Taxpayer Bill of Rights 2
PL 104-168 (H.R.2337), enacted 07/30/1996

110 STAT. 1452 
PUBLIC LAW 104-168-^ULY 30, 1996 
Public Law 104-168 
104th Congress 
An Act 
July 30, 1996 
To amend the Internal Revenue Code of 1986 to provide for increased taxpayer 
[H.R. 2337] 
protections. 
Be it enacted by the Senate and House of Representatives 
of 
Taxpayer Bill of 
the United States of America in Congress assembled, 
Rights 2. 
^ 
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CON-
TENTS. 
26USClnote. 
(a) SHORT TiTLE.—This Act may be cited as the "Taxpayer 
Bill of Rights 2". 
(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section 
or other provision of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.— 
Sec. 1. Short title; amendment of 1986 Code; table of contents. 
TITLE I—TAXPAYER ADVOCATE 
Sec. 101. Establishment of position of Taxpayer Advocate within Internal Revenue 
Service. 
Sec. 102. Expansion of authority to issue Taxpayer Assistance Orders. 
TITLE II—MODIFICATIONS TO INSTALLMENT AGREEMENT PROVISIONS 
Sec. 201. Notification of reasons for termination of installment agreements. 
Sec. 202. Administrative review of termination of installment agreement. 
TITLE III—ABATEMENT OF INTEREST AND PENALTIES 
Sec. 301. Expansion of authority to abate interest. 
Sec. 302. Review of IRS failure to abate interest. 
Sec. 303. Extension of interest-free period for pajrment of tax after notice and de-
mand. 
Sec. 304. Abatement of penalty for failure to make required deposits of pajn'oU 
taxes in certain cases. 
TITLE rV-^OINT RETURNS 
Sec. 401. Studies of joint return-related issues. 
Sec. 402. Joint return may be made after separate returns without full pasrment of 
tax. 
Sec. 403. Disclosure of collection activities. 
TITLE V—COLLECTION ACTIVITIES 
Sec. 501. Modifications to lien and levy provisions. 
Sec. 502. Modifications to certain levy exemption amounts. 
Sec. 503. Offers-in-compromise. 
TITLE VI—INFORMATION RETURNS 
Sec. 601. Civil damages for fi-audulent filing of information returns. 
Sec. 602. Requirement to conduct reasonable investigations of information returns. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1453 
TITLE VII—AWARDING OF COSTS AND CERTAIN FEES 
Sec. 701. United States must establish that its position in proceeding was substan-
tially justified. 
Sec. 702. Increased limit on attorney fees. 
Sec. 703. Failure to agree to extension not taken into account. 
Sec. 704. Award of litigation costs permitted in declaratory judgment proceedings. 
TITLE VIII—MODIFICATION TO RECOVERY OF CIVIL DAMAGES FOR 
UNAUTHORIZED COLLECTION ACTIONS 
Sec. 801. Increase in limit on recovery of civil damages for unauthorized collection 
actions. 
Sec. 802. Court discretion to reduce award for litigation costs for failure to exhaust 
administrative remedies. 
TITLE IX—MODIFICATIONS TO PENALTY FOR FAILURE TO COLLECT AND 
PAY OVER TAX 
Sec. 901. Preliminary notice requirement. 
Sec. 902. Disclosure of certain information where more than 1 person liable for pen-
alty for failure to collect and pay over tax. 
Sec. 903. Right of contribution where more than 1 person liable for penalty for fail-
ure to collect and pay over tax. 
Sec. 904. Volunteer bo£u*d members of tax-exempt organizations exempt from pen-
alty for failure to collect and pay over tax. 
TITLE X—MODIFICATIONS OF RULES RELATING TO SUMMONSES 
Sec. 1001. Enrolled agents included as third-party recordkeepers. 
Sec. 1002. Safeguards relating to designated summonses. 
Sec. 1003. Annual report to Congress concerning designated summonses. 
TITLE XI—RELIEF FROM RETROACTIVE APPLICATION OF TREASURY 
DEPARTMENT REGULATIONS 
Sec. 1101. Relief from retroactive appUcation of Treasury Department regulations. 
TITLE XII—MISCELLANEOUS PROVISIONS 
Sec. 1201. Phone number of person providing payee statements required to be 
shown on such statement. 
Sec. 1202. Required notice of certain payments. 
Sec. 1203. Unauthorized enticement of information disclosure. 
Sec. 1204. Annual reminders to taxpayers with outstanding delinquent accounts. 
Sec. 1205. 5-year extension of authority for undercover operations. 
Sec. 1206. Disclosure of Form 8300 information on cash transactions. 
Sec. 1207. Disclosure of returns and return information to designee of taxpayer. 
Sec. 1208. Study of netting of interest on overpajnnents and liabilities. 
Sec. 1209. Expenses of detection of underpayments and fraud, etc. 
Sec. 1210. Use of private delivery services for timely-mailing-as-timely-filing rule. 
Sec. 1211. Reports on misconduct of IRS employees. 
TITLE XIII—REVENUE OFFSETS 
Subtitle A—Application of Failure-to-Pay Penalty to Substitute Returns 
Sec. 1301. Application of failure-to-pay penalty to substitute returns. 
Subtitle B—^Excise Taxes on Amounts of Private Excess Benefits 
Sec. 1311. Excise taxes for failure by certain charitable organizations to meet cer-
tain qualification requirements. 
Sec. 1312. Reporting of certain excise taxes and other information. 
Sec. 1313. Exempt organizations required to provide copy of return. 
Sec. 1314. Increase in penalties on exempt organizations for failure to file complete 
and timely annual returns. 
TITLE I—TAXPAYER ADVOCATE 
SEC. 101. ESTABLISHMENT OF POSITION OF TAXPAYER ADVOCATE 
W m n N INTERNAL REVENUE SERVICE. 
(a) GENERAL RULE.—Section 7802 (relating to Commissioner 
of Internal Revenue; Assistant Commissioner (Employee Plans and 
110 STAT. 1454 
PUBLIC LAW 1 0 4 - 1 6 8 - J U L Y 30, 1996 
Exempt Organizations)) is amended by adding at the end the follow-
ing new subsection: 
EstabUshment. 
"(d) OFFICE OF TAXPAYER ADVOCATE.— 
Government 
"(1) IN GENERAL.—There is estabUshed in the Internal 
organization. 
Revenue Service an office to be known as the 'Office of the 
Taxpayer Advocate'. Such office shall be under the supervision 
£ind direction of an official to be known as the Taxpayer Advo-
cate' who shall be appointed by and report directly to the 
Commissioner of Internal Revenue. The Taxpayer Advocate 
shall be entitled to compensation at the same rate as the 
highest level official reporting directly to the Deputy Commis-
sioner of the Internal Revenue Service. 
"(2) FUNCTIONS OF OFFICE.— 
"(A) IN GENERAL.—It shall be the function of the Office 
of Taxpayer Advocate to— 
"(i) assist taxpayers in resolving problems with 
the Internal Revenue Service, 
"(ii) identify areas in which taxpayers have prob-
lems in dealings with the Internal Revenue Service, 
"(iii) to the extent possible, propose changes in 
the administrative practices of the Internal Revenue 
Service to mitigate problems identified under clause 
(ii), and 
"(iv) identify potential legislative changes which 
may be appropriate to mitigate such problems. 
"(B) ANNUAL REPORTS.— 
"(i) OBJECTIVES.—Not later than June 30 of each 
calendar year after 1995, the Taxpayer Advocate shall 
report to the Committee on Ways and Means of the 
House of Representatives and the Committee on 
Finance of the Senate on the objectives of the Teixpayer 
Advocate for the fiscal year beginning in such calendar 
year. Any such report shall contain full and substantive 
analysis, in addition to statistical information. 
"(ii) ACTIVITIES.—Not later than December 31 of 
each calendar year after 1995, the Taxpayer Advocate 
shall report to the Committee on Ways and Means 
of the House of Representatives and the Committee 
on Finance of the Senate on the activities of the Tax-
payer Advocate during the fiscal year ending during 
such calendar year. Any such report shall contain full 
and substantive analysis, in addition to statistical 
information, and shall— 
"(I) identify the initiatives the Taxpayer Advo-
cate has taken on improving taxpayer services and 
Internal Revenue Service responsiveness, 
"(II) contain recommendations received from 
individuals with the authority to issue Taxpayer 
Assistsmce Orders under section 7811, 
"(III) contain a summary of at least 20 of 
the most serious problems encountered by tax-
payers, including a description of the nature of 
such problems, 
"(IV) contain an inventory of the 
items 
described in subclauses (I), (II), and (III) for which 
action has been taken and the result of such action. 
PUBLIC LAW 104-168-^JULY 30, 1996 
110 STAT. 1455 
"(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 (II) and (III) for which 
no action has been taken, the period during which 
each item has remained on such inventory, the 
reasons for the inaction, and identify any Internal 
Revenue Service official who is responsible for such 
inaction, 
"(VII) identify any Taxpayer Assistance Order 
which was not honored by the Internal Revenue 
Service in a timely manner, as specified under 
section 7811(b), 
"(VIII) contain recommendations for 
such 
administrative and legislative action as may be 
appropriate to resolve problems encountered by 
taxpayers, 
"(DC) describe the extent to which regional 
problem resolution officers participate in the selec-
tion and evaluation of local problem resolution offi-
cers, and 
"(X) include such other information as the Tax-
payer Advocate may deem advisable, 
"(iii) REPORT TO BE SUBMITTED DIRECTLY.—Each 
report required under this subparagraph shall be pro-
vided directly to the Committees referred to in clauses 
(i) and (ii) without any prior review or comment from 
the Commissioner, the Secretary of the Treasury, any 
other officer or employee of the Department of the 
Treasury, or the Office of Management and Budget. 
"(3) 
RESPONSIBILITIES OF COMMISSIONER.—The Commis-
sioner of Internal Revenue shall estabUsh procedures requiring 
a formal response to all recommendations submitted to the 
Commissioner by the Taxpayer Advocate within 3 months after 
submission to the Commissioner.", 
(b) CONFORMING AMENDMENTS.— 
(1) Section 7811 (relating to Taxpayer Assistance Orders) 
is amended— 
(A) by striking "the Office of Ombudsman" in sub-
section (a) and inserting "the Office of the Taxpayer Advo-
cate", and 
(B) by striking "Ombudsman" each place it appears 
(including in the headings of subsections (e) and (f)) and 
inserting "Taxpayer Advocate". 
