I 
107TH CONGRESS 
2D SESSION 
H. R. 5728
To amend the Internal Revenue Code of 1986 to provide fairness in tax 
collection procedures and improved administrative efficiency and confiden-
tiality and to reform its penalty and interest provisions. 
IN THE HOUSE OF REPRESENTATIVES 
NOVEMBER 14, 2002
Mr. THOMAS introduced the following bill; referred to the Committee on Ways 
and Means 
NOVEMBER 14, 2002
Committee on Ways and Means discharged; considered and passed 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
fairness in tax collection procedures and improved admin-
istrative efficiency and confidentiality and to reform its 
penalty and interest provisions.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Tax Administration Reform Act of 2002’’. 
(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; etc. 
TITLE I—FAIRNESS IN TAX COLLECTION PROCEDURES 
Sec. 101. Partial payment of tax liability in installment agreements. 
Sec. 102. Extension of time for return of property. 
Sec. 103. Individuals held harmless on wrongful levy, etc. on individual retire-
ment plan. 
Sec. 104. Seven-day threshold on tolling of statute of limitations during tax re-
view. 
Sec. 105. Study of liens and levies. 
Sec. 106. Low-income taxpayer clinics. 
TITLE II—IMPROVED ADMINISTRATIVE EFFICIENCY AND 
CONFIDENTIALITY 
SUBTITLE A—EFFICIENCY OF TAX ADMINISTRATION 
Sec. 201. Revisions relating to termination of employment of Internal Revenue 
Service employees for misconduct. 
Sec. 202. Confirmation of authority of Tax Court to apply doctrine of equitable 
recoupment. 
Sec. 203. Jurisdiction of Tax Court over collection due process cases. 
Sec. 204. Office of Chief Counsel review of offers in compromise. 
Sec. 205. 15-day delay in due date for electronically filed individual income tax 
returns. 
SUBTITLE B—CONFIDENTIALITY AND DISCLOSURE 
Sec. 211. Collection activities with respect to joint return disclosable to either 
spouse based on oral request. 
Sec. 212. Taxpayer representatives not subject to examination on sole basis of 
representation of taxpayers. 
Sec. 213. Compliance by contractors with confidentiality safeguards. 
Sec. 214. Higher standards for requests for and consents to disclosure. 
Sec. 215. Notice to taxpayer concerning administrative determination of brows-
ing; annual report. 
Sec. 216. Expanded disclosure in emergency circumstances. 
SUBTITLE C—OTHER PROVISIONS 
Sec. 221. Better means of communicating with taxpayers. 
Sec. 222. Enrolled agents. 
Sec. 223. Financial management service fees. 
Sec. 224. Amendment to Treasury auction reforms.
TITLE III—REFORM OF PENALTY AND INTEREST PROVISIONS 
Sec. 301. Failure to pay estimated tax penalty converted to interest charge on 
accumulated unpaid balance. 
Sec. 302. Exclusion from gross income for interest on overpayments of income 
tax by individuals. 
Sec. 303. Abatement of interest. 
Sec. 304. Deposits made to suspend running of interest on potential underpay-
ments. 
Sec. 305. Expansion of interest netting for individuals. 
Sec. 306. Waiver of certain penalties for first-time unintentional minor errors. 
Sec. 307. Frivolous tax submissions. 
Sec. 308. Clarification of application of Federal tax deposit penalty.
TITLE I—FAIRNESS IN TAX 
COLLECTION PROCEDURES
SEC. 101. PARTIAL PAYMENT OF TAX LIABILITY IN IN-
STALLMENT AGREEMENTS. 
(a) IN GENERAL.—
(1) Section 6159(a) (relating to authorization 
of agreements) is amended—
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, 
and 
(B) by inserting ‘‘full or partial’’ after 
‘‘facilitate’’. 
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in cer-
tain cases) is amended in the matter preceding para-
graph (1) by inserting ‘‘full’’ before ‘‘payment’’. 
(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT 
AGREEMENTS EVERY TWO YEARS.—Section 6159 is 
amended by redesignating subsections (d) and (e) as sub-
sections (e) and (f), respectively, and inserting after sub-
section (c) the following new subsection: 
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY 
TWO YEARS.—In the case of an agreement entered into 
by the Secretary under subsection (a) for partial collection 
of a tax liability, the Secretary shall review the agreement 
at least once every 2 years.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to agreements entered into on or 
after the date of the enactment of this Act. 
