trial judges) is amended by 
        striking ``and'' at the end of paragraph (5), by redesignating 
        paragraph (6) as paragraph (7), and by inserting after 
        paragraph (5) the following new paragraph:
            ``(6) any proceeding under section 7623(b)(4), and''.
            (2) Conforming amendment.--Section 7443A(c) is amended by 
        striking ``or (5)'' and inserting ``(5), or (6)''.
    (c) Deduction Allowed Whether or Not Taxpayer Itemizes.--Subsection 
(a) of section 62 (relating to general rule defining adjusted gross 
income) is amended by inserting after paragraph (20) the following new 
paragraph:
            ``(21) Attorneys fees relating to awards to 
        whistleblowers.--Any deduction allowable under this chapter for 
        attorney fees and court costs paid by, or on behalf of, the 
        taxpayer in connection with any award under section 7623(b) 
        (relating to awards to whistleblowers). The preceding sentence 
        shall not apply to any deduction in excess of the amount 
        includible in the taxpayer's gross income for the taxable year 
        on account of such award.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to information provided on or after the date of the enactment of 
this Act.

SEC. 316. AUTHORIZATION FOR FINANCIAL MANAGEMENT SERVICE RETENTION OF 
              TRANSACTION FEES FROM LEVIED AMOUNTS.

    Notwithstanding any other provision of law, the Financial 
Management Service may charge the Internal Revenue Service, and the 
Internal Revenue Service may pay the Financial Management Service, a 
fee sufficient to cover the full cost of implementing a continuous levy 
program under subsection (h) of section 6331 of the Internal Revenue 
Code of 1986. Any such fee shall be based on actual levies made and 
shall be collected by the Financial Management Service by the retention 
of a portion of amounts collected by levy pursuant to that subsection. 
Amounts received by the Financial Management Service as fees under that 
subsection shall be deposited into the account of the Department of the 
Treasury under section 3711(g)(7) of title 31, United States Code, and 
shall be collected and accounted for in accordance with the provisions 
of that section. The amount credited against the taxpayer's liability 
on account of the continuous levy shall be the amount levied, without 
reduction for the amount paid to the Financial Management Service as a 
fee.

SEC. 317. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.

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

SEC. 318. TREATMENT OF FUNDS FROM INDIAN TRIBAL GOVERNMENTS AS PUBLIC 
              SUPPORT FOR PURPOSES OF PUBLIC CHARITY-PRIVATE FOUNDATION 
              CLASSIFICATION.

    (a) In General.--Section 7871(a) (relating to Indian tribal 
governments treated as States for certain purposes) is amended by 
striking ``and'' at the end of subparagraph (C) of paragraph (6), by 
striking the period at the end of subparagraph (B) of paragraph (7) and 
inserting ``; and'', and by adding at the end the following new 
paragraph:
            ``(8) for purposes of determining support of an 
        organization described in section 170(b)(1)(A)(vi).''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to--
            (1) support received before, on, or after the date of the 
        enactment of this Act, and
            (2) the determination of the status of any organization 
        with respect to any taxable year beginning after such date of 
        enactment.

SEC. 319. TAX COURT REVIEW OF REQUESTS FOR EQUITABLE RELIEF FROM JOINT 
              AND SEVERAL LIABILITY.

    (a) In General.--Paragraph (1) of section 6015(e) (relating to 
petition for tax court review) is amended by inserting ``, or in the 
case of an individual who requests equitable relief under subsection 
(f)'' after ``who elects to have subsection (b) or (c) apply''.
    (b) Conforming Amendments.--
            (1) Section 6015(e)(1)(A)(i)(II) is amended by inserting 
        ``or request is made'' after ``election is filed''.
            (2) Section 6015(e)(1)(B)(i) is amended--
                    (A) by inserting ``or requesting equitable relief 
                under subsection (f)'' after ``making an election under 
                subsection (b) or (c)'', and
                    (B) by inserting ``or request'' after ``to which 
                such election''.
            (3) Section 6015(e)(1)(B)(ii) is amended by inserting ``or 
        to which the request under subsection (f) relates'' after ``to 
        which the election under subsection (b) or (c) relates''.
            (4) Section 6015(e)(4) is amended by inserting ``or the 
        request for equitable relief under subsection (f)'' after ``the 
        election under subsection (b) or (c)''.
            (5) Section 6015(e)(5) is amended by inserting ``or who 
        requests equitable relief under subsection (f)'' after ``who 
        elects the application of subsection (b) or (c)''.
            (6) Section 6015(g)(2) is amended by inserting ``or of any 
        request for equitable relief under subsection (f)'' after ``any 
        election under subsection (b) or (c)''.
            (7) Section 6015(h)(2) is amended by inserting ``or a 
        request for equitable relief made under subsection (f)'' after 
        ``with respect to an election made under subsection (b) or 
        (c)''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to liability for taxes arising or remaining unpaid 
on or after the date of the enactment of this Act.
    (d) Refilings Permitted.--With respect to any case the dismissal of 
which results from or is based on the jurisdictional ruling in Billings 
v. Commissioner (127 T.C. No. 2, July 25, 2006) and is final on or 
before the date of the enactment of this Act, such case may be refiled 
in the United States Tax Court not later than the date which is 6 
months after such date of enactment (without the imposition of any 
filing fees under Rule 20(b) of the Tax Court Rules of Practice and 
Procedure).

SEC. 320. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT 
              RELATING TO HUMAN SEX TRAFFICKING.

    (a) Authorization of Appropriations.--
            (1) In general.--There is authorized to be appropriated 
        $2,000,000 for fiscal year 2007 for the purpose of establishing 
        an office within the Internal Revenue Service to focus on 
        violations of the internal revenue laws by persons who are 
        under investigation by any office of Federal, State, or local 
        law enforcement for knowingly recruiting, enticing, harboring, 
        transporting, or providing by any means a person, knowing 
        that--
                    (A) force, fraud, or coercion will be used to cause 
                the person to engage in a commercial sex act, or
                    (B) the person has not attained the age of 18 years 
                and will be caused to engage in a commercial sex act.
            (2) Definitions.--For purposes of paragraph (1), the terms 
        ``commercial sex act'' and ``coercion'' shall have the meaning 
        given such terms by section 1591(c) of title 18, United States 
        Code.
            (3) Availability.--Any amounts appropriated pursuant to the 
        authority of paragraph (1) shall remain available for fiscal 
        year 2008.
    (b) Additional Funding for Operations of Office.--Unless 
specifically appropriated otherwise, there is authorized to be 
appropriated and is appropriated to the office established under 
subsection (a)(1) for fiscal years 2007 and 2008 for the administration 
of such office an amount equal to the amount of any tax under chapter 1 
of the Internal Revenue Code of 1986 (including any interest) collected 
during such fiscal years as the result of the actions of such office, 
plus any civil or criminal monetary penalties imposed under such Code 
relating to such tax and so collected.
    (c) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary of the Treasury shall report to the 
Committee of Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate on the enforcement activities of the 
office established under subsection (a)(1) and shall include any 
recommendations for statutory changes to assist in future prosecutions 
under this section.
    (d) Applicability of Whistleblower Awards to Victims of Human Sex 
Trafficking.--For purposes of making an award under paragraph (1) or 
(2) of section 7623(b) of the Internal Revenue Code of 1986 with 
respect to information provided by any person caused to engage in a 
commercial sex act (within the meaning of section 1591(c)(1) of title 
18, United States Code), the determination whether such person is 
described in such paragraph shall be made without regard to paragraph 
(3) of such section 7623(b).

SEC. 321. REGULATION OF PAYROLL TAX DEPOSIT AGENTS.

    (a) In General.--Chapter 77 (relating to miscellaneous provisions), 
as amended by this Act, is amended by adding at the end the following 
new section:

``SEC. 7531. PAYROLL TAX DEPOSIT AGENTS.

    ``(a) Registration.--
            ``(1) In general.--The Secretary shall establish a system 
        to require the initial registration and the annual renewal of 
        the registration of persons seeking to act as payroll tax 
        deposit agents authorized to make Federal employment tax 
        deposits on behalf of employer taxpayers. Such system shall 
        also--
                    ``(A) establish a registration and renewal fee for 
                each payroll tax deposit agent in an amount not to 
                exceed $100,
                    ``(B) provide the payroll tax deposit agent the 
                option of either submitting a bond as specified in 
                subsection (b) or submitting to an annual audit as 
                specified in subsection (c),
                    ``(C) require such disclosures as are specified in 
                subsection (d),
                    ``(D) require that such agent ensure the direct 
                notification of the employer by any Federal employment 
                tax authority (and State employment tax authority if 
                such agent contracts to make State employment tax 
                deposits for the employer) regarding the nonpayment of 
                such employment taxes, and
                    ``(E) provide penalties for unregistered persons 
                acting as payroll tax deposit agents with respect to 
                Federal tax deposits in an amount not to exceed $10,000 
                for each 90 days of noncompliance.
            ``(2) Definition of payroll tax deposit agent.--For 
        purposes of this section, the term `payroll tax deposit agent' 
        means any person which provides payroll processing or tax 
        filing and deposit services to 1 or more employers (other than 
        an employer acting on its own behalf) if such person has the 
        contractual authority to access such employer's funds for the 
        purpose of making employment tax deposits. Such term shall not 
        include any person which only transfers such funds (regardless 
        if such person has the authority to determine the amount of 
        such transfer) and does not have the authority to impound such 
        funds for such purpose.
            ``(3) Employment tax.--For purposes of this section, the 
        term `employment tax' includes unemployment insurance 
        contributions.
    ``(b) Bonding.--
            ``(1) In general.--If a payroll tax deposit agent elects to 
        submit a bond under subsection (a)(1)(B), the amount of such 
        bond shall be not less than $50,000 nor more than $500,000, and 
        shall be determined with respect to each payroll tax deposit 
        agent under regulations prescribed by the Secretary.
            ``(2) Surety.--Any bond or security furnished pursuant to 
        this section shall be in such form and with such surety or 
        sureties as may be prescribed by regulations issued pursuant to 
        section 7101.
    ``(c) Annual Audits.--If a payroll tax deposit agent elects to 
submit to an annual audit under subsection (a)(1)(B), such audit shall 
be performed by an independent third party and shall be based on such 
audit principles as the Secretary determines necessary, including the 
following:
            ``(1) The escrow account of the payroll tax deposit agent 
        in which such agent holds the employers' taxes is balanced each 
        year to the total of the quarterly reconciliation statements.
            ``(2) The escrow account funds of the payroll tax deposit 
        agent are not commingled with such agent's operating funds.
            ``(3) No evidence that the payroll tax deposit agent used 
        any of the funds in such agent's escrow account to pay such 
        agent's own operating costs.
            ``(4) Receipt evidence that such agent paid the required 
        employment taxes on behalf of the employers to the proper 
        government employment tax authority.
    ``(d) Disclosure.--The Secretary shall require payroll tax deposit 
agents to disclose to each potential and existing client prior to or at 
the time of contracting for payroll services--
            ``(1) the client's continuing liability for payment of all 
        Federal and State employment taxes notwithstanding any 
        contractual relationship with a payroll tax deposit agent,
            ``(2) the mechanisms available to the client to verify the 
        amount and date of payment of all tax deposits made by the 
        payroll tax deposit agent on behalf of such client, including 
        the Internet address, postal address, and telephone number of 
        each Federal and State employment tax authority related to such 
        deposits, and
            ``(3) such other information that the Secretary determines 
        is necessary or appropriate to assist employers in the 
        selection and use of payroll tax deposit agents.
    ``(e) Tax Deposits and Returns.--Only persons registered under this 
section may--
            ``(1) make Federal tax deposits on behalf of an employer,
            ``(2) sign and file Federal employment tax returns on 
        behalf of a taxpayer, and
            ``(3) have access to confidential tax information relating 
        to such employer.
    ``(f) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this section.''.
    (b) Payroll Tax Deposit Agents Subject to Penalty for Failure to 
Collect and Pay Over Tax or Attempt to Evade or Defeat Tax.--
            (1) In general.--Section 6672(a) is amended by inserting 
        ``, including any payroll tax deposit agent (as defined in 
        section 7531(a)(2)),'' after ``Any person''.
            (2) Construction.--The amendment made by paragraph (1) 
        shall not be construed to create any inference with respect to 
        the interpretation of section 6672 of the Internal Revenue Code 
        of 1986 as such section was in effect on the day before the 
        date of the enactment of this Act.
            (3) No discharge in bankruptcy.--In the case of any 
        bankruptcy filed by or behalf of any person after December 31, 
        2006, under title 11, United States Code, any penalty imposed 
        under section 6672(a) of the Internal Revenue Code of 1986 with 
        respect to such person shall not be subject to discharge under 
        such title.
    (c) Clerical Amendment.--The table of sections for such chapter 77, 
as amended by this Act, is amended by adding at the end the following 
new item:

``Sec. 7531. Payroll tax deposit agents.''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on January 1, 
        2007.
            (2) Penalty.--The amendments made by subsection (b) shall 
        apply to failures occurring after December 31, 2006.

SEC. 322. SPECIAL PERIOD OF LIMITATION WHEN UNIFORMED SERVICES RETIRED 
              PAY IS REDUCED AS A RESULT OF AWARD OF DISABILITY 
              COMPENSATION.

    (a) In General.--Subsection (d) of section 6511 (relating to 
special rules applicable to income taxes) is amended by adding at the 
end the following new paragraph:
            ``(8) Special rules when uniformed services retired pay is 
        reduced as a result of award of disability compensation.--
                    ``(A) Period of limitation on filing claim.--If the 
                claim for credit or refund relates to an overpayment of 
                tax imposed by subtitle A on account of--
                            ``(i) the reduction of uniformed services 
                        retired pay computed under section 1406 or 1407 
                        of title 10, United States Code, or
                            ``(ii) the waiver of such pay under section 
                        5305 of title 38 of such Code,
                as a result of an award of compensation under title 38 
                of such Code pursuant to a determination by the 
                Secretary of Veterans Affairs, the 3-year period of 
                limitation prescribed in subsection (a) shall be 
                extended, for purposes of permitting a credit or refund 
                based upon the amount of such reduction or waiver, 
                until the end of the 1-year period beginning on the 
                date of such determination.
                    ``(B) Limitation to 5 taxable years.--Subparagraph 
                (A) shall not apply with respect to any taxable year 
                which began more than 5 years before the date of such 
                determination.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to claims for credit or refund filed after the date of the 
enactment of this Act.
    (c) Transition Rules.--In the case of a determination described in 
paragraph (8) of section 6511(d) of the Internal Revenue Code of 1986 
(as added by this section) which is made by the Secretary of Veterans 
Affairs after December 31, 2000, and before the date of the enactment 
of this Act, such paragraph--
            (1) shall not apply with respect to any taxable year which 
        began before January 1, 2001, and
            (2) shall be applied by substituting ``the date of the 
        enactment of the Telephone Excise Tax Repeal and Taxpayer 
        Protection and Assistance Act of 2006'' for ``the date of such 
        determination'' in subparagraph (A) thereof.

                TITLE IV--REFORM OF PENALTY AND INTEREST

SEC. 401. INDIVIDUAL ESTIMATED TAX.

    (a) Increase in Exception for Individuals Owing Small Amount of 
Tax.--Section 6654(e)(1) (relating to exception where tax is small 
amount) is amended by striking ``$1,000'' and inserting ``$2,000''.
    (b) Computation of Addition to Tax.--Subsections (a) and (b) of 
section 6654 (relating to failure by individual to pay estimated taxes) 
are amended to read as follows:
    ``(a) Addition to the Tax.--
            ``(1) In general.--Except as otherwise provided in this 
        section, in the case of any underpayment of estimated tax by an 
        individual for a taxable year, there shall be added to the tax 
        under chapters 1 and 2 for such taxable year the sum of the 
        amounts determined under paragraph (2) for each day for which 
        there is an underpayment.
            ``(2) Amount of addition to tax.--The amount determined 
        under this paragraph for any day shall be the product of--
                    ``(A) the underpayment rate established under 
                subsection (b)(2) for such day, multiplied by
                    ``(B) the amount of the underpayment for such day.
    ``(b) Amount of Underpayment; Underpayment Rate.--For purposes of 
subsection (a)--
            ``(1) Amount.--The amount of underpayment on any day shall 
        be the excess (if any) of--
                    ``(A) the sum of the required installments for the 
                taxable year the due dates for which are on or before 
                such day, over
                    ``(B) the sum of the amounts of estimated tax 
                payments made for such taxable year on or before such 
                day.
            ``(2) Determination of underpayment rate.--
                    ``(A) In general.--The underpayment rate with 
                respect to any day in an installment underpayment 
                period shall be the underpayment rate established under 
                section 6621 for the first day of the calendar quarter 
                in which such installment underpayment period begins.
                    ``(B) Installment underpayment period.--For 
                purposes of subparagraph (A), the term `installment 
                underpayment period' means the period beginning on the 
                day after the due date for a required installment and 
                ending on the due date for the subsequent required 
                installment (or in the case of the 4th required 
                installment, the 15th day of the 4th month following 
                the close of a taxable year).
                    ``(C) Daily rate.--The rate determined under 
                subparagraph (A) shall be applied on a daily basis and 
                shall be based on the assumption of 365 days in a 
                calendar year.
            ``(3) Termination of estimated tax underpayment.--No day 
        after the end of the installment underpayment period for the 
        4th required installment specified in paragraph (2)(B) for a 
        taxable year shall be treated as a day of underpayment with 
        respect to such taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 402. CORPORATE ESTIMATED TAX.

    (a) Increase in Small Tax Amount Exception.--Section 6655(f) 
(relating to exception where tax is small amount) is amended by 
striking ``$500'' and inserting ``$1,000''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 403. INCREASE IN LARGE CORPORATION THRESHOLD FOR ESTIMATED TAX 
              PAYMENTS.

    (a) In General.--Section 6655(g)(2) (defining large corporation) is 
amended--
            (1) by striking ``$1,000,000'' in subparagraph (A) and 
        inserting ``the applicable amount'',
            (2) by striking ``the $1,000,000 amount specified in 
        subparagraph (A)'' in subparagraph (B)(ii) and inserting ``the 
        applicable amount'',
            (3) by redesignating subparagraph (B) as subparagraph (C), 
        and
            (4) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) Applicable amount.--For purposes of this 
                paragraph, the applicable amount is $1,000,000 
                increased (but not above $1,500,000) by $50,000 for 
                each taxable year beginning after 2006.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 404. EXPANSION OF INTEREST NETTING.

    (a) In General.--Subsection (d) of section 6621 (relating to 
elimination of interest on overlapping periods of tax overpayments and 
underpayments) is amended by adding at the end the following new 
sentence: ``Solely for purposes of the preceding sentence, section 
6611(e) shall not apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to interest accrued after December 31, 2010.

SEC. 405. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT PENALTY.

    Nothing in section 6656 of the Internal Revenue Code of 1986 shall 
be construed to permit the percentage specified in subsection 
(b)(1)(A)(iii) thereof to apply other than in a case where the failure 
is for more than 15 days.

SEC. 406. FRIVOLOUS TAX SUBMISSIONS.

    (a) Civil Penalties.--Section 6702 is amended to read as follows:

``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.

