IIA
105TH CONGRESS
1ST SESSION
H. R. 2676
IN THE SENATE OF THE UNITED STATES
NOVEMBER 5, 1997
Received; read twice and referred to the Committee on Finance
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 Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE;
TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Internal Revenue Service Restructuring and Reform Act
of 1997’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment 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 provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I—EXECUTIVE BRANCH GOVERNANCE AND SENIOR
MANAGEMENT OF THE INTERNAL REVENUE SERVICE
Subtitle A—Executive Branch Governance and Senior Management
Sec. 101. Internal Revenue Service Oversight Board.
Sec. 102. Commissioner of Internal Revenue; other officials.
Sec. 103. Other personnel.
Sec. 104. Prohibition on executive branch influence over taxpayer audits and
other investigations.
Subtitle B—Personnel Flexibilities
Sec. 111. Personnel flexibilities.
TITLE II—ELECTRONIC FILING
Sec. 201. Electronic filing of tax and information returns.
Sec. 202. Due date for certain information returns filed electronically.
Sec. 203. Paperless electronic filing.
Sec. 204. Return-free tax system.
Sec. 205. Access to account information.
TITLE III—TAXPAYER PROTECTION AND RIGHTS
Sec. 300. Short title.
Subtitle A—Burden of Proof
Sec. 301. Burden of proof.
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Subtitle B—Proceedings by Taxpayers
Sec. 311. Expansion of authority to award costs and certain fees.
Sec. 312. Civil damages for negligence in collection actions.
Sec. 313. Increase in size of cases permitted on small case calendar.
Subtitle C—Relief for Innocent Spouses and for Taxpayers Unable To
Manage Their Financial Affairs Due to Disabilities
Sec. 321. Spouse relieved in whole or in part of liability in certain cases.
Sec. 322. Suspension of statute of limitations on filing refund claims during pe-
riods of disability.
Subtitle D—Provisions Relating to Interest
Sec. 331. Elimination of interest rate differential on overlapping periods of in-
terest on income tax overpayments and underpayments.
Sec. 332. Increase in overpayment rate payable to taxpayers other than cor-
porations.
Subtitle E—Protections for Taxpayers Subject to Audit or Collection
Activities
Sec. 341. Privilege of confidentiality extended to taxpayer’s dealings with non-
attorneys authorized to practice before Internal Revenue Serv-
ice.
Sec. 342. Expansion of authority to issue taxpayer assistance orders.
Sec. 343. Limitation on financial status audit techniques.
Sec. 344. Limitation on authority to require production of computer source
code.
Sec. 345. Procedures relating to extensions of statute of limitations by agree-
ment.
Sec. 346. Offers-in-compromise.
Sec. 347. Notice of deficiency to specify deadlines for filing Tax Court petition.
Sec. 348. Refund or credit of overpayments before final determination.
Sec. 349. Threat of audit prohibited to coerce Tip Reporting Alternative Com-
mitment Agreements.
Subtitle F—Disclosures to Taxpayers
Sec. 351. Explanation of joint and several liability.
Sec. 352. Explanation of taxpayers’ rights in interviews with the Internal Reve-
nue Service.
Sec. 353. Disclosure of criteria for examination selection.
Sec. 354. Explanations of appeals and collection process.
Subtitle G—Low Income Taxpayer Clinics
Sec. 361. Low income taxpayer clinics.
Subtitle H—Other Matters
Sec. 371. Actions for refund with respect to certain estates which have elected
the installment method of payment.
Sec. 372. Cataloging complaints.
Sec. 373. Archive of records of Internal Revenue Service.
Sec. 374. Payment of taxes.
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Sec. 375. Clarification of authority of Secretary relating to the making of elec-
tions.
Sec. 376. Limitation on penalty on individual’s failure to pay for months during
period of installment agreement.
Subtitle I—Studies
Sec. 381. Penalty administration.
Sec. 382. Confidentiality of tax return information.
TITLE IV—CONGRESSIONAL ACCOUNTABILITY FOR THE
INTERNAL REVENUE SERVICE
Subtitle A—Oversight
Sec. 401. Expansion of duties of the Joint Committee on Taxation.
Sec. 402. Coordinated oversight reports.
Subtitle B—Budget
Sec. 411. Funding for century date change.
Sec. 412. Financial Management Advisory Group.
Subtitle C—Tax Law Complexity
Sec. 421. Role of the Internal Revenue Service.
Sec. 422. Tax complexity analysis.
TITLE V—CLARIFICATION OF DEDUCTION FOR DEFERRED
COMPENSATION
Sec. 501. Clarification of deduction for deferred compensation.
TITLE VI—CONGRESSIONAL ACCOUNTABILITY FOR THE
INTERNAL REVENUE SERVICE
Sec. 601. Short title.
Sec. 602. Definitions.
Sec. 603. Amendments related to title I of 1997 Act.
Sec. 604. Amendments related to title II of 1997 Act.
Sec. 605. Amendments related to title III of 1997 Act.
Sec. 606. Amendments related to title V of 1997 Act.
Sec. 607. Amendments related to title VII of 1997 Act.
Sec. 608. Amendments related to title IX of 1997 Act.
Sec. 609. Amendments related to title X of 1997 Act.
Sec. 610. Amendments related to title XI of 1997 Act.
Sec. 611. Amendments related to title XII of 1997 Act.
Sec. 612. Amendments related to title XIII of 1997 Act.
Sec. 613. Amendments related to title XIV of 1997 Act.
Sec. 614. Amendments related to title XV of 1997 Act.
Sec. 615. Amendments related to title XVI of 1997 Act.
Sec. 616. Amendments related to Omibus Budget Reconciliation Act of 1993.
Sec. 617. Amendments related to Tax Reform Act of 1984.
Sec. 618. Amendments related to Tax Reform Act of 1986.
Sec. 619. Miscellaneous clerical and deadwood changes.
Sec. 620. Effective date.
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TITLE 
I—EXECUTIVE 
BRANCH
GOVERNANCE 
AND 
SENIOR
MANAGEMENT OF THE INTER-
NAL REVENUE SERVICE
Subtitle A—Executive Branch Gov-
ernance and Senior Manage-
ment
SEC. 
101. 
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 Department of the Treasury the Internal Revenue
Service Oversight Board (hereafter in this subchapter re-
ferred to as the ‘Oversight Board’).
‘‘(b) MEMBERSHIP.—
‘‘(1) 
COMPOSITION.—The 
Oversight 
Board
shall be composed of 11 members, as follows:
‘‘(A) 8 members shall be individuals who
are not Federal officers or employees and who
are appointed by the President, by and with the
advice and consent of the Senate.
