‘‘(c) SUBSTANTIATION.—Nothing in this section shall
be construed to override any requirement of this title to
substantiate any item.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 6201 is amended by striking sub-
section (d) and redesignating subsection (e) as sub-
section (d).
(2) The table of subchapters for chapter 76 is
amended by adding at the end the following new
item:
‘‘Subchapter E. Burden of proof.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to court proceedings arising in con-
nection with examinations commencing after the date of
the enactment of this Act.
Subtitle B—Proceedings by
Taxpayers
SEC. 311. EXPANSION OF AUTHORITY TO AWARD COSTS
AND CERTAIN FEES.
(a) AWARD OF HIGHER ATTORNEY’S FEES BASED
ON COMPLEXITY
OF ISSUES.—Clause (iii) of section
7430(c)(1)(B) (relating to the award of costs and certain
fees) is amended by inserting ‘‘the difficulty of the issues
presented in the case, or the local availability of tax exper-
tise,’’ before ‘‘justifies a higher rate’’.
(b) AWARD OF ADMINISTRATIVE COSTS INCURRED
AFTER
30-DAY
LETTER.—Paragraph (2) of section
7430(c) is amended by striking the last sentence and in-
serting the following:
‘‘Such term shall only include costs incurred on or
after whichever of the following is the earliest: (i)
the date of the receipt by the taxpayer of the notice
of the decision of the Internal Revenue Service Of-
fice of Appeals, (ii) the date of the notice of defi-
ciency, or (iii) the date on which the 1st letter of
proposed deficiency which allows the taxpayer an op-
portunity for administrative review in the Internal
Revenue Service Office of Appeals is sent.’’.
(c) AWARD
OF FEES
FOR CERTAIN ADDITIONAL
SERVICES.—Paragraph (3) of section 7430(c) is amended
to read as follows:
‘‘(3) ATTORNEY’S FEES.—
‘‘(A) IN GENERAL.—For purposes of para-
graphs (1) and (2), fees for the services of an
individual (whether or not an attorney) who is
authorized to practice before the Tax Court or
before the Internal Revenue Service shall be
treated as fees for the services of an attorney.
‘‘(B) PRO BONO SERVICES.—In any case in
which the court could have awarded attorney’s
fees under subsection (a) but for the fact that
an individual is representing the prevailing
party for no fee or for a fee which (taking into
account all the facts and circumstances) is no
more than a nominal fee, the court may also
award a judgment or settlement for such
amounts as the court determines to be appro-
priate (based on hours worked and costs ex-
pended) for services of such individual but only
if such award is paid to such individual or such
individual’s employer.’’.
(d) DETERMINATION
OF WHETHER POSITION
OF
UNITED STATES IS SUBSTANTIALLY JUSTIFIED.—Sub-
paragraph (B) of section 7430(c)(4) is amended by redes-
ignating clause (iii) as clause (iv) and by inserting after
clause (ii) the following new clause:
‘‘(iii) EFFECT
OF
LOSING
ON
SUB-
STANTIALLY
SIMILAR
ISSUES.—In deter-
mining for purposes of clause (i) whether
the position of the United States was sub-
stantially justified, the court shall take
into account whether the United States
has lost in courts of appeal for other cir-
cuits on substantially similar issues.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs incurred (and, in the case
of the amendment made by subsection (c), services per-
formed) more than 180 days after the date of the enact-
ment of this Act.
SEC. 312. CIVIL DAMAGES FOR NEGLIGENCE IN COLLEC-
TION ACTIONS.
(a) IN GENERAL.—Section 7433 (relating to civil
damages for certain unauthorized collection actions) is
amended—
(1) in subsection (a), by inserting ‘‘, or by rea-
son of negligence,’’ after ‘‘recklessly or inten-
tionally’’, and
(2) in subsection (b)—
(A) in the matter preceding paragraph (1),
by inserting ‘‘($100,000, in the case of neg-
ligence)’’ after ‘‘$1,000,000’’, and
(B) in paragraph (1), by inserting ‘‘or neg-
ligent’’ after ‘‘reckless or intentional’’.
