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110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-584

======================================================================
 
           TAXPAYER ASSISTANCE AND SIMPLIFICATION ACT OF 2008

                                _______
                                

 April 14, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Rangel, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 5719]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5719) to amend the Internal Revenue Code of 1986 to 
conform return preparer penalty standards, delay implementation 
of withholding taxes on government contractors, enhance 
taxpayer protections, assist low-income taxpayers, and for 
other purposes, having considered the same, reports favorably 
thereon with an amendment and recommends that the bill as 
amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE, ETC.

  (a) Short Title.--This Act may be cited as the ``Taxpayer Assistance 
and Simplification Act of 2008''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title, etc.
Sec. 2. Modification of penalty on understatement of taxpayer's 
liability by tax return preparer.
Sec. 3. Removal of cellular telephones (or similar telecommunications 
equipment) from listed property.
Sec. 4. Delay of application of withholding requirement on certain 
governmental payments for goods and services.
Sec. 5. Elderly and disabled individuals receiving in-home care under 
certain government programs not subject to employment tax provisions.
Sec. 6. Referrals to low income taxpayer clinics permitted.
Sec. 7. Programs for the benefit of low-income taxpayers.
Sec. 8. EITC outreach.
Sec. 9. Prohibition on IRS debt indicators for predatory refund 
anticipation loans.
Sec. 10. Study on delivery of tax refunds.
Sec. 11. Extension of time for return of property for wrongful levy.
Sec. 12. Individuals held harmless on wrongful levy, etc., on 
individual retirement plan.
Sec. 13. Taxpayer notification of suspected identity theft.
Sec. 14. Repeal of authority to enter into private debt collection 
contracts.
Sec. 15. Clarification of IRS unclaimed refund authority.
Sec. 16. Prohibition on misuse of Department of the Treasury names and 
symbols.
Sec. 17. Substantiation of amounts paid or distributed out of health 
savings account.
Sec. 18. Certain domestically controlled foreign persons performing 
services under contract with United States Government treated as 
American employers.
Sec. 19. Time for payment of corporate estimated tax.

SEC. 2. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S 
                    LIABILITY BY TAX RETURN PREPARER.

  (a) In General.--Subsection (a) of section 6694 (relating to 
understatement due to unreasonable positions) is amended to read as 
follows:
  ``(a) Understatement Due to Unreasonable Positions.--
          ``(1) In general.--If a tax return preparer--
                  ``(A) prepares any return or claim of refund with 
                respect to which any part of an understatement of 
                liability is due to a position described in paragraph 
                (2), and
                  ``(B) knew (or reasonably should have known) of the 
                position,
        such tax return preparer 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.
          ``(2) Unreasonable position.--
                  ``(A) In general.--Except as otherwise provided in 
                this paragraph, a position is described in this 
                paragraph unless there is or was substantial authority 
                for the position.
                  ``(B) Disclosed positions.--If the position was 
                disclosed as provided in section 6662(d)(2)(B)(ii)(I) 
                and is not a position to which subparagraph (C) 
                applies, the position is described in this paragraph 
                unless there is a reasonable basis for the position.
                  ``(C) Tax shelters and reportable transactions.--If 
                the position is with respect to a tax shelter (as 
                defined in section 6662(d)(2)(C)(ii)) or a reportable 
                transaction to which section 6662A applies, the 
                position is described in this paragraph unless it is 
                reasonable to believe that the position would more 
                likely than not be sustained on its merits.
          ``(3) 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.''.
  (b) Effective Date.--The amendment made by this section shall apply--
          (1) in the case of a position described in subparagraph (A) 
        or (B) of section 6694(a)(2) of the Internal Revenue Code of 
        1986 (as amended by this section), to returns prepared after 
        May 25, 2007, and
          (2) in the case of a position described in subparagraph (C) 
        of such section (as amended by this section), to returns 
        prepared for taxable years ending after the date of the 
        enactment of this Act.

SEC. 3. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNICATIONS 
                    EQUIPMENT) FROM LISTED PROPERTY.

  (a) In General.--Subparagraph (A) of section 280F(d)(4) (defining 
listed property) is amended by inserting ``and'' at the end of clause 
(iv), by striking clause (v), and by redesignating clause (vi) as 
clause (v).
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2008.

SEC. 4. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN 
                    GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES.

  (a) 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''.
  (b) 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--
          (1) the problems, if any, which are anticipated in 
        administering and complying with such requirements,
          (2) 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
          (3) the application of such requirements to small 
        expenditures for services and goods by governments.

SEC. 5. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER 
                    CERTAIN GOVERNMENT PROGRAMS NOT SUBJECT TO 
                    EMPLOYMENT TAX PROVISIONS.

  (a) In General.--Chapter 25 (relating to general provisions relating 
to employment taxes) is amended by adding at the end the following new 
section:

``SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE 
                    UNDER CERTAIN GOVERNMENT PROGRAMS.

  ``(a) In General.--In the case of amounts paid under a home care 
service program to a home care service provider by the fiscal 
administrator of such program--
          ``(1) the home care service recipient shall not be liable for 
        the payment of any taxes imposed under this subtitle with 
        respect to amounts paid for the provision of services under 
        such program, and
          ``(2) the fiscal administrator shall be so liable.
  ``(b) Definitions.--For purposes of this section--
          ``(1) Home care service program.--The term `home care service 
        program' means a State or local government program--
                  ``(A) any portion of which is funded with Federal 
                funds, and
                  ``(B) under which domestic services are provided to 
                elderly or disabled individuals in their homes.
        Such term shall not include any program to the extent home care 
        service recipients make payments to the home care service 
        providers for such in-home domestic services.
          ``(2) Home care service provider.--The term `home care 
        service provider' means any individual who provides domestic 
        services to a home care service recipient under a home care 
        service program.
          ``(3) Home care service recipient.--The term `home care 
        service recipient' means any individual receiving domestic 
        services under a home care service program.
          ``(4) Fiscal administrator.--The term `fiscal administrator' 
        means any person or governmental entity who pays amounts under 
        a home care service program to home care service providers for 
        the provision of domestic services under such program.
  ``(c) Returns by Fiscal Administrator.--For purposes of this 
section--
          ``(1) In general.--Returns relating to taxes imposed or 
        amounts required to be withheld under this subtitle shall be 
        made under the identifying number of the fiscal administrator.
          ``(2) Identification of service recipient.--The fiscal 
        administrator shall, to the extent required under regulations 
        prescribed by the Secretary, make a return setting forth--
                  ``(A) the name, address, and identifying number of 
                each home care service recipient for whom amounts are 
                paid by such fiscal administrator under the home care 
                services program, and
                  ``(B) such other information as the Secretary may 
                require.
  ``(d) Regulations.--The Secretary may prescribe such regulations or 
other guidance as may be necessary to carry out the purposes of this 
section, including requiring deposits of any tax imposed under this 
subtitle.''.
  (b) Service Recipient Identification Return Treated as Information 
Return.--Paragraph (3) of section 6724(d) is amended by striking 
``and'' at the end of subparagraph (C)(ii), by striking the period at 
the end of subparagraph (D)(ii) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                  ``(E) any requirement under section 3511(c)(2).''.
  (c) Clerical Amendment.--The table of sections for chapter 25 is 
amended by adding at the end the following new item:

``Sec. 3511. Elderly and disabled individuals receiving in-home care 
under certain government programs.''.

  (d) Effective Date.--The amendments made by this section shall apply 
to amounts paid after December 31, 2008.

SEC. 6. REFERRALS TO LOW INCOME TAXPAYER CLINICS PERMITTED.

  (a) In General.--Subsection (c) of section 7526 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
          ``(6) Treasury employees permitted to refer taxpayers to 
        qualified low-income taxpayer clinics.--Notwithstanding any 
        other provision of law, officers and employees of the 
        Department of the Treasury may refer taxpayers for advice and 
        assistance to qualified low-income taxpayer clinics receiving 
        funding under this section.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to referrals made after the date of the enactment of this Act.

SEC. 7. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS.

  (a) Volunteer Income Tax Assistance Programs.--Chapter 77 (relating 
to miscellaneous provisions) is amended by inserting after section 7526 
the following new section:

``SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.

  ``(a) In General.--The Secretary may, subject to the availability of 
appropriated funds, make grants to provide matching funds for the 
development, expansion, or continuation of volunteer income tax 
assistance programs.
  ``(b) Volunteer Income Tax Assistance Program.--For purposes of this 
section, the term `volunteer income tax assistance program' means a 
program--
          ``(1) which does not charge taxpayers for its return 
        preparation services,
          ``(2) which operates programs to assist low and moderate-
        income (as determined by the Secretary) taxpayers in preparing 
        and filing their Federal income tax returns, and
          ``(3) in which all of the volunteers who assist in the 
        preparation of Federal income tax returns meet the requirements 
        prescribed by the Secretary.
  ``(c) Special Rules and Limitations.--
          ``(1) Aggregate limitation.--Unless otherwise provided by 
        specific appropriation, the Secretary shall not allocate more 
        than $10,000,000 per year (exclusive of costs of administering 
        the program) to grants under this section.
          ``(2) Other applicable rules.--Rules similar to the rules 
        under paragraphs (2) through (6) of section 7526(c) shall apply 
        with respect to the awarding of grants to volunteer income tax 
        assistance programs.''.
  (b) Increase in Authorized Grants for Low-Income Taxpayer Clinics.--
Paragraph (1) of section 7526(c) (relating to aggregate limitation) is 
amended by striking ``$6,000,000'' and inserting ``$10,000,000''.
  (c) Clerical Amendments.--
          (1) Section 7526(c)(5) is amended by inserting ``qualified'' 
        before ``low-income''.
          (2) The table of sections for chapter 77 is amended by 
        inserting after the item relating to section 7526 the following 
        new item:

``Sec. 7526A. Volunteer income tax assistance programs.''.

  (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 8. EITC OUTREACH.

  (a) In General.--Section 32 (relating to earned income) is amended by 
adding at the end the following new subsection:
  ``(n) Notification of Potential Eligibility for Credit and Refund.--
          ``(1) In general.--To the extent possible and on an annual 
        basis, the Secretary shall provide to each taxpayer who--
                  ``(A) for any preceding taxable year for which credit 
                or refund is not precluded by section 6511, and
                  ``(B) did not claim the credit under subsection (a) 
                but may be allowed such credit for any such taxable 
                year based on return or return information (as defined 
                in section 6103(b)) available to the Secretary,
        notice that such taxpayer may be eligible to claim such credit 
        and a refund for such taxable year.
          ``(2) Notice.--Notice provided under paragraph (1) shall be 
        in writing and sent to the last known address of the 
        taxpayer.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 9. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND 
                    ANTICIPATION LOANS.

  (a) In General.--Subsection (f) of section 6011 (relating to 
promotion of electronic filing) is amended by adding at the end the 
following new paragraph:
          ``(3) Prohibition on irs debt indicators for predatory refund 
        anticipation loans.--
                  ``(A) In general.--In carrying out any program under 
                this subsection, the Secretary shall not provide a debt 
                indicator to any person with respect to any refund 
                anticipation loan if the Secretary determines that the 
                business practices of such person involve refund 
                anticipation loans and related charges and fees that 
                are predatory.
                  ``(B) Refund anticipation loan.--For purposes of this 
                paragraph, the term `refund anticipation loan' means a 
                loan of money or of any other thing of value to a 
                taxpayer secured by the taxpayer's anticipated receipt 
                of a Federal tax refund.
                  ``(C) IRS debt indicator.--For purposes of this 
                paragraph, the term `debt indicator' means a 
                notification provided through a tax return's 
                acknowledgment file that a refund will be offset to 
                repay debts for delinquent Federal or State taxes, 
                student loans, child support, or other Federal agency 
                debt.''.
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 10. STUDY ON DELIVERY OF TAX REFUNDS.

  (a) In General.--The Secretary of the Treasury, in consultation with 
the National Taxpayer Advocate, shall conduct a study on the 
feasibility of delivering tax refunds on debit cards, prepaid cards, 
and other electronic means to assist individuals that do not have 
access to financial accounts or institutions.
  (b) Report.--Not later than 1 year after the date of the enactment of 
this Act, the Secretary of the Treasury shall submit a report to 
Congress containing the results of the study conducted under subsection 
(a).

SEC. 11. EXTENSION OF TIME FOR RETURN OF PROPERTY FOR WRONGFUL LEVY.

  (a) Extension of Time for Return of Property Subject to Levy.--
Subsection (b) of section 6343 (relating to return of property) is 
amended by striking ``9 months'' and inserting ``2 years''.
  (b) Period of Limitation on Suits.--Subsection (c) of section 6532 
(relating to suits by persons other than taxpayers) is amended--
          (1) in paragraph (1) by striking ``9 months'' and inserting 
        ``2 years'', and
          (2) in paragraph (2) by striking ``9-month'' and inserting 
        ``2-year''.
  (c) Effective Date.--The amendments made by this section shall apply 
to--
          (1) levies made after the date of the enactment of this Act, 
        and
          (2) levies made on or before such date if the 9-month period 
        has not expired under section 6343(b) of the Internal Revenue 
        Code of 1986 (without regard to this section) as of such date.

SEC. 12. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., ON 
                    INDIVIDUAL RETIREMENT PLAN.

  (a) In General.--Section 6343 (relating to authority to release levy 
and return property) is amended by adding at the end the following new 
subsection:
  ``(f) Individuals Held Harmless on Wrongful Levy, etc. on Individual 
Retirement Plan.--
          ``(1) In general.--If the Secretary determines that an 
        individual retirement plan has been levied upon in a case to 
        which subsection (b) or (d)(2)(A) applies, an amount equal to 
        the sum of--
                  ``(A) the amount of money returned by the Secretary 
                on account of such levy, and
                  ``(B) interest paid under subsection (c) on such 
                amount of money,
        may be deposited into such individual retirement plan or any 
        other individual retirement plan (other than an endowment 
        contract) to which a rollover from the plan levied upon is 
        permitted. An amount may not be deposited into a Roth IRA under 
        the preceding sentence unless the individual retirement plan 
        levied upon was a Roth IRA at the time of such levy.
          ``(2) Treatment as rollover.--If amounts are deposited into 
        an individual retirement plan under paragraph (1) not later 
        than the 60th day after the date on which the individual 
        receives the amounts under paragraph (1)--
                  ``(A) such deposit shall be treated as a rollover 
                described in section 408(d)(3)(A)(i),
                  ``(B) to the extent the deposit includes interest 
                paid under subsection (c), such interest shall not be 
                includible in gross income, and
                  ``(C) such deposit shall not be taken into account 
                under section 408(d)(3)(B).
        For purposes of subparagraph (B), an amount shall be treated as 
        interest only to the extent that the amount deposited exceeds 
        the amount of the levy.
          ``(3) Refund, etc., of income tax on levy.--If any amount is 
        includible in gross income for a taxable year by reason of a 
        levy referred to in paragraph (1) and any portion of such 
        amount is treated as a rollover under paragraph (2), any tax 
        imposed by chapter 1 on such portion shall not be assessed, and 
        if assessed shall be abated, and if collected shall be credited 
        or refunded as an overpayment made on the due date for filing 
        the return of tax for such taxable year.
          ``(4) Interest.--Notwithstanding subsection (d), interest 
        shall be allowed under subsection (c) in a case in which the 
        Secretary makes a determination described in subsection 
        (d)(2)(A) with respect to a levy upon an individual retirement 
        plan.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid under subsections (b), (c), and (d)(2)(A) of section 
6343 of the Internal Revenue Code of 1986 after the date of the 
enactment of this Act.

SEC. 13. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT.

  (a) In General.--Chapter 77 (relating to miscellaneous provisions) is 
amended by adding at the end the following new section:

``SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.

  ``If, in the course of an investigation under the internal revenue 
laws, the Secretary determines that there was or may have been an 
unauthorized use of the identity of the taxpayer or a dependent of the 
taxpayer, the Secretary shall, to the extent permitted by law--
          ``(1) as soon as practicable and without jeopardizing such 
        investigation, notify the taxpayer of such determination, and
          ``(2) if any person is criminally charged by indictment or 
        information with respect to such unauthorized use, notify such 
        taxpayer as soon as practicable of such charge.''.
  (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

``Sec. 7529. Notification of suspected identity theft.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to determinations made after the date of the enactment of this Act.

SEC. 14. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION 
                    CONTRACTS.

  (a) In General.--Subchapter A of chapter 64 is amended by striking 
section 6306.
  (b) Conforming Amendments.--
          (1) Subchapter B of chapter 76 is amended by striking section 
        7433A.
          (2) Section 7811 is amended by striking subsection (g).
          (3) Section 1203 of the Internal Revenue Service 
        Restructuring Act of 1998 is amended by striking subsection 
        (e).
          (4) The table of sections for subchapter A of chapter 64 is 
        amended by striking the item relating to section 6306.
          (5) The table of sections for subchapter B of chapter 76 is 
        amended by striking the item relating to section 7433A.
  (c) Effective Date.--
          (1) 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.
          (2) Exception for existing contracts, etc.--The amendments 
        made by this section shall not apply to any contract which was 
        entered into before March 1, 2008, and is not renewed or 
        extended on or after such date.
          (3) 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 March 1, 2008, 
        and any extension or renewal on or after such date of any 
        qualified tax collection contract (as so defined), shall be 
        void.

SEC. 15. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY.

  Paragraph (1) of section 6103(m) (relating to tax refunds) is amended 
by inserting ``, and through any other means of mass communication,'' 
after ``media''.

SEC. 16. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY NAMES AND 
                    SYMBOLS.

  (a) In General.--Subsection (a) of section 333 of title 31, United 
States Code, is amended by inserting ``Internet domain address,'' after 
``solicitation,'' both places it appears.
  (b) Penalty for Misuse by Electronic Means.--Subsections (c)(2) and 
(d)(1) of section 333 of such Code are each amended by inserting ``or 
any other mass communications by electronic means,'' after 
``telecast,''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to violations occurring after the date of the enactment of 
this Act.

SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH 
                    SAVINGS ACCOUNT.

  (a) In General.--Paragraph (1) of section 223(f) (relating to amounts 
used for qualified medical expenses) is amended by inserting ``(and, in 
the case of amounts paid or distributed after December 31, 2010, 
substantiated in a manner similar to the substantiation required for 
flexible spending arrangements)'' after ``account beneficiary''.
  (b) Reports.--Subsection (h) of section 223 (relating to reports) is 
amended--
          (1) by redesignating paragraphs (1) and (2) as subparagraphs 
        (A) and (B), respectively,
          (2) by moving the text of subparagraphs (A) and (B) (as so 
        redesignated) and the last sentence 2 ems to the right,
          (3) by striking ``(h) Reports.--The Secretary may require--'' 
        and inserting the following:
  ``(h) Reports.--
          ``(1) In general.--The Secretary may require--'', and
          (4) by adding at the end the following new paragraph:
          ``(2) Relating to substantiation.--Not later than January 15 
        of each calendar year after 2011, the trustee of a health 
        savings account shall make a report regarding such account to 
        the Secretary and the account beneficiary setting forth--
                  ``(A) the name, address, and identifying number of 
                the account beneficiary, and
                  ``(B) the amount paid or distributed out of such 
                account for the preceding calendar year not 
                substantiated in accordance with subsection (f)(1).''.
  (c) Effective Date.--The amendments made by this section shall apply 
with respect to amounts paid or distributed out of health savings 
accounts after December 31, 2010.

SEC. 18. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS PERFORMING 
                    SERVICES UNDER CONTRACT WITH UNITED STATES 
                    GOVERNMENT TREATED AS AMERICAN EMPLOYERS.

