II 

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. 

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


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Telephone Excise Tax 

3 Repeal Act of 2005’’. 

4 SEC. 2. REPEAL OF EXCISE TAX ON TELEPHONE AND 

5 OTHER COMMUNICATIONS SERVICES. 

6 (a) IN GENERAL.—Chapter 33 of the Internal Rev7 enue Code of 1986 (relating to facilities and services) is 

8 amended by striking subchapter B. 

9 (b) CONFORMING AMENDMENTS.— 

10 (1) Section 4293 of such Code is amended by 

11 striking ‘‘chapter 32 (other than the taxes imposed 

12 by sections 4064 and 4121) and subchapter B of 

13 chapter 33,’’ and inserting ‘‘and chapter 32 (other 

14 than the taxes imposed by sections 4064 and 

15 4121),’’. 

16 (2)(A) Paragraph (1) of section 6302(e) of such 

17 Code is amended by striking ‘‘section 4251 or’’. 

18 (B) Paragraph (2) of section 6302(e) of such 

19 Code is amended— 

20 (i) by striking ‘‘imposed by—’’ and all that 

21 follows through ‘‘with respect to’’ and inserting 

22 ‘‘imposed by section 4261 or 4271 with respect 

23 to’’, and 

24 (ii) by striking ‘‘bills rendered or’’. 


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1 (C) The subsection heading for section 6302(e) 

2 of such Code is amended by striking ‘‘Communica3 tions Services and’’. 

4 (3) Section 6415 of such Code is amended by 

5 striking ‘‘4251, 4261, or 4271’’ each place it ap6 pears and inserting ‘‘4261 or 4271’’. 

7 (4) Paragraph (2) of section 7871(a) of such 

8 Code is amended by inserting ‘‘or’’ at the end of 

9 subparagraph (B), by striking subparagraph (C), 

10 and by redesignating subparagraph (D) as subpara11 graph (C). 

12 (5) The table of subchapters for chapter 33 of 

13 such Code is amended by striking the item relating 

14 to subchapter B. 

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

16 this section shall apply to amounts paid pursuant to bills 

17 first rendered more than 90 days after the date of the 

18 enactment of this Act. 

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

20 TABLE OF CONTENTS. 

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

22 ‘‘Telephone Excise Tax Repeal and Taxpayer Protection 

23 and Assistance Act of 2006’’. 

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

25 expressly provided, whenever in this Act an amendment or 


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

2 of, a section or other provision, the reference shall be consid3 ered to be made to a section or other provision of the Inter4 nal Revenue Code of 1986. 

5 (c) TABLE OF CONTENTS.—The table of contents for 

6 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. 


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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. 


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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. 

1 TITLE I—TELEPHONE EXCISE 

2 TAX REPEAL 

3 SEC. 101. REPEAL OF EXCISE TAX ON TELEPHONE AND 

4 OTHER COMMUNICATIONS SERVICES. 

5 (a) IN GENERAL.—Chapter 33 (relating to facilities 

6 and services) is amended by striking subchapter B. 

7 (b) CONFORMING AMENDMENTS.— 

8 (1) Section 4293 is amended by striking ‘‘chap9 ter 32 (other than the taxes imposed by sections 4064 

10 and 4121) and subchapter B of chapter 33,’’ and inVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00006 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 serting ‘‘and chapter 32 (other than the taxes imposed 

2 by sections 4064 and 4121),’’. 

3 (2)(A) Section 6302(e)(1) is amended by striking 

4 ‘‘section 4251 or’’. 

5 (B) Section 6302(e)(2)(A) is amended— 

6 (i) by striking ‘‘imposed by—’’ and all that 

7 follows through ‘‘with respect to’’ and inserting 

8 ‘‘imposed by section 4261 or 4271 with respect 

9 to’’, and 

10 (ii) by striking ‘‘bills rendered or’’. 

11 (C) The heading for subsection (e) of section 

12 6302 is amended by striking ‘‘COMMUNICATIONS

13 SERVICES’’. 

14 (3) Section 6415 is amended by striking ‘‘4251, 

15 4261, or 4271’’ each place it appears and inserting 

16 ‘‘4261 or 4271’’. 

17 (4) Section 7871(a)(2) is amended by adding 

18 ‘‘or’’ at the end of subparagraph (B), by striking sub19 paragraph (C), and by redesignating subparagraph 

20 (D) as subparagraph (C). 

21 (5) The table of subchapters for chapter 33 is 

22 amended by striking the item relating to subchapter 

23 B. 

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

25 section shall apply to amounts paid pursuant to bills first 


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1 rendered more than 90 days after the date of the enactment 

2 of this Act. 

3 (d) AUTHORIZATION FOR REFUND PROGRAM.—There 

4 is authorized to be appropriated $49,000,000 to the Internal 

5 Revenue Service to implement the telephone excise tax re6 fund program under Internal Revenue Service Notice 2006- 

7 50. 

8 TITLE II—TAXPAYER 

9 PROTECTION AND ASSISTANCE 

10 SEC. 201. LOW-INCOME TAXPAYER CLINICS. 

11 (a) GRANTS FOR RETURN PREPARATION CLINICS.— 

12 (1) IN GENERAL.—Chapter 77 (relating to mis13 cellaneous provisions) is amended by inserting after 

14 section 7526 the following new section: 

15 ‘‘SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-IN16 COME TAXPAYERS. 

17 ‘‘(a) IN GENERAL.—The Secretary may, subject to the 

18 availability of appropriated funds, make grants to provide 

19 matching funds for the development, expansion, or continu20 ation of qualified return preparation clinics. 

21 ‘‘(b) DEFINITIONS.—For purposes of this section— 

22 ‘‘(1) QUALIFIED RETURN PREPARATION CLIN23 IC.— 

24 ‘‘(A) IN GENERAL.—The term ‘qualified re25 turn preparation clinic’ means a clinic which— 


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1 ‘‘(i) does not charge more than a nomi2 nal fee for its services (except for reimburse3 ment of actual costs incurred), and 

4 ‘‘(ii) operates programs which assist 

5 low-income taxpayers, including individ6 uals for whom English is a second lan7 guage, in preparing and filing their Federal 

8 income tax returns, including schedules re9 porting sole proprietorship or farm income. 

10 ‘‘(B) ASSISTANCE TO LOW-INCOME TAX11 PAYERS.—A clinic is treated as assisting low-in12 come taxpayers under subparagraph (A)(ii) if at 

13 least 90 percent of the taxpayers assisted by the 

14 clinic have incomes which do not exceed 250 per15 cent of the poverty level, as determined in ac16 cordance with criteria established by the Director 

17 of the Office of Management and Budget. 

18 ‘‘(2) CLINIC.—The term ‘clinic’ includes— 

19 ‘‘(A) a clinical program at an eligible edu20 cational institution (as defined in section 

21 529(e)(5)) which satisfies the requirements of 

22 paragraph (1) through student assistance of tax23 payers in return preparation and filing, and 

24 ‘‘(B) an organization described in section 

25 501(c) and exempt from tax under section 501(a) 


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1 which satisfies the requirements of paragraph 

2 (1). 

3 ‘‘(c) SPECIAL RULES AND LIMITATIONS.— 

4 ‘‘(1) AGGREGATE LIMITATION.—Unless otherwise 

5 provided by specific appropriation, the Secretary 

6 shall not allocate more than $10,000,000 per year (ex7 clusive of costs of administering the program) to 

8 grants under this section. 

9 ‘‘(2) OTHER APPLICABLE RULES.—Rules similar 

10 to the rules under paragraphs (2) through (7) of sec11 tion 7526(c) shall apply with respect to the awarding 

12 of grants to qualified return preparation clinics.’’. 

13 (2) CLERICAL AMENDMENT.—The table of sec14 tions for chapter 77 is amended by inserting after the 

15 item relating to section 7526 the following new item: 

‘‘Sec. 7526A. Return preparation clinics for low-income taxpayers.’’. 

16 (b) GRANTS FOR TAXPAYER REPRESENTATION AND

17 ASSISTANCE CLINICS.— 

18 (1) INCREASE IN AUTHORIZED GRANTS.—Section 

19 7526(c)(1) (relating to aggregate limitation) is 

20 amended by striking ‘‘$6,000,000’’ and inserting 

21 ‘‘$10,000,000’’. 

22 (2) USE OF GRANTS FOR OVERHEAD EXPENSES

23 PROHIBITED.— 


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1 (A) IN GENERAL.—Section 7526(c) (relating 

2 to special rules and limitations) is amended by 

3 adding at the end the following new paragraph: 

4 ‘‘(6) USE OF GRANTS FOR OVERHEAD EXPENSES

5 PROHIBITED.—No grant made under this section may 

6 be used for the overhead expenses of any clinic or of 

7 any institution sponsoring such clinic.’’. 

8 (B) CONFORMING AMENDMENTS.—Section 

9 7526(c)(5) is amended— 

10 (i) by inserting ‘‘qualified’’ before 

11 ‘‘low-income’’, and 

12 (ii) by striking the last sentence. 

13 (3) PROMOTION OF CLINICS.—Section 7526(c), as 

14 amended by paragraph (2), is amended by adding at 

15 the end the following new paragraph: 

16 ‘‘(7) PROMOTION OF CLINICS.—The Secretary is 

17 authorized to promote the benefits of and encourage 

18 the use of low-income taxpayer clinics through the use 

19 of mass communications, referrals, and other means.’’. 

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

21 section shall apply to grants made after the date of the en22 actment of this Act. 


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1 SEC. 202. CLARIFICATION OF ENROLLED AGENT CREDEN2 TIALS. 

3 (a) IN GENERAL.—Chapter 77 (relating to miscella4 neous provisions) is amended by adding at the end the fol5 lowing new section: 

6 ‘‘SEC. 7529. ENROLLED AGENTS. 

7 ‘‘(a) IN GENERAL.—The Secretary may prescribe such 

8 regulations as may be necessary to regulate the conduct of 

9 enrolled agents in regards to their practice before the Inter10 nal Revenue Service. 

11 ‘‘(b) USE OF CREDENTIALS.—Any enrolled agents 

12 properly licensed to practice as required under rules pro13 mulgated under subsection (a) shall be allowed to use the 

14 credentials or designation as ‘enrolled agent’, ‘EA’, or 

15 ‘E.A.’.’’. 

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

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

18 new item: 

‘‘Sec. 7529. Enrolled agents.’’. 

19 (c) PRIOR REGULATIONS.—The authority to prescribe 

20 regulations under the amendments made by this section 

21 may not be construed to have any effect on part 10 of title 

22 31, Code of Federal Regulations, or any other related Fed23 eral rule or regulation issued before the date of the enact24 ment of this Act. 


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1 SEC. 203. REGULATION OF FEDERAL TAX RETURN PRE2 PARERS. 

3 (a) AUTHORIZATION.—Section 330(a)(1) of title 31, 

4 United States Code, is amended by inserting ‘‘(including 

5 compensated preparers of Federal tax returns, documents, 

6 and other submissions)’’ after ‘‘representatives’’. 

7 (b) REQUIREMENT.— 

8 (1) IN GENERAL.—Not later than 1 year after 

9 the date of the enactment of this Act, the Secretary of 

10 the Treasury shall prescribe regulations under section 

11 330 of title 31, United States Code— 

12 (A) to regulate those compensated preparers 

13 not otherwise regulated under regulations pro14 mulgated under such section on the date of the 

15 enactment of this Act, and 

16 (B) to carry out the provisions of, and 

17 amendments made by, this section. 

18 (2) EXAMINATION.— 

19 (A) IN GENERAL.—In promulgating the reg20 ulations under paragraph (1), the Secretary 

21 shall develop (or approve) and administer an eli22 gibility examination designed to test— 

23 (i) the technical knowledge and com24 petency of each preparer described in para25 graph (1)(A)— 


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1 (I) to prepare Federal tax returns, 

2 including individual and business in3 come tax returns, and 

4 (II) to properly claim the earned 

5 income tax credit under section 32 of 

6 the Internal Revenue Code of 1986 

7 with respect to such individual returns, 

8 and 

9 (ii) the knowledge of each such pre10 parer regarding such ethical standards for 

11 the preparation of such returns as deter12 mined appropriate by the Secretary. 

13 (B) STATE LICENSING OR STATE REGISTRA14 TION PROGRAMS.—In promulgating the regula15 tions under paragraph (1), the Secretary shall 

16 accept the credentials of any State licensing or 

17 State registration program for any preparer de18 scribed in paragraph (1)(A) in lieu of the ad19 ministration of an eligibility examination to 

20 such preparer under subparagraph (A) if such 

21 program has an eligibility examination which is 

22 comparable to the eligibility examination under 

23 subparagraph (A). 

24 (3) CONTINUING ELIGIBILITY.— 


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1 (A) IN GENERAL.—The regulations under 

2 paragraph (1) shall require a renewal of eligi3 bility every 3 years and shall set forth the man4 ner in which a preparer described in paragraph 

5 (1)(A) must renew such eligibility. 

6 (B) CONTINUING EDUCATION REQUIRE7 MENTS.—As part of the renewal of eligibility, 

8 such regulations shall require that each such pre9 parer show evidence of completion of such con10 tinuing education requirements as specified by 

11 the Secretary. 

12 (C) NONMONETARY SANCTIONS.—The regu13 lations under paragraph (1) shall provide for the 

14 suspension or termination of such eligibility in 

15 the event of any failure to comply with the re16 quirements for such eligibility. 

17 (4) PENALTY FOR UNAUTHORIZED PREPARATION

18 OF RETURNS, ETC.—In promulgating the regulations 

19 under paragraph (1), the Secretary shall impose a 

20 penalty of $1,000 for each Federal tax return, docu21 ment, or other submission prepared by a preparer de22 scribed in paragraph (1)(A) who is not in compliance 

23 with the requirements of paragraph (2) or (3) or who 

24 is suspended or disbarred from practice before the De25 partment of the Treasury under such regulations. 


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1 Such penalty shall be in addition to any other pen2 alty which may be imposed. 

3 (c) OFFICE OF PROFESSIONAL RESPONSIBILITY.—Sec4 tion 330 of title 31, United States Code, is amended by add5 ing at the end the following new subsection: 

6 ‘‘(e) OFFICE OF PROFESSIONAL RESPONSIBILITY.— 

7 ‘‘(1) IN GENERAL.—There shall be in the Inter8 nal Revenue Service an Office of Professional Respon9 sibility the functions of which shall be as prescribed 

10 by the Secretary of the Treasury, including the car11 rying out of the purposes of this section. 

12 ‘‘(2) DIRECTOR.— 

13 ‘‘(A) IN GENERAL.—The Office of Profes14 sional Responsibility shall be under the super15 vision and direction of an official known as the 

16 ‘Director, Office of Professional Responsibility’. 

17 The Director, Office of Professional Responsi18 bility, shall report directly to the Commissioner 

19 of Internal Revenue and shall be entitled to com20 pensation at the same rate as the highest rate of 

21 basic pay established for the Senior Executive 

22 Service under section 5382 of title 5, or, if the 

23 Secretary of the Treasury so determines, at a 

24 rate fixed under section 9503 of such title. 


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1 ‘‘(B) APPOINTMENT.—The Director, Office 

2 of Professional Responsibility, shall be appointed 

3 by the Secretary of the Treasury without regard 

4 to the provisions of title 5 relating to appoint5 ments in the competitive service or the Senior 

6 Executive Service. 

7 ‘‘(3) HEARING.—Any hearing on an action initi8 ated by the Director, Office of Professional Responsi9 bility, to impose a sanction under regulations pro10 mulgated under this section shall be conducted in ac11 cordance with sections 556 and 557 of title 5 by 1 or 

12 more administrative law judges appointed by the Sec13 retary of the Treasury under section 3105 of title 5. 

14 ‘‘(4) COORDINATION WITH STATE SANCTION PRO15 GRAMS.—In carrying out the purposes of this section, 

16 the Director, Office of Professional Responsibility 

17 shall coordinate with appropriate State officials in 

18 order to collect information regarding representatives, 

19 employers, firms and other entities which have been 

20 disciplined or suspended under State or local rules. 

21 ‘‘(5) INFORMATION ON SANCTIONS TO BE AVAIL22 ABLE TO THE PUBLIC.— 

23 ‘‘(A) SANCTIONS INITIATED BY ACTION.— 

24 When an action is initiated by the Director, Of25 fice of Professional Responsibility, to impose a 


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1 sanction under regulations promulgated under 

2 this section, the pleadings and the record of the 

3 proceeding and hearing shall be open to the pub4 lic (subject to restrictions imposed under sub5 paragraph (C)). 

6 ‘‘(B) SANCTION NOT INITIATED BY AC7 TION.—When a sanction under regulations pro8 mulgated under this section (other than a pri9 vate reprimand) is imposed without initiation of 

10 an action, the Director, Office of Professional Re11 sponsibility, shall make available to the public 

12 information identifying the representative, em13 ployer, firm, or other entity sanctioned, as well 

14 as information about the conduct which gave rise 

15 to the sanction (subject to restrictions imposed 

16 under subparagraph (C)). 

17 ‘‘(C) RESTRICTIONS ON RELEASE OF INFOR18 MATION.—Information about clients of the rep19 resentative, employer, firm, or other entity and 

20 medical information with respect to the rep21 resentative shall not be released to the public or 

22 discussed in an open hearing, except to the extent 

23 necessary to understand the nature, scope, and 

24 impact of the conduct giving rise to the sanction 

25 or proposed sanction. Disagreements regarding 


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1 the application of this subparagraph shall be re2 solved by the administrative law judge or, when 

3 a sanction is imposed without initiation of an 

4 action, by the Director, Office of Professional Re5 sponsibility. 

6 ‘‘(6) FEES.—Any fees imposed under regulations 

7 promulgated under this section shall be available 

8 without fiscal year limitation to the Office of Profes9 sional Responsibility for the purpose of reimburse10 ment of the costs of administering and enforcing the 

11 requirements of such regulations.’’. 

12 (d) BAN ON AUDIT INSURANCE.—Section 330 of title 

13 31, United States Code, as amended by subsection (c), is 

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

15 ‘‘(f) BAN ON AUDIT INSURANCE.—No person admitted 

16 to practice before the Department of the Treasury may di17 rectly or indirectly offer or provide insurance to cover pro18 fessional fees and other expenses incurred in responding to 

19 or defending an audit by the Internal Revenue Service.’’. 

20 (e) PENALTIES.— 

21 (1) INCREASE IN CERTAIN PENALTIES.—Sub22 sections (a), (b), and (c) of section 6695 (relating to 

23 other assessable penalties with respect to the prepara24 tion of income tax returns for other persons) are each 


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1 amended striking ‘‘a penalty of $50’’ and all that fol2 lows and inserting ‘‘a penalty equal to— 

3 ‘‘(1) $1,000, or 

4 ‘‘(2) in the case of 3 or more such failures in a 

5 calendar year, $500 for each such failure. 

6 The preceding sentence shall not apply with respect to any 

7 failure if such failure is due to reasonable cause and not 

8 due to willful neglect.’’. 

9 (2) USE OF PENALTIES.—Unless specifically ap10 propriated otherwise, there is authorized to be appro11 priated and is appropriated to the Office of Profes12 sional Responsibility for each fiscal year for the ad13 ministration of the public awareness campaign de14 scribed in subsection (g) an amount equal to the pen15 alties collected during the preceding fiscal year under 

16 sections 6694 and 6695 of the Internal Revenue Code 

17 of 1986 and under the regulations promulgated under 

18 section 330 of title 31, United States Code (by reason 

19 of subsection (b)(1)). 

20 (f) COORDINATION WITH SECTION 6060(a).—The Sec21 retary of the Treasury shall coordinate the requirements 

22 under the regulations promulgated under section 330 of title 

23 31, United States Code, with the return requirements of sec24 tion 6060 of the Internal Revenue Code of 1986. 


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1 (g) PUBLIC AWARENESS CAMPAIGN.—The Secretary of 

2 the Treasury or the Secretary’s delegate shall conduct a 

3 public information and consumer education campaign, uti4 lizing paid advertising— 

5 (1) to encourage taxpayers to use for Federal tax 

6 matters only professionals who establish their com7 petency under the regulations promulgated under sec8 tion 330 of title 31, United States Code, and 

9 (2) to inform the public of the requirements that 

10 any compensated preparer of tax returns, documents, 

11 and submissions subject to the requirements under the 

12 regulations promulgated under such section must sign 

13 the return, document, or submission prepared for a 

14 fee and display notice of such preparer’s compliance 

15 under such regulations. 

16 (h) ADDITIONAL FUNDS AVAILABLE FOR COMPLIANCE

17 ACTIVITIES.—The Secretary of the Treasury may use any 

18 specifically appropriated funds for earned income tax credit 

19 compliance to improve and expand enforcement of the regu20 lations promulgated under section 330 of title 31, United 

21 States Code. 

22 (i) ADDITIONAL CERTIFICATION ON DOCUMENTS

23 OTHER THAN RETURNS.—The Secretary of the Treasury 

24 shall require that each document or other submission filed 

25 with the Internal Revenue Service (other than a return 


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1 signed by the taxpayer) shall be signed under penalty of 

2 perjury and the identifying number of any paid preparer 

3 who prepared such document (if any) under rules similar 

4 to the rules under section 6109(a)(4). 

5 SEC. 204. CONTRACT AUTHORITY FOR EXAMINATIONS OF 

6 PREPARERS. 

7 The Secretary of the Treasury is authorized to contract 

8 for the development or administration, or both, of any ex9 aminations under the regulations promulgated under sec10 tion 330 of title 31, United States Code. 

11 SEC. 205. REGULATION OF REFUND ANTICIPATION LOAN 

12 FACILITATORS. 

13 (a) REGULATION OF REFUND ANTICIPATION LOAN

14 FACILITATORS.— 

15 (1) IN GENERAL.—Chapter 77 (relating to mis16 cellaneous provisions), as amended by this Act, is 

17 amended by inserting at the end the following new 

18 section: 

19 ‘‘SEC. 7530. REFUND ANTICIPATION LOAN FACILITATORS. 

20 ‘‘(a) REGISTRATION.—Each refund loan facilitator 

21 shall register with the Secretary on an annual basis. As 

22 a part of such registration, each refund loan facilitator 

23 shall provide the Secretary with the name, address, and tax24 payer identification number of such facilitator and the fee 

25 schedule of such facilitator for the year of such registration. 


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1 ‘‘(b) DISCLOSURE.—Each refund loan facilitator shall 

2 disclose to a taxpayer both orally and on a separate written 

3 form at the time such taxpayer applies for a refund antici4 pation loan the following information: 

5 ‘‘(1) NATURE OF THE TRANSACTION.—The re6 fund loan facilitator shall disclose— 

7 ‘‘(A) that the taxpayer is applying for a 

8 loan that is based upon the taxpayer’s antici9 pated income tax refund, 

10 ‘‘(B) the expected time within which the 

11 loan will be paid to the taxpayer if such loan is 

12 approved, 

13 ‘‘(C) the time frame in which income tax 

14 refunds are typically paid based upon the dif15 ferent filing options available to the taxpayer, 

16 ‘‘(D) that there is no guarantee that a re17 fund will be paid in full or received within a 

18 specified time period and that the taxpayer is re19 sponsible for the repayment of the loan even if 

20 the refund is not paid in full or has been de21 layed, 

22 ‘‘(E) if the refund loan facilitator has an 

23 agreement with another refund loan facilitator 

24 (or any lender working in conjunction with an25 other refund loan facilitator) to offset outVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00023 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 standing liabilities for previous refund anticipa2 tion loans provided by such other refund loan 

3 facilitator, that any refund paid to the taxpayer 

4 may be so offset and the implication of any such 

5 offset, 

6 ‘‘(F) that the taxpayer may file an elec7 tronic return without applying for a refund an8 ticipation loan and the fee for filing such an 

9 electronic return, and 

10 ‘‘(G) that the loan may have substantial fees 

11 and interest charges that may exceed those of 

12 other sources of credit and the taxpayer should 

13 carefully consider— 

14 ‘‘(i) whether such a loan is appropriate 

15 for the taxpayer, and 

16 ‘‘(ii) other sources of credit. 

17 ‘‘(2) FEES AND INTEREST.—The refund loan 

18 facilitator shall disclose all refund anticipation loan 

19 fees with respect to the refund anticipation loan. Such 

20 disclosure shall include— 

21 ‘‘(A) a copy of the fee schedule of the refund 

22 loan facilitator, 

23 ‘‘(B) the typical fees and interest rates 

24 (using annual percentage rates as defined by sec25 tion 107 of the Truth in Lending Act (15 U.S.C. 


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1 1606)) for several typical amounts of such loans 

2 and of other types of consumer credit, 

3 ‘‘(C) typical fees and interest charges if a 

4 refund is not paid or delayed, and 

5 ‘‘(D) the amount of a fee (if any) that will 

6 be charged if the loan is not approved. 

7 ‘‘(3) OTHER INFORMATION.—The refund loan 

8 facilitator shall disclose any other information re9 quired to be disclosed by the Secretary. 

10 ‘‘(c) FINES AND SANCTIONS.— 

11 ‘‘(1) IN GENERAL.—The Secretary may impose a 

12 monetary penalty on any refund loan facilitator 

13 who— 

14 ‘‘(A) fails to register under subsection (a), 

15 or 

16 ‘‘(B) fails to disclose any information re17 quired under subsection (b). 

18 ‘‘(2) MAXIMUM MONETARY PENALTY.—Any mon19 etary penalty imposed under paragraph (1) shall not 

20 exceed— 

21 ‘‘(A) in the case of a failure to register, the 

22 gross income derived from all refund anticipa23 tion loans made during the period the refund 

24 loan facilitator was not registered, and 


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1 ‘‘(B) in the case of a failure to disclose in2 formation, the gross income derived from all re3 fund anticipation loans with respect to which 

4 such failure applied. 

5 ‘‘(3) REASONABLE CAUSE EXCEPTIONS.—No pen6 alty may be imposed under this subsection with re7 spect to any failure if it is shown that such failure 

8 is due to reasonable cause. 

9 ‘‘(d) DEFINITIONS.—For purposes of this section— 

10 ‘‘(1) REFUND LOAN FACILITATOR.— 

11 ‘‘(A) IN GENERAL.—The term ‘refund loan 

12 facilitator’ means any electronic return origi13 nator who— 

14 ‘‘(i) solicits for, processes, receives, or 

15 accepts delivery of an application for a re16 fund anticipation loan, or 

17 ‘‘(ii) facilitates the making of a refund 

18 anticipation loan in any other manner. 

19 ‘‘(B) ELECTRONIC RETURN ORIGINATOR.— 

20 For purposes of subparagraph (A), the term ‘elec21 tronic return originator’ means a person who 

22 originates the electronic submission of income 

23 tax returns for another person. 

24 ‘‘(2) REFUND ANTICIPATION LOAN.—The term 

25 ‘refund anticipation loan’ means any loan of money 


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1 or any other thing of value to a taxpayer in connec2 tion with the taxpayer’s anticipated receipt of a Fed3 eral tax refund. Such term includes a loan secured by 

4 the tax refund or an arrangement to repay a loan 

5 from the tax refund. 

6 ‘‘(3) REFUND ANTICIPATION LOAN FEES.—The 

7 term ‘refund anticipation loan fees’ means the fees, 

8 charges, interest, and other consideration charged or 

9 imposed by the lender or facilitator for the making of 

10 a refund anticipation loan. 

11 ‘‘(e) REGULATIONS.—The Secretary may prescribe 

12 such regulations as necessary to implement the require13 ments of this section.’’. 

14 (2) CLERICAL AMENDMENT.—The table of sec15 tions for chapter 77, as amended by this Act, is 

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

‘‘Sec. 7530. Refund anticipation loan facilitators.’’. 

17 (b) DISCLOSURE OF PENALTY.—Section 6103(k) (re18 lating to disclosure of certain returns and return informa19 tion for tax administration purposes) is amended by add20 ing at the end the following new paragraph: 

21 ‘‘(10) DISCLOSURE OF PENALTIES ON REFUND

22 ANTICIPATION LOAN FACILITATORS.—The Secretary 

23 may disclose the name and employer (including the 

24 employer’s address) of any person with respect to 


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1 whom a penalty has been imposed under section 7530 

2 and the amount of any such penalty.’’. 

3 (c) USE OF PENALTIES.—Unless specifically appro4 priated otherwise, there is authorized to be appropriated 

5 and is appropriated to the Internal Revenue Service for 

6 each fiscal year for the administration of the public aware7 ness campaign described in subsection (d) an amount equal 

8 to the penalties collected during the preceding fiscal year 

9 under section 7530 of the Internal Revenue Code of 1986. 

10 (d) PUBLIC AWARENESS CAMPAIGN.—The Secretary of 

11 the Treasury or the Secretary’s delegate shall conduct a 

12 public information and consumer education campaign, uti13 lizing paid advertising, to educate the public on making 

14 sound financial decisions with respect to refund anticipa15 tion loans (as defined under section 7530 of the Internal 

16 Revenue Code of 1986), including the need to compare— 

17 (1) the rates and fees of such loans with the rates 

18 and fees of conventional loans; and 

19 (2) the amount of money received under the loan 

20 after taking into consideration such costs and fees 

21 with the total amount of the refund. 

22 (e) EFFECTIVE DATE.—The amendments made by this 

23 section shall take effect on the date that is 1 year after the 

24 date of the enactment of this Act. 


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1 (f) TERMINATION OF DEBT INDICATOR PROGRAM.— 

2 The Secretary of the Treasury shall terminate the Debt In3 dicator program announced in Internal Revenue Service 

4 Notice 99–58 and may not implement any similar pro5 gram. 

6 SEC. 206. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS. 

7 (a) ESTABLISHMENT OF PROGRAM.—The Secretary of 

8 the Treasury is authorized to award demonstration project 

9 grants (including multi-year grants) to eligible entities 

10 which partner with volunteer and low-income preparation 

11 organizations to provide tax preparation services and as12 sistance in connection with establishing an account in a 

13 federally insured depository institution for individuals that 

14 currently do not have such an account. 

15 (b) ELIGIBLE ENTITIES.— 

16 (1) IN GENERAL.—An entity is eligible to receive 

17 a grant under this section if such an entity is— 

18 (A) an organization described in section 

19 501(c)(3) of the Internal Revenue Code of 1986 

20 and exempt from tax under section 501(a) of 

21 such Code, 

22 (B) a federally insured depository institu23 tion, 

24 (C) an agency of a State or local govern25 ment, 


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1 (D) a community development financial in2 stitution, 

3 (E) an Indian tribal organization, 

4 (F) an Alaska Native Corporation, 

5 (G) a Native Hawaiian organization, 

6 (H) a labor organization, or 

7 (I) a partnership comprised of 1 or more of 

8 the entities described in the preceding subpara9 graphs. 

10 (2) DEFINITIONS.—For purposes of this sec11 tion— 

12 (A) FEDERALLY INSURED DEPOSITORY IN13 STITUTION.—The term ‘‘federally insured deposi14 tory institution’’ means any insured depository 

15 institution (as defined in section 3 of the Federal 

16 Deposit Insurance Act (12 U.S.C. 1813)) and 

17 any insured credit union (as defined in section 

18 101 of the Federal Credit Union Act (12 U.S.C. 

19 1752)). 

20 (B) COMMUNITY DEVELOPMENT FINANCIAL

21 INSTITUTION.—The term ‘‘community develop22 ment financial institution’’ means any organiza23 tion that has been certified as such pursuant to 

24 section 1805.201 of title 12, Code of Federal Reg25 ulations. 


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1 (C) ALASKA NATIVE CORPORATION.—The 

2 term ‘‘Alaska Native Corporation’’ has the same 

3 meaning as the term ‘‘Native Corporation’’ 

4 under section 3(m) of the Alaska Native Claims 

5 Settlement Act (43 U.S.C. 1602(m)). 

6 (D) NATIVE HAWAIIAN ORGANIZATION.—The 

7 term ‘‘Native Hawaiian organization’’ means 

8 any organization that— 

9 (i) serves and represents the interests of 

10 Native Hawaiians, and 

11 (ii) has as a primary and stated pur12 pose the provision of services to Native Ha13 waiians. 

14 (E) LABOR ORGANIZATION.—The term 

15 ‘‘labor organization’’ means an organization— 

16 (i) in which employees participate, 

17 (ii) which exists for the purpose, in 

18 whole or in part, of dealing with employers 

19 concerning grievances, labor disputes, 

20 wages, rates of pay, hours of employment, 

21 or conditions of work, and 

22 (iii) which is described in section 

23 501(c)(5) of the Internal Revenue Code of 

24 1986. 


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1 (c) APPLICATION.—An eligible entity desiring a grant 

2 under this section shall submit an application to the Sec3 retary of the Treasury in such form and containing such 

4 information as the Secretary may require. 

5 (d) LIMITATION ON ADMINISTRATIVE COSTS.—A re6 cipient of a grant under this section may not use more than 

7 6 percent of the total amount of such grant in any fiscal 

8 year for the administrative costs of carrying out the pro9 grams funded by such grant in such fiscal year. 

10 (e) EVALUATION AND REPORT.—For each fiscal year 

11 in which a grant is awarded under this section, the Sec12 retary of the Treasury shall submit a report to Congress 

13 containing a description of the activities funded, amounts 

14 distributed, and measurable results, as appropriate and 

15 available. 

16 (f) AUTHORIZATION OF APPROPRIATIONS.—There is 

17 authorized to be appropriated to the Secretary of the Treas18 ury, for the grant program described in this section, 

19 $10,000,000, or such additional amounts as deemed nec20 essary, to remain available until expended. 

21 (g) REGULATIONS.—The Secretary of the Treasury is 

22 authorized to promulgate regulations to implement and ad23 minister the grant program under this section. 

24 (h) STUDY ON DELIVERY OF TAX REFUNDS.— 


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1 (1) IN GENERAL.—The Secretary of the Treas2 ury, in consultation with the National Taxpayer Ad3 vocate, shall conduct a study on the payment of tax 

4 refunds through debit cards or other electronic means 

5 to assist individuals that do not have access to finan6 cial accounts or institutions. 

