IB 
Union Calendar No. 39
108TH CONGRESS 
1ST SESSION H. R. 1528
[Report No. 108–61] 
To amend the Internal Revenue Code of 1986 to protect taxpayers and 
ensure accountability of the Internal Revenue Service. 
IN THE HOUSE OF REPRESENTATIVES 
APRIL 1, 2003
Mr. PORTMAN introduced the following bill; which was referred to the 
Committee on Ways and Means 
APRIL 8, 2003
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on April 1, 2003] 
A BILL 
To amend the Internal Revenue Code of 1986 to protect 
taxpayers and ensure accountability of the Internal Rev-
enue Service.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Taxpayer Protection and IRS Accountability Act of 
2003’’. 
(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 consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—
Sec. 1. Short title; etc. 
TITLE I—PENALTY AND INTEREST REFORMS 
Sec. 101. Failure to pay estimated tax penalty converted to interest charge on ac-
cumulated unpaid balance. 
Sec. 102. Exclusion from gross income for interest on overpayments of income tax 
by individuals. 
Sec. 103. Abatement of interest. 
Sec. 104. Deposits made to suspend running of interest on potential underpay-
ments. 
Sec. 105. Expansion of interest netting for individuals. 
Sec. 106. Waiver of certain penalties for first-time unintentional minor errors. 
Sec. 107. Frivolous tax submissions. 
Sec. 108. Clarification of application of Federal tax deposit penalty. 
TITLE II—FAIRNESS OF COLLECTION PROCEDURES 
Sec. 201. Partial payment of tax liability in installment agreements. 
Sec. 202. Extension of time for return of property. 
Sec. 203. Individuals held harmless on wrongful levy, etc., on individual retire-
ment plan. 
Sec. 204. Seven-day threshold on tolling of statute of limitations during tax re-
view. 
Sec. 205. Study of liens and levies. 
TITLE III—TAX ADMINISTRATION REFORMS 
Sec. 301. Revisions relating to termination of employment of Internal Revenue 
Service employees for misconduct. 
Sec. 302. Confirmation of authority of tax court to apply doctrine of equitable 
recoupment. 
Sec. 303. Jurisdiction of tax court over collection due process cases.
Sec. 304. Office of Chief Counsel review of offers in compromise. 
Sec. 305. 15-day delay in due date for electronically filed individual income tax 
returns. 
Sec. 306. Access of National Taxpayer Advocate to independent legal counsel. 
Sec. 307. Payment of motor fuel excise tax refunds by direct deposit. 
Sec. 308. Family business tax simplification. 
Sec. 309. Health insurance costs of eligible individuals. 
Sec. 310. Suspension of tax-exempt status of terrorist organizations. 
TITLE IV—CONFIDENTIALITY AND DISCLOSURE 
Sec. 401. Collection activities with respect to joint return disclosable to either 
spouse based on oral request. 
Sec. 402. Taxpayer representatives not subject to examination on sole basis of 
representation of taxpayers. 
Sec. 403. Disclosure in judicial or administrative tax proceedings of return and 
return information of persons who are not party to such pro-
ceedings. 
Sec. 404. Prohibition of disclosure of taxpayer identification information with re-
spect to disclosure of accepted offers-in-compromise. 
Sec. 405. Compliance by contractors with confidentiality safeguards. 
Sec. 406. Higher standards for requests for and consents to disclosure. 
Sec. 407. Notice to taxpayer concerning administrative determination of brows-
ing; annual report. 
Sec. 408. Expanded disclosure in emergency circumstances. 
Sec. 409. Disclosure of taxpayer identity for tax refund purposes. 
Sec. 410. Disclosure to State officials of proposed actions related to section 
501(c)(3) organizations. 
Sec. 411. Confidentiality of taxpayer communications with the Office of the Tax-
payer Advocate. 
TITLE V—MISCELLANEOUS 
Sec. 501. Clarification of definition of church tax inquiry. 
Sec. 502. Expansion of declaratory judgment remedy to tax-exempt organizations. 
Sec. 503. Employee misconduct report to include summary of complaints by cat-
egory. 
Sec. 504. Annual report on awards of costs and certain fees in administrative 
and court proceedings. 
Sec. 505. Annual report on abatement of penalties. 
Sec. 506. Better means of communicating with taxpayers. 
Sec. 507. Explanation of statute of limitations and consequences of failure to file. 
Sec. 508. Amendment to treasury auction reforms. 
Sec. 509. Enrolled agents. 
Sec. 510. Financial management service fees. 
Sec. 511. Extension of Internal Revenue Service user fees. 
TITLE VI—LOW-INCOME TAXPAYER CLINICS 
Sec. 601. Low-income taxpayer clinics. 
TITLE VII—FEDERAL-STATE UNEMPLOYMENT ASSISTANCE 
AGREEMENTS. 
Sec. 701. Applicability of certain Federal-State agreements relating to unemploy-
ment assistance.
TITLE I—PENALTY AND 
INTEREST REFORMS 
SEC. 101. FAILURE TO PAY ESTIMATED TAX PENALTY CON-
VERTED TO INTEREST CHARGE ON ACCUMU-
LATED UNPAID BALANCE. 
(a) PENALTY MOVED
TO INTEREST CHAPTER
OF 
CODE.—The Internal Revenue Code of 1986 is amended by 
redesignating section 6654 as section 6641 and by moving 
section 6641 (as so redesignated) from part I of subchapter 
A of chapter 68 to the end of subchapter E of chapter 67 
(as added by subsection (e)(1) of this section). 
(b) PENALTY CONVERTED TO INTEREST CHARGE.—
The heading and subsections (a) and (b) of section 6641 
(as so redesignated) are amended to read as follows: 
‘‘SEC. 6641. INTEREST ON FAILURE BY INDIVIDUAL TO PAY 
ESTIMATED INCOME TAX. 
‘‘(a) IN GENERAL.—Interest shall be paid on any un-
derpayment of estimated tax by an individual for a taxable 
year for each day of such underpayment. The amount of 
such interest for any day shall be the product of the under-
payment rate established under subsection (b)(2) multiplied 
by the amount of the underpayment. 