  (a) FICA Taxes.--Section 3121 (relating to definitions) is amended by 
adding at the end the following new subsection:
  ``(z) Treatment of Certain Foreign Persons as American Employers.--
          ``(1) In general.--If any employee of a foreign person is 
        performing services in connection with a contract between the 
        United States Government (or any instrumentality thereof) and 
        any member of any domestically controlled group of entities 
        which includes such foreign person, such foreign person shall 
        be treated for purposes of this chapter as an American employer 
        with respect to such services performed by such employee.
          ``(2) Domestically controlled group of entities.--For 
        purposes of this subsection--
                  ``(A) In general.--The term `domestically controlled 
                group of entities' means a controlled group of entities 
                the common parent of which is a domestic corporation.
                  ``(B) Controlled group of entities.--The term 
                `controlled group of entities' means a controlled group 
                of corporations as defined in section 1563(a)(1), 
                except that--
                          ``(i) `more than 50 percent' shall be 
                        substituted for `at least 80 percent' each 
                        place it appears therein, and
                          ``(ii) the determination shall be made 
                        without regard to subsections (a)(4) and (b)(2) 
                        of section 1563.
                A partnership or any other entity (other than a 
                corporation) shall be treated as a member of a 
                controlled group of entities if such entity is 
                controlled (within the meaning of section 954(d)(3)) by 
                members of such group (including any entity treated as 
                a member of such group by reason of this sentence).
          ``(3) Liability of common parent.--In the case of a foreign 
        person who is a member of any domestically controlled group of 
        entities, the common parent of such group shall be jointly and 
        severally liable for any tax under this chapter for which such 
        foreign person is liable by reason of this subsection, and for 
        any penalty imposed on such person by this title with respect 
        to any failure to pay such tax or to file any return or 
        statement with respect to such tax or wages subject to such 
        tax. No deduction shall be allowed under this title for any 
        liability imposed by the preceding sentence.
          ``(4) Coordination.--Paragraph (1) shall not apply to any 
        services which are covered by an agreement under subsection 
        (l).
          ``(5) Cross reference.--For relief from taxes in cases 
        covered by certain international agreements, see sections 
        3101(c) and 3111(c).''.
  (b) Social Security Benefits.--Subsection (e) of section 210 of the 
Social Security Act (42 U.S.C. 410(e)) is amended--
          (1) by striking ``(e) The term'' and inserting ``(e)(1) The 
        term'',
          (2) by redesignating clauses (1) through (6) as clauses (A) 
        through (F), respectively, and
          (3) by adding at the end the following new paragraph:
  ``(2)(A) If any employee of a foreign person is performing services 
in connection with a contract between the United States Government (or 
any instrumentality thereof) and any member of any domestically 
controlled group of entities which includes such foreign person, such 
foreign person shall be treated as an American employer with respect to 
such services performed by such employee.
  ``(B) For purposes of this paragraph--
          ``(i) The term `domestically controlled group of entities' 
        means a controlled group of entities the common parent of which 
        is a domestic corporation.
          ``(ii) The term `controlled group of entities' means a 
        controlled group of corporations as defined in section 
        1563(a)(1) of the Internal Revenue Code of 1986, except that--
                  ``(I) `more than 50 percent' shall be substituted for 
                `at least 80 percent' each place it appears therein, 
                and
                  ``(II) the determination shall be made without regard 
                to subsections (a)(4) and (b)(2) of section 1563 of 
                such Code.
        A partnership or any other entity (other than a corporation) 
        shall be treated as a member of a controlled group of entities 
        if such entity is controlled (within the meaning of section 
        954(d)(3) of such Code) by members of such group (including any 
        entity treated as a member of such group by reason of this 
        sentence).''.
  (c) Effective Date.--The amendment made by this section shall apply 
to services performed after the date of the enactment of this Act.

SEC. 19. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX.

  The percentage under subparagraph (C) of section 401(1) of the Tax 
Increase Prevention and Reconciliation Act of 2005 in effect on the 
date of the enactment of this Act is increased by 0.25 percentage 
points.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                PURPOSE

    The bill, H.R. 5719, as amended, includes provisions to 
enhance taxpayer protections and outreach, delay implementation 
of withholding taxes on government payments, and repeal the 
authority of the Internal Revenue Service (``IRS'') to use 
private debt collection companies, among other purposes.

                                SUMMARY

    Effective as of the date of enactment of the Small Business 
and Work Opportunity Tax Act of 2007 (May 25, 2007), the bill 
generally conforms the understatement penalty standards for tax 
return preparers with those for taxpayers. Effective for 
taxable years beginning after December 31, 2008, the bill 
removes cellular telephones and similar telecommunications 
equipment from the definition of listed property and the 
corresponding heightened substantiation requirements. The bill 
delays until January 1, 2012, the effective date of section 511 
of the Tax Increase Prevention and Reconciliation Act of 2005, 
which imposes withholding at the rate of three percent on 
certain government payments. Effective for amounts paid after 
December 31, 2008, the bill provides that fiscal administrators 
directly paying wages to a home care worker under certain State 
and local programs are liable for employment taxes, not the 
home care recipients. Effective for referrals made after the 
date of enactment, the bill allows IRS employees to refer 
taxpayers to qualified low-income taxpayer clinics. The bill 
codifies volunteer income tax programs to provide low- and 
moderate-income taxpayers with tax return preparation and 
filing services and increases to $10 million the annual grants 
that can be made to existing qualified low-income taxpayer 
clinics. Effective after the date of enactment, the bill 
expands IRS notice requirements relating to EIC outreach. 
Effective on the date of enactment, the bill prohibits the IRS 
from providing a debt indicator to any person with respect to a 
refund anticipation loan determined by the Secretary to be 
predatory. The bill requires an IRS study of the feasibility of 
delivering tax refunds on debit cards and by other means. 
Generally effective for levies made after the date of 
enactment, the bill extends from nine months to two years the 
time limits for returning money and the monetary proceeds from 
the sale of property that has been wrongfully levied, and for 
bringing a civil action for wrongful levy, respectively. 
Effective for levied amounts returned to individuals after the 
date of enactment, the bill holds individuals harmless on the 
improper levy on an individual retirement plan. Effective for 
determinations made after the date of enactment, the bill 
requires the IRS to (1) notify a taxpayer if the IRS determines 
during a tax investigation that there may have been an 
unauthorized use of a taxpayer's identity or that of the 
taxpayer's dependents (if disclosure will not jeopardize a tax 
investigation); and (2) notify the taxpayer if any person is 
criminally charged by indictment or information relating to 
such unauthorized use The bill repeals the authority for the 
IRS to enter into, renew, or extend any private debt collection 
contract, except that existing contracts may continue through 
their current term without renewal. Effective on the date of 
enactment, the bill allows the IRS to use any means of mass 
communication, including the internet, to notify taxpayers of 
undelivered refunds. The bill clarifies the penalties for the 
misuse of Department of the Treasury names and symbols. 
Effective for amounts paid or distributed out of a health 
savings account after December 31, 2010, the bill requires 
substantiation of qualified medical expenses and requires 
reporting of unsubstantiated distributions. With respect to 
services performed after the date of enactment, the bill 
provides that wages paid for services performed by a U.S. 
citizen or resident outside the United States under a U.S. 
Government contract are subject to employment taxes if the 
employer is a foreign subsidiary of a U.S. parent company. 
Finally, the bill modifies the July, August, and September 2013 
estimated tax payments requirements for corporations with 
assets of at least $1 billion.

                 B. Background and Need for Legislation

    Oversight of the IRS's administration of the tax laws often 
requires legislative action to enhance taxpayer protections and 
facilitate IRS operations. The IRS in administering the Federal 
tax laws needs additional tools to assist and reach out to 
taxpayers. Moreover, the collection of Federal income taxes is 
a core governmental function that should be restricted to IRS 
employees. The bill protects taxpayers by repealing the 
authorization for the IRS to use private contractors to collect 
Federal income taxes, by providing additional taxpayer 
protections, and generally bolstering the outreach efforts of 
the IRS.

                         C. Legislative History


Background

    H.R. 5719 was introduced in the House of Representatives on 
April 8, 2008; and was referred to the Committee on Ways and 
Means.

Subcommittee action

    On February 13, 2007, the Subcommittee on Oversight of the 
Committee on Ways and Means held a hearing on Earned Income Tax 
Credit outreach, and took testimony from invited witnesses. On 
March 13, 2008, the Subcommittee held a hearing on IRS 
operations, budget proposals, and the IRS National Taxpayer 
Advocate's annual report.

Committee action

    On May 23, 2007, the Committee on Ways and Means held a 
hearing on the IRS's use of private debt collection companies 
to collect Federal income taxes.
    The Committee on Ways and Means marked up the bill, H.R. 
5719, on April 9, 2008, and ordered the bill, as amended, 
favorably reported.

                      II. EXPLANATION OF THE BILL


 A. Modified Standard for Imposition of Tax Return Preparer Penalties 
             (Sec. 2 of the Bill and Sec. 6694 of the Code)


                              PRESENT LAW

Taxpayer standards

    Present law imposes accuracy-related penalties on a 
taxpayer at a rate of 20 percent of the portion of any 
underpayment that is attributable to any substantial 
understatement of income tax. In determining whether a 
substantial understatement exists, the amount of the 
understatement generally is reduced by any portion attributable 
to an item if (1) the treatment of the item is supported by 
substantial authority, or (2) facts relevant to the tax 
treatment of the item were adequately disclosed and there was a 
reasonable basis for its tax treatment.
    In the case of a tax shelter item of a non-corporate 
taxpayer, the substantial understatement penalty does not apply 
if the taxpayer had substantial authority for the tax position 
and the taxpayer can demonstrate that he or she had a 
reasonable belief that the position is ``more likely than not'' 
the proper treatment. A taxpayer will be considered to have a 
reasonable belief that the treatment is more likely than not 
the proper treatment if the taxpayer relies upon the opinion of 
a professional advisor and the opinion is based upon the 
pertinent facts and authorities analyzed similar to the manner 
described in the substantial authority standard.\1\
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    \1\ Treas. Reg. sec 1.6662-4(g).
---------------------------------------------------------------------------

Tax return preparer standards

    Prior to enactment of the Small Business and Work 
Opportunity Tax Act of 2007, an income tax return preparer who 
prepared a tax return with respect to which there was an 
understatement of tax that was due to an undisclosed position 
for which there was not a realistic possibility of being 
sustained on its merits was liable for a $250 penalty. For a 
disclosed position, the preparer was liable only if the 
position was frivolous.
    Legislation enacted as part of the Small Business and Work 
Opportunity Tax Act of 2007 broadened the scope of the preparer 
penalty by applying it to all tax return preparers and altered 
the standards of conduct a tax return preparer is required to 
meet in order to avoid the imposition of penalties for the 
preparation of a return with respect to which there is an 
understatement of tax. A tax return preparer now can be 
penalized for preparing a return on which there is an 
understatement of tax liability as a result of an 
``unreasonable position.'' Any position that a return preparer 
does not reasonably believe is more likely than not to be 
sustained on its merits is an ``unreasonable position'' unless 
the position is disclosed on the return and there is a 
reasonable basis for the position.
    In general, the term ``tax return preparer'' is broadly 
defined as any person who prepares for compensation, or who 
employs one or more persons to prepare for compensation, any 
return of tax or any claim for refund of tax.\2\ Preparation of 
a substantial portion of a return is treated as if it were the 
preparation of such return.
---------------------------------------------------------------------------
    \2\ Sec. 7701(a)(36)(A).
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                           REASONS FOR CHANGE

    The Committee believes that the standards of conduct for 
taxpayers and return preparers generally should be uniform. The 
Committee believes that the present-law standard for return 
preparers, which is generally higher than that for taxpayers, 
can result in a conflict of interest for return preparers. The 
conflict of interest arises because it is in the interest of a 
preparer to advise his taxpayer client to either disclose a tax 
position or alter such position in order to avoid the preparer 
penalty, even though the taxpayer could legally and 
appropriately take the position without disclosure or facing 
penalties. This may have the unintended consequence of causing 
taxpayers to be less inclined to use the services of 
professional tax preparers, which could harm the system of tax 
collections. Thus, the Committee believes the standards of 
conduct for taxpayers and return preparers generally should be 
uniform.

                        EXPLANATION OF PROVISION

    The provision changes the standards for imposition of the 
tax return preparer penalty. The preparer standard for 
undisclosed positions is reduced to ``substantial authority.'' 
The preparer standard for disclosed positions is ``reasonable 
basis.'' For tax shelters and reportable transactions to which 
section 6662A applies (i.e., listed transactions and reportable 
transactions with significant avoidance or evasion purposes), a 
tax return preparer is required to have a reasonable belief 
that such a transaction was more likely than not to be 
sustained on its merits.

                             EFFECTIVE DATE

    The provision generally is effective with respect to 
returns prepared after May 25, 2007. In the case of tax 
shelters and reportable transactions, the provision is 
effective for returns prepared for taxable years ending after 
the date of enactment.

   B. Removal of Cellular Telephones (or Similar Telecommunications 
 Equipment) From Listed Property (Sec. 3 of the Bill and Sec. 280F of 
                               the Code)


                              PRESENT LAW

Employer deduction

    Property, including cellular telephones and similar 
equipment, used in carrying on a trade or business is subject 
to the general rules for deducting ordinary and necessary 
expenses under section 162. Under these rules, a taxpayer may 
properly claim depreciation deductions under the applicable 
cost recovery rules for only the portion of the cost of the 
property that is attributable to use in a trade or business.\3\ 
Similarly, the business portion of monthly telecommunication 
service is generally deductible, subject to capitalization 
rules, as an ordinary and necessary expense of carrying on a 
trade or business.
---------------------------------------------------------------------------
    \3\ Sec. 212 allows deductions for ordinary and necessary expenses 
paid or incurred for the production or collection of income.
---------------------------------------------------------------------------
    In the case of certain listed property, special rules 
apply. Listed property generally is defined as (1) any 
passenger automobile; (2) any other property used as a means of 
transportation; (3) any property of a type generally used for 
purposes of entertainment, recreation; or amusement; (4) any 
computer or peripheral equipment; (5) any cellular telephone 
(or other similar telecommunications equipment); \4\ and (6) 
any other property of a type specified in Treasury 
regulations.\5\
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    \4\ Cellular telephones (or other similar telecommunications 
equipment) were added as listed property as part of the Omnibus Budget 
Reconciliation Act of 1989, Pub. L. No. 101-239, sec. 7643 (1989).
    \5\ Sec. 280F(d)(4)(A).
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    For listed property, no deduction is allowed unless the 
taxpayer adequately substantiates the expense and business 
usage of the property.\6\ Under the applicable regulations, a 
taxpayer must substantiate the elements of each expenditure or 
use of listed property, including (1) the amount (e.g., cost) 
of each separate expenditure and the amount of business or 
investment use, based on the appropriate measure (e.g., mileage 
for automobiles), and the total use of the property for the 
taxable period, (2) the date of the expenditure or use, and (3) 
the business purposes for the expenditure or use.\7\ The level 
of substantiation for business or investment use of listed 
property varies depending on the facts and circumstances. In 
general, the substantiation must contain sufficient information 
as to each element of every business or investment use.\8\
---------------------------------------------------------------------------
    \6\ Sec. 274(d)(4).
    \7\ Temp. Reg. sec. 1.274-5T(b)(6).
    \8\ Temp. Reg. sec. 1.274-5T(c)(2)(ii)(C).
---------------------------------------------------------------------------
    With regard to the business use of listed property made 
available by an employer for use by an employee, the employer 
generally may rely on adequate records maintained and retained 
by the employee or on the employee's own statement if it is 
corroborated by other sufficient evidence, unless the employer 
knows or has reason to know that the statement, records, or 
other evidence are not accurate.\9\
---------------------------------------------------------------------------
    \9\ Temp. Reg. sec. 1.274-5T(e)(2)(ii).
---------------------------------------------------------------------------

Taxation of employee

    Gross income includes all income unless a specific 
exclusion applies.\10\ Exclusions from gross income are 
provided in the case of certain fringe benefits.\11\ Gross 
income does not include the value of de minimis fringe 
benefits. A de minimis fringe is any property or service the 
value of which is (after taking into account the frequency in 
which similar fringes are provided by the employer to the 
employer's employees) so small as to make accounting for it 
unreasonable or administratively impracticable. An exclusion 
from employee gross income also is provided in the case of a 
working condition fringe.\12\ A working condition fringe is any 
property or services provided to an employee of the employer to 
the extent that, if the employee paid for such property or 
services, such payment would be allowable as a deduction under 
section 162 or 167.\13\ Treasury regulations provide that an 
employee may not exclude from gross income as a working 
condition fringe the value of listed property provided by an 
employer to the employee, unless the employee substantiates for 
the period of availability the amount of the exclusion in 
accordance with the substantiation requirements discussed 
above.\14\ In general, under such requirements, in the case of 
listed property, the working condition fringe exception is 
allowed only in the case of substantiation of the employee's 
personal use of the property and the employer's inclusion of an 
appropriate amount (based on such personal use) in the 
employee's come.\15\
---------------------------------------------------------------------------
    \10\ Sec. 61.
    \11\ Sec. 132.
    \12\ Sec. 132(a)(3).
    \13\ Sec. 132(d).
    \14\ Temp. Reg. sec. 1.274-5T(e)(1).
    \15\ Temp. Reg. sec. 1.274-5T(e)(2).
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Cost recovery

    A taxpayer is allowed to recover through annual 
depreciation deductions the cost of certain property used in a 
trade or business or for the production of income. The amount 
of the depreciation deduction allowed with respect to tangible 
property for a taxable year is determined under the modified 
accelerated cost recovery system (``MACRS''). Under MACRS, 
different types of property generally are assigned applicable 
recovery periods and depreciation methods. The recovery periods 
applicable to most tangible personal property range from three 
to 25 years. The depreciation methods generally applicable to 
tangible personal property are the 200-percent and 150-percent 
declining balance methods, switching to the straight-line 
method for the taxable year in which the taxpayer's 
depreciation deduction would be maximized.
    In the case of certain listed property, special 
depreciation rules apply. First, if for the taxable year that 
the property is placed in service the use of the property for 
trade or business purposes does not exceed 50 percent of the 
total use of the property, then the depreciation deduction with 
respect to such property is determined under the alternative 
depreciation system.\16\ The alternative depreciation system 
generally requires the use of the straight-line method and a 
recovery period equal to the class life of the property.\17\ 
Second, if an individual owns or leases listed property that is 
used by the individual in connection with the performance of 
services as an employee, no depreciation deduction, expensing 
allowance, or deduction for lease payments is available with 
respect to such use unless the use of the property is for the 
convenience of the employer and required as a condition of 
employment.\18\
---------------------------------------------------------------------------
    \16\ Sec. 280F(b)(1). If for any taxable year after the year in 
which the property is placed in service the use of the property for 
trade or business purposes decreases to 50 percent or less of the total 
use of the property, than the amount of depreciation allowed in prior 
years in excess of the amount of depreciation that would have been 
allowed for such prior years under the alternative depreciation system 
is recaptured (i.e., included in gross income) for such taxable year.
    \17\ Sec. 168(g).
    \18\ Sec. 280F(d)(3).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    In 1989, when Congress passed a law requiring taxpayers to 
document cellular telephone use, cellular telephones were an 
expensive perk for executives. Over time, the usage of these 
communication devices has become ubiquitous with the 
availability of less expensive airtime and unlimited usage 
plans. Today, in many cases, these communication devices simply 
represent an extension of the business day and workplace. As a 
result, the Committee believes that the present law heightened 
substantiation requirements place an unnecessary and time-
consuming administrative burden upon taxpayers and should be 
eliminated.

                        EXPLANATION OF PROVISION

    The provision removes cellular telephones (or other similar 
telecommunications equipment) from the definition of listed 
property. Thus, under the provision, the heightened 
substantiation requirements that apply to listed property do 
not apply to cellular telephones (or other similar 
telecommunications equipment).

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2008.

C. Delayed Implementation of Government Withholding Requirement (Sec. 4 
               of the Bill and Sec. 3402(t) of the Code)


                              PRESENT LAW

    For payments made after December 31, 2010, the Code 
requires withholding at a three-percent rate on certain 
payments to persons providing property or services made by the 
Government of the United States, every State, every political 
subdivision thereof, and every instrumentality of the foregoing 
(including multi-State agencies). The withholding requirement 
applies regardless of whether the government entity making such 
payment is the recipient of the property or services. Political 
subdivisions of States (or any instrumentality thereof) with 
less than $100 million of annual expenditures for property or 
services that would otherwise be subject to withholding under 
this provision are exempt from the withholding requirement.
    Payments subject to the three-percent withholding include 
any payment made in connection with a government voucher or 
certificate program which functions as a payment for property 
or services. For example, payments to a commodity producer 
under a government commodity support program are subject to the 
withholding requirement. The provision imposes information 
reporting requirements on the payments that are subject to 
withholding under the provision.
    The three-percent withholding requirement does not apply to 
any payments made through a Federal, State, or local government 
public assistance or public welfare program for which 
eligibility is determined by a needs or income test. The three-
percent withholding requirement also does not apply to payments 
of wages or to any other payment with respect to which 
mandatory (e.g., U.S.-source income of foreign taxpayers) or 
voluntary (e.g., unemployment benefits) withholding applies 
under present law. The provision does not exclude payments that 
are potentially subject to backup withholding under section 
3406. If, however, payments are actually being withheld under 
backup withholding, withholding does not apply.
    The three-percent withholding requirement also does not 
apply to the following: payments of interest; payments for real 
property; payments to tax-exempt entities or foreign 
governments; intra-governmental payments; payments made 
pursuant to a classified or confidential contract (as defined 
in section 6050M(e)(3)); and payments to government employees 
that are not otherwise excludable from the new withholding 
provision with respect to the employees' services as employees.