(2) The heading for section 7802 is amended to read as 
follows: 
110 STAT. 1456 
PUBLIC LAW 104-168-^JULY 30, 1996 
"SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT 
COMMISSIONERS; TAXPAYER ADVOCATE.". 
(3) The table of sections for subchapter A of chapter 80 
is amended by striking the item relating to section 7802 £ind 
inserting the following new item: 
"Sec. 7802. Commissioner of Internal Revenue; Assistant Commissioners; Taxpayer 
Advocate.". 
26 use 7802 
(c) EFFECTIVE DATE.—^The £imendments made by this section 
note. 
shall take effect on the date of the enactment of this Act. 
SEC. 102. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE 
ORDERS. 
(a) TERMS OF ORDERS.—Subsection (b) of section 7811 (relating 
to terms of Taxpayer Assistance Orders) is amended— 
(1) by inserting 'Vithin a specified time period" after "the 
Secretary", and 
(2) by inserting "take any action as permitted by law," 
after "cease any action,". 
(b) LIMITATION ON AUTHORITY To MODIFY OR RESCIND.—Section 
7811(c) (relating to authority to modify or rescind) is amended 
to read as follows: 
"(c) AUTHORITY To MODIFY OR RESCIND.—Any Taxpayer Assist-
ance Order issued by the Tsixpayer Advocate under this section 
may be modified or rescinded— 
"(1) only by the Taxpayer Advocate, the Commissioner of 
Internal Revenue, or the Deputy Commissioner of Internal 
Revenue, and 
"(2) only if a written explanation of the reasons for the 
modification or rescission is provided to the Taxpayer Advo-
cate.". 
26 use 7811 
(c) EFFECTIVE DATE.—^The amendments made by this section 
note. 
shall take effect on the date of the enactment of this Act. 
TITLE II—MODIFICATIONS TO INSTALL-
MENT AGREEMENT PROVISIONS 
SEC. 201. NOTIFICATION OF REASONS FOR TERMINATION OF INSTALL-
MENT AGREEMENTS. 
(a) TERMINATIONS.—Subsection (b) of section 6159 (relating to 
extent to which agreements remain in effect) is amended by adding 
at the end the following new paragraph: 
"(5) NOTICE REQUIREMENTS.—The Secretary may not take 
£iny action under paragraph (2), (3), or (4) unless— 
"(A) a notice of such action is provided to the taxpayer 
not later than the day 30 days before the date of such 
action, and 
"(B) such notice includes an explanation why the Sec-
retary intends to take such action. 
The preceding sentence shall not apply in any case in which 
the Secretary believes that collection of any tax to which an 
agreement under this section relates is in jeopeirdy.". 
(b) CONFORMING AMENDMENT.—Paragraph (3) of section 6159(b) 
is amended to read as follows: 
"(3) SUBSEQUENT CHANGE IN FINANCIAL CONDITIONS.—If the 
Secretary makes a determination that the financial condition 
PUBLIC LAW 104-168—JULY 30, 1996 
110 STAT. 1457 
of a taxpayer with whom the Secretary has entered into an 
agreement xinder subsection (a) has significemtly changed, the 
Secretary may alter, modify, or terminate such agreement.", 
(c) EFFECTIVE DATE.—^The amendments made by this section 
shall take effect on the date 6 months after the date of the enact-
ment of this Act. 
SEC. 202. ADMINISTRATIVE REVIEW OF TERMINATION OF INSTALL-
MENT AGREEMENT. 
(a) GENERAL RULE.—Section 6159 (relating to agreements for 
payment of tax liability in installments) is amended by adding 
at the end the following new subsection: 
"(c) ADMINISTRATIVE: REVIEW.—The Secretary shall establish 
procedures for an independent administrative review of termi-
nations of installment agreements under this section for taxpayers 
who request such a review.". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
shall take effect on January 1,1997. 
26 use 6159 
note. 
26 use 6159 
note. 
TITLE III—ABATEMENT OF INTEREST 
AND PENALTIES 
SEC. 301. EXPANSION OF AUTHORITY TO ABATE INTEREST. 
(a) GENERAL RULE.—Paragraph (1) of section 6404(e) (relating 
to abatement of interest in certain cases) is amended— 
(1) by inserting "unreasonable" before "error" each place 
it appears in subparagraphs (A) and (B), and 
(2) by striking "in performing a ministerial act" each place 
it appears and inserting "in performing a ministerial or mana-
gerial act". 
(b) CLERICAL AMENDMENT.—The subsection heading for sub-
section (e) of section 6404 is amended— 
(1) by striking "ASSESSMENTS" and inserting "ABATEMENT", 
and 
(2) by inserting "UNREASONABLE" before "ERRORS". 
(c) EFFECTIVE DATE.—^The simendments made by this section 
shall apply to interest accruing with respect to deficiencies or pay-
ments for taxable years beginning after the date of the enactment 
of this Act. 
SEC. 302. REVIEW OF IRS FAILURE TO ABATE INTEREST. 
(a) IN GENERAL.—Section 6404 is amended by adding at the 
end the following new subsection: 
"(g) 
REVIEW OF DENIAL OF REQUEST FOR ABATEMENT OF 
INTEREST.— 
"(1) IN GENERAL.—The Tax Court shall have jurisdiction 
over any action brought by a taxpayer who meets the require-
ments referred to in section 7430(c)(4)(A)(iii) to determine 
whether the Secretar^s failure to abate interest under this 
section was an abuse of discretion, and may order an abate-
ment, if such action is brought within 180 days after the 
date of the mailing of the Secretsuys final determination not 
to abate such interest. 
"(2) SPECIAL RULES.— 
26 use 6404 
note. 
Courts. 
^plicability. 
110 STAT. 1458 
PUBLIC LAW 104-168^JULY 30, 1996 
"(A) DATE OF MAILING.—Rules similar to the rules of 
section 6213 shall apply for purposes of determining the 
date of the mailing referred to in paragraph (1). 
"(B) RELIEF.—Rules similar to the rules of section 
6512(b) shall apply for purposes of this subsection. 
"(C) REVIEW.—An order of the Tax Court under this 
subsection shall be reviewable in the same manner as 
a decision of the Tax Court, but only with respect to the 
matters determined in such order.". 
26 use 6404 
(b) EFFECTIVE DATE.—The amendment made by this section 
^ote. 
shall apply to requests for abatement after the date of the enact-
ment of this Act. 
SEC. 303. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF 
TAX AFTER NOTICE AND DEMAND. 
(a) GENERAL RULE.—Paragraph (3) of section 6601(e) (relating 
to payments made within 10 days after notice and demand) is 
amended to read as follows: 
"(3) PAYMENTS MADE WITHIN SPECIFIED PERIOD AFTER 
NOTICE AND DEMAND.—If notice and demand is made for pay-
ment of any amount and if such amoimt is paid within 21 
calendar days (10 business days if the amount for which such 
notice and demand is made equals or exceeds $100,000) after 
the date of such notice £ind demand, interest under this section 
on the amount so paid shall not be imposed for the period 
after the date of such notice and demand.". 
(b) CONFORMING AMENDMENTS.— 
(1) Subparagraph (A) of section 6601(e)(2) is amended by 
striking "10 days from the date of notice and demand therefor" 
and inserting "21 calendar days from the date of notice and 
demand therefor (10 business days if the amount for which 
such notice and demand is made equals or exceeds $100,000)". 
(2) Paragraph (3) of section 6651(a) is amended by striking 
"10 days of the date of the notice and demand therefor" and 
inserting "21 calendar days from the date of notice and demand 
therefor (10 business days if the amount for which such notice 
and demand is made equals or exceeds $100,000)". 
26 use 6601 
(c) EFFECTIVE DATE.—The amendments made by this section 
note. 
shedl apply in the case of any notice and demand given after 
December 31,1996. 
SEC. 304. ABATEMENT OF PENALTY FOR FAILURE TO MAKE REQUIRED 
DEPOSITS OF PAYROLL TAXES IN CERTAIN CASES. 
(a) IN GENERAL.—Section 6656 (relating to failure to make 
deposit of taxes) is amended by adding at the end the following 
new subsections: 
"(c) EXCEPTION FOR FIRST-TIME DEPOSITORS OF EMPLOYMENT 
TAXES.—The Secretary may waive the penalty imposed by sub-
section (a) on a person's inadvertent failure to deposit any employ-
ment tax if— 
"(1) such person meets the requirements referred to in 
section 7430(c)(4)(AXiii), 
"(2) such failure occurs during the 1st quarter that such 
person was required to deposit any emplo)anent tax, and 
"(3) the return of such tax was filed on or before the 
due date. 
For purposes of this subsection, the term 'employment taxes' means 
the taxes imposed by subtitle C. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1459 
"(d) AUTHORITY TO ABATE PENALTY WHERE DEPOSIT SENT TO 
SECRETARY.—^The Secretary may abate the penalty imposed by sub-
section (a) with respect to the first time a depositor is required 
to make a deposit if the amount required to be deposited is inadvert-
ently sent to the Secretary instead of to the appropriate government 
depository.". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
26 use 6656 
shall apply to deposits required to be made after the date of the note, 
enactment of this Act. 
TITLE IV-^OINT RETURNS 
SEC. 401. STUDIES OF JOINT RETURN-RELATED ISSUES. 
The Secretary of the Treasury or his delegate and the Comptrol-
ler General of the United States shall each conduct separate studies 
of— 
(1) the effects of changing the liability for tax on a joint 
return from being joint and several to being proportionate 
to the tax attributable to each spouse, 
(2) the effects of providing that, if a divorce decree allocates 
liability for tax on a joint return filed before the divorce, the 
Secretarj' may collect such liability only in accordance with 
the decree, 
(3) whether those provisions of the Internal Revenue Code 
of 1986 intended to provide relief to innocent spouses provide 
meaningful relief in all cases where such relief is appropriate, 
and 
(4) the effect of providing that community income (as 
defined in section 66(d) of such Code) which, in accordance 
with the rules contained in section 879(a) of such Code, would 
be treated as the income of one spouse is exempt from a 
levy for failure to pay any tax imposed by subtitle A by the 
other spouse for a taxable year ending before their marriage. 