SEC. 102. EXTENSION OF TIME FOR RETURN OF PROPERTY. 
(a) EXTENSION OF TIME FOR RETURN OF PROPERTY 
SUBJECT
TO LEVY.—Subsection (b) of section 6343 
(relating to return of property) is amended by striking ‘‘9 
months’’ and inserting ‘‘2 years’’. 
(b) PERIOD OF LIMITATION ON SUITS.—Subsection 
(c) of section 6532 (relating to suits by persons other than 
taxpayers) is amended—
(1) in paragraph (1) by striking ‘‘9 months’’ 
and inserting ‘‘2 years’’, and 
(2) in paragraph (2) by striking ‘‘9-month’’ and 
inserting ‘‘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) 
of the Internal Revenue Code of 1986 (without re-
gard to this section) as of such date.
SEC. 103. INDIVIDUALS HELD HARMLESS ON WRONGFUL 
LEVY, ETC., ON INDIVIDUAL RETIREMENT 
PLAN. 
(a) IN GENERAL.—Section 6343 (relating to author-
ity to release levy and return property) is amended by add-
ing at the end the following new subsection: 
‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL 
LEVY, ETC., ON INDIVIDUAL RETIREMENT PLAN.—
‘‘(1) IN GENERAL.—If the Secretary determines 
that an individual retirement plan has been levied 
upon in a case to which subsection (b) or (d)(2)(A) 
applies, an amount equal to the sum of—
‘‘(A) the amount of money returned by the 
Secretary on account of such levy, and 
‘‘(B) interest paid under subsection (c) on 
such amount of money,
may be deposited into an individual retirement plan 
(other than an endowment contract) to which a roll-
over from the plan levied upon is permitted.
ment made on the due date for filing the return of 
tax for such taxable year. 
‘‘(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.’’. 
(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 of the Internal Rev-
enue Code of 1986 after December 31, 2002. 
SEC. 104. SEVEN-DAY THRESHOLD ON TOLLING OF STAT-
UTE OF LIMITATIONS DURING TAX REVIEW. 
(a) IN GENERAL.—Section 7811(d)(1) (relating to 
suspension of running of period of limitation) is amended 
by inserting after ‘‘application,’’ the following: ‘‘but only 
if the date of such decision is at least 7 days after the 
date of the taxpayer’s application’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to applications filed after the date 
of the enactment of this Act. 
SEC. 105. STUDY OF LIENS AND LEVIES. 
The Secretary of the Treasury, or the Secretary’s del-
egate, shall conduct a study of the practices of the Inter-
nal Revenue Service concerning liens and levies. The study 
shall examine—
(1) the declining use of liens and levies by the 
Internal Revenue Service, and 
(2) the practicality of recording liens and lev-
ying against property in cases in which the cost of 
such actions exceeds the amount to be realized from 
such property. 
Not later than 1 year after the date of the enactment of 
this Act, the Secretary shall submit such study to the 
Committee on Ways and Means of the House of Rep-
resentatives and the Committee on Finance of the Senate. 
SEC. 106. LOW-INCOME TAXPAYER CLINICS. 
(a) LIMITATION ON AMOUNT OF GRANTS.—Para-
graph (1) of section 7526(c) (relating to special rules and 
limitations) is amended by striking ‘‘$6,000,000 per year’’ 
and inserting ‘‘$9,000,000 for 2002, $12,000,000 for 
2003, and $15,000,000 for each year thereafter’’. 
(b) LIMITATION ON USE OF CLINICS FOR TAX RE-
TURN
PREPARATION.—Subparagraph (A) of section 
7526(b)(1) is amended by adding at the end the following 
flush language: 
‘‘The term does not include a clinic that pro-
vides routine tax return preparation. The pre-
ceding sentence shall not apply to return prepa-
ration in connection with a controversy with the 
Internal Revenue Service.’’. 
