104TH CONGRESS
2D SESSION
H. R. 2337
AN ACT
To amend the Internal Revenue Code of 1986 to
provide for increased taxpayer protections.
104TH CONGRESS
2D SESSION
H. R. 2337
AN ACT
To amend the Internal Revenue Code of 1986 to provide
for increased taxpayer protections.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Taxpayer Bill of Rights 2’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment 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 provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I—TAXPAYER ADVOCATE
Sec. 101. Establishment of position of Taxpayer Advocate within Internal Reve-
nue Service.
Sec. 102. Expansion of authority to issue Taxpayer Assistance Orders.
TITLE II—MODIFICATIONS TO INSTALLMENT AGREEMENT
PROVISIONS
Sec. 201. Notification of reasons for termination of installment agreements.
Sec. 202. Administrative review of termination of installment agreement.
TITLE III—ABATEMENT OF INTEREST AND PENALTIES
Sec. 301. Expansion of authority to abate interest.
Sec. 302. Review of IRS failure to abate interest.
Sec. 303. Extension of interest-free period for payment of tax after notice and
demand.
Sec. 304. Abatement of penalty for failure to make required deposits of payroll
taxes in certain cases.
TITLE IV—JOINT RETURNS
Sec. 401. Studies of joint return-related issues.
Sec. 402. Joint return may be made after separate returns without full pay-
ment of tax.
Sec. 403. Disclosure of collection activities.
TITLE V—COLLECTION ACTIVITIES
Sec. 501. Modifications to lien and levy provisions.
Sec. 502. Modifications to certain levy exemption amounts.
Sec. 503. Offers-in-compromise.
TITLE VI—INFORMATION RETURNS
Sec. 601. Civil damages for fraudulent filing of information returns.
Sec. 602. Requirement to conduct reasonable investigations of information re-
turns.
TITLE VII—AWARDING OF COSTS AND CERTAIN FEES
Sec. 701. United States must establish that its position in proceeding was sub-
stantially justified.
Sec. 702. Increased limit on attorney fees.
Sec. 703. Failure to agree to extension not taken into account.
Sec. 704. Award of litigation costs permitted in declaratory judgment proceed-
ings.
TITLE VIII—MODIFICATION TO RECOVERY OF CIVIL DAMAGES
FOR UNAUTHORIZED COLLECTION ACTIONS
Sec. 801. Increase in limit on recovery of civil damages for unauthorized collec-
tion actions.
Sec. 802. Court discretion to reduce award for litigation costs for failure to ex-
haust administrative remedies.
TITLE IX—MODIFICATIONS TO PENALTY FOR FAILURE TO
COLLECT AND PAY OVER TAX
Sec. 901. Preliminary notice requirement.
Sec. 902. Disclosure of certain information where more than 1 person liable for
penalty for failure to collect and pay over tax.
Sec. 903. Right of contribution where more than 1 person liable for penalty for
failure to collect and pay over tax.
Sec. 904. Volunteer board members of tax-exempt organizations exempt from
penalty for failure to collect and pay over tax.
TITLE X—MODIFICATIONS OF RULES RELATING TO SUMMONSES
Sec. 1001. Enrolled agents included as third-party recordkeepers.
Sec. 1002. Safeguards relating to designated summonses.
Sec. 1003. Annual report to Congress concerning designated summonses.
TITLE XI—RELIEF FROM RETROACTIVE APPLICATION OF
TREASURY DEPARTMENT REGULATIONS
Sec. 1101. Relief from retroactive application of Treasury Department regula-
tions.
TITLE XII—MISCELLANEOUS PROVISIONS
Sec. 1201. Phone number of person providing payee statements required to be
shown on such statement.
Sec. 1202. Required notice of certain payments.
Sec. 1203. Unauthorized enticement of information disclosure.
Sec. 1204. Annual reminders to taxpayers with outstanding delinquent ac-
counts.
Sec. 1205. 5-year extension of authority for undercover operations.
Sec. 1206. Disclosure of Form 8300 information on cash transactions.
Sec. 1207. Disclosure of returns and return information to designee of tax-
payer.
Sec. 1208. Study of netting of interest on overpayments and liabilities.
Sec. 1209. Expenses of detection of underpayments and fraud, etc.
Sec. 1210. Use of private delivery services for timely-mailing-as-timely-filing
rule.
