[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1528 Engrossed Amendment Senate (EAS)]
In the Senate of the United States,
May 19, 2004.
Resolved, That the bill from the House of Representatives (H.R.
1528) entitled ``An Act to amend the Internal Revenue Code of 1986 to
protect taxpayers and ensure accountability of the Internal Revenue
Service.'', do pass with the following
AMENDMENT:
Strike out all after the enacting clause and insert:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Administration
Good Government Act''.
(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.--The table of contents for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS
Subtitle A--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection
Sec. 101. Waiver of user fee for installment agreements using automated
withdrawals.
Sec. 102. Authorization for IRS to enter into installment agreements
that provide for partial payment.
Sec. 103. Termination of installment agreements.
Sec. 104. Office of Chief Counsel review of offers-in-compromise.
Sec. 105. Authorization for IRS to require increased electronic filing
of returns prepared by paid return
preparers.
Sec. 106. Threshold on tolling of statute of limitations during review
by Taxpayer Advocate Service.
Sec. 107. Increase in penalty for bad checks and money orders.
Sec. 108. Extension of time limit for contesting IRS levy.
Sec. 109. Individuals held harmless on improper levy on individual
retirement plan.
Sec. 110. Authorization for Financial Management Service retention of
transaction fees from levied amounts.
Sec. 111. Elimination of restriction on offsetting refunds from former
residents.
Subtitle B--Processing and Personnel
Sec. 121. Information regarding statute of limitations.
Sec. 122. Annual report on IRS performance measures.
Sec. 123. Disclosure of tax information to facilitate combined
employment tax reporting.
Sec. 124. Extension of declaratory judgment procedures to non-501(c)(3)
tax-exempt organizations.
Sec. 125. Amendment to Treasury auction reforms.
Sec. 126. Revisions relating to termination of employment of IRS
employees for misconduct.
Sec. 127. Expansion of IRS Oversight Board Authority.
Sec. 128. IRS Oversight Board approval of use of critical pay
authority.
Sec. 129. Low-income taxpayer clinics.
Sec. 130. Taxpayer access to financial institutions.
Sec. 131. Enrolled agents.
Sec. 132. Establishment of disaster response team.
Sec. 133. Study of accelerated tax refunds.
Sec. 134. Study on clarifying recordkeeping responsibilities.
Sec. 135. Streamline reporting process for National Taxpayer Advocate.
Sec. 136. IRS Free File program.
Sec. 137. Modification of TIGTA reporting requirements.
Sec. 138. Study of IRS accounts receivable.
Sec. 139. Electronic Commerce Advisory Group.
Sec. 140. Study on modifications to schedules L and M-1.
Sec. 141. Regulation of Federal income tax return preparers and refund
anticipation loan providers.
Sec. 142. Joint task force on offers-in-compromise.
Subtitle C--Other Provisions
Sec. 151. Penalty for failure to report interests in foreign financial
accounts.
Sec. 152. Repeal of application of below-market loan rules to amounts
paid to certain continuing care facilities.
Sec. 153. Public support by Indian tribal governments.
Sec. 154. Payroll agents subject to penalty for failure to collect and
pay over tax, or attempt to evade or defeat
tax.
TITLE II--REFORM OF PENALTY AND INTEREST
Sec. 201. Individual estimated tax.
Sec. 202. Corporate estimated tax.
Sec. 203. Increase in large corporation threshold for estimated tax
payments.
Sec. 204. Abatement of interest.
Sec. 205. Deposits made to suspend running of interest on potential
underpayments.
Sec. 206. Freeze of provisions regarding suspension of interest where
Secretary fails to contact taxpayer.
Sec. 207. Clarification of application of Federal tax deposit penalty.
Sec. 208. Frivolous tax returns and submissions.
Sec. 209. Extension of notice requirements with respect to interest and
penalty calculations.
Sec. 210. Expansion of interest netting.
TITLE III--UNITED STATES TAX COURT MODERNIZATION
Subtitle A--Tax Court Procedure
Sec. 301. Jurisdiction of Tax Court over collection due process cases.
Sec. 302. Authority for special trial judges to hear and decide certain
employment status cases.
Sec. 303. Confirmation of authority of Tax Court to apply doctrine of
equitable recoupment.
Sec. 304. Tax Court filing fee in all cases commenced by filing
petition.
Sec. 305. Amendments to appoint employees.
Sec. 306. Expanded use of Tax Court practice fee for pro se taxpayers.
Subtitle B--Tax Court Pension and Compensation
Sec. 311. Annuities for survivors of Tax Court judges who are
assassinated.
Sec. 312. Cost-of-living adjustments for Tax Court judicial survivor
annuities.
Sec. 313. Life insurance coverage for Tax Court judges.
Sec. 314. Cost of life insurance coverage for Tax Court judges age 65
or over.
Sec. 315. Modification of timing of lump-sum payment of judges' accrued
annual leave.
Sec. 316. Participation of Tax Court judges in the Thrift Savings Plan.
Sec. 317. Exemption of teaching compensation of retired judges from
limitation on outside earned income.
Sec. 318. General provisions relating to magistrate judges of the Tax
Court.
Sec. 319. Annuities to surviving spouses and dependent children of
magistrate judges of the Tax Court.
Sec. 320. Retirement and annuity program.
Sec. 321. Incumbent magistrate judges of the Tax Court.
Sec. 322. Provisions for recall.
Sec. 323. Effective date.
TITLE IV--CONFIDENTIALITY AND DISCLOSURE
Sec. 401. Clarification of definition of church tax inquiry.
Sec. 402. Collection activities with respect to joint return
disclosable to either spouse based on oral
request.
Sec. 403. Taxpayer representatives not subject to examination on sole
basis of representation of taxpayers.
Sec. 404. Prohibition of disclosure of taxpayer identification
information with respect to disclosure of
accepted offers-in-compromise.
Sec. 405. Compliance by contractors with confidentiality safeguards.
Sec. 406. Higher standards for requests for and consents to disclosure.
Sec. 407. Civil damages for unauthorized disclosure or inspection.
Sec. 408. Expansion of disclosure in emergency circumstances.
Sec. 409. Disclosure of taxpayer identity for tax refund purposes.
Sec. 410. Disclosure to State officials of proposed actions related to
section 501(c) organizations.
Sec. 411. Treatment of public records.
Sec. 412. Employee identity disclosures.
Sec. 413. Taxpayer identification number matching.
Sec. 414. Form 8300 disclosures.
Sec. 415. Disclosure to law enforcement agencies regarding terrorist
activities.
TITLE V--SIMPLIFICATION
Subtitle A--Uniform Definition of Child
Sec. 501. Uniform definition of child, etc.
Sec. 502. Modifications of definition of head of household.
Sec. 503. Modifications of dependent care credit.
Sec. 504. Modifications of child tax credit.
Sec. 505. Modifications of earned income credit.
Sec. 506. Modifications of deduction for personal exemption for
dependents.
Sec. 507. Technical and conforming amendments.
Sec. 508. Effective date.
Subtitle B--Simplification Through Elimination of Inoperative
Provisions
Sec. 511. Simplification through elimination of inoperative provisions.
TITLE VI--REVENUE PROVISIONS
Subtitle A--Provisions Designed to Curtail Tax Shelters
Sec. 601. Penalty for failing to disclose reportable transaction.
Sec. 602. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 603. Modifications of substantial understatement penalty for
nonreportable transactions.
Sec. 604. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 605. Disclosure of reportable transactions.
Sec. 606. Modifications to penalty for failure to register tax
shelters.
Sec. 607. Modification of penalty for failure to maintain lists of
investors.
Sec. 608. Modification of actions to enjoin certain conduct related to
tax shelters and reportable transactions.
Sec. 609. Understatement of taxpayer's liability by income tax return
preparer.
Sec. 610. Regulation of individuals practicing before the Department of
Treasury.
Sec. 611. Penalty on promoters of tax shelters.
Sec. 612. Statute of limitations for taxable years for which required
listed transactions not reported.
Sec. 613. Denial of deduction for interest on underpayments
attributable to tax-motivated transactions.
Sec. 614. Authorization of appropriations for tax law enforcement.
Part II--Other Corporate Governance Provisions
Sec. 621. Affirmation of consolidated return regulation authority.
Sec. 622. Declaration by chief executive officer relating to Federal
annual income tax return of a corporation.
Sec. 623. Denial of deduction for certain fines, penalties, and other
amounts.
Sec. 624. Disallowance of deduction for punitive damages.
Sec. 625. Increase in criminal monetary penalty for individuals to the
amount of the tax at issue.
Sec. 626. Doubling of certain penalties, fines, and interest on
underpayments related to certain offshore
financial arrangements.
Part III--Extension of IRS User Fees
Sec. 631. Extension of IRS user fees.
PART IV--OTHER REVENUE PROVISIONS
Sec. 641. Reporting of taxable mergers and acquisitions.
Sec. 642. Modification of definition of controlled group of
corporations.
TITLE I--IMPROVEMENTS IN TAX ADMINISTRATION AND TAXPAYER SAFEGUARDS
Subtitle A--Improvements in Efficiency and Safeguards in Internal
Revenue Service Collection
SEC. 101. WAIVER OF USER FEE FOR INSTALLMENT AGREEMENTS USING AUTOMATED
WITHDRAWALS.
(a) In General.--Section 6159 (relating to agreements for payment
of tax liability in installments) is amended by redesignating
subsection (e) as subsection (f) and by inserting after subsection (d)
the following:
``(e) Waiver of User Fees for Installment Agreements Using
Automated Withdrawals.--In the case of a taxpayer who enters into an
installment agreement in which automated installment payments are
agreed to, the Secretary shall waive the fee (if any) for entering into
the installment agreement.''.
(b) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date which is 180 days
after the date of the enactment of this Act.
SEC. 102. AUTHORIZATION FOR IRS TO ENTER INTO INSTALLMENT AGREEMENTS
THAT PROVIDE FOR PARTIAL PAYMENT.
(a) In General.--
(1) Section 6159(a) (relating to authorization of
agreements) is amended--
(A) by striking ``satisfy liability for payment
of'' and inserting ``make payment on'', and
(B) by inserting ``full or partial'' after
``facilitate''.
(2) Section 6159(c) (relating to Secretary required to
enter into installment agreements in certain cases) is amended
in the matter preceding paragraph (1) by inserting ``full''
before ``payment''.
(b) Requirement To Review Partial Payment Agreements Every Two
Years.--Section 6159, as amended by this Act, is amended by
redesignating subsections (d), (e), and (f) as subsections (e), (f),
and (g), respectively, and inserting after subsection (c) the following
new subsection:
``(d) Secretary Required To Review Installment Agreements for
Partial Collection Every Two Years.--In the case of an agreement
entered into by the Secretary under subsection (a) for partial
collection of a tax liability, the Secretary shall review the agreement
at least once every 2 years with the primary purpose of determining
whether the financial condition of the taxpayer has significantly
changed so as to warrant an increase in the value of the payments being
made.''.
(c) Effective Date.--The amendments made by this section shall
apply to agreements entered into on or after the date of the enactment
of this Act.
SEC. 103. TERMINATION OF INSTALLMENT AGREEMENTS.
(a) In General.--Section 6159(b)(4) (relating to failure to pay an
installment or any other tax liability when due or to provide requested
financial information) is amended by striking ``or'' at the end of
subparagraph (B), by redesignating subparagraph (C) as subparagraph
(E), and by inserting after subparagraph (B) the following:
``(C) to make a Federal tax deposit under section
6302 at the time such deposit is required to be made,
``(D) to file a return of tax imposed under this
title by its due date (including extensions), or''.
(b) Conforming Amendment.--Section 6159(b)(4) is amended by
striking ``Failure to pay an installment or any other tax liability
when due or to provide requested financial information'' and inserting
``Failure to make payments or deposits or file returns when due or to
provide requested financial information''.
(c) Effective Date.--The amendments made by this section shall
apply to failures occurring on or after the date of the enactment of
this Act.
SEC. 104. OFFICE OF CHIEF COUNSEL REVIEW OF OFFERS-IN-COMPROMISE.
(a) In General.--Section 7122(b) (relating to record) is amended by
striking ``Whenever a compromise'' and all that follows through ``his
delegate'' and inserting ``If the Secretary determines that an opinion
of the General Counsel for the Department of the Treasury, or the
Counsel's delegate, is required with respect to a compromise, there
shall be placed on file in the office of the Secretary such opinion''.
(b) Conforming Amendments.--Section 7122(b) is amended by striking
the second and third sentences.
(c) Effective Date.--The amendments made by this section shall
apply to offers-in-compromise submitted or pending on or after the date
of the enactment of this Act.
SEC. 105. AUTHORIZATION FOR IRS TO REQUIRE INCREASED ELECTRONIC FILING
OF RETURNS PREPARED BY PAID RETURN PREPARERS.
(a) In General.--Section 6011(e) (relating to regulations requiring
returns on magnetic media, etc.) is amended--
(1) by striking the second sentence in paragraph (1), and
(2) by striking ``250'' in paragraph (2)(A) and inserting
``5''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 106. THRESHOLD ON TOLLING OF STATUTE OF LIMITATIONS DURING REVIEW
BY TAXPAYER ADVOCATE SERVICE.
(a) In General.--Section 7811(d)(1) (relating to suspension of
running of period of limitation) is amended by inserting after ``such
application,'' the following: ``but only if the date of such decision
is at least 7 days after the date of the taxpayer's application''.
(b) Effective Date.--The amendment made by this section shall apply
to applications filed after the date of the enactment of this Act.
SEC. 107. INCREASE IN PENALTY FOR BAD CHECKS AND MONEY ORDERS.
(a) In General.--Section 6657 (relating to bad checks) is amended--
(1) by striking ``$750'' and inserting ``$1,250'', and
(2) by striking ``$15'' and inserting ``$25''.
(b) Effective Date.--The amendments made by this section apply to
checks or money orders received after the date of the enactment of this
Act.
SEC. 108. EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY.
(a) Extension of Time for Return of Property Subject to Levy.--
Subsection (b) of section 6343 (relating to return of property) is
amended by striking ``9 months'' and inserting ``2 years''.
(b) Period of Limitation on Suits.--Subsection (c) of section 6532
(relating to suits by persons other than taxpayers) is amended--
(1) in paragraph (1) by striking ``9 months'' and inserting
``2 years'', and
(2) in paragraph (2) by striking ``9-month'' and inserting
``2-year''.
(c) Effective Date.--The amendments made by this section shall
apply to--
(1) levies made after the date of the enactment of this
Act, and
(2) levies made on or before such date if the 9-month
period has not expired under section 6343(b) of the Internal
Revenue Code of 1986 (without regard to this section) as of
such date.
SEC. 109. INDIVIDUALS HELD HARMLESS ON IMPROPER LEVY ON INDIVIDUAL
RETIREMENT PLAN.
(a) In General.--Section 6343 (relating to authority to release
levy and return property) is amended by adding at the end the following
new subsection:
``(f) Individuals Held Harmless on Wrongful Levy, etc. on
Individual Retirement Plan.--
``(1) In general.--If the Secretary determines that an
individual retirement plan has been levied upon in a case to
which subsection (b) or (d)(2)(A) applies and an amount is
returned to the individual who is the beneficiary of such plan,
the individual may deposit an amount equal to the sum of--
``(A) the amount of money returned by the Secretary
on account of such levy, and
``(B) interest paid under subsection (c) on such
amount of money,
into an individual retirement plan (other than an endowment
contract) to which a rollover from the plan levied upon is
permitted.
``(2) Treatment as rollover.--The distribution on account
of the levy and any deposit under paragraph (1) with respect to
such distribution shall be treated for purposes of this title
as if such distribution and deposit were part of a rollover
described in section 408(d)(3)(A)(i); except that--
``(A) interest paid under subsection (c) shall be
treated as part of such distribution and as not
includible in gross income,
``(B) the 60-day requirement in such section shall
be treated as met if the deposit is made not later than
the 60th day after the day on which the individual
receives an amount under paragraph (1) from the
Secretary, and
``(C) such deposit shall not be taken into account
under section 408(d)(3)(B).
``(3) Refund, etc., of income tax on levy.--If any amount
is includible in gross income for a taxable year by reason of a
levy referred to in paragraph (1) and any portion of such
amount is treated as a rollover under paragraph (2), any tax
imposed by chapter 1 on such portion shall not be assessed, and
if assessed shall be abated, and if collected shall be credited
or refunded as an overpayment made on the due date for filing
the return of tax for such taxable year.
``(4) Interest.--Notwithstanding subsection (d), interest
shall be allowed under subsection (c) in a case in which the
Secretary makes a determination described in subsection
(d)(2)(A) with respect to a levy upon an individual retirement
plan.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid under subsections (b), (c), and (d)(2)(A) of section
6343 of the Internal Revenue Code of 1986 after December 31, 2004.
SEC. 110. AUTHORIZATION FOR FINANCIAL MANAGEMENT SERVICE RETENTION OF
TRANSACTION FEES FROM LEVIED AMOUNTS.
(a) In General.--Notwithstanding any other provision of law, the
Financial Management Service may charge the Internal Revenue Service,
and the Internal Revenue Service may pay the Financial Management
Service, a fee sufficient to cover the full cost of implementing a
continuous levy program under subsection (h) of section 6331 of the
Internal Revenue Code of 1986. Any such fee shall be based on actual
levies made and shall be collected by the Financial Management Service
by the retention of a portion of amounts collected by levy pursuant to
that subsection. Amounts received by the Financial Management Service
as fees under that subsection shall be deposited into the account of
the Department of the Treasury under section 3711(g)(7) of title 31,
United States Code, and shall be collected and accounted for in
accordance with the provisions of that section. The amount credited
against the taxpayer's liability on account of the continuous levy
shall be the amount levied, without reduction for the amount paid to
the Financial Management Service as a fee.
(b) Effective Date.--The provisions of this section shall take
effect on the date of the enactment of this Act.
SEC. 111. ELIMINATION OF RESTRICTION ON OFFSETTING REFUNDS FROM FORMER
RESIDENTS.
(a) In General.--Section 6402(e) (relating to collection of past-
due, legally enforceable State income tax obligations) is amended by
striking paragraph (2) and by redesignating paragraphs (3), (4), (5),
(6), and (7) as paragraphs (2), (3), (4), (5), and (6), respectively.
(b) Clarification of Disclosure Authority.--Section 6103(l)(10)
(relating to disclosure of certain information to agencies requesting a
reduction under subsection (c), (d), or (e) or section 6402) is
amended--
(1) by striking ``, (d), or (e)'' each place it appears and
inserting ``or (d)'', and
(2) by striking ``, (d), or (e)'' in the heading and
inserting ``or (d)''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
Subtitle B--Processing and Personnel
SEC. 121. INFORMATION REGARDING STATUTE OF LIMITATIONS.
The Secretary of the Treasury or the Secretary's delegate shall--
(1) as soon as practicable but not later than 180 days
after the date of the enactment of this Act, revise the
statement required by section 6227 of the Omnibus Taxpayer Bill
of Rights (Internal Revenue Service Publication No. 1), and
(2) for taxable years beginning after December 31, 2004,
revise any instructions booklet accompanying a general income
tax return form (including forms 1040, 1040A, 1040EZ, and any
similar or successor forms relating thereto),
to provide for an explanation of the limitations imposed by section
6511 of the Internal Revenue Code of 1986 on credits and refunds, and
the consequences under such section 6511 of the failure to file a
return of tax.
SEC. 122. ANNUAL REPORT ON IRS PERFORMANCE MEASURES.
(a) In General.--Section 7803(a) (relating to Commissioner of
Internal Revenue) is amended by adding at the end the following new
paragraph:
``(4) Annual report on irs performance measures.--Not later
than December 31 of each calendar year, the Commissioner shall
report to Congress and the Oversight Board on performance goals
and projections for the 5-fiscal-year period beginning with the
fiscal year ending in such calendar year against which to
measure the performance of the Internal Revenue Service in the
areas of the public rating of the Internal Revenue Service,
customer service, compliance, and management initiatives. The
report shall include the long-term performance goal for each
measurement and a brief narrative explaining how the
Commissioner plans to meet each goal. For each performance
goal, the report shall include comparisons between the
projected performance level and actual performance level. For
each performance measurement, the report shall include a volume
projection for such period. If the Internal Revenue Service
fails to achieve one of its goals, the report shall explain
why. The report shall also include data and a narrative
regarding the actual and projected level of the workload and
resources of the Internal Revenue Service for such 5-year
period.''.
(b) Effective Date.--The amendment made by this section shall apply
to reports for fiscal year 2004 and thereafter.
SEC. 123. DISCLOSURE OF TAX INFORMATION TO FACILITATE COMBINED
EMPLOYMENT TAX REPORTING.
(a) In General.--Paragraph (5) of section 6103(d) (relating to
disclosure to State tax officials and State and local law enforcement
agencies) is amended to read as follows:
``(5) Disclosure for combined employment tax reporting.--
The Secretary shall disclose taxpayer identity information and
signatures to any agency, body, or commission of any State for
the purpose of carrying out with such agency, body, or
commission a combined Federal and State employment tax
reporting program approved by the Secretary. Subsections (a)(2)
and (p)(4) and sections 7213 and 7213A shall not apply with
respect to disclosures or inspections made pursuant to this
paragraph.''.
(b) Effective Date.--The amendment made by this section
shall take effect on the date of the enactment of this Act.
SEC. 124. EXTENSION OF DECLARATORY JUDGMENT PROCEDURES TO NON-501(C)(3)
TAX-EXEMPT ORGANIZATIONS.
(a) In General.--Paragraph (1) of section 7428(a) (relating to
creation of remedy) is amended--
(1) in subparagraph (B) by inserting after ``509(a))'' the
following: ``or as a private operating foundation (as defined
in section 4942(j)(3))''; and
(2) by amending subparagraph (C) to read as follows:
``(C) with respect to the initial qualification or
continuing qualification of an organization as an
organization described in section 501(c) (other than
paragraph (3)) or 501(d) which is exempt from tax under
section 501(a), or''.
(b) Court Jurisdiction.--Subsection (a) of section 7428 is amended
in the material following paragraph (2) by striking ``United States Tax
Court, the United States Claims Court, or the district court of the
United States for the District of Columbia'' and inserting the
following: ``United States Tax Court (in the case of any such
determination or failure) or the United States Claims Court or the
district court of the United States for the District of Columbia (in
the case of a determination or failure with respect to an issue
referred to in subparagraph (A) or (B) of paragraph (1)),''.
(c) Effective Date.--The amendments made by this section shall
apply to pleadings filed with respect to determinations (or requests
for determinations) made after December 31, 2004.
SEC. 125. AMENDMENT TO TREASURY AUCTION REFORMS.
(a) In General.--Clause (i) of section 202(c)(4)(B) of the
Government Securities Act Amendments of 1993 (31 U.S.C. 3121 note) is
amended by inserting before the semicolon ``(or, if earlier, at the
time the Secretary releases the minutes of the meeting in accordance
with paragraph (2))''.
(b) Effective Date.--The amendment made by this section shall apply
to meetings held after the date of the enactment of this Act.
SEC. 126. REVISIONS RELATING TO TERMINATION OF EMPLOYMENT OF IRS
EMPLOYEES FOR MISCONDUCT.
(a) In General.--Subchapter A of chapter 80 (relating to
application of internal revenue laws) is amended by inserting after
section 7804 the following new section:
``SEC. 7804A. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.
``(a) In General.--Subject to subsection (c), the Commissioner
shall terminate the employment of any employee of the Internal Revenue
Service if there is a final administrative or judicial determination
that such employee committed any act or omission described under
subsection (b) in the performance of the employee's official duties.
Such termination shall be a removal for cause on charges of misconduct.
``(b) Acts or Omissions.--The acts or omissions described under
this subsection are--
``(1) willful failure to obtain the required approval
signatures on documents authorizing the seizure of a taxpayer's
home, personal belongings, or business assets,
``(2) providing a false statement under oath with respect
to a material matter involving a taxpayer or taxpayer
representative,
``(3) with respect to a taxpayer or taxpayer
representative, the violation of--
``(A) any right under the Constitution of the
United States, or
``(B) any civil right established under--
``(i) title VI or VII of the Civil Rights
Act of 1964,
``(ii) title IX of the Education Amendments
of 1972,
``(iii) the Age Discrimination in
Employment Act of 1967,
``(iv) the Age Discrimination Act of 1975,
``(v) section 501 or 504 of the
Rehabilitation Act of 1973, or
``(vi) title I of the Americans with
Disabilities Act of 1990,
``(4) falsifying or destroying documents to conceal
mistakes made by any employee with respect to a matter
involving a taxpayer or taxpayer representative,
``(5) assault or battery on a taxpayer or taxpayer
representative, but only if there is a criminal conviction, or
a final judgment by a court in a civil case, with respect to
the assault or battery,
``(6) violations of this title, Department of the Treasury
regulations, or policies of the Internal Revenue Service
(including the Internal Revenue Manual) for the purpose of
retaliating against, or harassing, a taxpayer or taxpayer
representative,
``(7) willful misuse of the provisions of section 6103 for
the purpose of concealing information from a congressional
inquiry,
``(8) willful failure to file any return of tax required
under this title on or before the date prescribed therefor
(including any extensions) when a tax is due and owing, unless
such failure is due to reasonable cause and not due to willful
neglect,
``(9) willful understatement of Federal tax liability,
unless such understatement is due to reasonable cause and not
due to willful neglect, and
``(10) threatening to audit a taxpayer for the purpose of
extracting personal gain or benefit.
``(c) Determinations of Commissioner.--
``(1) In general.--The Commissioner may take a personnel
action other than termination for an act or omission described
under subsection (b).
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may not be delegated to any other officer. The
Commissioner, in the Commissioner's sole discretion, may
establish a procedure which will be used to determine whether
an individual should be referred to the Commissioner for a
determination by the Commissioner under paragraph (1).
``(3) No appeal.--Any determination of the Commissioner
under this subsection may not be appealed in any administrative
or judicial proceeding.
``(d) Definition.--For the purposes of the provisions described in
clauses (i), (ii), and (iv) of subsection (b)(3)(B), references to a
program or activity regarding Federal financial assistance or an
education program or activity receiving Federal financial assistance
shall include any program or activity conducted by the Internal Revenue
Service for a taxpayer.''.
(b) Clerical Amendment.--The table of sections for chapter 80 is
amended by inserting after the item relating to section 7804 the
following new item:
``Sec. 7804A. Termination of employment
for misconduct.''.
(c) Repeal of Superseded Section.--Section 1203 of the Internal
Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-
206; 112 Stat. 720) is repealed.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 127. EXPANSION OF IRS OVERSIGHT BOARD AUTHORITY.
(a) Approval With Respect to Senior Executives.--Section
7802(d)(3)(B) (relating to management) is amended by inserting ``and
approve'' after ``review''.
(b) Reports.--
(1) Budget request.--Section 7802(d) (relating to specific
responsibilities) is amended--
(A) by inserting ``with detailed analysis'' after
``budget request'' in paragraph (4)(B), and
(B) by inserting ``without any additional review or
comment from the Commissioner, the Secretary, any other
officer or employee of the Department of the Treasury,
or the Office of Management and Budget'' before ``to
the President'' in the last sentence thereof.
(2) Date of submission of annual report.--Section
7802(f)(3)(A) (relating to annual reports) is amended by
striking ``The Oversight Board shall each year report'' and
insert ``Not later than March 1 of each calendar year, the
Oversight Board shall report''.
(c) Continuity in Office.--Section 7802(b)(2) (relating to
qualifications and terms) is amended by adding at the end the following
new subparagraph:
``(E) Continuation in office.--Any member whose
term expires shall serve until the earlier of the date
on which the member's successor takes office or the
date which is 1 year after the date of the expiration
of the member's term.
(d) Access to Health Benefits.--Section 7802(e) (relating to Board
personnel matters) is amended by adding at the end the following new
paragraph:
``(5) Members access to fehbp.--Each member of the
Oversight Board who--
``(A) is described in subsection (b)(1)(A), or
``(B) is described in subsection (b)(1)(D) and is
not otherwise a Federal officer or employee,
shall be considered an employee solely for purposes of chapter
89 of title 5, United States Code.''.
(e) Director of Internal Revenue Service Oversight Board.--
Subsection (e) of section 7802, as amended by subsection (d), is
amended by redesignating paragraphs (3), (4), and (5) as paragraphs
(4), (5), and (6), respectively, and by inserting after paragraph (2)
the following new paragraph:
``(3) Director.--The Chairperson of the Oversight Board
shall, without regard to the provisions of title 5, United
Stated Code, governing appointments in the competitive service,
appoint a Director for the Oversight Board. The Director shall
be paid at the same rate as the highest-rate of basic pay
established for the Senior Executive Service under section 5382
of title 5, United States Code.''.
(f) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 128. IRS OVERSIGHT BOARD APPROVAL OF USE OF CRITICAL PAY
AUTHORITY.
(a) In General.--Section 7802(d)(3) (relating to management) is
amended by striking ``and'' at the end of subparagraph (B), by striking
the period at the end of subparagraph (C) and inserting ``; and'', and
by adding at the end the following new subparagraph:
``(D) review and approve the Commissioner's use of
critical pay authority under section 9502 of title 5,
United States Code, and streamlined critical pay
authority under section 9503 of such title.''.
(b) Effective Date.--The amendments made by this section shall
apply to personnel hired after the date of the enactment of this Act.
SEC. 129. LOW-INCOME TAXPAYER CLINICS.
(a) Grants for Return Preparation Clinics.--
(1) In general.--Chapter 77 (relating to miscellaneous
provisions) is amended by inserting after section 7526 the
following new section:
``SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME TAXPAYERS.
``(a) In General.--The Secretary may, subject to the availability
of appropriated funds, make grants to provide matching funds for the
development, expansion, or continuation of qualified return preparation
clinics.
``(b) Definitions.--For purposes of this section--
``(1) Qualified return preparation clinic.--
``(A) In general.--The term `qualified return
preparation clinic' means a clinic which--
``(i) does not charge more than a nominal
fee for its services (except for reimbursement
of actual costs incurred), and
``(ii) operates programs which assist low-
income taxpayers in preparing and filing their
Federal income tax returns, including schedules
reporting sole proprietorship or farm income.
``(B) Assistance to low-income taxpayers.--A clinic
is treated as assisting low-income taxpayers under
subparagraph (A)(ii) if at least 90 percent of the
taxpayers assisted by the clinic have incomes which do
not exceed 250 percent of the poverty level, as
determined in accordance with criteria established by
the Director of the Office of Management and Budget.
``(2) Clinic.--The term `clinic' includes--
``(A) a clinical program at an eligible educational
institution (as defined in section 529(e)(5)) which
satisfies the requirements of paragraph (1) through
student assistance of taxpayers in return preparation
and filing, and
``(B) an organization described in section 501(c)
and exempt from tax under section 501(a) which
satisfies the requirements of paragraph (1).
``(c) Special Rules and Limitations.--
``(1) Aggregate limitation.--Unless otherwise provided by
specific appropriation, the Secretary shall not allocate more
than $10,000,000 per year (exclusive of costs of administering
the program) to grants under this section.
``(2) Other applicable rules.--Rules similar to the rules
under paragraphs (2) through (7) of section 7526(c) shall apply
with respect to the awarding of grants to qualified return
preparation clinics.''.
(2) Clerical amendment.--The table of sections for chapter
77 is amended by inserting after the item relating to section
7526 the following new item:
``Sec. 7526A. Return preparation clinics
for low-income taxpayers.''.
(b) Grants for Taxpayer Representation and Assistance Clinics.--
(1) Increase in authorized grants.--Section 7526(c)(1)
(relating to aggregate limitation) is amended by striking
``$6,000,000'' and inserting ``$10,000,000''.
(2) Use of grants for overhead expenses prohibited.--
(A) In general.--Section 7526(c) (relating to
special rules and limitations) is amended by adding at
the end the following new paragraph:
``(6) Use of grants for overhead expenses prohibited.--No
grant made under this section may be used for the overhead
expenses of any clinic or of any institution sponsoring such
clinic.''.
(B) Conforming amendments.--Section 7526(c)(5) is
amended--
(i) by inserting ``qualified'' before
``low-income'', and
(ii) by striking the last sentence.
(3) Promotion of Clinics.--Section 7526(c), as amended by
paragraph (2), is amended by adding at the end the following
new paragraph:
``(7) Promotion of clinics.--The Secretary is authorized to
promote the benefits of and encourage the use of low-income
taxpayer clinics through the use of mass communications,
referrals, and other means.''.
(c) Effective Date.--The amendments made by this section shall
apply to grants made after the date of the enactment of this Act.
SEC. 130. TAXPAYER ACCESS TO FINANCIAL INSTITUTIONS.
(a) Establishment of Program.--The Secretary is authorized to award
demonstration project grants (including multi-year grants) to eligible
entities to provide tax preparation services and assistance in
connection with establishing an account in a federally insured
depository institution for individuals that currently do not have such
an account.
(b) Eligible Entities.--
(1) In general.--An entity is eligible to receive a grant
under this section if such an entity is--
(A) an organization described in section 501(c)(3)
of the Internal Revenue Code of 1986 and exempt from
tax under section 501(a) of such Code,
(B) a federally insured depository institution,
(C) an agency of a State or local government,
(D) a community development financial institution,
(E) an Indian tribal organization,
(F) an Alaska Native Corporation,
(G) a Native Hawaiian organization,
(H) a labor organization, or
(I) a partnership comprised of 1 or more of the
entities described in the preceding subparagraphs.
(2) Definitions.--For purposes of this section--
(A) Federally insured depository institution.--The
term ``federally insured depository institution'' means
any insured depository institution (as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813)) and any insured credit union (as defined
in section 101 of the Federal Credit Union Act (12
U.S.C. 1752)).
(B) Community development financial institution.--
The term ``community development financial
institution'' means any organization that has been
certified as such pursuant to section 1805.201 of title
12, Code of Federal Regulations.
(C) Alaska native corporation.--The term ``Alaska
Native Corporation'' has the same meaning as the term
``Native Corporation'' under section 3(m) of the Alaska
Native Claims Settlement Act (43 U.S.C. 1602(m)).
(D) Native hawaiian organization.--The term
``Native Hawaiian organization'' means any organization
that--
(i) serves and represents the interests of
Native Hawaiians, and
(ii) has as a primary and stated purpose
the provision of services to Native Hawaiians.
(E) Labor organization.--The term ``labor
organization'' means an organization--
(i) in which employees participate,
(ii) which exists for the purpose, in whole
or in part, of dealing with employers
concerning grievances, labor disputes, wages,
rates of pay, hours of employment, or
conditions of work, and
(iii) which is described in section
501(c)(5).
(c) Application.--An eligible entity desiring a grant under this
section shall submit an application to the Secretary in such form and
containing such information as the Secretary may require.
(d) Limitation on Administrative Costs.--A recipient of a grant
under this section may not use more than 6 percent of the total amount
of such grant in any fiscal year for the administrative costs of
carrying out the programs funded by such grant in such fiscal year.
(e) Evaluation and Report.--For each fiscal year in which a grant
is awarded under this section, the Secretary shall submit a report to
Congress containing a description of the activities funded, amounts
distributed, and measurable results, as appropriate and available.
(f) Authorization of Appropriations.--There is authorized to be
appropriated to the Secretary, for the grant program described in this
section, $10,000,000, or such additional amounts as deemed necessary,
to remain available until expended.
(g) Regulations.--The Secretary is authorized to promulgate
regulations to implement and administer the grant program under this
section.
SEC. 131. ENROLLED AGENTS.
(a) In General.--Chapter 77 (relating to miscellaneous provisions)
is amended by adding at the end the following new section:
``SEC. 7529. ENROLLED AGENTS.
``(a) In General.--The Secretary may prescribe such regulations as
may be necessary to regulate the conduct of enrolled agents in regards
to their practice before the Internal Revenue Service.
``(b) Use of Credentials.--Any enrolled agents properly licensed to
practice as required under rules promulgated under section (a) herein
shall be allowed to use the credentials or designation as `enrolled
agent', `EA', or `E.A.'.''.
(b) Clerical Amendment.--The table of sections for chapter 77 is
amended by adding at the end the following new item:
``Sec. 7529. Enrolled agents.''.
(c) Prior Regulations.--The authorization to prescribe regulations
under the amendments made by this section may not be construed to have
any effect on part 10 of title 31, Code of Federal Regulations, or any
other related Federal rule or regulation issued before the date of the
enactment of this Act.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 132. ESTABLISHMENT OF DISASTER RESPONSE TEAM.
(a) In General.--Section 7803 (relating to Commissioner of Internal
Revenue; other officials) is amended by adding at the end the following
new subsection:
``(e) Disaster Response Team.--
``(1) Response to disasters.--The Secretary shall--
``(A) establish as a permanent office in the
national office of the Internal Revenue Service a
disaster response team composed of members, who in
addition to their regular responsibilities, shall
assist taxpayers in clarifying and resolving Federal
tax matters associated with or resulting from any
Presidentially declared disaster (as defined in section
1033(h)(3)), and
``(B) respond to requests by such taxpayers for
filing extensions and technical guidance expeditiously.
``(2) Personnel of disaster response team.--The disaster
response team shall be composed of--
``(A) personnel from the Office of the Taxpayer
Advocate, and
``(B) personnel from the national office of the
Internal Revenue Service with expertise in individual,
corporate, and small business tax matters.
``(3) Coordination with fema.--The disaster response team
shall operate in coordination with the Director of the Federal
Emergency Management Agency.
``(4) Toll-free telephone number.--The Commissioner of
Internal Revenue shall establish and maintain a toll-free
telephone number for taxpayers to use to receive assistance
from the disaster response team.
``(5) Internet webpage site.--The Commissioner of Internal
Revenue shall establish and maintain a site on the Internet
webpage of the Internal Revenue Service for information for
taxpayers described in paragraph (1)(A).''.
(b) FEMA.--The Director of the Federal Emergency Management Agency
shall work in coordination with the disaster response team established
under section 7803(e) of the Internal Revenue Code of 1986 to provide
timely assistance to disaster victims described in such section,
including--
(1) informing the disaster response team regarding any tax-
related problems or issues arising in connection with the
disaster,
(2) providing the toll-free telephone number established
and maintained by the Internal Revenue Service for the disaster
victims in all materials provided to such victims, and
(3) providing the information described in section
7803(e)(5) of such Code on the Internet webpage of the Federal
Emergency Management Agency or through a link on such webpage
to the Internet webpage site of the Internal Revenue Service
described in such section.
(c) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 133. STUDY OF ACCELERATED TAX REFUNDS.
(a) Study.--The Secretary of the Treasury shall study the
implementation of an accelerated refund program for taxpayers who--
(1) maintain the same filing characteristics from year to
year, and
(2) elect the direct deposit option for any refund under
the program.
(b) Report.--Not later than the date which is 1 year after the date
of the enactment of this Act, the Secretary of the Treasury shall
transmit a report of the study described in subsection (a), including
recommendations, to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representatives.
SEC. 134. STUDY ON CLARIFYING RECORDKEEPING RESPONSIBILITIES.
(a) Study.--The Secretary of the Treasury shall study--
(1) the scope of the records required to be maintained by
taxpayers under section 6001 of the Internal Revenue Code of
1986,
(2) the utility of requiring taxpayers to maintain all
records indefinitely,
(3) such requirement given the necessity to upgrade
technological storage for outdated records,
(4) the number of negotiated records retention agreements
requested by taxpayers and the number entered into by the
Internal Revenue Service, and
(5) proposals regarding taxpayer record-keeping.
(b) Report.--Not later than the date which is 1 year after the date
of the enactment of this Act, the Secretary of the Treasury shall
transmit a report of the study described in subsection (a), including
recommendations, to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representatives.
SEC. 135. STREAMLINE REPORTING PROCESS FOR NATIONAL TAXPAYER ADVOCATE.
(a) One Annual Report.--Subparagraph (B) of section 7803(c)(2)
(relating to functions of Office) is amended--
(1) by striking all matter preceding subclause (I) of
clause (ii) and inserting the following:
``(B) Annual report.--
``(i) In general.--Not later than December
31 of each calendar year, the National Taxpayer
Advocate shall report to the Committee of Ways
and Means of the House of Representatives and
the Committee on Finance of the Senate on the
objectives of the Office of the Taxpayer of
Advocate for the fiscal year beginning in such
calendar year and the activities of such Office
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--'',
(2) by striking ``clause (ii)'' in clause (iv) and
inserting ``clause (i)'', and
(3) by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii), respectively.
(b) Additional Reports.--Section 7803(c)(2)(C) (relating to other
responsibilities) is amended by striking ``and'' at the end of clause
(iii), by striking the period at the end of clause (iv) and inserting
``; and'', and by adding at the end the following new clause:
``(v) at the discretion of the National
Taxpayer Advocate, report at any time to the
Committee of Ways and Means of the House of
Representatives and the Committee on Finance of
the Senate on significant issues affecting
taxpayer rights.''.
(c) Effective Dates.--
(1) Annual reports.--The amendments made by subsection (a)
shall apply to reports in calendar year 2005 and thereafter.
(2) Additional reports.--The amendments made by subsection
(b) shall take effect on the date of the enactment of this Act.
SEC. 136. IRS FREE FILE PROGRAM.
(a) In General.--The Commissioner of Internal Revenue shall require
that a taxpayer must provide an affirmative consent before such
taxpayer may be solicited with respect to any product or service by an
entity participating in the Internal Revenue Service Free File program.
Any request for such consent must be prominently displayed and clearly
written, in large print, on any material relating to such program.
(b) Effective Date.--This section shall take effect with respect to
returns filed after December 31, 2004.
SEC. 137. MODIFICATION OF TIGTA REPORTING REQUIREMENTS.
(a) In General.--Paragraph (1) of section 7803(d) (relating to
additional duties of the Treasury Inspector General for Tax
Administration) is amended--
(1) by striking ``Annual'' in the heading and inserting
``Biennial'',
(2) by inserting ``every 2 years (beginning in 2004)''
after ``one of the semiannual reports'' in the matter preceding
subparagraph (A),
(3) by striking clause (ii) of subparagraph (A),
(4) by redesignating clauses (iii), (iv), and (v) of
subparagraph (A) as clauses (ii), (iii), and (iv) of
subparagraph (A), respectively,
(5) by striking subparagraph (B),
(6) by striking ``and'' at the end of subparagraph (F),
(7) by redesignating subparagraphs (C), (D), (E), and (F)
as subparagraphs (B), (C), (D), and (E), respectively, and
(8) by striking subparagraph (G) and inserting the
following new subparagraphs:
``(F) the number of employee misconduct and
taxpayer abuse allegations received by the Internal
Revenue Service or the Inspector General during the
period from taxpayers, Internal Revenue Service
employees, and other sources; and
``(G) with respect to allegations of serious
employee misconduct--
``(i) a summary of the status of such
allegations; and
``(ii) a summary of the disposition of such
allegations, including the outcome of any
Department of Justice action and any monies
paid as a settlement of such allegations.''.
(b) Conforming Amendments.--Section 7803(d) is amended by striking
paragraph (2) and by redesignating paragraph (3) as paragraph (2).
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 138. STUDY OF IRS ACCOUNTS RECEIVABLE.
(a) Study.--The Secretary of the Treasury shall conduct a study of
the provisions of the Internal Revenue Code of 1986, and the
application of such provisions, regarding collection procedures to
determine if impediments exist to the efficient and timely collection
of tax debts. Such study shall include an examination of the accounts
receivable inventory of the Internal Revenue Service.
(b) Report.--Not later than 1 year after the date of the enactment
of this Act, the Secretary of the Treasury shall submit a report to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate, including the findings of the study
described in subsection (a) and such legislative or administrative
recommendations as the Secretary deems appropriate to increase the
efficient and timely collection of tax debts.
SEC. 139. ELECTRONIC COMMERCE ADVISORY GROUP.
(a) In General.--Section 2001(b)(2) of the Internal Revenue Service
Restructuring and Reform Act of 1998 is amended by inserting ``, and at
least 2 representatives from the consumer advocate community'' after
``industry''.
(b) Application of Amendment.--The initial appointments in
accordance with the amendment made by this section shall be made not
later than the date which is 180 days after the date of the enactment
of this Act.
SEC. 140. STUDY ON MODIFICATIONS TO SCHEDULES L AND M-1.
(a) In General.--Not later than 6 months after the date of the
enactment of this Act, the Secretary of the Treasury shall report to
the Committee on Finance of the Senate and the Committee on Ways and
Means of the House of Representatives on proposals to modify tax
schedules L and M-1 of Form 1120 to require the disclosure of
additional information, such as the items described in subsection (b).
(b) Items of Disclosure.--The items described in this subsection is
as follows:
(1) The parent company names and identification numbers for
both tax and book purposes.
(2) An asset reconciliation of consolidated book assets on
the public financial disclosures with the consolidated tax
return.
(3) Worldwide net income from public financial disclosures.
(4) The components of tax expense presently recorded in
financial statement tax footnotes.
(5) The reconciliation of the book income of entities
included in the consolidated financial statement with book
income included in the consolidated tax return.
(6) The adjustment for book income from domestic and
foreign entities excluded from financial reporting but included
for tax reconciliation.
(7) The book income of United States entities included in
the United States consolidated return.
(8) Taxable income due to actual or deemed dividends from
foreign subsidiaries.
(9) A reconciliation which should reflect pretax book
income of United States consolidated tax group plus taxable
deemed or actual foreign repatriations.
(10) The differences in the reporting of income and expense
between book and tax reporting, including specific reporting on
pension expense, stock options, and the amortization of
goodwill.
(11) Other reconciliation items in a consistent manner
among all entities.
(c) Public Availability of Specified Information.--Not later than 1
year after the date of the enactment of this Act, the Securities and
Exchange Commission and the Commissioner of Internal Revenue shall each
report to the Committee on Finance of the Senate and the Committee on
Ways and Means of the House of Representatives on proposals to expand
the public availability and clarity of information relating to book and
tax differences and Federal tax liability with respect to corporations.
SEC. 141. REGULATION OF FEDERAL INCOME TAX RETURN PREPARERS, REFUND
ANTICIPATION LOAN PROVIDERS, AND PAYROLL AGENTS.
(a) In General.--Chapter 77 (relating to miscellaneous provisions),
as amended by this Act, is amended by adding at the end the following
new section:
``SEC. 7530. FEDERAL INCOME TAX RETURN PREPARERS, REFUND ANTICIPATION
LOAN PROVIDERS, AND PAYROLL AGENTS.
``(a) Registration.--
``(1) In general.--The Secretary shall prescribe such
regulations as may be necessary--
``(A) to require the registration of Federal income
tax return preparers, refund anticipation loan
providers, and payroll agents with the Secretary or the
designee of the Secretary,
``(B) to prohibit the payment of a refund of tax to
a Federal income tax return preparer or refund
anticipation loan provider that is the result of a tax
return which is prepared by such preparer or provider
which does not include the preparer's or provider's
registration number, and
``(C) to require the posting of a resonable bond by
each registered payroll agent.
``(2) No disciplinary action.--The regulations under
paragraph (1) shall require that an applicant for registration
must not have demonstrated any conduct that would warrant
disciplinary action under part 10 of title 31, Code of Federal
Regulations.
``(3) Burden of registration.--In promulgating the
regulations under paragraph (1), the Secretary shall minimize
the burden and cost on the registrant.
``(b) Examination.--In promulgating the regulations under
subsection (a)--
``(1) In general.--The Secretary shall develop a series of
examinations designed to test the technical knowledge and
competency of each applicant for registration to prepare
Federal tax returns, including an examination testing knowledge
of individual income tax return preparation, including the
earned income tax credit under section 32.
``(2) Initial examination.--The Secretary shall require
that each applicant for registration pass an initial
examination testing the applicant's technical knowledge and
competency to prepare individual and business Federal income
tax returns.
``(c) Rules of Conduct.--All registrants shall be subject to rules
of conduct that are consistent with the rules that govern any federally
authorized tax practitioner within the meaning of section
7525(a)(3)(A).
``(d) Disclosure of Information.--The Secretary shall provide
guidance on the manner and timing of disclosure to taxpayers of
information relating to fees and interest rates imposed in connection
with loans made to taxpayers by refund anticipation loan providers.
``(e) Annual Renewal of Registration.--
``(1) In general.--The regulations under subsection (a)
shall require an annual renewal of registration and shall set
forth the manner in which a registered Federal income tax
return preparer, refund anticipation loan provider, or payroll
agent must renew such registration.
``(2) Annual examinations.--As part of the annual
registration, such regulations shall require that each
registrant pass an annual refresher examination (including tax
law updates).
``(f) Fees.--
``(1) In general.--The Secretary may require the payment of
reasonable fees for registration and for renewal of
registration under the regulations promulgated under subsection
(a).
``(2) Purpose of fees.--Any fees described in paragraph (1)
shall be available without fiscal year limitation to the
Secretary for the purpose of reimbursement of the costs of
administering the requirements of the regulations.
``(g) Federal Income Tax Return Preparer.--For purposes of this
section--
``(1) In general.--The term `Federal income tax return
preparer' means any individual who is an income tax return
preparer (within the meaning of section 7701(a)(36)) who
prepares not less than 5 returns of tax imposed by subtitle A
or claims for refunds of tax imposed by subtitle A per taxable
year.
``(2) Exception.--Such term shall not include a federally
authorized tax practitioner (as defined in section
7525(a)(3)(A).
``(h) Refund Anticipation Loan Provider.--For purposes of this
section, the term `refund anticipation loan provider' means a person
who makes a loan of money or of any other thing of value to a taxpayer
in connection with the taxpayer's anticipated receipt of a Federal tax
refund.''.
(b) Prohibition.--
(1) In general.--Section 6695 (relating to other assessable
penalties with respect to the preparation of income tax returns
for other persons) is amended by adding at the end the
following new subsection:
``(h) Actions on a Taxpayer's Behalf by a Non-Registered Person.--
Any person not registered pursuant to the regulations promulgated by
the Secretary under section 7530 who--
``(1) prepares a tax return for another taxpayer, or
``(2) provides a loan of money or of any other thing of
value to a taxpayer in connection with the taxpayer's
anticipated receipt of a Federal tax refund,
shall be subject to a $500 penalty for each incident of
noncompliance.''.
(2) Use of penalties.--There is authorized to be
appropriated and is appropriated to the Secretary of the
Treasury for each fiscal year for the administration of the
requirements of the regulations promulgated under section 7530
of the Internal Revenue Code of 1986 an amount equal to the
penalties imposed under section 6695(h) of such Code for the
preceding fiscal year.
(c) Coordination With Section 6060(a).--The Secretary of the
Treasury shall coordinate the registration required under the
regulations promulgated under section 7530 of the Internal Revenue Code
of 1986 with the return requirements of section 6060 of such Code.
(d) Public Awareness Campaign.--
(1) In general.--The Secretary of the Treasury shall
conduct a public information and consumer education campaign,
utilizing paid advertising, to inform the public of the
requirements that Federal income tax return preparers (as
defined in section 7530(g) of the Internal Revenue Code of
1986) must sign the return prepared for a fee and display
notice of their registration under the regulations promulgated
under section 7530 of such Code.
(2) Public list.--The Secretary of the Treasury shall
maintain a public list (in print and electronic media,
including Internet-based) of Federal income tax return
preparers (as so defined) who are so registered and whose
registration has been revoked.
(3) Notification.--The Secretary of the Treasury shall
notify any taxpayer if such taxpayer's return was prepared by
such an unregistered Federal income tax return preparer .
(e) Additional Funds Available for Compliance Activities.--The
Secretary of the Treasury may use any specifically appropriated funds
for earned income tax credit compliance to improve and expand
enforcement of Federal income tax preparers under the regulations
promulgated under section 7530 of the Internal Revenue Code of 1986.
(f) Clerical Amendment.--The table of sections for chapter 77, as
amended by this Act, is amended by adding at the end the following new
item:
``Sec. 7530. Federal income tax return
preparers and refund
anticipation loan providers.''.
(g) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 142. JOINT TASK FORCE ON OFFERS-IN-COMPROMISE.
(a) In General.--The Secretary of the Treasury shall establish a
joint task force--
(1) to review the Internal Revenue Service's determinations
with respect to offers which raise equitable, public policy, or
economic hardship grounds for compromise of a tax liability
under section 7122 of the Internal Revenue Code of 1986,
(2) to review the extent to which the Internal Revenue
Service has used its authority to resolve longstanding cases by
forgoing penalties and interest which have accumulated as a
result of delay in determining the taxpayer's liability,
(3) to provide recommendations as to whether the Internal
Revenue Service's evaluation of offers-in-compromise should
include--
(A) the taxpayer's compliance history,
(B) errors by the Internal Revenue Service with
respect to the underlying tax,
(C) wrongful acts by a third party which gave rise
to the liability, and
(D) whether the taxpayer has made payments on the
liability, and
(4) to annually report to the Committee on Finance of the
Senate and the Committee on Ways and Means of the House of
Representatives (beginning in 2005) regarding such review and
recommendations.
(b) Members of Joint Task Force.--The membership of the joint task
force under subsection (a) shall consist of 1 representative each from
the Department of the Treasury, the Internal Revenue Service Oversight
Board, the Office of the Chief Counsel for the Internal Revenue
Service, the Office of the Taxpayer Advocate, the Office of Appeals,
and the division of the Internal Revenue Service charged with operating
the offer-in-compromise program.
(c) Report of National Taxpayer Advocate.--
(1) In general.--Clause (i) of section 7803(c)(2)(B)
(relating to annual reports), as amended by this Act, is
amended by striking ``and'' at the end of subclause (X), by
redesignating subclause (XI) as subclause (XII), and by
inserting after subclause (X) the following new subclause:
``(XI) include a list of the
factors taxpayers have raised to
support their claims for offers-in-
compromise relief, the number of such
offers submitted, accepted, and
rejected, the number of such offers
appealed, the period during which
review of such offers have remained
pending, and the efforts the Internal
Revenue Service has made to correctly
identify such offers, including the
training of employees in identifying
and evaluating such offers.''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply to reports in calendar year 2005 and thereafter.
Subtitle C--Other Provisions
SEC. 151. PENALTY FOR FAILURE TO REPORT INTERESTS IN FOREIGN FINANCIAL
ACCOUNTS.
(a) In General.--Section 5321(a)(5) of title 31, United States
Code, is amended to read as follows:
``(5) Foreign financial agency transaction violation.--
``(A) Penalty authorized.--The Secretary of the
Treasury may impose a civil money penalty on any person
who violates, or causes any violation of, any provision
of section 5314.
``(B) Amount of penalty.--
``(i) In general.--Except as provided in
subparagraph (C), the amount of any civil
penalty imposed under subparagraph (A) shall
not exceed $5,000.
``(ii) Reasonable cause exception.--No
penalty shall be imposed under subparagraph (A)
with respect to any violation if--
``(I) such violation was due to
reasonable cause, and
``(II) the amount of the
transaction or the balance in the
account at the time of the transaction
was properly reported.
``(C) Willful violations.--In the case of any
person willfully violating, or willfully causing any
violation of, any provision of section 5314--
``(i) the maximum penalty under
subparagraph (B)(i) shall be increased to the
greater of--
``(I) $25,000, or
``(II) the amount (not exceeding
$100,000) determined under subparagraph
(D), and
``(ii) subparagraph (B)(ii) shall not
apply.
``(D) Amount.--The amount determined under this
subparagraph is--
``(i) in the case of a violation involving
a transaction, the amount of the transaction,
or
``(ii) in the case of a violation involving
a failure to report the existence of an account
or any identifying information required to be
provided with respect to an account, the
balance in the account at the time of the
violation.''.
(b) Effective Date.--The amendment made by this section shall apply
to violations occurring after the date of the enactment of this Act.
SEC. 152. REPEAL OF APPLICATION OF BELOW-MARKET LOAN RULES TO AMOUNTS
PAID TO CERTAIN CONTINUING CARE FACILITIES.
(a) In General.--Section 7872(c)(1) (relating to below-market loans
to which section applies) is amended--
(1) by striking subparagraph (F), and
(2) by striking ``(C), or (F)'' in subparagraph (E) and
inserting ``or (C)''.
(b) Full Exception.--Section 7872(g) (relating to exception for
certain loans to qualified continuing care facilities) is amended--
(1) by striking ``made by a lender to a qualified
continuing care facility pursuant to a continuing care
contract'' in paragraph (1) and inserting ``owed by a facility
which on the last day of such year is a qualified continuing
care facility, if such loan was made pursuant to a continuing
care contract and'',
(2) by striking ``increased personal care services or'' in
paragraph (3)(C),
(3) by adding at the end of paragraph (3) the following new
flush sentence:
``The Secretary shall issue guidance which limits such term to
contracts which provide to an individual or individual's spouse
only facilities, care, and services described in this paragraph
which are customarily offered by continuing care facilities.'',
(4) by inserting ``independent living unit'' after ``all of
the'' in paragraph (4)(A)(ii),
(5) by striking paragraphs (2) and (5),
(6) by redesignating paragraphs (3) and (4) as paragraphs
(2) and (3), respectively, and
(7) by striking ``Certain'' in the heading thereof.
(c) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after 2004.
SEC. 153. PUBLIC SUPPORT BY INDIAN TRIBAL GOVERNMENTS.
(a) In General.--Section 7871(a) (relating to Indian tribal
governments treated as States for certain purposes) is amended by
striking ``and'' at the end of subparagraph (C) of paragraph (6), by
striking the period at the end of subparagraph (B) of paragraph (7) and
inserting ``; and'', and by adding at the end the following new
paragraph:
``(8) for purposes of--
``(A) determining support of an organization
described in section 170(b)(1)(A)(vi), and
``(B) determining whether an organization is
described in paragraph (1) or (2) of section 509(a) for
purposes of section 509(a)(3).''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to--
(1) support received before, on, or after the date of the
enactment of this Act, and
(2) the determination of the status of any organization
with respect to any taxable year beginning after such date of
enactment.
SEC. 154. PAYROLL AGENTS SUBJECT TO PENALTY FOR FAILURE TO COLLECT AND
PAY OVER TAX, OR ATTEMPT TO EVADE OR DEFEAT TAX.
(a) In General.--Section 6672(a) is amended by inserting ``,
including any payroll agent,'' after ``Any person''.
(b) Penalty Not Subject To Discharge in Bankruptcy.--Section
6672(a) is amended by adding at the end the following new sentence:
``Notwithstanding any other provision of law, no penalty imposed under
this section may be discharged in bankruptcy.''.
(c) Construction.--The amendment made by subsection (a) shall not
be construed to create any inference with respect to the interpretation
of section 6672 of the Internal Revenue Code of 1986 as such section
was in effect on the day before the date of the enactment of this Act.
(d) Effective Date.--The amendments made by this section shall
apply to failures occurring after the date of the enactment of this
Act.
TITLE II--REFORM OF PENALTY AND INTEREST
SEC. 201. INDIVIDUAL ESTIMATED TAX.
(a) Increase in Exception for Individuals Owing Small Amount of
Tax.--Section 6654(e)(1) (relating to exception where tax is small
amount) is amended by striking ``$1,000'' and inserting ``$2,000''.
(b) Computation of Addition to Tax.--Subsections (a) and (b) of
section 6654 (relating to failure by individual to pay estimated taxes)
are amended to read as follows:
``(a) Addition to the Tax.--
``(1) In general.--Except as otherwise provided in this
section, in the case of any underpayment of estimated tax by an
individual for a taxable year, there shall be added to the tax
under chapters 1 and 2 for the taxable year the amount
determined under paragraph (2) for each day of underpayment.
``(2) Amount.--The amount of the addition to tax for any
day shall be the product of the underpayment rate established
under subsection (b)(2) multiplied by the amount of the
underpayment.
``(b) Amount of Underpayment; Underpayment Rate.--For purposes of
subsection (a)--
``(1) Amount.--The amount of the underpayment on any day
shall be the excess of--
``(A) the sum of the required installments for the
taxable year the due dates for which are on or before
such day, over
``(B) the sum of the amounts (if any) of estimated
tax payments made on or before such day on such
required installments.
``(2) Determination of underpayment rate.--
``(A) In general.--The underpayment rate with
respect to any day in an installment underpayment
period shall be the underpayment rate established under
section 6621 for the first day of the calendar quarter
in which such installment underpayment period begins.
``(B) Installment underpayment period.--For
purposes of subparagraph (A), the term `installment
underpayment period' means the period beginning on the
day after the due date for a required installment and
ending on the due date for the subsequent required
installment (or in the case of the 4th required
installment, the 15th day of the 4th month following
the close of a taxable year).
``(C) Daily rate.--The rate determined under
subparagraph (A) shall be applied on a daily basis and
shall be based on the assumption of 365 days in a
calendar year.
``(3) Termination of estimated tax underpayment.--No day
after the end of the installment underpayment period for the
4th required installment specified in paragraph (2)(B) for a
taxable year shall be treated as a day of underpayment with
respect to such taxable year.''.
(c) Effective Date.--The amendments made by this section shall
apply to estimated tax payments made for taxable years beginning after
December 31, 2004.
SEC. 202. CORPORATE ESTIMATED TAX.
(a) Increase in Small Tax Amount Exception.--Section 6655(f)
(relating to exception where tax is small amount) is amended by
striking ``$500'' and inserting ``$1,000''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2004.
SEC. 203. INCREASE IN LARGE CORPORATION THRESHOLD FOR ESTIMATED TAX
PAYMENTS.
(a) In General.--Section 6655(g)(2) (defining large corporation) is
amended--
(1) by striking ``$1,000,000'' in subparagraph (A) and
inserting ``the applicable amount'',
(2) by striking ``the $1,000,000 amount specified in
subparagraph (A)'' in subparagraph (B)(ii) and inserting ``the
applicable amount'',
(3) by redesignating subparagraph (B) as subparagraph (C),
and
(4) by inserting after subparagraph (A) the following new
subparagraph:
``(B) Applicable amount.--For purposes of this
paragraph, the applicable amount is $1,000,000
increased (but not above $1,500,000) by $50,000 for
each taxable year beginning after 2004.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2004.
SEC. 204. ABATEMENT OF INTEREST.
(a) Abatement of Interest for Periods Attributable to Any
Unreasonable IRS Error or Delay.--Section 6404(e)(1) is amended--
(1) by striking ``in performing a ministerial or managerial
act'' in subparagraphs (A) and (B),
(2) by striking ``deficiency'' in subparagraph (A) and
inserting ``underpayment of any tax, addition to tax, or
penalty imposed by this title'', and
(3) by striking ``tax described in section 6212(a)'' in
subparagraph (B) and inserting ``tax, addition to tax, or
penalty imposed by this title''.
(b) Abatement of Interest to Extent Interest Is Attributable to
Taxpayer Reliance on Written Statements of the IRS.--Subsection (f) of
section 6404 is amended--
(1) in the subsection heading, by striking ``Penalty or
Addition'' and inserting ``Interest, Penalty, or Addition'';
and
(2) in paragraph (1) and in subparagraph (B) of paragraph
(2), by striking ``penalty or addition'' and inserting
``interest, penalty, or addition''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to interest accruing on or after the date of the
enactment of this Act.
SEC. 205. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS.
(a) In General.--Subchapter A of chapter 67 (relating to interest
on underpayments) is amended by adding at the end the following new
section:
``SEC. 6603. DEPOSITS MADE TO SUSPEND RUNNING OF INTEREST ON POTENTIAL
UNDERPAYMENTS, ETC.
``(a) Authority To Make Deposits Other Than as Payment of Tax.--A
taxpayer may make a cash deposit with the Secretary which may be used
by the Secretary to pay any tax imposed under subtitle A or B or
chapter 41, 42, 43, or 44 which has not been assessed at the time of
the deposit. Such a deposit shall be made in such manner as the
Secretary shall prescribe.
``(b) No Interest Imposed.--To the extent that such deposit is used
by the Secretary to pay tax, for purposes of section 6601 (relating to
interest on underpayments), the tax shall be treated as paid when the
deposit is made.
``(c) Return of Deposit.--Except in a case where the Secretary
determines that collection of tax is in jeopardy, the Secretary shall
return to the taxpayer any amount of the deposit (to the extent not
used for a payment of tax) which the taxpayer requests in writing.
``(d) Payment of Interest.--
``(1) In general.--For purposes of section 6611 (relating
to interest on overpayments), a deposit which is returned to a
taxpayer shall be treated as a payment of tax for any period to
the extent (and only to the extent) attributable to a
disputable tax for such period. Under regulations prescribed by
the Secretary, rules similar to the rules of section 6611(b)(2)
shall apply.
``(2) Disputable tax.--
``(A) In general.--For purposes of this section,
the term `disputable tax' means the amount of tax
specified at the time of the deposit as the taxpayer's
reasonable estimate of the maximum amount of any tax
attributable to disputable items.
``(B) Safe harbor based on 30-day letter.--In the
case of a taxpayer who has been issued a 30-day letter,
the maximum amount of tax under subparagraph (A) shall
not be less than the amount of the proposed deficiency
specified in such letter.
``(3) Other definitions.--For purposes of paragraph (2)--
``(A) Disputable item.--The term `disputable item'
means any item of income, gain, loss, deduction, or
credit if the taxpayer--
``(i) has a reasonable basis for its
treatment of such item, and
``(ii) reasonably believes that the
Secretary also has a reasonable basis for
disallowing the taxpayer's treatment of such
item.
``(B) 30-day letter.--The term `30-day letter'
means the first letter of proposed deficiency which
allows the taxpayer an opportunity for administrative
review in the Internal Revenue Service Office of
Appeals.
``(4) Rate of interest.--The rate of interest allowable
under this subsection shall be the Federal short-term rate
determined under section 6621(b), compounded daily.
``(e) Use of Deposits.--
``(1) Payment of tax.--Except as otherwise provided by the
taxpayer, deposits shall be treated as used for the payment of
tax in the order deposited.
``(2) Returns of deposits.--Deposits shall be treated as
returned to the taxpayer on a last-in, first-out basis.''.
(b) Clerical Amendment.--The table of sections for subchapter A of
chapter 67 is amended by adding at the end the following new item:
``Sec. 6603. Deposits made to suspend
running of interest on
potential underpayments,
etc.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to deposits made after the date which is 1 year after the
date of the enactment of this Act.
(2) Coordination with deposits made under revenue procedure
84-58.--In the case of an amount held by the Secretary of the
Treasury or the Secretary's delegate on the date which is 1
year after the date of the enactment of this Act as a deposit
in the nature of a cash bond deposit pursuant to Revenue
Procedure 84-58, the date that the taxpayer identifies such
amount as a deposit made pursuant to section 6603 of the
Internal Revenue Code (as added by this Act) shall be treated
as the date such amount is deposited for purposes of such
section 6603.
SEC. 206. FREEZE OF PROVISIONS REGARDING SUSPENSION OF INTEREST WHERE
SECRETARY FAILS TO CONTACT TAXPAYER.
(a) In General.--Section 6404(g) (relating to suspension of
interest and certain penalties where Secretary fails to contact
taxpayer) is amended by striking ``1-year period (18-month period in
the case of taxable years beginning before January 1, 2004)'' both
places it appears and inserting ``18-month period''.
(b) Exception for Gross Misstatement.--Section 6404(g)(2) (relating
to exceptions) is amended by striking ``or'' at the end of subparagraph
(C), by redesignating subparagraph (D) as subparagraph (E), and by
inserting after subparagraph (C) the following new subparagraph:
``(D) any interest, penalty, addition to tax, or
additional amount with respect to any gross
misstatement; or''.
(c) Exception for Reportable and Listed Transactions.--Section
6404(g)(2) (relating to exceptions), as amended by subsection (b), is
amended by striking ``or'' at the end of subparagraph (D), by
redesignating subparagraph (E) as subparagraph (F), and by inserting
after subparagraph (D) the following new subparagraph:
``(E) any interest, penalty, addition to tax, or
additional amount with respect to any reportable
transaction or listed transaction (as defined in
6707A(c)); or''.
(d) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 2003.
(2) Exception for reportable or listed transactions.--The
amendments made by subsection (c) shall apply with respect to
interest accruing after May 5, 2004.
SEC. 207. CLARIFICATION OF APPLICATION OF FEDERAL TAX DEPOSIT PENALTY.
Nothing in section 6656 of the Internal Revenue Code of 1986 shall
be construed to permit the percentage specified in subsection
(b)(1)(A)(iii) thereof to apply other than in a case where the failure
is for more than 15 days.
SEC. 208. FRIVOLOUS TAX RETURNS AND SUBMISSIONS.
(a) Civil Penalties.--Section 6702 is amended to read as follows:
``SEC. 6702. FRIVOLOUS TAX SUBMISSIONS.
``(a) Civil Penalty for Frivolous Tax Returns.--A person shall pay
a penalty of $5,000 if--
``(1) such person files what purports to be a return of a
tax imposed by this title but which--
``(A) does not contain information on which the
substantial correctness of the self-assessment may be
judged, or
``(B) contains information that on its face
indicates that the self-assessment is substantially
incorrect; and
``(2) the conduct referred to in paragraph (1)--
``(A) is based on a position which the Secretary
has identified as frivolous under subsection (c), or
``(B) reflects a desire to delay or impede the
administration of Federal tax laws.
``(b) Civil Penalty for Specified Frivolous Submissions.--
``(1) Imposition of penalty.--Except as provided in
paragraph (3), any person who submits a specified frivolous
submission shall pay a penalty of $5,000.
``(2) Specified frivolous submission.--For purposes of this
section--
``(A) Specified frivolous submission.--The term
`specified frivolous submission' means a specified
submission if any portion of such submission--
``(i) is based on a position which the
Secretary has identified as frivolous under
subsection (c), or
``(ii) reflects a desire to delay or impede
the administration of Federal tax laws.
``(B) Specified submission.--The term `specified
submission' means--
``(i) a request for a hearing under--
``(I) section 6320 (relating to
notice and opportunity for hearing upon
filing of notice of lien), or
``(II) section 6330 (relating to
notice and opportunity for hearing
before levy), and
``(ii) an application under--
``(I) section 6159 (relating to
agreements for payment of tax liability
in installments),
``(II) section 7122 (relating to
compromises), or
``(III) section 7811 (relating to
taxpayer assistance orders).
``(3) Opportunity to withdraw submission.--If the Secretary
provides a person with notice that a submission is a specified
frivolous submission and such person withdraws such submission
within 30 days after such notice, the penalty imposed under
paragraph (1) shall not apply with respect to such submission.
``(c) Listing of Frivolous Positions.--The Secretary shall
prescribe (and periodically revise) a list of positions which the
Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position
that the Secretary determines meets the requirement of section
6662(d)(2)(B)(ii)(II).
``(d) Reduction of Penalty.--The Secretary may reduce the amount of
any penalty imposed under this section if the Secretary determines that
such reduction would promote compliance with and administration of the
Federal tax laws.
``(e) Penalties in Addition to Other Penalties.--The penalties
imposed by this section shall be in addition to any other penalty
provided by law.''.
(b) Treatment of Frivolous Requests for Hearings Before Levy.--
(1) Frivolous requests disregarded.--Section 6330 (relating
to notice and opportunity for hearing before levy) is amended
by adding at the end the following new subsection:
``(g) Frivolous Requests for Hearing, etc.--Notwithstanding any
other provision of this section, if the Secretary determines that any
portion of a request for a hearing under this section or section 6320
meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A),
then the Secretary may treat such portion as if it were never submitted
and such portion shall not be subject to any further administrative or
judicial review.''.
(2) Preclusion from raising frivolous issues at hearing.--
Section 6330(c)(4) is amended--
(A) by striking ``(A)'' and inserting ``(A)(i)'';
(B) by striking ``(B)'' and inserting ``(ii)'';
(C) by striking the period at the end of the first
sentence and inserting ``; or''; and
(D) by inserting after subparagraph (A)(ii) (as so
redesignated) the following:
``(B) the issue meets the requirement of clause (i)
or (ii) of section 6702(b)(2)(A).''.
(3) Statement of grounds.--Section 6330(b)(1) is amended by
striking ``under subsection (a)(3)(B)'' and inserting ``in
writing under subsection (a)(3)(B) and states the grounds for
the requested hearing''.
(c) Treatment of Frivolous Requests for Hearings Upon Filing of
Notice of Lien.--Section 6320 is amended--
(1) in subsection (b)(1), by striking ``under subsection
(a)(3)(B)'' and inserting ``in writing under subsection
(a)(3)(B) and states the grounds for the requested hearing'',
and
(2) in subsection (c), by striking ``and (e)'' and
inserting ``(e), and (g)''.
(d) Treatment of Frivolous Applications for Offers-in-Compromise
and Installment Agreements.--Section 7122 is amended by adding at the
end the following new subsection:
``(e) Frivolous Submissions, etc.--Notwithstanding any other
provision of this section, if the Secretary determines that any portion
of an application for an offer-in-compromise or installment agreement
submitted under this section or section 6159 meets the requirement of
clause (i) or (ii) of section 6702(b)(2)(A), then the Secretary may
treat such portion as if it were never submitted and such portion shall
not be subject to any further administrative or judicial review.''.
(e) Clerical Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by striking the item relating to
section 6702 and inserting the following new item:
``Sec. 6702. Frivolous tax
submissions.''.
(f) Effective Date.--The amendments made by this section shall
apply to submissions made and issues raised after the date on which the
Secretary first prescribes a list under section 6702(c) of the Internal
Revenue Code of 1986, as amended by subsection (a).
SEC. 209. EXTENSION OF NOTICE REQUIREMENTS WITH RESPECT TO INTEREST AND
PENALTY CALCULATIONS.
Sections 3306(c) and 3308(c) of the Internal Revenue Service
Restructuring and Reform Act of 1998 are each amended by inserting
``and during the period beginning on the date of the enactment of the
Tax Administration Good Government Act, and ending before July 1,
2006,'' after ``July 1, 2003,''.
SEC. 210. EXPANSION OF INTEREST NETTING.
(a) In General.--Subsection (d) of section 6621 (relating to
elimination of interest on overlapping periods of tax overpayments and
underpayments) is amended by adding at the end the following: ``Solely
for purposes of the preceding sentence, section 6611(e) shall not
apply.''.
(b) Effective Date.--The amendment made by this section shall apply
to interest accrued after December 31, 2010.
TITLE III--UNITED STATES TAX COURT MODERNIZATION
Subtitle A--Tax Court Procedure
SEC. 301. JURISDICTION OF TAX COURT OVER COLLECTION DUE PROCESS CASES.
(a) In General.--Paragraph (1) of section 6330(d) (relating to
proceeding after hearing) is amended to read as follows:
``(1) Judicial review of determination.--The person may,
within 30 days of a determination under this section, appeal
such determination to the Tax Court (and the Tax Court shall
have jurisdiction with respect to such matter).''.
(b) Effective Date.--The amendment made by this section shall apply
to determinations made after the date which is 60 days after the date
of the enactment of this Act.
SEC. 302. AUTHORITY FOR SPECIAL TRIAL JUDGES TO HEAR AND DECIDE CERTAIN
EMPLOYMENT STATUS CASES.
(a) In General.--Section 7443A(b) (relating to proceedings which
may be assigned to special trial judges) is amended by striking ``and''
at the end of paragraph (4), by redesignating paragraph (5) as
paragraph (6), and by inserting after paragraph (4) the following new
paragraph:
``(5) any proceeding under section 7436(c), and''.
(b) Conforming Amendment.--Section 7443A(c) is amended by striking
``or (4)'' and inserting ``(4), or (5)''.
(c) Effective Date.--The amendments made by this section shall
apply to any proceeding under section 7436(c) of the Internal Revenue
Code of 1986 with respect to which a decision has not become final (as
determined under section 7481 of such Code) before the date of the
enactment of this Act.
SEC. 303. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY DOCTRINE OF
EQUITABLE RECOUPMENT.
(a) Confirmation of Authority of Tax Court To Apply Doctrine of
Equitable Recoupment.--Section 6214(b) (relating to jurisdiction over
other years and quarters) is amended by adding at the end the following
new sentence: ``Notwithstanding the preceding sentence, the Tax Court
may apply the doctrine of equitable recoupment to the same extent that
it is available in civil tax cases before the district courts of the
United States and the United States Court of Federal Claims.''.
(b) Effective Date.--The amendment made by this section shall apply
to any action or proceeding in the United States Tax Court with respect
to which a decision has not become final (as determined under section
7481 of the Internal Revenue Code of 1986) as of the date of the
enactment of this Act.
SEC. 304. TAX COURT FILING FEE IN ALL CASES COMMENCED BY FILING
PETITION.
(a) In General.--Section 7451 (relating to fee for filing a Tax
Court petition) is amended by striking all that follows ``petition''
and inserting a period.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 305. AMENDMENTS TO APPOINT EMPLOYEES.
(a) In General.--Subsection (a) of section 7471 (relating to Tax
Court employees) is amended to read as follows:
``(a) Appointment and Compensation.--
``(1) Clerk.--The Tax Court may appoint a clerk without
regard to the provisions of title 5, United States Code,
governing appointments in the competitive service. The clerk
shall serve at the pleasure of the Tax Court.
``(2) Law clerks and secretaries.--
``(A) In general.--The judges and special trial
judges of the Tax Court may appoint law clerks and
secretaries, in such numbers as the Tax Court may
approve, without regard to the provisions of title 5,
United States Code, governing appointments in the
competitive service. Any such law clerk or secretary
shall serve at the pleasure of the appointing judge.
``(B) Exemption from federal leave provisions.--A
law clerk appointed under this subsection shall be
exempt from the provisions of subchapter I of chapter
63 of title 5, United States Code. Any unused sick
leave or annual leave standing to the employee's credit
as of the effective date of this subsection shall
remain credited to the employee and shall be available
to the employee upon separation from the Federal
Government.
``(3) Other employees.--The Tax Court may appoint necessary
employees without regard to the provisions of title 5, United
States Code, governing appointments in the competitive service.
Such employees shall be subject to removal by the Tax Court.
``(4) Pay.--The Tax Court may fix and adjust the
compensation for the clerk and other employees of the Tax Court
without regard to the provisions of chapter 51, subchapter III
of chapter 53, or section 5373 of title 5, United States Code.
To the maximum extent feasible, the Tax Court shall compensate
employees at rates consistent with those for employees holding
comparable positions in the judicial branch.
``(5) Programs.--The Tax Court may establish programs for
employee evaluations, incentive awards, flexible work
schedules, premium pay, and resolution of employee grievances.
``(6) Discrimination prohibited.--The Tax Court shall--
``(A) prohibit discrimination on the basis of race,
color, religion, age, sex, national origin, political
affiliation, marital status, or handicapping condition;
and
``(B) promulgate procedures for resolving
complaints of discrimination by employees and
applicants for employment.
``(7) Experts and consultants.--The Tax Court may procure
the services of experts and consultants under section 3109 of
title 5, United States Code.
``(8) Rights to certain appeals reserved.--Notwithstanding
any other provision of law, an individual who is an employee of
the Tax Court on the day before the effective date of this
subsection and who, as of that day, was entitled to--
``(A) appeal a reduction in grade or removal to the
Merit Systems Protection Board under chapter 43 of
title 5, United States Code,
``(B) appeal an adverse action to the Merit Systems
Protection Board under chapter 75 of title 5, United
States Code,
``(C) appeal a prohibited personnel practice
described under section 2302(b) of title 5, United
States Code, to the Merit Systems Protection Board
under chapter 77 of that title,
``(D) make an allegation of a prohibited personnel
practice described under section 2302(b) of title 5,
United States Code, with the Office of Special Counsel
under chapter 12 of that title for action in accordance
with that chapter, or
``(E) file an appeal with the Equal Employment
Opportunity Commission under part 1614 of title 29 of
the Code of Federal Regulations,
shall be entitled to file such appeal or make such an
allegation so long as the individual remains an employee of the
Tax Court.
``(9) Competitive status.--Notwithstanding any other
provision of law, any employee of the Tax Court who has
completed at least 1 year of continuous service under a non-
temporary appointment with the Tax Court acquires a competitive
status for appointment to any position in the competitive
service for which the employee possesses the required
qualifications.
``(10) Merit system principles; prohibited personnel
practices; and preference eligibles.--Any personnel management
system of the Tax Court shall--
``(A) include the principles set forth in section
2301(b) of title 5, United States Code;
``(B) prohibit personnel practices prohibited under
section 2302(b) of title 5, United States Code; and
``(C) in the case of any individual who would be a
preference eligible in the executive branch, the Tax
Court will provide preference for that individual in a
manner and to an extent consistent with preference
accorded to preference eligibles in the executive
branch.''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date the United States Tax Court adopts a personnel
management system after the date of the enactment of this Act.
SEC. 306. EXPANDED USE OF TAX COURT PRACTICE FEE FOR PRO SE TAXPAYERS.
(a) In General.--Section 7475(b) (relating to use of fees) is
amended by inserting before the period at the end ``and to provide
services to pro se taxpayers''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
Subtitle B--Tax Court Pension and Compensation
SEC. 311. ANNUITIES FOR SURVIVORS OF TAX COURT JUDGES WHO ARE
ASSASSINATED.
(a) Eligibility in Case of Death by Assassination.--Subsection (h)
of section 7448 (relating to annuities to surviving spouses and
dependent children of judges) is amended to read as follows:
``(h) Entitlement to Annuity.--
``(1) In general.--
``(A) Annuity to surviving spouse.--If a judge
described in paragraph (2) is survived by a surviving
spouse but not by a dependent child, there shall be
paid to such surviving spouse an annuity beginning with
the day of the death of the judge or following the
surviving spouse's attainment of the age of 50 years,
whichever is the later, in an amount computed as
provided in subsection (m).
``(B) Annuity to child.--If such a judge is
survived by a surviving spouse and a dependent child or
children, there shall be paid to such surviving spouse
an immediate annuity in an amount computed as provided
in subsection (m), and there shall also be paid to or
on behalf of each such child an immediate annuity equal
to the lesser of--
``(i) 10 percent of the average annual
salary of such judge (determined in accordance
with subsection (m)), or
``(ii) 20 percent of such average annual
salary, divided by the number of such children.
``(C) Annuity to surviving dependent children.--If
such a judge leaves no surviving spouse but leaves a
surviving dependent child or children, there shall be
paid to or on behalf of each such child an immediate
annuity equal to the lesser of--
``(i) 20 percent of the average annual
salary of such judge (determined in accordance
with subsection (m)), or
``(ii) 40 percent of such average annual
salary, divided by the number of such children.
``(2) Covered judges.--Paragraph (1) applies to any judge
electing under subsection (b)--
``(A) who dies while a judge after having rendered
at least 5 years of civilian service computed as
prescribed in subsection (n), for the last 5 years of
which the salary deductions provided for by subsection
(c)(1) or the deposits required by subsection (d) have
actually been made or the salary deductions required by
the civil service retirement laws have actually been
made, or
``(B) who dies by assassination after having
rendered less than 5 years of civilian service computed
as prescribed in subsection (n) if, for the period of
such service, the salary deductions provided for by
subsection (c)(1) or the deposits required by
subsection (d) have actually been made.
``(3) Termination of annuity.--
``(A) In the case of a surviving spouse.--The
annuity payable to a surviving spouse under this
subsection shall be terminable upon such surviving
spouse's death or such surviving spouse's remarriage
before attaining age 55.
``(B) In the case of a child.--The annuity payable
to a child under this subsection shall be terminable
upon (i) the child attaining the age of 18 years, (ii)
the child's marriage, or (iii) the child's death,
whichever first occurs, except that if such child is
incapable of self-support by reason of mental or
physical disability the child's annuity shall be
terminable only upon death, marriage, or recovery from
such disability.
``(C) In the case of a dependent child after death
of surviving spouse.--In case of the death of a
surviving spouse of a judge leaving a dependent child
or children of the judge surviving such spouse, the
annuity of such child or children shall be recomputed
and paid as provided in paragraph (1)(C).
``(D) Recomputation.--In any case in which the
annuity of a dependent child is terminated under this
subsection, the annuities of any remaining dependent
child or children, based upon the service of the same
judge, shall be recomputed and paid as though the child
whose annuity was so terminated had not survived such
judge.
``(4) Special rule for assassinated judges.--In the case of
a survivor or survivors of a judge described in paragraph
(2)(B), there shall be deducted from the annuities otherwise
payable under this section an amount equal to--
``(A) the amount of salary deductions provided for
by subsection (c)(1) that would have been made if such
deductions had been made for 5 years of civilian
service computed as prescribed in subsection (n) before
the judge's death, reduced by
``(B) the amount of such salary deductions that
were actually made before the date of the judge's
death.''.
(b) Definition of Assassination.--Section 7448(a) (relating to
definitions) is amended by adding at the end the following new
paragraph:
``(8) The terms `assassinated' and `assassination' mean the
killing of a judge that is motivated by the performance by that
judge of his or her official duties.''.
(c) Determination of Assassination.--Subsection (i) of section 7448
is amended--
(1) by striking the subsection heading and inserting the
following:
``(i) Determinations by Chief Judge.--
``(1) Dependency and disability.--'',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
``(2) Assassination.--The chief judge shall determine
whether the killing of a judge was an assassination, subject to
review only by the Tax Court. The head of any Federal agency
that investigates the killing of a judge shall provide
information to the chief judge that would assist the chief
judge in making such a determination.''.
(d) Computation of Annuities.--Subsection (m) of section 7448 is
amended--
(1) by striking the subsection heading and inserting the
following:
``(m) Computation of Annuities.--
``(1) In general.--'',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
``(2) Assassinated judges.--In the case of a judge who is
assassinated and who has served less than 3 years, the annuity
of the surviving spouse of such judge shall be based upon the
average annual salary received by such judge for judicial
service.''.
(e) Other Benefits.--Section 7448 is amended by adding at the end
the following:
``(u) Other Benefits.--In the case of a judge who is assassinated,
an annuity shall be paid under this section notwithstanding a
survivor's eligibility for or receipt of benefits under chapter 81 of
title 5, United States Code, except that the annuity for which a
surviving spouse is eligible under this section shall be reduced to the
extent that the total benefits paid under this section and chapter 81
of that title for any year would exceed the current salary for that
year of the office of the judge.''.
SEC. 312. COST-OF-LIVING ADJUSTMENTS FOR TAX COURT JUDICIAL SURVIVOR
ANNUITIES.
(a) In General.--Subsection (s) of section 7448 (relating to
annuities to surviving spouses and dependent children of judges) is
amended to read as follows:
``(s) Increases in Survivor Annuities.--Each time that an increase
is made under section 8340(b) of title 5, United States Code, in
annuities payable under subchapter III of chapter 83 of that title,
each annuity payable from the survivors annuity fund under this section
shall be increased at the same time by the same percentage by which
annuities are increased under such section 8340(b).''.
(b) Effective Date.--The amendments made by this section shall
apply with respect to increases made under section 8340(b) of title 5,
United States Code, in annuities payable under subchapter III of
chapter 83 of that title, taking effect after the date of the enactment
of this Act.
SEC. 313. LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES.
(a) In General.--Section 7447 (relating to retirement of judges) is
amended by adding at the end the following new subsection:
``(j) Life Insurance Coverage.--For purposes of chapter 87
of title 5, United States Code (relating to life insurance),
any individual who is serving as a judge of the Tax Court or
who is retired under this section is deemed to be an employee
who is continuing in active employment.''.
(b) Effective Date.--The amendment made by this section shall apply
to any individual serving as a judge of the United States Tax Court or
to any retired judge of the United States Tax Court on the date of the
enactment of this Act.
SEC. 314. COST OF LIFE INSURANCE COVERAGE FOR TAX COURT JUDGES AGE 65
OR OVER.
Section 7472 (relating to expenditures) is amended by inserting
after the first sentence the following new sentence: ``Notwithstanding
any other provision of law, the Tax Court is authorized to pay on
behalf of its judges, age 65 or over, any increase in the cost of
Federal Employees' Group Life Insurance imposed after April 24, 1999,
including any expenses generated by such payments, as authorized by the
chief judge in a manner consistent with such payments authorized by the
Judicial Conference of the United States pursuant to section 604(a)(5)
of title 28, United States Code.''.
SEC. 315. MODIFICATION OF TIMING OF LUMP-SUM PAYMENT OF JUDGES' ACCRUED
ANNUAL LEAVE.
(a) In General.--Section 7443 (relating to membership of the Tax
Court) is amended by adding at the end the following new subsection:
``(h) Lump-Sum Payment of Judges' Accrued Annual Leave.--
Notwithstanding the provisions of sections 5551 and 6301 of title 5,
United States Code, when an individual subject to the leave system
provided in chapter 63 of that title is appointed by the President to
be a judge of the Tax Court, the individual shall be entitled to
receive, upon appointment to the Tax Court, a lump-sum payment from the
Tax Court of the accumulated and accrued current annual leave standing
to the individual's credit as certified by the agency from which the
individual resigned.''.
(b) Effective Date.--The amendment made by this section shall apply
to any judge of the United States Tax Court who has an outstanding
leave balance on the date of the enactment of this Act and to any
individual appointed by the President to serve as a judge of the United
States Tax Court after such date.
SEC. 316. PARTICIPATION OF TAX COURT JUDGES IN THE THRIFT SAVINGS PLAN.
(a) In General.--Section 7447 (relating to retirement of judges),
as amended by this Act, is amended by adding at the end the following
new subsection:
``(k) Thrift Savings Plan.--
``(1) Election to contribute.--
``(A) In general.--A judge of the Tax Court may
elect to contribute to the Thrift Savings Fund
established by section 8437 of title 5, United States
Code.
``(B) Period of election.--An election may be made
under this paragraph only during a period provided
under section 8432(b) of title 5, United States Code,
for individuals subject to chapter 84 of such title.
``(2) Applicability of title 5 provisions.--Except as
otherwise provided in this subsection, the provisions of
subchapters III and VII of chapter 84 of title 5, United States
Code, shall apply with respect to a judge who makes an election
under paragraph (1).
``(3) Special rules.--
``(A) Amount contributed.--The amount contributed
by a judge to the Thrift Savings Fund in any pay period
shall not exceed the maximum percentage of such judge's
basic pay for such period as allowable under section
8440f of title 5, United States Code. Basic pay does
not include any retired pay paid pursuant to this
section.
``(B) Contributions for benefit of judge.--No
contributions may be made for the benefit of a judge
under section 8432(c) of title 5, United States Code.
``(C) Applicability of section 8433(b) of title 5
whether or not judge retires.--Section 8433(b) of title
5, United States Code, applies with respect to a judge
who makes an election under paragraph (1) and who
either--
``(i) retires under subsection (b), or
``(ii) ceases to serve as a judge of the
Tax Court but does not retire under subsection
(b).
Retirement under subsection (b) is a separation from
service for purposes of subchapters III and VII of
chapter 84 of that title.
``(D) Applicability of section 8351(b)(5) of title
5.--The provisions of section 8351(b)(5) of title 5,
United States Code, shall apply with respect to a judge
who makes an election under paragraph (1).
``(E) Exception.--Notwithstanding subparagraph (C),
if any judge retires under this section, or resigns
without having met the age and service requirements set
forth under subsection (b)(2), and such judge's
nonforfeitable account balance is less than an amount
that the Executive Director of the Office of Personnel
Management prescribes by regulation, the Executive
Director shall pay the nonforfeitable account balance
to the participant in a single payment.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act, except that United
States Tax Court judges may only begin to participate in the Thrift
Savings Plan at the next open season beginning after such date.
SEC. 317. EXEMPTION OF TEACHING COMPENSATION OF RETIRED JUDGES FROM
LIMITATION ON OUTSIDE EARNED INCOME.
(a) In General.--Section 7447 (relating to retirement of judges),
as amended by this Act, is amended by adding at the end the following
new subsection:
``(l) Teaching Compensation of Retired Judges.--For purposes of the
limitation under section 501(a) of the Ethics in Government Act of 1978
(5 U.S.C. App.), any compensation for teaching approved under section
502(a)(5) of such Act shall not be treated as outside earned income
when received by a judge of the Tax Court who has retired under
subsection (b) for teaching performed during any calendar year for
which such a judge has met the requirements of subsection (c), as
certified by the chief judge of the Tax Court.''.
(b) Effective Date.--The amendment made by this section shall apply
to any individual serving as a retired judge of the United States Tax
Court on or after the date of the enactment of this Act.
SEC. 318. GENERAL PROVISIONS RELATING TO MAGISTRATE JUDGES OF THE TAX
COURT.
(a) Title of Special Trial Judge Changed to Magistrate Judge of the
Tax Court.--The heading of section 7443A is amended to read as follows:
``SEC. 7443A. MAGISTRATE JUDGES OF THE TAX COURT.''.
(b) Appointment, Tenure, and Removal.--Subsection (a) of section
7443A is amended to read as follows:
``(a) Appointment, Tenure, and Removal.--
``(1) Appointment.--The chief judge may, from time to time,
appoint and reappoint magistrate judges of the Tax Court for a
term of 8 years. The magistrate judges of the Tax Court shall
proceed under such rules as may be promulgated by the Tax
Court.
``(2) Removal.--Removal of a magistrate judge of the Tax
Court during the term for which he or she is appointed shall be
only for incompetency, misconduct, neglect of duty, or physical
or mental disability, but the office of a magistrate judge of
the Tax Court shall be terminated if the judges of the Tax
Court determine that the services performed by the magistrate
judge of the Tax Court are no longer needed. Removal shall not
occur unless a majority of all the judges of the Tax Court
concur in the order of removal. Before any order of removal
shall be entered, a full specification of the charges shall be
furnished to the magistrate judge of the Tax Court, and he or
she shall be accorded by the judges of the Tax Court an
opportunity to be heard on the charges.''.
(c) Salary.--Section 7443A(d) (relating to salary) is amended by
striking ``90'' and inserting ``92''.
(d) Exemption From Federal Leave Provisions.--Section 7443A is
amended by adding at the end the following new subsection:
``(f) Exemption From Federal Leave Provisions.--
``(1) In general.--A magistrate judge of the Tax Court
appointed under this section shall be exempt from the
provisions of subchapter I of chapter 63 of title 5, United
States Code.
``(2) Treatment of unused leave.--
``(A) After service as magistrate judge.--If an
individual who is exempted under paragraph (1) from the
subchapter referred to in such paragraph was previously
subject to such subchapter and, without a break in
service, again becomes subject to such subchapter on
completion of the individual's service as a magistrate
judge, the unused annual leave and sick leave standing
to the individual's credit when such individual was
exempted from this subchapter is deemed to have
remained to the individual's credit.
``(B) Computation of annuity.--In computing an
annuity under section 8339 of title 5, United States
Code, the total service of an individual specified in
subparagraph (A) who retires on an immediate annuity or
dies leaving a survivor or survivors entitled to an
annuity includes, without regard to the limitations
imposed by subsection (f) of such section 8339, the
days of unused sick leave standing to the individual's
credit when such individual was exempted from
subchapter I of chapter 63 of title 5, United States
Code, except that these days will not be counted in
determining average pay or annuity eligibility.
``(C) Lump sum payment.--Any accumulated and
current accrued annual leave or vacation balances
credited to a magistrate judge as of the date of the
enactment of this subsection shall be paid in a lump
sum at the time of separation from service pursuant to
the provisions and restrictions set forth in section
5551 of title 5, United States Code, and related
provisions referred to in such section.''.
(e) Conforming Amendments.--
(1) The heading of subsection (b) of section 7443A is
amended by striking ``Special Trial Judges'' and inserting
``Magistrate Judges of the Tax Court''.
(2) Section 7443A(b) is amended by striking ``special trial
judges of the court'' and inserting ``magistrate judges of the
Tax Court''.
(3) Subsections (c) and (d) of section 7443A are amended by
striking ``special trial judge'' and inserting ``magistrate
judge of the Tax Court'' each place it appears.
(4) Section 7443A(e) is amended by striking ``special trial
judges'' and inserting ``magistrate judges of the Tax Court''.
(5) Section 7456(a) is amended by striking ``special trial
judge'' each place it appears and inserting ``magistrate
judge''.
(6) Subsection (c) of section 7471 is amended--
(A) by striking the subsection heading and
inserting ``Magistrate Judges of the Tax Court.--'',
and
(B) by striking ``special trial judges'' and
inserting ``magistrate judges''.
SEC. 319. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT CHILDREN OF
MAGISTRATE JUDGES OF THE TAX COURT.
(a) Definitions.--Section 7448(a) (relating to definitions), as
amended by this Act, is amended by redesignating paragraphs (5), (6),
(7), and (8) as paragraphs (7), (8), (9), and (10), respectively, and
by inserting after paragraph (4) the following new paragraphs:
``(5) The term `magistrate judge' means a judicial officer
appointed pursuant to section 7443A, including any individual
receiving an annuity under section 7443B, or chapters 83 or 84,
as the case may be, of title 5, United States Code, whether or
not performing judicial duties under section 7443C.
``(6) The term `magistrate judge's salary' means the salary
of a magistrate judge received under section 7443A(d), any
amount received as an annuity under section 7443B, or chapters
83 or 84, as the case may be, of title 5, United States Code,
and compensation received under section 7443C.''.
(b) Election.--Subsection (b) of section 7448 (relating to
annuities to surviving spouses and dependent children of judges) is
amended--
(1) by striking the subsection heading and inserting the
following:
``(b) Election.--
``(1) Judges.--'',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
``(2) Magistrate judges.--Any magistrate judge may by
written election filed with the chief judge bring himself or
herself within the purview of this section. Such election shall
be filed not later than the later of 6 months after--
``(A) 6 months after the date of the enactment of
this paragraph,
``(B) the date the judge takes office, or
``(C) the date the judge marries.''.
(c) Conforming Amendments.--
(1) The heading of section 7448 is amended by inserting
``and magistrate judges'' after ``judges''.
(2) The item relating to section 7448 in the table of
sections for part I of subchapter C of chapter 76 is amended by
inserting ``and magistrate judges'' after ``judges''.
(3) Subsections (c)(1), (d), (f), (g), (h), (j), (m), (n),
and (u) of section 7448, as amended by this Act, are each
amended--
(A) by inserting ``or magistrate judge'' after
``judge'' each place it appears other than in the
phrase ``chief judge'', and
(B) by inserting ``or magistrate judge's'' after
``judge's'' each place it appears.
(4) Section 7448(c) is amended--
(A) in paragraph (1), by striking ``Tax Court
judges'' and inserting ``Tax Court judicial officers'',
(B) in paragraph (2)--
(i) in subparagraph (A), by inserting ``and
section 7443A(d)'' after ``(a)(4)'', and
(ii) in subparagraph (B), by striking
``subsection (a)(4)'' and inserting
``subsections (a)(4) and (a)(6)''.
(5) Section 7448(g) is amended by inserting ``or section
7443B'' after ``section 7447'' each place it appears, and by
inserting ``or an annuity'' after ``retired pay''.
(6) Section 7448(j)(1) is amended--
(A) in subparagraph (A), by striking ``service or
retired'' and inserting ``service, retired'', and by
inserting ``, or receiving any annuity under section
7443B or chapters 83 or 84 of title 5, United States
Code,'' after ``section 7447'', and
(B) in the last sentence, by striking ``subsections
(a)(6) and (7)'' and inserting ``paragraphs (8) and (9)
of subsection (a)''.
(7) Section 7448(m)(1), as amended by this Act, is
amended--
(A) by inserting ``or any annuity under section
7443B or chapters 83 or 84 of title 5, United States
Code'' after ``7447(d)'', and
(B) by inserting ``or 7443B(m)(1)(B) after
``7447(f)(4)''.
(8) Section 7448(n) is amended by inserting ``his years of
service pursuant to any appointment under section 7443A,''
after ``of the Tax Court,''.
(9) Section 3121(b)(5)(E) is amended by inserting ``or
magistrate judge'' before ``of the United States Tax Court''.
(10) Section 210(a)(5)(E) of the Social Security Act is
amended by inserting ``or magistrate judge'' before ``of the
United States Tax Court''.
SEC. 320. RETIREMENT AND ANNUITY PROGRAM.
(a) Retirement and Annuity Program.--Part I of subchapter C of
chapter 76 is amended by inserting after section 7443A the following
new section:
``SEC. 7443B. RETIREMENT FOR MAGISTRATE JUDGES OF THE TAX COURT.
``(a) Retirement Based on Years of Service.--A magistrate judge of
the Tax Court to whom this section applies and who retires from office
after attaining the age of 65 years and serving at least 14 years,
whether continuously or otherwise, as such magistrate judge shall,
subject to subsection (f), be entitled to receive, during the remainder
of the magistrate judge's lifetime, an annuity equal to the salary
being received at the time the magistrate judge leaves office.
``(b) Retirement Upon Failure of Reappointment.--A magistrate judge
of the Tax Court to whom this section applies who is not reappointed
following the expiration of the term of office of such magistrate
judge, and who retires upon the completion of the term shall, subject
to subsection (f), be entitled to receive, upon attaining the age of 65
years and during the remainder of such magistrate judge's lifetime, an
annuity equal to that portion of the salary being received at the time
the magistrate judge leaves office which the aggregate number of years
of service, not to exceed 14, bears to 14, if--
``(1) such magistrate judge has served at least 1 full term
as a magistrate judge, and
``(2) not earlier than 9 months before the date on which
the term of office of such magistrate judge expires, and not
later than 6 months before such date, such magistrate judge
notified the chief judge of the Tax Court in writing that such
magistrate judge was willing to accept reappointment to the
position in which such magistrate judge was serving.
``(c) Service of at Least 8 Years.--A magistrate judge of the Tax
Court to whom this section applies and who retires after serving at
least 8 years, whether continuously or otherwise, as such a magistrate
judge shall, subject to subsection (f), be entitled to receive, upon
attaining the age of 65 years and during the remainder of the
magistrate judge's lifetime, an annuity equal to that portion of the
salary being received at the time the magistrate judge leaves office
which the aggregate number of years of service, not to exceed 14, bears
to 14. Such annuity shall be reduced by \1/6\ of 1 percent for each
full month such magistrate judge was under the age of 65 at the time
the magistrate judge left office, except that such reduction shall not
exceed 20 percent.
``(d) Retirement for Disability.--A magistrate judge of the Tax
Court to whom this section applies, who has served at least 5 years,
whether continuously or otherwise, as such a magistrate judge, and who
retires or is removed from office upon the sole ground of mental or
physical disability shall, subject to subsection (f), be entitled to
receive, during the remainder of the magistrate judge's lifetime, an
annuity equal to 40 percent of the salary being received at the time of
retirement or removal or, in the case of a magistrate judge who has
served for at least 10 years, an amount equal to that proportion of the
salary being received at the time of retirement or removal which the
aggregate number of years of service, not to exceed 14, bears to 14.
``(e) Cost-of-Living Adjustments.--A magistrate judge of the Tax
Court who is entitled to an annuity under this section is also entitled
to a cost-of-living adjustment in such annuity, calculated and payable
in the same manner as adjustments under section 8340(b) of title 5,
United States Code, except that any such annuity, as increased under
this subsection, may not exceed the salary then payable for the
position from which the magistrate judge retired or was removed.
``(f) Election; Annuity in Lieu of Other Annuities.--
``(1) In general.--A magistrate judge of the Tax Court
shall be entitled to an annuity under this section if the
magistrate judge elects an annuity under this section by
notifying the chief judge of the Tax Court not later than the
later of--
``(A) 5 years after the magistrate judge of the Tax
Court begins judicial service, or
``(B) 5 years after the date of the enactment of
this subsection.
Such notice shall be given in accordance with procedures
prescribed by the Tax Court.
``(2) Annuity in lieu of other annuity.--A magistrate judge
who elects to receive an annuity under this section shall not
be entitled to receive--
``(A) any annuity to which such magistrate judge
would otherwise have been entitled under subchapter III
of chapter 83, or under chapter 84 (except for
subchapters III and VII), of title 5, United States
Code, for service performed as a magistrate or
otherwise,
``(B) an annuity or salary in senior status or
retirement under section 371 or 372 of title 28, United
States Code,
``(C) retired pay under section 7447, or
``(D) retired pay under section 7296 of title 38,
United States Code.
``(3) Coordination with title 5.--A magistrate judge of the
Tax Court who elects to receive an annuity under this section--
``(A) shall not be subject to deductions and
contributions otherwise required by section 8334(a) of
title 5, United States Code,
``(B) shall be excluded from the operation of
chapter 84 (other than subchapters III and VII) of such
title 5, and
``(C) is entitled to a lump-sum credit under
section 8342(a) or 8424 of such title 5, as the case
may be.
``(g) Calculation of Service.--For purposes of calculating an
annuity under this section--
``(1) service as a magistrate judge of the Tax Court to
whom this section applies may be credited, and
``(2) each month of service shall be credited as \1/12\ of
a year, and the fractional part of any month shall not be
credited.
``(h) Covered Positions and Service.--This section applies to any
magistrate judge of the Tax Court or special trial judge of the Tax
Court appointed under this subchapter, but only with respect to service
as such a magistrate judge or special trial judge after a date not
earlier than 9\1/2\ years before the date of the enactment of this
subsection.
``(i) Payments Pursuant to Court Order.--
``(1) In general.--Payments under this section which would
otherwise be made to a magistrate judge of the Tax Court based
upon his or her service shall be paid (in whole or in part) by
the chief judge of the Tax Court to another person if and to
the extent expressly provided for in the terms of any court
decree of divorce, annulment, or legal separation, or the terms
of any court order or court-approved property settlement
agreement incident to any court decree of divorce, annulment,
or legal separation. Any payment under this paragraph to a
person bars recovery by any other person.
``(2) Requirements for payment.--Paragraph (1) shall apply
only to payments made by the chief judge of the Tax Court after
the date of receipt by the chief judge of written notice of
such decree, order, or agreement, and such additional
information as the chief judge may prescribe.
``(3) Court defined.--For purposes of this subsection, the
term `court' means any court of any State, the District of
Columbia, the Commonwealth of Puerto Rico, Guam, the Northern
Mariana Islands, or the Virgin Islands, and any Indian tribal
court or courts of Indian offense.
``(j) Deductions, Contributions, and Deposits.--
``(1) Deductions.--Beginning with the next pay period after
the chief judge of the Tax Court receives a notice under
subsection (f) that a magistrate judge of the Tax Court has
elected an annuity under this section, the chief judge shall
deduct and withhold 1 percent of the salary of such magistrate
judge. Amounts shall be so deducted and withheld in a manner
determined by the chief judge. Amounts deducted and withheld
under this subsection shall be deposited in the Treasury of the
United States to the credit of the Tax Court Judicial Officers'
Retirement Fund. Deductions under this subsection from the
salary of a magistrate judge shall terminate upon the
retirement of the magistrate judge or upon completion of 14
years of service for which contributions under this section
have been made, whether continuously or otherwise, as
calculated under subsection (g), whichever occurs first.
``(2) Consent to deductions; discharge of claims.--Each
magistrate judge of the Tax Court who makes an election under
subsection (f) shall be deemed to consent and agree to the
deductions from salary which are made under paragraph (1).
Payment of such salary less such deductions (and any deductions
made under section 7448) is a full and complete discharge and
acquittance of all claims and demands for all services rendered
by such magistrate judge during the period covered by such
payment, except the right to those benefits to which the
magistrate judge is entitled under this section (and section
7448).
``(k) Deposits for Prior Service.--Each magistrate judge of the Tax
Court who makes an election under subsection (f) may deposit, for
service performed before such election for which contributions may be
made under this section, an amount equal to 1 percent of the salary
received for that service. Credit for any period covered by that
service may not be allowed for purposes of an annuity under this
section until a deposit under this subsection has been made for that
period.
``(l) Individual Retirement Records.--The amounts deducted and
withheld under subsection (j), and the amounts deposited under
subsection (k), shall be credited to individual accounts in the name of
each magistrate judge of the Tax Court from whom such amounts are
received, for credit to the Tax Court Judicial Officers' Retirement
Fund.
``(m) Annuities Affected in Certain Cases.--
``(1) 1-year forfeiture for failure to perform judicial
duties.--Subject to paragraph (3), any magistrate judge of the
Tax Court who retires under this section and who fails to
perform judicial duties required of such individual by section
7443C shall forfeit all rights to an annuity under this section
for a 1-year period which begins on the 1st day on which such
individual fails to perform such duties.
``(2) Permanent forfeiture of retired pay where certain
non-government services performed.--Subject to paragraph (3),
any magistrate judge of the Tax Court who retires under this
section and who thereafter performs (or supervises or directs
the performance of) legal or accounting services in the field
of Federal taxation for the individual's client, the
individual's employer, or any of such employer's clients, shall
forfeit all rights to an annuity under this section for all
periods beginning on or after the first day on which the
individual performs (or supervises or directs the performance
of) such services. The preceding sentence shall not apply to
any civil office or employment under the Government of the
United States.
``(3) Forfeitures not to apply where individual elects to
freeze amount of annuity.--
``(A) In general.--If a magistrate judge of the Tax
Court makes an election under this paragraph--
``(i) paragraphs (1) and (2) (and section
7443C) shall not apply to such magistrate judge
beginning on the date such election takes
effect, and
``(ii) the annuity payable under this
section to such magistrate judge, for periods
beginning on or after the date such election
takes effect, shall be equal to the annuity to
which such magistrate judge is entitled on the
day before such effective date.
``(B) Election requirements.--An election under
subparagraph (A)--
``(i) may be made by a magistrate judge of
the Tax Court eligible for retirement under
this section, and
``(ii) shall be filed with the chief judge
of the Tax Court.
Such an election, once it takes effect, shall be
irrevocable.
``(C) Effective date of election.--Any election
under subparagraph (A) shall take effect on the first
day of the first month following the month in which the
election is made.
``(4) Accepting other employment.--Any magistrate judge of
the Tax Court who retires under this section and thereafter
accepts compensation for civil office or employment under the
United States Government (other than for the performance of
functions as a magistrate judge of the Tax Court under section
7443C) shall forfeit all rights to an annuity under this
section for the period for which such compensation is received.
For purposes of this paragraph, the term `compensation'
includes retired pay or salary received in retired status.
``(n) Lump-Sum Payments.--
``(1) Eligibility.--
``(A) In general.--Subject to paragraph (2), an
individual who serves as a magistrate judge of the Tax
Court and--
``(i) who leaves office and is not
reappointed as a magistrate judge of the Tax
Court for at least 31 consecutive days,
``(ii) who files an application with the
chief judge of the Tax Court for payment of a
lump-sum credit,
``(iii) is not serving as a magistrate
judge of the Tax Court at the time of filing of
the application, and
``(iv) will not become eligible to receive
an annuity under this section within 31 days
after filing the application,
is entitled to be paid the lump-sum credit. Payment of
the lump-sum credit voids all rights to an annuity
under this section based on the service on which the
lump-sum credit is based, until that individual resumes
office as a magistrate judge of the Tax Court.
``(B) Payment to survivors.--Lump-sum benefits
authorized by subparagraphs (C), (D), and (E) of this
paragraph shall be paid to the person or persons
surviving the magistrate judge of the Tax Court and
alive on the date title to the payment arises, in the
order of precedence set forth in subsection (o) of
section 376 of title 28, United States Code, and in
accordance with the last 2 sentences of paragraph (1)
of that subsection. For purposes of the preceding
sentence, the term `judicial official' as used in
subsection (o) of such section 376 shall be deemed to
mean `magistrate judge of the Tax Court' and the terms
`Administrative Office of the United States Courts' and
`Director of the Administrative Office of the United
States Courts' shall be deemed to mean `chief judge of
the Tax Court'.
``(C) Payment upon death of judge before receipt of
annuity.--If a magistrate judge of the Tax Court dies
before receiving an annuity under this section, the
lump-sum credit shall be paid.
``(D) Payment of annuity remainder.--If all annuity
rights under this section based on the service of a
deceased magistrate judge of the Tax Court terminate
before the total annuity paid equals the lump-sum
credit, the difference shall be paid.
``(E) Payment upon death of judge during receipt of
annuity.--If a magistrate judge of the Tax Court who is
receiving an annuity under this section dies, any
accrued annuity benefits remaining unpaid shall be
paid.
``(F) Payment upon termination.--Any accrued
annuity benefits remaining unpaid on the termination,
except by death, of the annuity of a magistrate judge
of the Tax Court shall be paid to that individual.
``(G) Payment upon accepting other employment.--
Subject to paragraph (2), a magistrate judge of the Tax
Court who forfeits rights to an annuity under
subsection (m)(4) before the total annuity paid equals
the lump-sum credit shall be entitled to be paid the
difference if the magistrate judge of the Tax Court
files an application with the chief judge of the Tax
Court for payment of that difference. A payment under
this subparagraph voids all rights to an annuity on
which the payment is based.
``(2) Spouses and former spouses.--
``(A) In general.--Payment of the lump-sum credit
under paragraph (1)(A) or a payment under paragraph
(1)(G)--
``(i) may be made only if any current
spouse and any former spouse of the magistrate
judge of the Tax Court are notified of the
magistrate judge's application, and
``(ii) shall be subject to the terms of a
court decree of divorce, annulment, or legal
separation, or any court or court approved
property settlement agreement incident to such
decree, if--
``(I) the decree, order, or
agreement expressly relates to any
portion of the lump-sum credit or other
payment involved, and
``(II) payment of the lump-sum
credit or other payment would
extinguish entitlement of the
magistrate judge's spouse or former
spouse to any portion of an annuity
under subsection (i).
``(B) Notification.--Notification of a spouse or
former spouse under this paragraph shall be made in
accordance with such procedures as the chief judge of
the Tax Court shall prescribe. The chief judge may
provide under such procedures that subparagraph (A)(i)
may be waived with respect to a spouse or former spouse
if the magistrate judge establishes to the satisfaction
of the chief judge that the whereabouts of such spouse
or former spouse cannot be determined.
``(C) Resolution of 2 or more orders.--The chief
judge shall prescribe procedures under which this
paragraph shall be applied in any case in which the
chief judge receives 2 or more orders or decrees
described in subparagraph (A).
``(3) Definition.--For purposes of this subsection, the
term `lump-sum credit' means the unrefunded amount consisting
of--
``(A) retirement deductions made under this section
from the salary of a magistrate judge of the Tax Court,
``(B) amounts deposited under subsection (k) by a
magistrate judge of the Tax Court covering earlier
service, and
``(C) interest on the deductions and deposits
which, for any calendar year, shall be equal to the
overall average yield to the Tax Court Judicial
Officers' Retirement Fund during the preceding fiscal
year from all obligations purchased by the Secretary
during such fiscal year under subsection (o); but does
not include interest--
``(i) if the service covered thereby
aggregates 1 year or less, or
``(ii) for the fractional part of a month
in the total service.
``(o) Tax Court Judicial Officers' Retirement Fund.--
``(1) Establishment.--There is established in the Treasury
a fund which shall be known as the `Tax Court Judicial
Officers' Retirement Fund'. Amounts in the Fund are authorized
to be appropriated for the payment of annuities, refunds, and
other payments under this section.
``(2) Investment of fund.--The Secretary shall invest, in
interest bearing securities of the United States, such
currently available portions of the Tax Court Judicial
Officers' Retirement Fund as are not immediately required for
payments from the Fund. The income derived from these
investments constitutes a part of the Fund.
``(3) Unfunded liability.--
``(A) In general.--There are authorized to be
appropriated to the Tax Court Judicial Officers'
Retirement Fund amounts required to reduce to zero the
unfunded liability of the Fund.
``(B) Unfunded liability.--For purposes of
subparagraph (A), the term `unfunded liability' means
the estimated excess, determined on an annual basis in
accordance with the provisions of section 9503 of title
31, United States Code, of the present value of all
benefits payable from the Tax Court Judicial Officers'
Retirement Fund over the sum of--
``(i) the present value of deductions to be
withheld under this section from the future
basic pay of magistrate judges of the Tax
Court, plus
``(ii) the balance in the Fund as of the
date the unfunded liability is determined.
``(p) Participation in Thrift Savings Plan.--
``(1) Election to contribute.--
``(A) In general.--A magistrate judge of the Tax
Court who elects to receive an annuity under this
section or under section 321 of the Tax Administration
Good Government Act may elect to contribute an amount
of such individual's basic pay to the Thrift Savings
Fund established by section 8437 of title 5, United
States Code.
``(B) Period of election.--An election may be made
under this paragraph only during a period provided
under section 8432(b) of title 5, United States Code,
for individuals subject to chapter 84 of such title.
``(2) Applicability of title 5 provisions.--Except as
otherwise provided in this subsection, the provisions of
subchapters III and VII of chapter 84 of title 5, United States
Code, shall apply with respect to a magistrate judge who makes
an election under paragraph (1).
``(3) Special rules.--
``(A) Amount contributed.--The amount contributed
by a magistrate judge to the Thrift Savings Fund in any
pay period shall not exceed the maximum percentage of
such judge's basic pay for such pay period as allowable
under section 8440f of title 5, United States Code.
``(B) Contributions for benefit of judge.--No
contributions may be made for the benefit of a
magistrate judge under section 8432(c) of title 5,
United States Code.
``(C) Applicability of section 8433(b) of title
5.--Section 8433(b) of title 5, United States Code,
applies with respect to a magistrate judge who makes an
election under paragraph (1) and--
``(i) who retires entitled to an immediate
annuity under this section (including a
disability annuity under subsection (d) of this
section) or section 321 of the Tax
Administration Good Government Act,
``(ii) who retires before attaining age 65
but is entitled, upon attaining age 65, to an
annuity under this section or section 321 of
the Tax Administration Good Government Act, or
``(iii) who retires before becoming
entitled to an immediate annuity, or an annuity
upon attaining age 65, under this section or
section 321 of the Tax Administration Good
Government Act.
``(D) Separation from service.--With respect to a
magistrate judge to whom this subsection applies,
retirement under this section or section 321 of the Tax
Administration Good Government Act is a separation from
service for purposes of subchapters III and VII of
chapter 84 of title 5, United States Code.
``(4) Definitions.--For purposes of this subsection, the
terms `retirement' and `retire' include removal from office
under section 7443A(a)(2) on the sole ground of mental or
physical disability.
``(5) Offset.--In the case of a magistrate judge who
receives a distribution from the Thrift Savings Fund and who
later receives an annuity under this section, that annuity
shall be offset by an amount equal to the amount which
represents the Government's contribution to that person's
Thrift Savings Account, without regard to earnings attributable
to that amount. Where such an offset would exceed 50 percent of
the annuity to be received in the first year, the offset may be
divided equally over the first 2 years in which that person
receives the annuity.
``(6) Exception.--Notwithstanding clauses (i) and (ii) of
paragraph (3)(C), if any magistrate judge retires under
circumstances making such magistrate judge eligible to make an
election under subsection (b) of section 8433 of title 5,
United States Code, and such magistrate judge's nonforfeitable
account balance is less than an amount that the Executive
Director of the Office of Personnel Management prescribes by
regulation, the Executive Director shall pay the nonforfeitable
account balance to the participant in a single payment.''.
(b) Conforming Amendment.--The table of section for part I of
subchapter C of chapter 76 is amended by inserting after the item
relating to section 7443A the following new item:
``Sec. 7443B. Retirement for magistrate
judges of the Tax Court.''.
SEC. 321. INCUMBENT MAGISTRATE JUDGES OF THE TAX COURT.
(a) Retirement Annuity Under Title 5 and Section 7443B of the
Internal Revenue Code of 1986.--A magistrate judge of the United States
Tax Court in active service on the date of the enactment of this Act
shall, subject to subsection (b), be entitled, in lieu of the annuity
otherwise provided under the amendments made by this title, to--
(1) an annuity under subchapter III of chapter 83, or under
chapter 84 (except for subchapters III and VII), of title 5,
United States Code, as the case may be, for creditable service
before the date on which service would begin to be credited for
purposes of paragraph (2), and
(2) an annuity calculated under subsection (b) or (c) and
subsection (g) of section 7443B of the Internal Revenue Code of
1986, as added by this Act, for any service as a magistrate
judge of the United States Tax Court or special trial judge of
the United States Tax Court but only with respect to service as
such a magistrate judge or special trial judge after a date not
earlier than 9\1/2\ years prior to the date of the enactment of
this Act (as specified in the election pursuant to subsection
(b)) for which deductions and deposits are made under
subsections (j) and (k) of such section 7443B, as applicable,
without regard to the minimum number of years of service as
such a magistrate judge of the United States Tax Court, except
that--
(A) in the case of a magistrate judge who retired
with less than 8 years of service, the annuity under
subsection (c) of such section 7443B shall be equal to
that proportion of the salary being received at the
time the magistrate judge leaves office which the years
of service bears to 14, subject to a reduction in
accordance with subsection (c) of such section 7443B if
the magistrate judge is under age 65 at the time he or
she leaves office, and
(B) the aggregate amount of the annuity initially
payable on retirement under this subsection may not
exceed the rate of pay for the magistrate judge which
is in effect on the day before the retirement becomes
effective.
(b) Filing of Notice of Election.--A magistrate judge of the United
States Tax Court shall be entitled to an annuity under this section
only if the magistrate judge files a notice of that election with the
chief judge of the United States Tax Court specifying the date on which
service would begin to be credited under section 7443B of the Internal
Revenue Code of 1986, as added by this Act, in lieu of chapter 83 or
chapter 84 of title 5, United States Code. Such notice shall be filed
in accordance with such procedures as the chief judge of the United
States Tax Court shall prescribe.
(c) Lump-Sum Credit Under Title 5.--A magistrate judge of the
United States Tax Court who makes an election under subsection (b)
shall be entitled to a lump-sum credit under section 8342 or 8424 of
title 5, United States Code, as the case may be, for any service which
is covered under section 7443B of the Internal Revenue Code of 1986, as
added by this Act, pursuant to that election, and with respect to which
any contributions were made by the magistrate judge under the
applicable provisions of title 5, United States Code.
(d) Recall.--With respect to any magistrate judge of the United
States Tax Court receiving an annuity under this section who is
recalled to serve under section 7443C of the Internal Revenue Code of
1986, as added by this Act--
(1) the amount of compensation which such recalled
magistrate judge receives under such section 7443C shall be
calculated on the basis of the annuity received under this
section, and
(2) such recalled magistrate judge of the United States Tax
Court may serve as a reemployed annuitant to the extent
otherwise permitted under title 5, United States Code.
Section 7443B(m)(4) of the Internal Revenue Code of 1986, as added by
this Act, shall not apply with respect to service as a reemployed
annuitant described in paragraph (2).
SEC. 322. PROVISIONS FOR RECALL.
(a) In General.--Part I of subchapter C of chapter 76, as amended
by this Act, is amended by inserting after section 7443B the following
new section:
``SEC. 7443C. RECALL OF MAGISTRATE JUDGES OF THE TAX COURT.
``(a) Recalling of Retired Magistrate Judges.--Any individual who
has retired pursuant to section 7443B or the applicable provisions of
title 5, United States Code, upon reaching the age and service
requirements established therein, may at or after retirement be called
upon by the chief judge of the Tax Court to perform such judicial
duties with the Tax Court as may be requested of such individual for
any period or periods specified by the chief judge; except that in the
case of any such individual--
``(1) the aggregate of such periods in any 1 calendar year
shall not (without such individual's consent) exceed 90
calendar days, and
``(2) such individual shall be relieved of performing such
duties during any period in which illness or disability
precludes the performance of such duties.
Any act, or failure to act, by an individual performing judicial duties
pursuant to this subsection shall have the same force and effect as if
it were the act (or failure to act) of a magistrate judge of the Tax
Court.
``(b) Compensation.--For the year in which a period of recall
occurs, the magistrate judge shall receive, in addition to the annuity
provided under the provisions of section 7443B or under the applicable
provisions of title 5, United States Code, an amount equal to the
difference between that annuity and the current salary of the office to
which the magistrate judge is recalled. The annuity of the magistrate
judge who completes that period of service, who is not recalled in a
subsequent year, and who retired under section 7443B, shall be equal to
the salary in effect at the end of the year in which the period of
recall occurred for the office from which such individual retired.
``(c) Rulemaking Authority.--The provisions of this section may be
implemented under such rules as may be promulgated by the Tax Court.''.
(b) Conforming Amendment.--The table of sections for part I of
subchapter C of chapter 76, as amended by this Act, is amended by
inserting after the item relating to section 7443B the following new
item:
``Sec. 7443C. Recall of magistrate judges
of the Tax Court.''.
SEC. 323. EFFECTIVE DATE.
Except as otherwise provided, the amendments made by this subtitle
shall take effect on the date of the enactment of this Act.
TITLE IV--CONFIDENTIALITY AND DISCLOSURE
SEC. 401. CLARIFICATION OF DEFINITION OF CHURCH TAX INQUIRY.
(a) In General.--Subsection (i) of section 7611 (relating to
section not to apply to criminal investigations, etc.) is amended by
striking ``or'' at the end of paragraph (4), by striking the period at
the end of paragraph (5) and inserting ``, or'', and by inserting after
paragraph (5) the following:
``(6) information provided by the Secretary related to the
standards for exemption from tax under this title and the
requirements under this title relating to unrelated business
taxable income.''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 402. COLLECTION ACTIVITIES WITH RESPECT TO JOINT RETURN
DISCLOSABLE TO EITHER SPOUSE BASED ON ORAL REQUEST.
(a) In General.--Paragraph (8) of section 6103(e) (relating to
disclosure of collection activities with respect to joint return) is
amended by striking ``in writing'' the first place it appears.
(b) Elimination of Reporting Requirement.--Section 7803(d)(1)
(relating to annual reporting), as amended by this Act, is amended by
striking subparagraph (B) and by redesignating subparagraphs (C), (D),
(E), (F), (G), and (H) as subparagraphs (B), (C), (D), (E), (F), and
(G), respectively.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to requests made after the date of the enactment of
this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to reports made after the date of the enactment of
this Act.
SEC. 403. TAXPAYER REPRESENTATIVES NOT SUBJECT TO EXAMINATION ON SOLE
BASIS OF REPRESENTATION OF TAXPAYERS.
(a) In General.--Paragraph (1) of section 6103(h) (relating to
disclosure to certain Federal officers and employees for purposes of
tax administration, etc.) is amended--
(1) by striking ``treasury.--Returns and return
information'' and inserting ``treasury.--
``(A) In general.--Returns and return
information'', and
(2) by adding at the end the following new subparagraph:
``(B) Taxpayer representatives.--Notwithstanding
subparagraph (A), the return or return information of
the representative of a taxpayer whose return is being
examined by an officer or employee of the Department of
the Treasury shall not be open to inspection by such
officer or employee on the sole basis of the
representative's relationship to the taxpayer unless a
supervisor of such officer or employee has approved the
inspection of the return or return information of such
representative on a basis other than by reason of such
relationship.''.
(b) Effective Date.--The amendments made by this section shall take
effect after the date of the enactment of this Act.
SEC. 404. PROHIBITION OF DISCLOSURE OF TAXPAYER IDENTIFICATION
INFORMATION WITH RESPECT TO DISCLOSURE OF ACCEPTED
OFFERS-IN-COMPROMISE.
(a) In General.--Paragraph (1) of section 6103(k) (relating to
disclosure of certain returns and return information for tax
administrative purposes) is amended by inserting ``(other than the
taxpayer's TIN)'' after ``Return information''.
(b) Effective Date.--The amendment made by this section shall apply
to disclosures made after the date of the enactment of this Act.
SEC. 405. COMPLIANCE BY CONTRACTORS WITH CONFIDENTIALITY SAFEGUARDS.
(a) In General.--Section 6103(p) (relating to State law
requirements) is amended by adding at the end the following new
paragraph:
``(9) Disclosure to contractors and other agents.--
Notwithstanding any other provision of this section, no return
or return information shall be disclosed to any contractor or
other agent of a Federal, State, or local agency unless such
agency, to the satisfaction of the Secretary--
``(A) has requirements in effect which require each
such contractor or other agent which would have access
to returns or return information to provide safeguards
(within the meaning of paragraph (4)) to protect the
confidentiality of such returns or return information,
``(B) agrees to conduct an on-site review every 3
years (mid-point review in the case of contracts or
agreements of less than 1 year in duration) of each
contractor or other agent to determine compliance with
such requirements,
``(C) submits the findings of the most recent
review conducted under subparagraph (B) to the
Secretary as part of the report required by paragraph
(4)(E), and
``(D) certifies to the Secretary for the most
recent annual period that such contractor or other
agent is in compliance with all such requirements.
The certification required by subparagraph (D) shall include
the name and address of each contractor and other agent, a
description of the contract or agreement with such contractor
or other agent, and the duration of such contract or agreement.
The requirements of this paragraph shall not apply to
disclosures pursuant to subsection (n) for purposes of Federal
tax administration.''.
(b) Conforming Amendment.--Subparagraph (B) of section 6103(p)(8)
is amended by inserting ``or paragraph (9)'' after ``subparagraph
(A)''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to disclosures made after the date of the enactment of
this Act.
(2) Certifications.--The first certification under section
6103(p)(9)(D) of the Internal Revenue Code of 1986, as added by
subsection (a), shall be made with respect to the portion of
calendar year 2004 following the date of the enactment of this
Act.
SEC. 406. HIGHER STANDARDS FOR REQUESTS FOR AND CONSENTS TO DISCLOSURE.
(a) In General.--Subsection (c) of section 6103 (relating to
disclosure of returns and return information to designee of taxpayer)
is amended--
(1) by striking ``Taxpayer.--The Secretary'' and inserting
``Taxpayer.--
``(1) In general.--The Secretary'', and
(2) by adding at the end the following new paragraphs:
``(2) Restrictions on persons obtaining information.--The
return of any taxpayer, or return information with respect to
such taxpayer, disclosed to a person or persons under paragraph
(1) for a purpose specified in writing, electronically, or
orally may be disclosed or used by such person or persons only
for the purpose of, and to the extent necessary in,
accomplishing the purpose for disclosure specified and shall
not be disclosed or used for any other purpose.
``(3) Requirements for form prescribed by secretary.--For
purposes of this subsection, the Secretary shall prescribe a
form for written requests and consents which shall--
``(A) contain a warning, prominently displayed,
informing the taxpayer that the form should not be
signed unless it is completed,
``(B) state that if the taxpayer believes there is
an attempt to coerce him to sign an incomplete or blank
form, the taxpayer should report the matter to the
Treasury Inspector General for Tax Administration, and
``(C) contain the address and telephone number of
the Treasury Inspector General for Tax Administration.
``(4) Cross reference.--
``For provision providing for civil
damages for violation of paragraph (2), see section 7431(i).''.
(b) Civil Damages.--Section 7431 (relating to civil damages for
unauthorized inspection or disclosure of returns and return
information) is amended by adding at the end the following new
subsection:
``(i) Disclosure or Use of Returns and Return Information Obtained
Under Subsection 6103(c).--Disclosure or use of returns or return
information obtained under section 6103(c) other than for the purpose
of, and to the extent necessary in, accomplishing the purpose for
disclosure specified in writing, electronically, or orally, shall be
treated as a violation of section 6103(a).''.
(c) Report.--Not later than 18 months after the date of the
enactment of this Act, the Secretary of the Treasury shall submit a
report to the Congress on compliance with the designation and
certification requirements applicable to requests for or consent to
disclosure of returns and return information under section 6103(c) of
the Internal Revenue Code of 1986, as amended by subsection (a). Such
report shall--
(1) evaluate (on the basis of random sampling) whether--
(A) the amendment made by subsection (a) is
achieving the purposes of this section;
(B) requesters and submitters for such disclosure
are continuing to evade the purposes of this section
and, if so, how; and
(C) the sanctions for violations of such
requirements are adequate; and
(2) include such recommendations that the Secretary of the
Treasury considers necessary or appropriate to better achieve
the purposes of this section.
(d) Sunset of Existing Consents.--Notwithstanding any other
provision of law, any request for or consent to disclose any return or
return information under section 6103(c) of the Internal Revenue Code
of 1986 made before the date of the enactment of this Act shall remain
in effect until the earlier of the date such request or consent is
otherwise terminated or the date which is 3 years after such date of
enactment.
(e) Effective Date.--The amendments made by this section shall
apply to requests and consents made after the date which is 3 months
after the date of the enactment of this Act.
SEC. 407. CIVIL DAMAGES FOR UNAUTHORIZED DISCLOSURE OR INSPECTION.
(a) Notice to Taxpayer.--Subsection (e) of section 7431 (relating
to notification of unlawful inspection and disclosure) is amended by
adding at the end the following: ``The Secretary shall also notify such
taxpayer if the Internal Revenue Service or, upon notice to the
Secretary by a Federal or State agency, if such Federal or State
agency, proposes an administrative determination as to disciplinary or
adverse action against an employee arising from the employee's
unauthorized inspection or disclosure of the taxpayer's return or
return information. The notice described in this subsection shall
include the date of the inspection or disclosure and the rights of the
taxpayer under such administrative determination.''.
(b) Exhaustion of Administrative Remedies Required.--Section 7431,
as amended by this Act, is amended by adding at the end the following
new subsection:
``(j) Exhaustion of Administrative Remedies Required.--A judgment
for damages shall not be awarded under subsection (c) unless the court
determines that the plaintiff has exhausted the administrative remedies
available to such plaintiff.''.
(c) Payment Authority Clarified.--
(1) In general.--Section 7431, as amended by subsection
(b), is amended by adding at the end the following new
subsection:
``(k) Payment Authority.--Claims pursuant to this section shall be
payable out of funds appropriated under section 1304 of title 31,
United States Code.''.
(2) Annual reports of payments.--The Secretary of the
Treasury shall annually report to the Committee of Finance of
the Senate and the Committee on Ways and Means of the House of
Representatives regarding payments made from the United States
Judgment Fund under section 7431(k) of the Internal Revenue
Code of 1986.
(d) Burden of Proof for Good Faith Exception Rests With Individual
Making Inspection or Disclosure.--Section 7431(b) (relating to
exceptions) is amended by adding at the end the following new flush
sentence:
``In any proceeding involving the issue of the existence of good faith,
the burden of proof with respect to such issue shall be on the
individual who made the inspection or disclosure.''.
(e) Reports.--Subsection (p) of section 6103 (relating to procedure
and recordkeeping), as amended by this Act, is amended by adding at the
end the following new paragraph:
``(10) Report on willful unauthorized disclosure and
inspection.--As part of the report required by paragraph (3)(C)
for each calendar year, the Secretary shall furnish information
regarding the willful unauthorized disclosure and inspection of
returns and return information, including the number, status,
and results of--
``(A) administrative investigations,
``(B) civil lawsuits brought under section 7431
(including the amounts for which such lawsuits were
settled and the amounts of damages awarded), and
``(C) criminal prosecutions.''.
(f) Effective Dates.--
(1) Notice.--The amendment made by subsection (a) shall
apply to determinations made after the date which is 180 days
after the date of the enactment of this Act.
(2) Exhaustion of remedies and burden of proof.--The
amendments made by subsections (b) and (d) shall apply to
inspections and disclosures occurring on and after the date
which is 180 days after the date of the enactment of this Act.
(3) Payment authority.--The amendment made by subsection
(c)(1) shall take effect on the date which is 180 days after
the date of the enactment of this Act.
(4) Reports.--The amendment made by subsection (e) shall
apply to calendar years ending after the date which is 180 days
after the date of the enactment of this Act.
SEC. 408. EXPANSION OF DISCLOSURE IN EMERGENCY CIRCUMSTANCES.
(a) In General.--Section 6103(i)(3)(B)(i) (relating to danger of
death or physical injury) is amended by striking ``or State law
enforcement agency'' and inserting ``, State, or local law enforcement
agency''.
(b) Conforming Amendments.--Section 6103(p)(4) is amended--
(1) by striking ``(i)(3)(B)(i) or (7)(A)(ii)'' and
inserting ``(i)(7)(A)(ii)'', and
(2) by striking ``, (i)(3)(B)(i),''.
(c) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 409. DISCLOSURE OF TAXPAYER IDENTITY FOR TAX REFUND PURPOSES.
(a) In General.--Section 6103(m)(1) (relating to tax refunds) is
amended by striking ``taxpayer identity information to the press and
other media'' and by inserting ``a person's name and the city, State,
and zip code of the person's mailing address to the press, other media,
and through any other means of mass communication,''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 410. DISCLOSURE TO STATE OFFICIALS OF PROPOSED ACTIONS RELATED TO
SECTION 501(C) ORGANIZATIONS.
(a) In General.--Subsection (c) of section 6104 is amended by
striking paragraph (2) and inserting the following new paragraphs:
``(2) Disclosure of proposed actions related to charitable
organizations.--
``(A) Specific notifications.--In the case of an
organization to which paragraph (1) applies, the
Secretary may disclose to the appropriate State
officer--
``(i) a notice of proposed refusal to
recognize such organization as an organization
described in section 501(c)(3) or a notice of
proposed revocation of such organization's
recognition as an organization exempt from
taxation,
``(ii) the issuance of a letter of proposed
deficiency of tax imposed under section 507 or
chapter 41 or 42, and
``(iii) the names, addresses, and taxpayer
identification numbers of organizations which
have applied for recognition as organizations
described in section 501(c)(3).
``(B) Additional disclosures.--Returns and return
information of organizations with respect to which
information is disclosed under subparagraph (A) may be
made available for inspection by or disclosed to an
appropriate State officer.
``(C) Procedures for disclosure.--Information may
be inspected or disclosed under subparagraph (A) or (B)
only--
``(i) upon written request by an
appropriate State officer, and
``(ii) for the purpose of, and only to the
extent necessary in, the administration of
State laws regulating such organizations.
Such information may only be inspected by or disclosed
to representatives of the appropriate State officer
designated as the individuals who are to inspect or to
receive the returns or return information under this
paragraph on behalf of such officer. Such
representatives shall not include any contractor or
agent.
``(D) Disclosures other than by request.--The
Secretary may make available for inspection or disclose
returns and return information of an organization to
which paragraph (1) applies to an appropriate State
officer of any State if the Secretary determines that
such inspection or disclosure may facilitate the
resolution of Federal or State issues relating to the
tax-exempt status of such organization.
``(3) Disclosure with respect to certain other exempt
organizations.--Upon written request by an appropriate State
officer, the Secretary may make available for inspection or
disclosure returns and return information of an organization
described in paragraph (2), (4), (6), (7), (8), (10), or (13)
of section 501(c) for the purpose of, and to the extent
necessary in, the administration of State laws regulating the
solicitation or administration of the charitable funds or
charitable assets of such organizations. Such information may
be inspected only by or disclosed only to representatives of
the appropriate State officer designated as the individuals who
are to inspect or to receive the returns or return information
under this paragraph on behalf of such officer. Such
representatives shall not include any contractor or agent.
``(4) Use in civil judicial and administrative
proceedings.--Returns and return information disclosed pursuant
to this subsection may be disclosed in civil administrative and
civil judicial proceedings pertaining to the enforcement of
State laws regulating such organizations in a manner prescribed
by the Secretary similar to that for tax administration
proceedings under section 6103(h)(4).
``(5) No disclosure if impairment.--Returns and return
information shall not be disclosed under this subsection, or in
any proceeding described in paragraph (4), to the extent that
the Secretary determines that such disclosure would seriously
impair Federal tax administration.
``(6) Definitions.--For purposes of this subsection--
``(A) Return and return information.--The terms
`return' and `return information' have the respective
meanings given to such terms by section 6103(b).
``(B) Appropriate state officer.--The term
`appropriate State officer' means--
``(i) the State attorney general,
``(ii) in the case of an organization to
which paragraph (1) applies, any other State
official charged with overseeing organizations
of the type described in section 501(c)(3), and
``(iii) in the case of an organization to
which paragraph (3) applies, the head of an
agency designated by the State attorney general
as having primary responsibility for overseeing
the solicitation of funds for charitable
purposes.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 6103 is amended--
(A) by inserting ``or any appropriate State officer
who has or had access to returns or return information
under section 6104(c)'' after ``this section'' in
paragraph (2), and
(B) by striking ``or subsection (n)'' in paragraph
(3) and inserting ``subsection (n), or section
6104(c)''.
(2) Subparagraph (A) of section 6103(p)(3) is amended by
inserting ``and section 6104(c)'' after ``section'' in the
first sentence.
(3) Paragraph (4) of section 6103(p), as amended by section
202(b)(2)(B) of the Trade Act of 2002 (Public Law 107-210; 116
Stat. 961), is amended by striking ``or (17)'' after ``any
other person described in subsection (l)(16)'' each place it
appears and inserting ``or (18) or any appropriate State
officer (as defined in section 6104(c))''.
(4) The heading for paragraph (1) of section 6104(c) is
amended by inserting ``for charitable organizations''.
(5) Paragraph (2) of section 7213(a) is amended by
inserting ``or under section 6104(c)'' after ``6103''.
(6) Paragraph (2) of section 7213A(a) is amended by
inserting ``or 6104(c)'' after ``6103''.
(7) Paragraph (2) of section 7431(a) is amended by
inserting ``(including any disclosure in violation of section
6104(c))'' after ``6103''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act but shall not apply to
requests made before such date.
SEC. 411. TREATMENT OF PUBLIC RECORDS.
(a) In General.--Section 6103(b) (relating to definitions) is
amended by adding at the end the following new paragraph:
``(12) Treatment of public records.--Returns and return
information shall not be subject to subsection (a) if
disclosed--
``(A) in the course of any judicial or
administrative proceeding or pursuant to tax
administration activities, and
``(B) properly made part of the public record.''.
(b) Effective Date.--The amendment made by this section shall take
effect before, on, and after the date of the enactment of this Act.
SEC. 412. EMPLOYEE IDENTITY DISCLOSURES.
(a) In General.--Section 6103 (confidentiality and disclosure of
returns and return information) is amended by redesignating subsection
(q) as subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Employee Identity Disclosures.--Nothing in this section may
be construed to prohibit agents of the Department of the Treasury from
identifying themselves, their organizational affiliation, and the
nature of an investigation when contacting third parties in writing or
in person.''.
(b) Construction.--The amendments made by this section shall not be
construed to create any inference with respect to the interpretation of
any provision of law as such provision was in effect on the day before
the date of enactment of this Act.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 413. TAXPAYER IDENTIFICATION NUMBER MATCHING.
(a) In General.--Section 6103(k) (relating to disclosure of certain
returns and return information for tax administration purposes) is
amended by adding at the end the following new paragraph:
``(10) TIN matching.--The Secretary may disclose to any
person required to provide a TIN (as defined in section
7701(a)(41)) to the Secretary whether such information matches
records maintained by the Secretary.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 414. FORM 8300 DISCLOSURES.
(a) In General.--Section 6103(p)(4) (relating to safeguards) is
amended by striking ``(15),'' both places it appears.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 415. DISCLOSURE TO LAW ENFORCEMENT AGENCIES REGARDING TERRORIST
ACTIVITIES.
(a) In General.--Section 6103(i)(7)(A) (relating to disclosure to
law enforcement agencies) is amended by adding at the end the following
new clause:
``(v) Taxpayer identity.--For purposes of
this subparagraph, a taxpayer's identity shall
not be treated as taxpayer return
information.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
TITLE V--SIMPLIFICATION
Subtitle A--Uniform Definition of Child
SEC. 501. UNIFORM DEFINITION OF CHILD, ETC.
Section 152 is amended to read as follows:
``SEC. 152. DEPENDENT DEFINED.
``(a) In General.--For purposes of this subtitle, the term
`dependent' means--
``(1) a qualifying child, or
``(2) a qualifying relative.
``(b) Exceptions.--For purposes of this section--
``(1) Dependents ineligible.--If an individual is a
dependent of a taxpayer for any taxable year of such taxpayer
beginning in a calendar year, such individual shall be treated
as having no dependents for any taxable year of such individual
beginning in such calendar year.
``(2) Married dependents.--An individual shall not be
treated as a dependent of a taxpayer under subsection (a) if
such individual has made a joint return with the individual's
spouse under section 6013 for the taxable year beginning in the
calendar year in which the taxable year of the taxpayer begins.
``(3) Citizens or nationals of other countries.--
``(A) In general.--The term `dependent' does not
include an individual who is not a citizen or national
of the United States unless such individual is a
resident of the United States or a country contiguous
to the United States.
``(B) Exception for adopted child.--Subparagraph
(A) shall not exclude any child of a taxpayer (within
the meaning of subsection (f)(1)(B)) from the
definition of `dependent' if--
``(i) for the taxable year of the taxpayer,
the child has the same principal place of abode
as the taxpayer and is a member of the
taxpayer's household, and
``(ii) the taxpayer is a citizen or
national of the United States.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--The term `qualifying child' means, with
respect to any taxpayer for any taxable year, an individual--
``(A) who bears a relationship to the taxpayer
described in paragraph (2),
``(B) who has the same principal place of abode as
the taxpayer for more than one-half of such taxable
year,
``(C) who meets the age requirements of paragraph
(3), and
``(D) who has not provided over one-half of such
individual's own support for the calendar year in which
the taxable year of the taxpayer begins.
``(2) Relationship.--For purposes of paragraph (1)(A), an
individual bears a relationship to the taxpayer described in
this paragraph if such individual is--
``(A) a child of the taxpayer or a descendant of
such a child, or
``(B) a brother, sister, stepbrother, or stepsister
of the taxpayer or a descendant of any such relative.
``(3) Age requirements.--
``(A) In general.--For purposes of paragraph
(1)(C), an individual meets the requirements of this
paragraph if such individual--
``(i) has not attained the age of 19 as of
the close of the calendar year in which the
taxable year of the taxpayer begins, or
``(ii) is a student who has not attained
the age of 24 as of the close of such calendar
year.
``(B) Special rule for disabled.--In the case of an
individual who is permanently and totally disabled (as
defined in section 22(e)(3)) at any time during such
calendar year, the requirements of subparagraph (A)
shall be treated as met with respect to such
individual.
``(4) Special rule relating to 2 or more claiming
qualifying child.--
``(A) In general.--Except as provided in
subparagraph (B) and subsection (e), if (but for this
paragraph) an individual may be and is claimed as a
qualifying child by 2 or more taxpayers for a taxable
year beginning in the same calendar year, such
individual shall be treated as the qualifying child of
the taxpayer who is--
``(i) a parent of the individual, or
``(ii) if clause (i) does not apply, the
taxpayer with the highest adjusted gross income
for such taxable year.
``(B) More than 1 parent claiming qualifying
child.--If the parents claiming any qualifying child do
not file a joint return together, such child shall be
treated as the qualifying child of--
``(i) the parent with whom the child
resided for the longest period of time during
the taxable year, or
``(ii) if the child resides with both
parents for the same amount of time during such
taxable year, the parent with the highest
adjusted gross income.
``(d) Qualifying Relative.--For purposes of this section--
``(1) In general.--The term `qualifying relative' means,
with respect to any taxpayer for any taxable year, an
individual--
``(A) who bears a relationship to the taxpayer
described in paragraph (2),
``(B) whose gross income for the calendar year in
which such taxable year begins is less than the
exemption amount (as defined in section 151(d)),
``(C) with respect to whom the taxpayer provides
over one-half of the individual's support for the
calendar year in which such taxable year begins, and
``(D) who is not a qualifying child of such
taxpayer or of any other taxpayer for any taxable year
beginning in the calendar year in which such taxable
year begins.
``(2) Relationship.--For purposes of paragraph (1)(A), an
individual bears a relationship to the taxpayer described in
this paragraph if the individual is any of the following with
respect to the taxpayer:
``(A) A child or a descendant of a child.
``(B) A brother, sister, stepbrother, or
stepsister.
``(C) The father or mother, or an ancestor of
either.
``(D) A stepfather or stepmother.
``(E) A son or daughter of a brother or sister of
the taxpayer.
``(F) A brother or sister of the father or mother
of the taxpayer.
``(G) A son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, or sister-in-law.
``(H) An individual (other than an individual who
at any time during the taxable year was the spouse,
determined without regard to section 7703, of the
taxpayer) who, for the taxable year of the taxpayer,
has the same principal place of abode as the taxpayer
and is a member of the taxpayer's household.
``(3) Special rule relating to multiple support
agreements.--For purposes of paragraph (1)(C), over one-half of
the support of an individual for a calendar year shall be
treated as received from the taxpayer if--
``(A) no one person contributed over one-half of
such support,
``(B) over one-half of such support was received
from 2 or more persons each of whom, but for the fact
that any such person alone did not contribute over one-
half of such support, would have been entitled to claim
such individual as a dependent for a taxable year
beginning in such calendar year,
``(C) the taxpayer contributed over 10 percent of
such support, and
``(D) each person described in subparagraph (B)
(other than the taxpayer) who contributed over 10
percent of such support files a written declaration (in
such manner and form as the Secretary may by
regulations prescribe) that such person will not claim
such individual as a dependent for any taxable year
beginning in such calendar year.
``(4) Special rule relating to income of handicapped
dependents.--
``(A) In general.--For purposes of paragraph
(1)(B), the gross income of an individual who is
permanently and totally disabled (as defined in section
22(e)(3)) at any time during the taxable year shall not
include income attributable to services performed by
the individual at a sheltered workshop if--
``(i) the availability of medical care at
such workshop is the principal reason for the
individual's presence there, and
``(ii) the income arises solely from
activities at such workshop which are incident
to such medical care.
``(B) Sheltered workshop defined.--For purposes of
subparagraph (A), the term `sheltered workshop' means a
school--
``(i) which provides special instruction or
training designed to alleviate the disability
of the individual, and
``(ii) which is operated by an organization
described in section 501(c)(3) and exempt from
tax under section 501(a), or by a State, a
possession of the United States, any political
subdivision of any of the foregoing, the United
States, or the District of Columbia.
``(5) Special rules for support.--For purposes of this
subsection--
``(A) payments to a spouse which are includible in
the gross income of such spouse under section 71 or 682
shall not be treated as a payment by the payor spouse
for the support of any dependent, and
``(B) in the case of the remarriage of a parent,
support of a child received from the parent's spouse
shall be treated as received from the parent.
``(e) Special Rule for Divorced Parents.--
``(1) In general.--Notwithstanding subsection (c)(4) or
(d)(1)(C), if--
``(A) a child receives over one-half of the child's
support during the calendar year from the child's
parents--
``(i) who are divorced or legally separated
under a decree of divorce or separate
maintenance,
``(ii) who are separated under a written
separation agreement, or
``(iii) who live apart at all times during
the last 6 months of the calendar year, and
``(B) such child is in the custody of 1 or both of
the child's parents for more than one-half of the
calendar year,
such child shall be treated as being the qualifying child or
qualifying relative of the noncustodial parent for a calendar
year if the requirements described in paragraph (2) are met.
``(2) Requirements.--For purposes of paragraph (1), the
requirements described in this paragraph are met if--
``(A) a decree of divorce or separate maintenance
or written separation agreement between the parents
applicable to the taxable year beginning in such
calendar year provides that--
``(i) the noncustodial parent shall be
entitled to any deduction allowable under
section 151 for such child, or
``(ii) the custodial parent will sign a
written declaration (in such manner and form as
the Secretary may prescribe) that such parent
will not claim such child as a dependent for
such taxable year, or
``(B) in the case of such an agreement executed
before January 1, 1985, the noncustodial parent
provides at least $600 for the support of such child
during such calendar year.
For purposes of subparagraph (B), amounts expended for the
support of a child or children shall be treated as received
from the noncustodial parent to the extent that such parent
provided amounts for such support.
``(3) Custodial parent and noncustodial parent.--For
purposes of this subsection--
``(A) Custodial parent.--The term `custodial
parent' means the parent with whom a child shared the
same principal place of abode for the greater portion
of the calendar year.
``(B) Noncustodial parent.--The term `noncustodial
parent' means the parent who is not the custodial
parent.
``(4) Exception for multiple-support agreements.--This
subsection shall not apply in any case where over one-half of
the support of the child is treated as having been received
from a taxpayer under the provision of subsection (d)(3).
``(f) Other Definitions and Rules.--For purposes of this section--
``(1) Child defined.--
``(A) In general.--The term `child' means an
individual who is--
``(i) a son, daughter, stepson, or
stepdaughter of the taxpayer, or
``(ii) an eligible foster child of the
taxpayer.
``(B) Adopted child.--In determining whether any of
the relationships specified in subparagraph (A)(i) or
paragraph (4) exists, a legally adopted individual of
the taxpayer, or an individual who is lawfully placed
with the taxpayer for legal adoption by the taxpayer,
shall be treated as a child of such individual by
blood.
``(C) Eligible foster child.--For purposes of
subparagraph (A)(ii), the term `eligible foster child'
means an individual who is placed with the taxpayer by
an authorized placement agency or by judgment, decree,
or other order of any court of competent jurisdiction.
``(2) Student defined.--The term `student' means an
individual who during each of 5 calendar months during the
calendar year in which the taxable year of the taxpayer
begins--
``(A) is a full-time student at an educational
organization described in section 170(b)(1)(A)(ii), or
``(B) is pursuing a full-time course of
institutional on-farm training under the supervision of
an accredited agent of an educational organization
described in section 170(b)(1)(A)(ii) or of a State or
political subdivision of a State.
``(3) Determination of household status.--An individual
shall not be treated as a member of the taxpayer's household if
at any time during the taxable year of the taxpayer the
relationship between such individual and the taxpayer is in
violation of local law.
``(4) Brother and sister.--The terms `brother' and `sister'
include a brother or sister by the half blood.
``(5) Special support test in case of students.--For
purposes of subsections (c)(1)(D) and (d)(1)(C), in the case of
an individual who is--
``(A) a child of the taxpayer, and
``(B) a student,
amounts received as scholarships for study at an educational
organization described in section 170(b)(1)(A)(ii) shall not be
taken into account.
``(6) Treatment of missing children.--
``(A) In general.--Solely for the purposes referred
to in subparagraph (B), a child of the taxpayer--
``(i) who is presumed by law enforcement
authorities to have been kidnapped by someone
who is not a member of the family of such child
or the taxpayer, and
``(ii) who had, for the taxable year in
which the kidnapping occurred, the same
principal place of abode as the taxpayer for
more than one-half of the portion of such year
before the date of the kidnapping,
shall be treated as meeting the requirement of
subsection (c)(1)(B) with respect to a taxpayer for all
taxable years ending during the period that the child
is kidnapped.
``(B) Purposes.--Subparagraph (A) shall apply
solely for purposes of determining--
``(i) the deduction under section 151(c),
``(ii) the credit under section 24
(relating to child tax credit),
``(iii) whether an individual is a
surviving spouse or a head of a household (as
such terms are defined in section 2), and
``(iv) the earned income credit under
section 32.
``(C) Comparable treatment of certain qualifying
relatives.--For purposes of this section, a child of
the taxpayer--
``(i) who is presumed by law enforcement
authorities to have been kidnapped by someone
who is not a member of the family of such child
or the taxpayer, and
``(ii) who was (without regard to this
paragraph) a qualifying relative of the
taxpayer for the portion of the taxable year
before the date of the kidnapping,
shall be treated as a qualifying relative of the
taxpayer for all taxable years ending during the period
that the child is kidnapped.
``(D) Termination of treatment.--Subparagraphs (A)
and (C) shall cease to apply as of the first taxable
year of the taxpayer beginning after the calendar year
in which there is a determination that the child is
dead (or, if earlier, in which the child would have
attained age 18).
``(7) Cross references.--
``For provision treating child as
dependent of both parents for purposes of certain provisions, see
sections 105(b), 132(h)(2)(B), and 213(d)(5).''.
SEC. 502. MODIFICATIONS OF DEFINITION OF HEAD OF HOUSEHOLD.
(a) Head of Household.--Clause (i) of section 2(b)(1)(A) is amended
to read as follows:
``(i) a qualifying child of the individual
(as defined in section 152(c), determined
without regard to section 152(e)), but not if
such child--
``(I) is married at the close of
the taxpayer's taxable year, and
``(II) is not a dependent of such
individual by reason of section
152(b)(2) or 152(b)(3), or both, or''.
(b) Conforming Amendments.--
(1) Section 2(b)(2) is amended by striking subparagraph (A)
and by redesignating subparagraphs (B), (C), and (D) as
subparagraphs (A), (B), and (C), respectively.
(2) Clauses (i) and (ii) of section 2(b)(3)(B) are amended
to read as follows:
``(i) subparagraph (H) of section
152(d)(2), or
``(ii) paragraph (3) of section 152(d).''.
SEC. 503. MODIFICATIONS OF DEPENDENT CARE CREDIT.
(a) In General.--Section 21(a)(1) is amended by striking ``In the
case of an individual who maintains a household which includes as a
member one or more qualifying individuals (as defined in subsection
(b)(1))'' and inserting ``In the case of an individual for which there
are 1 or more qualifying individuals (as defined in subsection (b)(1))
with respect to such individual''.
(b) Qualifying Individual.--Paragraph (1) of section 21(b) is
amended to read as follows:
``(1) Qualifying individual.--The term `qualifying
individual' means--
``(A) a dependent of the taxpayer (as defined in
section 152(a)(1)) who has not attained age 13,
``(B) a dependent of the taxpayer who is physically
or mentally incapable of caring for himself or herself
and who has the same principal place of abode as the
taxpayer for more than one-half of such taxable year,
or
``(C) the spouse of the taxpayer, if the spouse is
physically or mentally incapable of caring for himself
or herself and who has the same principal place of
abode as the taxpayer for more than one-half of such
taxable year.''.
(c) Conforming Amendment.--Paragraph (1) of section 21(e) is
amended to read as follows:
``(1) Place of abode.--An individual shall not be treated
as having the same principal place of abode of the taxpayer if
at any time during the taxable year of the taxpayer the
relationship between the individual and the taxpayer is in
violation of local law.''.
SEC. 504. MODIFICATIONS OF CHILD TAX CREDIT.
(a) In General.--Paragraph (1) of section 24(c) is amended to read
as follows:
``(1) In general.--The term `qualifying child' means a
qualifying child of the taxpayer (as defined in section 152(c))
who has not attained age 17.''.
(b) Conforming Amendment.--Section 24(c)(2) is amended by striking
``the first sentence of section 152(b)(3)'' and inserting
``subparagraph (A) of section 152(b)(3)''.
SEC. 505. MODIFICATIONS OF EARNED INCOME CREDIT.
(a) Qualifying Child.--Paragraph (3) of section 32(c) is amended to
read as follows:
``(3) Qualifying child.--
``(A) In general.--The term `qualifying child'
means a qualifying child of the taxpayer (as defined in
section 152(c), determined without regard to paragraph
(1)(D) thereof and section 152(e)).
``(B) Married individual.--The term `qualifying
child' shall not include an individual who is married
as of the close of the taxpayer's taxable year unless
the taxpayer is entitled to a deduction under section
151 for such taxable year with respect to such
individual (or would be so entitled but for section
152(e)).
``(C) Place of abode.--For purposes of subparagraph
(A), the requirements of section 152(c)(1)(B) shall be
met only if the principal place of abode is in the
United States.
``(D) Identification requirements.--
``(i) In general.--A qualifying child shall
not be taken into account under subsection (b)
unless the taxpayer includes the name, age, and
TIN of the qualifying child on the return of
tax for the taxable year.
``(ii) Other methods.--The Secretary may
prescribe other methods for providing the
information described in clause (i).''.
(b) Conforming Amendments.--
(1) Section 32(c)(1) is amended by striking subparagraph
(C) and by redesignating subparagraphs (D), (E), (F), and (G)
as subparagraphs (C), (D), (E), and (F), respectively.
(2) Section 32(c)(4) is amended by striking ``(3)(E)'' and
inserting ``(3)(C)''.
(3) Section 32(m) is amended by striking ``subsections
(c)(1)(F)'' and inserting ``subsections (c)(1)(E)''.
SEC. 506. MODIFICATIONS OF DEDUCTION FOR PERSONAL EXEMPTION FOR
DEPENDENTS.
Subsection (c) of section 151 is amended to read as follows:
``(c) Additional Exemption for Dependents.--An exemption of the
exemption amount for each individual who is a dependent (as defined in
section 152) of the taxpayer for the taxable year.''.
SEC. 507. TECHNICAL AND CONFORMING AMENDMENTS.
(1) Section 2(a)(1)(B)(i) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(2) Section 21(e)(5) is amended--
(A) by striking ``paragraph (2) or (4) of'' in
subparagraph (A), and
(B) by striking ``within the meaning of section
152(e)(1)'' and inserting ``as defined in section
152(e)(3)(A)''.
(3) Section 21(e)(6)(B) is amended by striking ``section
151(c)(3)'' and inserting ``section 152(f)(1)''.
(4) Section 25B(c)(2)(B) is amended by striking
``151(c)(4)'' and inserting ``152(f)(2)''.
(5)(A) Subparagraphs (A) and (B) of section 51(i)(1) are
each amended by striking ``paragraphs (1) through (8) of
section 152(a)'' both places it appears and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(B) Section 51(i)(1)(C) is amended by striking
``152(a)(9)'' and inserting ``152(d)(2)(H)''.
(6) Section 72(t)(2)(D)(i)(III) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(7) Section 72(t)(7)(A)(iii) is amended by striking
``151(c)(3)'' and inserting ``152(f)(1)''.
(8) Section 42(i)(3)(D)(ii)(I) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(9) Subsections (b) and (c)(1) of section 105 are amended
by inserting ``, determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof'' after ``section 152''.
(10) Section 120(d)(4) is amended by inserting
``(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof)'' after ``section 152''.
(11) Section 125(e)(1)(D) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(12) Section 129(c)(2) is amended by striking ``151(c)(3)''
and inserting ``152(f)(1)''.
(13) The first sentence of section 132(h)(2)(B) is amended
by striking ``151(c)(3)'' and inserting ``152(f)(1)''.
(14) Section 153 is amended by striking paragraph (1) and
by redesignating paragraphs (2), (3), and (4) as paragraphs
(1), (2), and (3), respectively.
(15) Section 170(g)(1) is amended by inserting
``(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof)'' after ``section 152''.
(16) Section 170(g)(3) is amended by striking ``paragraphs
(1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(17) Section 213(a) is amended by inserting ``, determined
without regard to subsections (b)(1), (b)(2), and (d)(1)(B)
thereof'' after ``section 152''.
(18) The second sentence of section 213(d)(11) is amended
by striking ``paragraphs (1) through (8) of section 152(a)''
and inserting ``subparagraphs (A) through (G) of section
152(d)(2)''.
(19) Section 220(d)(2)(A) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(20) Section 221(d)(4) is amended by inserting
``(determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof)'' after ``section 152''.
(21) Section 529(e)(2)(B) is amended by striking
``paragraphs (1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(22) Section 2032A(c)(7)(D) is amended by striking
``section 151(c)(4)'' and inserting ``section 152(f)(2)''.
(23) Section 2057(d)(2)(B) is amended by inserting ``,
determined without regard to subsections (b)(1), (b)(2), and
(d)(1)(B) thereof'' after ``section 152''.
(24) Section 7701(a)(17) is amended by striking
``152(b)(4), 682,'' and inserting ``682''.
(25) Section 7702B(f)(2)(C)(iii) is amended by striking
``paragraphs (1) through (8) of section 152(a)'' and inserting
``subparagraphs (A) through (G) of section 152(d)(2)''.
(26) Section 7703(b)(1) is amended--
(A) by striking ``151(c)(3)'' and inserting
``152(f)(1)'', and
(B) by striking ``paragraph (2) or (4) of''.
SEC. 508. EFFECTIVE DATE.
The amendments made by this subtitle shall apply to taxable years
beginning after December 31, 2004.
Subtitle B--Simplification Through Elimination of Inoperative
Provisions
SEC. 511. SIMPLIFICATION THROUGH ELIMINATION OF INOPERATIVE PROVISIONS.
(a) In General.--
(1) Adjustments in tax tables so that inflation will not
result in tax increases.--Paragraph (7) of section 1(f) is
amended to read as follows:
``(7) Special rule for certain brackets.--In prescribing
tables under paragraph (1) which apply to taxable years
beginning in a calendar year after 1994, the cost-of-living
adjustment used in making adjustments to the dollar amounts at
which the 36 percent rate bracket begins or at which the 39.6
percent rate bracket begins shall be determined under paragraph
(3) by substituting `1993' for `1992'.''.
(2) Credit for producing fuel from nonconventional
source.--Section 29 is amended by striking subsection (e) and
by redesignating subsections (f) and (g) as subsections (e) and
(f), respectively.
(3) Earned income credit.--Paragraph (1) of section 32(b)
is amended--
(A) by striking subparagraphs (B) and (C), and
(B) in subparagraph (A) by striking ``(A) In
general.--In the case of taxable years beginning after
1995'' and moving the table 2 ems to the left.
(4) General business credits.--Subsection (d) of section 38
is amended by striking paragraph (3).
(5) Carryback and carryforward of unused credits.--
Subsection (d) of section 39 is amended by striking paragraphs
(1) through (8) and by redesignating paragraphs (9) and (10) as
paragraphs (1) and (2), respectively.
(6) Adjustments based on adjusted current earnings.--Clause
(ii) of section 56(g)(4)(F) is amended by striking ``In the
case of any taxable year beginning after December 31, 1992,
clause'' and inserting ``Clause''.
(7) Items of tax preference; depletion.--Paragraph (1) of
section 57(a) is amended by striking ``Effective with respect
to taxable years beginning after December 31, 1992, this'' and
inserting ``This''.
(8) Intangible drilling costs.--
(A) Clause (i) of section 57(a)(2)(E) is amended by
striking ``In the case of any taxable year beginning
after December 31, 1992, this'' and inserting ``This''.
(B) Clause (ii) of section 57(a)(2)(E) is amended
by striking ``(30 percent in the case of taxable years
beginning in 1993)''.
(9) Annuities; certain proceeds of endowment and life
insurance contracts.--Section 72 is amended--
(A) in subsection (c)(4) by striking ``; except
that if such date was before January 1, 1954, then the
annuity starting date is January 1, 1954'', and
(B) in subsection (g)(3) by striking ``January 1,
1954, or'' and ``, whichever is later''.
(10) Accident and health plans.--Section 105(f) is amended
by striking ``or (d)''.
(11) Flexible spending arrangements.--Section 106(c)(1) is
amended by striking ``Effective on and after January 1, 1997,
gross'' and inserting ``Gross''.
(12) Certain combat zone compensation of members of the
armed forces.--Subsection (c) of section 112 is amended--
(A) by striking ``(after June 24, 1950)'' in
paragraph (2), and
(B) striking ``such zone;'' and all that follows in
paragraph (3) and inserting ``such zone.''.
(13) Principal residence.--Section 121(b)(3) is amended--
(A) by striking subparagraph (B); and
(B) in subparagraph (A) by striking ``(A) In
general.--'' and moving the text 2 ems to the left.
(14) Certain reduced uniformed services retirement pay.--
Section 122(b)(1) is amended by striking ``after December 31,
1965,''.
(15) Great plains conservation program.--Section 126(a) is
amended by striking paragraph (6) and by redesignating
paragraphs (7), (8), (9), and (10) as paragraphs (6), (7), (8),
and (9), respectively.
(16) Mortgage revenue bonds for residences in federal
disaster areas.--Section 143(k) is amended by striking
paragraph (11).
(17) Treble damage payments under the antitrust law.--
Section 162(g) is amended by striking the last sentence.
(18) State legislators' travel expenses away from home.--
Paragraph (4) of section 162(h) is amended by striking ``For
taxable years beginning after December 31, 1980, this'' and
inserting ``This''.
(19) Health insurance costs of self-employed individuals.--
Paragraph (1) of section 162(l) is amended to read as follows:
``(1) Allowance of deduction.--In the case of an individual
who is an employee within the meaning of section 401(c)(1),
there shall be allowed as a deduction under this section an
amount equal to 100 percent of the amount paid during the
taxable year for insurance which constitutes medical care for
the taxpayer and the taxpayer's spouse and dependents.''.
(20) Interest.--
(A) Section 163 is amended by striking paragraph
(6) of subsection (d) and paragraph (5) (relating to
phase-in of limitation) of subsection (h).
(B) Section 56(b)(1)(C) is amended by striking
clause (ii) and by redesignating clauses (iii), (iv),
and (v) as clauses (ii), (iii), and (iv), respectively.
(21) Charitable, etc., contributions and gifts.--Section
170 is amended by striking subsection (k).
(22) Amortizable bond premium.--Subparagraph (B) of section
171(b)(1) is amended to read as follows:
``(B)(i) in the case of a bond described in
subsection (a)(2), with reference to the amount payable
on maturity or earlier call date, and
``(ii) in the case of a bond described in
subsection (a)(1), with reference to the amount payable
on maturity (or if it results in a smaller amortizable
bond premium attributable to the period of earlier call
date, with reference to the amount payable on earlier
call date), and''.
(23) Net operating loss carrybacks and carryovers.--
(A) Section 172 is amended--
(i) by striking subparagraph (D) of
subsection (b)(1) and by redesignating
subparagraphs (E), (F), (G), and (H) as
subparagraphs (D), (E), (F), and (G),
respectively,
(ii) by striking ``ending after August 2,
1989'' in subsection (b)(1)(D)(i)(II) (as
redesignated by clause (i)),
(iii) by striking ``subparagraph (F)'' in
subsection (b)(1)(G) (as redesignated by clause
(i)) and inserting ``subparagraph (E)'',
(iv) by striking subsection (g), and
(v) by striking subparagraph (F) of
subsection (h)(2).
(B) Section 172(h)(4) is amended by striking
``subsection (b)(1)(E)'' each place it appears and
inserting ``subsection (b)(1)(D)''.
(C) Section 172(i)(3) is amended by striking
``subsection (b)(1)(G)'' each place it appears and
inserting ``subsection (b)(1)(F)''.
(D) Section 172(j) is amended by striking
``subsection (b)(1)(H)'' each place it appears and
inserting ``subsection (b)(1)(G)''.
(E) Section 172, as amended by subparagraphs (A)
through (D) of this paragraph, is amended--
(i) by redesignating subsections (h), (i),
and (j) as subsections (g), (h), and (i),
respectively,
(ii) by striking ``subsection (h)'' each
place it appears and inserting ``subsection
(g)'', and
(iii) by striking ``subsection (i)'' each
place it appears and inserting ``subsection
(h)''.
(24) Research and experimental expenditures.--Subparagraph
(A) of section 174(a)(2) is amended to read as follows:
``(A) Without consent.--A taxpayer may, without the
consent of the Secretary, adopt the method provided in
this subsection for his first taxable year for which
expenditures described in paragraph (1) are paid or
incurred.''.
(25) Amortization of certain research and experimental
expenditures.--Paragraph (2) of section 174(b)(2) is amended by
striking ``beginning after December 31, 1953''.
(26) Soil and water conservation expenditures.--Paragraph
(1) of section 175(d) is amended to read as follows:
``(1) Without consent.--A taxpayer may, without the consent
of the Secretary, adopt the method provided in this section for
his first taxable year for which expenditures described in
subsection (a) are paid or incurred.''.
(27) Activities not engaged in for profit.--Section
183(e)(1) is amended by striking the last sentence.
(28) Dividends received on certain preferred stock; and
dividends paid on certain preferred stock of public
utilities.--
(A) Sections 244 and 247 are hereby repealed and
the table of sections for part VIII of subchapter B of
chapter 1 is amended by striking the items relating to
sections 244 and 247.
(B) Paragraph (5) of section 172(d) is amended to
read as follows:
``(5) Computation of deduction for dividends received.--The
deductions allowed by section 243 (relating to dividends
received by corporations) and 245 (relating to dividends
received from certain foreign corporations) shall be computed
without regard to section 246(b) (relating to limitation on
aggregate amount of deductions).''.
(C) Paragraph (1) of section 243(c) is amended to
read as follows:
``(1) In general.--In the case of any dividend received
from a 20-percent owned corporation, subsection (a)(1) shall be
applied by substituting `80 percent' for `70 percent'.''.
(D) Section 243(d) is amended by striking paragraph
(4).
(E) Section 246 is amended--
(i) by striking ``, 244,'' in subsection
(a)(1),
(ii) in subsection (b)(1)--
(I) by striking ``sections
243(a)(1), and 244(a),'' the first
place it appears and inserting
``section 243(a)(1),'',
(II) by striking ``244(a),'' the
second place it appears therein, and
(III) by striking ``subsection (a)
or (b) of section 245, and 247,'' and
inserting ``and subsection (a) or (b)
of section 245,'', and
(iii) by striking ``, 244,'' in subsection
(c)(1).
(F) Section 246A is amended by striking ``, 244,''
both places it appears in subsections (a) and (e).
(G) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2),
469(e)(4), 512(a)(3)(A), subparagraphs (A), (C), and
(D) of section 805(a)(4), 805(b)(5), 812(e)(2)(A),
815(c)(2)(A)(iii), 832(b)(5), 833(b)(3)(E),
1059(b)(2)(B), and 1244(c)(2)(C) are each amended by
striking ``, 244,'' each place it appears.
(H) Section 805(a)(4)(B) is amended by striking ``,
244(a),'' each place it appears.
(I) Section 810(c)(2)(B) is amended by striking
``244 (relating to dividends on certain preferred stock
of public utilities),''.
(29) Organization expenses.--Section 248(c) is amended by
striking ``beginning after December 31, 1953,'' and by striking
the last sentence.
(30) Bond repurchase premium.--Section 249(b)(1) is amended
by striking ``, in the case of bonds or other evidences of
indebtedness issued after February 28, 1913,''.
(31) Amount of gain where loss previously disallowed.--
Section 267(d) is amended by striking ``(or by reason of
section 24(b) of the Internal Revenue Code of 1939)'' in
paragraph (1), by striking ``after December 31, 1953,'' in
paragraph (2), by striking the second sentence, and by striking
``or by reason of section 118 of the Internal Revenue Code of
1939'' in the last sentence.
(32) Acquisitions made to evade or avoid income tax.--
Paragraphs (1) and (2) of section 269(a) are each amended by
striking ``or acquired on or after October 8, 1940,''.
(33) Interest on indebtedness incurred by corporations to
acquire stock or assets of another corporation.--Section 279 is
amended--
(A) by striking ``after December 31, 1967,'' in
subsection (a)(2),
(B) by striking ``after October 9, 1969,'' in
subsection (b),
(C) by striking ``after October 9, 1969, and'' in
subsection (d)(5), and
(D) by striking subsection (i) and by redesignating
subsection (j) as subsection (i).
(34) Special rules relating to corporate preference
items.--Paragraph (4) of section 291(a) is amended by striking
``In the case of taxable years beginning after December 31,
1984, section'' and inserting ``Section''.
(35) Qualifications for tax credit employee stock ownership
plan.--Section 409 is amended by striking subsections (a), (g),
and (q).
(36) Funding standards.--Section 412(m)(4) is amended--
(A) by striking ``the applicable percentage'' in
subparagraph (A) and inserting ``25 percent'', and
(B) by striking subparagraph (C) and by
redesignating subparagraph (D) as subparagraph (C).
(37) Retiree health accounts.--Section 420 is amended--
(A) by striking paragraph (4) in subsection (b) and
by redesignating paragraph (5) as paragraph (4), and
(B) by amending paragraph (2) of subsection (c) to
read as follows:
``(2) Requirements relating to pension benefits accruing
before transfer.--The requirements of this paragraph are met if
the plan provides that the accrued pension benefits of any
participant or beneficiary under the plan become nonforfeitable
in the same manner which would be required if the plan had
terminated immediately before the qualified transfer (or in the
case of a participant who separated during the 1-year period
ending on the date of the transfer, immediately before such
separation).''.
(38) Employee stock purchase plans.--Section 423(a) is
amended by striking ``after December 31, 1963,''.
(39) Limitation on deductions for certain farming.--Section
464 is amended--
(A) by striking ``any farming syndicate (as defined
in subsection (c))'' both places it appears in
subsections (a) and (b) and inserting ``any taxpayer to
whom subsection (f) applies'', and
(B) by striking subsection (g).
(40) Deductions limited to amount at risk.--
(A) Paragraph (3) of section 465(c) is amended by
striking ``In the case of taxable years beginning after
December 31, 1978, this'' and inserting ``This''.
(B) Paragraph (2) of section 465(e)(2)(A) is
amended by striking ``beginning after December 31,
1978''.
(41) Nuclear decommissioning costs.--Section 468A(e)(2) is
amended--
(A) by striking ``at the rate set forth in
subparagraph (B)'' in subparagraph (A) and inserting
``at a rate of 20 percent'', and
(B) by striking subparagraph (B) and by
redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(42) Passive activity losses and credits limited.--
(A) Section 469 is amended by striking subsection
(m).
(B) Subsection (b) of section 58 is amended by
adding ``and'' at the end of paragraph (1), by striking
paragraph (2), and by redesignating paragraph (3) as
paragraph (2).
(43) Adjustments required by changes in method of
accounting.--Section 481(b)(3) is amended by striking
subparagraph (C).
(44) Exemption from tax on corporations, certain trusts,
etc.--Section 501 is amended by striking subsection (q).
(45) Requirements for exemption.--
(A) Section 503(a)(1) is amended to read as
follows:
``(1) General rule.--An organization described in paragraph
(17) or (18) of section 501(c) or described in section 401(a)
and referred to in section 4975(g)(2) or (3) shall not be
exempt from taxation under section 501(a) if it has engaged in
a prohibited transaction.''.
(B) Paragraph (2) of section 503(a) is amended by
striking ``described in section 501(c)(17) or (18) or
paragraph (a)(1)(B)'' and inserting ``described in
paragraph (1)''.
(C) Subsection (c) of section 503 is amended by
striking ``described in section 501(c)(17) or (18) or
subsection (a)(1)(B)'' and inserting ``described in
subsection (a)(1)''.
(46) Amounts received by surviving annuitant under joint
and survivor annuity contract.--Subparagraph (A) of section
691(d)(1) is amended by striking ``after December 31, 1953,
and''.
(47) Income taxes of members of armed forces on death.--
Section 692(a)(1) is amended by striking ``after June 24,
1950''.
(48) Insurance company taxable income.--
(A) Section 832(e) is amended by striking ``of
taxable years beginning after December 31, 1966,''.
(B) Section 832(e)(6) is amended by striking ``In
the case of any taxable year beginning after December
31, 1970, the'' and by inserting ``The''.
(49) Tax on nonresident alien individuals.--Subparagraph
(B) of section 871(a)(1) is amended to read as follows:
``(B) gains described in subsection (b) or (c) of
section 631,''.
(50) Property on which lessee has made improvements.--
Section 1019 is amended by striking the last sentence.
(51) Involuntary conversion.--Section 1033 is amended by
striking subsection (j) and by redesignating subsection (k) as
subsection (j).
(52) Property acquired during affiliation.--Section 1051 is
repealed and the table of sections for part IV of subchapter O
of chapter 1 is amended by striking the item relating to
section 1051.
(53) Holding period of property.--
(A) Paragraph (5) of section 1223 is amended by
striking ``(or under so much of section 1052(c) as
refers to section 113(a)(23) of the Internal Revenue
Code of 1939)''.
(B) Paragraph (7) of section 1223 is amended by
striking the last sentence.
(C) Paragraph (9) of section 1223 is repealed.
(54) Property used in the trade or business and involuntary
conversions.--Subparagraph (A) of section 1231(c)(2) is amended
by striking ``beginning after December 31, 1981''.
(55) Sale or exchange of patents.--Section 1235 is
amended--
(A) by striking subsection (c) and by redesignating
subsections (d) and (e) as (c) and (d), respectively,
and
(B) by striking ``(d)'' in subsection (b) and
inserting ``(c)''.
(56) Dealers in securities.--Subsection (b) of section 1236
is amended by striking ``after November 19, 1951,''.
(57) Sale of patents.--Subsection (a) of section 1249 is
amended by striking ``after December 31, 1962,''.
(58) Gain from disposition of farm land.--Paragraph (1) of
section 1252(a) is amended by striking ``after December 31,
1969,'' both places it appears.
(59) Treatment of amounts received on retirement or sale or
exchange of debt instruments.--Subsection (c) of section 1271
is amended to read as follows:
``(c) Special Rule for Certain Obligations With Respect to Which
Original Issue Discount Not Currently Includible.--
``(1) In general.--On the sale or exchange of debt
instruments issued by a government or political subdivision
thereof after December 31, 1954, and before July 2, 1982, or by
a corporation after December 31, 1954, and on or before May 27,
1969, any gain realized which does not exceed--
``(A) an amount equal to the original issue
discount, or
``(B) if at the time of original issue there was no
intention to call the debt instrument before maturity,
an amount which bears the same ratio to the original
issue discount as the number of complete months that
the debt instrument was held by the taxpayer bears to
the number of complete months from the date of original
issue to the date of maturity,
shall be considered as ordinary income.
``(2) Subsection (a)(2)(A) not to apply.--Subsection
(a)(2)(A) shall not apply to any debt instrument referred to in
subparagraph (A) of this paragraph.
``(3) Cross reference.--
``For current inclusion of original
issue discount, see section 1272.''.
(60) Amount and method of adjustment.--Section 1314 is
amended by striking subsection (d) and by redesignating
subsection (e) as subsection (d).
(61) Election; revocation; termination.--Clause (iii) of
section 1362(d)(3) is amended by striking ``unless'' and all
that follows and inserting ``unless the corporation was an S
corporation for such taxable year.''.
(62) Old-age, survivors, and disability insurance.--
Subsection (a) of section 1401 is amended by striking ``the
following percent'' and all that follows and inserting ``12.4
percent of the amount of the self-employment income for such
taxable year.''.
(63) Hospital insurance.--Subsection (b) of section 1401 is
amended by striking ``the following percent'' and all that
follows and inserting ``2.9 percent of the amount of the self-
employment income for such taxable year.''.
(64) Ministers, members of religious orders, and christian
science practitioners.--Paragraph (3) of section 1402(e) is
amended by striking ``whichever of the following dates is
later: (A)'' and by striking ``; or (B)'' and all that follows
and by inserting a period.
(65) Withholding of tax on nonresident aliens.--The first
sentence of subsection (b) of section 1441 and the first
sentence of paragraph (5) of section 1441(c) are each amended
by striking ``gains subject to tax'' and all that follows
through ``October 4, 1966'' and inserting ``and gains subject
to tax under section 871(a)(1)(D)''.
(66) Affiliated group defined.--Subparagraph (A) of section
1504(a)(3) is amended by striking ``for a taxable year which
includes any period after December 31, 1984'' in clause (i) and
by striking ``in a taxable year beginning after December 31,
1984'' in clause (ii).
(67) Disallowance of the benefits of the graduated
corporate rates and accumulated earnings credit.--
(A) Subsection (a) of section 1551 is amended by
striking paragraph (1) and by redesignating paragraphs
(2) and (3) as paragraphs (1) and (2), respectively.
(B) Section 1551(b) is amended--
(i) by striking ``or (2)'' in paragraph
(1), and
(ii) by striking ``(a)(3)'' in paragraph
(2) and inserting ``(a)(2)''.
(68) Definition of wages.--Section 3121(b) is amended by
striking paragraph (17).
(69) Credits against tax.--
(A) Paragraph (4) of section 3302(f) is amended by
striking ``subsection--'' and all that follows through
``(A) In general.--'', by striking subparagraph (B), by
redesignating clauses (i) and (ii) as subparagraphs (A)
and (B), respectively, and by moving the text of such
subparagraphs (as so redesignated) 2 ems to the left.
(B) Paragraph (5) of section 3302(f) is amended by
striking subparagraphs (D) and by redesignating
subparagraph (E) as subparagraph (D).
(70) Domestic service employment taxes.--Section 3510(b) is
amended by striking paragraph (4).
(71) Tax on fuel used in commercial transportation on
inland waterways.--Section 4042(b)(2)(A) is amended to read as
follows:
``(A) The Inland Waterways Trust Fund financing
rate is 20 cents per gallon.''.
(72) Transportation by air.--Section 4261(e) is amended--
(A) in paragraph (1) by striking subparagraph (C),
and
(B) by striking paragraph (5).
(73) Taxes on failure to distribute income.--Section 4942
is amended--
(A) by striking subsection (f)(2)(D),
(B) in subsection (g)(2)(A) by striking ``For all
taxable years beginning on or after January 1, 1975,
subject'' and inserting ``Subject'',
(C) in subsection (g) by striking paragraph (4),
and
(D) in subsection (i)(2) by striking ``beginning
after December 31, 1969, and''.
(74) Taxes on taxable expenditures.--Section 4945(f) is
amended by striking ``(excluding therefrom any preceding
taxable year which begins before January 1, 1970)''.
(75) Returns.--Subsection (a) of section 6039D is amended
by striking ``beginning after December 31, 1984,''.
(76) Information returns.--Subsection (c) of section 6060
is amended by striking ``year'' and all that follows and
inserting ``year.''.
(77) Abatements.--Section 6404(f) is amended by striking
paragraph (3).
(78) Failure by corporation to pay estimated income tax.--
Clause (i) of section 6655(g)(4)(A) is amended by striking
``(or the corresponding provisions of prior law)''.
(79) Retirement.--Section 7447(i)(3)(B)(ii) is amended by
striking ``at 4 percent per annum to December 31, 1947, and at
3 percent per annum thereafter'', and inserting ``at 3 percent
per annum''.
(80) Annuities to surviving spouses and dependent children
of judges.--
(A) Paragraph (2) of section 7448(a) is amended by
striking ``or under section 1106 of the Internal
Revenue Code of 1939'' and by striking ``or pursuant to
section 1106(d) of the Internal Revenue Code of 1939''.
(B) Subsection (g) of section 7448 is amended by
striking ``or other than pursuant to section 1106 of
the Internal Revenue Code of 1939''.
(C) Subsections (g), (j)(1), and (j)(2) of section
7448 are each amended by striking ``at 4 percent per
annum to December 31, 1947, and at 3 percent per annum
thereafter'' and inserting ``at 3 percent per annum''.
(81) Merchant marine capital construction funds.--Paragraph
(4) of section 7518(g) is amended by striking ``any
nonqualified withdrawal'' and all that follows through ``shall
be determined'' and inserting ``any nonqualified withdrawal
shall be determined''.
(82) Valuation tables.--Paragraph (3) of section 7520(c) is
amended--
(A) by striking ``Not later than December 31, 1989,
the'' and inserting ``The'', and
(B) by striking ``thereafter'' in the last sentence
thereof.
(83) Administration and collection of taxes in
possessions.--Section 7651 is amended by striking paragraph (4)
and by redesignating paragraph (5) as paragraph (4).
(84) Definition of employee.--(A) Section 7701(a)(20) is
amended by striking ``chapter 21'' and all that follows and
inserting ``chapter 21.''.
(b) Effective Date.--
(1) General rule.--Except as otherwise provided in
paragraph (2), the amendments made by subsection (a) shall take
effect on the date of enactment of this Act.
(2) Savings provision.--If--
(A) any provision amended or repealed by subsection
(a) applied to--
(i) any transaction occurring before the
date of the enactment of this Act,
(ii) any property acquired before such date
of enactment, or
(iii) any item of income, loss, deduction,
or credit taken into account before such date
of enactment, and
(B) the treatment of such transaction, property, or
item under such provision would (without regard to the
amendments made by subsection (a)) affect the liability
for tax for periods ending after such date of
enactment,
nothing in the amendments made by subsection (a) shall be
construed to affect the treatment of such transaction,
property, or item for purposes of determining liability for tax
for periods ending after such date of enactment.
TITLE VI--REVENUE PROVISIONS
Subtitle A--Provisions Designed To Curtail Tax Shelters
SEC. 601. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.
(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:
``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.
``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has
a history of complying with the requirements of this
title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity
and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under paragraph
(1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner or the head of
the Office of Tax Shelter Analysis with respect to the
determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate
amount of penalties imposed, and rescinded, under this
section, and
``(B) a description of each penalty rescinded under
this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for purposes
of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction, or
``(B) is required to pay a penalty under section
6662A with respect to any reportable transaction at a
rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section is in addition to any penalty imposed under this title.''.
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:
``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return or
statement.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.
SEC. 602. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.
(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662 the following new section:
``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.
``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to assertion and compromise of
penalty.--
``(A) In general.--Only upon the approval by the
Chief Counsel for the Internal Revenue Service or the
Chief Counsel's delegate at the national office of the
Internal Revenue Service may a penalty to which
paragraph (1) applies be included in a 1st letter of
proposed deficiency which allows the taxpayer an
opportunity for administrative review in the Internal
Revenue Service Office of Appeals. If such a letter is
provided to the taxpayer, only the Commissioner of
Internal Revenue may compromise all or any portion of
such penalty.
``(B) Applicable rules.--The rules of paragraphs
(2), (3), (4), and (5) of section 6707A(d) shall apply
for purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement if the amendment or supplement is
filed after the earlier of the date the taxpayer is first
contacted by the Secretary regarding the examination of the
return or such other date as is specified by the Secretary.
``(4) Cross reference.--
``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
``(B) there is or was substantial authority for
such treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of an item only if such belief--
``(i) is based on the facts and law that
exist at the time the return of tax which
includes such tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such
treatment and does not take into account the
possibility that a return will not be audited,
such treatment will not be raised on audit, or
such treatment will be resolved through
settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax
advisor may not be relied upon to establish the
reasonable belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified tax advisors.--A tax
advisor is described in this clause if the tax
advisor--
``(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization,
management, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a disqualifying
financial interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''.
(3) Section 6662(d)(2) is amended by striking subparagraphs
(C) and (D).
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:
``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.
(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:
``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 603. MODIFICATIONS OF SUBSTANTIAL UNDERSTATEMENT PENALTY FOR
NONREPORTABLE TRANSACTIONS.
(a) Substantial Understatement of Corporations.--Section
6662(d)(1)(B) (relating to special rule for corporations) is amended to
read as follows:
``(B) Special rule for corporations.--In the case
of a corporation other than an S corporation or a
personal holding company (as defined in section 542),
there is a substantial understatement of income tax for
any taxable year if the amount of the understatement
for the taxable year exceeds the lesser of--
``(i) 10 percent of the tax required to be
shown on the return for the taxable year (or,
if greater, $10,000), or
``(ii) $10,000,000.''.
(b) Reduction for Understatement of Taxpayer Due to Position of
Taxpayer or Disclosed Item.--
(1) In general.--Section 6662(d)(2)(B)(i) (relating to
substantial authority) is amended to read as follows:
``(i) the tax treatment of any item by the
taxpayer if the taxpayer had reasonable belief
that the tax treatment was more likely than not
the proper treatment, or''.
(2) Conforming amendment.--Section 6662(d) is amended by
adding at the end the following new paragraph:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 604. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.
(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.
SEC. 605. DISCLOSURE OF REPORTABLE TRANSACTIONS.
(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:
``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.
``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, managing, promoting, selling,
implementing, or carrying out any reportable
transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6111. Disclosure of reportable
transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:
``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.
``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:
``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:
``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''.
(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:
``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''.
(c) Required Disclosure Not Subject to Claim of Confidentiality.--
Subparagraph (A) of section 6112(b)(1), as redesignated by subsection
(b)(2)(B), is amended by adding at the end the following new flush
sentence:
``For purposes of this section, the identity of any person on
such list shall not be privileged.''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to transactions
with respect to which material aid, assistance, or advice
referred to in section 6111(b)(1)(A)(i) of the Internal Revenue
Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.
(2) No claim of confidentiality against disclosure.--The
amendment made by subsection (c) shall take effect as if
included in the amendments made by section 142 of the Deficit
Reduction Act of 1984.
SEC. 606. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.
(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:
``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.
``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the listed
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Certain Rules To Apply.--The provisions of section 6707A(d)
shall apply to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.
SEC. 607. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.
(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.
SEC. 608. MODIFICATION OF ACTIONS TO ENJOIN CERTAIN CONDUCT RELATED TO
TAX SHELTERS AND REPORTABLE TRANSACTIONS.
(a) In General.--Section 7408 (relating to action to enjoin
promoters of abusive tax shelters, etc.) is amended by redesignating
subsection (c) as subsection (d) and by striking subsections (a) and
(b) and inserting the following new subsections:
``(a) Authority To Seek Injunction.--A civil action in the name of
the United States to enjoin any person from further engaging in
specified conduct may be commenced at the request of the Secretary. Any
action under this section shall be brought in the district court of the
United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The
court may exercise its jurisdiction over such action (as provided in
section 7402(a)) separate and apart from any other action brought by
the United States against such person.
``(b) Adjudication and Decree.--In any action under subsection (a),
if the court finds--
``(1) that the person has engaged in any specified conduct,
and
``(2) that injunctive relief is appropriate to prevent
recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in
any other activity subject to penalty under this title.
``(c) Specified Conduct.--For purposes of this section, the term
`specified conduct' means any action, or failure to take action,
subject to penalty under section 6700, 6701, 6707, or 6708.''.
(b) Conforming Amendments.--
(1) The heading for section 7408 is amended to read as
follows:
``SEC. 7408. ACTIONS TO ENJOIN SPECIFIED CONDUCT RELATED TO TAX
SHELTERS AND REPORTABLE TRANSACTIONS.''.
(2) The table of sections for subchapter A of chapter 67 is
amended by striking the item relating to section 7408 and
inserting the following new item:
``Sec. 7408. Actions to enjoin specified conduct related to tax
shelters and reportable transactions.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the day after the date of the enactment of this Act.
SEC. 609. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY INCOME TAX RETURN
PREPARER.
(a) Standards Conformed to Taxpayer Standards.--Section 6694(a)
(relating to understatements due to unrealistic positions) is amended--
(1) by striking ``realistic possibility of being sustained
on its merits'' in paragraph (1) and inserting ``reasonable
belief that the tax treatment in such position was more likely
than not the proper treatment'',
(2) by striking ``or was frivolous'' in paragraph (3) and
inserting ``or there was no reasonable basis for the tax
treatment of such position'', and
(3) by striking ``Unrealistic'' in the heading and
inserting ``Improper''.
(b) Amount of Penalty.--Section 6694 is amended--
(1) by striking ``$250'' in subsection (a) and inserting
``$1,000'', and
(2) by striking ``$1,000'' in subsection (b) and inserting
``$5,000''.
(c) Effective Date.--The amendments made by this section shall
apply to documents prepared after the date of the enactment of this
Act.
SEC. 610. REGULATION OF INDIVIDUALS PRACTICING BEFORE THE DEPARTMENT OF
TREASURY.
(a) Censure; Imposition of Penalty.--
(1) In general.--Section 330(b) of title 31, United States
Code, is amended--
(A) by inserting ``, or censure,'' after
``Department'', and
(B) by adding at the end the following new flush
sentence:
``The Secretary may impose a monetary penalty on any representative
described in the preceding sentence. If the representative was acting
on behalf of an employer or any firm or other entity in connection with
the conduct giving rise to such penalty, the Secretary may impose a
monetary penalty on such employer, firm, or entity if it knew, or
reasonably should have known, of such conduct. Such penalty shall not
exceed the gross income derived (or to be derived) from the conduct
giving rise to the penalty and may be in addition to, or in lieu of,
any suspension, disbarment, or censure of the representative.''.
(2) Effective date.--The amendments made by this subsection
shall apply to actions taken after the date of the enactment of
this Act.
(b) Tax Shelter Opinions, etc.--Section 330 of such title 31 is
amended by adding at the end the following new subsection:
``(d) Nothing in this section or in any other provision of law
shall be construed to limit the authority of the Secretary of the
Treasury to impose standards applicable to the rendering of written
advice with respect to any entity, transaction plan or arrangement, or
other plan or arrangement, which is of a type which the Secretary
determines as having a potential for tax avoidance or evasion.''.
SEC. 611. PENALTY ON PROMOTERS OF TAX SHELTERS.
(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''.
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.
SEC. 612. STATUTE OF LIMITATIONS FOR TAXABLE YEARS FOR WHICH REQUIRED
LISTED TRANSACTIONS NOT REPORTED.
(a) In General.--Section 6501(c) (relating to exceptions) is
amended by adding at the end the following new paragraph:
``(10) Listed transactions.--If a taxpayer fails to include
on any return or statement for any taxable year any information
with respect to a listed transaction (as defined in section
6707A(c)(2)) which is required under section 6011 to be
included with such return or statement, the time for assessment
of any tax imposed by this title with respect to such
transaction shall not expire before the date which is 1 year
after the earlier of--
``(A) the date on which the Secretary is furnished
the information so required; or
``(B) the date that a material advisor (as defined
in section 6111) meets the requirements of section 6112
with respect to a request by the Secretary under
section 6112(b) relating to such transaction with
respect to such taxpayer.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years with respect to which the period for assessing a
deficiency did not expire before the date of the enactment of this Act.
SEC. 613. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS
ATTRIBUTABLE TO TAX-MOTIVATED TRANSACTIONS.
(a) In General.--Section 163 (relating to deduction for interest)
is amended by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
``(m) Interest on Unpaid Taxes Attributable To Nondisclosed
Reportable Transactions.--No deduction shall be allowed under this
chapter for any interest paid or accrued under section 6601 on any
underpayment of tax which is attributable to the portion of any
reportable transaction understatement (as defined in section 6662A(b))
with respect to which the requirement of section 6664(d)(2)(A) is not
met.''.
(b) Effective Date.--The amendments made by this section shall
apply to transactions in taxable years beginning after the date of the
enactment of this Act.
SEC. 614. AUTHORIZATION OF APPROPRIATIONS FOR TAX LAW ENFORCEMENT.
There is authorized to be appropriated $300,000,000 for each fiscal
year beginning after September 30, 2003, for the purpose of carrying
out tax law enforcement to combat tax avoidance transactions and other
tax shelters, including the use of offshore financial accounts to
conceal taxable income.
PART II--OTHER CORPORATE GOVERNANCE PROVISIONS
SEC. 621. AFFIRMATION OF CONSOLIDATED RETURN REGULATION AUTHORITY.
(a) In General.--Section 1502 (relating to consolidated return
regulations) is amended by adding at the end the following new
sentence: ``In prescribing such regulations, the Secretary may
prescribe rules applicable to corporations filing consolidated returns
under section 1501 that are different from other provisions of this
title that would apply if such corporations filed separate returns.''.
(b) Result Not Overturned.--Notwithstanding subsection (a), the
Internal Revenue Code of 1986 shall be construed by treating Treasury
regulation Sec. 1.1502-20(c)(1)(iii) (as in effect on January 1, 2001)
as being inapplicable to the type of factual situation in 255 F.3d 1357
(Fed. Cir. 2001).
(c) Effective Date.--The provisions of this section shall apply to
taxable years beginning before, on, or after the date of the enactment
of this Act.
SEC. 622. DECLARATION BY CHIEF EXECUTIVE OFFICER RELATING TO FEDERAL
ANNUAL INCOME TAX RETURN OF A CORPORATION.
(a) In General.--The Federal annual tax return of a corporation
with respect to income shall also include a declaration signed by the
chief executive officer of such corporation (or other such officer of
the corporation as the Secretary of the Treasury may designate if the
corporation does not have a chief executive officer), under penalties
of perjury, that the corporation has in place processes and procedures
to ensure that such return complies with the Internal Revenue Code of
1986 and that the chief executive officer was provided reasonable
assurance of the accuracy of all material aspects of such return. The
preceding sentence shall not apply to any return of a regulated
investment company (within the meaning of section 851 of such Code).
(b) Effective Date.--This section shall apply to the Federal annual
tax return of a corporation with respect to income for taxable years
ending after the date of the enactment of this Act.
SEC. 623. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER
AMOUNTS.
(a) In General.--Subsection (f) of section 162 (relating to trade
or business expenses) is amended to read as follows:
``(f) Fines, Penalties, and Other Amounts.--
``(1) In general.--Except as provided in paragraph (2), no
deduction otherwise allowable shall be allowed under this
chapter for any amount paid or incurred (whether by suit,
agreement, or otherwise) to, or at the direction of, a
government or entity described in paragraph (4) in relation to
the violation of any law or the investigation or inquiry by
such government or entity into the potential violation of any
law.
``(2) Exception for amounts constituting restitution.--
Paragraph (1) shall not apply to any amount which the taxpayer
establishes constitutes restitution (including remediation of
property) for damage or harm caused by or which may be caused
by the violation of any law or the potential violation of any
law. This paragraph shall not apply to any amount paid or
incurred as reimbursement to the government or entity for the
costs of any investigation or litigation.
``(3) Exception for amounts paid or incurred as the result
of certain court orders.--Paragraph (1) shall not apply to any
amount paid or incurred by order of a court in a suit in which
no government or entity described in paragraph (4) is a party.
``(4) Certain nongovernmental regulatory entities.--An
entity is described in this paragraph if it is--
``(A) a nongovernmental entity which exercises
self-regulatory powers (including imposing sanctions)
in connection with a qualified board or exchange (as
defined in section 1256(g)(7)), or
``(B) to the extent provided in regulations, a
nongovernmental entity which exercises self-regulatory
powers (including imposing sanctions) as part of
performing an essential governmental function.
``(5) Exception for taxes due.--Paragraph (1) shall not
apply to any amount paid or incurred as taxes due.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after April 27, 2003, except that such
amendment shall not apply to amounts paid or incurred under any binding
order or agreement entered into on or before April 27, 2003. Such
exception shall not apply to an order or agreement requiring court
approval unless the approval was obtained on or before April 27, 2003.
SEC. 624. DISALLOWANCE OF DEDUCTION FOR PUNITIVE DAMAGES.
(a) Disallowance of Deduction.--
(1) In general.--Section 162(g) (relating to treble damage
payments under the antitrust laws) is amended by adding at the
end the following new paragraph:
``(2) Punitive damages.--No deduction shall be allowed
under this chapter for any amount paid or incurred for punitive
damages in connection with any judgment in, or settlement of,
any action. This paragraph shall not apply to punitive damages
described in section 104(c).''.
(2) Conforming amendments.--
(A) Section 162(g) is amended--
(i) by striking ``If'' and inserting:
``(1) Treble damages.--If'', and
(ii) by redesignating paragraphs (1) and
(2) as subparagraphs (A) and (B), respectively.
(B) The heading for section 162(g) is amended by
inserting ``or Punitive Damages'' after ``Laws''.
(b) Inclusion in Income of Punitive Damages Paid by Insurer or
Otherwise.--
(1) In general.--Part II of subchapter B of chapter 1
(relating to items specifically included in gross income) is
amended by adding at the end the following new section:
``SEC. 91. PUNITIVE DAMAGES COMPENSATED BY INSURANCE OR OTHERWISE.
``Gross income shall include any amount paid to or on behalf of a
taxpayer as insurance or otherwise by reason of the taxpayer's
liability (or agreement) to pay punitive damages.''.
(2) Reporting requirements.--Section 6041 (relating to
information at source) is amended by adding at the end the
following new subsection:
``(f) Section To Apply to Punitive Damages Compensation.--This
section shall apply to payments by a person to or on behalf of another
person as insurance or otherwise by reason of the other person's
liability (or agreement) to pay punitive damages.''.
(3) Conforming amendment.--The table of sections for part
II of subchapter B of chapter 1 is amended by adding at the end
the following new item:
``Sec. 91. Punitive damages compensated by insurance or otherwise.''.
(c) Effective Date.--The amendments made by this section shall
apply to damages paid or incurred on or after the date of the enactment
of this Act.
SEC. 625. INCREASE IN CRIMINAL MONETARY PENALTY FOR INDIVIDUALS TO THE
AMOUNT OF THE TAX AT ISSUE.
(a) In General.--Section 7206 (relating to fraud and false
statements) is amended--
(1) by striking ``Any person who--'' and inserting ``(a) In
General.--Any person who--'', and
(2) by adding at the end the following new subsection:
``(b) Increase in Monetary Limitation for Underpayment or
Overpayment of Tax Due To Fraud.--If any portion of any underpayment
(as defined in section 6664(a)) or overpayment (as defined in section
6203(a)) of tax required to be shown on a return is attributable to
fraudulent action described in subsection (a), the applicable dollar
amount under subsection (a) shall in no event be less than an amount
equal to such portion. A rule similar to the rule under section 6663(b)
shall apply for purposes of determining the portion so attributable.''.
(b) Increase in Penalties.--
(1) Attempt to evade or defeat tax.--Section 7201 is
amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``5 years'' and inserting ``10
years''.
(2) Willful failure to file return, supply information, or
pay tax.--Section 7203 is amended--
(A) in the first sentence--
(i) by striking ``misdemeanor'' and
inserting ``felony'', and
(ii) by striking ``1 year'' and inserting
``10 years'', and
(B) by striking the third sentence.
(3) Fraud and false statements.--Section 7206(a) (as
redesignated by subsection (a)) is amended--
(A) by striking ``$100,000'' and inserting
``$250,000'',
(B) by striking ``$500,000'' and inserting
``$1,000,000'', and
(C) by striking ``3 years'' and inserting ``5
years''.
(c) Effective Date.--The amendments made by this section shall
apply to underpayments and overpayments attributable to actions
occurring after the date of the enactment of this Act.
SEC. 626. DOUBLING OF CERTAIN PENALTIES, FINES, AND INTEREST ON
UNDERPAYMENTS RELATED TO CERTAIN OFFSHORE FINANCIAL
ARRANGEMENTS.
(a) General Rule.--If--
(1) a taxpayer eligible to participate in--
(A) the Department of the Treasury's Offshore
Voluntary Compliance Initiative, or
(B) the Department of the Treasury's voluntary
disclosure initiative which applies to the taxpayer by
reason of the taxpayer's underreporting of United
States income tax liability through financial
arrangements which rely on the use of offshore
arrangements which were the subject of the initiative
described in subparagraph (A), and
(2) any interest or applicable penalty is imposed with
respect to any arrangement to which any initiative described in
paragraph (1) applied or to any underpayment of Federal income
tax attributable to items arising in connection with any
arrangement described in paragraph (1),
then, notwithstanding any other provision of law, the amount of such
interest or penalty shall be equal to twice that determined without
regard to this section.
(b) Definitions and Rules.--For purposes of this section--
(1) Applicable penalty.--The term ``applicable penalty''
means any penalty, addition to tax, or fine imposed under
chapter 68 of the Internal Revenue Code of 1986.
(2) Voluntary offshore compliance initiative.--The term
``Voluntary Offshore Compliance Initiative'' means the program
established by the Department of the Treasury in January of
2003 under which any taxpayer was eligible to voluntarily
disclose previously undisclosed income on assets placed in
offshore accounts and accessed through credit card and other
financial arrangements.
(3) Participation.--A taxpayer shall be treated as having
participated in the Voluntary Offshore Compliance Initiative if
the taxpayer submitted the request in a timely manner and all
information requested by the Secretary of the Treasury or his
delegate within a reasonable period of time following the
request.
(c) Effective Date.--The provisions of this section shall apply to
interest, penalties, additions to tax, and fines with respect to any
taxable year if as of the date of the enactment of this Act, the
assessment of any tax, penalty, or interest with respect to such
taxable year is not prevented by the operation of any law or rule of
law.
PART III--EXTENSION OF IRS USER FEES
SEC. 631. EXTENSION OF IRS USER FEES.
(a) In General.--Section 7528(c) (relating to termination) is
amended by striking ``December 31, 2004'' and inserting ``September 30,
2013''.
(b) Effective Date.--The amendment made by this section shall apply
to requests after the date of the enactment of this Act.
PART IV--OTHER REVENUE PROVISIONS
SEC. 641. REPORTING OF TAXABLE MERGERS AND ACQUISITIONS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by inserting after section 6043 the following new
section:
``SEC. 6043A. TAXABLE MERGERS AND ACQUISITIONS.
``(a) In General.--The acquiring corporation in any taxable
acquisition shall make a return (according to the forms or regulations
prescribed by the Secretary) setting forth--
``(1) a description of the acquisition,
``(2) the name and address of each shareholder of the
acquired corporation who is required to recognize gain (if any)
as a result of the acquisition,
``(3) the amount of money and the fair market value of
other property transferred to each such shareholder as part of
such acquisition, and
``(4) such other information as the Secretary may
prescribe.
To the extent provided by the Secretary, the requirements of this
section applicable to the acquiring corporation shall be applicable to
the acquired corporation and not to the acquiring corporation.
``(b) Nominee Reporting.--Any person who holds stock as a nominee
for another person shall furnish in the manner prescribed by the
Secretary to such other person the information provided by the
corporation under subsection (d).
``(c) Taxable Acquisition.--For purposes of this section, the term
`taxable acquisition' means any acquisition by a corporation of stock
in or property of another corporation if any shareholder of the
acquired corporation is required to recognize gain (if any) as a result
of such acquisition.
``(d) Statements To Be Furnished to Shareholders.--Every person
required to make a return under subsection (a) shall furnish to each
shareholder whose name is required to be set forth in such return a
written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such return,
``(2) the information required to be shown on such return
with respect to such shareholder, and
``(3) such other information as the Secretary may
prescribe.
The written statement required under the preceding sentence shall be
furnished to the shareholder on or before January 31 of the year
following the calendar year during which the taxable acquisition
occurred.''.
(b) Assessable Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) (defining
information return) is amended by redesignating clauses (ii)
through (xviii) as clauses (iii) through (xix), respectively,
and by inserting after clause (i) the following new clause:
``(ii) section 6043A(a) (relating to
returns relating to taxable mergers and
acquisitions),''.
(2) Paragraph (2) of section 6724(d) (relating to
definitions) is amended by redesignating subparagraphs (F)
through (BB) as subparagraphs (G) through (CC), respectively,
and by inserting after subparagraph (E) the following new
subparagraph:
``(F) subsections (b) and (d) of section 6043A
(relating to returns relating to taxable mergers and
acquisitions).''.
(c) Clerical Amendment.--The table of sections for subpart B of
part III of subchapter A of chapter 61 is amended by inserting after
the item relating to section 6043 the following new item:
``Sec. 6043A. Returns relating to taxable mergers and
acquisitions.''.
(d) Effective Date.--The amendments made by this section shall
apply to acquisitions after the date of the enactment of this Act.
SEC. 642. MODIFICATION OF DEFINITION OF CONTROLLED GROUP OF
CORPORATIONS.
(a) In General.--Section 1563(a)(2) (relating to brother-sister
controlled group) is amended by striking ``possessing--'' and all that
follows through ``(B)'' and inserting ``possessing''.
(b) Application of Existing Rules to Other Code Provisions.--
Section 1563(f) (relating to other definitions and rules) is amended by
adding at the end the following new paragraph:
``(5) Brother-sister controlled group definition for
provisions other than this part.--
``(A) In general.--Except as specifically provided
in an applicable provision, subsection (a)(2) shall be
applied to an applicable provision as if it read as
follows:
```(2) Brother-sister controlled group.--Two or more
corporations if 5 or fewer persons who are individuals,
estates, or trusts own (within the meaning of subsection (d)(2)
stock possessing--
```(A) at least 80 percent of the total combined
voting power of all classes of stock entitled to vote,
or at least 80 percent of the total value of shares of
all classes of stock, of each corporation, and
```(B) more than 50 percent of the total combined
voting power of all classes of stock entitled to vote
or more than 50 percent of the total value of shares of
all classes of stock of each corporation, taking into
account the stock ownership of each such person only to
the extent such stock ownership is identical with
respect to each such corporation.'
``(B) Applicable provision.--For purposes of this
paragraph, an applicable provision is any provision of
law (other than this part) which incorporates the
definition of controlled group of corporations under
subsection (a).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
Attest:
Secretary.
108th CONGRESS
2d Session
H. R. 1528
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AMENDMENT