(b) REQUIREMENT THAT ADMINISTRATIVE REM-
EDIES
BE
EXHAUSTED.—Paragraph (1) of section
7433(d) is amended to read as follows:
‘‘(1) REQUIREMENT
THAT
ADMINISTRATIVE
REMEDIES BE EXHAUSTED.—A judgment for dam-
ages shall not be awarded under subsection (b) un-
less the court determines that the plaintiff has ex-
hausted the administrative remedies available to
such plaintiff within the Internal Revenue Service.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to actions of officers or employees
of the Internal Revenue Service after the date of the en-
actment of this Act.
SEC. 313. INCREASE IN SIZE OF CASES PERMITTED ON
SMALL CASE CALENDAR.
(a) IN GENERAL.—Subsection (a) of section 7463
(relating to disputes involving $10,000 or less) is amended
by striking ‘‘$10,000’’ each place it appears and inserting
‘‘$25,000’’.
(b) CONFORMING AMENDMENTS.—
(1) The section heading for section 7463 is
amended by striking ‘‘$10,000’’ and inserting
‘‘$25,000’’.
(2) The item relating to section 7463 in the
table of sections for part II of subchapter C of chap-
ter 76 is amended by striking ‘‘$10,000’’ and insert-
ing ‘‘$25,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to proceedings commencing after
the date of the enactment of this Act.
Subtitle 
C—Relief 
for 
Innocent
Spouses and for Taxpayers Un-
able To Manage Their Financial
Affairs Due to Disabilities
SEC. 321. SPOUSE RELIEVED IN WHOLE OR IN PART OF LI-
ABILITY IN CERTAIN CASES.
(a) IN GENERAL.—Subpart B of part II of sub-
chapter A of chapter 61 is amended by inserting after sec-
tion 6014 the following new section:
‘‘SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX
COURT.
‘‘(a) SPOUSE RELIEVED OF LIABILITY IN CERTAIN
CASES.—
‘‘(1) IN
GENERAL.—Under procedures pre-
scribed by the Secretary, if—
‘‘(A) a joint return has been made under
section 6013 for a taxable year,
‘‘(B) on such return there is an under-
statement of tax attributable to erroneous items
of 1 spouse,
‘‘(C) the other spouse establishes that in
signing the return he or she did not know, and
had no reason to know, that there was such un-
derstatement,
‘‘(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
spouse liable for the deficiency in tax for such
taxable year attributable to such understate-
ment, and
‘‘(E) the other spouse claims (in such form
as the Secretary may prescribe) the benefits of
this subsection not later than the date which is
2 years after the date of the assessment of such
deficiency,
then the other spouse shall be relieved of liability for
tax 
(including 
interest, 
penalties, 
and 
other
amounts) for such taxable year to the extent such li-
ability is attributable to such understatement.
‘‘(2) APPORTIONMENT OF RELIEF.—If a spouse
who, but for paragraph (1)(C), would be relieved of
liability under paragraph (1), establishes that in
signing the return such spouse did not know, and
had no reason to know, the extent of such under-
statement, then such spouse shall be relieved of li-
ability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent
that such liability is attributable to the portion of
such understatement of which such spouse did not
know and had no reason to know.
‘‘(3) UNDERSTATEMENT.—For purposes of this
subsection, the term ‘understatement’ has the mean-
ing given to such term by section 6662(d)(2)(A).
‘‘(4) SPECIAL
RULE
FOR
COMMUNITY
PROP-
ERTY INCOME.—For purposes of this subsection, the
determination of the spouse to whom items of gross
income (other than gross income from property) are
attributable shall be made without regard to commu-
nity property laws.
‘‘(b) PETITION FOR REVIEW BY TAX COURT.—In the
case of an individual who has filed a claim under sub-
section (a) within the period specified in subsection
(a)(1)(E)—
‘‘(1) IN GENERAL.—Such individual may peti-
tion the Tax Court (and the Tax Court shall have
jurisdiction) to determine such claim if such petition
is filed during the 90-day period beginning on the
earlier of—
‘‘(A) the date which is 6 months after the
date such claim is filed with the Secretary, or
‘‘(B) the date on which the Secretary mails
by certified or registered mail a notice to such
individual denying such claim.
Such 90-day period shall be determined by not
counting Saturday, Sunday, or a legal holiday in the
District of Columbia as the last day of such period.