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‘‘(B) 1 member shall be the Secretary of
the Treasury or, if the Secretary so designates,
the Deputy Secretary of the Treasury.
‘‘(C) 1 member shall be the Commissioner
of Internal Revenue.
‘‘(D) 1 member shall be an individual who
is a representative of an organization that rep-
resents a substantial number of Internal Reve-
nue Service employees and who is appointed by
the President, by and with the advice and con-
sent of the Senate.
‘‘(2) QUALIFICATIONS AND TERMS.—
‘‘(A) QUALIFICATIONS.—Members of the
Oversight Board described in paragraph (1)(A)
shall be appointed solely on the basis of their
professional experience and expertise in 1 or
more of the following areas:
‘‘(i) Management of large service or-
ganizations.
‘‘(ii) Customer service.
‘‘(iii) Federal tax laws, including tax
administration and compliance.
‘‘(iv) Information technology.
‘‘(v) Organization development.
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‘‘(vi) The needs and concerns of tax-
payers.
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 de-
scribed in paragraph (1)(A) or (D) shall be ap-
pointed for a term of 5 years, except that of the
members first appointed under paragraph
(1)(A)—
‘‘(i) 1 member shall be appointed for
a term of 1 year,
‘‘(ii) 1 member shall be appointed for
a term of 2 years,
‘‘(iii) 2 members shall be appointed
for a term of 3 years, and
‘‘(iv) 2 members shall be appointed
for a term of 4 years.
Such terms shall begin on the date of appoint-
ment.
‘‘(C) 
REAPPOINTMENT.—An 
individual
who is described in paragraph (1)(A) may be
appointed to no more than two 5-year terms on
the Oversight Board.
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‘‘(D) VACANCY.—Any vacancy on the
Oversight Board shall be filled in the same
manner as the original appointment. Any mem-
ber appointed to fill a vacancy occurring before
the expiration of the term for which the mem-
ber’s predecessor was appointed shall be ap-
pointed for the remainder of that term.
‘‘(E) 
SPECIAL
GOVERNMENT
EMPLOY-
EES.—During the entire period that an individ-
ual appointed under paragraph (1)(A) is a
member of the Oversight Board, such individual
shall be treated as—
‘‘(i) serving as a special government
employee (as defined in section 202 of title
18, United States Code) and as described
in section 207(c)(2) of such title 18, and
‘‘(ii) 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.
‘‘(3) QUORUM.—6 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.
‘‘(4) REMOVAL.—
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other act or omission outside the scope of the
service of such member on the Oversight Board.
‘‘(B) EFFECT ON OTHER LAW.—This para-
graph shall not be construed—
‘‘(i) to affect any other immunities
and protections that may be available to
such member under applicable law with re-
spect to such transactions,
‘‘(ii) to affect any other right or rem-
edy against the United States under appli-
cable law, or
‘‘(iii) to limit or alter in any way the
immunities that are available under appli-
cable law for Federal officers and employ-
ees.
‘‘(c) GENERAL RESPONSIBILITIES.—
‘‘(1) IN GENERAL.—The Oversight Board shall
oversee the Internal Revenue Service in its adminis-
tration, management, conduct, direction, and super-
vision of the execution and application of the inter-
nal revenue laws or related statutes and tax conven-
tions to which the United States is a party.
‘‘(2) EXCEPTIONS.—The Oversight Board shall
have no responsibilities or authority with respect
to—
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‘‘(A) the development and formulation of
Federal tax policy relating to existing or pro-
posed internal revenue laws, related statutes,
and tax conventions,
‘‘(B) law enforcement activities of the In-
ternal Revenue Service, including compliance
activities such as criminal investigations, exami-
nations, and collection activities, or
‘‘(C) specific procurement activities of the
Internal Revenue Service.
‘‘(3) RESTRICTION ON DISCLOSURE OF RETURN
INFORMATION TO OVERSIGHT BOARD MEMBERS.—
No return, return information, or taxpayer return
information (as defined in section 6103(b)) may be
disclosed to any member of the Oversight Board de-
scribed in subsection (b)(1)(A) or (D). Any request
for information not permitted to be disclosed under
the preceding sentence, and any contact relating to
a specific taxpayer, made by a member of the Over-
sight Board so described to an officer or employee
of the Internal Revenue Service shall be reported by
such officer or employee to the Secretary and the
Joint Committee on Taxation.
‘‘(d) SPECIFIC RESPONSIBILITIES.—The Oversight
Board shall have the following specific responsibilities:
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‘‘(1) STRATEGIC
PLANS.—To review and ap-
prove strategic plans of the Internal Revenue Serv-
ice, including the establishment of—
‘‘(A) mission and objectives, and standards
of performance relative to either, and
‘‘(B) annual and long-range strategic
plans.
‘‘(2) OPERATIONAL
PLANS.—To review the
operational functions of the Internal Revenue Serv-
ice, 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 can-
didates for appointment as the Commissioner of
Internal Revenue and recommend to the Presi-
dent the removal of the Commissioner,
‘‘(B) review the Commissioner’s selection,
evaluation, and compensation of senior man-
agers, and
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‘‘(C) review and approve the Commis-
sioner’s plans for any major reorganization of
the Internal Revenue Service.
‘‘(4) BUDGET.—To—
‘‘(A) review and approve the budget re-
quest 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 sup-
ports the annual and long-range strategic plans.
The Secretary shall submit the budget request referred to
in paragraph (4)(B) for any fiscal year to the President
who shall submit such request, without revision, to Con-
gress together with the President’s annual budget request
for the Internal Revenue Service for such fiscal year.
‘‘(e) BOARD PERSONNEL MATTERS.—
‘‘(1) COMPENSATION OF MEMBERS.—
‘‘(A) IN GENERAL.—Each member of the
Oversight Board who is described in subsection
(b)(1)(A) shall be compensated at a rate not to
exceed $30,000 per year. All other members of
the Oversight Board shall serve without com-
pensation for such service.
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‘‘(B) 
CHAIRPERSON.—In 
lieu 
of 
the
amount specified in subparagraph (A), the
Chairperson of the Oversight Board shall be
compensated at a rate not to exceed $50,000.
‘‘(2) TRAVEL EXPENSES.—The members of the
Oversight Board shall be allowed travel expenses, in-
cluding per diem in lieu of subsistence, at rates au-
thorized for employees of agencies under subchapter
I of chapter 57 of title 5, United States Code, while
away from their homes or regular places of business
for purposes of attending meetings of the Oversight
Board.