‘‘(b) AMOUNT OF UNDERPAYMENT; INTEREST RATE.—
For purposes of subsection (a)—
‘‘(1) AMOUNT.—The amount of the under-
payment on any day shall be the excess of—
‘‘(A) the sum of the required installments 
for the taxable year the due dates for which are 
on or before such day, over 
‘‘(B) the sum of the amounts (if any) of es-
timated tax payments made on or before such 
day on such required installments. 
‘‘(2) DETERMINATION OF INTEREST RATE.—
‘‘(A) IN GENERAL.—The underpayment rate 
with respect to any day in an installment under-
payment period shall be the underpayment rate 
established under section 6621 for the first day 
of the calendar quarter in which such install-
ment underpayment period begins. 
‘‘(B) INSTALLMENT
UNDERPAYMENT
PE-
RIOD.—For purposes of subparagraph (A), the 
term ‘installment underpayment period’ means 
the period beginning on the day after the due 
date for a required installment and ending on 
the due date for the subsequent required install-
ment (or in the case of the 4th required install-
ment, the 15th day of the 4th month following 
the close of a taxable year).
‘‘(C) DAILY
RATE.—The rate determined 
under subparagraph (A) shall be applied on a 
daily basis and shall be based on the assumption 
of 365 days in a calendar year. 
‘‘(3) TERMINATION OF ESTIMATED TAX INTER-
EST.—No day after the end of the installment under-
payment period for the 4th required installment spec-
ified in paragraph (2)(B) for a taxable year shall be 
treated as a day of underpayment with respect to 
such taxable year.’’. 
(c) INCREASE
IN SAFE HARBOR WHERE TAX
IS 
SMALL.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section 
6641(d)(1)(B) (as so redesignated) is amended to read 
as follows: 
‘‘(i) the lesser of—
‘‘(I) 90 percent of the tax shown 
on the return for the taxable year (or, 
if no return is filed, 90 percent of the 
tax for such year), or 
‘‘(II) the tax shown on the return 
for the taxable year (or, if no return is 
filed, the tax for such year) reduced 
(but not below zero) by $1,600, or’’.
(2) CONFORMING
AMENDMENT.—Subsection (e) 
of section 6641 (as so redesignated) is amended by 
striking paragraph (1) and redesignating paragraphs 
(2) and (3) as paragraphs (1) and (2), respectively. 
(d) CONFORMING AMENDMENTS.—
(1) Paragraphs (1) and (2) of subsection (e) (as 
redesignated by subsection (c)(2)) and subsection (h) 
of section 6641 (as so designated) are each amended 
by striking ‘‘addition to tax’’ each place it occurs and 
inserting ‘‘interest’’. 
(2) Section 167(g)(5)(D) is amended by striking 
‘‘6654’’ and inserting ‘‘6641’’. 
(3) Section 460(b)(1) is amended by striking 
‘‘6654’’ and inserting ‘‘6641’’. 
(4) Section 3510(b) is amended—
(A) by striking ‘‘section 6654’’ in para-
graph (1) and inserting ‘‘section 6641’’; 
(B) by amending paragraph (2)(B) to read 
as follows: 
‘‘(B) no interest would be required to be 
paid (but for this section) under 6641 for such 
taxable year by reason of the $1,600 amount 
specified in section 6641(d)(1)(B)(i)(II).’’;
(C) by striking ‘‘section 6654(d)(2)’’ in 
paragraph 
(3) 
and 
inserting 
‘‘section 
6641(d)(2)’’; and 
(D) by striking paragraph (4). 
(5) Section 6201(b)(1) is amended by striking 
‘‘6654’’ and inserting ‘‘6641’’. 
(6) Section 6601(h) is amended by striking 
‘‘6654’’ and inserting ‘‘6641’’. 
(7) Section 6621(b)(2)(B) is amended by striking 
‘‘addition to tax under section 6654’’ and inserting 
‘‘interest required to be paid under section 6641’’. 
(8) Section 6622(b) is amended—
(A) by striking ‘‘PENALTY
FOR’’ in the 
heading; and 
(B) by striking ‘‘addition to tax under sec-
tion 6654 or 6655’’ and inserting ‘‘interest re-
quired to be paid under section 6641 or addition 
to tax under section 6655’’. 
(9) Section 6658(a) is amended—
(A) by striking ‘‘6654, or 6655’’ and insert-
ing ‘‘or 6655, and no interest shall be required 
to be paid under section 6641,’’; and 
(B) by inserting ‘‘or paying interest’’ after 
‘‘the tax’’ in paragraph (2)(B)(ii). 
(10) Section 6665(b) is amended—
(A) in the matter preceding paragraph (1) 
by striking ‘‘, 6654,’’; and 
(B) in paragraph (2) by striking ‘‘6654 or’’. 
(11) Section 7203 is amended by striking ‘‘sec-
tion 6654 or 6655’’ and inserting ‘‘section 6655 or in-
terest required to be paid under section 6641’’. 
(e) CLERICAL AMENDMENTS.—
(1) Chapter 67 is amended by inserting after 
subchapter D the following: 
‘‘Subchapter E—Interest on Failure by Individual to 
Pay Estimated Income Tax
‘‘Sec. 6641. Interest on failure by individual to pay estimated in-
come tax.’’.
(2) The table of subchapters for chapter 67 is 
amended by adding at the end the following new 
items:
‘‘Subchapter D. Notice requirements. 
‘‘Subchapter E. Interest on failure by individual to pay estimated 
income tax.’’.
(3) The table of sections for part I of subchapter 
A of chapter 68 is amended by striking the item relat-
ing to section 6654. 
(f) EFFECTIVE DATE.—The amendments made by this 
section shall apply to installment payments for taxable 
years beginning after December 31, 2003.
SEC. 102. EXCLUSION FROM GROSS INCOME FOR INTEREST 
ON OVERPAYMENTS OF INCOME TAX BY INDI-
VIDUALS. 