                           REASONS FOR CHANGE

    The Committee understands that the three-percent 
withholding requirement presents a number of challenges for the 
government entities and taxpayers subject to the requirement. 
The Committee believes the Treasury should conduct a study of 
the issues confronting both businesses and governments in 
complying with the three-percent requirement, as well as the 
issues confronting Treasury and the IRS in administering such 
requirement: Thus, the Committee believes it is appropriate to 
delay the effective date of the three-percent withholding 
requirement by one year to allow the Secretary further time to 
study issues associated with the requirement and to provide 
Congress with time to review and respond to the results of such 
study.

                        EXPLANATION OF PROVISION

    The provision delays the effective date for the three-
percent withholding requirement. Under the provision, the 
requirement applies to payments made after December 31, 2011.
    The provision directs the Secretary to study issues 
associated with the three-percent withholding requirement, 
including (1) the problems, if any, which are anticipated in 
administering and complying with such requirement, (2) the 
burdens, if any, that such requirements will place on small 
businesses (taking into account such mechanisms as may be 
necessary to administer such requirements), and (3) the 
application of such requirements to small expenditures for 
services and goods by governments.
    The Secretary is to submit his report to the Senate 
Committee on Finance and House Committee on Ways and Means no 
later than six months after the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

D. Employment Tax Treatment of Home Care Service Recipients (Sec. 5 of 
                  the Bill and Sec. 3511 of the Code)


                              PRESENT LAW

In general

    Employment taxes generally consist of the taxes under the 
Federal Insurance Contributions Act (``FICA''), the tax under 
the Federal Unemployment Tax Act (``FUTA''), and income taxes 
required to be withheld by employers from wages paid to 
employees (``income tax withholding'').\19\
---------------------------------------------------------------------------
    \19\ Secs. 3101-3128 (FICA), 3201-3241 (the Railroad Retirement Tax 
Act), 3301-3311 (FUTA), and 3401-3404 (income tax withholding). 
Sections 3501-3510 provide additional rules.
---------------------------------------------------------------------------
    FICA tax consists of two parts: (1) old age, survivor, and 
disability insurance (``OASDI''), which correlates to the 
Social Security program that provides monthly benefits after 
retirement, disability, or death; and (2) Medicare hospital 
insurance (``HI''). The OASDI tax rate is 6.2 percent on both 
the employee and employer (for a total rate of 12.4 percent). 
The OASDI tax rate applies to wages up to the OASDI wage base 
($102,000 for 2008). The HI tax rate is 1.45 percent on both 
the employee and the employer (for a total rate of 2.9 
percent). Unlike the OASDI tax, the HI tax is not limited to a 
specific amount of wages, but applies to all wages.
    Under FUTA, employers must pay a tax of 62 percent of wages 
up to the FUTA wage base of $7,000. An employer may take a 
credit against its FUTA tax liability for its contributions to 
a State unemployment fund and, in certain cases, an additional 
credit for contributions that would have been required if the 
employer had been subject to a higher contribution rate under 
State law. For purposes of the credit, contributions means 
payments required by State law to be made by an employer into 
an unemployment fund, to the extent the payments are made by 
the employer without being deducted or deductible from 
employees' remuneration.
    Employers generally are required to withhold income taxes 
from wages paid to employees. Withholding rates vary depending 
on the amount of wages paid, the length of the payroll period, 
and the number of withholding allowances claimed by the 
employee.
    Wages paid to employees, and FICA and income taxes withheld 
from the wages, are required to be reported on employment tax 
returns (Forms 940 and 941) and on Form W-2.\20\
---------------------------------------------------------------------------
    \20\ Secs. 6011 and 6051.
---------------------------------------------------------------------------
    A number of special rules apply in the case of household 
employees. An exception from FICA exists in the case of 
domestic service in a private home if the cash remuneration 
paid during the year by the employer to the employee for such 
service is less than $1,600 (for 2008).\21\
---------------------------------------------------------------------------
    \21\ Sec. 3121(a)(7)(B).
---------------------------------------------------------------------------
    An employer of a household employee is liable for FUTA if 
the employer paid wages of $1,000 for such service in any 
calendar quarter in the calendar year or the preceding calendar 
year.\22\ An employer of a household employee is not required 
to withhold Federal income taxes from wages paid to household 
employees.\23\ Household employers may report employment taxes 
annually on Schedule H (filed with their annual Federal income 
tax return) rather than quarterly on Form 941.
---------------------------------------------------------------------------
    \22\ Sec. 3306(a)(3).
    \23\ Sec. 3401(a)(3).
---------------------------------------------------------------------------

Responsibility for employment tax compliance

    Employment tax responsibility generally rests with the 
person who is the employer of an employee under a common-law 
test that has been incorporated into Treasury regulations.\24\ 
Under the regulations, an employer-employee relationship 
generally exists if the person for whom services are performed 
has the right to control and direct the individual who performs 
the services, not only as to the result to be accomplished by 
the work, but also as to the details and means by which that 
result is accomplished. That is, an employee is subject to the 
will and control of the employer, not only as to what is to be 
done, but also as to how it is to be done. It is not necessary 
that the employer actually control the manner in which the 
services are performed, rather it is sufficient that the 
employer have a right to control. Whether the requisite control 
exists is determined on the basis of all the relevant facts and 
circumstances. The test of whether an employer-employee 
relationship exists is relevant in determining whether a worker 
is an employee or an independent contractor. However, the same 
test applies in determining whether a worker is an employee of 
one person or another.\25\
---------------------------------------------------------------------------
    \24\ Treas. Reg. secs. 31.3121(d)-l(c)(1), 31.3306(i)-1(a), and 
31.3401(c)-l.
    \25\ Issues relating to the classification of workers as employees 
or independent contractors are discussed in Joint Committee on 
Taxation, Present Law and Background Relating to Worker Classification 
for Federal Tax Purposes (JCX-26-07), May 2007. These issues are also 
discussed in Joint Committee on Taxation, Study of the Overall State of 
the Federal Tax System and Recommendations for Simplification, Pursuant 
to Section 8022(3)(B) of the Internal Revenue Code of 1986 (JCS-3-01), 
April 2001, at Vol. III, Part XV.A, at 539-550.
---------------------------------------------------------------------------
    In some cases, a person other than the common-law employer 
maybe liable for employment taxes. For example, if wages are 
paid to an employee by a person other than the employer and the 
payor, rather than the employer, has control of the payment of 
the wages, the payor is responsible for complying with the 
applicable employment tax requirements.\26\ There are also 
special rules under which if a lender, surety or other person 
pays wages directly to an employee or group of employees, the 
lender, surety, or other person is responsible for employment 
taxes. \27\ There is also a special rule under which a 
qualified real estate agent, or direct seller of certain 
consumer products, performing services is not treated as an 
employee with respect to the person for whom the services are 
performed.\28\
---------------------------------------------------------------------------
    \26\ Sec. 3401(d)(1) (for purposes of income tax withholding, if 
the employer does not have control of the payment of wages, the person 
having control of the payment of such wages is treated as the 
employer); Otte v. United States, 419 U.S. 43 (1974) (the person who 
has the control of the payment of wages is treated as the employer for 
purposes of withholding the employee's share of FICA from wages); and 
In re Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), and In re 
The Laub Baking Company v United States, 642 F.2d 196 (6th Cir. 1981) 
(the person who has control of the payment of wages is the employer for 
purposes of the employer's share of FICA and FUTA). The mere fact that 
wages are paid by a person other than the employer does not necessarily 
mean that the payor has control of the payment of the wages. Rather, 
control depends on the facts and circumstances. See, e.g., Consolidated 
Flooring Services v. U.S., 38 Fed. Cl. 450 (1997), and Winstead v. 
U.S., 109 F. 3d 989 (4th Cir. 1997).
    \27\ Sec. 3505
    \28\ Sec. 3508
---------------------------------------------------------------------------
    In addition, certain designated agents are jointly and 
severally liable with the employer for FICA tax and income tax 
withholding with respect to wages paid to the employer's 
employees.\29\ These designated agents prepare and file 
employment tax returns using their own names and employer 
identification numbers.\30\ In contrast, reporting agents 
(often referred to as payroll service providers) are generally 
not liable for the employment taxes reported on their clients' 
returns. Reporting agents prepare and file employment tax 
returns for their clients using the client's name and employer 
identification number.
---------------------------------------------------------------------------
    \29\ Sec. 3504. The designated payroll agent rules do not apply for 
FUTA purposes.
    \30\ The employer's name, address, and employer identification 
number, as well as the agent's, are provided when the agent is 
designated by the employer. Form 2678 is used to designate an agent.
---------------------------------------------------------------------------
    Penalties apply in the case of failures to comply with 
information reporting requirements.\31\ In the case of failure 
to file a specified information return, a penalty of $50 for 
each return (not to exceed $100,000) is imposed.\32\
---------------------------------------------------------------------------
    \31\ Secs. 6721-6724.
    \32\ Sec. 6723.
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Home-care services,

    Many elderly and disabled individuals receive in-home care 
through state and local government health and welfare 
programs.\33\ These programs generally are funded at least in 
part with Federal funds. In most cases, the service recipient 
(i.e., the elderly or disabled individual) is the common law 
employer.
---------------------------------------------------------------------------
    \33\ See National Taxpayer Advocate 2007 Annual Report to Congress, 
December 31, 2007 at 355.
---------------------------------------------------------------------------
    IRS guidance provides rules for State and local government 
agencies as to how they can serve as agents for disabled 
individuals and other welfare recipients who employ home-care 
service providers to assist them in their homes.\34\ In 
general, these rules provide that the elderly or disabled 
individual must complete a form designating the State or local 
government as their agent for employment tax purposes. Under 
IRS guidance, unlike the general rule for designated agents, a 
State that furnishes home-care service providers (or a third 
party subagent of the State) can act as an agent on behalf of 
the service recipient for FUTA purposes.\35\ As previously 
discussed, in the case of a State or local government or 
independent third party serving as an agent on behalf of the 
service recipient, the service recipient remains liable for 
payment of the employment taxes and for any associated 
penalties for noncompliance.
---------------------------------------------------------------------------
    \34\ See Notice 2003-70, 2003-2 C.B. 916 (providing a proposed 
revenue procedure). See also, Rev. Proc. 76-6, 1970-1 C.B. 420, as 
modified by Rev. Proc. 80-4, 1980-1 C.B. 581.
    \35\ Notice 2003-70, 2003-2 C.B. 916. This is not the case if the 
independent third party is designated as the agent directly by the 
employer.
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                           REASONS FOR CHANGE

    Many elderly and disabled individuals receive in-home care 
through State and local government health and welfare programs. 
These elderly and disabled individuals are the common law 
employer of their service provider even though the payment for 
these services is handled by a fiscal administrator of the 
relevant State or local government agency. The administrator 
often pays the employment taxes to the IRS and handles any 
required IRS information reporting (for example, Form W-2) as 
an agent for the elderly and disabled individual. To allow the 
fiscal administrator to handle the employment tax 
responsibilities, the service recipients must designate the 
administrator as their agent in a cumbersome process that is 
confusing for the service recipients. In addition, this agency 
designation does not eliminate the liability of the service 
recipient, who as the common law employer, is ultimately liable 
for unpaid employment taxes. It is difficult for IRS systems to 
accurately reconcile information returns with respect to these 
taxes. In many cases; the inability to reconcile the 
information has resulted in the IRS contacting the service 
recipient for payment of the employment taxes even though, 
under the government program, the elderly or disabled 
individual does not have responsibility, or direct access to 
the funds, for paying the wages to the service provider. The 
Committee believes that, in these situations, the home care 
service recipient should be relieved of any potential liability 
for employment taxes, and responsibility for information 
reporting.

                        EXPLANATION OF PROVISION

    The provision provides that, in the case of amounts paid 
under a home care service program to a home care service 
provider by the fiscal administrator of such program, the 
fiscal administrator is solely liable for the payment of 
employment taxes with respect to amounts paid for services 
under the program. In such case, the home care service 
recipient is not liable for the payment of employment taxes.
    A home care service program is a State or local government 
program which is funded in whole or part by Federal funds and 
under which domestic services are provided to elderly or 
disabled individuals in their home. A home care service program 
does not include any program to the extent home care service 
recipients make payments to the home care service providers for 
such in-home domestic services.
    A home care service provider is an individual who provides 
domestic services to a home care service recipient under a home 
care service program. A home care service recipient is an 
individual receiving domestic services under a home care 
service program. A fiscal administrator is any person or 
governmental entity who pays amounts under a home care service 
program to home care service providers for the provision of 
domestic services under such program.
    Employment tax returns (i.e., Forms W-2, 940 and 941) must 
be made under the name and employer identification number of 
the fiscal administrator rather than that of the common law 
employer, the service recipient. The fiscal administrator is 
required, as prescribed by the Secretary, to report to the IRS 
the name, address, and social security number of each home care 
service recipient for whom amounts are paid by such fiscal 
administrator under the home care services program. This is 
intended to assist the IRS in preventing collection action 
against the elderly or disabled common law employer. In the 
case of failure to file the required report, a penalty is 
imposed.\36\
---------------------------------------------------------------------------
    \36\ Section 6723 imposes a penalty of $50 per report (not to 
exceed $100,000 per calendar year).
---------------------------------------------------------------------------
    Under the provision, the Secretary may prescribe 
regulations or other guidance as may be necessary to carry out 
the purposes of the provision, including rules for timing of 
employment tax deposits.
    It is intended that the present law rules that apply in the 
case of household employees continue to apply under the 
provision. Relevant thresholds under these rules are also 
determined with respect to each home care recipient. For 
example, it is intended that the exception from FICA for 
domestic service in a private home if cash remuneration, paid 
during the year by the employer to the employee for such 
service is less than $1,600 (for 2008) would continue to apply. 
Similarly, FUTA would be required only if the employer paid 
wages of $1,000 for household service in any calendar quarter 
in the calendar year or the preceding calendar year. In 
addition, the present law exception from Federal income tax 
withholding for household employees would continue to apply.

                             EFFECTIVE DATE

    The provision is effective for amounts paid after December 
31, 2008.

    E. Referrals to Low-Income Taxpayer Clinics (Sec. 6 of the Bill)


                              PRESENT LAW

    The Code provides that the Secretary is authorized to 
provide up to $6 million per year in matching grants to certain 
qualified low-income taxpayer clinics.\37\ Eligible clinics are 
those that charge no more than a nominal fee to either 
represent low-income taxpayers in controversies with the IRS or 
provide tax information to individuals for whom English is a 
second language. No clinic can receive more than $100,000 per 
year.
---------------------------------------------------------------------------
    \37\ Sec. 7526.
---------------------------------------------------------------------------
    A qualified low-income taxpayer clinic. includes (1) a 
clinical program at an accredited law, business, or accounting 
school, in which students represent low-income taxpayers, or 
(2) an organization described in section 501(c) which either 
represents low-income taxpayers as described above or provides 
referrals to qualified representatives. A low-income taxpayer 
is an individual whose income does 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 (``OMB'').
    The Department of the Treasury prohibits its officers and 
employees from referring taxpayers to qualified low-income 
taxpayer clinics for advice and assistance.

                           REASONS FOR CHANGE

    The Committee believes that qualified low-income taxpayer 
clinics contribute to compliance with the tax laws by providing 
representation to taxpayers who might otherwise be uncertain 
about their rights and obligations under the law and lack the 
means to secure adequate representation. Accordingly, the 
Committee believes that officers and employees of the 
Department of the Treasury should be permitted to inform 
taxpayers of the existence of these clinics and refer taxpayers 
to such clinics for assistance.

                        EXPLANATION OF PROVISION

    The provision allows officers and employees of the 
Department of the Treasury to refer taxpayers for advice and 
assistance to qualified low-income taxpayer clinics that 
receive funding, notwithstanding any other provision of law.

                             EFFECTIVE DATE

    The provision is effective for referrals made after the 
date of enactment.

F. Programs for the Benefit of Low-Income Taxpayers (Sec. 7 of the Bill 
             and Sec. 7526 and New Sec. 7526A of the Code)


                              PRESENT LAW

    The Code provides that the Secretary is authorized to 
provide up to $6 million per year in. matching grants to 
certain qualified low-income taxpayer clinics.\38\ Eligible 
clinics are those that charge no more than -a nominal fee to 
either represent low-income taxpayers in controversies with the 
IRS or provide tax information to individuals for whom English 
is a second language. No clinic can receive more than $100,000 
per year.
---------------------------------------------------------------------------
    \38\ Sec. 7526.
---------------------------------------------------------------------------
    A qualified low-income taxpayer clinic includes (1) a 
clinical program at an accredited law, business, or accounting 
school, in which students represent low-income taxpayers, or 
(2) an organization described in section 501(c) which either 
represents low-income taxpayers as described above or provides 
referrals to qualified representatives. A low-income taxpayer 
is an individual whose income does 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 (``OMB'').

                           REASONS FOR CHANGE

    The Committee believes that taxpayer clinics contribute to 
compliance with the tax laws by providing representation to 
taxpayers who might otherwise be uncertain about their rights 
and obligations under the law and lack the means to secure 
adequate representation. Accordingly, the Committee believes 
that the work of the volunteer income tax assistance program 
should be encouraged to increase assistance provided to low- 
and moderate-income taxpayers. The Committee also believes that 
an increase in grants to qualified low-income taxpayer clinics 
is needed to improve the level of assistance provided to 
taxpayers unable to obtain representation for Federal tax 
disputes.

                        EXPLANATION OF PROVISION

    The provision authorizes the Secretary to make $10 million 
in matching grants for volunteer income tax assistance 
programs. Volunteer income tax assistance programs are programs 
that provide tax return preparation and filing services to low- 
and moderate-income (as determined by the Secretary) taxpayers. 
Under the provision, volunteer income tax assistance programs 
may not charge taxpayers for return preparation services. 
Volunteers assisting taxpayers through such programs must meet 
training requirements established by the Secretary.
    The authorization of $6 million for qualified low-income 
taxpayer clinics under present law also is increased to $10 
million.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

G. Earned Income Credit Outreach (Sec. 8 of the Bill and Sec. 32 of the 
                                 Code)


                              PRESENT LAW

In general

    Low and moderate-income taxpayers may be eligible for the 
refundable earned income credit (``EIC'').\39\ Generally, the 
amount of the EIC is based on the presence and number of 
qualifying children in the taxpayer's family, as well as on 
adjusted gross income (``AGI'') and earned income.\40\ Other 
rules also apply.
---------------------------------------------------------------------------
    \39\ The EIC is a refundable credit, meaning that if the amount of 
the credit exceeds the taxpayer's Federal income tax liability, the 
excess is payable to the taxpayer as a direct transfer payment. Under 
an advance payment system, eligible taxpayers may elect to receive a 
portion of the credit in their paychecks, rather than waiting to claim 
a refund on their tax return filed by April 15 of the following year.
    \40\ Earned income is defined as (1) wages, salaries, tips, and 
other employee compensation, but only if such amounts are includible in 
gross income, plus (2) the amount of the taxpayer's net self-employment 
earnings.
---------------------------------------------------------------------------
    Three separate schedules apply in computing the taxpayer's 
EIC: (1) one schedule for taxpayers with no qualifying 
children; (2) one schedule for taxpayers with one qualifying 
child; and (3) one schedule for taxpayers with more than one 
qualifying child.\41\
---------------------------------------------------------------------------
    \41\ In general, a child is a qualifying child of a taxpayer if the 
child satisfies each of three tests: (1) the child has the same 
principal place of abode as the taxpayer for more than one-half of the 
taxable year; (2) the child has a specified relationship to the 
taxpayer; and (3) the child has not yet attained a specified age. A 
tie-breaking rule applies if more than one taxpayer claims a child as a 
qualifying child.
---------------------------------------------------------------------------
    The EIC generally equals a specified percentage of earned 
income up to a maximum dollar amount. The maximum amount 
applies over a certain income range and then diminishes to zero 
over a specified phaseout range. For taxpayers with earned 
income (or AGI, if greater) in excess of the beginning of the 
phaseout range, the maximum EIC amount is reduced by the 
phaseout rate multiplied by the amount of earned income (or 
AGI, if greater) in excess of the beginning of the phaseout 
range. For taxpayers with earned income (or AGI, if greater) in 
excess of the end of the phaseout range, no credit is allowed. 
All income thresholds are adjusted annually for inflation.