The reports of such studies shall be submitted to the Committee Reports. 
on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate withm 6 months after the 
date of the enactment of this Act. 
SEC. 402. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS 
WITHOUT FULL PAYMENT OF TAX. 
(a) GENERAL RULE.—Paragraph (2) of section 6013(b) (relating 
to limitations on filing of joint return after filing separate returns) 
is amended by striking subparagraph (A) and redesignating the 
following subparagraphs accordingly. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 26 use 6013 
shall apply to taxable years beginning after the date of the enact- note, 
ment of this Act. 
SEC. 403. DISCLOSURE OF COLLECTION ACTIVITIES. 
(a) IN GENERAL.—Subsection (e) of section 6103 (relating to 
disclosure to persons having material interest) is amended by add-
ing at the end the following new paragraph: 
"(8) DISCLOSURE OF COLLECTION ACTIVITIES WITH RESPECT 
TO JOINT RETURN.—If any deficiency of tax with respect to 
a joint return is assessed and the individuals filing such return 
are no longer married or no longer reside in the same house-
hold, upon request in writing by either of such individuals, 
110 STAT. 1460 
PUBLIC LAW 104-168-^JULY 30, 1996 
the Secretary shall disclose in writing to the individual making 
the request whether the Secretary has attempted to collect 
such deficiency fi'om such other individual, the general nature 
of such collection activities, and the amount collected. The 
preceding sentence shall not apply to any deficiency which 
may not be collected by reason of section 6502.". 
26 use 6103 
(b) EFFECTIVE DATE.—The amendment made by this section 
i^ote. 
shall apply to requests made afl;er the date of the enactment of 
this Act. 
TITLE V—COLLECTION ACTIVITIES 
SEC. 601. MODIFICATIONS TO LBEN AND LEVY PROVISIONS. 
(a) WITHDRAWAL OF CERTAIN NOTICES.—Section 6323 (relating 
to validity and priority against certain persons) is amended by 
adding at the end the following new subsection: 
"(j) WITHDRAWAL OF NOTICE IN CERTAIN CIRCUMSTANCES.— 
"(1) IN GENERAL,—The Secretary may withdraw a notice 
of a lien filed under this section and this chapter shall be 
applied as if the withdrawn notice had not been filed, if the 
Secretary determines that— 
"(A) the filing of such notice was premature or other-
wise not in accordance with administrative procedures of 
the Secretary, 
"(B) the taxpayer has entered into an agreement under 
section 6159 to satisfy the tax liability for which the lien 
was imposed by means of installment pa3mients, unless 
such agreement provides otherwise, 
"(C) the wiwidrawal of such notice will facilitate the 
collection of the tax liability, or 
"(D) with the consent of the tsixpayer or the Taxpayer 
Advocate, the withdrawal of such notice would be in the 
best interests of the taxpayer (as determined by the Tax-
payer Advocate) and the United States. 
Any such withdrawal shall be made by filing notice at the 
same office as the withdrawn notice. A copy of such notice 
of withdrawal shall be provided to the taxpayer. 
"(2) NOTICE TO CREDIT AGENCIES, ETC.—Upon written 
request by the taxpayer with respect to whom a notice of 
a lien was withdrawn under paragraph (1), the Secretary shall 
promptly make reasonable efforts to notify credit reporting 
agencies, and any financial institution or creditor whose name 
and address is specified in such request, of the withdrawal 
of such notice. Any such request shall be in such form as 
the Secretary may prescribe.". 
(b) RETURN OF LEVIED PROPERTY IN CERTAIN CASES.—Section 
6343 (relating to authority to release levy and return property) 
is amended by adding at the end the following new subsection: 
"(d) RETURN OF PROPERTY IN CERTAIN CASES.—If— 
"(1) any property has been levied upon, and 
"(2) the Secretary determines that— 
"(A) the levy on such property was premature or other-
wise not in accordance with administrative procedvires of 
the Secretary, 
"(B) the taxpayer has entered into an agreement under 
section 6159 to satisfy the tax liability for which the levy 
PUBLIC LAW 104-168-JULY 30, 1996 
110 STAT. 1461 
was imposed by means of installment pajnnents, unless 
such agreement provides otherwise, 
"(C) the return of such property will facilitate the 
collection of the tax liability, or 
"(D) with the consent of the taxpayer or the Taxpayer 
Advocate, the return of such property would be in the 
best interests of the taxpayer (as determined by the Tax-
payer Advocate) and the United States, 
the provisions of subsection (b) shall apply in the s£ime manner 
as if such property had been wrongly levied upon, except that 
no interest shall be allowed under subsection (c).". 
(d) EFFECTIVE DATE.—The amendments made by this section 
26 use 6323 
shall take effect on the date of the enactment of this Act. 
^°^-
SEC. 502. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS. 
(a) FUEL, ETC.—Paragraph (2) of section 6334(a) (relating to 
fuel, provisions, furniture, and personal effects exempt from levy) 
is amended— 
(1) by striking "If the taxpayer is the head of a family, 
so" and inserting "So", 
(2) by striking "his household" and inserting "the taxpayer's 
household", and 
(3) by striking "$1,650 ($1,550 in the case of levies issued 
during 1989)" and inserting "$2,500". 
(b) BOOKS, ETC.—Paragraph (3) of section 6334(a) (relating 
to books and tools of a trade, business, or profession) is amended 
by striking "$1,100 ($1,050 in the case of levies issued during 
1989)" and inserting "$1,250". 
(c) INFLATION ADJUSTMENT.—Section 6334 (relating to property 
exempt from levy) is amended by adding at the end the following 
new subsection: 
"(f) INFLATION ADJUSTMENT.— 
"(1) IN GENERAL.—In the case of any calendar year begin-
ning after 1997, each dollar amount referred to in paragraphs 
(2) and (3) of subsection (a) shall be increased by an amount 
equal to— 
"(A) such dollar amount, multiplied by 
"(B) the cost-of-living adjustment determined under 
section 1(f)(3) for such calendar year, by substituting 'cal-
endar year 1996' for 'calendar year 1992' in subparagraph 
(B) thereof. 
"(2) ROUNDING.—If any dollar amount after being increased 
under paragraph (1) is not a multiple of $10, such dollar amount 
shall be rounded to the nearest miiltiple of $10.". 
(d) EFFECTIVE DATE.—^The amendments made by this section 26USC6334 
shall take effect with respect to levies issued after December 31, ^ote. 
1996. 
SEC. 503. OFFERS-IN-COMPROMISE. 
(a) REVIEW REQUIREMENTS.—Subsection (b) of section 7122 
(relating to records) is amended by striking "$500." and inserting 
"$50,000. However, such compromise shall be subject to continuing 
quality review by the Secretary.". 
(b) EFFECTIVE DATE.—The amendment made by this section 26 use 7122 
shall take effect on the date of the enactment of this Act. 
note. 
110 STAT. 1462 
PUBLIC LAW 104-168-^ULY 30, 1996 
TITLE VI—INFORMATION RETURNS 
SEC. 601. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION 
RETURNS. 
(a) GENERAL RULE.—Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties) is amended by redesig-
nating section 7434 as section 7435 and by inserting after section 
7433 the following new section: 
"SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMA-
TION RETURNS. 
"(a) IN GENERAL.—If any person willfully iiles a 
fraudulent 
information return with respect to pa3anents purported to be made 
to any other person, such other person may bring a civil action 
for damages against the person so filing such return. 
"(b) DAMAGES.—In any action brought under subsection (a), 
upon a finding of liability on the part of the defendant, the defend-
ant shall be liable to the plaintiff in £in amount equal to the 
greater of $5,000 or the sum of— 
"(1) any actual damages sustained by the plaintiff as a 
proximate result of the filing of the fraudulent information 
return (including any costs attributable to resolving deficiencies 
asserted as a result of such filing), 
"(2) the costs of the action, and 
"(3) in the court's discretion, reasonable attorneys fees. 
"(c) PERIOD FOR BRINGING ACTION.—Notwithstanding any other 
provision of law, an action to enforce the liability created under 
this section may be brought without regard to the amount in 
controversy and may be brought only within the later o
f
— 
"(1) 6 years after the date of the filing of the fraudulent 
information return, or 
"(2) 1 year after the date such 
fraudulent 
information 
return would have been discovered by exercise of reasonable 
care. 
"(d) COPY OF COMPLAINT FILED WITH IRS—Any person bringing 
£in action under subsection (a) shall provide a copy of the complaint 
to the Internal Revenue Service upon the filing of such complaint 
with the court. 
"(e) FINDING OF COURT TO INCLUDE CORRECT AMOUNT OF PAY-
MENT.—The decision of the court awarding damages in an action 
brought under subsection (a) shall include a finding of the correct 
amount which should have been reported in the information return. 
"(f) INFORMATION RETURN.—For purposes of this section, the 
term 'information return' means any statement described in section 
6724(d)(1)(A).". 
(b) CLERICAL AMENDMENT.—The table of sections for subchapter 
B of chapter 76 is amended by striking the item relating to section 
7434 and inserting the following: 
"Sec. 7434. Civil damages for fraudulent filing of information returns. 
"Sec. 7435. Cross references.". 
26 use 7434 
(c) EFFECTIVE DATE.—The amendments made by this section 
note. 
shall apply to fraudulent information returns filed after the date 
of the enactment of this Act. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1463 
SEC. 602. REQUIREMENT TO CONDUCT REASONABLE INVESTIGATIONS 
OF INFORMATION RETURNS. 
(a) GENERAL RULE.—Section 6201 (relating to assessment 
authority) is amended by redesignating subsection (d) as subsection 
(e) and by inserting sifter subsection (c) the following new sub-
section: 
"(d) 
REQUIRED REASONABLE VERIFICATION OF INFORMATION 
RETURNS.—In any court proceeding, if a taxpayer asserts a reason-
able dispute with respect to any item of income reported on an 
information return filed with the Secretary under subpart B or 
C of part III of subchapter A of chapter 61 by a third party 
and the taxpayer has fully cooperated with the Secretary (including 
providing, within a reasonable period of time, access to and inspec-
tion of all witnesses, information, and documents within the control 
of the taxpayer as reasonably requested by the Secretary), the 
Secretary shall have the burden of producing reasonable and pro-
bative information concerning such deficiency in addition to such 
information return.". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 26USC620i 
shalltakeeffectonthedateoftheenactmentof this Act. 