7 (2) REPORT.—Not later than 1 year after the 

8 date of the enactment of this Act, the Secretary of the 

9 Treasury shall submit a report to Congress con10 taining the result of the study conducted under sub11 section (a). 

12 TITLE III—IMPROVEMENTS IN 

13 TAX ADMINISTRATION AND 

14 TAXPAYER SAFEGUARDS 

15 SEC. 301. WAIVER OF USER FEE FOR INSTALLMENT AGREE16 MENTS USING AUTOMATED WITHDRAWALS. 

17 (a) IN GENERAL.—Section 6159 (relating to agree18 ments for payment of tax liability in installments) is 

19 amended by redesignating subsections (e) and (f) as sub20 sections (f) and (g), respectively, and by inserting after sub21 section (d) the following new subsection: 

22 ‘‘(e) WAIVER OF USER FEES FOR INSTALLMENT

23 AGREEMENTS USING AUTOMATED WITHDRAWALS.—In the 

24 case of a taxpayer who enters into an installment agreement 

25 in which automated installment payments are agreed to, 


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1 the Secretary shall waive the fee (if any) for entering into 

2 the installment agreement.’’. 

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

4 section shall apply to agreements entered into on or after 

5 the date which is 180 days after the date of the enactment 

6 of this Act. 

7 SEC. 302. TERMINATION OF INSTALLMENT AGREEMENTS. 

8 (a) IN GENERAL.—Section 6159(b)(4) (relating to fail9 ure to pay an installment or any other tax liability when 

10 due or to provide requested financial information) is 

11 amended by striking ‘‘or’’ at the end of subparagraph (B), 

12 by redesignating subparagraph (C) as subparagraph (E), 

13 and by inserting after subparagraph (B) the following new 

14 subparagraphs: 

15 ‘‘(C) to make a Federal tax deposit under 

16 section 6302 at the time such deposit is required 

17 to be made, 

18 ‘‘(D) to file a return of tax imposed under 

19 this title by its due date (including extensions), 

20 or’’. 

21 (b) CONFORMING AMENDMENT.—The heading for 

22 paragraph (4) of section 6159(b) is amended by striking 

23 ‘‘FAILURE TO PAY AN INSTALLMENT OR ANY OTHER TAX LI24 ABILITY WHEN DUE OR TO PROVIDE REQUESTED FINANCIAL

25 INFORMATION’’ and inserting ‘‘FAILURE TO MAKE PAYVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00034 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 MENTS OR DEPOSITS OR FILE RETURNS WHEN DUE OR TO

2 PROVIDE REQUESTED FINANCIAL INFORMATION’’. 

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

4 section shall apply to failures occurring on or after the date 

5 of the enactment of this Act. 

6 SEC. 303. INDIVIDUALS HELD HARMLESS ON IMPROPER 

7 LEVY ON INDIVIDUAL RETIREMENT PLAN. 

8 (a) IN GENERAL.—Section 6343 (relating to authority 

9 to release levy and return property) is amended by adding 

10 at the end the following new subsection: 

11 ‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL

12 LEVY, ETC. ON INDIVIDUAL RETIREMENT PLAN.— 

13 ‘‘(1) IN GENERAL.—If the Secretary determines 

14 that an individual retirement plan has been levied 

15 upon in a case to which subsection (b) or (d)(2)(A) 

16 applies and an amount is returned to the individual 

17 who is the beneficiary of such plan, the individual 

18 may deposit an amount equal to the sum of— 

19 ‘‘(A) the amount of money returned by the 

20 Secretary on account of such levy, and 

21 ‘‘(B) interest paid under subsection (c) on 

22 such amount of money, 

23 into an individual retirement plan (other than an en24 dowment contract) to which a rollover from the plan 

25 levied upon is permitted. 


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1 ‘‘(2) TREATMENT AS ROLLOVER.—The distribu2 tion on account of the levy and any deposit under 

3 paragraph (1) with respect to such distribution shall 

4 be treated for purposes of this title as if such distribu5 tion and deposit were part of a rollover described in 

6 section 408(d)(3)(A)(i); except that— 

7 ‘‘(A) interest paid under subsection (c) shall 

8 be treated as part of such distribution and as not 

9 includible in gross income, 

10 ‘‘(B) the 60-day requirement in such section 

11 shall be treated as met if the deposit is made not 

12 later than the 60th day after the day on which 

13 the individual receives an amount under para14 graph (1) from the Secretary, and 

15 ‘‘(C) such deposit shall not be taken into ac16 count under section 408(d)(3)(B). 

17 ‘‘(3) REFUND, ETC., OF INCOME TAX ON LEVY.— 

18 If any amount is includible in gross income for a tax19 able year by reason of a levy referred to in paragraph 

20 (1) and any portion of such amount is treated as a 

21 rollover under paragraph (2), any tax imposed by 

22 chapter 1 on such portion shall not be assessed, and 

23 if assessed shall be abated, and if collected shall be 

24 credited or refunded as an overpayment made on the 


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1 due date for filing the return of tax for such taxable 

2 year. 

3 ‘‘(4) INTEREST.—Notwithstanding subsection 

4 (d), interest shall be allowed under subsection (c) in 

5 a case in which the Secretary makes a determination 

6 described in subsection (d)(2)(A) with respect to a 

7 levy upon an individual retirement plan.’’. 

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

9 section shall apply to amounts paid under subsections (b), 

10 (c), and (d)(2)(A) of section 6343 of the Internal Revenue 

11 Code of 1986 after December 31, 2005. 

12 SEC. 304. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS13 IN-COMPROMISE. 

14 (a) IN GENERAL.—Section 7122(b) (relating to record) 

15 is amended by striking ‘‘Whenever a compromise’’ and all 

16 that follows through ‘‘his delegate’’ and inserting ‘‘If the 

17 Secretary determines that an opinion of the General Coun18 sel for the Department of the Treasury, or the Counsel’s del19 egate, is required with respect to a compromise, there shall 

20 be placed on file in the office of the Secretary such opinion’’. 

21 (b) CONFORMING AMENDMENTS.—Section 7122(b) is 

22 amended by striking the second and third sentences. 

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

24 section shall apply to offers-in-compromise submitted or 

25 pending on or after the date of the enactment of this Act. 


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1 SEC. 305. ELIMINATION OF RESTRICTION ON OFFSETTING 

2 REFUNDS FROM FORMER RESIDENTS. 

3 (a) IN GENERAL.—Section 6402(e) (relating to collec4 tion of past-due, legally enforceable State income tax obliga5 tions) is amended by striking paragraph (2) and by redesig6 nating paragraphs (3), (4), (5), (6), and (7) as paragraphs 

7 (2), (3), (4), (5), and (6), respectively. 

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

9 section shall apply to refunds payable for taxable years end10 ing after the date of the enactment of this Act. 

11 SEC. 306. REVISIONS RELATING TO TERMINATION OF EM12 PLOYMENT OF IRS EMPLOYEES FOR MIS13 CONDUCT. 

14 (a) IN GENERAL.—Subchapter A of chapter 80 (relat15 ing to application of internal revenue laws) is amended by 

16 inserting after section 7804 the following new section: 

17 ‘‘SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MIS18 CONDUCT. 

19 ‘‘(a) IN GENERAL.—Subject to subsection (c), the Com20 missioner shall terminate the employment of any employee 

21 of the Internal Revenue Service if there is a final adminis22 trative or judicial determination that such employee com23 mitted any act or omission described under subsection (b) 

24 in the performance of the employee’s official duties. Such 

25 termination shall be a removal for cause on charges of mis26 conduct. 


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1 ‘‘(b) ACTS OR OMISSIONS.—The acts or omissions de2 scribed under this subsection are— 

3 ‘‘(1) willful failure to obtain the required ap4 proval signatures on documents authorizing the sei5 zure of a taxpayer’s home, personal belongings, or 

6 business assets, 

7 ‘‘(2) providing a false statement under oath with 

8 respect to a material matter involving a taxpayer or 

9 taxpayer representative, 

10 ‘‘(3) with respect to a taxpayer, taxpayer rep11 resentative, or other employee of the Internal Revenue 

12 Service, the violation of— 

13 ‘‘(A) any right under the Constitution of the 

14 United States, or 

15 ‘‘(B) any civil right established under— 

16 ‘‘(i) title VI or VII of the Civil Rights 

17 Act of 1964, 

18 ‘‘(ii) title IX of the Education Amend19 ments of 1972, 

20 ‘‘(iii) the Age Discrimination in Em21 ployment Act of 1967, 

22 ‘‘(iv) the Age Discrimination Act of 

23 1975, 

24 ‘‘(v) section 501 or 504 of the Rehabili25 tation Act of 1973, or 


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1 ‘‘(vi) title I of the Americans with Dis2 abilities Act of 1990, 

3 ‘‘(4) falsifying or destroying documents to con4 ceal mistakes made by any employee with respect to 

5 a matter involving a taxpayer or taxpayer represent6 ative, 

7 ‘‘(5) assault or battery on a taxpayer or tax8 payer representative, but only if there is a criminal 

9 conviction, or a final judgment by a court in a civil 

10 case, with respect to the assault or battery, 

11 ‘‘(6) violations of this title, Department of the 

12 Treasury regulations, or policies of the Internal Rev13 enue Service (including the Internal Revenue Man14 ual) for the purpose of retaliating against, or 

15 harassing, a taxpayer, taxpayer representative, or 

16 other employee of the Internal Revenue Service, 

17 ‘‘(7) willful misuse of the provisions of section 

18 6103 for the purpose of concealing information from 

19 a congressional inquiry, 

20 ‘‘(8) willful failure to file any return of tax re21 quired under this title on or before the date prescribed 

22 therefor (including any extensions) when a tax is due 

23 and owing, unless such failure is due to reasonable 

24 cause and not due to willful neglect, 


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1 ‘‘(9) willful understatement of Federal tax liabil2 ity, unless such understatement is due to reasonable 

3 cause and not due to willful neglect, 

4 ‘‘(10) threatening to audit a taxpayer for the 

5 purpose of extracting personal gain or benefit, and 

6 ‘‘(11) unauthorized inspection of return or re7 turn information under section 7213A. 

8 ‘‘(c) DETERMINATIONS OF COMMISSIONER.— 

9 ‘‘(1) IN GENERAL.—The Commissioner may take 

10 a personnel action other than termination for an act 

11 or omission described under subsection (b). 

12 ‘‘(2) DISCRETION.—The exercise of authority 

13 under paragraph (1) shall be at the sole discretion of 

14 the Commissioner and may not be delegated to any 

15 other officer. The Commissioner, in the Commis16 sioner’s sole discretion, may establish a procedure 

17 which will be used to determine whether an indi18 vidual should be referred to the Commissioner for a 

19 determination by the Commissioner under paragraph 

20 (1). 

21 ‘‘(3) NO APPEAL.—Any determination of the 

22 Commissioner under this subsection may not be ap23 pealed in any administrative or judicial proceeding. 

24 ‘‘(d) DEFINITION.—For the purposes of the provisions 

25 described in clauses (i), (ii), and (iv) of subsection 


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1 (b)(3)(B), references to a program or activity receiving Fed2 eral financial assistance or an education program or activ3 ity receiving Federal financial assistance shall include any 

4 program or activity conducted by the Internal Revenue 

5 Service for a taxpayer.’’. 

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

7 chapter 80 is amended by inserting after the item relating 

8 to section 7804 the following new item: 

‘‘Sec. 7804A. Termination of employment for misconduct.’’. 

9 (c) REPEAL OF SUPERSEDED SECTION.—Section 1203 

10 of the Internal Revenue Service Restructuring and Reform 

11 Act of 1998 (Public Law 105–206; 112 Stat. 720) is re12 pealed. 

13 SEC. 307. MODIFICATION OF COLLECTION DUE PROCESS 

14 PROCEDURES FOR EMPLOYMENT TAX LIABIL15 ITIES. 

16 (a) IN GENERAL.—Section 6330(f) (relating to jeop17 ardy and State refund collection) is amended— 

18 (1) by striking ‘‘; or’’ at the end of paragraph 

19 (1) and inserting a comma, 

20 (2) by adding ‘‘or’’ at the end of paragraph (2), 

21 and 

22 (3) by inserting after paragraph (2) the fol23 lowing new paragraph: 


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1 ‘‘(3) the Secretary has served a levy in connec2 tion with the collection of taxes under chapter 21, 22, 

3 23, or 24,’’. 

4 (b) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to levies issued after December 31, 2006. 

6 SEC. 308. EXTENSION OF TIME LIMIT FOR CONTESTING IRS 

7 LEVY. 

8 (a) EXTENSION OF TIME FOR RETURN OF PROPERTY

9 SUBJECT TO LEVY.—Subsection (b) of section 6343 (relat10 ing to return of property) is amended by striking ‘‘9 

11 months’’ and inserting ‘‘2 years’’. 

12 (b) PERIOD OF LIMITATION ON SUITS.—Subsection (c) 

13 of section 6532 (relating to suits by persons other than tax14 payers) is amended— 

15 (1) in paragraph (1) by striking ‘‘9 months’’ 

16 and inserting ‘‘2 years’’, and 

17 (2) in paragraph (2) by striking ‘‘9-month’’ and 

18 inserting ‘‘2-year’’. 

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

20 section shall apply to— 

21 (1) levies made after the date of the enactment 

22 of this Act, and 

23 (2) levies made on or before such date if the 9- 

24 month period has not expired under section 6343(b) 


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1 of the Internal Revenue Code of 1986 (without regard 

2 to this section) as of such date. 

3 SEC. 309. AUTHORIZATION FOR IRS TO REQUIRE IN4 CREASED ELECTRONIC FILING OF RETURNS 

5 PREPARED BY PAID RETURN PREPARERS. 

6 (a) IN GENERAL.—Section 6011(e) (relating to regula7 tions requiring returns on magnetic media, etc.) is amend8 ed— 

9 (1) by striking the second sentence in paragraph 

10 (1), and 

11 (2) by striking ‘‘250’’ in paragraph (2)(A) and 

12 inserting ‘‘5’’. 

13 (b) PENALTY FOR FAILURE TO FILE ELECTRONI14 CALLY.— 

15 (1) IN GENERAL.—Part I of subchapter B of 

16 chapter 68 (relating to assessable penalties) is amend17 ed by inserting after section 6695A the following new 

18 section: 

19 ‘‘SEC. 6695B. FAILURE OF PAID RETURN PREPARERS TO 

20 FILE RETURNS ELECTRONICALLY. 

21 ‘‘(a) IN GENERAL.—Any person who fails to comply 

22 with section 6011(e) with respect to any return shall pay 

23 a penalty of— 

24 ‘‘(1) $1,000, or 


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1 ‘‘(2) in the case of 10 or more such failures in 

2 a calendar year, $100 for each such failure. 

3 ‘‘(b) REASONABLE CAUSE.—Subsection (a) shall not 

4 apply with respect to any failure if such failure is due to 

5 reasonable cause and not due to willful neglect.’’. 

6 (2) RULES APPLICABLE TO PENALTY.—Section 

7 6696 (relating to rules applicable with respect to sec8 tions 6694, 6695, and 6695A) is amended— 

9 (A) by striking ‘‘and 6695A’’ each place it 

10 appears and inserting ‘‘6695A, and 6695B’’, 

11 (B) by striking ‘‘or 6695A’’ each place it 

12 appears and inserting ‘‘6695A, or 6695B’’, 

13 (C) by striking ‘‘under section 6694(a) or 

14 under section 6695’’ in subsection (d)(1) and in15 serting ‘‘under section 6694(a), 6695, 6695A, or 

16 6695B’’, and 

17 (D) by striking ‘‘AND 6695A’’ in the head18 ing and inserting ‘‘6695A, AND 6695B’’. 

19 (3) CONFORMING AMENDMENT.—The table of sec20 tions for part I of subchapter B of chapter 68 is 

21 amended by striking the item relating to section 6696 

22 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.’’. 


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

2 RETURNS. 

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

4 provide individual taxpayers with the ability to electroni5 cally file their Federal income tax returns through the In6 ternal Revenue Service website without the use of an inter7 mediary or with the use of an intermediary which is con8 tracted by the Internal Revenue Service to provide free uni9 versal access for such filing (hereafter in this section re10 ferred to as the ‘‘direct e-file program’’) for taxable years 

11 beginning after the date which is not later than 3 years 

12 after the date of the enactment of this Act. 

13 (b) DEVELOPMENT AND OPERATION OF PROGRAM.— 

14 In providing for the development and operation of the direct 

15 e-file program, the Secretary of the Treasury— 

16 (1) shall consult with— 

17 (A) the National Taxpayer Advocate, 

18 (B) nonprofit organizations representing the 

19 interests of taxpayers as well as other organiza20 tions as determined appropriate by the Sec21 retary, and 

22 (C) Federal, State, and local agencies as de23 termined appropriate by the Secretary, 

24 (2) may develop electronic filing products for use 

25 in such program, 


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1 (3) shall provide that if intermediaries are used 

2 in such program that such intermediaries may not 

3 advertise, market, or offer to sell any products or 

4 services, 

5 (4) promulgate such regulations as necessary to 

6 administer such program, and 

7 (5) conduct a public information and consumer 

8 education campaign to encourage taxpayers to use the 

9 direct e-file program. 

10 (c) AUTHORIZATION OF APPROPRIATIONS.—There is 

11 authorized to be appropriated such sums as are necessary 

12 to carry out the direct e-file program. Any sums so appro13 priated shall remain available until expended. 

14 (d) REPORTS TO CONGRESS REGARDING DIRECT E15 FILE PROGRAM.— 

16 (1) REPORT ON IMPLEMENTATION.—The Sec17 retary of the Treasury shall report to the Committee 

18 on Finance of the Senate and the Committee on Ways 

19 and Means of the House of Representatives every 6 

20 months regarding the status of the implementation of 

21 the direct e-file program. 

22 (2) REPORT ON USAGE.—Not later than June 30 

23 of each year after the implementation of the direct e24 file program, the Secretary of the Treasury, in con25 sultation with the National Taxpayer Advocate, shall 


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1 report to the Committee on Finance of the Senate and 

2 the Committee on Ways and Means of the House of 

3 Representatives on taxpayer usage of the direct e-file 

4 program. 

5 SEC. 311. MODIFICATIONS AND REPORT REGARDING FREE 

6 FILE PROGRAM. 

7 (a) MODIFICATIONS.—In providing for the operation 

8 of the Free File program, the Secretary of the Treasury 

9 shall— 

10 (1) provide that intermediaries may not adver11 tise, market, or offer to sell products or services that 

12 are not directly related to the preparation of tax re13 turns, and 

14 (2) encourage intermediaries to provide access to 

15 such program to the blind. 

16 (b) REPORT.—Not later than 270 days after the date 

17 of the enactment of this Act, the Secretary of the Treasury 

18 shall report to the Committee on Finance of the Senate and 

19 the Committee on Ways and Means of the House of Rep20 resentatives— 

21 (1) regarding the status of the implementation of 

22 the modifications described in paragraph (1), 

23 (2) on the feasibility of ensuring that inter24 mediaries in the Free File program that have con25 tracted separately with a State be required to provide 


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1 free Federal and State preparation and electronic fil2 ing directly through the Internal Revenue Service 

3 Free File website for those taxpayers who qualify, and 

4 (3) on the most optimal manner of alerting such 

5 taxpayers that such taxpayers qualify for both free 

6 Federal and State preparation and electronic filing 

7 directly through the Internal Revenue Service Free 

8 File website. 

9 SEC. 312. STUDY ON CLARIFYING RECORDKEEPING RE10 SPONSIBILITIES. 

11 (a) STUDY.—The Secretary of the Treasury shall 

12 study— 

13 (1) the scope of the records required to be main14 tained by taxpayers under section 6001 of the Inter15 nal Revenue Code of 1986, 

16 (2) the utility of requiring taxpayers to main17 tain all records indefinitely, including consideration 

18 of whether such a requirement would necessitate the 

19 upgrading of technological storage for outdated 

20 records, 

21 (3) the number of negotiated records retention 

22 agreements requested by taxpayers and the number 

23 entered into by the Internal Revenue Service, and 

24 (4) proposals regarding taxpayer record-keeping. 


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1 (b) REPORT.—Not later than the date which is 1 year 

2 after the date of the enactment of this Act, the Secretary 

3 of the Treasury shall transmit a report of the study de4 scribed in subsection (a), including recommendations, to the 

5 Committee on Finance of the Senate and the Committee on 

6 Ways and Means of the House of Representatives. 

7 SEC. 313. MODIFICATION OF TIGTA REPORTING REQUIRE8 MENTS. 

9 (a) IN GENERAL.—Paragraph (1) of section 7803(d) 

10 (relating to additional duties of the Treasury Inspector 

11 General for Tax Administration) is amended— 

12 (1) by striking ‘‘ANNUAL’’ in the heading and in13 serting ‘‘BIENNIAL’’, 

14 (2) by inserting ‘‘filed for an even-numbered 

15 year (beginning with 2006)’’ after ‘‘one of the semi16 annual reports’’ in the matter preceding subpara17 graph (A), 

18 (3) by striking clause (ii) of subparagraph (A), 

19 (4) by redesignating clauses (iii), (iv), and (v) of 

20 subparagraph (A) as clauses (ii), (iii), and (iv) of 

21 subparagraph (A), respectively, 

22 (5) by striking subparagraph (B), 

23 (6) by striking ‘‘and’’ at the end of subpara24 graph (F), 


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1 (7) by redesignating subparagraphs (C), (D), 

2 (E), and (F) as subparagraphs (B), (C), (D), and 

3 (E), respectively, and 

4 (8) by striking subparagraph (G) and inserting 

5 the following new subparagraphs: 

6 ‘‘(F) the number of employee misconduct 

7 and taxpayer abuse allegations received by the 

8 Internal Revenue Service or the Inspector Gen9 eral during the period from taxpayers, Internal 

10 Revenue Service employees, and other sources; 

11 and 

12 ‘‘(G) with respect to allegations of serious 

13 employee misconduct— 

14 ‘‘(i) a summary of the status of such 

15 allegations; and 

16 ‘‘(ii) a summary of the disposition of 

17 such allegations, including the outcome of 

18 any Department of Justice action and any 

19 monies paid as a settlement of such allega20 tions.’’. 

21 (b) CONFORMING AMENDMENTS.—Section 7803(d) is 

22 amended by striking paragraph (2) and by redesignating 

23 paragraph (3) as paragraph (2). 


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1 SEC. 314. STREAMLINE REPORTING PROCESS FOR NA2 TIONAL TAXPAYER ADVOCATE. 

3 (a) ONE ANNUAL REPORT.—Subparagraph (B) of sec4 tion 7803(c)(2) (relating to functions of Office) is amend5 ed— 

6 (1) by striking all matter preceding subclause (I) 

7 of clause (ii) and inserting the following: 

8 ‘‘(B) ANNUAL REPORT.— 

9 ‘‘(i) IN GENERAL.—Not later than De10 cember 31 of each calendar year, the Na11 tional Taxpayer Advocate shall report to the 

12 Committee on Ways and Means of the 

13 House of Representatives and the Committee 

14 on Finance of the Senate on the objectives 

15 of the Office of the Taxpayer Advocate for 

16 the fiscal year beginning in such calendar 

17 year and the activities of such Office during 

18 the fiscal year ending during such calendar 

19 year. Any such report shall contain full and 

20 substantive analysis, in addition to statis21 tical information, and shall—’’, 

22 (2) by striking ‘‘clause (ii)’’ in clause (iv) and 

23 inserting ‘‘clause (i)’’, and 

24 (3) by redesignating clauses (iii) and (iv) as 

25 clauses (ii) and (iii), respectively. 


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1 (b) ADDITIONAL REPORTS.—Section 7803(c)(2)(C) 

2 (relating to other responsibilities) is amended by striking 

3 ‘‘and’’ at the end of clause (iii), by striking the period at 

4 the end of clause (iv) and inserting ‘‘; and’’, and by adding 

5 at the end the following new clause: 

6 ‘‘(v) at the discretion of the National 

7 Taxpayer Advocate, report at any time to 

8 the Committee on Ways and Means of the 

9 House of Representatives and the Committee 

10 on Finance of the Senate on significant 

11 issues affecting taxpayer rights.’’. 

12 (c) EFFECTIVE DATES.— 

13 (1) ANNUAL REPORTS.—The amendments made 

14 by subsection (a) shall apply to reports in calendar 

15 year 2007 and thereafter. 

16 (2) ADDITIONAL REPORTS.—The amendments 

17 made by subsection (b) shall take effect on the date of 

18 the enactment of this Act. 

19 SEC. 315. WHISTLEBLOWER REFORMS. 

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

21 of detection of underpayments and fraud, etc.) is amend22 ed— 

23 (1) by striking ‘‘The Secretary’’ and inserting 

24 ‘‘(a) IN GENERAL.—The Secretary’’, 


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1 (2) by striking ‘‘and’’ at the end of paragraph 

2 (1) and inserting ‘‘or’’, 

3 (3) by striking ‘‘(other than interest)’’, and 

4 (4) by adding at the end the following new sub5 sections: 

6 ‘‘(b) AWARDS TO WHISTLEBLOWERS.— 

7 ‘‘(1) IN GENERAL.—If the Secretary proceeds 

8 with any administrative or judicial action described 

9 in paragraph (5) based on information brought to the 

10 Secretary’s attention by an individual, the Secretary 

11 shall, as determined by the Whistleblower Office and 

12 subject to paragraph (2), pay such individual as an 

13 award at least 15 percent but not more than 30 per14 cent of the collected proceeds (including penalties, in15 terest, additions to tax, and additional amounts) re16 sulting from the action (including any related ac17 tions) or from any settlement in response to such ac18 tion. The Whistleblower Office shall determine the 

19 amount of such award on the basis of the extent to 

20 which the individual substantially contributed to such 

21 action. 

22 ‘‘(2) AWARD IN CASE OF LESS SUBSTANTIAL

23 CONTRIBUTION.— 

24 ‘‘(A) IN GENERAL.—If the Whistleblower Of25 fice determines that the action described in paraVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00054 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 graph (1) is based principally on disclosures of 

2 specific allegations (other than information pro3 vided by the individual described in paragraph 

4 (1)) resulting from a judicial or administrative 

5 hearing, from a governmental report, hearing, 

6 audit, or investigation, or from the news media, 

7 the Whistleblower Office may award such sums 

8 as it considers appropriate, but in no case more 

9 than 10 percent of the collected proceeds (includ10 ing penalties, interest, additions to tax, and ad11 ditional amounts) resulting from the action (in12 cluding any related actions) or from any settle13 ment in response to such action, taking into ac14 count the significance of the individual’s infor15 mation and the role of such individual and any 

16 legal representative of such individual in con17 tributing to such action. 

18 ‘‘(B) NONAPPLICATION OF PARAGRAPH

19 WHERE INDIVIDUAL IS ORIGINAL SOURCE OF IN20 FORMATION.—Subparagraph (A) shall not apply 

21 if the information resulting in the initiation of 

22 the action described in paragraph (1) was origi23 nally provided by the individual described in 

24 paragraph (1). 


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1 ‘‘(3) REDUCTION IN OR DENIAL OF AWARD.—If 

2 the Whistleblower Office determines that the claim for 

3 an award under paragraph (1) or (2) is brought by 

4 an individual who planned and initiated the actions 

5 that led to the underpayment of tax or actions de6 scribed in subsection (a)(2), then the Whistleblower 

7 Office may appropriately reduce such award. If such 

8 individual is convicted of criminal conduct arising 

9 from the role described in the preceding sentence, the 

10 Whistleblower Office shall deny any award. 

11 ‘‘(4) APPEAL OF AWARD DETERMINATION.—Any 

12 determination regarding an award under paragraph 

13 (1), (2), or (3) may, within 30 days of such deter14 mination, be appealed to the Tax Court (and the Tax 

15 Court shall have jurisdiction with respect to such 

16 matter). 

17 ‘‘(5) APPLICATION OF THIS SUBSECTION.—This 

18 subsection shall apply with respect to any action— 

19 ‘‘(A) against any taxpayer, but in the case 

20 of any individual, only if such individual’s gross 

21 income exceeds $200,000 for any taxable year 

22 subject to such action, and 

23 ‘‘(B) if the tax, penalties, interest, additions 

24 to tax, and additional amounts in dispute exceed 

25 $20,000. 


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1 ‘‘(6) ADDITIONAL RULES.— 

2 ‘‘(A) NO CONTRACT NECESSARY.—No con3 tract with the Internal Revenue Service is nec4 essary for any individual to receive an award 

5 under this subsection. 

6 ‘‘(B) REPRESENTATION.—Any individual 

7 described in paragraph (1) or (2) may be rep8 resented by counsel. 

9 ‘‘(C) SUBMISSION OF INFORMATION.—No 

10 award may be made under this subsection based 

11 on information submitted to the Secretary unless 

12 such information is submitted under penalty of 

13 perjury. 

14 ‘‘(c) WHISTLEBLOWER OFFICE.— 

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

16 Internal Revenue Service an office to be known as the 

17 ‘Whistleblower Office’ which— 

18 ‘‘(A) shall at all times operate at the direc19 tion of the Commissioner and coordinate and 

20 consult with other divisions in the Internal Rev21 enue Service as directed by the Commissioner, 

22 ‘‘(B) shall analyze information received 

23 from any individual described in subsection (b) 

24 and either investigate the matter itself or assign 


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1 it to the appropriate Internal Revenue Service 

2 office, 

3 ‘‘(C) shall monitor any action taken with 

4 respect to such matter, 

5 ‘‘(D) shall inform such individual that it 

6 has accepted the individual’s information for 

7 further review, 

8 ‘‘(E) may require such individual and any 

9 legal representative of such individual to not dis10 close any information so provided, 

11 ‘‘(F) in its sole discretion may ask for addi12 tional assistance from such individual or any 

13 legal representative of such individual, and 

14 ‘‘(G) shall determine the amount to be 

15 awarded to such individual under subsection (b). 

16 ‘‘(2) REQUEST FOR ASSISTANCE.— 

17 ‘‘(A) IN GENERAL.—Any assistance re18 quested under paragraph (1)(F) shall be under 

19 the direction and control of the Whistleblower Of20 fice or the office assigned to investigate the mat21 ter under paragraph (1)(A). No individual or 

22 legal representative whose assistance is so re23 quested may by reason of such request represent 

24 himself or herself as an employee of the Federal 

25 Government. 


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1 ‘‘(B) FUNDING OF ASSISTANCE.—From the 

2 amounts available for expenditure under sub3 section (b), the Whistleblower Office may, with 

4 the agreement of the individual described in sub5 section (b), reimburse the costs incurred by any 

6 legal representative of such individual in pro7 viding assistance described in subparagraph (A). 

8 ‘‘(d) REPORT BY SECRETARY.—The Secretary shall 

9 each year conduct a study and report to Congress on the 

10 use of this section, including— 

11 ‘‘(1) an analysis of the use of this section during 

12 the preceding year and the results of such use, and 

13 ‘‘(2) any legislative or administrative rec14 ommendations regarding the provisions of this section 

15 and its application.’’. 

16 (b) ASSIGNMENT TO SPECIAL TRIAL JUDGES.— 

17 (1) IN GENERAL.—Section 7443A(b) (relating to 

18 proceedings which may be assigned to special trial 

19 judges) is amended by striking ‘‘and’’ at the end of 

20 paragraph (5), by redesignating paragraph (6) as 

21 paragraph (7), and by inserting after paragraph (5) 

22 the following new paragraph: 

23 ‘‘(6) any proceeding under section 7623(b)(4), 

24 and’’. 


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1 (2) CONFORMING AMENDMENT.—Section 

2 7443A(c) is amended by striking ‘‘or (5)’’ and insert3 ing ‘‘(5), or (6)’’. 

4 (c) DEDUCTION ALLOWED WHETHER OR NOT TAX5 PAYER ITEMIZES.—Subsection (a) of section 62 (relating 

6 to general rule defining adjusted gross income) is amended 

7 by inserting after paragraph (20) the following new para8 graph: 

9 ‘‘(21) ATTORNEYS FEES RELATING TO AWARDS

10 TO WHISTLEBLOWERS.—Any deduction allowable 

11 under this chapter for attorney fees and court costs 

12 paid by, or on behalf of, the taxpayer in connection 

13 with any award under section 7623(b) (relating to 

14 awards to whistleblowers). The preceding sentence 

15 shall not apply to any deduction in excess of the 

16 amount includible in the taxpayer’s gross income for 

17 the taxable year on account of such award.’’. 

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

19 section shall apply to information provided on or after the 

20 date of the enactment of this Act. 

21 SEC. 316. AUTHORIZATION FOR FINANCIAL MANAGEMENT 

22 SERVICE RETENTION OF TRANSACTION FEES 

23 FROM LEVIED AMOUNTS. 

24 Notwithstanding any other provision of law, the Fi25 nancial Management Service may charge the Internal RevVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00060 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 enue Service, and the Internal Revenue Service may pay 

2 the Financial Management Service, a fee sufficient to cover 

3 the full cost of implementing a continuous levy program 

4 under subsection (h) of section 6331 of the Internal Revenue 

5 Code of 1986. Any such fee shall be based on actual levies 

6 made and shall be collected by the Financial Management 

7 Service by the retention of a portion of amounts collected 

8 by levy pursuant to that subsection. Amounts received by 

9 the Financial Management Service as fees under that sub10 section shall be deposited into the account of the Depart11 ment of the Treasury under section 3711(g)(7) of title 31, 

12 United States Code, and shall be collected and accounted 

13 for in accordance with the provisions of that section. The 

14 amount credited against the taxpayer’s liability on account 

15 of the continuous levy shall be the amount levied, without 

16 reduction for the amount paid to the Financial Manage17 ment Service as a fee. 

