Small Business Taxpayer Bill of Rights Act of 2023

To provide a taxpayer bill of rights for small businesses. 1. Short title; table of contents (a) Short title This Act may be cited as the Small Business Taxpayer Bill of Rights Act of 2023 (b) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; table of contents. Sec. 2. Modification of standards for awarding of costs and certain fees. Sec. 3. Civil damages allowed for reckless or intentional disregard of internal revenue laws. Sec. 4. Modifications relating to certain offenses by officers and employees in connection with revenue laws. Sec. 5. Modifications relating to civil damages for unauthorized inspection or disclosure of returns and return information. Sec. 6. Ban on ex parte discussions. Sec. 7. Right to independent conference. Sec. 8. Alternative dispute resolution procedures. Sec. 9. Increase in monetary penalties for certain unauthorized disclosures of information. Sec. 10. Ban on raising new issues on appeal. Sec. 11. Limitation on enforcement of liens against principal residences. Sec. 12. Additional provisions relating to mandatory termination for misconduct. Sec. 13. Review by the Treasury Inspector General for Tax Administration. Sec. 14. Deduction for expenses relating to certain audits. Sec. 15. Term limit for National Taxpayer Advocate. Sec. 16. Release of IRS levy due to economic hardship for business taxpayers. Sec. 17. Repeal of partial payment requirement on submissions of offers-in-compromise. 2. Modification of standards for awarding of costs and certain fees (a) Small businesses eligible without regard to net worth Subparagraph (D) of section 7430(c)(4) and , and (iii) in the case of an eligible small business, the net worth limitation in clause (ii) of such section shall not apply. . (b) Eligible small business Paragraph (4) of section 7430(c) (F) Eligible small business (i) In general For purposes of subparagraph (D)(iii), the term eligible small business (I) a corporation the stock of which is not publicly traded, (II) a partnership, or (III) a sole proprietorship, if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply. (ii) Adjustment for inflation In the case of any calendar year after 2023, the $50,000,000 amount in clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2022 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500. . (c) Effective date The amendments made by this section shall apply to proceedings commenced after the date of the enactment of this Act. 3. Civil damages allowed for reckless or intentional disregard of internal revenue laws (a) Increase in amount of damages (1) In general Section 7433(b) $1,000,000 ($100,000, in the case of negligence) $5,000,000 ($500,000, in the case of negligence) (2) Adjustment for inflation Section 7433 of such Code is amended by adding at the end the following new subsection: (f) Adjustment for inflation In the case of any calendar year after 2023, the $5,000,000 and $500,000 amounts in subsection (b) shall each be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2022 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500. . (b) Extension of time To bring action Section 7433(d)(3) 2 years 5 years (c) Effective date The amendments made by this section shall apply to actions of employees of the Internal Revenue Service after the date of the enactment of this Act. 4. Modifications relating to certain offenses by officers and employees in connection with revenue laws (a) Increase in penalty Section 7214 (1) by striking $10,000 $25,000 (2) by striking $5,000 $10,000 (b) Adjustment for inflation Section 7214 (c) Adjustment for inflation In the case of any calendar year after 2023, the $25,000 amount in subsection (a) and the $10,000 amount in subsection (b) shall each be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2022 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. . (c) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. 5. Modifications relating to civil damages for unauthorized inspection or disclosure of returns and return information (a) Increase in amount of damages Subparagraph (A) of section 7431(c)(1) $1,000 $10,000 (b) Adjustment for inflation Section 7431 (i) Adjustment for inflation In the case of any calendar year after 2023, the $10,000 amount in subsection (c)(1)(A) shall be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2022 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. . (c) Period for bringing action Subsection (d) of section 7431 2 years 5 years (d) Effective date The amendment made by this section shall apply to inspections and disclosure occurring on and after the date of the enactment of this Act. 6. Ban on ex parte discussions (a) In general Notwithstanding section 1001(a)(4) of the Internal Revenue Service Restructuring and Reform Act of 1998, the Internal Revenue Service shall prohibit any ex parte communications between officers in the Internal Revenue