Small Business Taxpayer Bill of Rights Act of 2025

Bill Number

H.R. 2782

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-04-09: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2026-01-10T06:48:06Z

AI-Generated Summary

Summary of H.R. 2782: Small Business Taxpayer Bill of Rights Act of 2025

Purpose

This legislation aims to establish enhanced protections for small businesses in their interactions with the Internal Revenue Service (IRS). It creates a "taxpayer bill of rights" tailored to small businesses by strengthening safeguards against IRS misconduct, improving dispute resolution processes, increasing penalties for violations, and providing financial relief options during audits, appeals, and collections.

Key Provisions

The bill amends various sections of the Internal Revenue Code of 1986 and related laws to introduce the following measures:

• Awarding of Costs and Fees (Sec. 2): Small businesses (defined as corporations without publicly traded stock, partnerships, or sole proprietorships with average annual gross receipts of $50 million or less over the prior three years, adjusted for inflation) can recover legal costs and fees in tax disputes without net worth limits that apply to other taxpayers.

• Civil Damages for IRS Misconduct (Sec. 3): Increases maximum damages for reckless or intentional IRS disregard of tax laws from $1 million ($100,000 for negligence) to $5 million ($500,000 for negligence), with inflation adjustments; extends the time to file claims from 2 to 5 years.

• Penalties for IRS Employee Offenses (Sec. 4): Raises criminal fines for IRS officers or employees who commit offenses related to revenue laws (e.g., extortion or corruption) from $10,000 to $25,000 (or $5,000 to $10,000 for certain misdemeanors), with inflation adjustments.

• Damages for Unauthorized Disclosure of Tax Information (Sec. 5): Boosts civil damages per unauthorized inspection or disclosure of tax returns from $1,000 to $10,000, with inflation adjustments; extends the filing period from 2 to 5 years.

• Ban on Ex Parte Discussions (Sec. 6): Prohibits off-the-record communications between IRS Appeals Office officers and other IRS employees on pending cases; mandates termination for violations (with limited Commissioner discretion for lesser actions) and requires reporting by the Treasury Inspector General for Tax Administration (TIGTA).

• Right to Independent Conference (Sec. 7): Guarantees taxpayers a conference with the IRS Independent Office of Appeals without involvement from IRS Chief Counsel or compliance staff, unless the taxpayer agrees otherwise.

• Alternative Dispute Resolution (Sec. 8): Expands mediation and arbitration options in appeals, including elections for independent mediators (with cost-sharing, except for low-income individuals or small businesses below 250% of the poverty level); requires public explanations for any exclusions of case types.

• Penalties for Unauthorized Disclosures (Sec. 9): Doubles fines for willful unauthorized disclosures of tax information from $5,000 to $10,000 per act, with inflation adjustments.

• Ban on New Issues in Appeals (Sec. 10): Prevents the IRS Appeals Office from introducing issues, deficiencies, or theories not in the original IRS determination; does not limit taxpayers' ability to raise new points.

• Limits on Liens Against Principal Residences (Sec. 11): Bars IRS from forcing the sale of a taxpayer's main home to collect taxes unless other assets are insufficient and no economic hardship would result; restricts delegation of this decision to high-level officials.

• Mandatory Termination for Misconduct (Sec. 12): Adds IRS misuse of ideology-based scrutiny in tax-exempt applications as grounds for termination; requires at least 90 days of unpaid leave for non-termination actions in most misconduct cases.

• TIGTA Review for Discrimination (Sec. 13): Directs TIGTA to review IRS selection criteria for audits, investigations, and refunds to detect discrimination based on race, religion, or political ideology; requires consultation with IRS on fixes and semiannual reporting.

• Deduction for Audit Expenses (Sec. 14): Allows individuals to deduct up to $5,000 in expenses (e.g., legal or accounting fees) for National Research Program audits if the audit results in no tax increase.

• Term Limit for National Taxpayer Advocate (Sec. 15): Sets a 10-year term for the National Taxpayer Advocate (starting 18 months after enactment), with reappointment possible; ends the current term accordingly.

• Release of Levies for Business Hardship (Sec. 16): Permits release of IRS levies (seizures of assets) if they cause economic hardship to a viable business, considering business viability, hardship extent, and harm to employees.

• Offers-in-Compromise (Sec. 17): Eliminates the requirement for partial upfront payments when submitting offers to settle tax debts for less than owed; adjusts related user fees.

Most provisions apply to actions after enactment, with inflation adjustments starting in 2026.

Significant Changes to Existing Law

• Penalty and Damage Increases: Multiplies several fines and damage caps by 5–10 times (e.g., civil damages for misconduct from $1 million to $5 million), with new inflation indexing to maintain value over time.
• Procedural Safeguards: Introduces absolute bans on ex parte communications and new issues in appeals, overriding prior partial restrictions; expands independent mediation and conference rights.
• Enforcement Limitations: Adds protections for principal residences and business levies, repeals partial payment rules for debt settlements, and mandates TIGTA anti-discrimination reviews—none of which existed before.
• Employee Accountability: Strengthens mandatory terminations and leave for misconduct, including new ideology-based scrutiny in tax-exempt reviews.
• Administrative Adjustments: Imposes term limits on the National Taxpayer Advocate and allows audit expense deductions, altering prior indefinite terms and non-deductible status.

Potential Impacts

• On Government Agencies: The IRS may face higher litigation costs, more frequent use of independent mediators, and stricter internal compliance to avoid penalties and terminations; TIGTA's role expands, potentially increasing oversight workload. No direct international relations effects.
• On Citizens and Businesses: Small businesses gain easier access to cost recovery, faster dispute resolution, and protections against aggressive collections, reducing financial strain during tax disputes. Individual taxpayers benefit indirectly through broader rights (e.g., levy releases, deductions), though the focus is on small entities.
• Broader Effects: Could lead to fewer IRS enforcement actions against small businesses due to heightened risks, potentially increasing IRS caution in audits and appeals.

Main Stakeholders Affected

• Small Businesses: Primary beneficiaries, with tailored definitions (e.g., under $50 million in gross receipts) providing direct protections and relief.
• IRS Employees and Leadership: Face increased personal liability, termination risks, and procedural constraints.
• Taxpayers Generally: Including individuals and larger entities, through shared enhancements like mediation and levy rules.
• Oversight Bodies: TIGTA and the National Taxpayer Advocate, with expanded duties and fixed terms.
• Tax Professionals: May see more demand for services in appeals and mediations.

Notable Legal, Constitutional, or Political Implications

• Legal: Enhances due process (e.g., fair hearings without new IRS issues) and equal protection by mandating anti-discrimination reviews, potentially reducing successful challenges to IRS actions in court. Increases statutes of limitations for claims, aiding access to remedies.
• Constitutional: Aligns with Fifth and Fourteenth Amendment protections against arbitrary government actions (e.g., property seizures without hardship consideration) and free speech by prohibiting ideology-based scrutiny in tax-exempt decisions.
• Political: Positions small businesses as protected from perceived IRS overreach, which could influence tax policy debates; the inflation adjustments ensure long-term efficacy, but the focus on small entities may spark discussions on equity for larger taxpayers. No overt partisan elements in the text.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Kustoff, David [R-TN-8]

Recent Actions

• 2025-04-09: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-04-09: Referred to the Committee on Ways and Means, and in addition to the Committee on Oversight and Government Reform, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-04-09: Introduced in House
• 2025-04-09: Introduced in House

Bill Versions

• Small Business Taxpayer Bill of Rights Act of 2025 — issued 2025-04-09 — PDF (24 pages)

Related Bills

• S. 1386 (119th Congress)