‘‘(2) RESTRICTIONS
APPLICABLE
TO
COLLEC-
TION OF ASSESSMENT.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in section 6851 or 6861, no levy or
proceeding in court for collection of any assess-
ment to which such claim relates shall be made,
begun, or prosecuted, until the expiration of the
90-day period described in paragraph (1), nor,
if a petition has been filed with the Tax Court,
until the decision of the Tax Court has become
final. Rules similar to the rules of section 7485
shall apply with respect to the collection of such
assessment.
‘‘(B) AUTHORITY TO ENJOIN COLLECTION
ACTIONS.—Notwithstanding the provisions of
section 7421(a), the beginning of such proceed-
ing or levy during the time the prohibition
under subparagraph (A) is in force may be en-
joined by a proceeding in the proper court, in-
cluding the Tax Court. The Tax Court shall
have no jurisdiction under this paragraph to en-
join any action or proceeding unless a timely
petition for a determination of such claim has
been filed and then only in respect of the
amount of the assessment to which such claim
relates.
‘‘(C) JEOPARDY COLLECTION.—If the Sec-
retary makes a finding that the collection of the
tax is in jeopardy, nothing in this subsection
shall prevent the immediate collection of such
tax.
‘‘(c) SUSPENSION OF RUNNING OF PERIOD OF LIMI-
TATIONS.—The running of the period of limitations in sec-
tion 6502 on the collection of the assessment to which the
petition under subsection (b) relates shall be suspended
for the period during which the Secretary is prohibited by
subsection (b) from collecting by levy or a proceeding in
court and for 60 days thereafter.
‘‘(d) APPLICABLE RULES.—
‘‘(1) ALLOWANCE OF APPLICATION.—Except as
provided in paragraph (2), notwithstanding any
other law or rule of law (other than section 6512(b),
7121, or 7122), credit or refund shall be allowed or
made to the extent attributable to the application of
this section.
‘‘(2) RES JUDICATA.—In the case of any claim
under subsection (a), the determination of the Tax
Court in any prior proceeding for the same taxable
periods in which the decision has become final, shall
be conclusive except with respect to the qualification
of the spouse for relief which was not an issue in
such proceeding. The preceding sentence shall not
apply if the Tax Court determines that the spouse
participated meaningfully in such prior proceeding.
‘‘(3) LIMITATION
ON
TAX
COURT
JURISDIC-
TION.—If a suit for refund is begun by either spouse
pursuant to section 6532, the Tax Court shall lose
jurisdiction of the spouse’s action under this section
to whatever extent jurisdiction is acquired by the
district court or the United States Court of Federal
Claims over the taxable years that are the subject of
the suit for refund.’’.
(b) SEPARATE FORM FOR APPLYING FOR SPOUSAL
RELIEF.—Not later than 180 days after the date of the
enactment of this Act, the Secretary of the Treasury shall
develop a separate form with instructions for use by tax-
payers in applying for relief under section 6015(a) of the
Internal Revenue Code of 1986, as added by this section.
(c) CONFORMING AMENDMENTS.—
(1) Section 6013 is amended by striking sub-
section (e).
110
‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.—
The term ‘eligible educational institution’ has the
meaning given such term by section 529(e)(5).’’.
(2) Subparagraph (A) of section 529(c)(3) of
the 1986 Code is amended by striking ‘‘section
72(b)’’ and inserting ‘‘section 72’’.
(c) AMENDMENTS RELATED TO SECTION 213 OF
1997 ACT.—
(1)(A) Section 530(b)(1)(E) of the 1986 Code
(defining education individual retirement account) is
amended to read as follows:
‘‘(E) Any balance to the credit of the des-
ignated beneficiary on the date on which the
beneficiary attains age 30 shall be distributed
within 30 days after such date to the bene-
ficiary or, if the beneficiary dies before attain-
ing age 30, shall be distributed within 30 days
after the date of death to the estate of such
beneficiary.’’.
(B) Subsection (d) of section 530 of the 1986
Code is amended by adding at the end the following
new paragraph:
‘‘(8) DEEMED
DISTRIBUTION
ON
REQUIRED
DISTRIBUTION DATE.—In any case in which a dis-
tribution is required under subsection (b)(1)(E), any