Taxpayer Protection Act of 2016

To provide enhanced protections for taxpayers from fraud and other illegal activities, and for other purposes. 1. Short title; etc (a) Short title This Act may be cited as the Taxpayer Protection Act of 2016 (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Definitions In this Act: (1) Applicable Congressional committees The term applicable Congressional committees (2) Comptroller General The term Comptroller General (3) Secretary The term Secretary (d) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; etc. TITLE I—Protection of Taxpayer Rights Subtitle A—Reform of Assessment and Collection Procedures Sec. 101. Report on IRS authority to compromise tax matters. Sec. 102. Report on opportunity for hearing by the IRS Office of Appeals. Sec. 103. Extending time limit for contesting IRS levy. Sec. 104. Individuals held harmless on improper levy on retirement plans. Sec. 105. Report on IRS audit criteria. Subtitle B—Assistance to Individual Taxpayers in Filing Returns Sec. 111. Return preparation programs for low-income taxpayers. Sec. 112. Limiting redisclosures and uses of consent-based disclosures of tax return information. Sec. 113. Clarification of equitable relief from joint liability. Sec. 114. Modification of user fee requirements for installment agreements. Sec. 115. Reports on Future State and similar online initiatives. Sec. 116. Notice from IRS regarding closure of Taxpayer Assistance Centers. Sec. 117. Recovery of certain improperly withheld severance payments. Subtitle C—Whistleblower Protections Sec. 121. Reports concerning whistleblower awards. Sec. 122. Whistleblower reforms. Subtitle D—Reform of Laws Governing Internal Revenue Service Employees Sec. 131. Electronic record retention. Sec. 132. Sense of the Senate on revision of the Hatch Act. Sec. 133. Prohibition on rehiring former IRS employees who were involuntarily separated for misconduct. Sec. 134. Authority to remove or transfer senior IRS executives who fail in their performance or engage in serious misconduct. Sec. 135. Limit participation of third-party contractors for sworn testimony taken pursuant to a summons from the IRS. Sec. 136. Notification of unauthorized inspection or disclosure of returns and return information. Subtitle E—Exempt Organizations Sec. 141. Mandatory e-filing by exempt organizations. Sec. 142. Repeal of substantiation exception for certain charitable contributions reported by the donee organization. Sec. 143. Prohibit the use of IRS funds for political targeting. Sec. 144. Notification to exempt organizations prior to revoking exempt status for failing to file information returns. TITLE II—Protection of Taxpayers from Identity Theft and Tax Fraud Sec. 201. Single point of contact for identity theft victims. Sec. 202. Protecting taxpayers from telephone scams. Sec. 203. Information on identity theft and tax scams. Sec. 204. Report on Federal employee wage and tax withholding reporting to State tax agencies. Sec. 205. Notification of suspected identity theft. I Protection of Taxpayer Rights A Reform of Assessment and Collection Procedures 101. Report on IRS authority to compromise tax matters Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit a report to the applicable Congressional committees which evaluates— (1) how the Internal Revenue Service exercises its authority to compromise tax matters under section 7122 (2) the role of the Office of the Chief Counsel for the Internal Revenue Service in consideration of offers under such section, including any recommendations regarding whether to amend or eliminate the requirement under subsection (b) of such section of a written opinion for cases in which the unpaid amount of tax assessed exceeds $50,000. 102. Report on opportunity for hearing by the IRS Office of Appeals Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit a report to the applicable Congressional committees which evaluates— (1) the reasoning put forth by the Internal Revenue Service for denying taxpayers an opportunity for administrative review through the Internal Revenue Service Office of Appeals, (2) the process used by the Internal Revenue Service for designating a case for litigation, including the methodology by which the Internal Revenue Service determines— (A) whether designating a case for litigation is in the interest of sound tax administration, and (B) whether there is a critical need for enforcement activity with respect to legal issues raised in a case, (3) the result of cases designated for litigation over the preceding 10 years, including cases in which a settlement was subsequently reached, (4) taxpayer access to the Internal Revenue Service Office of Appeals, including— (A) a comparison between States in which an Appeals Officer or a Settlement Officer has a permanent presence and States in which no such officer has a permanent presence, and (B) the effect on taxpayers in States in which an Appeals Officer or a Settlement Officer does not have a permanent presence, and (5) any relevant factors relating to resolution of cases by the Internal Revenue Service Office of Appeals, including the average amount of time for a taxpayer to initially meet with an Appeals Officer or a Settlement Officer, the average amount of time required to resolve a case, geographic and technological constraints, and taxpayer satisfaction with the appeals process of the Internal Revenue Service. 103. Extending time limit for contesting IRS levy (a) Extension of Time for Return of Property Subject to Levy Subsection (b) of section 6343 9 months 2 years (b) Period of Limitation on Suits Subsection (c) of section 6532 (1) by striking 9 months 2 years (2) by striking 9-month 2-year (c) Effective Date The amendments made by this section shall apply to— (1) levies made after the date of the enactment of this Act, and (2) levies made on or before such date if the 9-month period has not expired under section 6343(b) or 6532(c), as applicable, of the Internal Revenue Code of 1986 (as in effect before the amendments made by this section) as of such date. 104. Individuals held harmless on improper levy on retirement plans (a) In General Section 6343 (f) Individuals Held Harmless on Wrongful Levy, etc. on Retirement Plan (1) In general If the Secretary determines that an individual's account or benefit under an eligible retirement plan (as defined in section 402(c)(8)(B)) has been levied upon in a case to which subsection (b) or (d)(2)(A) applies and property or an amount of money is returned to the individual— (A) the individual may contribute such property or an amount equal to the sum of— (i) the amount of money so returned by the Secretary, and (ii) interest paid under subsection (c) on such amount of money, into such eligible retirement plan if such contribution is permitted by the plan, or into an individual retirement plan (other than an endowment contract) to which a rollover contribution of a distribution from such eligible retirement plan is permitted, but only if such contribution is made not later than the due date (not including extensions) for filing the return of tax for the taxable year in which such property or amount of money is returned, and (B) the Secretary shall, at the time such property or amount of money is returned, notify such individual that a contribution described in subparagraph (A) may be made. (2) Treatment as rollover The distribution on account of the levy and any contribution under paragraph (1) with respect to the return of such distribution shall be treated for purposes of this title as if such distribution and contribution were