(c) PROMOTION
OF CLINICS.—Section 7526(c) is 
amended by adding at the end the following new para-
graph: 
‘‘(7) PROMOTION OF CLINICS.—The Secretary 
is authorized to promote the benefits of and encour-
age the use of low-income taxpayer clinics through 
the use of mass communications, referrals, and other 
means.’’.
TITLE II—IMPROVED ADMINIS-
TRATIVE 
EFFICIENCY 
AND 
CONFIDENTIALITY 
Subtitle A—Efficiency of Tax 
Administration 
SEC. 201. REVISIONS RELATING TO TERMINATION OF EM-
PLOYMENT OF INTERNAL REVENUE SERVICE 
EMPLOYEES FOR MISCONDUCT. 
(a) IN GENERAL.—Subchapter A of chapter 80 
(relating to application of internal revenue laws) is amend-
ed by inserting after section 7804 the following new sec-
tion:
‘‘SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT. 
‘‘(a) DISCIPLINARY ACTIONS.—
‘‘(1) IN GENERAL.—Subject to subsection (c), 
the Commissioner shall take an action in accordance 
with the guidelines established under paragraph (2) 
against any employee of the Internal Revenue Serv-
ice if there is a final administrative or judicial deter-
mination that such employee committed any act or 
omission described under subsection (b) in the per-
formance of the employee’s official duties or where 
a nexus to the employee’s position exists. 
‘‘(2) GUIDELINES.—The Commissioner shall 
issue guidelines for determining the appropriate level 
of discipline, up to and including termination of em-
ployment, for committing any act or omission de-
scribed under subsection (b). 
‘‘(b) ACTS OR OMISSIONS.—The acts or omissions de-
scribed under this subsection are—
‘‘(1) willful failure to obtain the required ap-
proval signatures on documents authorizing the sei-
zure of a taxpayer’s home, personal belongings, or 
business assets; 
‘‘(2) willfully providing a false statement under 
oath with respect to a material matter involving a 
taxpayer or taxpayer representative; 
‘‘(3) with respect to a taxpayer or taxpayer rep-
resentative, the willful violation of—
‘‘(A) any right under the Constitution of 
the United States; 
‘‘(B) any civil right established under—
‘‘(i) title VI or VII of the Civil Rights 
Act of 1964; 
‘‘(ii) title IX of the Education Amend-
ments of 1972; 
‘‘(iii) the Age Discrimination in Em-
ployment Act of 1967; 
‘‘(iv) the Age Discrimination Act of 
1975; 
‘‘(v) section 501 or 504 of the Reha-
bilitation Act of 1973; or
‘‘(vi) title I of the Americans with 
Disabilities Act of 1990; or 
‘‘(C) the Internal Revenue Service policy 
on unauthorized inspection of returns or return 
information; 
‘‘(4) willfully falsifying or destroying documents 
to conceal mistakes made by any employee with re-
spect to a matter involving a taxpayer or taxpayer 
representative; 
‘‘(5) assault or battery on a taxpayer or tax-
payer representative, but only if there is a criminal
conviction, or a final adverse judgment by a court in 
a civil case, with respect to the assault or battery; 
‘‘(6) willful violations of this title, Department 
of the Treasury regulations, or policies of the Inter-
nal Revenue Service (including the Internal Revenue 
Manual) for the purpose of retaliating against, or 
harassing, a taxpayer or taxpayer representative; 
‘‘(7) willful misuse of the provisions of section 
6103 for the purpose of concealing information from 
a congressional inquiry; 
‘‘(8) willful failure to file any return of tax re-
quired under this title on or before the date pre-
scribed therefor (including any extensions) when a 
tax is due and owing, unless such failure is due to 
reasonable cause and not due to willful neglect; 
‘‘(9) willful understatement of Federal tax li-
ability, unless such understatement is due to reason-
able cause and not due to willful neglect; and 
‘‘(10) threatening to audit a taxpayer, or to 
take other action under this title, for the purpose of 
extracting personal gain or benefit. 
‘‘(c) DETERMINATIONS OF COMMISSIONER.—
‘‘(1) IN
GENERAL.—The Commissioner may 
take a personnel action other than a disciplinary ac-
tion provided for in the guidelines under subsection
(a)(2) for an act or omission described under sub-
section (b). 