Service Independent Office of Appeals and other Internal Revenue Service employees with respect to any matter pending before such officers. (b) Termination of employment for misconduct Subject to subsection (c), the Commissioner of Internal Revenue shall terminate the employment of any employee of the Internal Revenue Service if there is a final administrative or judicial determination that such employee committed any act or omission prohibited under subsection (a) in the performance of the employee’s official duties. Such termination shall be a removal for cause on charges of misconduct. (c) Determination of commissioner (1) In general The Commissioner of Internal Revenue may take a personnel action other than termination for an act prohibited under subsection (a). (2) Discretion The exercise of authority under paragraph (1) shall be at the sole discretion of the Commissioner of Internal Revenue and may not be delegated to any other officer. At the sole discretion of the Commissioner of Internal Revenue, such Commissioner may establish a procedure which will be used to determine whether an individual should be referred to the Commissioner of Internal Revenue for a determination by the Commissioner under paragraph (1). (3) No appeal Any determination of the Commissioner of Internal Revenue under this subsection may not be appealed in any administrative or judicial proceeding. (d) TIGTA reporting of termination or mitigation Section 7803(d)(1)(E) or section 6 of the Small Business Taxpayer Bill of Rights Act of 2023 1998 7. Right to independent conference Section 1001 of the Internal Revenue Service Restructuring and Reform Act of 1998 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Right to independent conference Under the organization plan of the Internal Revenue Service, a taxpayer shall have the right to a conference with the Internal Revenue Service Independent Office of Appeals which does not include personnel from the Office of Chief Counsel for the Internal Revenue Service or the compliance functions of the Internal Revenue Service unless the taxpayer specifically consents to the participation of such personnel. . 8. Alternative dispute resolution procedures (a) In general Section 7123 (d) Availability of dispute resolutions (1) In general The procedures prescribed under subsection (b)(1) and the pilot program established under subsection (b)(2) shall provide that a taxpayer may request mediation or arbitration in any case unless the Secretary has specifically excluded the type of issue involved in such case or the class of cases to which such case belongs as not appropriate for resolution under such subsection. The Secretary shall make any determination that excludes a type of issue or a class of cases public within 5 working days and provide an explanation for each determination. (2) Independent mediators (A) In general The procedures prescribed under subsection (b)(1) shall provide the taxpayer an opportunity to elect to have the mediation conducted by an independent, neutral individual not employed by the Internal Revenue Service Independent Office of Appeals. (B) Cost and selection (i) In general Any taxpayer making an election under subparagraph (A) shall be required— (I) to share the costs of such independent mediator equally with the Internal Revenue Service Independent Office of Appeals, and (II) to limit the selection of the mediator to a roster of recognized national or local neutral mediators. (ii) Exception Clause (i)(I) shall not apply to any taxpayer who is an individual or who was a small business in the preceding calendar year if such taxpayer had an adjusted gross income that did not exceed 250 percent of the poverty level, as determined in accordance with criteria established by the Director of the Office of Management and Budget, in the taxable year preceding the request. (iii) Small business For purposes of clause (ii), the term small business (3) Availability of process The procedures prescribed under subsection (b)(1) and the pilot program established under subsection (b)(2) shall provide the opportunity to elect mediation or arbitration at the time when the case is first filed with the Internal Revenue Service Independent Office of Appeals and at any time before deliberations in the appeal commence. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 9. Increase in monetary penalties for certain unauthorized disclosures of information (a) In general Paragraphs (1), (2), (3), and (4) of section 7213(a) $5,000 $10,000 (b) Adjustment for inflation Subsection (a) of section 7213 (6) Adjustment for inflation In the case of any calendar year after 2023, the $10,000 amounts in paragraphs (1), (2), (3), and (4) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting calendar year 2022 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. . (c) Effective date The amendments made by this section shall apply to disclosures made after the date of the enactment of this Act. 10. Ban on raising new issues on appeal (a) In general Chapter 77 7531. Prohibition on Internal Revenue Service raising new issues in an internal appeal (a) In general In reviewing an appeal of any determination initially made by the Internal Revenue Service, the Internal Revenue Service Independent Office of Appeals may not consider or decide any issue that is not within the scope of the initial determination. (b) Certain issues deemed outside of scope of determination For purposes of subsection (a), the following matters shall be considered to be not within the scope of a determination: (1) Any issue that was not raised in a notice of deficiency or an examiner's report which is the subject of the appeal. (2) Any deficiency in tax which was not included in the initial determination. (3) Any theory or justification for a tax deficiency which was not considered in the initial determination. (c) No inference with respect to issues raised by taxpayers Nothing in this section shall be construed to provide any limitation in addition to any limitations in effect on the date of the enactment of this section on the right of a taxpayer to raise an issue, theory, or justification on an appeal from a determination initially made by the Internal Revenue Service that was not within the scope of the initial determination. . (b) Clerical amendment The table of sections for chapter 77 Sec. 7531. Prohibition on Internal Revenue Service raising new issues in an internal appeal. . (c) Effective date The amendments made by this section shall apply to matters filed or pending with the Internal Revenue Service Independent Office of Appeals on or after the date of the enactment of this Act. 11. Limitation on enforcement of liens against principal residences (a) In general Section 7403(a) (1) by striking In any case (1) In general In any case ; and (2) by adding at the end the following new paragraph: (2) Limitation with respect to principal residence (A) In general Paragraph (1) shall not apply to any property used as the principal residence of the taxpayer (within the meaning of section 121) unless the Secretary of the Treasury makes a written determination that— (i) all other property of the taxpayer, if sold, is insufficient to pay the tax or discharge the liability, and (ii) such action will not create an economic hardship for the taxpayer. (B) Delegation For purposes of this paragraph, the Secretary of the Treasury may not delegate any responsibilities under subparagraph (A) to any person other than— (i) the Commissioner of Internal Revenue, or (ii) a district director or assistant district director of the Internal Revenue Service. . (b) Effective date The amendments made by this section shall apply to actions filed after the date of the enactment of this Act. 12. Additional provisions relating to mandatory termination for misconduct (a) Termination of unemployment for inappropriate review of tax-Exempt status Section 1203(b) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804 and ; and (11) in the case of any review of an application for tax-exempt status by an organization described in section 501(c) . (b) Mandatory unpaid administrative leave for misconduct Paragraph (1) of section 1203(c) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804 Notwithstanding the preceding sentence, if the Commissioner of Internal Revenue takes a personnel action other than termination for an act or omission described in subsection (b), the Commissioner shall place the employee on unpaid administrative leave for a period of not less than 90 days. (c) Limitation on alternative punishment Paragraph (1) of section 1203(c) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804 The Commissioner Except in the case of an act or omission described in subsection (b)(3)(A), the Commissioner 13. Review by the Treasury Inspector General for Tax Administration (a) Review Subsection (k)(1) of section 412 of title 5, United States Code, is amended— (1) in subparagraph (C), by striking and (2) by redesignating subparagraph (D) as subparagraph (E); (3) by inserting after subparagraph (C) the following new subparagraph: (D) shall— (i) review any criteria employed by the Internal Revenue Service to select tax returns (including applications for recognition of tax-exempt status) for examination or audit, assessment or collection of deficiencies, criminal investigation or referral, refunds for amounts paid, or any heightened scrutiny or review in order to determine whether the criteria discriminates against taxpayers on the basis of race, religion, or political ideology; and (ii) consult with the Internal Revenue Service on recommended amendments to such criteria in order to eliminate any discrimination identified pursuant to the review described in clause (i); and ; and (4) in subparagraph (E), as so redesignated, by striking and (C) (C), and (D) (b) Semiannual Report Subsection (g) of section 412 of title 5, United States Code, is amended by adding at the end the following new paragraph: (3) Semiannual reports Any semiannual report made by the Treasury Inspector General for Tax Administration that is required pursuant to section 405(b) shall include— (A) a statement affirming that the Treasury Inspector General for Tax Administration has reviewed the criteria described in subsection (k)(1)(D) and consulted with the Internal Revenue Service regarding such criteria; and (B) a description and explanation of any such criteria that was identified as discriminatory by the Treasury Inspector General for Tax Administration. . 14. Deduction for expenses relating to certain audits (a) In general Subsection (a) of section 62 (22) Expenses relating to certain audits The deduction allowed by section 224. . (b) Deduction for expenses relating to certain audits Part VII of subchapter B of chapter 1 224. Expenses relating to certain audits (a) Allowance of deduction In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to so much of the qualified NRP expenses paid or incurred during the taxable year as does not exceed $5,000. (b) Qualified NRP expenses For purposes of this section, the term qualified NRP expenses (c) Denial of double benefit No deduction shall be allowed under any other provision of this chapter for any amount for which a deduction is allowed under this section. . (c) Clerical amendment The table of sections for part VII of subchapter B of chapter 1 section 224 Sec. 224. Expenses relating to certain audits. Sec. 225. Cross reference. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 15. Term limit for National Taxpayer Advocate (a) In general Subparagraph (B) of section 7803(c)(1) (v) Term The term of the National Taxpayer Advocate shall be a 10-year term, beginning with a term to commence on the date which is 18 months after the date of the enactment of the Small Business Taxpayer Bill of Rights Act of 2023 . (b) Effective date The term of any individual serving as the National Taxpayer Advocate under section 7803(c) 16. Release of IRS levy due to economic hardship for business taxpayers (a) In general Subparagraph (D) of section 6343(a)(1) or including the financial condition of the taxpayer's viable trade or business, or (b) Determination of economic hardship Subsection (a) of section 6343 (4) Determination of economic hardship to business taxpayer In determining whether to release any levy under paragraph (1)(D), the Secretary shall consider— (A) the economic viability of the business, (B) the nature and extent of the hardship created by the levy (including whether the taxpayer has exercised ordinary business care and prudence), and (C) the potential harm to individuals if the business is liquidated. . (c) Effective date The amendments made by this section shall apply to levies made after the date of the enactment of this Act. 17. Repeal of partial payment requirement on submissions of offers-in-compromise (a) In general Section 7122 (b) Conforming amendments (1) Paragraph (3) of section 7122(c) and , and (2) Section 7122 of such Code, as amended by this section, is amended by adding at the end the following new subsection: (g) Application of user fee In the case of any assessed tax or other amounts imposed under this title with respect to such tax which is the subject of an offer-in-compromise, such tax or other amounts shall be reduced by any user fee imposed under this title with respect to such offer-in-compromise. . (3) Section 6159(g) of such Code is amended by striking section 7122(e) section 7122(d) (c) Effective date The amendments made by this section shall apply to offers-in-compromise submitted after the date of the enactment of this Act.

Summary: Small Business Taxpayer Bill of Rights Act of 2023 This bill modifies various tax enforcement procedures and requirements that affect small businesses and other taxpayers. The bill modifies requirements regarding awarding costs and fees to small businesses for administrative and court proceedings, the amounts of damages and penalties that are allowed for violating various tax laws, dispute resolution and appeal procedures, enforcing liens against principal residences, terminating Internal Revenue Service (IRS) employees for misconduct, reviews by the Department of the Treasury Inspector General for Tax Administration, and the release of an IRS levy due to economic hardship for business taxpayers. The bill also allows a tax deduction for a portion of a taxpayer's expenses for certain audits, prohibits ex parte communications between officers in the IRS Independent Office of Appeals and other IRS employees with respect to matters pending before the officers, establishes a 10-year term for the National Taxpayer Advocate, and repeals the requirement to submit a partial payment with an offer-in-compromise to settle a tax liability.