described in section 402(c), 402A(c)(3), 403(a)(4), 403(b)(8), 408(d)(3), 408A(d)(3), or 457(e)(16), whichever is applicable; except that— (A) the contribution shall be treated as having been made for the taxable year in which the distribution on account of the levy occurred, and the interest paid under subsection (c) shall be treated as earnings within the plan after the contribution and shall not be included in gross income, and (B) such contribution shall not be taken into account under section 408(d)(3)(B). (3) Refund, etc., of income tax on levy (A) In general If any amount is includible in gross income for a taxable year by reason of a distribution on account of a levy referred to in paragraph (1) and any portion of such amount is treated as a rollover contribution under paragraph (2), any tax imposed by chapter 1 on such portion shall not be assessed, and if assessed shall be abated, and if collected shall be credited or refunded as an overpayment made on the due date for filing the return of tax for such taxable year. (B) Exception Subparagraph (A) shall not apply to a rollover contribution under this subsection which is made from an eligible retirement plan which is not a Roth IRA or a designated Roth account (within the meaning of section 402A) to a Roth IRA or a designated Roth account under an eligible retirement plan. (4) Interest Notwithstanding subsection (d), interest shall be allowed under subsection (c) in a case in which the Secretary makes a determination described in subsection (d)(2)(A) with respect to a levy upon an individual retirement plan. (5) Treatment of inherited accounts For purposes of paragraph (1)(A), section 408(d)(3)(C) shall be disregarded in determining whether an individual retirement plan is a plan to which a rollover contribution of a distribution from the plan levied upon is permitted. . (b) Effective Date The amendment made by this section shall apply to amounts paid under subsections (b), (c), and (d)(2)(A) of section 6343 105. Report on IRS audit criteria Not later than 2 years after the date of the enactment of this Act, the Treasury Inspector General for Tax Administration shall submit a report to the applicable Congressional committees which contains the results of an audit of the criteria employed by the Internal Revenue Service for selecting tax returns for audit, assessment, criminal investigation, or any heightened scrutiny or review, including whether such criteria has been used to target taxpayers on the basis of political ideology, race, religion, or any other impermissible factor. B Assistance to Individual Taxpayers in Filing Returns 111. Return preparation programs for low-income taxpayers (a) In general Chapter 77 7526A. Return preparation programs for low-income taxpayers (a) Volunteer Income Tax Assistance Matching Grant Program (1) Establishment of Program The Secretary, through the Internal Revenue Service, shall establish a Community Volunteer Income Tax Assistance Matching Grant Program (hereinafter in this section referred to as the VITA grant program (2) Matching grants (A) In general The Secretary may, subject to the availability of appropriated funds, make available grants under the VITA grant program to provide matching funds for the development, expansion, or continuation of qualified return preparation programs assisting low-income taxpayers and members of underserved populations. (B) Application In order to be eligible for a grant under this section, a qualified return preparation program shall submit an application to the Secretary at such time, in such manner, and containing such information as the Secretary may reasonably require. (C) Priority In awarding grants under this section, the Secretary shall give priority to applications— (i) demonstrating assistance to low-income taxpayers, with emphasis on outreach to and services for such taxpayers, (ii) demonstrating taxpayer outreach and educational activities relating to eligibility and availability of income supports available through the Internal Revenue Code of 1986, such as the earned income tax credit, and (iii) demonstrating specific outreach and focus on one or more underserved populations. (D) Duration of grants Upon application of a qualified return preparation program, the Secretary is authorized to award a multi-year grant not to exceed 3 years. (3) Aggregate limitation Unless otherwise provided by specific appropriation, the Secretary shall not allocate more than $30,000,000 per fiscal year (exclusive of costs of administering the program) to carry out the purposes of this section. (b) Use of funds (1) In general Qualified return preparation programs receiving a grant under this section may use the grant for— (A) ordinary and necessary costs associated with program operation in accordance with Cost Principles Circulars as set forth by the Office of Management and Budget, including— (i) for wages or salaries of persons coordinating the activities of the program, (ii) to develop training materials, conduct training, and perform quality reviews of the returns for which assistance has been provided under the program, and (iii) for equipment purchases and vehicle-related expenses associated with remote or rural tax preparation services, (B) outreach and educational activities described in subsection (a)(2)(C)(ii), and (C) services related to financial education and capability, asset development, and the establishment of savings accounts in connection with tax return preparation. (2) Use of grants for overhead expenses prohibited No grant made under this section may be used for overhead expenses that are not directly related to any qualified return preparation program. (c) Promotion and referral (1) Promotion The Secretary shall promote the benefits of, and encourage the use of, tax preparation through qualified return preparation programs through the use of mass communications, referrals, and other means. (2) Internal revenue service referrals The Secretary may refer taxpayers to qualified return preparation programs receiving funding under this section. (3) VITA grantee referral Qualified return preparation programs receiving a grant under this section are encouraged to refer, as appropriate, to local or regional Low Income Taxpayer Clinics individuals who are eligible to receive services at such clinics. (d) Definitions For purposes of this section— (1) Qualified return preparation program The term qualified return preparation program (A) which provides assistance to individuals, not less than 90 percent of whom are low-income taxpayers, in preparing and filing Federal income tax returns, (B) which is administered by a qualified entity, (C) in which all of the volunteers who assist in the preparation of Federal income tax returns meet the training requirements prescribed by the Secretary, and (D) which uses a quality review process which reviews 100 percent of all returns. (2) Qualified entity (A) In general The term qualified entity (i) is an eligible organization (as described in subparagraph (B)), (ii) is in compliance with Federal tax filing and payment requirements, (iii) is not debarred or suspended from Federal contracts, grants, or cooperative agreements, and (iv) agrees to provide documentation to substantiate any matching funds provided under the VITA grant program. (B) Eligible organization (i) In general Subject to clause (ii), the term eligible organization (I) an institution of higher education which is described in section 102 (other than subsection (a)(1)(C) thereof) of the Higher Education Act of 1965 ( 20 U.S.C. 1088 (II) an organization described in section 501(c) (III) a local government agency, including— (aa) a county or municipal government agency, and (bb) an Indian tribe, as defined in section 4(13) of the Native American Housing Assistance and Self-Determination Act of 1996 ( 25 U.S.C. 4103(13) 25 U.S.C. 4103(22) (IV) a local, State, regional, or national coalition (with one lead organization which meets the eligibility requirements of subclause (I), (II), or (III) acting as the applicant organization). (ii) Alternative eligible organization If no eligible organization described in clause (i) is available to assist the targeted population or community, the term eligible organization (I) a State government agency, and (II) a Cooperative Extension Service office. (3) Low-income taxpayers The term low-income taxpayer (4) Underserved population The term underserved population . (b) Clerical amendment The table of sections for chapter 77 7526A. Return preparation programs for low-income taxpayers. . 