18 SEC. 317. CLARIFICATION OF DEFINITION OF CHURCH TAX 

19 INQUIRY. 

20 Subsection (i) of section 7611 (relating to section not 

21 to apply to criminal investigations, etc.) is amended by 

22 striking ‘‘or’’ at the end of paragraph (4), by striking the 

23 period at the end of paragraph (5) and inserting ‘‘, or’’, 

24 and by inserting after paragraph (5) the following new 

25 paragraph: 


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1 ‘‘(6) any inquiry or examination relating to in2 formation provided by the Secretary regarding the 

3 standards for exemption from tax under this title and 

4 the requirements under this title relating to unrelated 

5 business taxable income.’’. 

6 SEC. 318. TREATMENT OF FUNDS FROM INDIAN TRIBAL 

7 GOVERNMENTS AS PUBLIC SUPPORT FOR 

8 PURPOSES OF PUBLIC CHARITY-PRIVATE 

9 FOUNDATION CLASSIFICATION. 

10 (a) IN GENERAL.—Section 7871(a) (relating to Indian 

11 tribal governments treated as States for certain purposes) 

12 is amended by striking ‘‘and’’ at the end of subparagraph 

13 (C) of paragraph (6), by striking the period at the end of 

14 subparagraph (B) of paragraph (7) and inserting ‘‘; and’’, 

15 and by adding at the end the following new paragraph: 

16 ‘‘(8) for purposes of determining support of an 

17 organization described in section 170(b)(1)(A)(vi).’’. 

18 (b) EFFECTIVE DATE.—The amendments made by this 

19 section shall apply with respect to— 

20 (1) support received before, on, or after the date 

21 of the enactment of this Act, and 

22 (2) the determination of the status of any orga23 nization with respect to any taxable year beginning 

24 after such date of enactment. 


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1 SEC. 319. TAX COURT REVIEW OF REQUESTS FOR EQUI2 TABLE RELIEF FROM JOINT AND SEVERAL LI3 ABILITY. 

4 (a) IN GENERAL.—Paragraph (1) of section 6015(e) 

5 (relating to petition for tax court review) is amended by 

6 inserting ‘‘, or in the case of an individual who requests 

7 equitable relief under subsection (f)’’ after ‘‘who elects to 

8 have subsection (b) or (c) apply’’. 

9 (b) CONFORMING AMENDMENTS.— 

10 (1) Section 6015(e)(1)(A)(i)(II) is amended by 

11 inserting ‘‘or request is made’’ after ‘‘election is 

12 filed’’. 

13 (2) Section 6015(e)(1)(B)(i) is amended— 

14 (A) by inserting ‘‘or requesting equitable re15 lief under subsection (f)’’ after ‘‘making an elec16 tion under subsection (b) or (c)’’, and 

17 (B) by inserting ‘‘or request’’ after ‘‘to 

18 which such election’’. 

19 (3) Section 6015(e)(1)(B)(ii) is amended by in20 serting ‘‘or to which the request under subsection (f) 

21 relates’’ after ‘‘to which the election under subsection 

22 (b) or (c) relates’’. 

23 (4) Section 6015(e)(4) is amended by inserting 

24 ‘‘or the request for equitable relief under subsection 

25 (f)’’ after ‘‘the election under subsection (b) or (c)’’. 


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1 (5) Section 6015(e)(5) is amended by inserting 

2 ‘‘or who requests equitable relief under subsection (f)’’ 

3 after ‘‘who elects the application of subsection (b) or 

4 (c)’’. 

5 (6) Section 6015(g)(2) is amended by inserting 

6 ‘‘or of any request for equitable relief under subsection 

7 (f)’’ after ‘‘any election under subsection (b) or (c)’’. 

8 (7) Section 6015(h)(2) is amended by inserting 

9 ‘‘or a request for equitable relief made under sub10 section (f)’’ after ‘‘with respect to an election made 

11 under subsection (b) or (c)’’. 

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

13 section shall apply with respect to liability for taxes arising 

14 or remaining unpaid on or after the date of the enactment 

15 of this Act. 

16 (d) REFILINGS PERMITTED.—With respect to any case 

17 the dismissal of which results from or is based on the juris18 dictional ruling in Billings v. Commissioner (127 T.C. No. 

19 2, July 25, 2006) and is final on or before the date of the 

20 enactment of this Act, such case may be refiled in the 

21 United States Tax Court not later than the date which is 

22 6 months after such date of enactment (without the imposi23 tion of any filing fees under Rule 20(b) of the Tax Court 

24 Rules of Practice and Procedure). 


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1 SEC. 320. AUTHORIZATION OF APPROPRIATIONS FOR TAX 

2 LAW ENFORCEMENT RELATING TO HUMAN 

3 SEX TRAFFICKING. 

4 (a) AUTHORIZATION OF APPROPRIATIONS.— 

5 (1) IN GENERAL.—There is authorized to be ap6 propriated $2,000,000 for fiscal year 2007 for the 

7 purpose of establishing an office within the Internal 

8 Revenue Service to focus on violations of the internal 

9 revenue laws by persons who are under investigation 

10 by any office of Federal, State, or local law enforce11 ment for knowingly recruiting, enticing, harboring, 

12 transporting, or providing by any means a person, 

13 knowing that— 

14 (A) force, fraud, or coercion will be used to 

15 cause the person to engage in a commercial sex 

16 act, or 

17 (B) the person has not attained the age of 

18 18 years and will be caused to engage in a com19 mercial sex act. 

20 (2) DEFINITIONS.—For purposes of paragraph 

21 (1), the terms ‘‘commercial sex act’’ and ‘‘coercion’’ 

22 shall have the meaning given such terms by section 

23 1591(c) of title 18, United States Code. 

24 (3) AVAILABILITY.—Any amounts appropriated 

25 pursuant to the authority of paragraph (1) shall re26 main available for fiscal year 2008. 


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1 (b) ADDITIONAL FUNDING FOR OPERATIONS OF OF2 FICE.—Unless specifically appropriated otherwise, there is 

3 authorized to be appropriated and is appropriated to the 

4 office established under subsection (a)(1) for fiscal years 

5 2007 and 2008 for the administration of such office an 

6 amount equal to the amount of any tax under chapter 1 

7 of the Internal Revenue Code of 1986 (including any inter8 est) collected during such fiscal years as the result of the 

9 actions of such office, plus any civil or criminal monetary 

10 penalties imposed under such Code relating to such tax and 

11 so collected. 

12 (c) REPORT.—Not later than 1 year after the date of 

13 the enactment of this Act, the Secretary of the Treasury 

14 shall report to the Committee of Ways and Means of the 

15 House of Representatives and the Committee on Finance 

16 of the Senate on the enforcement activities of the office estab17 lished under subsection (a)(1) and shall include any rec18 ommendations for statutory changes to assist in future 

19 prosecutions under this section. 

20 (d) APPLICABILITY OF WHISTLEBLOWER AWARDS TO

21 VICTIMS OF HUMAN SEX TRAFFICKING.—For purposes of 

22 making an award under paragraph (1) or (2) of section 

23 7623(b) of the Internal Revenue Code of 1986 with respect 

24 to information provided by any person caused to engage 

25 in a commercial sex act (within the meaning of section 


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1 1591(c)(1) of title 18, United States Code), the determina2 tion whether such person is described in such paragraph 

3 shall be made without regard to paragraph (3) of such sec4 tion 7623(b). 

5 SEC. 321. REGULATION OF PAYROLL TAX DEPOSIT AGENTS. 

6 (a) IN GENERAL.—Chapter 77 (relating to miscella7 neous provisions), as amended by this Act, is amended by 

8 adding at the end the following new section: 

9 ‘‘SEC. 7531. PAYROLL TAX DEPOSIT AGENTS. 

10 ‘‘(a) REGISTRATION.— 

11 ‘‘(1) IN GENERAL.—The Secretary shall establish 

12 a system to require the initial registration and the 

13 annual renewal of the registration of persons seeking 

14 to act as payroll tax deposit agents authorized to 

15 make Federal employment tax deposits on behalf of 

16 employer taxpayers. Such system shall also— 

17 ‘‘(A) establish a registration and renewal 

18 fee for each payroll tax deposit agent in an 

19 amount not to exceed $100, 

20 ‘‘(B) provide the payroll tax deposit agent 

21 the option of either submitting a bond as speci22 fied in subsection (b) or submitting to an annual 

23 audit as specified in subsection (c), 

24 ‘‘(C) require such disclosures as are speci25 fied in subsection (d), 


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1 ‘‘(D) require that such agent ensure the di2 rect notification of the employer by any Federal 

3 employment tax authority (and State employ4 ment tax authority if such agent contracts to 

5 make State employment tax deposits for the em6 ployer) regarding the nonpayment of such em7 ployment taxes, and 

8 ‘‘(E) provide penalties for unregistered per9 sons acting as payroll tax deposit agents with re10 spect to Federal tax deposits in an amount not 

11 to exceed $10,000 for each 90 days of noncompli12 ance. 

13 ‘‘(2) DEFINITION OF PAYROLL TAX DEPOSIT

14 AGENT.—For purposes of this section, the term ‘pay15 roll tax deposit agent’ means any person which pro16 vides payroll processing or tax filing and deposit 

17 services to 1 or more employers (other than an em18 ployer acting on its own behalf) if such person has the 

19 contractual authority to access such employer’s funds 

20 for the purpose of making employment tax deposits. 

21 Such term shall not include any person which only 

22 transfers such funds (regardless if such person has the 

23 authority to determine the amount of such transfer) 

24 and does not have the authority to impound such 

25 funds for such purpose. 


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1 ‘‘(3) EMPLOYMENT TAX.—For purposes of this 

2 section, the term ‘employment tax’ includes unem3 ployment insurance contributions. 

4 ‘‘(b) BONDING.— 

5 ‘‘(1) IN GENERAL.—If a payroll tax deposit 

6 agent elects to submit a bond under subsection 

7 (a)(1)(B), the amount of such bond shall be not less 

8 than $50,000 nor more than $500,000, and shall be 

9 determined with respect to each payroll tax deposit 

10 agent under regulations prescribed by the Secretary. 

11 ‘‘(2) SURETY.—Any bond or security furnished 

12 pursuant to this section shall be in such form and 

13 with such surety or sureties as may be prescribed by 

14 regulations issued pursuant to section 7101. 

15 ‘‘(c) ANNUAL AUDITS.—If a payroll tax deposit agent 

16 elects to submit to an annual audit under subsection 

17 (a)(1)(B), such audit shall be performed by an independent 

18 third party and shall be based on such audit principles as 

19 the Secretary determines necessary, including the following: 

20 ‘‘(1) The escrow account of the payroll tax de21 posit agent in which such agent holds the employers’ 

22 taxes is balanced each year to the total of the quar23 terly reconciliation statements. 


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1 ‘‘(2) The escrow account funds of the payroll tax 

2 deposit agent are not commingled with such agent’s 

3 operating funds. 

4 ‘‘(3) No evidence that the payroll tax deposit 

5 agent used any of the funds in such agent’s escrow ac6 count to pay such agent’s own operating costs. 

7 ‘‘(4) Receipt evidence that such agent paid the 

8 required employment taxes on behalf of the employers 

9 to the proper government employment tax authority. 

10 ‘‘(d) DISCLOSURE.—The Secretary shall require pay11 roll tax deposit agents to disclose to each potential and ex12 isting client prior to or at the time of contracting for pay13 roll services— 

14 ‘‘(1) the client’s continuing liability for payment 

15 of all Federal and State employment taxes notwith16 standing any contractual relationship with a payroll 

17 tax deposit agent, 

18 ‘‘(2) the mechanisms available to the client to 

19 verify the amount and date of payment of all tax de20 posits made by the payroll tax deposit agent on behalf 

21 of such client, including the Internet address, postal 

22 address, and telephone number of each Federal and 

23 State employment tax authority related to such depos24 its, and 


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1 ‘‘(3) such other information that the Secretary 

2 determines is necessary or appropriate to assist em3 ployers in the selection and use of payroll tax deposit 

4 agents. 

5 ‘‘(e) TAX DEPOSITS AND RETURNS.—Only persons 

6 registered under this section may— 

7 ‘‘(1) make Federal tax deposits on behalf of an 

8 employer, 

9 ‘‘(2) sign and file Federal employment tax re10 turns on behalf of a taxpayer, and 

11 ‘‘(3) have access to confidential tax information 

12 relating to such employer. 

13 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

14 such regulations as may be necessary to carry out the provi15 sions of this section.’’. 

16 (b) PAYROLL TAX DEPOSIT AGENTS SUBJECT TO PEN17 ALTY FOR FAILURE TO COLLECT AND PAY OVER TAX OR

18 ATTEMPT TO EVADE OR DEFEAT TAX.— 

19 (1) IN GENERAL.—Section 6672(a) is amended 

20 by inserting ‘‘, including any payroll tax deposit 

21 agent (as defined in section 7531(a)(2)),’’ after ‘‘Any 

22 person’’. 

23 (2) CONSTRUCTION.—The amendment made by 

24 paragraph (1) shall not be construed to create any in25 ference with respect to the interpretation of section 


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1 6672 of the Internal Revenue Code of 1986 as such 

2 section was in effect on the day before the date of the 

3 enactment of this Act. 

4 (3) NO DISCHARGE IN BANKRUPTCY.—In the case 

5 of any bankruptcy filed by or behalf of any person 

6 after December 31, 2006, under title 11, United States 

7 Code, any penalty imposed under section 6672(a) of 

8 the Internal Revenue Code of 1986 with respect to 

9 such person shall not be subject to discharge under 

10 such title. 

11 (c) CLERICAL AMENDMENT.—The table of sections for 

12 such chapter 77, as amended by this Act, is amended by 

13 adding at the end the following new item: 

‘‘Sec. 7531. Payroll tax deposit agents.’’. 

14 (d) EFFECTIVE DATES.— 

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section shall 

17 take effect on January 1, 2007. 

18 (2) PENALTY.—The amendments made by sub19 section (b) shall apply to failures occurring after De20 cember 31, 2006. 


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1 SEC. 322. SPECIAL PERIOD OF LIMITATION WHEN UNI2 FORMED SERVICES RETIRED PAY IS RE3 DUCED AS A RESULT OF AWARD OF DIS4 ABILITY COMPENSATION. 

5 (a) IN GENERAL.—Subsection (d) of section 6511 (re6 lating to special rules applicable to income taxes) is amend7 ed by adding at the end the following new paragraph: 

8 ‘‘(8) SPECIAL RULES WHEN UNIFORMED SERV9 ICES RETIRED PAY IS REDUCED AS A RESULT OF

10 AWARD OF DISABILITY COMPENSATION.— 

11 ‘‘(A) PERIOD OF LIMITATION ON FILING

12 CLAIM.—If the claim for credit or refund relates 

13 to an overpayment of tax imposed by subtitle A 

14 on account of— 

15 ‘‘(i) the reduction of uniformed services 

16 retired pay computed under section 1406 or 

17 1407 of title 10, United States Code, or 

18 ‘‘(ii) the waiver of such pay under sec19 tion 5305 of title 38 of such Code, 

20 as a result of an award of compensation under 

21 title 38 of such Code pursuant to a determina22 tion by the Secretary of Veterans Affairs, the 3- 

23 year period of limitation prescribed in subsection 

24 (a) shall be extended, for purposes of permitting 

25 a credit or refund based upon the amount of such 

26 reduction or waiver, until the end of the 1-year 


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1 period beginning on the date of such determina2 tion. 

3 ‘‘(B) LIMITATION TO 5 TAXABLE YEARS.— 

4 Subparagraph (A) shall not apply with respect 

5 to any taxable year which began more than 5 

6 years before the date of such determination.’’. 

7 (b) EFFECTIVE DATE.—The amendment made by sub8 section (a) shall apply to claims for credit or refund filed 

9 after the date of the enactment of this Act. 

10 (c) TRANSITION RULES.—In the case of a determina11 tion described in paragraph (8) of section 6511(d) of the 

12 Internal Revenue Code of 1986 (as added by this section) 

13 which is made by the Secretary of Veterans Affairs after 

14 December 31, 2000, and before the date of the enactment 

15 of this Act, such paragraph— 

16 (1) shall not apply with respect to any taxable 

17 year which began before January 1, 2001, and 

18 (2) shall be applied by substituting ‘‘the date of 

19 the enactment of the Telephone Excise Tax Repeal 

20 and Taxpayer Protection and Assistance Act of 2006’’ 

21 for ‘‘the date of such determination’’ in subparagraph 

22 (A) thereof. 


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1 TITLE IV—REFORM OF PENALTY 

2 AND INTEREST 

3 SEC. 401. INDIVIDUAL ESTIMATED TAX. 

4 (a) INCREASE IN EXCEPTION FOR INDIVIDUALS OWING

5 SMALL AMOUNT OF TAX.—Section 6654(e)(1) (relating to 

6 exception where tax is small amount) is amended by strik7 ing ‘‘$1,000’’ and inserting ‘‘$2,000’’. 

8 (b) COMPUTATION OF ADDITION TO TAX.—Subsections 

9 (a) and (b) of section 6654 (relating to failure by individual 

10 to pay estimated taxes) are amended to read as follows: 

11 ‘‘(a) ADDITION TO THE TAX.— 

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

13 in this section, in the case of any underpayment of 

14 estimated tax by an individual for a taxable year, 

15 there shall be added to the tax under chapters 1 and 

16 2 for such taxable year the sum of the amounts deter17 mined under paragraph (2) for each day for which 

18 there is an underpayment. 

19 ‘‘(2) AMOUNT OF ADDITION TO TAX.—The 

20 amount determined under this paragraph for any day 

21 shall be the product of— 

22 ‘‘(A) the underpayment rate established 

23 under subsection (b)(2) for such day, multiplied 

24 by 


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1 ‘‘(B) the amount of the underpayment for 

2 such day. 

3 ‘‘(b) AMOUNT OF UNDERPAYMENT; UNDERPAYMENT

4 RATE.—For purposes of subsection (a)— 

5 ‘‘(1) AMOUNT.—The amount of underpayment on 

6 any day shall be the excess (if any) of— 

7 ‘‘(A) the sum of the required installments 

8 for the taxable year the due dates for which are 

9 on or before such day, over 

10 ‘‘(B) the sum of the amounts of estimated 

11 tax payments made for such taxable year on or 

12 before such day. 

13 ‘‘(2) DETERMINATION OF UNDERPAYMENT

14 RATE.— 

15 ‘‘(A) IN GENERAL.—The underpayment rate 

16 with respect to any day in an installment under17 payment period shall be the underpayment rate 

18 established under section 6621 for the first day 

19 of the calendar quarter in which such install20 ment underpayment period begins. 

21 ‘‘(B) INSTALLMENT UNDERPAYMENT PE22 RIOD.—For purposes of subparagraph (A), the 

23 term ‘installment underpayment period’ means 

24 the period beginning on the day after the due 

25 date for a required installment and ending on 


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1 the due date for the subsequent required install2 ment (or in the case of the 4th required install3 ment, the 15th day of the 4th month following 

4 the close of a taxable year). 

5 ‘‘(C) DAILY RATE.—The rate determined 

6 under subparagraph (A) shall be applied on a 

7 daily basis and shall be based on the assumption 

8 of 365 days in a calendar year. 

9 ‘‘(3) TERMINATION OF ESTIMATED TAX UNDER10 PAYMENT.—No day after the end of the installment 

11 underpayment period for the 4th required installment 

12 specified in paragraph (2)(B) for a taxable year shall 

13 be treated as a day of underpayment with respect to 

14 such taxable year.’’. 

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

16 section shall apply to taxable years beginning after Decem17 ber 31, 2006. 

18 SEC. 402. CORPORATE ESTIMATED TAX. 

19 (a) INCREASE IN SMALL TAX AMOUNT EXCEPTION.— 

20 Section 6655(f) (relating to exception where tax is small 

21 amount) is amended by striking ‘‘$500’’ and inserting 

22 ‘‘$1,000’’. 

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

24 section shall apply to taxable years beginning after Decem25 ber 31, 2006. 


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1 SEC. 403. INCREASE IN LARGE CORPORATION THRESHOLD 

2 FOR ESTIMATED TAX PAYMENTS. 

3 (a) IN GENERAL.—Section 6655(g)(2) (defining large 

4 corporation) is amended— 

5 (1) by striking ‘‘$1,000,000’’ in subparagraph 

6 (A) and inserting ‘‘the applicable amount’’, 

7 (2) by striking ‘‘the $1,000,000 amount specified 

8 in subparagraph (A)’’ in subparagraph (B)(ii) and 

9 inserting ‘‘the applicable amount’’, 

10 (3) by redesignating subparagraph (B) as sub11 paragraph (C), and 

12 (4) by inserting after subparagraph (A) the fol13 lowing new subparagraph: 

14 ‘‘(B) APPLICABLE AMOUNT.—For purposes 

15 of this paragraph, the applicable amount is 

16 $1,000,000 increased (but not above $1,500,000) 

17 by $50,000 for each taxable year beginning after 

18 2006.’’. 

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

20 section shall apply to taxable years beginning after Decem21 ber 31, 2006. 

22 SEC. 404. EXPANSION OF INTEREST NETTING. 

23 (a) IN GENERAL.—Subsection (d) of section 6621 (re24 lating to elimination of interest on overlapping periods of 

25 tax overpayments and underpayments) is amended by add26 ing at the end the following new sentence: ‘‘Solely for purVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00078 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 poses of the preceding sentence, section 6611(e) shall not 

2 apply.’’. 

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

4 section shall apply to interest accrued after December 31, 

5 2010. 

6 SEC. 405. CLARIFICATION OF APPLICATION OF FEDERAL 

7 TAX DEPOSIT PENALTY. 

8 Nothing in section 6656 of the Internal Revenue Code 

9 of 1986 shall be construed to permit the percentage specified 

10 in subsection (b)(1)(A)(iii) thereof to apply other than in 

11 a case where the failure is for more than 15 days. 

12 SEC. 406. FRIVOLOUS TAX SUBMISSIONS. 

13 (a) CIVIL PENALTIES.—Section 6702 is amended to 

14 read as follows: 

15 ‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 

16 ‘‘(a) CIVIL PENALTY FOR FRIVOLOUS TAX RE17 TURNS.—A person shall pay a penalty of $5,000 if— 

18 ‘‘(1) such person files what purports to be a re19 turn of a tax imposed by this title but which— 

20 ‘‘(A) does not contain information on which 

21 the substantial correctness of the self-assessment 

22 may be judged, or 

23 ‘‘(B) contains information that on its face 

24 indicates that the self-assessment is substantially 

25 incorrect, and 


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1 ‘‘(2) the conduct referred to in paragraph (1)— 

2 ‘‘(A) is based on a position which the Sec3 retary has identified as frivolous under sub4 section (c), or 

5 ‘‘(B) reflects a desire to delay or impede the 

6 administration of Federal tax laws. 

7 ‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB8 MISSIONS.— 

9 ‘‘(1) IMPOSITION OF PENALTY.—Except as pro10 vided in paragraph (3), any person who submits a 

11 specified frivolous submission shall pay a penalty of 

12 $5,000. 

13 ‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For 

14 purposes of this section— 

15 ‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.— 

16 The term ‘specified frivolous submission’ means 

17 a specified submission if any portion of such 

18 submission— 

19 ‘‘(i) is based on a position which the 

20 Secretary has identified as frivolous under 

21 subsection (c), or 

22 ‘‘(ii) reflects a desire to delay or im23 pede the administration of Federal tax 

24 laws. 


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1 ‘‘(B) SPECIFIED SUBMISSION.—The term 

2 ‘specified submission’ means— 

3 ‘‘(i) a request for a hearing under— 

4 ‘‘(I) section 6320 (relating to no5 tice and opportunity for hearing upon 

6 filing of notice of lien), or 

7 ‘‘(II) section 6330 (relating to no8 tice and opportunity for hearing before 

9 levy), and 

10 ‘‘(ii) an application under— 

11 ‘‘(I) section 6159 (relating to 

12 agreements for payment of tax liability 

13 in installments), 

14 ‘‘(II) section 7122 (relating to 

15 compromises), or 

16 ‘‘(III) section 7811 (relating to 

17 taxpayer assistance orders). 

18 ‘‘(3) OPPORTUNITY TO WITHDRAW SUBMIS19 SION.—If the Secretary provides a person with notice 

20 that a submission is a specified frivolous submission 

21 and such person withdraws such submission within 

22 30 days after such notice, the penalty imposed under 

23 paragraph (1) shall not apply with respect to such 

24 submission. 


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1 ‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec2 retary shall prescribe (and periodically revise) a list of posi3 tions which the Secretary has identified as being frivolous 

4 for purposes of this subsection. The Secretary shall not in5 clude in such list any position that the Secretary deter6 mines meets the requirement of section 

7 6662(d)(2)(B)(ii)(II). 

8 ‘‘(d) REDUCTION OF PENALTY.—The Secretary may 

9 reduce the amount of any penalty imposed under this sec10 tion if the Secretary determines that such reduction would 

11 promote compliance with and administration of the Federal 

12 tax laws. 

13 ‘‘(e) PENALTIES IN ADDITION TO OTHER PEN14 ALTIES.—The penalties imposed by this section shall be in 

15 addition to any other penalty provided by law.’’. 

16 (b) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR17 INGS BEFORE LEVY.— 

18 (1) FRIVOLOUS REQUESTS DISREGARDED.—Sec19 tion 6330 (relating to notice and opportunity for 

20 hearing before levy) is amended by adding at the end 

21 the following new subsection: 

22 ‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.— 

23 Notwithstanding any other provision of this section, if the 

24 Secretary determines that any portion of a request for a 

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1 ment of clause (i) or (ii) of section 6702(b)(2)(A), then the 

2 Secretary may treat such portion as if it were never sub3 mitted and such portion shall not be subject to any further 

4 administrative or judicial review.’’. 

5 (2) PRECLUSION FROM RAISING FRIVOLOUS

6 ISSUES AT HEARING.—Section 6330(c)(4) is amend7 ed— 

8 (A) by striking ‘‘(A)’’ and inserting 

9 ‘‘(A)(i)’’; 

10 (B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’; 

11 (C) by striking the period at the end of the 

12 first sentence and inserting ‘‘; or’’; and 

13 (D) by inserting after subparagraph (A)(ii) 

14 (as so redesignated) the following new subpara15 graph: 

16 ‘‘(B) the issue meets the requirement of 

17 clause (i) or (ii) of section 6702(b)(2)(A).’’. 

18 (3) STATEMENT OF GROUNDS.—Section 

19 6330(b)(1) is amended by striking ‘‘under subsection 

20 (a)(3)(B)’’ and inserting ‘‘in writing under subsection 

21 (a)(3)(B) and states the grounds for the requested 

22 hearing’’. 

23 (c) TREATMENT OF FRIVOLOUS REQUESTS FOR HEAR24 INGS UPON FILING OF NOTICE OF LIEN.—Section 6320 is 

25 amended— 


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1 (1) in subsection (b)(1), by striking ‘‘under sub2 section (a)(3)(B)’’ and inserting ‘‘in writing under 

3 subsection (a)(3)(B) and states the grounds for the re4 quested hearing’’, and 

5 (2) in subsection (c), by striking ‘‘and (e)’’ and 

6 inserting ‘‘(e), and (g)’’. 

7 (d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

8 OFFERS-IN-COMPROMISE AND INSTALLMENT AGREE9 MENTS.— 

10 (1) IN GENERAL.—Section 7122 is amended by 

11 adding at the end the following new subsection: 

12 ‘‘(g) FRIVOLOUS SUBMISSIONS, ETC.—Notwith13 standing any other provision of this section, if the Secretary 

14 determines that any portion of an application for an offer15 in-compromise or installment agreement submitted under 

16 this section or section 6159 meets the requirement of clause 

17 (i) or (ii) of section 6702(b)(2)(A), then the Secretary may 

18 treat such portion as if it were never submitted and such 

19 portion shall not be subject to any further administrative 

20 or judicial review.’’. 

21 (2) CROSS REFERENCE.—Section 6159(f) is 

22 amended by adding at the end the following new item: 


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‘‘For treatment of frivolous applications for installment 

agreements, see section 7122(g).’’. 

1 (e) TREATMENT OF FRIVOLOUS APPLICATIONS FOR

2 TAXPAYER ASSISTANCE ORDERS.—Section 7811 is amend3 ed by adding at the end the following new subsection: 

4 ‘‘(h) FRIVOLOUS SUBMISSIONS, ETC.—Notwith5 standing any other provision of this section, if the Secretary 

6 determines that any portion of an application for a Tax7 payer Assistance Order submitted under this section meets 

8 the requirement of clause (i) or (ii) of section 6702(b)(2)(A), 

9 then the Secretary may treat such portion as if it were 

10 never submitted and such portion shall not be subject to 

11 any further administrative or judicial review.’’. 

12 (f) CLERICAL AMENDMENT.—The table of sections for 

13 part I of subchapter B of chapter 68 is amended by striking 

14 the item relating to section 6702 and inserting the following 

15 new item: 

‘‘Sec. 6702. Frivolous tax submissions.’’. 

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

17 section shall apply to filings and submissions made and 

18 issues raised after the date on which the Secretary first pre19 scribes a list under section 6702(c) of the Internal Revenue 

20 Code of 1986, as amended by subsection (a). 


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1 SEC. 407. UNDERSTATEMENT OF TAXPAYER LIABILITY BY 

2 RETURN PREPARERS. 

3 (a) APPLICATION OF RETURN PREPARER PENALTIES

4 TO ALL TAX RETURNS.— 

5 (1) DEFINITION OF TAX RETURN PREPARER.— 

6 Paragraph (36) of section 7701(a) (relating to income 

7 tax preparer) is amended— 

8 (A) by striking ‘‘income’’ each place it ap9 pears in the heading and the text, and 

10 (B) in subparagraph (A), by striking ‘‘sub11 title A’’ each place it appears and inserting ‘‘this 

12 title’’. 

13 (2) CONFORMING AMENDMENTS.— 

14 (A)(i) Section 6060 is amended by striking 

15 ‘‘INCOME TAX RETURN PREPARERS’’ in the 

16 heading and inserting ‘‘TAX RETURN PRE17 PARERS’’. 

18 (ii) Section 6060(a) is amended— 

19 (I) by striking ‘‘an income tax return 

20 preparer’’ each place it appears and insert21 ing ‘‘a tax return preparer’’, 

22 (II) by striking ‘‘each income tax re23 turn preparer’’ and inserting ‘‘each tax re24 turn preparer’’, and 


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1 (III) by striking ‘‘another income tax 

2 return preparer’’ and inserting ‘‘another 

3 tax return preparer’’. 

4 (iii) The item relating to section 6060 in 

5 the table of sections for subpart F of part III of 

6 subchapter A of chapter 61 is amended by strik7 ing ‘‘income tax return preparers’’ and inserting 

8 ‘‘tax return preparers’’. 

9 (iv) Subpart F of part III of subchapter A 

10 of chapter 61 is amended by striking ‘‘Income 

11 Tax Return Preparers’’ in the heading and 

12 inserting ‘‘Tax Return Preparers’’. 

13 (v) The item relating to subpart F in the 

14 table of subparts for part III of subchapter A of 

15 chapter 61 is amended by striking ‘‘income tax 

16 return preparers’’ and inserting ‘‘tax return pre17 parers’’. 

18 (B) Section 6103(k)(5) is amended— 

19 (i) by striking ‘‘income tax return pre20 parer’’ each place it appears and inserting 

21 ‘‘tax return preparer’’, and 

22 (ii) by striking ‘‘income tax return 

23 preparers’’ each place it appears and insert24 ing ‘‘tax return preparers’’. 

25 (C)(i) Section 6107 is amended— 


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1 (I) by striking ‘‘INCOME TAX RE2 TURN PREPARER’’ in the heading and in3 serting ‘‘TAX RETURN PREPARER’’, 

4 (II) by striking ‘‘an income tax return 

5 preparer’’ each place it appears in sub6 sections (a) and (b) and inserting ‘‘a tax re7 turn preparer’’, 

8 (III) by striking ‘‘INCOME TAX RE9 TURN PREPARER’’ in the heading for sub10 section (b) and inserting ‘‘TAX RETURN

11 PREPARER’’, and 

12 (IV) in subsection (c), by striking ‘‘in13 come tax return preparers’’ and inserting 

14 ‘‘tax return preparers’’. 

15 (ii) The item relating to section 6107 in the 

16 table of sections for subchapter B of chapter 61 

17 is amended by striking ‘‘Income tax return pre18 parer’’ and inserting ‘‘Tax return preparer’’. 

19 (D) Section 6109(a)(4) is amended— 

20 (i) by striking ‘‘an income tax return 

21 preparer’’ and inserting ‘‘a tax return pre22 parer’’, and 

23 (ii) by striking ‘‘INCOME TAX RETURN

24 PREPARER’’ in the heading and inserting 

25 ‘‘TAX RETURN PREPARER’’. 


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1 (E) Section 6503(k)(4) is amended by strik2 ing ‘‘Income tax return preparers’’ and inserting 

3 ‘‘Tax return preparers’’. 

4 (F)(i) Section 6694 is amended— 

5 (I) by striking ‘‘INCOME TAX RE6 TURN PREPARER’’ in the heading and in7 serting ‘‘TAX RETURN PREPARER’’, 

8 (II) by striking ‘‘an income tax return 

9 preparer’’ each place it appears and insert10 ing ‘‘a tax return preparer’’, 

11 (III) in subsection (c)(2), by striking 

12 ‘‘the income tax return preparer’’ and in13 serting ‘‘the tax return preparer’’, 

14 (IV) in subsection (e), by striking 

15 ‘‘subtitle A’’ and inserting ‘‘this title’’, and 

16 (V) in subsection (f), by striking ‘‘in17 come tax return preparer’’ and inserting 

18 ‘‘tax return preparer’’. 

19 (ii) The item relating to section 6694 in the 

20 table of sections for part I of subchapter B of 

21 chapter 68 is amended by striking ‘‘income tax 

22 return preparer’’ and inserting ‘‘tax return pre23 parer’’. 