‘‘(2) DISCRETION.—The exercise of authority 
under paragraph (1) shall be at the sole discretion 
of the Commissioner and may not be delegated to 
any other officer. The Commissioner, in his sole dis-
cretion, may establish a procedure to determine if an 
individual should be referred to the Commissioner 
for a determination by the Commissioner under 
paragraph (1). 
‘‘(3) NO APPEAL.—Notwithstanding any other 
provision of law, any determination of the Commis-
sioner under this subsection may not be reviewed in 
any administrative or judicial proceeding. A finding 
that an act or omission described under subsection 
(b) occurred may be reviewed. 
‘‘(d) DEFINITION.—For the purposes of the provi-
sions described in clauses (i), (ii), and (iv) of subsection 
(b)(3)(B), references to a program or activity regarding 
Federal financial assistance or an education program or 
activity receiving Federal financial assistance shall include 
any program or activity conducted by the Internal Rev-
enue Service for a taxpayer.
‘‘(e) ANNUAL REPORT.—The Commissioner shall 
submit to Congress annually a report on disciplinary ac-
tions under this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 80 is amended by inserting after the item re-
lating to section 7804 the following new item:
‘‘Sec. 7804A. Disciplinary actions for misconduct.’’.
(c) REPEAL
OF SUPERSEDED SECTION.—Section 
1203 of the Internal Revenue Service Restructuring and 
Reform Act of 1998 (Public Law 105–206; 112 Stat. 720) 
is repealed. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
SEC. 202. CONFIRMATION OF AUTHORITY OF TAX COURT 
TO 
APPLY 
DOCTRINE 
OF 
EQUITABLE 
RECOUPMENT. 
(a) CONFIRMATION OF AUTHORITY OF TAX COURT 
TO APPLY DOCTRINE OF EQUITABLE RECOUPMENT.—
Subsection (b) of section 6214 (relating to jurisdiction 
over other years and quarters) is amended by adding at 
the end the following new sentence: ‘‘Notwithstanding the 
preceding sentence, the Tax Court may apply the doctrine 
of equitable recoupment to the same extent that it is avail-
able in civil tax cases before the district courts of the
United States and the United States Court of Federal 
Claims.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to any action or proceeding in the 
Tax Court with respect to which a decision has not become 
final (as determined under section 7481 of the Internal 
Revenue Code of 1986) as of the date of the enactment 
of this Act. 
SEC. 203. JURISDICTION OF TAX COURT OVER COLLECTION 
DUE PROCESS CASES. 
(a) IN GENERAL.—Section 6330(d)(1) (relating to 
judicial review of determination) is amended to read as 
follows: 
‘‘(1) JUDICIAL REVIEW OF DETERMINATION.—
The person may, within 30 days of a determination 
under this section, appeal such determination to the 
Tax Court (and the Tax Court shall have jurisdic-
tion with respect to such matter).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to judicial appeals filed after 
the date of the enactment of this Act.
SEC. 204. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS 
IN COMPROMISE. 
(a) IN GENERAL.—Section 7122(b) (relating to 
record) is amended by striking ‘‘Whenever a compromise’’
and all that follows through ‘‘his delegate’’ and inserting 
‘‘If the Secretary determines that an opinion of the Gen-
eral Counsel for the Department of the Treasury, or the 
Counsel’s delegate, is required with respect to a com-
promise, there shall be placed on file in the office of the 
Secretary such opinion’’. 
(b) CONFORMING AMENDMENTS.—Section 7122(b) is 
amended by striking the second and third sentences. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to offers-in-compromise submitted 
or pending on or after the date of the enactment of this 
Act.
SEC. 205. 15-DAY DELAY IN DUE DATE FOR ELECTRONI-
CALLY FILED INDIVIDUAL INCOME TAX RE-
TURNS. 
(a) IN GENERAL.—Section 6072 (relating to time for 
filing income tax returns) is amended by adding at the 
end the following new subsection: 
‘‘(f) ELECTRONICALLY FILED RETURNS OF INDIVID-
UALS.—
‘‘(1) IN GENERAL.—Returns of an individual 
under section 6012 or 6013 (other than an indi-
vidual to whom subsection (c) applies) which are 
filed electronically—
‘‘(A) in the case of returns filed on the 
basis of a calendar year, shall be filed on or be-
fore the 30th day of April following the close of 
the calendar year, and 
‘‘(B) in the case of returns filed on the 
basis of a fiscal year, shall be filed on or before 
the last day of the 4th month following the 
close of the fiscal year. 