112. Limiting redisclosures and uses of consent-based disclosures of tax return information (a) In general Subsection (c) of section 6103 Persons who receive return information under this subsection shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer. (b) Effective date The amendment made by this section shall apply to disclosures made after the date of the enactment of this Act. 113. Clarification of equitable relief from joint liability (a) In general Section 6015 (1) in subsection (e), by adding at the end the following new paragraph: (7) Standard and scope of review Any review of a determination made under this section shall be reviewed de novo by the Tax Court and shall be based upon— (A) the administrative record established at the time of the determination, and (B) any additional newly discovered or previously unavailable evidence. , and (2) by amending subsection (f) to read as follows: (f) Equitable relief (1) In general Under procedures prescribed by the Secretary, if— (A) taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency (or any portion of either), and (B) relief is not available to such individual under subsection (b) or (c), the Secretary may relieve such individual of such liability. (2) Limitation A request for equitable relief under this subsection may be made with respect to any portion of any liability that— (A) has not been paid, provided that such request is made before the expiration of the applicable period of limitation under section 6502, or (B) has been paid, provided that such request is made during the period in which the individual could submit a timely claim for refund or credit of such payment. . (b) Effective date The amendments made by this section shall apply to petitions or requests filed or pending on or after the date of the enactment of this Act. 114. Modification of user fee requirements for installment agreements (a) In general Section 6159 (f) Installment agreement fees (1) Limitation on fee amount The amount of any fee imposed on an installment agreement under this section may not exceed the amount of such fee as in effect on the date of the enactment of this subsection. (2) Waiver or reimbursement In the case of any taxpayer with an adjusted gross income, as determined for the most recent year for which such information is available, that does not exceed 250 percent of the applicable poverty level (as determined by the Secretary)— (A) if the taxpayer has agreed to make payments under the installment agreement by electronic payment through a debit instrument, no fee shall be imposed on an installment agreement under this section, and (B) if the taxpayer is unable to make payments under the installment agreement by electronic payment through a debit instrument, the Secretary shall, upon completion of the installment agreement, pay the taxpayer an amount equal to any such fees imposed. . (b) Effective date The amendments made by this section shall apply to agreements entered into on or after the date which is 60 days after the date of the enactment of this Act. 115. Reports on Future State and similar online initiatives (a) Internal Revenue Service Not later than 12 months after the date of the enactment of this Act, and annually thereafter, the Secretary shall submit a report to the applicable Congressional committees which provides information on the status of the efforts by the Internal Revenue Service to expand online taxpayer services, including a detailed assessment of any service which is proposed to be shifted to a self-service option. (b) Comptroller General Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit a report to the applicable Congressional committees which— (1) evaluates the level of phone and in-person services provided by the Internal Revenue Service to taxpayers residing in any rural city, town, or unincorporated area which has a population of not more than 50,000 inhabitants, and (2) provides recommendations on measures the Internal Revenue Service could include in the development of its expanded online taxpayer services to protect the interests of taxpayers described in paragraph (1). 116. Notice from IRS regarding closure of Taxpayer Assistance Centers (a) In general Not later than 90 days before the date that a proposed closure of a Taxpayer Assistance Center would take effect, the Secretary shall submit a report to the applicable Congressional committees which provides the reasons for the proposed closure and a description of the taxpayer assistance services which will be provided by the Internal Revenue Service after the proposed closure takes effect to taxpayers in any rural city, town, or unincorporated area which has a population of not more than 50,000 inhabitants and would be affected by the proposed closure. (b) Treatment under Congressional Review Act For purposes of applying chapter 8 117. Recovery of certain improperly withheld severance payments (a) Restoration of amounts improperly withheld for tax purposes from severance payments to veterans with combat-related injuries (1) In general Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall— (A) identify— (i) the severance payments computed under section 1212 of title 10, United States Code, and paid by the Secretary of Defense after January 17, 1991— (I) which were excluded from gross income pursuant to section 104(a)(4) (II) from which the Secretary of Defense withheld amounts for Federal income tax purposes, and (ii) the individuals to whom such severance payments were made, and (B) with respect to each person identified under subparagraph (A)(ii), provide— (i) notice of— (I) the amount of severance payments described in subparagraph (A)(i), and (II) such other information determined to be necessary by the Secretary to carry out the purposes of this section, and (ii) instructions for filing amended tax returns to recover improperly withheld amounts. (2) Extension of limitation on time for credit or refund (A) Period for filing claim If a claim for credit or refund under section 6511(a) (B) Specified overpayment For purposes of subparagraph (A), the term specified overpayment (b) Requirement that Secretary of Defense ensure amounts are not withheld for tax purposes from severance payments not considered gross income The Secretary of Defense shall take such actions as may be necessary to ensure that amounts are not withheld for tax purposes from severance payments made by the Secretary of Defense to individuals when such payments are not considered gross income pursuant to section 104(a)(4) (c) Report to Congress (1) In general After completing the identification required by subsection (a)(1) and not later