24 (G)(i) Section 6695 is amended— 


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1 (I) by striking ‘‘INCOME’’ in the head2 ing, and 

3 (II) by striking ‘‘an income tax return 

4 preparer’’ each place it appears and insert5 ing ‘‘a tax return preparer’’. 

6 (ii) Section 6695(f) is amended— 

7 (I) by striking ‘‘subtitle A’’ and insert8 ing ‘‘this title’’, and 

9 (II) by striking ‘‘the income tax return 

10 preparer’’ and inserting ‘‘the tax return 

11 preparer’’. 

12 (iii) The item relating to section 6695 in 

13 the table of sections for part I of subchapter B 

14 of chapter 68 is amended by striking ‘‘income’’. 

15 (H) Section 6696(e) is amended by striking 

16 ‘‘subtitle A’’ each place it appears and inserting 

17 ‘‘this title’’. 

18 (I)(i) Section 7407 is amended— 

19 (I) by striking ‘‘INCOME TAX RE20 TURN PREPARERS’’ in the heading and 

21 inserting ‘‘TAX RETURN PREPARERS’’, 

22 (II) by striking ‘‘an income tax return 

23 preparer’’ each place it appears and insert24 ing ‘‘a tax return preparer’’, 


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1 (III) by striking ‘‘income tax pre2 parer’’ both places it appears in subsection 

3 (a) and inserting ‘‘tax return preparer’’, 

4 and 

5 (IV) by striking ‘‘income tax return’’ 

6 in subsection (a) and inserting ‘‘tax re7 turn’’. 

8 (ii) The item relating to section 7407 in the 

9 table of sections for subchapter A of chapter 76 

10 is amended by striking ‘‘income tax return pre11 parers’’ and inserting ‘‘tax return preparers’’. 

12 (J)(i) Section 7427 is amended— 

13 (I) by striking ‘‘INCOME TAX RE14 TURN PREPARERS’’ in the heading and 

15 inserting ‘‘TAX RETURN PREPARERS’’, 

16 and 

17 (II) by striking ‘‘an income tax return 

18 preparer’’ and inserting ‘‘a tax return pre19 parer’’. 

20 (ii) The item relating to section 7427 in the 

21 table of sections for subchapter B of chapter 76 

22 is amended to read as follows: 

‘‘Sec. 7427. Tax return preparers.’’. 

23 (b) MODIFICATION OF PENALTY FOR UNDERSTATE24 MENT OF TAXPAYER’S LIABILITY BY TAX RETURN PREVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00091 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 PARER.—Subsections (a) and (b) of section 6694 are 

2 amended to read as follows: 

3 ‘‘(a) UNDERSTATEMENT DUE TO UNREASONABLE PO4 SITIONS.— 

5 ‘‘(1) IN GENERAL.—Any tax return preparer 

6 who prepares any return or claim for refund with re7 spect to which any part of an understatement of li8 ability is due to a position described in paragraph 

9 (2) shall pay a penalty with respect to each such re10 turn or claim in an amount equal to the greater of— 

11 ‘‘(A) $1,000, or 

12 ‘‘(B) 50 percent of the income derived (or to 

13 be derived) by the tax return preparer with re14 spect to the return or claim. 

15 ‘‘(2) UNREASONABLE POSITION.—A position is 

16 described in this paragraph if— 

17 ‘‘(A) the tax return preparer knew (or rea18 sonably should have known) of the position, 

19 ‘‘(B) there was not a reasonable belief that 

20 the position would more likely than not be sus21 tained on its merits, and 

22 ‘‘(C)(i) the position was not disclosed as 

23 provided in section 6662(d)(2)(B)(ii), or 

24 ‘‘(ii) there was no reasonable basis for the 

25 position. 


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1 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen2 alty shall be imposed under this subsection if it is 

3 shown that there is reasonable cause for the under4 statement and the tax return preparer acted in good 

5 faith. 

6 ‘‘(b) UNDERSTATEMENT DUE TO WILLFUL OR RECK7 LESS CONDUCT.— 

8 ‘‘(1) IN GENERAL.—Any tax return preparer 

9 who prepares any return or claim for refund with re10 spect to which any part of an understatement of li11 ability is due to a conduct described in paragraph (2) 

12 shall pay a penalty with respect to each such return 

13 or claim in an amount equal to the greater of— 

14 ‘‘(A) $5,000, or 

15 ‘‘(B) 50 percent of the income derived (or to 

16 be derived) by the tax return preparer with re17 spect to the return or claim. 

18 ‘‘(2) WILLFUL OR RECKLESS CONDUCT.—Con19 duct described in this paragraph is conduct by the tax 

20 return preparer which is— 

21 ‘‘(A) a willful attempt in any manner to 

22 understate the liability for tax on the return or 

23 claim, or 

24 ‘‘(B) a reckless or intentional disregard of 

25 rules or regulations. 


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1 ‘‘(3) REDUCTION IN PENALTY.—The amount of 

2 any penalty payable by any person by reason of this 

3 subsection for any return or claim for refund shall be 

4 reduced by the amount of the penalty paid by such 

5 person by reason of subsection (a).’’. 

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

7 section shall apply to returns prepared after the date of the 

8 enactment of this Act. 

9 SEC. 408. PENALTY FOR AIDING AND ABETTING THE UN10 DERSTATEMENT OF TAX LIABILITY. 

11 (a) IN GENERAL.—Section 6701(a) (relating to impo12 sition of penalty) is amended— 

13 (1) by inserting ‘‘, or tax liability reflected in,’’ 

14 after ‘‘the preparation or presentation of’’ in para15 graph (1), 

16 (2) by inserting ‘‘aid, assistance, procurement, 

17 or advice with respect to such’’ before ‘‘portion’’ both 

18 places it appears in paragraphs (2) and (3), and 

19 (3) by inserting ‘‘instance of aid, assistance, pro20 curement, or advice or each such’’ before ‘‘document’’ 

21 in the matter following paragraph (3). 

22 (b) AMOUNT OF PENALTY.—Subsection (b) of section 

23 6701 (relating to penalties for aiding and abetting under24 statement of tax liability) is amended to read as follows: 


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1 ‘‘(b) AMOUNT OF PENALTY; CALCULATION OF PEN2 ALTY; LIABILITY FOR PENALTY.— 

3 ‘‘(1) AMOUNT OF PENALTY.—The amount of the 

4 penalty imposed by subsection (a) shall be 100 per5 cent of the gross income derived (or to be derived) 

6 from such aid, assistance, procurement, or advice pro7 vided by the person or persons subject to such penalty. 

8 ‘‘(2) CALCULATION OF PENALTY.—The penalty 

9 amount determined under paragraph (1) shall be cal10 culated with respect to each instance of aid, assist11 ance, procurement, or advice described in subsection 

12 (a), each instance in which income was derived by the 

13 person or persons subject to such penalty, and each 

14 person who made such an understatement of the li15 ability for tax. 

16 ‘‘(3) LIABILITY FOR PENALTY.—If more than 1 

17 person is liable under subsection (a) with respect to 

18 providing such aid, assistance, procurement, or ad19 vice, all such persons shall be jointly and severally 

20 liable for the penalty under such subsection.’’. 

21 (c) PENALTY NOT DEDUCTIBLE.—Section 6701 is 

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

23 ‘‘(g) PENALTY NOT DEDUCTIBLE.—The payment of 

24 any penalty imposed under this section or the payment of 

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1 alty shall not be considered an ordinary and necessary ex2 pense in carrying on a trade or business for purposes of 

3 this title and shall not be deductible by the person who is 

4 subject to such penalty or who makes such payment.’’. 

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

6 section shall apply to the activities described in section 

7 6701(a) of the Internal Revenue Code of 1986 after the date 

8 of the enactment of this Act. 

9 SEC. 409. INCREASE IN CRIMINAL MONETARY PENALTY LIM10 ITATION FOR THE UNDERPAYMENT OR OVER11 PAYMENT OF TAX DUE TO FRAUD. 

12 (a) IN GENERAL.— 

13 (1) ATTEMPT TO EVADE OR DEFEAT TAX.—Sec14 tion 7201 (relating to attempt to evade or defeat tax) 

15 is amended— 

16 (A) by striking ‘‘$100,000’’ and inserting 

17 ‘‘$500,000’’, 

18 (B) by striking ‘‘$500,000’’ and inserting 

19 ‘‘$1,000,000’’, and 

20 (C) by striking ‘‘5 years’’ and inserting ‘‘10 

21 years’’. 

22 (2) WILLFUL FAILURE TO FILE RETURN, SUPPLY

23 INFORMATION, OR PAY TAX.— 


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1 (A) IN GENERAL.—Section 7203 (relating to 

2 willful failure to file return, supply information, 

3 or pay tax) is amended— 

4 (i) in the first sentence— 

5 (I) by striking ‘‘Any person’’ and 

6 inserting the following: 

7 ‘‘(a) IN GENERAL.—Any person’’, and 

8 (II) by striking ‘‘$25,000’’ and in9 serting ‘‘$50,000’’, 

10 (ii) in the third sentence, by striking 

11 ‘‘section’’ and inserting ‘‘subsection’’, and 

12 (iii) by adding at the end the following 

13 new subsection: 

14 ‘‘(b) AGGRAVATED FAILURE TO FILE.— 

15 ‘‘(1) IN GENERAL.—In the case of any failure de16 scribed in paragraph (2), the first sentence of sub17 section (a) shall be applied by substituting— 

18 ‘‘(A) ‘felony’ for ‘misdemeanor’, 

19 ‘‘(B) ‘$500,000 ($1,000,000’ for ‘$50,000 

20 ($100,000’, and 

21 ‘‘(C) ‘10 years’ for ‘1 year’. 

22 ‘‘(2) FAILURE DESCRIBED.—A failure described 

23 in this paragraph is— 

24 ‘‘(A) a failure to make a return described in 

25 subsection (a) for a period of 3 or more consecuVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00097 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 tive taxable years if the aggregate tax liability 

2 for such period is not less than $100,000, or 

3 ‘‘(B) a failure to make a return if the tax 

4 liability giving rise to the requirement to make 

5 such return is attributable to an activity which 

6 is a felony under any State or Federal law.’’. 

7 (B) PENALTY MAY BE APPLIED IN ADDITION

8 TO OTHER PENALTIES.—Section 7204 (relating 

9 to fraudulent statement or failure to make state10 ment to employees) is amended by striking ‘‘the 

11 penalty provided in section 6674’’ and inserting 

12 ‘‘the penalties provided in sections 6674 and 

13 7203(b)’’. 

14 (3) FRAUD AND FALSE STATEMENTS.—Section 

15 7206 (relating to fraud and false statements) is 

16 amended— 

17 (A) by striking ‘‘$100,000’’ and inserting 

18 ‘‘$500,000’’, 

19 (B) by striking ‘‘$500,000’’ and inserting 

20 ‘‘$1,000,000’’, and 

21 (C) by striking ‘‘3 years’’ and inserting ‘‘5 

22 years’’. 

23 (b) INCREASE IN MONETARY LIMITATION FOR UNDER24 PAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.—SecVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00098 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 tion 7206 (relating to fraud and false statements), as 

2 amended by subsection (a)(3), is amended— 

3 (1) by striking ‘‘Any person who—’’ and insert4 ing ‘‘(a) IN GENERAL.—Any person who—’’, and 

5 (2) by adding at the end the following new sub6 section: 

7 ‘‘(b) INCREASE IN MONETARY LIMITATION FOR UN8 DERPAYMENT OR OVERPAYMENT OF TAX DUE TO FRAUD.— 

9 If any portion of any underpayment (as defined in section 

10 6664(a)) or overpayment (as defined in section 6401(a)) of 

11 tax required to be shown on a return is attributable to 

12 fraudulent action described in subsection (a), the applicable 

13 dollar amount under subsection (a) shall in no event be less 

14 than an amount equal to such portion. A rule similar to 

15 the rule under section 6663(b) shall apply for purposes of 

16 determining the portion so attributable.’’. 

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

18 section shall apply to actions, and failures to act, occurring 

19 after the date of the enactment of this Act. 

20 SEC. 410. DOUBLING OF CERTAIN PENALTIES, FINES, AND 

21 INTEREST ON UNDERPAYMENTS RELATED TO 

22 CERTAIN OFFSHORE FINANCIAL ARRANGE23 MENTS. 

24 (a) DETERMINATION OF PENALTY.— 


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1 (1) IN GENERAL.—Notwithstanding any other 

2 provision of law, in the case of an applicable tax3 payer— 

4 (A) the determination as to whether any in5 terest or applicable penalty is to be imposed with 

6 respect to any arrangement described in para7 graph (2), or to any underpayment of Federal 

8 income tax attributable to items arising in con9 nection with any such arrangement, shall be 

10 made without regard to the rules of subsections 

11 (b), (c), and (d) of section 6664 of the Internal 

12 Revenue Code of 1986, and 

13 (B) if any such interest or applicable pen14 alty is imposed, the amount of such interest or 

15 penalty shall be equal to twice that determined 

16 without regard to this section. 

17 (2) APPLICABLE TAXPAYER.—For purposes of 

18 this subsection— 

19 (A) IN GENERAL.—The term ‘‘applicable 

20 taxpayer’’ means a taxpayer which— 

21 (i) has underreported its United States 

22 income tax liability with respect to any 

23 item which directly or indirectly involves— 

24 (I) any financial arrangement 

25 which in any manner relies on the use 


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1 of offshore payment mechanisms (in2 cluding credit, debit, or charge cards) 

3 issued by banks or other entities in for4 eign jurisdictions, or 

5 (II) any offshore financial ar6 rangement (including any arrange7 ment with foreign banks, financial in8 stitutions, corporations, partnerships, 

9 trusts, or other entities), and 

10 (ii) has neither signed a closing agree11 ment pursuant to the Voluntary Offshore 

12 Compliance Initiative established by the De13 partment of the Treasury under Revenue 

14 Procedure 2003–11 nor voluntarily dis15 closed its participation in such arrange16 ment by notifying the Internal Revenue 

17 Service of such arrangement prior to the 

18 issue being raised by the Internal Revenue 

19 Service during an examination. 

20 (B) AUTHORITY TO WAIVE.—The Secretary 

21 of the Treasury or the Secretary’s delegate may 

22 waive the application of paragraph (1) to any 

23 taxpayer if the Secretary or the Secretary’s dele24 gate determines that the use of such offshore pay25 ment mechanisms is incidental to the transVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00101 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 action and, in addition, in the case of a trade 

2 or business, such use is conducted in the ordi3 nary course of the type of trade or business of the 

4 taxpayer. 

5 (C) ISSUES RAISED.—For purposes of sub6 paragraph (A)(ii), an item shall be treated as an 

7 issue raised during an examination if the indi8 vidual examining the return— 

9 (i) communicates to the taxpayer 

10 knowledge about the specific item, or 

11 (ii) has made a request to the taxpayer 

12 for information and the taxpayer could not 

13 make a complete response to that request 

14 without giving the examiner knowledge of 

15 the specific item. 

16 (b) APPLICABLE PENALTY.—For purposes of this sec17 tion, the term ‘‘applicable penalty’’ means any penalty, ad18 dition to tax, or fine imposed under chapter 68 of the Inter19 nal Revenue Code of 1986. 

20 (c) EFFECTIVE DATE.—The provisions of this section 

21 shall apply to interest, penalties, additions to tax, and fines 

22 with respect to any taxable year if, as of the date of the 

23 enactment of this Act, the assessment of any tax, penalty, 

24 or interest with respect to such taxable year is not prevented 

25 by the operation of any law or rule of law. 


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1 SEC. 411. INCREASE IN PENALTY FOR BAD CHECKS AND 

2 MONEY ORDERS. 

3 (a) IN GENERAL.—Section 6657 (relating to bad 

4 checks) is amended— 

5 (1) by striking ‘‘$750’’ and inserting ‘‘$1,250’’, 

6 and 

7 (2) by striking ‘‘$15’’ and inserting ‘‘$25’’. 

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

9 section shall apply to checks or money orders received after 

10 the date of the enactment of this Act. 

11 SEC. 412. INCREASE IN PENALTY EXCISE TAXES ON THE PO12 LITICAL AND EXCESS LOBBYING ACTIVITIES 

13 OF SECTION 501(c)(3) ORGANIZATIONS. 

14 (a) TAXES ON DISQUALIFYING LOBBYING EXPENDI15 TURES OF CERTAIN ORGANIZATIONS.— 

16 (1) IN GENERAL.—Section 4912(a) (relating to 

17 tax on organization) is amended by striking ‘‘5 per18 cent’’ and inserting ‘‘10 percent’’. 

19 (2) TAX ON MANAGEMENT.—Section 4912(b) is 

20 amended by striking ‘‘5 percent’’ and inserting ‘‘10 

21 percent’’. 

22 (b) TAXES ON POLITICAL EXPENDITURES OF SECTION

23 501(c)(3) ORGANIZATIONS.— 

24 (1) IN GENERAL.—Section 4955(a) (relating to 

25 initial taxes) is amended— 


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1 (A) in paragraph (1), by striking ‘‘10 per2 cent’’ and inserting ‘‘20 percent’’, and 

(B) in paragraph (2), by striking ‘‘21 3 ⁄2 per4 cent’’ and inserting ‘‘5 percent’’. 

5 (2) INCREASED LIMITATION FOR MANAGERS.— 

6 Section 4955(c)(2) is amended— 

7 (A) by striking ‘‘$5,000’’ and inserting 

8 ‘‘$10,000’’, and 

9 (B) by striking ‘‘$10,000’’ and inserting 

10 ‘‘$20,000’’. 

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

12 section shall apply to taxable years beginning after the date 

13 of the enactment of this Act. 

14 SEC. 413. PENALTY FOR FILING ERRONEOUS REFUND 

15 CLAIMS. 

16 (a) IN GENERAL.—Part I of subchapter B of chapter 

17 68 (relating to assessable penalties) is amended by inserting 

18 after section 6675 the following new section: 

19 ‘‘SEC. 6676. ERRONEOUS CLAIM FOR REFUND OR CREDIT. 

20 ‘‘(a) CIVIL PENALTY.—If a claim for refund or credit 

21 with respect to income tax is made for an excessive amount, 

22 unless it is shown that the claim for such excessive amount 

23 has a reasonable basis, the person making such claim shall 

24 be liable for a penalty in an amount equal to 20 percent 

25 of the excessive amount. 


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1 ‘‘(b) EXCESSIVE AMOUNT.—For purposes of this sec2 tion, the term ‘excessive amount’ means in the case of any 

3 person the amount by which the amount of the claim for 

4 refund or credit for any taxable year exceeds the amount 

5 of such claim allowable under this title for such taxable 

6 year. 

7 ‘‘(c) COORDINATION WITH OTHER PENALTIES.—This 

8 section shall not apply to any portion of the excessive 

9 amount of a claim for refund or credit on which a penalty 

10 is imposed under part II of subchapter A of chapter 68.’’. 

11 (b) CONFORMING AMENDMENT.—The table of sections 

12 for part I of subchapter B of chapter 68 is amended by 

13 inserting after the item relating to section 6675 the fol14 lowing new item: 

‘‘Sec. 6676. Erroneous claim for refund or credit.’’. 

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

16 section shall apply to any claim— 

17 (1) filed or submitted after the date of the enact18 ment of this Act, or 

19 (2) filed or submitted prior to such date but not 

20 withdrawn before the date which is 30 days after such 

21 date of enactment. 


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1 TITLE V—CONFIDENTIALITY AND 

2 DISCLOSURE 

3 SEC. 501. COLLECTION ACTIVITIES WITH RESPECT TO 

4 JOINT RETURN DISCLOSABLE TO EITHER 

5 SPOUSE BASED ON ORAL REQUEST. 

6 (a) IN GENERAL.—Paragraph (8) of section 6103(e) 

7 (relating to disclosure of collection activities with respect 

8 to joint return) is amended by striking ‘‘in writing’’ the 

9 first place it appears. 

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

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

12 enactment of this Act. 

13 SEC. 502. PROHIBITION OF DISCLOSURE OF TAXPAYER 

14 IDENTIFICATION INFORMATION WITH RE15 SPECT TO DISCLOSURE OF ACCEPTED OF16 FERS-IN-COMPROMISE. 

17 (a) IN GENERAL.—Paragraph (1) of section 6103(k) 

18 (relating to disclosure of certain returns and return infor19 mation for tax administrative purposes) is amended by in20 serting ‘‘(other than the taxpayer’s TIN)’’ after ‘‘Return in21 formation’’. 

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

23 section shall apply to disclosures made after the date of the 

24 enactment of this Act. 


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1 SEC. 503. COMPLIANCE BY CONTRACTORS WITH CONFIDEN2 TIALITY SAFEGUARDS. 

3 (a) IN GENERAL.—Section 6103(p) (relating to State 

4 law requirements) is amended by adding at the end the fol5 lowing new paragraph: 

6 ‘‘(9) DISCLOSURE TO CONTRACTORS AND OTHER

7 AGENTS.—Notwithstanding any other provision of 

8 this section, no return or return information shall be 

9 disclosed to any contractor or other agent of a Fed10 eral, State, or local agency unless such agency, to the 

11 satisfaction of the Secretary— 

12 ‘‘(A) has requirements in effect which re13 quire each such contractor or other agent which 

14 would have access to returns or return informa15 tion to provide safeguards (within the meaning 

16 of paragraph (4)) to protect the confidentiality 

17 of such returns or return information, 

18 ‘‘(B) agrees to conduct an on-site review 

19 every 3 years (or a mid-point review in the case 

20 of contracts or agreements of less than 3 years in 

21 duration) of each contractor or other agent to de22 termine compliance with such requirements, 

23 ‘‘(C) submits the findings of the most recent 

24 review conducted under subparagraph (B) to the 

25 Secretary as part of the report required by para26 graph (4)(E), and 


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1 ‘‘(D) certifies to the Secretary for the most 

2 recent annual period that such contractor or 

3 other agent is in compliance with all such re4 quirements. 

5 The certification required by subparagraph (D) shall 

6 include the name and address of each contractor and 

7 other agent, a description of the contract or agreement 

8 with such contractor or other agent, and the duration 

9 of such contract or agreement. The requirements of 

10 this paragraph shall not apply to disclosures pursu11 ant to subsection (n) for purposes of Federal tax ad12 ministration.’’. 

13 (b) CONFORMING AMENDMENT.—Subparagraph (B) of 

14 section 6103(p)(8) is amended by inserting ‘‘or paragraph 

15 (9)’’ after ‘‘subparagraph (A)’’. 

16 (c) EFFECTIVE DATE.— 

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

18 this section shall apply to disclosures made after the 

19 date of the enactment of this Act. 

20 (2) CERTIFICATIONS.—The first certification 

21 under section 6103(p)(9)(D) of the Internal Revenue 

22 Code of 1986, as added by subsection (a), shall be 

23 made with respect to the portion of calendar year 

24 2006 following the date of the enactment of this Act. 


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1 SEC. 504. HIGHER STANDARDS FOR REQUESTS FOR AND 

2 CONSENTS TO DISCLOSURE. 

3 (a) IN GENERAL.—Subsection (c) of section 6103 (re4 lating to disclosure of returns and return information to 

5 designee of taxpayer) is amended— 

6 (1) by striking ‘‘TAXPAYER.—The Secretary’’ 

7 and inserting ‘‘TAXPAYER.— 

8 ‘‘(1) IN GENERAL.—The Secretary’’, and 

9 (2) by adding at the end the following new para10 graphs: 

11 ‘‘(2) RESTRICTIONS ON PERSONS OBTAINING IN12 FORMATION.—The return of any taxpayer, or return 

13 information with respect to such taxpayer, disclosed 

14 to a person or persons under paragraph (1) for a 

15 purpose specified in writing, electronically, or orally 

16 may be disclosed or used by such person or persons 

17 only for the purpose of, and to the extent necessary 

18 in, accomplishing the purpose for disclosure specified 

19 and shall not be disclosed or used for any other pur20 pose. 

21 ‘‘(3) REQUIREMENTS FOR FORM PRESCRIBED BY

22 SECRETARY.—For purposes of this subsection, the Sec23 retary shall prescribe a form for written requests and 

24 consents which shall— 


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1 ‘‘(A) contain a warning, prominently dis2 played, informing the taxpayer that the form 

3 should not be signed unless it is completed, 

4 ‘‘(B) state that if the taxpayer believes there 

5 is an attempt to coerce him to sign an incom6 plete or blank form, the taxpayer should report 

7 the matter to the Treasury Inspector General for 

8 Tax Administration, and 

9 ‘‘(C) contain the address and telephone 

10 number of the Treasury Inspector General for 

11 Tax Administration. 

12 ‘‘(4) CROSS REFERENCE.— 

‘‘For provision providing for civil damages for violation of paragraph (2), see section 7431(i).’’. 

13 (b) CIVIL DAMAGES.—Section 7431 (relating to civil 

14 damages for unauthorized inspection or disclosure of re15 turns and return information) is amended by adding at 

16 the end the following new subsection: 

17 ‘‘(i) DISCLOSURE OR USE OF RETURNS AND RETURN

18 INFORMATION OBTAINED UNDER SUBSECTION 6103(C).— 

19 Disclosure or use of returns or return information obtained 

20 under section 6103(c) other than for the purpose of, and 

21 to the extent necessary in, accomplishing the purpose for 

22 disclosure specified in writing, electronically, or orally, 

23 shall be treated as a violation of section 6103(a).’’. 


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1 (c) REPORT.—Not later than 18 months after the date 

2 of the enactment of this Act, the Secretary of the Treasury 

3 shall submit a report to the Congress on compliance with 

4 the requirements applicable to requests for or consent to dis5 closure of returns and return information under section 

6 6103(c) of the Internal Revenue Code of 1986, as amended 

7 by subsection (a). Such report shall— 

8 (1) evaluate (on the basis of random sampling) 

9 whether— 

10 (A) the amendment made by subsection (a) 

11 is achieving the purposes of this section; 

12 (B) requesters and submitters for such dis13 closure are continuing to evade the purposes of 

14 this section and, if so, how; and 

15 (C) the sanctions for violations of such re16 quirements are adequate; and 

17 (2) include such recommendations that the Sec18 retary of the Treasury considers necessary or appro19 priate to better achieve the purposes of this section. 

20 (d) SUNSET OF EXISTING CONSENTS.—Notwith21 standing any other provision of law, any request for or con22 sent to disclose any return or return information under sec23 tion 6103(c) of the Internal Revenue Code of 1986 made 

24 before the date of the enactment of this Act shall remain 

25 in effect until the earlier of the date such request or consent 


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1 is otherwise terminated or the date which is 3 years after 

2 such date of enactment. 

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

4 section shall apply to requests and consents made after the 

5 date which is 3 months after the date of the enactment of 

6 this Act. 

7 SEC. 505. CIVIL DAMAGES FOR UNAUTHORIZED DISCLO8 SURE OR INSPECTION. 

9 (a) NOTICE TO TAXPAYER.—Subsection (e) of section 

10 7431 (relating to notification of unlawful inspection and 

11 disclosure) is amended by adding at the end the following 

12 new sentences: ‘‘The Secretary shall also notify such tax13 payer if the Internal Revenue Service or, upon notice to 

14 the Secretary by a Federal or State agency, if such Federal 

15 or State agency, proposes an administrative determination 

16 as to disciplinary or adverse action against an employee 

17 arising from the employee’s unauthorized inspection or dis18 closure of the taxpayer’s return or return information. The 

19 notice described in this subsection shall include the date of 

20 the inspection or disclosure and the rights of the taxpayer 

21 under such administrative determination.’’. 

22 (b) EXHAUSTION OF ADMINISTRATIVE REMEDIES RE23 QUIRED.—Section 7431, as amended by this Act, is amend24 ed by adding at the end the following new subsection: 


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1 ‘‘(j) EXHAUSTION OF ADMINISTRATIVE REMEDIES RE2 QUIRED.—A judgment for damages shall not be awarded 

3 under subsection (c) unless the court determines that the 

4 plaintiff has exhausted the administrative remedies avail5 able to such plaintiff.’’. 

6 (c) PAYMENT AUTHORITY CLARIFIED.— 

7 (1) IN GENERAL.—Section 7431, as amended by 

8 subsection (b), is amended by adding at the end the 

9 following new subsection: 

10 ‘‘(k) PAYMENT AUTHORITY.—Claims pursuant to sub11 section (a)(1) shall be payable out of funds appropriated 

12 under section 1304 of title 31, United States Code.’’. 

13 (2) ANNUAL REPORTS OF PAYMENTS.—The Sec14 retary of the Treasury shall annually report to the 

15 Committee on Finance of the Senate and the Com16 mittee on Ways and Means of the House of Represent17 atives regarding payments made from the United 

18 States Judgment Fund under section 7431(k) of the 

19 Internal Revenue Code of 1986. 

20 (d) BURDEN OF PROOF FOR GOOD FAITH EXCEPTION

21 RESTS WITH PERSON MAKING INSPECTION OR DISCLO22 SURE.—Section 7431(b) (relating to exceptions) is amended 

23 by adding at the end the following new flush sentence: 

24 ‘‘In any proceeding involving the issue of the existence of 

25 good faith, the burden of proof with respect to such issue 


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1 shall be on the person who made the inspection or disclo2 sure.’’. 

3 (e) REPORTS.—Subsection (p) of section 6103 (relat4 ing to procedure and recordkeeping), as amended by this 

5 Act, is amended by adding at the end the following new 

6 paragraph: 

7 ‘‘(10) REPORT ON WILLFUL UNAUTHORIZED DIS8 CLOSURE AND INSPECTION.—As part of the report re9 quired by paragraph (3)(C) for each calendar year, 

10 the Secretary shall furnish information regarding the 

11 willful unauthorized disclosure and inspection of re12 turns and return information, including the number, 

13 status, and results of— 

14 ‘‘(A) administrative investigations, 

15 ‘‘(B) civil lawsuits brought under section 

16 7431 (including the amounts for which such law17 suits were settled and the amounts of damages 

18 awarded), and 

19 ‘‘(C) criminal prosecutions.’’. 

20 (f) EFFECTIVE DATES.— 

21 (1) NOTICE.—The amendment made by sub22 section (a) shall apply to determinations made after 

23 the date which is 180 days after the date of the enact24 ment of this Act. 


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1 (2) EXHAUSTION OF REMEDIES AND BURDEN OF

2 PROOF.—The amendments made by subsections (b) 

3 and (d) shall apply to inspections and disclosures oc4 curring on and after the date which is 180 days after 

5 the date of the enactment of this Act. 

6 (3) PAYMENT AUTHORITY.—The amendment 

7 made by subsection (c)(1) shall take effect on the date 

8 which is 180 days after the date of the enactment of 

9 this Act. 

10 (4) REPORTS.—Subsection (c)(2) and the 

11 amendment made by subsection (e) shall apply to cal12 endar years ending after the date which is 180 days 

13 after the date of the enactment of this Act. 

14 SEC. 506. EXPANSION OF DISCLOSURE IN EMERGENCY CIR15 CUMSTANCES. 

16 (a) IN GENERAL.—Section 6103(i)(3)(B)(i) (relating 

17 to danger of death or physical injury) is amended by strik18 ing ‘‘or State law enforcement agency’’ and inserting ‘‘, 

19 State, or local law enforcement agency’’. 

20 (b) CONFORMING AMENDMENTS.—Section 6103(p)(4) 

21 is amended— 

22 (1) by striking ‘‘(i)(3)(B)(i) or (7)(A)(ii)’’ and 

23 inserting ‘‘(i)(7)(A)(ii)’’, and 

24 (2) by striking ‘‘, (i)(3)(B)(i),’’. 


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1 SEC. 507. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX 

2 REFUND PURPOSES. 

3 Section 6103(m)(1) (relating to tax refunds) is amend4 ed by striking ‘‘taxpayer identity information to the press 

5 and other media’’ and by inserting ‘‘a person’s name and 

6 the city, State, and zip code of the person’s mailing address 

7 to the press, other media, and through any other means of 

8 mass communication,’’. 

9 SEC. 508. TREATMENT OF PUBLIC RECORDS. 

10 (a) IN GENERAL.—Section 6103(b) (relating to defini11 tions) is amended by adding at the end the following new 

12 paragraph: 

13 ‘‘(12) TREATMENT OF PUBLIC RECORDS.—Re14 turns and return information shall not be subject to 

15 subsection (a) if disclosed— 

16 ‘‘(A) in the course of any judicial or admin17 istrative proceeding or pursuant to tax adminis18 tration activities, and 

19 ‘‘(B) properly made part of the public 

20 record.’’. 

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

22 section shall take effect before, on, and after the date of the 

23 enactment of this Act. 

24 SEC. 509. TAXPAYER IDENTIFICATION NUMBER MATCHING. 

25 Section 6103(k) (relating to disclosure of certain re26 turns and return information for tax administration purVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00116 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 poses), as amended by this Act, is amended by adding at 

2 the end the following new paragraph: 

3 ‘‘(11) TIN MATCHING.—The Secretary may dis4 close to any person required to provide a TIN (as de5 fined in section 7701(a)(41)) to the Secretary whether 

6 such information matches records maintained by the 

7 Secretary.’’. 

8 SEC. 510. FORM 8300 DISCLOSURES. 

9 Section 6103(p)(4) (relating to safeguards) is amended 

10 by striking ‘‘(15),’’ both places it appears. 