Wage withholding

    In general, the Code requires employers to withhold income 
tax on wages paid to employees, including wages and salaries of 
employees or elected officials of Federal, State, and local 
government units. Withholding rates vary depending on the 
amount of wages paid, the length of the payroll period, and the 
number of withholding allowances claimed by the employee. The 
Code also requires that employers report wage withholding 
information annually to the IRS and their employees (e.g., Form 
W-2 and Form W-3).\42\
---------------------------------------------------------------------------
    \42\ Information returns, such as Form W-2, are returns within the 
meaning of section 6103(b)(1).
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EIC outreach and assistance

            Pre-tax return filing
    The IRS has developed an outreach effort to inform 
taxpayers potentially eligible for the EIC and their employers 
about the EIC and how to claim the credit. One such public 
notice, contained in IRS Notice 797 (Rev. 12-2006), explains 
the EIC, its eligibility rules, and how to claim the credit. In 
addition, the IRS works with employers, community groups and 
other stakeholders to inform eligible taxpayers of the EIC. The 
IRS also helps taxpayers below certain income levels compute 
their Federal income tax liability, including the amount of 
EIC, if any.
            Post-tax return filing
    The IRS sends out notice letters addressed to taxpayers who 
it has identified as potentially eligible for the EIC in the 
immediately prior taxable year.
    The notice letters are different depending on the presence 
of a qualifying child or children in the taxpayer's household. 
If the IRS identifies a taxpayer with one or more qualifying 
children as potentially eligible for the EIC, the notice letter 
informs the taxpayer that IRS records indicate that: (1) the 
taxpayer's income falls in the eligible range to receive the 
EIC; (2) the taxpayer has one or more dependents who may be an 
ETC qualifying child; and (3) the taxpayer did not claim the 
EIC for the applicable taxable year on his or her return filed 
with the IRS. If the IRS identifies a taxpayer without 
qualifying children as potentially eligible for the EIC, the 
notice letter informs the taxpayer that IRS records indicate 
that: (1) the taxpayer's income falls in the eligible range to 
receive the EIC and (2) the taxpayer did not claim the EIC for 
the applicable taxable year on his or her return filed with the 
IRS.
    In all cases, the notice letters ask the taxpayers to 
complete an ``EIC Eligibility Check-Sheet'' and, if the check-
sheet indicates eligibility for the EIC, to return it to the 
IRS. The EIC Eligibility Check-Sheet requests the taxpayer to 
provide all the information necessary to determine EIC 
eligibility. The EIC Eligibility Check-Sheet is completed under 
penalty of perjury by the taxpayer (and the taxpayer's spouse 
in the case of a joint return). The IRS reviews the information 
submitted by the taxpayer and either: (1) sends any applicable 
refund within eight weeks (net of any other amounts the IRS is 
required to collect), or (2) sends an explanation to the 
taxpayer stating why the taxpayer does not qualify for the EIC.
    The notice letters also provide information to help 
eligible taxpayers correctly claim the EIC in future taxable 
years.
    Under present law, these notice letters are sent by the IRS 
only to individuals who have filed a tax return for the 
applicable taxable year. The absence of the taxpayer's filed 
tax return, notwithstanding the receipt by the IRS of return 
information or an information return (e.g., Form W-2 indicating 
wage withholding on the taxpayer) from the taxpayer's employer 
does not trigger--a notice letter to the taxpayer.

Limitations on credits and refunds

    Under section 6511, a claim for credit or refund of 
overpayment of tax with respect to which a return must be filed 
must be made within the later of: (1) three years from the time 
the return was filed or (2) two years from the time the tax was 
paid. If no return was filed by the taxpayer, then the 
applicable time period ends two years, after the tax was paid.

                           REASONS FOR CHANGE

    The Committee believes that all taxpayers who are eligible 
for the EIC should receive it. The IRS estimates that. 20-25 
percent of taxpayers eligible for the EIC do not claim the 
credit. The Committee believes that the IRS should enhance its 
efforts to identify and contact taxpayers who are eligible for 
the EIC, particularly in the case of taxpayers who have had 
taxes withheld on their wages but who have not filed a tax 
return. In some instances, taxpayers who have incomes below tax 
filing thresholds and may not realize that they are eligible 
for the EIC. The Committee realizes that improving EIC outreach 
is an important component in ensuring that those who are 
eligible claim the credit.

                        EXPLANATION OF PROVISION

    The provision requires the IRS to provide annually, and to 
the extent possible,\43\ notice to all taxpayers who have-been 
identified based on return or return information as being 
potentially eligible for the EIC in any taxable year for which 
a claim for credit or refund is not barred by the limitation 
period under section 6511. Such notice must be in writing, 
address all. open tax years, and be sent to the last known 
address of such taxpayers: (1) who did not file a claim for the 
EIC for such taxable year, and (2) who the IRS identified as 
potentially eligible for the EIC for such taxable year based on 
a return or return information (as defined in sec. 6103(b)).
---------------------------------------------------------------------------
    \43\ It is anticipated that the type of available return 
information and available IRS resources will affect the IRS's ability 
to issue the additional notice letters contemplated under this 
proposal.
---------------------------------------------------------------------------
    Upon receipt of this notice letter, the taxpayer who had 
filed a return for the applicable taxable years would complete 
the applicable EIC Eligibility Check-Sheet for each of the 
applicable taxable years. It is anticipated that this Check-
Sheet would ask for all the information relating to the 
taxpayer's eligibility for the EIC (e.g., earned income, AGI, 
presence and number of qualifying children, and taxpayer 
identification numbers). If eligible for the EIC, in one or 
more of the applicable taxable years, the taxpayer would return 
the EIC Eligibility Check-Sheet to the IRS for any refund 
(including wages withheld by the taxpayer's employer). In the 
case of an eligible taxpayer who had not filed a return for the 
applicable taxable years, the taxpayer would be instructed to 
file a tax return claiming the EIC with the IRS for any refund 
(including wages withheld by the taxpayer's employer) for each 
of the applicable taxable years.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

H. Prohibition on IRS Debt Indicators for Predatory Refund Anticipation 
          Loans (Sec. 9 of the Bill and Sec. 6011 of the Code)


                              PRESENT LAW

    A refund anticipation loan is a loan made by a commercial 
lender to a taxpayer based on the refund the taxpayer expects 
to receive. The loan is a private contract between the taxpayer 
and a commercial lender. The Code does not regulate the making 
of refund anticipation loans, but consumer groups, the 
Commissioner of the IRS, and the National Taxpayer Advocate all 
have raised concerns over the high interest rates and fees 
associated with such loans.\44\
---------------------------------------------------------------------------
    \44\ See e.g., National Taxpayer Advocate, 2005 Annual Report to 
Congress, Publication 2104 (Rev. 12-2005), at 162.
---------------------------------------------------------------------------
    Certain tax practitioners that file returns electronically 
and financial institutions may obtain a debt indicator from the 
IRS for their customer taxpayers. A debt indicator facilitates 
the making of refund anticipation loans because it tells 
whether or not a taxpayer has any scheduled offsets against a 
claimed refund. Thus, a debt indicator reduces the lender's 
risk of making a refund anticipation loan because it informs 
the lender whether the taxpayer's refund will be paid or 
reduced for certain debts.

                           REASONS FOR CHANGE

    The Committee understands that the majority of refund 
anticipation loans are made to low-income families, including 
EIC claimants. The Committee also understands that the 
providers of refund anticipation loans often charge 
exorbitantly high fees and interest rates for such loans, at 
times in excess of 100 percent. The Committee is concerned that 
these high-cost, short-term loans unfairly siphon millions of 
dollars from low-income taxpayers. Moreover, the Committee is 
concerned that debt indicators are being used as a means to 
enable these predatory refund anticipation loans to taxpayers. 
The Committee believes that the Department of the Treasury 
should not be facilitating predatory refund anticipation loans 
by reducing the lender's risk of making such loans. Thus, the 
Committee believes that prohibiting debt indicators with 
respect to predatory refund anticipation loans will decrease 
the viability of such loans and provide additional protection 
to taxpayers.

                        EXPLANATION OF PROVISION

    The provision prohibits the Secretary from providing a debt 
indicator to any person with respect to any refund anticipation 
loan if the Secretary determines that the business practices of 
such person involve refund anticipation loans and related 
charges and fees that are predatory. Under the provision, a 
refund anticipation loan is any loan of money or any other 
thing of value to a taxpayer secured by the taxpayer's 
anticipated receipt of a Federal tax refund. For purposes of 
the provision, a debt indicator means a notification provided 
to a tax practitioner or financial institution pursuant to a 
program or procedure that a taxpayer's refund will be reduced 
or offset to repay debts for delinquent Federal or State taxes, 
strident loans, child support, or other Federal agency debt.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

       I. Study on Delivery of Tax Refunds (Sec. 10 of the Bill)


                              PRESENT LAW

    A large number of individual taxpayers do not have bank 
accounts. These taxpayers are unable to participate fully in 
electronic filing, because the IRS cannot electronically 
transmit to them their tax refunds.

                           REASONS FOR CHANGE

    The Committee believes that the attractiveness of 
electronic filing and faster deposit of direct deposited 
refunds is diminished when individuals do not have an account 
at a financial institution. These individuals rely on 
alternative financial service providers to cash checks, pay 
bills, send remittances, and obtain credit. The cost of these 
alternative services reduces benefits received through the tax 
system, such as the earned income tax credit. The Committee 
believes the Secretary should study alternative means of 
delivering tax refunds to taxpayers to reduce the cost and 
refund processing time for those taxpayers who do not have 
access to financial institutions.

                      EXPLANATION OF THE PROVISION

    The provision requires the Secretary to conduct a study, in 
consultation with the National Taxpayer Advocate, of the 
implementation of a program to deliver tax refunds through 
debit cards or other electronic means. The provision requires 
the Secretary to submit a report to Congress on the results of 
such study no later than one year after the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

  J. Extension of Time Limit for Return of Property for Wrongful Levy 
       (Sec. 11 of the Bill and Secs. 6343 and 6532 of the Code)


                              PRESENT LAW

    The IRS is authorized to return property that has been 
wrongfully levied.\45\ In general, monetary proceeds from the 
sale of levied property, or an amount equal to the amount of 
money levied, may be returned within nine months of the date of 
the levy.
---------------------------------------------------------------------------
    \45\ Sec. 6343.
---------------------------------------------------------------------------
    Generally, any person (other than the person against whom 
is assessed the tax out of which such levy arose) who claims an 
interest in levied property may bring a civil action for 
wrongful levy in a district court of the United States.\46\ 
Generally, an action for wrongful levy must be brought within 
nine months from the date of levy.\47\ However, if a claim for 
a return of property is made to the IRS, the nine-month period 
is extended for the shorter of a period of 12 months from the 
date of filing of such request or six months from the date of 
mailing of an IRS notice of disallowance of such request.\48\
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    \46\ Sec. 7426(a)(1).
    \47\ Sec. 6532.
    \48\ Sec. 6532(c)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee understands that, in many cases, the time 
period for bringing an action may be insufficient for third 
parties to discover a wrongful or mistaken levy and seek to 
remedy it. Accordingly, the Committee believes it is 
appropriate to provide for a longer period of time within which 
a person may contest a wrongful IRS levy.

                        EXPLANATION OF PROVISION

    The provision extends from nine months to two years the 
period for returning money and the monetary proceeds from the 
sale of property that has been wrongfully levied.
    The provision also extends from nine months to two years 
the period for bringing a civil action for wrongful levy.

                             EFFECTIVE DATE

    The provision is effective with respect to: (1) levies made 
after the date of enactment and (2) levies made on or before 
the date of enactment provided that the nine-month period has 
not expired as of the date of enactment.

K. Individuals Held Harmless on Improper Levy on Individual Retirement 
          Plan (Sec. 12 of the Bill and Sec. 6343 of the Code)


                              PRESENT LAW

    Distributions from an individual retirement arrangement 
(``IRA'') made on account of an IRS levy are includible in the 
gross income of the individual under the rules applicable to 
the IRA subject to the levy. Thus, in the case of a traditional 
IRA, the amount distributed as a result of a levy is includible 
in gross income except to the extent such amount represents a 
return of nondeductible contributions (i.e., basis). In the 
case of a Roth IRA, earnings on a distribution are excludable 
from gross income if the distribution is made: (1) after the 
five-taxable year period beginning with the first taxable year 
for which the individual made a contribution to a Roth IRA and 
(2) after attainment of age 59\1/2\ or on account of certain 
other circumstances. Amounts withdrawn from an IRA due to a 
levy are not subject to the 10 percent early withdrawal tax, 
regardless of whether the amount is includible in income.
    Present law provides rules under which the IRS returns 
amounts subject to an incorrect levy. For example, amounts 
withdrawn from an IRA pursuant to a levy are returned to the 
individual owning the IRA in the case of a wrongful levy or if 
the levy was not in accordance with IRS administrative 
procedures. In the case of a wrongful levy, the IRS is required 
to pay interest on the amount returned to the individual at the 
overpayment rate. The IRS is not required to pay interest if 
the levy was not in accordance with IRS administrative 
procedures.
    Present law does not provide special rules to allow an 
individual to recontribute to an IRA amounts withdrawn from an 
IRA pursuant to a levy and later returned to the individual by 
the IRS (or interest thereon). Thus, if an individual wishes to 
contribute such returned amounts to an IRA, the contribution is 
subject to the normally applicable rules for IRA contributions.

                           REASONS FOR CHANGE

    IRA assets provide an important source of retirement income 
for many Americans. Under present law, if the IRS improperly 
levies on an IRA, the individual owning the IRA may not be made 
whole, even if the IRS returns the amount levied, with 
interest, because the individual may lose the opportunity to 
have those funds accumulate on a tax-favored basis until 
retirement. The Committee believes that improper levies should 
not reduce retirement income security for IRA owners. Thus, the 
Committee bill provides that IRA funds that are withdrawn 
pursuant to an improper IRS levy and returned by the IRS may be 
recontributed to the IRA.

                        EXPLANATION OF PROVISION

    Under the provision, an individual is able to recontribute 
to an IRA amounts withdrawn pursuant to a levy and returned by 
the IRS (and any interest thereon) within 60 days of receipt by 
the individual, without regard to the normally applicable 
limits on IRA contributions and rollovers. The provision 
applies to levied amounts returned to the individual because 
the levy (1) was wrongful or (2) is determined to be premature 
or otherwise not in accordance with administrative procedures. 
The recontribution may be made to the same IRA or to any other 
individuated retirement plan (other than an endowment contract) 
to which a rollover from the IRA levied upon is permitted. That 
is, the recontribution may be made to the same IRA or to an IRA 
of the same type.
    Under the provision, the IRS is required to pay interest on 
amounts returned to the individual at the overpayment rate in 
the case of a levy that is determined to be premature or 
otherwise not in accordance with administrative procedures (as 
well as in the case of a wrongful levy under present law). 
Interest paid by the IRS on the amount returned to the 
individual is excludable from gross income if the interest is 
contributed to an IRA under the provision. An amount 
contributed to an IRA under the provision will only be treated 
as interest paid by the IRS to the extent the total amount 
contributed under the provision exceeds the amount of the levy.
    Any tax attributable to an amount distributed from an IRA 
by reason of a levy is abated if the amount is recontributed to 
an IRA pursuant to the provision.

                             EFFECTIVE DATE

    The provision is effective for levied amounts (and interest 
thereon) returned to individuals after the date of enactment.

 L. Taxpayer Notification of Suspected Identity Theft (Sec. 13 of the 
                  Bill and New Sec. 7529 of the Code)


                              PRESENT LAW

    Section 6103 provides that returns and return information 
are confidential and may not be disclosed by the Internal 
Revenue Service (``IRS''), other Federal employees, State 
employees, and certain others having access to the information 
except as provided in the Code.\49\ The definition of ``return 
information'' is very broad and includes any information 
gathered by the IRS with respect to a person's liability or 
possible liability under the Code for any tax, penalty, 
interest, fine, forfeiture, or other imposition or offense.\50\ 
Thus, information gathered by the IRS in connection with an 
investigation of a person for an offense under the Code, such 
as fraud, is return information of the person being 
investigated and is subject to the confidentiality restrictions 
of section 6103.
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    \49\ Sec. 6103(a).
    \50\ Sec. 6103(b)(2). Return information is
     a taxpayer's identity, the nature, source, or amount of 
his income, payments, receipts, deductions, exemptions, credits, 
assets, liabilities, net worth, tax liability, tax withheld, 
deficiencies, overassessments, or tax payments, whether the taxpayer's 
return was, is being, or will be examined or subject to other 
investigation or processing, or any other data, received by, recorded 
by, prepared by, furnished to, or collected by the Secretary with 
respect to a return or with respect to the determination of the 
existence, or possible existence, of liability (or the amount thereof) 
of any person under this title for any tax, penalty, interest, fine, 
forfeiture, or other imposition, or offense,
     any part of any written determination or any background 
file document relating to such written determination (as such terms are 
defined in section 6110(b)) which is not open to public inspection 
under section 6110,
     any advance pricing agreement entered into by a taxpayer 
and the Secretary and any background information related to such 
agreement or any application for an advance pricing agreement, and
     any closing agreement under section 7121, and any similar 
agreement, and any background information related to such an agreement 
or request for such an agreement.
    Return information does not include data in a form which cannot be 
associated with, or otherwise identify, directly or indirectly, a 
particular taxpayer.
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    In July 2007, the IRS established the Privacy, Information 
Protection, and Data Security Office. Within that office is the 
Identity Theft and Incident Management office, which is 
responsible for implementing the IRS identity theft strategy 
and coordinating efforts within the IRS to provide assistance 
and consistent treatment to taxpayers who are victims of 
identity theft.
    The IRS also recently implemented a pilot program to notify 
IRS-identified tax fraud victims of identity theft.

                           REASONS FOR CHANGE

    Identity theft is a growing concern for the Committee. 
Identity thieves can use a taxpayer's identity, or the identity 
of their dependents, including their social security numbers, 
to file fraudulent tax returns and obtain fraudulent refunds. 
The Committee believes it is important for the IRS to promptly 
notify a taxpayer of potential identity theft so that the 
taxpayer can take measures to prevent the misuse of his 
identity.

                        EXPLANATION OF PROVISION

    The provision provides that if, in the course of an 
investigation under the internal revenue laws, the Secretary 
determines that there was, or may have been, an unauthorized 
use of a taxpayer's identity or that of a dependent of the 
taxpayer, the Secretary shall, to the extent permitted by law, 
(1) as soon as practicable and without jeopardizing such 
investigation, notify the taxpayer of such determination, and 
(2) if any person is criminally charged by indictment or 
information with respect to such unauthorized use, notify such 
taxpayer as soon as practicable of such charge. Under the 
provision, the IRS is not required to make such notification if 
disclosure would be barred by any statute (other than Title 26) 
or would be, for example, in violation of grand jury secrecy 
rules.\51\ Further, notification is not required if the IRS is 
unable to obtain an address or other contact information for 
the taxpayer. In such case notification would not be 
practicable because the IRS would not have the necessary 
information to notify that person.
---------------------------------------------------------------------------
    \51\ Persons bound by the rule of grand jury secrecy in Fed. R. 
Crim. P. 6(e)(2) are subject to prosecution for criminal contempt under 
18 U.S.C. sec. 401 for the unauthorized disclosure of grand jury 
information. Thus, under the provision, a notification that was in 
violation of the grand jury secrecy rules would not be ``permitted by 
law'' within the meaning of the provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to determinations made after the date 
of enactment.

M. Repeal of Private Tax Collection Contracts (Sec. 14 of the Bill and 
                         Sec. 6306 of the Code)


                              PRESENT LAW

    Under present law, the IRS may use private debt collection 
companies to locate and contact taxpayers owing outstanding tax 
liabilities of any type and to arrange payment of those taxes 
by the taxpayers.

                           REASONS FOR CHANGE

    Over 130 years ago, this Committee stated that ``any system 
of farming the collection of any portion of the revenue of the 
Government is fundamentally wrong * * *. No necessity for such 
laws exist * * * the Secretary of the Treasury and the head of 
the Internal Revenue Bureau are empowered by law to make all 
collections of taxes * * *. The Internal Revenue Bureau is 
possessed of full knowledge of the laws relating to the 
collection of the revenue * * * and has all the machinery 
necessary for their full and complete enforcement.'' \52\ The 
Committee believes these words remain true today.
---------------------------------------------------------------------------
    \52\ H.R. Rep. No. 43-559, 1st Sess. (1874).
---------------------------------------------------------------------------
    The Committee believes that the collection of Federal 
income taxes is an inherently governmental function that should 
be restricted to IRS employees. The Committee believes that the 
use of private contractors to collect Federal tax debt violates 
the special and confidential relationship between taxpayers and 
the Federal government. The Committee believes that the use of 
private contractors jeopardizes the privacy of taxpayers and 
undermines long-term taxpayer compliance.
    The IRS Commissioner has stated on numerous times before 
the Committee that IRS employees can collect Federal taxes more 
efficiently than private debt collection companies. IRS 
employees have access to a taxpayer's complete file and 
history, including the most recent information relating to tax 
filings and compliance data. Access to the taxpayer's complete 
file allows IRS employees to collect outstanding tax debt more 
efficiently and in a manner that ensures long-term compliance 
with the tax laws. The Committee believes that only IRS 
employees should be allowed to perform tax collection 
activities.