    ``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay 
a penalty of $5,000 if--
            ``(1) such person files what purports to be a return of a 
        tax imposed by this title but which--
                    ``(A) does not contain information on which the 
                substantial correctness of the self-assessment may be 
                judged, or
                    ``(B) contains information that on its face 
                indicates that the self-assessment is substantially 
                incorrect, and
            ``(2) the conduct referred to in paragraph (1)--
                    ``(A) is based on a position which the Secretary 
                has identified as frivolous under subsection (c), or
                    ``(B) reflects a desire to delay or impede the 
                administration of Federal tax laws.
    ``(b) Civil Penalty for Specified Frivolous Submissions.--
            ``(1) Imposition of penalty.--Except as provided in 
        paragraph (3), any person who submits a specified frivolous 
        submission shall pay a penalty of $5,000.
            ``(2) Specified frivolous submission.--For purposes of this 
        section--
                    ``(A) Specified frivolous submission.--The term 
                `specified frivolous submission' means a specified 
                submission if any portion of such submission--
                            ``(i) is based on a position which the 
                        Secretary has identified as frivolous under 
                        subsection (c), or
                            ``(ii) reflects a desire to delay or impede 
                        the administration of Federal tax laws.
                    ``(B) Specified submission.--The term `specified 
                submission' means--
                            ``(i) a request for a hearing under--
                                    ``(I) section 6320 (relating to 
                                notice and opportunity for hearing upon 
                                filing of notice of lien), or
                                    ``(II) section 6330 (relating to 
                                notice and opportunity for hearing 
                                before levy), and
                            ``(ii) an application under--
                                    ``(I) section 6159 (relating to 
                                agreements for payment of tax liability 
                                in installments),
                                    ``(II) section 7122 (relating to 
                                compromises), or
                                    ``(III) section 7811 (relating to 
                                taxpayer assistance orders).
            ``(3) Opportunity to withdraw submission.--If the Secretary 
        provides a person with notice that a submission is a specified 
        frivolous submission and such person withdraws such submission 
        within 30 days after such notice, the penalty imposed under 
        paragraph (1) shall not apply with respect to such submission.
    ``(c) Listing of Frivolous Positions.--The Secretary shall 
prescribe (and periodically revise) a list of positions which the 
Secretary has identified as being frivolous for purposes of this 
subsection. The Secretary shall not include in such list any position 
that the Secretary determines meets the requirement of section 
6662(d)(2)(B)(ii)(II).
    ``(d) Reduction of Penalty.--The Secretary may reduce the amount of 
any penalty imposed under this section if the Secretary determines that 
such reduction would promote compliance with and administration of the 
Federal tax laws.
    ``(e) Penalties in Addition to Other Penalties.--The penalties 
imposed by this section shall be in addition to any other penalty 
provided by law.''.
    (b) Treatment of Frivolous Requests for Hearings Before Levy.--
            (1) Frivolous requests disregarded.--Section 6330 (relating 
        to notice and opportunity for hearing before levy) is amended 
        by adding at the end the following new subsection:
    ``(g) Frivolous Requests for Hearing, Etc.--Notwithstanding any 
other provision of this section, if the Secretary determines that any 
portion of a request for a hearing under this section or section 6320 
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 
then the Secretary may treat such portion as if it were never submitted 
and such portion shall not be subject to any further administrative or 
judicial review.''.
            (2) Preclusion from raising frivolous issues at hearing.--
        Section 6330(c)(4) is amended--
                    (A) by striking ``(A)'' and inserting ``(A)(i)'';
                    (B) by striking ``(B)'' and inserting ``(ii)'';
                    (C) by striking the period at the end of the first 
                sentence and inserting ``; or''; and
                    (D) by inserting after subparagraph (A)(ii) (as so 
                redesignated) the following new subparagraph:
                    ``(B) the issue meets the requirement of clause (i) 
                or (ii) of section 6702(b)(2)(A).''.
            (3) Statement of grounds.--Section 6330(b)(1) is amended by 
        striking ``under subsection (a)(3)(B)'' and inserting ``in 
        writing under subsection (a)(3)(B) and states the grounds for 
        the requested hearing''.
    (c) Treatment of Frivolous Requests for Hearings Upon Filing of 
Notice of Lien.--Section 6320 is amended--
            (1) in subsection (b)(1), by striking ``under subsection 
        (a)(3)(B)'' and inserting ``in writing under subsection 
        (a)(3)(B) and states the grounds for the requested hearing'', 
        and
            (2) in subsection (c), by striking ``and (e)'' and 
        inserting ``(e), and (g)''.
    (d) Treatment of Frivolous Applications for Offers-in-Compromise 
and Installment Agreements.--
            (1) In general.--Section 7122 is amended by adding at the 
        end the following new subsection:
    ``(g) Frivolous Submissions, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for an offer-in-compromise or installment agreement 
submitted under this section or section 6159 meets the requirement of 
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 
treat such portion as if it were never submitted and such portion shall 
not be subject to any further administrative or judicial review.''.
            (2) Cross reference.--Section 6159(f) is amended by adding 
        at the end the following new item:

            ``For treatment of frivolous applications for 
            installment agreements, see section 7122(g).''.
    (e) Treatment of Frivolous Applications for Taxpayer Assistance 
Orders.--Section 7811 is amended by adding at the end the following new 
subsection:
    ``(h) Frivolous Submissions, Etc.--Notwithstanding any other 
provision of this section, if the Secretary determines that any portion 
of an application for a Taxpayer Assistance Order submitted under this 
section meets the requirement of clause (i) or (ii) of section 
6702(b)(2)(A), then the Secretary may treat such portion as if it were 
never submitted and such portion shall not be subject to any further 
administrative or judicial review.''.
    (f) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by striking the item relating to 
section 6702 and inserting the following new item:

``Sec. 6702. Frivolous tax submissions.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to filings and submissions made and issues raised after the date 
on which the Secretary first prescribes a list under section 6702(c) of 
the Internal Revenue Code of 1986, as amended by subsection (a).

SEC. 407. UNDERSTATEMENT OF TAXPAYER LIABILITY BY RETURN PREPARERS.

    (a) Application of Return Preparer Penalties to All Tax Returns.--
            (1) Definition of tax return preparer.--Paragraph (36) of 
        section 7701(a) (relating to income tax preparer) is amended--
                    (A) by striking ``income'' each place it appears in 
                the heading and the text, and
                    (B) in subparagraph (A), by striking ``subtitle A'' 
                each place it appears and inserting ``this title''.
            (2) Conforming amendments.--
                    (A)(i) Section 6060 is amended by striking ``income 
                tax return preparers'' in the heading and inserting 
                ``tax return preparers''.
                    (ii) Section 6060(a) is amended--
                            (I) by striking ``an income tax return 
                        preparer'' each place it appears and inserting 
                        ``a tax return preparer'',
                            (II) by striking ``each income tax return 
                        preparer'' and inserting ``each tax return 
                        preparer'', and
                            (III) by striking ``another income tax 
                        return preparer'' and inserting ``another tax 
                        return preparer''.
                    (iii) The item relating to section 6060 in the 
                table of sections for subpart F of part III of 
                subchapter A of chapter 61 is amended by striking 
                ``income tax return preparers'' and inserting ``tax 
                return preparers''.
                    (iv) Subpart F of part III of subchapter A of 
                chapter 61 is amended by striking ``Income Tax Return 
                Preparers'' in the heading and inserting ``Tax Return 
                Preparers''.
                    (v) The item relating to subpart F in the table of 
                subparts for part III of subchapter A of chapter 61 is 
                amended by striking ``income tax return preparers'' and 
                inserting ``tax return preparers''.
                    (B) Section 6103(k)(5) is amended--
                            (i) by striking ``income tax return 
                        preparer'' each place it appears and inserting 
                        ``tax return preparer'', and
                            (ii) by striking ``income tax return 
                        preparers'' each place it appears and inserting 
                        ``tax return preparers''.
                    (C)(i) Section 6107 is amended--
                            (I) by striking ``income tax return 
                        preparer'' in the heading and inserting ``tax 
                        return preparer'',
                            (II) by striking ``an income tax return 
                        preparer'' each place it appears in subsections 
                        (a) and (b) and inserting ``a tax return 
                        preparer'',
                            (III) by striking ``Income Tax Return 
                        Preparer'' in the heading for subsection (b) 
                        and inserting ``Tax Return Preparer'', and
                            (IV) in subsection (c), by striking 
                        ``income tax return preparers'' and inserting 
                        ``tax return preparers''.
                    (ii) The item relating to section 6107 in the table 
                of sections for subchapter B of chapter 61 is amended 
                by striking ``Income tax return preparer'' and 
                inserting ``Tax return preparer''.
                    (D) Section 6109(a)(4) is amended--
                            (i) by striking ``an income tax return 
                        preparer'' and inserting ``a tax return 
                        preparer'', and
                            (ii) by striking ``income tax return 
                        preparer'' in the heading and inserting ``tax 
                        return preparer''.
                    (E) Section 6503(k)(4) is amended by striking 
                ``Income tax return preparers'' and inserting ``Tax 
                return preparers''.
                    (F)(i) Section 6694 is amended--
                            (I) by striking ``income tax return 
                        preparer'' in the heading and inserting ``tax 
                        return preparer'',
                            (II) by striking ``an income tax return 
                        preparer'' each place it appears and inserting 
                        ``a tax return preparer'',
                            (III) in subsection (c)(2), by striking 
                        ``the income tax return preparer'' and 
                        inserting ``the tax return preparer'',
                            (IV) in subsection (e), by striking 
                        ``subtitle A'' and inserting ``this title'', 
                        and
                            (V) in subsection (f), by striking ``income 
                        tax return preparer'' and inserting ``tax 
                        return preparer''.
                    (ii) The item relating to section 6694 in the table 
                of sections for part I of subchapter B of chapter 68 is 
                amended by striking ``income tax return preparer'' and 
                inserting ``tax return preparer''.
                    (G)(i) Section 6695 is amended--
                            (I) by striking ``income'' in the heading, 
                        and
                            (II) by striking ``an income tax return 
                        preparer'' each place it appears and inserting 
                        ``a tax return preparer''.
                    (ii) Section 6695(f) is amended--
                            (I) by striking ``subtitle A'' and 
                        inserting ``this title'', and
                            (II) by striking ``the income tax return 
                        preparer'' and inserting ``the tax return 
                        preparer''.
                    (iii) The item relating to section 6695 in the 
                table of sections for part I of subchapter B of chapter 
                68 is amended by striking ``income''.
                    (H) Section 6696(e) is amended by striking 
                ``subtitle A'' each place it appears and inserting 
                ``this title''.
                    (I)(i) Section 7407 is amended--
                            (I) by striking ``income tax return 
                        preparers'' in the heading and inserting ``tax 
                        return preparers'',
                            (II) by striking ``an income tax return 
                        preparer'' each place it appears and inserting 
                        ``a tax return preparer'',
                            (III) by striking ``income tax preparer'' 
                        both places it appears in subsection (a) and 
                        inserting ``tax return preparer'', and
                            (IV) by striking ``income tax return'' in 
                        subsection (a) and inserting ``tax return''.
                    (ii) The item relating to section 7407 in the table 
                of sections for subchapter A of chapter 76 is amended 
                by striking ``income tax return preparers'' and 
                inserting ``tax return preparers''.
                    (J)(i) Section 7427 is amended--
                            (I) by striking ``income tax return 
                        preparers'' in the heading and inserting ``tax 
                        return preparers'', and
                            (II) by striking ``an income tax return 
                        preparer'' and inserting ``a tax return 
                        preparer''.
                    (ii) The item relating to section 7427 in the table 
                of sections for subchapter B of chapter 76 is amended 
                to read as follows:

``Sec. 7427. Tax return preparers.''.
    (b) Modification of Penalty for Understatement of Taxpayer's 
Liability by Tax Return Preparer.--Subsections (a) and (b) of section 
6694 are amended to read as follows:
    ``(a) Understatement Due to Unreasonable Positions.--
            ``(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--
                    ``(A) $1,000, or
                    ``(B) 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 position is described in 
        this paragraph if--
                    ``(A) the tax return preparer knew (or reasonably 
                should have known) of the position,
                    ``(B) there was not a reasonable belief that the 
                position would more likely than not be sustained on its 
                merits, and
                    ``(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.
            ``(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) Understatement Due to Willful or Reckless Conduct.--
            ``(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 conduct described in 
        paragraph (2) shall pay a penalty with respect to each such 
        return or claim in an amount equal to the greater of--
                    ``(A) $5,000, or
                    ``(B) 50 percent of the income derived (or to be 
                derived) by the tax return preparer with respect to the 
                return or claim.
            ``(2) Willful or reckless conduct.--Conduct described in 
        this paragraph is conduct by the tax return preparer which is--
                    ``(A) a willful attempt in any manner to understate 
                the liability for tax on the return or claim, or
                    ``(B) a reckless or intentional disregard of rules 
                or regulations.
            ``(3) Reduction in penalty.--The amount of any penalty 
        payable by any person by reason of this subsection for any 
        return or claim for refund shall be reduced by the amount of 
        the penalty paid by such person by reason of subsection (a).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns prepared after the date of the enactment of this Act.

SEC. 408. PENALTY FOR AIDING AND ABETTING THE UNDERSTATEMENT OF TAX 
              LIABILITY.

    (a) In General.--Section 6701(a) (relating to imposition of 
penalty) is amended--
            (1) by inserting ``, or tax liability reflected in,'' after 
        ``the preparation or presentation of'' in paragraph (1),
            (2) by inserting ``aid, assistance, procurement, or advice 
        with respect to such'' before ``portion'' both places it 
        appears in paragraphs (2) and (3), and
            (3) by inserting ``instance of aid, assistance, 
        procurement, or advice or each such'' before ``document'' in 
        the matter following paragraph (3).
    (b) Amount of Penalty.--Subsection (b) of section 6701 (relating to 
penalties for aiding and abetting understatement of tax liability) is 
amended to read as follows:
    ``(b) Amount of Penalty; Calculation of Penalty; Liability for 
Penalty.--
            ``(1) Amount of penalty.--The amount of the penalty imposed 
        by subsection (a) shall be 100 percent of the gross income 
        derived (or to be derived) from such aid, assistance, 
        procurement, or advice provided by the person or persons 
        subject to such penalty.
            ``(2) Calculation of penalty.--The penalty amount 
        determined under paragraph (1) shall be calculated with respect 
        to each instance of aid, assistance, procurement, or advice 
        described in subsection (a), each instance in which income was 
        derived by the person or persons subject to such penalty, and 
        each person who made such an understatement of the liability 
        for tax.
            ``(3) Liability for penalty.--If more than 1 person is 
        liable under subsection (a) with respect to providing such aid, 
        assistance, procurement, or advice, all such persons shall be 
        jointly and severally liable for the penalty under such 
        subsection.''.
    (c) Penalty Not Deductible.--Section 6701 is amended by adding at 
the end the following new subsection:
    ``(g) Penalty Not Deductible.--The payment of any penalty imposed 
under this section or the payment of any amount to settle or avoid the 
imposition of such penalty shall not be considered an ordinary and 
necessary expense in carrying on a trade or business for purposes of 
this title and shall not be deductible by the person who is subject to 
such penalty or who makes such payment.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to the activities described in section 6701(a) of the Internal 
Revenue Code of 1986 after the date of the enactment of this Act.

SEC. 409. INCREASE IN CRIMINAL MONETARY PENALTY LIMITATION FOR THE 
              UNDERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.

    (a) In General.--
            (1) Attempt to evade or defeat tax.--Section 7201 (relating 
        to attempt to evade or defeat tax) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$500,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``5 years'' and inserting ``10 
                years''.
            (2) Willful failure to file return, supply information, or 
        pay tax.--
                    (A) In general.--Section 7203 (relating to willful 
                failure to file return, supply information, or pay tax) 
                is amended--
                            (i) in the first sentence--
                                    (I) by striking ``Any person'' and 
                                inserting the following:
    ``(a) In General.--Any person'', and
                                    (II) by striking ``$25,000'' and 
                                inserting ``$50,000'',
                            (ii) in the third sentence, by striking 
                        ``section'' and inserting ``subsection'', and
                            (iii) by adding at the end the following 
                        new subsection:
    ``(b) Aggravated Failure to File.--
            ``(1) In general.--In the case of any failure described in 
        paragraph (2), the first sentence of subsection (a) shall be 
        applied by substituting--
                    ``(A) `felony' for `misdemeanor',
                    ``(B) `$500,000 ($1,000,000' for `$50,000 
                ($100,000', and
                    ``(C) `10 years' for `1 year'.
            ``(2) Failure described.--A failure described in this 
        paragraph is--
                    ``(A) a failure to make a return described in 
                subsection (a) for a period of 3 or more consecutive 
                taxable years if the aggregate tax liability for such 
                period is not less than $100,000, or
                    ``(B) a failure to make a return if the tax 
                liability giving rise to the requirement to make such 
                return is attributable to an activity which is a felony 
                under any State or Federal law.''.
                    (B) Penalty may be applied in addition to other 
                penalties.--Section 7204 (relating to fraudulent 
                statement or failure to make statement to employees) is 
                amended by striking ``the penalty provided in section 
                6674'' and inserting ``the penalties provided in 
                sections 6674 and 7203(b)''.
            (3) Fraud and false statements.--Section 7206 (relating to 
        fraud and false statements) is amended--
                    (A) by striking ``$100,000'' and inserting 
                ``$500,000'',
                    (B) by striking ``$500,000'' and inserting 
                ``$1,000,000'', and
                    (C) by striking ``3 years'' and inserting ``5 
                years''.
    (b) Increase in Monetary Limitation for Underpayment or Overpayment 
of Tax Due to Fraud.--Section 7206 (relating to fraud and false 
statements), as amended by subsection (a)(3), is amended--
            (1) by striking ``Any person who--'' and inserting ``(a) In 
        General.--Any person who--'', and
            (2) by adding at the end the following new subsection:
    ``(b) Increase in Monetary Limitation for Underpayment or 
Overpayment of Tax Due to Fraud.--If any portion of any underpayment 
(as defined in section 6664(a)) or overpayment (as defined in section 
6401(a)) of tax required to be shown on a return is attributable to 
fraudulent action described in subsection (a), the applicable dollar 
amount under subsection (a) shall in no event be less than an amount 
equal to such portion. A rule similar to the rule under section 6663(b) 
shall apply for purposes of determining the portion so attributable.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to actions, and failures to act, occurring after the date of the 
enactment of this Act.

SEC. 410. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON 
              UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL 
              ARRANGEMENTS.

    (a) Determination of Penalty.--
            (1) In general.--Notwithstanding any other provision of 
        law, in the case of an applicable taxpayer--
                    (A) the determination as to whether any interest or 
                applicable penalty is to be imposed with respect to any 
                arrangement described in paragraph (2), or to any 
                underpayment of Federal income tax attributable to 
                items arising in connection with any such arrangement, 
                shall be made without regard to the rules of 
                subsections (b), (c), and (d) of section 6664 of the 
                Internal Revenue Code of 1986, and
                    (B) if any such interest or applicable penalty is 
                imposed, the amount of such interest or penalty shall 
                be equal to twice that determined without regard to 
                this section.
            (2) Applicable taxpayer.--For purposes of this subsection--
                    (A) In general.--The term ``applicable taxpayer'' 
                means a taxpayer which--
                            (i) has underreported its United States 
                        income tax liability with respect to any item 
                        which directly or indirectly involves--
                                    (I) any financial arrangement which 
                                in any manner relies on the use of 
                                offshore payment mechanisms (including 
                                credit, debit, or charge cards) issued 
                                by banks or other entities in foreign 
                                jurisdictions, or
                                    (II) any offshore financial 
                                arrangement (including any arrangement 
                                with foreign banks, financial 
                                institutions, corporations, 
                                partnerships, trusts, or other 
                                entities), and
                            (ii) has neither signed a closing agreement 
                        pursuant to the Voluntary Offshore Compliance 
                        Initiative established by the Department of the 
                        Treasury under Revenue Procedure 2003-11 nor 
                        voluntarily disclosed its participation in such 
                        arrangement by notifying the Internal Revenue 
                        Service of such arrangement prior to the issue 
                        being raised by the Internal Revenue Service 
                        during an examination.
                    (B) Authority to waive.--The Secretary of the 
                Treasury or the Secretary's delegate may waive the 
                application of paragraph (1) to any taxpayer if the 
                Secretary or the Secretary's delegate determines that 
                the use of such offshore payment mechanisms is 
                incidental to the transaction and, in addition, in the 
                case of a trade or business, such use is conducted in 
                the ordinary course of the type of trade or business of 
                the taxpayer.
                    (C) Issues raised.--For purposes of subparagraph 
                (A)(ii), an item shall be treated as an issue raised 
                during an examination if the individual examining the 
                return--
                            (i) communicates to the taxpayer knowledge 
                        about the specific item, or
                            (ii) has made a request to the taxpayer for 
                        information and the taxpayer could not make a 
                        complete response to that request without 
                        giving the examiner knowledge of the specific 
                        item.
    (b) Applicable Penalty.--For purposes of this section, the term 
``applicable penalty'' means any penalty, addition to tax, or fine 
imposed under chapter 68 of the Internal Revenue Code of 1986.
    (c) Effective Date.--The provisions of this section shall apply to 
interest, penalties, additions to tax, and fines with respect to any 
taxable year if, as of the date of the enactment of this Act, the 
assessment of any tax, penalty, or interest with respect to such 
taxable year is not prevented by the operation of any law or rule of 
law.

