H. R. 2676
One Hundred Fifth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the twenty-seventh day of January, one thousand nine hundred and ninety-eight
An Act
To amend the Internal Revenue Code of 1986 to restructure and reform the Internal
Revenue Service, and for other purposes.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; WAIVER OF
ESTIMATED TAX PENALTIES; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the ‘‘Internal
Revenue Service Restructuring and Reform Act of 1998’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly
provided, whenever in this Act an amendment 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 provision of the Internal Revenue Code of 1986.
(c) WAIVER OF ESTIMATED TAX PENALTIES.—No addition to tax
shall be made under section 6654 or 6655 of the Internal Revenue
Code of 1986 with respect to any underpayment of an installment
required to be paid on or before the 30th day after the date of
the enactment of this Act to the extent such underpayment was
created or increased by any provision of this Act.
(d) TABLE OF CONTENTS.—The table of contents for this Act
is as follows:
Sec. 1. Short title; amendment of 1986 Code; waiver of estimated tax penalties;
table of contents.
TITLE I—REORGANIZATION OF STRUCTURE AND MANAGEMENT OF THE
INTERNAL REVENUE SERVICE
Subtitle A—Reorganization of the Internal Revenue Service
Sec. 1001. Reorganization of the Internal Revenue Service.
Sec. 1002. Internal Revenue Service mission to focus on taxpayers’ needs.
Subtitle B—Executive Branch Governance and Senior Management
Sec. 1101. Internal Revenue Service Oversight Board.
Sec. 1102. Commissioner of Internal Revenue; other officials.
Sec. 1103. Treasury Inspector General for Tax Administration.
Sec. 1104. Other personnel.
Sec. 1105. Prohibition on executive branch influence over taxpayer audits and other
investigations.
Subtitle C—Personnel Flexibilities
Sec. 1201. Improvements in personnel flexibilities.
Sec. 1202. Voluntary separation incentive payments.
Sec. 1203. Termination of employment for misconduct.
Sec. 1204. Basis for evaluation of Internal Revenue Service employees.
Sec. 1205. Employee training program.
TITLE II—ELECTRONIC FILING
Sec. 2001. Electronic filing of tax and information returns.
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Sec. 2002. Due date for certain information returns.
Sec. 2003. Paperless electronic filing.
Sec. 2004. Return-free tax system.
Sec. 2005. Access to account information.
TITLE III—TAXPAYER PROTECTION AND RIGHTS
Sec. 3000. Short title.
Subtitle A—Burden of Proof
Sec. 3001. Burden of proof.
Subtitle B—Proceedings by Taxpayers
Sec. 3101. Expansion of authority to award costs and certain fees.
Sec. 3102. Civil damages for collection actions.
Sec. 3103. Increase in size of cases permitted on small case calendar.
Sec. 3104. Actions for refund with respect to certain estates which have elected the
installment method of payment.
Sec. 3105. Administrative appeal of adverse Internal Revenue Service determination
of tax-exempt status of bond issue.
Sec. 3106. Civil action for release of erroneous lien.
Subtitle C—Relief for Innocent Spouses and for Taxpayers Unable To Manage Their
Financial Affairs Due to Disabilities
Sec. 3201. Relief from joint and several liability on joint return.
Sec. 3202. Suspension of statute of limitations on filing refund claims during
periods of disability.
Subtitle D—Provisions Relating to Interest and Penalties
Sec. 3301. Elimination of interest rate differential on overlapping periods of interest
on tax overpayments and underpayments.
Sec. 3302. Increase in overpayment rate payable to taxpayers other than corpora-
tions.
Sec. 3303. Mitigation of penalty on individual’s failure to pay for months during
period of installment agreement.
Sec. 3304. Mitigation of failure to deposit penalty.
Sec. 3305. Suspension of interest and certain penalties where Secretary fails to
contact individual taxpayer.
Sec. 3306. Procedural requirements for imposition of penalties and additions to tax.
Sec. 3307. Personal delivery of notice of penalty under section 6672.
Sec. 3308. Notice of interest charges.
Sec. 3309. Abatement of interest on underpayments by taxpayers in Presidentially
declared disaster areas.
Subtitle E—Protections for Taxpayers Subject to Audit or Collection Activities
PART I—DUE PROCESS
Sec. 3401. Due process in Internal Revenue Service collection actions.
PART II—EXAMINATION ACTIVITIES
Sec. 3411. Confidentiality privileges relating to taxpayer communications.
Sec. 3412. Limitation on financial status audit techniques.
Sec. 3413. Software trade secrets protection.
Sec. 3414. Threat of audit prohibited to coerce tip reporting alternative commitment
agreements.
Sec. 3415. Taxpayers allowed motion to quash all third-party summonses.
Sec. 3416. Service of summonses to third-party recordkeepers permitted by mail.
Sec. 3417. Notice of Internal Revenue Service contact of third parties.
PART III—COLLECTION ACTIVITIES
SUBPART A—APPROVAL PROCESS
Sec. 3421. Approval process for liens, levies, and seizures.
SUBPART B—LIENS AND LEVIES
Sec. 3431. Modifications to certain levy exemption amounts.
Sec. 3432. Release of levy upon agreement that amount is uncollectible.
Sec. 3433. Levy prohibited during pendency of refund proceedings.
Sec. 3434. Approval required for jeopardy and termination assessments and
jeopardy levies.
Sec. 3435. Increase in amount of certain property on which lien not valid.
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Sec. 3436. Waiver of early withdrawal tax for Internal Revenue Service levies on
employer-sponsored retirement plans or IRAs.
SUBPART C—SEIZURES
Sec. 3441. Prohibition of sales of seized property at less than minimum bid.
Sec. 3442. Accounting of sales of seized property.
Sec. 3443. Uniform asset disposal mechanism.
Sec. 3444. Codification of Internal Revenue Service administrative procedures for
seizure of taxpayer’s property.
Sec. 3445. Procedures for seizure of residences and businesses.
PART IV—PROVISIONS RELATING TO EXAMINATION AND COLLECTION ACTIVITIES
Sec. 3461. Procedures relating to extensions of statute of limitations by agreement.
Sec. 3462. Offers-in-compromise.
Sec. 3463. Notice of deficiency to specify deadlines for filing Tax Court petition.
Sec. 3464. Refund or credit of overpayments before final determination.
Sec. 3465. Internal Revenue Service procedures relating to appeals of examinations
and collections.
Sec. 3466. Application of certain fair debt collection procedures.
Sec. 3467. Guaranteed availability of installment agreements.
Sec. 3468. Prohibition on requests to taxpayers to give up rights to bring actions.
Subtitle F—Disclosures to Taxpayers
Sec. 3501. Explanation of joint and several liability.
Sec. 3502. Explanation of taxpayers’ rights in interviews with the Internal Revenue
Service.
Sec. 3503. Disclosure of criteria for examination selection.
Sec. 3504. Explanations of appeals and collection process.
Sec. 3505. Explanation of reason for refund disallowance.
Sec. 3506. Statements regarding installment agreements.
Sec. 3507. Notification of change in tax matters partner.
Sec. 3508. Disclosure to taxpayers.
Sec. 3509. Disclosure of Chief Counsel advice.
Subtitle G—Low-Income Taxpayer Clinics
Sec. 3601. Low-income taxpayer clinics.
Subtitle H—Other Matters
Sec. 3701. Cataloging complaints.
Sec. 3702. Archive of records of Internal Revenue Service.
Sec. 3703. Payment of taxes.
Sec. 3704. Clarification of authority of Secretary relating to the making of elections.
Sec. 3705. Internal Revenue Service employee contacts.
Sec. 3706. Use of pseudonyms by Internal Revenue Service employees.
Sec. 3707. Illegal tax protester designation.
Sec. 3708. Provision of confidential information to Congress by whistleblowers.
Sec. 3709. Listing of local Internal Revenue Service telephone numbers and address-
es.
Sec. 3710. Identification of return preparers.
Sec. 3711. Offset of past-due, legally enforceable State income tax obligations
against overpayments.
Sec. 3712. Reporting requirements in connection with education tax credit.
Subtitle I—Studies
Sec. 3801. Administration of penalties and interest.
Sec. 3802. Confidentiality of tax return information.
Sec. 3803. Study of noncompliance with internal revenue laws by taxpayers.
Sec. 3804. Study of payments made for detection of underpayments and fraud.
TITLE IV—CONGRESSIONAL ACCOUNTABILITY FOR THE INTERNAL
REVENUE SERVICE
Subtitle A—Oversight
Sec. 4001. Expansion of duties of the Joint Committee on Taxation.
Sec. 4002. Coordinated oversight reports.
Subtitle B—Century Date Change
Sec. 4011. Century date change.
Subtitle C—Tax Law Complexity
Sec. 4021. Role of the Internal Revenue Service.
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Sec. 4022. Tax law complexity analysis.
TITLE V—ADDITIONAL PROVISIONS
Sec. 5001. Lower capital gains rates to apply to property held more than 1 year.
Sec. 5002. Clarification of exclusion of meals for certain employees.
Sec. 5003. Clarification of designation of normal trade relations.
TITLE VI—TECHNICAL CORRECTIONS
Sec. 6001. Short title; coordination with other titles.
Sec. 6002. Definitions.
Sec. 6003. Amendments related to title I of 1997 Act.
Sec. 6004. Amendments related to title II of 1997 Act.
Sec. 6005. Amendments related to title III of 1997 Act.
Sec. 6006. Amendment related to title IV of 1997 Act.
Sec. 6007. Amendments related to title V of 1997 Act.
Sec. 6008. Amendments related to title VII of 1997 Act.
Sec. 6009. Amendments related to title IX of 1997 Act.
Sec. 6010. Amendments related to title X of 1997 Act.
Sec. 6011. Amendments related to title XI of 1997 Act.
Sec. 6012. Amendments related to title XII of 1997 Act.
Sec. 6013. Amendments related to title XIII of 1997 Act.
Sec. 6014. Amendments related to title XIV of 1997 Act.
Sec. 6015. Amendments related to title XV of 1997 Act.
Sec. 6016. Amendments related to title XVI of 1997 Act.
Sec. 6017. Amendment related to Transportation Equity Act for the 21st Century.
Sec. 6018. Amendments related to Small Business Job Protection Act of 1996.
Sec. 6019. Amendments related to Taxpayer Bill of Rights 2.
Sec. 6020. Amendment related to Omnibus Budget Reconciliation Act of 1993.
Sec. 6021. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 6022. Amendment related to Tax Reform Act of 1986.
Sec. 6023. Miscellaneous clerical and deadwood changes.
Sec. 6024. Effective date.
TITLE VII—REVENUE PROVISIONS
Sec. 7001. Clarification of deduction for deferred compensation.
Sec. 7002. Termination of exception for certain real estate investment trusts from
the treatment of stapled entities.
Sec. 7003. Certain customer receivables ineligible for mark to market treatment.
Sec. 7004. Modification of AGI limit for conversions to Roth IRAs.
TITLE VIII—IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO
LINE ITEM VETO
Sec. 8001. Identification of limited tax benefits subject to line item veto.
TITLE IX—TECHNICAL CORRECTIONS TO TRANSPORTATION EQUITY ACT
FOR THE 21ST CENTURY
Sec. 9001. Short title.
Sec. 9002. Authorization and program subtitle.
Sec. 9003. Restorations to general provisions subtitle.
Sec. 9004. Restorations to program streamlining and flexibility subtitle.
Sec. 9005. Restorations to safety subtitle.
Sec. 9006. Elimination of duplicate provisions.
Sec. 9007. Highway finance.
Sec. 9008. High priority projects technical corrections.
Sec. 9009. Federal Transit Administration programs.
Sec. 9010. Motor carrier safety technical correction.
Sec. 9011. Restorations to research title.
Sec. 9012. Automobile safety and information.
Sec. 9013. Technical corrections regarding subtitle A of title VIII.
Sec. 9014. Corrections to veterans subtitle.
Sec. 9015. Technical corrections regarding title IX.
Sec. 9016. Effective date.
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TITLE I—REORGANIZATION OF STRUC-
TURE AND MANAGEMENT OF THE IN-
TERNAL REVENUE SERVICE
Subtitle A—Reorganization of the Internal
Revenue Service
SEC. 1001. REORGANIZATION OF THE INTERNAL REVENUE SERVICE.
(a) IN GENERAL.—The Commissioner of Internal Revenue shall
develop and implement a plan to reorganize the Internal Revenue
Service. The plan shall—
(1) supersede any organization or reorganization of the
Internal Revenue Service based on any statute or reorganiza-
tion plan applicable on the effective date of this section;
(2) eliminate or substantially modify the existing organiza-
tion of the Internal Revenue Service which is based on a
national, regional, and district structure;
(3) establish organizational units serving particular groups
of taxpayers with similar needs; and
(4) ensure an independent appeals function within the
Internal Revenue Service, including the prohibition in the plan
of ex parte communications between appeals officers and other
Internal Revenue Service employees to the extent that such
communications appear to compromise the independence of the
appeals officers.
(b) SAVINGS PROVISIONS.—
(1) PRESERVATION OF SPECIFIC TAX RIGHTS AND REMEDIES.—
Nothing in the plan developed and implemented under sub-
section (a) shall be considered to impair any right or remedy,
including trial by jury, to recover any internal revenue tax
alleged to have been erroneously or illegally assessed or col-
lected, or any penalty claimed to have been collected without
authority, or any sum alleged to have been excessive or in
any manner wrongfully collected under the internal revenue
laws. For the purpose of any action to recover any such tax,
penalty, or sum, all statutes, rules, and regulations referring
to the collector of internal revenue, the principal officer for
the internal revenue district, or the Secretary, shall be deemed
to refer to the officer whose act or acts referred to in the
preceding sentence gave rise to such action. The venue of any
such action shall be the same as under existing law.
(2) CONTINUING EFFECT OF LEGAL DOCUMENTS.—All orders,
determinations, rules, regulations, permits, agreements, grants,
contracts, certificates, licenses, registrations, privileges, and
other administrative actions—
(A) which have been issued, made, granted, or allowed
to become effective by the President, any Federal agency
or official thereof, or by a court of competent jurisdiction,
in the performance of any function transferred or affected
by the reorganization of the Internal Revenue Service or
any other administrative unit of the Department of the
Treasury under this section; and
(B) which are in effect at the time this section takes
effect, or were final before the effective date of this section
H. R. 2676—6
and are to become effective on or after the effective date
of this section,
shall continue in effect according to their terms until modified,
terminated, superseded, set aside, or revoked in accordance
with law by the President, the Secretary of the Treasury, the
Commissioner of Internal Revenue, or other authorized official,
a court of competent jurisdiction, or by operation of law.
(3) PROCEEDINGS NOT AFFECTED.—The provisions of this
section shall not affect any proceedings, including notices of
proposed rulemaking, or any application for any license, permit,
certificate, or financial assistance pending before the Depart-
ment of the Treasury (or any administrative unit of the Depart-
ment, including the Internal Revenue Service) at the time
this section takes effect, with respect to functions transferred
or affected by the reorganization under this section but such
proceedings and applications shall continue. Orders shall be
issued in such proceedings, appeals shall be taken therefrom,
and payments shall be made pursuant to such orders, as if
this section had not been enacted, and orders issued in any
such proceedings shall continue in effect until modified, termi-
nated, superseded, or revoked by a duly authorized official,
by a court of competent jurisdiction, or by operation of law.
Nothing in this paragraph shall be deemed to prohibit the
discontinuance or modification of any such proceeding under
the same terms and conditions and to the same extent that
such proceeding could have been discontinued or modified if
this section had not been enacted.
(4) SUITS NOT AFFECTED.—The provisions of this section
shall not affect suits commenced before the effective date of
this section, and in all such suits, proceedings shall be had,
appeals taken, and judgments rendered in the same manner
and with the same effect as if this section had not been enacted.
(5) NONABATEMENT OF ACTIONS.—No suit, action, or other
proceeding commenced by or against the Department of the
Treasury (or any administrative unit of the Department, includ-
ing the Internal Revenue Service), or by or against any individ-
ual in the official capacity of such individual as an officer
of the Department of the Treasury, shall abate by reason of
the enactment of this section.
(6) ADMINISTRATIVE ACTIONS RELATING TO PROMULGATION
OF REGULATIONS.—Any administrative action relating to the
preparation or promulgation of a regulation by the Department
of the Treasury (or any administrative unit of the Department,
including the Internal Revenue Service) relating to a function
transferred or affected by the reorganization under this section
may be continued by the Department of the Treasury through
any appropriate administrative unit of the Department, includ-
ing the Internal Revenue Service with the same effect as if
this section had not been enacted.
(c) EFFECTIVE DATE.—This section shall take effect on the date
of the enactment of this Act.
SEC. 1002. INTERNAL REVENUE SERVICE MISSION TO FOCUS ON TAX-
PAYERS’ NEEDS.
The Internal Revenue Service shall review and restate its mis-
sion to place a greater emphasis on serving the public and meeting
taxpayers’ needs.
H. R. 2676—7
Subtitle B—Executive Branch Governance
and Senior Management
SEC. 1101. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.
(a) IN GENERAL.—Section 7802 (relating to the Commissioner
of Internal Revenue) is amended to read as follows:
‘‘SEC. 7802. INTERNAL REVENUE SERVICE OVERSIGHT BOARD.
‘‘(a) ESTABLISHMENT.—There is established within the Depart-
ment of the Treasury the Internal Revenue Service Oversight Board
(hereafter in this subchapter referred to as the ‘Oversight Board’).
‘‘(b) MEMBERSHIP.—
‘‘(1) COMPOSITION.—The Oversight Board shall be composed
of nine members, as follows:
‘‘(A) six members shall be individuals who are not
otherwise Federal officers or employees and who are
appointed by the President, by and with the advice and
consent of the Senate.
‘‘(B) one member shall be the Secretary of the Treasury
or, if the Secretary so designates, the Deputy Secretary
of the Treasury.
‘‘(C) one member shall be the Commissioner of Internal
Revenue.
‘‘(D) one member shall be an individual who is a full-
time Federal employee or a representative of employees
and who is appointed by the President, by and with the
advice and consent of the Senate.
‘‘(2) QUALIFICATIONS AND TERMS.—
‘‘(A) QUALIFICATIONS.—Members of the Oversight
Board described in paragraph (1)(A) shall be appointed
without regard to political affiliation and solely on the
basis of their professional experience and expertise in one
or more of the following areas:
‘‘(i) Management of large service organizations.
‘‘(ii) Customer service.
‘‘(iii) Federal tax laws, including tax administra-
tion and compliance.
‘‘(iv) Information technology.
‘‘(v) Organization development.
‘‘(vi) The needs and concerns of taxpayers.
‘‘(vii) The needs and concerns of small businesses.
In the aggregate, the members of the Oversight Board
described in paragraph (1)(A) should collectively bring to
bear expertise in all of the areas described in the preceding
sentence.
‘‘(B) TERMS.—Each member who is described in
subparagraph (A) or (D) of paragraph (1) shall be appointed
for a term of 5 years, except that of the members first
appointed under paragraph (1)(A)—
‘‘(i) two members shall be appointed for a term
of 3 years,
‘‘(ii) two members shall be appointed for a term
of 4 years; and
‘‘(iii) two members shall be appointed for a term
of 5 years.
H. R. 2676—8
‘‘(C) REAPPOINTMENT.—An individual who is described
in subparagraph (A) or (D) of paragraph (1) may be
appointed to no more than two 5-year terms on the Over-
sight Board.
‘‘(D) VACANCY.—Any vacancy on the Oversight Board
shall be filled in the same manner as the original appoint-
ment. Any member appointed to fill a vacancy occurring
before the expiration of the term for which the member’s
predecessor was appointed shall be appointed for the
remainder of that term.
‘‘(3) ETHICAL CONSIDERATIONS.—
‘‘(A) FINANCIAL DISCLOSURE.—During the entire period
that an individual appointed under subparagraph (A) or
(D) of paragraph (1) is a member of the Oversight Board,
such individual shall be treated as serving as an officer
or employee referred to in section 101(f ) of the Ethics
in Government Act of 1978 for purposes of title I of such
Act, except that section 101(d) of such Act shall apply
without regard to the number of days of service in the
position.
‘‘(B) RESTRICTIONS
ON
POST-EMPLOYMENT.—For pur-
poses of section 207(c) of title 18, United States Code,
an individual appointed under subparagraph (A) or (D)
of paragraph (1) shall be treated as an employee referred
to in section 207(c)(2)(A)(i) of such title during the entire
period the individual is a member of the Board, except
that subsections (c)(2)(B) and (f ) of section 207 of such
title shall not apply.
‘‘(C) MEMBERS WHO ARE SPECIAL GOVERNMENT EMPLOY-
EES.—If an individual appointed under subparagraph (A)
or (D) of paragraph (1) is a special Government employee,
the following additional rules apply for purposes of chapter
11 of title 18, United States Code:
‘‘(i) RESTRICTION ON REPRESENTATION.—In addition
to any restriction under section 205(c) of title 18,
United States Code, except as provided in subsections
(d) through (i) of section 205 of such title, such individ-
ual (except in the proper discharge of official duties)
shall not, with or without compensation, represent any-
one to or before any officer or employee of—
‘‘(I) the Oversight Board or the Internal Reve-
nue Service on any matter;
‘‘(II) the Department of the Treasury on any
matter involving the internal revenue laws or
involving the management or operations of the
Internal Revenue Service; or
‘‘(III) the Department of Justice with respect
to litigation involving a matter described in sub-
clause (I) or (II).
‘‘(ii) COMPENSATION
FOR
SERVICES
PROVIDED
BY
ANOTHER.—For purposes of section 203 of such title—
‘‘(I) such individual shall not be subject to
the restrictions of subsection (a)(1) thereof for shar-
ing in compensation earned by another for rep-
resentations on matters covered by such section,
and
H. R. 2676—9
‘‘(II) a person shall not be subject to the restric-
tions of subsection (a)(2) thereof for sharing such
compensation with such individual.
‘‘(D) WAIVER.—The President may, only at the time
the President nominates the member of the Oversight
Board described in paragraph (1)(D), waive for the term
of the member any appropriate provision of chapter 11
of title 18, United States Code, to the extent such waiver
is necessary to allow such member to participate in the
decisions of the Board while continuing to serve as a full-
time Federal employee or a representative of employees.
Any such waiver shall not be effective unless a written
intent of waiver to exempt such member (and actual waiver
language) is submitted to the Senate with the nomination
of such member.
‘‘(4) QUORUM.—Five members of the Oversight Board shall
constitute a quorum. A majority of members present and voting
shall be required for the Oversight Board to take action.
‘‘(5) REMOVAL.—
‘‘(A) IN GENERAL.—Any member of the Oversight Board
appointed under subparagraph (A) or (D) of paragraph
(1) may be removed at the will of the President.
‘‘(B) SECRETARY
AND
COMMISSIONER.—An individual
described in subparagraph (B) or (C) of paragraph (1) shall
be removed upon termination of service in the office
described in such subparagraph.