(a) IN GENERAL.—Part III of subchapter B of chapter 
1 (relating to items specifically excluded from gross income) 
is amended by inserting after section 139 the following new 
section: 
‘‘SEC. 139A. EXCLUSION FROM GROSS INCOME FOR INTER-
EST ON OVERPAYMENTS OF INCOME TAX BY 
INDIVIDUALS. 
‘‘(a) IN GENERAL.—In the case of an individual, gross 
income shall not include interest paid under section 6611 
on any overpayment of tax imposed by this subtitle. 
‘‘(b) EXCEPTION.—Subsection (a) shall not apply in 
the case of a failure to claim items resulting in the overpay-
ment on the original return if the Secretary determines that 
the principal purpose of such failure is to take advantage 
of subsection (a). 
‘‘(c) SPECIAL RULE FOR DETERMINING MODIFIED AD-
JUSTED GROSS INCOME.—For purposes of this title, interest 
not included in gross income under subsection (a) shall not 
be treated as interest which is exempt from tax for purposes 
of sections 32(i)(2)(B) and 6012(d) or any computation in 
which interest exempt from tax under this title is added 
to adjusted gross income.’’.
(b) CLERICAL AMENDMENT.—The table of sections for 
part III of subchapter B of chapter 1 is amended by insert-
ing after the item relating to section 139 the following new 
item:
‘‘Sec. 139A. Exclusion from gross income for interest on overpay-
ments of income tax by individuals.’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to interest received in calendar years 
beginning after the date of the enactment of this Act. 
SEC. 103. ABATEMENT OF INTEREST. 
(a) ABATEMENT OF INTEREST WITH RESPECT TO ER-
RONEOUS REFUND CHECK WITHOUT REGARD TO SIZE OF 
REFUND.—Paragraph (2) of section 6404(e) is amended by 
striking ‘‘unless—’’ and all that follows and inserting ‘‘un-
less the taxpayer (or a related party) has in any way 
caused such erroneous refund.’’. 
(b) ABATEMENT OF INTEREST TO EXTENT INTEREST 
IS ATTRIBUTABLE TO TAXPAYER RELIANCE ON WRITTEN 
STATEMENTS OF THE IRS.—Subsection (f) of section 6404 
is amended—
(1) in the subsection heading, by striking ‘‘PEN-
ALTY OR ADDITION’’ and inserting ‘‘INTEREST, PEN-
ALTY, OR ADDITION’’; and 
(2) in paragraph (1) and in subparagraph (B) 
of paragraph (2), by striking ‘‘penalty or addition’’ 
and inserting ‘‘interest, penalty, or addition’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply with respect to interest accruing on or 
after the date of the enactment of this Act.
SEC. 104. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS. 
(a) IN GENERAL.—Subchapter A of chapter 67 (relat-
ing to interest on underpayments) is amended by adding 
at the end the following new section: 
‘‘SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF IN-
TEREST ON POTENTIAL UNDERPAYMENTS, 
ETC. 
‘‘(a) AUTHORITY TO MAKE DEPOSITS OTHER THAN 
AS PAYMENT OF TAX.—A taxpayer may make a cash de-
posit with the Secretary which may be used by the Sec-
retary to pay any tax imposed under subtitle A or B or 
chapter 41, 42, 43, or 44 which has not been assessed at 
the time of the deposit. Such a deposit shall be made in 
such manner as the Secretary shall prescribe. 
‘‘(b) NO INTEREST IMPOSED.—To the extent that such 
deposit is used by the Secretary to pay tax, for purposes 
of section 6601 (relating to interest on underpayments), the 
tax shall be treated as paid when the deposit is made. 
‘‘(c) RETURN OF DEPOSIT.—Except in a case where 
the Secretary determines that collection of tax is in jeop-
ardy, the Secretary shall return to the taxpayer any
amount of the deposit (to the extent not used for a payment 
of tax) which the taxpayer requests in writing. 
‘‘(d) PAYMENT OF INTEREST.—
‘‘(1) IN GENERAL.—For purposes of section 6611 
(relating to interest on overpayments), a deposit 
which is returned to a taxpayer shall be treated as a 
payment of tax for any period to the extent (and only 
to the extent) attributable to a disputable tax for such 
period. Under regulations prescribed by the Secretary, 
rules similar to the rules of section 6611(b)(2) shall 
apply. 
‘‘(2) DISPUTABLE TAX.—
‘‘(A) IN
GENERAL.—For purposes of this 
section, the term ‘disputable tax’ means the 
amount of tax specified at the time of the deposit 
as the taxpayer’s reasonable estimate of the max-
imum amount of any tax attributable to disput-
able items. 
‘‘(B) SAFE HARBOR BASED ON 30-DAY LET-
TER.—In the case of a taxpayer who has been 
issued a 30-day letter, the maximum amount of 
tax under subparagraph (A) shall not be less 
than the amount of the proposed deficiency speci-
fied in such letter.
‘‘(2) RETURNS OF DEPOSITS.—Deposits shall be 
treated as returned to the taxpayer on a last-in, first-
out basis.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
subchapter A of chapter 67 is amended by adding at the 
end the following new item:
‘‘Sec. 6603. Deposits made to suspend running of interest on poten-
tial underpayments, etc.’’.
(c) EFFECTIVE DATE.—
(1) IN
GENERAL.—The amendments made by 
this section shall apply to deposits made after the 
date of the enactment of this Act. 
(2) COORDINATION WITH DEPOSITS MADE UNDER 
REVENUE
PROCEDURE
84–58.—In the case of an 
amount held by the Secretary of the Treasury or his 
delegate on the date of the enactment of this Act as 
a deposit in the nature of a cash bond deposit pursu-
ant to Revenue Procedure 84–58, the date that the 
taxpayer identifies such amount as a deposit made 
pursuant to section 6603 of the Internal Revenue 
Code (as added by this Act) shall be treated as the 
date such amount is deposited for purposes of such 
section 6603.
SEC. 105. EXPANSION OF INTEREST NETTING FOR INDIVID-
UALS. 