than 15 months after the date of the enactment of this Act, the Secretary of Defense shall submit to the appropriate committees of Congress a report on the actions taken by the Secretary of Defense to carry out this section. (2) Contents The report submitted under paragraph (1) shall include the following: (A) The number of individuals identified under subsection (a)(1)(A)(ii). (B) The aggregate amounts that the Secretary of Defense withheld which are described in subsection (a)(1)(A)(i)(II). (C) A description of the actions the Secretary of Defense plans to take to carry out subsection (b). (3) Appropriate committees of Congress defined In this section, the term appropriate committees of Congress (A) the Committee on Armed Services, the Committee on Veterans' Affairs, and the Committee on Finance of the Senate, and (B) the Committee on Armed Services, the Committee on Veterans' Affairs, and the Committee on Ways and Means of the House of Representatives. C Whistleblower Protections 121. Reports concerning whistleblower awards (a) Comptroller General Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit a report to the applicable Congressional committees regarding whether, and to what extent, the Secretary has paid any whistleblower awards for information relating to— (1) violations under the Internal Revenue Code of 1986, or (2) violations of requirements mandated by subchapter II of chapter 53 Bank Secrecy Act (b) TIGTA Not later than 12 months after the date of the enactment of this Act, the Treasury Inspector General for Tax Administration shall submit a report to the applicable Congressional committees which evaluates whether, and to what extent, the Secretary has asserted penalties for violations of requirements described in subsection (a)(2) in lieu of applicable penalties under the Internal Revenue Code of 1986. 122. Whistleblower reforms (a) Modifications to disclosure rules for whistleblowers (1) In general Section 6103(k) (13) Disclosure to whistleblowers (A) In general The Secretary may disclose, to any individual providing information relating to any purpose described in paragraph (1) or (2) of section 7623(a), return information related to the investigation of any taxpayer with respect to whom the individual has provided such information, but only to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax liability for tax, or the amount to be collected with respect to the enforcement of any other provision of this title. (B) Updates on whistleblower investigations The Secretary shall disclose to an individual providing information relating to any purpose described in paragraph (1) or (2) of section 7623(a) the following: (i) Not later than 30 days after a case for which the individual has provided information has been referred for an audit or examination, a notice with respect to such referral. (ii) Not later than 30 days after a taxpayer with respect to whom the individual has provided information has made a payment of tax with respect to tax liability to which such information relates, a notice with respect to such payment. (iii) Subject to such requirements and conditions as are prescribed by the Secretary, upon a written request by such individual— (I) information on the status and stage of any investigation or action related to such information, and (II) in the case of a determination of the amount of any award under section 7623(b), the reasons for such determination. Clause (iii) shall not apply to any information if the Secretary determines that disclosure of such information would seriously impair Federal tax administration. Information described in clauses (i), (ii), and (iii) may be disclosed to a designee of the individual providing such information in accordance with guidance provided by the Secretary. . (2) Conforming amendments (A) Confidentiality of information Section 6103(a)(3) subsection (k)(10) paragraph (10) or (13) of subsection (k) (B) Penalty for unauthorized disclosure Section 7213(a)(2) (k)(10) (k)(10) or (13) (C) Coordination with authority to disclose for investigative purposes Section 6103(k)(6) This paragraph shall not apply to any disclosure to an individual providing information relating to any purpose described in paragraph (1) or (2) of section 7623(a) which is made under paragraph (13)(A). (b) Protection against retaliation Section 7623 (c) Civil action to protect against retaliation cases (1) Anti-retaliation whistleblower protection for employees No employer or any officer, employee, contractor, subcontractor, or agent of such employer may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment (including through an act in the ordinary course of such employee's duties) in reprisal for any lawful act done by the employee— (A) to provide information, cause information to be provided, or otherwise assist in an investigation regarding underpayment of tax or any conduct which the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of Federal law relating to tax fraud, when the information or assistance is provided to the Internal Revenue Service, the Secretary of Treasury, the Treasury Inspector General for Tax Administration, the Comptroller General of the United States, the Department of Justice, the United States Congress, a person with supervisory authority over the employee, or any other person working for the employer who has the authority to investigate, discover, or terminate misconduct, or (B) to testify, participate in, or otherwise assist in any administrative or judicial action taken by the Internal Revenue Service relating to an alleged underpayment of tax or any violation of the internal revenue laws or any provision of Federal law relating to tax fraud. (2) Enforcement action (A) In general A person who alleges discharge or other reprisal by any person in violation of paragraph (1) may seek relief under paragraph (3) by— (i) filing a complaint with the Secretary of Labor, or (ii) if the Secretary of Labor has not issued a final decision within 180 days of the filing of the complaint and there is no showing that such delay is due to the bad faith of the claimant, bringing an action at law or equity for de novo review in the appropriate district court of the United States, which shall have jurisdiction over such an action without regard to the amount in controversy. (B) Procedure (i) In general An action under subparagraph (A)(ii) shall be governed under the rules and procedures set forth in section 42121(b) of title 49, United States Code. (ii) Exception Notification made under section 42121(b)(1) of title 49, United States Code, shall be made to the person named in the complaint and to the employer. (iii) Burdens of proof An action brought under subparagraph (A)(ii) shall be governed by the legal burdens of proof set forth in section 42121(b) of title 49, United States Code, except that in applying such section— (I) behavior described in paragraph (1) behavior described in paragraphs (1) through (4) of subsection (a) (II) a violation of paragraph (1) a violation of subsection (a) (iv) Statute of limitations A complaint under subparagraph (A)(i) shall be filed not later than 180 days after the date on which the violation occurs. (v) Jury trial A party to an action brought under subparagraph (A)(ii) shall be entitled to trial by jury. (3) Remedies (A) In general An employee prevailing in any action under paragraph (2)(A) shall be entitled to all relief necessary to make the employee whole. (B) Compensatory damages Relief for any action under subparagraph (A) shall include— (i) reinstatement with the same seniority status that the employee