each amended by striking ‘‘addition to tax’’ each
place it occurs and inserting ‘‘interest’’.
(2) Section 167(g)(5)(D) is amended by strik-
ing ‘‘6654’’ and inserting ‘‘6641’’.
(3) Section 460(b)(1) is amended by striking
‘‘6654’’ and inserting ‘‘6641’’.
(4) Section 3510(b) is amended—
(A) by striking ‘‘section 6654’’ in para-
graph (1) and inserting ‘‘section 6641’’;
(B) by amending paragraph (2)(B) to read
as follows:
‘‘(B) no interest would be required to be
paid (but for this section) under 6641 for such
taxable year by reason of the $2,000 amount
specified in section 6641(d)(1)(B)(i)(II).’’;
(C) by striking ‘‘section 6654(d)(2)’’ in
paragraph 
(3) 
and 
inserting 
‘‘section
6641(d)(2)’’; and
(D) by striking paragraph (4).
(5) Section 6201(b)(1) is amended by striking
‘‘6654’’ and inserting ‘‘6641’’.
(6) Section 6601(h) is amended by striking
‘‘6654’’ and inserting ‘‘6641’’.
(7) Section 6621(b)(2)(B) is amended by strik-
ing ‘‘addition to tax under section 6654’’ and insert-
ing ‘‘interest required to be paid under section
6641’’.
(8) Section 6622(b) is amended—
(A) by striking ‘‘PENALTY
FOR’’ in the
heading; and
(B) by striking ‘‘addition to tax under sec-
tion 6654 or 6655’’ and inserting ‘‘interest re-
quired to be paid under section 6641 or addi-
tion to tax under section 6655’’.
(9) Section 6658(a) is amended—
(A) by striking ‘‘6654, or 6655’’ and in-
serting ‘‘or 6655, and no interest shall be re-
quired to be paid under section 6641,’’; and
(B) by inserting ‘‘or paying interest’’ after
‘‘the tax’’ in paragraph (2)(B)(ii).
(10) Section 6665(b) is amended—
(A) in the matter preceding paragraph (1)
by striking ‘‘, 6654,’’; and
(B) in paragraph (2) by striking ‘‘6654
or’’.
(11) Section 7203 is amended by striking ‘‘sec-
tion 6654 or 6655’’ and inserting ‘‘section 6655 or
interest required to be paid under section 6641’’.
(e) CLERICAL AMENDMENTS.—
(1) Chapter 67 is amended by inserting after
subchapter D the following:
‘‘Subchapter E—Interest on Failure by
Individual to Pay Estimated Income Tax
‘‘Sec. 6641. Interest on failure by individual to pay estimated in-
come tax.’’.
(2) The table of subchapters for chapter 67 is
amended by adding at the end the following new
items:
‘‘Subchapter D. Notice requirements.
‘‘Subchapter E. Interest on failure by individual to pay estimated
income tax.’’.
(3) The table of sections for part I of sub-
chapter A of chapter 68 is amended by striking the
item relating to section 6654.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to installment payments for taxable
years beginning after December 31, 2002.
SEC. 302. EXCLUSION FROM GROSS INCOME FOR INTEREST
ON OVERPAYMENTS OF INCOME TAX BY INDI-
VIDUALS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 (relating to items specifically excluded from gross
income) is amended by inserting after section 139 the fol-
lowing new section:
‘‘SEC. 139A. EXCLUSION FROM GROSS INCOME FOR INTER-
EST ON OVERPAYMENTS OF INCOME TAX BY
INDIVIDUALS.
‘‘(a) IN GENERAL.—In the case of an individual,
gross income shall not include interest paid under section
6611 on any overpayment of tax imposed by this subtitle.
‘‘(b) EXCEPTION.—Subsection (a) shall not apply in
the case of a failure to claim items resulting in the over-
payment on the original return if the Secretary determines
that the principal purpose of such failure is to take advan-
tage of subsection (a).
‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED
ADJUSTED GROSS INCOME.—For purposes of this title,
interest not included in gross income under subsection (a)
shall not be treated as interest which is exempt from tax
for purposes of sections 32(i)(2)(B) and 6012(d) or any
computation in which interest exempt from tax under this
title is added to adjusted gross income.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter B of chapter 1 is amended by
inserting after the item relating to section 139 the fol-
lowing new item:
‘‘Sec. 139A. Exclusion from gross income for interest on over-
payments of income tax by individuals.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest received in calendar
years beginning after the date of the enactment of this
Act.