11 SEC. 511. EXPANSION OF PENALTY FOR DISCLOSURE OR 

12 USE OF INFORMATION BY TAX RETURN PRE13 PARER. 

14 (a) IN GENERAL.—Section 7216 is amended by adding 

15 at the end the following new subsection: 

16 ‘‘(c) DEFINITIONS.—For purposes of this section— 

17 ‘‘(1) IN GENERAL.—The term ‘tax return pre18 parer’ means— 

19 ‘‘(A) any person who— 

20 ‘‘(i) is engaged in the business of pre21 paring tax returns, 

22 ‘‘(ii) is engaged in the business of pro23 viding services in connection with the prep24 aration of tax returns, 


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1 ‘‘(iii) prepares, or assists in preparing, 

2 a tax return for compensation, or holds 

3 himself out as such a person, 

4 ‘‘(iv) develops software used to prepare 

5 or file tax returns, or 

6 ‘‘(v) is an electronic return originator, 

7 and 

8 ‘‘(B) any individual who, as part of his du9 ties or employment with any person described in 

10 subparagraph (A), performs services relating 

11 to— 

12 ‘‘(i) the preparation or filing of, or in 

13 providing services in connection with the 

14 preparation or filing of, a tax return, or 

15 ‘‘(ii) the development of software used 

16 to prepare or file tax returns. 

17 ‘‘(2) TAX RETURN.—The term ‘tax return’ means 

18 a return of any tax imposed under this title.’’. 

19 (b) CONFORMING AMENDMENTS.— 

20 (1) CRIMINAL PENALTY.—Section 7216(a) is 

21 amended— 

22 (A) by striking ‘‘Any person’’ through ‘‘who 

23 knowingly or recklessly’’ and inserting ‘‘Any tax 

24 return preparer who knowingly or recklessly’’, 

25 and 


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1 (B) by striking ‘‘any such return’’ in para2 graph (1) and inserting ‘‘any tax return’’. 

3 (2) ASSESSABLE PENALTY.—Section 6713 is 

4 amended— 

5 (A) in subsection (a)— 

6 (i) by striking ‘‘If any person’’ through 

7 ‘‘and who’’ and inserting ‘‘If any tax return 

8 preparer’’, and 

9 (ii) by striking ‘‘any such return’’ in 

10 paragraph (1) and inserting ‘‘any tax re11 turn’’, and 

12 (B) by adding at the end the following new 

13 subsection: 

14 ‘‘(d) DEFINITIONS.—For purposes of this section, the 

15 terms ‘tax return preparer’ and ‘tax return’ shall have the 

16 meanings given to such terms under section 7216.’’. 

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

18 section shall apply to returns prepared after the date of the 

19 enactment of this Act. 

20 SEC. 512. RESTRICTIONS ON DISCLOSURE AND USE OF TAX 

21 RETURN INFORMATION. 

22 (a) IN GENERAL.—Paragraph (3) of section 7216(b) 

23 (relating to regulations) is amended to read as follows: 

24 ‘‘(3) REGULATIONS.— 


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1 ‘‘(A) IN GENERAL.—Subsection (a) shall not 

2 apply to a disclosure or use of information which 

3 is permitted by regulations prescribed by the 

4 Secretary under this section. 

5 ‘‘(B) PEER REVIEWS.—The regulations 

6 under this section shall permit (subject to such 

7 conditions as such regulations shall provide) the 

8 disclosure or use of information for quality or 

9 peer reviews. 

10 ‘‘(C) RESTRICTIONS ON CERTAIN DISCLO11 SURES AND USES.— 

12 ‘‘(i) PROHIBITION ON CERTAIN CON13 SENSUAL DISCLOSURES AND USES.—The 

14 regulations under this section shall not per15 mit the disclosure or use of information to 

16 or for any person with the consent of the 

17 taxpayer unless such disclosure or use is in 

18 connection with preparing or filing, or pro19 viding services in connection with the prep20 aration or filing of, a tax return. 

21 ‘‘(ii) RETURN PREPARERS LOCATED

22 OUTSIDE THE UNITED STATES.—The regu23 lations under this section shall not permit 

24 the disclosure or use of information to or by 

25 any tax return preparer located outside of 


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1 the United States unless the taxpayer has 

2 granted consent to such disclosure or use.’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) CRIMINAL PENALTY.—Paragraph (2) of sec5 tion 7216(a) is amended by inserting ‘‘within the 

6 United States’’ after ‘‘any such return’’. 

7 (2) ASSESSABLE PENALTY.—Paragraph (2) of 

8 section 6713(a) is amended by inserting ‘‘within the 

9 United States’’ after ‘‘any such return’’. 

10 (c) CONSENT FORM.—The Secretary of the Treasury 

11 shall prescribe a form to be used for obtaining consent to 

12 disclose or use information described in section 7216(a)(1) 

13 of the Internal Revenue Code of 1986 to or by a tax return 

14 preparer (as defined under section 7216(c) of such Code, 

15 as added by section 512) located outside of the United 

16 States. Such form shall contain a conspicuous statement no17 tifying the taxpayer that— 

18 (1) the information will be disclosed to a tax re19 turn preparer (as so defined) located outside of the 

20 United States; and 

21 (2) Federal law may not protect the taxpayer 

22 from unauthorized use or disclosure by such tax re23 turn preparer. 

24 (d) EFFECTIVE DATE.— 


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

2 this section shall apply to disclosures and uses made 

3 after the date of the enactment of this Act. 

4 (2) APPLICATION TO REGULATIONS.—The provi5 sions of clause (i) of section 7216(b)(3)(C) of the In6 ternal Revenue Code of 1986, as added by subsection 

7 (a), shall apply to regulations issued before, on, or 

8 after the date of the enactment of this Act. 

9 TITLE VI—UNITED STATES TAX 

10 COURT EMPLOYEE APPOINT11 MENT MODERNIZATION 

12 SEC. 601. AMENDMENTS TO APPOINT EMPLOYEES. 

13 (a) IN GENERAL.—Subsection (a) of section 7471 (re14 lating to Tax Court employees) is amended to read as fol15 lows: 

16 ‘‘(a) APPOINTMENT AND COMPENSATION.— 

17 ‘‘(1) CLERK.—The Tax Court may appoint a 

18 clerk without regard to the provisions of title 5, 

19 United States Code, governing appointments in the 

20 competitive service. The clerk shall serve at the pleas21 ure of the Tax Court. 

22 ‘‘(2) LAW CLERKS AND SECRETARIES.— 

23 ‘‘(A) IN GENERAL.—The judges and special 

24 trial judges of the Tax Court may appoint law 

25 clerks and secretaries, in such numbers as the 


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1 Tax Court may approve, without regard to the 

2 provisions of title 5, United States Code, gov3 erning appointments in the competitive service. 

4 Any such law clerk or secretary shall serve at the 

5 pleasure of the appointing judge. 

6 ‘‘(B) EXEMPTION FROM FEDERAL LEAVE

7 PROVISIONS.—A law clerk appointed under this 

8 subsection shall be exempt from the provisions of 

9 subchapter I of chapter 63 of title 5, United 

10 States Code. Any unused sick leave or annual 

11 leave standing to the employee’s credit as of the 

12 effective date of this subsection shall remain 

13 credited to the employee and shall be available to 

14 the employee upon separation from the Federal 

15 Government. 

16 ‘‘(3) OTHER EMPLOYEES.—The Tax Court may 

17 appoint necessary employees without regard to the 

18 provisions of title 5, United States Code, governing 

19 appointments in the competitive service. Such em20 ployees shall be subject to removal by the Tax Court. 

21 ‘‘(4) PAY.—The Tax Court may fix and adjust 

22 the compensation for the clerk and other employees of 

23 the Tax Court without regard to the provisions of 

24 chapter 51, subchapter III of chapter 53, or section 

25 5373 of title 5, United States Code. To the maximum 


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1 extent feasible, the Tax Court shall compensate em2 ployees at rates consistent with those for employees 

3 holding comparable positions in the judicial branch. 

4 ‘‘(5) PROGRAMS.—The Tax Court may establish 

5 programs for employee evaluations, incentive awards, 

6 flexible work schedules, premium pay, and resolution 

7 of employee grievances. 

8 ‘‘(6) DISCRIMINATION PROHIBITED.—The Tax 

9 Court shall— 

10 ‘‘(A) prohibit discrimination on the basis of 

11 race, color, religion, age, sex, national origin, po12 litical affiliation, marital status, or handi13 capping condition; and 

14 ‘‘(B) promulgate procedures for resolving 

15 complaints of discrimination by employees and 

16 applicants for employment. 

17 ‘‘(7) EXPERTS AND CONSULTANTS.—The Tax 

18 Court may procure the services of experts and consult19 ants under section 3109 of title 5, United States Code. 

20 ‘‘(8) RIGHTS TO CERTAIN APPEALS RESERVED.— 

21 Notwithstanding any other provision of law, an indi22 vidual who is an employee of the Tax Court on the 

23 day before the effective date of this subsection and 

24 who, as of that day, was entitled to— 


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1 ‘‘(A) appeal a reduction in grade or re2 moval to the Merit Systems Protection Board 

3 under chapter 43 of title 5, United States Code, 

4 ‘‘(B) appeal an adverse action to the Merit 

5 Systems Protection Board under chapter 75 of 

6 title 5, United States Code, 

7 ‘‘(C) appeal a prohibited personnel practice 

8 described under section 2302(b) of title 5, United 

9 States Code, to the Merit Systems Protection 

10 Board under chapter 77 of that title, 

11 ‘‘(D) make an allegation of a prohibited 

12 personnel practice described under section 

13 2302(b) of title 5, United States Code, with the 

14 Office of Special Counsel under chapter 12 of 

15 that title for action in accordance with that 

16 chapter, or 

17 ‘‘(E) file an appeal with the Equal Employ18 ment Opportunity Commission under part 1614 

19 of title 29 of the Code of Federal Regulations, 

20 shall be entitled to file such appeal or make such an 

21 allegation so long as the individual remains an em22 ployee of the Tax Court. 

23 ‘‘(9) COMPETITIVE STATUS.—Notwithstanding 

24 any other provision of law, any employee of the Tax 

25 Court who has completed at least 1 year of continuous 


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1 service under a non-temporary appointment with the 

2 Tax Court acquires a competitive status for appoint3 ment to any position in the competitive service for 

4 which the employee possesses the required qualifica5 tions. 

6 ‘‘(10) MERIT SYSTEM PRINCIPLES; PROHIBITED

7 PERSONNEL PRACTICES; AND PREFERENCE ELIGI8 BLES.—Any personnel management system of the Tax 

9 Court shall— 

10 ‘‘(A) include the principles set forth in sec11 tion 2301(b) of title 5, United States Code; 

12 ‘‘(B) prohibit personnel practices prohibited 

13 under section 2302(b) of title 5, United States 

14 Code; and 

15 ‘‘(C) in the case of any individual who 

16 would be a preference eligible in the executive 

17 branch, the Tax Court will provide preference for 

18 that individual in a manner and to an extent 

19 consistent with preference accorded to preference 

20 eligibles in the executive branch.’’. 

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

22 section shall take effect on the date the United States Tax 

23 Court adopts a personnel management system after the date 

24 of the enactment of this Act. 


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1 TITLE VII—MISCELLANEOUS 

2 PROVISIONS 

3 SEC. 701. EXPENSING OF BROADBAND INTERNET ACCESS 

4 EXPENDITURES. 

5 (a) IN GENERAL.—Part VI of subchapter B of chapter 

6 1 (relating to itemized deductions for individuals and cor7 porations) is amended by inserting after section 190 the fol8 lowing new section: 

9 ‘‘SEC. 191. BROADBAND EXPENDITURES. 

10 ‘‘(a) TREATMENT OF EXPENDITURES.— 

11 ‘‘(1) IN GENERAL.—A taxpayer may elect to 

12 treat any qualified broadband expenditure which is 

13 paid or incurred by the taxpayer as an expense which 

14 is not chargeable to capital account. Any expenditure 

15 which is so treated shall be allowed as a deduction. 

16 ‘‘(2) ELECTION.—An election under paragraph 

17 (1) shall be made at such time and in such manner 

18 as the Secretary may prescribe by regulation. 

19 ‘‘(b) QUALIFIED BROADBAND EXPENDITURES.—For 

20 purposes of this section— 

21 ‘‘(1) IN GENERAL.—The term ‘qualified 

22 broadband expenditure’ means, with respect to any 

23 taxable year, any direct or indirect costs incurred 

24 after June 30, 2006, and before January 1, 2011, and 

25 properly taken into account with respect to— 


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1 ‘‘(A) the purchase or installation of quali2 fied equipment (including any upgrades thereto), 

3 and 

4 ‘‘(B) the connection of such qualified equip5 ment to any qualified subscriber. 

6 ‘‘(2) CERTAIN SATELLITE EXPENDITURES EX7 CLUDED.—Such term shall not include any costs in8 curred with respect to the launching of any satellite 

9 equipment. 

10 ‘‘(3) LEASED EQUIPMENT.—Such term shall in11 clude so much of the purchase price paid by the lessor 

12 of qualified equipment subject to a lease described in 

13 subsection (c)(2)(B) as is attributable to expenditures 

14 incurred by the lessee which would otherwise be de15 scribed in paragraph (1). 

16 ‘‘(c) WHEN EXPENDITURES TAKEN INTO ACCOUNT.— 

17 For purposes of this section— 

18 ‘‘(1) IN GENERAL.—Qualified broadband expend19 itures with respect to qualified equipment shall be 

20 taken into account with respect to the first taxable 

21 year in which— 

22 ‘‘(A) current generation broadband services 

23 are provided through such equipment to qualified 

24 subscribers, or 


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1 ‘‘(B) next generation broadband services are 

2 provided through such equipment to qualified 

3 subscribers. 

4 ‘‘(2) LIMITATION.— 

5 ‘‘(A) IN GENERAL.—Qualified expenditures 

6 shall be taken into account under paragraph (1) 

7 only with respect to qualified equipment— 

8 ‘‘(i) the original use of which com9 mences with the taxpayer, and 

10 ‘‘(ii) which is placed in service, after 

11 the date of the enactment of this Act. 

12 ‘‘(B) SALE-LEASEBACKS.—For purposes of 

13 subparagraph (A), if property— 

14 ‘‘(i) is originally placed in service 

15 after the date of the enactment of this Act 

16 by any person, and 

17 ‘‘(ii) sold and leased back by such per18 son within 3 months after the date such 

19 property was originally placed in service, 

20 such property shall be treated as originally 

21 placed in service not earlier than the date on 

22 which such property is used under the leaseback 

23 referred to in clause (ii). 

24 ‘‘(d) SPECIAL ALLOCATION RULES.— 


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1 ‘‘(1) CURRENT GENERATION BROADBAND SERV2 ICES.—For purposes of determining the amount of 

3 qualified broadband expenditures under subsection 

4 (a)(1) with respect to qualified equipment through 

5 which current generation broadband services are pro6 vided, if the qualified equipment is capable of serving 

7 both qualified subscribers and other subscribers, the 

8 qualified broadband expenditures shall be multiplied 

9 by a fraction— 

10 ‘‘(A) the numerator of which is the sum of 

11 the number of potential qualified subscribers 

12 within the rural areas and the underserved areas 

13 which the equipment is capable of serving with 

14 current generation broadband services, and 

15 ‘‘(B) the denominator of which is the total 

16 potential subscriber population of the area which 

17 the equipment is capable of serving with current 

18 generation broadband services. 

19 ‘‘(2) NEXT GENERATION BROADBAND SERV20 ICES.—For purposes of determining the amount of 

21 qualified broadband expenditures under subsection 

22 (a)(1) with respect to qualified equipment through 

23 which next generation broadband services are pro24 vided, if the qualified equipment is capable of serving 

25 both qualified subscribers and other subscribers, the 


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1 qualified broadband expenditures shall be multiplied 

2 by a fraction— 

3 ‘‘(A) the numerator of which is the sum 

4 of— 

5 ‘‘(i) the number of potential qualified 

6 subscribers within the rural areas and un7 derserved areas, plus 

8 ‘‘(ii) the number of potential qualified 

9 subscribers within the area consisting only 

10 of residential subscribers not described in 

11 clause (i), 

12 which the equipment is capable of serving with 

13 next generation broadband services, and 

14 ‘‘(B) the denominator of which is the total 

15 potential subscriber population of the area which 

16 the equipment is capable of serving with next 

17 generation broadband services. 

18 ‘‘(e) DEFINITIONS.—For purposes of this section— 

19 ‘‘(1) ANTENNA.—The term ‘antenna’ means any 

20 device used to transmit or receive signals through the 

21 electromagnetic spectrum, including satellite equip22 ment. 

23 ‘‘(2) CABLE OPERATOR.—The term ‘cable oper24 ator’ has the meaning given such term by section 


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1 602(5) of the Communications Act of 1934 (47 U.S.C. 

2 522(5)). 

3 ‘‘(3) COMMERCIAL MOBILE SERVICE CARRIER.— 

4 The term ‘commercial mobile service carrier’ means 

5 any person authorized to provide commercial mobile 

6 radio service as defined in section 20.3 of title 47, 

7 Code of Federal Regulations. 

8 ‘‘(4) CURRENT GENERATION BROADBAND SERV9 ICE.—The term ‘current generation broadband serv10 ice’ means the transmission of signals at a rate of at 

11 least 5,000,000 bits per second to the subscriber and 

12 at least 1,000,000 bits per second from the subscriber. 

13 ‘‘(5) MULTIPLEXING OR DEMULTIPLEXING.—The 

14 term ‘multiplexing’ means the transmission of 2 or 

15 more signals over a single channel, and the term 

16 ‘demultiplexing’ means the separation of 2 or more 

17 signals previously combined by compatible multi18 plexing equipment. 

19 ‘‘(6) NEXT GENERATION BROADBAND SERVICE.— 

20 The term ‘next generation broadband service’ means 

21 the transmission of signals at a rate of at least 

22 50,000,000 bits per second to the subscriber and at 

23 least 10,000,000 bits per second from the subscriber. 

24 ‘‘(7) NONRESIDENTIAL SUBSCRIBER.—The term 

25 ‘nonresidential subscriber’ means any person who 


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1 purchases broadband services which are delivered to 

2 the permanent place of business of such person. 

3 ‘‘(8) OPEN VIDEO SYSTEM OPERATOR.—The term 

4 ‘open video system operator’ means any person au5 thorized to provide service under section 653 of the 

6 Communications Act of 1934 (47 U.S.C. 573). 

7 ‘‘(9) OTHER WIRELESS CARRIER.—The term 

8 ‘other wireless carrier’ means any person (other than 

9 a telecommunications carrier, commercial mobile 

10 service carrier, cable operator, open video system op11 erator, or satellite carrier) providing current genera12 tion broadband services or next generation broadband 

13 service to subscribers through the radio transmission 

14 of energy. 

15 ‘‘(10) PACKET SWITCHING.—The term ‘packet 

16 switching’ means controlling or routing the path of 

17 any digitized transmission signal which is assembled 

18 into packets or cells. 

19 ‘‘(11) PROVIDER.—The term ‘provider’ means, 

20 with respect to any qualified equipment— 

21 ‘‘(A) a cable operator, 

22 ‘‘(B) a commercial mobile service carrier, 

23 ‘‘(C) an open video system operator, 

24 ‘‘(D) a satellite carrier, 

25 ‘‘(E) a telecommunications carrier, or 


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1 ‘‘(F) any other wireless carrier, 

2 providing current generation broadband services or 

3 next generation broadband services to subscribers 

4 through such qualified equipment. 

5 ‘‘(12) PROVISION OF SERVICES.—A provider 

6 shall be treated as providing services to 1 or more 

7 subscribers if— 

8 ‘‘(A) such a subscriber has been passed by 

9 the provider’s equipment and can be connected to 

10 such equipment for a standard connection fee, 

11 ‘‘(B) the provider is physically able to de12 liver current generation broadband services or 

13 next generation broadband services, as applica14 ble, to such a subscriber without making more 

15 than an insignificant investment with respect to 

16 such subscriber, 

17 ‘‘(C) the provider has made reasonable ef18 forts to make such subscribers aware of the avail19 ability of such services, 

20 ‘‘(D) such services have been purchased by 

21 1 or more such subscribers, and 

22 ‘‘(E) such services are made available to 

23 such subscribers at average prices comparable to 

24 those at which the provider makes available 


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1 similar services in any areas in which the pro2 vider makes available such services. 

3 ‘‘(13) QUALIFIED EQUIPMENT.— 

4 ‘‘(A) IN GENERAL.—The term ‘qualified 

5 equipment’ means equipment which provides 

6 current generation broadband services or next 

7 generation broadband services— 

8 ‘‘(i) at least a majority of the time 

9 during periods of maximum demand to 

10 each subscriber who is utilizing such serv11 ices, and 

12 ‘‘(ii) in a manner substantially the 

13 same as such services are provided by the 

14 provider to subscribers through equipment 

15 with respect to which no deduction is al16 lowed under subsection (a)(1). 

17 ‘‘(B) ONLY CERTAIN INVESTMENT TAKEN

18 INTO ACCOUNT.—Except as provided in subpara19 graph (C) or (D), equipment shall be taken into 

20 account under subparagraph (A) only to the ex21 tent it— 

22 ‘‘(i) extends from the last point of 

23 switching to the outside of the unit, build24 ing, dwelling, or office owned or leased by 

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1 cations carrier or broadband-over-powerline 

2 operator, 

3 ‘‘(ii) extends from the customer side of 

4 the mobile telephone switching office to a 

5 transmission/receive antenna (including 

6 such antenna) owned or leased by a sub7 scriber in the case of a commercial mobile 

8 service carrier, 

9 ‘‘(iii) extends from the customer side of 

10 the headend to the outside of the unit, build11 ing, dwelling, or office owned or leased by 

12 a subscriber in the case of a cable operator 

13 or open video system operator, or 

14 ‘‘(iv) extends from a transmission/re15 ceive antenna (including such antenna) 

16 which transmits and receives signals to or 

17 from multiple subscribers, to a trans18 mission/receive antenna (including such an19 tenna) on the outside of the unit, building, 

20 dwelling, or office owned or leased by a sub21 scriber in the case of a satellite carrier or 

22 other wireless carrier, unless such other 

23 wireless carrier is also a telecommuni24 cations carrier. 


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1 ‘‘(C) PACKET SWITCHING EQUIPMENT.— 

2 Packet switching equipment, regardless of loca3 tion, shall be taken into account under subpara4 graph (A) only if it is deployed in connection 

5 with equipment described in subparagraph (B) 

6 and is uniquely designed to perform the function 

7 of packet switching for current generation 

8 broadband services or next generation broadband 

9 services, but only if such packet switching is the 

10 last in a series of such functions performed in 

11 the transmission of a signal to a subscriber or 

12 the first in a series of such functions performed 

13 in the transmission of a signal from a sub14 scriber. 

15 ‘‘(D) MULTIPLEXING AND DEMULTIPLEXING

16 EQUIPMENT.—Multiplexing and demultiplexing 

17 equipment shall be taken into account under sub18 paragraph (A) only to the extent it is deployed 

19 in connection with equipment described in sub20 paragraph (B) and is uniquely designed to per21 form the function of multiplexing and 

22 demultiplexing packets or cells of data and mak23 ing associated application adaptions, but only if 

24 such multiplexing or demultiplexing equipment 

25 is located between packet switching equipment 


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1 described in subparagraph (C) and the sub2 scriber’s premises. 

3 ‘‘(14) QUALIFIED SUBSCRIBER.—The term 

4 ‘qualified subscriber’ means— 

5 ‘‘(A) with respect to the provision of current 

6 generation broadband services— 

7 ‘‘(i) any nonresidential subscriber 

8 maintaining a permanent place of business 

9 in a rural area or underserved area, or 

10 ‘‘(ii) any residential subscriber resid11 ing in a dwelling located in a rural area or 

12 underserved area which is not a saturated 

13 market, and 

14 ‘‘(B) with respect to the provision of next 

15 generation broadband services— 

16 ‘‘(i) any nonresidential subscriber 

17 maintaining a permanent place of business 

18 in a rural area or underserved area, or 

19 ‘‘(ii) any residential subscriber. 

20 ‘‘(15) RESIDENTIAL SUBSCRIBER.—The term 

21 ‘residential subscriber’ means any individual who 

22 purchases broadband services which are delivered to 

23 such individual’s dwelling. 

24 ‘‘(16) RURAL AREA.—The term ‘rural area’ 

25 means any census tract which— 


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1 ‘‘(A) is not within 10 miles of any incor2 porated or census designated place containing 

3 more than 25,000 people, and 

4 ‘‘(B) is not within a county or county 

5 equivalent which has an overall population den6 sity of more than 500 people per square mile of 

7 land. 

8 ‘‘(17) RURAL SUBSCRIBER.—The term ‘rural 

9 subscriber’ means any residential subscriber residing 

10 in a dwelling located in a rural area or nonresiden11 tial subscriber maintaining a permanent place of 

12 business located in a rural area. 

13 ‘‘(18) SATELLITE CARRIER.—The term ‘satellite 

14 carrier’ means any person using the facilities of a 

15 satellite or satellite service licensed by the Federal 

16 Communications Commission and operating in the 

17 Fixed-Satellite Service under part 25 of title 47 of the 

18 Code of Federal Regulations or the Direct Broadcast 

19 Satellite Service under part 100 of title 47 of such 

20 Code to establish and operate a channel of commu21 nications for distribution of signals, and owning or 

22 leasing a capacity or service on a satellite in order 

23 to provide such point-to-multipoint distribution. 


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1 ‘‘(19) SATURATED MARKET.—The term ‘satu2 rated market’ means any census tract in which, as of 

3 the date of the enactment of this section— 

4 ‘‘(A) current generation broadband services 

5 have been provided by a single provider to 85 

6 percent or more of the total number of potential 

7 residential subscribers residing in dwellings lo8 cated within such census tract, and 

9 ‘‘(B) such services can be utilized— 

10 ‘‘(i) at least a majority of the time 

11 during periods of maximum demand by 

12 each such subscriber who is utilizing such 

13 services, and 

14 ‘‘(ii) in a manner substantially the 

15 same as such services are provided by the 

16 provider to subscribers through equipment 

17 with respect to which no deduction is al18 lowed under subsection (a)(1). 

19 ‘‘(20) SUBSCRIBER.—The term ‘subscriber’ 

20 means any person who purchases current generation 

21 broadband services or next generation broadband serv22 ices. 

23 ‘‘(21) TELECOMMUNICATIONS CARRIER.—The 

24 term ‘telecommunications carrier’ has the meaning 


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1 given such term by section 3(44) of the Communica2 tions Act of 1934 (47 U.S.C. 153(44)), but— 

3 ‘‘(A) includes all members of an affiliated 

4 group of which a telecommunications carrier is 

5 a member, and 

6 ‘‘(B) does not include a commercial mobile 

7 service carrier. 

8 ‘‘(22) TOTAL POTENTIAL SUBSCRIBER POPU9 LATION.—The term ‘total potential subscriber popu10 lation’ means, with respect to any area and based on 

11 the most recent census data, the total number of po12 tential residential subscribers residing in dwellings 

13 located in such area and potential nonresidential sub14 scribers maintaining permanent places of business lo15 cated in such area. 

16 ‘‘(23) UNDERSERVED AREA.—The term ‘under17 served area’ means— 

18 ‘‘(A) any census tract which is located in— 

19 ‘‘(i) an empowerment zone or enter20 prise community designated under section 

21 1391, or 

22 ‘‘(ii) the District of Columbia Enter23 prise Zone established under section 1400, 

24 or 

25 ‘‘(B) any census tract— 


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1 ‘‘(i) the poverty level of which is at 

2 least 30 percent (based on the most recent 

3 census data), and 

4 ‘‘(ii) the median family income of 

5 which does not exceed— 

6 ‘‘(I) in the case of a census tract 

7 located in a metropolitan statistical 

8 area, 70 percent of the greater of the 

9 metropolitan area median family in10 come or the statewide median family 

11 income, and 

12 ‘‘(II) in the case of a census tract 

13 located in a nonmetropolitan statis14 tical area, 70 percent of the nonmetro15 politan statewide median family in16 come. 

17 ‘‘(24) UNDERSERVED SUBSCRIBER.—The term 

18 ‘underserved subscriber’ means any residential sub19 scriber residing in a dwelling located in an under20 served area or nonresidential subscriber maintaining 

21 a permanent place of business located in an under22 served area. 

23 ‘‘(f) SPECIAL RULES.— 

24 ‘‘(1) PROPERTY USED OUTSIDE THE UNITED

25 STATES, ETC., NOT QUALIFIED.—No expenditures 


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1 shall be taken into account under subsection (a)(1) 

2 with respect to the portion of the cost of any property 

3 referred to in section 50(b) or with respect to the por4 tion of the cost of any property specified in an elec5 tion under section 179. 

6 ‘‘(2) BASIS REDUCTION.— 

7 ‘‘(A) IN GENERAL.—For purposes of this 

8 title, the basis of any property shall be reduced 

9 by the portion of the cost of such property taken 

10 into account under subsection (a)(1). 

11 ‘‘(B) ORDINARY INCOME RECAPTURE.—For 

12 purposes of section 1245, the amount of the de13 duction allowable under subsection (a)(1) with 

14 respect to any property which is of a character 

15 subject to the allowance for depreciation shall be 

16 treated as a deduction allowed for depreciation 

17 under section 167. 

18 ‘‘(3) COORDINATION WITH SECTION 38.—No 

19 credit shall be allowed under section 38 with respect 

20 to any amount for which a deduction is allowed 

21 under subsection (a)(1).’’. 

22 (b) SPECIAL RULE FOR MUTUAL OR COOPERATIVE

23 TELEPHONE COMPANIES.—Section 512(b) (relating to 

24 modifications) is amended by adding at the end the fol25 lowing new paragraph: 


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1 ‘‘(20) SPECIAL RULE FOR MUTUAL OR COOPERA2 TIVE TELEPHONE COMPANIES.—A mutual or coopera3 tive telephone company which for the taxable year 

4 satisfies the requirements of section 501(c)(12)(A) 

5 may elect to reduce its unrelated business taxable in6 come for such year, if any, by an amount that does 

7 not exceed the qualified broadband expenditures which 

8 would be taken into account under section 191 for 

9 such year by such company if such company was not 

10 exempt from taxation. Any amount which is allowed 

11 as a deduction under this paragraph shall not be al12 lowed as a deduction under section 191 and the basis 

13 of any property to which this paragraph applies shall 

14 be reduced under section 1016(a)(38).’’. 

15 (c) CONFORMING AMENDMENTS.— 

16 (1) Section 263(a)(1) (relating to capital ex17 penditures) is amended by striking ‘‘or’’ at the end of 

18 subparagraph (J), by striking the period at the end 

19 of subparagraph (K) and inserting ‘‘, or’’, and by 

20 adding at the end the following new subparagraph: 

21 ‘‘(L) expenditures for which a deduction is 

22 allowed under section 191.’’. 

23 (2) Section 1016(a) is amended by striking 

24 ‘‘and’’ at the end of paragraph (36), by striking the 

25 period at the end of paragraph (37) and inserting ‘‘, 


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1 and’’, and by adding at the end the following new 

2 paragraph: 

3 ‘‘(38) to the extent provided in section 

4 191(f)(2).’’. 

5 (3) The table of sections for part VI of sub6 chapter A of chapter 1 is amended by inserting after 

7 the item relating to section 190 the following new 

8 item: 

‘‘Sec. 191. Broadband expenditures.’’. 

9 (d) DESIGNATION OF CENSUS TRACTS.— 

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

11 shall, not later than 90 days after the date of the en12 actment of this Act, designate and publish those cen13 sus tracts meeting the criteria described in para14 graphs (16), (22), and (23) of section 191(e) of the In15 ternal Revenue Code of 1986 (as added by this sec16 tion). In making such designations, the Secretary of 

17 the Treasury shall consult with such other depart18 ments and agencies as the Secretary determines ap19 propriate. 

20 (2) SATURATED MARKET.— 

21 (A) IN GENERAL.—For purposes of desig22 nating and publishing those census tracts meet23 ing the criteria described in subsection (e)(19) of 

24 such section 191— 


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1 (i) the Secretary of the Treasury shall 

2 prescribe not later than 30 days after the 

3 date of the enactment of this Act the form 

4 upon which any provider which takes the 

5 position that it meets such criteria with re6 spect to any census tract shall submit a list 

7 of such census tracts (and any other infor8 mation required by the Secretary) not later 

9 than 60 days after the date of the publica10 tion of such form, and 

11 (ii) the Secretary of the Treasury shall 

12 publish an aggregate list of such census 

13 tracts and the applicable providers not later 

14 than 30 days after the last date such sub15 missions are allowed under clause (i). 

16 (B) NO SUBSEQUENT LISTS REQUIRED.— 

17 The Secretary of the Treasury shall not be re18 quired to publish any list of census tracts meet19 ing such criteria subsequent to the list described 

20 in subparagraph (A)(ii). 

21 (e) OTHER REGULATORY MATTERS.— 

22 (1) PROHIBITION.—No Federal or State agency 

23 or instrumentality shall adopt regulations or rate24 making procedures that would have the effect of elimi25 nating or reducing any deduction or portion thereof 


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1 allowed under section 191 of the Internal Revenue 

2 Code of 1986 (as added by this section) or otherwise 

3 subverting the purpose of this section. 

4 (2) TREASURY REGULATORY AUTHORITY.—It is 

5 the intent of Congress in providing the election to de6 duct qualified broadband expenditures under section 

7 191 of the Internal Revenue Code of 1986 (as added 

8 by this section) to provide incentives for the purchase, 

9 installation, and connection of equipment and facili10 ties offering expanded broadband access to the Inter11 net for users in certain low income and rural areas 

12 of the United States, as well as to residential users 

13 nationwide, in a manner that maintains competitive 

14 neutrality among the various classes of providers of 

15 broadband services. Accordingly, the Secretary of the 

16 Treasury shall prescribe such regulations as may be 

17 necessary or appropriate to carry out the purposes of 

18 section 191 of such Code, including— 

19 (A) regulations to determine how and when 

20 a taxpayer that incurs qualified broadband ex21 penditures satisfies the requirements of section 

22 191 of such Code to provide broadband services, 

23 and 

24 (B) regulations describing the information, 

25 records, and data taxpayers are required to proVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00147 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 vide the Secretary to substantiate compliance 

2 with the requirements of section 191 of such 

3 Code. 

4 SEC. 702. MODIFICATION OF REFUNDS FOR KEROSENE 

5 USED IN AVIATION. 

6 (a) IN GENERAL.—Paragraph (4) of section 6427(l) 

7 (relating to nontaxable uses of diesel fuel and kerosene) is 

8 amended to read as follows: 

9 ‘‘(4) REFUNDS FOR KEROSENE USED IN AVIA10 TION.— 

11 ‘‘(A) KEROSENE USED IN COMMERCIAL

12 AVIATION.—In the case of kerosene used in com13 mercial aviation (as defined in section 4083(b)) 

14 (other than supplies for vessels or aircraft within 

15 the meaning of section 4221(d)(3)), paragraph 

16 (1) shall not apply to so much of the tax imposed 

17 by section 4081 as is attributable to— 

18 ‘‘(i) the Leaking Underground Storage 

19 Tank Trust Fund financing rate imposed 

20 by such section, and 

21 ‘‘(ii) so much of the rate of tax speci22 fied in section 4081(a)(2)(A)(iii) as does 

23 not exceed 4.3 cents per gallon. 