‘‘(3) STAFF.—At the request of the Chair-
person of the Oversight Board, the Commissioner
shall detail to the Oversight Board such personnel as
may be necessary to enable the Oversight Board to
perform its duties. Such detail shall be without
interruption or loss of civil service status or privi-
lege.
‘‘(4) PROCUREMENT
OF
TEMPORARY
AND
INTERMITTENT SERVICES.—The Chairperson of the
Oversight Board may procure temporary and inter-
mittent services under section 3109(b) of title 5,
United States Code.
‘‘(f) ADMINISTRATIVE MATTERS.—
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‘‘(1) CHAIR.—The members of the Oversight
Board shall elect for a 2-year term a chairperson
from among the members appointed under sub-
section (b)(1)(A).
‘‘(2) COMMITTEES.—The Oversight Board may
establish such committees as the Oversight Board
determines appropriate.
‘‘(3) MEETINGS.—The Oversight Board shall
meet at least once each month and at such other
times as the Oversight Board determines appro-
priate.
‘‘(4) REPORTS.—The Oversight Board shall
each year report to the President and the Congress
with respect to the conduct of its responsibilities
under this title.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 4946(c) (relating to definitions and
special rules for chapter 42) is amended—
(A) by striking ‘‘or’’ at the end of para-
graph (5),
(B) by striking the period at the end of
paragraph (6) and inserting ‘‘, or’’, and
(C) by adding at the end the following new
paragraph:
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‘‘(7) a member of the Internal Revenue Service
Oversight Board.’’.
(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.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall take effect on the date of the en-
actment of this Act.
(2) NOMINATIONS
TO
INTERNAL
REVENUE
SERVICE OVERSIGHT BOARD.—The President shall
submit nominations under section 7802 of the Inter-
nal 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.
SEC. 102. 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 OFFICIALS.
‘‘(a) COMMISSIONER OF INTERNAL REVENUE.—
‘‘(1) APPOINTMENT.—
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‘‘(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. The appoint-
ment shall be made without regard to political
affiliation or activity.
‘‘(B) VACANCY.—Any individual appointed
to fill a vacancy in the position of Commis-
sioner occurring before the expiration of the
term for which such individual’s predecessor
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.
‘‘(2) DUTIES.—The Commissioner shall have
such duties and powers as the Secretary may pre-
scribe, including the power to—
‘‘(A) administer, manage, conduct, direct,
and supervise the execution and application of
the internal revenue laws or related statutes
and ax conventions to which the United States
is a party; and
‘‘(B) recommend to the President a can-
didate for appointment as Chief Counsel for the
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Internal Revenue Service when a vacancy oc-
curs, and recommend to the President the re-
moval of such Chief Counsel.
If the Secretary determines not to delegate a power
specified in subparagraph (A) or (B), such deter-
mination may not take effect until 30 days after the
Secretary notifies the Committees on Ways and
Means, Government Reform and Oversight, and Ap-
propriations of the House of Representatives, the
Committees on Finance, Government Operations,
and Appropriations of the Senate, and the Joint
Committee on Taxation.
‘‘(3) CONSULTATION WITH BOARD.—The Com-
missioner 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) ASSISTANT COMMISSIONER
FOR EMPLOYEE
PLANS AND EXEMPT ORGANIZATIONS.—There is estab-
lished within the Internal Revenue Service an office to be
known as the ‘Office of Employee Plans and Exempt Or-
ganizations’ to be under the supervision and direction of
an Assistant Commissioner of Internal Revenue. As head
of the Office, the Assistant Commissioner shall be respon-
sible for carrying out such functions as the Secretary may
prescribe with respect to organizations exempt from tax
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under section 501(a) and with respect to plans to which
part I of subchapter D of chapter 1 applies (and with re-
spect to organizations designed to be exempt under such
section and plans designed to be plans to which such part
applies) and other nonqualified deferred compensation ar-
rangements. The Assistant Commissioner shall report an-
nually to the Commissioner with respect to the Assistant
Commissioner’s responsibilities under this section.
‘‘(c) OFFICE OF TAXPAYER ADVOCATE.—
‘‘(1) IN GENERAL.—
‘‘(A) ESTABLISHMENT.—There is estab-
lished in the Internal Revenue Service an office
to be known as the ‘Office of the Taxpayer Ad-
vocate’. Such office shall be under the super-
vision and direction of an official to be known
as the ‘Taxpayer Advocate’ who shall be ap-
pointed with the approval of the Oversight
Board by the Commissioner of Internal Reve-
nue and shall report directly to the Commis-
sioner. The Taxpayer Advocate shall be entitled
to compensation at the same rate as the highest
level official reporting directly to the Commis-
sioner of Internal Revenue.
‘‘(B) RESTRICTION ON SUBSEQUENT EM-
PLOYMENT.—An individual who is an officer or
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employee of the Internal Revenue Service may
be appointed as Taxpayer Advocate only if such
individual agrees not to accept any employment
with the Internal Revenue Service for at least
5 years after ceasing to be the Taxpayer Advo-
cate.
‘‘(2) FUNCTIONS OF OFFICE.—
‘‘(A) IN GENERAL.—It shall be the func-
tion of the Office of Taxpayer Advocate to—
‘‘(i) assist taxpayers in resolving prob-
lems with the Internal Revenue Service,
‘‘(ii) identify areas in which taxpayers
have problems 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 miti-
gate such problems.
‘‘(B) ANNUAL REPORTS.—
‘‘(i) OBJECTIVES.—Not later than
June 30 of each calendar year, the Tax-
payer Advocate shall report to the Commit-
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tee on Ways and Means of the House of
Representatives and the Committee on Fi-
nance of the Senate on the objectives 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 informa-
tion.
