S. 1386

119 S1386 IS: Small Business Taxpayer Bill of Rights Act of 2025
 U.S. Senate
 2025-04-09
 text/xml
 EN
 Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
 II  119th CONGRESS  1st Session  S. 1386  IN THE SENATE OF THE UNITED STATES   April 9, 2025   Mr. Cornyn  introduced the following bill; which was read twice and referred to the  Committee on Finance    A BILL
To provide a taxpayer bill of rights for small businesses.
1.
Short title; table of contents
(a)
Short title
This Act may be cited as the   Small Business Taxpayer Bill of Rights Act of 2025  .
(b)
Table of contents
The table of contents of this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Modification of standards for awarding of costs and certain fees.
Sec. 3. Civil damages allowed for reckless or intentional disregard of internal revenue laws.
Sec. 4. Modifications relating to certain offenses by officers and employees in connection with revenue laws.
Sec. 5. Modifications relating to civil damages for unauthorized inspection or disclosure of returns and return information.
Sec. 6. Ban on ex parte discussions.
Sec. 7. Right to independent conference.
Sec. 8. Alternative dispute resolution procedures.
Sec. 9. Increase in monetary penalties for certain unauthorized disclosures of information.
Sec. 10. Ban on raising new issues on appeal.
Sec. 11. Limitation on enforcement of liens against principal residences.
Sec. 12. Additional provisions relating to mandatory termination for misconduct.
Sec. 13. Review by the Treasury Inspector General for Tax Administration.
Sec. 14. Deduction for expenses relating to certain audits.
Sec. 15. Term limit for National Taxpayer Advocate.
Sec. 16. Release of IRS levy due to economic hardship for business taxpayers.
Sec. 17. Repeal of partial payment requirement on submissions of offers-in-compromise.
2.
Modification of standards for awarding of costs and certain fees
(a)
Small businesses eligible without regard to net worth
Subparagraph (D) of  section 7430(c)(4)  of the Internal Revenue Code of 1986 is amended by striking  and  at the end of clause (i)(II), by striking the period at the end of clause (ii) and inserting  , and , and by adding at the end the following new clause:
(iii)
in the case of an eligible small business, the net worth limitation in clause (ii) of such section shall not apply.
 .
(b)
Eligible small business
Paragraph (4) of  section 7430(c)  of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
(F)
Eligible small business
(i)
In general
For purposes of subparagraph (D)(iii), the term  eligible small business  means, with respect to any proceeding commenced in a taxable year—
(I)
a corporation the stock of which is not publicly traded,
(II)
a partnership, or
(III)
a sole proprietorship,
  if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply.
(ii)
Adjustment for inflation
In the case of any calendar year after 2025, the $50,000,000 amount in clause (i) shall be increased by an amount equal to—
(I)
such dollar amount, multiplied by
(II)
the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting  calendar year 2024  for  calendar year 2016  in subparagraph (A)(ii) thereof.
  If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500.
 .
(c)
Effective date
The amendments made by this section shall apply to proceedings commenced after the date of the enactment of this Act.
3.
Civil damages allowed for reckless or intentional disregard of internal revenue laws
(a)
Increase in amount of damages
(1)
In general
 Section 7433(b)  of the Internal Revenue Code of 1986 is amended by striking  $1,000,000 ($100,000, in the case of negligence)  and inserting  $5,000,000 ($500,000, in the case of negligence) .
(2)
Adjustment for inflation
Section 7433 of such Code is amended by adding at the end the following new subsection:
(f)
Adjustment for inflation
In the case of any calendar year after 2025, the $5,000,000 and $500,000 amounts in subsection (b) shall each be increased by an amount equal to—
(1)
such dollar amount, multiplied by
(2)
the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting  calendar year 2023  for  calendar year 2016  in subparagraph (A)(ii) thereof.
 If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500.
 .
(b)
Extension of time To bring action
 Section 7433(d)(3)  of the Internal Revenue Code of 1986 is amended by striking  2 years  and inserting  5 years .