‘‘(2) 
ELECTRONIC
FILING.—Paragraph 
(1) 
shall not apply to any return unless—
‘‘(A) such return is accepted by the Sec-
retary, and 
‘‘(B) the balance due (if any) shown on 
such return is paid electronically in a manner 
prescribed by the Secretary. 
‘‘(3) SPECIAL RULES.—
‘‘(A) ESTIMATED TAX.—If—
‘‘(i) paragraph (1) applies to an indi-
vidual for any taxable year, and 
‘‘(ii) there is an overpayment of tax 
shown on the return for such year which 
the individual allows against the individ-
ual’s obligation under section 6641, 
then, with respect to the amount so allowed, 
any reference in section 6641 to the April 15
following such taxable year shall be treated as 
a reference to April 30. 
‘‘(B) REFERENCES TO DUE DATE.—Para-
graph (1) shall apply solely for purposes of de-
termining the due date for the individual’s obli-
gation to file and pay tax and, except as other-
wise provided by the Secretary, shall be treated 
as an extension of the due date for any other 
purpose under this title.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2001. 
Subtitle B—Confidentiality and 
Disclosure 
SEC. 211. COLLECTION ACTIVITIES WITH RESPECT TO 
JOINT RETURN DISCLOSABLE TO EITHER 
SPOUSE BASED ON ORAL REQUEST. 
(a) IN GENERAL.—Paragraph (8) of section 6103(e) 
(relating to disclosure of collection activities with respect 
to joint return) is amended by striking ‘‘in writing’’ the 
first place it appears. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to requests made after the date 
of the enactment of this Act.
SEC. 212. TAXPAYER REPRESENTATIVES NOT SUBJECT TO 
EXAMINATION ON SOLE BASIS OF REPRESEN-
TATION OF TAXPAYERS. 
(a) IN GENERAL.—Subsection (h) of section 6103 
(relating to disclosure to certain Federal officers and em-
ployees for purposes of tax administration, etc.) is amend-
ed by adding at the end the following new paragraph: 
‘‘(7) TAXPAYER REPRESENTATIVES.—Notwith-
standing paragraph (1), the return of the represent-
ative of a taxpayer whose return is being examined 
by an officer or employee of the Department of the 
Treasury shall not be open to inspection by such of-
ficer or employee on the sole basis of the representa-
tive’s relationship to the taxpayer unless a super-
visor of such officer or employee has approved the 
inspection of the return of such representative on a 
basis other than by reason of such relationship.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act. 
SEC. 213. COMPLIANCE BY CONTRACTORS WITH CONFIDEN-
TIALITY SAFEGUARDS. 
(a) IN GENERAL.—Section 6103(p) (relating to State 
law requirements) is amended by adding at the end the 
following new paragraph:
‘‘(9) DISCLOSURE TO CONTRACTORS.—Notwith-
standing any other provision of this section, no re-
turn or return information shall be disclosed by any 
officer or employee of any Federal agency or State 
to any contractor of such agency or State unless 
such agency or State—
‘‘(A) has requirements in effect which re-
quire each contractor of such agency or State 
which would have access to returns or return 
information to provide safeguards (within the 
meaning of paragraph (4)) to protect the con-
fidentiality of such returns or return informa-
tion, 
‘‘(B) agrees to conduct an annual, on-site 
review (mid-point review in the case of con-
tracts of less than 1 year in duration) of each 
contractor to determine compliance with such 
requirements, 
‘‘(C) submits the findings of the most re-
cent review conducted under subparagraph (B)
to the Secretary as part of the report required 
by paragraph (4)(E), and 
‘‘(D) certifies to the Secretary for the most 
recent annual period that all contractors are in 
compliance with all such requirements.
The certification required by subparagraph (D) shall 
include the name and address of each contractor, a 
description of the contract of the contractor with the 
Federal agency or State, and the duration of such 
contract.’’. 
