Overview
Title
To provide a taxpayer bill of rights for small businesses.
ELI5 AI
The Small Business Taxpayer Bill of Rights Act of 2025 is a law that helps protect small businesses when dealing with taxes. It makes rules fairer, helps small businesses save money if they win against the tax office, and makes sure every problem gets a fair look without sneaky talk behind the scenes.
Summary AI
The Small Business Taxpayer Bill of Rights Act of 2025 aims to protect the rights of small business taxpayers by modifying various standards and procedures related to taxes. It increases eligibility for small businesses to recover legal costs, enhances penalties for mishandling tax information, and extends the timeframe for legal actions against the IRS. The bill also prohibits IRS employees from having unauthorized discussions about appeals and enforces stricter rules on how tax exemptions are reviewed, among other reforms. Additionally, it provides a mechanism to release IRS levies that cause economic hardships for businesses and repeals the requirement for partial payments on submissions of offers-in-compromise.
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AnalysisAI
The Small Business Taxpayer Bill of Rights Act of 2025 is a legislative proposal introduced to address various challenges and rights of small business taxpayers in their interactions with the Internal Revenue Service (IRS). Beyond simply outlining taxpayer rights, the bill makes significant amendments to the tax code, intending to streamline processes, improve fairness, and enhance accountability within the IRS.
General Summary
The proposed legislation introduces several key changes, such as allowing small businesses to qualify for awards of costs and fees without regard to their net worth, enhancing penalties for unauthorized disclosure of tax information, and setting a term limit of ten years for the National Taxpayer Advocate. It also emphasizes the protection of primary residences from tax liens and enables businesses to request the release of levies causing economic hardship. Additionally, it stipulates rules for independent mediation or arbitration in disputes with the IRS, mandates termination for disproportionate scrutiny in tax-exempt status reviews, and introduces a prohibition on raising new issues during appeals.
Significant Issues
Several significant issues arise from this bill. First, the increase in civil damage limits against the IRS from $1 million to $5 million for reckless actions may lead to higher costs for the agency and potentially increased litigation. Second, while the bill prohibits private, unrecorded discussions between IRS officers, it grants the IRS Commissioner substantial discretionary power without providing a right to appeal, raising concern over the balance of power.
Additionally, the ban on introducing new issues in appeal processes may limit flexibility and lead to potential ambiguities, affecting the fairness of appeals. For businesses facing economic hardship, guidance on what constitutes "economic viability" remains unclear, leading to potential inconsistency in application. Lastly, the bill mandates the review of IRS criteria for discriminatory practices but lacks detailed methodologies or timelines, potentially impacting enforcement.
Impacts on the General Public and Specific Stakeholders
For the general public, the bill is set to enhance the clarity and fairness of IRS processes, granting taxpayers more robust rights and protections. By increasing penalties for unauthorized data disclosure, it aims to bolster trust in the tax system. However, increased litigation against the IRS might lead to public perception of inefficiency.
Specific stakeholders, such as small businesses, may benefit from relaxed restrictions and enhanced protections against unjust tax practices, potentially reducing financial burdens and offering more equitable treatment. Conversely, the increased financial penalties could impose higher risks and potential financial strain on businesses and individuals caught in non-compliance, even where no intentional misconduct occurred.
IRS employees and administrative officials are directly affected, facing more stringent regulation and heightened consequences for misconduct. The lack of appeal options may lead to discontent and perceived injustice among employees subject to administrative actions.
In conclusion, while the bill aims to provide comprehensive protection for small business taxpayers and encourage fairer IRS practices, stakeholders should consider both the beneficial aspects and the potential for increased litigation and complexity in complying with new tax codes.
Financial Assessment
The Small Business Taxpayer Bill of Rights Act of 2025 introduces several key changes concerning financial allocations and references that potentially impact small businesses and the Internal Revenue Service (IRS).
Increased Financial Liability for IRS
The bill proposes an increase in the maximum civil damages from $1,000,000 to $5,000,000 and from $100,000 to $500,000 in negligence cases against the IRS. This change is significant as it potentially increases the financial burden on the IRS due to higher claims and litigation costs. The identified issue here is the lack of clear justification for such a substantial increase, which might lead to more frequent litigation without clear reasoning behind the financial limits.
Adjustments for Inflation
Many financial thresholds in the bill, such as the $50,000,000 ceiling for eligible small businesses to recover legal costs and the civil damage limits cited above, are subject to adjustments for inflation. These adjustments are designed to retain the economic impact of these thresholds over time. This automatic adjustment, while stabilizing financial references against inflation, raises questions because it does not clarify its potential long-term budgetary implications on the IRS’s financial planning.
Penalties and Compliance
The bill also increases penalties for certain offenses by IRS officers, with amounts rising from $10,000 to $25,000 and from $5,000 to $10,000. The introduction of these new penalty amounts without a specified rationale might raise concerns about fairness, as discussed in the identified issues. However, this increase can act as a deterrent, ensuring more rigorous compliance by IRS officials.
Civil Damages for Unauthorized Disclosure
Civil damages for unauthorized inspection or disclosure of tax information have been increased from $1,000 to $10,000. Like the other financial adjustments, this increase lacks detailed explanation or impact analysis, which could lead to perceptions of the increase as excessive or poorly justified.
Accessibility of Mediation
An issue of concern raised by the bill is in Section 8, where taxpayers are required to share the costs of mediation or arbitration arising from disputes. While this provision enhances taxpayers' options for dispute resolution, it could impose an additional financial burden, particularly on small businesses or individuals with limited resources, making this alternative less accessible to those who might benefit from it the most.
Economic Viability for Business Taxpayers
There is a provision reflecting on the economic viability of a business when considering the release of IRS levies due to hardship. However, the lack of a precise definition for "economic viability" may lead to inconsistent applications, potentially influencing the financial recovery of struggling businesses.
Taxpayer Advocacy
The bill includes a term limit for the National Taxpayer Advocate, intending on improving taxpayer service continuity and leadership transition management. However, it does not discuss potential financial or operational impacts, which raises concerns about the continuous and effective representation of taxpayer interests during leadership transitions.
In summary, while the bill aims to safeguard the rights of small businesses and enforce compliance within the IRS, the financial implications are substantial and could lead to increased litigation and administrative costs. The provisions lack detailed clarifications about the financial rationale behind these changes, potentially leading to operational and fairness concerns.
Issues
The amendment proposed in Section 3 to increase the limit on civil damages from $1,000,000 to $5,000,000 and from $100,000 to $500,000 in cases of negligence against the IRS might lead to significantly higher costs in claims, potentially increasing litigation without sufficient clarity on the justification for such increases.
Section 6 prohibits ex parte communications within the IRS but affords the Commissioner substantial discretionary power without a right of appeal, raising concerns about checks and balances and the potential concentration of power.
Section 10's provision to ban raising new issues on appeal could limit flexibility in handling unforeseen challenges or reviewing crucial aspects of tax matters, potentially leading to legal ambiguities and affecting fairness in appeals.
Section 4 amends penalty amounts for certain offenses by IRS officers but lacks transparency about the rationale behind the specific penalty figures ($25,000 and $10,000), which may raise questions about the adequacy and fairness of these penalties.
The provision in Section 8 that allows taxpayers to request mediation or arbitration includes a requirement to share costs, potentially imposing a financial burden on some taxpayers and possibly barring access to alternative dispute resolution for financially constrained individuals.
The term 'economic viability of the business' in Section 16 lacks precise definition, which might lead to inconsistent application when determining economic hardship for business taxpayers under IRS levies.
Section 12's provision for mandatory termination for misconduct lacks clear definitions, especially of key terms like 'disproportionate scrutiny,' possibly leading to arbitrary enforcement and disputes over employee treatment.
Section 5 increases civil damages for unauthorized inspection or disclosure of tax information from $1,000 to $10,000 without providing a clear rationale or impact analysis, which may be perceived as excessive or unjustified.
In Section 15, the provision establishing a term limit for the National Taxpayer Advocate does not address potential impacts or ensure continuity during leadership transitions, raising concerns about effectiveness and uninterrupted taxpayer advocacy.
Section 13 mandates review by the Treasury Inspector General for Tax Administration but does not specify methodology or timelines for identifying discriminatory criteria, which could delay or weaken enforcement of non-discriminatory tax practices.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title; table of contents Read Opens in new tab
Summary AI
The Small Business Taxpayer Bill of Rights Act of 2025 outlines various provisions aimed at protecting taxpayers, including changes in how costs and fees are awarded, penalties for unauthorized actions, and rights to independent conferences and dispute resolution. It also includes sections on monetary penalties, enforcement limitations, and tax audit expense deductions, among other important taxpayer-related reforms.
2. Modification of standards for awarding of costs and certain fees Read Opens in new tab
Summary AI
The section modifies the Internal Revenue Code to allow small businesses to qualify for certain cost and fee awards without a net worth limit, defining an "eligible small business" as a non-publicly traded corporation, partnership, or sole proprietorship with average gross receipts of $50 million or less in the previous three years. Additionally, the $50 million threshold will be adjusted for inflation starting in 2026.
Money References
- (a) Small businesses eligible without regard to net worth.—Subparagraph (D) of section 7430(c)(4) of the Internal Revenue Code of 1986 is amended by striking “and” at the end of clause (i)(II), by striking the period at the end of clause (ii) and inserting “, and”, and by adding at the end the following new clause: “(iii) in the case of an eligible small business, the net worth limitation in clause (ii) of such section shall not apply.”. (b) Eligible small business.—Paragraph (4) of section 7430(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: “(F) ELIGIBLE SMALL BUSINESS.— “(i) IN GENERAL.—For purposes of subparagraph (D)(iii), the term ‘eligible small business’ means, with respect to any proceeding commenced in a taxable year— “(I) a corporation the stock of which is not publicly traded, “(II) a partnership, or “(III) a sole proprietorship, if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000.
- “(ii) ADJUSTMENT FOR INFLATION.—In the case of any calendar year after 2025, the $50,000,000 amount in clause (i) shall be increased by an amount equal to— “(I) such dollar amount, multiplied by “(II) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500.”. (c) Effective date.—The amendments made by this section shall apply to proceedings commenced after the date of the enactment of this Act.
3. Civil damages allowed for reckless or intentional disregard of internal revenue laws Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to significantly increase the maximum damages a person can claim for reckless or intentional disregard of tax laws, raising it from $1 million to $5 million, and from $100,000 to $500,000 for negligence, with future inflation adjustments starting in 2025. Additionally, it extends the time frame to file such claims from 2 years to 5 years, and these changes apply to actions by IRS employees after the law is enacted.
Money References
- SEC. 3. Civil damages allowed for reckless or intentional disregard of internal revenue laws. (a) Increase in amount of damages.— (1) IN GENERAL.—Section 7433(b) of the Internal Revenue Code of 1986 is amended by striking “$1,000,000 ($100,000, in the case of negligence)” and inserting “$5,000,000 ($500,000, in the case of negligence)”. (2) ADJUSTMENT FOR INFLATION.—Section 7433 of such Code is amended by adding at the end the following new subsection: “(f) Adjustment for inflation.—In the case of any calendar year after 2025, the $5,000,000 and $500,000 amounts in subsection (b) shall each be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2023’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If any amount as increased under the preceding sentence is not a multiple of $500, such amount shall be rounded to the next lowest multiple of $500.”. (b) Extension of time To bring action.—Section 7433(d)(3) of the Internal Revenue Code of 1986 is amended by striking “2 years” and inserting “5 years”. (c) Effective date.—The amendments made by this section shall apply to actions of employees of the Internal Revenue Service after the date of the enactment of this Act. ---
4. Modifications relating to certain offenses by officers and employees in connection with revenue laws Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to increase fines for certain offenses by officers and employees related to revenue laws, raising them from $10,000 to $25,000 in subsection (a) and from $5,000 to $10,000 in subsection (b). Additionally, it introduces a rule to adjust these fines for inflation after 2025, ensuring they maintain their value over time.
Money References
- SEC. 4. Modifications relating to certain offenses by officers and employees in connection with revenue laws. (a) Increase in penalty.—Section 7214 of the Internal Revenue Code of 1986 is amended— (1) by striking “$10,000” in subsection (a) and inserting “$25,000”, and (2) by striking “$5,000” in subsection (b) and inserting “$10,000”. (b) Adjustment for inflation.—Section 7214 of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: “(c) Adjustment for inflation.—In the case of any calendar year after 2025, the $25,000 amount in subsection (a) and the $10,000 amount in subsection (b) shall each be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.”. (c) Effective date.—The amendments made by this section shall take effect on the date of the enactment of this Act. ---
5. Modifications relating to civil damages for unauthorized inspection or disclosure of returns and return information Read Opens in new tab
Summary AI
This section of the bill increases the penalty for unauthorized inspection or disclosure of tax returns from $1,000 to $10,000, allows this amount to be adjusted for inflation starting in 2025, extends the time to bring legal action from 2 years to 5 years, and applies these changes to violations occurring after the bill is enacted.
Money References
- (a) Increase in amount of damages.—Subparagraph (A) of section 7431(c)(1) of the Internal Revenue Code of 1986 is amended by striking “$1,000” and inserting “$10,000”. (b) Adjustment for inflation.—Section 7431 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: “(i) Adjustment for inflation.—In the case of any calendar year after 2025, the $10,000 amount in subsection (c)(1)(A) shall be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.”. (c) Period for bringing action.—Subsection (d) of section 7431 of the Internal Revenue Code of 1986 is amended by striking “2 years” and inserting “5 years”.
6. Ban on ex parte discussions Read Opens in new tab
Summary AI
The section prohibits any private discussions about pending matters between specific IRS officers and other IRS employees. If an IRS employee engages in such discussions, they could be fired for misconduct, although the IRS Commissioner has discretion to decide on a different course of action, which cannot be appealed.
7. Right to independent conference Read Opens in new tab
Summary AI
The amendment to the Internal Revenue Service Restructuring and Reform Act of 1998 introduces a new rule allowing taxpayers the right to a meeting with the IRS Independent Office of Appeals without the presence of IRS Chief Counsel or compliance staff, unless the taxpayer agrees to their involvement.
8. Alternative dispute resolution procedures Read Opens in new tab
Summary AI
The section amends the Internal Revenue Code to allow taxpayers the option to request mediation or arbitration for disputes with the IRS, unless specifically excluded by the Secretary. It requires sharing mediation costs with the IRS unless the taxpayer is a qualifying individual or small business, and it ensures taxpayers can choose an independent mediator from a recognized roster.
9. Increase in monetary penalties for certain unauthorized disclosures of information Read Opens in new tab
Summary AI
The section increases the penalty for unauthorized disclosure of certain information from $5,000 to $10,000. Starting in 2026, the penalty amount will be adjusted annually for inflation.
Money References
- (a) In general.—Paragraphs (1), (2), (3), and (4) of section 7213(a) of the Internal Revenue Code of 1986 are each amended by striking “$5,000” and inserting “$10,000”. (b) Adjustment for inflation.—Subsection (a) of section 7213 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: “(6) ADJUSTMENT FOR INFLATION.—In the case of any calendar year after 2025, the $10,000 amounts in paragraphs (1), (2), (3), and (4) shall each be increased by an amount equal to— “(A) such dollar amount, multiplied by “(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 2023’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- If any amount as increased under the preceding sentence is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100.”. (c) Effective date.—The amendments made by this section shall apply to disclosures made after the date of the enactment of this Act.
10. Ban on raising new issues on appeal Read Opens in new tab
Summary AI
The bill introduces a rule that prevents the IRS from bringing up any new issues during an internal appeal that were not part of the initial determination, ensuring that only previously considered matters are reviewed. This rule does not limit taxpayers from introducing new arguments or issues during their own appeals.
7531. Prohibition on Internal Revenue Service raising new issues in an internal appeal Read Opens in new tab
Summary AI
In reviewing an appeal, the Internal Revenue Service's Independent Office of Appeals is not allowed to consider new issues that were not part of the original decision, including issues not present in the initial notice or report, deficiencies not included in the original determination, or new reasons for a deficiency. This section does not limit a taxpayer's right to raise issues or arguments that were not part of the initial decision.
11. Limitation on enforcement of liens against principal residences Read Opens in new tab
Summary AI
The bill amends the Internal Revenue Code to limit the enforcement of tax liens on a person's main home. It states that the government can't enforce these liens unless they determine that it’s necessary because the taxpayer has no other means to pay and it won’t cause financial hardship, with this decision only made by top officials of the IRS.
12. Additional provisions relating to mandatory termination for misconduct Read Opens in new tab
Summary AI
The section amends rules related to the Internal Revenue Service (IRS), detailing that any misuse involving unequal scrutiny of tax-exempt applications based on ideological grounds will lead to mandatory termination, or at least 90 days of unpaid leave if not terminated. Additionally, it specifies limitations on alternative punishments for certain misconduct.
13. Review by the Treasury Inspector General for Tax Administration Read Opens in new tab
Summary AI
The section mandates the Treasury Inspector General for Tax Administration to review the criteria used by the IRS to select tax returns for various actions like audits or investigations, ensuring these criteria do not discriminate based on race, religion, or political beliefs. It also requires the Inspector General to report semiannually on the findings and any discriminatory criteria identified.
14. Deduction for expenses relating to certain audits Read Opens in new tab
Summary AI
The new amendment allows individuals to claim a tax deduction, up to $5,000, for specific expenses incurred during an audit under the National Research Program, provided the audit does not increase their tax liability. Additionally, it ensures that deductions for these expenses cannot be claimed twice under different sections of the tax code.
Money References
- “(a) Allowance of deduction.—In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to so much of the qualified NRP expenses paid or incurred during the taxable year as does not exceed $5,000.
224. Expenses relating to certain audits Read Opens in new tab
Summary AI
In this section, individuals can deduct up to $5,000 in qualified expenses related to certain tax audits, as long as the audit doesn't increase their tax liability. However, they cannot claim the same expenses as deductions under other tax provisions.
Money References
- (a) Allowance of deduction.—In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to so much of the qualified NRP expenses paid or incurred during the taxable year as does not exceed $5,000.
15. Term limit for National Taxpayer Advocate Read Opens in new tab
Summary AI
The bill proposes that the National Taxpayer Advocate will serve a 10-year term, starting 18 months after the enactment of the Small Business Taxpayer Bill of Rights Act of 2025. The current Advocate's term will end 18 months post-enactment unless reappointed under the new rule.
16. Release of IRS levy due to economic hardship for business taxpayers Read Opens in new tab
Summary AI
This part of the bill changes the rules to allow businesses facing financial difficulties to have their IRS tax levy released if it causes economic hardship. It says that the IRS has to consider how bad the levy would be for the business, the business's ability to stay open, and any negative effects it could have on people if the business closes.
17. Repeal of partial payment requirement on submissions of offers-in-compromise Read Opens in new tab
Summary AI
The section eliminates the requirement for partial payments when submitting offers-in-compromise to the IRS. It also states that any user fee connected to an offer-in-compromise will reduce the tax or amount subject to the offer. These changes will apply to offers submitted after the law takes effect.