(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 striking
‘‘addition to tax under section 6654’’ and inserting
‘‘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 addition
to tax under section 6655’’.
(9) Section 6658(a) is amended—
(A) by striking ‘‘6654, or 6655’’ and insert-
ing ‘‘or 6655, and no interest shall be required
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 in-
terest 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 item:
‘‘Subchapter E. Interest on failure by individual to pay estimated
income tax.’’.
(3) The table of sections for part I of subchapter
A of chapter 68 is amended by striking the item relat-
ing 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. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST
ON OVERPAYMENTS OF INCOME TAX BY INDI-
VIDUALS.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 (relating to items specifically excluded from gross income)
is amended by inserting after section 139 the following 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 overpay-
ment on the original return if the Secretary determines that
the principal purpose of such failure is to take advantage
of subsection (a).
‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED AD-
JUSTED 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 insert-
ing after the item relating to section 139 the following new
item:
‘‘Sec. 139A. Exclusion from gross income for interest on overpay-
ments 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. 103. ABATEMENT OF INTEREST.
(a) ABATEMENT OF INTEREST WITH RESPECT TO ER-
RONEOUS REFUND CHECK WITHOUT REGARD TO SIZE OF
REFUND.—Paragraph (2) of section 6404(e) is amended by
striking ‘‘unless—’’ and all that follows and inserting ‘‘un-
less the taxpayer (or a related party) has in any way
caused such erroneous refund.’’.
(b) ABATEMENT OF INTEREST TO EXTENT INTEREST
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 ‘‘PEN-
ALTY OR ADDITION’’ and inserting ‘‘INTEREST, PEN-
ALTY, 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. 104. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS.
(a) IN GENERAL.—Subchapter A of chapter 67 (relat-
ing 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 purposes
of section 6601 (relating to interest on underpayments), 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 payment
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 deposit
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 deposit
as the taxpayer’s reasonable estimate of the max-
imum amount of any tax attributable to disput-
able items.
‘‘(B) SAFE HARBOR BASED ON 30-DAY LET-
TER.—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 deficiency speci-
fied in such letter.
‘‘(3) OTHER
DEFINITIONS.—For purposes of
paragraph (2)—
‘‘(A) DISPUTABLE ITEM.—The term ‘disput-
able 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 deposited.
‘‘(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 poten-
tial 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 pursu-
ant to Revenue Procedure 84–58, the date that the
taxpayer identifies such amount as a deposit made
pursuant to section 6603 of the Internal Revenue
Code (as added by this Act) shall be treated as the
date such amount is deposited for purposes of such
section 6603.
SEC. 105. EXPANSION OF INTEREST NETTING FOR INDIVID-
UALS.
(a) IN GENERAL.—Subsection (d) of section 6621 (re-
lating to elimination of interest on overlapping periods of
tax overpayments and underpayments) is amended by add-
ing at the end the following: ‘‘Solely for purposes of the pre-
ceding sentence, section 6611(e) shall not apply in the case
of an individual.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to interest accrued after December
31, 2002.
SEC. 106. 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.—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 subsection (a) if—
‘‘(1) the individual has a history of compliance
with the requirements of this title,
‘‘(2) it is shown that the failure is due to an un-
intentional minor error,
‘‘(3) the penalty would be grossly dispropor-
tionate to the action or expense that would have been
needed to avoid the error, and
‘‘(4) waiving the penalty would promote compli-
ance with the requirements of this title and effective
tax administration.
The preceding sentence shall not apply if the Secretary has
waived any addition to tax under this subsection with re-
spect to any prior failure by such individual.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall take effect on January 1, 2003.
SEC. 107. 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-assessment
may be judged, or
‘‘(B) contains information that on its face
indicates that the self-assessment is substantially
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 SUB-
MISSIONS.—
‘‘(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 SUBMISSION.—
The term ‘specified frivolous submission’ means
a specified submission if any portion 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 no-
tice and opportunity for hearing before
levy), and
‘‘(ii) an application under—
‘‘(I) section 7811 (relating to tax-
payer assistance orders),
‘‘(II) section 6159 (relating to
agreements for payment of tax liability
in installments), or
‘‘(III) section 7122 (relating to
compromises).
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with notice
that a submission is a specified frivolous submission
and such person withdraws such submission promptly
after such notice, the penalty imposed under para-
graph (1) shall not apply with respect to such submis-
sion.
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of posi-
tions which the Secretary has identified as being frivolous
for purposes of this subsection. The Secretary shall not in-
clude in such list any position that the Secretary deter-
mines 
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 Federal
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 HEAR-
INGS BEFORE LEVY.—
(1) FRIVOLOUS REQUESTS DISREGARDED.—Sec-
tion 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.—Not-
withstanding any other provision of this section, if the Sec-
retary determines that any portion of a request for a hear-
ing under this section or section 6320 meets the requirement
of clause (i) or (ii) of section 6702(b)(2)(A), then the Sec-
retary may treat such portion as if it were never submitted
and such portion shall not be subject to any further admin-
istrative 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 subsection
(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 HEAR-
INGS 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 re-
quested 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 Secretary
determines that any portion of an application for an offer-
in-compromise or installment agreement submitted under
this section or section 6159 meets the requirement 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 prescribes a list
under section 6702(c) of the Internal Revenue Code of 1986,
as amended by subsection (a).
SEC. 108. 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.
TITLE II—FAIRNESS OF
COLLECTION PROCEDURES
SEC. 201. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL-
MENT 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 ‘‘fa-
cilitate’’.
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in certain
cases) is amended in the matter preceding paragraph
(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. 202. EXTENSION OF TIME FOR RETURN OF PROPERTY.
(a) EXTENSION OF TIME FOR RETURN OF PROPERTY
SUBJECT TO LEVY.—Subsection (b) of section 6343 (relat-
ing 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 tax-
payers) is amended—
(1) in paragraph (1) by striking ‘‘9 months’’
and inserting ‘‘2 years’’, and