(c)
Effective date
The amendments made by this section shall apply to actions of employees of the Internal Revenue Service after the date of the enactment of this Act.
4.
Modifications relating to certain offenses by officers and employees in connection with revenue laws
(a)
Increase in penalty
 Section 7214  of the Internal Revenue Code of 1986 is amended—
(1)
by striking  $10,000  in subsection (a) and inserting  $25,000 , and
(2)
by striking  $5,000  in subsection (b) and inserting  $10,000 .
(b)
Adjustment for inflation
 Section 7214  of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
(c)
Adjustment for inflation
In the case of any calendar year after 2025, the $25,000 amount in subsection (a) and the $10,000 amount in subsection (b) shall each be increased by an amount equal to—
(1)
such dollar amount, multiplied by
(2)
the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting  calendar year 2024  for  calendar year 2016  in subparagraph (A)(ii) thereof.
 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.
 .
(c)
Effective date
The amendments made by this section shall take effect on the date of the enactment of this Act.
5.
Modifications relating to civil damages for unauthorized inspection or disclosure of returns and return information
(a)
Increase in amount of damages
Subparagraph (A) of  section 7431(c)(1)  of the Internal Revenue Code of 1986 is amended by striking  $1,000  and inserting  $10,000 .
(b)
Adjustment for inflation
 Section 7431  of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
(i)
Adjustment for inflation
In the case of any calendar year after 2025, the $10,000 amount in subsection (c)(1)(A) shall be increased by an amount equal to—
(1)
such dollar amount, multiplied by
(2)
the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting  calendar year 2024  for  calendar year 2016  in subparagraph (A)(ii) thereof.
 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.
 .
(c)
Period for bringing action
Subsection (d) of  section 7431  of the Internal Revenue Code of 1986 is amended by striking  2 years  and inserting  5 years .
(d)
Effective date
The amendment made by this section shall apply to inspections and disclosure occurring on and after the date of the enactment of this Act.
6.
Ban on ex parte discussions
(a)
In general
Notwithstanding section 1001(a)(4) of the Internal Revenue Service Restructuring and Reform Act of 1998, the Internal Revenue Service shall prohibit any ex parte communications between officers in the Internal Revenue Service Independent Office of Appeals and other Internal Revenue Service employees with respect to any matter pending before such officers.
(b)
Termination of employment for misconduct
Subject to subsection (c), the Commissioner of Internal Revenue 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 prohibited under subsection (a) in the performance of the employee’s official duties. Such termination shall be a removal for cause on charges of misconduct.
(c)
Determination of commissioner
(1)
In general
The Commissioner of Internal Revenue may take a personnel action other than termination for an act prohibited under subsection (a).
(2)
Discretion
The exercise of authority under paragraph (1) shall be at the sole discretion of the Commissioner of Internal Revenue and may not be delegated to any other officer. At the sole discretion of the Commissioner of Internal Revenue, such Commissioner may establish a procedure which will be used to determine whether an individual should be referred to the Commissioner of Internal Revenue for a determination by the Commissioner under paragraph (1).
(3)
No appeal
Any determination of the Commissioner of Internal Revenue under this subsection may not be appealed in any administrative or judicial proceeding.
(d)
TIGTA reporting of termination or mitigation
 Section 7803(d)(1)(E)  of the Internal Revenue Code of 1986 is amended by inserting  or section 6 of the  Small Business Taxpayer Bill of Rights Act of 2025   after  1998 .
7.
Right to independent conference
Section 1001 of the Internal Revenue Service Restructuring and Reform Act of 1998 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
(c)
Right to independent conference
Under the organization plan of the Internal Revenue Service, a taxpayer shall have the right to a conference with the Internal Revenue Service Independent Office of Appeals which does not include personnel from the Office of Chief Counsel for the Internal Revenue Service or the compliance functions of the Internal Revenue Service unless the taxpayer specifically consents to the participation of such personnel.
 .
8.
