II
Calendar No. 614
109th CONGRESS
2d Session
S. 1321
[Report No. 109–336]
IN THE SENATE OF THE UNITED STATES
June 28, 2005
Mr. Santorum (for himself, Mr. Crapo, Mr. Smith, Mr. Hagel, Mr. Ensign, Mr. Allen, Mr. Coburn, Mr. Thune, Mr. Chambliss, Mr. Sessions, Mr. Allard, Mr. Cochran, Mr. Isakson, Mr. Hatch, Mr. Craig, Mr. Brownback, Mr. Talent, and Mr. Kyl) introduced the following bill; which was read twice and referred to the Committee on Finance
September 15, 2006
Reported by Mr. Grassley, with an amendment and an amendment to the title
Strike out all after the enacting clause and insert the part printed in italic
AN ACT
To amend the Internal Revenue Code of 1986 to repeal the excise tax on telephone and other communications services.
Short title; amendment of 1986 Code; table of contents
Short title
This Act may be cited as the Telephone Excise Tax Repeal and Taxpayer Protection and Assistance Act of 2006
.
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.
Table of contents
The table of contents for this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
TITLE I—Telephone excise tax repeal
Sec. 101. Repeal of excise tax on telephone and other communications services.
TITLE II—Taxpayer protection and assistance
Sec. 201. Low-income taxpayer clinics.
Sec. 202. Clarification of enrolled agent credentials.
Sec. 203. Regulation of Federal tax return preparers.
Sec. 204. Contract authority for examinations of preparers.
Sec. 205. Regulation of refund anticipation loan facilitators.
Sec. 206. Taxpayer access to financial institutions.
TITLE III—Improvements in tax administration and taxpayer safeguards
Sec. 301. Waiver of user fee for installment agreements using automated withdrawals.
Sec. 302. Termination of installment agreements.
Sec. 303. Individuals held harmless on improper levy on individual retirement plan.
Sec. 304. Office of Chief Counsel review of offers-in-compromise.
Sec. 305. Elimination of restriction on offsetting refunds from former residents.
Sec. 306. Revisions relating to termination of employment of IRS employees for misconduct.
Sec. 307. Modification of collection due process procedures for employment tax liabilities.
Sec. 308. Extension of time limit for contesting IRS levy.
Sec. 309. Authorization for IRS to require increased electronic filing of returns prepared by paid return preparers.
Sec. 310. Direct access to e-file Federal income tax returns.
Sec. 311. Modifications and report regarding Free File program.
Sec. 312. Study on clarifying recordkeeping responsibilities.
Sec. 313. Modification of TIGTA reporting requirements.
Sec. 314. Streamline reporting process for National Taxpayer Advocate.
Sec. 315. Whistleblower reforms.
Sec. 316. Authorization for Financial Management Service retention of transaction fees from levied amounts.
Sec. 317. Clarification of definition of church tax inquiry.
Sec. 318. Treatment of funds from Indian tribal governments as public support for purposes of public charity-private foundation classification.
Sec. 319. Tax court review of requests for equitable relief from joint and several liability.
Sec. 320. Authorization of appropriations for tax law enforcement relating to human sex trafficking.
Sec. 321. Regulation of payroll tax deposit agents.
Sec. 322. Special period of limitation when uniformed services retired pay is reduced as a result of award of disability compensation.
TITLE IV—Reform of penalty and interest
Sec. 401. Individual estimated tax.
Sec. 402. Corporate estimated tax.
Sec. 403. Increase in large corporation threshold for estimated tax payments.
Sec. 404. Expansion of interest netting.
Sec. 405. Clarification of application of Federal tax deposit penalty.
Sec. 406. Frivolous tax submissions.
Sec. 407. Understatement of taxpayer liability by return preparers.
Sec. 408. Penalty for aiding and abetting the understatement of tax liability.
Sec. 409. Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud.
Sec. 410. Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangements.
Sec. 411. Increase in penalty for bad checks and money orders.
Sec. 412. Increase in penalty excise taxes on the political and excess lobbying activities of section 501(c)(3) organizations.
Sec. 413. Penalty for filing erroneous refund claims.
TITLE V—Confidentiality and disclosure
Sec. 501. Collection activities with respect to joint return disclosable to either spouse based on oral request.
Sec. 502. Prohibition of disclosure of taxpayer identification information with respect to disclosure of accepted offers-in-compromise.
Sec. 503. Compliance by contractors with confidentiality safeguards.
Sec. 504. Higher standards for requests for and consents to disclosure.
Sec. 505. Civil damages for unauthorized disclosure or inspection.
Sec. 506. Expansion of disclosure in emergency circumstances.
Sec. 507. Disclosure of taxpayer identity for tax refund purposes.
Sec. 508. Treatment of public records.
Sec. 509. Taxpayer identification number matching.
Sec. 510. Form 8300 disclosures.
Sec. 511. Expansion of penalty for disclosure or use of information by tax return preparer.
Sec. 512. Restrictions on disclosure and use of tax return information.
TITLE VI—United States tax court employee appointment modernization
Sec. 601. Amendments to appoint employees.
TITLE VII—Miscellaneous provisions
Sec. 701. Expensing of broadband Internet access expenditures.
Sec. 702. Modification of refunds for kerosene used in aviation.
Sec. 703. Declarations on Federal corporate income tax returns.
Sec. 704. Certified professional employer organizations.
Sec. 705. Study on collecting estimated tax payments through the electronic fund transfer system.
Sec. 706. Study on use of voluntary withholding agreements.
Sec. 707. Offset of State judicial debts against income tax refund.
Sec. 708. Clarification of responsibilities of United States marshals attending the Tax Court.
Sec. 709. Authorization of appropriations to combat the tax gap and for tax law enforcement.
Sec. 710. Annual tax gap report.
Sec. 711. Operations for the enforcement of tax laws relating to hiring and continued employment of undocumented workers.
Sec. 712. Repeal of dollar limitation on contributions to funeral trusts.
Sec. 713. Administrative relief for certain late qualified terminable interest property elections.
Sec. 714. Disclosure of written determinations.
Sec. 715. Disclosure of Internet web site and name under which organization does business.
Sec. 716. Modification to reporting capital transactions.
Sec. 717. Disclosure that Form 990 is publicly available.
Sec. 718. Expedited review process for certain tax-exemption applications.
Sec. 719. Expansion of declaratory judgment remedy to tax-exempt organizations.
Sec. 720. Wireless telecommunications equipment.
Sec. 721. Permanent extension of Internet tax moratorium.
Sec. 722. Simplification through elimination of inoperative provisions.
TITLE VIII—Revenue offset provisions
Sec. 801. Clarification of economic substance doctrine.
Sec. 802. Penalty for understatements attributable to transactions lacking economic substance, etc.
Sec. 803. Application of rules treating inverted corporations as domestic corporations to certain transactions occurring after March 20, 2002.
Telephone excise tax repeal
Repeal of excise tax on telephone and other communications services
In general
Chapter 33 (relating to facilities and services) is amended by striking subchapter B.
Conforming amendments
Section 4293 is amended by striking chapter 32 (other than the taxes imposed by sections 4064 and 4121) and subchapter B of chapter 33,
and inserting and chapter 32 (other than the taxes imposed by sections 4064 and 4121),
.
Section 6302(e)(1) is amended by striking section 4251 or
.
Section 6302(e)(2)(A) is amended—
by striking imposed by—
and all that follows through with respect to
and inserting imposed by section 4261 or 4271 with respect to
, and
by striking bills rendered or
.
The heading for subsection (e) of section 6302 is amended by striking communications services
.
Section 6415 is amended by striking 4251, 4261, or 4271
each place it appears and inserting 4261 or 4271
.
Section 7871(a)(2) is amended by adding or
at the end of subparagraph (B), by striking subparagraph (C), and by redesignating subparagraph (D) as subparagraph (C).
The table of subchapters for chapter 33 is amended by striking the item relating to subchapter B.
Effective date
The amendments made by this section shall apply to amounts paid pursuant to bills first rendered more than 90 days after the date of the enactment of this Act.
Authorization for refund program
There is authorized to be appropriated $49,000,000 to the Internal Revenue Service to implement the telephone excise tax refund program under Internal Revenue Service Notice 2006-50.
Taxpayer protection and assistance
Low-income taxpayer clinics
Grants for return preparation clinics
In general
Chapter 77 (relating to miscellaneous provisions) is amended by inserting after section 7526 the following new section:
Return preparation clinics for low-income taxpayers
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.
Definitions
For purposes of this section—
Qualified return preparation clinic
In general
The term qualified return preparation clinic means a clinic which—
does not charge more than a nominal fee for its services (except for reimbursement of actual costs incurred), and
operates programs which assist low-income taxpayers, including individuals for whom English is a second language, in preparing and filing their Federal income tax returns, including schedules reporting sole proprietorship or farm income.
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.
Clinic
The term clinic includes—
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
an organization described in section 501(c) and exempt from tax under section 501(a) which satisfies the requirements of paragraph (1).
Special rules and limitations
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.
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.
.
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.
.
Grants for taxpayer representation and assistance clinics
Increase in authorized grants
Section 7526(c)(1) (relating to aggregate limitation) is amended by striking $6,000,000
and inserting $10,000,000
.
Use of grants for overhead expenses prohibited
In general
Section 7526(c) (relating to special rules and limitations) is amended by adding at the end the following new paragraph:
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.
.
Conforming amendments
Section 7526(c)(5) is amended—
by inserting qualified
before low-income
, and
by striking the last sentence.
Promotion of clinics
Section 7526(c), as amended by paragraph (2), is amended by adding at the end the following new paragraph:
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.
.
Effective date
The amendments made by this section shall apply to grants made after the date of the enactment of this Act.
Clarification of enrolled agent credentials
In general
Chapter 77 (relating to miscellaneous provisions) is amended by adding at the end the following new section:
Enrolled agents
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.
Use of credentials
Any enrolled agents properly licensed to practice as required under rules promulgated under subsection (a) shall be allowed to use the credentials or designation as enrolled agent
, EA
, or E.A.
.
.
Clerical amendment
The table of sections for chapter 77 is amended by adding at the end the following new item:
Sec. 7529. Enrolled agents.
.
Prior regulations
The authority 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.
Regulation of Federal tax return preparers
Authorization
Section 330(a)(1) of title 31, United States Code, is amended by inserting (including compensated preparers of Federal tax returns, documents, and other submissions)
after representatives
.
Requirement
In general
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall prescribe regulations under section 330 of title 31, United States Code—
to regulate those compensated preparers not otherwise regulated under regulations promulgated under such section on the date of the enactment of this Act, and
to carry out the provisions of, and amendments made by, this section.
Examination
In general
In promulgating the regulations under paragraph (1), the Secretary shall develop (or approve) and administer an eligibility examination designed to test—
the technical knowledge and competency of each preparer described in paragraph (1)(A)—
to prepare Federal tax returns, including individual and business income tax returns, and
to properly claim the earned income tax credit under section 32 of the Internal Revenue Code of 1986 with respect to such individual returns, and
the knowledge of each such preparer regarding such ethical standards for the preparation of such returns as determined appropriate by the Secretary.
State licensing or State registration programs
In promulgating the regulations under paragraph (1), the Secretary shall accept the credentials of any State licensing or State registration program for any preparer described in paragraph (1)(A) in lieu of the administration of an eligibility examination to such preparer under subparagraph (A) if such program has an eligibility examination which is comparable to the eligibility examination under subparagraph (A).
Continuing eligibility
In general
The regulations under paragraph (1) shall require a renewal of eligibility every 3 years and shall set forth the manner in which a preparer described in paragraph (1)(A) must renew such eligibility.
Continuing education requirements
As part of the renewal of eligibility, such regulations shall require that each such preparer show evidence of completion of such continuing education requirements as specified by the Secretary.
Nonmonetary sanctions
The regulations under paragraph (1) shall provide for the suspension or termination of such eligibility in the event of any failure to comply with the requirements for such eligibility.
Penalty for unauthorized preparation of returns, etc
In promulgating the regulations under paragraph (1), the Secretary shall impose a penalty of $1,000 for each Federal tax return, document, or other submission prepared by a preparer described in paragraph (1)(A) who is not in compliance with the requirements of paragraph (2) or (3) or who is suspended or disbarred from practice before the Department of the Treasury under such regulations. Such penalty shall be in addition to any other penalty which may be imposed.
Office of Professional Responsibility
Section 330 of title 31, United States Code, is amended by adding at the end the following new subsection:
Office of Professional Responsibility
In general
There shall be in the Internal Revenue Service an Office of Professional Responsibility the functions of which shall be as prescribed by the Secretary of the Treasury, including the carrying out of the purposes of this section.
Director
In general
The Office of Professional Responsibility shall be under the supervision and direction of an official known as the Director, Office of Professional Responsibility
. The Director, Office of Professional Responsibility, shall report directly to the Commissioner of Internal Revenue and shall be entitled to compensation at the same rate as the highest rate of basic pay established for the Senior Executive Service under section 5382 of title 5, or, if the Secretary of the Treasury so determines, at a rate fixed under section 9503 of such title.
Appointment
The Director, Office of Professional Responsibility, shall be appointed by the Secretary of the Treasury without regard to the provisions of title 5 relating to appointments in the competitive service or the Senior Executive Service.
Hearing
Any hearing on an action initiated by the Director, Office of Professional Responsibility, to impose a sanction under regulations promulgated under this section shall be conducted in accordance with sections 556 and 557 of title 5 by 1 or more administrative law judges appointed by the Secretary of the Treasury under section 3105 of title 5.
Coordination with state sanction programs
In carrying out the purposes of this section, the Director, Office of Professional Responsibility shall coordinate with appropriate State officials in order to collect information regarding representatives, employers, firms and other entities which have been disciplined or suspended under State or local rules.
Information on sanctions to be available to the public
Sanctions initiated by action
When an action is initiated by the Director, Office of Professional Responsibility, to impose a sanction under regulations promulgated under this section, the pleadings and the record of the proceeding and hearing shall be open to the public (subject to restrictions imposed under subparagraph (C)).
Sanction not initiated by action
When a sanction under regulations promulgated under this section (other than a private reprimand) is imposed without initiation of an action, the Director, Office of Professional Responsibility, shall make available to the public information identifying the representative, employer, firm, or other entity sanctioned, as well as information about the conduct which gave rise to the sanction (subject to restrictions imposed under subparagraph (C)).
Restrictions on release of information
Information about clients of the representative, employer, firm, or other entity and medical information with respect to the representative shall not be released to the public or discussed in an open hearing, except to the extent necessary to understand the nature, scope, and impact of the conduct giving rise to the sanction or proposed sanction. Disagreements regarding the application of this subparagraph shall be resolved by the administrative law judge or, when a sanction is imposed without initiation of an action, by the Director, Office of Professional Responsibility.
Fees
Any fees imposed under regulations promulgated under this section shall be available without fiscal year limitation to the Office of Professional Responsibility for the purpose of reimbursement of the costs of administering and enforcing the requirements of such regulations.
.
Ban on audit insurance
Section 330 of title 31, United States Code, as amended by subsection (c), is amended by adding at the end the following new subsection:
Ban on audit insurance
No person admitted to practice before the Department of the Treasury may directly or indirectly offer or provide insurance to cover professional fees and other expenses incurred in responding to or defending an audit by the Internal Revenue Service.
.
Penalties
Increase in certain penalties
Subsections (a), (b), and (c) of section 6695 (relating to other assessable penalties with respect to the preparation of income tax returns for other persons) are each amended striking a penalty of $50
and all that follows and inserting
a penalty equal to—
$1,000, or
in the case of 3 or more such failures in a calendar year, $500 for each such failure.
The preceding sentence shall not apply with respect to any failure if such failure is due to reasonable cause and not due to willful neglect.
.
Use of penalties
Unless specifically appropriated otherwise, there is authorized to be appropriated and is appropriated to the Office of Professional Responsibility for each fiscal year for the administration of the public awareness campaign described in subsection (g) an amount equal to the penalties collected during the preceding fiscal year under sections 6694 and 6695 of the Internal Revenue Code of 1986 and under the regulations promulgated under section 330 of title 31, United States Code (by reason of subsection (b)(1)).
Coordination with Section 6060(a)
The Secretary of the Treasury shall coordinate the requirements under the regulations promulgated under section 330 of title 31, United States Code, with the return requirements of section 6060 of the Internal Revenue Code of 1986.
Public awareness campaign
The Secretary of the Treasury or the Secretary's delegate shall conduct a public information and consumer education campaign, utilizing paid advertising—
to encourage taxpayers to use for Federal tax matters only professionals who establish their competency under the regulations promulgated under section 330 of title 31, United States Code, and
to inform the public of the requirements that any compensated preparer of tax returns, documents, and submissions subject to the requirements under the regulations promulgated under such section must sign the return, document, or submission prepared for a fee and display notice of such preparer’s compliance under such regulations.
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 the regulations promulgated under section 330 of title 31, United States Code.
Additional certification on documents other than returns
The Secretary of the Treasury shall require that each document or other submission filed with the Internal Revenue Service (other than a return signed by the taxpayer) shall be signed under penalty of perjury and the identifying number of any paid preparer who prepared such document (if any) under rules similar to the rules under section 6109(a)(4).
Contract authority for examinations of preparers
The Secretary of the Treasury is authorized to contract for the development or administration, or both, of any examinations under the regulations promulgated under section 330 of title 31, United States Code.
Regulation of refund anticipation loan facilitators
Regulation of refund anticipation loan facilitators
In general
Chapter 77 (relating to miscellaneous provisions), as amended by this Act, is amended by inserting at the end the following new section:
Refund anticipation loan facilitators
Registration
Each refund loan facilitator shall register with the Secretary on an annual basis. As a part of such registration, each refund loan facilitator shall provide the Secretary with the name, address, and taxpayer identification number of such facilitator and the fee schedule of such facilitator for the year of such registration.
Disclosure
Each refund loan facilitator shall disclose to a taxpayer both orally and on a separate written form at the time such taxpayer applies for a refund anticipation loan the following information:
Nature of the transaction
The refund loan facilitator shall disclose—
that the taxpayer is applying for a loan that is based upon the taxpayer’s anticipated income tax refund,
the expected time within which the loan will be paid to the taxpayer if such loan is approved,
the time frame in which income tax refunds are typically paid based upon the different filing options available to the taxpayer,
that there is no guarantee that a refund will be paid in full or received within a specified time period and that the taxpayer is responsible for the repayment of the loan even if the refund is not paid in full or has been delayed,
if the refund loan facilitator has an agreement with another refund loan facilitator (or any lender working in conjunction with another refund loan facilitator) to offset outstanding liabilities for previous refund anticipation loans provided by such other refund loan facilitator, that any refund paid to the taxpayer may be so offset and the implication of any such offset,
that the taxpayer may file an electronic return without applying for a refund anticipation loan and the fee for filing such an electronic return, and
that the loan may have substantial fees and interest charges that may exceed those of other sources of credit and the taxpayer should carefully consider—
whether such a loan is appropriate for the taxpayer, and
other sources of credit.
Fees and interest
The refund loan facilitator shall disclose all refund anticipation loan fees with respect to the refund anticipation loan. Such disclosure shall include—
a copy of the fee schedule of the refund loan facilitator,
the typical fees and interest rates (using annual percentage rates as defined by section 107 of the Truth in Lending Act (15 U.S.C. 1606)) for several typical amounts of such loans and of other types of consumer credit,
typical fees and interest charges if a refund is not paid or delayed, and
the amount of a fee (if any) that will be charged if the loan is not approved.
Other information
The refund loan facilitator shall disclose any other information required to be disclosed by the Secretary.
Fines and sanctions
In general
The Secretary may impose a monetary penalty on any refund loan facilitator who—
fails to register under subsection (a), or
fails to disclose any information required under subsection (b).
Maximum monetary penalty
Any monetary penalty imposed under paragraph (1) shall not exceed—
in the case of a failure to register, the gross income derived from all refund anticipation loans made during the period the refund loan facilitator was not registered, and
in the case of a failure to disclose information, the gross income derived from all refund anticipation loans with respect to which such failure applied.
Reasonable cause exceptions
No penalty may be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause.
Definitions
For purposes of this section—
Refund loan facilitator
In general
The term refund loan facilitator means any electronic return originator who—
solicits for, processes, receives, or accepts delivery of an application for a refund anticipation loan, or
facilitates the making of a refund anticipation loan in any other manner.
Electronic return originator
For purposes of subparagraph (A), the term electronic return originator means a person who originates the electronic submission of income tax returns for another person.
Refund anticipation loan
The term refund anticipation loan means any loan of money or any other thing of value to a taxpayer in connection with the taxpayer's anticipated receipt of a Federal tax refund. Such term includes a loan secured by the tax refund or an arrangement to repay a loan from the tax refund.
Refund anticipation loan fees
The term refund anticipation loan fees means the fees, charges, interest, and other consideration charged or imposed by the lender or facilitator for the making of a refund anticipation loan.
Regulations
The Secretary may prescribe such regulations as necessary to implement the requirements of this section.
.
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:
.
Disclosure of penalty
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:
Disclosure of penalties on refund anticipation loan facilitators
The Secretary may disclose the name and employer (including the employer's address) of any person with respect to whom a penalty has been imposed under section 7530 and the amount of any such penalty.
.
Use of penalties
Unless specifically appropriated otherwise, there is authorized to be appropriated and is appropriated to the Internal Revenue Service for each fiscal year for the administration of the public awareness campaign described in subsection (d) an amount equal to the penalties collected during the preceding fiscal year under section 7530 of the Internal Revenue Code of 1986.
Public awareness campaign
The Secretary of the Treasury or the Secretary's delegate shall conduct a public information and consumer education campaign, utilizing paid advertising, to educate the public on making sound financial decisions with respect to refund anticipation loans (as defined under section 7530 of the Internal Revenue Code of 1986), including the need to compare—
the rates and fees of such loans with the rates and fees of conventional loans; and
the amount of money received under the loan after taking into consideration such costs and fees with the total amount of the refund.
Effective date
The amendments made by this section shall take effect on the date that is 1 year after the date of the enactment of this Act.
Termination of Debt Indicator program
The Secretary of the Treasury shall terminate the Debt Indicator program announced in Internal Revenue Service Notice 99–58 and may not implement any similar program.
Taxpayer access to financial institutions
Establishment of program
The Secretary of the Treasury is authorized to award demonstration project grants (including multi-year grants) to eligible entities which partner with volunteer and low-income preparation organizations 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.
Eligible entities
In general
An entity is eligible to receive a grant under this section if such an entity is—
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,
a federally insured depository institution,
an agency of a State or local government,
a community development financial institution,
an Indian tribal organization,
an Alaska Native Corporation,
a Native Hawaiian organization,
a labor organization, or
a partnership comprised of 1 or more of the entities described in the preceding subparagraphs.
Definitions
For purposes of this section—
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)).
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.
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)).
Native Hawaiian organization
The term Native Hawaiian organization means any organization that—
serves and represents the interests of Native Hawaiians, and
has as a primary and stated purpose the provision of services to Native Hawaiians.
Labor organization
The term labor organization means an organization—
in which employees participate,
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
which is described in section 501(c)(5) of the Internal Revenue Code of 1986.
Application
An eligible entity desiring a grant under this section shall submit an application to the Secretary of the Treasury in such form and containing such information as the Secretary may require.
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.
Evaluation and report
For each fiscal year in which a grant is awarded under this section, the Secretary of the Treasury shall submit a report to Congress containing a description of the activities funded, amounts distributed, and measurable results, as appropriate and available.
Authorization of appropriations
There is authorized to be appropriated to the Secretary of the Treasury, for the grant program described in this section, $10,000,000, or such additional amounts as deemed necessary, to remain available until expended.
Regulations
The Secretary of the Treasury is authorized to promulgate regulations to implement and administer the grant program under this section.
Study on delivery of tax refunds
In general
The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall conduct a study on the payment of tax refunds through debit cards or other electronic means to assist individuals that do not have access to financial accounts or institutions.
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 Congress containing the result of the study conducted under subsection (a).
Improvements in tax administration and taxpayer safeguards
Waiver of user fee for installment agreements using automated withdrawals
In General
Section 6159 (relating to agreements for payment of tax liability in installments) is amended by redesignating subsections (e) and (f) as subsections (f) and (g), respectively, and by inserting after subsection (d) the following new subsection:
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.
.
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.
Termination of installment agreements
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 new subparagraphs:
to make a Federal tax deposit under section 6302 at the time such deposit is required to be made,
to file a return of tax imposed under this title by its due date (including extensions), or
.
Conforming Amendment
The heading for paragraph (4) of section 6159(b) 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
.
Effective Date
The amendments made by this section shall apply to failures occurring on or after the date of the enactment of this Act.
Individuals held harmless on improper levy on individual retirement plan
In General
Section 6343 (relating to authority to release levy and return property) is amended by adding at the end the following new subsection:
Individuals Held Harmless on Wrongful Levy, etc. on Individual Retirement Plan
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—
the amount of money returned by the Secretary on account of such levy, and
interest paid under subsection (c) on such amount of money,
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—
interest paid under subsection (c) shall be treated as part of such distribution and as not includible in gross income,
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
such deposit shall not be taken into account under section 408(d)(3)(B).
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.
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.
.
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, 2005.
Office of Chief Counsel review of offers-in-compromise
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
.
Conforming Amendments
Section 7122(b) is amended by striking the second and third sentences.
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.
Elimination of restriction on offsetting refunds from former residents
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.
Effective date
The amendments made by this section shall apply to refunds payable for taxable years ending after the date of the enactment of this Act.
Revisions relating to termination of employment of IRS employees for misconduct
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:
Termination of employment for misconduct
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.
Acts or Omissions
The acts or omissions described under this subsection are—
willful failure to obtain the required approval signatures on documents authorizing the seizure of a taxpayer’s home, personal belongings, or business assets,
providing a false statement under oath with respect to a material matter involving a taxpayer or taxpayer representative,
with respect to a taxpayer, taxpayer representative, or other employee of the Internal Revenue Service, the violation of—
any right under the Constitution of the United States, or
any civil right established under—
title VI or VII of the Civil Rights Act of 1964,
title IX of the Education Amendments of 1972,
the Age Discrimination in Employment Act of 1967,
the Age Discrimination Act of 1975,
section 501 or 504 of the Rehabilitation Act of 1973, or
title I of the Americans with Disabilities Act of 1990,
falsifying or destroying documents to conceal mistakes made by any employee with respect to a matter involving a taxpayer or taxpayer representative,
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,
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, taxpayer representative, or other employee of the Internal Revenue Service,
willful misuse of the provisions of section 6103 for the purpose of concealing information from a congressional inquiry,
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,
willful understatement of Federal tax liability, unless such understatement is due to reasonable cause and not due to willful neglect,
threatening to audit a taxpayer for the purpose of extracting personal gain or benefit, and
unauthorized inspection of return or return information under section 7213A.
Determinations of Commissioner
In general
The Commissioner may take a personnel action other than termination for an act or omission described under subsection (b).
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).
No appeal
Any determination of the Commissioner under this subsection may not be appealed in any administrative or judicial proceeding.
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 receiving 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.
.
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.
.
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.
Modification of collection due process procedures for employment tax liabilities
In general
Section 6330(f) (relating to jeopardy and State refund collection) is amended—
by striking ; or
at the end of paragraph (1) and inserting a comma,
by adding or
at the end of paragraph (2), and
by inserting after paragraph (2) the following new paragraph:
the Secretary has served a levy in connection with the collection of taxes under chapter 21, 22, 23, or 24,
.
Effective date
The amendments made by this section shall apply to levies issued after December 31, 2006.
Extension of time limit for contesting IRS levy
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
.
Period of Limitation on Suits
Subsection (c) of section 6532 (relating to suits by persons other than taxpayers) is amended—
in paragraph (1) by striking 9 months
and inserting 2 years
, and
in paragraph (2) by striking 9-month
and inserting 2-year
.
Effective Date
The amendments made by this section shall apply to—
levies made after the date of the enactment of this Act, and
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.
Authorization for IRS to require increased electronic filing of returns prepared by paid return preparers
In general
Section 6011(e) (relating to regulations requiring returns on magnetic media, etc.) is amended—
by striking the second sentence in paragraph (1), and
by striking 250
in paragraph (2)(A) and inserting 5
.
Penalty for failure to file electronically
In general
Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by inserting after section 6695A the following new section:
Failure of paid return preparers to file returns electronically
In general
Any person who fails to comply with section 6011(e) with respect to any return shall pay a penalty of—
$1,000, or
in the case of 10 or more such failures in a calendar year, $100 for each such failure.
Reasonable cause
Subsection (a) shall not apply with respect to any failure if such failure is due to reasonable cause and not due to willful neglect.
.
Rules applicable to penalty
Section 6696 (relating to rules applicable with respect to sections 6694, 6695, and 6695A) is amended—
by striking and 6695A
each place it appears and inserting 6695A, and 6695B
,
by striking or 6695A
each place it appears and inserting 6695A, or 6695B
,
by striking under section 6694(a) or under section 6695
in subsection (d)(1) and inserting under section 6694(a), 6695, 6695A, or 6695B
, and
by striking and 6695A
in the heading and inserting 6695A, and 6695B
.
Conforming amendment
The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6696 and inserting the following new items:
Sec. 6695B. Failure of paid return preparers to file returns electronically.
Sec. 6696. Rules applicable with respect to sections 6694, 6695, 6695A, and 6695B.
.
Direct access to e-file Federal income tax returns
In general
The Secretary of the Treasury shall provide individual taxpayers with the ability to electronically file their Federal income tax returns through the Internal Revenue Service website without the use of an intermediary or with the use of an intermediary which is contracted by the Internal Revenue Service to provide free universal access for such filing (hereafter in this section referred to as the direct e-file program
) for taxable years beginning after the date which is not later than 3 years after the date of the enactment of this Act.
Development and operation of program
In providing for the development and operation of the direct e-file program, the Secretary of the Treasury—
shall consult with—
the National Taxpayer Advocate,
nonprofit organizations representing the interests of taxpayers as well as other organizations as determined appropriate by the Secretary, and
Federal, State, and local agencies as determined appropriate by the Secretary,
may develop electronic filing products for use in such program,
shall provide that if intermediaries are used in such program that such intermediaries may not advertise, market, or offer to sell any products or services,
promulgate such regulations as necessary to administer such program, and
conduct a public information and consumer education campaign to encourage taxpayers to use the direct e-file program.
Authorization of appropriations
There is authorized to be appropriated such sums as are necessary to carry out the direct e-file program. Any sums so appropriated shall remain available until expended.
Reports to Congress regarding direct e-file program
Report on implementation
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 every 6 months regarding the status of the implementation of the direct e-file program.
Report on usage
Not later than June 30 of each year after the implementation of the direct e-file program, the Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives on taxpayer usage of the direct e-file program.
Modifications and report regarding Free File program
Modifications
In providing for the operation of the Free File program, the Secretary of the Treasury shall—
provide that intermediaries may not advertise, market, or offer to sell products or services that are not directly related to the preparation of tax returns, and
encourage intermediaries to provide access to such program to the blind.
Report
Not later than 270 days 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—
regarding the status of the implementation of the modifications described in paragraph (1),
on the feasibility of ensuring that intermediaries in the Free File program that have contracted separately with a State be required to provide free Federal and State preparation and electronic filing directly through the Internal Revenue Service Free File website for those taxpayers who qualify, and
on the most optimal manner of alerting such taxpayers that such taxpayers qualify for both free Federal and State preparation and electronic filing directly through the Internal Revenue Service Free File website.
Study on clarifying recordkeeping responsibilities
Study
The Secretary of the Treasury shall study—
the scope of the records required to be maintained by taxpayers under section 6001 of the Internal Revenue Code of 1986,
the utility of requiring taxpayers to maintain all records indefinitely, including consideration of whether such a requirement would necessitate the upgrading of technological storage for outdated records,
the number of negotiated records retention agreements requested by taxpayers and the number entered into by the Internal Revenue Service, and
proposals regarding taxpayer record-keeping.
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.
Modification of TIGTA reporting requirements
In General
Paragraph (1) of section 7803(d) (relating to additional duties of the Treasury Inspector General for Tax Administration) is amended—
by striking Annual
in the heading and inserting Biennial
,
by inserting filed for an even-numbered year (beginning with 2006)
after one of the semiannual reports
in the matter preceding subparagraph (A),
by striking clause (ii) of subparagraph (A),
by redesignating clauses (iii), (iv), and (v) of subparagraph (A) as clauses (ii), (iii), and (iv) of subparagraph (A), respectively,
by striking subparagraph (B),
by striking and
at the end of subparagraph (F),
by redesignating subparagraphs (C), (D), (E), and (F) as subparagraphs (B), (C), (D), and (E), respectively, and
by striking subparagraph (G) and inserting the following new subparagraphs:
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
with respect to allegations of serious employee misconduct—
a summary of the status of such allegations; and
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.
.
Conforming Amendments
Section 7803(d) is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
Streamline reporting process for National Taxpayer Advocate
One Annual Report
Subparagraph (B) of section 7803(c)(2) (relating to functions of Office) is amended—
by striking all matter preceding subclause (I) of clause (ii) and inserting the following:
Annual report
In general
Not later than December 31 of each calendar year, the National Taxpayer Advocate shall report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the objectives of the Office of the Taxpayer 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—
,
by striking clause (ii)
in clause (iv) and inserting clause (i)
, and
by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.
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:
at the discretion of the National Taxpayer Advocate, report at any time to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on significant issues affecting taxpayer rights.
.
Effective Dates
Annual reports
The amendments made by subsection (a) shall apply to reports in calendar year 2007 and thereafter.
Additional reports
The amendments made by subsection (b) shall take effect on the date of the enactment of this Act.
Whistleblower reforms
In general
Section 7623 (relating to expenses of detection of underpayments and fraud, etc.) is amended—
by striking The Secretary
and inserting (a) In general.—The Secretary
,
by striking and
at the end of paragraph (1) and inserting or
,
by striking (other than interest)
, and
by adding at the end the following new subsections:
Awards to whistleblowers
In general
If the Secretary proceeds with any administrative or judicial action described in paragraph (5) based on information brought to the Secretary’s attention by an individual, the Secretary shall, as determined by the Whistleblower Office and subject to paragraph (2), pay such individual as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action. The Whistleblower Office shall determine the amount of such award on the basis of the extent to which the individual substantially contributed to such action.
Award in case of less substantial contribution
In general
If the Whistleblower Office determines that the action described in paragraph (1) is based principally on disclosures of specific allegations (other than information provided by the individual described in paragraph (1)) resulting from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation, or from the news media, the Whistleblower Office may award such sums as it considers appropriate, but in no case more than 10 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action, taking into account the significance of the individual’s information and the role of such individual and any legal representative of such individual in contributing to such action.
Nonapplication of paragraph where individual is original source of information
Subparagraph (A) shall not apply if the information resulting in the initiation of the action described in paragraph (1) was originally provided by the individual described in paragraph (1).
Reduction in or denial of award
If the Whistleblower Office determines that the claim for an award under paragraph (1) or (2) is brought by an individual who planned and initiated the actions that led to the underpayment of tax or actions described in subsection (a)(2), then the Whistleblower Office may appropriately reduce such award. If such individual is convicted of criminal conduct arising from the role described in the preceding sentence, the Whistleblower Office shall deny any award.
Appeal of award determination
Any determination regarding an award under paragraph (1), (2), or (3) may, within 30 days of such determination, be appealed to the Tax Court (and the Tax Court shall have jurisdiction with respect to such matter).
Application of this subsection
This subsection shall apply with respect to any action—
against any taxpayer, but in the case of any individual, only if such individual’s gross income exceeds $200,000 for any taxable year subject to such action, and
if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $20,000.
Additional rules
No contract necessary
No contract with the Internal Revenue Service is necessary for any individual to receive an award under this subsection.
Representation
Any individual described in paragraph (1) or (2) may be represented by counsel.
Submission of information
No award may be made under this subsection based on information submitted to the Secretary unless such information is submitted under penalty of perjury.
Whistleblower Office
In General
There is established in the Internal Revenue Service an office to be known as the Whistleblower Office
which—
shall at all times operate at the direction of the Commissioner and coordinate and consult with other divisions in the Internal Revenue Service as directed by the Commissioner,
shall analyze information received from any individual described in subsection (b) and either investigate the matter itself or assign it to the appropriate Internal Revenue Service office,
shall monitor any action taken with respect to such matter,
shall inform such individual that it has accepted the individual’s information for further review,
may require such individual and any legal representative of such individual to not disclose any information so provided,
in its sole discretion may ask for additional assistance from such individual or any legal representative of such individual, and
shall determine the amount to be awarded to such individual under subsection (b).
Request for assistance
In General
Any assistance requested under paragraph (1)(F) shall be under the direction and control of the Whistleblower Office or the office assigned to investigate the matter under paragraph (1)(A). No individual or legal representative whose assistance is so requested may by reason of such request represent himself or herself as an employee of the Federal Government.
Funding of assistance
From the amounts available for expenditure under subsection (b), the Whistleblower Office may, with the agreement of the individual described in subsection (b), reimburse the costs incurred by any legal representative of such individual in providing assistance described in subparagraph (A).
Report by Secretary
The Secretary shall each year conduct a study and report to Congress on the use of this section, including—
an analysis of the use of this section during the preceding year and the results of such use, and
any legislative or administrative recommendations regarding the provisions of this section and its application.
.
Assignment to special trial judges
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 (5), by redesignating paragraph (6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph:
any proceeding under section 7623(b)(4), and
.
Conforming amendment
Section 7443A(c) is amended by striking or (5)
and inserting (5), or (6)
.
Deduction allowed whether or not taxpayer itemizes
Subsection (a) of section 62 (relating to general rule defining adjusted gross income) is amended by inserting after paragraph (20) the following new paragraph:
Attorneys fees relating to awards to whistleblowers
Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any award under section 7623(b) (relating to awards to whistleblowers). The preceding sentence shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year on account of such award.
.
Effective date
The amendments made by this section shall apply to information provided on or after the date of the enactment of this Act.
Authorization for Financial Management Service retention of transaction fees from levied amounts
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.
Clarification of definition of church tax inquiry
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 new paragraph:
any inquiry or examination relating to information provided by the Secretary regarding the standards for exemption from tax under this title and the requirements under this title relating to unrelated business taxable income.
.
Treatment of funds from Indian tribal governments as public support for purposes of public charity-private foundation classification
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:
for purposes of determining support of an organization described in section 170(b)(1)(A)(vi).
.
Effective date
The amendments made by this section shall apply with respect to—
support received before, on, or after the date of the enactment of this Act, and
the determination of the status of any organization with respect to any taxable year beginning after such date of enactment.
Tax court review of requests for equitable relief from joint and several liability
In general
Paragraph (1) of section 6015(e) (relating to petition for tax court review) is amended by inserting , or in the case of an individual who requests equitable relief under subsection (f)
after who elects to have subsection (b) or (c) apply
.
Conforming amendments
Section 6015(e)(1)(A)(i)(II) is amended by inserting or request is made
after election is filed
.
Section 6015(e)(1)(B)(i) is amended—
by inserting or requesting equitable relief under subsection (f)
after making an election under subsection (b) or (c)
, and
by inserting or request
after to which such election
.
Section 6015(e)(1)(B)(ii) is amended by inserting or to which the request under subsection (f) relates
after to which the election under subsection (b) or (c) relates
.
Section 6015(e)(4) is amended by inserting or the request for equitable relief under subsection (f)
after the election under subsection (b) or (c)
.
Section 6015(e)(5) is amended by inserting or who requests equitable relief under subsection (f)
after who elects the application of subsection (b) or (c)
.
Section 6015(g)(2) is amended by inserting or of any request for equitable relief under subsection (f)
after any election under subsection (b) or (c)
.
Section 6015(h)(2) is amended by inserting or a request for equitable relief made under subsection (f)
after with respect to an election made under subsection (b) or (c)
.
Effective date
The amendments made by this section shall apply with respect to liability for taxes arising or remaining unpaid on or after the date of the enactment of this Act.
Refilings permitted
With respect to any case the dismissal of which results from or is based on the jurisdictional ruling in Billings v. Commissioner (127 T.C. No. 2, July 25, 2006) and is final on or before the date of the enactment of this Act, such case may be refiled in the United States Tax Court not later than the date which is 6 months after such date of enactment (without the imposition of any filing fees under Rule 20(b) of the Tax Court Rules of Practice and Procedure).
Authorization of appropriations for tax law enforcement relating to human sex trafficking
Authorization of appropriations
In general
There is authorized to be appropriated $2,000,000 for fiscal year 2007 for the purpose of establishing an office within the Internal Revenue Service to focus on violations of the internal revenue laws by persons who are under investigation by any office of Federal, State, or local law enforcement for knowingly recruiting, enticing, harboring, transporting, or providing by any means a person, knowing that—
force, fraud, or coercion will be used to cause the person to engage in a commercial sex act, or
the person has not attained the age of 18 years and will be caused to engage in a commercial sex act.
Definitions
For purposes of paragraph (1), the terms commercial sex act and coercion shall have the meaning given such terms by section 1591(c) of title 18, United States Code.
Availability
Any amounts appropriated pursuant to the authority of paragraph (1) shall remain available for fiscal year 2008.
Additional funding for operations of office
Unless specifically appropriated otherwise, there is authorized to be appropriated and is appropriated to the office established under subsection (a)(1) for fiscal years 2007 and 2008 for the administration of such office an amount equal to the amount of any tax under chapter 1 of the Internal Revenue Code of 1986 (including any interest) collected during such fiscal years as the result of the actions of such office, plus any civil or criminal monetary penalties imposed under such Code relating to such tax and so collected.
Report
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall report to the Committee of Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the enforcement activities of the office established under subsection (a)(1) and shall include any recommendations for statutory changes to assist in future prosecutions under this section.
Applicability of whistleblower awards to victims of human sex trafficking
For purposes of making an award under paragraph (1) or (2) of section 7623(b) of the Internal Revenue Code of 1986 with respect to information provided by any person caused to engage in a commercial sex act (within the meaning of section 1591(c)(1) of title 18, United States Code), the determination whether such person is described in such paragraph shall be made without regard to paragraph (3) of such section 7623(b).
Regulation of payroll tax deposit agents
In general
Chapter 77 (relating to miscellaneous provisions), as amended by this Act, is amended by adding at the end the following new section:
Payroll tax deposit agents
Registration
In general
The Secretary shall establish a system to require the initial registration and the annual renewal of the registration of persons seeking to act as payroll tax deposit agents authorized to make Federal employment tax deposits on behalf of employer taxpayers. Such system shall also—
establish a registration and renewal fee for each payroll tax deposit agent in an amount not to exceed $100,
provide the payroll tax deposit agent the option of either submitting a bond as specified in subsection (b) or submitting to an annual audit as specified in subsection (c),
require such disclosures as are specified in subsection (d),
require that such agent ensure the direct notification of the employer by any Federal employment tax authority (and State employment tax authority if such agent contracts to make State employment tax deposits for the employer) regarding the nonpayment of such employment taxes, and
provide penalties for unregistered persons acting as payroll tax deposit agents with respect to Federal tax deposits in an amount not to exceed $10,000 for each 90 days of noncompliance.
Definition of payroll tax deposit agent
For purposes of this section, the term payroll tax deposit agent means any person which provides payroll processing or tax filing and deposit services to 1 or more employers (other than an employer acting on its own behalf) if such person has the contractual authority to access such employer’s funds for the purpose of making employment tax deposits. Such term shall not include any person which only transfers such funds (regardless if such person has the authority to determine the amount of such transfer) and does not have the authority to impound such funds for such purpose.
Employment tax
For purposes of this section, the term employment tax includes unemployment insurance contributions.
Bonding
In general
If a payroll tax deposit agent elects to submit a bond under subsection (a)(1)(B), the amount of such bond shall be not less than $50,000 nor more than $500,000, and shall be determined with respect to each payroll tax deposit agent under regulations prescribed by the Secretary.
Surety
Any bond or security furnished pursuant to this section shall be in such form and with such surety or sureties as may be prescribed by regulations issued pursuant to section 7101.
Annual audits
If a payroll tax deposit agent elects to submit to an annual audit under subsection (a)(1)(B), such audit shall be performed by an independent third party and shall be based on such audit principles as the Secretary determines necessary, including the following:
The escrow account of the payroll tax deposit agent in which such agent holds the employers’ taxes is balanced each year to the total of the quarterly reconciliation statements.
The escrow account funds of the payroll tax deposit agent are not commingled with such agent's operating funds.
No evidence that the payroll tax deposit agent used any of the funds in such agent's escrow account to pay such agent's own operating costs.
Receipt evidence that such agent paid the required employment taxes on behalf of the employers to the proper government employment tax authority.
Disclosure
The Secretary shall require payroll tax deposit agents to disclose to each potential and existing client prior to or at the time of contracting for payroll services—
the client’s continuing liability for payment of all Federal and State employment taxes notwithstanding any contractual relationship with a payroll tax deposit agent,
the mechanisms available to the client to verify the amount and date of payment of all tax deposits made by the payroll tax deposit agent on behalf of such client, including the Internet address, postal address, and telephone number of each Federal and State employment tax authority related to such deposits, and
such other information that the Secretary determines is necessary or appropriate to assist employers in the selection and use of payroll tax deposit agents.
Tax deposits and returns
Only persons registered under this section may—
make Federal tax deposits on behalf of an employer,
sign and file Federal employment tax returns on behalf of a taxpayer, and
have access to confidential tax information relating to such employer.
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.
.
Payroll tax deposit agents subject to penalty for failure to collect and pay over tax or attempt to evade or defeat tax
In general
Section 6672(a) is amended by inserting , including any payroll tax deposit agent (as defined in section 7531(a)(2)),
after Any person
.
Construction
The amendment made by paragraph (1) 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.
No discharge in bankruptcy
In the case of any bankruptcy filed by or behalf of any person after December 31, 2006, under title 11, United States Code, any penalty imposed under section 6672(a) of the Internal Revenue Code of 1986 with respect to such person shall not be subject to discharge under such title.
Clerical amendment
The table of sections for such chapter 77, as amended by this Act, is amended by adding at the end the following new item:
Sec. 7531. Payroll tax deposit agents.
.
Effective dates
In general
Except as provided in paragraph (2), the amendments made by this section shall take effect on January 1, 2007.
Penalty
The amendments made by subsection (b) shall apply to failures occurring after December 31, 2006.
Special period of limitation when uniformed services retired pay is reduced as a result of award of disability compensation
In general
Subsection (d) of section 6511 (relating to special rules applicable to income taxes) is amended by adding at the end the following new paragraph:
Special rules when uniformed services retired pay is reduced as a result of award of disability compensation
Period of limitation on filing claim
If the claim for credit or refund relates to an overpayment of tax imposed by subtitle A on account of—
the reduction of uniformed services retired pay computed under section 1406 or 1407 of title 10, United States Code, or
the waiver of such pay under section 5305 of title 38 of such Code,
Limitation to 5 taxable years
Subparagraph (A) shall not apply with respect to any taxable year which began more than 5 years before the date of such determination.
.
Effective date
The amendment made by subsection (a) shall apply to claims for credit or refund filed after the date of the enactment of this Act.
Transition rules
In the case of a determination described in paragraph (8) of section 6511(d) of the Internal Revenue Code of 1986 (as added by this section) which is made by the Secretary of Veterans Affairs after December 31, 2000, and before the date of the enactment of this Act, such paragraph—
shall not apply with respect to any taxable year which began before January 1, 2001, and
shall be applied by substituting the date of the enactment of the Telephone Excise Tax Repeal and Taxpayer Protection and Assistance Act of 2006
for the date of such determination
in subparagraph (A) thereof.
Reform of penalty and interest
Individual estimated tax
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
.
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:
Addition to the Tax
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 such taxable year the sum of the amounts determined under paragraph (2) for each day for which there is an underpayment.
Amount of addition to tax
The amount determined under this paragraph for any day shall be the product of—
the underpayment rate established under subsection (b)(2) for such day, multiplied by
the amount of the underpayment for such day.
Amount of underpayment; underpayment rate
For purposes of subsection (a)—
Amount
The amount of underpayment on any day shall be the excess (if any) of—
the sum of the required installments for the taxable year the due dates for which are on or before such day, over
the sum of the amounts of estimated tax payments made for such taxable year on or before such day.
Determination of underpayment rate
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.
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).
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.
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.
.
Effective Date
The amendments made by this section shall apply to taxable years beginning after December 31, 2006.
Corporate estimated tax
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
.
Effective Date
The amendment made by this section shall apply to taxable years beginning after December 31, 2006.
Increase in large corporation threshold for estimated tax payments
In General
Section 6655(g)(2) (defining large corporation) is amended—
by striking $1,000,000
in subparagraph (A) and inserting the applicable amount
,
by striking the $1,000,000 amount specified in subparagraph (A)
in subparagraph (B)(ii) and inserting the applicable amount
,
by redesignating subparagraph (B) as subparagraph (C), and
by inserting after subparagraph (A) the following new subparagraph:
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 2006.
.
Effective Date
The amendments made by this section shall apply to taxable years beginning after December 31, 2006.
Expansion of interest netting
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 new sentence: Solely for purposes of the preceding sentence, section 6611(e) shall not apply.
.
Effective Date
The amendment made by this section shall apply to interest accrued after December 31, 2010.
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.
Frivolous tax submissions
Civil Penalties
Section 6702 is amended to read as follows:
Frivolous tax submissions
Civil Penalty for Frivolous Tax Returns
A person shall pay a penalty of $5,000 if—
such person files what purports to be a return of a tax imposed by this title but which—
does not contain information on which the substantial correctness of the self-assessment may be judged, or
contains information that on its face indicates that the self-assessment is substantially incorrect, and
the conduct referred to in paragraph (1)—
is based on a position which the Secretary has identified as frivolous under subsection (c), or
reflects a desire to delay or impede the administration of Federal tax laws.
Civil Penalty for Specified Frivolous Submissions
Imposition of penalty
Except as provided in paragraph (3), any person who submits a specified frivolous submission shall pay a penalty of $5,000.
Specified frivolous submission
For purposes of this section—
Specified frivolous submission
The term specified frivolous submission means a specified submission if any portion of such submission—
is based on a position which the Secretary has identified as frivolous under subsection (c), or
reflects a desire to delay or impede the administration of Federal tax laws.
Specified submission
The term specified submission means—
a request for a hearing under—
section 6320 (relating to notice and opportunity for hearing upon filing of notice of lien), or
section 6330 (relating to notice and opportunity for hearing before levy), and
an application under—
section 6159 (relating to agreements for payment of tax liability in installments),
section 7122 (relating to compromises), or
section 7811 (relating to taxpayer assistance orders).
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.
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).
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.
Penalties in Addition to Other Penalties
The penalties imposed by this section shall be in addition to any other penalty provided by law.
.
Treatment of Frivolous Requests for Hearings Before Levy
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:
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.
.
Preclusion from raising frivolous issues at hearing
Section 6330(c)(4) is amended—
by striking (A)
and inserting (A)(i)
;
by striking (B)
and inserting (ii)
;
by striking the period at the end of the first sentence and inserting ; or
; and
by inserting after subparagraph (A)(ii) (as so redesignated) the following new subparagraph:
the issue meets the requirement of clause (i) or (ii) of section 6702(b)(2)(A).
.
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
.
Treatment of Frivolous Requests for Hearings Upon Filing of Notice of Lien
Section 6320 is amended—
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
in subsection (c), by striking and (e)
and inserting (e), and (g)
.
Treatment of Frivolous Applications for Offers-in-Compromise and Installment Agreements
In general
Section 7122 is amended by adding at the end the following new subsection:
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.
.
Cross reference
Section 6159(f) is amended by adding at the end the following new item:
For treatment of frivolous applications for installment agreements, see section 7122(g).
.
Treatment of frivolous applications for taxpayer assistance orders
Section 7811 is amended by adding at the end the following new subsection:
Frivolous Submissions, Etc
Notwithstanding any other provision of this section, if the Secretary determines that any portion of an application for a Taxpayer Assistance Order submitted under this section 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.
.
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.
.
Effective Date
The amendments made by this section shall apply to filings and 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).
Understatement of taxpayer liability by return preparers
Application of return preparer penalties to all tax returns
Definition of tax return preparer
Paragraph (36) of section 7701(a) (relating to income tax preparer) is amended—
by striking income
each place it appears in the heading and the text, and
in subparagraph (A), by striking subtitle A
each place it appears and inserting this title
.
Conforming amendments
Section 6060 is amended by striking income tax return preparers
in the heading and inserting tax return preparers
.
Section 6060(a) is amended—
by striking an income tax return preparer
each place it appears and inserting a tax return preparer
,
by striking each income tax return preparer
and inserting each tax return preparer
, and
by striking another income tax return preparer
and inserting another tax return preparer
.
The item relating to section 6060 in the table of sections for subpart F of part III of subchapter A of chapter 61 is amended by striking income tax return preparers
and inserting tax return preparers
.
Subpart F of part III of subchapter A of chapter 61 is amended by striking income tax return preparers
in the heading and inserting tax return preparers
.
The item relating to subpart F in the table of subparts for part III of subchapter A of chapter 61 is amended by striking income tax return preparers
and inserting tax return preparers
.
Section 6103(k)(5) is amended—
by striking income tax return preparer
each place it appears and inserting tax return preparer
, and
by striking income tax return preparers
each place it appears and inserting tax return preparers
.
Section 6107 is amended—
by striking Income tax return preparer
in the heading and inserting Tax return preparer
,
by striking an income tax return preparer
each place it appears in subsections (a) and (b) and inserting a tax return preparer
,
by striking income tax return preparer
in the heading for subsection (b) and inserting tax return preparer
, and
in subsection (c), by striking income tax return preparers
and inserting tax return preparers
.
The item relating to section 6107 in the table of sections for subchapter B of chapter 61 is amended by striking Income tax return preparer
and inserting Tax return preparer
.
Section 6109(a)(4) is amended—
by striking an income tax return preparer
and inserting a tax return preparer
, and
by striking income tax return preparer
in the heading and inserting tax return preparer
.
Section 6503(k)(4) is amended by striking Income tax return preparers
and inserting Tax return preparers
.
Section 6694 is amended—
by striking income tax return preparer
in the heading and inserting tax return preparer
,
by striking an income tax return preparer
each place it appears and inserting a tax return preparer
,
in subsection (c)(2), by striking the income tax return preparer
and inserting the tax return preparer
,
in subsection (e), by striking subtitle A
and inserting this title
, and
in subsection (f), by striking income tax return preparer
and inserting tax return preparer
.
The item relating to section 6694 in the table of sections for part I of subchapter B of chapter 68 is amended by striking income tax return preparer
and inserting tax return preparer
.
Section 6695 is amended—
by striking income
in the heading, and
by striking an income tax return preparer
each place it appears and inserting a tax return preparer
.
Section 6695(f) is amended—
by striking subtitle A
and inserting this title
, and
by striking the income tax return preparer
and inserting the tax return preparer
.
The item relating to section 6695 in the table of sections for part I of subchapter B of chapter 68 is amended by striking income
.
Section 6696(e) is amended by striking subtitle A
each place it appears and inserting this title
.
Section 7407 is amended—
by striking income tax return preparers
in the heading and inserting tax return preparers
,
by striking an income tax return preparer
each place it appears and inserting a tax return preparer
,
by striking income tax preparer
both places it appears in subsection (a) and inserting tax return preparer
, and
by striking income tax return
in subsection (a) and inserting tax return
.
The item relating to section 7407 in the table of sections for subchapter A of chapter 76 is amended by striking income tax return preparers
and inserting tax return preparers
.
Section 7427 is amended—
by striking Income tax return preparers
in the heading and inserting Tax return preparers
, and
by striking an income tax return preparer
and inserting a tax return preparer
.
The item relating to section 7427 in the table of sections for subchapter B of chapter 76 is amended to read as follows:
Sec. 7427. Tax return preparers.
.
Modification of penalty for understatement of taxpayer's liability by tax return preparer
Subsections (a) and (b) of section 6694 are amended to read as follows:
Understatement due to unreasonable positions
In general
Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—
$1,000, or
50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
Unreasonable position
A position is described in this paragraph if—
the tax return preparer knew (or reasonably should have known) of the position,
there was not a reasonable belief that the position would more likely than not be sustained on its merits, and
the position was not disclosed as provided in section 6662(d)(2)(B)(ii), or
there was no reasonable basis for the position.
Reasonable cause exception
No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.
Understatement due to willful or reckless conduct
In general
Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—
$5,000, or
50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
Willful or reckless conduct
Conduct described in this paragraph is conduct by the tax return preparer which is—
a willful attempt in any manner to understate the liability for tax on the return or claim, or
a reckless or intentional disregard of rules or regulations.
Reduction in penalty
The amount of any penalty payable by any person by reason of this subsection for any return or claim for refund shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).
.
Effective date
The amendments made by this section shall apply to returns prepared after the date of the enactment of this Act.
Penalty for aiding and abetting the understatement of tax liability
In General
Section 6701(a) (relating to imposition of penalty) is amended—
by inserting , or tax liability reflected in,
after the preparation or presentation of
in paragraph (1),
by inserting aid, assistance, procurement, or advice with respect to such
before portion
both places it appears in paragraphs (2) and (3), and
by inserting instance of aid, assistance, procurement, or advice or each such
before document
in the matter following paragraph (3).
Amount of Penalty
Subsection (b) of section 6701 (relating to penalties for aiding and abetting understatement of tax liability) is amended to read as follows:
Amount of Penalty; Calculation of Penalty; Liability for Penalty
Amount of penalty
The amount of the penalty imposed by subsection (a) shall be 100 percent of the gross income derived (or to be derived) from such aid, assistance, procurement, or advice provided by the person or persons subject to such penalty.
Calculation of penalty
The penalty amount determined under paragraph (1) shall be calculated with respect to each instance of aid, assistance, procurement, or advice described in subsection (a), each instance in which income was derived by the person or persons subject to such penalty, and each person who made such an understatement of the liability for tax.
Liability for penalty
If more than 1 person is liable under subsection (a) with respect to providing such aid, assistance, procurement, or advice, all such persons shall be jointly and severally liable for the penalty under such subsection.
.
Penalty Not Deductible
Section 6701 is amended by adding at the end the following new subsection:
Penalty Not Deductible
The payment of any penalty imposed under this section or the payment of any amount to settle or avoid the imposition of such penalty shall not be considered an ordinary and necessary expense in carrying on a trade or business for purposes of this title and shall not be deductible by the person who is subject to such penalty or who makes such payment.
.
Effective Date
The amendments made by this section shall apply to the activities described in section 6701(a) of the Internal Revenue Code of 1986 after the date of the enactment of this Act.
Increase in criminal monetary penalty limitation for the underpayment or overpayment of tax due to fraud
In general
Attempt to evade or defeat tax
Section 7201 (relating to attempt to evade or defeat tax) is amended—
by striking $100,000
and inserting $500,000
,
by striking $500,000
and inserting $1,000,000
, and
by striking 5 years
and inserting 10 years
.
Willful failure to file return, supply information, or pay tax
In general
Section 7203 (relating to willful failure to file return, supply information, or pay tax) is amended—
in the first sentence—
by striking Any person
and inserting the following:
In General
Any person
, and
by striking $25,000
and inserting $50,000
,
in the third sentence, by striking section
and inserting subsection
, and
by adding at the end the following new subsection:
Aggravated Failure to File
In general
In the case of any failure described in paragraph (2), the first sentence of subsection (a) shall be applied by substituting—
felony
for misdemeanor
,
$500,000 ($1,000,000
for $50,000 ($100,000
, and
10 years
for 1 year
.
Failure described
A failure described in this paragraph is—
a failure to make a return described in subsection (a) for a period of 3 or more consecutive taxable years if the aggregate tax liability for such period is not less than $100,000, or
a failure to make a return if the tax liability giving rise to the requirement to make such return is attributable to an activity which is a felony under any State or Federal law.
.
Penalty may be applied in addition to other penalties
Section 7204 (relating to fraudulent statement or failure to make statement to employees) is amended by striking the penalty provided in section 6674
and inserting the penalties provided in sections 6674 and 7203(b)
.
Fraud and false statements
Section 7206 (relating to fraud and false statements) is amended—
by striking $100,000
and inserting $500,000
,
by striking $500,000
and inserting $1,000,000
, and
by striking 3 years
and inserting 5 years
.
Increase in monetary limitation for underpayment or overpayment of tax due to fraud
Section 7206 (relating to fraud and false statements), as amended by subsection (a)(3), is amended—
by striking Any person who—
and inserting (a) In General.—Any person who—
, and
by adding at the end the following new subsection:
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 6401(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.
.
Effective Date
The amendments made by this section shall apply to actions, and failures to act, occurring after the date of the enactment of this Act.
Doubling of certain penalties, fines, and interest on underpayments related to certain offshore financial arrangements
Determination of Penalty
In general
Notwithstanding any other provision of law, in the case of an applicable taxpayer—
the determination as to whether any interest or applicable penalty is to be imposed with respect to any arrangement described in paragraph (2), or to any underpayment of Federal income tax attributable to items arising in connection with any such arrangement, shall be made without regard to the rules of subsections (b), (c), and (d) of section 6664 of the Internal Revenue Code of 1986, and
if any such interest or applicable penalty is imposed, the amount of such interest or penalty shall be equal to twice that determined without regard to this section.
Applicable taxpayer
For purposes of this subsection—
In general
The term applicable taxpayer means a taxpayer which—
has underreported its United States income tax liability with respect to any item which directly or indirectly involves—
any financial arrangement which in any manner relies on the use of offshore payment mechanisms (including credit, debit, or charge cards) issued by banks or other entities in foreign jurisdictions, or
any offshore financial arrangement (including any arrangement with foreign banks, financial institutions, corporations, partnerships, trusts, or other entities), and
has neither signed a closing agreement pursuant to the Voluntary Offshore Compliance Initiative established by the Department of the Treasury under Revenue Procedure 2003–11 nor voluntarily disclosed its participation in such arrangement by notifying the Internal Revenue Service of such arrangement prior to the issue being raised by the Internal Revenue Service during an examination.
Authority to waive
The Secretary of the Treasury or the Secretary’s delegate may waive the application of paragraph (1) to any taxpayer if the Secretary or the Secretary’s delegate determines that the use of such offshore payment mechanisms is incidental to the transaction and, in addition, in the case of a trade or business, such use is conducted in the ordinary course of the type of trade or business of the taxpayer.
Issues raised
For purposes of subparagraph (A)(ii), an item shall be treated as an issue raised during an examination if the individual examining the return—
communicates to the taxpayer knowledge about the specific item, or
has made a request to the taxpayer for information and the taxpayer could not make a complete response to that request without giving the examiner knowledge of the specific item.
Applicable Penalty
For purposes of this section, the term applicable penalty means any penalty, addition to tax, or fine imposed under chapter 68 of the Internal Revenue Code of 1986.
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.
Increase in penalty for bad checks and money orders
In General
Section 6657 (relating to bad checks) is amended—
by striking $750
and inserting $1,250
, and
by striking $15
and inserting $25
.
Effective Date
The amendments made by this section shall apply to checks or money orders received after the date of the enactment of this Act.
Increase in penalty excise taxes on the political and excess lobbying activities of section 501(c)(3) organizations
Taxes on disqualifying lobbying expenditures of certain organizations
In general
Section 4912(a) (relating to tax on organization) is amended by striking 5 percent
and inserting 10 percent
.
Tax on management
Section 4912(b) is amended by striking 5 percent
and inserting 10 percent
.
Taxes on political expenditures of section 501(c)(3) organizations
In general
Section 4955(a) (relating to initial taxes) is amended—
in paragraph (1), by striking 10 percent
and inserting 20 percent
, and
in paragraph (2), by striking 21/2 percent
and inserting 5 percent
.
Increased limitation for managers
Section 4955(c)(2) is amended—
by striking $5,000
and inserting $10,000
, and
by striking $10,000
and inserting $20,000
.
Effective date
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
Penalty for filing erroneous refund claims
In general
Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by inserting after section 6675 the following new section:
Erroneous claim for refund or credit
Civil penalty
If a claim for refund or credit with respect to income tax is made for an excessive amount, unless it is shown that the claim for such excessive amount has a reasonable basis, the person making such claim shall be liable for a penalty in an amount equal to 20 percent of the excessive amount.
Excessive amount
For purposes of this section, the term excessive amount means in the case of any person the amount by which the amount of the claim for refund or credit for any taxable year exceeds the amount of such claim allowable under this title for such taxable year.
Coordination with other penalties
This section shall not apply to any portion of the excessive amount of a claim for refund or credit on which a penalty is imposed under part II of subchapter A of chapter 68.
.
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 6675 the following new item:
Sec. 6676. Erroneous claim for refund or credit.
.
Effective date
The amendments made by this section shall apply to any claim—
filed or submitted after the date of the enactment of this Act, or
filed or submitted prior to such date but not withdrawn before the date which is 30 days after such date of enactment.
Confidentiality and disclosure
Collection activities with respect to joint return disclosable to either spouse based on oral request
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.
Effective Date
The amendment made by this section shall apply to requests made after the date of the enactment of this Act.
Prohibition of disclosure of taxpayer identification information with respect to disclosure of accepted offers-in-compromise
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
.
Effective Date
The amendment made by this section shall apply to disclosures made after the date of the enactment of this Act.
Compliance by contractors with confidentiality safeguards
In General
Section 6103(p) (relating to State law requirements) is amended by adding at the end the following new paragraph:
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—
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,
agrees to conduct an on-site review every 3 years (or a mid-point review in the case of contracts or agreements of less than 3 years in duration) of each contractor or other agent to determine compliance with such requirements,
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
certifies to the Secretary for the most recent annual period that such contractor or other agent is in compliance with all such requirements.
.
Conforming Amendment
Subparagraph (B) of section 6103(p)(8) is amended by inserting or paragraph (9)
after subparagraph (A)
.
Effective Date
In general
The amendments made by this section shall apply to disclosures made after the date of the enactment of this Act.
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 2006 following the date of the enactment of this Act.
Higher standards for requests for and consents to disclosure
In General
Subsection (c) of section 6103 (relating to disclosure of returns and return information to designee of taxpayer) is amended—
by striking Taxpayer.—The Secretary
and inserting “Taxpayer.—
In general
The Secretary
, and
by adding at the end the following new paragraphs:
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.
Requirements for form prescribed by secretary
For purposes of this subsection, the Secretary shall prescribe a form for written requests and consents which shall—
contain a warning, prominently displayed, informing the taxpayer that the form should not be signed unless it is completed,
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
contain the address and telephone number of the Treasury Inspector General for Tax Administration.
Cross reference
For provision providing for civil damages for violation of paragraph (2), see section 7431(i).
.
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:
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).
.
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 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—
evaluate (on the basis of random sampling) whether—
the amendment made by subsection (a) is achieving the purposes of this section;
requesters and submitters for such disclosure are continuing to evade the purposes of this section and, if so, how; and
the sanctions for violations of such requirements are adequate; and
include such recommendations that the Secretary of the Treasury considers necessary or appropriate to better achieve the purposes of this section.
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.
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.
Civil damages for unauthorized disclosure or inspection
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 new sentences: 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.
.
Exhaustion of Administrative Remedies Required
Section 7431, as amended by this Act, is amended by adding at the end the following new subsection:
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.
.
Payment Authority Clarified
In general
Section 7431, as amended by subsection (b), is amended by adding at the end the following new subsection:
Payment Authority
Claims pursuant to subsection (a)(1) shall be payable out of funds appropriated under section 1304 of title 31, United States Code.
.
Annual reports of payments
The Secretary of the Treasury shall annually report to the Committee on 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.
Burden of Proof for Good Faith Exception Rests With Person 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 person who made the inspection or disclosure.
.
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:
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—
administrative investigations,
civil lawsuits brought under section 7431 (including the amounts for which such lawsuits were settled and the amounts of damages awarded), and
criminal prosecutions.
.
Effective Dates
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.
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.
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.
Reports
Subsection (c)(2) and 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.
Expansion of disclosure in emergency circumstances
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
.
Conforming Amendments
Section 6103(p)(4) is amended—
by striking (i)(3)(B)(i) or (7)(A)(ii)
and inserting (i)(7)(A)(ii)
, and
by striking , (i)(3)(B)(i),
.
Disclosure of taxpayer identity for tax refund purposes
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,
.
Treatment of public records
In General
Section 6103(b) (relating to definitions) is amended by adding at the end the following new paragraph:
Treatment of public records
Returns and return information shall not be subject to subsection (a) if disclosed—
in the course of any judicial or administrative proceeding or pursuant to tax administration activities, and
properly made part of the public record.
.
Effective Date
The amendment made by this section shall take effect before, on, and after the date of the enactment of this Act.
Taxpayer identification number matching
Section 6103(k) (relating to disclosure of certain returns and return information for tax administration purposes), as amended by this Act, is amended by adding at the end the following new paragraph:
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.
.
Form 8300 disclosures
Section 6103(p)(4) (relating to safeguards) is amended by striking (15),
both places it appears.
Expansion of penalty for disclosure or use of information by tax return preparer
In general
Section 7216 is amended by adding at the end the following new subsection:
Definitions
For purposes of this section—
In general
The term tax return preparer means—
any person who—
is engaged in the business of preparing tax returns,
is engaged in the business of providing services in connection with the preparation of tax returns,
prepares, or assists in preparing, a tax return for compensation, or holds himself out as such a person,
develops software used to prepare or file tax returns, or
is an electronic return originator, and
any individual who, as part of his duties or employment with any person described in subparagraph (A), performs services relating to—
the preparation or filing of, or in providing services in connection with the preparation or filing of, a tax return, or
the development of software used to prepare or file tax returns.
Tax return
The term tax return means a return of any tax imposed under this title.
.
Conforming amendments
Criminal penalty
Section 7216(a) is amended—
by striking Any person
through who knowingly or recklessly
and inserting Any tax return preparer who knowingly or recklessly
, and
by striking any such return
in paragraph (1) and inserting any tax return
.
Assessable penalty
Section 6713 is amended—
in subsection (a)—
by striking If any person
through and who
and inserting If any tax return preparer
, and
by striking any such return
in paragraph (1) and inserting any tax return
, and
by adding at the end the following new subsection:
Definitions
For purposes of this section, the terms tax return preparer and tax return shall have the meanings given to such terms under section 7216.
.
Effective date
The amendments made by this section shall apply to returns prepared after the date of the enactment of this Act.
Restrictions on disclosure and use of tax return information
In general
Paragraph (3) of section 7216(b) (relating to regulations) is amended to read as follows:
Regulations
In general
Subsection (a) shall not apply to a disclosure or use of information which is permitted by regulations prescribed by the Secretary under this section.
Peer reviews
The regulations under this section shall permit (subject to such conditions as such regulations shall provide) the disclosure or use of information for quality or peer reviews.
Restrictions on certain disclosures and uses
Prohibition on certain consensual disclosures and uses
The regulations under this section shall not permit the disclosure or use of information to or for any person with the consent of the taxpayer unless such disclosure or use is in connection with preparing or filing, or providing services in connection with the preparation or filing of, a tax return.
Return preparers located outside the United States
The regulations under this section shall not permit the disclosure or use of information to or by any tax return preparer located outside of the United States unless the taxpayer has granted consent to such disclosure or use.
.
Conforming amendments
Criminal penalty
Paragraph (2) of section 7216(a) is amended by inserting within the United States
after any such return
.
Assessable penalty
Paragraph (2) of section 6713(a) is amended by inserting within the United States
after any such return
.
Consent form
The Secretary of the Treasury shall prescribe a form to be used for obtaining consent to disclose or use information described in section 7216(a)(1) of the Internal Revenue Code of 1986 to or by a tax return preparer (as defined under section 7216(c) of such Code, as added by section 512) located outside of the United States. Such form shall contain a conspicuous statement notifying the taxpayer that—
the information will be disclosed to a tax return preparer (as so defined) located outside of the United States; and
Federal law may not protect the taxpayer from unauthorized use or disclosure by such tax return preparer.
Effective date
In general
The amendments made by this section shall apply to disclosures and uses made after the date of the enactment of this Act.
Application to regulations
The provisions of clause (i) of section 7216(b)(3)(C) of the Internal Revenue Code of 1986, as added by subsection (a), shall apply to regulations issued before, on, or after the date of the enactment of this Act.
United States tax court employee appointment modernization
Amendments to appoint employees
In General
Subsection (a) of section 7471 (relating to Tax Court employees) is amended to read as follows:
Appointment and Compensation
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.
Law clerks and secretaries
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.
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.
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.
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.
Programs
The Tax Court may establish programs for employee evaluations, incentive awards, flexible work schedules, premium pay, and resolution of employee grievances.
Discrimination prohibited
The Tax Court shall—
prohibit discrimination on the basis of race, color, religion, age, sex, national origin, political affiliation, marital status, or handicapping condition; and
promulgate procedures for resolving complaints of discrimination by employees and applicants for employment.
Experts and consultants
The Tax Court may procure the services of experts and consultants under section 3109 of title 5, United States Code.
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—
appeal a reduction in grade or removal to the Merit Systems Protection Board under chapter 43 of title 5, United States Code,
appeal an adverse action to the Merit Systems Protection Board under chapter 75 of title 5, United States Code,
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,
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
file an appeal with the Equal Employment Opportunity Commission under part 1614 of title 29 of the Code of Federal Regulations,
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.
Merit system principles; prohibited personnel practices; and preference eligibles
Any personnel management system of the Tax Court shall—
include the principles set forth in section 2301(b) of title 5, United States Code;
prohibit personnel practices prohibited under section 2302(b) of title 5, United States Code; and
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.
.
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.
Miscellaneous provisions
Expensing of broadband Internet access expenditures
In General
Part VI of subchapter B of chapter 1 (relating to itemized deductions for individuals and corporations) is amended by inserting after section 190 the following new section:
Broadband expenditures
Treatment of Expenditures
In general
A taxpayer may elect to treat any qualified broadband expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction.
Election
An election under paragraph (1) shall be made at such time and in such manner as the Secretary may prescribe by regulation.
Qualified Broadband Expenditures
For purposes of this section—
In general
The term qualified broadband expenditure means, with respect to any taxable year, any direct or indirect costs incurred after June 30, 2006, and before January 1, 2011, and properly taken into account with respect to—
the purchase or installation of qualified equipment (including any upgrades thereto), and
the connection of such qualified equipment to any qualified subscriber.
Certain satellite expenditures excluded
Such term shall not include any costs incurred with respect to the launching of any satellite equipment.
Leased equipment
Such term shall include so much of the purchase price paid by the lessor of qualified equipment subject to a lease described in subsection (c)(2)(B) as is attributable to expenditures incurred by the lessee which would otherwise be described in paragraph (1).
When Expenditures Taken Into Account
For purposes of this section—
In general
Qualified broadband expenditures with respect to qualified equipment shall be taken into account with respect to the first taxable year in which—
current generation broadband services are provided through such equipment to qualified subscribers, or
next generation broadband services are provided through such equipment to qualified subscribers.
Limitation
In general
Qualified expenditures shall be taken into account under paragraph (1) only with respect to qualified equipment—
the original use of which commences with the taxpayer, and
which is placed in service, after the date of the enactment of this Act.
Sale-leasebacks
For purposes of subparagraph (A), if property—
is originally placed in service after the date of the enactment of this Act by any person, and
sold and leased back by such person within 3 months after the date such property was originally placed in service,
Special Allocation Rules
Current generation broadband services
For purposes of determining the amount of qualified broadband expenditures under subsection (a)(1) with respect to qualified equipment through which current generation broadband services are provided, if the qualified equipment is capable of serving both qualified subscribers and other subscribers, the qualified broadband expenditures shall be multiplied by a fraction—
the numerator of which is the sum of the number of potential qualified subscribers within the rural areas and the underserved areas which the equipment is capable of serving with current generation broadband services, and
the denominator of which is the total potential subscriber population of the area which the equipment is capable of serving with current generation broadband services.
Next generation broadband services
For purposes of determining the amount of qualified broadband expenditures under subsection (a)(1) with respect to qualified equipment through which next generation broadband services are provided, if the qualified equipment is capable of serving both qualified subscribers and other subscribers, the qualified broadband expenditures shall be multiplied by a fraction—
the numerator of which is the sum of—
the number of potential qualified subscribers within the rural areas and underserved areas, plus
the number of potential qualified subscribers within the area consisting only of residential subscribers not described in clause (i),
the denominator of which is the total potential subscriber population of the area which the equipment is capable of serving with next generation broadband services.
Definitions
For purposes of this section—
Antenna
The term antenna means any device used to transmit or receive signals through the electromagnetic spectrum, including satellite equipment.
Cable operator
The term cable operator has the meaning given such term by section 602(5) of the Communications Act of 1934 (47 U.S.C. 522(5)).
Commercial mobile service carrier
The term commercial mobile service carrier means any person authorized to provide commercial mobile radio service as defined in section 20.3 of title 47, Code of Federal Regulations.
Current generation broadband service
The term current generation broadband service means the transmission of signals at a rate of at least 5,000,000 bits per second to the subscriber and at least 1,000,000 bits per second from the subscriber.
Multiplexing or demultiplexing
The term multiplexing means the transmission of 2 or more signals over a single channel, and the term demultiplexing means the separation of 2 or more signals previously combined by compatible multiplexing equipment.
Next generation broadband service
The term next generation broadband service means the transmission of signals at a rate of at least 50,000,000 bits per second to the subscriber and at least 10,000,000 bits per second from the subscriber.
Nonresidential subscriber
The term nonresidential subscriber means any person who purchases broadband services which are delivered to the permanent place of business of such person.
Open video system operator
The term open video system operator means any person authorized to provide service under section 653 of the Communications Act of 1934 (47 U.S.C. 573).
Other wireless carrier
The term other wireless carrier means any person (other than a telecommunications carrier, commercial mobile service carrier, cable operator, open video system operator, or satellite carrier) providing current generation broadband services or next generation broadband service to subscribers through the radio transmission of energy.
Packet switching
The term packet switching means controlling or routing the path of any digitized transmission signal which is assembled into packets or cells.
Provider
The term provider means, with respect to any qualified equipment—
a cable operator,
a commercial mobile service carrier,
an open video system operator,
a satellite carrier,
a telecommunications carrier, or
any other wireless carrier,
Provision of services
A provider shall be treated as providing services to 1 or more subscribers if—
such a subscriber has been passed by the provider’s equipment and can be connected to such equipment for a standard connection fee,
the provider is physically able to deliver current generation broadband services or next generation broadband services, as applicable, to such a subscriber without making more than an insignificant investment with respect to such subscriber,
the provider has made reasonable efforts to make such subscribers aware of the availability of such services,
such services have been purchased by 1 or more such subscribers, and
such services are made available to such subscribers at average prices comparable to those at which the provider makes available similar services in any areas in which the provider makes available such services.
Qualified equipment
In general
The term qualified equipment means equipment which provides current generation broadband services or next generation broadband services—
at least a majority of the time during periods of maximum demand to each subscriber who is utilizing such services, and
in a manner substantially the same as such services are provided by the provider to subscribers through equipment with respect to which no deduction is allowed under subsection (a)(1).
Only certain investment taken into account
Except as provided in subparagraph (C) or (D), equipment shall be taken into account under subparagraph (A) only to the extent it—
extends from the last point of switching to the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a telecommunications carrier or broadband-over-powerline operator,
extends from the customer side of the mobile telephone switching office to a transmission/receive antenna (including such antenna) owned or leased by a subscriber in the case of a commercial mobile service carrier,
extends from the customer side of the headend to the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a cable operator or open video system operator, or
extends from a transmission/receive antenna (including such antenna) which transmits and receives signals to or from multiple subscribers, to a transmission/receive antenna (including such antenna) on the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a satellite carrier or other wireless carrier, unless such other wireless carrier is also a telecommunications carrier.
Packet switching equipment
Packet switching equipment, regardless of location, shall be taken into account under subparagraph (A) only if it is deployed in connection with equipment described in subparagraph (B) and is uniquely designed to perform the function of packet switching for current generation broadband services or next generation broadband services, but only if such packet switching is the last in a series of such functions performed in the transmission of a signal to a subscriber or the first in a series of such functions performed in the transmission of a signal from a subscriber.
Multiplexing and demultiplexing equipment
Multiplexing and demultiplexing equipment shall be taken into account under subparagraph (A) only to the extent it is deployed in connection with equipment described in subparagraph (B) and is uniquely designed to perform the function of multiplexing and demultiplexing packets or cells of data and making associated application adaptions, but only if such multiplexing or demultiplexing equipment is located between packet switching equipment described in subparagraph (C) and the subscriber’s premises.
Qualified subscriber
The term qualified subscriber means—
with respect to the provision of current generation broadband services—
any nonresidential subscriber maintaining a permanent place of business in a rural area or underserved area, or
any residential subscriber residing in a dwelling located in a rural area or underserved area which is not a saturated market, and
with respect to the provision of next generation broadband services—
any nonresidential subscriber maintaining a permanent place of business in a rural area or underserved area, or
any residential subscriber.
Residential subscriber
The term residential subscriber means any individual who purchases broadband services which are delivered to such individual’s dwelling.
Rural area
The term rural area means any census tract which—
is not within 10 miles of any incorporated or census designated place containing more than 25,000 people, and
is not within a county or county equivalent which has an overall population density of more than 500 people per square mile of land.
Rural subscriber
The term rural subscriber means any residential subscriber residing in a dwelling located in a rural area or nonresidential subscriber maintaining a permanent place of business located in a rural area.
Satellite carrier
The term satellite carrier means any person using the facilities of a satellite or satellite service licensed by the Federal Communications Commission and operating in the Fixed-Satellite Service under part 25 of title 47 of the Code of Federal Regulations or the Direct Broadcast Satellite Service under part 100 of title 47 of such Code to establish and operate a channel of communications for distribution of signals, and owning or leasing a capacity or service on a satellite in order to provide such point-to-multipoint distribution.
Saturated market
The term saturated market means any census tract in which, as of the date of the enactment of this section—
current generation broadband services have been provided by a single provider to 85 percent or more of the total number of potential residential subscribers residing in dwellings located within such census tract, and
such services can be utilized—
at least a majority of the time during periods of maximum demand by each such subscriber who is utilizing such services, and
in a manner substantially the same as such services are provided by the provider to subscribers through equipment with respect to which no deduction is allowed under subsection (a)(1).
Subscriber
The term subscriber means any person who purchases current generation broadband services or next generation broadband services.
Telecommunications carrier
The term telecommunications carrier has the meaning given such term by section 3(44) of the Communications Act of 1934 (47 U.S.C. 153(44)), but—
includes all members of an affiliated group of which a telecommunications carrier is a member, and
does not include a commercial mobile service carrier.
Total potential subscriber population
The term total potential subscriber population means, with respect to any area and based on the most recent census data, the total number of potential residential subscribers residing in dwellings located in such area and potential nonresidential subscribers maintaining permanent places of business located in such area.
Underserved area
The term underserved area means—
any census tract which is located in—
an empowerment zone or enterprise community designated under section 1391, or
the District of Columbia Enterprise Zone established under section 1400, or
any census tract—
the poverty level of which is at least 30 percent (based on the most recent census data), and
the median family income of which does not exceed—
in the case of a census tract located in a metropolitan statistical area, 70 percent of the greater of the metropolitan area median family income or the statewide median family income, and
in the case of a census tract located in a nonmetropolitan statistical area, 70 percent of the nonmetropolitan statewide median family income.
Underserved subscriber
The term underserved subscriber means any residential subscriber residing in a dwelling located in an underserved area or nonresidential subscriber maintaining a permanent place of business located in an underserved area.
Special Rules
Property used outside the united states, etc., not qualified
No expenditures shall be taken into account under subsection (a)(1) with respect to the portion of the cost of any property referred to in section 50(b) or with respect to the portion of the cost of any property specified in an election under section 179.
Basis reduction
In general
For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a)(1).
Ordinary income recapture
For purposes of section 1245, the amount of the deduction allowable under subsection (a)(1) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167.
Coordination with section 38
No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a)(1).
.
Special Rule for Mutual or Cooperative Telephone Companies
Section 512(b) (relating to modifications) is amended by adding at the end the following new paragraph:
Special rule for mutual or cooperative telephone companies
A mutual or cooperative telephone company which for the taxable year satisfies the requirements of section 501(c)(12)(A) may elect to reduce its unrelated business taxable income for such year, if any, by an amount that does not exceed the qualified broadband expenditures which would be taken into account under section 191 for such year by such company if such company was not exempt from taxation. Any amount which is allowed as a deduction under this paragraph shall not be allowed as a deduction under section 191 and the basis of any property to which this paragraph applies shall be reduced under section 1016(a)(38).
.
Conforming Amendments
Section 263(a)(1) (relating to capital expenditures) is amended by striking or
at the end of subparagraph (J), by striking the period at the end of subparagraph (K) and inserting , or
, and by adding at the end the following new subparagraph:
expenditures for which a deduction is allowed under section 191.
.
Section 1016(a) is amended by striking and
at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and
, and by adding at the end the following new paragraph:
to the extent provided in section 191(f)(2).
.
The table of sections for part VI of subchapter A of chapter 1 is amended by inserting after the item relating to section 190 the following new item:
Sec. 191. Broadband expenditures.
.
Designation of Census Tracts
In general
The Secretary of the Treasury shall, not later than 90 days after the date of the enactment of this Act, designate and publish those census tracts meeting the criteria described in paragraphs (16), (22), and (23) of section 191(e) of the Internal Revenue Code of 1986 (as added by this section). In making such designations, the Secretary of the Treasury shall consult with such other departments and agencies as the Secretary determines appropriate.
Saturated market
In general
For purposes of designating and publishing those census tracts meeting the criteria described in subsection (e)(19) of such section 191—
the Secretary of the Treasury shall prescribe not later than 30 days after the date of the enactment of this Act the form upon which any provider which takes the position that it meets such criteria with respect to any census tract shall submit a list of such census tracts (and any other information required by the Secretary) not later than 60 days after the date of the publication of such form, and
the Secretary of the Treasury shall publish an aggregate list of such census tracts and the applicable providers not later than 30 days after the last date such submissions are allowed under clause (i).
No subsequent lists required
The Secretary of the Treasury shall not be required to publish any list of census tracts meeting such criteria subsequent to the list described in subparagraph (A)(ii).
Other Regulatory Matters
Prohibition
No Federal or State agency or instrumentality shall adopt regulations or ratemaking procedures that would have the effect of eliminating or reducing any deduction or portion thereof allowed under section 191 of the Internal Revenue Code of 1986 (as added by this section) or otherwise subverting the purpose of this section.
Treasury regulatory authority
It is the intent of Congress in providing the election to deduct qualified broadband expenditures under section 191 of the Internal Revenue Code of 1986 (as added by this section) to provide incentives for the purchase, installation, and connection of equipment and facilities offering expanded broadband access to the Internet for users in certain low income and rural areas of the United States, as well as to residential users nationwide, in a manner that maintains competitive neutrality among the various classes of providers of broadband services. Accordingly, the Secretary of the Treasury shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of section 191 of such Code, including—
regulations to determine how and when a taxpayer that incurs qualified broadband expenditures satisfies the requirements of section 191 of such Code to provide broadband services, and
regulations describing the information, records, and data taxpayers are required to provide the Secretary to substantiate compliance with the requirements of section 191 of such Code.
Modification of refunds for kerosene used in aviation
In general
Paragraph (4) of section 6427(l) (relating to nontaxable uses of diesel fuel and kerosene) is amended to read as follows:
Refunds for kerosene used in aviation
Kerosene used in commercial aviation
In the case of kerosene used in commercial aviation (as defined in section 4083(b)) (other than supplies for vessels or aircraft within the meaning of section 4221(d)(3)), paragraph (1) shall not apply to so much of the tax imposed by section 4081 as is attributable to—
the Leaking Underground Storage Tank Trust Fund financing rate imposed by such section, and
so much of the rate of tax specified in section 4081(a)(2)(A)(iii) as does not exceed 4.3 cents per gallon.
Kerosene used in noncommercial aviation
In the case of kerosene used in aviation that is not commercial aviation (as so defined) (other than any use which is exempt from the tax imposed by section 4041(c) other than by reason of a prior imposition of tax), paragraph (1) shall not apply to so much of the tax imposed by section 4081 as is attributable to—
the Leaking Underground Storage Tank Trust Fund financing rate imposed by such section, and
so much of the rate of tax specified in section 4081(a)(2)(A)(iii) as does not exceed the rate specified in section 4081(a)(2)(C)(ii).
Payments to ultimate, registered vendor
In general
With respect to any kerosene used in aviation (other than kerosene described in clause (ii) or kerosene to which paragraph (5) applies), if the ultimate purchaser of such kerosene waives (at such time and in such form and manner as the Secretary shall prescribe) the right to payment under paragraph (1) and assigns such right to the ultimate vendor, then the Secretary shall pay the amount which would be paid under paragraph (1) to such ultimate vendor, but only if such ultimate vendor—
is registered under section 4101, and
meets the requirements of subparagraph (A), (B), or (D) of section 6416(a)(1).
Payments for kerosene used in noncommercial aviation
The amount which would be paid under paragraph (1) with respect to any kerosene to which subparagraph (B) applies shall be paid only to the ultimate vendor of such kerosene. A payment shall be made to such vendor if such vendor—
is registered under section 4101, and
meets the requirements of subparagraph (A), (B), or (D) of section 6416(a)(1).
.
Conforming amendments
Section 6427(l) is amended by striking paragraph (5) and by redesignating paragraph (6) as paragraph (5).
Section 4082(d)(2)(B) is amended by striking section 6427(l)(6)(B)
and inserting section 6427(l)(5)(B)
.
Section 6427(i)(4)(A) is amended—
by striking paragraph (4)(B), (5), or (6)
each place it appears and inserting paragraph (4)(C) or (5)
, and
by striking (l)(5), and (l)(6)
and inserting (l)(4)(C)(ii), and (l)(5)
.
Section 6427(l)(1) is amended by striking paragraph (4)(B)
and inserting paragraph (4)(C)(i)
.
Section 9502(d) is amended—
in paragraph (2), by striking and (l)(5)
, and
in paragraph (3), by striking or (5)
.
Section 9503(c)(7) is amended—
in subparagraph (A), by striking section 6427(l)(4)
and inserting section 6427(l)(4)(A)
,
in subparagraph (B), by striking section 6427(l)(5)
and inserting section 6427(l)(4)(B)
, and
in the matter following subparagraph (B), by striking or (5)
.
Section 9503(c), as amended by paragraph (6), is amended by redesignating paragraph (7) as paragraph (6).
Section 9502(a) is amended by striking section 9503(c)(7)
and inserting section 9503(c)(6)
.
Effective date
In general
The amendments made by this section shall apply to kerosene sold after September 30, 2005.
Special rule for pending claims
In the case of kerosene sold for use in aviation (other than kerosene to which section 6427(l)(4)(C)(ii) of the Internal Revenue Code of 1986 (as added by subsection (a)) applies or kerosene to which section 6427(l)(5) of such Code (as redesignated by subsection (b)) applies) after September 30, 2005, and before the date of the enactment of this Act, the ultimate purchaser shall be treated as having waived the right to payment under section 6427(l)(1) of such Code and as having assigned such right to the ultimate vendor if such ultimate vendor has met the requirements of subparagraph (A), (B), or (D) of section 6416(a)(1) of such Code.
Special rule for kerosene used in aviation on a farm for farming purposes
Refunds for purchases after December 31, 2004, and before October 1, 2005
The Secretary of the Treasury shall pay to the ultimate purchaser of any kerosene which is used in aviation on a farm for farming purposes and which was purchased after December 31, 2004, and before October 1, 2005, an amount equal to the aggregate amount of tax imposed on such fuel under section 4041 or 4081 of the Internal Revenue Code of 1986, as the case may be, reduced by any payment to the ultimate vendor under section 6427(l)(5)(C) of such Code (as in effect on the day before the date of the enactment of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users).
Use on a farm for farming purposes
For purposes of paragraph (1), kerosene shall be treated as used on a farm for farming purposes if such kerosene is used for farming purposes (within the meaning of section 6420(c)(3) of the Internal Revenue Code of 1986) in carrying on a trade or business on a farm situated in the United States. For purposes of the preceding sentence, rules similar to the rules of section 6420(c)(4) of such Code shall apply.
Time for filing claims
No claim shall be allowed under paragraph (1) unless the ultimate purchaser files such claim before the date that is 3 months after the date of the enactment of this Act.
No double benefit
No amount shall be paid under paragraph (1) or section 6427(l) of the Internal Revenue Code of 1986 with respect to any kerosene described in paragraph (1) to the extent that such amount is in excess of the tax imposed on such kerosene under section 4041 or 4081 of such Code, as the case may be.
Applicable laws
For purposes of this subsection, rules similar to the rules of section 6427(j) of the Internal Revenue Code of 1986 shall apply.
Declarations on Federal corporate income tax returns
In general
Section 6062 is amended by inserting , and shall include a declaration signed, 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
after authorized so to act
.
Effective date
The amendment made by 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.
Certified professional employer organizations
Employment taxes
Chapter 25 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section:
Certified professional employer organizations
General rules
For purposes of the taxes, and other obligations, imposed by this subtitle—
a certified professional employer organization shall be treated as the employer (and no other person shall be treated as the employer) of any work site employee performing services for any customer of such organization, but only with respect to remuneration remitted by such organization to such work site employee, and
exclusions, definitions, and other rules which are based on the type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
Successor employer status
For purposes of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)—
a certified professional employer organization entering into a service contract with a customer with respect to a work site employee shall be treated as a successor employer and the customer shall be treated as a predecessor employer during the term of such service contract, and
a customer whose service contract with a certified professional employer organization is terminated with respect to a work site employee shall be treated as a successor employer and the certified professional employer organization shall be treated as a predecessor employer.
Liability of certified professional employer organization
Solely for purposes of its liability for the taxes, and other obligations, imposed by this subtitle—
a certified professional employer organization shall be treated as the employer of any individual (other than a work site employee or a person described in subsection (f)) who is performing services covered by a contract meeting the requirements of section 7705(e)(2), but only with respect to remuneration remitted by such organization to such individual, and
exclusions, definitions, and other rules which are based on the type of employer and which would (but for paragraph (1)) apply shall apply with respect to such taxes imposed on such remuneration.
Treatment of credits
In general
For purposes of any credit specified in paragraph (2)—
such credit with respect to a work site employee performing services for the customer applies to the customer, not the certified professional employer organization,
the customer, and not the certified professional employer organization, shall take into account wages and employment taxes—
paid by the certified professional employer organization with respect to the work site employee, and
for which the certified professional employer organization receives payment from the customer, and
the certified professional employer organization shall furnish the customer with any information necessary for the customer to claim such credit.
Credits specified
A credit is specified in this paragraph if such credit is allowed under—
section 41 (credit for increasing research activity),
section 45A (Indian employment credit),
section 45B (credit for portion of employer social security taxes paid with respect to employee cash tips).
section 45C (clinical testing expenses for certain drugs for rare diseases or conditions),
section 51 (work opportunity credit),
section 51A (temporary incentives for employing long-term family assistance recipients),
section 1396 (empowerment zone employment credit),
1400(d) (DC Zone employment credit),
Section 1400H (renewal community employment credit), and
any other section as provided by the Secretary.
Special rule for related party
This section shall not apply in the case of a customer which bears a relationship to a certified professional employer organization described in section 267(b) or 707(b). For purposes of the preceding sentence, such sections shall be applied by substituting 10 percent
for 50 percent
.
Special rule for certain individuals
For purposes of the taxes imposed under this subtitle, an individual with net earnings from self-employment derived from the customer’s trade or business is not a work site employee with respect to remuneration paid by a certified professional employer organization.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
.
Certified professional employer organization defined
Chapter 79 (relating to definitions) is amended by adding at the end the following new section:
Certified professional employer organizations
In general
For purposes of this title, the term certified professional employer organization means a person who has been certified by the Secretary for purposes of section 3511 as meeting the requirements of subsection (b).
General requirements
A person meets the requirements of this subsection if such person—
demonstrates that such person (and any owner, officer, and such other persons as may be specified in regulations) meets such requirements as the Secretary shall establish with respect to tax status, background, experience, business location, and annual financial audits,
computes its taxable income using an accrual method of accounting unless the Secretary approves another method,
agrees that it will satisfy the bond and independent financial review requirements of subsection (c) on an ongoing basis,
agrees that it will satisfy such reporting obligations as may be imposed by the Secretary,
agrees to verify on such periodic basis as the Secretary may prescribe that it continues to meet the requirements of this subsection, and
agrees to notify the Secretary in writing within such time as the Secretary may prescribe of any change that materially affects whether it continues to meet the requirements of this subsection.
Bond and independent financial review requirements
In general
An organization meets the requirements of this paragraph if such organization—
meets the bond requirements of paragraph (2), and
meets the independent financial review requirements of paragraph (3).
Bond
In general
A certified professional employer organization meets the requirements of this paragraph if the organization has posted a bond for the payment of taxes under subtitle C (in a form acceptable to the Secretary) in an amount at least equal to the amount specified in subparagraph (B).
Amount of bond
For the period April 1 of any calendar year through March 31 of the following calendar year, the amount of the bond required is equal to the greater of—
5 percent of the organization’s liability under section 3511 for taxes imposed by subtitle C during the preceding calendar year (but not to exceed $1,000,000), or
$50,000.
Independent financial review requirements
A certified professional employer organization meets the requirements of this paragraph if such organization—
has, as of the most recent review date, caused to be prepared and provided to the Secretary (in such manner as the Secretary may prescribe) an opinion of an independent certified public accountant that the certified professional employer organization’s financial statements are presented fairly in accordance with generally accepted accounting principles, and
provides, not later than the last day of the second month beginning after the end of each calendar quarter, to the Secretary from an independent certified public accountant an assertion regarding Federal employment tax payments and an examination level attestation on such assertion.
Controlled group rules
For purposes of the requirements of paragraphs (2) and (3), all professional employer organizations that are members of a controlled group within the meaning of sections 414(b) and (c) shall be treated as a single organization.
Failure to file assertion and attestation
If the certified professional employer organization fails to file the assertion and attestation required by paragraph (3) with respect to any calendar quarter, then the requirements of paragraph (3) with respect to such failure shall be treated as not satisfied for the period beginning on the due date for such attestation.
Review date
For purposes of paragraph (3)(A), the review date shall be 6 months after the completion of the organization’s fiscal year.
Suspension and revocation authority
The Secretary may suspend or revoke a certification of any person under subsection (b) for purposes of section 3511 if the Secretary determines that such person is not satisfying the representations or requirements of subsections (b) or (c), or fails to satisfy applicable accounting, reporting, payment, or deposit requirements.
Work site employee
For purposes of this title—
In general
The term work site employee means, with respect to a certified professional employer organization, an individual who—
performs services for a customer pursuant to a contract which is between such customer and the certified professional employer organization and which meets the requirements of paragraph (2), and
performs services at a work site meeting the requirements of paragraph (3).
Service contract requirements
A contract meets the requirements of this paragraph with respect to an individual performing services for a customer if such contract is in writing and provides that the certified professional employer organization shall—
assume responsibility for payment of wages to such individual, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for reporting, withholding, and paying any applicable taxes under subtitle C, with respect to such individual’s wages, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for any employee benefits which the service contract may require the organization to provide, without regard to the receipt or adequacy of payment from the customer for such services,
assume responsibility for hiring, firing, and recruiting workers in addition to the customer’s responsibility for hiring, firing and recruiting workers,
maintain employee records relating to such individual, and
agree to be treated as a certified professional employer organization for purposes of section 3511 with respect to such individual.
Work site coverage requirement
The requirements of this paragraph are met with respect to an individual if at least 85 percent of the individuals performing services for the customer at the work site where such individual performs services are subject to 1 or more contracts with the certified professional employer organization which meet the requirements of paragraph (2) (but not taking into account those individuals who are excluded employees within the meaning of section 414(q)(5)).
Determination of employment status
Except to the extent necessary for purposes of section 3511, nothing in this section shall be construed to affect the determination of who is an employee or employer for purposes of this title.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
.
Conforming amendments
Section 3302 is amended by adding at the end the following new subsection:
Treatment of certified professional employer organizations
If a certified professional employer organization (as defined in section 7705), or a customer of such organization, makes a contribution to the State’s unemployment fund with respect to a work site employee, such organization shall be eligible for the credits available under this section with respect to such contribution.
.
Section 3303(a) is amended—
by striking the period at the end of paragraph (3) and inserting ; and
and by inserting after paragraph (3) the following new paragraph:
if the taxpayer is a certified professional employer organization (as defined in section 7705) that is treated as the employer under section 3511, such certified professional employer organization is permitted to collect and remit, in accordance with paragraphs (1), (2), and (3), contributions during the taxable year to the State unemployment fund with respect to a work site employee.
, and
in the last sentence—
by striking paragraphs (1), (2), and (3)
and inserting paragraphs (1), (2), (3), and (4)
, and
by striking paragraph (1), (2), or (3)
and inserting paragraph (1), (2), (3), or (4)
.
Section 6053(c) (relating to reporting of tips) is amended by adding at the end the following new paragraph:
Certified professional employer organizations
For purposes of any report required by this subsection, in the case of a certified professional employer organization that is treated under section 3511 as the employer of a work site employee, the customer with respect to whom a work site employee performs services shall be the employer for purposes of reporting under this section and the certified professional employer organization shall furnish to the customer any information necessary to complete such reporting no later than such time as the Secretary shall prescribe.
.
Clerical amendments
The table of sections for chapter 25 is amended by adding at the end the following new item:
Sec. 3511. Certified professional employer organizations.
.
The table of sections for chapter 79 is amended by inserting after the item relating to section 7704 the following new item:
Sec. 7705. Certified professional employer organizations.
.
Reporting requirements and obligations
The Secretary of the Treasury shall develop such reporting and recordkeeping rules, regulations, and procedures as the Secretary determines necessary or appropriate to ensure compliance with the amendments made by this section with respect to entities applying for certification as certified professional employer organizations or entities that have been so certified. Such rules shall be designed in a manner which streamlines, to the extent possible, the application of requirements of such amendments, the exchange of information between a certified professional employer organization and its customers, and the reporting and recordkeeping obligations of the certified professional employer organization.
User fees
Subsection (b) of section 7528 (relating to Internal Revenue Service user fees) is amended by adding at the end the following new paragraph:
Certified professional employer organizations
The fee charged under the program in connection with the certification by the Secretary of a professional employer organization under section 7705 shall not exceed $500.
.
Effective dates
In general
The amendments made by this section shall apply with respect to wages for services performed on or after January 1 of the first calendar year beginning more than 12 months after the date of the enactment of this Act.
Certification program
The Secretary of the Treasury shall establish the certification program described in section 7705(b) of the Internal Revenue Code of 1986, as added by subsection (b), not later than 6 months before the effective date determined under paragraph (1).
No inference
Nothing contained in this section or the amendments made by this section shall be construed to create any inference with respect to the determination of who is an employee or employer—
for Federal tax purposes (other than the purposes set forth in the amendments made by this section), or
for purposes of any other provision of law.
Study on collecting estimated tax payments through the electronic fund transfer system
Study
The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall undertake a study on increasing collection of estimated tax payments under the electronic fund transfer system implemented under section 6302(h) of the Internal Revenue Code of 1986.
Report
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall prepare and submit to Congress a report on the study conducted pursuant to subsection (a).
Study on use of voluntary withholding agreements
Study
The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall undertake a study on the use of voluntary agreements between independent contractors and service recipients regarding the withholding of income and employment taxes.
Report
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall prepare and submit to Congress a report on the study conducted pursuant to subsection (a). Such report shall include any statutory changes necessary to implement any recommendations resulting from the study.
Offset of State judicial debts against income tax refund
In general
Section 6402 (relating to authority to make credits or refunds) is amended by redesignating subsections (f) through (k) as subsections (g) through (l), respectively, and by inserting after subsection (e) the following new subsection:
Collection of past-due, legally enforceable State judicial debts
In general
Upon receiving notice from any State judicial branch or State agency designated by the chief justice of the State’s highest court that a named person owes a past-due, legally enforceable State judicial debt to or in such State, the Secretary shall, under such conditions as may be prescribed by the Secretary—
reduce the amount of any overpayment payable to such person by the amount of such State judicial debt;
pay the amount by which such overpayment is reduced under subparagraph (A) to such State judicial branch or State agency and notify such State judicial branch or State agency of such person’s name, taxpayer identification number, address, and the amount collected; and
notify the person making such overpayment that the overpayment has been reduced by an amount necessary to satisfy a past-due, legally enforceable State judicial debt.
Offset permitted only against residents of State seeking offset
Paragraph (1) shall apply to an overpayment by any person for a taxable year only if the address shown on the Federal return for such taxable year is an address within the State of the State judicial branch or State agency seeking the offset.
Priorities for offset
Any overpayment by a person shall be reduced pursuant to this subsection—
after such overpayment is reduced pursuant to—
subsection (a) with respect to any liability for any internal revenue tax on the part of the person who made the overpayment;
subsection (c) with respect to past-due support;
subsection (d) with respect to any past-due, legally enforceable debt owed to a Federal agency; and
subsection (e) with respect to any past-due, legally enforceable State income tax obligations; and
before such overpayment is credited to the future liability for any Federal internal revenue tax of such person pursuant to subsection (b).
Notice; consideration of evidence
Rules similar to the rules of subsection (e)(4) shall apply with respect to debts under this subsection.
Past-due, legally enforceable State judicial debt
In general
For purposes of this subsection, the term past-due, legally enforceable State judicial debt means a debt—
which resulted from a judgment or sentence rendered by any court or tribunal of competent jurisdiction which—
handles criminal or traffic cases in the State; and
has determined an amount of State judicial debt to be due; and
which resulted from a State judicial debt which has been assessed and is past-due but not collected.
State judicial debt
For purposes of this paragraph, the term State judicial debt includes court costs, fees, fines, assessments, restitution to victims of crime, and other monies resulting from a judgment or sentence rendered by any court or tribunal of competent jurisdiction handling criminal or traffic cases in the State.
Regulations
The Secretary shall issue regulations prescribing the time and manner in which State judicial branches and State agencies must submit notices of past-due, legally enforceable State judicial debts and the necessary information that must be contained in or accompany such notices. The regulations shall specify the types of State judicial monies and the minimum amount of debt to which the reduction procedure established by paragraph (1) may be applied. The regulations may require State judicial branches and State agencies to pay a fee to reimburse the Secretary for the cost of applying such procedure. Any fee paid to the Secretary pursuant to the preceding sentence shall be used to reimburse appropriations which bore all or part of the cost of applying such procedure.
Erroneous payment to State
Any State judicial branch or State agency receiving notice from the Secretary that an erroneous payment has been made to such State judicial branch or State agency under paragraph (1) shall pay promptly to the Secretary, in accordance with such regulations as the Secretary may prescribe, an amount equal to the amount of such erroneous payment (without regard to whether any other amounts payable to such State judicial branch or State agency under such paragraph have been paid to such State judicial branch or State agency).
.
Disclosure of return information
Section 6103(l)(10) (relating to disclosure of certain information to agencies requesting a reduction under subsection (c), (d), or (e) of section 6402) is amended by striking or (e)
each place it appears in the text and heading and inserting (e), or (f)
.
Conforming amendments
Section 6402(a) is amended by striking and (e)
and inserting (e), and (f)
.
Paragraph (2) of section 6402(d) is amended by striking subsection (e)
and inserting subsections (e) and (f)
.
Paragraph (3)(B) of section 6402(e) is amended to read as follows:
before such overpayment is—
reduced pursuant to subsection (f) with respect to past-due, legally enforceable State judicial debts, and
credited to the future liability for any Federal internal revenue tax of such person pursuant to subsection (b).
.
Section 6402(g), as so redesignated, is amended by striking or (e)
and inserting (e), or (f)
.
Section 6402(i), as so redesignated, is amended by striking or (e)
and inserting , (e), or (f)
.
Effective date
The amendments made by this section shall apply to refunds payable for taxable years ending after the date of the enactment of this Act.
Clarification of responsibilities of United States marshals attending the Tax Court
In general
Subsection (c) of section 7456 is amended by inserting , and shall provide for the security of the Tax Court, including the personal protection of Tax Court judges, court officers, witnesses, and other threatened persons in the interests of justice where criminal intimidation impedes on the functioning of the judicial process or any other official proceeding of the Tax Court.
.
Conforming amendment
Subsection (a) of section 566 of title 28, United States Code, is amended by striking and the Court of International Trade
and inserting , the Court of International Trade, and any other court as provided by law.
.
Authorization of appropriations to combat the tax gap and for tax law enforcement
There is authorized to be appropriated $732,000,000 for fiscal year 2007 for the purpose of combating the tax gap (as defined in section 710(b)), of which $300,000,000 is authorized 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. Any amounts so appropriated shall remain available until expended.
Annual tax gap report
Report
In general
Not later than September 30 of each year, the Secretary of the Treasury shall issue a report to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives on activities undertaken to reduce the tax gap for the fiscal year.
Contents of report
The report under paragraph (1) shall include—
specific administrative actions taken by the Secretary of the Treasury to reduce the tax gap during the fiscal year and the results of any such actions;
a plan for reducing the tax gap for the succeeding fiscal year, including—
a detailed analysis of the elements of the tax gap;
a list of measures designed to reduce the tax gap;
goals for reducing the tax gap; and
a time line for achieving the goals set forth under clause (iii);
strategies to—
simplify the administration of the tax laws;
increase income reporting;
improve tax law enforcement; and
improve Internal Revenue Service customer service; and
legislative recommendations for improving taxpayer compliance.
Tax gap
For purposes of this section, the term tax gap means, with respect to any fiscal year, the excess of—
the amount of taxes owed by taxpayers under the Internal Revenue Code of 1986 for such fiscal year, over
the amount of revenue collected by the Internal Revenue Service under such Code for such fiscal year.
Operations for the enforcement of tax laws relating to hiring and continued employment of undocumented workers
Authorization of appropriations
In general
There is authorized to be appropriated $2,000,000 for fiscal year 2007 for the purpose of establishing an office within the Internal Revenue Service to prosecute employers who violate tax laws relating to the hiring and continued employment of undocumented workers.
Availability
Any amounts appropriated pursuant to the authority of paragraph (1) shall remain available for fiscal year 2008.
Additional funding for operations of office
Unless specifically appropriated otherwise, there is authorized to be appropriated and is appropriated to the office established under subsection (a)(1) for fiscal years 2007 and 2008 for the administration of such office an amount equal to the amount of any tax under chapter 1 of the Internal Revenue Code of 1986 (including any interest) collected during such fiscal years as the result of the actions of such office, plus any civil or criminal monetary penalties imposed under such Code relating to such tax and so collected.
Report
Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall report to the Committee of Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the enforcement activities of the office established under subsection (a)(1) and shall include any recommendations for statutory changes to assist in future prosecutions under this section.
Repeal of dollar limitation on contributions to funeral trusts
In general
Subsection (c) of section 685 (relating to treatment of funeral trusts) is repealed.
Conforming amendment
Subsections (d), (e), and (f) of such section are redesignated as subsections (c), (d), and (e), respectively.
Effective date
The amendments made by this section shall apply to contributions made after December 31, 2006.
Administrative relief for certain late qualified terminable interest property elections
Extension of time to make elections
Section 2523(f)(4)(A) (relating to time and manner of election with respect to life estate for donee spouse) is amended by adding at the end the following new sentence: Such regulations shall provide circumstances and procedures under which extensions of time will be granted to make the election under this subparagraph. For purposes of the preceding sentence, the time for making the election shall be treated as if not prescribed by statute.
.
Effective date
The modifications to the regulations required by the amendment made by subsection (a) shall apply to requests for extension of time pending on or after the date of the enactment of this Act with respect to transfers made before, on, or after such date.
Disclosure of written determinations
In general
Section 6110(l) (relating to section not to apply) is amended by striking all matter before subparagraph (A) of paragraph (2) and inserting the following:
Section not to apply
In general
This section shall not apply to any matter to which section 6104 or 6105 applies, except that this section shall apply to any written determination and related background file document relating to an organization described under subsection (c) or (d) of section 501 (including any written determination denying an organization tax-exempt status under such subsection) or a political organization described in section 527 which is not required to be disclosed by section 6104(a)(1)(A).
Additional matters
This section shall not apply to any—
.
Effective date
The amendment made by this section shall apply to written determinations issued after the date of the enactment of this Act.
Disclosure of Internet web site and name under which organization does business
In general
Section 6033 (relating to returns by exempt organizations) is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:
Disclosure of name under which organization does business and its Internet web site
Any organization which is subject to the requirements of subsection (a) shall include on the return required under subsection (a)—
any name under which such organization operates or does business, and
the Internet web site address (if any) of such organization.
.
Effective date
The amendments made by this section shall apply to returns filed after December 31, 2006.
Modification to reporting capital transactions
Requirement of summary report
Section 6033(c) (relating to additional provisions relating to private foundations) is amended by adding at the end the following new sentence: Any information included in an annual return regarding the gain or loss from the sale or other disposition of stock or securities which are listed on an established securities market which is required to be furnished in order to calculate the tax on net investment income shall also be reported in summary form with a notice that detailed information is available upon request by the public.
.
Disclosure requirement
Section 6104(b) (relating to inspection of annual information returns), as amended by this Act, is amended by adding at the end the following new sentence: With respect to any private foundation (as defined in section 509(a)), any information regarding the gain or loss from the sale or other disposition of stock or securities which are listed on an established securities market which is required to be furnished in order to calculate the tax on net investment income but which is not in summary form is not required to be made available to the public under this subsection except upon the explicit request by a member of the public to the Secretary.
.
Public inspection requirement
Section 6104(d) (relating to public inspection of certain annual returns, applications for exemptions, and notices of status) is amended—
by redesignating paragraph (6) (relating to disclosure of reports by Internal Revenue Service) as paragraph (7),
by redesignating paragraph (6) (relating to application to nonexempt charitable trusts and nonexempt private foundations) as paragraph (8), and
by adding at the end the following new paragraph:
Application to private foundation capital transaction information
With respect to any private foundation (as defined in section 509(a)), any information regarding the gain or loss from the sale or other disposition of stock or securities which are listed on an established securities market which is required to be furnished in order to calculate the tax on net investment income but which is not in summary form is not required to be made available to the public under this subsection except upon the explicit request by a member of the public to the private foundation in the form and manner of a request described in paragraph (1)(B).
.
Effective date
The amendments made by this section shall apply to returns filed after December 31, 2006.
Disclosure that Form 990 is publicly available
In general
The Commissioner of the Internal Revenue shall notify the public in appropriate publications or other materials of the extent to which an exempt organization’s Form 990, Form 990–EZ, or Form 990–PF is publicly available.
Effective date
The amendments made by this section shall apply to publications or other materials issued or revised after the date of the enactment of this Act.
Expedited review process for certain tax-exemption applications
In general
The Secretary of the Treasury or the Secretary’s delegate (in this section, referred to as the Secretary
) shall adopt procedures to expedite the consideration of applications for exempt status under section 501(c)(3) of the Internal Revenue Code of 1986 filed after December 31, 2006, by any organization that—
is organized and operated for the primary purpose of providing social services;
is seeking a contract or grant under a Federal, State, or local program that provides funding for social services programs;
establishes that, under the terms and conditions of the contract or grant program, an organization is required to obtain such exempt status before the organization is eligible to apply for a contract or grant;
includes with its exemption application a copy of its completed Federal, State, or local contract or grant application; and
meets such other criteria as the Secretary deems appropriate for expedited consideration.
Waiver of application fee for exempt status
Any organization that meets the conditions described in subsection (a) (without regard to paragraph (3) of that subsection) is entitled to a waiver of any fee for an application for exempt status under section 501(c)(3) of the Internal Revenue Code of 1986 if the organization certifies that the organization has had (or expects to have) average annual gross receipts of not more than $50,000 during the preceding 4 years (or, in the case of an organization not in existence throughout the preceding 4 years, during such organization’s first 4 years).
Social services defined
For purposes of this section—
In general
The term social services means services directed at helping people in need, reducing poverty, improving outcomes of low-income children, revitalizing low-income communities, and empowering low-income families and low-income individuals to become self-sufficient, including—
child care services, protective services for children and adults, services for children and adults in foster care, adoption services, services related to the management and maintenance of the home, day care services for adults, and services to meet the special needs of children, older individuals, and individuals with disabilities (including physical, mental, or emotional disabilities);
transportation services;
job training and related services, and employment services;
information, referral, and counseling services;
the preparation and delivery of meals, and services related to soup kitchens or food banks;
health support services;
literacy and mentoring programs;
services for the prevention and treatment of juvenile delinquency and substance abuse, services for the prevention of crime and the provision of assistance to the victims and the families of criminal offenders, and services related to the intervention in, and prevention of, domestic violence; and
services related to the provision of assistance for housing under Federal law.
Exclusions
The term does not include a program having the purpose of delivering educational assistance under the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6301 et seq.) or under the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.).
Expansion of declaratory judgment remedy to tax-exempt organizations
In general
Paragraph (1) of section 7428(a) (relating to creation of remedy) is amended—
in subparagraph (B) by inserting after 509(a))
the following: or as a private operating foundation (as defined in section 4942(j)(3))
; and
by amending subparagraph (C) to read as follows:
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
.
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)),
.
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, 2006.
Wireless telecommunications equipment
In general
Subparagraph (A) of section 168(i)(2) (defining qualified technological equipment) is amended by striking and
at the end of clause (ii), by striking the period at the end of clause (iii) and inserting , and
, and by inserting after clause (iii) the following new clause:
any wireless telecommunications equipment placed in service before January 1, 2011.
.
Wireless telecommunications equipment
Section 168(i)(2) is amended by inserting after subparagraph (C) the following new subparagraph:
Wireless telecommunications equipment
For purposes of this paragraph, the term wireless telecommunications equipment means all equipment used in the transmission, reception, coordination, or switching of wireless telecommunications service, other than cell towers, buildings, and T–1 lines or other cabling connecting cell sites to mobile switching centers. For this purpose, wireless telecommunications service
includes any commercial mobile radio service as defined in title 47 of the Code of Federal Regulations.
.
Effective date
The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.
Permanent extension of Internet tax moratorium
Section 1101(a) of the Internet Tax Freedom Act (47 U.S.C. 151 note) is amended by striking during the period beginning November 1, 2003, and ending November 1, 2007
and inserting after October 31, 2003
.
Simplification through elimination of inoperative provisions
Business provisions
General business credits
Subsection (d) of section 38 is amended by striking paragraph (3).
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
.
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
.
Intangible drilling costs
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
.
Clause (ii) of section 57(a)(2)(E) is amended by striking (30 percent in the case of taxable years beginning in 1993)
.
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.
Section 126(a)(8), as redesignated by subparagraph (A), is amended by striking paragraphs (1) through (8)
and inserting paragraphs (1) through (7)
.
Treble damage payments under the antitrust law
Section 162(g) is amended by striking the last sentence.
Charitable, etc., contributions and gifts
Section 170 is amended by striking subsection (k) and by redesignating subsections (l), (m), (n), (o), and (p) as subsections (k), (l), (m), (n), and (o), respectively.
Paragraphs (1)(D) and (2)(A) of section 6050L(b) are each amended by striking section 170(m)
and inserting 170(l)
.
Net operating loss carrybacks and carryovers
Section 172 is amended—
by striking subparagraph (D) of subsection (b)(1) and by redesignating subparagraphs (E), (F), (G), (H), and (I) as subparagraphs (D), (E), (F), (G), and (H), respectively,
by striking ending after August 2, 1989
in subsection (b)(1)(D)(i)(II) (as redesignated by clause (i)),
by striking subparagraph (F)
in subsection (b)(1)(G) (as redesignated by clause (i)) and inserting subparagraph (E)
,
by striking subsection (g), and
by striking subparagraph (F) of subsection (h)(2).
Section 172(h)(4) is amended by striking subsection (b)(1)(E)
each place it appears and inserting subsection (b)(1)(D)
.
Section 172(i)(3) is amended by striking subsection (b)(1)(G)
each place it appears and inserting subsection (b)(1)(F)
.
Section 172(j) is amended by striking subsection (b)(1)(H)
each place it appears and inserting subsection (b)(1)(G)
.
Section 172, as amended by subparagraphs (A) through (D) of this paragraph, is amended—
by redesignating subsections (h), (i), (j), and (k) as subsections (g), (h), (i), and (j), respectively,
by striking subsection (h)
each place it appears and inserting subsection (g)
, and
by striking subsection (i)
each place it appears and inserting subsection (h)
.
Research and experimental expenditures
Subparagraph (A) of section 174(a)(2) is amended to read as follows:
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.
.
Amortization of certain research and experimental expenditures
Paragraph (2) of section 174(b) is amended by striking beginning after December 31, 1953
.
Soil and water conservation expenditures
Paragraph (1) of section 175(d) is amended to read as follows:
Without consent
A taxpayer may, without the consent of the Secretary, adopt the method provided in this section for the taxpayer’s first taxable year for which expenditures described in subsection (a) are paid or incurred.
.
Activities not engaged in for profit
Section 183(e)(1) is amended by striking the last sentence.
Dividends received on certain preferred stock; and dividends paid on certain preferred stock of public utilities
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.
Paragraph (5) of section 172(d) is amended to read as follows:
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).
.
Paragraph (1) of section 243(c) is amended to read as follows:
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
.
.
Section 243(d) is amended by striking paragraph (4).
Section 246 is amended—
by striking , 244,
in subsection (a)(1),
in subsection (b)(1)—
by striking sections 243(a)(1), and 244(a),
the first place it appears and inserting section 243(a)(1)
,
by striking 244(a),
the second place it appears, and
by striking subsection (a) or (b) of section 245, and 247,
and inserting and subsection (a) or (b) of section 245,
, and
by striking , 244,
in subsection (c)(1).
Section 246A is amended by striking , 244,
both places it appears in subsections (a) and (e).
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), and 1059(b)(2)(B) are each amended by striking , 244,
each place it appears.
Section 1244(c)(2)(C) is amended by striking 244,
.
Section 805(a)(4)(B) is amended by striking , 244(a),
each place it appears.
Section 810(c)(2)(B) is amended by striking 244 (relating to dividends on certain preferred stock of public utilities),
.
Organization expenses
Section 248(c) is amended by striking beginning after December 31, 1953,
and by striking the last sentence.
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.
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,
.
Interest on indebtedness incurred by corporations to acquire stock or assets of another corporation
Section 279 is amended—
by striking after December 31, 1967,
in subsection (a)(2),
by striking after October 9, 1969,
in subsection (b), and
by striking after October 9, 1969, and
in subsection (d)(5).
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
.
Tax credit employee stock ownership plans
Section 409 is amended by striking subsection (q).
Retiree health accounts
Section 420 is amended—
by striking paragraph (4) of subsection (b) and by redesignating paragraph (5) as paragraph (4), and
by amending paragraph (2) of subsection (c) to read as follows:
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).
.
Employee stock purchase plans
Section 423(a) is amended by striking after December 31, 1963,
.
Limitation on deductions for certain farming
Section 464 is amended 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 (d) applies
.
Subsection (c) of section 464 is hereby moved to the end of section 461 and redesignated as subsection (j).
Such subsection (j) is amended—
by striking For purposes of this section
in paragraph (1) and inserting For purposes of subsection (i)(4)
, and
by adding at the end the following new paragraphs:
Farming
For purposes of this subsection, the term farming has the meaning given to such term by section 464(e).
Limited entrepreneur
For purposes of this subsection, the term limited entrepreneur means a person who—
has an interest in an enterprise other than as a limited partner, and
does not actively participate in the management of such enterprise.
.
Paragraph (4) of section 461(i) is amended by striking section 464(c)
and inserting subsection (j)
.
Section 464 is amended—
by striking subsections (e) and (g) and redesignating subsections (d) and (f) as subsections (c) and (d), respectively, and
by adding at the end the following new subsection:
Farming
For purposes of this section, the term farming means the cultivation of land or the raising or harvesting of any agricultural or horticultural commodity including the raising, shearing, feeding, caring for, training, and management of animals. For purposes of the preceding sentence, trees (other than trees bearing fruit or nuts) shall not be treated as an agricultural or horticultural commodity.
.
Subsection (d) of section 464, as redesignated by subparagraph (C), is amended—
by striking paragraph (1) and redesignating paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), respectively, and
by striking Subsections (a) and (b) to Apply to
in the subsection heading.
Subparagraph (A) of section 58(a)(2) is amended by striking section 464(c)
and inserting section 461(j)
.
Deductions limited to amount at risk
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
.
Passive activity losses and credits limited
Section 469 is amended by striking subsection (m).
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).
Adjustments required by changes in method of accounting
Section 481(b)(3) is amended by striking subparagraph (C).
Exemption from tax on corporations, certain trusts, etc
Section 501 is amended by striking subsection (q).
Requirements for exemption
Section 503(a)(1) is amended to read as follows:
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.
.
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)
.
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)
.
Insurance company taxable income
Section 832(e) is amended by striking of taxable years beginning after December 31, 1966,
.
Section 832(e)(6) is amended by striking In the case of any taxable year beginning after December 31, 1970, the
and inserting The
.
Property on which lessee has made improvements
Section 1019 is amended by striking the last sentence.
Involuntary conversion
Section 1033 is amended by striking subsection (j) and by redesignating subsections (k) and (l) as subsections (j) and (k), respectively.
Property acquired during affiliation
Section 1051 is hereby 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.
Holding period of property
Paragraph (4) 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)
.
Paragraph (6) of section 1223 is amended by striking the last sentence.
Paragraph (8) of section 1223 is repealed.
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
.
Sale or exchange of patents
Section 1235 is amended—
by striking subsection (c) and by redesignating subsections (d) and (e) as subsections (c) and (d), respectively, and
by striking subsection (d)
in subsection (b) and inserting subsection (c)
.
Dealers in securities
Subsection (b) of section 1236 is amended by striking after November 19, 1951,
.
Sale of patents
Subsection (a) of section 1249 is amended by striking after December 31, 1962,
.
Gain from disposition of farm land
Paragraph (1) of section 1252(a) is amended—
by striking beginning after December 31, 1969
in the matter preceding subparagraph (A), and
by striking after December 31, 1969,
in subparagraph (A).
Treatment of amounts received on retirement or sale or exchange of debt instruments
Subsection (c) of section 1271 is amended to read as follows:
Special Rule for Certain Obligations With Respect to Which Original Issue Discount Not Currently Includible
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—
an amount equal to the original issue discount, or
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,
Subsection (a)(2)(A) not to apply
Subsection (a)(2)(A) shall not apply to any debt instrument referred to in paragraph (1).
Cross reference
For current inclusion of original issue discount, see section 1272.
.
Amount and method of adjustment
Section 1314 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).
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.
.
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).
Disallowance of the benefits of the graduated corporate rates and accumulated earnings credit
Subsection (a) of section 1551 is amended—
by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, and
by striking after June 12, 1963,
each place it appears.
Section 1551(b) is amended—
by striking or (2)
in paragraph (1), and
by striking (a)(3)
in paragraph (2) and inserting (a)(2)
.
Definition of wages
Section 3121(b) is amended by striking paragraph (17).
Section 210(a) of the Social Security Act is amended by striking paragraph (17).
Credits against tax
Paragraph (4) of section 3302(f) is amended—
by striking “subsection—” and all that follows through (A) In general.—The
and inserting subsection, the
,
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.
Paragraph (5) of section 3302(f) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D).
Domestic service employment taxes
Section 3510(b) is amended by striking paragraph (4).
Tax on fuel used in commercial transportation on inland waterways
Section 4042(b)(2)(A) is amended to read as follows:
The Inland Waterways Trust Fund financing rate is 20 cents per gallon.
.
Transportation by air
Paragraph (1) of section 4261(b) is amended to read as follows:
In general
There is hereby imposed on the amount paid for each domestic segment of taxable transportation by air a tax equal to $3.
.
Section 4261(e) is amended—
in paragraph (1) by striking subparagraph (C), and
by striking paragraph (5).
Taxes on failure to distribute income
Paragraph (2) of section 4942(f) is amended by striking the semicolon at the end of subparagraph (B) and inserting , and
, by striking ; and
at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D).
Subsection (g) of section 4942 is amended—
by striking For all taxable years beginning on or after January 1, 1975, subject
in paragraph (2)(A) and inserting Subject
, and
by striking paragraph (4).
Section 4942(i)(2) is amended by striking beginning after December 31, 1969, and
.
Taxes on taxable expenditures
Section 4945(f) is amended by striking (excluding therefrom any preceding taxable year which begins before January 1, 1970)
.
Returns
Subsection (a) of section 6039D is amended by striking beginning after December 31, 1984,
.
Information returns
Subsection (c) of section 6060 is amended by striking year
and all that follows and inserting year.
.
Canal zone
Subparagraph (A) of section 6103(b)(5) is amended by striking the Canal Zone,
.
Abatements
Section 6404(f) is amended by striking paragraph (3).
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)
.
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
.
Valuation tables
Subsection (c) of section 7520 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).
Paragraph (2) of section 7520(c), as so redesignated, is amended—
by striking Not later than December 31, 1989, the
and inserting The
, and
by striking thereafter
in the last sentence thereof.
Administration and collection of taxes in possessions
Section 7651 is amended by striking paragraph (4) and by redesignating paragraph (5) as paragraph (4).
Definition of employee
Section 7701(a)(20) is amended by striking chapter 21
and all that follows and inserting chapter 21.
.
Individual provisions
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:
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
.
.
Earned income credit
Paragraph (1) of section 32(b) is amended—
by striking subparagraphs (B) and (C), and
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.
Annuities; certain proceeds of endowment and life insurance contracts
Section 72 is amended—
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
in subsection (g)(3) by striking January 1, 1954, or
and , whichever is later
.
Accident and health plans
Section 105(f) is amended by striking or (d)
.
Flexible spending arrangements
Section 106(c)(1) is amended by striking Effective on and after January 1, 1997, gross
and inserting Gross
.
Certain combat zone compensation of members of the armed forces
Subsection (c) of section 112 is amended—
by striking (after June 24, 1950)
in paragraph (2), and
striking such zone;
and all that follows in paragraph (3) and inserting such zone.
.
Principal residence
Section 121(b)(3) is amended—
by striking subparagraph (B), and
in subparagraph (A) by striking(A) In general.—
and moving the text 2 ems to the left.
Certain reduced uniformed services retirement pay
Section 122(b)(1) is amended by striking after December 31, 1965,
.
Mortgage revenue bonds for residences in federal disaster areas
Section 143(k) is amended by striking paragraph (11).
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
.
Health insurance costs of self-employed individuals
Paragraph (1) of section 162(l) is amended to read as follows:
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.
.
Interest
Section 163 is amended—
by striking paragraph (6) of subsection (d), and
by striking paragraph (5) of subsection (h).
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.
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
.
Income taxes of members of armed forces on death
Section 692(a)(1) is amended by striking after June 24, 1950
.
Tax on nonresident alien individuals
Subparagraph (B) of section 871(a)(1) is amended to read as follows:
gains described in subsection (b) or (c) of section 631,
.
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.
.
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.
.
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 inserting a period.
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)
.
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
.
Annuities to surviving spouses and dependent children of judges
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
.
Subsection (g) of section 7448 is amended by striking or other than pursuant to section 1106 of the Internal Revenue Code of 1939
.
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
.
Effective Date
General rule
Except as otherwise provided in paragraph (2), the amendments made by this section shall take effect on the date of enactment of this Act.
Savings provision
If—
any provision amended or repealed by subsection (a) applied to—
any transaction occurring before the date of the enactment of this Act,
any property acquired before such date of enactment, or
any item of income, loss, deduction, or credit taken into account before such date of enactment, and
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,
Revenue offset provisions
Clarification of economic substance doctrine
In General
Section 7701 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
Clarification of Economic Substance Doctrine; Etc
General rules
In general
In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction (or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.
Definition of economic substance
For purposes of subparagraph (A)—
In general
A transaction has economic substance only if—
the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer’s economic position, and
the taxpayer has a substantial nontax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose.
Special rule where taxpayer relies on profit potential
A transaction shall not be treated as having economic substance by reason of having a potential for profit unless—
the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected, and
the reasonably expected pre-tax profit from the transaction exceeds a risk-free rate of return.
Treatment of fees and foreign taxes
Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (B)(ii).
Special rules for transactions with tax-indifferent parties
Special rules for financing transactions
The form of a transaction which is in substance the borrowing of money or the acquisition of financial capital directly or indirectly from a tax-indifferent party shall not be respected if the present value of the deductions to be claimed with respect to the transaction is substantially in excess of the present value of the anticipated economic returns of the person lending the money or providing the financial capital. A public offering shall be treated as a borrowing, or an acquisition of financial capital, from a tax-indifferent party if it is reasonably expected that at least 50 percent of the offering will be placed with tax-indifferent parties.
Artificial income shifting and basis adjustments
The form of a transaction with a tax-indifferent party shall not be respected if—
it results in an allocation of income or gain to the tax-indifferent party in excess of such party’s economic income or gain, or
it results in a basis adjustment or shifting of basis on account of overstating the income or gain of the tax-indifferent party.
Definitions and special rules
For purposes of this subsection—
Economic substance doctrine
The term economic substance doctrine means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.
Tax-indifferent party
The term tax-indifferent party means any person or entity not subject to tax imposed by subtitle A. A person shall be treated as a tax-indifferent party with respect to a transaction if the items taken into account with respect to the transaction have no substantial impact on such person’s liability under subtitle A.
Exception for personal transactions of individuals
In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.
Treatment of lessors
In applying paragraph (1)(B)(ii) to the lessor of tangible property subject to a lease—
the expected net tax benefits with respect to the leased property shall not include the benefits of—
depreciation,
any tax credit, or
any other deduction as provided in guidance by the Secretary, and
subclause (II) of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such benefits are allowable.
Other common law doctrines not affected
Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.
.
Effective Date
The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.
Penalty for understatements attributable to transactions lacking economic substance, etc
In General
Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:
Penalty for understatements attributable to transactions lacking economic substance, etc
Imposition of Penalty
If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.
Reduction of Penalty for Disclosed Transactions
Subsection (a) shall be applied by substituting 20 percent
for 40 percent
with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.
Noneconomic Substance Transaction Understatement
For purposes of this section—
In general
The term noneconomic substance transaction understatement means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.
Noneconomic substance transaction
The term noneconomic substance transaction means any transaction if—
there is a lack of economic substance (within the meaning of section 7701(p)(1)) for the transaction giving rise to the claimed benefit or the transaction was not respected under section 7701(p)(2), or
the transaction fails to meet the requirements of any similar rule of law.
Rules Applicable to Compromise of Penalty
In general
If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.
Applicable rules
The rules of paragraphs (2) and (3) of section 6707A(d) shall apply for purposes of paragraph (1).
Coordination With Other Penalties
Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.
Cross References
(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).
(2) For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).
.
Coordination With Other Understatements and Penalties
The second sentence of section 6662(d)(2)(A) is amended by inserting and without regard to items with respect to which a penalty is imposed by section 6662B
before the period at the end.
Subsection (e) of section 6662A is amended—
in paragraph (1), by inserting and noneconomic substance transaction understatements
after reportable transaction understatements
both places it appears,
in paragraph (2)(A), by inserting and a noneconomic substance transaction understatement
after reportable transaction understatement
,
in paragraph (2)(B), by inserting 6662B or
before 6663
,
in paragraph (2)(C)(i), by inserting or section 6662B
before the period at the end,
in paragraph (2)(C)(ii), by inserting and section 6662B
after This section
,
in paragraph (3), by inserting or noneconomic substance transaction understatement
after reportable transaction understatement
, and
by adding at the end the following new paragraph:
Noneconomic substance transaction understatement
For purposes of this subsection, the term noneconomic substance transaction understatement has the meaning given such term by section 6662B(c).
.
Subsection (e) of section 6707A is amended—
by striking or
at the end of subparagraph (B), and
by striking subparagraph (C) and inserting the following new subparagraphs:
is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or
is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or under section 6662B,
.
Clerical Amendment
The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item:
Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.
.
Effective Date
The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.
Application of rules treating inverted corporations as domestic corporations to certain transactions occurring after March 20, 2002
In general
Section 7874(b) (relating to inverted corporations treated as domestic corporations) is amended to read as follows:
Inverted corporations treated as domestic corporations
In general
Notwithstanding section 7701(a)(4), a foreign corporation shall be treated for purposes of this title as a domestic corporation if such corporation would be a surrogate foreign corporation if subsection (a)(2) were applied by substituting 80 percent
for 60 percent
.
Special rule for certain transactions occurring after March 20, 2002
In general
If—
paragraph (1) does not apply to a foreign corporation, but
paragraph (1) would apply to such corporation if, in addition to the substitution under paragraph (1), subsection (a)(2) were applied by substituting March 20, 2002
for March 4, 2003
each place it appears,
Special rules
Subject to such rules as the Secretary may prescribe, in the case of a corporation to which paragraph (1) applies by reason of this paragraph—
the corporation shall be treated, as of the close of its last taxable year beginning before January 1, 2006, as having transferred all of its assets, liabilities, and earnings and profits to a domestic corporation in a transaction with respect to which no tax is imposed under this title,
the bases of the assets transferred in the transaction to the domestic corporation shall be the same as the bases of the assets in the hands of the foreign corporation, subject to any adjustments under this title for built-in losses,
the basis of the stock of any shareholder in the domestic corporation shall be the same as the basis of the stock of the shareholder in the foreign corporation for which it is treated as exchanged, and
the transfer of any earnings and profits by reason of clause (i) shall be disregarded in determining any deemed dividend or foreign tax creditable to the domestic corporation with respect to such transfer.
Regulations
The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including regulations to prevent the avoidance of the purposes of this paragraph.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after December 31, 2005.
Amend the title so as to read: A bill to amend the Internal Revenue Code of 1986 to repeal the excise tax on telephone and other communication services and to provide taxpayer protection and assistance, and for other purposes.
.
September 15, 2006
Reported with an amendment and an amendment to the title