‘‘(ii) ACTIVITIES.—Not later than De-
cember 31 of each calendar year, the Tax-
payer Advocate shall report to the Commit-
tee on Ways and Means of the House of
Representatives and the Committee on Fi-
nance of the Senate on the activities of the
Taxpayer Advocate during the fiscal year
ending during such calendar year. Any
such report shall contain full and sub-
stantive analysis, in addition to statistical
information, and shall—
‘‘(I) identify the initiatives the
Taxpayer Advocate has taken on im-
proving taxpayer services and Internal
Revenue Service responsiveness,
‘‘(II) contain recommendations
received from individuals with the au-
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thority to issue Taxpayer Assistance
Orders under section 7811,
‘‘(III) contain a summary of at
least 20 of the most serious problems
encountered by taxpayers, including a
description of the nature of such prob-
lems,
‘‘(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 iden-
tify any Internal Revenue Service offi-
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cial who is responsible for such inac-
tion,
‘‘(VII) identify any Taxpayer As-
sistance Order which was not honored
by the Internal Revenue Service in a
timely manner, as specified under sec-
tion 7811(b),
‘‘(VIII) contain recommendations
for such administrative and legislative
action as may be appropriate to re-
solve problems encountered by tax-
payers,
‘‘(IX) identify areas of the tax
law that impose significant compliance
burdens on taxpayers or the Internal
Revenue Service, including specific
recommendations for remedying these
problems,
‘‘(X) in conjunction with the Na-
tional Director of Appeals, identify
the 10 most litigated issues for each
category of taxpayers, including rec-
ommendations for mitigating such dis-
putes, and
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‘‘(XI) include such other infor-
mation as the Taxpayer Advocate may
deem advisable.
‘‘(iii) REPORT TO BE SUBMITTED DI-
RECTLY.—Each report required under this
subparagraph shall be provided directly to
the committees described in clauses (i) and
(ii) without any prior review or comment
from the Oversight Board, the Secretary of
the Treasury, any other officer or employee
of the Department of the Treasury, or the
Office of Management and Budget.
‘‘(C) 
OTHER
RESPONSIBILITIES.—The
Taxpayer Advocate shall—
‘‘(i) monitor the coverage and geo-
graphic allocation of problem resolution of-
ficers, and
‘‘(ii) develop guidance to be distrib-
uted to all Internal Revenue Service offi-
cers and employees outlining the criteria
for referral of taxpayer inquiries to prob-
lem resolution officers.
‘‘(3) RESPONSIBILITIES
OF
COMMISSIONER.—
The Commissioner shall establish procedures requir-
ing a formal response to all recommendations sub-
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mitted to the Commissioner by the Taxpayer Advo-
cate within 3 months after submission to the Com-
missioner.’’.
(b) 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) Subsection (b) of section 5109 of title 5,
United States Code, is amended by striking
‘‘7802(b)’’ and inserting ‘‘7803(b)’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section shall take effect on the date of the en-
actment of this Act.
(2) CURRENT OFFICERS.—
(A) In the case of an individual serving as
Commissioner 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 the In-
ternal Revenue Code of 1986, as added by this
section, shall begin as of the date of such ap-
pointment.
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(B) 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. 103. OTHER PERSONNEL.
(a) IN GENERAL.—Section 7804 (relating to the ef-
fect of reorganization plans) is amended to read as follows:
‘‘SEC. 7804. OTHER PERSONNEL.
‘‘(a) APPOINTMENT AND SUPERVISION.—Unless oth-
erwise prescribed by the Secretary, the Commissioner of
Internal Revenue is authorized to employ such number of
persons as the Commissioner deems proper for the admin-
istration 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
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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 EMPLOYEES.—If any officer or employee of the
Treasury Department acting in connection with the inter-
nal 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 de-
manded 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 as-
sessed 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)’’.
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(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.
SEC. 104. PROHIBITION ON EXECUTIVE BRANCH INFLU-
ENCE 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 INFLU-
ENCE OVER TAXPAYER AUDITS AND OTHER
INVESTIGATIONS.
‘‘(a) PROHIBITION.—It shall be unlawful for any ap-
plicable person to request any officer or employee of the
Internal Revenue Service to conduct or terminate an audit
or other investigation of any particular taxpayer with re-
spect to the tax liability of such taxpayer.
‘‘(b) REPORTING REQUIREMENT.—Any officer or em-
ployee of the Internal Revenue Service receiving any re-
quest prohibited by subsection (a) shall report the receipt
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of such request to the Chief Inspector of the Internal Rev-
enue Service.
‘‘(c) EXCEPTIONS.—Subsection (a) shall not apply
to—
‘‘(1) any request made to an applicable person
by the taxpayer or a representative of the taxpayer
and forwarded by such applicable person to the In-
ternal Revenue Service,
‘‘(2) any request by an applicable person for
disclosure of return or return information under sec-
tion 6103 if such request is made in accordance with
the requirements of such section, or
‘‘(3) any request by the Secretary of the Treas-
ury 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 imprisonment 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 em-
ployee of the executive office of the President, and
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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 follow-
ing new item:
‘‘Sec. 7217. Prohibition on executive branch influence over tax-
payer 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 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 
FLEXIBILI-
TIES RELATING TO THE INTERNAL
REVENUE SERVICE
‘‘Sec.
‘‘9301. General requirements.
‘‘9302. Flexibilities relating to performance management.
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‘‘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
AGREE-
MENT.—In order to satisfy paragraph (1), a written
agreement—
‘‘(A) need not be a collective bargaining
agreement within the meaning of section
7103(8); and
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‘‘(B) may not be an agreement imposed by
the Federal Service Impasses Panel under sec-
tion 7119.
‘‘(3) 
INCLUDIBLE
MATTERS.—The 
written
agreement may address any flexibilities under sec-
tion 9302, 9303, or 9304, including any matter pro-
posed to be included in a demonstration project
under section 9304.
‘‘§ 9302. Flexibilities relating to performance manage-
ment
‘‘(a) IN GENERAL.—The Commissioner of Internal
Revenue shall, within a year after the date of the enact-
ment 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 Reve-
nue; and
‘‘(C) the Chief Counsel for the Internal
Revenue Service;
‘‘(2) shall maintain individual accountability
by—
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‘‘(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 stand-
ards of performance, the lowest of which
shall denote the retention standard and
shall be equivalent to fully successful per-
formance;
‘‘(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-
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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
Government Performance and Results Act of 1993,
the Information Technology Management Reform
Act of 1996, Revenue Procedure 64–22 (as in effect
on July 30, 1997), and taxpayer service surveys, (B)
communicating such goals or objectives to employ-
ees, 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
during any period in which such employee is subject to
standards of performance under paragraph (2) shall be
considered 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
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Revenue Service, any approval required under the
provisions of section 4502(b) shall be considered to
have been granted if the Office of Personnel Man-
agement does not disapprove the proposed award
within 60 days after receiving the appropriate cer-
tification 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
employee’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
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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 cal-
endar year.