‘‘(6) CLAIMS.—
‘‘(A) IN GENERAL.—Members of the Oversight Board
who are described in subparagraph (A) or (D) of paragraph
(1) shall have no personal liability under Federal law with
respect to any claim arising out of or resulting from an
act or omission by such member within the scope of service
as a member.
‘‘(B) EFFECT
ON
OTHER
LAW.—This paragraph shall
not be construed—
‘‘(i) to affect any other immunities and protections
that may be available to such member under applicable
law with respect to such transactions;
‘‘(ii) to affect any other right or remedy against
the United States under applicable law; or
‘‘(iii) to limit or alter in any way the immunities
that are available under applicable law for Federal
officers and employees.
‘‘(c) GENERAL RESPONSIBILITIES.—
‘‘(1) OVERSIGHT.—
‘‘(A) IN GENERAL.—The Oversight Board shall oversee
the Internal Revenue Service in its administration,
management, conduct, direction, and supervision of the
execution and application of the internal revenue laws
or related statutes and tax conventions to which the United
States is a party.
‘‘(B) MISSION OF IRS.—As part of its oversight functions
described in subparagraph (A), the Oversight Board shall
ensure that the organization and operation of the Internal
Revenue Service allows it to carry out its mission.
H. R. 2676—10
‘‘(C) CONFIDENTIALITY.—The Oversight Board shall
ensure that appropriate confidentiality is maintained in
the exercise of its duties.
‘‘(2) EXCEPTIONS.—The Oversight Board shall have no
responsibilities or authority with respect to—
‘‘(A) the development and formulation of Federal tax
policy relating to existing or proposed internal revenue
laws, related statutes, and tax conventions,
‘‘(B) specific law enforcement activities of the Internal
Revenue Service, including specific compliance activities
such as examinations, collection activities, and criminal
investigations,
‘‘(C) specific procurement activities of the Internal
Revenue Service, or
‘‘(D) except as provided in subsection (d)(3), specific
personnel actions.
‘‘(d) SPECIFIC RESPONSIBILITIES.—The Oversight Board shall
have the following specific responsibilities:
‘‘(1) STRATEGIC PLANS.—To review and approve strategic
plans of the Internal Revenue Service, including the establish-
ment of—
‘‘(A) mission and objectives, and standards of perform-
ance relative to either, and
‘‘(B) annual and long-range strategic plans.
‘‘(2) OPERATIONAL
PLANS.—To review the operational
functions of the Internal Revenue Service, including—
‘‘(A) plans for modernization of the tax system,
‘‘(B) plans for outsourcing or managed competition,
and
‘‘(C) plans for training and education.
‘‘(3) MANAGEMENT.—To—
‘‘(A) recommend to the President candidates for
appointment as the Commissioner of Internal Revenue and
recommend to the President the removal of the Commis-
sioner;
‘‘(B) review the Commissioner’s selection, evaluation,
and compensation of Internal Revenue Service senior execu-
tives who have program management responsibility over
significant functions of the Internal Revenue Service; and
‘‘(C) review and approve the Commissioner’s plans for
any major reorganization of the Internal Revenue Service.
‘‘(4) BUDGET.—To—
‘‘(A) review and approve the budget request of the
Internal Revenue Service prepared by the Commissioner;
‘‘(B) submit such budget request to the Secretary of
the Treasury; and
‘‘(C) ensure that the budget request supports the
annual and long-range strategic plans.
‘‘(5) TAXPAYER PROTECTION.—To ensure the proper treat-
ment of taxpayers by the employees of the Internal Revenue
Service.
The Secretary shall submit the budget request referred to in para-
graph (4)(B) for any fiscal year to the President who shall submit
such request, without revision, to Congress together with the Presi-
dent’s annual budget request for the Internal Revenue Service
for such fiscal year.
‘‘(e) BOARD PERSONNEL MATTERS.—
H. R. 2676—11
‘‘(1) COMPENSATION OF MEMBERS.—
‘‘(A) IN
GENERAL.—Each member of the Oversight
Board who—
‘‘(i) is described in subsection (b)(1)(A); or
‘‘(ii) is described in subsection (b)(1)(D) and is not
otherwise a Federal officer or employee,
shall be compensated at a rate of $30,000 per year. All
other members shall serve without compensation for such
service.
‘‘(B) CHAIRPERSON.—In lieu of the amount specified
in subparagraph (A), the Chairperson of the Oversight
Board shall be compensated at a rate of $50,000 per year.
‘‘(2) TRAVEL EXPENSES.—
‘‘(A) IN
GENERAL.—The members of the Oversight
Board shall be allowed travel expenses, including per diem
in lieu of subsistence, at rates authorized for employees
of agencies under subchapter I of chapter 57 of title 5,
United States Code, to attend meetings of the Oversight
Board and, with the advance approval of the Chairperson
of the Oversight Board, while otherwise away from their
homes or regular places of business for purposes of duties
as a member of the Oversight Board.
‘‘(B) REPORT.—The Oversight Board shall include in
its annual report under subsection (f )(3)(A) information
with respect to the travel expenses allowed for members
of the Oversight Board under this paragraph.
‘‘(3) STAFF.—
‘‘(A) IN GENERAL.—The Chairperson of the Oversight
Board may appoint and terminate any personnel that may
be necessary to enable the Board to perform its duties.
‘‘(B) 
DETAIL
OF
GOVERNMENT
EMPLOYEES.—Upon
request of the Chairperson of the Oversight Board, a Fed-
eral agency shall detail a Federal Government employee
to the Oversight Board without reimbursement. Such detail
shall be without interruption or loss of civil service status
or privilege.
‘‘(4) PROCUREMENT OF TEMPORARY AND INTERMITTENT SERV-
ICES.—The Chairperson of the Oversight Board may procure
temporary and intermittent services under section 3109(b) of
title 5, United States Code.
‘‘(f ) ADMINISTRATIVE MATTERS.—
‘‘(1) CHAIR.—
‘‘(A) TERM.—The members of the Oversight Board shall
elect for a 2-year term a chairperson from among the
members appointed under subsection (b)(1)(A).
‘‘(B) POWERS.—Except as otherwise provided by a
majority vote of the Oversight Board, the powers of the
Chairperson shall include—
‘‘(i) establishing committees;
‘‘(ii) setting meeting places and times;
‘‘(iii) establishing meeting agendas; and
‘‘(iv) developing rules for the conduct of business.
‘‘(2) MEETINGS.—The Oversight Board shall meet at least
quarterly and at such other times as the Chairperson deter-
mines appropriate.
‘‘(3) REPORTS.—
H. R. 2676—12
‘‘(A) ANNUAL.—The Oversight Board shall each year
report with respect to the conduct of its responsibilities
under this title to the President, the Committees on Ways
and Means, Government Reform and Oversight, and Appro-
priations of the House of Representatives and the Commit-
tees on Finance, Governmental Affairs, and Appropriations
of the Senate.
‘‘(B) ADDITIONAL REPORT.—Upon a determination by
the Oversight Board under subsection (c)(1)(B) that the
organization and operation of the Internal Revenue Service
are not allowing it to carry out its mission, the Oversight
Board shall report such determination to the Committee
on Ways and Means of the House of Representatives and
the Committee on Finance of the Senate.’’.
(b) RESTRICTION ON DISCLOSURE OF RETURN INFORMATION TO
OVERSIGHT BOARD MEMBERS.—Section 6103(h) (relating to disclo-
sure to certain Federal officers and employees for purposes of tax
administration, etc.) is amended by adding at the end the following
new paragraph:
‘‘(5) INTERNAL REVENUE SERVICE OVERSIGHT BOARD.—
‘‘(A) IN GENERAL.—Notwithstanding paragraph (1), and
except as provided in subparagraph (B), no return or return
information may be disclosed to any member of the Over-
sight Board described in subparagraph (A) or (D) of section
7802(b)(1) or to any employee or detailee of such Board
by reason of their service with the Board. Any request
for information not permitted to be disclosed under the
preceding sentence, and any contact relating to a specific
taxpayer, made by any such individual to an officer or
employee of the Internal Revenue Service shall be reported
by such officer or employee to the Secretary, the Treasury
Inspector General for Tax Administration, and the Joint
Committee on Taxation.
‘‘(B) EXCEPTION FOR REPORTS TO THE BOARD.—If—
‘‘(i) the Commissioner or the Treasury Inspector
General for Tax Administration prepares any report
or other matter for the Oversight Board in order to
assist the Board in carrying out its duties; and
‘‘(ii) the Commissioner or such Inspector General
determines it is necessary to include any return or
return information in such report or other matter to
enable the Board to carry out such duties,
such return or return information (other than information
regarding taxpayer identity) may be disclosed to members,
employees, or detailees of the Board solely for the purpose
of carrying out such duties.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 4946(c) (relating to definitions and special rules
for chapter 42) is amended by striking ‘‘or’’ at the end of
paragraph (5), by striking the period at the end of paragraph
(6) and inserting ‘‘, or’’, and by adding at the end the following
new paragraph:
‘‘(7) a member of the Internal Revenue Service Oversight
Board.’’.
H. R. 2676—13
(2) The table of sections for subchapter A of chapter 80
is amended by striking the item relating to section 7802 and
inserting the following new item:
‘‘Sec. 7802. Internal Revenue Service Oversight Board.’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
(2) INITIAL NOMINATIONS TO INTERNAL REVENUE SERVICE
OVERSIGHT
BOARD.—The President shall submit the initial
nominations under section 7802 of the Internal Revenue Code
of 1986, as added by this section, to the Senate not later
than 6 months after the date of the enactment of this Act.
(3) EFFECT ON ACTIONS PRIOR TO APPOINTMENT OF OVER-
SIGHT BOARD.—Nothing in this section shall be construed to
invalidate the actions and authority of the Internal Revenue
Service prior to the appointment of the members of the Internal
Revenue Service Oversight Board.
SEC. 1102. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFICIALS.
(a) IN GENERAL.—Section 7803 (relating to other personnel)
is amended to read as follows:
‘‘SEC. 7803. COMMISSIONER OF INTERNAL REVENUE; OTHER OFFI-
CIALS.
‘‘(a) COMMISSIONER OF INTERNAL REVENUE.—
‘‘(1) APPOINTMENT.—
‘‘(A) IN GENERAL.—There shall be in the Department
of the Treasury a Commissioner of Internal Revenue who
shall be appointed by the President, by and with the advice
and consent of the Senate, to a 5-year term. Such appoint-
ment shall be made from individuals who, among other
qualifications, have a demonstrated ability in management.
‘‘(B) VACANCY.—Any individual appointed to fill a
vacancy in the position of Commissioner occurring before
the expiration of the term for which such individual’s prede-
cessor was appointed shall be appointed only for the
remainder of that term.
‘‘(C) REMOVAL.—The Commissioner may be removed
at the will of the President.
‘‘(D) REAPPOINTMENT.—The Commissioner may be
appointed to more than one 5-year term.
‘‘(2) DUTIES.—The Commissioner shall have such duties
and powers as the Secretary may prescribe, including the power
to—
‘‘(A) administer, manage, conduct, direct, and supervise
the execution and application of the internal revenue laws
or related statutes and tax conventions to which the United
States is a party; and
‘‘(B) recommend to the President a candidate for
appointment as Chief Counsel for the Internal Revenue
Service when a vacancy occurs, and recommend to the
President the removal of such Chief Counsel.
If the Secretary determines not to delegate a power specified
in subparagraph (A) or (B), such determination may not take
effect until 30 days after the Secretary notifies the Committees
on Ways and Means, Government Reform and Oversight, and
Appropriations of the House of Representatives and the
H. R. 2676—14
Committees on Finance, Governmental Affairs, and Appropria-
tions of the Senate.
‘‘(3) CONSULTATION WITH BOARD.—The Commissioner shall
consult with the Oversight Board on all matters set forth in
paragraphs (2) and (3) (other than paragraph (3)(A)) of section
7802(d).
‘‘(b) CHIEF COUNSEL FOR THE INTERNAL REVENUE SERVICE.—
‘‘(1) APPOINTMENT.—There shall be in the Department of
the Treasury a Chief Counsel for the Internal Revenue Service
who shall be appointed by the President, by and with the
consent of the Senate.
‘‘(2) DUTIES.—The Chief Counsel shall be the chief law
officer for the Internal Revenue Service and shall perform such
duties as may be prescribed by the Secretary, including the
duty—
‘‘(A) to be legal advisor to the Commissioner and the
Commissioner’s officers and employees;
‘‘(B) to furnish legal opinions for the preparation and
review of rulings and memoranda of technical advice;
‘‘(C) to prepare, review, and assist in the preparation
of proposed legislation, treaties, regulations, and Executive
orders relating to laws which affect the Internal Revenue
Service;
‘‘(D) to represent the Commissioner in cases before
the Tax Court; and
‘‘(E) to determine which civil actions should be litigated
under the laws relating to the Internal Revenue Service
and prepare recommendations for the Department of Jus-
tice regarding the commencement of such actions.
If the Secretary determines not to delegate a power specified
in subparagraph (A), (B), (C), (D), or (E), such determination
may not take effect until 30 days after the Secretary notifies
the Committees on Ways and Means, Government Reform and
Oversight, and Appropriations of the House of Representatives
and the Committees on Finance, Governmental Affairs, and
Appropriations of the Senate.
‘‘(3) PERSONS
TO
WHOM
CHIEF
COUNSEL
REPORTS.—The
Chief Counsel shall report directly to the Commissioner of
Internal Revenue, except that—
‘‘(A) the Chief Counsel shall report to both the Commis-
sioner and the General Counsel for the Department of
the Treasury with respect to—
‘‘(i) legal advice or interpretation of the tax law
not relating solely to tax policy;
‘‘(ii) tax litigation; and
‘‘(B) the Chief Counsel shall report to the General
Counsel with respect to legal advice or interpretation of
the tax law relating solely to tax policy.
If there is any disagreement between the Commissioner and
the General Counsel with respect to any matter jointly referred
to them under subparagraph (A), such matter shall be submit-
ted to the Secretary or Deputy Secretary for resolution.
‘‘(4) CHIEF
COUNSEL
PERSONNEL.—All personnel in the
Office of Chief Counsel shall report to the Chief Counsel.
‘‘(c) OFFICE OF THE TAXPAYER ADVOCATE.—
‘‘(1) ESTABLISHMENT.—
H. R. 2676—15
‘‘(A) IN GENERAL.—There is established in the Internal
Revenue Service an office to be known as the ‘Office of
the Taxpayer Advocate’.
‘‘(B) NATIONAL TAXPAYER ADVOCATE.—
‘‘(i) IN GENERAL.—The Office of the Taxpayer Advo-
cate shall be under the supervision and direction of
an official to be known as the ‘National Taxpayer Advo-
cate’. The National Taxpayer Advocate shall report
directly to the Commissioner of Internal Revenue and
shall be entitled to compensation at the same rate
as the highest rate of basic pay established for the
Senior Executive Service under section 5382 of title
5, United States Code, or, if the Secretary of the Treas-
ury so determines, at a rate fixed under section 9503
of such title.
‘‘(ii) APPOINTMENT.—The National Taxpayer Advo-
cate shall be appointed by the Secretary of the Treas-
ury after consultation with the Commissioner of
Internal Revenue and the Oversight Board and without
regard to the provisions of title 5, United States Code,
relating to appointments in the competitive service
or the Senior Executive Service.
‘‘(iii) QUALIFICATIONS.—An individual appointed
under clause (ii) shall have—
‘‘(I) a background in customer service as well
as tax law; and
‘‘(II) experience in representing individual tax-
payers.
‘‘(iv) RESTRICTION ON EMPLOYMENT.—An individual
may be appointed as the National Taxpayer Advocate
only if such individual was not an officer or employee
of the Internal Revenue Service during the 2-year
period ending with such appointment and such individ-
ual agrees not to accept any employment with the
Internal Revenue Service for at least 5 years after
ceasing to be the National Taxpayer Advocate. Service
as an officer or employee of the Office of the Taxpayer
Advocate shall not be taken into account in applying
this clause.
‘‘(2) FUNCTIONS OF OFFICE.—
‘‘(A) IN GENERAL.—It shall be the function of the Office
of the Taxpayer Advocate to—
‘‘(i) assist taxpayers in resolving problems with
the Internal Revenue Service;
‘‘(ii) identify areas in which taxpayers have prob-
lems in dealings with the Internal Revenue Service;
‘‘(iii) to the extent possible, propose changes in
the administrative practices of the Internal Revenue
Service to mitigate problems identified under clause
(ii); and
‘‘(iv) identify potential legislative changes which
may be appropriate to mitigate such problems.
‘‘(B) ANNUAL REPORTS.—
‘‘(i) OBJECTIVES.—Not later than June 30 of each
calendar year, the National Taxpayer Advocate shall
report to the Committee on Ways and Means of the
House of Representatives and the Committee on
H. R. 2676—16
Finance of the Senate on the objectives of the Office
of the Taxpayer Advocate for the fiscal year beginning
in such calendar year. Any such report shall contain
full and substantive analysis, in addition to statistical
information.
‘‘(ii) ACTIVITIES.—Not later than December 31 of
each calendar year, the National Taxpayer Advocate
shall report to the Committee on Ways and Means
of the House of Representatives and the Committee
on Finance of the Senate on the activities of the Office
of the Taxpayer Advocate during the fiscal year ending
during such calendar year. Any such report shall con-
tain full and substantive analysis, in addition to statis-
tical information, and shall—
‘‘(I) identify the initiatives the Office of the
Taxpayer Advocate has taken on improving tax-
payer services and Internal Revenue Service
responsiveness;
‘‘(II) contain recommendations received from
individuals with the authority to issue Taxpayer
Assistance Orders under section 7811;
‘‘(III) contain a summary of at least 20 of
the most serious problems encountered by tax-
payers, including a description of the nature of
such problems;
‘‘(IV) contain an inventory of the items
described in subclauses (I), (II), and (III) for which
action has been taken and the result of such action;
‘‘(V) contain an inventory of the items
described in subclauses (I), (II), and (III) for which
action remains to be completed and the period
during which each item has remained on such
inventory;
‘‘(VI) contain an inventory of the items
described in subclauses (I), (II), and (III) for which
no action has been taken, the period during which
each item has remained on such inventory, the
reasons for the inaction, and identify any Internal
Revenue Service official who is responsible for such
inaction;
‘‘(VII) identify any Taxpayer Assistance Order
which was not honored by the Internal Revenue
Service in a timely manner, as specified under
section 7811(b);
‘‘(VIII) contain recommendations for such
administrative and legislative action as may be
appropriate to resolve problems encountered by
taxpayers;
‘‘(IX) identify areas of the tax law that impose
significant compliance burdens on taxpayers or the
Internal Revenue Service, including specific rec-
ommendations for remedying these problems;
‘‘(X) identify the 10 most litigated issues for
each category of taxpayers, including recommenda-
tions for mitigating such disputes; and
‘‘(XI) include such other information as the
National Taxpayer Advocate may deem advisable.
H. R. 2676—17
‘‘(iii) REPORT TO BE SUBMITTED DIRECTLY.—Each
report required under this subparagraph shall be pro-
vided directly to the committees described in clause
(i) without any prior review or comment from the
Commissioner, the Secretary of the Treasury, the Over-
sight Board, any other officer or employee of the
Department of the Treasury, or the Office of Manage-
ment and Budget.
‘‘(iv) COORDINATION
WITH
REPORT
OF
TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION.—To the
extent that information required to be reported under
clause (ii) is also required to be reported under para-
graph (1) or (2) of subsection (d) by the Treasury
Inspector General for Tax Administration, the National
Taxpayer Advocate shall not contain such information
in the report submitted under such clause.
‘‘(C) OTHER RESPONSIBILITIES.—The National Taxpayer
Advocate shall—
‘‘(i) monitor the coverage and geographic allocation
of local offices of taxpayer advocates;
‘‘(ii) develop guidance to be distributed to all
Internal Revenue Service officers and employees outlin-
ing the criteria for referral of taxpayer inquiries to
local offices of taxpayer advocates;
‘‘(iii) ensure that the local telephone number for
each local office of the taxpayer advocate is published
and available to taxpayers served by the office; and
‘‘(iv) in conjunction with the Commissioner,
develop career paths for local taxpayer advocates choos-
ing to make a career in the Office of the Taxpayer
Advocate.
‘‘(D) PERSONNEL ACTIONS.—
‘‘(i) IN GENERAL.—The National Taxpayer Advocate
shall have the responsibility and authority to—
‘‘(I) appoint local taxpayer advocates and make
available at least 1 such advocate for each State;
and
‘‘(II) evaluate and take personnel actions
(including dismissal) with respect to any employee
of any local office of a taxpayer advocate described
in subclause (I).
‘‘(ii) 
CONSULTATION.—The 
National 
Taxpayer
Advocate may consult with the appropriate supervisory
personnel of the Internal Revenue Service in carrying
out the National Taxpayer Advocate’s responsibilities
under this subparagraph.
‘‘(3) RESPONSIBILITIES
OF
COMMISSIONER.—The Commis-
sioner shall establish procedures requiring a formal response
to all recommendations submitted to the Commissioner by the
National Taxpayer Advocate within 3 months after submission
to the Commissioner.
‘‘(4) OPERATION OF LOCAL OFFICES.—
‘‘(A) IN GENERAL.—Each local taxpayer advocate—
‘‘(i) shall report to the National Taxpayer Advocate
or delegate thereof;
‘‘(ii) may consult with the appropriate supervisory
personnel of the Internal Revenue Service regarding
H. R. 2676—18
the daily operation of the local office of the taxpayer
advocate;
‘‘(iii) shall, at the initial meeting with any taxpayer
seeking the assistance of a local office of the taxpayer
advocate, notify such taxpayer that the taxpayer advo-
cate offices operate independently of any other Internal
Revenue Service office and report directly to Congress
through the National Taxpayer Advocate; and
‘‘(iv) may, at the taxpayer advocate’s discretion,
not disclose to the Internal Revenue Service contact
with, or information provided by, such taxpayer.
‘‘(B) MAINTENANCE
OF
INDEPENDENT
COMMUNICA-
TIONS.—Each local office of the taxpayer advocate shall
maintain a separate phone, facsimile, and other electronic
communication access, and a separate post office address.
