‘‘(f) INFORMATION RETURN.—For purposes of this
section, the term ‘information return’ means any state-
ment described in section 6724(d)(1)(A).’’
(b) CLERICAL AMENDMENT.—The table of sections
for subchapter B of chapter 76 is amended by striking
the item relating to section 7434 and inserting the
following:
‘‘Sec. 7434. Civil damages for fraudulent filing of information re-
turns.
‘‘Sec. 7435. Cross references.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to fraudulent information returns
filed after the date of the enactment of this Act.
SEC. 602. REQUIREMENT TO CONDUCT REASONABLE IN-
VESTIGATIONS OF INFORMATION RETURNS.
(a) GENERAL RULE.—Section 6201 (relating to as-
sessment authority) is amended by redesignating sub-
section (d) as subsection (e) and by inserting after sub-
section (c) the following new subsection:
‘‘(d) REQUIRED REASONABLE VERIFICATION OF IN-
FORMATION RETURNS.—In any court proceeding, if a tax-
payer asserts a reasonable dispute with respect to any
item of income reported on an information return filed
with the Secretary under subpart B or C of part III of
subchapter A of chapter 61 by a third party and the tax-
payer has fully cooperated with the Secretary (including
providing, within a reasonable period of time, access to
and inspection of all witnesses, information, and docu-
ments within the control of the taxpayer as reasonably re-
quested by the Secretary), the Secretary shall have the
burden of producing reasonable and probative information
concerning such deficiency in addition to such information
return.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall take effect on the date of the enact-
ment of this Act.
TITLE VII—AWARDING OF COSTS
AND CERTAIN FEES
SEC. 701. UNITED STATES MUST ESTABLISH THAT ITS POSI-
TION IN PROCEEDING WAS SUBSTANTIALLY
JUSTIFIED.
(a) GENERAL RULE.—Subparagraph (A) of section
7430(c)(4) (defining prevailing party) is amended by
striking clause (i) and by redesignating clauses (ii) and
(iii) as clauses (i) and (ii), respectively.
(b) BURDEN OF PROOF ON UNITED STATES.—Para-
graph (4) of section 7430(c) is amended by redesignating
subparagraph (B) as subparagraph (C) and by inserting
after subparagraph (A) the following new subparagraph:
‘‘(B) EXCEPTION IF UNITED STATES ES-
TABLISHES THAT ITS POSITION WAS SUBSTAN-
TIALLY JUSTIFIED.—
‘‘(i) GENERAL RULE.—A party shall
not be treated as the prevailing party in a
proceeding to which subsection (a) applies
if the United States establishes that the
position of the United States in the pro-
ceeding was substantially justified.
‘‘(ii) PRESUMPTION OF NO JUSTIFICA-
TION
IF
INTERNAL
REVENUE
SERVICE
DIDN’T
FOLLOW
CERTAIN
PUBLISHED
GUIDANCE.—For purposes of clause (i),
the position of the United States shall be
presumed not to be substantially justified
if the Internal Revenue Service did not fol-
low its applicable published guidance in the
administrative proceeding. Such presump-
tion may be rebutted.
‘‘(iii) APPLICABLE PUBLISHED GUID-
ANCE.—For purposes of clause (ii), the
term 
‘applicable 
published 
guidance’
means—
‘‘(I) regulations, revenue rulings,
revenue procedures, information re-
leases, notices, and announcements,
and
‘‘(II) any of the following which
are issued to the taxpayer: private let-
ter rulings, technical advice memo-
randa, and determination letters.’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 7430(c)(2) is
amended by striking ‘‘paragraph (4)(B)’’ and insert-
ing ‘‘paragraph (4)(C)’’.
(2) Subparagraph (C) of section 7430(c)(4), as
redesignated by subsection (b), is amended by strik-
ing ‘‘subparagraph (A)’’ and inserting ‘‘this para-
graph’’.
(3) Sections 6404(g) and 6656(c)(1), as amend-
ed by this Act, are each amended by striking ‘‘sec-
tion 7430(c)(4)(A)(iii)’’ and inserting ‘‘section
7430(c)(4)(A)(ii)’’.
SEC. 702. INCREASED LIMIT ON ATTORNEY FEES.
Paragraph (1) of section 7430(c) (defining reason-
able litigation costs) is amended—
(1) by striking ‘‘$75’’ in clause (iii) of subpara-
graph (B) and inserting ‘‘$110’’,
(2) by striking ‘‘an increase in the cost of living
or’’ in clause (iii) of subparagraph (B), and
(3) by adding after clause (iii) the following:
‘‘In the case of any calendar year beginning after
1996, the dollar amount referred to in clause (iii)
shall be increased by an amount equal to such dollar
amount multiplied by the cost-of-living adjustment
determined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1995’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof. If
any dollar amount after being increased under the
preceding sentence is not a multiple of $10, such
dollar amount shall be rounded to the nearest mul-
tiple of $10.’’
SEC. 703. FAILURE TO AGREE TO EXTENSION NOT TAKEN
INTO ACCOUNT.
Paragraph (1) of section 7430(b) (relating to require-
ment that administrative remedies be exhausted) is
amended by adding at the end the following new sentence:
‘‘Any failure to agree to an extension of the time for the
assessment of any tax shall not be taken into account for
purposes of determining whether the prevailing party
meets the requirements of the preceding sentence.’’
SEC. 704. AWARD OF LITIGATION COSTS PERMITTED IN DE-
CLARATORY JUDGMENT PROCEEDINGS.
Subsection (b) of section 7430 is amended by striking
paragraph (3) and by redesignating paragraph (4) as
paragraph (3).