24 ‘‘(B) KEROSENE USED IN NONCOMMERCIAL

25 AVIATION.—In the case of kerosene used in aviaVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00148 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 tion that is not commercial aviation (as so de2 fined) (other than any use which is exempt from 

3 the tax imposed by section 4041(c) other than by 

4 reason of a prior imposition of tax), paragraph 

5 (1) shall not apply to so much of the tax imposed 

6 by section 4081 as is attributable to— 

7 ‘‘(i) the Leaking Underground Storage 

8 Tank Trust Fund financing rate imposed 

9 by such section, and 

10 ‘‘(ii) so much of the rate of tax speci11 fied in section 4081(a)(2)(A)(iii) as does 

12 not exceed the rate specified in section 

13 4081(a)(2)(C)(ii). 

14 ‘‘(C) PAYMENTS TO ULTIMATE, REGISTERED

15 VENDOR.— 

16 ‘‘(i) IN GENERAL.—With respect to any 

17 kerosene used in aviation (other than ker18 osene described in clause (ii) or kerosene to 

19 which paragraph (5) applies), if the ulti20 mate purchaser of such kerosene waives (at 

21 such time and in such form and manner as 

22 the Secretary shall prescribe) the right to 

23 payment under paragraph (1) and assigns 

24 such right to the ultimate vendor, then the 

25 Secretary shall pay the amount which 


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1 would be paid under paragraph (1) to such 

2 ultimate vendor, but only if such ultimate 

3 vendor— 

4 ‘‘(I) is registered under section 

5 4101, and 

6 ‘‘(II) meets the requirements of 

7 subparagraph (A), (B), or (D) of sec8 tion 6416(a)(1). 

9 ‘‘(ii) PAYMENTS FOR KEROSENE USED

10 IN NONCOMMERCIAL AVIATION.—The 

11 amount which would be paid under para12 graph (1) with respect to any kerosene to 

13 which subparagraph (B) applies shall be 

14 paid only to the ultimate vendor of such 

15 kerosene. A payment shall be made to such 

16 vendor if such vendor— 

17 ‘‘(I) is registered under section 

18 4101, and 

19 ‘‘(II) meets the requirements of 

20 subparagraph (A), (B), or (D) of sec21 tion 6416(a)(1).’’. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) Section 6427(l) is amended by striking para24 graph (5) and by redesignating paragraph (6) as 

25 paragraph (5). 


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1 (2) Section 4082(d)(2)(B) is amended by strik2 ing ‘‘section 6427(l)(6)(B)’’ and inserting ‘‘section 

3 6427(l)(5)(B)’’. 

4 (3) Section 6427(i)(4)(A) is amended— 

5 (A) by striking ‘‘paragraph (4)(B), (5), or 

6 (6)’’ each place it appears and inserting ‘‘para7 graph (4)(C) or (5)’’, and 

8 (B) by striking ‘‘(l)(5), and (l)(6)’’ and in9 serting ‘‘(l)(4)(C)(ii), and (l)(5)’’. 

10 (4) Section 6427(l)(1) is amended by striking 

11 ‘‘paragraph (4)(B)’’ and inserting ‘‘paragraph 

12 (4)(C)(i)’’. 

13 (5) Section 9502(d) is amended— 

14 (A) in paragraph (2), by striking ‘‘and 

15 (l)(5)’’, and 

16 (B) in paragraph (3), by striking ‘‘or (5)’’. 

17 (6) Section 9503(c)(7) is amended— 

18 (A) in subparagraph (A), by striking ‘‘sec19 tion 6427(l)(4)’’ and inserting ‘‘section 

20 6427(l)(4)(A)’’, 

21 (B) in subparagraph (B), by striking ‘‘sec22 tion 6427(l)(5)’’ and inserting ‘‘section 

23 6427(l)(4)(B)’’, and 

24 (C) in the matter following subparagraph 

25 (B), by striking ‘‘or (5)’’. 


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1 (7)(A) Section 9503(c), as amended by para2 graph (6), is amended by redesignating paragraph 

3 (7) as paragraph (6). 

4 (B) Section 9502(a) is amended by striking ‘‘sec5 tion 9503(c)(7)’’ and inserting ‘‘section 9503(c)(6)’’. 

6 (c) EFFECTIVE DATE.— 

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

8 this section shall apply to kerosene sold after Sep9 tember 30, 2005. 

10 (2) SPECIAL RULE FOR PENDING CLAIMS.—In 

11 the case of kerosene sold for use in aviation (other 

12 than kerosene to which section 6427(l)(4)(C)(ii) of the 

13 Internal Revenue Code of 1986 (as added by sub14 section (a)) applies or kerosene to which section 

15 6427(l)(5) of such Code (as redesignated by subsection 

16 (b)) applies) after September 30, 2005, and before the 

17 date of the enactment of this Act, the ultimate pur18 chaser shall be treated as having waived the right to 

19 payment under section 6427(l)(1) of such Code and as 

20 having assigned such right to the ultimate vendor if 

21 such ultimate vendor has met the requirements of sub22 paragraph (A), (B), or (D) of section 6416(a)(1) of 

23 such Code. 

24 (d) SPECIAL RULE FOR KEROSENE USED IN AVIATION

25 ON A FARM FOR FARMING PURPOSES.— 


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1 (1) REFUNDS FOR PURCHASES AFTER DECEMBER

2 31, 2004, AND BEFORE OCTOBER 1, 2005.—The Sec3 retary of the Treasury shall pay to the ultimate pur4 chaser of any kerosene which is used in aviation on 

5 a farm for farming purposes and which was pur6 chased after December 31, 2004, and before October 1, 

7 2005, an amount equal to the aggregate amount of 

8 tax imposed on such fuel under section 4041 or 4081 

9 of the Internal Revenue Code of 1986, as the case may 

10 be, reduced by any payment to the ultimate vendor 

11 under section 6427(l)(5)(C) of such Code (as in effect 

12 on the day before the date of the enactment of the 

13 Safe, Accountable, Flexible, Efficient Transportation 

14 Equity Act: a Legacy for Users). 

15 (2) USE ON A FARM FOR FARMING PURPOSES.— 

16 For purposes of paragraph (1), kerosene shall be 

17 treated as used on a farm for farming purposes if 

18 such kerosene is used for farming purposes (within 

19 the meaning of section 6420(c)(3) of the Internal Rev20 enue Code of 1986) in carrying on a trade or business 

21 on a farm situated in the United States. For purposes 

22 of the preceding sentence, rules similar to the rules of 

23 section 6420(c)(4) of such Code shall apply. 

24 (3) TIME FOR FILING CLAIMS.—No claim shall 

25 be allowed under paragraph (1) unless the ultimate 


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1 purchaser files such claim before the date that is 3 

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

3 (4) NO DOUBLE BENEFIT.—No amount shall be 

4 paid under paragraph (1) or section 6427(l) of the 

5 Internal Revenue Code of 1986 with respect to any 

6 kerosene described in paragraph (1) to the extent that 

7 such amount is in excess of the tax imposed on such 

8 kerosene under section 4041 or 4081 of such Code, as 

9 the case may be. 

10 (5) APPLICABLE LAWS.—For purposes of this 

11 subsection, rules similar to the rules of section 6427(j) 

12 of the Internal Revenue Code of 1986 shall apply. 

13 SEC. 703. DECLARATIONS ON FEDERAL CORPORATE IN14 COME TAX RETURNS. 

15 (a) IN GENERAL.—Section 6062 is amended by insert16 ing ‘‘, and shall include a declaration signed, under pen17 alties of perjury, that the corporation has in place processes 

18 and procedures to ensure that such return complies with 

19 the Internal Revenue Code of 1986 and that the chief execu20 tive officer was provided reasonable assurance of the accu21 racy of all material aspects of such return’’ after ‘‘author22 ized so to act’’. 

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

24 section shall apply to the Federal annual tax return of a 


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1 corporation with respect to income for taxable years ending 

2 after the date of the enactment of this Act. 

3 SEC. 704. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZA4 TIONS. 

5 (a) EMPLOYMENT TAXES.—Chapter 25 (relating to 

6 general provisions relating to employment taxes) is amend7 ed by adding at the end the following new section: 

8 ‘‘SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANI9 ZATIONS. 

10 ‘‘(a) GENERAL RULES.—For purposes of the taxes, and 

11 other obligations, imposed by this subtitle— 

12 ‘‘(1) a certified professional employer organiza13 tion shall be treated as the employer (and no other 

14 person shall be treated as the employer) of any work 

15 site employee performing services for any customer of 

16 such organization, but only with respect to remunera17 tion remitted by such organization to such work site 

18 employee, and 

19 ‘‘(2) exclusions, definitions, and other rules 

20 which are based on the type of employer and which 

21 would (but for paragraph (1)) apply shall apply with 

22 respect to such taxes imposed on such remuneration. 

23 ‘‘(b) SUCCESSOR EMPLOYER STATUS.—For purposes 

24 of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)— 


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1 ‘‘(1) a certified professional employer organiza2 tion entering into a service contract with a customer 

3 with respect to a work site employee shall be treated 

4 as a successor employer and the customer shall be 

5 treated as a predecessor employer during the term of 

6 such service contract, and 

7 ‘‘(2) a customer whose service contract with a 

8 certified professional employer organization is termi9 nated with respect to a work site employee shall be 

10 treated as a successor employer and the certified pro11 fessional employer organization shall be treated as a 

12 predecessor employer. 

13 ‘‘(c) LIABILITY OF CERTIFIED PROFESSIONAL EM14 PLOYER ORGANIZATION.—Solely for purposes of its liability 

15 for the taxes, and other obligations, imposed by this sub16 title— 

17 ‘‘(1) a certified professional employer organiza18 tion shall be treated as the employer of any indi19 vidual (other than a work site employee or a person 

20 described in subsection (f)) who is performing services 

21 covered by a contract meeting the requirements of sec22 tion 7705(e)(2), but only with respect to remunera23 tion remitted by such organization to such individual, 

24 and 


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1 ‘‘(2) exclusions, definitions, and other rules 

2 which are based on the type of employer and which 

3 would (but for paragraph (1)) apply shall apply with 

4 respect to such taxes imposed on such remuneration. 

5 ‘‘(d) TREATMENT OF CREDITS.— 

6 ‘‘(1) IN GENERAL.—For purposes of any credit 

7 specified in paragraph (2)— 

8 ‘‘(A) such credit with respect to a work site 

9 employee performing services for the customer 

10 applies to the customer, not the certified profes11 sional employer organization, 

12 ‘‘(B) the customer, and not the certified pro13 fessional employer organization, shall take into 

14 account wages and employment taxes— 

15 ‘‘(i) paid by the certified professional 

16 employer organization with respect to the 

17 work site employee, and 

18 ‘‘(ii) for which the certified profes19 sional employer organization receives pay20 ment from the customer, and 

21 ‘‘(C) the certified professional employer or22 ganization shall furnish the customer with any 

23 information necessary for the customer to claim 

24 such credit. 


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1 ‘‘(2) CREDITS SPECIFIED.—A credit is specified 

2 in this paragraph if such credit is allowed under— 

3 ‘‘(A) section 41 (credit for increasing re4 search activity), 

5 ‘‘(B) section 45A (Indian employment cred6 it), 

7 ‘‘(C) section 45B (credit for portion of em8 ployer social security taxes paid with respect to 

9 employee cash tips). 

10 ‘‘(D) section 45C (clinical testing expenses 

11 for certain drugs for rare diseases or conditions), 

12 ‘‘(E) section 51 (work opportunity credit), 

13 ‘‘(F) section 51A (temporary incentives for 

14 employing long-term family assistance recipi15 ents), 

16 ‘‘(G) section 1396 (empowerment zone em17 ployment credit), 

18 ‘‘(H) 1400(d) (DC Zone employment cred19 it), 

20 ‘‘(I) Section 1400H (renewal community 

21 employment credit), and 

22 ‘‘(J) any other section as provided by the 

23 Secretary. 

24 ‘‘(e) SPECIAL RULE FOR RELATED PARTY.—This sec25 tion shall not apply in the case of a customer which bears 


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1 a relationship to a certified professional employer organiza2 tion described in section 267(b) or 707(b). For purposes of 

3 the preceding sentence, such sections shall be applied by sub4 stituting ‘10 percent’ for ‘50 percent’. 

5 ‘‘(f) SPECIAL RULE FOR CERTAIN INDIVIDUALS.—For 

6 purposes of the taxes imposed under this subtitle, an indi7 vidual with net earnings from self-employment derived from 

8 the customer’s trade or business is not a work site employee 

9 with respect to remuneration paid by a certified profes10 sional employer organization. 

11 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

12 such regulations as may be necessary or appropriate to 

13 carry out the purposes of this section.’’. 

14 (b) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZA15 TION DEFINED.—Chapter 79 (relating to definitions) is 

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

17 ‘‘SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANI18 ZATIONS. 

19 ‘‘(a) IN GENERAL.—For purposes of this title, the term 

20 ‘certified professional employer organization’ means a per21 son who has been certified by the Secretary for purposes 

22 of section 3511 as meeting the requirements of subsection 

23 (b). 

24 ‘‘(b) GENERAL REQUIREMENTS.—A person meets the 

25 requirements of this subsection if such person— 


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1 ‘‘(1) demonstrates that such person (and any 

2 owner, officer, and such other persons as may be spec3 ified in regulations) meets such requirements as the 

4 Secretary shall establish with respect to tax status, 

5 background, experience, business location, and annual 

6 financial audits, 

7 ‘‘(2) computes its taxable income using an ac8 crual method of accounting unless the Secretary ap9 proves another method, 

10 ‘‘(3) agrees that it will satisfy the bond and 

11 independent financial review requirements of sub12 section (c) on an ongoing basis, 

13 ‘‘(4) agrees that it will satisfy such reporting ob14 ligations as may be imposed by the Secretary, 

15 ‘‘(5) agrees to verify on such periodic basis as the 

16 Secretary may prescribe that it continues to meet the 

17 requirements of this subsection, and 

18 ‘‘(6) agrees to notify the Secretary in writing 

19 within such time as the Secretary may prescribe of 

20 any change that materially affects whether it con21 tinues to meet the requirements of this subsection. 

22 ‘‘(c) BOND AND INDEPENDENT FINANCIAL REVIEW RE23 QUIREMENTS.— 

24 ‘‘(1) IN GENERAL.—An organization meets the 

25 requirements of this paragraph if such organization— 


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1 ‘‘(A) meets the bond requirements of para2 graph (2), and 

3 ‘‘(B) meets the independent financial review 

4 requirements of paragraph (3). 

5 ‘‘(2) BOND.— 

6 ‘‘(A) IN GENERAL.—A certified professional 

7 employer organization meets the requirements of 

8 this paragraph if the organization has posted a 

9 bond for the payment of taxes under subtitle C 

10 (in a form acceptable to the Secretary) in an 

11 amount at least equal to the amount specified in 

12 subparagraph (B). 

13 ‘‘(B) AMOUNT OF BOND.—For the period 

14 April 1 of any calendar year through March 31 

15 of the following calendar year, the amount of the 

16 bond required is equal to the greater of— 

17 ‘‘(i) 5 percent of the organization’s li18 ability under section 3511 for taxes imposed 

19 by subtitle C during the preceding calendar 

20 year (but not to exceed $1,000,000), or 

21 ‘‘(ii) $50,000. 

22 ‘‘(3) INDEPENDENT FINANCIAL REVIEW REQUIRE23 MENTS.—A certified professional employer organiza24 tion meets the requirements of this paragraph if such 

25 organization— 


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1 ‘‘(A) has, as of the most recent review date, 

2 caused to be prepared and provided to the Sec3 retary (in such manner as the Secretary may 

4 prescribe) an opinion of an independent certified 

5 public accountant that the certified professional 

6 employer organization’s financial statements are 

7 presented fairly in accordance with generally ac8 cepted accounting principles, and 

9 ‘‘(B) provides, not later than the last day of 

10 the second month beginning after the end of each 

11 calendar quarter, to the Secretary from an inde12 pendent certified public accountant an assertion 

13 regarding Federal employment tax payments 

14 and an examination level attestation on such as15 sertion. 

16 Such assertion shall state that the organization has 

17 withheld and made deposits of all taxes imposed by 

18 chapters 21, 22, and 24 of the Internal Revenue Code 

19 in accordance with regulations imposed by the Sec20 retary for such calendar quarter and such examina21 tion level attestation shall state that such assertion is 

22 fairly stated, in all material respects. 

23 ‘‘(4) CONTROLLED GROUP RULES.—For purposes 

24 of the requirements of paragraphs (2) and (3), all 

25 professional employer organizations that are members 


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1 of a controlled group within the meaning of sections 

2 414(b) and (c) shall be treated as a single organiza3 tion. 

4 ‘‘(5) FAILURE TO FILE ASSERTION AND ATTESTA5 TION.—If the certified professional employer organi6 zation fails to file the assertion and attestation re7 quired by paragraph (3) with respect to any calendar 

8 quarter, then the requirements of paragraph (3) with 

9 respect to such failure shall be treated as not satisfied 

10 for the period beginning on the due date for such at11 testation. 

12 ‘‘(6) REVIEW DATE.—For purposes of paragraph 

13 (3)(A), the review date shall be 6 months after the 

14 completion of the organization’s fiscal year. 

15 ‘‘(d) SUSPENSION AND REVOCATION AUTHORITY.—The 

16 Secretary may suspend or revoke a certification of any per17 son under subsection (b) for purposes of section 3511 if the 

18 Secretary determines that such person is not satisfying the 

19 representations or requirements of subsections (b) or (c), or 

20 fails to satisfy applicable accounting, reporting, payment, 

21 or deposit requirements. 

22 ‘‘(e) WORK SITE EMPLOYEE.—For purposes of this 

23 title— 


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1 ‘‘(1) IN GENERAL.—The term ‘work site em2 ployee’ means, with respect to a certified professional 

3 employer organization, an individual who— 

4 ‘‘(A) performs services for a customer pur5 suant to a contract which is between such cus6 tomer and the certified professional employer or7 ganization and which meets the requirements of 

8 paragraph (2), and 

9 ‘‘(B) performs services at a work site meet10 ing the requirements of paragraph (3). 

11 ‘‘(2) SERVICE CONTRACT REQUIREMENTS.—A 

12 contract meets the requirements of this paragraph 

13 with respect to an individual performing services for 

14 a customer if such contract is in writing and provides 

15 that the certified professional employer organization 

16 shall— 

17 ‘‘(A) assume responsibility for payment of 

18 wages to such individual, without regard to the 

19 receipt or adequacy of payment from the cus20 tomer for such services, 

21 ‘‘(B) assume responsibility for reporting, 

22 withholding, and paying any applicable taxes 

23 under subtitle C, with respect to such individ24 ual’s wages, without regard to the receipt or adeVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00164 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 quacy of payment from the customer for such 

2 services, 

3 ‘‘(C) assume responsibility for any employee 

4 benefits which the service contract may require 

5 the organization to provide, without regard to 

6 the receipt or adequacy of payment from the cus7 tomer for such services, 

8 ‘‘(D) assume responsibility for hiring, fir9 ing, and recruiting workers in addition to the 

10 customer’s responsibility for hiring, firing and 

11 recruiting workers, 

12 ‘‘(E) maintain employee records relating to 

13 such individual, and 

14 ‘‘(F) agree to be treated as a certified pro15 fessional employer organization for purposes of 

16 section 3511 with respect to such individual. 

17 ‘‘(3) WORK SITE COVERAGE REQUIREMENT.—The 

18 requirements of this paragraph are met with respect 

19 to an individual if at least 85 percent of the individ20 uals performing services for the customer at the work 

21 site where such individual performs services are sub22 ject to 1 or more contracts with the certified profes23 sional employer organization which meet the require24 ments of paragraph (2) (but not taking into account 


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1 those individuals who are excluded employees within 

2 the meaning of section 414(q)(5)). 

3 ‘‘(f) DETERMINATION OF EMPLOYMENT STATUS.—Ex4 cept to the extent necessary for purposes of section 3511, 

5 nothing in this section shall be construed to affect the deter6 mination of who is an employee or employer for purposes 

7 of this title. 

8 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

9 such regulations as may be necessary or appropriate to 

10 carry out the purposes of this section.’’. 

11 (c) CONFORMING AMENDMENTS.— 

12 (1) Section 3302 is amended by adding at the 

13 end the following new subsection: 

14 ‘‘(h) TREATMENT OF CERTIFIED PROFESSIONAL EM15 PLOYER ORGANIZATIONS.—If a certified professional em16 ployer organization (as defined in section 7705), or a cus17 tomer of such organization, makes a contribution to the 

18 State’s unemployment fund with respect to a work site em19 ployee, such organization shall be eligible for the credits 

20 available under this section with respect to such contribu21 tion.’’. 

22 (2) Section 3303(a) is amended— 

23 (A) by striking the period at the end of 

24 paragraph (3) and inserting ‘‘; and’’ and by inVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00166 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 serting after paragraph (3) the following new 

2 paragraph: 

3 ‘‘(4) if the taxpayer is a certified professional 

4 employer organization (as defined in section 7705) 

5 that is treated as the employer under section 3511, 

6 such certified professional employer organization is 

7 permitted to collect and remit, in accordance with 

8 paragraphs (1), (2), and (3), contributions during the 

9 taxable year to the State unemployment fund with re10 spect to a work site employee.’’, and 

11 (B) in the last sentence— 

12 (i) by striking ‘‘paragraphs (1), (2), 

13 and (3)’’ and inserting ‘‘paragraphs (1), 

14 (2), (3), and (4)’’, and 

15 (ii) by striking ‘‘paragraph (1), (2), or 

16 (3)’’ and inserting ‘‘paragraph (1), (2), (3), 

17 or (4)’’. 

18 (3) Section 6053(c) (relating to reporting of tips) 

19 is amended by adding at the end the following new 

20 paragraph: 

21 ‘‘(8) CERTIFIED PROFESSIONAL EMPLOYER OR22 GANIZATIONS.—For purposes of any report required 

23 by this subsection, in the case of a certified profes24 sional employer organization that is treated under 

25 section 3511 as the employer of a work site employee, 


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1 the customer with respect to whom a work site em2 ployee performs services shall be the employer for pur3 poses of reporting under this section and the certified 

4 professional employer organization shall furnish to 

5 the customer any information necessary to complete 

6 such reporting no later than such time as the Sec7 retary shall prescribe.’’. 

8 (d) CLERICAL AMENDMENTS.— 

9 (1) The table of sections for chapter 25 is amend10 ed by adding at the end the following new item: 

‘‘Sec. 3511. Certified professional employer organizations.’’. 

11 (2) The table of sections for chapter 79 is amend12 ed by inserting after the item relating to section 7704 

13 the following new item: 

‘‘Sec. 7705. Certified professional employer organizations.’’. 

14 (e) REPORTING REQUIREMENTS AND OBLIGATIONS.— 

15 The Secretary of the Treasury shall develop such reporting 

16 and recordkeeping rules, regulations, and procedures as the 

17 Secretary determines necessary or appropriate to ensure 

18 compliance with the amendments made by this section with 

19 respect to entities applying for certification as certified pro20 fessional employer organizations or entities that have been 

21 so certified. Such rules shall be designed in a manner which 

22 streamlines, to the extent possible, the application of re23 quirements of such amendments, the exchange of informa24 tion between a certified professional employer organization 


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1 and its customers, and the reporting and recordkeeping ob2 ligations of the certified professional employer organization. 

3 (f) USER FEES.—Subsection (b) of section 7528 (relat4 ing to Internal Revenue Service user fees) is amended by 

5 adding at the end the following new paragraph: 

6 ‘‘(4) CERTIFIED PROFESSIONAL EMPLOYER OR7 GANIZATIONS.—The fee charged under the program in 

8 connection with the certification by the Secretary of 

9 a professional employer organization under section 

10 7705 shall not exceed $500.’’. 

11 (g) EFFECTIVE DATES.— 

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

13 this section shall apply with respect to wages for serv14 ices performed on or after January 1 of the first cal15 endar year beginning more than 12 months after the 

16 date of the enactment of this Act. 

17 (2) CERTIFICATION PROGRAM.—The Secretary of 

18 the Treasury shall establish the certification program 

19 described in section 7705(b) of the Internal Revenue 

20 Code of 1986, as added by subsection (b), not later 

21 than 6 months before the effective date determined 

22 under paragraph (1). 

23 (h) NO INFERENCE.—Nothing contained in this section 

24 or the amendments made by this section shall be construed 


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1 to create any inference with respect to the determination 

2 of who is an employee or employer— 

3 (1) for Federal tax purposes (other than the pur4 poses set forth in the amendments made by this sec5 tion), or 

6 (2) for purposes of any other provision of law. 

7 SEC. 705. STUDY ON COLLECTING ESTIMATED TAX PAY8 MENTS THROUGH THE ELECTRONIC FUND 

9 TRANSFER SYSTEM. 

10 (a) STUDY.—The Secretary of the Treasury, in con11 sultation with the National Taxpayer Advocate, shall un12 dertake a study on increasing collection of estimated tax 

13 payments under the electronic fund transfer system imple14 mented under section 6302(h) of the Internal Revenue Code 

15 of 1986. 

16 (b) REPORT.—Not later than 1 year after the date of 

17 the enactment of this Act, the Secretary of the Treasury 

18 shall prepare and submit to Congress a report on the study 

19 conducted pursuant to subsection (a). 

20 SEC. 706. STUDY ON USE OF VOLUNTARY WITHHOLDING 

21 AGREEMENTS. 

22 (a) STUDY.—The Secretary of the Treasury, in con23 sultation with the National Taxpayer Advocate, shall un24 dertake a study on the use of voluntary agreements between 


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1 independent contractors and service recipients regarding 

2 the withholding of income and employment taxes. 

3 (b) REPORT.—Not later than 1 year after the date of 

4 the enactment of this Act, the Secretary of the Treasury 

5 shall prepare and submit to Congress a report on the study 

6 conducted pursuant to subsection (a). Such report shall in7 clude any statutory changes necessary to implement any 

8 recommendations resulting from the study. 

9 SEC. 707. OFFSET OF STATE JUDICIAL DEBTS AGAINST IN10 COME TAX REFUND. 

11 (a) IN GENERAL.—Section 6402 (relating to authority 

12 to make credits or refunds) is amended by redesignating 

13 subsections (f) through (k) as subsections (g) through (l), 

14 respectively, and by inserting after subsection (e) the fol15 lowing new subsection: 

16 ‘‘(f) COLLECTION OF PAST-DUE, LEGALLY ENFORCE17 ABLE STATE JUDICIAL DEBTS.— 

18 ‘‘(1) IN GENERAL.—Upon receiving notice from 

19 any State judicial branch or State agency designated 

20 by the chief justice of the State’s highest court that a 

21 named person owes a past-due, legally enforceable 

22 State judicial debt to or in such State, the Secretary 

23 shall, under such conditions as may be prescribed by 

24 the Secretary— 


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1 ‘‘(A) reduce the amount of any overpayment 

2 payable to such person by the amount of such 

3 State judicial debt; 

4 ‘‘(B) pay the amount by which such over5 payment is reduced under subparagraph (A) to 

6 such State judicial branch or State agency and 

7 notify such State judicial branch or State agency 

8 of such person’s name, taxpayer identification 

9 number, address, and the amount collected; and 

10 ‘‘(C) notify the person making such over11 payment that the overpayment has been reduced 

12 by an amount necessary to satisfy a past-due, le13 gally enforceable State judicial debt. 

14 If an offset is made pursuant to a joint return, the 

15 notice under subparagraph (B) shall include the 

16 names, taxpayer identification numbers, and address17 es of each person filing such return. 

18 ‘‘(2) OFFSET PERMITTED ONLY AGAINST RESI19 DENTS OF STATE SEEKING OFFSET.—Paragraph (1) 

20 shall apply to an overpayment by any person for a 

21 taxable year only if the address shown on the Federal 

22 return for such taxable year is an address within the 

23 State of the State judicial branch or State agency 

24 seeking the offset. 


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1 ‘‘(3) PRIORITIES FOR OFFSET.—Any overpay2 ment by a person shall be reduced pursuant to this 

3 subsection— 

4 ‘‘(A) after such overpayment is reduced pur5 suant to— 

6 ‘‘(i) subsection (a) with respect to any 

7 liability for any internal revenue tax on the 

8 part of the person who made the overpay9 ment; 

10 ‘‘(ii) subsection (c) with respect to 

11 past-due support; 

12 ‘‘(iii) subsection (d) with respect to 

13 any past-due, legally enforceable debt owed 

14 to a Federal agency; and 

15 ‘‘(iv) subsection (e) with respect to any 

16 past-due, legally enforceable State income 

17 tax obligations; and 

18 ‘‘(B) before such overpayment is credited to 

19 the future liability for any Federal internal rev20 enue tax of such person pursuant to subsection 

21 (b). 

22 If the Secretary receives notice from 1 or more State 

23 agencies, or from 1 or more State agencies and the 

24 State judicial branch, of more than 1 debt subject to 

25 paragraph (1) that is owed by such person to such 


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1 State agency or State judicial branch, any overpay2 ment by such person shall be applied against such 

3 debts in the order in which such debts accrued. 

4 ‘‘(4) NOTICE; CONSIDERATION OF EVIDENCE.— 

5 Rules similar to the rules of subsection (e)(4) shall 

6 apply with respect to debts under this subsection. 

7 ‘‘(5) PAST-DUE, LEGALLY ENFORCEABLE STATE

8 JUDICIAL DEBT.— 

9 ‘‘(A) IN GENERAL.—For purposes of this 

10 subsection, the term ‘past-due, legally enforceable 

11 State judicial debt’ means a debt— 

12 ‘‘(i) which resulted from a judgment or 

13 sentence rendered by any court or tribunal 

14 of competent jurisdiction which— 

15 ‘‘(I) handles criminal or traffic 

16 cases in the State; and 

17 ‘‘(II) has determined an amount 

18 of State judicial debt to be due; and 

19 ‘‘(ii) which resulted from a State judi20 cial debt which has been assessed and is 

21 past-due but not collected. 

22 ‘‘(B) STATE JUDICIAL DEBT.—For purposes 

23 of this paragraph, the term ‘State judicial debt’ 

24 includes court costs, fees, fines, assessments, res25 titution to victims of crime, and other monies reVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00174 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 sulting from a judgment or sentence rendered by 

2 any court or tribunal of competent jurisdiction 

3 handling criminal or traffic cases in the State. 

4 ‘‘(6) REGULATIONS.—The Secretary shall issue 

5 regulations prescribing the time and manner in 

6 which State judicial branches and State agencies 

7 must submit notices of past-due, legally enforceable 

8 State judicial debts and the necessary information 

9 that must be contained in or accompany such notices. 

10 The regulations shall specify the types of State judi11 cial monies and the minimum amount of debt to 

12 which the reduction procedure established by para13 graph (1) may be applied. The regulations may re14 quire State judicial branches and State agencies to 

15 pay a fee to reimburse the Secretary for the cost of 

16 applying such procedure. Any fee paid to the Sec17 retary pursuant to the preceding sentence shall be 

18 used to reimburse appropriations which bore all or 

19 part of the cost of applying such procedure. 

20 ‘‘(7) ERRONEOUS PAYMENT TO STATE.—Any 

21 State judicial branch or State agency receiving notice 

22 from the Secretary that an erroneous payment has 

23 been made to such State judicial branch or State 

24 agency under paragraph (1) shall pay promptly to 

25 the Secretary, in accordance with such regulations as 


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1 the Secretary may prescribe, an amount equal to the 

2 amount of such erroneous payment (without regard to 

3 whether any other amounts payable to such State ju4 dicial branch or State agency under such paragraph 

5 have been paid to such State judicial branch or State 

6 agency).’’. 

7 (b) DISCLOSURE OF RETURN INFORMATION.—Section 

8 6103(l)(10) (relating to disclosure of certain information to 

9 agencies requesting a reduction under subsection (c), (d), 

10 or (e) of section 6402) is amended by striking ‘‘or (e)’’ each 

11 place it appears in the text and heading and inserting ‘‘(e), 

12 or (f)’’. 

13 (c) CONFORMING AMENDMENTS.— 

14 (1) Section 6402(a) is amended by striking ‘‘and 

15 (e)’’ and inserting ‘‘(e), and (f)’’. 

16 (2) Paragraph (2) of section 6402(d) is amended 

17 by striking ‘‘subsection (e)’’ and inserting ‘‘sub18 sections (e) and (f)’’. 

19 (3) Paragraph (3)(B) of section 6402(e) is 

20 amended to read as follows: 

21 ‘‘(B) before such overpayment is— 

22 ‘‘(i) reduced pursuant to subsection (f) 

23 with respect to past-due, legally enforceable 

24 State judicial debts, and 


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1 ‘‘(ii) credited to the future liability for 

2 any Federal internal revenue tax of such 

3 person pursuant to subsection (b).’’. 