‘‘(d) ADDITIONAL DUTIES OF THE TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION.—
‘‘(1) ANNUAL REPORTING.—The Treasury Inspector General
for Tax Administration shall include in one of the semiannual
reports under section 5 of the Inspector General Act of 1978—
‘‘(A) an evaluation of the compliance of the Internal
Revenue Service with—
‘‘(i) restrictions under section 1204 of the Internal
Revenue Service Restructuring and Reform Act of 1998
on the use of enforcement statistics to evaluate Internal
Revenue Service employees;
‘‘(ii) restrictions under section 7521 on directly con-
tacting taxpayers who have indicated that they prefer
their representatives be contacted;
‘‘(iii) required procedures under section 6320 upon
the filing of a notice of a lien;
‘‘(iv) required procedures under subchapter D of
chapter 64 for seizure of property for collection of taxes,
including required procedures under section 6330
regarding levies; and
‘‘(v) restrictions under section 3707 of the Internal
Revenue Service Restructuring and Reform Act of 1998
on designation of taxpayers;
‘‘(B) a review and a certification of whether or not
the Secretary is complying with the requirements of section
6103(e)(8) to disclose information to an individual filing
a joint return on collection activity involving the other
individual filing the return;
‘‘(C) information regarding extensions of the statute
of limitations for assessment and collection of tax under
section 6501 and the provision of notice to taxpayers
regarding requests for such extension;
‘‘(D) an evaluation of the adequacy and security of
the technology of the Internal Revenue Service;
‘‘(E) any termination or mitigation under section 1203
of the Internal Revenue Service Restructuring and Reform
Act of 1998;
‘‘(F) information regarding improper denial of requests
for information from the Internal Revenue Service identi-
fied under paragraph (3)(A); and
H. R. 2676—19
‘‘(G) information regarding any administrative or civil
actions with respect to violations of the fair debt collection
provisions of section 6304, including—
‘‘(i) a summary of such actions initiated since the
date of the last report; and
‘‘(ii) a summary of any judgments or awards
granted as a result of such actions.
‘‘(2) SEMIANNUAL REPORTS.—
‘‘(A) IN GENERAL.—The Treasury Inspector General for
Tax Administration shall include in each semiannual report
under section 5 of the Inspector General Act of 1978—
‘‘(i) the number of taxpayer complaints during the
reporting period;
‘‘(ii) the number of employee misconduct and tax-
payer abuse allegations received by the Internal Reve-
nue Service or the Inspector General during the period
from taxpayers, Internal Revenue Service employees,
and other sources;
‘‘(iii) a summary of the status of such complaints
and allegations; and
‘‘(iv) a summary of the disposition of such com-
plaints and allegations, including the outcome of any
Department of Justice action and any monies paid
as a settlement of such complaints and allegations.
‘‘(B) Clauses (iii) and (iv) of subparagraph (A) shall
only apply to complaints and allegations of serious
employee misconduct.
‘‘(3) OTHER
RESPONSIBILITIES.—The Treasury Inspector
General for Tax Administration shall—
‘‘(A) conduct periodic audits of a statistically valid sam-
ple of the total number of determinations made by the
Internal Revenue Service to deny written requests to dis-
close information to taxpayers on the basis of section 6103
of this title or section 552(b)(7) of title 5, United States
Code; and
‘‘(B) establish and maintain a toll-free telephone num-
ber for taxpayers to use to confidentially register com-
plaints of misconduct by Internal Revenue Service employ-
ees and incorporate the telephone number in the statement
required by section 6227 of the Omnibus Taxpayer Bill
of Rights (Internal Revenue Service Publication No. 1).’’.
(b) NOTICE OF RIGHT TO CONTACT OFFICE INCLUDED IN NOTICE
OF DEFICIENCY.—Section 6212(a) (relating to notice of deficiency)
is amended by adding at the end the following new sentence:
‘‘Such notice shall include a notice to the taxpayer of the taxpayer’s
right to contact a local office of the taxpayer advocate and the
location and phone number of the appropriate office.’’.
(c) EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE
ORDERS.—Section 7811(a) (relating to taxpayer assistance orders)
is amended to read as follows:
‘‘(a) AUTHORITY TO ISSUE.—
‘‘(1) IN GENERAL.—Upon application filed by a taxpayer
with the Office of the Taxpayer Advocate (in such form, manner,
and at such time as the Secretary shall by regulations pre-
scribe), the National Taxpayer Advocate may issue a Taxpayer
Assistance Order if—
H. R. 2676—20
‘‘(A) the National Taxpayer Advocate determines the
taxpayer is suffering or about to suffer a significant
hardship as a result of the manner in which the internal
revenue laws are being administered by the Secretary;
or
‘‘(B) the taxpayer meets such other requirements as
are set forth in regulations prescribed by the Secretary.
‘‘(2) DETERMINATION
OF
HARDSHIP.—For purposes of
paragraph (1), a significant hardship shall include—
‘‘(A) an immediate threat of adverse action;
‘‘(B) a delay of more than 30 days in resolving taxpayer
account problems;
‘‘(C) the incurring by the taxpayer of significant costs
(including fees for professional representation) if relief is
not granted; or
‘‘(D) irreparable injury to, or a long-term adverse
impact on, the taxpayer if relief is not granted.
‘‘(3) STANDARD
WHERE
ADMINISTRATIVE
GUIDANCE
NOT
FOLLOWED.—In cases where any Internal Revenue Service
employee is not following applicable published administrative
guidance (including the Internal Revenue Manual), the
National Taxpayer Advocate shall construe the factors taken
into account in determining whether to issue a taxpayer assist-
ance order in the manner most favorable to the taxpayer.’’.
(d) 
CONFORMING
AMENDMENTS
RELATING
TO
NATIONAL
TAXPAYER ADVOCATE.—
(1) The following provisions are each amended by striking
‘‘Taxpayer Advocate’’ each place it appears and inserting
‘‘National Taxpayer Advocate’’:
(A) Section 6323( j)(1)(D) (relating to withdrawal of
notice in certain circumstances).
(B) Section 6343(d)(2)(D) (relating to return of property
in certain cases).
(C) Section 7811(b)(2)(D) (relating to terms of a
Taxpayer Assistance Order).
(D) Section 7811(c) (relating to authority to modify
or rescind).
(E) Section 7811(d)(2) (relating to suspension of
running of period of limitation).
(F) Section 7811(e) (relating to independent action of
Taxpayer Advocate).
(G) Section 7811(f ) (relating to Taxpayer Advocate).
(2) Section 7811(d)(1) (relating to suspension of running
of period of limitation) is amended by striking ‘‘Taxpayer
Advocate’s’’ and inserting ‘‘National Taxpayer Advocate’s’’.
(3) The headings of subsections (e) and (f ) of section 7811
are each amended by striking ‘‘TAXPAYER ADVOCATE’’ and
inserting ‘‘NATIONAL TAXPAYER ADVOCATE’’.
(e) ADDITIONAL CONFORMING AMENDMENTS.—
(1) The table of sections for subchapter A of chapter 80
is amended by striking the item relating to section 7803 and
inserting the following new item:
‘‘Sec. 7803. Commissioner of Internal Revenue; other officials.’’.
(2) Section 5109 of title 5, United States Code, is amended
by striking subsection (b) and redesignating subsection (c) as
subsection (b).
H. R. 2676—21
(3) Section 7611(f )(1) (relating to restrictions on church
tax inquiries and examinations) is amended by striking
‘‘Assistant Commissioner for Employee Plans and Exempt
Organizations of the Internal Revenue Service’’ and inserting
‘‘Secretary’’.
(f ) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall take effect on the
date of the enactment of this Act.
(2) CHIEF
COUNSEL.—Section 7803(b)(3) of the Internal
Revenue Code of 1986, as added by this section, shall take
effect on the date that is 90 days after the date of the enactment
of this Act.
(3) 
NATIONAL
TAXPAYER
ADVOCATE.—Notwithstanding
section 7803(c)(1)(B)(iv) of such Code, as added by this section,
in appointing the first National Taxpayer Advocate after
the date of the enactment of this Act, the Secretary of the
Treasury—
(A) shall not appoint any individual who was an officer
or employee of the Internal Revenue Service at any time
during the 2-year period ending on the date of appointment;
and
(B) need not consult with the Internal Revenue Service
Oversight Board if the Oversight Board has not been
appointed.
(4) CURRENT OFFICERS.—
(A) In the case of an individual serving as Commis-
sioner of Internal Revenue on the date of the enactment
of this Act who was appointed to such position before
such date, the 5-year term required by section 7803(a)(1)
of such Code, as added by this section, shall begin as
of the date of such appointment.
(B) Clauses (ii), (iii), and (iv) of section 7803(c)(1)(B)
of such Code, as added by this section, shall not apply
to the individual serving as Taxpayer Advocate on the
date of the enactment of this Act.
SEC. 1103. TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRA-
TION.
(a) ESTABLISHMENT
OF TWO INSPECTORS GENERAL
IN
THE
DEPARTMENT OF THE TREASURY.—Section 2 of the Inspector General
Act of 1978 (5 U.S.C. App.) is amended by striking the matter
following paragraph (3) and inserting the following:
‘‘there is established—
‘‘(A) in each of such establishments an office of Inspec-
tor General, subject to subparagraph (B); and
‘‘(B) in the establishment of the Department of the
Treasury—
‘‘(i) an Office of Inspector General of the Depart-
ment of the Treasury; and
‘‘(ii) an Office of Treasury Inspector General for
Tax Administration.’’.
(b) AMENDMENTS TO SECTION 8D OF THE INSPECTOR GENERAL
ACT OF 1978.—
(1) LIMITATION ON AUTHORITY OF INSPECTOR GENERAL.—
Section 8D(a) of the Inspector General Act of 1978 (5 U.S.C.
H. R. 2676—22
App.) is amended by adding at the end the following new
paragraph:
‘‘(4) The Secretary of the Treasury may not exercise any
power under paragraph (1) or (2) with respect to the Treasury
Inspector General for Tax Administration.’’.
(2) DUTIES OF INSPECTOR GENERAL OF THE DEPARTMENT
OF THE TREASURY; RELATIONSHIP TO THE TREASURY INSPECTOR
GENERAL FOR TAX ADMINISTRATION.—Section 8D(b) of such Act
is amended—
(A) by inserting ‘‘(1)’’ after ‘‘(b)’’; and
(B) by adding at the end the following new paragraphs:
‘‘(2) The Inspector General of the Department of the Treas-
ury shall exercise all duties and responsibilities of an Inspector
General for the Department of the Treasury other than the
duties and responsibilities exercised by the Treasury Inspector
General for Tax Administration.
‘‘(3) The Secretary of the Treasury shall establish proce-
dures under which the Inspector General of the Department
of the Treasury and the Treasury Inspector General for Tax
Administration will—
‘‘(A) determine how audits and investigations are
allocated in cases of overlapping jurisdiction; and
‘‘(B) provide for coordination, cooperation, and effi-
ciency in the conduct of such audits and investigations.’’.
(3) ACCESS
TO
RETURNS
AND
RETURN
INFORMATION.—
Section 8D(e) of such Act is amended—
(A) in paragraph (1), by striking ‘‘Inspector General’’
and inserting ‘‘Treasury Inspector General for Tax Adminis-
tration’’;
(B) in paragraph (2), by striking all beginning with
‘‘(2)’’ through subparagraph (B);
(C)(i) by redesignating subparagraph (C) of paragraph
(2) as paragraph (2) of such subsection; and
(ii) in such redesignated paragraph (2), by striking
‘‘Inspector General’’ and inserting ‘‘Treasury Inspector Gen-
eral for Tax Administration’’; and
(D)(i) by redesignating subparagraph (D) of such
paragraph as paragraph (3) of such subsection; and
(ii) in such redesignated paragraph (3), by striking
‘‘Inspector General’’ and inserting ‘‘Treasury Inspector Gen-
eral for Tax Administration’’.
(4) 
EFFECT
ON
CERTAIN
FINAL
DECISIONS
OF
THE
SECRETARY.—Section 8D(f ) of such Act is amended by striking
‘‘Inspector General’’ and inserting ‘‘Inspector General of the
Department of the Treasury or the Treasury Inspector General
for Tax Administration’’.
(5) REPEAL OF LIMITATION ON REPORTS TO THE ATTORNEY
GENERAL.—Section 8D of such Act is amended by striking
subsection (g).
(6) TRANSMISSION OF REPORTS.—Section 8D(h) of such Act
is amended—
(A) by striking ‘‘(h)’’ and inserting ‘‘(g)(1)’’;
(B) by striking ‘‘and the Committees on Government
Operations and Ways and Means of the House of Represent-
atives’’ and inserting ‘‘and the Committees on Government
Reform and Oversight and Ways and Means of the House
of Representatives’’; and
H. R. 2676—23
(C) by adding at the end the following new paragraph:
‘‘(2) Any report made by the Treasury Inspector General for
Tax Administration that is required to be transmitted by the Sec-
retary of the Treasury to the appropriate committees or subcommit-
tees of Congress under section 5(d) shall also be transmitted, within
the 7-day period specified under such subsection, to the Internal
Revenue Service Oversight Board and the Commissioner of Internal
Revenue.’’.
(7) TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRA-
TION.—Section 8D of the Act is amended by adding at the
end the following new subsections:
‘‘(h) The Treasury Inspector General for Tax Administration
shall exercise all duties and responsibilities of an Inspector General
of an establishment with respect to the Department of the Treasury
and the Secretary of the Treasury on all matters relating to the
Internal Revenue Service. The Treasury Inspector General for Tax
Administration shall have sole authority under this Act to conduct
an audit or investigation of the Internal Revenue Service Oversight
Board and the Chief Counsel for the Internal Revenue Service.
‘‘(i) In addition to the requirements of the first sentence of
section 3(a), the Treasury Inspector General for Tax Administration
should have demonstrated ability to lead a large and complex
organization.
‘‘( j) An individual appointed to the position of Treasury Inspec-
tor General for Tax Administration, the Assistant Inspector General
for Auditing of the Office of the Treasury Inspector General for
Tax Administration under section 3(d)(1), the Assistant Inspector
General for Investigations of the Office of the Treasury Inspector
General for Tax Administration under section 3(d)(2), or any posi-
tion of Deputy Inspector General of the Office of the Treasury
Inspector General for Tax Administration may not be an employee
of the Internal Revenue Service—
‘‘(1) during the 2-year period preceding the date of appoint-
ment to such position; or
‘‘(2) during the 5-year period following the date such
individual ends service in such position.
‘‘(k)(1) In addition to the duties and responsibilities exercised
by an inspector general of an establishment, the Treasury Inspector
General for Tax Administration—
‘‘(A) shall have the duty to enforce criminal provisions
under section 7608(b) of the Internal Revenue Code of 1986;
‘‘(B) in addition to the functions authorized under section
7608(b)(2) of such Code, may carry firearms;
‘‘(C) shall be responsible for protecting the Internal Reve-
nue Service against external attempts to corrupt or threaten
employees of the Internal Revenue Service, but shall not be
responsible for the conducting of background checks and the
providing of physical security; and
‘‘(D) may designate any employee in the Office of the Treas-
ury Inspector General for Tax Administration to enforce such
laws and perform such functions referred to under subpara-
graphs (A), (B), and (C).
‘‘(2)(A) In performing a law enforcement function under para-
graph (1), the Treasury Inspector General for Tax Administration
shall report any reasonable grounds to believe there has been
a violation of Federal criminal law to the Attorney General at
H. R. 2676—24
an appropriate time as determined by the Treasury Inspector Gen-
eral for Tax Administration, notwithstanding section 4(d).
‘‘(B) In the administration of section 5(d) and subsection (g)(2)
of this section, the Secretary of the Treasury may transmit the
required report with respect to the Treasury Inspector General
for Tax Administration at an appropriate time as determined by
the Secretary, if the problem, abuse, or deficiency relates to—
‘‘(i) the performance of a law enforcement function under
paragraph (1); and
‘‘(ii) sensitive information concerning matters under sub-
section (a)(1)(A) through (F).
‘‘(3) Nothing in this subsection shall be construed to affect
the authority of any other person to carry out or enforce any
provision specified in paragraph (1).
‘‘(l)(1) The Commissioner of Internal Revenue or the Internal
Revenue Service Oversight Board may request, in writing, the
Treasury Inspector General for Tax Administration to conduct an
audit or investigation relating to the Internal Revenue Service.
If the Treasury Inspector General for Tax Administration deter-
mines not to conduct such audit or investigation, the Inspector
General shall timely provide a written explanation for such deter-
mination to the person making the request.
‘‘(2)(A) Any final report of an audit conducted by the Treasury
Inspector General for Tax Administration shall be timely submitted
by the Inspector General to the Commissioner of Internal Revenue
and the Internal Revenue Service Oversight Board.
‘‘(B) The Treasury Inspector General for Tax Administration
shall periodically submit to the Commissioner and Board a list
of investigations for which a final report has been completed by
the Inspector General and shall provide a copy of any such report
upon request of the Commissioner or Board.
‘‘(C) This paragraph applies regardless of whether the
applicable audit or investigation is requested under paragraph (1).’’.
(c) TRANSFER OF FUNCTIONS.—
(1) IN GENERAL.—Section 9(a)(1) of the Inspector General
Act of 1978 (5 U.S.C. App.) is amended in subparagraph (L)—
(A) by inserting ‘‘(i)’’ after ‘‘(L)’’;
(B) by inserting ‘‘and’’ after the semicolon; and
(C) by adding at the end the following new clause:
‘‘(ii) of the Treasury Inspector General for Tax
Administration, effective 180 days after the date of
the enactment of the Internal Revenue Service
Restructuring and Reform Act of 1998, the Office of
Chief Inspector of the Internal Revenue Service;’’.
(2) TERMINATION OF OFFICE OF CHIEF INSPECTOR.—Effective
upon the transfer of functions under the amendment made
by paragraph (1), the Office of Chief Inspector of the Internal
Revenue Service is terminated.
(3) RETENTION OF CERTAIN INTERNAL AUDIT PERSONNEL.—
In making the transfer under the amendment made by para-
graph (1), the Commissioner of Internal Revenue shall des-
ignate and retain an appropriate number (not in excess of
300) of internal audit full-time equivalent employee positions
necessary for management relating to the Internal Revenue
Service.
(4) ADDITIONAL PERSONNEL TRANSFERS.—Effective 180 days
after the date of the enactment of this Act, the Secretary
H. R. 2676—25
of the Treasury shall transfer 21 full-time equivalent positions
from the Office of the Inspector General of the Department
of the Treasury to the Office of the Treasury Inspector General
for Tax Administration.
(d) AUDITS AND REPORTS OF AGENCY FINANCIAL STATEMENTS.—
Subject to section 3521(g) of title 31, United States Code—
(1) the Inspector General of the Department of the Treasury
shall, subject to paragraph (2)—
(A) audit each financial statement in accordance with
section 3521(e) of such title; and
(B) prepare and submit each report required under
section 3521(f ) of such title; and
(2) the Treasury Inspector General for Tax Administration
shall—
(A) audit that portion of each financial statement
referred to under paragraph (1)(A) that relates to custodial
and administrative accounts of the Internal Revenue
Service; and
(B) prepare that portion of each report referred to
under paragraph (1)(B) that relates to custodial and
administrative accounts of the Internal Revenue Service.
(e) TECHNICAL AND CONFORMING AMENDMENTS.—
(1) TRANSFER OF FUNCTIONS.—Section 8D(b) of the Inspec-
tor General Act of 1978 (5 U.S.C. App.) is amended by striking
‘‘and the internal audits and internal investigations performed
by the Office of Assistant Commissioner (Inspection) of the
Internal Revenue Service’’.
(2) AMENDMENTS RELATING TO REFERENCES TO THE INSPEC-
TOR GENERAL OF THE DEPARTMENT OF THE TREASURY.—
(A) LIMITATION ON AUTHORITY.—Section 8D(a) of the
Inspector General Act of 1978 (5 U.S.C. App.) is amended—
(i) in the first sentence of paragraph (1), by insert-
ing ‘‘of the Department of the Treasury’’ after ‘‘Inspec-
tor General’’;
(ii) in paragraph (2), by inserting ‘‘of the Depart-
ment of the Treasury’’ after ‘‘prohibit the Inspector
General’’; and
(iii) in paragraph (3)—
(I) in the first sentence, by inserting ‘‘of the
Department of the Treasury’’ after ‘‘notify the
Inspector General’’; and
(II) in the second sentence, by inserting ‘‘of
the Department of the Treasury’’ after ‘‘notice, the
Inspector General’’.
(B) DUTIES.—Section 8D(b) of such Act is amended
in the second sentence by inserting ‘‘of the Department
of the Treasury’’ after ‘‘Inspector General’’.
(C) AUDITS AND INVESTIGATIONS.—Section 8D (c) and
(d) of such Act are amended by inserting ‘‘of the Depart-
ment of the Treasury’’ after ‘‘Inspector General’’ each place
it appears.
(3) REFERENCES.—The second section 8G of the Inspector
General Act of 1978 (relating to rule of construction of special
provisions) is amended—
(A) by striking ‘‘SEC. 8G’’ and inserting ‘‘SEC. 8H’’;
(B) by striking ‘‘or 8E’’ and inserting ‘‘8E or 8F’’; and
H. R. 2676—26
(C) by striking ‘‘section 8F(a)’’ and inserting ‘‘section
8G(a)’’.
(4) AMENDMENT TO INTERNAL REVENUE CODE OF 1986.—
Section 7608(b)(1) is amended by striking ‘‘or of the Internal
Security Division’’.
SEC. 1104. OTHER PERSONNEL.
(a) IN GENERAL.—Section 7804 (relating to the effect of reorga-
nization plans) is amended to read as follows:
‘‘SEC. 7804. OTHER PERSONNEL.
‘‘(a) APPOINTMENT AND SUPERVISION.—Unless otherwise pre-
scribed by the Secretary, the Commissioner of Internal Revenue
is authorized to employ such number of persons as the Commis-
sioner deems proper for the administration and enforcement of
the internal revenue laws, and the Commissioner shall issue all
necessary directions, instructions, orders, and rules applicable to
such persons.
‘‘(b) POSTS
OF DUTY
OF EMPLOYEES
IN FIELD SERVICE
OR
TRAVELING.—Unless otherwise prescribed by the Secretary—
‘‘(1) DESIGNATION OF POST OF DUTY.—The Commissioner
shall determine and designate the posts of duty of all such
persons engaged in field work or traveling on official business
outside of the District of Columbia.
‘‘(2) DETAIL
OF
PERSONNEL
FROM
FIELD
SERVICE.—The
Commissioner may order any such person engaged in field
work to duty in the District of Columbia, for such periods
as the Commissioner may prescribe, and to any designated
post of duty outside the District of Columbia upon the comple-
tion of such duty.
‘‘(c) DELINQUENT INTERNAL REVENUE OFFICERS AND EMPLOY-
EES.—If any officer or employee of the Treasury Department acting
in connection with the internal revenue laws fails to account for
and pay over any amount of money or property collected or received
by him in connection with the internal revenue laws, the Secretary
shall issue notice and demand to such officer or employee for
payment of the amount which he failed to account for and pay
over, and, upon failure to pay the amount demanded within the
time specified in such notice, the amount so demanded shall be
deemed imposed upon such officer or employee and assessed upon
the date of such notice and demand, and the provisions of chapter
64 and all other provisions of law relating to the collection of
assessed taxes shall be applicable in respect of such amount.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (b) of section 6344 is amended by striking
‘‘section 7803(d)’’ and inserting ‘‘section 7804(c)’’.
(2) The table of sections for subchapter A of chapter 80
is amended by striking the item relating to section 7804 and
inserting the following new item:
‘‘Sec. 7804. Other personnel.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
H. R. 2676—27
SEC. 1105. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER
TAXPAYER AUDITS AND OTHER INVESTIGATIONS.