^°^-
TITLE VII—AWARDING OF COSTS AND 
CERTAIN FEES 
SEC. 701. UNITED STATES MUST ESTABUSH THAT ITS POSITION IN 
PROCEEDING WAS SUBSTANTIALLY JUSTIFIED. 
(a) GENERAL RULE.—Subparagraph (A) of section 7430(c)(4) 
(defining prevaiHng party) is amended by striking clause (i) and 
by redesignating clauses (ii) and (iii) as clauses (i) and (ii), respec-
tively. 
(b) BURDEN OF PROOF ON UNITED STATES.—Paragraph (4) of 
section 7430(c) is £unended by redesignating subparagraph (B) as 
subparagraph (C) and by inserting after subparagraph (A) the fol-
lowmg new subparagraph: 
"(B) EXCEPTION IF UNITED STATES ESTABLISHES THAT 
ITS POSITION WAS SUBSTANTIALLY JUSTIFIED.— 
"(i) GENERAL RULE.—^A party shall not be treated 
as the prevailing party in a proceeding to which sub-
section (a) appHes if the United States establishes that 
the position of the United States in the procee(Ung 
was substantially justified. 
"(ii) 
PRESUMPTION 
OF 
NO 
JUSTIFICATION 
IF 
INTERNAL REVENUE SERVICE DID NOT FOLLOW CERTAIN 
PUBLISHED GUIDANCE.—For purposes of clause (i), tiie 
position of the United States shall be presumed not 
to be substantially justified if the Internal Revenue 
Service did not follow its applicable published guidance 
in the administrative proceeding. Such presumption 
may be rebutted. 
"(iii) APPLICABLE PUBLISHED GUIDANCE.—For pur-
poses of clause (ii), the term 'applicable published guid-
ance' means— 
"(I) regulations, revenue rulings, 
revenue 
procedures, information 
releases, notices, and 
announcements, and 
110 STAT. 1464 
PUBLIC LAW 104-168-^ULY 30, 1996 
"(II) any of the following which are issued 
to the taxpayer: private letter rulings, technical 
advice memoranda, and determination letters.", 
(c) CohfFORMiNG AMENDMENTS.— 
(1) Subparagraph (B) of section 7430(c)(2) is amended by 
striking "paragraph (4)(B)" and inserting "paragraph (4)(C) . 
(2) Subparagraph (C) of section 7430(c)(4), as redesignated 
by subsection (b), is amended by striking "subparagraph (A)" 
and inserting "this paragraph". 
(3) Sections 6404(g) and 6656(c)(1), as amended by this 
Act, are each amended by striking "section 7430(c)(4)(A)(iii)" 
and inserting "section 7430(c)(4)(A)(ii)". 
26 use 6404 
(d) EFFECTIVE DATE.—The amendments made by this section 
note. 
shall apply in the case of proceedings commenced after the date 
of the enactment of this Act. 
SEC. 702. INCREASED LIMIT ON ATTORNEY FEES. 
(a) IN GENERAL.—Paragraph (1) of section 7430(c) (defining 
reasonable litigation costs) is amended— 
(1) by striking "$75" in clause (iii) of subparagraph (B) 
and inserting "$110", 
(2) by striking "an increase in the cost of living or" in 
clause (iii) of subparagraph (B), and 
(3) by adding after clause (iii) the following: 
"In the case of any calendsir year beginning after 1996, the 
dollar amount referred to in clause (iii) shall be increased 
by an amount equal to such dollar amount multiplied by the 
cost-of-Uving adjustment determined under section 1(f)(3) for 
such calendar year, by substituting 'calendar year 1995* for 
'calendar year 1992' in subparagraph (B) thereof. If any dollar 
amount aiter being increased under the preceding sentence 
is not a multiple of $10, such dollar amount shall be roimded 
to the nearest multiple of $10.". 
26 use 7430 
(b) EFFECTIVE DATE.—^The amendment made by this section 
note. 
shall apply in the case of proceedings commenced after the date 
of the enactment of this Act. 
SEC. 703. FAILURE TO AGREE TO EXTENSION NOT TAKEN INTO 
ACCOUNT. 
(a) IN GENERAL.—Paragraph (1) of section 7430(b) (relating 
to requirement that administrative remedies be exhausted) is 
amended by adding at the end the following new sentence: "Any 
failure to agree to an extension of the time for the assessment 
of any tax shall not be taken into account for purposes of determin-
ing whether the prevailing party meets the requirements of the 
preceding sentence.". 
26 use 7430 
(b) EFFECTIVE DATE.—^The amendment made by this section 
note. 
shfidl apply in the case of proceedings commenced after the date 
of the enactment of this Act. 
SEC. 704. AWARD OF LITIGATION COSTS PERMITTED IN DECLARATORY 
JUDGMENT PROCEEDINGS. 
(a) IN GENERAL.—Subsection (b) of section 7430 is amended 
by striking paragraph (3) and by redesignating paragraph (4) as 
paragraph (3). 
26 use 7430 
(b) EFFECTIVE DATE.—^The amendment made by this section 
note. 
shall apply in the case of proceedings commenced after the date 
of the enactment of this Act. 
PUBLIC LAW 104-168-^JULY 30, 1996 
110 STAT. 1465 
TITLE VIII—MODIFICATION TO RECOV-
ERY OF CIVIL DAMAGES FOR UNAU-
THORIZED COLLECTION ACTIONS 
SEC. 801. n>^CREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES FOR 
UNAUTHORIZED COLLECTION ACTIONS. 
(a) GENERAL RULE.—Subsection (b) of section 7433 (relating 
to damages) is eimended by striking "$100,000" and inserting 
"$1,000,000". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 26 use 7433 
shall apply to actions by officers or employees of the Internal note. 
Revenue Service after the date of the enactment of this Act. 
SEC. 802. COURT DISCRETION TO REDUCE AWARD FOR LITIGATION 
COSTS FOR FAILURE TO EXHAUST ADMINISTRATIVE 
REMEDIES. 
(a) GENERAL RULE,—Paragraph (1) of section 7433(d) (relating 
to civil damages for certain unauthorized collection actions) is 
amended to read as follows: 
"(1) AWARD FOR DAMAGES MAY BE REDUCED IF ADMINISTRA-
TIVE REMEDIES NOT EXHAUSTED.—^The amoimt of dsimages 
awarded under subsection (b) may be reduced if the court 
determines that the plaintiff has not exhausted the administra-
tive remedies avEulable to such plaintiff within the Internal 
Revenue Service.". 
(b) EFFECTIVE DATE.—The amendment made by this section 26USC7433 
shall apply in the case of proceedings commenced after the date ^°^-
of the enactment of this Act. 
TITLE IX—MODIFICATIONS TO PENALTY 
FOR FAILURE TO COLLECT AND PAY 
OVERTAX 
SEC. 901. PRELIMINARY NOTICE REQUIREMENT. 
(a) IN GENERAL.—Section 6672 (relating to failure to collect 
and pay over tax, or attempt to evade or defeat tax) is amended 
by redesignating subsection (b) as subsection (c) and by inserting 
aater subsection (a) the following new subsection: 
"(b) PRELIMINARY NOTICE REQUIREMENT.— 
"(1) IN GENERAL.—^No penalty shall be imposed under sub-
section (a) unless the Secretary notifies the taxpayer in writing 
by mtdl to an address as determined imder section 6212(b) 
that the taxpayer shall be subject to an assessment of such 
pensdty. 
"(2) TIMING OF NOTICE.—The mailing of the notice described 
in paragraph (1) shall precede any notice and demand of any 
penalty under subsection (a) by at least 60 days. 
"(3) STATUTE OF LIMITATIONS.—If a notice described in para-
graph (1) with respect to any penalty is mailed before the 
expiration of the period provided by section 6501 for the assess-
ment of such pensilty (determined without regard to this para-
graph), the period provided by such section for the assessment 
of such penalty shall not expire before the later of— 
29-194 O - 96 - 22 : QL 3 Part 2 
110 STAT. 1466 
PUBLIC LAW 104-168-^JULY 30, 1996 
"(A) the date 90 days after the date on which such 
notice was mailed, or 
"(B) if there is a timely protest of the proposed assess-
ment, the date 30 days after the Secretary makes a final 
administrative determination with respect to such protest. 
"(4) EXCEPTION FOR JEOPARDY.—This subsection shall not 
apply if the Secretary finds that the collection of the penalty 
is in jeopardy.". 
26 use 6672 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
note- 
shall apply to proposed assessments made after June 30, 1996. 
SEC. 902. DISCLOSURE OF CERTAIN INFORMATION WHERE MORE THAN 
1 PERSON LIABLE FOR PENALTY FOR FAILURE TO COL-
LECT AND PAY OVER TAX. 
(a) IN GENERAL.—Subsection (e) of section 6103 (relating to 
disclosure to persons having material interest), as amended by 
section 403, is amended by adding at the end the following new 
paragraph: 
"(9) DISCLOSURE OF CERTAIN INFORMATION WHERE MORE 
THAN 1 PERSON SUBJECT TO PENALTY UNDER SECTION 6672.— 
If the Secretary determines that a person is liable for a penalty 
under section 6672(a) with respect to any failure, upon request 
in writing of such person, the Secretary shall disclose in writing 
to such person— 
"(A) the name of any other person whom the Secretary 
has determined to be Uable for such penalty with respect 
to such failure, and 
"(B) whether the Secretary has attempted to collect 
such penalty from such other person, the general nature 
of such collection activities, and the amount collected.". 
26 use 6103 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
note. 
shall take effect on the date of the enactment of this Act. 
SEC. 903. RIGHT OF CONTRIBUTION WHERE MORE THAN 1 PERSON 
LIABLE FOR PENALTY FOR FAILURE TO COLLECT AND 
PAY OVER TAX. 
(a) IN GENERAL.—Section 6672 (relating to failure to collect 
and pay over tax, or attempt to evade or defeat tax) is amended 
by adding at the end the following new subsection: 
"(d) RIGHT OF CONTRIBUTION WHERE MORE THAN 1 PERSON 
LIABLE FOR PENALTY.—If more them 1 person is liable for the 
penalty under subsection (a) with respect to any tax, each person 
who psdd such penalty shall be entitled to recover fi'om other 
persons who are Uable for such penalty an amount equal to the 
excess of the amount paid by such person over such person's propor-
tionate share of the penalty. Any claim for such a recovery may 
be made only in a proceeding which is separate fi'om, and is not 
joined or consolidated with— 
"(1) an action for collection of such penalty brought by 
the United States, or 
"(2) a proceeding in which the United States files a counter-
claim or third-party complaint for the collection of such pen-
alty.". 
