(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to requests made after the date of the
enactment of this Act.
Subtitle B—Personnel Flexibilities
SEC. 111. PERSONNEL FLEXIBILITIES.
(a) IN GENERAL.—Part III of title 5, United States
Code, is amended by adding at the end the following new
subpart:
‘‘Subpart I—Miscellaneous
‘‘CHAPTER 93—PERSONNEL FLEXIBILITIES
RELATING TO THE INTERNAL REVE-
NUE SERVICE
‘‘Sec.
‘‘9301. General requirements.
‘‘9302. Flexibilities relating to performance management.
‘‘9303. Staffing flexibilities.
‘‘9304. Flexibilities relating to demonstration projects.
‘‘§ 9301. General requirements
‘‘(a) CONFORMANCE WITH MERIT SYSTEM PRIN-
CIPLES, ETC.—Any flexibilities under this chapter shall be
exercised in a manner consistent with—
‘‘(1) chapter 23, relating to merit system prin-
ciples and prohibited personnel practices; and
‘‘(2) provisions of this title (outside of this sub-
part) relating to preference eligibles.
‘‘(b) REQUIREMENT
RELATING
TO
UNITS
REP-
RESENTED BY LABOR ORGANIZATIONS.—
‘‘(1) WRITTEN
AGREEMENT
REQUIRED.—Em-
ployees within a unit with respect to which a labor
organization is accorded exclusive recognition under
chapter 71 shall not be subject to the exercise of any
flexibility under section 9302, 9303, or 9304, unless
there is a written agreement between the Internal
Revenue Service and the organization permitting such
exercise.
‘‘(2) DEFINITION OF A WRITTEN AGREEMENT.—
In order to satisfy paragraph (1), a written agree-
ment—
‘‘(A) need not be a collective bargaining
agreement 
within 
the 
meaning 
of 
section
7103(8); and
‘‘(B) may not be an agreement imposed by
the Federal Service Impasses Panel under section
7119.
‘‘§ 9302. Flexibilities relating to performance manage-
ment
‘‘(a) IN GENERAL.—The Commissioner of Internal
Revenue shall, within a year after the date of the enactment
of this chapter, establish a performance management system
which—
‘‘(1) subject to section 9301(b), shall cover all
employees of the Internal Revenue Service other
than—
‘‘(A) the members of the Internal Revenue
Service Oversight Board;
‘‘(B) the Commissioner of Internal Revenue;
and
‘‘(C) the Chief Counsel for the Internal Rev-
enue Service;
‘‘(2) shall maintain individual accountability
by—
‘‘(A) establishing standards of performance
which—
‘‘(i) shall permit the accurate evalua-
tion of each employee’s performance on the
basis of the individual and organizational
performance requirements applicable with
respect to the evaluation period involved,
taking into account individual contribu-
tions toward the attainment of any goals or
objectives under paragraph (3);
‘‘(ii) shall be communicated to an em-
ployee before the start of any period with
respect to which the performance of such
employee is to be evaluated using such
standards; and
‘‘(iii) shall include at least 2 standards
of performance, the lowest of which shall de-
note the retention standard and shall be
equivalent to fully successful performance;
‘‘(B) providing for periodic performance
evaluations to determine whether employees are
meeting all applicable retention standards; and
‘‘(C) using the results of such employee’s
performance evaluation as a basis for adjust-
ments in pay and other appropriate personnel
actions; and
‘‘(3) shall provide for (A) establishing goals or
objectives for individual, group, or organizational
performance (or any combination thereof), consistent
with Internal Revenue Service performance planning
procedures, including those established under the Gov-
ernment Performance and Results Act of 1993, the In-
formation Technology Management Reform Act of
1996, Revenue Procedure 64–22 (as in effect on July
30, 1997), and taxpayer service surveys, (B) commu-
nicating such goals or objectives to employees, and (C)
using such goals or objectives to make performance
distinctions among employees or groups of employees.
For purposes of this title, performance of an employee dur-
ing any period in which such employee is subject to stand-
ards of performance under paragraph (2) shall be consid-
ered to be ‘unacceptable’ if the performance of such employee
during such period fails to meet any retention standard.