(b) CONFORMING AMENDMENT.—Subparagraph (B) 
of section 6103(p)(8) is amended by inserting ‘‘or para-
graph (9)’’ after ‘‘subparagraph (A)’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by 
this section shall apply to disclosures made after De-
cember 31, 2002.
(2) CERTIFICATIONS.—The first certification 
under section 6103(p)(9)(D) of the Internal Revenue 
Code of 1986, as added by subsection (a), shall be 
made with respect to calendar year 2003. 
SEC. 214. HIGHER STANDARDS FOR REQUESTS FOR AND 
CONSENTS TO DISCLOSURE. 
(a) IN GENERAL.—Subsection (c) of section 6103 
(relating to disclosure of returns and return information 
to designee of taxpayer) is amended by adding at the end 
the following new paragraphs: 
‘‘(2) REQUIREMENTS
FOR
VALID
REQUESTS 
AND CONSENTS.—A request for or consent to disclo-
sure under paragraph (1) shall only be valid for pur-
poses of this section or sections 7213, 7213A, or 
7431 if—
‘‘(A) at the time of execution, such request 
or consent designates a recipient of such disclo-
sure and is dated, and 
‘‘(B) at the time such request or consent 
is submitted to the Secretary, the submitter of 
such request or consent certifies, under penalty 
of perjury, that such request or consent com-
plied with subparagraph (A). 
‘‘(3) RESTRICTIONS
ON
PERSONS
OBTAINING 
INFORMATION.—Any person shall, as a condition for 
receiving return or return information under para-
graph (1)— 
‘‘(A) ensure that such return and return 
information is kept confidential, 
‘‘(B) use such return and return informa-
tion only for the purpose for which it was re-
quested, and 
‘‘(C) not disclose such return and return 
information except to accomplish the purpose 
for which it was requested, unless a separate 
consent from the taxpayer is obtained. 
‘‘(4) REQUIREMENTS
FOR
FORM
PRESCRIBED 
BY SECRETARY.—For purposes of this subsection,
the Secretary shall prescribe a form for requests and 
consents which shall— 
‘‘(A) contain a warning, prominently dis-
played, informing the taxpayer that the form 
should not be signed unless it is completed, 
‘‘(B) state that if the taxpayer believes 
there is an attempt to coerce him to sign an in-
complete or blank form, the taxpayer should re-
port the matter to the Treasury Inspector Gen-
eral for Tax Administration, and 
‘‘(C) contain the address and telephone 
number of the Treasury Inspector General for 
Tax Administration.’’. 
(b) REPORT.—Not later than 18 months after the 
date of the enactment of this Act, the Treasury Inspector 
General for Tax Administration shall submit a report to 
the Congress on compliance with the designation and cer-
tification requirements applicable to requests for or con-
sent to disclosure of returns and return information under 
section 6103(c) of the Internal Revenue Code of 1986, as 
amended by subsection (a). Such report shall—
(1) evaluate (on the basis of random sampling) 
whether—
(A) the amendment made by subsection (a) 
is achieving the purposes of this section;
(B) requesters and submitters for such dis-
closure are continuing to evade the purposes of 
this section and, if so, how; and 
(C) the sanctions for violations of such re-
quirements are adequate; and 
(2) include such recommendations that the 
Treasury Inspector General for Tax Administration 
considers necessary or appropriate to better achieve 
the purposes of this section. 
(c) CONFORMING AMENDMENT.—Section 6103(c) is 
amended by striking ‘‘TAXPAYER.—The Secretary’’ and 
inserting ‘‘TAXPAYER.—
‘‘(1) IN GENERAL.—The Secretary’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to requests and consents made 
after 3 months after the date of the enactment of this 
Act. 
SEC. 215. NOTICE TO TAXPAYER CONCERNING ADMINIS-
TRATIVE DETERMINATION OF BROWSING; AN-
NUAL REPORT. 
(a) NOTICE TO TAXPAYER.—Subsection (e) of section 
7431 (relating to notification of unlawful inspection and 
disclosure) is amended by adding at the end the following: 
‘‘The Secretary shall also notify such taxpayer if the 
Treasury Inspector General for Tax Administration deter-
mines that such taxpayer’s return or return information 
was inspected or disclosed in violation of any of the provi-
sions specified in paragraph (1), (2), or (3).’’. 