SEC. 411. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.

    (a) In General.--Section 6657 (relating to bad checks) is amended--
            (1) by striking ``$750'' and inserting ``$1,250'', and
            (2) by striking ``$15'' and inserting ``$25''.
    (b) Effective Date.--The amendments made by this section shall 
apply to checks or money orders received after the date of the 
enactment of this Act.

SEC. 412. INCREASE IN PENALTY EXCISE TAXES ON THE POLITICAL AND EXCESS 
              LOBBYING ACTIVITIES OF SECTION 501(C)(3) ORGANIZATIONS.

    (a) Taxes on Disqualifying Lobbying Expenditures of Certain 
Organizations.--
            (1) In general.--Section 4912(a) (relating to tax on 
        organization) is amended by striking ``5 percent'' and 
        inserting ``10 percent''.
            (2) Tax on management.--Section 4912(b) is amended by 
        striking ``5 percent'' and inserting ``10 percent''.
    (b) Taxes on Political Expenditures of Section 501(c)(3) 
Organizations.--
            (1) In general.--Section 4955(a) (relating to initial 
        taxes) is amended--
                    (A) in paragraph (1), by striking ``10 percent'' 
                and inserting ``20 percent'', and
                    (B) in paragraph (2), by striking ``2\1/2\ 
                percent'' and inserting ``5 percent''.
            (2) Increased limitation for managers.--Section 4955(c)(2) 
        is amended--
                    (A) by striking ``$5,000'' and inserting 
                ``$10,000'', and
                    (B) by striking ``$10,000'' and inserting 
                ``$20,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 413. PENALTY FOR FILING ERRONEOUS REFUND CLAIMS.

    (a) In General.--Part I of subchapter B of chapter 68 (relating to 
assessable penalties) is amended by inserting after section 6675 the 
following new section:

``SEC. 6676. ERRONEOUS CLAIM FOR REFUND OR CREDIT.

    ``(a) Civil Penalty.--If a claim for refund or credit with respect 
to income tax is made for an excessive amount, unless it is shown that 
the claim for such excessive amount has a reasonable basis, the person 
making such claim shall be liable for a penalty in an amount equal to 
20 percent of the excessive amount.
    ``(b) Excessive Amount.--For purposes of this section, the term 
`excessive amount' means in the case of any person the amount by which 
the amount of the claim for refund or credit for any taxable year 
exceeds the amount of such claim allowable under this title for such 
taxable year.
    ``(c) Coordination With Other Penalties.--This section shall not 
apply to any portion of the excessive amount of a claim for refund or 
credit on which a penalty is imposed under part II of subchapter A of 
chapter 68.''.
    (b) Conforming Amendment.--The table of sections for part I of 
subchapter B of chapter 68 is amended by inserting after the item 
relating to section 6675 the following new item:

``Sec. 6676. Erroneous claim for refund or credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any claim--
            (1) filed or submitted after the date of the enactment of 
        this Act, or
            (2) filed or submitted prior to such date but not withdrawn 
        before the date which is 30 days after such date of enactment.

                TITLE V--CONFIDENTIALITY AND DISCLOSURE

SEC. 501. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN 
              DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.

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

SEC. 502. PROHIBITION OF DISCLOSURE OF TAXPAYER IDENTIFICATION 
              INFORMATION WITH RESPECT TO DISCLOSURE OF ACCEPTED 
              OFFERS-IN-COMPROMISE.

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

SEC. 503. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY SAFEGUARDS.

    (a) In General.--Section 6103(p) (relating to State law 
requirements) is amended by adding at the end the following new 
paragraph:
            ``(9) Disclosure to contractors and other agents.--
        Notwithstanding any other provision of this section, no return 
        or return information shall be disclosed to any contractor or 
        other agent of a Federal, State, or local agency unless such 
        agency, to the satisfaction of the Secretary--
                    ``(A) has requirements in effect which require each 
                such contractor or other agent which would have access 
                to returns or return information to provide safeguards 
                (within the meaning of paragraph (4)) to protect the 
                confidentiality of such returns or return information,
                    ``(B) agrees to conduct an on-site review every 3 
                years (or a mid-point review in the case of contracts 
                or agreements of less than 3 years in duration) of each 
                contractor or other agent to determine compliance with 
                such requirements,
                    ``(C) submits the findings of the most recent 
                review conducted under subparagraph (B) to the 
                Secretary as part of the report required by paragraph 
                (4)(E), and
                    ``(D) certifies to the Secretary for the most 
                recent annual period that such contractor or other 
                agent is in compliance with all such requirements.
        The certification required by subparagraph (D) shall include 
        the name and address of each contractor and other agent, a 
        description of the contract or agreement with such contractor 
        or other agent, and the duration of such contract or agreement. 
        The requirements of this paragraph shall not apply to 
        disclosures pursuant to subsection (n) for purposes of Federal 
        tax administration.''.
    (b) Conforming Amendment.--Subparagraph (B) of section 6103(p)(8) 
is amended by inserting ``or paragraph (9)'' after ``subparagraph 
(A)''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to disclosures made after the date of the enactment of 
        this Act.
            (2) Certifications.--The first certification under section 
        6103(p)(9)(D) of the Internal Revenue Code of 1986, as added by 
        subsection (a), shall be made with respect to the portion of 
        calendar year 2006 following the date of the enactment of this 
        Act.

SEC. 504. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO DISCLOSURE.

    (a) In General.--Subsection (c) of section 6103 (relating to 
disclosure of returns and return information to designee of taxpayer) 
is amended--
            (1) by striking ``Taxpayer.--The Secretary'' and inserting 
        ``Taxpayer.--
            ``(1) In general.--The Secretary'', and
            (2) by adding at the end the following new paragraphs:
            ``(2) Restrictions on persons obtaining information.--The 
        return of any taxpayer, or return information with respect to 
        such taxpayer, disclosed to a person or persons under paragraph 
        (1) for a purpose specified in writing, electronically, or 
        orally may be disclosed or used by such person or persons only 
        for the purpose of, and to the extent necessary in, 
        accomplishing the purpose for disclosure specified and shall 
        not be disclosed or used for any other purpose.
            ``(3) Requirements for form prescribed by secretary.--For 
        purposes of this subsection, the Secretary shall prescribe a 
        form for written requests and consents which shall--
                    ``(A) contain a warning, prominently displayed, 
                informing the taxpayer that the form should not be 
                signed unless it is completed,
                    ``(B) state that if the taxpayer believes there is 
                an attempt to coerce him to sign an incomplete or blank 
                form, the taxpayer should report the matter to the 
                Treasury Inspector General for Tax Administration, and
                    ``(C) contain the address and telephone number of 
                the Treasury Inspector General for Tax Administration.
            ``(4) Cross reference.--

``For provision providing for civil damages for violation of paragraph 
                            (2), see section 7431(i).''.
    (b) Civil Damages.--Section 7431 (relating to civil damages for 
unauthorized inspection or disclosure of returns and return 
information) is amended by adding at the end the following new 
subsection:
    ``(i) Disclosure or Use of Returns and Return Information Obtained 
Under Subsection 6103(c).--Disclosure or use of returns or return 
information obtained under section 6103(c) other than for the purpose 
of, and to the extent necessary in, accomplishing the purpose for 
disclosure specified in writing, electronically, or orally, shall be 
treated as a violation of section 6103(a).''.
    (c) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall submit a 
report to the Congress on compliance with the requirements applicable 
to requests for or consent to disclosure of returns and return 
information under section 6103(c) of the Internal Revenue Code of 1986, 
as amended by subsection (a). Such report shall--
            (1) evaluate (on the basis of random sampling) whether--
                    (A) the amendment made by subsection (a) is 
                achieving the purposes of this section;
                    (B) requesters and submitters for such disclosure 
                are continuing to evade the purposes of this section 
                and, if so, how; and
                    (C) the sanctions for violations of such 
                requirements are adequate; and
            (2) include such recommendations that the Secretary of the 
        Treasury considers necessary or appropriate to better achieve 
        the purposes of this section.
    (d) Sunset of Existing Consents.--Notwithstanding any other 
provision of law, any request for or consent to disclose any return or 
return information under section 6103(c) of the Internal Revenue Code 
of 1986 made before the date of the enactment of this Act shall remain 
in effect until the earlier of the date such request or consent is 
otherwise terminated or the date which is 3 years after such date of 
enactment.
    (e) Effective Date.--The amendments made by this section shall 
apply to requests and consents made after the date which is 3 months 
after the date of the enactment of this Act.

SEC. 505. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OR INSPECTION.

    (a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating 
to notification of unlawful inspection and disclosure) is amended by 
adding at the end the following new sentences: ``The Secretary shall 
also notify such taxpayer if the Internal Revenue Service or, upon 
notice to the Secretary by a Federal or State agency, if such Federal 
or State agency, proposes an administrative determination as to 
disciplinary or adverse action against an employee arising from the 
employee's unauthorized inspection or disclosure of the taxpayer's 
return or return information. The notice described in this subsection 
shall include the date of the inspection or disclosure and the rights 
of the taxpayer under such administrative determination.''.
    (b) Exhaustion of Administrative Remedies Required.--Section 7431, 
as amended by this Act, is amended by adding at the end the following 
new subsection:
    ``(j) Exhaustion of Administrative Remedies Required.--A judgment 
for damages shall not be awarded under subsection (c) unless the court 
determines that the plaintiff has exhausted the administrative remedies 
available to such plaintiff.''.
    (c) Payment Authority Clarified.--
            (1) In general.--Section 7431, as amended by subsection 
        (b), is amended by adding at the end the following new 
        subsection:
    ``(k) Payment Authority.--Claims pursuant to subsection (a)(1) 
shall be payable out of funds appropriated under section 1304 of title 
31, United States Code.''.
            (2) Annual reports of payments.--The Secretary of the 
        Treasury shall annually report to the Committee on Finance of 
        the Senate and the Committee on Ways and Means of the House of 
        Representatives regarding payments made from the United States 
        Judgment Fund under section 7431(k) of the Internal Revenue 
        Code of 1986.
    (d) Burden of Proof for Good Faith Exception Rests With Person 
Making Inspection or Disclosure.--Section 7431(b) (relating to 
exceptions) is amended by adding at the end the following new flush 
sentence:
``In any proceeding involving the issue of the existence of good faith, 
the burden of proof with respect to such issue shall be on the person 
who made the inspection or disclosure.''.
    (e) Reports.--Subsection (p) of section 6103 (relating to procedure 
and recordkeeping), as amended by this Act, is amended by adding at the 
end the following new paragraph:
            ``(10) Report on willful unauthorized disclosure and 
        inspection.--As part of the report required by paragraph (3)(C) 
        for each calendar year, the Secretary shall furnish information 
        regarding the willful unauthorized disclosure and inspection of 
        returns and return information, including the number, status, 
        and results of--
                    ``(A) administrative investigations,
                    ``(B) civil lawsuits brought under section 7431 
                (including the amounts for which such lawsuits were 
                settled and the amounts of damages awarded), and
                    ``(C) criminal prosecutions.''.
    (f) Effective Dates.--
            (1) Notice.--The amendment made by subsection (a) shall 
        apply to determinations made after the date which is 180 days 
        after the date of the enactment of this Act.
            (2) Exhaustion of remedies and burden of proof.--The 
        amendments made by subsections (b) and (d) shall apply to 
        inspections and disclosures occurring on and after the date 
        which is 180 days after the date of the enactment of this Act.
            (3) Payment authority.--The amendment made by subsection 
        (c)(1) shall take effect on the date which is 180 days after 
        the date of the enactment of this Act.
            (4) Reports.--Subsection (c)(2) and the amendment made by 
        subsection (e) shall apply to calendar years ending after the 
        date which is 180 days after the date of the enactment of this 
        Act.

SEC. 506. EXPANSION OF DISCLOSURE IN EMERGENCY CIRCUMSTANCES.

    (a) In General.--Section 6103(i)(3)(B)(i) (relating to danger of 
death or physical injury) is amended by striking ``or State law 
enforcement agency'' and inserting ``, State, or local law enforcement 
agency''.
    (b) Conforming Amendments.--Section 6103(p)(4) is amended--
            (1) by striking ``(i)(3)(B)(i) or (7)(A)(ii)'' and 
        inserting ``(i)(7)(A)(ii)'', and
            (2) by striking ``, (i)(3)(B)(i),''.

SEC. 507. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND PURPOSES.

    Section 6103(m)(1) (relating to tax refunds) is amended by striking 
``taxpayer identity information to the press and other media'' and by 
inserting ``a person's name and the city, State, and zip code of the 
person's mailing address to the press, other media, and through any 
other means of mass communication,''.

SEC. 508. TREATMENT OF PUBLIC RECORDS.

    (a) In General.--Section 6103(b) (relating to definitions) is 
amended by adding at the end the following new paragraph:
            ``(12) Treatment of public records.--Returns and return 
        information shall not be subject to subsection (a) if 
        disclosed--
                    ``(A) in the course of any judicial or 
                administrative proceeding or pursuant to tax 
                administration activities, and
                    ``(B) properly made part of the public record.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect before, on, and after the date of the enactment of this Act.

SEC. 509. TAXPAYER IDENTIFICATION NUMBER MATCHING.

    Section 6103(k) (relating to disclosure of certain returns and 
return information for tax administration purposes), as amended by this 
Act, is amended by adding at the end the following new paragraph:
            ``(11) TIN matching.--The Secretary may disclose to any 
        person required to provide a TIN (as defined in section 
        7701(a)(41)) to the Secretary whether such information matches 
        records maintained by the Secretary.''.

SEC. 510. FORM 8300 DISCLOSURES.

    Section 6103(p)(4) (relating to safeguards) is amended by striking 
``(15),'' both places it appears.

SEC. 511. EXPANSION OF PENALTY FOR DISCLOSURE OR USE OF INFORMATION BY 
              TAX RETURN PREPARER.

    (a) In General.--Section 7216 is amended by adding at the end the 
following new subsection:
    ``(c) Definitions.--For purposes of this section--
            ``(1) In general.--The term `tax return preparer' means--
                    ``(A) any person who--
                            ``(i) is engaged in the business of 
                        preparing tax returns,
                            ``(ii) is engaged in the business of 
                        providing services in connection with the 
                        preparation of tax returns,
                            ``(iii) prepares, or assists in preparing, 
                        a tax return for compensation, or holds himself 
                        out as such a person,
                            ``(iv) develops software used to prepare or 
                        file tax returns, or
                            ``(v) is an electronic return originator, 
                        and
                    ``(B) any individual who, as part of his duties or 
                employment with any person described in subparagraph 
                (A), performs services relating to--
                            ``(i) the preparation or filing of, or in 
                        providing services in connection with the 
                        preparation or filing of, a tax return, or
                            ``(ii) the development of software used to 
                        prepare or file tax returns.
            ``(2) Tax return.--The term `tax return' means a return of 
        any tax imposed under this title.''.
    (b) Conforming Amendments.--
            (1) Criminal penalty.--Section 7216(a) is amended--
                    (A) by striking ``Any person'' through ``who 
                knowingly or recklessly'' and inserting ``Any tax 
                return preparer who knowingly or recklessly'', and
                    (B) by striking ``any such return'' in paragraph 
                (1) and inserting ``any tax return''.
            (2) Assessable penalty.--Section 6713 is amended--
                    (A) in subsection (a)--
                            (i) by striking ``If any person'' through 
                        ``and who'' and inserting ``If any tax return 
                        preparer'', and
                            (ii) by striking ``any such return'' in 
                        paragraph (1) and inserting ``any tax return'', 
                        and
                    (B) by adding at the end the following new 
                subsection:
    ``(d) Definitions.--For purposes of this section, the terms `tax 
return preparer' and `tax return' shall have the meanings given to such 
terms under section 7216.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to returns prepared after the date of the enactment of this Act.

SEC. 512. RESTRICTIONS ON DISCLOSURE AND USE OF TAX RETURN INFORMATION.

    (a) In General.--Paragraph (3) of section 7216(b) (relating to 
regulations) is amended to read as follows:
            ``(3) Regulations.--
                    ``(A) In general.--Subsection (a) shall not apply 
                to a disclosure or use of information which is 
                permitted by regulations prescribed by the Secretary 
                under this section.
                    ``(B) Peer reviews.--The regulations under this 
                section shall permit (subject to such conditions as 
                such regulations shall provide) the disclosure or use 
                of information for quality or peer reviews.
                    ``(C) Restrictions on certain disclosures and 
                uses.--
                            ``(i) Prohibition on certain consensual 
                        disclosures and uses.--The regulations under 
                        this section shall not permit the disclosure or 
                        use of information to or for any person with 
                        the consent of the taxpayer unless such 
                        disclosure or use is in connection with 
                        preparing or filing, or providing services in 
                        connection with the preparation or filing of, a 
                        tax return.
                            ``(ii) Return preparers located outside the 
                        united states.--The regulations under this 
                        section shall not permit the disclosure or use 
                        of information to or by any tax return preparer 
                        located outside of the United States unless the 
                        taxpayer has granted consent to such disclosure 
                        or use.''.
    (b) Conforming Amendments.--
            (1) Criminal penalty.--Paragraph (2) of section 7216(a) is 
        amended by inserting ``within the United States'' after ``any 
        such return''.
            (2) Assessable penalty.--Paragraph (2) of section 6713(a) 
        is amended by inserting ``within the United States'' after 
        ``any such return''.
    (c) Consent Form.--The Secretary of the Treasury shall prescribe a 
form to be used for obtaining consent to disclose or use information 
described in section 7216(a)(1) of the Internal Revenue Code of 1986 to 
or by a tax return preparer (as defined under section 7216(c) of such 
Code, as added by section 512) located outside of the United States. 
Such form shall contain a conspicuous statement notifying the taxpayer 
that--
            (1) the information will be disclosed to a tax return 
        preparer (as so defined) located outside of the United States; 
        and
            (2) Federal law may not protect the taxpayer from 
        unauthorized use or disclosure by such tax return preparer.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to disclosures and uses made after the date of the 
        enactment of this Act.
            (2) Application to regulations.--The provisions of clause 
        (i) of section 7216(b)(3)(C) of the Internal Revenue Code of 
        1986, as added by subsection (a), shall apply to regulations 
        issued before, on, or after the date of the enactment of this 
        Act.

  TITLE VI--UNITED STATES TAX COURT EMPLOYEE APPOINTMENT MODERNIZATION

SEC. 601. AMENDMENTS TO APPOINT EMPLOYEES.