SEC. 303. ABATEMENT OF INTEREST.
(a) ABATEMENT OF INTEREST WITH RESPECT TO
ERRONEOUS REFUND CHECK WITHOUT REGARD TO SIZE
OF REFUND.—Paragraph (2) of section 6404(e) is amend-
ed by striking ‘‘unless—’’ and all that follows and insert-
ing ‘‘unless the taxpayer (or a related party) has in any
way caused such erroneous refund.’’.
(b) ABATEMENT OF INTEREST TO EXTENT INTER-
EST
IS ATTRIBUTABLE
TO TAXPAYER RELIANCE
ON
WRITTEN STATEMENTS OF THE IRS.—Subsection (f) of
section 6404 is amended—
(1) in the subsection heading, by striking
‘‘PENALTY OR ADDITION’’ and inserting ‘‘INTEREST,
PENALTY, OR ADDITION’’; and
(2) in paragraph (1) and in subparagraph (B)
of paragraph (2), by striking ‘‘penalty or addition’’
and inserting ‘‘interest, penalty, or addition’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to interest accruing
on or after the date of the enactment of this Act.
SEC. 304. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS.
(a) IN GENERAL.—Subchapter A of chapter 67 (re-
lating to interest on underpayments) is amended by add-
ing at the end the following new section:
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS,
ETC.
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN
AS PAYMENT OF TAX.—A taxpayer may make a cash de-
posit with the Secretary which may be used by the Sec-
retary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed
at the time of the deposit. Such a deposit shall be made
in such manner as the Secretary shall prescribe.
‘‘(b) NO INTEREST IMPOSED.—To the extent that
such deposit is used by the Secretary to pay tax, for pur-
poses of section 6601 (relating to interest on underpay-
ments), the tax shall be treated as paid when the deposit
is made.
‘‘(c) RETURN OF DEPOSIT.—Except in a case where
the Secretary determines that collection of tax is in jeop-
ardy, the Secretary shall return to the taxpayer any
amount of the deposit (to the extent not used for a pay-
ment of tax) which the taxpayer requests in writing.
‘‘(d) PAYMENT OF INTEREST.—
‘‘(1) IN
GENERAL.—For purposes of section
6611 (relating to interest on overpayments), a de-
posit which is returned to a taxpayer shall be treated
as a payment of tax for any period to the extent
(and only to the extent) attributable to a disputable
tax for such period. Under regulations prescribed by
the Secretary, rules similar to the rules of section
6611(b)(2) shall apply.
‘‘(2) DISPUTABLE TAX.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘disputable tax’ means the
amount of tax specified at the time of the de-
posit as the taxpayer’s reasonable estimate of
the maximum amount of any tax attributable to
disputable items.
‘‘(B) SAFE
HARBOR
BASED
ON
30-DAY
LETTER.—In the case of a taxpayer who has
been issued a 30-day letter, the maximum
amount of tax under subparagraph (A) shall
not be less than the amount of the proposed de-
ficiency specified in such letter.
‘‘(3) OTHER
DEFINITIONS.—For purposes of
paragraph (2)—
‘‘(A) DISPUTABLE ITEM.—The term ‘dis-
putable item’ means any item of income, gain,
loss, deduction, or credit if the taxpayer—
‘‘(i) has a reasonable basis for its
treatment of such item, and
‘‘(ii) reasonably believes that the Sec-
retary also has a reasonable basis for dis-
allowing the taxpayer’s treatment of such
item.
‘‘(B) 30-DAY LETTER.—The term ‘30-day
letter’ means the first letter of proposed defi-
ciency which allows the taxpayer an opportunity
for administrative review in the Internal Rev-
enue Service Office of Appeals.
‘‘(4) RATE OF INTEREST.—The rate of interest
allowable under this subsection shall be the Federal
short-term rate determined under section 6621(b),
compounded daily.
‘‘(e) USE OF DEPOSITS.—
‘‘(1) PAYMENT OF TAX.—Except as otherwise
provided by the taxpayer, deposits shall be treated
as used for the payment of tax in the order depos-
ited.
‘‘(2) RETURNS
OF
DEPOSITS.—Deposits shall
be treated as returned to the taxpayer on a last-in,
first-out basis.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for subchapter A of chapter 67 is amended by adding at
the end the following new item:
‘‘Sec. 6603. Deposits made to suspend running of interest on po-
tential underpayments, etc.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall apply to deposits made after the
date of the enactment of this Act.