4 (4) Section 6402(g), as so redesignated, is 

5 amended by striking ‘‘or (e)’’ and inserting ‘‘(e), or 

6 (f)’’. 

7 (5) Section 6402(i), as so redesignated, is 

8 amended by striking ‘‘or (e)’’ and inserting ‘‘, (e), or 

9 (f)’’. 

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

11 section shall apply to refunds payable for taxable years end12 ing after the date of the enactment of this Act. 

13 SEC. 708. CLARIFICATION OF RESPONSIBILITIES OF 

14 UNITED STATES MARSHALS ATTENDING THE 

15 TAX COURT. 

16 (a) IN GENERAL.—Subsection (c) of section 7456 is 

17 amended by inserting ‘‘, and shall provide for the security 

18 of the Tax Court, including the personal protection of Tax 

19 Court judges, court officers, witnesses, and other threatened 

20 persons in the interests of justice where criminal intimida21 tion impedes on the functioning of the judicial process or 

22 any other official proceeding of the Tax Court.’’. 

23 (b) CONFORMING AMENDMENT.—Subsection (a) of sec24 tion 566 of title 28, United States Code, is amended by 

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1 ing ‘‘, the Court of International Trade, and any other 

2 court as provided by law.’’. 

3 SEC. 709. AUTHORIZATION OF APPROPRIATIONS TO COM4 BAT THE TAX GAP AND FOR TAX LAW EN5 FORCEMENT. 

6 There is authorized to be appropriated $732,000,000 

7 for fiscal year 2007 for the purpose of combating the tax 

8 gap (as defined in section 710(b)), of which $300,000,000 

9 is authorized for the purpose of carrying out tax law en10 forcement to combat tax avoidance transactions and other 

11 tax shelters, including the use of offshore financial accounts 

12 to conceal taxable income. Any amounts so appropriated 

13 shall remain available until expended. 

14 SEC. 710. ANNUAL TAX GAP REPORT. 

15 (a) REPORT.— 

16 (1) IN GENERAL.—Not later than September 30 

17 of each year, the Secretary of the Treasury shall issue 

18 a report to the Committee on Finance of the Senate 

19 and the Committee on Ways and Means of the House 

20 of Representatives on activities undertaken to reduce 

21 the tax gap for the fiscal year. 

22 (2) CONTENTS OF REPORT.—The report under 

23 paragraph (1) shall include— 

24 (A) specific administrative actions taken by 

25 the Secretary of the Treasury to reduce the tax 


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1 gap during the fiscal year and the results of any 

2 such actions; 

3 (B) a plan for reducing the tax gap for the 

4 succeeding fiscal year, including— 

5 (i) a detailed analysis of the elements 

6 of the tax gap; 

7 (ii) a list of measures designed to re8 duce the tax gap; 

9 (iii) goals for reducing the tax gap; 

10 and 

11 (iv) a time line for achieving the goals 

12 set forth under clause (iii); 

13 (C) strategies to— 

14 (i) simplify the administration of the 

15 tax laws; 

16 (ii) increase income reporting; 

17 (iii) improve tax law enforcement; and 

18 (iv) improve Internal Revenue Service 

19 customer service; and 

20 (D) legislative recommendations for improv21 ing taxpayer compliance. 

22 (b) TAX GAP.—For purposes of this section, the term 

23 ‘‘tax gap’’ means, with respect to any fiscal year, the excess 

24 of— 


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1 (1) the amount of taxes owed by taxpayers under 

2 the Internal Revenue Code of 1986 for such fiscal 

3 year, over 

4 (2) the amount of revenue collected by the Inter5 nal Revenue Service under such Code for such fiscal 

6 year. 

7 SEC. 711. OPERATIONS FOR THE ENFORCEMENT OF TAX 

8 LAWS RELATING TO HIRING AND CONTINUED 

9 EMPLOYMENT OF UNDOCUMENTED WORK10 ERS. 

11 (a) AUTHORIZATION OF APPROPRIATIONS.— 

12 (1) IN GENERAL.—There is authorized to be ap13 propriated $2,000,000 for fiscal year 2007 for the 

14 purpose of establishing an office within the Internal 

15 Revenue Service to prosecute employers who violate 

16 tax laws relating to the hiring and continued employ17 ment of undocumented workers. 

18 (2) AVAILABILITY.—Any amounts appropriated 

19 pursuant to the authority of paragraph (1) shall re20 main available for fiscal year 2008. 

21 (b) ADDITIONAL FUNDING FOR OPERATIONS OF OF22 FICE.—Unless specifically appropriated otherwise, there is 

23 authorized to be appropriated and is appropriated to the 

24 office established under subsection (a)(1) for fiscal years 

25 2007 and 2008 for the administration of such office an 


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1 amount equal to the amount of any tax under chapter 1 

2 of the Internal Revenue Code of 1986 (including any inter3 est) collected during such fiscal years as the result of the 

4 actions of such office, plus any civil or criminal monetary 

5 penalties imposed under such Code relating to such tax and 

6 so collected. 

7 (c) REPORT.—Not later than 1 year after the date of 

8 the enactment of this Act, the Secretary of the Treasury 

9 shall report to the Committee of Ways and Means of the 

10 House of Representatives and the Committee on Finance 

11 of the Senate on the enforcement activities of the office estab12 lished under subsection (a)(1) and shall include any rec13 ommendations for statutory changes to assist in future 

14 prosecutions under this section. 

15 SEC. 712. REPEAL OF DOLLAR LIMITATION ON CONTRIBU16 TIONS TO FUNERAL TRUSTS. 

17 (a) IN GENERAL.—Subsection (c) of section 685 (relat18 ing to treatment of funeral trusts) is repealed. 

19 (b) CONFORMING AMENDMENT.—Subsections (d), (e), 

20 and (f) of such section are redesignated as subsections (c), 

21 (d), and (e), respectively. 

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

23 section shall apply to contributions made after December 

24 31, 2006. 


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1 SEC. 713. ADMINISTRATIVE RELIEF FOR CERTAIN LATE 

2 QUALIFIED TERMINABLE INTEREST PROP3 ERTY ELECTIONS. 

4 (a) EXTENSION OF TIME TO MAKE ELECTIONS.—Sec5 tion 2523(f)(4)(A) (relating to time and manner of election 

6 with respect to life estate for donee spouse) is amended by 

7 adding at the end the following new sentence: ‘‘Such regula8 tions shall provide circumstances and procedures under 

9 which extensions of time will be granted to make the election 

10 under this subparagraph. For purposes of the preceding sen11 tence, the time for making the election shall be treated as 

12 if not prescribed by statute.’’. 

13 (b) EFFECTIVE DATE.—The modifications to the regu14 lations required by the amendment made by subsection (a) 

15 shall apply to requests for extension of time pending on or 

16 after the date of the enactment of this Act with respect to 

17 transfers made before, on, or after such date. 

18 SEC. 714. DISCLOSURE OF WRITTEN DETERMINATIONS. 

19 (a) IN GENERAL.—Section 6110(l) (relating to section 

20 not to apply) is amended by striking all matter before sub21 paragraph (A) of paragraph (2) and inserting the fol22 lowing: 

23 ‘‘(l) SECTION NOT TO APPLY.— 

24 ‘‘(1) IN GENERAL.—This section shall not apply 

25 to any matter to which section 6104 or 6105 applies, 

26 except that this section shall apply to any written deVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00182 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 termination and related background file document re2 lating to an organization described under subsection 

3 (c) or (d) of section 501 (including any written deter4 mination denying an organization tax-exempt status 

5 under such subsection) or a political organization de6 scribed in section 527 which is not required to be dis7 closed by section 6104(a)(1)(A). 

8 ‘‘(2) ADDITIONAL MATTERS.—This section shall 

9 not apply to any—’’. 

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

11 section shall apply to written determinations issued after 

12 the date of the enactment of this Act. 

13 SEC. 715. DISCLOSURE OF INTERNET WEB SITE AND NAME 

14 UNDER WHICH ORGANIZATION DOES BUSI15 NESS. 

16 (a) IN GENERAL.—Section 6033 (relating to returns 

17 by exempt organizations) is amended by redesignating sub18 section (k) as subsection (l) and by inserting after sub19 section (j) the following new subsection: 

20 ‘‘(k) DISCLOSURE OF NAME UNDER WHICH ORGANI21 ZATION DOES BUSINESS AND ITS INTERNET WEB SITE.— 

22 Any organization which is subject to the requirements of 

23 subsection (a) shall include on the return required under 

24 subsection (a)— 


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1 ‘‘(1) any name under which such organization 

2 operates or does business, and 

3 ‘‘(2) the Internet web site address (if any) of 

4 such organization.’’. 

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

6 section shall apply to returns filed after December 31, 2006. 

7 SEC. 716. MODIFICATION TO REPORTING CAPITAL TRANS8 ACTIONS. 

9 (a) REQUIREMENT OF SUMMARY REPORT.—Section 

10 6033(c) (relating to additional provisions relating to pri11 vate foundations) is amended by adding at the end the fol12 lowing new sentence: ‘‘Any information included in an an13 nual return regarding the gain or loss from the sale or other 

14 disposition of stock or securities which are listed on an es15 tablished securities market which is required to be furnished 

16 in order to calculate the tax on net investment income shall 

17 also be reported in summary form with a notice that de18 tailed information is available upon request by the public.’’. 

19 (b) DISCLOSURE REQUIREMENT.—Section 6104(b) 

20 (relating to inspection of annual information returns), as 

21 amended by this Act, is amended by adding at the end the 

22 following new sentence: ‘‘With respect to any private foun23 dation (as defined in section 509(a)), any information re24 garding the gain or loss from the sale or other disposition 

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1 rities market which is required to be furnished in order to 

2 calculate the tax on net investment income but which is 

3 not in summary form is not required to be made available 

4 to the public under this subsection except upon the explicit 

5 request by a member of the public to the Secretary.’’. 

6 (c) PUBLIC INSPECTION REQUIREMENT.—Section 

7 6104(d) (relating to public inspection of certain annual re8 turns, applications for exemptions, and notices of status) 

9 is amended— 

10 (1) by redesignating paragraph (6) (relating to 

11 disclosure of reports by Internal Revenue Service) as 

12 paragraph (7), 

13 (2) by redesignating paragraph (6) (relating to 

14 application to nonexempt charitable trusts and non15 exempt private foundations) as paragraph (8), and 

16 (3) by adding at the end the following new para17 graph: 

18 ‘‘(9) APPLICATION TO PRIVATE FOUNDATION CAP19 ITAL TRANSACTION INFORMATION.—With respect to 

20 any private foundation (as defined in section 509(a)), 

21 any information regarding the gain or loss from the 

22 sale or other disposition of stock or securities which 

23 are listed on an established securities market which is 

24 required to be furnished in order to calculate the tax 

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1 mary form is not required to be made available to the 

2 public under this subsection except upon the explicit 

3 request by a member of the public to the private foun4 dation in the form and manner of a request described 

5 in paragraph (1)(B).’’. 

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

7 section shall apply to returns filed after December 31, 2006. 

8 SEC. 717. DISCLOSURE THAT FORM 990 IS PUBLICLY AVAIL9 ABLE. 

10 (a) IN GENERAL.—The Commissioner of the Internal 

11 Revenue shall notify the public in appropriate publications 

12 or other materials of the extent to which an exempt organi13 zation’s Form 990, Form 990–EZ, or Form 990–PF is pub14 licly available. 

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

16 section shall apply to publications or other materials issued 

17 or revised after the date of the enactment of this Act. 

18 SEC. 718. EXPEDITED REVIEW PROCESS FOR CERTAIN TAX19 EXEMPTION APPLICATIONS. 

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

21 the Secretary’s delegate (in this section, referred to as the 

22 ‘‘Secretary’’) shall adopt procedures to expedite the consid23 eration of applications for exempt status under section 

24 501(c)(3) of the Internal Revenue Code of 1986 filed after 

25 December 31, 2006, by any organization that— 


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1 (1) is organized and operated for the primary 

2 purpose of providing social services; 

3 (2) is seeking a contract or grant under a Fed4 eral, State, or local program that provides funding 

5 for social services programs; 

6 (3) establishes that, under the terms and condi7 tions of the contract or grant program, an organiza8 tion is required to obtain such exempt status before 

9 the organization is eligible to apply for a contract or 

10 grant; 

11 (4) includes with its exemption application a 

12 copy of its completed Federal, State, or local contract 

13 or grant application; and 

14 (5) meets such other criteria as the Secretary 

15 deems appropriate for expedited consideration. 

16 The Secretary may prescribe other similar circumstances 

17 in which such organizations may be entitled to expedited 

18 consideration. 

19 (b) WAIVER OF APPLICATION FEE FOR EXEMPT STA20 TUS.—Any organization that meets the conditions described 

21 in subsection (a) (without regard to paragraph (3) of that 

22 subsection) is entitled to a waiver of any fee for an applica23 tion for exempt status under section 501(c)(3) of the Inter24 nal Revenue Code of 1986 if the organization certifies that 

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1 nual gross receipts of not more than $50,000 during the 

2 preceding 4 years (or, in the case of an organization not 

3 in existence throughout the preceding 4 years, during such 

4 organization’s first 4 years). 

5 (c) SOCIAL SERVICES DEFINED.—For purposes of this 

6 section— 

7 (1) IN GENERAL.—The term ‘‘social services’’ 

8 means services directed at helping people in need, re9 ducing poverty, improving outcomes of low-income 

10 children, revitalizing low-income communities, and 

11 empowering low-income families and low-income in12 dividuals to become self-sufficient, including— 

13 (A) child care services, protective services 

14 for children and adults, services for children and 

15 adults in foster care, adoption services, services 

16 related to the management and maintenance of 

17 the home, day care services for adults, and serv18 ices to meet the special needs of children, older 

19 individuals, and individuals with disabilities 

20 (including physical, mental, or emotional dis21 abilities); 

22 (B) transportation services; 

23 (C) job training and related services, and 

24 employment services; 


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1 (D) information, referral, and counseling 

2 services; 

3 (E) the preparation and delivery of meals, 

4 and services related to soup kitchens or food 

5 banks; 

6 (F) health support services; 

7 (G) literacy and mentoring programs; 

8 (H) services for the prevention and treat9 ment of juvenile delinquency and substance 

10 abuse, services for the prevention of crime and 

11 the provision of assistance to the victims and the 

12 families of criminal offenders, and services re13 lated to the intervention in, and prevention of, 

14 domestic violence; and 

15 (I) services related to the provision of assist16 ance for housing under Federal law. 

17 (2) EXCLUSIONS.—The term does not include a 

18 program having the purpose of delivering educational 

19 assistance under the Elementary and Secondary Edu20 cation Act of 1965 (20 U.S.C. 6301 et seq.) or under 

21 the Higher Education Act of 1965 (20 U.S.C. 1001 et 

22 seq.). 


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1 SEC. 719. EXPANSION OF DECLARATORY JUDGMENT REM2 EDY TO TAX-EXEMPT ORGANIZATIONS. 

3 (a) IN GENERAL.—Paragraph (1) of section 7428(a) 

4 (relating to creation of remedy) is amended— 

5 (1) in subparagraph (B) by inserting after 

6 ‘‘509(a))’’ the following: ‘‘or as a private operating 

7 foundation (as defined in section 4942(j)(3))’’; and 

8 (2) by amending subparagraph (C) to read as 

9 follows: 

10 ‘‘(C) with respect to the initial qualification 

11 or continuing qualification of an organization as 

12 an organization described in section 501(c) 

13 (other than paragraph (3)) or 501(d) which is 

14 exempt from tax under section 501(a), or’’. 

15 (b) COURT JURISDICTION.—Subsection (a) of section 

16 7428 is amended in the material following paragraph (2) 

17 by striking ‘‘United States Tax Court, the United States 

18 Claims Court, or the district court of the United States for 

19 the District of Columbia’’ and inserting the following: 

20 ‘‘United States Tax Court (in the case of any such deter21 mination or failure) or the United States Claims Court or 

22 the district court of the United States for the District of 

23 Columbia (in the case of a determination or failure with 

24 respect to an issue referred to in subparagraph (A) or (B) 

25 of paragraph (1)),’’. 


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

2 section shall apply to pleadings filed with respect to deter3 minations (or requests for determinations) made after De4 cember 31, 2006. 

5 SEC. 720. WIRELESS TELECOMMUNICATIONS EQUIPMENT. 

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

7 168(i)(2) (defining qualified technological equipment) is 

8 amended by striking ‘‘and’’ at the end of clause (ii), by 

9 striking the period at the end of clause (iii) and inserting 

10 ‘‘, and’’, and by inserting after clause (iii) the following 

11 new clause: 

12 ‘‘(iv) any wireless telecommunications 

13 equipment placed in service before January 

14 1, 2011.’’. 

15 (b) WIRELESS TELECOMMUNICATIONS EQUIPMENT.— 

16 Section 168(i)(2) is amended by inserting after subpara17 graph (C) the following new subparagraph: 

18 ‘‘(D) WIRELESS TELECOMMUNICATIONS

19 EQUIPMENT.—For purposes of this paragraph, 

20 the term ‘wireless telecommunications equipment’ 

21 means all equipment used in the transmission, 

22 reception, coordination, or switching of wireless 

23 telecommunications service, other than cell tow24 ers, buildings, and T–1 lines or other cabling 

25 connecting cell sites to mobile switching centers. 


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1 For this purpose, ‘wireless telecommunications 

2 service’ includes any commercial mobile radio 

3 service as defined in title 47 of the Code of Fed4 eral Regulations.’’. 

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

6 section shall apply to property placed in service after the 

7 date of the enactment of this Act. 

8 SEC. 721. PERMANENT EXTENSION OF INTERNET TAX MOR9 ATORIUM. 

10 Section 1101(a) of the Internet Tax Freedom Act (47 

11 U.S.C. 151 note) is amended by striking ‘‘during the period 

12 beginning November 1, 2003, and ending November 1, 

13 2007’’ and inserting ‘‘after October 31, 2003’’. 

14 SEC. 722. SIMPLIFICATION THROUGH ELIMINATION OF IN15 OPERATIVE PROVISIONS. 

16 (a) BUSINESS PROVISIONS.— 

17 (1) GENERAL BUSINESS CREDITS.—Subsection 

18 (d) of section 38 is amended by striking paragraph 

19 (3). 

20 (2) ADJUSTMENTS BASED ON ADJUSTED CUR21 RENT EARNINGS.—Clause (ii) of section 56(g)(4)(F) is 

22 amended by striking ‘‘In the case of any taxable year 

23 beginning after December 31, 1992, clause’’ and in24 serting ‘‘Clause’’. 


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1 (3) ITEMS OF TAX PREFERENCE; DEPLETION.— 

2 Paragraph (1) of section 57(a) is amended by striking 

3 ‘‘Effective with respect to taxable years beginning 

4 after December 31, 1992, this’’ and inserting ‘‘This’’. 

5 (4) INTANGIBLE DRILLING COSTS.— 

6 (A) Clause (i) of section 57(a)(2)(E) is 

7 amended by striking ‘‘In the case of any taxable 

8 year beginning after December 31, 1992, this’’ 

9 and inserting ‘‘This’’. 

10 (B) Clause (ii) of section 57(a)(2)(E) is 

11 amended by striking ‘‘(30 percent in the case of 

12 taxable years beginning in 1993)’’. 

13 (5) GREAT PLAINS CONSERVATION PROGRAM.— 

14 (A) Section 126(a) is amended by striking 

15 paragraph (6) and by redesignating paragraphs 

16 (7), (8), (9), and (10) as paragraphs (6), (7), 

17 (8), and (9), respectively. 

18 (B) Section 126(a)(8), as redesignated by 

19 subparagraph (A), is amended by striking 

20 ‘‘paragraphs (1) through (8)’’ and inserting 

21 ‘‘paragraphs (1) through (7)’’. 

22 (6) TREBLE DAMAGE PAYMENTS UNDER THE

23 ANTITRUST LAW.—Section 162(g) is amended by 

24 striking the last sentence. 


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1 (7) CHARITABLE, ETC., CONTRIBUTIONS AND

2 GIFTS.— 

3 (A) Section 170 is amended by striking sub4 section (k) and by redesignating subsections (l), 

5 (m), (n), (o), and (p) as subsections (k), (l), (m), 

6 (n), and (o), respectively. 

7 (B) Paragraphs (1)(D) and (2)(A) of sec8 tion 6050L(b) are each amended by striking 

9 ‘‘section 170(m)’’ and inserting ‘‘170(l)’’. 

10 (8) NET OPERATING LOSS CARRYBACKS AND

11 CARRYOVERS.— 

12 (A) Section 172 is amended— 

13 (i) by striking subparagraph (D) of 

14 subsection (b)(1) and by redesignating sub15 paragraphs (E), (F), (G), (H), and (I) as 

16 subparagraphs (D), (E), (F), (G), and (H), 

17 respectively, 

18 (ii) by striking ‘‘ending after August 2, 

19 1989’’ in subsection (b)(1)(D)(i)(II) (as re20 designated by clause (i)), 

21 (iii) by striking ‘‘subparagraph (F)’’ 

22 in subsection (b)(1)(G) (as redesignated by 

23 clause (i)) and inserting ‘‘subparagraph 

24 (E)’’, 

25 (iv) by striking subsection (g), and 


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1 (v) by striking subparagraph (F) of 

2 subsection (h)(2). 

3 (B) Section 172(h)(4) is amended by strik4 ing ‘‘subsection (b)(1)(E)’’ each place it appears 

5 and inserting ‘‘subsection (b)(1)(D)’’. 

6 (C) Section 172(i)(3) is amended by strik7 ing ‘‘subsection (b)(1)(G)’’ each place it appears 

8 and inserting ‘‘subsection (b)(1)(F)’’. 

9 (D) Section 172(j) is amended by striking 

10 ‘‘subsection (b)(1)(H)’’ each place it appears and 

11 inserting ‘‘subsection (b)(1)(G)’’. 

12 (E) Section 172, as amended by subpara13 graphs (A) through (D) of this paragraph, is 

14 amended— 

15 (i) by redesignating subsections (h), 

16 (i), (j), and (k) as subsections (g), (h), (i), 

17 and (j), respectively, 

18 (ii) by striking ‘‘subsection (h)’’ each 

19 place it appears and inserting ‘‘subsection 

20 (g)’’, and 

21 (iii) by striking ‘‘subsection (i)’’ each 

22 place it appears and inserting ‘‘subsection 

23 (h)’’. 


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1 (9) RESEARCH AND EXPERIMENTAL EXPENDI2 TURES.—Subparagraph (A) of section 174(a)(2) is 

3 amended to read as follows: 

4 ‘‘(A) WITHOUT CONSENT.—A taxpayer 

5 may, without the consent of the Secretary, adopt 

6 the method provided in this subsection for his 

7 first taxable year for which expenditures de8 scribed in paragraph (1) are paid or incurred.’’. 

9 (10) AMORTIZATION OF CERTAIN RESEARCH AND

10 EXPERIMENTAL EXPENDITURES.—Paragraph (2) of 

11 section 174(b) is amended by striking ‘‘beginning 

12 after December 31, 1953’’. 

13 (11) SOIL AND WATER CONSERVATION EXPENDI14 TURES.—Paragraph (1) of section 175(d) is amended 

15 to read as follows: 

16 ‘‘(1) WITHOUT CONSENT.—A taxpayer may, 

17 without the consent of the Secretary, adopt the method 

18 provided in this section for the taxpayer’s first tax19 able year for which expenditures described in sub20 section (a) are paid or incurred.’’. 

21 (12) ACTIVITIES NOT ENGAGED IN FOR PROF22 IT.—Section 183(e)(1) is amended by striking the last 

23 sentence. 


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1 (13) DIVIDENDS RECEIVED ON CERTAIN PRE2 FERRED STOCK; AND DIVIDENDS PAID ON CERTAIN

3 PREFERRED STOCK OF PUBLIC UTILITIES.— 

4 (A) Sections 244 and 247 are hereby re5 pealed, and the table of sections for part VIII of 

6 subchapter B of chapter 1 is amended by strik7 ing the items relating to sections 244 and 247. 

8 (B) Paragraph (5) of section 172(d) is 

9 amended to read as follows: 

10 ‘‘(5) COMPUTATION OF DEDUCTION FOR DIVI11 DENDS RECEIVED.—The deductions allowed by section 

12 243 (relating to dividends received by corporations) 

13 and 245 (relating to dividends received from certain 

14 foreign corporations) shall be computed without re15 gard to section 246(b) (relating to limitation on ag16 gregate amount of deductions).’’. 

17 (C) Paragraph (1) of section 243(c) is 

18 amended to read as follows: 

19 ‘‘(1) IN GENERAL.—In the case of any dividend 

20 received from a 20-percent owned corporation, sub21 section (a)(1) shall be applied by substituting ‘80 per22 cent’ for ‘70 percent’.’’. 

23 (D) Section 243(d) is amended by striking 

24 paragraph (4). 

25 (E) Section 246 is amended— 


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1 (i) by striking ‘‘, 244,’’ in subsection 

2 (a)(1), 

3 (ii) in subsection (b)(1)— 

4 (I) by striking ‘‘sections 

5 243(a)(1), and 244(a),’’ the first place 

6 it appears and inserting ‘‘section 

7 243(a)(1)’’, 

8 (II) by striking ‘‘244(a),’’ the sec9 ond place it appears, and 

10 (III) by striking ‘‘subsection (a) 

11 or (b) of section 245, and 247,’’ and 

12 inserting ‘‘and subsection (a) or (b) of 

13 section 245,’’, and 

14 (iii) by striking ‘‘, 244,’’ in subsection 

15 (c)(1). 

16 (F) Section 246A is amended by striking ‘‘, 

17 244,’’ both places it appears in subsections (a) 

18 and (e). 

19 (G) Sections 263(g)(2)(B)(iii), 277(a), 

20 301(e)(2), 469(e)(4), 512(a)(3)(A), subpara21 graphs (A), (C), and (D) of section 805(a)(4), 

22 805(b)(5), 812(e)(2)(A), 815(c)(2)(A)(iii), 

23 832(b)(5), 833(b)(3)(E), and 1059(b)(2)(B) are 

24 each amended by striking ‘‘, 244,’’ each place it 

25 appears. 


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1 (H) Section 1244(c)(2)(C) is amended by 

2 striking ‘‘244,’’. 

3 (I) Section 805(a)(4)(B) is amended by 

4 striking ‘‘, 244(a),’’ each place it appears. 

5 (J) Section 810(c)(2)(B) is amended by 

6 striking ‘‘244 (relating to dividends on certain 

7 preferred stock of public utilities),’’. 

8 (14) ORGANIZATION EXPENSES.—Section 248(c) 

9 is amended by striking ‘‘beginning after December 31, 

10 1953,’’ and by striking the last sentence. 

11 (15) AMOUNT OF GAIN WHERE LOSS PREVIOUSLY

12 DISALLOWED.—Section 267(d) is amended by striking 

13 ‘‘(or by reason of section 24(b) of the Internal Rev14 enue Code of 1939)’’ in paragraph (1), by striking 

15 ‘‘after December 31, 1953,’’ in paragraph (2), by 

16 striking the second sentence, and by striking ‘‘or by 

17 reason of section 118 of the Internal Revenue Code of 

18 1939’’ in the last sentence. 

19 (16) ACQUISITIONS MADE TO EVADE OR AVOID

20 INCOME TAX.—Paragraphs (1) and (2) of section 

21 269(a) are each amended by striking ‘‘or acquired on 

22 or after October 8, 1940,’’. 

23 (17) INTEREST ON INDEBTEDNESS INCURRED BY

24 CORPORATIONS TO ACQUIRE STOCK OR ASSETS OF AN25 OTHER CORPORATION.—Section 279 is amended— 


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1 (A) by striking ‘‘after December 31, 1967,’’ 

2 in subsection (a)(2), 

3 (B) by striking ‘‘after October 9, 1969,’’ in 

4 subsection (b), and 

5 (C) by striking ‘‘after October 9, 1969, and’’ 

6 in subsection (d)(5). 

7 (18) SPECIAL RULES RELATING TO CORPORATE

8 PREFERENCE ITEMS.—Paragraph (4) of section 

9 291(a) is amended by striking ‘‘In the case of taxable 

10 years beginning after December 31, 1984, section’’ 

11 and inserting ‘‘Section’’. 

12 (19) TAX CREDIT EMPLOYEE STOCK OWNERSHIP

13 PLANS.—Section 409 is amended by striking sub14 section (q). 

15 (20) RETIREE HEALTH ACCOUNTS.—Section 420 

16 is amended— 

17 (A) by striking paragraph (4) of subsection 

18 (b) and by redesignating paragraph (5) as para19 graph (4), and 

20 (B) by amending paragraph (2) of sub21 section (c) to read as follows: 

22 ‘‘(2) REQUIREMENTS RELATING TO PENSION

23 BENEFITS ACCRUING BEFORE TRANSFER.—The re24 quirements of this paragraph are met if the plan pro25 vides that the accrued pension benefits of any particiVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00200 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 pant or beneficiary under the plan become nonforfeit2 able in the same manner which would be required if 

3 the plan had terminated immediately before the quali4 fied transfer (or in the case of a participant who sep5 arated during the 1-year period ending on the date of 

6 the transfer, immediately before such separation).’’. 

7 (21) EMPLOYEE STOCK PURCHASE PLANS.—Sec8 tion 423(a) is amended by striking ‘‘after December 

9 31, 1963,’’. 

10 (22) LIMITATION ON DEDUCTIONS FOR CERTAIN

11 FARMING.— 

12 (A) Section 464 is amended by striking 

13 ‘‘any farming syndicate (as defined in subsection 

14 (c))’’ both places it appears in subsections (a) 

15 and (b) and inserting ‘‘any taxpayer to whom 

16 subsection (d) applies’’. 

17 (B)(i) Subsection (c) of section 464 is here18 by moved to the end of section 461 and redesig19 nated as subsection (j). 

20 (ii) Such subsection (j) is amended— 

21 (I) by striking ‘‘For purposes of this 

22 section’’ in paragraph (1) and inserting 

23 ‘‘For purposes of subsection (i)(4)’’, and 

24 (II) by adding at the end the following 

25 new paragraphs: 


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1 ‘‘(3) FARMING.—For purposes of this subsection, 

2 the term ‘farming’ has the meaning given to such 

3 term by section 464(e). 

4 ‘‘(4) LIMITED ENTREPRENEUR.—For purposes of 

5 this subsection, the term ‘limited entrepreneur’ means 

6 a person who— 

7 ‘‘(A) has an interest in an enterprise other 

8 than as a limited partner, and 

9 ‘‘(B) does not actively participate in the 

10 management of such enterprise.’’. 

11 (iii) Paragraph (4) of section 461(i) is 

12 amended by striking ‘‘section 464(c)’’ and insert13 ing ‘‘subsection (j)’’. 

14 (C) Section 464 is amended— 

15 (i) by striking subsections (e) and (g) 

16 and redesignating subsections (d) and (f) as 

17 subsections (c) and (d), respectively, and 

18 (ii) by adding at the end the following 

19 new subsection: 

20 ‘‘(e) FARMING.—For purposes of this section, the term 

21 ‘farming’ means the cultivation of land or the raising or 

22 harvesting of any agricultural or horticultural commodity 

23 including the raising, shearing, feeding, caring for, train24 ing, and management of animals. For purposes of the pre25 ceding sentence, trees (other than trees bearing fruit or nuts) 


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1 shall not be treated as an agricultural or horticultural com2 modity.’’. 

3 (D) Subsection (d) of section 464, as redes4 ignated by subparagraph (C), is amended— 

5 (i) by striking paragraph (1) and re6 designating paragraphs (2), (3), and (4) as 

7 paragraphs (1), (2), and (3), respectively, 

8 and 

9 (ii) by striking ‘‘SUBSECTIONS (a) AND

10 (b) TO APPLY TO’’ in the subsection head11 ing. 

12 (E) Subparagraph (A) of section 58(a)(2) is 

13 amended by striking ‘‘section 464(c)’’ and insert14 ing ‘‘section 461(j)’’. 

15 (23) DEDUCTIONS LIMITED TO AMOUNT AT

16 RISK.—Paragraph (3) of section 465(c) is amended 

17 by striking ‘‘In the case of taxable years beginning 

18 after December 31, 1978, this’’ and inserting ‘‘This’’. 

19 (24) PASSIVE ACTIVITY LOSSES AND CREDITS

20 LIMITED.— 

21 (A) Section 469 is amended by striking sub22 section (m). 

23 (B) Subsection (b) of section 58 is amended 

24 by adding ‘‘and’’ at the end of paragraph (1), by 


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1 striking paragraph (2), and by redesignating 

2 paragraph (3) as paragraph (2). 

3 (25) ADJUSTMENTS REQUIRED BY CHANGES IN

4 METHOD OF ACCOUNTING.—Section 481(b)(3) is 

5 amended by striking subparagraph (C). 

6 (26) EXEMPTION FROM TAX ON CORPORATIONS, 

7 CERTAIN TRUSTS, ETC.—Section 501 is amended by 

8 striking subsection (q). 

9 (27) REQUIREMENTS FOR EXEMPTION.— 

10 (A) Section 503(a)(1) is amended to read as 

11 follows: 

12 ‘‘(1) GENERAL RULE.—An organization de13 scribed in paragraph (17) or (18) of section 501(c) or 

14 described in section 401(a) and referred to in section 

15 4975(g)(2) or (3) shall not be exempt from taxation 

16 under section 501(a) if it has engaged in a prohibited 

17 transaction.’’. 

18 (B) Paragraph (2) of section 503(a) is 

19 amended by striking ‘‘described in section 

20 501(c)(17) or (18) or paragraph (a)(1)(B)’’ and 

21 inserting ‘‘described in paragraph (1)’’. 

22 (C) Subsection (c) of section 503 is amended 

23 by striking ‘‘described in section 501(c)(17) or 

24 (18) or subsection (a)(1)(B)’’ and inserting ‘‘de25 scribed in subsection (a)(1)’’. 