would have had, but for the reprisal, (ii) the sum of 200 percent of the amount of back pay and 100 percent of all lost benefits, with interest, and (iii) compensation for any special damages sustained as a result of the reprisal, including litigation costs, expert witness fees, and reasonable attorney fees. (4) Rights retained by employee Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any employee under any Federal or State law, or under any collective bargaining agreement. (5) Nonenforceability of certain provisions waiving rights and remedies or requiring arbitration of disputes (A) Waiver of rights and remedies The rights and remedies provided for in this subsection may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. (B) Predispute arbitration agreements No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this subsection. . (c) Effective date (1) In general The amendments made by subsection (a) shall apply to disclosures made after the date of the enactment of this Act. (2) Civil protection The amendment made by subsection (b) shall take effect on the date of the enactment of this Act. D Reform of Laws Governing Internal Revenue Service Employees 131. Electronic record retention (a) Retention of records (1) In general Email records of the Internal Revenue Service shall be retained in an appropriate electronic system that supports records management and litigation requirements, including the capability to identify, retrieve, and retain the records, in accordance with the requirements described in paragraph (2). (2) Requirements (A) Prior to certification The Commissioner of Internal Revenue and the Chief Counsel for the Internal Revenue Service shall retain all email records generated on or after the date of the enactment of this Act and before the date on which the Treasury Inspector General for Tax Administration makes the certification under subsection (c)(1). (B) Principal officers and specified employees Not later than December 31, 2016, the Commissioner of Internal Revenue and the Chief Counsel for the Internal Revenue Service shall maintain email records of all principal officers and specified employees of the Internal Revenue Service for a period of 15 years beginning on the date such record was generated. (b) Transmission of records to the National Archives Not later than the last day of the 15-year period described in subsection (a)(2)(B), the Commissioner of Internal Revenue and the Chief Counsel for the Internal Revenue Service shall transfer the email records of principal officers and specified employees of the Internal Revenue Service to the Archivist of the United States. (c) Compliance (1) Certification On the date that the Treasury Inspector General for Tax Administration determines that the Internal Revenue Service has a program in place that complies with the requirements of subsections (a)(2)(B) and (b), the Treasury Inspector General for Tax Administration shall certify to the applicable Congressional committees that the Internal Revenue Service is in compliance with such requirements. (2) Reports (A) Interim report Not later than September 30, 2016, the Treasury Inspector General for Tax Administration shall submit a report to the applicable Congressional committees on the steps being taken by the Commissioner of Internal Revenue and the Chief Counsel for the Internal Revenue Service to comply with the requirements of subsections (a)(2)(B) and (b). (B) Final report Not later than April 1, 2017, the Treasury Inspector General for Tax Administration shall submit a report to the applicable Congressional committees describing whether the Internal Revenue Service is in compliance with the requirements of subsections (a)(2)(B) and (b). (d) Definitions For purposes of this section— (1) Principal officer The term principal officer (A) any employee whose position is listed under the Internal Revenue Service in the most recent version of the United States Government Manual published by the Office of the Federal Register, (B) any employee who is a senior staff member reporting directly to the Commissioner of Internal Revenue or the Chief Counsel for the Internal Revenue Service, and (C) any associate counsel, deputy counsel, or division head in the Office of the Chief Counsel for the Internal Revenue Service. (2) Specified employee The term specified employee (A) holds a Senior Executive Service position (as defined in section 3132 of title 5, United States Code) in the Internal Revenue Service or the Office of Chief Counsel for the Internal Revenue Service, and (B) is not a principal officer of the Internal Revenue Service. 132. Sense of the Senate on revision of the Hatch Act It is the sense of the Senate that clause (i) of section 7323(b)(2)(B) of title 5, United States Code, should be amended to include any employee of the Department of the Treasury who is primarily responsible for matters relating to organizations which are exempt from taxation pursuant to section 501(c) or 527 of the Internal Revenue Code of 1986. 133. Prohibition on rehiring former IRS employees who were involuntarily separated for misconduct (a) In general Section 7804 (d) Prohibition on rehiring employees involuntarily separated The Commissioner may not employ any individual previously employed by the Commissioner who was removed for misconduct under this subchapter or chapter 43 or chapter 75 26 U.S.C. 7804 . (b) Effective date (1) In general Except as provided in paragraph (2), the amendment made by subsection (a) shall apply with respect to any employee removed from employment before, on, or after the date of the enactment of this Act. (2) Exception The amendment made by subsection (a) shall not apply to any employee who is employed by the Internal Revenue Service as of the date of the enactment of this Act with respect to any removal for misconduct which occurred before such date. 134. Authority to remove or transfer senior IRS executives who fail in their performance or engage in serious misconduct (a) In general Section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804 (f) Removal of senior executives based on performance or misconduct (1) Removal or transfer (A) In general The Commissioner of Internal Revenue (referred to in this subsection as the Commissioner (i) remove the individual from the civil service (as defined in section 2101 of title 5, United States Code); or (ii) in the case of an individual described in subparagraph (B), transfer the individual from the senior executive position to a General Schedule position at any grade of the General Schedule for which the individual is qualified and that the Commissioner determines is appropriate. (B) Individuals eligible for transfer An individual described in this subparagraph is an individual who— (i) previously occupied a permanent position within the competitive service (as that term is defined in section 2102 of title 5, United States Code); (ii) previously occupied a permanent position within the excepted service (as that term is defined in section 2103 of title 5, United States Code); or (iii) prior to employment in a senior executive position at the Internal Revenue Service, did not occupy any position within the Federal Government. (2) Pay of transferred individuals (A) In general Notwithstanding any other provision of law, including the requirements of section 3594 of title 5, United States Code, any individual transferred to a General Schedule position under paragraph (1)(A)(ii) shall, beginning on the date of such transfer, receive the annual rate of pay applicable to such position. (B) Paid leave during appeal An individual