(a) IN GENERAL.—Part I of subchapter A of chapter 75 (relating
to crimes, other offenses, and forfeitures) is amended by adding
after section 7216 the following new section:
‘‘SEC. 7217. PROHIBITION ON EXECUTIVE BRANCH INFLUENCE OVER
TAXPAYER AUDITS AND OTHER INVESTIGATIONS.
‘‘(a) PROHIBITION.—It shall be unlawful for any applicable per-
son to request, directly or indirectly, any officer or employee of
the Internal Revenue Service to conduct or terminate an audit
or other investigation of any particular taxpayer with respect to
the tax liability of such taxpayer.
‘‘(b) REPORTING REQUIREMENT.—Any officer or employee of the
Internal Revenue Service receiving any request prohibited by sub-
section (a) shall report the receipt of such request to the Treasury
Inspector General for Tax Administration.
‘‘(c) EXCEPTIONS.—Subsection (a) shall not apply to any written
request made—
‘‘(1) to an applicable person by or on behalf of the taxpayer
and forwarded by such applicable person to the Internal Reve-
nue Service;
‘‘(2) by an applicable person for disclosure of return or
return information under section 6103 if such request is made
in accordance with the requirements of such section; or
‘‘(3) by the Secretary of the Treasury as a consequence
of the implementation of a change in tax policy.
‘‘(d) PENALTY.—Any person who willfully violates subsection
(a) or fails to report under subsection (b) shall be punished upon
conviction by a fine in any amount not exceeding $5,000, or impris-
onment of not more than 5 years, or both, together with the costs
of prosecution.
‘‘(e) APPLICABLE PERSON.—For purposes of this section, the
term ‘applicable person’ means—
‘‘(1) the President, the Vice President, any employee of
the executive office of the President, and any employee of
the executive office of the Vice President; and
‘‘(2) any individual (other than the Attorney General of
the United States) serving in a position specified in section
5312 of title 5, United States Code.’’.
(b) CLERICAL AMENDMENT.—The table of sections for part I
of subchapter A of chapter 75 is amended by adding after the
item relating to section 7216 the following new item:
‘‘Sec. 7217. Prohibition on executive branch influence over taxpayer audits
and other investigations.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to requests made after the date of the enactment of
this Act.
Subtitle C—Personnel Flexibilities
SEC. 1201. IMPROVEMENTS IN PERSONNEL FLEXIBILITIES.
(a) IN GENERAL.—Part III of title 5, United States Code, is
amended by adding at the end the following new subpart:
H. R. 2676—28
‘‘Subpart I—Miscellaneous
‘‘CHAPTER 95—PERSONNEL FLEXIBILITIES RELATING
TO THE INTERNAL REVENUE SERVICE
‘‘Sec.
‘‘9501. Internal Revenue Service personnel flexibilities.
‘‘9502. Pay authority for critical positions.
‘‘9503. Streamlined critical pay authority.
‘‘9504. Recruitment, retention, relocation incentives, and relocation expenses.
‘‘9505. Performance awards for senior executives.
‘‘9506. Limited appointments to career reserved Senior Executive Service positions.
‘‘9507. Streamlined demonstration project authority.
‘‘9508. General workforce performance management system.
‘‘9509. General workforce classification and pay.
‘‘9510. General workforce staffing.
‘‘§ 9501. Internal Revenue Service personnel flexibilities
‘‘(a) Any flexibilities provided by sections 9502 through 9510
of this chapter shall be exercised in a manner consistent with—
‘‘(1) chapter 23 (relating to merit system principles and
prohibited personnel practices);
‘‘(2) provisions relating to preference eligibles;
‘‘(3) except as otherwise specifically provided, section 5307
(relating to the aggregate limitation on pay);
‘‘(4) except as otherwise specifically provided, chapter 71
(relating to labor-management relations); and
‘‘(5) subject to subsections (b) and (c) of section 1104, as
though such authorities were delegated to the Secretary of
the Treasury under section 1104(a)(2).
‘‘(b) The Secretary of the Treasury shall provide the Office
of Personnel Management with any information that Office requires
in carrying out its responsibilities under this section.
‘‘(c) Employees within a unit to which a labor organization
is accorded exclusive recognition under chapter 71 shall not be
subject to any flexibility provided by sections 9507 through 9510
of this chapter unless the exclusive representative and the Internal
Revenue Service have entered into a written agreement which
specifically provides for the exercise of that flexibility. Such written
agreement may be imposed by the Federal Services Impasses Panel
under section 7119.
‘‘§ 9502. Pay authority for critical positions
‘‘(a) When the Secretary of the Treasury seeks a grant of
authority under section 5377 for critical pay for 1 or more positions
at the Internal Revenue Service, the Office of Management and
Budget may fix the rate of basic pay, notwithstanding sections
5377(d)(2) and 5307, at any rate up to the salary set in accordance
with section 104 of title 3.
‘‘(b) Notwithstanding section 5307, no allowance, differential,
bonus, award, or similar cash payment may be paid to any employee
receiving critical pay at a rate fixed under subsection (a), in any
calendar year if, or to the extent that, the employee’s total annual
compensation will exceed the maximum amount of total annual
compensation payable at the salary set in accordance with section
104 of title 3.
‘‘§ 9503. Streamlined critical pay authority
‘‘(a) Notwithstanding section 9502, and without regard to the
provisions of this title governing appointments in the competitive
H. R. 2676—29
service or the Senior Executive Service and chapters 51 and 53
(relating to classification and pay rates), the Secretary of the Treas-
ury may, for a period of 10 years after the date of enactment
of this section, establish, fix the compensation of, and appoint
individuals to, designated critical administrative, technical, and
professional positions needed to carry out the functions of the
Internal Revenue Service, if—
‘‘(1) the positions—
‘‘(A) require expertise of an extremely high level in
an administrative, technical, or professional field; and
‘‘(B) are critical to the Internal Revenue Service’s
successful accomplishment of an important mission;
‘‘(2) exercise of the authority is necessary to recruit or
retain an individual exceptionally well qualified for the position;
‘‘(3) the number of such positions does not exceed 40 at
any one time;
‘‘(4) designation of such positions are approved by the
Secretary of the Treasury;
‘‘(5) the terms of such appointments are limited to no
more than 4 years;
‘‘(6) appointees to such positions were not Internal Revenue
Service employees prior to June 1, 1998;
‘‘(7) total annual compensation for any appointee to such
positions does not exceed the highest total annual compensation
payable at the rate determined under section 104 of title 3;
and
‘‘(8) all such positions are excluded from the collective
bargaining unit.
‘‘(b) Individuals appointed under this section shall not be consid-
ered to be employees for purposes of subchapter II of chapter
75.
‘‘§ 9504. Recruitment, retention, relocation incentives, and
relocation expenses
‘‘(a) For a period of 10 years after the date of enactment
of this section and subject to approval by the Office of Personnel
Management, the Secretary of the Treasury may provide for vari-
ations from sections 5753 and 5754 governing payment of recruit-
ment, relocation, and retention incentives.
‘‘(b) For a period of 10 years after the date of enactment
of this section, the Secretary of the Treasury may pay from appro-
priations made to the Internal Revenue Service allowable relocation
expenses under section 5724a for employees transferred or
reemployed and allowable travel and transportation expenses under
section 5723 for new appointees, for any new appointee appointed
to a position for which pay is fixed under section 9502 or 9503
after June 1, 1998.
‘‘§ 9505. Performance awards for senior executives
‘‘(a) For a period of 10 years after the date of enactment
of this section, Internal Revenue Service senior executives who
have program management responsibility over significant functions
of the Internal Revenue Service may be paid a performance bonus
without regard to the limitation in section 5384(b)(2) if the Secretary
of the Treasury finds such award warranted based on the executive’s
performance.
H. R. 2676—30
‘‘(b) In evaluating an executive’s performance for purposes of
an award under this section, the Secretary of the Treasury shall
take into account the executive’s contributions toward the successful
accomplishment of goals and objectives established under the
Government Performance and Results Act of 1993, division E of
the Clinger-Cohen Act of 1996 (Public Law 104–106; 110 Stat.
679), Revenue Procedure 64–22 (as in effect on July 30, 1997),
taxpayer service surveys, and other performance metrics or plans
established in consultation with the Internal Revenue Service Over-
sight Board.
‘‘(c) Any award in excess of 20 percent of an executive’s rate
of basic pay shall be approved by the Secretary of the Treasury.
‘‘(d) Notwithstanding section 5384(b)(3), the Secretary of the
Treasury shall determine the aggregate amount of performance
awards available to be paid during any fiscal year under this
section and section 5384 to career senior executives in the Internal
Revenue Service. Such amount may not exceed an amount equal
to 5 percent of the aggregate amount of basic pay paid to career
senior executives in the Internal Revenue Service during the preced-
ing fiscal year. The Internal Revenue Service shall not be included
in the determination under section 5384(b)(3) of the aggregate
amount of performance awards payable to career senior executives
in the Department of the Treasury other than the Internal Revenue
Service.
‘‘(e) Notwithstanding section 5307, a performance bonus award
may not be paid to an executive in a calendar year if, or to the
extent that, the executive’s total annual compensation will exceed
the maximum amount of total annual compensation payable at
the rate determined under section 104 of title 3.
‘‘§ 9506. Limited appointments to career reserved Senior
Executive Service positions
‘‘(a) In the application of section 3132, a ‘career reserved posi-
tion’ in the Internal Revenue Service means a position designated
under section 3132(b) which may be filled only by—
‘‘(1) a career appointee; or
‘‘(2) a limited emergency appointee or a limited term
appointee—
‘‘(A) who, immediately upon entering the career
reserved position, was serving under a career or career-
conditional appointment outside the Senior Executive
Service; or
‘‘(B) whose limited emergency or limited term appoint-
ment is approved in advance by the Office of Personnel
Management.
‘‘(b)(1) The number of positions described under subsection (a)
which are filled by an appointee as described under paragraph
(2) of such subsection may not exceed 10 percent of the total
number of Senior Executive Service positions in the Internal Reve-
nue Service.
‘‘(2) Notwithstanding section 3132—
‘‘(A) the term of an appointee described under subsection
(a)(2) may be for any period not to exceed 3 years; and
‘‘(B) such an appointee may serve—
‘‘(i) two such terms; or
‘‘(ii) two such terms in addition to any unexpired term
applicable at the time of appointment.
H. R. 2676—31
‘‘§ 9507. Streamlined demonstration project authority
‘‘(a) The exercise of any of the flexibilities under sections 9502
through 9510 shall not affect the authority of the Secretary of
the Treasury to implement for the Internal Revenue Service a
demonstration project subject to chapter 47, as provided in sub-
section (b).
‘‘(b) In applying section 4703 to a demonstration project
described in section 4701(a)(4) which involves the Internal Revenue
Service—
‘‘(1) section 4703(b)(1) shall be deemed to read as follows:
‘‘ ‘(1) develop a plan for such project which describes its
purpose, the employees to be covered, the project itself, its
anticipated outcomes, and the method of evaluating the
project;’;
‘‘(2) section 4703(b)(3) shall not apply;
‘‘(3) the 180-day notification period in section 4703(b)(4)
shall be deemed to be a notification period of 30 days;
‘‘(4) section 4703(b)(6) shall be deemed to read as follows:
‘‘ ‘(6) provides each House of Congress with the final version
of the plan.’;
‘‘(5) section 4703(c)(1) shall be deemed to read as follows:
‘‘ ‘(1) subchapter V of chapter 63 or subpart G of part
III of this title;’;
‘‘(6) the requirements of paragraphs (1)(A) and (2) of section
4703(d) shall not apply; and
‘‘(7) notwithstanding section 4703(d)(1)(B), based on an
evaluation as provided in section 4703(h), the Office of Person-
nel Management and the Secretary of the Treasury, except
as otherwise provided by this subsection, may waive the termi-
nation date of a demonstration project under section 4703(d).
‘‘(c) At least 90 days before waiving the termination date under
subsection (b)(7), the Office of Personnel Management shall publish
in the Federal Register a notice of its intention to waive the termi-
nation date and shall inform in writing both Houses of Congress
of its intention.
‘‘§ 9508. General workforce performance management system
‘‘(a) In lieu of a performance appraisal system established under
section 4302, the Secretary of the Treasury shall, within 1 year
after the date of enactment of this section, establish for the Internal
Revenue Service a performance management system that—
‘‘(1) maintains individual accountability by—
‘‘(A) establishing one or more retention standards for
each employee related to the work of the employee and
expressed in terms of individual performance, and commu-
nicating such retention standards to employees;
‘‘(B) making periodic determinations of whether each
employee meets or does not meet the employee’s established
retention standards; and
‘‘(C) taking actions, in accordance with applicable laws
and regulations, with respect to any employee whose
performance does not meet established retention standards,
including denying any increases in basic pay, promotions,
and credit for performance under section 3502, and taking
one or more of the following actions:
‘‘(i) Reassignment.
H. R. 2676—32
‘‘(ii) An action under chapter 43 or chapter 75
of this title.
‘‘(iii) Any other appropriate action to resolve the
performance problem; and
‘‘(2) except as provided under section 1204 of the Internal
Revenue Service Restructuring and Reform Act of 1998,
strengthens the system’s effectiveness by—
‘‘(A) establishing goals or objectives for individual,
group, or organizational performance (or any combination
thereof ), consistent with the Internal Revenue Service’s
performance planning procedures, including those estab-
lished under the Government Performance and Results
Act of 1993, division E of the Clinger-Cohen Act of 1996
(Public Law 104–106; 110 Stat. 679), Revenue Procedure
64–22 (as in effect on July 30, 1997), and taxpayer service
surveys, and communicating such goals or objectives to
employees;
‘‘(B) using such goals and objectives to make perform-
ance distinctions among employees or groups of employees;
and
‘‘(C) using performance assessments as a basis for
granting employee awards, adjusting an employee’s rate
of basic pay, and other appropriate personnel actions, in
accordance with applicable laws and regulations.
‘‘(b)(1) For purposes of subsection (a)(2), the term ‘performance
assessment’ means a determination of whether or not retention
standards established under subsection (a)(1)(A) are met, and any
additional performance determination made on the basis of perform-
ance goals and objectives established under subsection (a)(2)(A).
‘‘(2) For purposes of this title, the term ‘unacceptable perform-
ance’ with respect to an employee of the Internal Revenue Service
covered by a performance management system established under
this section means performance of the employee which fails to
meet a retention standard established under this section.
‘‘(c)(1) The Secretary of the Treasury may establish an awards
program designed to provide incentives for and recognition of
organizational, group, and individual achievements by providing
for granting awards to employees who, as individuals or members
of a group, contribute to meeting the performance goals and objec-
tives established under this chapter by such means as a superior
individual or group accomplishment, a documented productivity
gain, or sustained superior performance.
‘‘(2) A cash award under subchapter I of chapter 45 may be
granted to an employee of the Internal Revenue Service without
the need for any approval under section 4502(b).
‘‘(d)(1) In applying sections 4303(b)(1)(A) and 7513(b)(1) to
employees of the Internal Revenue Service, ‘30 days’ may be deemed
to be ‘15 days’.
‘‘(2) Notwithstanding the second sentence of section 5335(c),
an employee of the Internal Revenue Service shall not have a
right to appeal the denial of a periodic step increase under section
5335 to the Merit Systems Protection Board.
‘‘§ 9509. General workforce classification and pay
‘‘(a) For purposes of this section, the term ‘broad-banded system’
means a system for grouping positions for pay, job evaluation,
and other purposes that is different from the system established
H. R. 2676—33
under chapter 51 and subchapter III of chapter 53 as a result
of combining grades and related ranges of rates of pay in one
or more occupational series.
‘‘(b)(1)(A) The Secretary of the Treasury may, subject to criteria
to be prescribed by the Office of Personnel Management, establish
one or more broad-banded systems covering all or any portion
of the Internal Revenue Service workforce.
‘‘(B) With the approval of the Office of Personnel Management,
a broad-banded system established under this section may either
include or consist of positions that otherwise would be subject
to subchapter IV of chapter 53 or section 5376.
‘‘(2) The Office of Personnel Management may require the
Secretary of the Treasury to submit information relating to broad-
banded systems at the Internal Revenue Service.
‘‘(3) Except as otherwise provided under this section, employees
under a broad-banded system shall continue to be subject to the
laws and regulations covering employees under the pay system
that otherwise would apply to such employees.
‘‘(4) The criteria to be prescribed by the Office of Personnel
Management shall, at a minimum—
‘‘(A) ensure that the structure of any broad-banded system
maintains the principle of equal pay for substantially equal
work;
‘‘(B) establish the minimum and maximum number of
grades that may be combined into pay bands;
‘‘(C) establish requirements for setting minimum and maxi-
mum rates of pay in a pay band;
‘‘(D) establish requirements for adjusting the pay of an
employee within a pay band;
‘‘(E) establish requirements for setting the pay of a super-
visory employee whose position is in a pay band or who super-
vises employees whose positions are in pay bands; and
‘‘(F) establish requirements and methodologies for setting
the pay of an employee upon conversion to a broad-banded
system, initial appointment, change of position or type of
appointment (including promotion, demotion, transfer, reassign-
ment, reinstatement, placement in another pay band, or move-
ment to a different geographic location), and movement between
a broad-banded system and another pay system.
‘‘(c) With the approval of the Office of Personnel Management
and in accordance with a plan for implementation submitted by
the Secretary of the Treasury, the Secretary may, with respect
to Internal Revenue Service employees who are covered by a broad-
banded system established under this section, provide for variations
from the provisions of subchapter VI of chapter 53.
‘‘§ 9510. General workforce staffing
‘‘(a)(1) Except as otherwise provided by this section, an
employee of the Internal Revenue Service may be selected for a
permanent appointment in the competitive service in the Internal
Revenue Service through internal competitive promotion procedures
if—
‘‘(A) the employee has completed, in the competitive service,
2 years of current continuous service under a term appointment
or any combination of term appointments;
H. R. 2676—34
‘‘(B) such term appointment or appointments were made
under 
competitive 
procedures 
prescribed 
for 
permanent
appointments;
‘‘(C) the employee’s performance under such term appoint-
ment or appointments met established retention standards,
or, if not covered by a performance management system estab-
lished under section 9508, was rated at the fully successful
level or higher (or equivalent thereof ); and
‘‘(D) the vacancy announcement for the term appointment
from which the conversion is made stated that there was a
potential for subsequent conversion to a permanent appoint-
ment.
‘‘(2) An appointment under this section may be made only
to a position in the same line of work as a position to which
the employee received a term appointment under competitive proce-
dures.
‘‘(b)(1) Notwithstanding subchapter I of chapter 33, the Sec-
retary of the Treasury may establish category rating systems for
evaluating applicants for Internal Revenue Service positions in
the competitive service under which qualified candidates are divided
into two or more quality categories on the basis of relative degrees
of merit, rather than assigned individual numerical ratings.
‘‘(2) Each applicant who meets the minimum qualification
requirements for the position to be filled shall be assigned to an
appropriate category based on an evaluation of the applicant’s
knowledge, skills, and abilities relative to those needed for success-
ful performance in the position to be filled.
‘‘(3) Within each quality category established under paragraph
(1), preference eligibles shall be listed ahead of individuals who
are not preference eligibles. For other than scientific and profes-
sional positions at or higher than GS–9 (or equivalent), preference
eligibles who have a compensable service-connected disability of
10 percent or more, and who meet the minimum qualification
standards, shall be listed in the highest quality category.
‘‘(4) An appointing authority may select any applicant from
the highest quality category or, if fewer than three candidates
have been assigned to the highest quality category, from a merged
category consisting of the highest and second highest quality cat-
egories.
‘‘(5) Notwithstanding paragraph (4), the appointing authority
may not pass over a preference eligible in the same or higher
category from which selection is made unless the requirements
of section 3317(b) or 3318(b), as applicable, are satisfied.
‘‘(c) The Secretary of the Treasury may detail employees among
the offices of the Internal Revenue Service without regard to the
120-day limitation in section 3341(b).
‘‘(d) Notwithstanding any other provision of law, the Secretary
of the Treasury may establish a probationary period under section
3321 of up to 3 years for Internal Revenue Service positions if
the Secretary of the Treasury determines that the nature of the
work is such that a shorter period is insufficient to demonstrate
complete proficiency in the position.
‘‘(e) Nothing in this section exempts the Secretary of the
Treasury from—
‘‘(1) any employment priority established under direction
of the President for the placement of surplus or displaced
employees; or
H. R. 2676—35
‘‘(2) any obligation under a court order or decree relating
to the employment practices of the Internal Revenue Service
or the Department of the Treasury.’’.
(b) CLERICAL AMENDMENT.—The table of sections for part III
of title 5, United States Code, is amended by adding at the end
the following new items:
‘‘Subpart I—Miscellaneous
‘‘95. Personnel flexibilities relating to the Internal Revenue Service 9501’’.
SEC. 1202. VOLUNTARY SEPARATION INCENTIVE PAYMENTS.
(a) DEFINITION.—In this section, the term ‘‘employee’’ means
an employee (as defined by section 2105 of title 5, United States
Code) who is employed by the Internal Revenue Service serving
under an appointment without time limitation, and has been cur-
rently employed for a continuous period of at least 3 years, but
does not include—
(1) a reemployed annuitant under subchapter III of chapter
83 or chapter 84 of title 5, United States Code, or another
retirement system;
(2) an employee having a disability on the basis of which
such employee is or would be eligible for disability retirement
under the applicable retirement system referred to in paragraph
(1);
(3) an employee who is in receipt of a specific notice of
involuntary separation for misconduct or unacceptable perform-
ance;
(4) an employee who, upon completing an additional period
of service as referred to in section 3(b)(2)(B)(ii) of the Federal
Workforce Restructuring Act of 1994 (5 U.S.C. 5597 note),
would qualify for a voluntary separation incentive payment
under section 3 of such Act;
(5) an employee who has previously received any voluntary
separation incentive payment by the Federal Government under
this section or any other authority and has not repaid such
payment;
(6) an employee covered by statutory reemployment rights
who is on transfer to another organization; or
(7) any employee who, during the 24-month period preced-
ing the date of separation, has received a recruitment or reloca-
tion bonus under section 5753 of title 5, United States Code,
or who, within the 12-month period preceding the date of sepa-
ration, received a retention allowance under section 5754 of
title 5, United States Code.
(b) AUTHORITY TO PROVIDE VOLUNTARY SEPARATION INCENTIVE
PAYMENTS.—
(1) IN GENERAL.—The Commissioner of Internal Revenue
may pay voluntary separation incentive payments under this
section to any employee to the extent necessary to carry out
the plan to reorganize the Internal Revenue Service under
section 1001.
