S. 898 – Merchant Category Code Neutrality Act

AI-Generated Summary

Updated January 20, 2026 at 4:59 AM UTC

The Merchant Category Code Neutrality Act amends the Internal Revenue Code to stop the IRS from using merchant category codes—or similar classification codes—as the main reason for auditing a taxpayer. It also requires the Treasury to publish an annual public report showing how many audits were linked to each code. The bill affects all taxpayers whose businesses are classified by these codes and the IRS’s audit practices.

Key Provisions

Prohibits the Secretary of the Treasury (the IRS) from initiating audit actions that are based primarily on a taxpayer’s merchant category code or similar classification codes.
Requires the Secretary to issue a yearly public report that lists the count of each merchant category code associated with any audit actions taken during that tax year.
Provides a definition of “Merchant Category Code” as the classification codes assigned by payment‑card organizations to identify the goods or services a merchant provides.

Legislative Activity

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1 earlier action

SenateIntro Referral Latest Action

Read twice and referred to the Committee on Finance. (text: CR S861-862)

Finance Committee

March 21, 2023

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SenateIntro Referral

Introduced in Senate

March 21, 2023

SenateIntro Referral

Read twice and referred to the Committee on Finance. (text: CR S861-862)

Finance Committee

March 21, 2023

Floor Debate

1 member

What members said about S. 898 on the floor

1 Republican

Sen. John ThuneR-SD · Mar 21, 2023

Madam President, I ask unanimous consent that the text of the bill be printed in the Record.

Sen. John ThuneR-SD · Mar 21, 2023

Madam President, I ask unanimous consent that the text of the bill be printed in the Record.

Bill Text

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Introduced in SenateIssued March 21, 2023

II

118th CONGRESS

1st Session

S. 898

IN THE SENATE OF THE UNITED STATES

March 21, 2023

Mr. Thune (for himself, Mrs. Blackburn, Mr. Cassidy, Mr. Crapo, Mr. Daines, Mr. Lankford, and Mr. Tillis) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to prohibit audits based on Merchant Category Codes.

1.

Short title

This Act may be cited as the Merchant Category Code Neutrality Act.

2.

Prohibition on audits based on merchant category codes

Section 7602 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(g)

Prohibition of audits based on merchant category codes

(1)

In general

The Secretary shall not take any action described in paragraph (1), (2), or (3) of subsection (a) based primarily on the Merchant Category Codes, or other similar codes, used to classify the goods or services provided or furnished by the business of the respective taxpayer.

(2)

Annual report

For each taxable year, the Secretary shall issue a public report providing a tally of each Merchant Category Code for any action described in paragraph (1), (2), or (3) of subsection (a) initiated in such year.

(3)

Merchant Category Code

The term Merchant Category Code means classification codes assigned by payment card organizations to merchants or payees that accept its payment cards to classify the goods or services provided or furnished by a merchant or payee.

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