‘‘(E) LIMITATION
ON
COMPENSATION.—
For purposes of applying section 5307 to an
employee 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 sub-
stituting ‘to equal or exceed the annual rate of
compensation 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 un-
less—
‘‘(i) the Commissioner of Internal
Revenue certifies to the Office of Personnel
Management that such award is war-
ranted; and
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‘‘(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 serv-
ice and quality to be maintained while
achieving 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.—
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‘‘(1) NOTICE PROVISIONS.—In applying sections
4303(b)(1)(A) and 7513(b)(1) to employees of the
Internal Revenue Service, ‘15 days’ shall be sub-
stituted for ‘30 days’.
‘‘(2) APPEALS.—Notwithstanding the second
sentence of section 5335(c), an employee of the In-
ternal Revenue Service shall not have a right to ap-
peal the denial of a periodic step increase under sec-
tion 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
competitive service position within the Internal
Revenue 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-
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scribed in this subparagraph if such individ-
ual—
‘‘(i) is either a preference eligible, or
an individual (other than a preference eli-
gible) 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 em-
ployee described in subparagraph (B) shall be
denied the opportunity to compete for an an-
nounced vacant competitive service position
within the Internal 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;
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‘‘(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 pre-
scribed 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 
sub-
chapter I of chapter 33, the Commissioner of Inter-
nal Revenue may establish category rating systems
for evaluating job applicants for positions in the
competitive service, under which qualified candidates
are divided into 2 or more quality categories on the
basis of relative degrees of merit, rather than as-
signed individual numerical ratings. 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
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applicant’s knowledge, skills, and abilities relative to
those needed for successful performance in the job
to be filled.
‘‘(2) TREATMENT
OF
PREFERENCE
ELIGI-
BLES.—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 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 qualification standards, shall be
listed in the highest quality 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 sec-
ond highest quality categories. Notwithstanding the
preceding 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 requirements of section 3317(b) or 3318(b), as
applicable, are satisfied, except that in no event may
certification of a preference eligible under this sub-
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section 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 em-
ployee’s first certification.
‘‘(c) INVOLUNTARY REASSIGNMENTS AND REMOVALS
OF CAREER APPOINTEES IN THE SENIOR EXECUTIVE
SERVICE.—Neither 
section 
3395(e)(1) 
nor 
section
3592(b)(1) shall apply with respect to the Internal Reve-
nue 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 determined by the Commissioner, a shorter period
would be insufficient for the incumbent to demonstrate
complete proficiency in such position.
‘‘(e) PROVISIONS THAT REMAIN APPLICABLE.—No
provision of this section exempts the Internal Revenue
Service 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
decree relating to the employment practices of the
Internal Revenue Service.
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‘‘§ 9304. 
Flexibilities 
relating 
to 
demonstration
projects
‘‘(a) AUTHORITY TO CONDUCT.—The Commissioner
of Internal Revenue may, in accordance with this section,
conduct 1 or more demonstration projects to improve per-
sonnel management; provide increased individual account-
ability; eliminate obstacles to the removal of or imposing
any disciplinary action with respect to poor performers,
subject to the requirements of due process; expedite ap-
peals from adverse 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
section shall comply with the provisions of section 4703.
‘‘(c) SPECIAL RULES.—For purposes of any dem-
onstration project under this section—
‘‘(1) 
AUTHORITY
OF
COMMISSIONER.—The
Commissioner of Internal Revenue shall exercise the
authority provided to the Office of Personnel Man-
agement under section 4703.
‘‘(2) PROVISIONS NOT APPLICABLE.—The fol-
lowing provisions of section 4703 shall not apply:
‘‘(A) Paragraphs (3) through (6) of sub-
section (b).
‘‘(B) Paragraphs (1), (2)(B)(ii), and (4) of
subsection (c).
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‘‘(3) provide for a waiver of any law or regula-
tion relating to preference eligibles as defined in sec-
tion 2108 or subchapter II or III of chapter 73 (or
any regulations prescribed thereunder);
‘‘(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 perform-
ance that provides for only 1 level of performance 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 resolv-
ing any dispute within the jurisdiction of the Equal
Employment Opportunity Commission, the Merit
Systems Protection Board, the Federal Labor Rela-
tions 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
Commissioner of Internal Revenue shall consult with the
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Director of the Office of Personnel Management in the
development and implementation of each demonstration
project under this section and shall submit such reports
to the Director as the Director may require. The Director
or the Commissioner of Internal Revenue may terminate
a demonstration project under this section if either of
them determines that the project creates a substantial
hardship on, or is not in the best interests of, the public,
the Federal Government, employees, or qualified appli-
cants for employment 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 Commissioner of Internal Revenue, with the concur-
rence of the Director, determines such extension is nec-
essary to validate the results of the project. Not later than
6 months before the end of the 5-year period and any ex-
tension under the preceding sentence, the Commissioner
of Internal Revenue shall, with respect to the demonstra-
tion project involved, submit a legislative proposal to the
Congress if the Commissioner determines that such
project should be made permanent, in whole or in part.’’.
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(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 con-
venient 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 Sec-
retary of the Treasury or the Secretary’s delegate
(hereafter in this section referred to as the ‘‘Sec-
retary’’) shall establish a plan to eliminate barriers,
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,
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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 im-
plementation 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 practi-
tioner, preparer, and computerized tax processor
communities and other representatives from the elec-
tronic filing industry.
(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.
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‘‘(2) INCENTIVES.—The Secretary may imple-
ment procedures to provide for the payment of ap-
propriate incentives for electronically filed returns.’’.
(d) ANNUAL REPORTS.—Not later than June 30 of
each calendar year after 1997, the Chairperson of the In-
ternal Revenue Service Oversight Board, the Secretary,
and the Chairperson of the electronic commerce advisory
group established under subsection (b)(2) shall report to
the Committees on Ways and Means, Appropriations, and
Government Reform and Oversight of the House of Rep-
resentatives, the Committees on Finance, Appropriations,
and Government Affairs of the Senate, and the Joint Com-
mittee on Taxation, on—
(1) the progress of the Internal Revenue Serv-
ice in meeting the goal of receiving electronically 80
percent of tax and information returns by 2007;
(2) the status of the plan required by sub-
section (b); and
(3) the legislative changes necessary to assist
the Internal Revenue Service in meeting such goal.
SEC. 202. DUE DATE FOR CERTAIN INFORMATION RETURNS
FILED ELECTRONICALLY.
(a) IN GENERAL.—Section 6071 (relating to time for
filing returns and other documents) is amended by redes-
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ignating subsection (b) as subsection (c) and by inserting
after subsection (a) the following new subsection:
‘‘(b) ELECTRONICALLY FILED INFORMATION RE-
TURNS.—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) EFFECTIVE DATE.—The amendment made by
this section shall apply to returns required to be filed after
December 31, 1999.