so transferred may not be placed on administrative leave or any other category of paid leave during the period during which an appeal (if any) under this section is ongoing, and may only receive pay if the individual reports for duty. If an individual so transferred does not report for duty, such individual shall not receive pay or other benefits pursuant to paragraph (5)(E). (3) Notice to Congress Not later than 30 days after removing or transferring an individual from a senior executive position under paragraph (1), the Commissioner shall submit written notice of such removal or transfer and the reason for such removal or transfer to— (A) the Committee on Finance of the Senate; (B) the Committee on Homeland Security and Governmental Affairs of the Senate; (C) the Committee on Ways and Means of the House of Representatives; and (D) the Committee on Oversight and Government Reform of the House of Representatives. (4) Procedure (A) In general The procedures under section 7543(b) of title 5, United States Code, shall not apply to a removal or transfer under this section. (B) Appeal to Merit System Protection Board (i) In general Subject to clause (ii) and paragraph (5), any removal or transfer under paragraph (1) may be appealed to the Merit Systems Protection Board under section 7701 of title 5, United States Code. (ii) Deadline for appeal An appeal under clause (i) of a removal or transfer may only be made if such appeal is made not later than 7 days after the date of such removal or transfer. (5) Expedited review by administrative law judge (A) In general Upon receipt of an appeal under paragraph (4)(B)(i), the Merit Systems Protection Board shall refer such appeal to an administrative law judge pursuant to section 7701(b)(1) of title 5, United States Code. The administrative law judge shall expedite any such appeal under such section and, in any such case, shall issue a decision not later than 21 days after the date of the appeal. (B) Finality of decision Notwithstanding any other provision of law, including section 7703 of title 5, United States Code, the decision of an administrative law judge under subparagraph (A) shall be final and shall not be subject to any further appeal. (C) Failure to reach decision In any case in which the administrative law judge cannot issue a decision in accordance with the 21-day requirement under subparagraph (A), the removal or transfer is final. In such a case, the Merit Systems Protection Board shall, within 14 days after the date that such removal or transfer is final, submit to Congress and the Committees described in paragraph (3) a report that explains the reasons why a decision was not issued in accordance with such requirement. (D) Prohibition on stay of removal or transfer The Merit Systems Protection Board or administrative law judge may not stay any removal or transfer under this subsection. (E) Period of review During the period beginning on the date on which an individual appeals a removal from the civil service under paragraph (4) and ending on the date that the administrative law judge issues a final decision on such appeal, such individual may not receive any pay, awards, bonuses, incentives, allowances, differentials, student loan repayments, special payments, or benefits. (F) Relevant information to be provided To the maximum extent practicable, the Commissioner shall provide to the Merit Systems Protection Board, and to any administrative law judge to whom an appeal under this section is referred, such information and assistance as may be necessary to ensure an appeal under this paragraph is expedited. (6) Relation to other provisions of law (A) In general The authority provided by this subsection is in addition to, and shall not be construed to limit or diminish, the authority provided by— (i) subsections (a) and (c); and (ii) section 3592 or subchapter V of chapter 75 (B) Removal from Senior Executive Service Section 3592(b)(1) of title 5, United States Code, does not apply to an action to remove or transfer an individual under this subsection. (7) Definitions For purposes of this subsection: (A) Individual The term individual (B) Misconduct (i) In general Subject to clause (ii), the term misconduct (ii) Exception The term misconduct (C) Senior executive position The term senior executive position . (b) Establishment of expedited review process (1) In general Not later than 60 days after the date of the enactment of this Act, the Merit Systems Protection Board shall establish and put into effect a process to conduct expedited reviews in accordance with subsection (f) of section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998, as added by this Act. (2) Inapplicability of certain regulations Section 1201.22 of title 5, Code of Federal Regulations, as in effect on the day before the date of the enactment of this Act, shall not apply to expedited reviews carried out under such section 1203(f). (3) Waiver The Merit Systems Protection Board may waive any other regulation in order to provide for the expedited review required under such section 1203(f). (4) Review by Merit Systems Protection Board Not later than 30 days after the date of the enactment of this Act, the Merit Systems Protection Board shall submit to the committees described in paragraph (3) of such section 1203(f) a report on the actions the Board plans to take to conduct expedited reviews under such section. Such report shall include a description of the resources the Board determines will be necessary to conduct such reviews and a description of whether any resources will be necessary to conduct such reviews that were not available to the Board on the day before the date of the enactment of this Act. (c) Temporary exemption from certain limitation on initiation of removal from senior executive service During the 120-day period beginning on the date of the enactment of this Act, an action to remove an individual from the Senior Executive Service at the Internal Revenue Service pursuant to section 7543 of title 5, United States Code, may be initiated, notwithstanding section 3592(b) (d) Construction Nothing in this section or section 1203(f) of the Internal Revenue Service Restructuring and Reform Act of 1998, as added by this Act, shall be construed to apply to an appeal of a removal, transfer, or other personnel action that was pending before the date of the enactment of this Act. 135. Limit participation of third-party contractors for sworn testimony taken pursuant to a summons from the IRS (a) In general Section 7602 (f) Limitation on access of persons other than IRS officers and employees The authority granted under this section may not be delegated, directly or indirectly, to any person authorized to receive returns and return information under section 6103(n). . (b) Effective date (1) In general Except as provided in paragraph (2), the amendment made by this section shall take effect on the date of the enactment of this Act. (2) Application to contracts in effect The amendment made by this section shall apply to any contract in effect on the date of the enactment of this Act for an activity described in section 6103(n) 136. Notification of unauthorized inspection or disclosure of returns and return information (a) In general Subsection (e) of section 7431 The Secretary shall also notify such taxpayer if the Internal Revenue Service or a Federal or State agency (upon notice to the Secretary by such Federal or State agency) proposes an administrative determination as to disciplinary or adverse action against an employee arising from the employee’s unauthorized inspection