                        EXPLANATION OF PROVISION

    The provision repeals the authority for the IRS to enter 
into, renew, or extend any private debt collection contract. 
The provision allows the IRS's existing contracts with private 
debt collection companies to continue through the end of their 
term.

                             EFFECTIVE DATE

    The provision generally is effective on the date of 
enactment, except for any contract which was entered into 
before March 1, 2008, and is not renewed or extended on or 
after such date. The provision also provides that any private 
debt collection contract which is entered into on or after 
March 1, 2008, and any extension or renewal of any private debt 
collection contract on or after such date, shall be void.

N. Clarification of IRS Unclaimed Refund Authority (Sec. 15 of the Bill 
                       and Sec. 6103 of the Code)


                              PRESENT LAW

    When the IRS is unable to find a taxpayer due a refund, 
present law provides that the IRS may use ``the press or other 
media'' to notify the taxpayer of the refund. Section 6103(m) 
allows the IRS to give the press taxpayer identity information 
for this purpose. Taxpayer identity includes, among other 
items, name and mailing address.\53\
---------------------------------------------------------------------------
    \53\ Sec. 6103(b)(6).
---------------------------------------------------------------------------
    The IRS believes that the current statutory framework of 
``press and other media'' does not permit disclosures via the 
Internet on the IRS website (www.irs.gov). The legislative 
history of the present-law provision does not address the 
meaning of ``press and other media.'' At the time enactment of 
section 6103(m) in 1976, the press (newspapers and periodicals) 
and other traditional media were the only means available for 
the IRS to distribute undelivered refund information to the 
public. Thus, the IRS interprets the term ``other media'' to 
exclude the Internet.

                           REASONS FOR CHANGE

    In November 2007, the IRS announced that it is searching 
for 115,478 taxpayers whose income tax refund checks could not 
be delivered.\54\ These checks are worth a total of 
approximately $110 million. It is the understanding of the 
Committee that the current method of notifications, by 
newspaper, is ineffective. The Committee believes that the IRS 
should be able to use any method of mass communication, 
including the Internet, to reach taxpayers who are due refunds.
---------------------------------------------------------------------------
    \54\ Internal Revenue Service, IRS Has $110 Million in Refund 
Checks Looking for a Home (IR-2007-189, November 14, 2007).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision allows the IRS to use any means of ``mass 
communication,'' including the Internet, to notify the taxpayer 
of an undelivered refund.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

   O. Prohibition on Misuse of Department of the Treasury Names and 
         Symbols (Sec. 16 of the Bill and Sec. 333 of Title 31)


                              PRESENT LAW

    Section 333 of Title 31 of the United States Code prohibits 
the use, in connection with advertisements, solicitations, and 
other business activities, of the words, abbreviations, titles, 
letters, symbols, or emblems associated with the Department of 
the Treasury (and services, bureaus, offices, or subdivisions 
of the Department, including the IRS) in a manner which could 
reasonably be interpreted as conveying a connection with or 
approval by the Department of the Treasury (or one of its 
bureaus, offices, or subdivisions) in the absence of such 
connection or approval
    The provision provides for a civil penalty of not more than 
$5,000 per violation (or not more than $25,000 in the case of a 
broadcast or telecast). In addition, the provision provides a 
criminal penalty of not more than $10,000 (or not more than 
$50,000 in the case of a broadcast or telecast) or imprisonment 
of not more than one year, or both, in any case in which the 
prohibition is knowingly violated. Any determination of whether 
there is a violation is made without regard to the use of a 
disclaimer of affiliation with the Federal Government.
    The IRS has issued warnings to taxpayers about Internet 
sites that resemble the official IRS site:

          Taxpayers may be confused by the proliferation of 
        Internet sites that contain some form of the Internal 
        Revenue Service name or IRS acronym with a .com, .net, 
        .org or other designation in the address instead of 
        gov. Since many of these sites also bear a striking 
        resemblance to the real IRS site, taxpayers may be 
        misled into thinking that the site they have accessed 
        is indeed the official IRS government site. These sites 
        are not the official IRS Web site and have no 
        connection to the official IRS site or to the IRS.\55\
---------------------------------------------------------------------------
    \55\ Internal Revenue Service, IRS Urges Caution about Internet 
Sites that Resemble the Official IRS Site (IR-2007-58, March 13, 2007).
---------------------------------------------------------------------------
    The IRS also has issued a number of warnings regarding 
ongoing Internet scams.\56\ The e-mails claim to be from the 
IRS and direct the consumer to a link (often resembling the IRS 
website) that requests personal and financial information. The 
practice is called ``phishing'' for information. Once the 
information is obtained, it could be used in identity theft and 
stealing a taxpayer's financial assets. Taxpayers who receive 
an unsolicited e-mail communication claiming to be from-the IRS 
can forward the message to the IRS. The IRS reports it has 
received almost 33,000 forwarded e-mail scams.\57\
---------------------------------------------------------------------------
    \56\ Internal Revenue Service, Identity Theft E-mail Scams a 
Growing Problem (FS-2008-9, January 2008).
    \57\ Id.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware of Internet sites that misuse the 
Department of Treasury and Internal Revenue Service names. Use 
of an Internet domain name in this manner is misleading and 
confusing. Taxpayers may believe that they will access, or may 
have accessed, the official IRS site. In addition, the 
Committee is aware of the use of e-mail, purporting to be from 
the IRS, and websites resembling the IRS website to obtain 
personal or financial information from taxpayers. The Committee 
believes such practices should be subject to significant 
penalties to deter such conduct and that the statute should be 
clarified accordingly.

                        EXPLANATION OF PROVISION

    The provision clarifies that ``phishing,'' misleading 
websites, and other misleading mass communications by 
electronic means using the name or symbols of the Department of 
the Treasury (or its components), are subject to the civil 
penalty of $25,000 per violation and criminal penalty of 
$50,000 per violation. The provision reaffirms that the use of 
the words, abbreviations, titles, letters, symbols, or emblems 
associated with the Department of the Treasury (and services, 
bureaus, offices or subdivisions of the Department, including 
the IRS) in an Internet domain name is misleading and covered 
by section 333 of Title 31 of the United States Code.

                             EFFECTIVE DATE

    The provision is effective for violations occurring after 
the date of enactment.

 P. Health Savings Account Substantiation Requirement (Sec. 17 of the 
                   Bill and Sec. 223(f) of the Code)


                              PRESENT LAW

Health savings accounts

    Present law section 223 provides that individuals with a 
high deductible health plan (and no other health plan other 
than a plan that provides certain permitted coverage).\58\ may 
establish a health savings account (``HSA''). An HSA is a tax-
exempt trust or custodial account. Subject to certain 
limitations, contributions made to an HSA by an individual are 
deductible above-the-line for income tax purposes and 
contributions made by an employer (including contributions made 
through a cafeteria plan through salary reduction) are 
excludable from income and wages. Earnings on amounts in an HSA 
accumulate on a tax-free basis.
---------------------------------------------------------------------------
    \58\ An individual with other coverage in addition to a high 
deductible health plan is still eligible for an HSA if such other 
coverage is certain permitted insurance or permitted coverage. 
Permitted insurance is: (1) insurance if substantially all of the 
coverage provided under such insurance relates to (a) liabilities 
incurred under worker's compensation law, (b) tort liabilities, (c) 
liabilities relating to ownership or use of property (e.g., auto 
insurance), or (d) such other similar liabilities as the Secretary may 
prescribe by regulations; (2) insurance for a specified disease or 
illness; and (3) insurance that provides a fixed payment for 
hospitalization. Permitted coverage is coverage (whether provided 
through insurance or otherwise) for accidents, disability, dental care, 
vision care, or long-term care. Effective after December 20, 2006, with 
respect to coverage for years beginning after December 31, 2006, 
certain coverage under an FSA is disregarded in determining eligibility 
for an HSA.
---------------------------------------------------------------------------
    Distributions from an HSA that are for qualified medical 
expenses are excludable from gross income. Distributions from 
an HSA that are not used for qualified medical expenses are 
includible in gross income and are subject to an additional tax 
of 10-percent. However, the additional 10-percent tax does not 
apply if the distribution is made after death, disability, or 
the individual attains the age of Medicare eligibility (i.e., 
age 65). Under present law, the individual maintaining the HSA 
is responsible for determining if the distribution was made for 
a qualified medical expense and whether the amount should be 
included in income and subject to the 10-percent additional 
tax.
    HSAs provide the opportunity to pay for current out-of-
pocket medical expenses on a tax-favored basis, as well as the 
ability to save for future medical and nonmedical expenses on a 
tax-favored basis. To the extent that amounts in an HSA are not 
used for qualified expenses, an HSA provides tax benefits 
similar to an individual retirement arrangement (``IRA'').\59\
---------------------------------------------------------------------------
    \59\ Other tax-favored vehicles may also be used to save for future 
medical expenses, but do not provide the same tax benefits. For 
example, funds in an IRA may be used to pay medical expenses, but 
distributions for medical expenses are includible in gross income to 
the same extent as other IRA distributions.
---------------------------------------------------------------------------
    Qualified medical expenses generally are defined as under 
section 213(d) and include expenses for diagnosis, cure, 
mitigation, treatment, or prevention of disease, including 
prescription drugs; transportation primarily for and essential 
to such care, and qualified long-term care expenses. Qualified 
medical expenses do not include expenses for insurance other 
than for (1) long-term care insurance, (2) premiums for health 
coverage during any period of continuation coverage required by 
Federal law, (3) premiums for health care coverage while an 
individual is receiving unemployment compensation under Federal 
or State law, and (4) premiums for individuals who have 
attained the age of Medicare eligibility, other than premiums 
for Medigap policies.
    A high deductible health plan is a health plan that has a 
deductible that is at least $1,100 for self only coverage or 
$2,200 for family coverage (for 2008) and that has an out-of-
pocket expense limit that is no more than $5,600 in the case of 
self-only coverage and $11,200 in the case of family coverage 
(for 2008).\60\
---------------------------------------------------------------------------
    \60\ These amounts are indexed for inflation.
---------------------------------------------------------------------------
    For 2008 the maximum aggregate annual contribution that can 
be made to an HSA is $2,900 in the case of self-only coverage 
and $5,800 in the case of family coverage.\61\ The annual 
contribution limits are increased for individuals who have 
attained age 55 by the end of the taxable year (referred to as 
``catch up contributions''). In the case of policyholders and 
covered spouses who are age 55 or older, the HSA annual 
contribution limit is greater than the otherwise applicable 
limit by $900 in 2008, and $1,000 in 2009 and thereafter. 
Contributions, including catch-up contributions, cannot be made 
once an individual is enrolled in Medicare.
---------------------------------------------------------------------------
    \61\ These amounts are the same as the maximum deductible amounts 
permitted under a high deductible plan for purposes of Archer medical 
savings accounts (``MSAs'') and are indexed for inflation. In the case 
of individuals who are married to each other, if either spouse has 
family coverage, both spouses are treated as only having the family 
coverage with the lowest deductible and the contribution limit is 
divided equally between them unless they agree on a different division. 
Limitations based on the amount of the deductible under the high 
deductible plan applied to years beginning before January 1, 2007.
---------------------------------------------------------------------------

Health flexible spending arrangements

    Health flexible spending arrangements (``FSAs'') are 
commonly used by employers to reimburse medical expenses of 
their employees (and their spouses and dependents). Health FSAs 
typically are funded on a salary reduction basis, meaning that 
employees are given the option to reduce current compensation 
and instead have the compensation used to reimburse the 
employee for medical expenses. If the health FSA meets certain 
requirements, the compensation that is forgone is not 
includible in gross income or wages for employment tax purposes 
and reimbursements for medical care from the health FSA are 
excludable from gross income and wages. Health FSAs are subject 
to the requirements relating to cafeteria plans generally, 
including a requirement that a cafeteria plan generally may not 
provide deferred compensation.\62\ This requirement is often 
referred to as, the ``use-it-or-lose-it-rule.'' \63\ Health 
FSAs are subject to certain other requirements, including rules 
that require that the FSA have certain characteristics similar 
to insurance. In addition, health FSAs are also subject to 
certain requirements relating to substantiation of 
expenses.\64\
---------------------------------------------------------------------------
    \62\ Sec. 125(4)(2).
    \63\ This requirement has been interpreted to mean that amounts 
remaining in a health FSA as of the end of a plan year must be 
forfeited by the employee. However, Treasury guidance allows a grace 
period not to exceed two and one-half months immediately following the 
end of the plan year during which unused amounts may be used. Notice 
2005-42, 2005-23 I.RB.1204. Prop. Treas. Reg. sec. 1.125-1.
    \64\ See Prop. Treas. Reg. sec. 1.125-6. See also, Notice 2002-45, 
2002-2 C.B. 93, Rev. Rul. 2003-43, 2003-1 C.B. 935; Notice 2006-69, 
2006.2 C.B. 107; and Notice 2007-2, 2007-1 C.B. 254.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to require 
trustee reporting of health savings account distributions that 
are used for nonqualified purposes. Under present law, the 
determination of whether an expense is a nonqualified medical 
expense, reported on an income tax return, and subject to tax 
and penalty, is made by the individual taxpayer. The Committee 
is aware of the effectiveness of third party reporting in 
improving compliance and addressing the $345 billion tax gap. A 
requirement for individuals to substantiate medical expenses to 
the HSA trustee (or its designee) would ensure that, in the 
case of a withdrawal for a nonqualitled medical expense, the 
appropriate amount is included in gross income and the 
additional tax is imposed. A delayed effective date is provided 
to allow the development of systems and procedures to properly 
substantiate expenses efficiently. The Committee does not 
intend for employers to be subject to any additional burdens or 
obligations in respect of HSAs of employees unless such 
employers are trustees of these accounts. The Committee intends 
for the favorable substantiation rules applicable to FSAs (such 
as ``real-time substantiation'') to apply to reduce the 
substantiation requirements on individuals. The Committee does 
not intend that substantiation must be made in advance of 
distributions from HSAs.

                        EXPLANATION OF PROVISION

    The provision provides that in the case of a health savings 
account distribution, in order to be a qualified medical 
expense, the amount must be substantiated in a manner similar 
to that required for health flexible spending arrangements. It 
is intended that substantiation is required by the individual 
to the trustee (or to a party--designated by the trustee). As 
under present law, distributions from a HSA would be allowed 
for any purpose. Substantiated expenses would be excludable 
from income. Expenses not substantiated would be includible in 
income and subject to the 10 percent additional tax. Under the 
provision, not later than January 15 of each calendar year, the 
HSA trustee is required to report to the account beneficiary 
and to the Secretary, the name, address and identifying number 
of the account beneficiary and the amount paid or distributed 
out of the HSA for the preceding year not substantiated.

                             EFFECTIVE DATE

    The provision is effective with respect to amounts paid or 
distributions made out of a health savings account after 
December 31, 2010.

Q. Certain Domestically Controlled Foreign Persons Performing Services 
   Under Contract With United States Government Treated as American 
       Employers (Sec. 18 of the Bill and Sec. 3121 of the Code)


                              PRESENT LAW

In general

    Under the Federal Insurance Contributions Act (``FICA''), 
separate taxes are imposed on every employer and employee with 
respect to wages paid to such employer's employees.\65\ These 
two taxes are commonly referred to as the employer's and the 
employee's share of FICA. The employee's share of FICA is 
collected by means of payroll withholding by the employee's 
employer.
---------------------------------------------------------------------------
    \65\ Secs. 3101-3128 (FICA). Sections 3501-3510 provide additional 
rules.
---------------------------------------------------------------------------
    For both the employer and the employee's share of FICA, the 
tax consists of two parts: (1) old age, survivor, and 
disability insurance (``OASDI''), which correlates to the 
Social Security program that provides monthly benefits after 
retirement, disability, or death; and (2) Medicare hospital 
insurance (``HI''). The OASDI tax rate is 6.2 percent on both 
the employee and employer (for a total rate of 12.4 percent). 
The OASDI tax rate applies to wages up to the OASDI wage base 
($102,000 for 2008). The HI tax rate is 1.45 percent on both 
the employee and the employer (for a total rate of 2.9 
percent). Unlike the OASDI tax, the HI tax is not limited to a 
specific amount of wages, but applies to all wages.
    For purposes of the employer's and employee's share of 
FICA, wages generally means all remuneration for employment 
including the cash value of all remuneration paid in a medium 
other than cash. However, the general definition of wages is 
subject to a number of special rules and exceptions.\66\
---------------------------------------------------------------------------
    \66\ Sec. 3121(a).
---------------------------------------------------------------------------
    Employment for FICA purposes generally means any service of 
whatever nature performed by an employee for the employer 
(irrespective of the citizenship or residence of either) within 
the United States. In the case of service outside the United 
States, employment also includes service performed by a United 
States citizen or resident as an employee for an American 
employer. As in the case of the definition of wages, the 
definition of employment is also subject to a number of 
exceptions and special rules.\67\ An American employer is 
defined as an employer which is: (1) the United States or any 
instrumentality thereof; (2) an individual who is a resident of 
the United States; (3) a partnership, if at least two-thirds of 
the partners are United States residents; (4) a trust, if all 
of the trustees are United States residents; or (5) a 
corporation organized under the laws of the United States or 
any of the States.\68\
---------------------------------------------------------------------------
    \67\ Sec. 3121(b). For example, employment for FICA purposes 
includes certain service with respect to American vessels or aircrafts 
and also includes service that is designated as employment under an 
agreement entered into under section 233 of the Social Security Act.
    \68\ Sec. 3121(h).
---------------------------------------------------------------------------

Section 3121(l) agreements

    An American employer may enter into a voluntary agreement 
with the Secretary of the `` Treasury to extend coverage of the 
insurance system of Title II of the Social Security Act to 
service performed outside the United States in the case of 
certain employees. Specifically, such an agreement may be 
entered into with respect to employees of a foreign affiliate 
of the American employer who are United States citizens or 
residents.\69\ Such an agreement is commonly referred to as a 
``section 3121(l) agreement'', and is entered into by 
completing Internal Revenue Service Form 2032. A foreign 
affiliate for purposes of the section 3121(l) agreement is any 
foreign entity in which the American employer has at least a 
10-percent interest.\70\
---------------------------------------------------------------------------
    \69\ Sec. 3121(l).
    \70\ Sec. 3121(l)(6).
---------------------------------------------------------------------------
    If a section 3121(l) agreement is entered into, the 
American employer agrees to pay the Secretary of the Treasury 
amounts equivalent to the employer and employee's share of FICA 
(including amounts equivalent to interest, additional taxes, 
and penalties which would be applicable) with respect to the 
remuneration which would be wages if the services covered by 
the agreement constituted employment for purposes of FICA. In 
addition, the American employer agrees to comply with such 
regulations relating to payments and reports as the Secretary 
of the Treasury may prescribe.\71\ A section 3121(l) agreement 
may not be terminated with respect to a foreign affiliate after 
June 15, 1989.\72\
---------------------------------------------------------------------------
    \71\ Sec. 3121(l)(1).
    \72\ Sec. 3121(l)(3).
---------------------------------------------------------------------------
    In the case of a domestic corporation, a deduction is 
allowed for amounts paid or incurred pursuant to a section 
3121(l) agreement with respect to services performed by United 
States citizens employed by foreign subsidiary 
corporations.\73\ Any reimbursement of any amount previously 
allowed as a deduction is included in gross income in the year 
received.
---------------------------------------------------------------------------
    \73\ Sec. 176.
---------------------------------------------------------------------------

Totalization agreements

    Under section 233 of the Social Security Act, the President 
of the United States is authorized to enter into agreements 
establishing totalization arrangements between the social 
security system of the United States and the social security 
system of a foreign country (referred to as a ``totalization 
agreement'').\74\ The purposes of a totalization agreement are 
(1) to establish entitlement to and the amount of old-age, 
survivors, disability, or derivative benefits based on a 
combination of an individual's periods of coverage under the 
United States social security system and the social security 
system of a foreign country, and (2) to prevent imposition of 
employment taxes by two countries on the same wages.
---------------------------------------------------------------------------
    \74\ 42 U.S.C. sec. 433.
---------------------------------------------------------------------------
    For purposes of FICA, during any period in which a 
totalization agreement is in effect, wages paid to an 
individual are exempt from the employer's and employee's share 
of FICA to the extent such wages are subject under the 
agreement exclusively to the laws applicable to the foreign 
country's social security system.\75\
---------------------------------------------------------------------------
    \75\ Secs. 3101(c) and 3111(c).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is aware that certain U.S. companies that 
contract with the United States government for the performance 
of services abroad are using controlled foreign entities as the 
employers of U.S. citizens and residents performing services 
under the contracts. This structure is undertaken, in part, to 
avoid liability for the employer and employee's share of FICA 
and other employment taxes. The Committee believes that these 
structures are abusive. The Committee believes that services 
performed under a contract with the U.S. government should be 
counted toward eligibility for U.S. Social Security benefits 
regardless of whether the services are performed for a U.S. 
company or for a foreign entity controlled by that company.