    (a) In General.--Subsection (a) of section 7471 (relating to Tax 
Court employees) is amended to read as follows:
    ``(a) Appointment and Compensation.--
            ``(1) Clerk.--The Tax Court may appoint a clerk without 
        regard to the provisions of title 5, United States Code, 
        governing appointments in the competitive service. The clerk 
        shall serve at the pleasure of the Tax Court.
            ``(2) Law clerks and secretaries.--
                    ``(A) In general.--The judges and special trial 
                judges of the Tax Court may appoint law clerks and 
                secretaries, in such numbers as the Tax Court may 
                approve, without regard to the provisions of title 5, 
                United States Code, governing appointments in the 
                competitive service. Any such law clerk or secretary 
                shall serve at the pleasure of the appointing judge.
                    ``(B) Exemption from federal leave provisions.--A 
                law clerk appointed under this subsection shall be 
                exempt from the provisions of subchapter I of chapter 
                63 of title 5, United States Code. Any unused sick 
                leave or annual leave standing to the employee's credit 
                as of the effective date of this subsection shall 
                remain credited to the employee and shall be available 
                to the employee upon separation from the Federal 
                Government.
            ``(3) Other employees.--The Tax Court may appoint necessary 
        employees without regard to the provisions of title 5, United 
        States Code, governing appointments in the competitive service. 
        Such employees shall be subject to removal by the Tax Court.
            ``(4) Pay.--The Tax Court may fix and adjust the 
        compensation for the clerk and other employees of the Tax Court 
        without regard to the provisions of chapter 51, subchapter III 
        of chapter 53, or section 5373 of title 5, United States Code. 
        To the maximum extent feasible, the Tax Court shall compensate 
        employees at rates consistent with those for employees holding 
        comparable positions in the judicial branch.
            ``(5) Programs.--The Tax Court may establish programs for 
        employee evaluations, incentive awards, flexible work 
        schedules, premium pay, and resolution of employee grievances.
            ``(6) Discrimination prohibited.--The Tax Court shall--
                    ``(A) prohibit discrimination on the basis of race, 
                color, religion, age, sex, national origin, political 
                affiliation, marital status, or handicapping condition; 
                and
                    ``(B) promulgate procedures for resolving 
                complaints of discrimination by employees and 
                applicants for employment.
            ``(7) Experts and consultants.--The Tax Court may procure 
        the services of experts and consultants under section 3109 of 
        title 5, United States Code.
            ``(8) Rights to certain appeals reserved.--Notwithstanding 
        any other provision of law, an individual who is an employee of 
        the Tax Court on the day before the effective date of this 
        subsection and who, as of that day, was entitled to--
                    ``(A) appeal a reduction in grade or removal to the 
                Merit Systems Protection Board under chapter 43 of 
                title 5, United States Code,
                    ``(B) appeal an adverse action to the Merit Systems 
                Protection Board under chapter 75 of title 5, United 
                States Code,
                    ``(C) appeal a prohibited personnel practice 
                described under section 2302(b) of title 5, United 
                States Code, to the Merit Systems Protection Board 
                under chapter 77 of that title,
                    ``(D) make an allegation of a prohibited personnel 
                practice described under section 2302(b) of title 5, 
                United States Code, with the Office of Special Counsel 
                under chapter 12 of that title for action in accordance 
                with that chapter, or
                    ``(E) file an appeal with the Equal Employment 
                Opportunity Commission under part 1614 of title 29 of 
                the Code of Federal Regulations,
        shall be entitled to file such appeal or make such an 
        allegation so long as the individual remains an employee of the 
        Tax Court.
            ``(9) Competitive status.--Notwithstanding any other 
        provision of law, any employee of the Tax Court who has 
        completed at least 1 year of continuous service under a non-
        temporary appointment with the Tax Court acquires a competitive 
        status for appointment to any position in the competitive 
        service for which the employee possesses the required 
        qualifications.
            ``(10) Merit system principles; prohibited personnel 
        practices; and preference eligibles.--Any personnel management 
        system of the Tax Court shall--
                    ``(A) include the principles set forth in section 
                2301(b) of title 5, United States Code;
                    ``(B) prohibit personnel practices prohibited under 
                section 2302(b) of title 5, United States Code; and
                    ``(C) in the case of any individual who would be a 
                preference eligible in the executive branch, the Tax 
                Court will provide preference for that individual in a 
                manner and to an extent consistent with preference 
                accorded to preference eligibles in the executive 
                branch.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date the United States Tax Court adopts a personnel 
management system after the date of the enactment of this Act.

                  TITLE VII--MISCELLANEOUS PROVISIONS

SEC. 701. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 190 the following new section:

``SEC. 191. BROADBAND EXPENDITURES.

    ``(a) Treatment of Expenditures.--
            ``(1) In general.--A taxpayer may elect to treat any 
        qualified broadband expenditure which is paid or incurred by 
        the taxpayer as an expense which is not chargeable to capital 
        account. Any expenditure which is so treated shall be allowed 
        as a deduction.
            ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        prescribe by regulation.
    ``(b) Qualified Broadband Expenditures.--For purposes of this 
section--
            ``(1) In general.--The term `qualified broadband 
        expenditure' means, with respect to any taxable year, any 
        direct or indirect costs incurred after June 30, 2006, and 
        before January 1, 2011, and properly taken into account with 
        respect to--
                    ``(A) the purchase or installation of qualified 
                equipment (including any upgrades thereto), and
                    ``(B) the connection of such qualified equipment to 
                any qualified subscriber.
            ``(2) Certain satellite expenditures excluded.--Such term 
        shall not include any costs incurred with respect to the 
        launching of any satellite equipment.
            ``(3) Leased equipment.--Such term shall include so much of 
        the purchase price paid by the lessor of qualified equipment 
        subject to a lease described in subsection (c)(2)(B) as is 
        attributable to expenditures incurred by the lessee which would 
        otherwise be described in paragraph (1).
    ``(c) When Expenditures Taken Into Account.--For purposes of this 
section--
            ``(1) In general.--Qualified broadband expenditures with 
        respect to qualified equipment shall be taken into account with 
        respect to the first taxable year in which--
                    ``(A) current generation broadband services are 
                provided through such equipment to qualified 
                subscribers, or
                    ``(B) next generation broadband services are 
                provided through such equipment to qualified 
                subscribers.
            ``(2) Limitation.--
                    ``(A) In general.--Qualified expenditures shall be 
                taken into account under paragraph (1) only with 
                respect to qualified equipment--
                            ``(i) the original use of which commences 
                        with the taxpayer, and
                            ``(ii) which is placed in service, after 
                        the date of the enactment of this Act.
                    ``(B) Sale-leasebacks.--For purposes of 
                subparagraph (A), if property--
                            ``(i) is originally placed in service after 
                        the date of the enactment of this Act by any 
                        person, and
                            ``(ii) sold and leased back by such person 
                        within 3 months after the date such property 
                        was originally placed in service,
                such property shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback referred to in 
                clause (ii).
    ``(d) Special Allocation Rules.--
            ``(1) Current generation broadband services.--For purposes 
        of determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which current generation broadband services are 
        provided, if the qualified equipment is capable of serving both 
        qualified subscribers and other subscribers, the qualified 
        broadband expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of the 
                number of potential qualified subscribers within the 
                rural areas and the underserved areas which the 
                equipment is capable of serving with current generation 
                broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with current generation 
                broadband services.
            ``(2) Next generation broadband services.--For purposes of 
        determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which next generation broadband services are provided, 
        if the qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified broadband 
        expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of--
                            ``(i) the number of potential qualified 
                        subscribers within the rural areas and 
                        underserved areas, plus
                            ``(ii) the number of potential qualified 
                        subscribers within the area consisting only of 
                        residential subscribers not described in clause 
                        (i),
                which the equipment is capable of serving with next 
                generation broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with next generation 
                broadband services.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Antenna.--The term `antenna' means any device used to 
        transmit or receive signals through the electromagnetic 
        spectrum, including satellite equipment.
            ``(2) Cable operator.--The term `cable operator' has the 
        meaning given such term by section 602(5) of the Communications 
        Act of 1934 (47 U.S.C. 522(5)).
            ``(3) Commercial mobile service carrier.--The term 
        `commercial mobile service carrier' means any person authorized 
        to provide commercial mobile radio service as defined in 
        section 20.3 of title 47, Code of Federal Regulations.
            ``(4) Current generation broadband service.--The term 
        `current generation broadband service' means the transmission 
        of signals at a rate of at least 5,000,000 bits per second to 
        the subscriber and at least 1,000,000 bits per second from the 
        subscriber.
            ``(5) Multiplexing or demultiplexing.--The term 
        `multiplexing' means the transmission of 2 or more signals over 
        a single channel, and the term `demultiplexing' means the 
        separation of 2 or more signals previously combined by 
        compatible multiplexing equipment.
            ``(6) Next generation broadband service.--The term `next 
        generation broadband service' means the transmission of signals 
        at a rate of at least 50,000,000 bits per second to the 
        subscriber and at least 10,000,000 bits per second from the 
        subscriber.
            ``(7) Nonresidential subscriber.--The term `nonresidential 
        subscriber' means any person who purchases broadband services 
        which are delivered to the permanent place of business of such 
        person.
            ``(8) Open video system operator.--The term `open video 
        system operator' means any person authorized to provide service 
        under section 653 of the Communications Act of 1934 (47 U.S.C. 
        573).
            ``(9) Other wireless carrier.--The term `other wireless 
        carrier' means any person (other than a telecommunications 
        carrier, commercial mobile service carrier, cable operator, 
        open video system operator, or satellite carrier) providing 
        current generation broadband services or next generation 
        broadband service to subscribers through the radio transmission 
        of energy.
            ``(10) Packet switching.--The term `packet switching' means 
        controlling or routing the path of any digitized transmission 
        signal which is assembled into packets or cells.
            ``(11) Provider.--The term `provider' means, with respect 
        to any qualified equipment--
                    ``(A) a cable operator,
                    ``(B) a commercial mobile service carrier,
                    ``(C) an open video system operator,
                    ``(D) a satellite carrier,
                    ``(E) a telecommunications carrier, or
                    ``(F) any other wireless carrier,
        providing current generation broadband services or next 
        generation broadband services to subscribers through such 
        qualified equipment.
            ``(12) Provision of services.--A provider shall be treated 
        as providing services to 1 or more subscribers if--
                    ``(A) such a subscriber has been passed by the 
                provider's equipment and can be connected to such 
                equipment for a standard connection fee,
                    ``(B) the provider is physically able to deliver 
                current generation broadband services or next 
                generation broadband services, as applicable, to such a 
                subscriber without making more than an insignificant 
                investment with respect to such subscriber,
                    ``(C) the provider has made reasonable efforts to 
                make such subscribers aware of the availability of such 
                services,
                    ``(D) such services have been purchased by 1 or 
                more such subscribers, and
                    ``(E) such services are made available to such 
                subscribers at average prices comparable to those at 
                which the provider makes available similar services in 
                any areas in which the provider makes available such 
                services.
            ``(13) Qualified equipment.--
                    ``(A) In general.--The term `qualified equipment' 
                means equipment which provides current generation 
                broadband services or next generation broadband 
                services--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand to each 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
                    ``(B) Only certain investment taken into account.--
                Except as provided in subparagraph (C) or (D), 
                equipment shall be taken into account under 
                subparagraph (A) only to the extent it--
                            ``(i) extends from the last point of 
                        switching to the outside of the unit, building, 
                        dwelling, or office owned or leased by a 
                        subscriber in the case of a telecommunications 
                        carrier or broadband-over-powerline operator,
                            ``(ii) extends from the customer side of 
                        the mobile telephone switching office to a 
                        transmission/receive antenna (including such 
                        antenna) owned or leased by a subscriber in the 
                        case of a commercial mobile service carrier,
                            ``(iii) extends from the customer side of 
                        the headend to the outside of the unit, 
                        building, dwelling, or office owned or leased 
                        by a subscriber in the case of a cable operator 
                        or open video system operator, or
                            ``(iv) extends from a transmission/receive 
                        antenna (including such antenna) which 
                        transmits and receives signals to or from 
                        multiple subscribers, to a transmission/receive 
                        antenna (including such antenna) on the outside 
                        of the unit, building, dwelling, or office 
                        owned or leased by a subscriber in the case of 
                        a satellite carrier or other wireless carrier, 
                        unless such other wireless carrier is also a 
                        telecommunications carrier.
                    ``(C) Packet switching equipment.--Packet switching 
                equipment, regardless of location, shall be taken into 
                account under subparagraph (A) only if it is deployed 
                in connection with equipment described in subparagraph 
                (B) and is uniquely designed to perform the function of 
                packet switching for current generation broadband 
                services or next generation broadband services, but 
                only if such packet switching is the last in a series 
                of such functions performed in the transmission of a 
                signal to a subscriber or the first in a series of such 
                functions performed in the transmission of a signal 
                from a subscriber.
                    ``(D) Multiplexing and demultiplexing equipment.--
                Multiplexing and demultiplexing equipment shall be 
                taken into account under subparagraph (A) only to the 
                extent it is deployed in connection with equipment 
                described in subparagraph (B) and is uniquely designed 
                to perform the function of multiplexing and 
                demultiplexing packets or cells of data and making 
                associated application adaptions, but only if such 
                multiplexing or demultiplexing equipment is located 
                between packet switching equipment described in 
                subparagraph (C) and the subscriber's premises.
            ``(14) Qualified subscriber.--The term `qualified 
        subscriber' means--
                    ``(A) with respect to the provision of current 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber residing 
                        in a dwelling located in a rural area or 
                        underserved area which is not a saturated 
                        market, and
                    ``(B) with respect to the provision of next 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber.
            ``(15) Residential subscriber.--The term `residential 
        subscriber' means any individual who purchases broadband 
        services which are delivered to such individual's dwelling.
            ``(16) Rural area.--The term `rural area' means any census 
        tract which--
                    ``(A) is not within 10 miles of any incorporated or 
                census designated place containing more than 25,000 
                people, and
                    ``(B) is not within a county or county equivalent 
                which has an overall population density of more than 
                500 people per square mile of land.
            ``(17) Rural subscriber.--The term `rural subscriber' means 
        any residential subscriber residing in a dwelling located in a 
        rural area or nonresidential subscriber maintaining a permanent 
        place of business located in a rural area.
            ``(18) Satellite carrier.--The term `satellite carrier' 
        means any person using the facilities of a satellite or 
        satellite service licensed by the Federal Communications 
        Commission and operating in the Fixed-Satellite Service under 
        part 25 of title 47 of the Code of Federal Regulations or the 
        Direct Broadcast Satellite Service under part 100 of title 47 
        of such Code to establish and operate a channel of 
        communications for distribution of signals, and owning or 
        leasing a capacity or service on a satellite in order to 
        provide such point-to-multipoint distribution.
            ``(19) Saturated market.--The term `saturated market' means 
        any census tract in which, as of the date of the enactment of 
        this section--
                    ``(A) current generation broadband services have 
                been provided by a single provider to 85 percent or 
                more of the total number of potential residential 
                subscribers residing in dwellings located within such 
                census tract, and
                    ``(B) such services can be utilized--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand by each such 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
            ``(20) Subscriber.--The term `subscriber' means any person 
        who purchases current generation broadband services or next 
        generation broadband services.
            ``(21) Telecommunications carrier.--The term 
        `telecommunications carrier' has the meaning given such term by 
        section 3(44) of the Communications Act of 1934 (47 U.S.C. 
        153(44)), but--
                    ``(A) includes all members of an affiliated group 
                of which a telecommunications carrier is a member, and
                    ``(B) does not include a commercial mobile service 
                carrier.
            ``(22) Total potential subscriber population.--The term 
        `total potential subscriber population' means, with respect to 
        any area and based on the most recent census data, the total 
        number of potential residential subscribers residing in 
        dwellings located in such area and potential nonresidential 
        subscribers maintaining permanent places of business located in 
        such area.
            ``(23) Underserved area.--The term `underserved area' 
        means--
                    ``(A) any census tract which is located in--
                            ``(i) an empowerment zone or enterprise 
                        community designated under section 1391, or
                            ``(ii) the District of Columbia Enterprise 
                        Zone established under section 1400, or
                    ``(B) any census tract--
                            ``(i) the poverty level of which is at 
                        least 30 percent (based on the most recent 
                        census data), and
                            ``(ii) the median family income of which 
                        does not exceed--
                                    ``(I) in the case of a census tract 
                                located in a metropolitan statistical 
                                area, 70 percent of the greater of the 
                                metropolitan area median family income 
                                or the statewide median family income, 
                                and
                                    ``(II) in the case of a census 
                                tract located in a nonmetropolitan 
                                statistical area, 70 percent of the 
                                nonmetropolitan statewide median family 
                                income.
            ``(24) Underserved subscriber.--The term `underserved 
        subscriber' means any residential subscriber residing in a 
        dwelling located in an underserved area or nonresidential 
        subscriber maintaining a permanent place of business located in 
        an underserved area.
    ``(f) Special Rules.--
            ``(1) Property used outside the united states, etc., not 
        qualified.--No expenditures shall be taken into account under 
        subsection (a)(1) with respect to the portion of the cost of 
        any property referred to in section 50(b) or with respect to 
        the portion of the cost of any property specified in an 
        election under section 179.
            ``(2) Basis reduction.--
                    ``(A) In general.--For purposes of this title, the 
                basis of any property shall be reduced by the portion 
                of the cost of such property taken into account under 
                subsection (a)(1).
                    ``(B) Ordinary income recapture.--For purposes of 
                section 1245, the amount of the deduction allowable 
                under subsection (a)(1) with respect to any property 
                which is of a character subject to the allowance for 
                depreciation shall be treated as a deduction allowed 
                for depreciation under section 167.
            ``(3) Coordination with section 38.--No credit shall be 
        allowed under section 38 with respect to any amount for which a 
        deduction is allowed under subsection (a)(1).''.
    (b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 512(b) (relating to modifications) is amended by adding at the 
end the following new paragraph:
            ``(20) Special rule for mutual or cooperative telephone 
        companies.--A mutual or cooperative telephone company which for 
        the taxable year satisfies the requirements of section 
        501(c)(12)(A) may elect to reduce its unrelated business 
        taxable income for such year, if any, by an amount that does 
        not exceed the qualified broadband expenditures which would be 
        taken into account under section 191 for such year by such 
        company if such company was not exempt from taxation. Any 
        amount which is allowed as a deduction under this paragraph 
        shall not be allowed as a deduction under section 191 and the 
        basis of any property to which this paragraph applies shall be 
        reduced under section 1016(a)(38).''.
    (c) Conforming Amendments.--
            (1) Section 263(a)(1) (relating to capital expenditures) is 
        amended by striking ``or'' at the end of subparagraph (J), by 
        striking the period at the end of subparagraph (K) and 
        inserting ``, or'', and by adding at the end the following new 
        subparagraph:
                    ``(L) expenditures for which a deduction is allowed 
                under section 191.''.
            (2) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (36), by striking the period at the end of 
        paragraph (37) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(38) to the extent provided in section 191(f)(2).''.
            (3) The table of sections for part VI of subchapter A of 
        chapter 1 is amended by inserting after the item relating to 
        section 190 the following new item:

``Sec. 191. Broadband expenditures.''.
    (d) Designation of Census Tracts.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than 90 days after the date of the enactment of this Act, 
        designate and publish those census tracts meeting the criteria 
        described in paragraphs (16), (22), and (23) of section 191(e) 
        of the Internal Revenue Code of 1986 (as added by this 
        section). In making such designations, the Secretary of the 
        Treasury shall consult with such other departments and agencies 
        as the Secretary determines appropriate.
            (2) Saturated market.--
                    (A) In general.--For purposes of designating and 
                publishing those census tracts meeting the criteria 
                described in subsection (e)(19) of such section 191--
                            (i) the Secretary of the Treasury shall 
                        prescribe not later than 30 days after the date 
                        of the enactment of this Act the form upon 
                        which any provider which takes the position 
                        that it meets such criteria with respect to any 
                        census tract shall submit a list of such census 
                        tracts (and any other information required by 
                        the Secretary) not later than 60 days after the 
                        date of the publication of such form, and
                            (ii) the Secretary of the Treasury shall 
                        publish an aggregate list of such census tracts 
                        and the applicable providers not later than 30 
                        days after the last date such submissions are 
                        allowed under clause (i).
                    (B) No subsequent lists required.--The Secretary of 
                the Treasury shall not be required to publish any list 
                of census tracts meeting such criteria subsequent to 
                the list described in subparagraph (A)(ii).
    (e) Other Regulatory Matters.--
            (1) Prohibition.--No Federal or State agency or 
        instrumentality shall adopt regulations or ratemaking 
        procedures that would have the effect of eliminating or 
        reducing any deduction or portion thereof allowed under section 
        191 of the Internal Revenue Code of 1986 (as added by this 
        section) or otherwise subverting the purpose of this section.
            (2) Treasury regulatory authority.--It is the intent of 
        Congress in providing the election to deduct qualified 
        broadband expenditures under section 191 of the Internal 
        Revenue Code of 1986 (as added by this section) to provide 
        incentives for the purchase, installation, and connection of 
        equipment and facilities offering expanded broadband access to 
        the Internet for users in certain low income and rural areas of 
        the United States, as well as to residential users nationwide, 
        in a manner that maintains competitive neutrality among the 
        various classes of providers of broadband services. 
        Accordingly, the Secretary of the Treasury shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of section 191 of such Code, including--
                    (A) regulations to determine how and when a 
                taxpayer that incurs qualified broadband expenditures 
                satisfies the requirements of section 191 of such Code 
                to provide broadband services, and
                    (B) regulations describing the information, 
                records, and data taxpayers are required to provide the 
                Secretary to substantiate compliance with the 
                requirements of section 191 of such Code.