‘‘(b) AWARDS.—
‘‘(1) FOR SUPERIOR ACCOMPLISHMENTS.—In the
case of a proposed award based on the efforts of an
employee or former employee of the Internal Revenue
Service, any approval required under the provisions
of section 4502(b) shall be considered to have been
granted if the Office of Personnel Management does
not disapprove the proposed award within 60 days
after receiving the appropriate certification described
in such provisions.
‘‘(2) FOR EMPLOYEES WHO REPORT DIRECTLY
TO THE COMMISSIONER.—
‘‘(A) IN GENERAL.—In the case of an em-
ployee of the Internal Revenue Service who re-
ports directly to the Commissioner of Internal
Revenue, a cash award in an amount up to 50
percent of such employee’s annual rate of basic
pay may be made if the Commissioner finds such
an award to be warranted based on such employ-
ee’s performance.
‘‘(B) NATURE
OF
AN
AWARD.—A cash
award under this paragraph shall not be consid-
ered to be part of basic pay.
‘‘(C) TAX ENFORCEMENT RESULTS.—A cash
award under this paragraph may not be based
solely on tax enforcement results.
‘‘(D) ELIGIBLE
EMPLOYEES.—Whether or
not an employee is an employee who reports di-
rectly to the Commissioner of Internal Revenue
shall, for purposes of this paragraph, be deter-
mined under regulations which the Commis-
sioner shall prescribe, except that in no event
shall more than 8 employees be eligible for a cash
award under this paragraph in any calendar
year.
‘‘(E) LIMITATION ON COMPENSATION.—For
purposes of applying section 5307 to an em-
ployee in connection with any calendar year to
which an award made under this paragraph to
such employee is attributable, subsection (a)(1)
of such section shall be applied by substituting
‘to equal or exceed the annual rate of compensa-
tion for the Vice President for such calendar
year’ for ‘to exceed the annual rate of basic pay
payable for level I of the Executive Schedule, as
of the end of such calendar year’.
‘‘(F) APPROVAL
REQUIRED.—An award
under this paragraph may not be made unless—
‘‘(i) the Commissioner of Internal Rev-
enue certifies to the Office of Personnel
Management that such award is warranted;
and
‘‘(ii) the Office approves, or does not
disapprove, the proposed award within 60
days after the date on which it is so cer-
tified.
‘‘(3) BASED ON SAVINGS.—
‘‘(A) IN
GENERAL.—The Commissioner of
Internal Revenue may authorize the payment of
cash awards to employees based on documented
financial savings achieved by a group or organi-
zation which such employees comprise, if such
payments are made pursuant to a plan which—
‘‘(i) specifies minimum levels of service
and quality to be maintained while achiev-
ing such financial savings; and
‘‘(ii) is in conformance with criteria
prescribed by the Office of Personnel Man-
agement.
‘‘(B) FUNDING.—A cash award under this
paragraph may be paid from the fund or appro-
priation available to the activity primarily bene-
fiting or the various activities benefiting.
‘‘(C) TAX ENFORCEMENT RESULTS.—A cash
award under this paragraph may not be based
solely on tax enforcement results.
‘‘(c) OTHER PROVISIONS.—
‘‘(1) NOTICE PROVISIONS.—In applying sections
4303(b)(1)(A) and 7513(b)(1) to employees of the In-
ternal Revenue Service, ‘15 days’ shall be substituted
for ‘30 days’.
‘‘(2) APPEALS.—Notwithstanding the second sen-
tence 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.
‘‘§ 9303. Staffing flexibilities
‘‘(a) ELIGIBILITY TO COMPETE FOR A PERMANENT
APPOINTMENT IN THE COMPETITIVE SERVICE.—
‘‘(1) ELIGIBILITY OF QUALIFIED VETERANS.—
‘‘(A) IN GENERAL.—No veteran described in
subparagraph (B) shall be denied the oppor-
tunity to compete for an announced vacant com-
petitive service position within the Internal Rev-
enue Service by reason of—
‘‘(i) not having acquired competitive
status; or
‘‘(ii) not being an employee of that
agency.
‘‘(B) DESCRIPTION.—An individual shall,
for purposes of a position for which such indi-
vidual is applying, be considered a veteran de-
scribed in this subparagraph if such individ-
ual—
‘‘(i) is either a preference eligible, or
an individual (other than a preference eligi-
ble) who has been separated from the armed
forces under honorable conditions after at
least 3 years of active service; and
‘‘(ii) meets the minimum qualification
requirements for the position sought.