(a) IN GENERAL.—Subsection (d) of section 6621 (re-
lating to elimination of interest on overlapping periods of 
tax overpayments and underpayments) is amended by add-
ing at the end the following: ‘‘Solely for purposes of the pre-
ceding sentence, section 6611(e) shall not apply in the case 
of an individual.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply to interest accrued after December 
31, 2003. 
SEC. 106. WAIVER OF CERTAIN PENALTIES FOR FIRST-TIME 
UNINTENTIONAL MINOR ERRORS. 
(a) IN GENERAL.—Section 6651 (relating to failure to 
file tax return or to pay tax) is amended by adding at the 
end the following new subsection: 
‘‘(i) TREATMENT
OF FIRST-TIME UNINTENTIONAL 
MINOR ERRORS.—
‘‘(1) IN GENERAL.—In the case of a return of tax 
imposed by subtitle A filed by an individual, the Sec-
retary may waive an addition to tax under subsection 
(a) if—
‘‘(A) the individual has a history of compli-
ance with the requirements of this title, 
‘‘(B) it is shown that the failure is due to 
an unintentional minor error,
‘‘(C) the penalty would be grossly dis-
proportionate to the action or expense that would 
have been needed to avoid the error, and impos-
ing the penalty would be against equity and 
good conscience, 
‘‘(D) waiving the penalty would promote 
compliance with the requirements of this title 
and effective tax administration, and 
‘‘(E) the taxpayer took all reasonable steps 
to remedy the error promptly after discovering 
it. 
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 
apply if—
‘‘(A) the Secretary has waived any addition 
to tax under this subsection with respect to any 
prior failure by such individual, 
‘‘(B) the failure is a mathematical or cler-
ical error (as defined in section 6213(g)(2)), or 
‘‘(C) the failure is the lack of a required sig-
nature.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on January 1, 2004.
SEC. 107. FRIVOLOUS TAX SUBMISSIONS. 
(a) CIVIL PENALTIES.—Section 6702 is amended to 
read as follows:
‘‘SEC. 6702. FRIVOLOUS TAX SUBMISSIONS. 
‘‘(a) CIVIL
PENALTY
FOR
FRIVOLOUS
TAX
RE-
TURNS.—A person shall pay a penalty of $5,000 if—
‘‘(1) such person files what purports to be a re-
turn of a tax imposed by this title but which—
‘‘(A) does not contain information on which 
the substantial correctness of the self-assessment 
may be judged, or 
‘‘(B) contains information that on its face 
indicates that the self-assessment is substantially 
incorrect; and 
‘‘(2) the conduct referred to in paragraph (1)— 
‘‘(A) is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c), or 
‘‘(B) reflects a desire to delay or impede the 
administration of Federal tax laws. 
‘‘(b) CIVIL PENALTY FOR SPECIFIED FRIVOLOUS SUB-
MISSIONS.—
‘‘(1) IMPOSITION OF PENALTY.—Except as pro-
vided in paragraph (3), any person who submits a 
specified frivolous submission shall pay a penalty of 
$5,000. 
‘‘(2) SPECIFIED
FRIVOLOUS
SUBMISSION.—For 
purposes of this section—
‘‘(A) SPECIFIED FRIVOLOUS SUBMISSION.—
The term ‘specified frivolous submission’ means 
a specified submission if any portion of such 
submission is based on a position which the Sec-
retary has identified as frivolous under sub-
section (c). 
‘‘(B) SPECIFIED
SUBMISSION.—The term 
‘specified submission’ means—
‘‘(i) a request for a hearing under—
‘‘(I) section 6320 (relating to no-
tice and opportunity for hearing upon 
filing of notice of lien), or 
‘‘(II) section 6330 (relating to no-
tice and opportunity for hearing before 
levy), and 
‘‘(ii) an application under—
‘‘(I) section 7811 (relating to tax-
payer assistance orders), 
‘‘(II) section 6159 (relating to 
agreements for payment of tax liability 
in installments), or 
‘‘(III) section 7122 (relating to 
compromises). 
‘‘(3) OPPORTUNITY
TO
WITHDRAW
SUBMIS-
SION.—If the Secretary provides a person with notice
that a submission is a specified frivolous submission 
and such person withdraws such submission within 
30 days after such notice, the penalty imposed under 
paragraph (1) shall not apply with respect to such 
submission. 
‘‘(c) LISTING OF FRIVOLOUS POSITIONS.—The Sec-
retary shall prescribe (and periodically revise) a list of posi-
tions which the Secretary has identified as being frivolous 
for purposes of this subsection. The Secretary shall not in-
clude in such list any position that the Secretary deter-
mines 
meets 
the 
requirement 
of 
section 
6662(d)(2)(B)(ii)(II). 
‘‘(d) REDUCTION OF PENALTY.—The Secretary may 
reduce the amount of any penalty imposed under this sec-
tion if the Secretary determines that such reduction would 
promote compliance with and administration of the Federal 
tax laws. 
‘‘(e) PENALTIES
IN
ADDITION
TO
OTHER
PEN-
ALTIES.—The penalties imposed by this section shall be in 
addition to any other penalty provided by law.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
part I of subchapter B of chapter 68 is amended by striking 
the item relating to section 6702 and inserting the following 
new item:
‘‘Sec. 6702. Frivolous tax submissions.’’.
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to submissions made and issues raised 
after the date on which the Secretary first prescribes a list 
under section 6702(c) of the Internal Revenue Code of 1986, 
as amended by subsection (a). 
SEC. 108. CLARIFICATION OF APPLICATION OF FEDERAL 
TAX DEPOSIT PENALTY. 
Nothing in section 6656 of the Internal Revenue Code 
of 1986 shall be construed to permit the percentage specified 
in subsection (b)(1)(A)(iii) thereof to apply other than in 
a case where the failure is for more than 15 days. 
TITLE II—FAIRNESS OF 
COLLECTION PROCEDURES 
SEC. 201. PARTIAL PAYMENT OF TAX LIABILITY IN INSTALL-
MENT AGREEMENTS. 