Sec. 1211. Reports on misconduct of IRS employees.
TITLE XIII—REVENUE OFFSETS
Subtitle A—Application of Failure-to-Pay Penalty to Substitute Returns
Sec. 1301. Application of failure-to-pay penalty to substitute returns.
Subtitle B—Excise Taxes on Amounts of Private Excess Benefits
Sec. 1311. Excise taxes for failure by certain charitable organizations to meet
certain qualification requirements.
Sec. 1312. Reporting of certain excise taxes and other information.
Sec. 1313. Exempt organizations required to provide copy of return.
Sec. 1314. Increase in penalties on exempt organizations for failure to file com-
plete and timely annual returns.
TITLE I—TAXPAYER ADVOCATE
SEC. 101. ESTABLISHMENT OF POSITION OF TAXPAYER AD-
VOCATE WITHIN INTERNAL REVENUE SERV-
ICE.
(a) GENERAL RULE.—Section 7802 (relating to
Commissioner of Internal Revenue; Assistant Commis-
sioner (Employee Plans and Exempt Organizations)) is
amended by adding at the end the following new sub-
section:
‘‘(d) OFFICE OF TAXPAYER ADVOCATE.—
‘‘(1) IN GENERAL.—There is established in the
Internal Revenue Service an office to be known as
the ‘Office of the Taxpayer Advocate’. Such office
shall be under the supervision and direction of an of-
ficial to be known as the ‘Taxpayer Advocate’ who
shall be appointed by and report directly to the
Commissioner of Internal Revenue. The Taxpayer
Advocate shall be entitled to compensation at the
same rate as the highest level official reporting di-
rectly to the Deputy Commissioner of the Internal
Revenue Service.
‘‘(2) FUNCTIONS OF OFFICE.—
‘‘(A) IN GENERAL.—It shall be the func-
tion of the Office of Taxpayer Advocate to—
‘‘(i) assist taxpayers in resolving prob-
lems with the Internal Revenue Service,
‘‘(ii) identify areas in which taxpayers
have problems in dealings with the Internal
Revenue Service,
‘‘(iii) to the extent possible, propose
changes in the administrative practices of
the Internal Revenue Service to mitigate
problems identified under clause (ii), and
‘‘(iv) 
identify 
potential 
legislative
changes which may be appropriate to miti-
gate such problems.
‘‘(B) ANNUAL REPORTS.—
‘‘(i) OBJECTIVES.—Not later than
June 30 of each calendar year after 1995,
the Taxpayer Advocate shall report to the
Committee on Ways and Means of the
House of Representatives and the Commit-
tee on Finance of the Senate on the objec-
tives of the Taxpayer Advocate for the fis-
cal year beginning in such calendar year.
Any such report shall contain full and sub-
stantive analysis, in addition to statistical
information.
‘‘(ii) ACTIVITIES.—Not later than De-
cember 31 of each calendar year after
1995, the Taxpayer Advocate shall report
to the Committee on Ways and Means of
the House of Representatives and the
Committee on Finance of the Senate on
the activities of the Taxpayer Advocate
during the fiscal year ending during such
calendar year. Any such report shall con-
tain full and substantive analysis, in addi-
tion to statistical information, and shall—
‘‘(I) identify the initiatives the
Taxpayer Advocate has taken on im-
proving taxpayer services and Internal
Revenue Service responsiveness,
‘‘(II) contain recommendations
received from individuals with the au-
thority to issue Taxpayer Assistance
Orders under section 7811,
‘‘(III) contain a summary of at
least 20 of the most serious problems
encountered by taxpayers, including a
description of the nature of such prob-
lems,
‘‘(IV) contain an inventory of the
items described in subclauses (I), (II),
and (III) for which action has been
taken and the result of such action,
‘‘(V) contain an inventory of the
items described in subclauses (I), (II),
and (III) for which action remains to
be completed and the period during
which each item has remained on such
inventory,
‘‘(VI) contain an inventory of the
items described in subclauses (II) and
(III) for which no action has been
taken, the period during which each
item has remained on such inventory,
the reasons for the inaction, and iden-
tify any Internal Revenue Service offi-
cial who is responsible for such inac-
tion,
‘‘(VII) identify any Taxpayer As-
sistance Order which was not honored
by the Internal Revenue Service in a
timely manner, as specified under sec-
tion 7811(b),
‘‘(VIII) contain recommendations
for such administrative and legislative
action as may be appropriate to re-
solve problems encountered by tax-
payers,
‘‘(IX) describe the extent to
which regional problem resolution offi-
cers participate in the selection and
evaluation of local problem resolution
officers, and
‘‘(X) include such other informa-
tion as the Taxpayer Advocate may
deem advisable.