(2) AMOUNT AND TREATMENT OF PAYMENTS.—A voluntary
separation incentive payment—
(A) shall be paid in a lump sum after the employee’s
separation;
(B) shall be paid from appropriations or funds available
for the payment of the basic pay of the employees;
(C) shall be equal to the lesser of—
H. R. 2676—36
(i) an amount equal to the amount the employee
would be entitled to receive under section 5595(c) of
title 5, United States Code; or
(ii) an amount determined by an agency head not
to exceed $25,000;
(D) may not be made except in the case of any qualify-
ing employee who voluntarily separates (whether by retire-
ment or resignation) before January 1, 2003;
(E) shall not be a basis for payment, and shall not
be included in the computation, of any other type of Govern-
ment benefit; and
(F) shall not be taken into account in determining
the amount of any severance pay to which the employee
may be entitled under section 5595 of title 5, United States
Code, based on any other separation.
(c) ADDITIONAL INTERNAL REVENUE SERVICE CONTRIBUTIONS
TO THE RETIREMENT FUND.—
(1) IN GENERAL.—In addition to any other payments which
it is required to make under subchapter III of chapter 83
of title 5, United States Code, the Internal Revenue Service
shall remit to the Office of Personnel Management for deposit
in the Treasury of the United States to the credit of the Civil
Service Retirement and Disability Fund an amount equal to
15 percent of the final basic pay of each employee who is
covered under subchapter III of chapter 83 or chapter 84 of
title 5, United States Code, to whom a voluntary separation
incentive has been paid under this section.
(2) DEFINITION.—In paragraph (1), the term ‘‘final basic
pay’’, with respect to an employee, means the total amount
of basic pay which would be payable for a year of service
by such employee, computed using the employee’s final rate
of basic pay, and, if last serving on other than a full-time
basis, with appropriate adjustment therefor.
(d) EFFECT OF SUBSEQUENT EMPLOYMENT WITH THE GOVERN-
MENT.—An individual who has received a voluntary separation
incentive payment under this section and accepts any employment
for compensation with the Government of the United States, or
who works for any agency of the United States Government through
a personal services contract, within 5 years after the date of the
separation on which the payment is based shall be required to
pay, prior to the individual’s first day of employment, the entire
amount of the incentive payment to the Internal Revenue Service.
(e) EFFECT
ON
INTERNAL
REVENUE
SERVICE
EMPLOYMENT
LEVELS.—
(1) INTENDED EFFECT.—Voluntary separations under this
section are not intended to necessarily reduce the total number
of full-time equivalent positions in the Internal Revenue Serv-
ice.
(2) USE OF VOLUNTARY SEPARATIONS.—The Internal Reve-
nue Service may redeploy or use the full-time equivalent posi-
tions vacated by voluntary separations under this section to
make other positions available to more critical locations or
more critical occupations.
SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.
(a) IN GENERAL.—Subject to subsection (c), the Commissioner
of Internal Revenue shall terminate the employment of any
H. R. 2676—37
employee of the Internal Revenue Service if there is a final adminis-
trative or judicial determination that such employee committed
any act or omission described under subsection (b) in the perform-
ance of the employee’s official duties. Such termination shall be
a removal for cause on charges of misconduct.
(b) ACTS
OR OMISSIONS.—The acts or omissions referred to
under subsection (a) are—
(1) willful failure to obtain the required approval signatures
on documents authorizing the seizure of a taxpayer’s home,
personal belongings, or business assets;
(2) providing a false statement under oath with respect
to a material matter involving a taxpayer or taxpayer represent-
ative;
(3) with respect to a taxpayer, taxpayer representative,
or other employee of the Internal Revenue Service, the violation
of—
(A) any right under the Constitution of the United
States; or
(B) any civil right established under—
(i) title VI or VII of the Civil Rights Act of 1964;
(ii) title IX of the Education Amendments of 1972;
(iii) the Age Discrimination in Employment Act
of 1967;
(iv) the Age Discrimination Act of 1975;
(v) section 501 or 504 of the Rehabilitation Act
of 1973; or
(vi) title I of the Americans with Disabilities Act
of 1990;
(4) falsifying or destroying documents to conceal mistakes
made by any employee with respect to a matter involving
a taxpayer or taxpayer representative;
(5) assault or battery on a taxpayer, taxpayer representa-
tive, or other employee of the Internal Revenue Service, but
only if there is a criminal conviction, or a final judgment
by a court in a civil case, with respect to the assault or battery;
(6) violations of the Internal Revenue Code of 1986, Depart-
ment of Treasury regulations, or policies of the Internal Reve-
nue Service (including the Internal Revenue Manual) for the
purpose of retaliating against, or harassing, a taxpayer, tax-
payer representative, or other employee of the Internal Revenue
Service;
(7) willful misuse of the provisions of section 6103 of the
Internal Revenue Code of 1986 for the purpose of concealing
information from a congressional inquiry;
(8) willful failure to file any return of tax required under
the Internal Revenue Code of 1986 on or before the date pre-
scribed therefor (including any extensions), unless such failure
is due to reasonable cause and not to willful neglect;
(9) willful understatement of Federal tax liability, unless
such understatement is due to reasonable cause and not to
willful neglect; and
(10) threatening to audit a taxpayer for the purpose of
extracting personal gain or benefit.
(c) DETERMINATION OF COMMISSIONER.—
(1) IN GENERAL.—The Commissioner of Internal Revenue
may take a personnel action other than termination for an
act or omission under subsection (a).
H. R. 2676—38
(2) DISCRETION.—The exercise of authority under para-
graph (1) shall be at the sole discretion of the Commissioner
of Internal Revenue and may not be delegated to any other
officer. The Commissioner of Internal Revenue, in his sole
discretion, may establish a procedure which will be used to
determine whether an individual should be referred to the
Commissioner of Internal Revenue for a determination by the
Commissioner under paragraph (1).
(3) NO APPEAL.—Any determination of the Commissioner
of Internal Revenue under this subsection may not be appealed
in any administrative or judicial proceeding.
(d) DEFINITION.—For purposes of the provisions described in
clauses (i), (ii), and (iv) of subsection (b)(3)(B), references to a
program or activity receiving Federal financial assistance or an
education program or activity receiving Federal financial assistance
shall include any program or activity conducted by the Internal
Revenue Service for a taxpayer.
SEC. 1204. BASIS FOR EVALUATION OF INTERNAL REVENUE SERVICE
EMPLOYEES.
(a) IN GENERAL.—The Internal Revenue Service shall not use
records of tax enforcement results—
(1) to evaluate employees; or
(2) to impose or suggest production quotas or goals with
respect to such employees.
(b) TAXPAYER SERVICE.—The Internal Revenue Service shall
use the fair and equitable treatment of taxpayers by employees
as one of the standards for evaluating employee performance.
(c) CERTIFICATION.—Each appropriate supervisor shall certify
quarterly by letter to the Commissioner of Internal Revenue
whether or not tax enforcement results are being used in a manner
prohibited by subsection (a).
(d) TECHNICAL AND CONFORMING AMENDMENT.—Section 6231
of the Technical and Miscellaneous Revenue Act of 1988 (Public
Law 100–647; 102 Stat. 3734) is repealed.
(e) EFFECTIVE DATE.—This section shall apply to evaluations
conducted on or after the date of the enactment of this Act.
SEC. 1205. EMPLOYEE TRAINING PROGRAM.
(a) IN GENERAL.—Not later than 180 days after the date of
the enactment of this Act, the Commissioner of Internal Revenue
shall implement an employee training program and shall submit
an employee training plan to the Committee on Finance of the
Senate and the Committee on Ways and Means of the House
of Representatives.
(b) CONTENTS.—The plan submitted under subsection (a)
shall—
(1) detail a comprehensive employee training program to
ensure adequate customer service training;
(2) detail a schedule for training and the fiscal years during
which the training will occur;
(3) detail the funding of the program and relevant informa-
tion to demonstrate the priority and commitment of resources
to the plan;
(4) review the organizational design of customer service;
(5) provide for the implementation of a performance
development system; and
H. R. 2676—39
(6) provide for at least 16 hours of conflict management
training during fiscal year 1999 for employees conducting collec-
tion activities.
TITLE II—ELECTRONIC FILING
SEC. 2001. ELECTRONIC FILING OF TAX AND INFORMATION RETURNS.
(a) IN GENERAL.—It is the policy of Congress that—
(1) paperless filing should be the preferred and most
convenient means of filing Federal tax and information returns;
(2) it should be the goal of the Internal Revenue Service
to have at least 80 percent of all such returns filed electronically
by the year 2007; and
(3) the Internal Revenue Service should cooperate with
and encourage the private sector by encouraging competition
to increase electronic filing of such returns.
(b) STRATEGIC PLAN.—
(1) IN GENERAL.—Not later than 180 days after the date
of the enactment of this Act, the Secretary of the Treasury
or the Secretary’s delegate (hereafter in this section referred
to as the ‘‘Secretary’’) shall establish a plan to eliminate bar-
riers, provide incentives, and use competitive market forces
to increase electronic filing gradually over the next 10 years
while maintaining processing times for paper returns at 40
days. To the extent practicable, such plan shall provide that
all returns prepared electronically for taxable years beginning
after 2001 shall be filed electronically.
(2) ELECTRONIC COMMERCE ADVISORY GROUP.—To ensure
that the Secretary receives input from the private sector in
the development and implementation of the plan required by
paragraph (1), the Secretary shall convene an electronic com-
merce advisory group to include representatives from the small
business community and from the tax practitioner, preparer,
and computerized tax processor communities and other rep-
resentatives from the electronic filing industry.
(c) PROMOTION
OF
ELECTRONIC
FILING
AND
INCENTIVES.—
Section 6011 is amended by redesignating subsection (f ) as sub-
section (g) and by inserting after subsection (e) the following new
subsection:
‘‘(f ) PROMOTION OF ELECTRONIC FILING.—
‘‘(1) IN GENERAL.—The Secretary is authorized to promote
the benefits of and encourage the use of electronic tax adminis-
tration programs, as they become available, through the use
of mass communications and other means.
‘‘(2) INCENTIVES.—The Secretary may implement proce-
dures to provide for the payment of appropriate incentives
for electronically filed returns.’’.
(d) ANNUAL REPORTS.—Not later than June 30 of each calendar
year after 1998, the Chairperson of the Internal Revenue Service
Oversight Board, the Secretary of the Treasury, and the Chair-
person of the electronic commerce advisory group established under
subsection (b)(2) shall report to the Committees on Ways and
Means, Appropriations, Government Reform and Oversight, and
Small Business of the House of Representatives and the Committees
on Finance, Appropriations, Governmental Affairs, and Small Busi-
ness of the Senate on—
H. R. 2676—40
(1) the progress of the Internal Revenue Service in meeting
the goal of receiving electronically 80 percent of tax and
information returns by 2007;
(2) the status of the plan required by subsection (b);
(3) the legislative changes necessary to assist the Internal
Revenue Service in meeting such goal; and
(4) the effects on small businesses and the self-employed
of electronically filing tax and information returns.
SEC. 2002. DUE DATE FOR CERTAIN INFORMATION RETURNS.
(a) INFORMATION RETURNS FILED ELECTRONICALLY.—Section
6071 (relating to time for filing returns and other documents)
is amended by redesignating subsection (b) as subsection (c) and
by inserting after subsection (a) the following new subsection:
‘‘(b) ELECTRONICALLY FILED INFORMATION RETURNS.—Returns
made under subparts B and C of part III of this subchapter which
are filed electronically shall be filed on or before March 31 of
the year following the calendar year to which such returns relate.’’.
(b) STUDY RELATING
TO TIME FOR PROVIDING NOTICE
TO
RECIPIENTS.—
(1) IN GENERAL.—The Secretary of the Treasury shall con-
duct a study evaluating the effect of extending the deadline
for providing statements to persons with respect to whom
information is required to be furnished under subparts B and
C of part III of subchapter A of chapter 61 of the Internal
Revenue Code of 1986 (other than section 6051 of such Code)
from January 31 to February 15 of the year in which the
return to which the statement relates is required to be filed.
(2) REPORT.—Not later than June 30, 1999, the Secretary
of the Treasury shall submit a report on the study under
paragraph (1) to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance of
the Senate.
(c) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to returns required to be filed after December 31,
1999.
SEC. 2003. PAPERLESS ELECTRONIC FILING.
(a) IN GENERAL.—Section 6061 (relating to signing of returns
and other documents) is amended—
(1) by striking ‘‘Except as otherwise provided by’’ and
inserting the following:
‘‘(a) GENERAL RULE.—Except as otherwise provided by sub-
section (b) and’’; and
(2) by adding at the end the following new subsection:
‘‘(b) ELECTRONIC SIGNATURES.—
‘‘(1) IN GENERAL.—The Secretary shall develop procedures
for the acceptance of signatures in digital or other electronic
form. Until such time as such procedures are in place, the
Secretary may—
‘‘(A) waive the requirement of a signature for; or
‘‘(B) provide for alternative methods of signing or
subscribing,
a particular type or class of return, declaration, statement,
or other document required or permitted to be made or written
under internal revenue laws and regulations.
H. R. 2676—41
‘‘(2) TREATMENT OF ALTERNATIVE METHODS.—Notwithstand-
ing any other provision of law, any return, declaration, state-
ment, or other document filed and verified, signed, or subscribed
under any method adopted under paragraph (1)(B) shall be
treated for all purposes (both civil and criminal, including pen-
alties for perjury) in the same manner as though signed or
subscribed.
‘‘(3) PUBLISHED
GUIDANCE.—The Secretary shall publish
guidance as appropriate to define and implement any waiver
of the signature requirements or any method adopted under
paragraph (1).’’.
(b) ACKNOWLEDGMENT OF ELECTRONIC FILING.—Section 7502(c)
is amended to read as follows:
‘‘(c) 
REGISTERED
AND
CERTIFIED
MAILING; 
ELECTRONIC
FILING.—
‘‘(1) REGISTERED
MAIL.—For purposes of this section, if
any return, claim, statement, or other document, or payment,
is sent by United States registered mail—
‘‘(A) such registration shall be prima facie evidence
that the return, claim, statement, or other document was
delivered to the agency, officer, or office to which addressed;
and
‘‘(B) the date of registration shall be deemed the post-
mark date.
‘‘(2) CERTIFIED MAIL; ELECTRONIC FILING.—The Secretary
is authorized to provide by regulations the extent to which
the provisions of paragraph (1) with respect to prima facie
evidence of delivery and the postmark date shall apply to
certified mail and electronic filing.’’.
(c) ESTABLISHMENT OF PROCEDURES FOR OTHER INFORMATION.—
In the case of taxable periods beginning after December 31, 1999,
the Secretary of the Treasury or the Secretary’s delegate shall,
to the extent practicable, establish procedures to accept, in
electronic form, any other information, statements, elections, or
schedules, from taxpayers filing returns electronically, so that such
taxpayers will not be required to file any paper.
(d) INTERNET AVAILABILITY.—In the case of taxable periods
beginning after December 31, 1998, the Secretary of the Treasury
or the Secretary’s delegate shall establish procedures for all tax
forms, instructions, and publications created in the most recent
5-year period to be made available electronically on the Internet
in a searchable database at approximately the same time such
records are available to the public in paper form. In addition,
in the case of taxable periods beginning after December 31, 1998,
the Secretary of the Treasury or the Secretary’s delegate shall,
to the extent practicable, establish procedures for other taxpayer
guidance to be made available electronically on the Internet in
a searchable database at approximately the same time such guid-
ance is available to the public in paper form.
(e) PROCEDURES
FOR AUTHORIZING DISCLOSURE ELECTRONI-
CALLY.—The Secretary shall establish procedures for any taxpayer
to authorize, on an electronically filed return, the Secretary to
disclose information under section 6103(c) of the Internal Revenue
Code of 1986 to the preparer of the return.
(f ) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
H. R. 2676—42
SEC. 2004. RETURN-FREE TAX SYSTEM.
(a) IN GENERAL.—The Secretary of the Treasury or the Sec-
retary’s delegate shall develop procedures for the implementation
of a return-free tax system under which appropriate individuals
would be permitted to comply with the Internal Revenue Code
of 1986 without making the return required under section 6012
of such Code for taxable years beginning after 2007.
(b) REPORT.—Not later than June 30 of each calendar year
after 1999, the Secretary shall report to the Committee on Ways
and Means of the House of Representatives and the Committee
on Finance of the Senate on—
(1) what additional resources the Internal Revenue Service
would need to implement such a system;
(2) the changes to the Internal Revenue Code of 1986
that could enhance the use of such a system;
(3) the procedures developed pursuant to subsection (a);
and
(4) the number and classes of taxpayers that would be
permitted to use the procedures developed pursuant to sub-
section (a).
SEC. 2005. ACCESS TO ACCOUNT INFORMATION.
(a) IN GENERAL.—Not later than December 31, 2006, the Sec-
retary of the Treasury or the Secretary’s delegate shall develop
procedures under which a taxpayer filing returns electronically
(and their designees under section 6103(c) of the Internal Revenue
Code of 1986) would be able to review the taxpayer’s account
electronically, but only if all necessary safeguards to ensure the
privacy of such account information are in place.
(b) REPORT.—Not later than December 31, 2003, the Secretary
of the Treasury shall report on the progress the Secretary is making
on the development of procedures under subsection (a) to the
Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate.
TITLE III—TAXPAYER PROTECTION AND
RIGHTS
SEC. 3000. SHORT TITLE.
This title may be cited as the ‘‘Taxpayer Bill of Rights 3’’.
Subtitle A—Burden of Proof
SEC. 3001. BURDEN OF PROOF.
(a) IN GENERAL.—Chapter 76 (relating to judicial proceedings)
is amended by adding at the end the following new subchapter:
‘‘Subchapter E—Burden of Proof
‘‘Sec. 7491. Burden of proof.
‘‘SEC. 7491. BURDEN OF PROOF.
‘‘(a) BURDEN SHIFTS WHERE TAXPAYER PRODUCES CREDIBLE
EVIDENCE.—
H. R. 2676—43
‘‘(1) GENERAL RULE.—If, in any court proceeding, a taxpayer
introduces credible evidence with respect to any factual issue
relevant to ascertaining the liability of the taxpayer for any
tax imposed by subtitle A or B, the Secretary shall have the
burden of proof with respect to such issue.
‘‘(2) LIMITATIONS.—Paragraph (1) shall apply with respect
to an issue only if—
‘‘(A) the taxpayer has complied with the requirements
under this title to substantiate any item;
‘‘(B) the taxpayer has maintained all records required
under this title and has cooperated with reasonable
requests by the Secretary for witnesses, information, docu-
ments, meetings, and interviews; and
‘‘(C) in the case of a partnership, corporation, or trust,
the taxpayer is described in section 7430(c)(4)(A)(ii).
‘‘(3) COORDINATION.—Paragraph (1) shall not apply to any
issue if any other provision of this title provides for a specific
burden of proof with respect to such issue.
‘‘(b) USE OF STATISTICAL INFORMATION ON UNRELATED TAX-
PAYERS.—In the case of an individual taxpayer, the Secretary shall
have the burden of proof in any court proceeding with respect
to any item of income which was reconstructed by the Secretary
solely through the use of statistical information on unrelated tax-
payers.
‘‘(c) PENALTIES.—Notwithstanding any other provision of this
title, the Secretary shall have the burden of production in any
court proceeding with respect to the liability of any individual
for any penalty, addition to tax, or additional amount imposed
by this title.’’.
(b) CONFORMING AMENDMENT.—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.—
(1) IN GENERAL.—The amendments made by this section
shall apply to court proceedings arising in connection with
examinations commencing after the date of the enactment of
this Act.
(2) TAXABLE PERIODS OR EVENTS AFTER DATE OF ENACT-
MENT.—In any case in which there is no examination, such
amendments shall apply to court proceedings arising in connec-
tion with taxable periods or events beginning or occurring after
such date of enactment.
Subtitle B—Proceedings by Taxpayers
SEC. 3101. EXPANSION OF AUTHORITY TO AWARD COSTS AND CERTAIN
FEES.
(a) INCREASE IN ATTORNEY’S FEES.—
(1) INCREASE IN HOURLY AMOUNT.—Clause (iii) of section
7430(c)(1)(B) (relating to reasonable litigation costs) is amended
by striking ‘‘$110’’ and inserting ‘‘$125’’.
(2) AWARD OF HIGHER ATTORNEY’S FEES BASED ON COMPLEX-
ITY OF ISSUES.—Clause (iii) of section 7430(c)(1)(B) (relating
to the award of costs and certain fees) is amended by inserting
H. R. 2676—44
‘‘the difficulty of the issues presented in the case, or the local
availability of tax expertise,’’ before ‘‘justifies a higher rate’’.
(b) AWARD
OF ADMINISTRATIVE COSTS INCURRED AFTER 30-
DAY LETTER.—Paragraph (2) of section 7430(c) is amended by strik-
ing the last sentence and inserting the following new flush sentence:
‘‘Such term shall only include costs incurred on or after which-
ever 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 Office of Appeals; (ii) the date of the notice
of deficiency; or (iii) the date on which the first letter of pro-
posed deficiency which allows the taxpayer an opportunity 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) ATTORNEYS FEES.—
‘‘(A) IN GENERAL.—For purposes of paragraphs (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 treat-
ed as fees for the services of an attorney.
‘‘(B) PRO
BONO
SERVICES.—The court may award
reasonable attorneys fees under subsection (a) in excess
of the attorneys fees paid or incurred if such fees are
less than the reasonable attorneys fees because an individ-
ual is representing the prevailing party for no fee or for
a fee which (taking into account all the facts and cir-
cumstances) is no more than a nominal fee. This subpara-
graph shall apply only if such award is paid to such individ-
ual or such individual’s employer.’’.
(d) DETERMINATION OF WHETHER POSITION OF UNITED STATES
IS
SUBSTANTIALLY
JUSTIFIED.—Subparagraph 
(B) 
of 
section
7430(c)(4) is amended by redesignating clause (iii) as clause (iv)
and by inserting after clause (ii) the following new clause:
‘‘(iii) EFFECT OF LOSING ON SUBSTANTIALLY SIMILAR
ISSUES.—In determining for purposes of clause (i)
whether the position of the United States was substan-
tially justified, the court shall take into account
whether the United States has lost in courts of appeal
for other circuits on substantially similar issues.’’.
(e) TAXPAYER TREATED AS PREVAILING IF JUDGMENT IS LESS
THAN TAXPAYER’S OFFER.—
(1) IN
GENERAL.—Section 7430(c)(4) (defining prevailing
party) is amended by adding at the end the following new
subparagraph:
‘‘(E) SPECIAL
RULES
WHERE
JUDGMENT
LESS
THAN
TAXPAYER’S OFFER.—
‘‘(i) IN GENERAL.—A party to a court proceeding
meeting the requirements of subparagraph (A)(ii) shall
be treated as the prevailing party if the liability of
the taxpayer pursuant to the judgment in the proceed-
ing (determined without regard to interest) is equal
to or less than the liability of the taxpayer which
would have been so determined if the United States
had accepted a qualified offer of the party under sub-
section (g).
H. R. 2676—45
‘‘(ii) EXCEPTIONS.—This subparagraph shall not
apply to—
‘‘(I) any judgment issued pursuant to a settle-
ment; or
‘‘(II) any proceeding in which the amount of
tax liability is not in issue, including any declara-
tory judgment proceeding, any proceeding to
enforce or quash any summons issued pursuant
to this title, and any action to restrain disclosure
under section 6110(f ).