                        EXPLANATION OF PROVISION

    Under the provision, a foreign person is treated as an 
American employer with respect to certain employees for 
purposes of determining whether their employment is subject to 
the employer's and employee's share of FICA. Specifically, a 
foreign person is treated as an American employer with respect 
to an employee of the foreign person who is performing services 
in connection with a contract between the United States 
government (or any instrumentality thereof) and any member of 
any domestically controlled group of entities which includes 
such foreign person. Thus, under the provision, service 
performed as an employee for such an employer outside of the 
United States by a United States citizen or resident in 
connection with such a contract is employment that is subject 
to FICA. A domestically controlled group of entities is a 
controlled group of entities the common parent of which is a 
domestic corporation. For this purpose, a controlled group of 
entities is as defined in section 1563(a)(l) except that the 
ownership threshold is 50 percent rather than 80 percent and 
certain other changes are made, including that certain 
partnerships may be considered members of a controlled group. 
The sections 3101(c) and 3111(c) exceptions for wages not 
subject to FICA as a result of a totalization agreement apply 
under the provision. Also, this provision does not apply to any 
services covered by an agreement under section 3121(l).
    The provision provides that the common parent of the 
domestically controlled group of entities is jointly and 
severally liable for the FICA taxes for which the foreign 
person is liable as a result of the provision. In addition; the 
common parent is liable for any penalty imposed on the foreign 
person with respect to any failure to pay the FICA taxes or any 
failure to file any return or statement with respect to such 
tax or wages subject to such tax. No deduction is allowed for 
any liability imposed on the common parent as a result of these 
joint and several liability rules.

                             EFFECTIVE DATE

    The provision is effective for services performed after the 
date of enactment of the provision.

 R. Modifications to Corporate Estimated Tax Payments (Sec. 19 of the 
                                 Bill)


                              PRESENT LAW

In general

    In general, corporations are required to make-quarterly 
estimated tax payments of their income tax liability. For a 
corporation whose taxable year is a calendar year, these 
estimated tax payments must be made by April 15, June 15, 
September 15, and December 15.

Tax Increase Prevention and Reconciliation Act of 2005 (``TIPRA'')

    TIPRA provided the following special rules:
    In case of a corporation with assets of at least $1 
billion, the payments due in July, August, and September, 2012, 
shall be increased to 106.25 percent of the payment otherwise 
due and the next required payment shall be reduced accordingly.
    In case of a corporation with assets of at least $1 
billion, the payments due in July, August, and September, 2013, 
shall be increased to 100.75 percent of the payment otherwise 
due and the next required payment shall be reduced accordingly.

Subsequent legislation

    Several public laws have been enacted since TIPRA which 
further increase the percentage of payments due under each of 
the two special rules enacted by TIPRA described above.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to adjust the 
corporate estimated tax payments.

                        EXPLANATION OF PROVISION

    Under the provision, in the case of a corporation with 
assets of at least $1 billion, the payments due in July, 
August, and September, 2013, the otherwise applicable payment 
is increased by 0.25 percent of the payment otherwise due and 
the next required payment shall be reduced accordingly.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 5719, the ``Taxpayer Assistance and 
Simplification Act of 2008''.

                    MOTION TO REPORT RECOMMENDATIONS

    The Chairman's Amendment in the Nature of a Substitute, as 
amended, was ordered favorably reported by a rollcall vote of 
23 yeas and 17 nays (with a quorum being present). The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
         Representatives              Yea      Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.......................        X                      Mr. McCrery........                 X
Mr. Stark........................        X                      Mr. Herger.........                 X
Mr. Levin........................        X                      Mr. Camp...........                 X
Mr. McDermott....................        X                      Mr. Ramstad........                 X
Mr. Lewis (GA)...................        X                      Mr. Johnson........                 X
Mr. Neal.........................        X                      Mr. English........                 X
Mr. McNulty......................        X                      Mr. Weller.........                 X
Mr. Tanner.......................        X                      Mr. Hulshof........                 X
Mr. Becerra......................        X                      Mr. Lewis (KY).....                 X
Mr. Doggett......................        X                      Mr. Brady..........                 X
Mr. Pomeroy......................        X                      Mr. Reynolds.......                 X
Ms. Tubbs Jones..................        X                      Mr. Ryan...........                 X
Mr. Thompson.....................        X                      Mr. Cantor.........                 X
Mr. Larson.......................                               Mr. Linder.........                 X
Mr. Emanuel......................        X                      Mr. Nunes..........                 X
Mr. Blumenauer...................        X                      Mr. Tiberi.........                 X
Mr. Kind.........................        X                      Mr. Porter.........                 X
Mr. Pascrell.....................        X
Ms. Berkley......................        X
Mr. Crowley......................        X
Mr. Van Hollen...................        X
Mr. Meek.........................        X
Ms. Schwartz.....................        X
Mr. Davis........................        X
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A roll-call vote was conducted on the following amendments 
to the Chairman's Amendment in the Nature of a Substitute.
    An amendment by Mr. Herger which would replace Section 4 of 
the Taxpayer Assistance and Simplification Act of 2008, dealing 
with the application of the 3 percent withholding requirement 
on payments to government contractors, was defeated by a vote 
of 17 yeas and 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representatives             Yea       Nay     Present    Representative       Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel......................                  X             Mr. McCrery.......        X
Mr. Stark.......................                  X             Mr. Herger........        X
Mr. Levin.......................                  X             Mr. Camp..........        X
Mr. McDermott...................                  X             Mr. Ramstad.......        X
Mr. Lewis (GA)..................                  X             Mr. Johnson.......        X
Mr. Neal........................                  X             Mr. English.......        X
Mr. McNulty.....................                  X             Mr. Weller........        X
Mr. Tanner......................        X                       Mr. Hulshof.......        X
Mr. Becerra.....................                  X             Mr. Lewis (KY)....        X
Mr. Doggett.....................                  X             Mr. Brady.........        X
Mr. Pomeroy.....................                  X             Mr. Reynolds......        X
Ms. Tubbs Jones.................                  X             Mr. Ryan..........        X
Mr. Thompson....................                  X             Mr. Cantor........        X
Mr. Larson......................                                Mr. Linder........        X
Mr. Emanuel.....................                  X             Mr. Nunes.........        X
Mr. Blumenauer..................                  X             Mr. Tiberi........        X
Mr. Kind........................                  X             Mr. Porter........        X
Mr. Pascrell....................                  X
Ms. Berkley.....................                  X
Mr. Crowley.....................                  X
Mr. Van Hollen..................                  X
Mr. Meek........................                  X
Ms. Schwartz....................                  X
Mr. Davis.......................                  X
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Brady and Mr. Reynolds which would 
strike Section 14 of the Taxpayer Assistance and Simplification 
Act of 2008 (H.R. 5719) to retain the statutory authority that 
allows the IRS to enter into qualified collection contracts 
with private collection agencies (PCS). These PCA(s) would 
locate and contact taxpayers with outstanding tax liabilities, 
as well as arrange for payment of those outstanding taxes to 
the IRS by the taxpayer. The amendment was defeated by a vote 
of 18 yeas and 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representatives             Yea       Nay     Present    Representative       Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel......................                  X             Mr. McCrery.......        X
Mr. Stark.......................                  X             Mr. Herger........        X
Mr. Levin.......................                  X             Mr. Camp..........        X
Mr. McDermott...................                  X             Mr. Ramstad.......        X
Mr. Lewis (GA)..................                  X             Mr. Johnson.......        X
Mr. Neal........................                  X             Mr. English.......        X
Mr. McNulty.....................                  X             Mr. Weller........        X
Mr. Tanner......................        X                       Mr. Hulshof.......        X
Mr. Becerra.....................                  X             Mr. Lewis (KY)....        X
Mr. Doggett.....................                  X             Mr. Brady.........        X
Mr. Pomeroy.....................                  X             Mr. Reynolds......        X
Ms. Tubbs Jones.................                  X             Mr. Ryan..........        X
Mr. Thompson....................                  X             Mr. Cantor........        X
Mr. Larson......................                                Mr. Linder........        X
Mr. Emanuel.....................                  X             Mr. Nunes.........        X
Mr. Blumenauer..................                  X             Mr. Tiberi........        X
Mr. Kind........................                  X             Mr. Porter........        X
Mr. Pascrell....................                  X
Ms. Berkley.....................                  X
Mr. Crowley.....................                  X
Mr. Van Hollen..................                  X
Mr. Meek........................                  X
Ms. Schwartz....................                  X
Mr. Davis.......................                  X
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Ryan would strike Section 17 of the 
Manager's Amendment, requiring Health Savings Account holders 
to report on the distributions from these accounts was defeated 
by a roll call vote of 16 yeas and 24 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
         Representatives            Yea       Nay     Present     Representative       Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel......................                 X             Mr. McCrery........        X
Mr. Stark.......................                 X              Mr. Herger........        X
Mr. Levin.......................                 X              Mr. Camp..........        X
Mr. McDermott...................                 X              Mr. Ramstad.......        X
Mr. Lewis (GA)..................                 X              Mr. Johnson.......        X
Mr. Neal........................                 X              Mr. English.......        X
Mr. McNulty.....................                 X              Mr. Weller........        X
Mr. Tanner......................                 X              Mr. Hulshof.......        X
Mr. BeCerra.....................                 X              Mr. Lewis (KY)....        X
Mr. Doggett.....................                 X              Mr. Brady.........        X
Mr. Pomeroy.....................                 X              Mr. Reynolds......        X
Ms. Tubbs Jones.................                 X              Mr. Ryan..........        X
Mr. Thompson....................                 X              Mr. Cantor........        X
Mr. Larson......................                                Mr. Linder........        X
Mr. Emanuel.....................                 X              Mr. Nunes.........        X
Mr. Blumenauer..................                 X              Mr. Tiberi........        X
Mr. Kind........................                 X              Mr. Porter........                  X
Mr. Pascrell....................                 X
Ms. Berkley.....................                 X
Mr. Crowley.....................                 X
Mr. Van Hollen..................                 X
Mr. Meek........................                 X
Ms. Schwartz....................                 X
Mr. Davis.......................                 X
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


              A. Committee Estimate of Budgetary Effects 

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 5719 as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2008-2018: 


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 14, 2008.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5719, the Taxpayer 
Assistance and Simplification Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Zachary 
Epstein.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter R. Orszag, Director).
    Enclosure.

H.R. 5719--Taxpayer Assistance and Simplification Act of 2008

    Summary: H.R. 5719 would make several changes to tax law. 
The bill would reduce revenues by modifying standards placed on 
preparers of tax returns, by loosening the restrictions on 
deducting cellular phone costs as a business expense, by 
delaying the withholding of taxes on payments for certain 
government contracts, and by repealing the Internal Revenue 
Service's (IRS's) authority to hire private debt collectors. 
H.R. 5719 would raise revenues by requiring additional 
information from preparers of tax returns regarding the use of 
health savings accounts (HSAs) and subjecting the wages of 
certain employees working under U.S. government contracts to 
payroll taxes. The bill also would shift some corporate 
receipts from 2014 into 2013.
    The Joint Committee on Taxation (JCT) and the Congressional 
Budget Office (CBO) estimate that enacting H.R. 5719 would 
increase revenues by $41 million and reduce direct spending by 
$247 million over the 2008-2018 period.
    JCT reviewed the tax provisions of the bill and determined 
that they contain no private-sector or intergovernmental 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
CBO has reviewed the nontax provisions of H.R. 5719 and 
determined that they contain no intergovernmental mandates as 
defined in UMRA.
    CBO has determined that the nontax provisions contain a 
private-sector mandate as defined is UMRA. The bill would 
prohibit anyone from using words, abbreviations, titles, or 
letters associated with the Department of the Treasury (or one 
of its bureaus, offices, or subdivisions) as a part of an 
Internet domain address in a manner that could be reasonably 
interpreted as conveying the false impression that the domain 
address is connected to or authorized by the department. Based 
on information from industry sources, CBO expects the total 
direct cost of the mandate would fall below the annual 
threshold established by UMRA ($136 million in 2008, adjusted 
annually for inflation) in the first five years the mandate is 
in effect.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 5719 is shown in the following table. 
The costs of this legislation fall within budget functions 800 
(general government) and 650 (Social Security).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in millions of dollars--
                                         ---------------------------------------------------------------------------------------------------------------
                                           2008   2009    2010     2011     2012    2013     2014    2015    2016    2017    2018   2008-2013  2008-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Standards for Tax Return Preparers......      0      -1      -1        -2      -2      -2       -2      -2      -3      -3      -3        -9        -22
Expensing of Cellular Phone Use.........      0      -3      -8       -13     -18     -22      -26     -30     -34     -39     -44       -63       -237
Delay in Implementing Government              0       0       0    -6,313   5,998       0        0       0       0       0       0      -316       -316
 Withholding............................
Repeal of Private Debt Collection             0     -26     -54       -59     -59     -59      -59     -59     -59     -59     -59      -257       -552
 Contracting Authority..................
Substantiation of HSA Distributions.....      0       0       0        61      59      31       25      28      31      33      39       151        308
Employment Taxes on Wages Paid Under         14      81      80        81      83      84       85      86      88      89      90       422        860
 Certain Government Contracts...........
Corporate Estimated Tax Payment Due in        0       0       0         0       0     147     -147       0       0       0       0       147          0
 2013...................................
                                         ---------------------------------------------------------------------------------------------------------------
Total Change in Revenues................     14      51      17    -6,245   6,061     179     -124      23      23      21      23        75         41
    On-Budget Revenues..................     -1     -37     -70    -6,333   5,972      88     -216     -71     -72     -75     -75      -383       -891
    Off-Budget Revenues.................     15      88      87        88      89      91       92      94      95      96      98       458        932

                                                        CHANGES IN DIRECT SPENDING (OUTLAYS) \2\

Wages Paid Under Certain Government           *       *       *         *       1       1        1       2       2       3       4         2         14
 Contracts \1\..........................
Private Debt Collection Authority.......      0     -12     -25       -28     -28     -28      -28     -28     -28     -28     -28      -121       -261
                                         ---------------------------------------------------------------------------------------------------------------
Total Changes in Direct Spending........      *     -12     -25       -28     -27     -27      -27     -26     -26     -25     -24      -119       -247
    On-Budget Spending..................      0     -12     -25       -28     -28     -28      -28     -28     -28     -28     -28      -121       -261
    Off-Budget Spending.................      *       *       *         *       1       1        1       2       2       3       4         2         14

                                NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING

Net Change in the Deficit or Surplus \3\     14      63      42    -6,217   6,088     206      -97      49      49      46      47       194        288
    On-Budget...........................     -1     -25     -45    -6,305   6,000     116     -188     -43     -44     -47     -47      -262       -630
    Off-Budget..........................     15      88      87        88      88      90       91      92      93      93      94       456        918

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Low-Income Taxpayer Clinics:
    Estimated Authorization Level.......      0       4       4         4       4       4        4       4       4       4       4        20         40
    Estimated Outlays...................      0       4       4         4       4       4        4       4       4       4       4        20         40
Other Provisions:
    Estimated Authorization Level.......      0       3       2         2       2       2        2       2       2       2       2        11         21
    Estimated Outlays...................      0       3       2         2       2       2        2       2       2       2       2        11         21
Total Changes:
    Estimated Authorization Level.......      0       7       6         6       6       6        6       6       6       6       6        31         61
    Estimated Outlays...................      0       7       6         6       6       6        6       6       6       6       6        31         61
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A portion of the estimated effects on revenues, and all of the estimated effects on direct spending, are off-budget.
\2\ Changes in direct spending budget authority would be identical ot the changes in outlays for each year.
\3\ Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in
  surpluses).

Sources: Congressional Budget Office and Joint Committee on Taxation.
Notes: HSA = health savings account; * = less than $500,000.

    Basis of the estimate: JCT estimated the effects of H.R. 
5719 on revenues, and CBO estimated the effects on direct 
spending.

Revenues

    H.R. 5719 would affect revenues through a number of changes 
to tax law, some of which, JCT estimates, would have a 
negligible effect on revenues. Those provisions with measurable 
effects are described below.
    Standards for Preparers of Tax Returns. Under current law, 
a preparer of tax returns can be subject to a penalty for 
understating an income tax liability if the justification for 
the tax position does not meet a certain standard. H.R. 5719 
would reduce the standards that such preparers must meet when 
not providing justification for a tax position. JCT estimates 
that this provision would decrease revenues by $22 million over 
the 2009-2018 period.
    Expensing of Cellular Phone Use. Taxpayers can deduct 
business expenses associated with the use of cellular 
telephones only if they substantiate the use with detailed 
information, including the date and amount of each use in a tax 
year. Under the bill, the use of cellular telephones would not 
be subject to such information requirements. JCT estimates that 
this provision would decrease revenues by $237 million over the 
2009-2018 period.
    Delay on Implementation of Government Withholding. After 
December 31, 2010, federal, state, and local government 
entities making payments to persons providing goods and 
services will be required to withhold for income tax purposes 3 
percent of those payments. Under H.R. 5719, that witholding 
would begin after December 31, 2011. JCT estimates that this 
provision would decrease revenues in 2011 and increase them in 
2012, with a net reduction in revenues of $316 million over the 
2011-2012 period.
    Repeal of IRS's Authority to Contract with Private Debt 
Collectors. The bill would repeal the IRS's authority to enter 
into qualified tax collection contracts with private collection 
firms to collect delinquent tax liabilities. Any existing 
contracts entered into after February 29, 2008, would be void, 
as would any extensions or renewals occurring after such date. 
JCT estimates that this change would reduce revenues by $552 
million over the 2009-2018 period. The provision also would 
affect direct spending (see ``Direct Spending'' section).
    Substantiation of USA Distributions. Individuals who 
maintain a health savings account must determine whether money 
disbursed from the account and used to pay for a medical 
expense should be included in their taxable income. Under the 
bill, such persons would need to provide additional 
substantiation that an HSA distribution qualifies as excludable 
from taxable income. The additional requirements would apply to 
amounts disbursed after December 31, 2010. JCT estimates that 
this provision would increase revenues by $308 million over the 
2011-2018 period.
    Employment Taxes on Wages Paid Under Certain Government 
Contracts. For the purposes of determining one's employment tax 
liability, H.R. 5719 would extend the definition of a U.S. 
employer to include foreign subsidiaries of U.S. parent 
companies that employ a U.S. citizen working in connection with 
a U.S. government contract. The controlling parent entity and 
the employee of the foreign subsidiary would be liable for 
employment taxes. JCT estimates that this change would increase 
revenues by $860 million over the 2008-2018 period. Off-budget 
revenues would increase by an estimated $932 million, and on-
budget revenues would decrease by an estimated $72 million over 
that period. The provision also would affect direct spending 
(see ``Direct Spending'' section).
    Shifts in Corporate Estimated Payments. H.R. 5719 would 
shift revenues between 2013 and 2014. For corporations with at 
least $1 billion in assets, the bill would increase the portion 
of corporate estimated tax payments due in July through 
September of 2013. JCT estimates that this change would 
increase revenues by $147 million in 2013 and decrease revenues 
by $147 million in 2014.

Direct spending

    Prohibition on the Use of Treasury Names and Symbols. The 
bill would establish a new federal crime for the misuse of 
Treasury names and symbols on the Internet. The bill also would 
apply and increase civil and criminal penalties (that are 
already levied on misuse of Treasury names in other mediums) to 
such Internet misuse. Enacting the provision could increase 
federal revenues and direct spending as a result of the 
collection of additional civil and criminal penalties. 
(Collections of civil penalties are recorded in the budget as 
revenues, deposited in the Crime Victims Fund, and later spent 
without further appropriation.) CBO estimates, however, that 
any additional revenues and direct spending that would result 
from enacting the bill would not be significant because of the 
relatively small number of cases likely to be involved.
    Repeal of IRS's Authority to Contract with Private Debt 
Collectors. As discussed above in the ``Revenues'' section, the 
bill, would repeal the authority for the IRS to enter into any 
new or extended contracts for private debt collection. Under 
current law, the IRS enters into contracts with private 
collection firms to collect delinquent tax liabilities owed to 
the federal government. Under those contracts, the IRS may 
allow those firms to retain up to 25 percent of the amounts 
they collect. Another 25 percent of amounts collected is 
available to IRS to spend on collection enforcement activities. 
Based on information from the IRS, CBO estimates that 47 
percent of the amounts collected are retained by either the IRS 
or the private collection firms. Thus, CBO estimates that 
repealing the private debt collection authority and allowing 
the current contracts to expire would reduce direct spending by 
$261 million over the 2009-2018 period.
    Employment Taxes on Wages Paid Under Certain Government 
Contracts. As discussed above, the bill would require certain 
U.S. parent companies with foreign subsidiaries to pay 
employment taxes on behalf of some employees. Those employees 
also would be liable for their share of employment taxes. 
Because Social Security benefits are calculated by a formula 
that is based on lifetime earnings subject to employment taxes, 
increasing the amount of earnings counted in the benefit 
formula would increase Social Security benefits. CBO estimates 
that enacting the provision would increase direct spending for 
Social Security benefits by less than $500,000 in 2008 and by 
$14 million over the 2009-2018 period.

Spending subject to appropriation

    Clinics for Low-Income Taxpayers. Under current law, the 
Secretary of the Treasury is authorized to provide up to $6 
million per year to clinics for low-income taxpayers. The bill 
would increase this authorization to $10 million per year and 
allow volunteers who provide income tax assistance to receive 
grants. Assuming appropriation of the specified amounts 
beginning in 2009, CBO estimates that implementing this 
provision would cost $40 million over the 2009-2018 period.
    Other Provisions. H.R. 5719 would require the IRS to notify 
any taxpayer when the agency determines that the taxpayer has 
been a victim of identity theft and when any criminal charges 
have been filed. The bill also would require, to the extent 
possible, that the IRS annually provide written notice to 
taxpayers who may qualify for an earned income tax credit or 
refund. In addition, H.R. 5719 would require a report by the 
Treasury on the feasibility to delivering tax refunds through 
electronic means to individuals who do not have a bank account. 
Based on information from IRS, and assuming the appropriation 
of the necessary amounts, CBO estimates that implementing those 
provisions would cost $3 million in 2009 and $2 million in each 
subsequent year.
    Intergovernmental and private-sector impact: JCT reviewed 
the tax provisions of the bill and determined that they contain 
no private-sector or intergovernmental mandates as defined in 
UMRA. CBO has reviewed the nontax provisions and determined 
that they contain no intergovernmental mandates as defined in 
UMRA.
    CBO has determined that the nontax provisions of H.R. 5719 
contain a private-sector mandate as defined in UMRA. The bill 
would prohibit anyone from using words, abbreviations, titles, 
or letters associated with the Department of the Treasury (or 
one of its bureaus, offices, or subdivisions) as a part of an 
Internet domain address in a manner that could be reasonably 
interpreted as conveying the false impression that the domain 
address is connected to or authorized by the department.
    The costs of the mandate would be the expenditures incurred 
to bring such an Internet domain address into compliance, added 
to any loss of net income associated with those changes. 
Current law already prohibits the use of words or symbols 
related to the Department of the Treasury in connection with 
advertisements, solicitations, or other business activities in 
such a manner. Based on information from industry sources, CBO 
expects the total direct cost of the mandate would fall below 
the annual threshold established by UMRA ($136 million in 2008, 
adjusted annually for inflation).
    Estimate prepared by: Federal Revenues: Zachary Epstein; 
Federal Spending: Matthew Pickford and Sheila Dacey; Impact on 
State, Local, and Tribal Governments: Elizabeth Cove; and 
Impact on the Private Sector: Jacob Kuipers.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis and Peter H. Fontaine, Assistant 
Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it is appropriate and timely to 
enact the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of rule XIII of the Rules of 
the House of Representatives (relating to Constitutional 
Authority), the Committee states that the Committee's action in 
reporting this bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have Power To lay 
and collect Taxes, Duties, Imposts and Excises''), and from the 
16th Amendment to the Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill contain no Federal private sector mandates or Federal 
intergovernmental mandates on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Clause 5 of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses:
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                        G. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that rule.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart C--Refundable Credits

           *       *       *       *       *       *       *



SEC. 32. EARNED INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (n) Notification of Potential Eligibility for Credit and 
Refund.--
          (1) In general.--To the extent possible and on an 
        annual basis, the Secretary shall provide to each 
        taxpayer who--
                  (A) for any preceding taxable year for which 
                credit or refund is not precluded by section 
                6511, and
                  (B) did not claim the credit under subsection 
                (a) but may be allowed such credit for any such 
                taxable year based on return or return 
                information (as defined in section 6103(b)) 
                available to the Secretary,
        notice that such taxpayer may be eligible to claim such 
        credit and a refund for such taxable year.
          (2) Notice.--Notice provided under paragraph (1) 
        shall be in writing and sent to the last known address 
        of the taxpayer.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 223. HEALTH SAVINGS ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Tax Treatment of Distributions.--
          (1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a health savings 
        account which is used exclusively to pay qualified 
        medical expenses of any account beneficiary (and, in 
        the case of amounts paid or distributed after December 
        31, 2010, substantiated in a manner similar to the 
        substantiation required for flexible spending 
        arrangements) shall not be includible in gross income.

           *       *       *       *       *       *       *

  [(h) Reports.--The Secretary may require--]
  (h) Reports.--
          (1) In general.--The Secretary may require--
                  [(1)] (A) the trustee of a health savings 
                account to make such reports regarding such 
                account to the Secretary and to the account 
                beneficiary with respect to contributions, 
                distributions, the return of excess 
                contributions, and such other matters as the 
                Secretary determines appropriate, and
                  [(2)] (B) any person who provides an 
                individual with a high deductible health plan 
                to make such reports to the Secretary and to 
                the account beneficiary with respect to such 
                plan as the Secretary determines appropriate.
        The reports required by this subsection shall be filed 
        at such time and in such manner and furnished to such 
        individuals at such time and in such manner as may be 
        required by the Secretary.
          (2) Relating to substantiation.--Not later than 
        January 15 of each calendar year after 2011, the 
        trustee of a health savings account shall make a report 
        regarding such account to the Secretary and the account 
        beneficiary setting forth--
                  (A) the name, address, and identifying number 
                of the account beneficiary, and
                  (B) the amount paid or distributed out of 
                such account for the preceding calendar year 
                not substantiated in accordance with subsection 
                (f)(1).

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *


SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; 
                    LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Listed property.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the term ``listed property'' 
                means--
                          (i) any passenger automobile,

           *       *       *       *       *       *       *

                          (iv) any computer or peripheral 
                        equipment (as defined in section 
                        168(i)(2)(B)), and
                          [(v) any cellular telephone (or other 
                        similar telecommunications equipment), 
                        and]
                          [(vi)] (v) any other property of a 
                        type specified by the Secretary by 
                        regulations.

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


CHAPTER 21--FEDERAL INSURANCE CONTRIBUTIONS ACT

           *       *       *       *       *       *       *


Subchapter C--General Provisions

           *       *       *       *       *       *       *


SEC. 3121. DEFINITIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (z) Treatment of Certain Foreign Persons as American 
Employers.--
          (1) In general.--If any employee of a foreign person 
        is performing services in connection with a contract 
        between the United States Government (or any 
        instrumentality thereof) and any member of any 
        domestically controlled group of entities which 
        includes such foreign person, such foreign person shall 
        be treated for purposes of this chapter as an American 
        employer with respect to such services performed by 
        such employee.
          (2) Domestically controlled group of entities.--For 
        purposes of this subsection--
                  (A) In general.--The term ``domestically 
                controlled group of entities'' means a 
                controlled group of entities the common parent 
                of which is a domestic corporation.
                  (B) Controlled group of entities.--The term 
                ``controlled group of entities'' means a 
                controlled group of corporations as defined in 
                section 1563(a)(1), except that--
                          (i) ``more than 50 percent'' shall be 
                        substituted for ``at least 80 percent'' 
                        each place it appears therein, and
                          (ii) the determination shall be made 
                        without regard to subsections (a)(4) 
                        and (b)(2) of section 1563.
                A partnership or any other entity (other than a 
                corporation) shall be treated as a member of a 
                controlled group of entities if such entity is 
                controlled (within the meaning of section 
                954(d)(3)) by members of such group (including 
                any entity treated as a member of such group by 
                reason of this sentence).
          (3) Liability of common parent.--In the case of a 
        foreign person who is a member of any domestically 
        controlled group of entities, the common parent of such 
        group shall be jointly and severally liable for any tax 
        under this chapter for which such foreign person is 
        liable by reason of this subsection, and for any 
        penalty imposed on such person by this title with 
        respect to any failure to pay such tax or to file any 
        return or statement with respect to such tax or wages 
        subject to such tax. No deduction shall be allowed 
        under this title for any liability imposed by the 
        preceding sentence.
          (4) Coordination.--Paragraph (1) shall not apply to 
        any services which are covered by an agreement under 
        subsection (l).
          (5) Cross reference.--For relief from taxes in cases 
        covered by certain international agreements, see 
        sections 3101(c) and 3111(c).

           *       *       *       *       *       *       *


      CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES

Sec. 3501. Collection and payment of taxes.
     * * * * * * *
Sec. 3511. Elderly and disabled individuals receiving in-home care under 
          certain government programs.
     * * * * * * *

SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE 
                    UNDER CERTAIN GOVERNMENT PROGRAMS.

  (a) In General.--In the case of amounts paid under a home 
care service program to a home care service provider by the 
fiscal administrator of such program--
          (1) the home care service recipient shall not be 
        liable for the payment of any taxes imposed under this 
        subtitle with respect to amounts paid for the provision 
        of services under such program, and
          (2) the fiscal administrator shall be so liable.
  (b) Definitions.--For purposes of this section--
          (1) Home care service program.--The term ``home care 
        service program'' means a State or local government 
        program--
                  (A) any portion of which is funded with 
                Federal funds, and
                  (B) under which domestic services are 
                provided to elderly or disabled individuals in 
                their homes.
        Such term shall not include any program to the extent 
        home care service recipients make payments to the home 
        care service providers for such in-home domestic 
        services.
          (2) Home care service provider.--The term ``home care 
        service provider'' means any individual who provides 
        domestic services to a home care service recipient 
        under a home care service program.
          (3) Home care service recipient.--The term ``home 
        care service recipient'' means any individual receiving 
        domestic services under a home care service program.
          (4) Fiscal administrator.--The term ``fiscal 
        administrator'' means any person or governmental entity 
        who pays amounts under a home care service program to 
        home care service providers for the provision of 
        domestic services under such program.
  (c) Returns by Fiscal Administrator.--For purposes of this 
section--
          (1) In general.--Returns relating to taxes imposed or 
        amounts required to be withheld under this subtitle 
        shall be made under the identifying number of the 
        fiscal administrator.
          (2) Identification of service recipient.--The fiscal 
        administrator shall, to the extent required under 
        regulations prescribed by the Secretary, make a return 
        setting forth--
                  (A) the name, address, and identifying number 
                of each home care service recipient for whom 
                amounts are paid by such fiscal administrator 
                under the home care services program, and
                  (B) such other information as the Secretary 
                may require.
  (d) Regulations.--The Secretary may prescribe such 
regulations or other guidance as may be necessary to carry out 
the purposes of this section, including requiring deposits of 
any tax imposed under this subtitle.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART II--TAX RETURNS OR STATEMENTS

           *       *       *       *       *       *       *


Subpart A--General Requirement

           *       *       *       *       *       *       *


SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR LIST.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Promotion of Electronic Filing.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Prohibition on irs debt indicators for predatory 
        refund anticipation loans.--
                  (A) In general.--In carrying out any program 
                under this subsection, the Secretary shall not 
                provide a debt indicator to any person with 
                respect to any refund anticipation loan if the 
                Secretary determines that the business 
                practices of such person involve refund 
                anticipation loans and related charges and fees 
                that are predatory.
                  (B) Refund anticipation loan.--For purposes 
                of this paragraph, the term ``refund 
                anticipation loan'' means a loan of money or of 
                any other thing of value to a taxpayer secured 
                by the taxpayer's anticipated receipt of a 
                Federal tax refund.
                  (C) IRS debt indicator.--For purposes of this 
                paragraph, the term ``debt indicator'' means a 
                notification provided through a tax return's 
                acknowledgment file that a refund will be 
                offset to repay debts for delinquent Federal or 
                State taxes, student loans, child support, or 
                other Federal agency debt.

           *       *       *       *       *       *       *


Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *


SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
                    INFORMATION.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Disclosure of Taxpayer Identity Information.--
          (1) Tax refunds.--The Secretary may disclose taxpayer 
        identity information to the press and other media, and 
        through any other means of mass communication, for 
        purposes of notifying persons entitled to tax refunds 
        when the Secretary, after reasonable effort and lapse 
        of time, has been unable to locate such persons.

           *       *       *       *       *       *       *


CHAPTER 64--COLLECTION

           *       *       *       *       *       *       *


Subchapter A--General Provisions

           *       *       *       *       *       *       *


Sec. 6301. Collection authority.
     * * * * * * *
[Sec. 6306. Qualified tax collection contracts.]

           *       *       *       *       *       *       *


[SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

  [(a) In General.--Nothing in any provision of law shall be 
construed to prevent the Secretary from entering into a 
qualified tax collection contract.
  [(b) Qualified Tax Collection Contract.--For purposes of this 
section, the term ``qualified tax collection contract'' means 
any contract which--
          [(1) is for the services of any person (other than an 
        officer or employee of the Treasury Department)--
                  [(A) to locate and contact any taxpayer 
                specified by the Secretary,
                  [(B) to request full payment from such 
                taxpayer of an amount of Federal tax specified 
                by the Secretary and, if such request cannot be 
                met by the taxpayer, to offer the taxpayer an 
                installment agreement providing for full 
                payment of such amount during a period not to 
                exceed 5 years, and
                  [(C) to obtain financial information 
                specified by the Secretary with respect to such 
                taxpayer,
          [(2) prohibits each person providing such services 
        under such contract from committing any act or omission 
        which employees of the Internal Revenue Service are 
        prohibited from committing in the performance of 
        similar services,
          [(3) prohibits subcontractors from--
                  [(A) having contacts with taxpayers,
                  [(B) providing quality assurance services, 
                and
                  [(C) composing debt collection notices, and
          [(4) permits subcontractors to perform other services 
        only with the approval of the Secretary.
  [(c) Fees.--The Secretary may retain and use--
          [(1) an amount not in excess of 25 percent of the 
        amount collected under any qualified tax collection 
        contract for the costs of services performed under such 
        contract, and
          [(2) an amount not in excess of 25 percent of such 
        amount collected for collection enforcement activities 
        of the Internal Revenue Service.
The Secretary shall keep adequate records regarding amounts so 
retained and used. The amount credited as paid by any taxpayer 
shall be determined without regard to this subsection.
  [(d) No Federal Liability.--The United States shall not be 
liable for any act or omission of any person performing 
services under a qualified tax collection contract.
  [(e) Application of Fair Debt Collection Practices Act.--The 
provisions of the Fair Debt Collection Practices Act (15 U.S.C. 
1692 et seq.) shall apply to any qualified tax collection 
contract, except to the extent superseded by section 6304, 
section 7602(c), or by any other provision of this title.
  [(f) Cross References.--
          [(1) For damages for certain unauthorized collection 
        actions by persons performing services under a 
        qualified tax collection contract, see section 7433A.
          [(2) For application of Taxpayer Assistance Orders to 
        persons performing services under a qualified tax 
        collection contract, see section 7811(g).]

           *       *       *       *       *       *       *


Subchapter D--Seizure of Property for Collection of Taxes

           *       *       *       *       *       *       *


PART II--LEVY

           *       *       *       *       *       *       *


SEC. 6343. AUTHORITY TO RELEASE LEVY AND RETURN PROPERTY.

  (a) * * *
  (b) Return of Property.--If the Secretary determines that 
property has been wrongfully levied upon, it shall be lawful 
for the Secretary to return--
          (1) * * *

           *       *       *       *       *       *       *

Property may be returned at any time. An amount equal to the 
amount of money levied upon or received from such sale may be 
returned at any time before the expiration of [9 months] 2 
years from the date of such levy. For purposes of paragraph 
(3), if property is declared purchased by the United States at 
a sale pursuant to section 6335(e) (relating to manner and 
conditions of sale), the United States shall be treated as 
having received an amount of money equal to the minimum price 
determined pursuant to such section or (if larger) the amount 
received by the United States from the resale of such property.

           *       *       *       *       *       *       *

  (f) Individuals Held Harmless on Wrongful Levy, etc. on 
Individual Retirement Plan.--
          (1) In general.--If the Secretary determines that an 
        individual retirement plan has been levied upon in a 
        case to which subsection (b) or (d)(2)(A) applies, an 
        amount equal to the sum of--
                  (A) the amount of money returned by the 
                Secretary on account of such levy, and
                  (B) interest paid under subsection (c) on 
                such amount of money,
        may be deposited into such individual retirement plan 
        or any other individual retirement plan (other than an 
        endowment contract) to which a rollover from the plan 
        levied upon is permitted. An amount may not be 
        deposited into a Roth IRA under the preceding sentence 
        unless the individual retirement plan levied upon was a 
        Roth IRA at the time of such levy.
          (2) Treatment as rollover.--If amounts are deposited 
        into an individual retirement plan under paragraph (1) 
        not later than the 60th day after the date on which the 
        individual receives the amounts under paragraph (1)--
                  (A) such deposit shall be treated as a 
                rollover described in section 408(d)(3)(A)(i),
                  (B) to the extent the deposit includes 
                interest paid under subsection (c), such 
                interest shall not be includible in gross 
                income, and
                  (C) such deposit shall not be taken into 
                account under section 408(d)(3)(B).
        For purposes of subparagraph (B), an amount shall be 
        treated as interest only to the extent that the amount 
        deposited exceeds the amount of the levy.
          (3) Refund, etc., of income tax on levy.--If any 
        amount is includible in gross income for a taxable year 
        by reason of a levy referred to in paragraph (1) and 
        any portion of such amount is treated as a rollover 
        under paragraph (2), any tax imposed by chapter 1 on 
        such portion shall not be assessed, and if assessed 
        shall be abated, and if collected shall be credited or 
        refunded as an overpayment made on the due date for 
        filing the return of tax for such taxable year.
          (4) Interest.--Notwithstanding subsection (d), 
        interest shall be allowed under subsection (c) in a 
        case in which the Secretary makes a determination 
        described in subsection (d)(2)(A) with respect to a 
        levy upon an individual retirement plan.

           *       *       *       *       *       *       *


CHAPTER 66--LIMITATIONS

           *       *       *       *       *       *       *


Subchapter D--Periods of Limitation in Judicial Proceedings

           *       *       *       *       *       *       *


SEC. 6532. PERIODS OF LIMITATION ON SUITS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Suits by Persons Other Than Taxpayers.--
          (1) General rule.--Except as provided by paragraph 
        (2), no suit or proceeding under section 7426 shall be 
        begun after the expiration of [9 months] 2 years from 
        the date of the levy or agreement giving rise to such 
        action.
          (2) Period when claim is filed.--If a request is made 
        for the return of property described in section 
        6343(b), the [9-month] 2-year period prescribed in 
        paragraph (1) shall be extended for a period of 12 
        months from the date of filing of such request or for a 
        period of 6 months from the date of mailing by 
        registered or certified mail by the Secretary to the 
        person making such request of a notice of disallowance 
        of the part of the request to which the action relates, 
        whichever is shorter.

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6694. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN 
                    PREPARER.

  [(a) Understatement Due to Unreasonable Positions.--
          [(1) 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--
                  [(A) $1,000, or
                  [(B) 50 percent of the income derived (or to 
                be derived) by the tax return preparer with 
                respect to the return or claim.
          [(2) Unreasonable position.--A position is described 
        in this paragraph if--
                  [(A) the tax return preparer knew (or 
                reasonably should have known) of the position,
                  [(B) there was not a reasonable belief that 
                the position would more likely than not be 
                sustained on its merits, and
                  [(C)(i) the position was not disclosed as 
                provided in section 6662(d)(2)(B)(ii), or (ii) 
                there was no reasonable basis for the position.
          [(3) 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.]
  (a) Understatement Due to Unreasonable Positions.--
          (1) In general.--If a tax return preparer--
                  (A) prepares any return or claim of refund 
                with respect to which any part of an 
                understatement of liability is due to a 
                position described in paragraph (2), and
                  (B) knew (or reasonably should have known) of 
                the position,
        such tax return preparer 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.
          (2) Unreasonable position.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, a position is described in 
                this paragraph unless there is or was 
                substantial authority for the position.
                  (B) Disclosed positions.--If the position was 
                disclosed as provided in section 
                6662(d)(2)(B)(ii)(I) and is not a position to 
                which subparagraph (C) applies, the position is 
                described in this paragraph unless there is a 
                reasonable basis for the position.
                  (C) Tax shelters and reportable 
                transactions.--If the position is with respect 
                to a tax shelter (as defined in section 
                6662(d)(2)(C)(ii)) or a reportable transaction 
                to which section 6662A applies, the position is 
                described in this paragraph unless it is 
                reasonable to believe that the position would 
                more likely than not be sustained on its 
                merits.
          (3) 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.