Alternative dispute resolution procedures
(a)
In general
 Section 7123  of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
(d)
Availability of dispute resolutions
(1)
In general
The procedures prescribed under subsection (b)(1) and the pilot program established under subsection (b)(2) shall provide that a taxpayer may request mediation or arbitration in any case unless the Secretary has specifically excluded the type of issue involved in such case or the class of cases to which such case belongs as not appropriate for resolution under such subsection. The Secretary shall make any determination that excludes a type of issue or a class of cases public within 5 working days and provide an explanation for each determination.
(2)
Independent mediators
(A)
In general
The procedures prescribed under subsection (b)(1) shall provide the taxpayer an opportunity to elect to have the mediation conducted by an independent, neutral individual not employed by the Internal Revenue Service Independent Office of Appeals.
(B)
Cost and selection
(i)
In general
Any taxpayer making an election under subparagraph (A) shall be required—
(I)
to share the costs of such independent mediator equally with the Internal Revenue Service Independent Office of Appeals, and
(II)
to limit the selection of the mediator to a roster of recognized national or local neutral mediators.
(ii)
Exception
Clause (i)(I) shall not apply to any taxpayer who is an individual or who was a small business in the preceding calendar year if such taxpayer had an adjusted gross income that did 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, in the taxable year preceding the request.
(iii)
Small business
For purposes of clause (ii), the term  small business  has the meaning given such term under section 41(b)(3)(D)(iii).
(3)
Availability of process
The procedures prescribed under subsection (b)(1) and the pilot program established under subsection (b)(2) shall provide the opportunity to elect mediation or arbitration at the time when the case is first filed with the Internal Revenue Service Independent Office of Appeals and at any time before deliberations in the appeal commence.
 .
(b)
Effective date
The amendment made by this section shall take effect on the date of the enactment of this Act.
9.
Increase in monetary penalties for certain unauthorized disclosures of information
(a)
In general
Paragraphs (1), (2), (3), and (4) of  section 7213(a)  of the Internal Revenue Code of 1986 are each amended by striking  $5,000  and inserting  $10,000 .
(b)
Adjustment for inflation
Subsection (a) of  section 7213  of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
(6)
Adjustment for inflation
In the case of any calendar year after 2025, the $10,000 amounts in paragraphs (1), (2), (3), and (4) shall each be increased by an amount equal to—
(A)
such dollar amount, multiplied by
(B)
the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting  calendar year 2023  for  calendar year 2016  in subparagraph (A)(ii) thereof.
 If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.
 .
(c)
Effective date
The amendments made by this section shall apply to disclosures made after the date of the enactment of this Act.
10.
Ban on raising new issues on appeal
(a)
In general
 Chapter 77  of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:
7531.
Prohibition on Internal Revenue Service raising new issues in an internal appeal
(a)
In general
In reviewing an appeal of any determination initially made by the Internal Revenue Service, the Internal Revenue Service Independent Office of Appeals may not consider or decide any issue that is not within the scope of the initial determination.
(b)
Certain issues deemed outside of scope of determination
For purposes of subsection (a), the following matters shall be considered to be not within the scope of a determination:
(1)
Any issue that was not raised in a notice of deficiency or an examiner's report which is the subject of the appeal.
(2)
Any deficiency in tax which was not included in the initial determination.
(3)
Any theory or justification for a tax deficiency which was not considered in the initial determination.
(c)
No inference with respect to issues raised by taxpayers
Nothing in this section shall be construed to provide any limitation in addition to any limitations in effect on the date of the enactment of this section on the right of a taxpayer to raise an issue, theory, or justification on an appeal from a determination initially made by the Internal Revenue Service that was not within the scope of the initial determination.
 .
(b)
Clerical amendment
The table of sections for  chapter 77  of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:
Sec. 7531. Prohibition on Internal Revenue Service raising new issues in an internal appeal.
  .
(c)
Effective date
The amendments made by this section shall apply to matters filed or pending with the Internal Revenue Service Independent Office of Appeals on or after the date of the enactment of this Act.
11.