(b) REPORTS.—Subsection (p) of section 6103 
(relating to procedure and recordkeeping), as amended by 
section 245, is further amended by adding at the end the 
following new paragraph: 
‘‘(10) REPORT ON UNAUTHORIZED DISCLOSURE 
AND INSPECTION.—As part of the report required by 
paragraph (3)(C) for each calendar year, the Sec-
retary shall furnish information regarding the unau-
thorized disclosure and inspection of returns and re-
turn information, including the number, status, and 
results of—
‘‘(A) administrative investigations, 
‘‘(B) civil lawsuits brought under section 
7431 (including the amounts for which such
lawsuits were settled and the amounts of dam-
ages awarded), and 
‘‘(C) criminal prosecutions.’’. 
(c) EFFECTIVE DATE.—
(1) NOTICE.—The amendment made by sub-
section (a) shall apply to determinations made after 
the date of the enactment of this Act.
(2) REPORTS.—The amendment made by sub-
section (b) shall apply to calendar years ending after 
the date of the enactment of this Act. 
SEC. 216. EXPANDED DISCLOSURE IN EMERGENCY CIR-
CUMSTANCES. 
(a) IN GENERAL.—Section 6103(i)(3)(B) (relating to 
danger of death or physical injury) is amended by striking 
‘‘or State’’ and inserting ‘‘, State, or local’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on the date of the enactment 
of this Act. 
Subtitle C—Other Provisions 
SEC. 221. BETTER MEANS OF COMMUNICATING WITH TAX-
PAYERS. 
Not later than 18 months after the date of the enact-
ment of this Act, the Treasury Inspector General for Tax 
Administration shall submit a report to Congress evalu-
ating whether technological advances, such as e-mail and 
facsimile transmission, permit the use of alternative 
means for the Internal Revenue Service to communicate 
with taxpayers. 
SEC. 222. ENROLLED AGENTS. 
(a) IN GENERAL.—Chapter 77 (relating to miscella-
neous provisions) is amended by adding at the end the 
following new section:
‘‘SEC. 7527. ENROLLED AGENTS. 
‘‘(a) IN GENERAL.—The Secretary may prescribe 
such regulations as may be necessary to regulate the con-
duct of enrolled agents in regards to their practice before 
the Internal Revenue Service. 
‘‘(b) USE OF CREDENTIALS.—Any enrolled agents 
properly licensed to practice as required under rules pro-
mulgated under section (a) herein shall be allowed to use 
the credentials or designation as ‘enrolled agent’, ‘EA’, or 
‘E.A.’.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 77 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 7525. Enrolled agents.’’.
(c) PRIOR REGULATIONS.—Nothing in the amend-
ments made by this section shall be construed to have any 
effect on part 10 of title 31, Code of Federal Regulations, 
or any other Federal rule or regulation issued before the 
date of the enactment of this Act. 
SEC. 223. FINANCIAL MANAGEMENT SERVICE FEES. 
Notwithstanding any other provision of law, the Fi-
nancial Management Service may charge the Internal Rev-
enue Service, and the Internal Revenue Service may pay 
the Financial Management Service, a fee sufficient to 
cover the full cost of implementing a continuous levy pro-
gram under subsection (h) of section 6331 of the Internal
Revenue Code of 1986. Any such fee shall be based on 
actual levies made and shall be collected by the Financial 
Management Service by the retention of a portion of 
amounts collected by levy pursuant to that subsection. 
Amounts received by the Financial Management Service 
as fees under that subsection shall be deposited into the 
account of the Department of the Treasury under section 
3711(g)(7) of title 31, United States Code, and shall be 
collected and accounted for in accordance with the provi-
sions of that section. The amount credited against the tax-
payer’s liability on account of the continuous levy shall 
be the amount levied, without reduction for the amount 
paid to the Financial Management Service as a fee. 
SEC. 224. AMENDMENT TO TREASURY AUCTION REFORMS. 