‘‘(iii) REPORT TO BE SUBMITTED DI-
RECTLY.—Each report required under this
subparagraph shall be provided directly to
the Committees referred to in clauses (i)
and (ii) without any prior review or com-
ment from the Commissioner, the Sec-
retary of the Treasury, any other officer or
employee of the Department of the Treas-
ury, or the Office of Management and
Budget.
‘‘(3) RESPONSIBILITIES
OF
COMMISSIONER.—
The Commissioner of Internal Revenue shall estab-
lish procedures requiring a formal response to all
recommendations submitted to the Commissioner by
the Taxpayer Advocate within 3 months after sub-
mission to the Commissioner.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 7811 (relating to Taxpayer Assist-
ance Orders) is amended—
(A) by striking ‘‘the Office of Ombuds-
man’’ in subsection (a) and inserting ‘‘the Of-
fice of the Taxpayer Advocate’’, and
(B) by striking ‘‘Ombudsman’’ each place
it appears (including in the headings of sub-
sections (e) and (f)) and inserting ‘‘Taxpayer
Advocate’’.
(2) The heading for section 7802 is amended to
read as follows:
‘‘SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; AS-
SISTANT COMMISSIONERS; TAXPAYER ADVO-
CATE.’’.
(3) The table of sections for subchapter A of
chapter 80 is amended by striking the item relating
to section 7802 and inserting the following new
item:
‘‘Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioners; Tax-
payer Advocate.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
SEC. 102. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER
ASSISTANCE ORDERS.
(a) TERMS OF ORDERS.—Subsection (b) of section
7811 (relating to terms of Taxpayer Assistance Orders)
is amended—
(1) by inserting ‘‘within a specified time pe-
riod’’ after ‘‘the Secretary’’, and
(2) by inserting ‘‘take any action as permitted
by law,’’ after ‘‘cease any action,’’.
(b) LIMITATION ON AUTHORITY TO MODIFY OR RE-
SCIND.—Section 7811(c) (relating to authority to modify
or rescind) is amended to read as follows:
‘‘(c) AUTHORITY TO MODIFY
OR RESCIND.—Any
Taxpayer Assistance Order issued by the Taxpayer Advo-
cate under this section may be modified or rescinded—
‘‘(1) only by the Taxpayer Advocate, the Com-
missioner of Internal Revenue, or the Deputy Com-
missioner of Internal Revenue, and
‘‘(2) only if a written explanation of the reasons
for the modification or rescission is provided to the
Taxpayer Advocate.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date of the enactment
of this Act.
TITLE 
II—MODIFICATIONS 
TO
INSTALLMENT 
AGREEMENT
PROVISIONS
SEC. 201. NOTIFICATION OF REASONS FOR TERMINATION
OF INSTALLMENT AGREEMENTS.
(a) TERMINATIONS.—Subsection (b) of section 6159
(relating to extent to which agreements remain in effect)
is amended by adding at the end the following new para-
graph:
‘‘(5) NOTICE REQUIREMENTS.—The Secretary
may not take any action under paragraph (2), (3),
or (4) unless—
‘‘(A) a notice of such action is provided to
the taxpayer not later than the day 30 days be-
fore the date of such action, and
‘‘(B) such notice includes an explanation
why the Secretary intends to take such action.
The preceding sentence shall not apply in any case
in which the Secretary believes that collection of any
tax to which an agreement under this section relates
is in jeopardy.’’.
(b) CONFORMING AMENDMENT.—Paragraph (3) of
section 6159(b) is amended to read as follows:
‘‘(3) SUBSEQUENT CHANGE IN FINANCIAL CON-
DITIONS.—If the Secretary makes a determination
that the financial condition of a taxpayer with whom
the Secretary has entered into an agreement under
subsection (a) has significantly changed, the Sec-
retary may alter, modify, or terminate such agree-
ment.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on the date 6 months after
the date of the enactment of this Act.
SEC. 202. ADMINISTRATIVE REVIEW OF TERMINATION OF
INSTALLMENT AGREEMENT.