SEC. 203. 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 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
procedures are in place, the Secretary may waive the
requirement of a signature for all returns or classes
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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 regula-
tions.
‘‘(2) TREATMENT
OF
ALTERNATIVE
METH-
ODS.—Notwithstanding any other provision of law,
any return, declaration, statement or other docu-
ment filed without signature under the authority of
this subsection 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 require-
ments.’’.
(b) ACKNOWLEDGMENT OF ELECTRONIC FILING.—
Section 7502(c) is amended to read as follows:
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‘‘(c) REGISTERED AND CERTIFIED MAILING; ELEC-
TRONIC FILING.—
‘‘(1) REGISTERED MAIL.—For purposes of this
section, if any return, claim, statement, or other
document, 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, of-
ficer, 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 regula-
tions 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, 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 information, statements, elections, or schedules,
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from taxpayers filing 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
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 tax-
able years beginning after 2007.
(b) REPORT.—Not later than June 30 of each cal-
endar year after 1999, such Secretary shall report to the
Committee on Ways and Means of the House of Rep-
resentatives, the Committee on Finance of the Senate, and
the Joint Committee on Taxation on—
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(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 sys-
tem,
(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 pro-
cedures under which a taxpayer filing returns electroni-
cally would be able to review the taxpayer’s account elec-
tronically, but only if all necessary safeguards to ensure
the privacy 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’’.
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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 follow-
ing 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
liability 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
documents within the control of the taxpayer, as rea-
sonably 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).
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‘‘(c) SUBSTANTIATION.—Nothing in this section shall
be construed to override any requirement of this title to
substantiate any item.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 6201 is amended by striking sub-
section (d) and redesignating subsection (e) as sub-
section (d).
(2) The table of subchapters for chapter 76 is
amended by adding at the end the following new
item:
‘‘Subchapter E. Burden of proof.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to court proceedings arising in con-
nection with examinations commencing after the date of
the enactment of this Act.
Subtitle B—Proceedings by
Taxpayers
SEC. 311. EXPANSION OF AUTHORITY TO AWARD COSTS
AND CERTAIN FEES.
(a) AWARD OF HIGHER ATTORNEY’S FEES BASED
ON COMPLEXITY
OF ISSUES.—Clause (iii) of section
7430(c)(1)(B) (relating to the award of costs and certain
fees) is amended by inserting ‘‘the difficulty of the issues
presented in the case, or the local availability of tax exper-
tise,’’ before ‘‘justifies a higher rate’’.
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(b) AWARD OF ADMINISTRATIVE COSTS INCURRED
AFTER
30-DAY
LETTER.—Paragraph (2) of section
7430(c) is amended by striking the last sentence and in-
serting the following:
‘‘Such term shall only include costs incurred on or
after whichever of the following is the earliest: (i)
the date of the receipt by the taxpayer of the notice
of the decision of the Internal Revenue Service Of-
fice of Appeals, (ii) the date of the notice of defi-
ciency, or (iii) the date on which the 1st letter of
proposed deficiency which allows the taxpayer an op-
portunity for administrative review in the Internal
Revenue Service Office of Appeals is sent.’’.
(c) AWARD
OF FEES
FOR CERTAIN ADDITIONAL
SERVICES.—Paragraph (3) of section 7430(c) is amended
to read as follows:
‘‘(3) ATTORNEY’S FEES.—
‘‘(A) IN GENERAL.—For purposes of para-
graphs (1) and (2), fees for the services of an
individual (whether or not an attorney) who is
authorized to practice before the Tax Court or
before the Internal Revenue Service shall be
treated as fees for the services of an attorney.
‘‘(B) PRO BONO SERVICES.—In any case in
which the court could have awarded attorney’s
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fees under subsection (a) but for the fact that
an individual is representing the prevailing
party for no fee or for a fee which (taking into
account all the facts and circumstances) is no
more than a nominal fee, the court may also
award a judgment or settlement for such
amounts as the court determines to be appro-
priate (based on hours worked and costs ex-
pended) for services of such individual but only
if such award is paid to such individual or such
individual’s employer.’’.
(d) DETERMINATION
OF WHETHER POSITION
OF
UNITED STATES IS SUBSTANTIALLY JUSTIFIED.—Sub-
paragraph (B) of section 7430(c)(4) is amended by redes-
ignating clause (iii) as clause (iv) and by inserting after
clause (ii) the following new clause:
‘‘(iii) EFFECT
OF
LOSING
ON
SUB-
STANTIALLY
SIMILAR
ISSUES.—In deter-
mining for purposes of clause (i) whether
the position of the United States was sub-
stantially justified, the court shall take
into account whether the United States
has lost in courts of appeal for other cir-
cuits on substantially similar issues.’’.
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(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs incurred (and, in the case
of the amendment made by subsection (c), services per-
formed) more than 180 days after the date of the enact-
ment of this Act.
SEC. 312. CIVIL DAMAGES FOR NEGLIGENCE IN COLLEC-
TION ACTIONS.
(a) IN GENERAL.—Section 7433 (relating to civil
damages for certain unauthorized collection actions) is
amended—
(1) in subsection (a), by inserting ‘‘, or by rea-
son of negligence,’’ after ‘‘recklessly or inten-
tionally’’, and
(2) in subsection (b)—
(A) in the matter preceding paragraph (1),
by inserting ‘‘($100,000, in the case of neg-
ligence)’’ after ‘‘$1,000,000’’, and
(B) in paragraph (1), by inserting ‘‘or neg-
ligent’’ after ‘‘reckless or intentional’’.
(b) REQUIREMENT THAT ADMINISTRATIVE REM-
EDIES
BE
EXHAUSTED.—Paragraph (1) of section
7433(d) is amended to read as follows:
‘‘(1) REQUIREMENT
THAT
ADMINISTRATIVE
REMEDIES BE EXHAUSTED.—A judgment for dam-
ages shall not be awarded under subsection (b) un-
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less the court determines that the plaintiff has ex-
hausted the administrative remedies available to
such plaintiff within the Internal Revenue Service.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to actions of officers or employees
of the Internal Revenue Service after the date of the en-
actment of this Act.
SEC. 313. INCREASE IN SIZE OF CASES PERMITTED ON
SMALL CASE CALENDAR.
(a) IN GENERAL.—Subsection (a) of section 7463
(relating to disputes involving $10,000 or less) is amended
by striking ‘‘$10,000’’ each place it appears and inserting
‘‘$25,000’’.
(b) CONFORMING AMENDMENTS.—
(1) The section heading for section 7463 is
amended by striking ‘‘$10,000’’ and inserting
‘‘$25,000’’.