(a) IN GENERAL.—
(1) Section 6159(a) (relating to authorization of 
agreements) is amended—
(A) by striking ‘‘satisfy liability for pay-
ment of’’ and inserting ‘‘make payment on’’, and 
(B) by inserting ‘‘full or partial’’ after ‘‘fa-
cilitate’’. 
(2) Section 6159(c) (relating to Secretary re-
quired to enter into installment agreements in certain
cases) is amended in the matter preceding paragraph 
(1) by inserting ‘‘full’’ before ‘‘payment’’. 
(b) REQUIREMENT TO REVIEW PARTIAL PAYMENT 
AGREEMENTS
EVERY
TWO
YEARS.—Section 6159 is 
amended by redesignating subsections (d) and (e) as sub-
sections (e) and (f), respectively, and inserting after sub-
section (c) the following new subsection: 
‘‘(d) SECRETARY REQUIRED TO REVIEW INSTALL-
MENT AGREEMENTS FOR PARTIAL COLLECTION EVERY TWO 
YEARS.—In the case of an agreement entered into by the 
Secretary under subsection (a) for partial collection of a 
tax liability, the Secretary shall review the agreement at 
least once every 2 years.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to agreements entered into on or after 
the date of the enactment of this Act. 
SEC. 202. EXTENSION OF TIME FOR RETURN OF PROPERTY. 
(a) EXTENSION OF TIME FOR RETURN OF PROPERTY 
SUBJECT TO LEVY.—Subsection (b) of section 6343 (relat-
ing to return of property) is amended by striking ‘‘9 
months’’ and inserting ‘‘2 years’’. 
(b) PERIOD OF LIMITATION ON SUITS.—Subsection (c) 
of section 6532 (relating to suits by persons other than tax-
payers) is amended—
(1) in paragraph (1) by striking ‘‘9 months’’ 
and inserting ‘‘2 years’’, and 
(2) in paragraph (2) by striking ‘‘9-month’’ and 
inserting ‘‘2-year’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to—
(1) levies made after the date of the enactment 
of this Act, and 
(2) levies made on or before such date if the 9-
month period has not expired under section 6343(b) 
of the Internal Revenue Code of 1986 (without regard 
to this section) as of such date.
SEC. 203. INDIVIDUALS HELD HARMLESS ON WRONGFUL 
LEVY, ETC., ON INDIVIDUAL RETIREMENT 
PLAN. 
(a) IN GENERAL.—Section 6343 (relating to authority 
to release levy and return property) is amended by adding 
at the end the following new subsection: 
‘‘(f) INDIVIDUALS HELD HARMLESS ON WRONGFUL 
LEVY, ETC. ON INDIVIDUAL RETIREMENT PLAN.—
‘‘(1) IN GENERAL.—If the Secretary determines 
that an individual retirement plan has been levied 
upon in a case to which subsection (b) or (d)(2)(A) 
applies, an amount equal to the sum of—
‘‘(A) the amount of money returned by the 
Secretary on account of such levy, and 
‘‘(B) interest paid under subsection (c) on 
such amount of money, 
may be deposited into an individual retirement plan 
(other than an endowment contract) to which a roll-
over from the plan levied upon is permitted. 
‘‘(2) TREATMENT AS ROLLOVER.—The distribu-
tion on account of the levy and any deposit under 
paragraph (1) with respect to such distribution shall 
be treated for purposes of this title as if such distribu-
tion and deposit were part of a rollover described in 
section 408(d)(3)(A)(i); except that—
‘‘(A) interest paid under subsection (c) shall 
be treated as part of such distribution and as not 
includible in gross income, 
‘‘(B) the 60-day requirement in such section 
shall be treated as met if the deposit is made not 
later than the 60th day after the day on which 
the individual receives an amount under para-
graph (1) from the Secretary, and 
‘‘(C) such deposit shall not be taken into ac-
count under section 408(d)(3)(B). 
‘‘(3) REFUND, ETC., OF INCOME TAX ON LEVY.—
If any amount is includible in gross income for a tax-
able year by reason of a levy referred to in paragraph 
(1) and any portion of such amount is treated as a 
rollover under paragraph (2), any tax imposed by 
chapter 1 on such portion shall not be assessed, and 
if assessed shall be abated, and if collected shall be 
credited or refunded as an overpayment made on the 
due date for filing the return of tax for such taxable 
year. 
‘‘(4) 
INTEREST.—Notwithstanding 
subsection 
(d), interest shall be allowed under subsection (c) in 
a case in which the Secretary makes a determination 
described in subsection (d)(2)(A) with respect to a 
levy upon an individual retirement plan.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to amounts paid under subsections (b), 
(c), and (d)(2)(A) of section 6343 of the Internal Revenue 
Code of 1986 after December 31, 2003. 
SEC. 204. SEVEN-DAY THRESHOLD ON TOLLING OF STAT-
UTE OF LIMITATIONS DURING TAX REVIEW. 
(a) IN GENERAL.—Section 7811(d)(1) (relating to sus-
pension of running of period of limitation) is amended by 
inserting after ‘‘application,’’ the following: ‘‘but only if the 
date of such decision is at least 7 days after the date of 
the taxpayer’s application,’’.
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to applications filed after the date of 
the enactment of this Act. 
SEC. 205. STUDY OF LIENS AND LEVIES. 
The Secretary of the Treasury, or the Secretary’s dele-
gate, shall conduct a study of the practices of the Internal 
Revenue Service concerning liens and levies. The study shall 
examine—
(1) the declining use of liens and levies by the 
Internal Revenue Service, and 
(2) the practicality of recording liens and lev-
ying against property in cases in which the cost of 
such actions exceeds the amount to be realized from 
such property. 
Not later than 1 year after the date of the enactment of 
this Act, the Secretary shall submit such study to the Com-
mittee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate.
TITLE III—TAX ADMINISTRATION 
REFORMS 
SEC. 301. REVISIONS RELATING TO TERMINATION OF EM-
PLOYMENT OF INTERNAL REVENUE SERVICE 
EMPLOYEES FOR MISCONDUCT. 
(a) IN GENERAL.—Subchapter A of chapter 80 (relat-
ing to application of internal revenue laws) is amended by 
inserting after section 7804 the following new section: 
‘‘SEC. 7804A. DISCIPLINARY ACTIONS FOR MISCONDUCT. 
‘‘(a) DISCIPLINARY ACTIONS.—
‘‘(1) IN GENERAL.—Subject to subsection (c), the 
Commissioner shall take an action in accordance with 
the guidelines established under paragraph (2) 
against any employee of the Internal Revenue Service 
if there is a final administrative or judicial deter-
mination that such employee committed any act or 
omission described under subsection (b) in the per-
formance of the employee’s official duties or where a 
nexus to the employee’s position exists. 
‘‘(2) GUIDELINES.—The Commissioner shall 
issue guidelines for determining the appropriate level 
of discipline, up to and including termination of em-
ployment, for committing any act or omission de-
scribed under subsection (b).
‘‘(b) ACTS OR OMISSIONS.—The acts or omissions de-
scribed under this subsection are—
‘‘(1) willful failure to obtain the required ap-
proval signatures on documents authorizing the sei-
zure of a taxpayer’s home, personal belongings, or 
business assets; 
‘‘(2) willfully providing a false statement under 
oath with respect to a material matter involving a 
taxpayer or taxpayer representative; 
‘‘(3) with respect to a taxpayer or taxpayer rep-
resentative, the willful violation of—
‘‘(A) any right under the Constitution of the 
United States; 
‘‘(B) any civil right established under—
‘‘(i) title VI or VII of the Civil Rights 
Act of 1964; 
‘‘(ii) title IX of the Education Amend-
ments of 1972; 
‘‘(iii) the Age Discrimination in Em-
ployment Act of 1967; 
‘‘(iv) the Age Discrimination Act of 
1975; 
‘‘(v) section 501 or 504 of the Rehabili-
tation Act of 1973; or
‘‘(vi) title I of the Americans with Dis-
abilities Act of 1990; or 
‘‘(C) the Internal Revenue Service policy on 
unauthorized inspection of returns or return in-
formation; 
‘‘(4) willfully falsifying or destroying documents 
to conceal mistakes made by any employee with re-
spect to a matter involving a taxpayer or taxpayer 
representative; 
‘‘(5) assault or battery on a taxpayer or tax-
payer representative, but only if there is a criminal 
conviction, or a final adverse judgment by a court in 
a civil case, with respect to the assault or battery; 
‘‘(6) willful violations of this title, Department of 
the Treasury regulations, or policies of the Internal 
Revenue Service (including the Internal Revenue 
Manual) for the purpose of retaliating against, or 
harassing, a taxpayer or taxpayer representative; 
‘‘(7) willful misuse of the provisions of section 
6103 for the purpose of concealing information from 
a congressional inquiry; 
‘‘(8) willful failure to file any return of tax re-
quired under this title on or before the date prescribed 
therefor (including any extensions) when a tax is due
and owing, unless such failure is due to reasonable 
cause and not due to willful neglect; 
‘‘(9) willful understatement of Federal tax liabil-
ity, unless such understatement is due to reasonable 
cause and not due to willful neglect; and 
‘‘(10) threatening to audit a taxpayer, or to take 
other action under this title, for the purpose of ex-
tracting personal gain or benefit. 
‘‘(c) DETERMINATIONS OF COMMISSIONER.—
‘‘(1) IN GENERAL.—The Commissioner may take 
a personnel action other than a disciplinary action 
provided for in the guidelines under subsection (a)(2) 
for an act or omission described under subsection (b). 
‘‘(2) DISCRETION.—The exercise of authority 
under paragraph (1) shall be at the sole discretion of 
the Commissioner and may not be delegated to any 
other officer. The Commissioner, in his sole discretion, 
may establish a procedure to determine if an indi-
vidual should be referred to the Commissioner for a 
determination by the Commissioner under paragraph 
(1). 
‘‘(3) NO
APPEAL.—Notwithstanding any other 
provision of law, any determination of the Commis-
sioner under this subsection may not be reviewed in 
any administrative or judicial proceeding. A finding
that an act or omission described under subsection (b) 
occurred may be reviewed. 
‘‘(d) DEFINITION.—For the purposes of the provisions 
described in clauses (i), (ii), and (iv) of subsection 
(b)(3)(B), references to a program or activity regarding 
Federal financial assistance or an education program or 
activity receiving Federal financial assistance shall include 
any program or activity conducted by the Internal Revenue 
Service for a taxpayer. 
‘‘(e) ANNUAL REPORT.—The Commissioner shall sub-
mit to Congress annually a report on disciplinary actions 
under this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections for 
chapter 80 is amended by inserting after the item relating 
to section 7804 the following new item:
‘‘Sec. 7804A. Disciplinary actions for misconduct.’’.
(c) REPEAL OF SUPERSEDED SECTION.—Section 1203 
of the Internal Revenue Service Restructuring and Reform 
Act of 1998 (Public Law 105–206; 112 Stat. 720) is re-
pealed. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on the date of the enactment of this 
Act.
SEC. 302. CONFIRMATION OF AUTHORITY OF TAX COURT TO 
APPLY 
DOCTRINE 
OF 
EQUITABLE 
RECOUPMENT. 
(a) CONFIRMATION OF AUTHORITY OF TAX COURT TO 
APPLY DOCTRINE
OF EQUITABLE RECOUPMENT.—Sub-
section (b) of section 6214 (relating to jurisdiction over 
other years and quarters) is amended by adding at the end 
the following new sentence: ‘‘Notwithstanding the preceding 
sentence, the Tax Court may apply the doctrine of equitable 
recoupment to the same extent that it is available in civil 
tax cases before the district courts of the United States and 
the United States Court of Federal Claims.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
section shall apply to any action or proceeding in the Tax 
Court with respect to which a decision has not become final 
(as determined under section 7481 of the Internal Revenue 
Code of 1986) as of the date of the enactment of this Act. 