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1 (28) INSURANCE COMPANY TAXABLE INCOME.— 

2 (A) Section 832(e) is amended by striking 

3 ‘‘of taxable years beginning after December 31, 

4 1966,’’. 

5 (B) Section 832(e)(6) is amended by strik6 ing ‘‘In the case of any taxable year beginning 

7 after December 31, 1970, the’’ and inserting 

8 ‘‘The’’. 

9 (29) PROPERTY ON WHICH LESSEE HAS MADE

10 IMPROVEMENTS.—Section 1019 is amended by strik11 ing the last sentence. 

12 (30) INVOLUNTARY CONVERSION.—Section 1033 

13 is amended by striking subsection (j) and by redesig14 nating subsections (k) and (l) as subsections (j) and 

15 (k), respectively. 

16 (31) PROPERTY ACQUIRED DURING AFFILI17 ATION.—Section 1051 is hereby repealed, and the 

18 table of sections for part IV of subchapter O of chap19 ter 1 is amended by striking the item relating to sec20 tion 1051. 

21 (32) HOLDING PERIOD OF PROPERTY.— 

22 (A) Paragraph (4) of section 1223 is 

23 amended by striking ‘‘(or under so much of sec24 tion 1052(c) as refers to section 113(a)(23) of the 

25 Internal Revenue Code of 1939)’’. 


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1 (B) Paragraph (6) of section 1223 is 

2 amended by striking the last sentence. 

3 (C) Paragraph (8) of section 1223 is re4 pealed. 

5 (33) PROPERTY USED IN THE TRADE OR BUSI6 NESS AND INVOLUNTARY CONVERSIONS.—Subpara7 graph (A) of section 1231(c)(2) is amended by strik8 ing ‘‘beginning after December 31, 1981’’. 

9 (34) SALE OR EXCHANGE OF PATENTS.—Section 

10 1235 is amended— 

11 (A) by striking subsection (c) and by redes12 ignating subsections (d) and (e) as subsections 

13 (c) and (d), respectively, and 

14 (B) by striking ‘‘subsection (d)’’ in sub15 section (b) and inserting ‘‘subsection (c)’’. 

16 (35) DEALERS IN SECURITIES.—Subsection (b) 

17 of section 1236 is amended by striking ‘‘after Novem18 ber 19, 1951,’’. 

19 (36) SALE OF PATENTS.—Subsection (a) of sec20 tion 1249 is amended by striking ‘‘after December 31, 

21 1962,’’. 

22 (37) GAIN FROM DISPOSITION OF FARM LAND.— 

23 Paragraph (1) of section 1252(a) is amended— 


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1 (A) by striking ‘‘beginning after December 

2 31, 1969’’ in the matter preceding subparagraph 

3 (A), and 

4 (B) by striking ‘‘after December 31, 1969,’’ 

5 in subparagraph (A). 

6 (38) TREATMENT OF AMOUNTS RECEIVED ON RE7 TIREMENT OR SALE OR EXCHANGE OF DEBT INSTRU8 MENTS.—Subsection (c) of section 1271 is amended to 

9 read as follows: 

10 ‘‘(c) SPECIAL RULE FOR CERTAIN OBLIGATIONS WITH

11 RESPECT TO WHICH ORIGINAL ISSUE DISCOUNT NOT CUR12 RENTLY INCLUDIBLE.— 

13 ‘‘(1) IN GENERAL.—On the sale or exchange of 

14 debt instruments issued by a government or political 

15 subdivision thereof after December 31, 1954, and be16 fore July 2, 1982, or by a corporation after December 

17 31, 1954, and on or before May 27, 1969, any gain 

18 realized which does not exceed— 

19 ‘‘(A) an amount equal to the original issue 

20 discount, or 

21 ‘‘(B) if at the time of original issue there 

22 was no intention to call the debt instrument be23 fore maturity, an amount which bears the same 

24 ratio to the original issue discount as the num25 ber of complete months that the debt instrument 


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1 was held by the taxpayer bears to the number of 

2 complete months from the date of original issue 

3 to the date of maturity, 

4 shall be considered as ordinary income. 

5 ‘‘(2) SUBSECTION (a)(2)(A) NOT TO APPLY.— 

6 Subsection (a)(2)(A) shall not apply to any debt in7 strument referred to in paragraph (1). 

8 ‘‘(3) CROSS REFERENCE.— 

‘‘For current inclusion of original issue discount, see section 1272.’’. 

9 (39) AMOUNT AND METHOD OF ADJUSTMENT.— 

10 Section 1314 is amended by striking subsection (d) 

11 and by redesignating subsection (e) as subsection (d). 

12 (40) ELECTION; REVOCATION; TERMINATION.— 

13 Clause (iii) of section 1362(d)(3) is amended by strik14 ing ‘‘unless’’ and all that follows and inserting ‘‘un15 less the corporation was an S corporation for such 

16 taxable year.’’. 

17 (41) AFFILIATED GROUP DEFINED.—Subpara18 graph (A) of section 1504(a)(3) is amended by strik19 ing ‘‘for a taxable year which includes any period 

20 after December 31, 1984’’ in clause (i) and by strik21 ing ‘‘in a taxable year beginning after December 31, 

22 1984’’ in clause (ii). 

23 (42) DISALLOWANCE OF THE BENEFITS OF THE

24 GRADUATED CORPORATE RATES AND ACCUMULATED

25 EARNINGS CREDIT.— 


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1 (A) Subsection (a) of section 1551 is 

2 amended— 

3 (i) by striking paragraph (1) and by 

4 redesignating paragraphs (2) and (3) as 

5 paragraphs (1) and (2), respectively, and 

6 (ii) by striking ‘‘after June 12, 1963,’’ 

7 each place it appears. 

8 (B) Section 1551(b) is amended— 

9 (i) by striking ‘‘or (2)’’ in paragraph 

10 (1), and 

11 (ii) by striking ‘‘(a)(3)’’ in paragraph 

12 (2) and inserting ‘‘(a)(2)’’. 

13 (43) DEFINITION OF WAGES.— 

14 (A) Section 3121(b) is amended by striking 

15 paragraph (17). 

16 (B) Section 210(a) of the Social Security 

17 Act is amended by striking paragraph (17). 

18 (44) CREDITS AGAINST TAX.— 

19 (A) Paragraph (4) of section 3302(f) is 

20 amended— 

21 (i) by striking ‘‘subsection—’’ and all 

22 that follows through ‘‘(A) IN GENERAL.— 

23 The’’ and inserting ‘‘subsection, the’’, 

24 (ii) by striking subparagraph (B), 


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1 (iii) by redesignating clauses (i) and 

2 (ii) as subparagraphs (A) and (B), respec3 tively, and 

4 (iv) by moving the text of such sub5 paragraphs (as so redesignated) 2 ems to 

6 the left. 

7 (B) Paragraph (5) of section 3302(f) is 

8 amended by striking subparagraph (D) and by 

9 redesignating subparagraph (E) as subpara10 graph (D). 

11 (45) DOMESTIC SERVICE EMPLOYMENT TAXES.— 

12 Section 3510(b) is amended by striking paragraph 

13 (4). 

14 (46) TAX ON FUEL USED IN COMMERCIAL TRANS15 PORTATION ON INLAND WATERWAYS.—Section 

16 4042(b)(2)(A) is amended to read as follows: 

17 ‘‘(A) The Inland Waterways Trust Fund fi18 nancing rate is 20 cents per gallon.’’. 

19 (47) TRANSPORTATION BY AIR.— 

20 (A) Paragraph (1) of section 4261(b) is 

21 amended to read as follows: 

22 ‘‘(1) IN GENERAL.—There is hereby imposed on 

23 the amount paid for each domestic segment of taxable 

24 transportation by air a tax equal to $3.’’. 

25 (B) Section 4261(e) is amended— 


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1 (i) in paragraph (1) by striking sub2 paragraph (C), and 

3 (ii) by striking paragraph (5). 

4 (48) TAXES ON FAILURE TO DISTRIBUTE IN5 COME.— 

6 (A) Paragraph (2) of section 4942(f) is 

7 amended by striking the semicolon at the end of 

8 subparagraph (B) and inserting ‘‘, and’’, by 

9 striking ‘‘; and’’ at the end of subparagraph (C) 

10 and inserting a period, and by striking subpara11 graph (D). 

12 (B) Subsection (g) of section 4942 is 

13 amended— 

14 (i) by striking ‘‘For all taxable years 

15 beginning on or after January 1, 1975, sub16 ject’’ in paragraph (2)(A) and inserting 

17 ‘‘Subject’’, and 

18 (ii) by striking paragraph (4). 

19 (C) Section 4942(i)(2) is amended by strik20 ing ‘‘beginning after December 31, 1969, and’’. 

21 (49) TAXES ON TAXABLE EXPENDITURES.—Sec22 tion 4945(f) is amended by striking ‘‘(excluding there23 from any preceding taxable year which begins before 

24 January 1, 1970)’’. 


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1 (50) RETURNS.—Subsection (a) of section 6039D 

2 is amended by striking ‘‘beginning after December 31, 

3 1984,’’. 

4 (51) INFORMATION RETURNS.—Subsection (c) of 

5 section 6060 is amended by striking ‘‘year’’ and all 

6 that follows and inserting ‘‘year.’’. 

7 (52) CANAL ZONE.—Subparagraph (A) of section 

8 6103(b)(5) is amended by striking ‘‘the Canal Zone,’’. 

9 (53) ABATEMENTS.—Section 6404(f) is amended 

10 by striking paragraph (3). 

11 (54) FAILURE BY CORPORATION TO PAY ESTI12 MATED INCOME TAX.—Clause (i) of section 

13 6655(g)(4)(A) is amended by striking ‘‘(or the cor14 responding provisions of prior law)’’. 

15 (55) MERCHANT MARINE CAPITAL CONSTRUCTION

16 FUNDS.—Paragraph (4) of section 7518(g) is amend17 ed by striking ‘‘any nonqualified withdrawal’’ and all 

18 that follows through ‘‘shall be determined’’ and insert19 ing ‘‘any nonqualified withdrawal shall be deter20 mined’’. 

21 (56) VALUATION TABLES.— 

22 (A) Subsection (c) of section 7520 is amend23 ed by striking paragraph (2) and by redesig24 nating paragraph (3) as paragraph (2). 


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1 (B) Paragraph (2) of section 7520(c), as so 

2 redesignated, is amended— 

3 (i) by striking ‘‘Not later than Decem4 ber 31, 1989, the’’ and inserting ‘‘The’’, and 

5 (ii) by striking ‘‘thereafter’’ in the last 

6 sentence thereof. 

7 (57) ADMINISTRATION AND COLLECTION OF

8 TAXES IN POSSESSIONS.—Section 7651 is amended by 

9 striking paragraph (4) and by redesignating para10 graph (5) as paragraph (4). 

11 (58) DEFINITION OF EMPLOYEE.—Section 

12 7701(a)(20) is amended by striking ‘‘chapter 21’’ and 

13 all that follows and inserting ‘‘chapter 21.’’. 

14 (b) INDIVIDUAL PROVISIONS.— 

15 (1) ADJUSTMENTS IN TAX TABLES SO THAT IN16 FLATION WILL NOT RESULT IN TAX INCREASES.— 

17 Paragraph (7) of section 1(f) is amended to read as 

18 follows: 

19 ‘‘(7) SPECIAL RULE FOR CERTAIN BRACKETS.— 

20 In prescribing tables under paragraph (1) which 

21 apply to taxable years beginning in a calendar year 

22 after 1994, the cost-of-living adjustment used in mak23 ing adjustments to the dollar amounts at which the 

24 36 percent rate bracket begins or at which the 39.6 


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1 percent rate bracket begins shall be determined under 

2 paragraph (3) by substituting ‘1993’ for ‘1992’.’’. 

3 (2) EARNED INCOME CREDIT.—Paragraph (1) of 

4 section 32(b) is amended— 

5 (A) by striking subparagraphs (B) and (C), 

6 and 

7 (B) in subparagraph (A) by striking ‘‘(A) 

8 IN GENERAL.—In the case of taxable years begin9 ning after 1995’’ and moving the table 2 ems to 

10 the left. 

11 (3) ANNUITIES; CERTAIN PROCEEDS OF ENDOW12 MENT AND LIFE INSURANCE CONTRACTS.—Section 72 

13 is amended— 

14 (A) in subsection (c)(4) by striking ‘‘; except 

15 that if such date was before January 1, 1954, 

16 then the annuity starting date is January 1, 

17 1954’’, and 

18 (B) in subsection (g)(3) by striking ‘‘Janu19 ary 1, 1954, or’’ and ‘‘, whichever is later’’. 

20 (4) ACCIDENT AND HEALTH PLANS.—Section 

21 105(f) is amended by striking ‘‘or (d)’’. 

22 (5) FLEXIBLE SPENDING ARRANGEMENTS.—Sec23 tion 106(c)(1) is amended by striking ‘‘Effective on 

24 and after January 1, 1997, gross’’ and inserting 

25 ‘‘Gross’’. 


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1 (6) CERTAIN COMBAT ZONE COMPENSATION OF

2 MEMBERS OF THE ARMED FORCES.—Subsection (c) of 

3 section 112 is amended— 

4 (A) by striking ‘‘(after June 24, 1950)’’ in 

5 paragraph (2), and 

6 (B) striking ‘‘such zone;’’ and all that fol7 lows in paragraph (3) and inserting ‘‘such 

8 zone.’’. 

9 (7) PRINCIPAL RESIDENCE.—Section 121(b)(3) is 

10 amended— 

11 (A) by striking subparagraph (B), and 

12 (B) in subparagraph (A) by striking‘‘(A) IN

13 GENERAL.—’’ and moving the text 2 ems to the 

14 left. 

15 (8) CERTAIN REDUCED UNIFORMED SERVICES

16 RETIREMENT PAY.—Section 122(b)(1) is amended by 

17 striking ‘‘after December 31, 1965,’’. 

18 (9) MORTGAGE REVENUE BONDS FOR RESI19 DENCES IN FEDERAL DISASTER AREAS.—Section 

20 143(k) is amended by striking paragraph (11). 

21 (10) STATE LEGISLATORS’ TRAVEL EXPENSES

22 AWAY FROM HOME.—Paragraph (4) of section 162(h) 

23 is amended by striking ‘‘For taxable years beginning 

24 after December 31, 1980, this’’ and inserting ‘‘This’’. 


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1 (11) HEALTH INSURANCE COSTS OF SELF-EM2 PLOYED INDIVIDUALS.—Paragraph (1) of section 

3 162(l) is amended to read as follows: 

4 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case of 

5 an individual who is an employee within the mean6 ing of section 401(c)(1), there shall be allowed as a 

7 deduction under this section an amount equal to 100 

8 percent of the amount paid during the taxable year 

9 for insurance which constitutes medical care for the 

10 taxpayer and the taxpayer’s spouse and dependents.’’. 

11 (12) INTEREST.— 

12 (A) Section 163 is amended— 

13 (i) by striking paragraph (6) of sub14 section (d), and 

15 (ii) by striking paragraph (5) of sub16 section (h). 

17 (B) Section 56(b)(1)(C) is amended by 

18 striking clause (ii) and by redesignating clauses 

19 (iii), (iv), and (v) as clauses (ii), (iii), and (iv), 

20 respectively. 

21 (13) AMOUNTS RECEIVED BY SURVIVING ANNU22 ITANT UNDER JOINT AND SURVIVOR ANNUITY CON23 TRACT.—Subparagraph (A) of section 691(d)(1) is 

24 amended by striking ‘‘after December 31, 1953, and’’. 


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1 (14) INCOME TAXES OF MEMBERS OF ARMED

2 FORCES ON DEATH.—Section 692(a)(1) is amended 

3 by striking ‘‘after June 24, 1950’’. 

4 (15) TAX ON NONRESIDENT ALIEN INDIVID5 UALS.—Subparagraph (B) of section 871(a)(1) is 

6 amended to read as follows: 

7 ‘‘(B) gains described in subsection (b) or (c) 

8 of section 631,’’. 

9 (16) OLD-AGE, SURVIVORS, AND DISABILITY IN10 SURANCE.—Subsection (a) of section 1401 is amended 

11 by striking ‘‘the following percent’’ and all that fol12 lows and inserting ‘‘12.4 percent of the amount of the 

13 self-employment income for such taxable year.’’. 

14 (17) HOSPITAL INSURANCE.—Subsection (b) of 

15 section 1401 is amended by striking ‘‘the following 

16 percent’’ and all that follows and inserting ‘‘2.9 per17 cent of the amount of the self-employment income for 

18 such taxable year.’’. 

19 (18) MINISTERS, MEMBERS OF RELIGIOUS OR20 DERS, AND CHRISTIAN SCIENCE PRACTITIONERS.— 

21 Paragraph (3) of section 1402(e) is amended by strik22 ing ‘‘whichever of the following dates is later: (A)’’ 

23 and by striking ‘‘; or (B)’’ and all that follows and 

24 inserting a period. 


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1 (19) WITHHOLDING OF TAX ON NONRESIDENT

2 ALIENS.—The first sentence of subsection (b) of sec3 tion 1441 and the first sentence of paragraph (5) of 

4 section 1441(c) are each amended by striking ‘‘gains 

5 subject to tax’’ and all that follows through ‘‘October 

6 4, 1966’’ and inserting ‘‘and gains subject to tax 

7 under section 871(a)(1)(D)’’. 

8 (20) RETIREMENT.—Section 7447(i)(3)(B)(ii) is 

9 amended by striking ‘‘at 4 percent per annum to De10 cember 31, 1947, and at 3 percent per annum there11 after’’, and inserting ‘‘at 3 percent per annum’’. 

12 (21) ANNUITIES TO SURVIVING SPOUSES AND DE13 PENDENT CHILDREN OF JUDGES.— 

14 (A) Paragraph (2) of section 7448(a) is 

15 amended by striking ‘‘or under section 1106 of 

16 the Internal Revenue Code of 1939’’ and by 

17 striking ‘‘or pursuant to section 1106(d) of the 

18 Internal Revenue Code of 1939’’. 

19 (B) Subsection (g) of section 7448 is 

20 amended by striking ‘‘or other than pursuant to 

21 section 1106 of the Internal Revenue Code of 

22 1939’’. 

23 (C) Subsections (g), (j)(1), and (j)(2) of sec24 tion 7448 are each amended by striking ‘‘at 4 

25 percent per annum to December 31, 1947, and at 


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1 3 percent per annum thereafter’’ and inserting 

2 ‘‘at 3 percent per annum’’. 

3 (c) EFFECTIVE DATE.— 

4 (1) GENERAL RULE.—Except as otherwise pro5 vided in paragraph (2), the amendments made by 

6 this section shall take effect on the date of enactment 

7 of this Act. 

8 (2) SAVINGS PROVISION.—If— 

9 (A) any provision amended or repealed by 

10 subsection (a) applied to— 

11 (i) any transaction occurring before 

12 the date of the enactment of this Act, 

13 (ii) any property acquired before such 

14 date of enactment, or 

15 (iii) any item of income, loss, deduc16 tion, or credit taken into account before 

17 such date of enactment, and 

18 (B) the treatment of such transaction, prop19 erty, or item under such provision would (with20 out regard to the amendments made by sub21 section (a)) affect the liability for tax for periods 

22 ending after such date of enactment, 

23 nothing in the amendments made by subsection (a) 

24 shall be construed to affect the treatment of such 

25 transaction, property, or item for purposes of deterVerDate Aug 31 2005 04:14 Sep 16, 2006 Jkt 049196 PO 00000 Frm 00219 Fmt 6652 Sfmt 6203 E:\BILLS\S1321.RS S1321

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1 mining liability for tax for periods ending after such 

2 date of enactment. 

3 TITLE VIII—REVENUE OFFSET 

4 PROVISIONS 

5 SEC. 801. CLARIFICATION OF ECONOMIC SUBSTANCE DOC6 TRINE. 

7 (a) IN GENERAL.—Section 7701 is amended by redes8 ignating subsection (p) as subsection (q) and by inserting 

9 after subsection (o) the following new subsection: 

10 ‘‘(p) CLARIFICATION OF ECONOMIC SUBSTANCE DOC11 TRINE; ETC.— 

12 ‘‘(1) GENERAL RULES.— 

13 ‘‘(A) IN GENERAL.—In any case in which a 

14 court determines that the economic substance 

15 doctrine is relevant for purposes of this title to 

16 a transaction (or series of transactions), such 

17 transaction (or series of transactions) shall have 

18 economic substance only if the requirements of 

19 this paragraph are met. 

20 ‘‘(B) DEFINITION OF ECONOMIC SUB21 STANCE.—For purposes of subparagraph (A)— 

22 ‘‘(i) IN GENERAL.—A transaction has 

23 economic substance only if— 

24 ‘‘(I) the transaction changes in a 

25 meaningful way (apart from Federal 


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1 tax effects) the taxpayer’s economic po2 sition, and 

3 ‘‘(II) the taxpayer has a substan4 tial nontax purpose for entering into 

5 such transaction and the transaction is 

6 a reasonable means of accomplishing 

7 such purpose. 

8 In applying subclause (II), a purpose of 

9 achieving a financial accounting benefit 

10 shall not be taken into account in deter11 mining whether a transaction has a sub12 stantial nontax purpose if the origin of such 

13 financial accounting benefit is a reduction 

14 of income tax. 

15 ‘‘(ii) SPECIAL RULE WHERE TAXPAYER

16 RELIES ON PROFIT POTENTIAL.—A trans17 action shall not be treated as having eco18 nomic substance by reason of having a po19 tential for profit unless— 

20 ‘‘(I) the present value of the rea21 sonably expected pre-tax profit from 

22 the transaction is substantial in rela23 tion to the present value of the expected 

24 net tax benefits that would be allowed 

25 if the transaction were respected, and 


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1 ‘‘(II) the reasonably expected pre2 tax profit from the transaction exceeds 

3 a risk-free rate of return. 

4 ‘‘(C) TREATMENT OF FEES AND FOREIGN

5 TAXES.—Fees and other transaction expenses 

6 and foreign taxes shall be taken into account as 

7 expenses in determining pre-tax profit under 

8 subparagraph (B)(ii). 

9 ‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH

10 TAX-INDIFFERENT PARTIES.— 

11 ‘‘(A) SPECIAL RULES FOR FINANCING

12 TRANSACTIONS.—The form of a transaction 

13 which is in substance the borrowing of money or 

14 the acquisition of financial capital directly or 

15 indirectly from a tax-indifferent party shall not 

16 be respected if the present value of the deductions 

17 to be claimed with respect to the transaction is 

18 substantially in excess of the present value of the 

19 anticipated economic returns of the person lend20 ing the money or providing the financial capital. 

21 A public offering shall be treated as a borrowing, 

22 or an acquisition of financial capital, from a 

23 tax-indifferent party if it is reasonably expected 

24 that at least 50 percent of the offering will be 

25 placed with tax-indifferent parties. 


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1 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

2 BASIS ADJUSTMENTS.—The form of a trans3 action with a tax-indifferent party shall not be 

4 respected if— 

5 ‘‘(i) it results in an allocation of in6 come or gain to the tax-indifferent party in 

7 excess of such party’s economic income or 

8 gain, or 

9 ‘‘(ii) it results in a basis adjustment or 

10 shifting of basis on account of overstating 

11 the income or gain of the tax-indifferent 

12 party. 

13 ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For 

14 purposes of this subsection— 

15 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

16 The term ‘economic substance doctrine’ means 

17 the common law doctrine under which tax bene18 fits under subtitle A with respect to a trans19 action are not allowable if the transaction does 

20 not have economic substance or lacks a business 

21 purpose. 

22 ‘‘(B) TAX-INDIFFERENT PARTY.—The term 

23 ‘tax-indifferent party’ means any person or enti24 ty not subject to tax imposed by subtitle A. A 

25 person shall be treated as a tax-indifferent party 


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1 with respect to a transaction if the items taken 

2 into account with respect to the transaction have 

3 no substantial impact on such person’s liability 

4 under subtitle A. 

5 ‘‘(C) EXCEPTION FOR PERSONAL TRANS6 ACTIONS OF INDIVIDUALS.—In the case of an in7 dividual, this subsection shall apply only to 

8 transactions entered into in connection with a 

9 trade or business or an activity engaged in for 

10 the production of income. 

11 ‘‘(D) TREATMENT OF LESSORS.—In apply12 ing paragraph (1)(B)(ii) to the lessor of tangible 

13 property subject to a lease— 

14 ‘‘(i) the expected net tax benefits with 

15 respect to the leased property shall not in16 clude the benefits of— 

17 ‘‘(I) depreciation, 

18 ‘‘(II) any tax credit, or 

19 ‘‘(III) any other deduction as pro20 vided in guidance by the Secretary, 

21 and 

22 ‘‘(ii) subclause (II) of paragraph 

23 (1)(B)(ii) shall be disregarded in deter24 mining whether any of such benefits are al25 lowable. 


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1 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF2 FECTED.—Except as specifically provided in this sub3 section, the provisions of this subsection shall not be 

4 construed as altering or supplanting any other rule of 

5 law, and the requirements of this subsection shall be 

6 construed as being in addition to any such other rule 

7 of law. 

8 ‘‘(5) REGULATIONS.—The Secretary shall pre9 scribe such regulations as may be necessary or appro10 priate to carry out the purposes of this subsection. 

11 Such regulations may include exemptions from the 

12 application of this subsection.’’. 

13 (b) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to transactions entered into after the 

15 date of the enactment of this Act. 

16 SEC. 802. PENALTY FOR UNDERSTATEMENTS ATTRIB17 UTABLE TO TRANSACTIONS LACKING ECO18 NOMIC SUBSTANCE, ETC. 

19 (a) IN GENERAL.—Subchapter A of chapter 68 is 

20 amended by inserting after section 6662A the following new 

21 section: 


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1 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB2 UTABLE TO TRANSACTIONS LACKING ECO3 NOMIC SUBSTANCE, ETC. 

4 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 

5 noneconomic substance transaction understatement for any 

6 taxable year, there shall be added to the tax an amount 

7 equal to 40 percent of the amount of such understatement. 

8 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED TRANS9 ACTIONS.—Subsection (a) shall be applied by substituting 

10 ‘20 percent’ for ‘40 percent’ with respect to the portion of 

11 any noneconomic substance transaction understatement 

12 with respect to which the relevant facts affecting the tax 

13 treatment of the item are adequately disclosed in the return 

14 or a statement attached to the return. 

15 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UNDER16 STATEMENT.—For purposes of this section— 

17 ‘‘(1) IN GENERAL.—The term ‘noneconomic sub18 stance transaction understatement’ means any 

19 amount which would be an understatement under sec20 tion 6662A(b)(1) if section 6662A were applied by 

21 taking into account items attributable to noneconomic 

22 substance transactions rather than items to which sec23 tion 6662A would apply without regard to this para24 graph. 


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1 ‘‘(2) NONECONOMIC SUBSTANCE TRANSACTION.— 

2 The term ‘noneconomic substance transaction’ means 

3 any transaction if— 

4 ‘‘(A) there is a lack of economic substance 

5 (within the meaning of section 7701(p)(1)) for 

6 the transaction giving rise to the claimed benefit 

7 or the transaction was not respected under sec8 tion 7701(p)(2), or 

9 ‘‘(B) the transaction fails to meet the re10 quirements of any similar rule of law. 

11 ‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN12 ALTY.— 

13 ‘‘(1) IN GENERAL.—If the 1st letter of proposed 

14 deficiency which allows the taxpayer an opportunity 

15 for administrative review in the Internal Revenue 

16 Service Office of Appeals has been sent with respect 

17 to a penalty to which this section applies, only the 

18 Commissioner of Internal Revenue may compromise 

19 all or any portion of such penalty. 

20 ‘‘(2) APPLICABLE RULES.—The rules of para21 graphs (2) and (3) of section 6707A(d) shall apply for 

22 purposes of paragraph (1). 

23 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex24 cept as otherwise provided in this part, the penalty imposed 


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1 by this section shall be in addition to any other penalty 

2 imposed by this title. 

3 ‘‘(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).’’. 

4 (b) COORDINATION WITH OTHER UNDERSTATEMENTS

5 AND PENALTIES.— 

6 (1) The second sentence of section 6662(d)(2)(A) 

7 is amended by inserting ‘‘and without regard to items 

8 with respect to which a penalty is imposed by section 

9 6662B’’ before the period at the end. 

10 (2) Subsection (e) of section 6662A is amended— 

11 (A) in paragraph (1), by inserting ‘‘and 

12 noneconomic substance transaction understate13 ments’’ after ‘‘reportable transaction understate14 ments’’ both places it appears, 

15 (B) in paragraph (2)(A), by inserting ‘‘and 

16 a noneconomic substance transaction understate17 ment’’ after ‘‘reportable transaction understate18 ment’’, 

19 (C) in paragraph (2)(B), by inserting 

20 ‘‘6662B or’’ before ‘‘6663’’, 

21 (D) in paragraph (2)(C)(i), by inserting 

22 ‘‘or section 6662B’’ before the period at the end, 


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1 (E) in paragraph (2)(C)(ii), by inserting 

2 ‘‘and section 6662B’’ after ‘‘This section’’, 

3 (F) in paragraph (3), by inserting ‘‘or non4 economic substance transaction understatement’’ 

5 after ‘‘reportable transaction understatement’’, 

6 and 

7 (G) by adding at the end the following new 

8 paragraph: 

9 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

10 UNDERSTATEMENT.—For purposes of this subsection, 

11 the term ‘noneconomic substance transaction under12 statement’ has the meaning given such term by sec13 tion 6662B(c).’’. 

14 (3) Subsection (e) of section 6707A is amended— 

15 (A) by striking ‘‘or’’ at the end of subpara16 graph (B), and 

17 (B) by striking subparagraph (C) and in18 serting the following new subparagraphs: 

19 ‘‘(C) is required to pay a penalty under sec20 tion 6662B with respect to any noneconomic 

21 substance transaction, or 

22 ‘‘(D) is required to pay a penalty under 

23 section 6662(h) with respect to any transaction 

24 and would (but for section 6662A(e)(2)(C)) have 

25 been subject to penalty under section 6662A at a 


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1 rate prescribed under section 6662A(c) or under 

2 section 6662B,’’. 

3 (c) CLERICAL AMENDMENT.—The table of sections for 

4 part II of subchapter A of chapter 68 is amended by insert5 ing after the item relating to section 6662A the following 

6 new item: 

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking 

economic substance, etc.’’. 

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

8 section shall apply to transactions entered into after the 

9 date of the enactment of this Act. 

10 SEC. 803. APPLICATION OF RULES TREATING INVERTED 

11 CORPORATIONS AS DOMESTIC CORPORA12 TIONS TO CERTAIN TRANSACTIONS OCCUR13 RING AFTER MARCH 20, 2002. 

14 (a) IN GENERAL.—Section 7874(b) (relating to in15 verted corporations treated as domestic corporations) is 

16 amended to read as follows: 

17 ‘‘(b) INVERTED CORPORATIONS TREATED AS DOMES18 TIC CORPORATIONS.— 

19 ‘‘(1) IN GENERAL.—Notwithstanding section 

20 7701(a)(4), a foreign corporation shall be treated for 

21 purposes of this title as a domestic corporation if such 

22 corporation would be a surrogate foreign corporation 

23 if subsection (a)(2) were applied by substituting ‘80 

24 percent’ for ‘60 percent’. 


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1 ‘‘(2) SPECIAL RULE FOR CERTAIN TRANSACTIONS

2 OCCURRING AFTER MARCH 20, 2002.— 

3 ‘‘(A) IN GENERAL.—If— 

4 ‘‘(i) paragraph (1) does not apply to a 

5 foreign corporation, but 

6 ‘‘(ii) paragraph (1) would apply to 

7 such corporation if, in addition to the sub8 stitution under paragraph (1), subsection 

9 (a)(2) were applied by substituting ‘March 

10 20, 2002’ for ‘March 4, 2003’ each place it 

11 appears, 

12 then paragraph (1) shall apply to such corpora13 tion but only with respect to taxable years of 

14 such corporation beginning after December 31, 

15 2005. 

16 ‘‘(B) SPECIAL RULES.—Subject to such 

17 rules as the Secretary may prescribe, in the case 

18 of a corporation to which paragraph (1) applies 

19 by reason of this paragraph— 

20 ‘‘(i) the corporation shall be treated, as 

21 of the close of its last taxable year beginning 

22 before January 1, 2006, as having trans23 ferred all of its assets, liabilities, and earn24 ings and profits to a domestic corporation 


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1 in a transaction with respect to which no 

2 tax is imposed under this title, 

3 ‘‘(ii) the bases of the assets transferred 

4 in the transaction to the domestic corpora5 tion shall be the same as the bases of the as6 sets in the hands of the foreign corporation, 

7 subject to any adjustments under this title 

8 for built-in losses, 

9 ‘‘(iii) the basis of the stock of any 

10 shareholder in the domestic corporation 

11 shall be the same as the basis of the stock 

12 of the shareholder in the foreign corporation 

13 for which it is treated as exchanged, and 

14 ‘‘(iv) the transfer of any earnings and 

15 profits by reason of clause (i) shall be dis16 regarded in determining any deemed divi17 dend or foreign tax creditable to the domes18 tic corporation with respect to such trans19 fer. 

20 ‘‘(C) REGULATIONS.—The Secretary may 

21 prescribe such regulations as may be necessary 

22 or appropriate to carry out this paragraph, in23 cluding regulations to prevent the avoidance of 

24 the purposes of this paragraph.’’. 


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

2 section shall apply to taxable years beginning after Decem3 ber 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.’’. 


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Calendar No. 614 

109TH CONGRESS 

2D SESSION S. 1321 

[Report No. 109

–336] 

AN ACT 

To amend the Internal Revenue Code of 1986 to 

munications services. repeal the excise tax on telephone and other comSEPTEMBER 15, 2006 

Reported with an amendment and an amendment to the 

title 


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