‘‘(iii) SPECIAL RULES.—If this subparagraph applies
to any court proceeding—
‘‘(I) the determination under clause (i) shall
be made by reference to the last qualified offer
made with respect to the tax liability at issue
in the proceeding; and
‘‘(II) reasonable administrative and litigation
costs shall only include costs incurred on and after
the date of such offer.
‘‘(iv) COORDINATION.—This subparagraph shall not
apply to a party which is a prevailing party under
any other provision of this paragraph.’’.
(2) QUALIFIED OFFER.—Section 7430 is amended by adding
at the end the following new subsection:
‘‘(g) QUALIFIED OFFER.—For purposes of subsection (c)(4)—
‘‘(1) IN
GENERAL.—The term ‘qualified offer’ means a
written offer which—
‘‘(A) is made by the taxpayer to the United States
during the qualified offer period;
‘‘(B) specifies the offered amount of the taxpayer’s
liability (determined without regard to interest);
‘‘(C) is designated at the time it is made as a qualified
offer for purposes of this section; and
‘‘(D) remains open during the period beginning on the
date it is made and ending on the earliest of the date
the offer is rejected, the date the trial begins, or the 90th
day after the date the offer is made.
‘‘(2) QUALIFIED OFFER PERIOD.—For purposes of this sub-
section, the term ‘qualified offer period’ means the period—
‘‘(A) beginning on the date on which the first letter
of proposed deficiency which allows the taxpayer an oppor-
tunity for administrative review in the Internal Revenue
Service Office of Appeals is sent, and
‘‘(B) ending on the date which is 30 days before the
date the case is first set for trial.’’.
(f ) AWARD OF ATTORNEYS FEES IN UNAUTHORIZED INSPECTION
AND DISCLOSURE CASES.—Section 7431(c) (relating to damages) is
amended by striking the period at the end of paragraph (2) and
inserting ‘‘, plus’’, and by adding at the end the following new
paragraph:
‘‘(3) in the case of a plaintiff which is described in section
7430(c)(4)(A)(ii), reasonable attorneys fees, except that if the
defendant is the United States, reasonable attorneys fees may
be awarded only if the plaintiff is the prevailing party (as
determined under section 7430(c)(4)).’’.
(g) EFFECTIVE DATE.—The amendments made by this section
shall apply to costs incurred (and, in the case of the amendment
H. R. 2676—46
made by subsection (c), services performed) more than 180 days
after the date of the enactment of this Act.
SEC. 3102. CIVIL DAMAGES FOR COLLECTION ACTIONS.
(a) EXTENSION TO NEGLIGENCE ACTIONS.—
(1) IN GENERAL.—Section 7433 (relating to civil damages
for certain unauthorized collection actions) is amended—
(A) in subsection (a), by inserting ‘‘, or by reason of
negligence,’’ after ‘‘recklessly or intentionally’’; and
(B) in subsection (b)—
(i) in the matter preceding paragraph (1), by
inserting ‘‘($100,000, in the case of negligence)’’ after
‘‘$1,000,000’’; and
(ii) in paragraph (1), by inserting ‘‘or negligent’’
after ‘‘reckless or intentional’’.
(2) REQUIREMENT
THAT
ADMINISTRATIVE
REMEDIES
BE
EXHAUSTED.—Paragraph (1) of section 7433(d) is amended to
read as follows:
‘‘(1) REQUIREMENT
THAT
ADMINISTRATIVE
REMEDIES
BE
EXHAUSTED.—A judgment for damages shall not be awarded
under subsection (b) unless the court determines that the plain-
tiff has exhausted the administrative remedies available to
such plaintiff within the Internal Revenue Service.’’.
(b) DAMAGES ALLOWED IN CIVIL ACTIONS BY PERSONS OTHER
THAN TAXPAYERS.—Section 7426 is amended by redesignating sub-
section (h) as subsection (i) and by adding after subsection (g)
the following new subsection:
‘‘(h) RECOVERY OF DAMAGES PERMITTED IN CERTAIN CASES.—
‘‘(1) IN GENERAL.—Notwithstanding subsection (b), if, in
any action brought under this section, there is a finding that
any officer or employee of the Internal Revenue Service reck-
lessly or intentionally, or by reason of negligence, disregarded
any provision of this title the defendant shall be liable to
the plaintiff in an amount equal to the lesser of $1,000,000
($100,000 in the case of negligence) or the sum of—
‘‘(A) actual, direct economic damages sustained by the
plaintiff as a proximate result of the reckless or intentional
or negligent disregard of any provision of this title by
the officer or employee (reduced by any amount of such
damages awarded under subsection (b)); and
‘‘(B) the costs of the action.
‘‘(2) REQUIREMENT
THAT
ADMINISTRATIVE
REMEDIES
BE
EXHAUSTED; MITIGATION; PERIOD.—The rules of section 7433(d)
shall apply for purposes of this subsection.
‘‘(3) PAYMENT AUTHORITY.—Claims pursuant to this section
shall be payable out of funds appropriated under section 1304
of title 31, United States Code.’’.
(c) CIVIL
DAMAGES
FOR
IRS VIOLATIONS
OF
BANKRUPTCY
PROCEDURES.—
(1) IN GENERAL.—Section 7433 (relating to civil damages
for certain unauthorized collection actions) is amended by add-
ing at the end the following new subsection:
‘‘(e) ACTIONS
FOR
VIOLATIONS
OF
CERTAIN
BANKRUPTCY
PROCEDURES.—
‘‘(1) IN GENERAL.—If, in connection with any collection of
Federal tax with respect to a taxpayer, any officer or employee
of the Internal Revenue Service willfully violates any provision
H. R. 2676—47
of section 362 (relating to automatic stay) or 524 (relating
to effect of discharge) of title 11, United States Code (or any
successor provision), or any regulation promulgated under such
provision, such taxpayer may petition the bankruptcy court
to recover damages against the United States.
‘‘(2) REMEDY TO BE EXCLUSIVE.—
‘‘(A) IN GENERAL.—Except as provided in subparagraph
(B), notwithstanding section 105 of such title 11, such
petition shall be the exclusive remedy for recovering dam-
ages resulting from such actions.
‘‘(B) CERTAIN
OTHER
ACTIONS
PERMITTED.—Subpara-
graph (A) shall not apply to an action under section 362(h)
of such title 11 for a violation of a stay provided by section
362 of such title; except that—
‘‘(i) administrative and litigation costs in connec-
tion with such an action may only be awarded under
section 7430; and
‘‘(ii) administrative costs may be awarded only if
incurred on or after the date that the bankruptcy peti-
tion is filed.’’.
(2) CONFORMING
AMENDMENT.—Subsection (b) of section
7433 is amended by inserting ‘‘or petition filed under subsection
(e)’’ after ‘‘subsection (a)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to actions of officers or employees of the Internal Reve-
nue Service after the date of the enactment of this Act.
SEC. 3103. INCREASE IN SIZE OF CASES PERMITTED ON SMALL CASE
CALENDAR.
(a) IN GENERAL.—Section 7463 (relating to disputes involving
$10,000 or less) is amended by striking ‘‘$10,000’’ each place it
appears (including the section heading) and inserting ‘‘$50,000’’.
(b) CONFORMING AMENDMENTS.—
(1) Sections 7436(c)(1) and 7443A(b)(3) are each amended
by striking ‘‘$10,000’’ and inserting ‘‘$50,000’’.
(2) The table of sections for part II of subchapter C of
chapter 76 is amended by striking ‘‘$10,000’’ in the item relating
to section 7463 and inserting ‘‘$50,000’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to proceedings commenced after the date of the enact-
ment of this Act.
SEC. 3104. ACTIONS FOR REFUND WITH RESPECT TO CERTAIN ESTATES
WHICH HAVE ELECTED THE INSTALLMENT METHOD OF
PAYMENT.
(a) IN GENERAL.—Section 7422 is amended by redesignating
subsection ( j) as subsection (k) and by inserting after subsection
(i) the following new subsection:
‘‘( j) SPECIAL RULE FOR ACTIONS WITH RESPECT TO ESTATES
FOR WHICH AN ELECTION UNDER SECTION 6166 IS MADE.—
‘‘(1) IN GENERAL.—The district courts of the United States
and the United States Court of Federal Claims shall not fail
to have jurisdiction over any action brought by the representa-
tive of an estate to which this subsection applies to determine
the correct amount of the estate tax liability of such estate
(or for any refund with respect thereto) solely because the
full amount of such liability has not been paid by reason of
an election under section 6166 with respect to such estate.
H. R. 2676—48
‘‘(2) ESTATES TO WHICH SUBSECTION APPLIES.—This sub-
section shall apply to any estate if, as of the date the action
is filed—
‘‘(A) no portion of the installments payable under sec-
tion 6166 have been accelerated;
‘‘(B) all such installments the due date for which is
on or before the date the action is filed have been paid;
‘‘(C) there is no case pending in the Tax Court with
respect to the tax imposed by section 2001 on the estate
and, if a notice of deficiency under section 6212 with respect
to such tax has been issued, the time for filing a petition
with the Tax Court with respect to such notice has expired;
and
‘‘(D) no proceeding for declaratory judgment under
section 7479 is pending.
‘‘(3) PROHIBITION ON COLLECTION OF DISALLOWED LIABIL-
ITY.—If the court redetermines under paragraph (1) the estate
tax liability of an estate, no part of such liability which is
disallowed by a decision of such court which has become final
may be collected by the Secretary, and amounts paid in excess
of the installments determined by the court as currently due
and payable shall be refunded.’’.
(b) EXTENSION OF TIME TO FILE REFUND SUIT.—Section 7479
(relating to declaratory judgments relating to eligibility of estate
with respect to installment payments under section 6166) is amend-
ed by adding at the end the following new subsection:
‘‘(c) EXTENSION OF TIME TO FILE REFUND SUIT.—The 2-year
period in section 6532(a)(1) for filing suit for refund after disallow-
ance of a claim shall be suspended during the 90-day period after
the mailing of the notice referred to in subsection (b)(3) and, if
a pleading has been filed with the Tax Court under this section,
until the decision of the Tax Court has become final.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to any claim for refund filed after the date of the
enactment of this Act.
SEC. 3105. ADMINISTRATIVE APPEAL OF ADVERSE INTERNAL REVENUE
SERVICE DETERMINATION OF TAX-EXEMPT STATUS OF
BOND ISSUE.
The Internal Revenue Service shall amend its administrative
procedures to provide that if, upon examination, the Internal Reve-
nue Service proposes to an issuer that interest on previously issued
obligations of such issuer is not excludable from gross income under
section 103(a) of the Internal Revenue Code of 1986, the issuer
of such obligations shall have an administrative appeal of right
to a senior officer of the Internal Revenue Service Office of Appeals.
SEC. 3106. CIVIL ACTION FOR RELEASE OF ERRONEOUS LIEN.
(a) RIGHT OF SUBSTITUTION OF VALUE.—Subsection (b) of section
6325 (relating to release of lien or discharge of property) is amended
by adding at the end the following new paragraph:
‘‘(4) RIGHT OF SUBSTITUTION OF VALUE.—
‘‘(A) IN GENERAL.—At the request of the owner of any
property subject to any lien imposed by this chapter, the
Secretary shall issue a certificate of discharge of such prop-
erty if such owner—
‘‘(i) deposits with the Secretary an amount of
money equal to the value of the interest of the United
H. R. 2676—49
States (as determined by the Secretary) in the property;
or
‘‘(ii) furnishes a bond acceptable to the Secretary
in a like amount.
‘‘(B) REFUND OF DEPOSIT WITH INTEREST AND RELEASE
OF BOND.—The Secretary shall refund the amount so depos-
ited (and shall pay interest at the overpayment rate under
section 6621), and shall release such bond, to the extent
that the Secretary determines that—
‘‘(i) the unsatisfied liability giving rise to the lien
can be satisfied from a source other than such property;
or
‘‘(ii) the value of the interest of the United States
in the property is less than the Secretary’s prior deter-
mination of such value.
‘‘(C) USE OF DEPOSIT, ETC., IF ACTION TO CONTEST LIEN
NOT FILED.—If no action is filed under section 7426(a)(4)
within the period prescribed therefor, the Secretary shall,
within 60 days after the expiration of such period—
‘‘(i) apply the amount deposited, or collect on such
bond, to the extent necessary to satisfy the unsatisfied
liability secured by the lien; and
‘‘(ii) refund (with interest as described in subpara-
graph (B)) any portion of the amount deposited which
is not used to satisfy such liability.
‘‘(D) EXCEPTION.—Subparagraph (A) shall not apply
if the owner of the property is the person whose unsatisfied
liability gave rise to the lien.’’.
(b) CIVIL ACTION TO RELEASE ERRONEOUS LIEN.—
(1) IN GENERAL.—Subsection (a) of section 7426 (relating
to civil actions by persons other than taxpayers) is amended
by adding at the end the following new paragraph:
‘‘(4) SUBSTITUTION OF VALUE.—If a certificate of discharge
is issued to any person under section 6325(b)(4) with respect
to any property, such person may, within 120 days after the
day on which such certificate is issued, bring a civil action
against the United States in a district court of the United
States for a determination of whether the value of the interest
of the United States (if any) in such property is less than
the value determined by the Secretary. No other action may
be brought by such person for such a determination.’’.
(2) FORM OF RELIEF.—
(A) IN
GENERAL.—Subsection (b) of section 7426 is
amended by adding at the end the following new paragraph:
‘‘(5) SUBSTITUTION OF VALUE.—If the court determines that
the Secretary’s determination of the value of the interest of
the United States in the property for purposes of section
6325(b)(4) exceeds the actual value of such interest, the court
shall grant a judgment ordering a refund of the amount depos-
ited, and a release of the bond, to the extent that the aggregate
of the amounts thereof exceeds such value determined by the
court.’’.
(B) INTEREST
ALLOWED
ON
REFUND
OF
DEPOSIT.—
Subsection (g) of section 7426 is amended by striking ‘‘and’’
at the end of paragraph (1), by striking the period at
the end of paragraph (2) and inserting ‘‘; and’’, and by
adding at the end the following new paragraph:
H. R. 2676—50
‘‘(3) in the case of a judgment pursuant to subsection (b)(5)
which orders a refund of any amount, from the date the Sec-
retary received such amount to the date of payment of such
judgment.’’.
(3) SUSPENSION OF RUNNING OF STATUTE OF LIMITATION.—
Subsection (f ) of section 6503 is amended to read as follows:
‘‘(f ) WRONGFUL SEIZURE OF OR LIEN ON PROPERTY OF THIRD
PARTY.—
‘‘(1) WRONGFUL SEIZURE.—The running of the period under
section 6502 shall be suspended for a period equal to the
period from the date property (including money) of a third
party is wrongfully seized or received by the Secretary to the
date the Secretary returns property pursuant to section 6343(b)
or the date on which a judgment secured pursuant to section
7426 with respect to such property becomes final, and for
30 days thereafter. The running of such period shall be sus-
pended under this paragraph only with respect to the amount
of such assessment equal to the amount of money or the value
of specific property returned.
‘‘(2) WRONGFUL LIEN.—In the case of any assessment for
which a lien was made on any property, the running of the
period under section 6502 shall be suspended for a period
equal to the period beginning on the date any person becomes
entitled to a certificate under section 6325(b)(4) with respect
to such property and ending on the date which is 30 days
after the earlier of—
‘‘(A) the earliest date on which the Secretary no longer
holds any amount as a deposit or bond provided under
section 6325(b)(4) by reason of such deposit or bond being
used to satisfy the unpaid tax or being refunded or released;
or
‘‘(B) the date that the judgment secured under section
7426(b)(5) becomes final.
The running of such period shall be suspended under this
paragraph only with respect to the amount of such assessment
equal to the value of the interest of the United States in
the property plus interest, penalties, additions to the tax, and
additional amounts attributable thereto.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
Subtitle C—Relief for Innocent Spouses
and for Taxpayers Unable To Manage
Their Financial Affairs Due to Disabil-
ities
SEC. 3201. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT
RETURN.
(a) IN GENERAL.—Subpart B of part II of subchapter A of
chapter 61 is amended by inserting after section 6014 the following
new section:
‘‘SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT
RETURN.
‘‘(a) IN GENERAL.—Notwithstanding section 6013(d)(3)—
H. R. 2676—51
‘‘(1) an individual who has made a joint return may elect
to seek relief under the procedures prescribed under subsection
(b); and
‘‘(2) if such individual is eligible to elect the application
of subsection (c), such individual may, in addition to any elec-
tion under paragraph (1), elect to limit such individual’s liability
for any deficiency with respect to such joint return in the
manner prescribed under subsection (c).
Any determination under this section shall be made without regard
to community property laws.
‘‘(b) PROCEDURES FOR RELIEF FROM LIABILITY APPLICABLE TO
ALL JOINT FILERS.—
‘‘(1) IN
GENERAL.—Under procedures prescribed by the
Secretary, if—
‘‘(A) a joint return has been made for a taxable year;
‘‘(B) on such return there is an understatement of
tax attributable to erroneous items of one individual filing
the joint return;
‘‘(C) the other individual filing the joint return estab-
lishes that in signing the return he or she did not know,
and had no reason to know, that there was such understate-
ment;
‘‘(D) taking into account all the facts and cir-
cumstances, it is inequitable to hold the other individual
liable for the deficiency in tax for such taxable year attrib-
utable to such understatement; and
‘‘(E) the other individual elects (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
the Secretary has begun collection activities with respect
to the individual making the election,
then the other individual shall be relieved of liability for tax
(including interest, penalties, and other amounts) for such tax-
able year to the extent such liability is attributable to such
understatement.
‘‘(2) APPORTIONMENT OF RELIEF.—If an individual who, but
for paragraph (1)(C), would be relieved of liability under para-
graph (1), establishes that in signing the return such individual
did not know, and had no reason to know, the extent of such
understatement, then such individual shall be relieved of liabil-
ity for tax (including interest, penalties, and other amounts)
for such taxable year to the extent that such liability is attrib-
utable to the portion of such understatement of which such
individual did not know and had no reason to know.
‘‘(3) UNDERSTATEMENT.—For purposes of this subsection,
the term ‘understatement’ has the meaning given to such term
by section 6662(d)(2)(A).
‘‘(c) PROCEDURES
TO
LIMIT
LIABILITY
FOR
TAXPAYERS
NO
LONGER MARRIED
OR TAXPAYERS LEGALLY SEPARATED
OR NOT
LIVING TOGETHER.—
‘‘(1) IN GENERAL.—Except as provided in this subsection,
if an individual who has made a joint return for any taxable
year elects the application of this subsection, the individual’s
liability for any deficiency which is assessed with respect to
the return shall not exceed the portion of such deficiency prop-
erly allocable to the individual under subsection (d).
H. R. 2676—52
‘‘(2) BURDEN OF PROOF.—Except as provided in subpara-
graph (A)(ii) or (C) of paragraph (3), each individual who elects
the application of this subsection shall have the burden of
proof with respect to establishing the portion of any deficiency
allocable to such individual.
‘‘(3) ELECTION.—
‘‘(A) INDIVIDUALS ELIGIBLE TO MAKE ELECTION.—
‘‘(i) IN
GENERAL.—An individual shall only be
eligible to elect the application of this subsection if—
‘‘(I) at the time such election is filed, such
individual is no longer married to, or is legally
separated from, the individual with whom such
individual filed the joint return to which the elec-
tion relates; or
‘‘(II) such individual was not a member of
the same household as the individual with whom
such joint return was filed at any time during
the 12-month period ending on the date such elec-
tion is filed.
‘‘(ii) CERTAIN TAXPAYERS INELIGIBLE TO ELECT.—
If the Secretary demonstrates that assets were trans-
ferred between individuals filing a joint return as part
of a fraudulent scheme by such individuals, an election
under this subsection by either individual shall be
invalid (and section 6013(d)(3) shall apply to the joint
return).
‘‘(B) TIME FOR ELECTION.—An election under this sub-
section for any taxable year shall be made not later than
2 years after the date on which the Secretary has begun
collection activities with respect to the individual making
the election.
‘‘(C) ELECTION NOT VALID WITH RESPECT TO CERTAIN
DEFICIENCIES.—If the Secretary demonstrates that an
individual making an election under this subsection had
actual knowledge, at the time such individual signed the
return, of any item giving rise to a deficiency (or portion
thereof) which is not allocable to such individual under
subsection (d), such election shall not apply to such defi-
ciency (or portion). This subparagraph shall not apply
where the individual with actual knowledge establishes
that such individual signed the return under duress.
‘‘(4) LIABILITY
INCREASED
BY
REASON
OF
TRANSFERS
OF
PROPERTY TO AVOID TAX.—
‘‘(A) IN GENERAL.—Notwithstanding any other provi-
sion of this subsection, the portion of the deficiency for
which the individual electing the application of this sub-
section is liable (without regard to this paragraph) shall
be increased by the value of any disqualified asset trans-
ferred to the individual.
‘‘(B) DISQUALIFIED ASSET.—For purposes of this para-
graph—
‘‘(i) IN
GENERAL.—The term ‘disqualified asset’
means any property or right to property transferred
to an individual making the election under this sub-
section with respect to a joint return by the other
individual filing such joint return if the principal
H. R. 2676—53
purpose of the transfer was the avoidance of tax or
payment of tax.
‘‘(ii) PRESUMPTION.—
‘‘(I) IN GENERAL.—For purposes of clause (i),
except as provided in subclause (II), any transfer
which is made after the date which is 1 year
before the date on which the first letter of proposed
deficiency which allows the taxpayer an oppor-
tunity for administrative review in the Internal
Revenue Service Office of Appeals is sent shall
be presumed to have as its principal purpose the
avoidance of tax or payment of tax.
‘‘(II) EXCEPTIONS.—Subclause (I) shall not
apply to any transfer pursuant to a decree of
divorce or separate maintenance or a written
instrument incident to such a decree or to any
transfer which an individual establishes did not
have as its principal purpose the avoidance of tax
or payment of tax.
‘‘(d) ALLOCATION
OF
DEFICIENCY.—For purposes of sub-
section (c)—
‘‘(1) IN GENERAL.—The portion of any deficiency on a joint
return allocated to an individual shall be the amount which
bears the same ratio to such deficiency as the net amount
of items taken into account in computing the deficiency and
allocable to the individual under paragraph (3) bears to the
net amount of all items taken into account in computing the
deficiency.
‘‘(2) SEPARATE TREATMENT OF CERTAIN ITEMS.—If a defi-
ciency (or portion thereof) is attributable to—
‘‘(A) the disallowance of a credit; or
‘‘(B) any tax (other than tax imposed by section 1
or 55) required to be included with the joint return;
and such item is allocated to one individual under paragraph
(3), such deficiency (or portion) shall be allocated to such
individual. Any such item shall not be taken into account
under paragraph (1).