           *       *       *       *       *       *       *


     PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING 
REQUIREMENTS

           *       *       *       *       *       *       *


SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this part--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Specified information reporting requirement.--The 
        term ``specified information reporting requirement'' 
        means--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) any requirement contained in the 
                regulations prescribed under section 215 that a 
                person--
                          (i) * * *
                          (ii) include on his return the TIN of 
                        another person, [and]
                  (D) any requirement under section 6109(h) 
                that--
                          (i) * * *
                          (ii) a person furnish his TIN to 
                        another person[.], and
                  (E) any requirement under section 3511(c)(2).

           *       *       *       *       *       *       *


CHAPTER 76--JUDICIAL PROCEEDINGS

           *       *       *       *       *       *       *


Subchapter B--Proceedings by Taxpayers and Third Parties

           *       *       *       *       *       *       *


Sec. 7421. Prohibition of suits to restrain assessment or collection.
     * * * * * * *
[Sec. 7433A. Civil damages for certain unauthorized collection actions 
          by persons performing services under qualified tax collection 
          contracts.]

           *       *       *       *       *       *       *


[SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS 
                    BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX 
                    COLLECTION CONTRACTS.

  [(a) In General.--Subject to the modifications provided by 
subsection (b), section 7433 shall apply to the acts and 
omissions of any person performing services under a qualified 
tax collection contract (as defined in section 6306(b)) to the 
same extent and in the same manner as if such person were an 
employee of the Internal Revenue Service.
  [(b) Modifications.--For purposes of subsection (a):
          [(1) Any civil action brought under section 7433 by 
        reason of this section shall be brought against the 
        person who entered into the qualified tax collection 
        contract with the Secretary and shall not be brought 
        against the United States.
          [(2) Such person and not the United States shall be 
        liable for any damages and costs determined in such 
        civil action.
          [(3) Such civil action shall not be an exclusive 
        remedy with respect to such person.
          [(4) Subsections (c), (d)(1), and (e) of section 7433 
        shall not apply.]

           *       *       *       *       *       *       *


                  CHAPTER 77--MISCELLANEOUS PROVISIONS

Sec. 7501. Liability for taxes withheld or collected.
     * * * * * * *
Sec. 7526. Low-income taxpayer clinics.
Sec. 7526A. Volunteer income tax assistance programs.
     * * * * * * *
Sec. 7529. Notification of suspected identity theft.

           *       *       *       *       *       *       *


SEC. 7526. LOW-INCOME TAXPAYER CLINICS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Special Rules and Limitations.--
          (1) Aggregate limitation.--Unless otherwise provided 
        by specific appropriation, the Secretary shall not 
        allocate more than [$6,000,000] $10,000,000 per year 
        (exclusive of costs of administering the program) to 
        grants under this section.

           *       *       *       *       *       *       *

          (5) Requirement of matching funds.--A qualified low-
        income taxpayer clinic must provide matching funds on a 
        dollar-for-dollar basis for all grants provided under 
        this section. Matching funds may include--
                  (A) * * *

           *       *       *       *       *       *       *

          (6) Treasury employees permitted to refer taxpayers 
        to qualified low-income taxpayer clinics.--
        Notwithstanding any other provision of law, officers 
        and employees of the Department of the Treasury may 
        refer taxpayers for advice and assistance to qualified 
        low-income taxpayer clinics receiving funding under 
        this section.

           *       *       *       *       *       *       *


SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.

  (a) In General.--The Secretary may, subject to the 
availability of appropriated funds, make grants to provide 
matching funds for the development, expansion, or continuation 
of volunteer income tax assistance programs.
  (b) Volunteer Income Tax Assistance Program.--For purposes of 
this section, the term ``volunteer income tax assistance 
program'' means a program--
          (1) which does not charge taxpayers for its return 
        preparation services,
          (2) which operates programs to assist low and 
        moderate-income (as determined by the Secretary) 
        taxpayers in preparing and filing their Federal income 
        tax returns, and
          (3) in which all of the volunteers who assist in the 
        preparation of Federal income tax returns meet the 
        requirements prescribed by the Secretary.
  (c) Special Rules and Limitations.--
          (1) Aggregate limitation.--Unless otherwise provided 
        by specific appropriation, the Secretary shall not 
        allocate more than $10,000,000 per year (exclusive of 
        costs of administering the program) to grants under 
        this section.
          (2) Other applicable rules.--Rules similar to the 
        rules under paragraphs (2) through (6) of section 
        7526(c) shall apply with respect to the awarding of 
        grants to volunteer income tax assistance programs.

           *       *       *       *       *       *       *


SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.

  If, in the course of an investigation under the internal 
revenue laws, the Secretary determines that there was or may 
have been an unauthorized use of the identity of the taxpayer 
or a dependent of the taxpayer, the Secretary shall, to the 
extent permitted by law--
          (1) as soon as practicable and without jeopardizing 
        such investigation, notify the taxpayer of such 
        determination, and
          (2) if any person is criminally charged by indictment 
        or information with respect to such unauthorized use, 
        notify such taxpayer as soon as practicable of such 
        charge.

           *       *       *       *       *       *       *


CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


Subchapter A--Application of Internal Revenue Laws

           *       *       *       *       *       *       *


SEC. 7811. TAXPAYER ASSISTANCE ORDERS.

  (a) * * *

           *       *       *       *       *       *       *

  [(g) Application to Persons Performing Services Under a 
Qualified Tax Collection Contract.--Any order issued or action 
taken by the National Taxpayer Advocate pursuant to this 
section shall apply to persons performing services under a 
qualified tax collection contract (as defined in section 
6306(b)) to the same extent and in the same manner as such 
order or action applies to the Secretary.]

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 511 OF THE TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 
                                  2005

SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY 
                    GOVERNMENT ENTITIES.

  (a) * * *
  (b) Effective Date.--The amendment made by this section shall 
apply to payments made after [December 31, 2010] December 31, 
2011.
                              ----------                              


 SECTION 1203 INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF 
                                  1998

SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.

  (a) * * *

           *       *       *       *       *       *       *

  [(e) Individuals Performing Services Under a Qualified Tax 
Collection Contract.--An individual shall cease to be permitted 
to perform any services under any qualified tax collection 
contract (as defined in section 6306(b) of the Internal Revenue 
Code of 1986) if there is a final determination by the 
Secretary of the Treasury under such contract that such 
individual committed any act or omission described under 
subsection (b) in connection with the performance of such 
services.]

           *       *       *       *       *       *       *

                              ----------                              


              SECTION 333 OF TITLE 31, UNITED STATES CODE

Sec. 333. Prohibition of misuse of Department of the Treasury names, 
                    symbols, etc

  (a) General Rule.--No person may use, in connection with, or 
as a part of, any advertisement, solicitation, Internet domain 
address, business activity, or product, whether alone or with 
other words, letters, symbols, or emblems--
          (1) * * *

           *       *       *       *       *       *       *

in a manner which could reasonably be interpreted or construed 
as conveying the false impression that such advertisement, 
solicitation, Internet domain address, business activity, or 
product is in any manner approved, endorsed, sponsored, or 
authorized by, or associated with, the Department of the 
Treasury or any entity referred to in paragraph (1) or any 
officer or employee thereof.

           *       *       *       *       *       *       *

  (c) Civil Penalty.--
          (1) * * *
          (2) Amount of penalty.--The amount of the civil 
        penalty imposed by paragraph (1) shall not exceed 
        $5,000 for each use of any material in violation of 
        subsection (a). If such use is in a broadcast or 
        telecast, or any other mass communications by 
        electronic means, the preceding sentence shall be 
        applied by substituting ``$25,000'' for ``$5,000''.

           *       *       *       *       *       *       *

  (d) Criminal Penalty.--
          (1) In general.--If any person knowingly violates 
        subsection (a), such person shall, upon conviction 
        thereof, be fined not more than $10,000 for each such 
        use or imprisoned not more than 1 year, or both. If 
        such use is in a broadcast or telecast, or any other 
        mass communications by electronic means, the preceding 
        sentence shall be applied by substituting ``$50,000'' 
        for ``$10,000''.

           *       *       *       *       *       *       *

                              ----------                              


                 SECTION 210 OF THE SOCIAL SECURITY ACT

                        DEFINITION OF EMPLOYMENT

Sec. 210. For the purposes of this title--

                               Employment

  (a) * * *

           *       *       *       *       *       *       *


                           American Employer

  (e)(1) The term ``American employer'' means an employer which 
is [(1)] (A) the United States or any instrumentality thereof, 
[(2)] (B) a State or any political subdivision thereof, or any 
instrumentality of any one or more of the foregoing, [(3)] (C) 
an individual who is a resident of the United States, [(4)] (D) 
a partnership, if two-thirds or more of the partners are 
residents of the United States, [(5)] (E) a trust, if all of 
the trustees are residents of the United States, or [(6)] (F) a 
corporation organized under the laws of the United States or of 
any State.
  (2)(A) If any employee of a foreign person is performing 
services in connection with a contract between the United 
States Government (or any instrumentality thereof) and any 
member of any domestically controlled group of entities which 
includes such foreign person, such foreign person shall be 
treated as an American employer with respect to such services 
performed by such employee.
  (B) For purposes of this paragraph--
          (i) The term ``domestically controlled group of 
        entities'' means a controlled group of entities the 
        common parent of which is a domestic corporation.
          (ii) The term ``controlled group of entities'' means 
        a controlled group of corporations as defined in 
        section 1563(a)(1) of the Internal Revenue Code of 
        1986, except that--
                  (I) ``more than 50 percent'' shall be 
                substituted for ``at least 80 percent'' each 
                place it appears therein, and
                  (II) the determination shall be made without 
                regard to subsections (a)(4) and (b)(2) of 
                section 1563 of such Code.
        A partnership or any other entity (other than a 
        corporation) shall be treated as a member of a 
        controlled group of entities if such entity is 
        controlled (within the meaning of section 954(d)(3) of 
        such Code) by members of such group (including any 
        entity treated as a member of such group by reason of 
        this sentence).

           *       *       *       *       *       *       *


                          VI. DISSENTING VIEWS

    Last year, each of us voted for H.R. 1677, a bill 
containing many of the same provisions as were included in this 
bill. That measure passed by a vote of 407 to 7, showing many 
of the items enjoy strong, bipartisan support. And we were 
pleased by the inclusion of new language this year related to 
tax return preparers and employer-provided cell phones. Many of 
us have been advocates for those changes for some time.
    It was thus disappointing that the Majority elected to turn 
what should have been a triumph of bipartisanship into a highly 
partisan exercise by including two items to which we strongly 
object.

                         PRIVATE TAX COLLECTION

    On Wednesday, May 23, 2007, the Ways and Means Committee 
held a hearing on the Internal Revenue Service's use of private 
collection agencies (PCAs) to collect Federal income taxes. 
During the hearing we heard repeated assurances from the IRS 
that the tax liabilities assigned to PCAs for collection would 
otherwise go uncollected even if the IRS had a greater 
enforcement budget. Turning a deaf ear, last year the Democrats 
put forth H.R. 3056 with repeal of the IRS's authority to. use 
PCAs as the bill's centerpiece. We opposed passage of that 
bill. With this bill, HR. 5719, once again, the Majority is 
proposing to terminate the private collection agency program. 
They already passed a bill on the floor of the House this 
Congress to repeal the program, but here we are again, wasting 
time doing the same thing.
    As before, we strongly oppose the provision killing the 
private collection agency program. The hearing we held last 
year showed the skill and patience PCA employees employ to 
avoid disclosing any confidential taxpayer information. Even 
though the PCAs lack many of the enforcement-enhancing tools of 
the IRS, such as lien and levy, they are successfully 
collecting millions of dollars in unpaid taxes that the IRS 
would not otherwise pursue.
    These are liabilities which are not in dispute. The 
taxpayer simply chose not to pay, even after the IRS sent 
multiple notices reminding the affected taxpayers of their 
unpaid obligation. During consideration of the bill, Members of 
the Majority spoke of the ``special relationship'' between 
taxpayers and the IRS. Most taxpayers we talk to would--hardly 
consider that relationship special. And for those who have 
ignored multiple. notices from the IRS about the delinquent 
liabilities, it-is even harder to characterize the relationship 
that way.
    The Majority attempted to argue the cost to taxpayers would 
be even less if the IRS went after these obligations,. This is 
not true. The IRS is presently ill-equipped to engage in the 
massive outbound call operations the PCAs use to collect these 
obligations. The Majority cited poorly designed estimates that 
compared the efficiency of the IRS with PCAs on an apples-to-
oranges basis which fail to account for the large costs the IRS 
would have to incur to tackle these cases and other factors. In 
fact, a GAO report (GAO-04-492) looked to an apples-to-apples 
comparison ``. . . under which the IRS would hire additional 
staff to work on the same volume for selected types of cases on 
which the PCAs would work. According to the report, PCAs would 
generate $4.6 in revenue for every dollar in cost and IRS 
employees would generate $4.1.''
    As of February 23, 2008, 98,000 cases have been placed with 
the PCAs. Full payment has been received for more than 12,000 
tax debts. In addition, more than 5,000 debts are being paid 
through installment agreements. The PCAs have already collected 
more than $46 million in gross revenue that would not have been 
collected otherwise, making this a tax-gap closing program with 
a proven track record.
    The PCA program has done all of this while preserving 
confidential taxpayer information. In fact, on March 26, 2008, 
the Treasury Inspector General for Tax Administration (TIGTA) 
issued a report titled ``Private Collection Agencies Adequately 
Protected Taxpayer Data.'' In the report TIGTA says:

          We reviewed the computer security controls over 
        taxpayer data provided to the two current PCAs and 
        determined that the controls were adequate. In 
        particular, files were securely transmitted from the 
        IRS to the contractors and adequately secured on the 
        contractors' systems. In addition, workstations used by 
        contractor collection personnel were adequately 
        controlled to prevent unauthorized copying of taxpayer 
        information to removable media or transfer via email. 
        The contractors. also maintained adequate audit trails 
        and performed periodic reviews, including reviews to 
        identify unauthorized access to taxpayer data.

    In contrast to this report, TIGTA issued a report after 
investigating IRS computer security controls on the same date 
titled ``Inadequate Controls over Routers and Switches 
Jeopardize Sensitive Taxpayer Information.'' This report once 
again cited the IRS for not having adequate controls over their 
computer systems placing confidential taxpayer information at 
risk of theft or other misuse. We do not mention this to 
embarrass the many responsible public servants that work at the 
IRS, but to highlight the competent and responsible nature of 
the PCA professionals working for this program.
    According to the Joint Committee on Taxation, killing the 
program will reduce Federal budget receipts by approximately 
$600 million during the 2008 to 2018 period. We continue to be 
amazed that the Majority, despite their zeal to reduce the 
deficit and ensure everyone pays their fair share of taxes, is 
moving in the opposite direction in its attempt to kill this 
program.

                  SUBSTANTIATION OF HSA DISTRIBUTIONS

    We also object to the majority's imposition of a new 
substantiation requirement for withdrawing money from Health 
Savings Accounts. The provision amends current law to specify 
that withdrawals from an HSA are only tax-exempt if they are 
for health purposes and ``substantiated in a manner similar to 
the substantiation required for flexible spending accounts.'' 
Further, the bill allows Treasury to require account custodians 
to report, on an annual basis, amounts withdrawn from an HSA 
that were not substantiated as being for a qualified medical 
expense. The provision is effective January 1, 2010.
    There is simply not enough information about this issue. 
The committee has not held a single hearing to examine the 
issue of substantiation, and we have little or no reliable data 
on the scope of any potential problem. One company has 
distributed anecdotal information that suggests significant 
amounts of money are being spent at non-medical merchants. 
However, under current law, it is permissible to withdraw funds 
from one's HSA for any purpose as long as the appropriate taxes 
and penalties are paid. Unfortunately, no information has been 
provided to Members that discusses whether or not any taxes and 
penalties were paid.
    Further, the anecdotal information provides no details on 
what was purchased with the HSA funds. Clearly, it is possible 
and permissible to spend one's HSA on qualifying products, such 
as on prescription and over-the-counter drugs, at a grocery 
store. Individuals are also allowed to reimburse themselves 
with HSA funds for out-of-pocket expenses. If an HSA account 
holder wishes to withdraw money from an ATM to do so, they can. 
Supporters of substantiation imply that all ATM withdrawals 
must be for improper purposes, but yet they presented no 
evidence to support such an assumption. We are troubled, 
therefore, that the Majority's proposal would attempt to 
address an undefined problem, while drawing support principally 
from anecdotes that do not necessarily prove noncompliance.
    A new requirement that all HSA withdrawals be substantiated 
would impose significant burdens on account custodians to 
review transactions and make determinations about their 
validity. This new obligation could expose them to liability 
for decisions about whether an expense is qualified. 
Substantiation could also require account custodians, many of 
whom are banking institutions, to receive and review sensitive 
medical information. This new requirement would then force 
these institutions to comply with the complex and expensive 
privacy standards outlined in the Health Insurance Portability 
and Accountability Act.
    Beyond the legal ramifications, a new substantiation 
requirement could force HSA account custodians to eliminate 
many convenient withdrawal methods, such as ATM access, because 
of the difficulties associated with substantiating these types 
of transactions. In a system where 90 percent of all 
transactions are done electronically, substantiation could have 
the unintended effect of pushing some HSA custodians away from 
a paperless health care system. Either way, health insurers and 
account custodians alike have indicated that this provision 
will substantially increase the administrative costs associated 
with Health Savings Accounts. These costs will ultimately be 
passed along to account holders, meaning enrollees will spend 
more money on overhead and, therefore, will have less in their 
account to pay for health care. Higher costs for HSA enrollees 
could lead to a reduction in the number of people in HSAs. The 
program might still continue to grow, but at a slower pace than 
under the current baseline.
    HSAs were designed to allow consumers to be more involved 
in decisions about their health care. It is a well-known fact 
that paper-based substantiation systems increase the amount of 
time it takes to receive reimbursements for qualified health 
expenses. With other health savings programs, such as Flexible 
Spending Accounts, this is less of a concern because the 
consumer is using account funds to supplement existing health 
coverage. However, an HSA is the consumer's primary health 
coverage and all expenses must be paid for out-of-pocket at the 
time service is rendered. Debit card technology was designed by 
account custodians to address the uniqueness of this situation 
by allowing HSA account holders to access funds to pay health 
care providers immediately. If account holders were suddenly 
forced to substantiate expenses before they could be 
reimbursed, this could make them liable for hundreds or even 
thousands of dollars in out-of-pocket costs.
    It is not clear why HSAs are being singled out for 
substantiation, especially since we did not hold a hearing to 
establish whether there is a problem or whether this solution 
is appropriate. There are many other areas in the tax code 
involving more tax returns and more dollars, which do not 
require substantiation. One example is the deduction for 
charitable contributions, which is claimed on 40 million 
returns and resulted in $39 billion in tax expenditures in 
2006. We can also point to the deduction for medical expenses 
in excess of 7.5% of adjusted gross income, which was claimed 
on 8.9 million returns; and resulted in almost $8 billion in 
tax expenditures in 2006. There is no evidence that 
noncompliance with respect to HSA spending is any worse than in 
these or other tax return items that do not require 
substantiation by a third party, but for which a taxpayer must 
provide documentation if audited.
    These concerns should not be misconstrued as the minority's 
support for fraudulent use of HSA funds. We certainly believe 
that HSA money should be used first and foremost to cover 
health expenditures. However, at the end of the day, the money 
in an HSA, account belongs to the account holder. They should 
continue to be able to use the money as they see fit, as long 
as the letter of the law is followed and the applicable taxes 
and penalties are paid.

                               CONCLUSION

    The tax gap, estimated at nearly $300 billion per year, 
can't be closed by waving a magic wand. Rather, ensuring that 
all taxes owed are actually paid requires many small steps to 
target facets of the problem. By terminating a proven method of 
ensuring all Americans pay their fair share, H.R. 5719 takes a 
giant step in the opposite direction. In addition, the 
juxtaposition between the repeal of the PCA program and 
imposing new burdensome HSA substantiation requirements reveals 
the fickle and inconsistent nature of the Majority. The 
Majority objects to the IRS using private collection agencies 
yet they want the IRS to ``employ'' private administrators to 
review the health spending of HSA enrollees? Surely the irony 
is not lost on us. We urge our colleagues to vote against it.

                                   Jim McCrery.
                                   Wally Herger.
                                   Dave Camp.
                                   Jim Ramstad.
                                   Sam Johnson.
                                   Phil English.
                                   Ron Lewis.
                                   Kevin Brady.
                                   Tom Reynolds.
                                   Eric Cantor.
                                   Devin Nunes.
                                   Pat Tiberi.