26 use 6672 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 
note. 
shall apply to penalties assessed after the date of the enactment 
of this Act. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1467 
SEC. 904. VOLUNTEER BOARD MEMBERS OF TAX-EXEMPT ORGANIZA-
TIONS EXEMPT FROM PENALTY FOR FAILURE TO COL-
LECT AND PAY OVER TAX. 
(a) IN GENERAL.—Section 6672 is simended by adding at the 
end the following new subsection: 
"(e) EXCEPTION FOR VOLUNTARY BOARD MEMBERS OF TAX-
EXEMPT ORGANIZATIONS.—No penalty shall be imposed by sub-
section (a) on any unpaid, volunteer member of any board of trustees 
or directors of £in organization exempt from tax under subtitle 
A if such member— 
"(1) is solely serving in an honorary capacity, 
"(2) does not participate in the day-to-day or financial 
operations of the organization, and 
"(3) does not have actual knowledge of the failure on which 
such penalty is imposed. 
The preceding sentence shall not apply if it results in no person 
being Uable for the penalty imposed by subsection (a).". 
(b) PUBLIC INFORMATION REQUIREMENTS.— 
26 use 6672 
(1) IN GENERAL.—The Secretary of the Treasury or the note. 
Secretary's delegate (hereafter in this subsection referred to 
as the "Secreta]^') shall take such actions as may be appro-
priate to ensure that employees are aware of their responsibil-
ities under the Federal tax depository system, the cir-
cumstances under which employees may be Hable for the pen-
alty imposed by section 6672 of the Internal Revenue Code 
of 1986, and the responsibility to promptly report to the Internal 
Revenue Service any failure referred to in subsection (a) of 
such section 6672. Such actions shall include— 
(A) printing of a warning on deposit coupon booklets 
£ind the appropriate tax returns that certain employees 
may be Uable for the penalty imposed by such section 
6672, and 
(B) the development of a special information packet. 
(2) DEVELOPMENT OF EXPLANATORY MATERIALS.—The Sec-
retary shall develop materials explsdning the circumstances 
under which board members of tax-exempt organizations 
(including volimtary and honorary members) may be subject 
to penalty under section 6672 of such Code. Such materials 
shsdl be made available to tax-exempt orgeinizations. 
(3) IRS INSTRUCTIONS.—The Secretary shall clarify the 
instructions to Internal Revenue Service employees on the 
application of the penalty xmder section 6672 of such Code 
with regard to volimtary members of boards of trustees or 
directors of tax-exempt organizations. 
TITLE X—MODIFICATIONS OF RULES 
RELATING TO SUMMONSES 
SEC. 1001. ENROLLED AGENTS INCLUDED AS THIRD-PARTY RECORD-
KEEPERS. 
(a) IN GENERAL.—Paragraph (3) of section 7609(a) (relating 
to third-party recordkeeper denned) is amended by striking "and 
at the end of subparagraph (G), by striking the period at the 
end of subparagraph (H) and inserting "; and", and by adding 
at the end the foUowing the subparagraph: 
110 STAT. 1468 
PUBLIC LAW 104-168^JULY 30, 1996 
"(I) any enrolled agent.". 
26 use 7609 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
J^ote. 
shall apply to summonses issued after the date of the enactment 
of this Act. 
SEC. 1002. SAFEGUARDS RELATING TO DESIGNATED SUMMONSES. 
(a) 
STANDARD OF REVIEW.—Subparagraph (A) of section 
6503(k)(2) 
(defining 
designated 
summons) 
is 
amended 
by 
redesignating clauses (i) and (ii) as clauses (ii) and (iii), respectively, 
and by inserting before clause (ii) (as so redesignated) the following 
new clause: 
"(i) the issuance of such summons is preceded by 
a review of such issuance by the regional counsel of 
the Office of Chief Counsel for the region in which 
the examination of the corporation is being conducted,". 
(b) LIMITATION ON PERSONS TO WHOM DESIGNATED SUMMONS 
MAY B E ISSUED.—Paragraph (1) of section 6503(k) is amended 
by striking "with respect to any return of tax by a corporation" 
and inserting "to a corporation (or to any other person to whom 
the corporation has transferred records) with respect to any return 
of tax by such corporation for a taxable year (or other period) 
for which such corporation is being examined under the coordinated 
examination program (or any successor program) of the Internal 
Revenue Service". 
(c) 
CLERICAL AMENDMENT.—Section 6503 is amended by 
redesignating subsections (k) and (1) (as amended by this section) 
as subsections (j) and (k), re^ectively. 
26 use 6503 
(d) EFFECTIVE DATE.—^The amendments made by this section 
note. 
shall apply to summonses issued after the date of me enactment 
of this Act. 
26 use 6503 
SEC. 1003. ANNUAL REPORT TO CONGRESS CONCERNING DESIGNATED 
note. 
SUMMONSES. 
Not later than December 31 of each csdendar year after 1995, 
the Secretary of the Treasury or his delegate shall report to the 
Committee on Ways and Means of the House of Representatives 
and the Committee on Finance of the Senate on the number of 
designated summonses (as defined in section 6503(j) of the Internal 
Revenue Code of 1986) which were issued during the preceding 
12 months. 
TITLE XI—RELIEF FROM RETROACTIVE 
APPLICATION OF TREASURY DEPART-
MENT REGULATIONS 
SEC. 1101. RELIEF FROM RETROACTIVE APPUCATION OF TREASURY 
DEPARTMENT REGULATIONS. 
(a) IN GENERAL.—Subsection (b) of section 7805 (relating to 
rules and regulations) is amended to read as follows: 
"(b) RETROACTIVITY OF REGULATIONS.— 
"(1) IN GENERAL.—Except as otherwise provided in this 
subsection, no temporary, proposed, or final regulation relating 
to the internal revenue laws shall apply to any taxable period 
ending before the earliest of the following dates: 
PUBLIC LAW 104-168—JULY 30, 1996 
110 STAT. 1469 
"(A) The date on which such regulation is filed with 
the Federal Register. 
"(B) In the case of any final regulation, the date on 
which any proposed or temporsiry regulation to which such 
final regulation relates was filed with the Federal Register. 
"(C) The date on which any notice substantially 
describing the expected contents of any temporeiry, pro-
posed, or final regulation is issued to the pubUc. 
"(2) EXCEPTION FOR PROMPTLY ISSUED REGULATIONS.—Para-
graph (1) shaU not apply to regulations filed or issued within 
18 months of the date of the enactment of the statutory provi-
sion to which the regulation relates. 
"(3) PREVENTION OF ABUSE.—The Secretary may provide 
that any regulation may take effect or apply retroactively to 
prevent abuse. 
"(4) CORRECTION OF PROCEDURAL DEFECTS.—The Secretary 
may provide that £iny regulation may appW retroactively to 
correct a procedural defect in the issuance of any prior regula-
tion. 
"(5) INTERNAL REGULATIONS.—The Umitation of paragraph 
(1) shall not apply to any regulation relating to internal Treas-
ury Department poHcies, practices, or procedures. 
"(6) CONGRESSIONAL AUTHORIZATION.—The limitation of 
paragraph (1) may be superseded by a legislative grant from 
Congress authorizing the Secretary to prescribe the effective 
date with respect to any regulation. 
"(7) ELECTION TO APPLY RETROACTIVELY.—The Secretary 
may provide for any taxpayer to elect to apply any regulation 
before the dates specified in paragraph (1). 
"(8) APPLICATION TO RULINGS.—The Secretary may pre-
scribe the extent, if any, to which any ruling (including any 
judicial decision or any administrative determination other than 
by regulation) relating to the internal revenue laws shall be 
applied without retroactive effect.". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 26 use 7805 
shall apply with respect to regulations which relate to statutory note-
provisions enacted on or after the date of the enactment of this 
Act. 
TITLE XII—MISCELLANEOUS 
PROVISIONS 
SEC. 1201. PHONE NUMBER OF PERSON PROVIDING PAYEE STATE-
MENTS REQUIRED TO BE SHOWN ON SUCH STATEMENT. 
(a) GENERAL RULE.—^The following provisions are each amended 
by striking "name and address" and inserting "name, address, and 
pnone number of the information contact": 
(1) Section 6041(d)(1). 
(2) Section 6041A(e)(l). 
(3) Section 6042(c)(1). 
(4) Section 6044(e)(1). 
(5) Section 6045(bXl). 
(6) Section 6049(c)(1)(A). 
(7) Section 6050B(b)(l). 
(8) Section 6050H(dXl). 
(9) Section 60501(e)(1). 
110 STAT. 1470 
PUBLIC LAW 104-168-^ULY 30, 1996 
(10) Section 6050J(e). 
(11) Section 6050K(b)(l). 
(12) Section 6050N(b)(l). 
26 use 6041 
(b) EFFECTIVE DATE.—^The amendments made by subsection 
i^ote. 
(a) shall apply to statements required to be fiimished after Decem-
ber 31, 1996 (determined without regard to any extension). 
26 use 6311 
SEC. 1202. REQUIRED NOTICE OF CERTAIN PAYMENTS. 
If any pajnnent is received by the Secretary of the Treasury 
or his delegate from any taxpayer and the Secretary cannot associ-
ate such payment with such taxpayer, the Secretary shall make 
reasonable efforts to notify the taxpayer of such inability within 
60 days after the receipt of such pa5anent. 
SEC. 1203. UNAUTHORIZED ENTICEMENT OF INFORMATION DISCLO-
SURE. 
(a) IN GENERAL.—Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties), as amended by section 
601(a), is amended by redesignating section 7435 as section 7436 
and by inserting after section 7434 the following new section: 
"SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICEMENT OF 
INFORMATION DISCLOSURE. 