or disclosure of the taxpayer’s return or return information. The notice described in this subsection shall include the date of the unauthorized inspection or disclosure and the rights of the taxpayer under such administrative determination. (b) Effective date The amendment made by this section shall apply to determinations proposed after the date which is 180 days after the date of the enactment of this Act. E Exempt Organizations 141. Mandatory e-filing by exempt organizations (a) In general Section 6033 (n) Mandatory electronic filing Any organization required to file a return under this section shall file such return in electronic form. . (b) Conforming amendment Paragraph (7) of section 527(j) if the organization has such calendar year (c) Inspection of electronically filed annual returns Subsection (b) of section 6104 Any annual return required to be filed electronically under section 527(j)(7) or 6033(n) shall be made available by the Secretary to the public as soon as practicable in a machine readable format that does not permit alteration or manipulation of such return. (d) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (2) Transitional relief (A) Small organizations (i) In general In the case of any small organization or any other organization for which the Secretary determines the application of the amendments made by subsections (a) and (b) would cause undue burden, the Secretary may waive application of such amendments to either or both of the organization's first 2 taxable years beginning after the date of the enactment of this Act. (ii) Small organization For purposes of clause (i), the term small organization (I) the gross receipts of which for the taxable year are less than $200,000, and (II) the aggregate gross assets of which at the end of the taxable year are less than $500,000. (B) Organizations filing form 990–T In the case of any organization described in section 511(a)(2) 142. Repeal of substantiation exception for certain charitable contributions reported by the donee organization (a) In general Section 170(f)(8) (1) by striking subparagraph (D), and (2) by redesignating subparagraph (E) as subparagraph (D). (b) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. 143. Prohibit the use of IRS funds for political targeting None of the funds made available under any Act may be used by the Internal Revenue Service to target citizens of the United States for exercising any right guaranteed under the First Amendment to the Constitution of the United States. 144. Notification to exempt organizations prior to revoking exempt status for failing to file information returns (a) In general Section 6033(j) (2) Requirement of notice (A) In general Not later than 270 days after the date an organization described in paragraph (1) fails to file the annual return or notice referenced in paragraph (1) for 2 consecutive years, the Secretary shall notify the organization— (i) that the Internal Revenue Service has no record of such a return or notice from such organization for 2 consecutive years, and (ii) about the penalty that will occur under this subsection if the organization fails to file such a return or notice by the date of the next filing deadline. The notification under the preceding sentence shall include information about how to comply with the filing requirements under subsection (a)(1) and (i). . (b) Reinstatement without application Paragraph (3) of section 6033(j), as redesignated under subsection (a), is amended— (1) by striking Any organization (A) In general Except as provided in subparagraph (B), any organization , and (2) by adding at the end the following new subparagraph: (B) Retroactive reinstatement without application if actual notice not provided If an organization described in paragraph (1)— (i) demonstrates to the satisfaction of the Secretary that the organization did not receive the notice required under paragraph (2), and (ii) files an annual return or notice referenced in paragraph (1) for the current year, then the Secretary may reinstate the organization’s exempt status effective from the date of the revocation under paragraph (1) without the need for an application. . (c) Effective date The amendments made by this section shall apply to notices and returns required to be filed after December 31, 2015. II Protection of Taxpayers from Identity Theft and Tax Fraud 201. Single point of contact for identity theft victims (a) In general The Secretary shall establish and implement procedures to ensure that any taxpayer whose return has been delayed or otherwise adversely affected due to identity theft has a single point of contact at the Internal Revenue Service throughout the processing of the taxpayer's case. The single point of contact shall track the taxpayer's case to completion and coordinate with other specialized units to resolve case issues as quickly as possible. (b) Single point of contact (1) In general For purposes of subsection (a), the single point of contact may consist of a team or subset of specially trained employees who— (A) have the ability to work across functions to resolve the issues involved in the taxpayer's case, and (B) shall be accountable for handling the case until its resolution. (2) Team or subset The employees included within the team or subset described in paragraph (1) may change as required to meet the needs of the Internal Revenue Service, provided that procedures have been established to— (A) ensure continuity of records and case history, and (B) notify the taxpayer when appropriate. 202. Protecting taxpayers from telephone scams Not later than 12 months after the date of the enactment of this Act, the Treasury Inspector General for Tax Administration, in consultation with the Chairman of the Federal Communications Commission and the Chairman of the Federal Trade Commission, shall submit a report to the applicable Congressional committees which identifies potential technological solutions to help protect taxpayers from telephone calls from individuals who are falsely claiming to be calling from or on behalf of the Internal Revenue Service, including identifying communications providers that offer services designed to assist taxpayers in identifying or preventing such calls. 203. Information on identity theft and tax scams The Secretary shall provide to any taxpayer who has been placed on hold during a telephone call to any Internal Revenue Service help line the following information: (1) Information about common tax scams. (2) Information on where and how to report tax scams. (3) Additional advice on how taxpayers can protect themselves from identity theft and tax scams. 204. Report on Federal employee wage and tax withholding reporting to State tax agencies Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit a report to the applicable Congressional committees which provides an analysis of the process and timeline by which the following entities provide Federal employee wage and tax withholding information to State tax agencies: (1) The National Finance Center of the Department of Agriculture. (2) The Defense Finance and Accounting Service of the Department of Defense. (3) The National Business Center of the Department of the Interior. (4) The National Payroll Branch of the General Services Administration. 