Limitation on enforcement of liens against principal residences
(a)
In general
 Section 7403(a)  of the Internal Revenue Code of 1986 is amended—
(1)
by striking  In any case  and inserting the following:
(1)
In general
In any case
 ; and
(2)
by adding at the end the following new paragraph:
(2)
Limitation with respect to principal residence
(A)
In general
Paragraph (1) shall not apply to any property used as the principal residence of the taxpayer (within the meaning of section 121) unless the Secretary of the Treasury makes a written determination that—
(i)
all other property of the taxpayer, if sold, is insufficient to pay the tax or discharge the liability, and
(ii)
such action will not create an economic hardship for the taxpayer.
(B)
Delegation
For purposes of this paragraph, the Secretary of the Treasury may not delegate any responsibilities under subparagraph (A) to any person other than—
(i)
the Commissioner of Internal Revenue, or
(ii)
a district director or assistant district director of the Internal Revenue Service.
 .
(b)
Effective date
The amendments made by this section shall apply to actions filed after the date of the enactment of this Act.
12.
Additional provisions relating to mandatory termination for misconduct
(a)
Termination of unemployment for inappropriate review of tax-Exempt status
Section 1203(b) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804  note) is amended by striking  and  at the end of paragraph (9), by striking the period at the end of paragraph (10) and inserting  ; and , and by adding at the end the following new paragraph:
(11)
in the case of any review of an application for tax-exempt status by an organization described in  section 501(c)  of the Internal Revenue Code of 1986, developing or using any methodology that applies disproportionate scrutiny to any applicant based on the ideology expressed in the name or purpose of the organization.
 .
(b)
Mandatory unpaid administrative leave for misconduct
Paragraph (1) of section 1203(c) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804  note) is amended by adding at the end the following new sentence:  Notwithstanding the preceding sentence, if the Commissioner of Internal Revenue takes a personnel action other than termination for an act or omission described in subsection (b), the Commissioner shall place the employee on unpaid administrative leave for a period of not less than 90 days. .
(c)
Limitation on alternative punishment
Paragraph (1) of section 1203(c) of the Internal Revenue Service Restructuring and Reform Act of 1998 ( 26 U.S.C. 7804  note) is amended by striking  The Commissioner  and inserting  Except in the case of an act or omission described in subsection (b)(3)(A), the Commissioner .
13.
Review by the Treasury Inspector General for Tax Administration
(a)
Review
Subsection (k)(1) of section 412 of title 5, United States Code, is amended—
(1)
in subparagraph (C), by striking  and  at the end;
(2)
by redesignating subparagraph (D) as subparagraph (E);
(3)
by inserting after subparagraph (C) the following new subparagraph:
(D)
shall—
(i)
review any criteria employed by the Internal Revenue Service to select tax returns (including applications for recognition of tax-exempt status) for examination or audit, assessment or collection of deficiencies, criminal investigation or referral, refunds for amounts paid, or any heightened scrutiny or review in order to determine whether the criteria discriminates against taxpayers on the basis of race, religion, or political ideology; and
(ii)
consult with the Internal Revenue Service on recommended amendments to such criteria in order to eliminate any discrimination identified pursuant to the review described in clause (i); and
 ; and
(4)
in subparagraph (E), as so redesignated, by striking  and (C)  and inserting  (C), and (D) .
(b)
Semiannual Report
Subsection (g) of section 412 of title 5, United States Code, is amended by adding at the end the following new paragraph:
(3)
Semiannual reports
Any semiannual report made by the Treasury Inspector General for Tax Administration that is required pursuant to section 405(b) shall include—
(A)
a statement affirming that the Treasury Inspector General for Tax Administration has reviewed the criteria described in subsection (k)(1)(D) and consulted with the Internal Revenue Service regarding such criteria; and
(B)
a description and explanation of any such criteria that was identified as discriminatory by the Treasury Inspector General for Tax Administration.
 .
14.
Deduction for expenses relating to certain audits
(a)
In general
Subsection (a) of  section 62  of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:
(22)
Expenses relating to certain audits
The deduction allowed by section 224.
 .