SEC. 702. MODIFICATION OF REFUNDS FOR KEROSENE USED IN AVIATION.

    (a) In General.--Paragraph (4) of section 6427(l) (relating to 
nontaxable uses of diesel fuel and kerosene) is amended to read as 
follows:
            ``(4) Refunds for kerosene used in aviation.--
                    ``(A) Kerosene used in commercial aviation.--In the 
                case of kerosene used in commercial aviation (as 
                defined in section 4083(b)) (other than supplies for 
                vessels or aircraft within the meaning of section 
                4221(d)(3)), paragraph (1) shall not apply to so much 
                of the tax imposed by section 4081 as is attributable 
                to--
                            ``(i) the Leaking Underground Storage Tank 
                        Trust Fund financing rate imposed by such 
                        section, and
                            ``(ii) so much of the rate of tax specified 
                        in section 4081(a)(2)(A)(iii) as does not 
                        exceed 4.3 cents per gallon.
                    ``(B) Kerosene used in noncommercial aviation.--In 
                the case of kerosene used in aviation that is not 
                commercial aviation (as so defined) (other than any use 
                which is exempt from the tax imposed by section 4041(c) 
                other than by reason of a prior imposition of tax), 
                paragraph (1) shall not apply to so much of the tax 
                imposed by section 4081 as is attributable to--
                            ``(i) the Leaking Underground Storage Tank 
                        Trust Fund financing rate imposed by such 
                        section, and
                            ``(ii) so much of the rate of tax specified 
                        in section 4081(a)(2)(A)(iii) as does not 
                        exceed the rate specified in section 
                        4081(a)(2)(C)(ii).
                    ``(C) Payments to ultimate, registered vendor.--
                            ``(i) In general.--With respect to any 
                        kerosene used in aviation (other than kerosene 
                        described in clause (ii) or kerosene to which 
                        paragraph (5) applies), if the ultimate 
                        purchaser of such kerosene waives (at such time 
                        and in such form and manner as the Secretary 
                        shall prescribe) the right to payment under 
                        paragraph (1) and assigns such right to the 
                        ultimate vendor, then the Secretary shall pay 
                        the amount which would be paid under paragraph 
                        (1) to such ultimate vendor, but only if such 
                        ultimate vendor--
                                    ``(I) is registered under section 
                                4101, and
                                    ``(II) meets the requirements of 
                                subparagraph (A), (B), or (D) of 
                                section 6416(a)(1).
                            ``(ii) Payments for kerosene used in 
                        noncommercial aviation.--The amount which would 
                        be paid under paragraph (1) with respect to any 
                        kerosene to which subparagraph (B) applies 
                        shall be paid only to the ultimate vendor of 
                        such kerosene. A payment shall be made to such 
                        vendor if such vendor--
                                    ``(I) is registered under section 
                                4101, and
                                    ``(II) meets the requirements of 
                                subparagraph (A), (B), or (D) of 
                                section 6416(a)(1).''.
    (b) Conforming Amendments.--
            (1) Section 6427(l) is amended by striking paragraph (5) 
        and by redesignating paragraph (6) as paragraph (5).
            (2) Section 4082(d)(2)(B) is amended by striking ``section 
        6427(l)(6)(B)'' and inserting ``section 6427(l)(5)(B)''.
            (3) Section 6427(i)(4)(A) is amended--
                    (A) by striking ``paragraph (4)(B), (5), or (6)'' 
                each place it appears and inserting ``paragraph (4)(C) 
                or (5)'', and
                    (B) by striking ``(l)(5), and (l)(6)'' and 
                inserting ``(l)(4)(C)(ii), and (l)(5)''.
            (4) Section 6427(l)(1) is amended by striking ``paragraph 
        (4)(B)'' and inserting ``paragraph (4)(C)(i)''.
            (5) Section 9502(d) is amended--
                    (A) in paragraph (2), by striking ``and (l)(5)'', 
                and
                    (B) in paragraph (3), by striking ``or (5)''.
            (6) Section 9503(c)(7) is amended--
                    (A) in subparagraph (A), by striking ``section 
                6427(l)(4)'' and inserting ``section 6427(l)(4)(A)'',
                    (B) in subparagraph (B), by striking ``section 
                6427(l)(5)'' and inserting ``section 6427(l)(4)(B)'', 
                and
                    (C) in the matter following subparagraph (B), by 
                striking ``or (5)''.
            (7)(A) Section 9503(c), as amended by paragraph (6), is 
        amended by redesignating paragraph (7) as paragraph (6).
            (B) Section 9502(a) is amended by striking ``section 
        9503(c)(7)'' and inserting ``section 9503(c)(6)''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to kerosene sold after September 30, 2005.
            (2) Special rule for pending claims.--In the case of 
        kerosene sold for use in aviation (other than kerosene to which 
        section 6427(l)(4)(C)(ii) of the Internal Revenue Code of 1986 
        (as added by subsection (a)) applies or kerosene to which 
        section 6427(l)(5) of such Code (as redesignated by subsection 
        (b)) applies) after September 30, 2005, and before the date of 
        the enactment of this Act, the ultimate purchaser shall be 
        treated as having waived the right to payment under section 
        6427(l)(1) of such Code and as having assigned such right to 
        the ultimate vendor if such ultimate vendor has met the 
        requirements of subparagraph (A), (B), or (D) of section 
        6416(a)(1) of such Code.
    (d) Special Rule for Kerosene Used in Aviation on a Farm for 
Farming Purposes.--
            (1) Refunds for purchases after december 31, 2004, and 
        before october 1, 2005.--The Secretary of the Treasury shall 
        pay to the ultimate purchaser of any kerosene which is used in 
        aviation on a farm for farming purposes and which was purchased 
        after December 31, 2004, and before October 1, 2005, an amount 
        equal to the aggregate amount of tax imposed on such fuel under 
        section 4041 or 4081 of the Internal Revenue Code of 1986, as 
        the case may be, reduced by any payment to the ultimate vendor 
        under section 6427(l)(5)(C) of such Code (as in effect on the 
        day before the date of the enactment of the Safe, Accountable, 
        Flexible, Efficient Transportation Equity Act: a Legacy for 
        Users).
            (2) Use on a farm for farming purposes.--For purposes of 
        paragraph (1), kerosene shall be treated as used on a farm for 
        farming purposes if such kerosene is used for farming purposes 
        (within the meaning of section 6420(c)(3) of the Internal 
        Revenue Code of 1986) in carrying on a trade or business on a 
        farm situated in the United States. For purposes of the 
        preceding sentence, rules similar to the rules of section 
        6420(c)(4) of such Code shall apply.
            (3) Time for filing claims.--No claim shall be allowed 
        under paragraph (1) unless the ultimate purchaser files such 
        claim before the date that is 3 months after the date of the 
        enactment of this Act.
            (4) No double benefit.--No amount shall be paid under 
        paragraph (1) or section 6427(l) of the Internal Revenue Code 
        of 1986 with respect to any kerosene described in paragraph (1) 
        to the extent that such amount is in excess of the tax imposed 
        on such kerosene under section 4041 or 4081 of such Code, as 
        the case may be.
            (5) Applicable laws.--For purposes of this subsection, 
        rules similar to the rules of section 6427(j) of the Internal 
        Revenue Code of 1986 shall apply.

SEC. 703. DECLARATIONS ON FEDERAL CORPORATE INCOME TAX RETURNS.

    (a) In General.--Section 6062 is amended by inserting ``, and shall 
include a declaration signed, under penalties of perjury, that the 
corporation has in place processes and procedures to ensure that such 
return complies with the Internal Revenue Code of 1986 and that the 
chief executive officer was provided reasonable assurance of the 
accuracy of all material aspects of such return'' after ``authorized so 
to act''.
    (b) Effective Date.--The amendment made by this section shall apply 
to the Federal annual tax return of a corporation with respect to 
income for taxable years ending after the date of the enactment of this 
Act.

SEC. 704. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

    (a) Employment Taxes.--Chapter 25 (relating to general provisions 
relating to employment taxes) is amended by adding at the end the 
following new section:

``SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

    ``(a) General Rules.--For purposes of the taxes, and other 
obligations, imposed by this subtitle--
            ``(1) a certified professional employer organization shall 
        be treated as the employer (and no other person shall be 
        treated as the employer) of any work site employee performing 
        services for any customer of such organization, but only with 
        respect to remuneration remitted by such organization to such 
        work site employee, and
            ``(2) exclusions, definitions, and other rules which are 
        based on the type of employer and which would (but for 
        paragraph (1)) apply shall apply with respect to such taxes 
        imposed on such remuneration.
    ``(b) Successor Employer Status.--For purposes of sections 
3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)--
            ``(1) a certified professional employer organization 
        entering into a service contract with a customer with respect 
        to a work site employee shall be treated as a successor 
        employer and the customer shall be treated as a predecessor 
        employer during the term of such service contract, and
            ``(2) a customer whose service contract with a certified 
        professional employer organization is terminated with respect 
        to a work site employee shall be treated as a successor 
        employer and the certified professional employer organization 
        shall be treated as a predecessor employer.
    ``(c) Liability of Certified Professional Employer Organization.--
Solely for purposes of its liability for the taxes, and other 
obligations, imposed by this subtitle--
            ``(1) a certified professional employer organization shall 
        be treated as the employer of any individual (other than a work 
        site employee or a person described in subsection (f)) who is 
        performing services covered by a contract meeting the 
        requirements of section 7705(e)(2), but only with respect to 
        remuneration remitted by such organization to such individual, 
        and
            ``(2) exclusions, definitions, and other rules which are 
        based on the type of employer and which would (but for 
        paragraph (1)) apply shall apply with respect to such taxes 
        imposed on such remuneration.
    ``(d) Treatment of Credits.--
            ``(1) In general.--For purposes of any credit specified in 
        paragraph (2)--
                    ``(A) such credit with respect to a work site 
                employee performing services for the customer applies 
                to the customer, not the certified professional 
                employer organization,
                    ``(B) the customer, and not the certified 
                professional employer organization, shall take into 
                account wages and employment taxes--
                            ``(i) paid by the certified professional 
                        employer organization with respect to the work 
                        site employee, and
                            ``(ii) for which the certified professional 
                        employer organization receives payment from the 
                        customer, and
                    ``(C) the certified professional employer 
                organization shall furnish the customer with any 
                information necessary for the customer to claim such 
                credit.
            ``(2) Credits specified.--A credit is specified in this 
        paragraph if such credit is allowed under--
                    ``(A) section 41 (credit for increasing research 
                activity),
                    ``(B) section 45A (Indian employment credit),
                    ``(C) section 45B (credit for portion of employer 
                social security taxes paid with respect to employee 
                cash tips).
                    ``(D) section 45C (clinical testing expenses for 
                certain drugs for rare diseases or conditions),
                    ``(E) section 51 (work opportunity credit),
                    ``(F) section 51A (temporary incentives for 
                employing long-term family assistance recipients),
                    ``(G) section 1396 (empowerment zone employment 
                credit),
                    ``(H) 1400(d) (DC Zone employment credit),
                    ``(I) Section 1400H (renewal community employment 
                credit), and
                    ``(J) any other section as provided by the 
                Secretary.
    ``(e) Special Rule for Related Party.--This section shall not apply 
in the case of a customer which bears a relationship to a certified 
professional employer organization described in section 267(b) or 
707(b). For purposes of the preceding sentence, such sections shall be 
applied by substituting `10 percent' for `50 percent'.
    ``(f) Special Rule for Certain Individuals.--For purposes of the 
taxes imposed under this subtitle, an individual with net earnings from 
self-employment derived from the customer's trade or business is not a 
work site employee with respect to remuneration paid by a certified 
professional employer organization.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (b) Certified Professional Employer Organization Defined.--Chapter 
79 (relating to definitions) is amended by adding at the end the 
following new section:

``SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.

    ``(a) In General.--For purposes of this title, the term `certified 
professional employer organization' means a person who has been 
certified by the Secretary for purposes of section 3511 as meeting the 
requirements of subsection (b).
    ``(b) General Requirements.--A person meets the requirements of 
this subsection if such person--
            ``(1) demonstrates that such person (and any owner, 
        officer, and such other persons as may be specified in 
        regulations) meets such requirements as the Secretary shall 
        establish with respect to tax status, background, experience, 
        business location, and annual financial audits,
            ``(2) computes its taxable income using an accrual method 
        of accounting unless the Secretary approves another method,
            ``(3) agrees that it will satisfy the bond and independent 
        financial review requirements of subsection (c) on an ongoing 
        basis,
            ``(4) agrees that it will satisfy such reporting 
        obligations as may be imposed by the Secretary,
            ``(5) agrees to verify on such periodic basis as the 
        Secretary may prescribe that it continues to meet the 
        requirements of this subsection, and
            ``(6) agrees to notify the Secretary in writing within such 
        time as the Secretary may prescribe of any change that 
        materially affects whether it continues to meet the 
        requirements of this subsection.
    ``(c) Bond and Independent Financial Review Requirements.--
            ``(1) In general.--An organization meets the requirements 
        of this paragraph if such organization--
                    ``(A) meets the bond requirements of paragraph (2), 
                and
                    ``(B) meets the independent financial review 
                requirements of paragraph (3).
            ``(2) Bond.--
                    ``(A) In general.--A certified professional 
                employer organization meets the requirements of this 
                paragraph if the organization has posted a bond for the 
                payment of taxes under subtitle C (in a form acceptable 
                to the Secretary) in an amount at least equal to the 
                amount specified in subparagraph (B).
                    ``(B) Amount of bond.--For the period April 1 of 
                any calendar year through March 31 of the following 
                calendar year, the amount of the bond required is equal 
                to the greater of--
                            ``(i) 5 percent of the organization's 
                        liability under section 3511 for taxes imposed 
                        by subtitle C during the preceding calendar 
                        year (but not to exceed $1,000,000), or
                            ``(ii) $50,000.
            ``(3) Independent financial review requirements.--A 
        certified professional employer organization meets the 
        requirements of this paragraph if such organization--
                    ``(A) has, as of the most recent review date, 
                caused to be prepared and provided to the Secretary (in 
                such manner as the Secretary may prescribe) an opinion 
                of an independent certified public accountant that the 
                certified professional employer organization's 
                financial statements are presented fairly in accordance 
                with generally accepted accounting principles, and
                    ``(B) provides, not later than the last day of the 
                second month beginning after the end of each calendar 
                quarter, to the Secretary from an independent certified 
                public accountant an assertion regarding Federal 
                employment tax payments and an examination level 
                attestation on such assertion.
        Such assertion shall state that the organization has withheld 
        and made deposits of all taxes imposed by chapters 21, 22, and 
        24 of the Internal Revenue Code in accordance with regulations 
        imposed by the Secretary for such calendar quarter and such 
        examination level attestation shall state that such assertion 
        is fairly stated, in all material respects.
            ``(4) Controlled group rules.--For purposes of the 
        requirements of paragraphs (2) and (3), all professional 
        employer organizations that are members of a controlled group 
        within the meaning of sections 414(b) and (c) shall be treated 
        as a single organization.
            ``(5) Failure to file assertion and attestation.--If the 
        certified professional employer organization fails to file the 
        assertion and attestation required by paragraph (3) with 
        respect to any calendar quarter, then the requirements of 
        paragraph (3) with respect to such failure shall be treated as 
        not satisfied for the period beginning on the due date for such 
        attestation.
            ``(6) Review date.--For purposes of paragraph (3)(A), the 
        review date shall be 6 months after the completion of the 
        organization's fiscal year.
    ``(d) Suspension and Revocation Authority.--The Secretary may 
suspend or revoke a certification of any person under subsection (b) 
for purposes of section 3511 if the Secretary determines that such 
person is not satisfying the representations or requirements of 
subsections (b) or (c), or fails to satisfy applicable accounting, 
reporting, payment, or deposit requirements.
    ``(e) Work Site Employee.--For purposes of this title--
            ``(1) In general.--The term `work site employee' means, 
        with respect to a certified professional employer organization, 
        an individual who--
                    ``(A) performs services for a customer pursuant to 
                a contract which is between such customer and the 
                certified professional employer organization and which 
                meets the requirements of paragraph (2), and
                    ``(B) performs services at a work site meeting the 
                requirements of paragraph (3).
            ``(2) Service contract requirements.--A contract meets the 
        requirements of this paragraph with respect to an individual 
        performing services for a customer if such contract is in 
        writing and provides that the certified professional employer 
        organization shall--
                    ``(A) assume responsibility for payment of wages to 
                such individual, without regard to the receipt or 
                adequacy of payment from the customer for such 
                services,
                    ``(B) assume responsibility for reporting, 
                withholding, and paying any applicable taxes under 
                subtitle C, with respect to such individual's wages, 
                without regard to the receipt or adequacy of payment 
                from the customer for such services,
                    ``(C) assume responsibility for any employee 
                benefits which the service contract may require the 
                organization to provide, without regard to the receipt 
                or adequacy of payment from the customer for such 
                services,
                    ``(D) assume responsibility for hiring, firing, and 
                recruiting workers in addition to the customer's 
                responsibility for hiring, firing and recruiting 
                workers,
                    ``(E) maintain employee records relating to such 
                individual, and
                    ``(F) agree to be treated as a certified 
                professional employer organization for purposes of 
                section 3511 with respect to such individual.
            ``(3) Work site coverage requirement.--The requirements of 
        this paragraph are met with respect to an individual if at 
        least 85 percent of the individuals performing services for the 
        customer at the work site where such individual performs 
        services are subject to 1 or more contracts with the certified 
        professional employer organization which meet the requirements 
        of paragraph (2) (but not taking into account those individuals 
        who are excluded employees within the meaning of section 
        414(q)(5)).
    ``(f) Determination of Employment Status.--Except to the extent 
necessary for purposes of section 3511, nothing in this section shall 
be construed to affect the determination of who is an employee or 
employer for purposes of this title.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section.''.
    (c) Conforming Amendments.--
            (1) Section 3302 is amended by adding at the end the 
        following new subsection:
    ``(h) Treatment of Certified Professional Employer Organizations.--
If a certified professional employer organization (as defined in 
section 7705), or a customer of such organization, makes a contribution 
to the State's unemployment fund with respect to a work site employee, 
such organization shall be eligible for the credits available under 
this section with respect to such contribution.''.
            (2) Section 3303(a) is amended--
                    (A) by striking the period at the end of paragraph 
                (3) and inserting ``; and'' and by inserting after 
                paragraph (3) the following new paragraph:
            ``(4) if the taxpayer is a certified professional employer 
        organization (as defined in section 7705) that is treated as 
        the employer under section 3511, such certified professional 
        employer organization is permitted to collect and remit, in 
        accordance with paragraphs (1), (2), and (3), contributions 
        during the taxable year to the State unemployment fund with 
        respect to a work site employee.'', and
                    (B) in the last sentence--
                            (i) by striking ``paragraphs (1), (2), and 
                        (3)'' and inserting ``paragraphs (1), (2), (3), 
                        and (4)'', and
                            (ii) by striking ``paragraph (1), (2), or 
                        (3)'' and inserting ``paragraph (1), (2), (3), 
                        or (4)''.
            (3) Section 6053(c) (relating to reporting of tips) is 
        amended by adding at the end the following new paragraph:
            ``(8) Certified professional employer organizations.--For 
        purposes of any report required by this subsection, in the case 
        of a certified professional employer organization that is 
        treated under section 3511 as the employer of a work site 
        employee, the customer with respect to whom a work site 
        employee performs services shall be the employer for purposes 
        of reporting under this section and the certified professional 
        employer organization shall furnish to the customer any 
        information necessary to complete such reporting no later than 
        such time as the Secretary shall prescribe.''.
    (d) Clerical Amendments.--
            (1) The table of sections for chapter 25 is amended by 
        adding at the end the following new item:

``Sec. 3511. Certified professional employer organizations.''.
            (2) The table of sections for chapter 79 is amended by 
        inserting after the item relating to section 7704 the following 
        new item:

``Sec. 7705. Certified professional employer organizations.''.
    (e) Reporting Requirements and Obligations.--The Secretary of the 
Treasury shall develop such reporting and recordkeeping rules, 
regulations, and procedures as the Secretary determines necessary or 
appropriate to ensure compliance with the amendments made by this 
section with respect to entities applying for certification as 
certified professional employer organizations or entities that have 
been so certified. Such rules shall be designed in a manner which 
streamlines, to the extent possible, the application of requirements of 
such amendments, the exchange of information between a certified 
professional employer organization and its customers, and the reporting 
and recordkeeping obligations of the certified professional employer 
organization.
    (f) User Fees.--Subsection (b) of section 7528 (relating to 
Internal Revenue Service user fees) is amended by adding at the end the 
following new paragraph:
            ``(4) Certified professional employer organizations.--The 
        fee charged under the program in connection with the 
        certification by the Secretary of a professional employer 
        organization under section 7705 shall not exceed $500.''.
    (g) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply with respect to wages for services performed on or after 
        January 1 of the first calendar year beginning more than 12 
        months after the date of the enactment of this Act.
            (2) Certification program.--The Secretary of the Treasury 
        shall establish the certification program described in section 
        7705(b) of the Internal Revenue Code of 1986, as added by 
        subsection (b), not later than 6 months before the effective 
        date determined under paragraph (1).
    (h) No Inference.--Nothing contained in this section or the 
amendments made by this section shall be construed to create any 
inference with respect to the determination of who is an employee or 
employer--
            (1) for Federal tax purposes (other than the purposes set 
        forth in the amendments made by this section), or
            (2) for purposes of any other provision of law.

SEC. 705. STUDY ON COLLECTING ESTIMATED TAX PAYMENTS THROUGH THE 
              ELECTRONIC FUND TRANSFER SYSTEM.

    (a) Study.--The Secretary of the Treasury, in consultation with the 
National Taxpayer Advocate, shall undertake a study on increasing 
collection of estimated tax payments under the electronic fund transfer 
system implemented under section 6302(h) of the Internal Revenue Code 
of 1986.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary of the Treasury shall prepare and submit to 
Congress a report on the study conducted pursuant to subsection (a).

SEC. 706. STUDY ON USE OF VOLUNTARY WITHHOLDING AGREEMENTS.

    (a) Study.--The Secretary of the Treasury, in consultation with the 
National Taxpayer Advocate, shall undertake a study on the use of 
voluntary agreements between independent contractors and service 
recipients regarding the withholding of income and employment taxes.
    (b) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary of the Treasury shall prepare and submit to 
Congress a report on the study conducted pursuant to subsection (a). 
Such report shall include any statutory changes necessary to implement 
any recommendations resulting from the study.

SEC. 707. OFFSET OF STATE JUDICIAL DEBTS AGAINST INCOME TAX REFUND.

    (a) In General.--Section 6402 (relating to authority to make 
credits or refunds) is amended by redesignating subsections (f) through 
(k) as subsections (g) through (l), respectively, and by inserting 
after subsection (e) the following new subsection:
    ``(f) Collection of Past-Due, Legally Enforceable State Judicial 
Debts.--
            ``(1) In general.--Upon receiving notice from any State 
        judicial branch or State agency designated by the chief justice 
        of the State's highest court that a named person owes a past-
        due, legally enforceable State judicial debt to or in such 
        State, the Secretary shall, under such conditions as may be 
        prescribed by the Secretary--
                    ``(A) reduce the amount of any overpayment payable 
                to such person by the amount of such State judicial 
                debt;
                    ``(B) pay the amount by which such overpayment is 
                reduced under subparagraph (A) to such State judicial 
                branch or State agency and notify such State judicial 
                branch or State agency of such person's name, taxpayer 
                identification number, address, and the amount 
                collected; and
                    ``(C) notify the person making such overpayment 
                that the overpayment has been reduced by an amount 
                necessary to satisfy a past-due, legally enforceable 
                State judicial debt.
        If an offset is made pursuant to a joint return, the notice 
        under subparagraph (B) shall include the names, taxpayer 
        identification numbers, and addresses of each person filing 
        such return.
            ``(2) Offset permitted only against residents of state 
        seeking offset.--Paragraph (1) shall apply to an overpayment by 
        any person for a taxable year only if the address shown on the 
        Federal return for such taxable year is an address within the 
        State of the State judicial branch or State agency seeking the 
        offset.
            ``(3) Priorities for offset.--Any overpayment by a person 
        shall be reduced pursuant to this subsection--
                    ``(A) after such overpayment is reduced pursuant 
                to--
                            ``(i) subsection (a) with respect to any 
                        liability for any internal revenue tax on the 
                        part of the person who made the overpayment;
                            ``(ii) subsection (c) with respect to past-
                        due support;
                            ``(iii) subsection (d) with respect to any 
                        past-due, legally enforceable debt owed to a 
                        Federal agency; and
                            ``(iv) subsection (e) with respect to any 
                        past-due, legally enforceable State income tax 
                        obligations; and
                    ``(B) before such overpayment is credited to the 
                future liability for any Federal internal revenue tax 
                of such person pursuant to subsection (b).
        If the Secretary receives notice from 1 or more State agencies, 
        or from 1 or more State agencies and the State judicial branch, 
        of more than 1 debt subject to paragraph (1) that is owed by 
        such person to such State agency or State judicial branch, any 
        overpayment by such person shall be applied against such debts 
        in the order in which such debts accrued.
            ``(4) Notice; consideration of evidence.--Rules similar to 
        the rules of subsection (e)(4) shall apply with respect to 
        debts under this subsection.
            ``(5) Past-due, legally enforceable state judicial debt.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `past-due, legally enforceable State judicial 
                debt' means a debt--
                            ``(i) which resulted from a judgment or 
                        sentence rendered by any court or tribunal of 
                        competent jurisdiction which--
                                    ``(I) handles criminal or traffic 
                                cases in the State; and
                                    ``(II) has determined an amount of 
                                State judicial debt to be due; and
                            ``(ii) which resulted from a State judicial 
                        debt which has been assessed and is past-due 
                        but not collected.
                    ``(B) State judicial debt.--For purposes of this 
                paragraph, the term `State judicial debt' includes 
                court costs, fees, fines, assessments, restitution to 
                victims of crime, and other monies resulting from a 
                judgment or sentence rendered by any court or tribunal 
                of competent jurisdiction handling criminal or traffic 
                cases in the State.
            ``(6) Regulations.--The Secretary shall issue regulations 
        prescribing the time and manner in which State judicial 
        branches and State agencies must submit notices of past-due, 
        legally enforceable State judicial debts and the necessary 
        information that must be contained in or accompany such 
        notices. The regulations shall specify the types of State 
        judicial monies and the minimum amount of debt to which the 
        reduction procedure established by paragraph (1) may be 
        applied. The regulations may require State judicial branches 
        and State agencies to pay a fee to reimburse the Secretary for 
        the cost of applying such procedure. Any fee paid to the 
        Secretary pursuant to the preceding sentence shall be used to 
        reimburse appropriations which bore all or part of the cost of 
        applying such procedure.
            ``(7) Erroneous payment to state.--Any State judicial 
        branch or State agency receiving notice from the Secretary that 
        an erroneous payment has been made to such State judicial 
        branch or State agency under paragraph (1) shall pay promptly 
        to the Secretary, in accordance with such regulations as the 
        Secretary may prescribe, an amount equal to the amount of such 
        erroneous payment (without regard to whether any other amounts 
        payable to such State judicial branch or State agency under 
        such paragraph have been paid to such State judicial branch or 
        State agency).''.
    (b) Disclosure of Return Information.--Section 6103(l)(10) 
(relating to disclosure of certain information to agencies requesting a 
reduction under subsection (c), (d), or (e) of section 6402) is amended 
by striking ``or (e)'' each place it appears in the text and heading 
and inserting ``(e), or (f)''.
    (c) Conforming Amendments.--
            (1) Section 6402(a) is amended by striking ``and (e)'' and 
        inserting ``(e), and (f)''.
            (2) Paragraph (2) of section 6402(d) is amended by striking 
        ``subsection (e)'' and inserting ``subsections (e) and (f)''.
            (3) Paragraph (3)(B) of section 6402(e) is amended to read 
        as follows:
                    ``(B) before such overpayment is--
                            ``(i) reduced pursuant to subsection (f) 
                        with respect to past-due, legally enforceable 
                        State judicial debts, and
                            ``(ii) credited to the future liability for 
                        any Federal internal revenue tax of such person 
                        pursuant to subsection (b).''.
            (4) Section 6402(g), as so redesignated, is amended by 
        striking ``or (e)'' and inserting ``(e), or (f)''.
            (5) Section 6402(i), as so redesignated, is amended by 
        striking ``or (e)'' and inserting ``, (e), or (f)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to refunds payable for taxable years ending after the date of the 
enactment of this Act.

SEC. 708. CLARIFICATION OF RESPONSIBILITIES OF UNITED STATES MARSHALS 
              ATTENDING THE TAX COURT.

    (a) In General.--Subsection (c) of section 7456 is amended by 
inserting ``, and shall provide for the security of the Tax Court, 
including the personal protection of Tax Court judges, court officers, 
witnesses, and other threatened persons in the interests of justice 
where criminal intimidation impedes on the functioning of the judicial 
process or any other official proceeding of the Tax Court.''.
    (b) Conforming Amendment.--Subsection (a) of section 566 of title 
28, United States Code, is amended by striking ``and the Court of 
International Trade'' and inserting ``, the Court of International 
Trade, and any other court as provided by law.''.

SEC. 709. AUTHORIZATION OF APPROPRIATIONS TO COMBAT THE TAX GAP AND FOR 
              TAX LAW ENFORCEMENT.

    There is authorized to be appropriated $732,000,000 for fiscal year 
2007 for the purpose of combating the tax gap (as defined in section 
710(b)), of which $300,000,000 is authorized for the purpose of 
carrying out tax law enforcement to combat tax avoidance transactions 
and other tax shelters, including the use of offshore financial 
accounts to conceal taxable income. Any amounts so appropriated shall 
remain available until expended.

SEC. 710. ANNUAL TAX GAP REPORT.

    (a) Report.--
            (1) In general.--Not later than September 30 of each year, 
        the Secretary of the Treasury shall issue a report to the 
        Committee on Finance of the Senate and the Committee on Ways 
        and Means of the House of Representatives on activities 
        undertaken to reduce the tax gap for the fiscal year.
            (2) Contents of report.--The report under paragraph (1) 
        shall include--
                    (A) specific administrative actions taken by the 
                Secretary of the Treasury to reduce the tax gap during 
                the fiscal year and the results of any such actions;
                    (B) a plan for reducing the tax gap for the 
                succeeding fiscal year, including--
                            (i) a detailed analysis of the elements of 
                        the tax gap;
                            (ii) a list of measures designed to reduce 
                        the tax gap;
                            (iii) goals for reducing the tax gap; and
                            (iv) a time line for achieving the goals 
                        set forth under clause (iii);
                    (C) strategies to--
                            (i) simplify the administration of the tax 
                        laws;
                            (ii) increase income reporting;
                            (iii) improve tax law enforcement; and
                            (iv) improve Internal Revenue Service 
                        customer service; and
                    (D) legislative recommendations for improving 
                taxpayer compliance.
    (b) Tax Gap.--For purposes of this section, the term ``tax gap'' 
means, with respect to any fiscal year, the excess of--
            (1) the amount of taxes owed by taxpayers under the 
        Internal Revenue Code of 1986 for such fiscal year, over
            (2) the amount of revenue collected by the Internal Revenue 
        Service under such Code for such fiscal year.

SEC. 711. OPERATIONS FOR THE ENFORCEMENT OF TAX LAWS RELATING TO HIRING 
              AND CONTINUED EMPLOYMENT OF UNDOCUMENTED WORKERS.

    (a) Authorization of Appropriations.--
            (1) In general.--There is authorized to be appropriated 
        $2,000,000 for fiscal year 2007 for the purpose of establishing 
        an office within the Internal Revenue Service to prosecute 
        employers who violate tax laws relating to the hiring and 
        continued employment of undocumented workers.
            (2) Availability.--Any amounts appropriated pursuant to the 
        authority of paragraph (1) shall remain available for fiscal 
        year 2008.
    (b) Additional Funding for Operations of Office.--Unless 
specifically appropriated otherwise, there is authorized to be 
appropriated and is appropriated to the office established under 
subsection (a)(1) for fiscal years 2007 and 2008 for the administration 
of such office an amount equal to the amount of any tax under chapter 1 
of the Internal Revenue Code of 1986 (including any interest) collected 
during such fiscal years as the result of the actions of such office, 
plus any civil or criminal monetary penalties imposed under such Code 
relating to such tax and so collected.
    (c) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Secretary of the Treasury shall report to the 
Committee of Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate on the enforcement activities of the 
office established under subsection (a)(1) and shall include any 
recommendations for statutory changes to assist in future prosecutions 
under this section.

SEC. 712. REPEAL OF DOLLAR LIMITATION ON CONTRIBUTIONS TO FUNERAL 
              TRUSTS.

    (a) In General.--Subsection (c) of section 685 (relating to 
treatment of funeral trusts) is repealed.
    (b) Conforming Amendment.--Subsections (d), (e), and (f) of such 
section are redesignated as subsections (c), (d), and (e), 
respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made after December 31, 2006.

SEC. 713. ADMINISTRATIVE RELIEF FOR CERTAIN LATE QUALIFIED TERMINABLE 
              INTEREST PROPERTY ELECTIONS.

    (a) Extension of Time to Make Elections.--Section 2523(f)(4)(A) 
(relating to time and manner of election with respect to life estate 
for donee spouse) is amended by adding at the end the following new 
sentence: ``Such regulations shall provide circumstances and procedures 
under which extensions of time will be granted to make the election 
under this subparagraph. For purposes of the preceding sentence, the 
time for making the election shall be treated as if not prescribed by 
statute.''.
    (b) Effective Date.--The modifications to the regulations required 
by the amendment made by subsection (a) shall apply to requests for 
extension of time pending on or after the date of the enactment of this 
Act with respect to transfers made before, on, or after such date.

SEC. 714. DISCLOSURE OF WRITTEN DETERMINATIONS.

    (a) In General.--Section 6110(l) (relating to section not to apply) 
is amended by striking all matter before subparagraph (A) of paragraph 
(2) and inserting the following:
    ``(l) Section Not to Apply.--
            ``(1) In general.--This section shall not apply to any 
        matter to which section 6104 or 6105 applies, except that this 
        section shall apply to any written determination and related 
        background file document relating to an organization described 
        under subsection (c) or (d) of section 501 (including any 
        written determination denying an organization tax-exempt status 
        under such subsection) or a political organization described in 
        section 527 which is not required to be disclosed by section 
        6104(a)(1)(A).
            ``(2) Additional matters.--This section shall not apply to 
        any--''.
    (b) Effective Date.--The amendment made by this section shall apply 
to written determinations issued after the date of the enactment of 
this Act.

SEC. 715. DISCLOSURE OF INTERNET WEB SITE AND NAME UNDER WHICH 
              ORGANIZATION DOES BUSINESS.

    (a) In General.--Section 6033 (relating to returns by exempt 
organizations) is amended by redesignating subsection (k) as subsection 
(l) and by inserting after subsection (j) the following new subsection:
    ``(k) Disclosure of Name Under Which Organization Does Business and 
Its Internet Web Site.--Any organization which is subject to the 
requirements of subsection (a) shall include on the return required 
under subsection (a)--
            ``(1) any name under which such organization operates or 
        does business, and
            ``(2) the Internet web site address (if any) of such 
        organization.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to returns filed after December 31, 2006.

SEC. 716. MODIFICATION TO REPORTING CAPITAL TRANSACTIONS.

    (a) Requirement of Summary Report.--Section 6033(c) (relating to 
additional provisions relating to private foundations) is amended by 
adding at the end the following new sentence: ``Any information 
included in an annual return regarding the gain or loss from the sale 
or other disposition of stock or securities which are listed on an 
established securities market which is required to be furnished in 
order to calculate the tax on net investment income shall also be 
reported in summary form with a notice that detailed information is 
available upon request by the public.''.
    (b) Disclosure Requirement.--Section 6104(b) (relating to 
inspection of annual information returns), as amended by this Act, is 
amended by adding at the end the following new sentence: ``With respect 
to any private foundation (as defined in section 509(a)), any 
information regarding the gain or loss from the sale or other 
disposition of stock or securities which are listed on an established 
securities market which is required to be furnished in order to 
calculate the tax on net investment income but which is not in summary 
form is not required to be made available to the public under this 
subsection except upon the explicit request by a member of the public 
to the Secretary.''.
    (c) Public Inspection Requirement.--Section 6104(d) (relating to 
public inspection of certain annual returns, applications for 
exemptions, and notices of status) is amended--
            (1) by redesignating paragraph (6) (relating to disclosure 
        of reports by Internal Revenue Service) as paragraph (7),
            (2) by redesignating paragraph (6) (relating to application 
        to nonexempt charitable trusts and nonexempt private 
        foundations) as paragraph (8), and
            (3) by adding at the end the following new paragraph:
            ``(9) Application to private foundation capital transaction 
        information.--With respect to any private foundation (as 
        defined in section 509(a)), any information regarding the gain 
        or loss from the sale or other disposition of stock or 
        securities which are listed on an established securities market 
        which is required to be furnished in order to calculate the tax 
        on net investment income but which is not in summary form is 
        not required to be made available to the public under this 
        subsection except upon the explicit request by a member of the 
        public to the private foundation in the form and manner of a 
        request described in paragraph (1)(B).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to returns filed after December 31, 2006.