205. Notification of suspected identity theft (a) In general Chapter 77 7529. Notification of suspected identity theft (a) In general If the Secretary determines that there has been or may have been an unauthorized use of the identity of any individual, the Secretary shall, without jeopardizing an investigation relating to tax administration— (1) as soon as practicable, notify the individual of such determination and provide— (A) instructions on how to file a report with law enforcement regarding the unauthorized use of the identity of the individual, (B) the identification of any forms necessary for the individual to complete and submit to law enforcement to permit access to personal information of the individual during the investigation, (C) information regarding actions the individual may take in order to protect the individual from harm relating to such unauthorized use, and (D) an offer of identity protection measures to be provided to the individual by the Internal Revenue Service, such as the use of an identity protection personal identification number (as defined in section 6109(e)), and (2) at the time the information described in paragraph (1) is provided (or, if not available at such time, as soon as practicable thereafter), issue additional notifications to such individual (or such individual's designee) regarding— (A) whether an investigation has been initiated in regards to such unauthorized use, (B) whether the investigation substantiated an unauthorized use of the identity of the individual, and (C) whether— (i) any action has been taken against a person relating to such unauthorized use, or (ii) any referral has been made for criminal prosecution of such person and, to the extent such information is available, whether such person has been criminally charged by indictment or information. (b) Employment-related identity theft (1) In general For purposes of this section, the unauthorized use of the identity of an individual includes the unauthorized use of the identity of the individual to obtain employment. (2) Determination of employment-related identity theft For purposes of this section, in making a determination as to whether there has been or may have been an unauthorized use of the identity of an individual to obtain employment, the Secretary shall review any information— (A) obtained from a statement described in section 6051 or an information return relating to compensation for services rendered other than as an employee, or (B) provided to the Internal Revenue Service by the Social Security Administration regarding any statement described in section 6051, which indicates that the social security account number provided on such statement or information return does not correspond with the name provided on such statement or information return or the name on the tax return reporting the income which is included on such statement or information return. . (b) Additional measures (1) Examination of both paper and electronic statements and returns The Secretary shall examine the statements, information returns, and tax returns described in section 7529(b)(2) for any evidence of employment-related identity theft, regardless of whether such statements or returns are submitted electronically or on paper. (2) Improvement of effective return processing program with Social Security Administration Section 232 of the Social Security Act ( 42 U.S.C. 432 For purposes of carrying out the return processing program described in the preceding sentence, the Commissioner of Social Security shall request, not less than annually, such information described in section 7529(b)(2) (3) Underreporting of income The Secretary shall establish procedures to ensure that income reported in connection with the unauthorized use of a taxpayer's identity is not taken into account in determining any penalty for underreporting of income by the victim of identity theft. (c) Clerical amendment The table of sections for chapter 77 Sec. 7529. Notification of suspected identity theft. . (d) Effective date The amendments made by this section shall apply to determinations made after the date of the enactment of this Act. July 12, 2016 Read twice and placed on the calendar

Summary: Taxpayer Protection Act of 2016 This bill amends the Internal Revenue Code to modify requirements regarding tax assessment and collection procedures, assistance provided to individuals in filing tax returns, whistle-blower protections, Internal Revenue Service (IRS) employment policies, tax-exempt organizations, and protecting taxpayers from identity theft and tax fraud. The bill extends the time limit for contesting an IRS levy and holds individuals harmless for making certain contributions to retirement plans after an improper levy on a retirement plan. The bill establishes several requirements to assist taxpayers in filing returns, including: establishing a permanent Community Volunteer Income Tax Assistance Matching Grant Program, limiting redisclosures and uses of consent-based disclosures of tax return information, modifying rules regarding equitable relief from joint liability, limiting user fees for installment agreements, requiring the IRS to notify Congress prior to closing a Taxpayer Assistance Center, and requiring the Department of Defense to take certain actions to identify and recover severance payments that were improperly withheld from veterans with combat-related injuries. The bill requires the Government Accountability Office (GAO) and the Treasury Inspector General for Tax Administration to report on whistle-blower awards. It also modifies requirements regarding: disclosures to whistle-blowers, updates on whistle-blower investigations, and anti-retaliation whistle-blower protections for employees. The bill revises IRS employment policies to: establish electronic record retention requirements; prohibit the rehiring of former IRS employees who were removed for misconduct; provide the IRS with additional authorities to remove or transfer senior executives based on performance or misconduct; bar the IRS from delegating to third-party contractors the authority to examine books and records, summon persons, or take sworn testimony related to a tax matter; and require the Department of the Treasury to notify taxpayers regarding certain unauthorized inspections or disclosures of returns and return information. The bill modifies policies for tax-exempt organizations to: expand electronic filing requirements, repeal the substantiation exception for charitable contributions reported by donee organizations, prohibit the IRS from targeting U.S. citizens for exercising any right guaranteed under the First Amendment to the U.S. Constitution, and require the IRS to notify a tax-exempt organization prior to revoking its tax-exempt status for failing to file information returns. The bill also requires the IRS to take several actions to protect taxpayers from identity theft and tax fraud, including: establishing a single point of contact for identity theft victims, providing taxpayers who call the IRS with information on identity theft and tax scams, and providing specified notifications and information to suspected victims of identity theft. The GAO must submit reports to Congress regarding: IRS authority to compromise tax matters; opportunities for hearings by the IRS Office of Appeals; phones and in-person services provided by the IRS to taxpayers residing in certain areas with populations of less than 50,000; and federal employee wage and tax withholding reporting to state tax agencies. The IRS must report to Congress on the status of efforts to expand online taxpayer services. The Treasury Inspector General for Tax Administration must submit reports to Congress regarding: (1) IRS audit criteria, and (2) technological solutions to help protect taxpayers from telephone calls from individuals who are falsely claiming to be calling from or on behalf of the IRS.