"(a) IN GENERAL.—If any officer or employee of the United 
States intentionally compromises the determination or collection 
of any tax due from an attorney, certified pubUc accountant, or 
enrolled agent representing a taxpayer in exchange for information 
conveyed by the taxpayer to the attorney, certified public account-
ant, or enrolled agent for purposes of obtaining advice concerning 
the taxpayer's tax liabiHty, such taxpayer may bring a civil action 
for damages against the United States in a district court of the 
United States. Such civil action shall be the exclusive remedy 
for recovering damages resulting from such actions. 
"(b) DAMAGES.—In any action brought under subsection (a), 
upon a finding of liability on the part of the defendant, the defend-
ant shall be liable to the plaintiff* in £in amount equal to the 
lesser of $500,000 or the sum of— 
"(1) actual, direct economic damages sustained by the plain-
tiff as a proximate result of the information disclosure, and 
"(2) the costs of the action. 
Damages shall not include the taxpayer's liability for any civil 
or criminal penalties, or other losses attributable to incarceration 
or the imposition of other criminal sanctions. 
"(c) PAYMENT AUTHORITY.—Claims pursuant to this section 
shall be payable out of fiinds appropriated under section 1304 
of title 31, United States Code. 
"(d) PERIOD FOR BRINGING ACTION.—Notwithstanding any other 
provision of law, an action to enforce liability created under this 
section may be brought without regard to the amount in controversy 
and may be brought only within 2 years after the date the actions 
creating such liability would have been discovered by exercise of 
reasonable care. 
"(e) MANDATORY STAY.—Upon a certification by the Commis-
sioner or the Commissioner's delegate that there is an ongoing 
investigation or prosecution of the taxpayer, the district court before 
which an action imder this section is pending shall stay all proceed-
ings with respect to such action pending the conclusion of the 
investigation or prosecution. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1471 
"(f) CRIME-FRAUD EXCEPTION.—Subsection (a) shall not apply 
to information conveyed to an attorney, certified public accountant, 
or enrolled agent for the purpose of perpetrating a fraud or crime.". 
(b) CLERICAL AMENDMENT.—^The table of sections for subchapter 
B of chapter 76, as amended by section 601(b), is amended by 
striking the item relating to section 7435 and by adding at the 
end the following new items: 
"Sec. 7435. Civil damages for unauthorized enticement of information disclosure. 
"Sec. 7436. Cross references.". 
(c) EFFECTIVE DATE.—^The amendments made by this section 26 use 7435 
shall apply to actions after the date of the enactment of this »ote. 
Act. 
SEC. 1204. ANNUAL REMINDERS TO TAXPAYERS WITH OUTSTANDING 
DELINQUENT ACCOUNTS. 
(a) IN GENERAL.—Chapter 77 (relating to miscellaneous provi-
sions) is amended by adding at the end the following new section: 
"SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY. 
"Not less often than annually, the Secret£uy shall send a writ-
ten notice to each taxpayer who has a tax delinquent accoimt 
of the amount of the tax delinquency as of the date of the notice.". 
(b) CLERICAL AMENDMENT.—The table of sections for chapter 
77 is £imended by adding at the end the following new item: 
"Sec. 7524. Annual notice of tax delinquency.". 
(c) EFFECTIVE DATE.—^The amendments made by this section 26 use 7524 
shall apply to calendar years after 1996. 
note. 
SEC 1205. 5-YEAR EXTENSION OF AUTHORITY FOR UNDERCOVER 
OPERATIONS. 
(a) IN GENERAL.—Paragraph (3) of section 7601(c) of the Anti-
Drug Abuse Act of 1988 is amended by striking all that follows 
"this Act" and inserting a period. 
(b) RESTORATION OF AUTHORITY FOR 5 YEARS.—Subsection (c) 
of section 7608 is amended by adding at the end the following 
new paragraph: 
"(6) APPLICATION OF SECTION.—The provisions of this sub-
section— 
"(A) shall apply after November 17, 1988, and before 
January 1,1990, and 
"(B) shall apply after the date of the enactment of 
this paragraph and before January 1, 2001. 
All amounts expended pursuant to this subsection during the 
period described in subparagraph (B) shall be recovered to 
the extent possible, and cieposited in the Treasury of the United 
States as miscellaneous receipts, before January 1, 2001.". 
(c) ENHANCED OVERSIGHT.— 
(1) ADDITIONAL INFORMATION REQUIRED IN REPORTS TO CON-
GRESS.—Subparagraph (B) of section 7608(c)(4) is amended— 
(A) by striking "preceding the period" in clause (ii), 
(B) by striking ' ^ d " at the end of clause (ii), and 
(C) by striking clause (iii) and inserting the following: 
"(iii) the number, by programs, of imdercover 
investigative operations closed in the 1-year period 
for which such report is submitted, and 
"(iv) the following information with respect to each 
undercover investigative operation pending as of the 
110 STAT. 1472 
PUBLIC LAW 104-168^JULY 30, 1996 
end of the 1-year period for which such report is 
submitted or closed during such 1-year period— 
"(I) the date the operation began and the date 
of the certification referred to in the last sentence 
of paragraph (1), 
"(11) the total expenditures under the oper-
ation and the amount and use of the proceeds 
from the operation, 
"(III) a detailed description of the operation 
including the potential violation being investigated 
and whether the operation is being conducted 
imder grand jury auspices, eind 
"(W) the results of the operation including 
the results of criminal proceedings.". 
(2) 
AUDITS 
REQUIRED 
WITHOUT 
REGARD TO AMOUNTS 
INVOLVED.—Subparagraph (C) of section 7608(c)(5) is amended 
to read as follows: 
"(C) 
UNDERCOVER 
INVESTIGATIVE 
OPERATION.—The 
term 'undercover investigative operation' means any under-
cover investigative operation of the Service; except that, 
for purposes of subparagraphs (A) and (C) of paragraph 
(4), such term only includes an operation which is exempt 
from section 3302 or 9102 of title 31, United States Code.". 
26 use 7608 
(3) EFFECTIVE DATE.—The amendments made by this sub-
note, 
section shall take effect on the date of the enactment of this 
Act. 
SEC. 1206. DISCLOSURE OF FORM 8300 INFORMATION ON CASH TRANS-
ACTIONS. 
(a) IN GENERAL.—Subsection (1) of section 6103 (relating to 
disclosure of returns and return information for purposes other 
than t£ix administration) is amended by adding at the end the 
following new paragraph: 
"(15) 
DISCLOSURE 
OF RETURNS 
FILED 
UNDER 
SECTION 
60501.—The Secretary may, upon written request, disclose to 
officers and employees o
f
—
-
"(A) any Federal agency, 
"(B) any agency of a State or local government, or 
"(C) any agency of the government of a foreign country, 
information contained on returns filed under section 60501. 
Any such disclosure shall be made on the saxae basis, and 
subject to the same conditions, as apply to disclosures of 
information on reports filed under section 5313 of title 31, 
United States Code; except that no disclosure under this para-
graph shall be made for purposes of the administration of 
any tax law.". 
(b) CONFORMING AMENDMENTS.— 
(1) Subsection (i) of section 6103 is amended by striking 
paragraph (8). 
(2) Subparagraph (A) of section 6103(p)(3) is amended— 
(A) by striking "(7)(A)(ii), or (8)" and inserting "or 
(7)(A)(iir, and 
(B) by striking "or (14)" and inserting "(14), or (15)". 
(3) The material preceding subparagraph (A) of section 
6103(p)(4) is amended— 
(A) by striking "(5), or (8)" and inserting "or (5)", 
PUBLIC LAW 104-168-JULY 30, 1996 
110 STAT. 1473 
(B) by striking "(i)(3)(B)(i), or (8)" and inserting 
"(i)(3)(B)(i),", and 
(C) by striking "or (12)" and inserting "(12), or (15)". 
(4) Clause (ii) of section 6103(p)(4)(F) is amended— 
(A) by striking "(5), or (8)" and inserting "or (5)", and 
(B) by striking "or (14)" and inserting "(14), or (15)". 
(5) Paragraph (2) of section 7213(a) is amended by striking 
"or (12)" and inserting "(12), or (15)". 
(c) EFFECTIVE DATE.—The amendments made by this section 26USC6103 
shall take effect on the date of the enactment of this Act. 
^°^-
SEC. 1207. DISCLOSURE OF RETURNS AND RETURN INFORMATION TO 
DESIGNEE OF TAXPAYER. 
Subsection (c) of section 6103 (relating to disclosure of returns 
and return information to designee of taxpayer) is £imended by 
striking "written request for or consent to such disclosure" and 
inserting "request for or consent to such disclosure". 
SEC. 1208. STUDY OF NETTING OF INTEREST ON OVERPAYMENTS AND 
LIABILITIES. 
(a) IN GENERAL.—The Secretary of the Treasury or his delegate 
shaU— 
(1) conduct a study of the manner in which the Internal 
Revenue Service has implemented the netting of interest on 
overpajonents and underpayments and of the policy and 
administrative implications of global netting, and 
(2) before submitting the report of such study, hold a pubhc 
hearing to receive comments on the matters included in such 
study. 
(b) REPORT.—^The report of such study shall be submitted not 
later than 6 months after the date of the enactment of this Act 
to the Committee on Ways and Means of the House of Representa-
tives and the Committee on Finance of the Senate. 
SEC. 1209. EXPENSES OF DETECTION OF UNDERPAYMENTS AND 
FRAUD, ETC. 
(a) IN GENERAL.—Section 7623 (relating to expenses of deduc-
tion and pimishment of frauds) is amended to read as follows: 
"SEC. 7623. EXPENSES OF DETECTION OF UNDERPAYMENTS AND 
FRAUD, ETC. 
"The Secretary, under regulations prescribed by the Secretary, Regulations, 
is authorized to pay such sums as he deems necessary for— 
"(1) detecting underpajmaents of tax, and 
"(2) detecting and bringing to trial and piuiishment persons 
guilty of violating the internal revenue laws or conniving at 
the same, 
in cases where such expenses are not otherwise provided for by 
law. Any amount payable under the preceding sentence shall be 
paid from the proceeds of amounts (other than interest) collected 
by reason of the information provided, and any amount so collected 
shall be available for such payments.". 
110 STAT. 1474 
PUBLIC LAW 104-168-^JULY 30, 1996 
(b) CLERICAL AMENDMENT.—^The table of sections for subchapter 
B of chapter 78 is amended by striking the item relating to section 
7623 and inserting the following new item: 
"Sec. 7623. Expenses of detection of underpayments and fraud, etc.". 
26 use 7623 
(c) EFFECTIVE DATE.—The amendments made by this section 
^°^- 
shall take effect on the date which is 6 months after the date 
of the enactment of this Act. 
26 use 7623 
(d) REPORT.—^The Secretary of the Treasury or his delegate 
Jiote. 
shall submit an annual report to the Committee on Ways and 
Means of the House of Representatives and the Committee on 
Finance of the Senate on the pa5niients under section 7623 of 
the Internal Revenue Code of 1986 during the year and on the 
amounts collected for which such pajonents were made. 
SEC. 1210. USE OF PRIVATE DELIVERY SERVICES FOR TIMELY-MAIL-
ING-AS-TIMELY-FILING RULE. 
Section 7502 (relating to timely mailing treated as timely filing 
and pa)dng) is amended by adding at the end the following new 
subsection: 
"(f) TREATMENT OF PRIVATE DELIVERY SERVICES.— 
"(1) IN GENERAL.—^Any reference in this section to the 
United States mail shall be treated as including a reference 
to any designated deUvery service, and any reference in this 
section to a postmark by the United States Postal Service 
shall be treated as inducing a reference to any date recorded 
or marked as described in paragraph (2)(C) by any designated 
delivery service. 
"(2) DESIGNATED DELIVERY SERVICE.—For purposes of this 
subsection, the term 'designated delivery service* means any 
delivery service provided by a trade or business if such service 
is designated by the Secreteiry for purposes of this section. 
The Secretary may designate a delivery service under the 
preceding sentence only if the Secretary determines that such 
service— 
"(A) is available to the general public, 
"(B) is at least as timely £uid reliable on a regular 
basis as the United States mail, 
"(C) records electronically to its data base, kept in 
the regular course of its business, or marks on the cover 
in which any item referred to in this section is to be 
delivered, the date on which such item was given to such 
trade or business for delivery, and 
"(D) meets such other criteria as the Secretary may 
prescribe. 
"(3) EQUIVALENTS OF REGISTERED AND CERTIFIED MAIL.— 
The Secretary may provide a rule similar to the rule of para-
graph (1) with respect to any service provided by a designated 
delivery service which is substantially equivalent to United 
States registered or certified mail.". 
26 use 7803 
SEC. 1211. REPORTS ON MISCONDUCT OF IRS EMPLOYEES. 
On or before June 1 of each calendar year after 1996, the 
Secretary of the Treasury shall submit to the Committee on Ways 
and Means of the House of Representatives and the Committee 
on Finance of the Senate a report on— 
PUBLIC LAW 104-168-^JULY 30, 1996 
110 STAT. 1475 
(1) all categories of instances involving the misconduct 
of employees of the Internal Revenue Service during the preced-
ing calendar year, and 
(2) the disposition during the preceding calendar year of 
any such instances (without regard to the year of tne mis-
conduct). 
TITLE XIII—REVENUE OFFSETS 
Subtitle A—Application of Failure-to-Pay 
Penalty to Substitute Returns 
SEC. 1301. APPUCATION OF FAILUKE-TO-PAY PENALTY TO SUB-
STITUTE RETURNS. 
(a) GENERAL RULE.—Section 6651 (relating to failure to file 
tax return or to pay tax) is amended by addmg at the end the 
following new subsection: 
"(g) TREATMENT OF RETURNS PREPARED BY SECRETARY UNDER 
SECTION 6020(b).—^In tiie case of any return made by the Secretary 
under section 6020(b)— 
"(1) such return shall be disre^eirded for purposes of deter-
mining the amount of the addition imder paragraph (1) of 
subsection (a), but 
"(2) such return shall be treated as the return filed by 
the taxpayer for purposes of determining the amount of the 
addition under paragraphs (2) and (3) of subsection (a).". 
(b) EFFECTIVE DATE.—^The amendment made by subsection (a) 26 use 6651 
shall apply in the case of tiny return the due date for which ^°^-
(determined without regard to extensions) is after the date of the 
enactment of this Act. 
Subtitle B—^Exicse Taxes on Amounts of 
Private Excess Benefits 
SEC. 1311. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE 
ORGANIZATIONS TO MEET CERTAIN QUALIFICATION 
REQUIREMENTS. 
(a) IN GENERAL.—Chapter 42 (relating to private foundations 
and certain other tax-exempt organizations) is amended by 
redesignating subchapter D as subchapter E and by inserting after 
subchapter (J the following new subchapter: 
'^Subchapter D—^Failure by Certain Charitable 
Organizations To Meet Certain Qualification Requirements 
"Sec. 4958. Taxes on excess benefit transactions. 
'^EC. 
4958. 
TAXES 
ON 
EXCESS 
BENEFIT 
TRANSACTIONS. 
"(a) INITIAL TAXES.— 
"(1) ON THE DISQUALIFIED PERSON.—There is hereby 
imposed on each excess benefit transaction a tax equaJ to 
25 percent of the excess benefit. The tax imposed by this 
paragraph shall be paid by any disquahfied person referred 
to in subsection (f)(1) with respect to such transaction. 
110 STAT. 1476 
PUBLIC LAW 1 0 4 - 1 6 8 - J U L Y 30, 1996 
"(2) ON THE MANAGEMENT,—In any case in which a tax 
is imposed by paragraph (1), there is hereby imposed on the 
participation of any organization manager in the excess benefit 
transaction, knowing that it is such a transaction, a tax equal 
to 10 percent of the excess benefit, unless such participation 
is not willful and is due to reasonable cause. The tsix imposed 
by this paragraph shall be paid by any organization manager 
who participated in the excess benefit transaction. 
"(b) ADDITIONAL TAX ON THE DISQUALIFIED PERSON.—In any 
case in which an initial tax is imposed by subsection (a)(1) on 
an excess benefit transaction and the excess benefit involved in 
such transaction is not corrected within the taxable period, there 
is hereby imposed a tax equal to 200 percent of the excess benefit 
involved. The tax imposed by this subsection shall be paid by 
any disqualified person referred to in subsection (f)(1) with respect 
to such transaction. 
"(c) EXCESS BENEFIT TRANSACTION; EXCESS BENEFIT.—For pur-
poses of this section— 
"(1) EXCESS BENEFIT TRANSACTION.— 
"(A) IN GENERAL.—^The term 'excess benefit transaction' 
means any transaction in which an economic benefit is 
provided by an applicable tax-exempt organization directly 
or indirectly to or for the use of any disqualified person 
if the value of the economic benefit provided exceeds the 
value of the consideration (including the performance of 
services) received for providing such benefit. For purposes 
of the preceding sentence, an economic benefit shall not 
be treated as consideration for the performance of services 
unless such organization clearly indicated its intent to so 
treat such benefit. 
"(B) EXCESS BENEFIT.—The term 'excess benefit' means 
the excess referred to in subparagraph (A). 
"(2) AUTHORITY TO INCLUDE CERTAIN OTHER PRIVATE 
INUREMENT.—^To the extent provided in regulations prescribed 
by the Secretary, the term 'excess benefit transaction' includes 
any transaction in which the amount of any economic benefit 
provided to or for the use of a disqualified person is determined 
in whole or in part by the revenues of 1 or more activities 
of the organization but only if such transaction results in 
inurement not permitted under paragraph (3) or (4) of section 
501(c), as the case may be. In the case of any such transaction, 
the excess benefit shall be the amount of the inurement not 
so permitted. 
"(d) SPECIAL RULES.—For purposes of this section— 
"(1) JOINT AND SEVERAL LIABILITY.—If more than 1 person 
is Uable for any tax imposed by subsection (a) or subsection 
(b), all such persons shall be jointly and severally liable for 
such tax. 
"(2) LIMIT FOR MANAGEMENT.—With respect to any 1 excess 
benefit transaction, the msiximum amount of the tax imposed 
by subsection (a)(2) shall not exceed $10,000. 
"(e) APPLICABLE TAX-EXEMPT ORGANIZATION.—For purposes of 
this subchapter, the term 'applicable tax-exempt organization' 
means— 
"(1) any organization which (without regard to any excess 
benefit) would be described in paragraph (3) or (4) of section 
501(c) and exempt from tax under section 501(a), and 
PUBLIC LAW 104-168—JULY 30, 1996 
110 STAT. 1477 
"(2) any organization which was described in paragraph 
(1) at any time during the 5-year period ending on the date 
of the transaction. 
Such term shall not include a private foundation (as defined in 
section 509(a)). 
"(f) OTHER DEFINITIONS.—For purposes of this section— 
"(1) DISQUALIFIED PERSON.—The term 'disqualified person' 
means, with respect to any transaction— 
"(A) any person who was, at any time during the 
5-year period ending on the date of such transaction, in 
a position to exercise substantial influence over the Eiffairs 
of the organization, 
"(B) a member of the family of an individual described 
in subparagraph (A), and 
"(C) a 35-percent controlled entity. 
"(2) ORGANIZATION MANAGER.—The term 'organization man-
ager' means, with respect to any applicable tax-exempt 
organization, any officer, director, or trustee of such organiza-
tion (or any individual having powers or responsibilities similar 
to those of officers, directors, or trustees of the organization). 
"(3) 35-PERCENT CONTROLLED ENTITY.— 
"(A) IN GENERAL.—The term '35-percent controlled 
entitj^* means— 
"(i) a corporation in which persons described in 
subparagraph (A) or (B) of paragraph (1) own more 
than 35 percent of the total combined voting power, 
"(ii) a partnership in which such persons own more 
than 35 percent of the profits interest, and 
"(iii) a trust or estate in which such persons own 
more than 35 percent of the beneficial interest. 
"(B) CONSTRUCTIVE OWNERSHIP RULES.—Rules similar 
to the rules of paragraphs (3) and (4) of section 4946(a) 
shall apply for purposes of this paragraph. 
"(4) FAMILY MEMBERS.—The members of an individual's 
family shall be determined under section 4946(d); except that 
such members also shall include the brothers and sisters 
(whether by the whole or half blood) of the individusd and 
their spouses. 
"(5) TAXABLE PERIOD.—The term 'taxable period' means, 
with respect to any excess benefit transaction, the period begin-
ning with the date on which the transaction occurs and ending 
on tiie earhest of— 
"(A) the date of mailing a notice of deficiency under 
section 6212 with respect to the tax imposed by subsection 
(a)(1), or 
"(B) the date on which the tax imposed by subsection 
(a)(1) is assessed. 
"(6) CORRECTION.—The terms 'correction' and 'correct* 
mean, with respect to soiy excess benefit transaction, undoing 
the excess benefit to the extent possible, and taking any addi-
tional measures necessary to place the organization in a finan-
cial position not worse than that in which it would be if tiie 
disqualified person were dealing under the highest fiduciary 
standards.". 
(b) APPLICATION OF PRIVATE INUREMENT RULE TO TAX-EXEMPT 
ORGANIZATIONS DESCRIBED IN SECTION 501(CX4).— 
110 STAT. 1478 
PUBLIC LAW 104-168-^ULY 30, 1996 
(1) IN GENERAL.—Paragraph (4) of section 501(c) is amend-
ed by inserting "(A)" after "(4)" and by adding at the end 
the following: 
"(B) Subparagraph (A) shall not apply to an entity unless 
no pgirt of the net earnings of such entity inures to the benefit 
of any private shareholder or individual.". 
26 use 501 note. 
(2) SPECIAL RULE FOR CERTAIN COOPERATIVES.—In the case 
of an organization operating on a cooperative basis which, 
before the date of the enactment of this Act, was determined 
by the Secretary of the Treasury or his delegate, to be described 
in section 501(c)(4) of the Internal Revenue Code of 1986 and 
exempt from tax imder section 501(a) of such Code, the alloca-
tion or return of net margins or capital to the members of 
such organization in accordance with its incorporating statute 
and bylaws shall not be treated for purposes of such Code 
as the inurement of the net earnings of such orgsuiization 
to the benefit of any private shareholder or individual. The 
preceding sentence shall apply only if such statute and bylaws 
are substantially as such statute and bylaws were in existence 
on the date of the enactment of this Act. 
(c) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) Subsection (e) of section 4955 is amended— 
(A) by striking "SECTION 4945" in the heading and 
inserting "SECTIONS 4945 AND 4958", and 
(B) by inserting before the period "or an excess benefit 
for purposes of section 4958". 
(2) Subsections (a), (b), and (c) of section 4963 are each 
amended by inserting "4958," after "4955,". 
(3) Subsection (e) of section 6213 is amended by inserting 
"4958 (relating to private excess benefit)," before "4971". 
(4) Paragraphs (2) and (3) of section 7422(g) are each 
amended by inserting "4958," after "4955,". 
(5) Subsection (b) of section 7454 is amended by inserting 
"or whether an organization manager (as defined in section 
4958(f)(2)) has 'knowingly' participated in an excess benefit 
transaction (as defined in section 4958(c))," after "section 
4912(b),". 
(6) The table of subchapters for chapter 42 is amended 
by striking the last item and inserting the following: 
"SUBCHAPTER D. Failure by certain charitable organizations to meet certain quali-
fication requirements. 
"SUBCHAPTER E. Abatement of first and second tier taxes in certain cases.". 
(d) EFFECTIVE D A T E S . — 
26 use 4955 
(1) IN GENERAL.—^The amendments made by this section 
note. 
(other than subsection (b)) shall apply to excess benefit trans-
actions occurring on or after September 14,1995. 
26 use 4955 
(2) BINDING CONTRACTS.—The amendments referred to in 
note. 
paragraph (1) shall not apply to any benefit arising from a 
transaction pursuant to any written contract which was binding 
on September 13, 1995, and at all times thereafter before 
such transaction occurred. 
26 use 501 note. 
(3) APPLICATION OF PRIVATE INUREMENT RULE TO TAX-
EXEMPT ORGANIZATIONS DESCRIBED IN SECTION 501(c)(4).— 
(A) IN GENERAL.—The amendment made by subsection 
(b) shall apply to inurement occurring on or after Septem-
ber 14, 1995. 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1479 
(B) BINDING CONTRACTS.—The amendment made by 
subsection (b) shall not apply to any inurement occurring 
before January 1, 1997, pursuant to a written contract 
which was binding on September 13, 1995, and at all 
times thereafter before such inurement occurred. 
SEC. 1312. REPORTING OF CERTAIN EXCISE TAXES AND OTHER 
INFORMATION. 
(a) REPORTING BY ORGANIZATIONS DESCRIBED IN SECTION 
501(c)(3).—Subsection (b) of section 6033 (relating to certain 
organizations described in section 501(c)(3)) is amended by striking 
"and" at the end of paragraph (9), by redesignating paragraph 
(10) as paragraph (14), and by inserting after paragraph (9) the 
following new paragraphs: 
"(10) the respective amoimts (if any) of the taxes paid 
by the organization during the taxable year under the following 
provisions: 
"(A) section 4911 (relating to tax on excess expendi-
tures to influence legislation), 
"(B) section 4912 (relating to tax on disqualifying lobby-
ing expenditures of certain organizations), and 
"(C) section 4955 (relating to taxes on political expendi-
tures of section 501(c)(3) organizations), 
"(11) the respective amoimts (if any) of the taxes paid 
by the organization, or any disqualified person with respect 
to such organization, during the taxable year under section 
4958 (relatmg to taxes on private excess benefit fi-om certain 
charitable organizations), 
"(12) such information as the Secretary may require with 
respect to any excess benefit transaction (as denned in section 
4958), 
"(13) such information with respect to disqualified persons 
as the Secretary may prescribe, and . 
(b) ORGANIZATIONS DESCRIBED IN SECTION 501(C)(4).—Section 
6033 is amended by redesignating subsection (f) as subsection (g) 
and by inserting after subsection (e) the following new subsection: 
"(f) CERTAIN ORGANIZATIONS DESCRIBED IN SECTION 501(c)(4).— 
Every organization described in section 501(cX4) which is subject 
to the requirements of subsection (a) shall include on the return 
required under subsection (a) the information referred to in para-
graphs (11), (12) and (13) of subsection (b) with respect to such 
organization.". 
(c) EFFECTIVE DATE.—The amendments made by this section 26 use 6033 
shall apply to returns for taxable years beginning after the date ^°^-
of the enactment of this Act. 
SEC. 1313. EXEMPT ORGANIZATIONS REQUIRED TO PROVIDE COPY OF 
RETURN. 
(a) REQUIREMENT TO PROVIDE COPY.— 
(1) Subparagraph (A) of section 6104(e)(1) (relating to pub-
He inspection of annusd returns) is amended to read as follows: 
"(A) IN GENERAL.—During the 3-year period beginning 
on the filing date— 
"(i) a copy of the annual return filed under section 
6033 (relating to returns by exempt organizations) by 
any organization to which this paragraph applies shall 
be made available by such organization for inspection 
during regular business hours by any individual at 
110 STAT. 1480 
PUBLIC LAW 104-168-^ULY 30, 1996 
the principal office of such organization £ind, if such 
organization regularly maintains 1 or more regional 
or district offices having 3 or more employees, at each 
such regional or district office, and 
"(ii) upon request of an individual made at such 
principal office or such a regional or district office, 
a copy of such annual return shall be provided to 
such individual without charge other than a reasonable 
fee for any reproduction and mailing costs. 
The request described in clause (ii) must be made in person 
or in writing. If the request under clause (ii) is made 
in person, such copy shall be provided immediately and, 
if made in writing, shall be provided within 30 days.". 
(2) Clause (ii) of section 6104(e)(2)(A) is amended by insert-
ing before the period at the end the following: "(and, upon 
request of an individual made at such principal office or such 
a regional or district office, a copy of the material requested 
to be available for inspection under this subparagraph shall 
be provided (in accordance with the last sentence of paragraph 
(1){A)) to such individual without charge other than reasonable 
fee for any reproduction and mailing costs)". 
(3) Subsection (e) of section 6104 is amended by adding 
at the end the following new paragraph: 
"(3) LIMITATION.—Paragraph (l)(A)(ii) (and the correspond-
ing provision of paragraph (2)) sh^l not apply to any request 
if, in accordance with regulations promulgated by the Secretary, 
the organization has made the requested documents widely 
available, or, the Secretary determines, upon application by 
an organization, that such request is part of a harassment 
campaign and that compliance with such request is not in 
the public interest.". 
(b) INCREASE IN PENALTY FOR WILLFUL FAILURE TO ALLOW 
PUBLIC INSPECTION OF CERTAIN RETURNS, ETC.—Section 6685 is 
amended by striking "$1,000" and inserting "$5,000". 
26 use 6104 
(c) EFFECTIVE DATE.—The amendments made by this section 
note. 
shall apply to requests made on or after the 60th day sifter the 
Secretary of the Treasury first issues the regulations referred to 
section 6104(e)(3) of the Internal Revenue Code of 1986 (as added 
by subsection (a)(3)). 
SEC. 1314. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR 
FAILURE TO FILE COMPLETE AND TIMELY ANNUAL 
RETURNS. 
(a) IN GENERAL.—Subparagraph (A) of section 6652(c)(1) (relat-
ing to annual returns under section 6033) is amended by striking 
"$10" and inserting "$20" and by striking "$5,000" and inserting 
"$10,000". 
(b) 
LARGER 
PENALTY 
ON 
ORGANIZATIONS HAVING 
GROSS 
RECEIPTS IN EXCESS OF $1,000,000.—Subparagraph (A) of section 
6652(c)(1) is amended by adding at the end the following new 
sentence: "In the case of an organization having gross receipts 
exceeding $1,000,000 for any year, with respect to the return 
required under section 6033 for such year, the first sentence of 
this subparagraph shall be applied by substituting '$100' for '$20' 
and, in lieu of appljdng the second sentence of this subparagraph, 
the maximum penalty under this subparagraph shall not exceed 
$50,000.". 
PUBLIC LAW 104-168-^ULY 30, 1996 
110 STAT. 1481 
(c) EFFECTIVE DATE.—^The amendments made by this section 26 use 6652 
shall apply to returns for taxable years ending on or after the note. 
date of the enactment of this Act. 
Approved July 30, 1996. 
LEGISLATIVE HISTORY—H.R. 2337: 
HOUSE REPORTS: No. 104-506 (Comm. on Ways and Means). 
CONGRESSIONAL RECORD, Vol. 142 (1996): 
Apr. 16, considered and passed House. 
July 11, considered and passed Senate. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996): 
July 30, Presidential remarks.