(a) IN GENERAL.—Clause (i) of section 202(c)(4)(B) 
of the Government Securities Act Amendments of 1993 
(31 U.S.C. 3121 note) is amended by inserting before the 
semicolon ‘‘(or, if earlier, at the time the Secretary re-
leases the minutes of the meeting in accordance with para-
graph (2))’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to meetings held after the date 
of the enactment of this Act.
TITLE III—REFORM OF PENALTY 
AND INTEREST PROVISIONS
SEC. 301. FAILURE TO PAY ESTIMATED TAX PENALTY CON-
VERTED TO INTEREST CHARGE ON ACCUMU-
LATED UNPAID BALANCE. 
(a) PENALTY MOVED TO INTEREST CHAPTER OF 
CODE.—The Internal Revenue Code of 1986 is amended 
by redesignating section 6654 as section 6641 and by 
moving section 6641 (as so redesignated) from part I of 
subchapter A of chapter 68 to the end of subchapter E 
of chapter 67 (as added by subsection (e)(1) of this sec-
tion). 
(b) PENALTY CONVERTED TO INTEREST CHARGE.—
The heading and subsections (a) and (b) of section 6641 
(as so redesignated) are amended to read as follows: 
‘‘SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY 
ESTIMATED INCOME TAX. 
‘‘(a) IN GENERAL.—Interest shall be paid on any un-
derpayment of estimated tax by an individual for a taxable 
year for each day of such underpayment. The amount of 
such interest for any day shall be the product of the un-
derpayment rate established under subsection (b)(2) mul-
tiplied by the amount of the underpayment. 
‘‘(b) AMOUNT
OF
UNDERPAYMENT; INTEREST 
RATE.—For purposes of subsection (a)—
‘‘(1) AMOUNT.—The amount of the under-
payment on any day shall be the excess of—
‘‘(A) the sum of the required installments 
for the taxable year the due dates for which are 
on or before such day, over 
‘‘(B) the sum of the amounts (if any) of 
estimated tax payments made on or before such 
day on such required installments. 
‘‘(2) DETERMINATION OF INTEREST RATE.—
‘‘(A) IN
GENERAL.—The underpayment 
rate with respect to any day in an installment 
underpayment period shall be the under-
payment rate established under section 6621 
for the first day of the calendar quarter in 
which such installment underpayment period 
begins. 
‘‘(B) INSTALLMENT
UNDERPAYMENT
PE-
RIOD.—For purposes of subparagraph (A), the 
term ‘installment underpayment period’ means 
the period beginning on the day after the due
date for a required installment and ending on 
the due date for the subsequent required in-
stallment (or in the case of the 4th required 
installment, the 15th day of the 4th month fol-
lowing the close of a taxable year).
‘‘(C) DAILY RATE.—The rate determined 
under subparagraph (A) shall be applied on a 
daily basis and shall be based on the assump-
tion of 365 days in a calendar year. 
‘‘(3) TERMINATION OF ESTIMATED TAX INTER-
EST.—No day after the end of the installment un-
derpayment period for the 4th required installment 
specified in paragraph (2)(B) for a taxable year 
shall be treated as a day of underpayment with re-
spect to such taxable year.’’. 
(c) INCREASE
IN SAFE HARBOR WHERE TAX
IS 
SMALL.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section 
6641(d)(1)(B) (as so redesignated) is amended to 
read as follows: 
‘‘(i) the lesser of—
‘‘(I) 90 percent of the tax shown 
on the return for the taxable year (or, 
if no return is filed, 90 percent of the 
tax for such year), or 
‘‘(II) the tax shown on the return 
for the taxable year (or, if no return 
is filed, the tax for such year) reduced 
(but not below zero) by $2,000, or’’.
(2) CONFORMING AMENDMENT.—Subsection (e) 
of section 6641 (as so redesignated) is amended by 
striking paragraph (1) and redesignating paragraphs 
(2) and (3) as paragraphs (1) and (2), respectively. 
(d) CONFORMING AMENDMENTS.—
(1) Paragraphs (1) and (2) of subsection (e) 
(as redesignated by subsection (c)(2)) and sub-
section (h) of section 6641 (as so designated) are 
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 
‘‘section 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 
(relating to interest on underpayments) is amended by 
adding 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 
‘disputable 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 amend-
ed—
(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.
Æ