SEC. 717. DISCLOSURE THAT FORM 990 IS PUBLICLY AVAILABLE.

    (a) In General.--The Commissioner of the Internal Revenue shall 
notify the public in appropriate publications or other materials of the 
extent to which an exempt organization's Form 990, Form 990-EZ, or Form 
990-PF is publicly available.
    (b) Effective Date.--The amendments made by this section shall 
apply to publications or other materials issued or revised after the 
date of the enactment of this Act.

SEC. 718. EXPEDITED REVIEW PROCESS FOR CERTAIN TAX-EXEMPTION 
              APPLICATIONS.

    (a) In General.--The Secretary of the Treasury or the Secretary's 
delegate (in this section, referred to as the ``Secretary'') shall 
adopt procedures to expedite the consideration of applications for 
exempt status under section 501(c)(3) of the Internal Revenue Code of 
1986 filed after December 31, 2006, by any organization that--
            (1) is organized and operated for the primary purpose of 
        providing social services;
            (2) is seeking a contract or grant under a Federal, State, 
        or local program that provides funding for social services 
        programs;
            (3) establishes that, under the terms and conditions of the 
        contract or grant program, an organization is required to 
        obtain such exempt status before the organization is eligible 
        to apply for a contract or grant;
            (4) includes with its exemption application a copy of its 
        completed Federal, State, or local contract or grant 
        application; and
            (5) meets such other criteria as the Secretary deems 
        appropriate for expedited consideration.
The Secretary may prescribe other similar circumstances in which such 
organizations may be entitled to expedited consideration.
    (b) Waiver of Application Fee for Exempt Status.--Any organization 
that meets the conditions described in subsection (a) (without regard 
to paragraph (3) of that subsection) is entitled to a waiver of any fee 
for an application for exempt status under section 501(c)(3) of the 
Internal Revenue Code of 1986 if the organization certifies that the 
organization has had (or expects to have) average annual gross receipts 
of not more than $50,000 during the preceding 4 years (or, in the case 
of an organization not in existence throughout the preceding 4 years, 
during such organization's first 4 years).
    (c) Social Services Defined.--For purposes of this section--
            (1) In general.--The term ``social services'' means 
        services directed at helping people in need, reducing poverty, 
        improving outcomes of low-income children, revitalizing low-
        income communities, and empowering low-income families and low-
        income individuals to become self-sufficient, including--
                    (A) child care services, protective services for 
                children and adults, services for children and adults 
                in foster care, adoption services, services related to 
                the management and maintenance of the home, day care 
                services for adults, and services to meet the special 
                needs of children, older individuals, and individuals 
                with disabilities (including physical, mental, or 
                emotional disabilities);
                    (B) transportation services;
                    (C) job training and related services, and 
                employment services;
                    (D) information, referral, and counseling services;
                    (E) the preparation and delivery of meals, and 
                services related to soup kitchens or food banks;
                    (F) health support services;
                    (G) literacy and mentoring programs;
                    (H) services for the prevention and treatment of 
                juvenile delinquency and substance abuse, services for 
                the prevention of crime and the provision of assistance 
                to the victims and the families of criminal offenders, 
                and services related to the intervention in, and 
                prevention of, domestic violence; and
                    (I) services related to the provision of assistance 
                for housing under Federal law.
            (2) Exclusions.--The term does not include a program having 
        the purpose of delivering educational assistance under the 
        Elementary and Secondary Education Act of 1965 (20 U.S.C. 6301 
        et seq.) or under the Higher Education Act of 1965 (20 U.S.C. 
        1001 et seq.).

SEC. 719. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-EXEMPT 
              ORGANIZATIONS.

    (a) In General.--Paragraph (1) of section 7428(a) (relating to 
creation of remedy) is amended--
            (1) in subparagraph (B) by inserting after ``509(a))'' the 
        following: ``or as a private operating foundation (as defined 
        in section 4942(j)(3))''; and
            (2) by amending subparagraph (C) to read as follows:
                    ``(C) with respect to the initial qualification or 
                continuing qualification of an organization as an 
                organization described in section 501(c) (other than 
                paragraph (3)) or 501(d) which is exempt from tax under 
                section 501(a), or''.
    (b) Court Jurisdiction.--Subsection (a) of section 7428 is amended 
in the material following paragraph (2) by striking ``United States Tax 
Court, the United States Claims Court, or the district court of the 
United States for the District of Columbia'' and inserting the 
following: ``United States Tax Court (in the case of any such 
determination or failure) or the United States Claims Court or the 
district court of the United States for the District of Columbia (in 
the case of a determination or failure with respect to an issue 
referred to in subparagraph (A) or (B) of paragraph (1)),''.
    (c) Effective Date.--The amendments made by this section shall 
apply to pleadings filed with respect to determinations (or requests 
for determinations) made after December 31, 2006.

SEC. 720. WIRELESS TELECOMMUNICATIONS EQUIPMENT.

    (a) In General.--Subparagraph (A) of section 168(i)(2) (defining 
qualified technological equipment) is amended by striking ``and'' at 
the end of clause (ii), by striking the period at the end of clause 
(iii) and inserting ``, and'', and by inserting after clause (iii) the 
following new clause:
                            ``(iv) any wireless telecommunications 
                        equipment placed in service before January 1, 
                        2011.''.
    (b) Wireless Telecommunications Equipment.--Section 168(i)(2) is 
amended by inserting after subparagraph (C) the following new 
subparagraph:
                    ``(D) Wireless telecommunications equipment.--For 
                purposes of this paragraph, the term `wireless 
                telecommunications equipment' means all equipment used 
                in the transmission, reception, coordination, or 
                switching of wireless telecommunications service, other 
                than cell towers, buildings, and T-1 lines or other 
                cabling connecting cell sites to mobile switching 
                centers. For this purpose, `wireless telecommunications 
                service' includes any commercial mobile radio service 
                as defined in title 47 of the Code of Federal 
                Regulations.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 721. PERMANENT EXTENSION OF INTERNET TAX MORATORIUM.

    Section 1101(a) of the Internet Tax Freedom Act (47 U.S.C. 151 
note) is amended by striking ``during the period beginning November 1, 
2003, and ending November 1, 2007'' and inserting ``after October 31, 
2003''.

SEC. 722. SIMPLIFICATION THROUGH ELIMINATION OF INOPERATIVE PROVISIONS.

    (a) Business Provisions.--
            (1) General business credits.--Subsection (d) of section 38 
        is amended by striking paragraph (3).
            (2) Adjustments based on adjusted current earnings.--Clause 
        (ii) of section 56(g)(4)(F) is amended by striking ``In the 
        case of any taxable year beginning after December 31, 1992, 
        clause'' and inserting ``Clause''.
            (3) Items of tax preference; depletion.--Paragraph (1) of 
        section 57(a) is amended by striking ``Effective with respect 
        to taxable years beginning after December 31, 1992, this'' and 
        inserting ``This''.
            (4) Intangible drilling costs.--
                    (A) Clause (i) of section 57(a)(2)(E) is amended by 
                striking ``In the case of any taxable year beginning 
                after December 31, 1992, this'' and inserting ``This''.
                    (B) Clause (ii) of section 57(a)(2)(E) is amended 
                by striking ``(30 percent in the case of taxable years 
                beginning in 1993)''.
            (5) Great plains conservation program.--
                    (A) Section 126(a) is amended by striking paragraph 
                (6) and by redesignating paragraphs (7), (8), (9), and 
                (10) as paragraphs (6), (7), (8), and (9), 
                respectively.
                    (B) Section 126(a)(8), as redesignated by 
                subparagraph (A), is amended by striking ``paragraphs 
                (1) through (8)'' and inserting ``paragraphs (1) 
                through (7)''.
            (6) Treble damage payments under the antitrust law.--
        Section 162(g) is amended by striking the last sentence.
            (7) Charitable, etc., contributions and gifts.--
                    (A) Section 170 is amended by striking subsection 
                (k) and by redesignating subsections (l), (m), (n), 
                (o), and (p) as subsections (k), (l), (m), (n), and 
                (o), respectively.
                    (B) Paragraphs (1)(D) and (2)(A) of section 
                6050L(b) are each amended by striking ``section 
                170(m)'' and inserting ``170(l)''.
            (8) Net operating loss carrybacks and carryovers.--
                    (A) Section 172 is amended--
                            (i) by striking subparagraph (D) of 
                        subsection (b)(1) and by redesignating 
                        subparagraphs (E), (F), (G), (H), and (I) as 
                        subparagraphs (D), (E), (F), (G), and (H), 
                        respectively,
                            (ii) by striking ``ending after August 2, 
                        1989'' in subsection (b)(1)(D)(i)(II) (as 
                        redesignated by clause (i)),
                            (iii) by striking ``subparagraph (F)'' in 
                        subsection (b)(1)(G) (as redesignated by clause 
                        (i)) and inserting ``subparagraph (E)'',
                            (iv) by striking subsection (g), and
                            (v) by striking subparagraph (F) of 
                        subsection (h)(2).
                    (B) Section 172(h)(4) is amended by striking 
                ``subsection (b)(1)(E)'' each place it appears and 
                inserting ``subsection (b)(1)(D)''.
                    (C) Section 172(i)(3) is amended by striking 
                ``subsection (b)(1)(G)'' each place it appears and 
                inserting ``subsection (b)(1)(F)''.
                    (D) Section 172(j) is amended by striking 
                ``subsection (b)(1)(H)'' each place it appears and 
                inserting ``subsection (b)(1)(G)''.
                    (E) Section 172, as amended by subparagraphs (A) 
                through (D) of this paragraph, is amended--
                            (i) by redesignating subsections (h), (i), 
                        (j), and (k) as subsections (g), (h), (i), and 
                        (j), respectively,
                            (ii) by striking ``subsection (h)'' each 
                        place it appears and inserting ``subsection 
                        (g)'', and
                            (iii) by striking ``subsection (i)'' each 
                        place it appears and inserting ``subsection 
                        (h)''.
            (9) Research and experimental expenditures.--Subparagraph 
        (A) of section 174(a)(2) is amended to read as follows:
                    ``(A) Without consent.--A taxpayer may, without the 
                consent of the Secretary, adopt the method provided in 
                this subsection for his first taxable year for which 
                expenditures described in paragraph (1) are paid or 
                incurred.''.
            (10) Amortization of certain research and experimental 
        expenditures.--Paragraph (2) of section 174(b) is amended by 
        striking ``beginning after December 31, 1953''.
            (11) Soil and water conservation expenditures.--Paragraph 
        (1) of section 175(d) is amended to read as follows:
            ``(1) Without consent.--A taxpayer may, without the consent 
        of the Secretary, adopt the method provided in this section for 
        the taxpayer's first taxable year for which expenditures 
        described in subsection (a) are paid or incurred.''.
            (12) Activities not engaged in for profit.--Section 
        183(e)(1) is amended by striking the last sentence.
            (13) Dividends received on certain preferred stock; and 
        dividends paid on certain preferred stock of public 
        utilities.--
                    (A) Sections 244 and 247 are hereby repealed, and 
                the table of sections for part VIII of subchapter B of 
                chapter 1 is amended by striking the items relating to 
                sections 244 and 247.
                    (B) Paragraph (5) of section 172(d) is amended to 
                read as follows:
            ``(5) Computation of deduction for dividends received.--The 
        deductions allowed by section 243 (relating to dividends 
        received by corporations) and 245 (relating to dividends 
        received from certain foreign corporations) shall be computed 
        without regard to section 246(b) (relating to limitation on 
        aggregate amount of deductions).''.
                    (C) Paragraph (1) of section 243(c) is amended to 
                read as follows:
            ``(1) In general.--In the case of any dividend received 
        from a 20-percent owned corporation, subsection (a)(1) shall be 
        applied by substituting `80 percent' for `70 percent'.''.
                    (D) Section 243(d) is amended by striking paragraph 
                (4).
                    (E) Section 246 is amended--
                            (i) by striking ``, 244,'' in subsection 
                        (a)(1),
                            (ii) in subsection (b)(1)--
                                    (I) by striking ``sections 
                                243(a)(1), and 244(a),'' the first 
                                place it appears and inserting 
                                ``section 243(a)(1)'',
                                    (II) by striking ``244(a),'' the 
                                second place it appears, and
                                    (III) by striking ``subsection (a) 
                                or (b) of section 245, and 247,'' and 
                                inserting ``and subsection (a) or (b) 
                                of section 245,'', and
                            (iii) by striking ``, 244,'' in subsection 
                        (c)(1).
                    (F) Section 246A is amended by striking ``, 244,'' 
                both places it appears in subsections (a) and (e).
                    (G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2), 
                469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and 
                (D) of section 805(a)(4), 805(b)(5), 812(e)(2)(A), 
                815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E), and 
                1059(b)(2)(B) are each amended by striking ``, 244,'' 
                each place it appears.
                    (H) Section 1244(c)(2)(C) is amended by striking 
                ``244,''.
                    (I) Section 805(a)(4)(B) is amended by striking ``, 
                244(a),'' each place it appears.
                    (J) Section 810(c)(2)(B) is amended by striking 
                ``244 (relating to dividends on certain preferred stock 
                of public utilities),''.
            (14) Organization expenses.--Section 248(c) is amended by 
        striking ``beginning after December 31, 1953,'' and by striking 
        the last sentence.
            (15) Amount of gain where loss previously disallowed.--
        Section 267(d) is amended by striking ``(or by reason of 
        section 24(b) of the Internal Revenue Code of 1939)'' in 
        paragraph (1), by striking ``after December 31, 1953,'' in 
        paragraph (2), by striking the second sentence, and by striking 
        ``or by reason of section 118 of the Internal Revenue Code of 
        1939'' in the last sentence.
            (16) Acquisitions made to evade or avoid income tax.--
        Paragraphs (1) and (2) of section 269(a) are each amended by 
        striking ``or acquired on or after October 8, 1940,''.
            (17) Interest on indebtedness incurred by corporations to 
        acquire stock or assets of another corporation.--Section 279 is 
        amended--
                    (A) by striking ``after December 31, 1967,'' in 
                subsection (a)(2),
                    (B) by striking ``after October 9, 1969,'' in 
                subsection (b), and
                    (C) by striking ``after October 9, 1969, and'' in 
                subsection (d)(5).
            (18) Special rules relating to corporate preference 
        items.--Paragraph (4) of section 291(a) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        1984, section'' and inserting ``Section''.
            (19) Tax credit employee stock ownership plans.--Section 
        409 is amended by striking subsection (q).
            (20) Retiree health accounts.--Section 420 is amended--
                    (A) by striking paragraph (4) of subsection (b) and 
                by redesignating paragraph (5) as paragraph (4), and
                    (B) by amending paragraph (2) of subsection (c) to 
                read as follows:
            ``(2) Requirements relating to pension benefits accruing 
        before transfer.--The requirements of this paragraph are met if 
        the plan provides that the accrued pension benefits of any 
        participant or beneficiary under the plan become nonforfeitable 
        in the same manner which would be required if the plan had 
        terminated immediately before the qualified transfer (or in the 
        case of a participant who separated during the 1-year period 
        ending on the date of the transfer, immediately before such 
        separation).''.
            (21) Employee stock purchase plans.--Section 423(a) is 
        amended by striking ``after December 31, 1963,''.
            (22) Limitation on deductions for certain farming.--
                    (A) Section 464 is amended by striking ``any 
                farming syndicate (as defined in subsection (c))'' both 
                places it appears in subsections (a) and (b) and 
                inserting ``any taxpayer to whom subsection (d) 
                applies''.
                    (B)(i) Subsection (c) of section 464 is hereby 
                moved to the end of section 461 and redesignated as 
                subsection (j).
                    (ii) Such subsection (j) is amended--
                            (I) by striking ``For purposes of this 
                        section'' in paragraph (1) and inserting ``For 
                        purposes of subsection (i)(4)'', and
                            (II) by adding at the end the following new 
                        paragraphs:
            ``(3) Farming.--For purposes of this subsection, the term 
        `farming' has the meaning given to such term by section 464(e).
            ``(4) Limited entrepreneur.--For purposes of this 
        subsection, the term `limited entrepreneur' means a person 
        who--
                    ``(A) has an interest in an enterprise other than 
                as a limited partner, and
                    ``(B) does not actively participate in the 
                management of such enterprise.''.
                    (iii) Paragraph (4) of section 461(i) is amended by 
                striking ``section 464(c)'' and inserting ``subsection 
                (j)''.
                    (C) Section 464 is amended--
                            (i) by striking subsections (e) and (g) and 
                        redesignating subsections (d) and (f) as 
                        subsections (c) and (d), respectively, and
                            (ii) by adding at the end the following new 
                        subsection:
    ``(e) Farming.--For purposes of this section, the term `farming' 
means the cultivation of land or the raising or harvesting of any 
agricultural or horticultural commodity including the raising, 
shearing, feeding, caring for, training, and management of animals. For 
purposes of the preceding sentence, trees (other than trees bearing 
fruit or nuts) shall not be treated as an agricultural or horticultural 
commodity.''.
                    (D) Subsection (d) of section 464, as redesignated 
                by subparagraph (C), is amended--
                            (i) by striking paragraph (1) and 
                        redesignating paragraphs (2), (3), and (4) as 
                        paragraphs (1), (2), and (3), respectively, and
                            (ii) by striking ``Subsections (a) and (b) 
                        to Apply to'' in the subsection heading.
                    (E) Subparagraph (A) of section 58(a)(2) is amended 
                by striking ``section 464(c)'' and inserting ``section 
                461(j)''.
            (23) Deductions limited to amount at risk.--Paragraph (3) 
        of section 465(c) is amended by striking ``In the case of 
        taxable years beginning after December 31, 1978, this'' and 
        inserting ``This''.
            (24) Passive activity losses and credits limited.--
                    (A) Section 469 is amended by striking subsection 
                (m).
                    (B) Subsection (b) of section 58 is amended by 
                adding ``and'' at the end of paragraph (1), by striking 
                paragraph (2), and by redesignating paragraph (3) as 
                paragraph (2).
            (25) Adjustments required by changes in method of 
        accounting.--Section 481(b)(3) is amended by striking 
        subparagraph (C).
            (26) Exemption from tax on corporations, certain trusts, 
        etc.--Section 501 is amended by striking subsection (q).
            (27) Requirements for exemption.--
                    (A) Section 503(a)(1) is amended to read as 
                follows:
            ``(1) General rule.--An organization described in paragraph 
        (17) or (18) of section 501(c) or described in section 401(a) 
        and referred to in section 4975(g)(2) or (3) shall not be 
        exempt from taxation under section 501(a) if it has engaged in 
        a prohibited transaction.''.
                    (B) Paragraph (2) of section 503(a) is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                paragraph (a)(1)(B)'' and inserting ``described in 
                paragraph (1)''.
                    (C) Subsection (c) of section 503 is amended by 
                striking ``described in section 501(c)(17) or (18) or 
                subsection (a)(1)(B)'' and inserting ``described in 
                subsection (a)(1)''.
            (28) Insurance company taxable income.--
                    (A) Section 832(e) is amended by striking ``of 
                taxable years beginning after December 31, 1966,''.
                    (B) Section 832(e)(6) is amended by striking ``In 
                the case of any taxable year beginning after December 
                31, 1970, the'' and inserting ``The''.
            (29) Property on which lessee has made improvements.--
        Section 1019 is amended by striking the last sentence.
            (30) Involuntary conversion.--Section 1033 is amended by 
        striking subsection (j) and by redesignating subsections (k) 
        and (l) as subsections (j) and (k), respectively.
            (31) Property acquired during affiliation.--Section 1051 is 
        hereby repealed, and the table of sections for part IV of 
        subchapter O of chapter 1 is amended by striking the item 
        relating to section 1051.
            (32) Holding period of property.--
                    (A) Paragraph (4) of section 1223 is amended by 
                striking ``(or under so much of section 1052(c) as 
                refers to section 113(a)(23) of the Internal Revenue 
                Code of 1939)''.
                    (B) Paragraph (6) of section 1223 is amended by 
                striking the last sentence.
                    (C) Paragraph (8) of section 1223 is repealed.
            (33) Property used in the trade or business and involuntary 
        conversions.--Subparagraph (A) of section 1231(c)(2) is amended 
        by striking ``beginning after December 31, 1981''.
            (34) Sale or exchange of patents.--Section 1235 is 
        amended--
                    (A) by striking subsection (c) and by redesignating 
                subsections (d) and (e) as subsections (c) and (d), 
                respectively, and
                    (B) by striking ``subsection (d)'' in subsection 
                (b) and inserting ``subsection (c)''.
            (35) Dealers in securities.--Subsection (b) of section 1236 
        is amended by striking ``after November 19, 1951,''.
            (36) Sale of patents.--Subsection (a) of section 1249 is 
        amended by striking ``after December 31, 1962,''.
            (37) Gain from disposition of farm land.--Paragraph (1) of 
        section 1252(a) is amended--
                    (A) by striking ``beginning after December 31, 
                1969'' in the matter preceding subparagraph (A), and
                    (B) by striking ``after December 31, 1969,'' in 
                subparagraph (A).
            (38) Treatment of amounts received on retirement or sale or 
        exchange of debt instruments.--Subsection (c) of section 1271 
        is amended to read as follows:
    ``(c) Special Rule for Certain Obligations With Respect to Which 
Original Issue Discount Not Currently Includible.--
            ``(1) In general.--On the sale or exchange of debt 
        instruments issued by a government or political subdivision 
        thereof after December 31, 1954, and before July 2, 1982, or by 
        a corporation after December 31, 1954, and on or before May 27, 
        1969, any gain realized which does not exceed--
                    ``(A) an amount equal to the original issue 
                discount, or
                    ``(B) if at the time of original issue there was no 
                intention to call the debt instrument before maturity, 
                an amount which bears the same ratio to the original 
                issue discount as the number of complete months that 
                the debt instrument was held by the taxpayer bears to 
                the number of complete months from the date of original 
                issue to the date of maturity,
        shall be considered as ordinary income.
            ``(2) Subsection (a)(2)(A) not to apply.--Subsection 
        (a)(2)(A) shall not apply to any debt instrument referred to in 
        paragraph (1).
            ``(3) Cross reference.--