‘‘(2) ELIGIBILITY OF CERTAIN TEMPORARY EM-
PLOYEES.—
‘‘(A) IN GENERAL.—No temporary employee
described in subparagraph (B) shall be denied
the opportunity to compete for an announced va-
cant competitive service position within the In-
ternal Revenue Service by reason of not having
acquired competitive status.
‘‘(B) DESCRIPTION.—An individual shall,
for purposes of a position for which such indi-
vidual is applying, be considered a temporary
employee described in this subparagraph if—
‘‘(i) such individual is then currently
serving as a temporary employee in the In-
ternal Revenue Service;
‘‘(ii) such individual has completed at
least 2 years of current continuous service
in the competitive service under 1 or more
term appointments, each of which was made
under competitive procedures prescribed for
permanent appointments;
‘‘(iii) such individual’s performance
under each term appointment referred to in
clause (ii) met all applicable retention
standards; and
‘‘(iv) such individual meets the mini-
mum qualification requirements for the po-
sition sought.
‘‘(b) RATING SYSTEMS.—
‘‘(1) IN GENERAL.—Notwithstanding subchapter
I of chapter 33, the Commissioner of Internal Reve-
nue may establish category rating systems for evalu-
ating job applicants for positions in the competitive
service, under which qualified candidates are divided
into 2 or more quality categories on the basis of rel-
ative degrees of merit, rather than assigned individ-
ual numerical ratings. Each applicant who meets the
minimum qualification requirements for the position
to be filled shall be assigned to an appropriate cat-
egory based on an evaluation of the applicant’s
knowledge, skills, and abilities relative to those needed
for successful performance in the job to be filled.
‘‘(2) TREATMENT OF PREFERENCE ELIGIBLES.—
Within each quality category established under para-
graph (1), preference eligibles shall be listed ahead of
individuals who are not preference eligibles. For other
than scientific and professional 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 quali-
fication standards, shall be listed in the highest qual-
ity category.
‘‘(3) SELECTION PROCESS.—An appointing au-
thority may select any applicant from the highest
quality category or, if fewer than 3 candidates have
been assigned to the highest quality category, from a
merged category consisting of the highest and second
highest quality categories. Notwithstanding the pre-
ceding sentence, the appointing authority may not
pass over a preference eligible in the same or a higher
category from which selection is made, unless the re-
quirements of section 3317(b) or 3318(b), as applica-
ble, are satisfied, except that in no event may certifi-
cation of a preference eligible under this subsection be
discontinued by the Internal Revenue Service under
section 3317(b) before the end of the 6-month period
beginning on the date of such employee’s first certifi-
cation.
‘‘(c) INVOLUNTARY REASSIGNMENTS AND REMOVALS
OF CAREER APPOINTEES IN THE SENIOR EXECUTIVE SERV-
ICE.—Neither section 3395(e)(1) nor section 3592(b)(1)
shall apply with respect to the Internal Revenue Service.
‘‘(d) PROBATIONARY PERIODS.—Notwithstanding any
other provision of law or regulation, the Commissioner of
Internal Revenue may establish a period of probation under
section 3321 of up to 3 years for any position if, as deter-
mined by the Commissioner, a shorter period would be in-
sufficient for the incumbent to demonstrate complete pro-
ficiency in such position.
‘‘(e) PROVISIONS THAT REMAIN APPLICABLE.—No
provision of this section exempts the Internal Revenue Serv-
ice from—
‘‘(1) any employment priorities established
under direction of the President for the placement of
surplus or displaced employees; or
‘‘(2) its obligations under any court order or de-
cree relating to the employment practices of the Inter-
nal Revenue Service.
‘‘§ 9304. 
Flexibilities 
relating 
to 
demonstration
projects
‘‘(a) AUTHORITY TO CONDUCT.—The Commissioner of
Internal Revenue may, in accordance with this section, con-
duct 1 or more demonstration projects to improve personnel
management; provide increased individual accountability;
eliminate obstacles to the removal of or imposing any dis-
ciplinary action with respect to poor performers, subject to
the requirements of due process; expedite appeals from ad-
verse actions or performance-based actions; and promote
pay based on performance.
‘‘(b) GENERAL REQUIREMENTS.—Except as provided
in subsection (c), each demonstration project under this sec-
tion shall comply with the provisions of section 4703.