(b)
Deduction for expenses relating to certain audits
Part VII of subchapter B of  chapter 1  of the Internal Revenue Code of 1986 is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:
224.
Expenses relating to certain audits
(a)
Allowance of deduction
In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to so much of the qualified NRP expenses paid or incurred during the taxable year as does not exceed $5,000.
(b)
Qualified NRP expenses
For purposes of this section, the term  qualified NRP expenses  means amounts which but for subsection (c) would be allowed as a deduction under section 162 or 212(3) in connection with an audit of the taxpayer's return of the tax imposed by this chapter for any taxable year under the National Research Program, but only if such audit results in no increase in the tax liability of the taxpayer for such taxable year.
(c)
Denial of double benefit
No deduction shall be allowed under any other provision of this chapter for any amount for which a deduction is allowed under this section.
 .
(c)
Clerical amendment
The table of sections for part VII of subchapter B of  chapter 1  of the Internal Revenue Code of 1986 is amended by striking the item relating to  section 224  and by inserting after the item relating to section 223 the following new items:
Sec. 224. Expenses relating to certain audits.
Sec. 225. Cross reference.
  .
(d)
Effective date
The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
15.
Term limit for National Taxpayer Advocate
(a)
In general
Subparagraph (B) of  section 7803(c)(1)  of the Internal Revenue Code of 1986 is amended by adding at the end the following new clause:
(v)
Term
The term of the National Taxpayer Advocate shall be a 10-year term, beginning with a term to commence on the date which is 18 months after the date of the enactment of the  Small Business Taxpayer Bill of Rights Act of 2025 . Each subsequent term shall begin on the day after the date on which the previous term expires. The National Taxpayer Advocate may be appointed to serve more than 1 term.
 .
(b)
Effective date
The term of any individual serving as the National Taxpayer Advocate under  section 7803(c)  of the Internal Revenue Code of 1986 as of the date of the enactment of this Act shall end as of the day before the date which is 18 months after such date of enactment, unless such individual is reappointed as the National Taxpayer Advocate for a subsequent term pursuant to section 7803(c)(1)(B)(v) of such Code.
16.
Release of IRS levy due to economic hardship for business taxpayers
(a)
In general
Subparagraph (D) of  section 6343(a)(1)  of the Internal Revenue Code of 1986 is amended by striking  or  and inserting  including the financial condition of the taxpayer's viable trade or business, or .
(b)
Determination of economic hardship
Subsection (a) of  section 6343  of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
(4)
Determination of economic hardship to business taxpayer
In determining whether to release any levy under paragraph (1)(D), the Secretary shall consider—
(A)
the economic viability of the business,
(B)
the nature and extent of the hardship created by the levy (including whether the taxpayer has exercised ordinary business care and prudence), and
(C)
the potential harm to individuals if the business is liquidated.
 .
(c)
Effective date
The amendments made by this section shall apply to levies made after the date of the enactment of this Act.
17.
Repeal of partial payment requirement on submissions of offers-in-compromise
(a)
In general
 Section 7122  of the Internal Revenue Code of 1986 is amended by striking subsection (c) and by redesignating subsections (d), (e), (f), and (g) as subsections (c), (d), (e), and (f), respectively.
(b)
Conforming amendments
(1)
Paragraph (3) of  section 7122(c)  of the Internal Revenue Code of 1986, as redesignated by subsection (a), is amended by inserting  and  at the end of subparagraph (A), by striking  , and  at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).
(2)
Section 7122 of such Code, as amended by this section, is amended by adding at the end the following new subsection:
(g)
Application of user fee
In the case of any assessed tax or other amounts imposed under this title with respect to such tax which is the subject of an offer-in-compromise, such tax or other amounts shall be reduced by any user fee imposed under this title with respect to such offer-in-compromise.
 .
(3)
Section 6159(g) of such Code is amended by striking  section 7122(e)  and inserting  section 7122(d) .
(c)
Effective date
The amendments made by this section shall apply to offers-in-compromise submitted after the date of the enactment of this Act.