(a) GENERAL RULE.—Section 6159 (relating to
agreements for payment of tax liability in installments)
is amended by adding at the end the following new sub-
section:
‘‘(c) ADMINISTRATIVE REVIEW.—The Secretary shall
establish procedures for an independent administrative re-
view of terminations of installment agreements under this
section for taxpayers who request such a review.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on January 1, 1997.
TITLE III—ABATEMENT OF
INTEREST AND PENALTIES
SEC. 301. EXPANSION OF AUTHORITY TO ABATE INTEREST.
(a) GENERAL RULE.—Paragraph (1) of section
6404(e) (relating to abatement of interest in certain cases)
is amended—
(1) by inserting ‘‘unreasonable’’ before ‘‘error’’
each place it appears in subparagraphs (A) and (B),
and
(2) by striking ‘‘in performing a ministerial
act’’ each place it appears and inserting ‘‘in per-
forming a ministerial or managerial act’’.
(b) CLERICAL AMENDMENT.—The subsection head-
ing for subsection (e) of section 6404 is amended—
(1) by striking ‘‘ASSESSMENTS’’ and inserting
‘‘ABATEMENT’’, and
(2) by inserting ‘‘UNREASONABLE’’ before ‘‘ER-
RORS’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest accruing with respect
to deficiencies or payments for taxable years beginning
after the date of the enactment of this Act.
SEC. 302. REVIEW OF IRS FAILURE TO ABATE INTEREST.
(a) IN GENERAL.—Section 6404 is amended by add-
ing at the end the following new subsection:
‘‘(g) REVIEW OF DENIAL OF REQUEST FOR ABATE-
MENT OF INTEREST.—
‘‘(1) IN GENERAL.—The Tax Court shall have
jurisdiction over any action brought by a taxpayer
who meets the requirements referred to in section
7430(c)(4)(A)(iii) to determine whether the Sec-
retary’s failure to abate interest under this section
was an abuse of discretion, and may order an abate-
ment, if such action is brought within 180 days after
the date of the mailing of the Secretary’s final deter-
mination not to abate such interest.
‘‘(2) SPECIAL RULES.—
‘‘(A) DATE OF MAILING.—Rules similar to
the rules of section 6213 shall apply for pur-
poses of determining the date of the mailing re-
ferred to in paragraph (1).
‘‘(B) RELIEF.—Rules similar to the rules
of section 6512(b) shall apply for purposes of
this subsection.
‘‘(C) REVIEW.—An order of the Tax Court
under this subsection shall be reviewable in the
same manner as a decision of the Tax Court,
but only with respect to the matters determined
in such order.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to requests for abatement after the
date of the enactment of this Act.
SEC. 303. EXTENSION OF INTEREST-FREE PERIOD FOR PAY-
MENT OF TAX AFTER NOTICE AND DEMAND.
(a) GENERAL RULE.—Paragraph (3) of section
6601(e) (relating to payments made within 10 days after
notice and demand) is amended to read as follows:
‘‘(3) PAYMENTS MADE WITHIN SPECIFIED PE-
RIOD AFTER NOTICE AND DEMAND.—If notice and
demand is made for payment of any amount and if
such amount is paid within 21 calendar days (10
business days if the amount for which such notice
and demand is made equals or exceeds $100,000)
after the date of such notice and demand, interest
under this section on the amount so paid shall not
be imposed for the period after the date of such no-
tice and demand.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subparagraph (A) of section 6601(e)(2) is
amended by striking ‘‘10 days from the date of no-
tice and demand therefor’’ and inserting ‘‘21 cal-
endar days from the date of notice and demand
therefor (10 business days if the amount for which
such notice and demand is made equals or exceeds
$100,000)’’.
(2) Paragraph (3) of section 6651(a) is amend-
ed by striking ‘‘10 days of the date of the notice and
demand therefor’’ and inserting ‘‘21 calendar days
from the date of notice and demand therefor (10
business days if the amount for which such notice
and demand is made equals or exceeds $100,000)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply in the case of any notice and de-
mand given after December 31, 1996.
SEC. 304. ABATEMENT OF PENALTY FOR FAILURE TO MAKE
REQUIRED DEPOSITS OF PAYROLL TAXES IN
CERTAIN CASES.
(a) IN GENERAL.—Section 6656 (relating to failure
to make deposit of taxes) is amended by adding at the
end the following new subsections: