IIB
110th CONGRESS
1st Session
H. R. 3056
IN THE SENATE OF THE UNITED STATES
October 15, 2007
Received; read twice and referred to the Committee on Finance
AN ACT
To amend the Internal Revenue Code of 1986 to repeal the authority of the Internal Revenue Service to use private debt collection companies, to delay implementation of withholding taxes on government contractors, to revise the tax rules on expatriation, and for other purposes.
Short title; amendment of 1986 Code; table of contents
Short title
This Act may be cited as the Tax Collection Responsibility Act of
2007
.
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 of this Act is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Repeal of authority to enter into private debt collection contracts.
Sec. 3. Delay of application of withholding requirement on certain governmental payments for goods and services.
Sec. 4. Clarification of entitlement of Virgin Islands residents to protections of limitations on assessment and collection of tax.
Sec. 5. Revision of tax rules on expatriation.
Sec. 6. Repeal of suspension of certain penalties and interest.
Sec. 7. Increase in information return penalties.
Sec. 8. Time for payment of corporate estimated taxes.
Repeal of authority to enter into private debt collection contracts
In general
Subchapter A of chapter 64 is amended by striking section 6306.
Conforming amendments
Subchapter B of chapter 76 is amended by striking section 7433A.
Section 7811 is amended by striking subsection (g).
Section 1203 of the Internal Revenue Service Restructuring Act of 1998 is amended by striking subsection (e).
The table of sections for subchapter A of chapter 64 is amended by striking the item relating to section 6306.
The table of sections for subchapter B of chapter 76 is amended by striking the item relating to section 7433A.
Effective date
In general
Except as otherwise provided in this subsection, the amendments made by this section shall take effect on the date of the enactment of this Act.
Exception for existing contracts, etc
The amendments made by this section shall not apply to any contract which was entered into before July 18, 2007, and is not renewed or extended on or after such date.
Unauthorized contracts and extensions treated as void
Any qualified tax collection contract (as defined in section 6306 of the Internal Revenue Code of 1986, as in effect before its repeal) which is entered into on or after July 18, 2007, and any extension or renewal on or after such date of any qualified tax collection contract (as so defined) shall be void.
Delay of application of withholding requirement on certain governmental payments for goods and services
In general
Subsection (b) of section 511 of the Tax Increase
Prevention and Reconciliation Act of 2005 is amended by striking
December 31, 2010
and inserting December 31,
2011
.
Report to Congress
Not later than 6 months after the date of the enactment of this Act, the Secretary of the Treasury shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report with respect to the withholding requirements of section 3402(t) of the Internal Revenue Code of 1986, including a detailed analysis of—
the problems, if any, which are anticipated in administering and complying with such requirements,
the burdens, if any, that such requirements will place on governments and businesses (taking into account such mechanisms as may be necessary to administer such requirements), and
the application of such requirements to small expenditures for services and goods by governments.
Clarification of entitlement of Virgin Islands residents to protections of limitations on assessment and collection of tax
In general
Subsection (c) of section 932 (relating to treatment of Virgin Islands residents) is amended by adding at the end the following new paragraph:
Treatment of income tax return filed with Virgin Islands
An income tax return filed with the Virgin Islands by an individual claiming to be described in paragraph (1) for the taxable year shall be treated for purposes of subtitle F in the same manner as if such return were an income tax return filed with the United States for such taxable year. The preceding sentence shall not apply where such return is false or fraudulent with the intent to avoid tax or otherwise is a willful attempt in any manner to defeat or evade tax.
.
Effective date
The amendment made by this section shall apply to taxable years beginning after 1986.
Revision of tax rules on expatriation
In general
Subpart A of part II of subchapter N of chapter 1 is amended by inserting after section 877 the following new section:
Tax responsibilities of expatriation
General rules
For purposes of this subtitle—
Mark to market
All property of a covered expatriate shall be treated as sold on the day before the expatriation date for its fair market value.
Recognition of gain or loss
In the case of any sale under paragraph (1)—
notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale, and
any loss arising from such sale shall be taken into account for the taxable year of the sale to the extent otherwise provided by this title, except that section 1091 shall not apply to any such loss.
Exclusion for certain gain
In general
The amount which would (but for this paragraph) be includible in the gross income of any individual by reason of paragraph (1) shall be reduced (but not below zero) by $600,000.
Adjustment for inflation
In general
In the case of any taxable year beginning in a calendar year after 2008, the dollar amount in subparagraph (A) shall be increased by an amount equal to—
such dollar amount, multiplied by
the
cost-of-living adjustment determined under section 1(f)(3) for the calendar
year in which the taxable year begins, by substituting calendar year
2007
for calendar year 1992
in subparagraph (B)
thereof.
Rounding
If any amount as adjusted under clause (i) is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.
Election To defer tax
In general
If the taxpayer elects the application of this subsection with respect to any property treated as sold by reason of subsection (a), the time for payment of the additional tax attributable to such property shall be extended until the due date of the return for the taxable year in which such property is disposed of (or, in the case of property disposed of in a transaction in which gain is not recognized in whole or in part, until such other date as the Secretary may prescribe).
Determination of tax with respect to property
For purposes of paragraph (1), the additional tax attributable to any property is an amount which bears the same ratio to the additional tax imposed by this chapter for the taxable year solely by reason of subsection (a) as the gain taken into account under subsection (a) with respect to such property bears to the total gain taken into account under subsection (a) with respect to all property to which subsection (a) applies.
Termination of extension
The due date for payment of tax may not be extended under this subsection later than the due date for the return of tax imposed by this chapter for the taxable year which includes the date of death of the expatriate (or, if earlier, the time that the security provided with respect to the property fails to meet the requirements of paragraph (4), unless the taxpayer corrects such failure within the time specified by the Secretary).
Security
In general
No election may be made under paragraph (1) with respect to any property unless adequate security is provided with respect to such property.
Adequate security
For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if—
it is a bond which is furnished to, and accepted by, the Secretary, which is conditioned on the payment of tax (and interest thereon), and which meets the requirements of section 6325, or
it is another form of security for such payment (including letters of credit) that meets such requirements as the Secretary may prescribe.
Waiver of certain rights
No election may be made under paragraph (1) unless the taxpayer makes an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of any tax imposed by reason of this section.
Elections
An election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable.
Interest
For purposes of section 6601, the last date for the payment of tax shall be determined without regard to the election under this subsection.
Exception for certain property
Subsection (a) shall not apply to—
any deferred compensation item (as defined in subsection (d)(4)),
any specified tax deferred account (as defined in subsection (e)(2)), and
any interest in a nongrantor trust (as defined in subsection (f)(3)).
Treatment of deferred compensation items
Withholding on eligible deferred compensation items
In general
In the case of any eligible deferred compensation item, the payor shall deduct and withhold from any taxable payment to a covered expatriate with respect to such item a tax equal to 30 percent thereof.
Taxable payment
For purposes of subparagraph (A), the term taxable payment means with respect to a covered expatriate any payment to the extent it would be includible in the gross income of the covered expatriate if such expatriate continued to be subject to tax as a citizen or resident of the United States. A deferred compensation item shall be taken into account as a payment under the preceding sentence when such item would be so includible.
Other deferred compensation items
In the case of any deferred compensation item which is not an eligible deferred compensation item—
with respect to any deferred compensation item to which clause (ii) does not apply, an amount equal to the present value of the covered expatriate’s accrued benefit shall be treated as having been received by such individual on the day before the expatriation date as a distribution under the plan, and
with respect to any deferred compensation item referred to in paragraph (4)(D), the rights of the covered expatriate to such item shall be treated as becoming transferable and not subject to a substantial risk of forfeiture on the day before the expatriation date,
no early distribution tax shall apply by reason of such treatment, and
appropriate adjustments shall be made to subsequent distributions from the plan to reflect such treatment.
Eligible deferred compensation items
For purposes of this subsection, the term eligible deferred compensation item means any deferred compensation item with respect to which—
the payor of such item is—
a United States person, or
a person who is not a United States person but who elects to be treated as a United States person for purposes of paragraph (1) and meets such requirements as the Secretary may provide to ensure that the payor will meet the requirements of paragraph (1), and
the covered expatriate—
notifies the payor of his status as a covered expatriate, and
makes an irrevocable waiver of any right to claim any reduction under any treaty with the United States in withholding on such item.
Deferred compensation item
For purposes of this subsection, the term deferred compensation item means—
any interest in a plan or arrangement described in section 219(g)(5),
any interest in a foreign pension plan or similar retirement arrangement or program,
any item of deferred compensation, and
any property, or right to property, which the individual is entitled to receive in connection with the performance of services to the extent not previously taken into account under section 83 or in accordance with section 83.
Exception
Paragraphs (1) and (2) shall not apply to any deferred compensation item which is attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.
Special rules
Application of withholding rules
Rules similar to the rules of subchapter B of chapter 3 shall apply for purposes of this subsection.
Application of tax
Any item subject to the withholding tax imposed under paragraph (1) shall be subject to tax under section 871.
Coordination with other withholding requirements
Any item subject to withholding under paragraph (1) shall not be subject to withholding under section 1441 or chapter 24.
Treatment of specified tax deferred accounts
Account treated as distributed
In the case of any interest in a specified tax deferred account held by a covered expatriate on the day before the expatriation date—
the covered expatriate shall be treated as receiving a distribution of his entire interest in such account on the day before the expatriation date,
no early distribution tax shall apply by reason of such treatment, and
appropriate adjustments shall be made to subsequent distributions from the account to reflect such treatment.
Specified tax deferred account
For purposes of paragraph (1), the term specified tax deferred account means an individual retirement plan (as defined in section 7701(a)(37)) other than any arrangement described in subsection (k) or (p) of section 408, a qualified tuition program (as defined in section 529), a Coverdell education savings account (as defined in section 530), a health savings account (as defined in section 223), and an Archer MSA (as defined in section 220).
Special rules for nongrantor trusts
In general
In the case of a distribution (directly or indirectly) of any property from a nongrantor trust to a covered expatriate—
the trustee shall deduct and withhold from such distribution an amount equal to 30 percent of the taxable portion of the distribution, and
if the fair market value of such property exceeds its adjusted basis in the hands of the trust, gain shall be recognized to the trust as if such property were sold to the expatriate at its fair market value.
Taxable portion
For purposes of this subsection, the term taxable portion means, with respect to any distribution, that portion of the distribution which would be includible in the gross income of the covered expatriate if such expatriate continued to be subject to tax as a citizen or resident of the United States.
Nongrantor trust
For purposes of this subsection, the term nongrantor trust means the portion of any trust that the individual is not considered the owner of under subpart E of part I of subchapter J. The determination under the preceding sentence shall be made immediately before the expatriation date.
Special rules relating to withholding
For purposes of this subsection—
rules similar to the rules of subsection (d)(6) shall apply, and
the covered expatriate shall be treated as having waived any right to claim any reduction under any treaty with the United States in withholding on any distribution to which paragraph (1)(A) applies.
Definitions and special rules relating to expatriation
For purposes of this section—
Covered expatriate
In general
The term covered expatriate means an expatriate who meets the requirements of subparagraph (A), (B), or (C) of section 877(a)(2).
Exceptions
An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if—
the individual—
became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs, or
the individual’s relinquishment of United States citizenship occurs before such individual attains age 18½, and
the individual has been a resident of the United States (as so defined) for not more than 10 taxable years before the date of relinquishment.
Covered expatriates also subject to tax as citizens or residents
In the case of any covered expatriate who is subject to tax as a citizen or resident of the United States for any period beginning after the expatriation date, such individual shall not be treated as a covered expatriate during such period for purposes of subsections (d)(1) and (f) and section 2801.
Expatriate
The term expatriate means—
any United States citizen who relinquishes his citizenship, and
any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).
Expatriation date
The term expatriation date means—
the date an individual relinquishes United States citizenship, or
in the case of a long-term resident of the United States, the date on which the individual ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).
Relinquishment of citizenship
A citizen shall be treated as relinquishing his United States citizenship on the earliest of—
the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),
the date the United States Department of State issues to the individual a certificate of loss of nationality, or
the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.
Long-term resident
The term long-term resident has the meaning given to such term by section 877(e)(2).
Early distribution tax
The term early distribution tax means any increase in tax imposed under section 72(t), 220(e)(4), 223(f)(4), 409A(a)(1)(B), 529(c)(6), or 530(d)(4).
Other rules
Termination of deferrals, etc
In the case of any covered expatriate, notwithstanding any other provision of this title—
any time period for acquiring property which would result in the reduction in the amount of gain recognized with respect to property disposed of by the taxpayer shall terminate on the day before the expatriation date, and
any extension of time for payment of tax shall cease to apply on the day before the expatriation date and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary.
Step-up in basis
Solely for purposes of determining any tax imposed by reason of subsection (a), property which was held by an individual on the date the individual first became a resident of the United States (within the meaning of section 7701(b)) shall be treated as having a basis on such date of not less than the fair market value of such property on such date. The preceding sentence shall not apply if the individual elects not to have such sentence apply. Such an election, once made, shall be irrevocable.
Coordination with section 684
If the expatriation of any individual would result in the recognition of gain under section 684, this section shall be applied after the application of section 684.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
.
Tax on gifts and bequests received by United States citizens and residents from expatriates
In general
Subtitle B (relating to estate and gift taxes) is amended by inserting after chapter 14 the following new chapter:
GIFTS AND BEQUESTS FROM EXPATRIATES
Sec. 2801. Imposition of tax.
Imposition of tax
In General
If, during any calendar year, any United States citizen or resident receives any covered gift or bequest, there is hereby imposed a tax equal to the product of—
the highest rate of tax specified in the table contained in section 2001(c) as in effect on the date of such receipt (or, if greater, the highest rate of tax specified in the table applicable under section 2502(a) as in effect on the date), and
the value of such covered gift or bequest.
Tax To be paid by recipient
The tax imposed by subsection (a) on any covered gift or bequest shall be paid by the person receiving such gift or bequest.
Exception for certain gifts
Subsection (a) shall apply only to the extent that the value of covered gifts and bequests received by any person during the calendar year exceeds $10,000.
Tax reduced by foreign gift or estate tax
The tax imposed by subsection (a) on any covered gift or bequest shall be reduced by the amount of any gift or estate tax paid to a foreign country with respect to such covered gift or bequest.
Covered gift or bequest
In general
For purposes of this chapter, the term covered gift or bequest means—
any property acquired by gift directly or indirectly from an individual who, at the time of such acquisition, is a covered expatriate, and
any property acquired directly or indirectly by reason of the death of an individual who, immediately before such death, was a covered expatriate.
Exceptions for transfers otherwise subject to estate or gift tax
Such term shall not include—
any property shown on a timely filed return of tax imposed by chapter 12 which is a taxable gift by the covered expatriate, and
any property included in the gross estate of the covered expatriate for purposes of chapter 11 and shown on a timely filed return of tax imposed by chapter 11 of the estate of the covered expatriate.
Transfers in trust
Domestic trusts
In the case of a covered gift or bequest made to a domestic trust—
subsection (a) shall apply in the same manner as if such trust were a United States citizen, and
the tax imposed by subsection (a) on such gift or bequest shall be paid by such trust.
Foreign trusts
In general
In the case of a covered gift or bequest made to a foreign trust, subsection (a) shall apply to any distribution attributable to such gift or bequest from such trust (whether from income or corpus) to a United States citizen or resident in the same manner as if such distribution were a covered gift or bequest.
Deduction for tax paid by recipient
There shall be allowed as a deduction under section 164 the amount of tax imposed by this section which is paid or accrued by a United States citizen or resident by reason of a distribution from a foreign trust, but only to the extent such tax is imposed on the portion of such distribution which is included in the gross income of such citizen or resident.
Election to be treated as domestic trust
Solely for purposes of this section, a foreign trust may elect to be treated as a domestic trust. Such an election may be revoked with the consent of the Secretary.
Covered expatriate
For purposes of this section, the term covered expatriate has the meaning given to such term by section 877A(g)(1).
.
Clerical amendment
The table of chapters for subtitle B is amended by inserting after the item relating to chapter 14 the following new item:
Chapter 15. Gifts and bequests from expatriates.
.
Definition of termination of United States citizenship
In general
Section 7701(a) is amended by adding at the end the following new paragraph:
Termination of United States citizenship
In general
An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).
Dual citizens
Under regulations prescribed by the Secretary, subparagraph (A) shall not apply to an individual who became at birth a citizen of the United States and a citizen of another country.
.
Conforming amendments
Paragraph (1) of section 877(e) is amended to read as follows:
In general
Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.
.
Paragraph (6) of section 7701(b) is amended by adding at the end the following flush sentence:
An individual shall cease to be treated as a lawful permanent resident of the United States if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.
.
Section 7701 is amended by striking subsection (n) and by redesignating subsections (o) and (p) as subsections (n) and (o), respectively.
Information returns
Section 6039G is amended—
by
inserting or 877A
after section 877(b)
in
subsection (a), and
by inserting
or 877A
after section 877(a)
in subsection
(d).
Clerical amendment
The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by inserting after the item relating to section 877 the following new item:
Sec. 877A. Tax responsibilities of expatriation.
.
Effective date
In general
Except as provided in this subsection, the amendments made by this section shall apply to expatriates (as defined in section 877A(g) of the Internal Revenue Code of 1986, as added by this section) whose expatriation date (as so defined) is on or after the date of the enactment of this Act.
Gifts and bequests
Chapter 15 of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to covered gifts and bequests (as defined in section 2801 of such Code, as so added) received on or after the date of the enactment of this Act, regardless of when the transferor expatriated.
Repeal of suspension of certain penalties and interest
In general
Section 6404 is amended by striking subsection (g) and by redesignating subsection (h) as subsection (g).
Effective date
The amendment made by subsection (a) shall apply to notices provided by the Secretary of the Treasury, or his delegate, after the date which is 6 months after the date of the enactment of the Small Business and Work Opportunity Tax Act of 2007.
Increase in information return penalties
Failure To file correct information returns
In general
Subsections (a)(1), (b)(1)(A), and (b)(2)(A) of section
6721 are each amended by striking $50
and inserting
$100
.
Aggregate annual limitation
Subsections
(a)(1), (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by striking
$250,000
and inserting $600,000
.
Reduction where correction within 30 days
In general
Subparagraph (A) of section 6721(b)(1) is amended by
striking $15
and inserting $25
.
Aggregate annual limitation
Subsections (b)(1)(B) and (d)(1)(B) of section 6721
are each amended by striking $75,000
and inserting
$200,000
.
Reduction where correction on or before August 1
In general
Subparagraph (A) of section 6721(b)(2) is amended by
striking $30
and inserting $60
.
Aggregate annual limitation
Subsections (b)(2)(B) and (d)(1)(C) of section 6721
are each amended by striking $150,000
and inserting
$400,000
.
Aggregate annual limitations for persons with gross receipts of not more than $5,000,000
Paragraph (1) of section 6721(d) is amended—
by striking
$100,000
in subparagraph (A) and inserting
$250,000
,
by striking
$25,000
in subparagraph (B) and inserting
$75,000
, and
by striking
$50,000
in subparagraph (C) and inserting
$150,000
.
Penalty in case of intentional disregard
Paragraph (2) of section 6721(e) is
amended by striking $100
and inserting
$250
.
Failure To Furnish Correct Payee Statements
In general
Subsection (a) of section 6722 is amended by striking
$50
and inserting $100
.
Aggregate annual limitation
Subsections (a) and (c)(2)(A) of section 6722 are each
amended by striking $100,000
and inserting
$600,000
.
Penalty in case of intentional disregard
Paragraph (1) of section 6722(c) is
amended by striking $100
and inserting
$250
.
Failure To Comply With Other Information Reporting Requirements
Section 6723 is amended—
by
striking $50
and inserting $100
, and
by
striking $100,000
and inserting $600,000
.
Effective Date
The amendments made by this section shall apply with respect to information returns required to be filed on or after January 1, 2008.
Time for payment of corporate estimated taxes
Subparagraph (B) of section 401(1) of the
Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking
115 percent
and inserting 115.25 percent
.
Passed the House of Representatives October 10, 2007.
Lorraine C. Miller,
Clerk