Taxpayer Protection Act of 2016

To amend the Internal Revenue Code of 1986 to reduce taxpayer burdens and enhance taxpayer protections, 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, as amended. (c) Table of contents The table of contents for this Act is as follows: Sec. 1. Short title; etc. Title I—Protection of Taxpayers from Abusive Tax Collection Practices Sec. 101. Repeal of rules relating to tax collection contracts. Title II—Relief for Taxpayers Sec. 201. De minimis exclusion from gross income for discharge of indebtedness of individuals. Sec. 202. Repeal suspension of statute of limitations during pending application for Taxpayer Assistance order. Sec. 203. Limitation on levy on retirement savings. Sec. 204. Tolling of limitation on levy recovery for disabled taxpayer. Sec. 205. Extension of period to withdraw frivolous submission. Sec. 206. Repeal of partial payment requirement on submissions of offers-in-compromise. Title III—Assistance for Identity Theft Victims and Low-Income Taxpayers Sec. 301. Taxpayer notification of suspected identity theft. Sec. 302. Single point of contact for identity theft victims. Sec. 303. Referrals to low-income taxpayer clinics permitted. Sec. 304. EITC outreach. Title IV—Ensure Taxpayer Access to Competent Tax Return Preparers Sec. 401. Regulation of tax return preparers. Sec. 402. Tax information disclosure relating to tax return preparer misconduct. Title V—Increase Funding for Services to Taxpayers Sec. 501. Low-income taxpayer clinics. Sec. 502. Internal Revenue Service taxpayer services appropriations. I Protection of Taxpayers from Abusive Tax Collection Practices 101. Repeal of rules relating to tax collection contracts (a) In general Sections 6306 and 6307 are hereby repealed, and the table of sections for subchapter A of chapter 64 (b) Conforming amendments (1) Section 6103(k) (2) Section 7433A(a) , as in effect on the day before the date of the enactment of the Taxpayer Protection Act of 2016 as defined in section 6306(b) (3) Section 7809(a) 6306, (4) Section 7811 II Relief for Taxpayers 201. De minimis exclusion from gross income for discharge of indebtedness of individuals (a) In general Section 108(a)(1) or , or (F) the indebtedness discharged is qualified individual indebtedness. . (b) Qualified individual indebtedness Section 108 (j) Special rules relating to qualified individual indebtedness (1) Qualified individual indebtedness defined For purposes of this section, the term qualified individual indebtedness (A) discharged on account of services performed for the lender, or (B) held at any time by a person related to such individual. For purposes of subparagraph (B), a person shall be treated as related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). (2) Dollar limitation The amount of qualified individual indebtedness excluded from gross income under subsection (a)(1)(F) with respect to any individual for any taxable year shall not exceed the excess of— (A) $10,000, over (B) the aggregate amount excluded from the gross income of such individual under subsection (a)(1) for such taxable year and all prior taxable years (determined without regard to any amount excludable from gross income under subsection (a)(1)(F) for such taxable year). (3) Joint returns In the case of a joint return— (A) the dollar limitation under paragraph (2) shall be applied separately to each spouse, and (B) the taxpayer may elect to treat any indebtedness of either spouse as indebtedness of the other spouse. . (c) Coordination (1) In general Section 108(a)(2) (D) Precedence of individual indebtedness exclusion (i) Individual indebtedness exclusion takes precedence over insolvency exclusion unless elected otherwise Paragraph (1)(B) shall not apply to a discharge to which paragraph (1)(F) applies unless the taxpayer elects to apply paragraph (1)(B) in lieu of paragraph (1)(F). (ii) Other exclusions take precedence Subparagraph (F) shall not apply to a discharge to which subparagraph (C), (D), or (E) applies. . (2) Title 11 exclusion takes precedence Section 108(a)(2)(A) and (E) (E), and (F) (d) Effective date The amendments made by this section shall apply to discharges of indebtedness after the date of the enactment of this Act. 202. Repeal suspension of statute of limitations during pending application for Taxpayer Assistance order (a) In general Section 7811 (b) Conforming amendment Section 6306(k)(2) section 7811(g) section 7811(f) (c) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 203. Limitation on levy on retirement savings (a) In general Section 6334(a) (14) Retirement savings (A) In general Any individual’s interest in a qualified retirement plan— (i) before such individual has attained normal retirement age (or 65 in the case of an individual retirement account or a plan which does not specify a normal retirement age), or (ii) after the attainment of such age if the levy would create an economic hardship due to the financial condition of the taxpayer (within the meaning of 6343(a)(1)(D)). (B) Qualified retirement plan For purposes of this paragraph, the term qualified retirement plan (i) an individual retirement account, or (ii) a defined contribution plan which— (I) is described in section 401(a) and which includes a trust exempt from tax under section 501(a), (II) is described in subsection (a) or (b) of section 403, or (III) is an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A). (C) Exception for flagrant acts Subparagraph (A) shall not apply if the Secretary determines that— (i) the taxpayer filed a fraudulent return, or (ii) the taxpayer acted with the intent to evade or defeat any tax imposed by this title or the collection or payment thereof. . (b) Effective date The amendment made by this section shall apply to levies issued after December 31, 2016. 204. Tolling of limitation on levy recovery for disabled taxpayer (a) In general Section 6343(b) In the case of an individual, the running of such 9-month period shall be suspended during any period of such individual’s life that such individual is financially disabled (as defined in section 6511(h)). (b) Suits by persons other than taxpayers Section 6532(c)(1) In the case of an individual, the running of such 9-month period shall be suspended during any period of such individual’s life that such individual is financially disabled (as defined in section 6511(h)). 205. Extension of period to withdraw frivolous submission (a) In general Section 6702(b)(3) 30 days 60 days (b) Effective date The amendment made by this section shall apply to notices provided after December 31, 2016. 206. Repeal of partial payment requirement on submissions of offers-in-compromise (a) In general Section 7122 (b) Conforming amendments (1) Section 7122(d)(3) and , and (2) Section 7122 (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(f) section 7122(e) section 7122(d) (c) Effective date The amendments made by this section shall apply to offers submitted after the date of the enactment of this Act. III Assistance for Identity Theft Victims and Low-Income Taxpayers 301. Taxpayer notification of suspected identity theft (a) In general Chapter 77 7529. Notification of suspected identity theft If the Secretary determines that there was an unauthorized use of the identity of any taxpayer, the Secretary shall— (1) as soon as practicable and without jeopardizing an investigation relating to tax administration, notify the taxpayer, and (2) if any person is criminally charged by indictment or information relating to such unauthorized use, notify such taxpayer as soon as practicable of such charge. . (b) Clerical amendment The table of sections for chapter 77 Sec. 7529. Notification of suspected identity theft. . (c) Effective date The amendments made by this section shall apply to determinations made after the date of the enactment of this Act. 302. Single point of contact for identity theft victims Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury, or the Secretary’s delegate, shall establish new 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 his or her case. The single point of contact shall track the case of the taxpayer from start to finish and coordinate with other specialized units to resolve case issues as quickly as possible. 303. Referrals to low-income taxpayer clinics permitted (a) In general Section 7526(c) (6) Treasury employees permitted to refer taxpayers to qualified low-income taxpayer clinics Notwithstanding any other provision of law, officers and employees of the Department of the Treasury may refer taxpayers for advice and assistance to qualified low-income taxpayer clinics receiving funding under this section. . (b) Effective date The amendment made by this section shall apply to referrals made after the date of the enactment of this Act. 304. EITC outreach (a) In general Section 32 (n) Notification of potential eligibility for credit and refund (1) In general To the extent possible and on an annual basis, the Secretary shall provide to each taxpayer who— (A) did not claim the credit under subsection (a) for any preceding taxable year for which credit or refund is not precluded by section 6511, and (B) may be allowed such credit for any such taxable year based on return or return information (as defined in section 6103(b)) available to the Secretary, notice that such taxpayer may be eligible to claim such credit and a refund for such taxable year. (2) Notice Notice provided under paragraph (1) shall be in writing and sent to the last known address of the taxpayer. . (b) Effective date The amendment made by this section shall take effect on January 1, 2017. IV Ensure Taxpayer Access to Competent Tax Return Preparers 401. Regulation of tax return preparers (a) In general Section 330(a) of title 31, United States Code, is amended— (1) by striking paragraph (1) and inserting the following: (1) regulate— (A) the practice of representatives of persons before the Department of the Treasury; and (B) the practice of tax return preparers; and , and (2) in paragraph (2)— (A) by inserting or tax return preparer representative (B) by inserting or in preparing their tax returns, claims for refund, or documents in connection with tax returns or claims for refund cases (b) Authority To sanction regulated tax return preparers Section 330(c) of title 31, United States Code, is amended— (1) by inserting or tax return preparer representative (2) in paragraph (4), by striking misleads or threatens misleads or threatens— (A) any person being represented or any prospective person being represented; or (B) any person or prospective person whose tax return, claim for refund, or document in connection with a tax return or claim for refund, is being or may be prepared. . (c) Tax return preparer defined Section 330 of title 31, United States Code, is amended by adding at the end the following new subsection: (f) Tax return preparer For purposes of this section— (1) In general The term tax return preparer section 7701(a)(36) (2) Tax return The term tax return return (3) Claim for refund The term claim for refund . (d) Effective date The amendments made by this section shall apply with respect to returns and claims for refund for taxable years beginning after the date of the enactment of this Act. 402. Tax information disclosure relating to tax return preparer misconduct Section 6103(k) (13) Disclosure relating to tax return preparer misconduct Under such procedures as the Secretary may prescribe, the Secretary may disclose returns or return information to the extent necessary to publish final decisions by the Internal Revenue Service Office of Professional Responsibility relating to tax return preparer misconduct. . V Increase Funding for Services to Taxpayers 501. Low-income taxpayer clinics (a) Increase in authorized grants Section 7526(c)(1) $6,000,000 $20,000,000 (b) Clerical amendment Section 7526(c)(5) qualified low-income (c) Effective date The amendments made by this section shall apply with respect to grants made after the date of the enactment of this Act. 502. Internal Revenue Service taxpayer services appropriations There is hereby appropriated, out of any money in the Treasury not otherwise appropriated, for the fiscal year ending September 30, 2017, for necessary expenses of the Internal Revenue Service to provide taxpayer services, including pre-filing assistance and education, filing and account services, taxpayer advocacy services, and other services as authorized by 5 U.S.C. 3109

Summary: Taxpayer Protection Act of 2016 This bill amends the Internal Revenue Code to establish additional requirements and procedures for collecting taxes, regulating tax preparers, responding to identity theft, and assisting low-income taxpayers. The bill repeals the authority of the Internal Revenue Service (IRS) to contract with private companies to collect federal tax debts. It also excludes from the gross income of an individual up to $10,000 of income from the discharge of a debt over the individual's lifetime. The bill requires the statute of limitations for a taxpayer's case to continue to run during a pending application for assistance from the National Taxpayer Advocate. The bill also: establishes limitations on IRS levies of retirement accounts, suspends the time limit for returning wrongfully levied property if a taxpayer is financially disabled, increases the grace period for withdrawing a frivolous return, and repeals the requirement to submit a partial payment with an offer-in-compromise to settle a tax liability. The IRS must notify victims of identity theft regarding an unauthorized use of the taxpayer's identity or the filing of criminal charges regarding the use of the identity. The IRS must also: (1) permit its employees to refer taxpayers to low-income taxpayer clinics, and (2) notify taxpayers who are eligible for the Earned Income Tax Credit. The IRS may regulate paid tax return preparers and disclose returns or return information necessary to publish decisions related to tax return preparer misconduct. The bill provides additional funding to the IRS for Taxpayer Services and increases the funding that the IRS may allocate to low-income taxpayer clinics.