(2) COORDINATION
WITH
DEPOSITS
MADE
UNDER REVENUE PROCEDURE 84–58.—In the case of
an amount held by the Secretary of the Treasury or
his delegate on the date of the enactment of this Act
as a deposit in the nature of a cash bond deposit
pursuant to Revenue Procedure 84–58, the date that
the taxpayer identifies such amount as a deposit
made pursuant to section 6603 of the Internal Rev-
enue Code (as added by this Act) shall be treated as
the date such amount is deposited for purposes of
such section 6603.
SEC. 305. EXPANSION OF INTEREST NETTING FOR INDIVID-
UALS.
(a) IN GENERAL.—Subsection (d) of section 6621
(relating to elimination of interest on overlapping periods
of tax overpayments and underpayments) is amended by
adding at the end the following: ‘‘Solely for purposes of
the preceding sentence, section 6611(e) shall not apply in
the case of an individual.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to interest accrued after Decem-
ber 31, 2002.
SEC. 306. WAIVER OF CERTAIN PENALTIES FOR FIRST-TIME
UNINTENTIONAL MINOR ERRORS.
(a) IN GENERAL.—Section 6651 (relating to failure
to file tax return or to pay tax) is amended by adding
at the end the following new subsection:
‘‘(i) TREATMENT OF FIRST-TIME UNINTENTIONAL
MINOR ERRORS.—
‘‘(1) IN GENERAL.—In the case of a return of
tax imposed by subtitle A filed by an individual, the
Secretary may waive an addition to tax under sub-
section (a) if—
‘‘(A) the individual has a history of compli-
ance with the requirements of this title,
‘‘(B) it is shown that the failure is due to
an unintentional minor error,
‘‘(C) the penalty would be grossly dis-
proportionate to the action or expense that
would have been needed to avoid the error, and
imposing the penalty would be against equity
and good conscience,
‘‘(D) waiving the penalty would promote
compliance with the requirements of this title
and effective tax administration, and
‘‘(E) the taxpayer took all reasonable steps
to remedy the error promptly after discovering
it.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not
apply if—
‘‘(A) the Secretary has waived any addition
to tax under this subsection with respect to any
prior failure by such individual,
‘‘(B) the failure is a mathematical or cler-
ical error (as defined in section 6213(g)(2)), or
‘‘(C) the failure is the lack of a required
signature.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall take effect on January 1, 2003.
SEC. 307. FRIVOLOUS TAX SUBMISSIONS.
(a) CIVIL PENALTIES.—Section 6702 is amended to
read as follows:
‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
‘‘(a) CIVIL PENALTY
FOR FRIVOLOUS TAX RE-
TURNS.—A person shall pay a penalty of $5,000 if—
‘‘(1) such person files what purports to be a re-
turn of a tax imposed by this title but which—
‘‘(A) does not contain information on
which the substantial correctness of the self-as-
sessment may be judged, or
‘‘(B) contains information that on its face
indicates that the self-assessment is substan-
tially incorrect; and
‘‘(2) the conduct referred to in paragraph (1)—
‘‘(A) is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c), or
‘‘(B) reflects a desire to delay or impede
the administration of Federal tax laws.
‘‘(b) CIVIL PENALTY
FOR SPECIFIED FRIVOLOUS
SUBMISSIONS.—
‘‘(1) IMPOSITION OF PENALTY.—Except as pro-
vided in paragraph (3), any person who submits a
specified frivolous submission shall pay a penalty of
$5,000.
‘‘(2) SPECIFIED FRIVOLOUS SUBMISSION.—For
purposes of this section—
‘‘(A) 
SPECIFIED
FRIVOLOUS
SUBMIS-
SION.—The term ‘specified frivolous submis-
sion’ means a specified submission if any por-
tion of such submission—
‘‘(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
‘‘(ii) reflects a desire to delay or im-
pede the administration of Federal tax
laws.
‘‘(B) SPECIFIED SUBMISSION.—The term
‘specified submission’ means—
‘‘(i) a request for a hearing under—
‘‘(I) section 6320 (relating to no-
tice and opportunity for hearing upon
filing of notice of lien), or
‘‘(II) section 6330 (relating to
notice and opportunity for hearing be-
fore levy), and
‘‘(ii) an application under—
‘‘(I) section 7811 (relating to
taxpayer assistance orders),
‘‘(II) section 6159 (relating to
agreements for payment of tax liabil-
ity in installments), or
‘‘(III) section 7122 (relating to
compromises).