‘‘(c) SPECIAL RULES.—For purposes of any dem-
onstration project under this section—
lates, include the information specified in section
4703(b)(1).
‘‘(e) LIMITATIONS.—No demonstration project
under this section may—
‘‘(1) provide for a waiver of any regulation
prescribed under any provision of law referred to
in paragraph (2)(B)(i) or (3) of section 4703(c);
‘‘(2) provide for a waiver of subchapter V of
chapter 63 or subpart G of part III (or any reg-
ulations prescribed under such subchapter or
subpart);
‘‘(3) provide for a waiver of any law or reg-
ulation relating to preference eligibles as defined
in section 2108 or subchapter II or III of chap-
ter 73 (or any regulations prescribed there-
under);
‘‘(4) permit collective bargaining over pay
or benefits, or require collective bargaining over
any matter which would not be required under
section 7106; or
‘‘(5) include a system for measuring per-
formance that provides for only 1 level of per-
formance at or above the level of fully successful
or better.
‘‘(f) PERMISSIBLE PROJECTS.—Notwithstanding any
other provision of law, a demonstration project under this
section—
‘‘(1) may establish alternative means of resolving
any dispute within the jurisdiction of the Equal Em-
ployment Opportunity Commission, the Merit Sys-
tems Protection Board, the Federal Labor Relations
Authority, or the Federal Service Impasses Panel; and
‘‘(2) may permit the Internal Revenue Service to
adopt any alternative dispute resolution procedure
that a private entity may lawfully adopt.
‘‘(g) CONSULTATION AND COORDINATION.—The Com-
missioner of Internal Revenue shall consult with the Direc-
tor of the Office of Personnel Management in the develop-
ment and implementation of each demonstration project
under this section and shall submit such reports to the Di-
rector as the Director may require. The Director or the
Commissioner of Internal Revenue may terminate a dem-
onstration project under this section if either of them deter-
mines that the project creates a substantial hardship on,
or is not in the best interests of, the public, the Federal
Government, employees, or qualified applicants for employ-
ment with the Internal Revenue Service.
‘‘(h) TERMINATION.—Each demonstration project
under this section shall terminate before the end of the 5-
year period beginning on the date on which the project takes
effect, except that any such project may continue beyond
the end of such period, for not to exceed 2 years, if the Com-
missioner of Internal Revenue, with the concurrence of the
Director, determines such extension is necessary to validate
the results of the project. Not later than 6 months before
the end of the 5-year period and any extension under the
preceding sentence, the Commissioner of Internal Revenue
shall, with respect to the demonstration project involved,
submit a legislative proposal to the Congress if the Commis-
sioner determines that such project should be made perma-
nent, in whole or in part.’’
(b) CLERICAL AMENDMENT.—The analysis for part III
of title 5, United States Code, is amended by adding at
the end the following:
‘‘Subpart I—Miscellaneous
‘‘93. Personnel Flexibilities Relating to the Internal Revenue
Service .....................................................................................................
9301’’.
(c) EFFECTIVE DATE.—This section shall take effect
on the date of enactment of this Act.
TITLE II—ELECTRONIC FILING
SEC. 201. ELECTRONIC FILING OF TAX AND INFORMATION
RETURNS.
(a) IN GENERAL.—It is the policy of the Congress that
paperless filing should be the preferred and most convenient
means of filing tax and information returns, and that by
the year 2007, no more than 20 percent of all such returns
should be filed on paper.
(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 estab-
lish a plan to eliminate barriers, provide incentives,
and use competitive market forces to increase elec-
tronic filing gradually over the next 10 years while
maintaining processing times for paper returns at 40
days. To the extent practicable, such plan shall pro-
vide that all returns prepared electronically for tax-
able years beginning after 2001 shall be filed elec-
tronically.
(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 commerce advisory group
to include representatives from the small business
community and from the tax practitioner, preparer,
and computerized tax processor communities and
other representatives from the electronic filing indus-
try.
(c) PROMOTION OF ELECTRONIC FILING AND INCEN-
TIVES.—Section 6011 is amended by redesignating sub-
section (f) as subsection (g) and by inserting after sub-
section (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 administration programs, as they be-
come available, through the use of mass communica-
tions and other means.
‘‘(2) INCENTIVES.—The Secretary may imple-
ment procedures to provide for the payment of appro-
priate incentives for electronically filed returns.’’
(d) ANNUAL REPORTS.—Not later than June 30 of
each calendar year after 1997, the Chairperson of the Inter-
nal Revenue Service Oversight Board, the Secretary, and
the Chairperson of the electronic commerce advisory group
established under subsection (b)(2) shall report to the Com-
mittees on Ways and Means, Appropriations, and Govern-
ment Reform and Oversight of the House of Representatives,
the Committees on Finance, Appropriations, and Govern-
ment Affairs of the Senate, and the Joint Committee on
Taxation, on—
(1) by striking ‘‘Except as otherwise provided
by’’ and inserting the following:
‘‘(a) GENERAL RULE.—Except as otherwise provided
by subsection (b) and’’, and
(2) by adding at the end the following new sub-
section:
‘‘(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 pro-
cedures are in place, the Secretary may waive the re-
quirement of a signature for all returns or classes of
returns, or may provide for alternative methods of
subscribing all returns, declarations, statements, or
other documents required or permitted to be made or
written under internal revenue laws and regulations.
‘‘(2) TREATMENT OF ALTERNATIVE METHODS.—
Notwithstanding any other provision of law, any re-
turn, declaration, statement or other document filed
without signature under the authority of this sub-
section or verified, signed or subscribed under any
method adopted under paragraph (1) shall be treated
for all purposes (both civil and criminal, including
penalties for perjury) in the same manner as though
signed and subscribed. Any such return, declaration,
statement or other document shall be presumed to
have been actually submitted and subscribed by the
person on whose behalf it was submitted.
‘‘(3) PUBLISHED
GUIDANCE.—The Secretary
shall publish guidance as appropriate to define and
implement any waiver of the signature requirements.’’
(b) ACKNOWLEDGMENT OF ELECTRONIC FILING.—Sec-
tion 7502(c) is amended to read as follows:
‘‘(c) REGISTERED AND CERTIFIED MAILING; ELEC-
TRONIC FILING.—
‘‘(1) REGISTERED MAIL.—For purposes of this
section, if any return, claim, statement, or other doc-
ument, or payment, is sent by United States reg-
istered mail—
‘‘(A) such registration shall be prima facie
evidence that the return, claim, statement, or
other document was delivered to the agency, offi-
cer, or office to which addressed, and
‘‘(B) the date of registration shall be deemed
the postmark 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 elec-
tronic filing.’’.
(c) ESTABLISHMENT OF PROCEDURES FOR OTHER IN-
FORMATION.—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 to accept, in electronic form, any other informa-
tion, statements, elections, or schedules, from taxpayers fil-
ing returns electronically, so that such taxpayers will not
be required to file any paper.
(d) PROCEDURES
FOR COMMUNICATIONS BETWEEN
IRS AND PREPARER
OF ELECTRONICALLY FILED RE-
TURNS.—The Secretary shall establish procedures for tax-
payers to authorize, on electronically filed returns, the pre-
parer of such returns to communicate with the Internal
Revenue Service on matters included on such returns.
(e) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of the enactment of this
Act.
SEC. 204. RETURN-FREE TAX SYSTEM.
(a) IN GENERAL.—The Secretary of the Treasury or
the Secretary’s delegate shall develop procedures for the im-
plementation of a return-free tax system under which ap-
propriate individuals would be permitted to comply with
the Internal Revenue Code of 1986 without making the re-
turn 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, such Secretary shall report to the Commit-
tee on Ways and Means of the House of Representatives,
the Committee on Finance of the Senate, and the Joint
Committee on Taxation on—
(1) what additional resources the Internal Reve-
nue 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 sub-
section (a), and
(4) the number and classes of taxpayers that
would be permitted to use the procedures developed
pursuant to subsection (a).
SEC. 205. ACCESS TO ACCOUNT INFORMATION.
Not later than December 31, 2006, the Secretary of the
Treasury or the Secretary’s delegate shall develop proce-
dures under which a taxpayer filing returns electronically
would be able to review the taxpayer’s account electroni-
cally, but only if all necessary safeguards to ensure the pri-
vacy of such account information are in place.
TITLE III—TAXPAYER
PROTECTION AND RIGHTS
SEC. 300. SHORT TITLE.
This title may be cited as the ‘‘Taxpayer Bill of Rights
3’’.
Subtitle A—Burden of Proof
SEC. 301. 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) GENERAL RULE.—The Secretary shall have the
burden of proof in any court proceeding with respect to any
factual issue relevant to ascertaining the income tax liabil-
ity of a taxpayer.
‘‘(b) LIMITATIONS.—Subsection (a) shall only apply
with respect to an issue if—
‘‘(1) the taxpayer asserts a reasonable dispute
with respect to such issue,
‘‘(2) the taxpayer has fully cooperated with the
Secretary with respect to such issue, including pro-
viding, within a reasonable period of time, access to
and inspection of all witnesses, information, and doc-
uments within the control of the taxpayer, as reason-
ably requested by the Secretary, and
‘‘(3) in the case of a partnership, corporation, or
trust, 
the 
taxpayer 
is 
described 
in 
section
7430(c)(4)(A)(ii).
‘‘(c) SUBSTANTIATION.—Nothing in this section shall
be construed to override any requirement of this title to sub-
stantiate any item.’’
(b) CONFORMING AMENDMENTS.—
(1) Section 6201 is amended by striking sub-
section (d) and redesignating subsection (e) as sub-
section (d).
(2) The table of subchapters for chapter 76 is
amended by adding at the end the following new item:
‘‘Subchapter E. Burden of proof.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to court proceedings arising in connec-
tion with examinations commencing after the date of the
enactment of this Act.
Subtitle B—Proceedings by
Taxpayers
SEC. 311. EXPANSION OF AUTHORITY TO AWARD COSTS
AND CERTAIN FEES.
(a) AWARD OF HIGHER ATTORNEY’S FEES BASED ON
COMPLEXITY
OF
ISSUES.—Clause 
(iii) 
of 
section
7430(c)(1)(B) (relating to the award of costs and certain
fees) is amended by inserting ‘‘the difficulty of the issues
presented in the case, or the local availability of tax exper-
tise,’’ before ‘‘justifies a higher rate’’.
(b) AWARD
OF ADMINISTRATIVE COSTS INCURRED
AFTER 30-DAY LETTER.—Paragraph (2) of section 7430(c)
is amended by striking the last sentence and inserting the
following:
‘‘Such term shall only include costs incurred on or
after whichever of the following is the earliest: (i) the
date of the receipt by the taxpayer of the notice of the
decision of the Internal Revenue Service Office of Ap-
peals, (ii) the date of the notice of deficiency, or (iii)
the date on which the 1st letter of proposed deficiency
which allows the taxpayer an opportunity for admin-
istrative review in the Internal Revenue Service Of-
fice of Appeals is sent.’’.
(c) AWARD OF FEES FOR CERTAIN ADDITIONAL SERV-
ICES.—Paragraph (3) of section 7430(c) is amended to read
as follows:
‘‘(3) ATTORNEY’S FEES.—
‘‘(A) IN GENERAL.—For purposes of para-
graphs (1) and (2), fees for the services of an in-
dividual (whether or not an attorney) who is au-
thorized to practice before the Tax Court or be-
fore the Internal Revenue Service shall be treated
as fees for the services of an attorney.
‘‘(B) PRO BONO SERVICES.—In any case in
which the court could have awarded attorney’s
fees under subsection (a) but for the fact that an
individual is representing the prevailing party
for no fee or for a fee which (taking into account
all the facts and circumstances) is no more than
a nominal fee, the court may also award a judg-
ment or settlement for such amounts as the court
determines to be appropriate (based on hours
worked and costs expended) for services of such
individual but only if such award is paid to
such individual or such individual’s employer.’’
(d) DETERMINATION
OF WHETHER POSITION
OF
UNITED STATES IS SUBSTANTIALLY JUSTIFIED.—Subpara-
graph (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 SUBSTAN-
TIALLY
SIMILAR
ISSUES.—In determining
for purposes of clause (i) whether the posi-
tion of the United States was substantially
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) EFFECTIVE DATE.—The amendments made by this
section shall apply to costs incurred (and, in the case of
the amendment made by subsection (c), services performed)
more than 180 days after the date of the enactment of this
Act.
SEC. 312. CIVIL DAMAGES FOR NEGLIGENCE IN COLLEC-
TION ACTIONS.
(a) IN GENERAL.—Section 7433 (relating to civil
damages for certain unauthorized collection actions) is
amended—
(1) in subsection (a), by inserting ‘‘, or by rea-
son of negligence,’’ after ‘‘recklessly or intentionally’’,
and
(2) in subsection (b)—
(A) in the matter preceding paragraph (1),
by inserting ‘‘($100,000, in the case of neg-
ligence)’’ after ‘‘$1,000,000’’, and
(B) in paragraph (1), by inserting ‘‘or neg-
ligent’’ after ‘‘reckless or intentional’’.
(b) REQUIREMENT THAT ADMINISTRATIVE REMEDIES
BE EXHAUSTED.—Paragraph (1) of section 7433(d) is
amended to read as follows:
‘‘(1) REQUIREMENT THAT ADMINISTRATIVE REM-
EDIES
BE
EXHAUSTED.—A judgment for damages
shall not be awarded under subsection (b) unless the
court determines that the plaintiff has exhausted the
administrative remedies available to such plaintiff
within the Internal Revenue Service.’’
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to actions of officers or employees of the
Internal Revenue Service after the date of the enactment
of this Act.
SEC. 313. INCREASE IN SIZE OF CASES PERMITTED ON
SMALL CASE CALENDAR.
(a) IN GENERAL.—Subsection (a) of section 7463 (re-
lating to disputes involving $10,000 or less) is amended by
striking ‘‘$10,000’’ each place it appears and inserting
‘‘$25,000’’.
(b) CONFORMING AMENDMENTS.—
(1) The section heading for section 7463 is
amended by striking ‘‘$10,000’’ and inserting
‘‘$25,000’’.
(2) The item relating to section 7463 in the table
of sections for part II of subchapter C of chapter 76
is amended by striking ‘‘$10,000’’ and inserting
‘‘$25,000’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to proceedings commencing after the
date of the enactment of this Act.
Subtitle 
C—Relief 
for 
Innocent
Spouses and for Taxpayers Un-
able To Manage Their Financial
Affairs Due to Disabilities
SEC. 321. SPOUSE RELIEVED IN WHOLE OR IN PART OF LI-
ABILITY IN CERTAIN CASES.
(a) IN GENERAL.—Subpart B of part II of subchapter
A of chapter 61 is amended by inserting after section 6014
the following new section:
‘‘SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX
COURT.
‘‘(a) SPOUSE RELIEVED OF LIABILITY IN CERTAIN
CASES.—
‘‘(1) IN GENERAL.—Under procedures prescribed
by the Secretary, if—
‘‘(A) a joint return has been made under
section 6013 for a taxable year,
‘‘(B) on such return there is an understate-
ment of tax attributable to erroneous items of 1
spouse,
‘‘(C) the other spouse establishes that in
signing the return he or she did not know, and
had no reason to know, that there was such un-
derstatement,
‘‘(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
spouse liable for the deficiency in tax for such
taxable year attributable to such understatement,
and
‘‘(E) the other spouse claims (in such form
as the Secretary may prescribe) the benefits of
this subsection not later than the date which is
2 years after the date of the assessment of such
deficiency,
then the other spouse shall be relieved of liability for
tax (including interest, penalties, and other amounts)
for such taxable year to the extent such liability is at-
tributable to such understatement.
‘‘(2) APPORTIONMENT OF RELIEF.—If a spouse
who, but for paragraph (1)(C), would be relieved of
liability under paragraph (1), establishes that in
signing the return such spouse did not know, and had
no reason to know, the extent of such understatement,
then such spouse shall be relieved of liability for tax
(including interest, penalties, and other amounts) for
such taxable year to the extent that such liability is
attributable to the portion of such understatement of
which such spouse did not know and had no reason
to know.
‘‘(3) UNDERSTATEMENT.—For purposes of this
subsection, the term ‘understatement’ has the meaning
given to such term by section 6662(d)(2)(A).
‘‘(4) SPECIAL RULE FOR COMMUNITY PROPERTY
INCOME.—For purposes of this subsection, the deter-
mination of the spouse to whom items of gross income
(other than gross income from property) are attrib-
utable shall be made without regard to community
property laws.
‘‘(b) PETITION FOR REVIEW BY TAX COURT.—In the
case of an individual who has filed a claim under sub-
section (a) within the period specified in subsection
(a)(1)(E)—
‘‘(1) IN GENERAL.—Such individual may peti-
tion the Tax Court (and the Tax Court shall have ju-
risdiction) to determine such claim if such petition is
filed during the 90-day period beginning on the ear-
lier of—
‘‘(A) the date which is 6 months after the
date such claim is filed with the Secretary, or
‘‘(B) the date on which the Secretary mails
by certified or registered mail a notice to such
individual denying such claim.