‘‘(3) ALLOCATION
OF
ITEMS
GIVING
RISE
TO
THE
DEFI-
CIENCY.—For purposes of this subsection—
‘‘(A) IN GENERAL.—Except as provided in paragraphs
(4) and (5), any item giving rise to a deficiency on a joint
return shall be allocated to individuals filing the return
in the same manner as it would have been allocated if
the individuals had filed separate returns for the taxable
year.
‘‘(B) EXCEPTION
WHERE
OTHER
SPOUSE
BENEFITS.—
Under rules prescribed by the Secretary, an item otherwise
allocable to an individual under subparagraph (A) shall
be allocated to the other individual filing the joint return
to the extent the item gave rise to a tax benefit on the
joint return to the other individual.
‘‘(C) EXCEPTION FOR FRAUD.—The Secretary may pro-
vide for an allocation of any item in a manner not pre-
scribed by subparagraph (A) if the Secretary establishes
that such allocation is appropriate due to fraud of one
or both individuals.
H. R. 2676—54
‘‘(4) LIMITATIONS ON SEPARATE RETURNS DISREGARDED.—
If an item of deduction or credit is disallowed in its entirety
solely because a separate return is filed, such disallowance
shall be disregarded and the item shall be computed as if
a joint return had been filed and then allocated between the
spouses appropriately. A similar rule shall apply for purposes
of section 86.
‘‘(5) CHILD’S LIABILITY.—If the liability of a child of a tax-
payer is included on a joint return, such liability shall be
disregarded in computing the separate liability of either spouse
and such liability shall be allocated appropriately between the
spouses.
‘‘(e) PETITION FOR REVIEW BY TAX COURT.—
‘‘(1) IN GENERAL.—In the case of an individual who elects
to have subsection (b) or (c) apply—
‘‘(A) IN GENERAL.—The individual may petition the Tax
Court (and the Tax Court shall have jurisdiction) to deter-
mine the appropriate relief available to the individual
under this section if such petition is filed during the 90-
day period beginning on the date on which the Secretary
mails by certified or registered mail a notice to such individ-
ual of the Secretary’s determination of relief available to
the individual. Notwithstanding the preceding sentence,
an individual may file such petition at any time after
the date which is 6 months after the date such election
is filed with the Secretary and before the close of such
90-day period.
‘‘(B) RESTRICTIONS
APPLICABLE
TO
COLLECTION
OF
ASSESSMENT.—
‘‘(i) IN
GENERAL.—Except as otherwise provided
in section 6851 or 6861, no levy or proceeding in court
shall be made, begun, or prosecuted against the
individual making an election under subsection (b) or
(c) for collection of any assessment to which such elec-
tion relates until the expiration of the 90-day period
described in subparagraph (A), or, 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.
‘‘(ii) AUTHORITY TO ENJOIN COLLECTION ACTIONS.—
Notwithstanding the provisions of section 7421(a), the
beginning of such levy or proceeding during the time
the prohibition under clause (i) is in force may be
enjoined by a proceeding in the proper court, including
the Tax Court. The Tax Court shall have no jurisdiction
under this subparagraph to enjoin any action or
proceeding unless a timely petition has been filed
under subparagraph (A) and then only in respect of
the amount of the assessment to which the election
under subsection (b) or (c) relates.
‘‘(2) SUSPENSION OF RUNNING OF PERIOD OF LIMITATIONS.—
The running of the period of limitations in section 6502 on
the collection of the assessment to which the petition under
paragraph (1)(A) relates shall be suspended for the period dur-
ing which the Secretary is prohibited by paragraph (1)(B) from
H. R. 2676—55
collecting by levy or a proceeding in court and for 60 days
thereafter.
‘‘(3) APPLICABLE RULES.—
‘‘(A) ALLOWANCE
OF
CREDIT
OR
REFUND.—Except as
provided in subparagraph (B), 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.
‘‘(B) RES JUDICATA.—In the case of any election under
subsection (b) or (c), if a decision of the Tax Court in
any prior proceeding for the same taxable year has become
final, such decision shall be conclusive except with respect
to the qualification of the individual for relief which was
not an issue in such proceeding. The exception contained
in the preceding sentence shall not apply if the Tax Court
determines that the individual participated meaningfully
in such prior proceeding.
‘‘(C) LIMITATION ON TAX COURT JURISDICTION.—If a suit
for refund is begun by either individual filing the joint
return pursuant to section 6532—
‘‘(i) the Tax Court shall lose jurisdiction of the
individual’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; and
‘‘(ii) the court acquiring jurisdiction shall have
jurisdiction over the petition filed under this sub-
section.
‘‘(4) NOTICE TO OTHER SPOUSE.—The Tax Court shall estab-
lish rules which provide the individual filing a joint return
but not making the election under subsection (b) or (c) with
adequate notice and an opportunity to become a party to a
proceeding under either such subsection.
‘‘(f ) EQUITABLE RELIEF.—Under procedures prescribed by the
Secretary, if—
‘‘(1) taking into account all the facts and circumstances,
it is inequitable to hold the individual liable for any unpaid
tax or any deficiency (or any portion of either); and
‘‘(2) relief is not available to such individual under sub-
section (b) or (c),
the Secretary may relieve such individual of such liability.
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as are necessary to carry out the provisions of this section,
including—
‘‘(1) regulations providing methods for allocation of items
other than the methods under subsection (d)(3); and
‘‘(2) regulations providing the opportunity for an individual
to have notice of, and an opportunity to participate in, any
administrative proceeding with respect to an election made
under subsection (b) or (c) by the other individual filing the
joint return.’’.
(b) EQUITABLE RELIEF
FOR INDIVIDUALS NOT FILING JOINT
RETURN.—Section 66(c) (relating to spouse relieved of liability in
certain other cases) is amended by adding at the end the following
new sentence: ‘‘Under procedures prescribed by the Secretary, if,
taking into account all the facts and circumstances, it is inequitable
H. R. 2676—56
to hold the individual liable for any unpaid tax or any deficiency
(or any portion of either) attributable to any item for which relief
is not available under the preceding sentence, the Secretary may
relieve such individual of such liability.’’.
(c) 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 taxpayers in applying for relief under section
6015(a) of the Internal Revenue Code of 1986, as added by this
section.
(d) SEPARATE NOTICE TO EACH FILER.—The Secretary of the
Treasury shall, wherever practicable, send any notice relating to
a joint return under section 6013 of the Internal Revenue Code
of 1986 separately to each individual filing the joint return.
(e) CONFORMING AMENDMENTS.—
(1) Section 6013 is amended by striking subsection (e).
(2) Subparagraph (A) of section 6230(c)(5) is amended by
striking ‘‘section 6013(e)’’ and inserting ‘‘section 6015’’.
(3) Section 7421(a) is amended by inserting ‘‘6015(d),’’ after
‘‘sections’’.
(f ) CLERICAL AMENDMENT.—The table of sections for subpart
B of part II of subchapter A of chapter 61 is amended by inserting
after the item relating to section 6014 the following new item:
‘‘Sec. 6015. Relief from joint and several liability on joint return.’’.
(g) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to any liability
for tax arising after the date of the enactment of this Act
and any liability for tax arising on or before such date but
remaining unpaid as of such date.
(2) 2-YEAR PERIOD.—The 2-year period under subsection
(b)(1)(E) or (c)(3)(B) of section 6015 of the Internal Revenue
Code of 1986 shall not expire before the date which is 2 years
after the date of the first collection activity after the date
of the enactment of this Act.
SEC. 3202. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING
REFUND CLAIMS DURING PERIODS OF DISABILITY.
(a) IN GENERAL.—Section 6511 (relating to limitations on credit
or refund) is amended by redesignating subsection (h) as subsection
(i) and by inserting after subsection (g) the following new subsection:
‘‘(h) RUNNING OF PERIODS OF LIMITATION SUSPENDED WHILE
TAXPAYER IS UNABLE TO MANAGE FINANCIAL AFFAIRS DUE
TO
DISABILITY.—
‘‘(1) IN GENERAL.—In the case of an individual, the running
of the periods specified in subsections (a), (b), and (c) shall
be suspended during any period of such individual’s life that
such individual is financially disabled.
‘‘(2) FINANCIALLY DISABLED.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), an
individual is financially disabled if such individual is
unable to manage his financial affairs by reason of a medi-
cally determinable physical or mental impairment of the
individual which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than 12 months. An individual shall
not be considered to have such an impairment unless proof
H. R. 2676—57
of the existence thereof is furnished in such form and
manner as the Secretary may require.
‘‘(B) EXCEPTION
WHERE
INDIVIDUAL
HAS
GUARDIAN,
ETC.—An individual shall not be treated as financially dis-
abled during any period that such individual’s spouse or
any other person is authorized to act on behalf of such
individual in financial matters.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to periods of disability before, on, or after the date
of the enactment of this Act but shall not apply to any claim
for credit or refund which (without regard to such amendment)
is barred by the operation of any law or rule of law (including
res judicata) as of the date of the enactment of this Act.
Subtitle D—Provisions Relating to Interest
and Penalties
SEC. 3301. ELIMINATION OF INTEREST RATE DIFFERENTIAL ON OVER-
LAPPING PERIODS OF INTEREST ON TAX OVERPAY-
MENTS AND UNDERPAYMENTS.
(a) IN GENERAL.—Section 6621 (relating to determination of
rate of interest) is amended by adding at the end the following
new subsection:
‘‘(d) ELIMINATION OF INTEREST ON OVERLAPPING PERIODS OF
TAX OVERPAYMENTS
AND UNDERPAYMENTS.—To the extent that,
for any period, interest is payable under subchapter A and allowable
under subchapter B on equivalent underpayments and overpay-
ments by the same taxpayer of tax imposed by this title, the
net rate of interest under this section on such amounts shall be
zero for such period.’’.
(b) CONFORMING AMENDMENT.—Subsection (f ) of section 6601
(relating to satisfaction by credits) is amended by adding at the
end the following new sentence: ‘‘The preceding sentence shall
not apply to the extent that section 6621(d) applies.’’.
(c) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided under paragraph (2),
the amendments made by this section shall apply to interest
for periods beginning after the date of the enactment of this
Act.
(2) SPECIAL RULE.—The amendments made by this section
shall apply to interest for periods beginning before the date
of the enactment of this Act if the taxpayer—
(A) reasonably identifies and establishes periods of
such tax overpayments and underpayments for which the
zero rate applies; and
(B) not later than December 31, 1999, requests the
Secretary of the Treasury to apply section 6621(d) of the
Internal Revenue Code of 1986, as added by subsection
(a), to such periods.
SEC. 3302. INCREASE IN OVERPAYMENT RATE PAYABLE TO TAXPAYERS
OTHER THAN CORPORATIONS.
(a) IN
GENERAL.—Subparagraph (B) of section 6621(a)(1)
(defining overpayment rate) is amended to read as follows:
‘‘(B) 3 percentage points (2 percentage points in the
case of a corporation).’’.
H. R. 2676—58
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to interest for the second and succeeding calendar
quarters beginning after the date of the enactment of this Act.
SEC. 3303. MITIGATION OF PENALTY ON INDIVIDUAL’S FAILURE TO
PAY FOR MONTHS DURING PERIOD OF INSTALLMENT
AGREEMENT.
(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:
‘‘(h) LIMITATION ON PENALTY ON INDIVIDUAL’S FAILURE TO PAY
FOR MONTHS DURING PERIOD
OF INSTALLMENT AGREEMENT.—In
the case of an individual who files a return of tax on or before
the due date for the return (including extensions), paragraphs (2)
and (3) of subsection (a) shall each be applied by substituting
‘0.25’ for ‘0.5’ each place it appears for purposes of determining
the addition to tax for any month during which an installment
agreement under section 6159 is in effect for the payment of such
tax.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply for purposes of determining additions to the tax for
months beginning after December 31, 1999.
SEC. 3304. MITIGATION OF FAILURE TO DEPOSIT PENALTY.
(a) TAXPAYER MAY DESIGNATE PERIODS TO WHICH DEPOSITS
APPLY.—Section 6656 (relating to underpayment of deposits) is
amended by adding at the end the following new subsection:
‘‘(e) DESIGNATION OF PERIODS TO WHICH DEPOSITS APPLY.—
‘‘(1) IN
GENERAL.—A person may, with respect to any
deposit of tax to be reported on such person’s return for a
specified tax period, designate the period or periods within
such specified tax period to which the deposit is to be applied
for purposes of this section.
‘‘(2) TIME FOR MAKING DESIGNATION.—A person may make
a designation under paragraph (1) only during the 90-day period
beginning on the date of a notice that a penalty under sub-
section (a) has been imposed for the specified tax period to
which the deposit relates.’’.
(b) EXPANSION OF EXEMPTION FOR FIRST-TIME DEPOSITS.—
(1) IN GENERAL.—Paragraph (2) of section 6656(c) (relating
to exemption for first-time depositors of employment taxes)
is amended to read as follows:
‘‘(2) such failure—
‘‘(A) occurs during the first quarter that such person
was required to deposit any employment tax; or
‘‘(B) if such person is required to change the frequency
of deposits of any employment tax, relates to the first
deposit to which such change applies, and’’.
(c) PERIODS APPLY
TO CURRENT LIABILITIES UNLESS DES-
IGNATED OTHERWISE.—Paragraph (1) of section 6656(e) (as added
by subsection (a) of this section) is amended to read as follows:
‘‘(e) DESIGNATION OF PERIODS TO WHICH DEPOSITS APPLY.—
‘‘(1) IN GENERAL.—A deposit made under this section shall
be applied to the most recent period or periods within the
specified tax period to which the deposit relates, unless the
person making such deposit designates a different period or
periods to which such deposit is to be applied.’’.
(d) EFFECTIVE DATE.—
H. R. 2676—59
(1) IN GENERAL.—The amendments made by this section
shall apply to deposits required to be made after the 180th
day after the date of the enactment of this Act.
(2) APPLICATION TO CURRENT LIABILITIES.—The amendment
made by subsection (c) shall apply to deposits required to
be made after December 31, 2001.
SEC. 3305. SUSPENSION OF INTEREST AND CERTAIN PENALTIES
WHERE SECRETARY FAILS TO CONTACT INDIVIDUAL TAX-
PAYER.
(a) IN GENERAL.—Section 6404 (relating to abatements) is
amended by redesignating subsection (g) as subsection (h) and
by inserting after subsection (f ) the following new subsection:
‘‘(g) SUSPENSION OF INTEREST AND CERTAIN PENALTIES WHERE
SECRETARY FAILS TO CONTACT TAXPAYER.—
‘‘(1) SUSPENSION.—
‘‘(A) IN GENERAL.—In the case of an individual who
files a return of tax imposed by subtitle A for a taxable
year on or before the due date for the return (including
extensions), if the Secretary does not provide a notice to
the taxpayer specifically stating the taxpayer’s liability and
the basis for the liability before the close of the 1-year
period (18-month period in the case of taxable years begin-
ning before January 1, 2004) beginning on the later of—
‘‘(i) the date on which the return is filed; or
‘‘(ii) the due date of the return without regard
to extensions,
the Secretary shall suspend the imposition of any interest,
penalty, addition to tax, or additional amount with respect
to any failure relating to the return which is computed
by reference to the period of time the failure continues
to exist and which is properly allocable to the suspension
period.
‘‘(B) SEPARATE APPLICATION.—This paragraph shall be
applied separately with respect to each item or adjustment.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to—
‘‘(A) any penalty imposed by section 6651;
‘‘(B) any interest, penalty, addition to tax, or additional
amount in a case involving fraud;
‘‘(C) any interest, penalty, addition to tax, or additional
amount with respect to any tax liability shown on the
return; or
‘‘(D) any criminal penalty.
‘‘(3) SUSPENSION PERIOD.—For purposes of this subsection,
the term ‘suspension period’ means the period—
‘‘(A) beginning on the day after the close of the 1-
year period (18-month period in the case of taxable years
beginning before January 1, 2004) under paragraph (1);
and
‘‘(B) ending on the date which is 21 days after the
date on which notice described in paragraph (1)(A) is pro-
vided by the Secretary.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
H. R. 2676—60
SEC. 
3306. 
PROCEDURAL 
REQUIREMENTS 
FOR 
IMPOSITION 
OF
PENALTIES AND ADDITIONS TO TAX.
(a) IN GENERAL.—Chapter 68 (relating to additions to the tax,
additional amounts, and assessable penalties) is amended by adding
at the end the following new subchapter:
‘‘Subchapter C—Procedural Requirements
‘‘Sec. 6751. Procedural requirements.
‘‘SEC. 6751. PROCEDURAL REQUIREMENTS.
‘‘(a) COMPUTATION
OF PENALTY INCLUDED
IN NOTICE.—The
Secretary shall include with each notice of penalty under this
title information with respect to the name of the penalty, the
section of this title under which the penalty is imposed, and a
computation of the penalty.
‘‘(b) APPROVAL OF ASSESSMENT.—
‘‘(1) IN
GENERAL.—No penalty under this title shall be
assessed unless the initial determination of such assessment
is personally approved (in writing) by the immediate supervisor
of the individual making such determination or such higher
level official as the Secretary may designate.
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to—
‘‘(A) any addition to tax under section 6651, 6654,
or 6655; or
‘‘(B) any other penalty automatically calculated
through electronic means.
‘‘(c) PENALTIES.—For purposes of this section, the term ‘penalty’
includes any addition to tax or any additional amount.’’.
(b) CONFORMING AMENDMENT.—The table of subchapters for
chapter 68 is amended by adding at the end the following new
item:
‘‘SUBCHAPTER C. Procedural requirements.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to notices issued, and penalties assessed, after December
31, 2000.
SEC. 3307. PERSONAL DELIVERY OF NOTICE OF PENALTY UNDER
SECTION 6672.
(a) IN GENERAL.—Paragraph (1) of section 6672(b) (relating
to failure to collect and pay over tax, or attempt to evade or
defeat tax) is amended by inserting ‘‘or in person’’ after ‘‘section
6212(b)’’.
(b) CONFORMING AMENDMENTS.—
(1) Paragraph (2) of section 6672(b) is amended by inserting
‘‘(or, in the case of such a notice delivered in person, such
delivery)’’ after ‘‘paragraph (1)’’.
(2) Paragraph (3) of section 6672(b) is amended by inserting
‘‘or delivered in person’’ after ‘‘mailed’’ each place it appears.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 3308. NOTICE OF INTEREST CHARGES.
(a) IN GENERAL.—Chapter 67 (relating to interest) is amended
by adding at the end the following new subchapter:
H. R. 2676—61
‘‘Subchapter D—Notice requirements
‘‘Sec. 6631. Notice requirements.
‘‘SEC. 6631. NOTICE REQUIREMENTS.
‘‘The Secretary shall include with each notice to an individual
taxpayer which includes an amount of interest required to be paid
by such taxpayer under this title information with respect to the
section of this title under which the interest is imposed and a
computation of the interest.’’.
(b) CONFORMING AMENDMENT.—The table of subchapters for
chapter 67 is amended by adding at the end the following new
item:
‘‘SUBCHAPTER D. Notice requirements.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to notices issued after December 31, 2000.
SEC. 3309. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY
TAXPAYERS IN PRESIDENTIALLY DECLARED DISASTER
AREAS.
(a) IN GENERAL.—Section 6404 (relating to abatements), as
amended by section 3305, is amended by redesignating subsection
(h) as subsection (i) and by inserting after subsection (g) the follow-
ing new subsection:
‘‘(h) 
ABATEMENT
OF
INTEREST
ON
UNDERPAYMENTS
BY
TAXPAYERS IN PRESIDENTIALLY DECLARED DISASTER AREAS.—
‘‘(1) IN GENERAL.—If the Secretary extends for any period
the time for filing income tax returns under section 6081 and
the time for paying income tax with respect to such returns
under section 6161 for any taxpayer located in a Presidentially
declared disaster area, the Secretary shall abate for such period
the assessment of any interest prescribed under section 6601
on such income tax.
‘‘(2) 
PRESIDENTIALLY
DECLARED
DISASTER
AREA.—For
purposes of paragraph (1), the term ‘Presidentially declared
disaster area’ means, with respect to any taxpayer, any area
which the President has determined warrants assistance by
the Federal Government under the Disaster Relief and Emer-
gency Assistance Act.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to disasters declared after December 31, 1997, with
respect to taxable years beginning after December 31, 1997.
(c) EMERGENCY DESIGNATION.—
(1) For the purposes of section 252(e) of the Balanced
Budget and Emergency Deficit Control Act, Congress designates
the provisions of this section as an emergency requirement.
(2) The amendments made by subsections (a) and (b) of
this section shall only take effect upon the transmittal by
the President to the Congress of a message designating the
provisions of subsections (a) and (b) as an emergency require-
ment pursuant to section 252(e) of the Balanced Budget and
Emergency Deficit Control Act.
H. R. 2676—62
Subtitle E—Protections for Taxpayers
Subject to Audit or Collection Activities
PART I—DUE PROCESS
SEC. 3401. DUE PROCESS IN INTERNAL REVENUE SERVICE COLLEC-
TION ACTIONS.
(a) NOTICE AND OPPORTUNITY FOR HEARING UPON FILING OF
NOTICE OF LIEN.—Subchapter C of chapter 64 (relating to lien
for taxes) is amended by inserting before the table of sections
the following:
‘‘Part I.
Due process for liens.
‘‘Part II.
Liens.
‘‘PART I—DUE PROCESS FOR LIENS
‘‘Sec. 6320. Notice and opportunity for hearing upon filing of notice of lien.
‘‘SEC. 6320. NOTICE AND OPPORTUNITY FOR HEARING UPON FILING
OF NOTICE OF LIEN.
‘‘(a) REQUIREMENT OF NOTICE.—
‘‘(1) IN GENERAL.—The Secretary shall notify in writing
the person described in section 6321 of the filing of a notice
of lien under section 6323.
‘‘(2) TIME AND METHOD FOR NOTICE.—The notice required
under paragraph (1) shall be—
‘‘(A) given in person;
‘‘(B) left at the dwelling or usual place of business
of such person; or
‘‘(C) sent by certified or registered mail to such person’s
last known address,
not more than 5 business days after the day of the filing
of the notice of lien.
‘‘(3) INFORMATION
INCLUDED
WITH
NOTICE.—The notice
required under paragraph (1) shall include in simple and non-
technical terms—
‘‘(A) the amount of unpaid tax;
‘‘(B) the right of the person to request a hearing during
the 30-day period beginning on the day after the 5-day
period described in paragraph (2);
‘‘(C) the administrative appeals available to the tax-
payer with respect to such lien and the procedures relating
to such appeals; and
‘‘(D) the provisions of this title and procedures relating
to the release of liens on property.
‘‘(b) RIGHT TO FAIR HEARING.—
‘‘(1) IN GENERAL.—If the person requests a hearing under
subsection (a)(3)(B), such hearing shall be held by the Internal
Revenue Service Office of Appeals.
‘‘(2) ONE HEARING PER PERIOD.—A person shall be entitled
to only one hearing under this section with respect to the
taxable period to which the unpaid tax specified in subsection
(a)(3)(A) relates.