(2) The item relating to section 7463 in the
table of sections for part II of subchapter C of chap-
ter 76 is amended by striking ‘‘$10,000’’ and insert-
ing ‘‘$25,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to proceedings commencing after
the date of the enactment of this Act.
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Subtitle 
C—Relief 
for 
Innocent
Spouses and for Taxpayers Un-
able To Manage Their Financial
Affairs Due to Disabilities
SEC. 321. SPOUSE RELIEVED IN WHOLE OR IN PART OF LI-
ABILITY IN CERTAIN CASES.
(a) IN GENERAL.—Subpart B of part II of sub-
chapter A of chapter 61 is amended by inserting after sec-
tion 6014 the following new section:
‘‘SEC. 6015. INNOCENT SPOUSE RELIEF; PETITION TO TAX
COURT.
‘‘(a) SPOUSE RELIEVED OF LIABILITY IN CERTAIN
CASES.—
‘‘(1) IN
GENERAL.—Under procedures pre-
scribed by the Secretary, if—
‘‘(A) a joint return has been made under
section 6013 for a taxable year,
‘‘(B) on such return there is an under-
statement of tax attributable to erroneous items
of 1 spouse,
‘‘(C) the other spouse establishes that in
signing the return he or she did not know, and
had no reason to know, that there was such un-
derstatement,
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‘‘(D) taking into account all the facts and
circumstances, it is inequitable to hold the other
spouse liable for the deficiency in tax for such
taxable year attributable to such understate-
ment, and
‘‘(E) the other spouse claims (in such form
as the Secretary may prescribe) the benefits of
this subsection not later than the date which is
2 years after the date of the assessment of such
deficiency,
then the other spouse shall be relieved of liability for
tax 
(including 
interest, 
penalties, 
and 
other
amounts) for such taxable year to the extent such li-
ability is attributable to such understatement.
‘‘(2) APPORTIONMENT OF RELIEF.—If a spouse
who, but for paragraph (1)(C), would be relieved of
liability under paragraph (1), establishes that in
signing the return such spouse did not know, and
had no reason to know, the extent of such under-
statement, then such spouse shall be relieved of li-
ability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent
that such liability is attributable to the portion of
such understatement of which such spouse did not
know and had no reason to know.
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‘‘(3) UNDERSTATEMENT.—For purposes of this
subsection, the term ‘understatement’ has the mean-
ing given to such term by section 6662(d)(2)(A).
‘‘(4) SPECIAL
RULE
FOR
COMMUNITY
PROP-
ERTY INCOME.—For purposes of this subsection, the
determination of the spouse to whom items of gross
income (other than gross income from property) are
attributable shall be made without regard to commu-
nity property laws.
‘‘(b) PETITION FOR REVIEW BY TAX COURT.—In the
case of an individual who has filed a claim under sub-
section (a) within the period specified in subsection
(a)(1)(E)—
‘‘(1) IN GENERAL.—Such individual may peti-
tion the Tax Court (and the Tax Court shall have
jurisdiction) to determine such claim if such petition
is filed during the 90-day period beginning on the
earlier of—
‘‘(A) the date which is 6 months after the
date such claim is filed with the Secretary, or
‘‘(B) the date on which the Secretary mails
by certified or registered mail a notice to such
individual denying such claim.
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Such 90-day period shall be determined by not
counting Saturday, Sunday, or a legal holiday in the
District of Columbia as the last day of such period.
‘‘(2) RESTRICTIONS
APPLICABLE
TO
COLLEC-
TION OF ASSESSMENT.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in section 6851 or 6861, no levy or
proceeding in court for collection of any assess-
ment to which such claim relates shall be made,
begun, or prosecuted, until the expiration of the
90-day period described in paragraph (1), nor,
if a petition has been filed with the Tax Court,
until the decision of the Tax Court has become
final. Rules similar to the rules of section 7485
shall apply with respect to the collection of such
assessment.
‘‘(B) AUTHORITY TO ENJOIN COLLECTION
ACTIONS.—Notwithstanding the provisions of
section 7421(a), the beginning of such proceed-
ing or levy during the time the prohibition
under subparagraph (A) is in force may be en-
joined by a proceeding in the proper court, in-
cluding the Tax Court. The Tax Court shall
have no jurisdiction under this paragraph to en-
join any action or proceeding unless a timely
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petition for a determination of such claim has
been filed and then only in respect of the
amount of the assessment to which such claim
relates.
‘‘(C) JEOPARDY COLLECTION.—If the Sec-
retary makes a finding that the collection of the
tax is in jeopardy, nothing in this subsection
shall prevent the immediate collection of such
tax.
‘‘(c) SUSPENSION OF RUNNING OF PERIOD OF LIMI-
TATIONS.—The running of the period of limitations in sec-
tion 6502 on the collection of the assessment to which the
petition under subsection (b) relates shall be suspended
for the period during which the Secretary is prohibited by
subsection (b) from collecting by levy or a proceeding in
court and for 60 days thereafter.
‘‘(d) APPLICABLE RULES.—
‘‘(1) ALLOWANCE OF APPLICATION.—Except as
provided in paragraph (2), notwithstanding any
other law or rule of law (other than section 6512(b),
7121, or 7122), credit or refund shall be allowed or
made to the extent attributable to the application of
this section.
‘‘(2) RES JUDICATA.—In the case of any claim
under subsection (a), the determination of the Tax
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Court in any prior proceeding for the same taxable
periods in which the decision has become final, shall
be conclusive except with respect to the qualification
of the spouse for relief which was not an issue in
such proceeding. The preceding sentence shall not
apply if the Tax Court determines that the spouse
participated meaningfully in such prior proceeding.
‘‘(3) LIMITATION
ON
TAX
COURT
JURISDIC-
TION.—If a suit for refund is begun by either spouse
pursuant to section 6532, the Tax Court shall lose
jurisdiction of the spouse’s action under this section
to whatever extent jurisdiction is acquired by the
district court or the United States Court of Federal
Claims over the taxable years that are the subject of
the suit for refund.’’.
(b) SEPARATE FORM FOR APPLYING FOR SPOUSAL
RELIEF.—Not later than 180 days after the date of the
enactment of this Act, the Secretary of the Treasury shall
develop a separate form with instructions for use by tax-
payers in applying for relief under section 6015(a) of the
Internal Revenue Code of 1986, as added by this section.
(c) CONFORMING AMENDMENTS.—
(1) Section 6013 is amended by striking sub-
section (e).