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with no-
tice that a submission is a specified frivolous sub-
mission and such person withdraws such submission
promptly after such notice, the penalty imposed
under paragraph (1) shall not apply with respect to
such submission.
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of po-
sitions which the Secretary has identified as being frivo-
lous for purposes of this subsection. The Secretary shall
not include in such list any position that the Secretary
determines 
meets 
the 
requirement 
of 
section
6662(d)(2)(B)(ii)(II).
‘‘(d) REDUCTION OF PENALTY.—The Secretary may
reduce the amount of any penalty imposed under this sec-
tion if the Secretary determines that such reduction would
promote compliance with and administration of the Fed-
eral tax laws.
‘‘(e) PENALTIES
IN ADDITION
TO OTHER PEN-
ALTIES.—The penalties imposed by this section shall be
in addition to any other penalty provided by law.’’.
(b) TREATMENT
OF FRIVOLOUS REQUESTS
FOR
HEARINGS BEFORE LEVY.—
(1) FRIVOLOUS
REQUESTS
DISREGARDED.—
Section 6330 (relating to notice and opportunity for
hearing before levy) is amended by adding at the
end the following new subsection:
‘‘(g) FRIVOLOUS REQUESTS FOR HEARING, ETC.—
Notwithstanding any other provision of this section, if the
Secretary determines that any portion of a request for a
hearing under this section or section 6320 meets the re-
quirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were
never submitted and such portion shall not be subject to
any further administrative or judicial review.’’.
(2) PRECLUSION
FROM
RAISING
FRIVOLOUS
ISSUES
AT
HEARING.—Section 
6330(c)(4) 
is
amended—
(A) by striking ‘‘(A)’’ and inserting
‘‘(A)(i)’’;
(B) by striking ‘‘(B)’’ and inserting ‘‘(ii)’’;
(C) by striking the period at the end of the
first sentence and inserting ‘‘; or’’; and
(D) by inserting after subparagraph (A)(ii)
(as so redesignated) the following:
‘‘(B) the issue meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A).’’.
(3) 
STATEMENT
OF
GROUNDS.—Section
6330(b)(1) is amended by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under
subsection (a)(3)(B) and states the grounds for the
requested hearing’’.
(c) TREATMENT
OF FRIVOLOUS REQUESTS
FOR
HEARINGS UPON FILING OF NOTICE OF LIEN.—Section
6320 is amended—
(1) in subsection (b)(1), by striking ‘‘under sub-
section (a)(3)(B)’’ and inserting ‘‘in writing under
subsection (a)(3)(B) and states the grounds for the
requested hearing’’, and
(2) in subsection (c), by striking ‘‘and (e)’’ and
inserting ‘‘(e), and (g)’’.
(d) TREATMENT OF FRIVOLOUS APPLICATIONS FOR
OFFERS-IN-COMPROMISE
AND
INSTALLMENT
AGREE-
MENTS.—Section 7122 is amended by adding at the end
the following new subsection:
‘‘(e) FRIVOLOUS
SUBMISSIONS, ETC.—Notwith-
standing any other provision of this section, if the Sec-
retary determines that any portion of an application for
an offer-in-compromise or installment agreement sub-
mitted under this section or section 6159 meets the re-
quirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were
never submitted and such portion shall not be subject to
any further administrative or judicial review.’’.
(e) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter B of chapter 68 is amended by
striking the item relating to section 6702 and inserting
the following new item:
‘‘Sec. 6702. Frivolous tax submissions.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to submissions made and issues
raised after the date on which the Secretary first pre-
scribes a list under section 6702(c) of the Internal Rev-
enue Code of 1986, as amended by subsection (a).
SEC. 308. CLARIFICATION OF APPLICATION OF FEDERAL
TAX DEPOSIT PENALTY.
Nothing in section 6656 of the Internal Revenue
Code of 1986 shall be construed to permit the percentage
specified in subsection (b)(1)(A)(iii) thereof to apply other
than in a case where the failure is for more than 15 days.
Passed the House of Representatives November 15
(legislative day, November 14), 2002.
Attest:
Clerk.