‘‘(3) IMPARTIAL
OFFICER.—The hearing under this sub-
section shall be conducted by an officer or employee who has
H. R. 2676—63
had no prior involvement with respect to the unpaid tax speci-
fied in subsection (a)(3)(A) before the first hearing under this
section or section 6330. A taxpayer may waive the requirement
of this paragraph.
‘‘(4) COORDINATION WITH SECTION 6330.—To the extent prac-
ticable, a hearing under this section shall be held in conjunction
with a hearing under section 6330.
‘‘(c) CONDUCT OF HEARING; REVIEW; SUSPENSIONS.—For pur-
poses of this section, subsections (c), (d) (other than paragraph
(2)(B) thereof), and (e) of section 6330 shall apply.
‘‘PART II—LIENS’’.
(b) NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.—
Subchapter D of chapter 64 (relating to seizure of property for
collection of taxes) is amended by inserting before the table of
sections the following:
‘‘Part I.
Due process for collections.
‘‘Part II.
Levy.
‘‘PART I—DUE PROCESS FOR COLLECTIONS
‘‘Sec. 6330. Notice and opportunity for hearing before levy.
‘‘SEC. 6330. NOTICE AND OPPORTUNITY FOR HEARING BEFORE LEVY.
‘‘(a) REQUIREMENT OF NOTICE BEFORE LEVY.—
‘‘(1) IN GENERAL.—No levy may be made on any property
or right to property of any person unless the Secretary has
notified such person in writing of their right to a hearing
under this section before such levy is made. Such notice shall
be required only once for the taxable period to which the
unpaid tax specified in paragraph (3)(A) relates.
‘‘(2) TIME AND METHOD FOR NOTICE.—The notice required
under paragraph (1) shall be—
‘‘(A) given in person;
‘‘(B) left at the dwelling or usual place of business
of such person; or
‘‘(C) sent by certified or registered mail, return receipt
requested, to such person’s last known address;
not less than 30 days before the day of the first levy with
respect to the amount of the unpaid tax for the taxable period.
‘‘(3) INFORMATION
INCLUDED
WITH
NOTICE.—The notice
required under paragraph (1) shall include in simple and non-
technical terms—
‘‘(A) the amount of unpaid tax;
‘‘(B) the right of the person to request a hearing during
the 30-day period under paragraph (2); and
‘‘(C) the proposed action by the Secretary and the rights
of the person with respect to such action, including a brief
statement which sets forth—
‘‘(i) the provisions of this title relating to levy
and sale of property;
‘‘(ii) the procedures applicable to the levy and sale
of property under this title;
‘‘(iii) the administrative appeals available to the
taxpayer with respect to such levy and sale and the
procedures relating to such appeals;
H. R. 2676—64
‘‘(iv) the alternatives available to taxpayers which
could prevent levy on property (including installment
agreements under section 6159); and
‘‘(v) the provisions of this title and procedures
relating to redemption of property and release of liens
on property.
‘‘(b) RIGHT TO FAIR HEARING.—
‘‘(1) IN GENERAL.—If the person requests a hearing under
subsection (a)(3)(B), such hearing shall be held by the Internal
Revenue Service Office of Appeals.
‘‘(2) ONE HEARING PER PERIOD.—A person shall be entitled
to only one hearing under this section with respect to the
taxable period to which the unpaid tax specified in subsection
(a)(3)(A) relates.
‘‘(3) IMPARTIAL
OFFICER.—The hearing under this sub-
section shall be conducted by an officer or employee who has
had no prior involvement with respect to the unpaid tax speci-
fied in subsection (a)(3)(A) before the first hearing under this
section or section 6320. A taxpayer may waive the requirement
of this paragraph.
‘‘(c) MATTERS CONSIDERED AT HEARING.—In the case of any
hearing conducted under this section—
‘‘(1) REQUIREMENT OF INVESTIGATION.—The appeals officer
shall at the hearing obtain verification from the Secretary
that the requirements of any applicable law or administrative
procedure have been met.
‘‘(2) ISSUES AT HEARING.—
‘‘(A) IN GENERAL.—The person may raise at the hearing
any relevant issue relating to the unpaid tax or the pro-
posed levy, including—
‘‘(i) appropriate spousal defenses;
‘‘(ii) challenges to the appropriateness of collection
actions; and
‘‘(iii) offers of collection alternatives, which may
include the posting of a bond, the substitution of other
assets, an installment agreement, or an offer-in-com-
promise.
‘‘(B) UNDERLYING
LIABILITY.—The person may also
raise at the hearing challenges to the existence or amount
of the underlying tax liability for any tax period if the
person did not receive any statutory notice of deficiency
for such tax liability or did not otherwise have an oppor-
tunity to dispute such tax liability.
‘‘(3) BASIS FOR THE DETERMINATION.—The determination
by an appeals officer under this subsection shall take into
consideration—
‘‘(A) the verification presented under paragraph (1);
‘‘(B) the issues raised under paragraph (2); and
‘‘(C) whether any proposed collection action balances
the need for the efficient collection of taxes with the legiti-
mate concern of the person that any collection action be
no more intrusive than necessary.
‘‘(4) CERTAIN
ISSUES
PRECLUDED.—An issue may not be
raised at the hearing if—
‘‘(A) the issue was raised and considered at a previous
hearing under section 6320 or in any other previous
administrative or judicial proceeding; and
H. R. 2676—65
‘‘(B) the person seeking to raise the issue participated
meaningfully in such hearing or proceeding.
This paragraph shall not apply to any issue with respect to
which subsection (d)(2)(B) applies.
‘‘(d) PROCEEDING AFTER HEARING.—
‘‘(1) JUDICIAL REVIEW OF DETERMINATION.—The person may,
within 30 days of a determination under this section, appeal
such determination—
‘‘(A) to the Tax Court (and the Tax Court shall have
jurisdiction to hear such matter); or
‘‘(B) if the Tax Court does not have jurisdiction of
the underlying tax liability, to a district court of the United
States.
If a court determines that the appeal was to an incorrect
court, a person shall have 30 days after the court determination
to file such appeal with the correct court.
‘‘(2) JURISDICTION RETAINED AT IRS OFFICE OF APPEALS.—
The Internal Revenue Service Office of Appeals shall retain
jurisdiction with respect to any determination made under this
section, including subsequent hearings requested by the person
who requested the original hearing on issues regarding—
‘‘(A) collection actions taken or proposed with respect
to such determination; and
‘‘(B) after the person has exhausted all administrative
remedies, a change in circumstances with respect to such
person which affects such determination.
‘‘(e) SUSPENSION
OF COLLECTIONS
AND STATUTE
OF LIMITA-
TIONS.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
if a hearing is requested under subsection (a)(3)(B), the levy
actions which are the subject of the requested hearing and
the running of any period of limitations under section 6502
(relating to collection after assessment), section 6531 (relating
to criminal prosecutions), or section 6532 (relating to other
suits) shall be suspended for the period during which such
hearing, and appeals therein, are pending. In no event shall
any such period expire before the 90th day after the day on
which there is a final determination in such hearing.
‘‘(2) LEVY UPON APPEAL.—Paragraph (1) shall not apply
to a levy action while an appeal is pending if the underlying
tax liability is not at issue in the appeal and the court deter-
mines that the Secretary has shown good cause not to suspend
the levy.
‘‘(f ) JEOPARDY AND STATE REFUND COLLECTION.—If—
‘‘(1) the Secretary has made a finding under the last sen-
tence of section 6331(a) that the collection of tax is in jeopardy;
or
‘‘(2) the Secretary has served a levy on a State to collect
a Federal tax liability from a State tax refund,
this section shall not apply, except that the taxpayer shall be
given the opportunity for the hearing described in this section
within a reasonable period of time after the levy.
‘‘PART II—LEVY’’.
(c) REVIEW BY SPECIAL TRIAL JUDGES ALLOWED.—
H. R. 2676—66
(1) IN GENERAL.—Section 7443(b) (relating to proceedings
which may be assigned to special trial judges) is amended
by striking ‘‘and’’ at the end of paragraph (3), by redesignating
paragraph (4) as paragraph (5), and by inserting after para-
graph (3) the following new paragraph:
‘‘(4) any proceeding under section 6320 or 6330, and’’.
(2) AUTHORITY TO MAKE DECISIONS.—Section 7443(c) (relat-
ing to authority to make court decisions) is amended by striking
‘‘or (3)’’ and inserting ‘‘(3), or (4)’’.
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply to collection actions initiated after the date which is
180 days after the date of the enactment of this Act.
PART II—EXAMINATION ACTIVITIES
SEC. 3411. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER
COMMUNICATIONS.
(a) IN GENERAL.—Chapter 77 (relating to miscellaneous provi-
sions) is amended by adding at the end the following new section:
‘‘SEC. 7525. CONFIDENTIALITY PRIVILEGES RELATING TO TAXPAYER
COMMUNICATIONS.
‘‘(a) UNIFORM APPLICATION
TO TAXPAYER COMMUNICATIONS
WITH FEDERALLY AUTHORIZED PRACTITIONERS.—
‘‘(1) GENERAL RULE.—With respect to tax advice, the same
common law protections of confidentiality which apply to a
communication between a taxpayer and an attorney shall also
apply to a communication between a taxpayer and any federally
authorized tax practitioner to the extent the communication
would be considered a privileged communication if it were
between a taxpayer and an attorney.
‘‘(2) LIMITATIONS.—Paragraph (1) may only be asserted in—
‘‘(A) any noncriminal tax matter before the Internal
Revenue Service; and
‘‘(B) any noncriminal tax proceeding in Federal court
brought by or against the United States.
‘‘(3) DEFINITIONS.—For purposes of this subsection—
‘‘(A) FEDERALLY AUTHORIZED TAX PRACTITIONER.—The
term ‘federally authorized tax practitioner’ means any
individual who is authorized under Federal law to practice
before the Internal Revenue Service if such practice is
subject to Federal regulation under section 330 of title
31, United States Code.
‘‘(B) TAX ADVICE.—The term ‘tax advice’ means advice
given by an individual with respect to a matter which
is within the scope of the individual’s authority to practice
described in subparagraph (A).
‘‘(b) SECTION NOT TO APPLY TO COMMUNICATIONS REGARDING
CORPORATE TAX SHELTERS.—The privilege under subsection (a)
shall not apply to any written communication between a federally
authorized tax practitioner and a director, shareholder, officer, or
employee, agent, or representative of a corporation in connection
with the promotion of the direct or indirect participation of such
corporation 
in 
any 
tax 
shelter 
(as 
defined 
in 
section
6662(d)(2)(C)(iii)).’’.
H. R. 2676—67
(b) CONFORMING AMENDMENT.—The table of sections for such
chapter 77 is amended by adding at the end the following new
item:
‘‘Sec. 7525. Confidentiality privileges relating to taxpayer communica-
tions.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to communications made on or after the date of the
enactment of this Act.
SEC. 3412. LIMITATION ON FINANCIAL STATUS AUDIT TECHNIQUES.
Section 7602 (relating to examination of books and witnesses)
is amended by adding at the end the following new subsection:
‘‘(d) LIMITATION ON EXAMINATION ON UNREPORTED INCOME.—
The Secretary shall not use financial status or economic reality
examination techniques to determine the existence of unreported
income of any taxpayer unless the Secretary has a reasonable
indication that there is a likelihood of such unreported income.’’.
SEC. 3413. SOFTWARE TRADE SECRETS PROTECTION.
(a) IN GENERAL.—Subchapter A of chapter 78 (relating to exam-
ination and inspection) is amended by redesignating section 7612
as section 7613 and by inserting after 7611 the following new
section:
‘‘SEC. 7612. SPECIAL PROCEDURES FOR SUMMONSES FOR COMPUTER
SOFTWARE.
‘‘(a) GENERAL RULE.—For purposes of this title—
‘‘(1) except as provided in subsection (b), no summons may
be issued under this title, and the Secretary may not begin
any action under section 7604 to enforce any summons to
produce or analyze any tax-related computer software source
code; and
‘‘(2) any software and related materials which are provided
to the Secretary under this title shall be subject to the safe-
guards under subsection (c).
‘‘(b) CIRCUMSTANCES
UNDER
WHICH
COMPUTER
SOFTWARE
SOURCE CODE MAY BE PROVIDED.—
‘‘(1) IN GENERAL.—Subsection (a)(1) shall not apply to any
portion, item, or component of tax-related computer software
source code if—
‘‘(A) the Secretary is unable to otherwise reasonably
ascertain the correctness of any item on a return from—
‘‘(i) the taxpayer’s books, papers, records, or other
data; or
‘‘(ii) the computer software executable code (and
any modifications thereof) to which such source code
relates and any associated data which, when executed,
produces the output to ascertain the correctness of
the item;
‘‘(B) the Secretary identifies with reasonable specificity
the portion, item, or component of such source code needed
to verify the correctness of such item on the return; and
‘‘(C) the Secretary determines that the need for the
portion, item, or component of such source code with respect
to such item outweighs the risks of unauthorized disclosure
of trade secrets.
‘‘(2) EXCEPTIONS.—Subsection (a)(1) shall not apply to—
H. R. 2676—68
‘‘(A) any inquiry into any offense connected with the
administration or enforcement of the internal revenue laws;
‘‘(B) any tax-related computer software source code
acquired or developed by the taxpayer or a related person
primarily for internal use by the taxpayer or such person
rather than for commercial distribution;
‘‘(C) any communications between the owner of the
tax-related computer software source code and the taxpayer
or related persons; or
‘‘(D) any tax-related computer software source code
which is required to be provided or made available pursu-
ant to any other provision of this title.
‘‘(3) COOPERATION REQUIRED.—For purposes of paragraph
(1), the Secretary shall be treated as meeting the requirements
of subparagraphs (A) and (B) of such paragraph if—
‘‘(A) the Secretary determines that it is not feasible
to determine the correctness of an item without access
to the computer software executable code and associated
data described in paragraph (1)(A)(ii);
‘‘(B) the Secretary makes a formal request to the tax-
payer for such code and data and to the owner of the
computer software source code for such executable code;
and
‘‘(C) such code and data is not provided within 180
days of such request.
‘‘(4) RIGHT
TO
CONTEST
SUMMONS.—In any proceeding
brought under section 7604 to enforce a summons issued under
the authority of this subsection, the court shall, at the request
of any party, hold a hearing to determine whether the
applicable requirements of this subsection have been met.
‘‘(c) SAFEGUARDS TO ENSURE PROTECTION OF TRADE SECRETS
AND OTHER CONFIDENTIAL INFORMATION.—
‘‘(1) ENTRY OF PROTECTIVE ORDER.—In any court proceeding
to enforce a summons for any portion of software, the court
may receive evidence and issue any order necessary to prevent
the disclosure of trade secrets or other confidential information
with respect to such software, including requiring that any
information be placed under seal to be opened only as directed
by the court.
‘‘(2) PROTECTION
OF
SOFTWARE.—Notwithstanding any
other provision of this section, and in addition to any protections
ordered pursuant to paragraph (1), in the case of software
that comes into the possession or control of the Secretary in
the course of any examination with respect to any taxpayer—
‘‘(A) the software may be used only in connection with
the examination of such taxpayer’s return, any appeal by
the taxpayer to the Internal Revenue Service Office of
Appeals, any judicial proceeding (and any appeals there-
from), and any inquiry into any offense connected with
the administration or enforcement of the internal revenue
laws;
‘‘(B) the Secretary shall provide, in advance, to the
taxpayer and the owner of the software a written list
of the names of all individuals who will analyze or other-
wise have access to the software;
‘‘(C) the software shall be maintained in a secure area
or place, and, in the case of computer software source
H. R. 2676—69
code, shall not be removed from the owner’s place of busi-
ness unless the owner permits, or a court orders, such
removal;
‘‘(D) the software may not be copied except as necessary
to perform such analysis, and the Secretary shall number
all copies made and certify in writing that no other copies
have been (or will be) made;
‘‘(E) at the end of the period during which the software
may be used under subparagraph (A)—
‘‘(i) the software and all copies thereof shall be
returned to the person from whom they were obtained
and any copies thereof made under subparagraph (D)
on the hard drive of a machine or other mass storage
device shall be permanently deleted; and
‘‘(ii) the Secretary shall obtain from any person
who analyzes or otherwise had access to such software
a written certification under penalty of perjury that
all copies and related materials have been returned
and that no copies were made of them;
‘‘(F) the software may not be decompiled or disassem-
bled;
‘‘(G) the Secretary shall provide to the taxpayer and
the owner of any interest in such software, as the case
may be, a written agreement, between the Secretary and
any person who is not an officer or employee of the United
States and who will analyze or otherwise have access to
such software, which provides that such person agrees
not to—
‘‘(i) disclose such software to any person other
than persons to whom such information could be dis-
closed for tax administration purposes under section
6103; or
‘‘(ii) participate for 2 years in the development
of software which is intended for a similar purpose
as the software examined; and
‘‘(H) the software shall be treated as return information
for purposes of section 6103.
For purposes of subparagraph (C), the owner shall make avail-
able any necessary equipment or materials for analysis of com-
puter software source code required to be conducted on the
owner’s premises. The owner of any interest in the software
shall be considered a party to any agreement described in
subparagraph (G).
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) SOFTWARE.—The term ‘software’ includes computer
software source code and computer software executable code.
‘‘(2) COMPUTER SOFTWARE SOURCE CODE.—The term ‘com-
puter software source code’ means—
‘‘(A) the code written by a programmer using a
programming language which is comprehensible to appro-
priately trained persons and is not capable of directly being
used to give instructions to a computer;
‘‘(B) related programmers’ notes, design documents,
memoranda, and similar documentation; and
‘‘(C) related customer communications.
‘‘(3) COMPUTER SOFTWARE EXECUTABLE CODE.—The term
‘computer software executable code’ means—
H. R. 2676—70
‘‘(A) any object code, machine code, or other code read-
able by a computer when loaded into its memory and
used directly by such computer to execute instructions;
and
‘‘(B) any related user manuals.
‘‘(4) OWNER.—The term ‘owner’ shall, with respect to any
software, include the developer of the software.
‘‘(5) RELATED PERSON.—A person shall be treated as related
to another person if such persons are related persons under
section 267 or 707(b).
‘‘(6) TAX-RELATED
COMPUTER
SOFTWARE
SOURCE
CODE.—
The term ‘tax-related computer software source code’ means
the computer source code for any computer software program
intended for accounting, tax return preparation or compliance,
or tax planning.’’.
(b) UNAUTHORIZED DISCLOSURE OF SOFTWARE.—Section 7213
(relating to unauthorized disclosure of information) is amended
by redesignating subsection (d) as subsection (e) and by inserting
after subsection (c) the following new subsection:
‘‘(d) DISCLOSURE
OF SOFTWARE.—Any person who willfully
divulges or makes known software (as defined in section 7612(d)(1))
to any person in violation of section 7612 shall be guilty of a
felony and, upon conviction thereof, shall be fined not more than
$5,000, or imprisoned not more than 5 years, or both, together
with the costs of prosecution.’’.
(c) APPLICATION
OF SPECIAL PROCEDURES
FOR THIRD-PARTY
SUMMONSES.—Paragraph (2) of section 7603(b), as amended by
section 3416(a), is amended by striking ‘‘and’’ at the end of subpara-
graph (H), by striking a period at the end of subparagraph (I)
and inserting ‘‘, and’’, and by adding at the end the following
new subparagraph:
‘‘(J) any owner or developer of a computer software
source code (as defined in section 7612(d)(2)).
Subparagraph (J) shall apply only with respect to a summons
requiring the production of the source code referred to in
subparagraph (J) or the program and data described in section
7612(b)(1)(A)(ii) to which such source code relates.’’.
(d) CONFORMING AMENDMENT.—The table of sections for sub-
chapter A of chapter 78 is amended by striking the item relating
to section 7612 and by inserting the following new item:
‘‘Sec. 7612. Special procedures for summonses for computer software.
‘‘Sec. 7613. Cross references.’’.
(e) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to summonses issued, and software acquired, after
the date of the enactment of this Act.
(2) SOFTWARE PROTECTION.—In the case of any software
acquired on or before such date of enactment, the requirements
of section 7612(a)(2) of the Internal Revenue Code of 1986
(as added by such amendments) shall apply after the 90th
day after such date. The preceding sentence shall not apply
to the requirement under section 7612(c)(2)(G)(ii) of such Code
(as so added).
H. R. 2676—71
SEC. 3414. THREAT OF AUDIT PROHIBITED TO COERCE TIP REPORTING
ALTERNATIVE COMMITMENT AGREEMENTS.
The Secretary of the Treasury or the Secretary’s delegate shall
instruct employees of the Internal Revenue Service that they may
not threaten to audit any taxpayer in an attempt to coerce the
taxpayer into entering into a Tip Reporting Alternative Commit-
ment Agreement.
SEC. 3415. TAXPAYERS ALLOWED MOTION TO QUASH ALL THIRD-PARTY
SUMMONSES.
(a) IN GENERAL.—Paragraph (1) of section 7609(a) (relating
to summonses to which section applies) is amended by striking
so much of such paragraph as precedes ‘‘notice of the summons’’
and inserting the following:
‘‘(1) IN GENERAL.—If any summons to which this section
applies requires the giving of testimony on or relating to, the
production of any portion of records made or kept on or relating
to, or the production of any computer software source code
(as defined in 7612(d)(2)) with respect to, any person (other
than the person summoned) who is identified in the summons,
then’’.
(b) COORDINATION WITH OTHER AUTHORITY.—Section 7609
(relating to special procedures for third-party summonses) is amend-
ed by adding at the end the following new subsection:
‘‘( j) USE OF SUMMONS NOT REQUIRED.—Nothing in this section
shall be construed to limit the Secretary’s ability to obtain informa-
tion, other than by summons, through formal or informal procedures
authorized by sections 7601 and 7602.’’.
(c) CONFORMING AMENDMENTS.—
(1) Subsection (a) of section 7609 is amended by striking
paragraphs (3) and (4), by redesignating paragraph (5) as para-
graph (3), and by striking in paragraph (3) (as so redesignated)
‘‘subsection (c)(2)(B)’’ and inserting ‘‘subsection (c)(2)(D)’’.
(2) Subsection (c) of section 7609 is amended to read as
follows:
‘‘(c) SUMMONS TO WHICH SECTION APPLIES.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
this section shall apply to any summons issued under para-
graph (2) of section 7602(a) or under section 6420(e)(2),
6421(g)(2), 6427( j)(2), or 7612.
‘‘(2) EXCEPTIONS.—This section shall not apply to any
summons—
‘‘(A) served on the person with respect to whose liability
the summons is issued, or any officer or employee of such
person;
‘‘(B) issued to determine whether or not records of
the business transactions or affairs of an identified person
have been made or kept;
‘‘(C) issued solely to determine the identity of any
person having a numbered account (or similar arrange-
ment) with a bank or other institution described in section
7603(b)(2)(A);
‘‘(D) issued in aid of the collection of—
‘‘(i) an assessment made or judgment rendered
against the person with respect to whose liability the
summons is issued; or