SEC. 303. JURISDICTION OF TAX COURT OVER COLLECTION 
DUE PROCESS CASES. 
(a) IN GENERAL.—Section 6330(d)(1) (relating to ju-
dicial review of determination) is amended to read as fol-
lows: 
‘‘(1) JUDICIAL
REVIEW
OF
DETERMINATION.—
The person may, within 30 days of a determination 
under this section, appeal such determination to the
‘‘(f) ELECTRONICALLY FILED RETURNS OF INDIVID-
UALS.—
‘‘(1) IN
GENERAL.—Returns of an individual 
under section 6012 or 6013 (other than an individual 
to whom subsection (c) applies) which are filed elec-
tronically—
‘‘(A) in the case of returns filed on the basis 
of a calendar year, shall be filed on or before the 
30th day of April following the close of the cal-
endar year, and 
‘‘(B) in the case of returns filed on the basis 
of a fiscal year, shall be filed on or before the last 
day of the 4th month following the close of the 
fiscal year. 
‘‘(2) ELECTRONIC FILING.—Paragraph (1) shall 
not apply to any return unless—
‘‘(A) such return is accepted by the Sec-
retary, and 
‘‘(B) the balance due (if any) shown on 
such return is paid electronically in a manner 
prescribed by the Secretary. 
‘‘(3) SPECIAL RULES.—
‘‘(A) ESTIMATED TAX.—If—
‘‘(i) paragraph (1) applies to an indi-
vidual for any taxable year, and
‘‘(ii) there is an overpayment of tax 
shown on the return for such year which the 
individual allows against the individual’s 
obligation under section 6641, 
then, with respect to the amount so allowed, any 
reference in section 6641 to the April 15 fol-
lowing such taxable year shall be treated as a 
reference to April 30. 
‘‘(B) REFERENCES TO DUE DATE.—Para-
graph (1) shall apply solely for purposes of de-
termining the due date for the individual’s obli-
gation to file and pay tax and, except as other-
wise provided by the Secretary, shall be treated 
as an extension of the due date for any other 
purpose under this title. 
‘‘(4) TERMINATION.—This subsection shall not 
apply to any return filed with respect to a taxable 
year which begins after December 31, 2007.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to returns filed with respect to taxable 
years beginning after December 31, 2002. 
SEC. 306. ACCESS OF NATIONAL TAXPAYER ADVOCATE TO 
INDEPENDENT LEGAL COUNSEL. 
Clause (i) of section 7803(c)(2)(D) (relating to per-
sonnel actions) is amended by striking ‘‘and’’ at the end
of subclause (I), by striking the period at the end of sub-
clause (II) and inserting ‘‘, and’’, and by adding at the 
end the following new subclause: 
‘‘(III) appoint a counsel in the 
Office of the Taxpayer Advocate to re-
port solely to the National Taxpayer 
Advocate.’’. 
SEC. 307. PAYMENT OF MOTOR FUEL EXCISE TAX REFUNDS 
BY DIRECT DEPOSIT. 
(a) IN GENERAL.—Subchapter II of chapter 33 of title 
31, United States Code, is amended by adding at the end 
the following new section: 
‘‘§ 3337. Payment of motor fuel excise tax refunds by 
direct deposit 
‘‘The Secretary of the Treasury shall make payments 
under sections 6420, 6421, and 6427 of the Internal Rev-
enue Code of 1986 by electronic funds transfer (as defined 
in section 3332(j)(1)) if the person who is entitled to the 
payment—
‘‘(1) elects to receive the payment by electronic 
funds transfer; and 
‘‘(2) satisfies the requirements of section 3332(g) 
with respect to such payment at such time and in 
such manner as the Secretary may require.’’.
(b) CLERICAL AMENDMENT.—The table of sections for 
subchapter II of chapter 33 of title 31, United States Code, 
is amended by adding at the end the following new item:
‘‘3337. Payment of motor fuel excise tax refunds by direct deposit.’’.
SEC. 308. FAMILY BUSINESS TAX SIMPLIFICATION. 
(a) IN GENERAL.—Section 761 (defining terms for 
purposes of partnerships) is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (e) the following new subsection: 
‘‘(f) QUALIFIED JOINT VENTURE.—
‘‘(1) IN GENERAL.—In the case of a qualified 
joint venture conducted by a husband and wife who 
file a joint return for the taxable year, for purposes 
of this title—
‘‘(A) such joint venture shall not be treated 
as a partnership, 
‘‘(B) all items of income, gain, loss, deduc-
tion, and credit shall be divided between the 
spouses in accordance with their respective inter-
ests in the venture, and 
‘‘(C) each spouse shall take into account 
such spouse’s respective share of such items as if 
they were attributable to a trade or business con-
ducted by such spouse as a sole proprietor. 
‘‘(2) QUALIFIED JOINT VENTURE.—For purposes 
of paragraph (1), the term ‘qualified joint venture’
means any joint venture involving the conduct of a 
trade or business if—
‘‘(A) the only members of such joint venture 
are a husband and wife, 
‘‘(B) both spouses materially participate 
(within the meaning of section 469(h) without 
regard to paragraph (5) thereof) in such trade or 
business, and 
‘‘(C) both spouses elect the application of 
this subsection.’’. 
(b) NET EARNINGS FROM SELF-EMPLOYMENT.—
(1) Subsection (a) of section 1402 (defining net 
earnings from self-employment) is amended by strik-
ing ‘‘and’’ at the end of paragraph (14), by striking 
the period at the end of paragraph (15) and inserting 
‘‘; and’’, and by inserting after paragraph (15) the 
following new paragraph: 
‘‘(16) notwithstanding the preceding provisions 
of this subsection, each spouse’s share of income or 
loss from a qualified joint venture shall be taken into 
account as provided in section 761(f) in determining 
net earnings from self-employment of such spouse.’’. 