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(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 beginning 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
subsection (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 FI-
NANCIAL AFFAIRS DUE TO DISABILITY.—
‘‘(1) IN GENERAL.—In the case of an individ-
ual, the running of the periods specified in sub-
sections (a), (b), and (c) shall be suspended during
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any period of such individual’s life that such individ-
ual is financially disabled.
‘‘(2) FINANCIALLY DISABLED.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), an individual is financially disabled
if such individual is unable to manage his fi-
nancial affairs by reason of his medically deter-
minable physical or mental impairment which
can be expected to result in death or which has
lasted or can be expected to last for a continu-
ous period of not less than 12 months. An indi-
vidual shall not be considered to have such an
impairment unless proof 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 disabled during any pe-
riod that such individual’s spouse or any other
person is authorized to act on behalf of such in-
dividual 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
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regard to such amendment) is barred by the operation of
any law or rule of law (including res judicata) as of Janu-
ary 1, 1998.
Subtitle D—Provisions Relating to
Interest
SEC. 331. ELIMINATION OF INTEREST RATE DIFFERENTIAL
ON OVERLAPPING PERIODS OF INTEREST ON
INCOME TAX OVERPAYMENTS AND UNDER-
PAYMENTS.
(a) IN GENERAL.—Section 6621 (relating to deter-
mination of rate of interest) is amended by adding at the
end the following new subsection:
‘‘(d) ELIMINATION OF INTEREST ON OVERLAPPING
PERIODS OF INCOME TAX OVERPAYMENTS AND UNDER-
PAYMENTS.—To the extent that, for any period, interest
is payable under subchapter A and allowable under sub-
chapter B on equivalent underpayments and overpayments
by the same taxpayer of tax imposed by chapters 1 and
2, 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 amend-
ed by adding at the end the following new sentence: ‘‘The
preceding sentence shall not apply to the extent that sec-
tion 6621(d) applies.’’.
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(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest for calendar quarters
beginning after the date of the enactment of this Act.
SEC. 332. 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).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to interest for calendar quarters
beginning after the date of the enactment of this Act.
Subtitle E—Protections for Tax-
payers Subject to Audit or Col-
lection Activities
SEC. 341. PRIVILEGE OF CONFIDENTIALITY EXTENDED TO
TAXPAYER’S DEALINGS WITH NON-ATTOR-
NEYS AUTHORIZED TO PRACTICE BEFORE IN-
TERNAL REVENUE SERVICE.
Section 7602 (relating to examination of books and
witnesses) is amended by adding at the end the following
new subsection:
‘‘(d) PRIVILEGE OF CONFIDENTIALITY EXTENDED
TO TAXPAYER’S DEALINGS WITH NON-ATTORNEYS AU-
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THORIZED TO PRACTICE BEFORE INTERNAL REVENUE
SERVICE.—
‘‘(1) IN
GENERAL.—In any noncriminal pro-
ceeding before the Internal Revenue Service, the tax-
payer shall be entitled to the same common law pro-
tections of confidentiality with respect to tax advice
furnished by any qualified individual (in a manner
consistent with State law for such individual’s pro-
fession) as the taxpayer would have if such individ-
ual were an attorney.
‘‘(2) QUALIFIED INDIVIDUAL.—For purposes of
paragraph (1), the term ‘qualified individual’ means
any individual (other than an attorney) who is au-
thorized to practice before the Internal Revenue
Service.’’.
SEC. 342. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER
ASSISTANCE ORDERS.
Section 7811(a) (relating to taxpayer assistance or-
ders) is amended—
(1) by striking ‘‘Upon application’’ and insert-
ing the following:
‘‘(1) IN GENERAL.—Upon application’’,
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new
paragraphs:
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‘‘(2) ISSUANCE OF TAXPAYER ASSISTANCE OR-
DERS.—For purposes of determining whether to
issue a taxpayer assistance order, the Taxpayer Ad-
vocate shall consider the following factors, among
others:
‘‘(A) Whether there is an immediate threat
of adverse action.
‘‘(B) Whether there has been an unreason-
able delay in resolving taxpayer account prob-
lems.
‘‘(C) Whether the taxpayer will have to pay
significant costs (including fees for professional
representation) if relief is not granted.
‘‘(D) Whether the taxpayer will suffer ir-
reparable injury, or a long-term adverse impact,
if relief is not granted.
‘‘(3) STANDARD WHERE ADMINISTRATIVE GUID-
ANCE NOT FOLLOWED.—In cases where any Internal
Revenue Service employee is not following applicable
published administrative guidance (including the In-
ternal Revenue Manual), the Taxpayer Advocate
shall construe the factors taken into account in de-
termining whether to issue a taxpayer assistance
order in the manner most favorable to the tax-
payer.’’.
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SEC. 343. LIMITATION ON FINANCIAL STATUS AUDIT TECH-
NIQUES.
Section 7602 is amended by adding at the end the
following new subsection:
‘‘(e) 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 likeli-
hood of such unreported income.’’.
SEC. 344. LIMITATION ON AUTHORITY TO REQUIRE PRO-
DUCTION OF COMPUTER SOURCE CODE.
(a) IN GENERAL.—Section 7602 is amended by add-
ing at the end the following new subsection:
‘‘(f) LIMITATION ON AUTHORITY TO REQUIRE PRO-
DUCTION OF COMPUTER SOURCE CODE.—
‘‘(1) IN GENERAL.—No summons may be is-
sued under this title, and the Secretary may not
begin any action under section 7604 to enforce any
summons, to produce or examine any tax-related
computer source code.
‘‘(2) EXCEPTION
WHERE
INFORMATION
NOT
OTHERWISE
AVAILABLE
TO
VERIFY
CORRECTNESS
OF
ITEM
ON
RETURN.—Paragraph (1) shall not
apply to any portion of a tax-related computer
source code if—
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‘‘(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 program
and the associated data which, when exe-
cuted, produces the output to prepare the
return for the period involved, and
‘‘(B) the Secretary identifies with reason-
able specificity such portion as to be used to
verify the correctness of such item.
The Secretary shall be treated as meeting the re-
quirements of subparagraphs (A) and (B) after the
90th day after the Secretary makes a formal request
to the taxpayer and the owner or developer of the
computer software program for the material de-
scribed in subparagraph (A)(ii) if such material is
not provided before the close of such 90th day.
‘‘(3) OTHER EXCEPTIONS.—Paragraph (1) shall
not apply to—
‘‘(A) any inquiry into any offense con-
nected with the administration or enforcement
of the internal revenue laws, and