``For current inclusion of original issue discount, see section 
                            1272.''.
            (39) Amount and method of adjustment.--Section 1314 is 
        amended by striking subsection (d) and by redesignating 
        subsection (e) as subsection (d).
            (40) Election; revocation; termination.--Clause (iii) of 
        section 1362(d)(3) is amended by striking ``unless'' and all 
        that follows and inserting ``unless the corporation was an S 
        corporation for such taxable year.''.
            (41) Affiliated group defined.--Subparagraph (A) of section 
        1504(a)(3) is amended by striking ``for a taxable year which 
        includes any period after December 31, 1984'' in clause (i) and 
        by striking ``in a taxable year beginning after December 31, 
        1984'' in clause (ii).
            (42) Disallowance of the benefits of the graduated 
        corporate rates and accumulated earnings credit.--
                    (A) Subsection (a) of section 1551 is amended--
                            (i) by striking paragraph (1) and by 
                        redesignating paragraphs (2) and (3) as 
                        paragraphs (1) and (2), respectively, and
                            (ii) by striking ``after June 12, 1963,'' 
                        each place it appears.
                    (B) Section 1551(b) is amended--
                            (i) by striking ``or (2)'' in paragraph 
                        (1), and
                            (ii) by striking ``(a)(3)'' in paragraph 
                        (2) and inserting ``(a)(2)''.
            (43) Definition of wages.--
                    (A) Section 3121(b) is amended by striking 
                paragraph (17).
                    (B) Section 210(a) of the Social Security Act is 
                amended by striking paragraph (17).
            (44) Credits against tax.--
                    (A) Paragraph (4) of section 3302(f) is amended--
                            (i) by striking ``subsection--'' and all 
                        that follows through ``(A) in general.--The'' 
                        and inserting ``subsection, the'',
                            (ii) by striking subparagraph (B),
                            (iii) by redesignating clauses (i) and (ii) 
                        as subparagraphs (A) and (B), respectively, and
                            (iv) by moving the text of such 
                        subparagraphs (as so redesignated) 2 ems to the 
                        left.
                    (B) Paragraph (5) of section 3302(f) is amended by 
                striking subparagraph (D) and by redesignating 
                subparagraph (E) as subparagraph (D).
            (45) Domestic service employment taxes.--Section 3510(b) is 
        amended by striking paragraph (4).
            (46) Tax on fuel used in commercial transportation on 
        inland waterways.--Section 4042(b)(2)(A) is amended to read as 
        follows:
                    ``(A) The Inland Waterways Trust Fund financing 
                rate is 20 cents per gallon.''.
            (47) Transportation by air.--
                    (A) Paragraph (1) of section 4261(b) is amended to 
                read as follows:
            ``(1) In general.--There is hereby imposed on the amount 
        paid for each domestic segment of taxable transportation by air 
        a tax equal to $3.''.
                    (B) Section 4261(e) is amended--
                            (i) in paragraph (1) by striking 
                        subparagraph (C), and
                            (ii) by striking paragraph (5).
            (48) Taxes on failure to distribute income.--
                    (A) Paragraph (2) of section 4942(f) is amended by 
                striking the semicolon at the end of subparagraph (B) 
                and inserting ``, and'', by striking ``; and'' at the 
                end of subparagraph (C) and inserting a period, and by 
                striking subparagraph (D).
                    (B) Subsection (g) of section 4942 is amended--
                            (i) by striking ``For all taxable years 
                        beginning on or after January 1, 1975, 
                        subject'' in paragraph (2)(A) and inserting 
                        ``Subject'', and
                            (ii) by striking paragraph (4).
                    (C) Section 4942(i)(2) is amended by striking 
                ``beginning after December 31, 1969, and''.
            (49) Taxes on taxable expenditures.--Section 4945(f) is 
        amended by striking ``(excluding therefrom any preceding 
        taxable year which begins before January 1, 1970)''.
            (50) Returns.--Subsection (a) of section 6039D is amended 
        by striking ``beginning after December 31, 1984,''.
            (51) Information returns.--Subsection (c) of section 6060 
        is amended by striking ``year'' and all that follows and 
        inserting ``year.''.
            (52) Canal zone.--Subparagraph (A) of section 6103(b)(5) is 
        amended by striking ``the Canal Zone,''.
            (53) Abatements.--Section 6404(f) is amended by striking 
        paragraph (3).
            (54) Failure by corporation to pay estimated income tax.--
        Clause (i) of section 6655(g)(4)(A) is amended by striking 
        ``(or the corresponding provisions of prior law)''.
            (55) Merchant marine capital construction funds.--Paragraph 
        (4) of section 7518(g) is amended by striking ``any 
        nonqualified withdrawal'' and all that follows through ``shall 
        be determined'' and inserting ``any nonqualified withdrawal 
        shall be determined''.
            (56) Valuation tables.--
                    (A) Subsection (c) of section 7520 is amended by 
                striking paragraph (2) and by redesignating paragraph 
                (3) as paragraph (2).
                    (B) Paragraph (2) of section 7520(c), as so 
                redesignated, is amended--
                            (i) by striking ``Not later than December 
                        31, 1989, the'' and inserting ``The'', and
                            (ii) by striking ``thereafter'' in the last 
                        sentence thereof.
            (57) Administration and collection of taxes in 
        possessions.--Section 7651 is amended by striking paragraph (4) 
        and by redesignating paragraph (5) as paragraph (4).
            (58) Definition of employee.--Section 7701(a)(20) is 
        amended by striking ``chapter 21'' and all that follows and 
        inserting ``chapter 21.''.
    (b) Individual Provisions.--
            (1) Adjustments in tax tables so that inflation will not 
        result in tax increases.--Paragraph (7) of section 1(f) is 
        amended to read as follows:
            ``(7) Special rule for certain brackets.--In prescribing 
        tables under paragraph (1) which apply to taxable years 
        beginning in a calendar year after 1994, the cost-of-living 
        adjustment used in making adjustments to the dollar amounts at 
        which the 36 percent rate bracket begins or at which the 39.6 
        percent rate bracket begins shall be determined under paragraph 
        (3) by substituting `1993' for `1992'.''.
            (2) Earned income credit.--Paragraph (1) of section 32(b) 
        is amended--
                    (A) by striking subparagraphs (B) and (C), and
                    (B) in subparagraph (A) by striking ``(A) In 
                general.--In the case of taxable years beginning after 
                1995'' and moving the table 2 ems to the left.
            (3) Annuities; certain proceeds of endowment and life 
        insurance contracts.--Section 72 is amended--
                    (A) in subsection (c)(4) by striking ``; except 
                that if such date was before January 1, 1954, then the 
                annuity starting date is January 1, 1954'', and
                    (B) in subsection (g)(3) by striking ``January 1, 
                1954, or'' and ``, whichever is later''.
            (4) Accident and health plans.--Section 105(f) is amended 
        by striking ``or (d)''.
            (5) Flexible spending arrangements.--Section 106(c)(1) is 
        amended by striking ``Effective on and after January 1, 1997, 
        gross'' and inserting ``Gross''.
            (6) Certain combat zone compensation of members of the 
        armed forces.--Subsection (c) of section 112 is amended--
                    (A) by striking ``(after June 24, 1950)'' in 
                paragraph (2), and
                    (B) striking ``such zone;'' and all that follows in 
                paragraph (3) and inserting ``such zone.''.
            (7) Principal residence.--Section 121(b)(3) is amended--
                    (A) by striking subparagraph (B), and
                    (B) in subparagraph (A) by striking``(A) In 
                general.--'' and moving the text 2 ems to the left.
            (8) Certain reduced uniformed services retirement pay.--
        Section 122(b)(1) is amended by striking ``after December 31, 
        1965,''.
            (9) Mortgage revenue bonds for residences in federal 
        disaster areas.--Section 143(k) is amended by striking 
        paragraph (11).
            (10) State legislators' travel expenses away from home.--
        Paragraph (4) of section 162(h) is amended by striking ``For 
        taxable years beginning after December 31, 1980, this'' and 
        inserting ``This''.
            (11) Health insurance costs of self-employed individuals.--
        Paragraph (1) of section 162(l) is amended to read as follows:
            ``(1) Allowance of deduction.--In the case of an individual 
        who is an employee within the meaning of section 401(c)(1), 
        there shall be allowed as a deduction under this section an 
        amount equal to 100 percent of the amount paid during the 
        taxable year for insurance which constitutes medical care for 
        the taxpayer and the taxpayer's spouse and dependents.''.
            (12) Interest.--
                    (A) Section 163 is amended--
                            (i) by striking paragraph (6) of subsection 
                        (d), and
                            (ii) by striking paragraph (5) of 
                        subsection (h).
                    (B) Section 56(b)(1)(C) is amended by striking 
                clause (ii) and by redesignating clauses (iii), (iv), 
                and (v) as clauses (ii), (iii), and (iv), respectively.
            (13) Amounts received by surviving annuitant under joint 
        and survivor annuity contract.--Subparagraph (A) of section 
        691(d)(1) is amended by striking ``after December 31, 1953, 
        and''.
            (14) Income taxes of members of armed forces on death.--
        Section 692(a)(1) is amended by striking ``after June 24, 
        1950''.
            (15) Tax on nonresident alien individuals.--Subparagraph 
        (B) of section 871(a)(1) is amended to read as follows:
                    ``(B) gains described in subsection (b) or (c) of 
                section 631,''.
            (16) Old-age, survivors, and disability insurance.--
        Subsection (a) of section 1401 is amended by striking ``the 
        following percent'' and all that follows and inserting ``12.4 
        percent of the amount of the self-employment income for such 
        taxable year.''.
            (17) Hospital insurance.--Subsection (b) of section 1401 is 
        amended by striking ``the following percent'' and all that 
        follows and inserting ``2.9 percent of the amount of the self-
        employment income for such taxable year.''.
            (18) Ministers, members of religious orders, and christian 
        science practitioners.--Paragraph (3) of section 1402(e) is 
        amended by striking ``whichever of the following dates is 
        later: (A)'' and by striking ``; or (B)'' and all that follows 
        and inserting a period.
            (19) Withholding of tax on nonresident aliens.--The first 
        sentence of subsection (b) of section 1441 and the first 
        sentence of paragraph (5) of section 1441(c) are each amended 
        by striking ``gains subject to tax'' and all that follows 
        through ``October 4, 1966'' and inserting ``and gains subject 
        to tax under section 871(a)(1)(D)''.
            (20) Retirement.--Section 7447(i)(3)(B)(ii) is amended by 
        striking ``at 4 percent per annum to December 31, 1947, and at 
        3 percent per annum thereafter'', and inserting ``at 3 percent 
        per annum''.
            (21) Annuities to surviving spouses and dependent children 
        of judges.--
                    (A) Paragraph (2) of section 7448(a) is amended by 
                striking ``or under section 1106 of the Internal 
                Revenue Code of 1939'' and by striking ``or pursuant to 
                section 1106(d) of the Internal Revenue Code of 1939''.
                    (B) Subsection (g) of section 7448 is amended by 
                striking ``or other than pursuant to section 1106 of 
                the Internal Revenue Code of 1939''.
                    (C) Subsections (g), (j)(1), and (j)(2) of section 
                7448 are each amended by striking ``at 4 percent per 
                annum to December 31, 1947, and at 3 percent per annum 
                thereafter'' and inserting ``at 3 percent per annum''.
    (c) Effective Date.--
            (1) General rule.--Except as otherwise provided in 
        paragraph (2), the amendments made by this section shall take 
        effect on the date of enactment of this Act.
            (2) Savings provision.--If--
                    (A) any provision amended or repealed by subsection 
                (a) applied to--
                            (i) any transaction occurring before the 
                        date of the enactment of this Act,
                            (ii) any property acquired before such date 
                        of enactment, or
                            (iii) any item of income, loss, deduction, 
                        or credit taken into account before such date 
                        of enactment, and
                    (B) the treatment of such transaction, property, or 
                item under such provision would (without regard to the 
                amendments made by subsection (a)) affect the liability 
                for tax for periods ending after such date of 
                enactment,
        nothing in the amendments made by subsection (a) shall be 
        construed to affect the treatment of such transaction, 
        property, or item for purposes of determining liability for tax 
        for periods ending after such date of enactment.

                 TITLE VIII--REVENUE OFFSET PROVISIONS

SEC. 801. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) Clarification of Economic Substance Doctrine; Etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                        In applying subclause (II), a purpose of 
                        achieving a financial accounting benefit shall 
                        not be taken into account in determining 
                        whether a transaction has a substantial nontax 
                        purpose if the origin of such financial 
                        accounting benefit is a reduction of income 
                        tax.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(D) Treatment of lessors.--In applying paragraph 
                (1)(B)(ii) to the lessor of tangible property subject 
                to a lease--
                            ``(i) the expected net tax benefits with 
                        respect to the leased property shall not 
                        include the benefits of--
                                    ``(I) depreciation,
                                    ``(II) any tax credit, or
                                    ``(III) any other deduction as 
                                provided in guidance by the Secretary, 
                                and
                            ``(ii) subclause (II) of paragraph 
                        (1)(B)(ii) shall be disregarded in determining 
                        whether any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law, and the requirements of this 
        subsection shall be construed as being in addition to any such 
        other rule of law.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 802. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    (a) In General.--Subchapter A of chapter 68 is amended by inserting 
after section 6662A the following new section:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(p)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(p)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply for purposes of paragraph 
        (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

            ``(1) For coordination of penalty with 
            understatements under section 6662 and other 
            special rules, see section 6662A(e).
            ``(2) For reporting of penalty imposed under 
            this section to the Securities and Exchange 
            Commission, see section 6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A), by inserting ``and a 
                noneconomic substance transaction understatement'' 
                after ``reportable transaction understatement'',
                    (C) in paragraph (2)(B), by inserting ``6662B or'' 
                before ``6663'',
                    (D) in paragraph (2)(C)(i), by inserting ``or 
                section 6662B'' before the period at the end,
                    (E) in paragraph (2)(C)(ii), by inserting ``and 
                section 6662B'' after ``This section'',
                    (F) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (G) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(C)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 803. APPLICATION OF RULES TREATING INVERTED CORPORATIONS AS 
              DOMESTIC CORPORATIONS TO CERTAIN TRANSACTIONS OCCURRING 
              AFTER MARCH 20, 2002.

    (a) In General.--Section 7874(b) (relating to inverted corporations 
treated as domestic corporations) is amended to read as follows:
    ``(b) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--Notwithstanding section 7701(a)(4), a 
        foreign corporation shall be treated for purposes of this title 
        as a domestic corporation if such corporation would be a 
        surrogate foreign corporation if subsection (a)(2) were applied 
        by substituting `80 percent' for `60 percent'.
            ``(2) Special rule for certain transactions occurring after 
        march 20, 2002.--
                    ``(A) In general.--If--
                            ``(i) paragraph (1) does not apply to a 
                        foreign corporation, but
                            ``(ii) paragraph (1) would apply to such 
                        corporation if, in addition to the substitution 
                        under paragraph (1), subsection (a)(2) were 
                        applied by substituting `March 20, 2002' for 
                        `March 4, 2003' each place it appears,
                then paragraph (1) shall apply to such corporation but 
                only with respect to taxable years of such corporation 
                beginning after December 31, 2005.
                    ``(B) Special rules.--Subject to such rules as the 
                Secretary may prescribe, in the case of a corporation 
                to which paragraph (1) applies by reason of this 
                paragraph--
                            ``(i) the corporation shall be treated, as 
                        of the close of its last taxable year beginning 
                        before January 1, 2006, as having transferred 
                        all of its assets, liabilities, and earnings 
                        and profits to a domestic corporation in a 
                        transaction with respect to which no tax is 
                        imposed under this title,
                            ``(ii) the bases of the assets transferred 
                        in the transaction to the domestic corporation 
                        shall be the same as the bases of the assets in 
                        the hands of the foreign corporation, subject 
                        to any adjustments under this title for built-
                        in losses,
                            ``(iii) the basis of the stock of any 
                        shareholder in the domestic corporation shall 
                        be the same as the basis of the stock of the 
                        shareholder in the foreign corporation for 
                        which it is treated as exchanged, and
                            ``(iv) the transfer of any earnings and 
                        profits by reason of clause (i) shall be 
                        disregarded in determining any deemed dividend 
                        or foreign tax creditable to the domestic 
                        corporation with respect to such transfer.
                    ``(C) Regulations.--The Secretary may prescribe 
                such regulations as may be necessary or appropriate to 
                carry out this paragraph, including regulations to 
                prevent the avoidance of the purposes of this 
                paragraph.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2005.
            Amend the title so as to read: ``A bill to amend the 
        Internal Revenue Code of 1986 to repeal the excise tax on 
        telephone and other communication services and to provide 
        taxpayer protection and assistance, and for other purposes.''.
                                                       Calendar No. 614

109th CONGRESS

  2d Session

                                S. 1321

                          [Report No. 109-336]

_______________________________________________________________________

                                 AN ACT

To amend the Internal Revenue Code of 1986 to repeal the excise tax on 
              telephone and other communications services.

_______________________________________________________________________

                           September 15, 2006

        Reported with an amendment and an amendment to the title
```