(2) Subsection (a) of section 211 of the Social 
Security Act (defining net earnings from self-employ-
ment) is amended by striking ‘‘and’’ at the end of
paragraph (14), by striking the period at the end of 
paragraph (15) and inserting ‘‘; and’’, and by insert-
ing after paragraph (15) the following new para-
graph: 
‘‘(16) Notwithstanding the preceding provisions 
of this subsection, each spouse’s share of income or 
loss from a qualified joint venture shall be taken into 
account as provided in section 761(f) of the Internal 
Revenue Code of 1986 in determining net earnings 
from self-employment of such spouse.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to taxable years beginning after Decem-
ber 31, 2002. 
SEC. 309. HEALTH INSURANCE COSTS OF ELIGIBLE INDI-
VIDUALS. 
(a) CONSUMER OPTIONS.—Paragraph (2) of section 
35(e) is amended by inserting at the end the following new 
subparagraph: 
‘‘(C) WAIVER BY ELIGIBLE INDIVIDUALS.—
With respect to any month which ends before 
January 1, 2006, subparagraphs (A) and (B) 
shall not apply with respect to any eligible indi-
vidual and such individual’s qualifying family 
members if such eligible individual elects to
be suspended during the period described in para-
graph (3). 
‘‘(2) TERRORIST ORGANIZATIONS.—An organiza-
tion is described in this paragraph if such organiza-
tion is designated or otherwise individually identi-
fied— 
‘‘(A) under section 212(a)(3)(B)(vi)(II) or 
219 of the Immigration and Nationality Act as 
a terrorist organization or foreign terrorist orga-
nization, 
‘‘(B) in or pursuant to an Executive order 
which is related to terrorism and issued under 
the authority of the International Emergency 
Economic Powers Act or section 5 of the United 
Nations Participation Act of 1945 for the pur-
pose of imposing on such organization an eco-
nomic or other sanction, or 
‘‘(C) in or pursuant to an Executive order 
issued under the authority of any Federal law 
if—
‘‘(i) the organization is designated or 
otherwise individually identified in or pur-
suant to such Executive order as supporting 
or engaging in terrorist activity (as defined 
in section 212(a)(3)(B) of the Immigration
and Nationality Act) or supporting ter-
rorism (as defined in section 140(d)(2) of 
the Foreign Relations Authorization Act, 
Fiscal Years 1988 and 1989); and 
‘‘(ii) such Executive order refers to this 
subsection. 
‘‘(3) PERIOD OF SUSPENSION.—With respect to 
any organization described in paragraph (2), the pe-
riod of suspension—
‘‘(A) begins on the later of—
‘‘(i) the date of the first publication of 
a designation or identification described in 
paragraph (2) with respect to such organi-
zation, or 
‘‘(ii) the date of the enactment of this 
subsection, and 
‘‘(B) ends on the first date that all designa-
tions and identifications described in paragraph 
(2) with respect to such organization are re-
scinded pursuant to the law or Executive order 
under which such designation or identification 
was made. 
‘‘(4) DENIAL
OF
DEDUCTION.—No deduction 
shall be allowed under section 170, 545(b)(2), 
556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 for any
contribution to an organization described in para-
graph (2) during the period described in paragraph 
(3). 
‘‘(5) DENIAL OF ADMINISTRATIVE OR JUDICIAL 
CHALLENGE OF SUSPENSION OR DENIAL OF DEDUC-
TION.—Notwithstanding section 7428 or any other 
provision of law, no organization or other person may 
challenge a suspension under paragraph (1), a des-
ignation or identification described in paragraph (2), 
the period of suspension described in paragraph (3), 
or a denial of a deduction under paragraph (4) in 
any administrative or judicial proceeding relating to 
the Federal tax liability of such organization or other 
person. 
‘‘(6) ERRONEOUS DESIGNATION.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the tax exemption of any organi-
zation described in paragraph (2) is sus-
pended under paragraph (1), 
‘‘(ii) each designation and identifica-
tion described in paragraph (2) which has 
been made with respect to such organization 
is determined to be erroneous pursuant to 
the law or Executive order under which
such designation or identification was 
made, and 
‘‘(iii) the erroneous designations and 
identifications result in an overpayment of 
income tax for any taxable year by such or-
ganization, 
credit or refund (with interest) with respect to 
such overpayment shall be made. 
‘‘(B) WAIVER OF LIMITATIONS.—If the cred-
it or refund of any overpayment of tax described 
in subparagraph (A)(iii) is prevented at any 
time by the operation of any law or rule of law 
(including res judicata), such credit or refund 
may nevertheless be allowed or made if the claim 
therefor is filed before the close of the 1-year pe-
riod beginning on the date of the last determina-
tion described in subparagraph (A)(ii). 
‘‘(7) NOTICE OF SUSPENSIONS.—If the tax ex-
emption of any organization is suspended under this 
subsection, the Internal Revenue Service shall update 
the listings of tax-exempt organizations and shall 
publish appropriate notice to taxpayers of such sus-
pension and of the fact that contributions to such or-
ganization are not deductible during the period of 
such suspension.’’.
‘‘(1) requests to the Internal Revenue Service for 
ruling letters, opinion letters, and determination let-
ters, and 
‘‘(2) other similar requests. 
‘‘(b) PROGRAM CRITERIA.—
‘‘(1) IN GENERAL.—The fees charged under the 
program required by subsection (a)—
‘‘(A) shall vary according to categories (or 
subcategories) established by the Secretary, 
‘‘(B) shall be determined after taking into 
account the average time for (and difficulty of) 
complying with requests in each category (and 
subcategory), and 
‘‘(C) shall be payable in advance. 
‘‘(2) EXEMPTIONS, ETC.—
‘‘(A) IN
GENERAL.—The Secretary shall 
provide for such exemptions (and reduced fees) 
under such program as the Secretary determines 
to be appropriate. 
‘‘(B) EXEMPTION FOR CERTAIN REQUESTS 
REGARDING
PENSION
PLANS.—The Secretary 
shall not require payment of user fees under such 
program for requests for determination letters 
with respect to the qualified status of a pension 
benefit plan maintained solely by 1 or more eli-