Such 90-day period shall be determined by not count-
ing Saturday, Sunday, or a legal holiday in the Dis-
trict of Columbia as the last day of such period.
‘‘(2) RESTRICTIONS APPLICABLE TO COLLECTION
OF ASSESSMENT.—
‘‘(A) IN
GENERAL.—Except as otherwise
provided in section 6851 or 6861, no levy or pro-
ceeding in court for collection of any assessment
to which such claim relates shall be made, begun,
or prosecuted, until the expiration of the 90-day
period described in paragraph (1), nor, if a peti-
tion has been filed with the Tax Court, until the
decision of the Tax Court has become final. Rules
similar to the rules of section 7485 shall apply
with respect to the collection of such assessment.
‘‘(B) AUTHORITY
TO
ENJOIN
COLLECTION
ACTIONS.—Notwithstanding the provisions of sec-
tion 7421(a), the beginning of such proceeding or
levy during the time the prohibition under sub-
paragraph (A) is in force may be enjoined by a
proceeding in the proper court, including the
Tax Court. The Tax Court shall have no juris-
diction under this paragraph to enjoin any ac-
tion or proceeding unless a timely petition for a
determination of such claim has been filed and
then only in respect of the amount of the assess-
ment to which such claim relates.
‘‘(C) JEOPARDY COLLECTION.—If the Sec-
retary makes a finding that the collection of the
tax is in jeopardy, nothing in this subsection
shall prevent the immediate collection of such
tax.
‘‘(c) SUSPENSION OF RUNNING OF PERIOD OF LIMITA-
TIONS.—The running of the period of limitations in section
6502 on the collection of the assessment to which the petition
under subsection (b) relates shall be suspended for the period
during which the Secretary is prohibited by subsection (b)
from collecting by levy or a proceeding in court and for
60 days thereafter.
‘‘(d) APPLICABLE RULES.—
‘‘(1) ALLOWANCE OF APPLICATION.—Except as
provided in paragraph (2), notwithstanding any
other law or rule of law (other than section 6512(b),
7121, or 7122), credit or refund shall be allowed or
made to the extent attributable to the application of
this section.
‘‘(2) RES JUDICATA.—In the case of any claim
under subsection (a), the determination of the Tax
Court in any prior proceeding for the same taxable
periods in which the decision has become final, shall
be conclusive except with respect to the qualification
of the spouse for relief which was not an issue in such
proceeding. The preceding sentence shall not apply if
the Tax Court determines that the spouse participated
meaningfully in such prior proceeding.
‘‘(3) LIMITATION
ON
TAX
COURT
JURISDIC-
TION.—If a suit for refund is begun by either spouse
pursuant to section 6532, the Tax Court shall lose ju-
risdiction of the spouse’s action under this section to
whatever extent jurisdiction is acquired by the dis-
trict court or the United States Court of Federal
Claims over the taxable years that are the subject of
the suit for refund.’’
(b) SEPARATE FORM FOR APPLYING FOR SPOUSAL
RELIEF.—Not later than 180 days after the date of the en-
actment of this Act, the Secretary of the Treasury shall de-
velop 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.
(c) CONFORMING AMENDMENTS.—
(1) Section 6013 is amended by striking sub-
section (e).
(2) Subparagraph (A) of section 6230(c)(5) is
amended by striking ‘‘section 6013(e)’’ and inserting
‘‘section 6015’’.
(d) 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. Innocent spouse relief; petition to Tax Court.’’
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to understatements for taxable years be-
ginning after the date of the enactment of this Act.
SEC. 322. SUSPENSION OF STATUTE OF LIMITATIONS ON
FILING REFUND CLAIMS DURING PERIODS OF
DISABILITY.
(a) IN GENERAL.—Section 6511 (relating to limita-
tions on credit or refund) is amended by redesignating sub-
section (h) as subsection (i) and by inserting after sub-
section (g) the following new subsection:
‘‘(h) RUNNING
OF PERIODS
OF LIMITATION SUS-
PENDED WHILE TAXPAYER IS UNABLE TO MANAGE FINAN-
CIAL 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 finan-
cially disabled.
‘‘(2) FINANCIALLY DISABLED.—