Small Business Taxpayer Bill of Rights Act of 2025

Bill Number

S. 1386

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-04-09: Read twice and referred to the Committee on Finance.

Last Updated

2026-01-10T06:48:03Z

AI-Generated Summary

Purpose

The Small Business Taxpayer Bill of Rights Act of 2025 aims to protect small businesses from unfair treatment by the Internal Revenue Service (IRS) during tax audits, appeals, and enforcement actions. It establishes enhanced rights for small business taxpayers, increases penalties for IRS misconduct, and improves dispute resolution processes to ensure fairness and accountability.

Key Provisions

The bill amends the Internal Revenue Code of 1986 and related laws through 17 sections, focusing on taxpayer protections, IRS accountability, and procedural reforms. Key elements include:

• Eligibility for Legal Costs and Fees (Sec. 2): Small businesses (defined as non-publicly traded corporations, partnerships, or sole proprietorships with average annual gross receipts of $50 million or less, adjusted for inflation) can recover attorney fees and costs in tax disputes without net worth limits.

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

• Higher Penalties for IRS Employee Offenses (Sec. 4): Increases fines for IRS officers or employees committing offenses related to revenue laws (e.g., from $10,000 to $25,000 for certain acts), with inflation adjustments.

• Damages for Unauthorized Disclosure of Tax Information (Sec. 5 and Sec. 9): Boosts civil damages for improper IRS inspection or disclosure of tax returns from $1,000 to $10,000 per violation and criminal penalties from $5,000 to $10,000, both with inflation adjustments and a 5-year statute of limitations for lawsuits.

• Ban on Ex Parte Communications (Sec. 6): Prohibits off-the-record discussions between IRS Appeals Office staff 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 small business taxpayers a conference with the IRS Independent Office of Appeals without involvement from IRS legal counsel or compliance staff, unless the taxpayer agrees otherwise.

• Enhanced Alternative Dispute Resolution (Sec. 8): Expands access to mediation or arbitration for tax disputes, including options for independent, neutral mediators (with cost-sharing, except for low-income individuals or small businesses below 250% of the poverty level); allows requests at filing or before appeals deliberations begin.

• Prohibition on New Issues in Appeals (Sec. 10): Prevents the IRS from introducing new tax issues, deficiencies, or arguments during internal appeals that were not in the original determination; does not limit taxpayers' ability to raise new issues.

• Limits on Liens Against Principal Residences (Sec. 11): Restricts IRS foreclosure on a taxpayer's main home unless other assets are insufficient to pay the debt and it won't cause economic hardship; delegation limited to high-level IRS officials.

• Stricter IRS Employee Discipline (Sec. 12): Adds mandatory termination or 90-day unpaid leave for misconduct, including biased reviews of tax-exempt applications based on ideology; limits alternatives to termination in certain cases.

• Anti-Discrimination Review by TIGTA (Sec. 13): Requires TIGTA to audit IRS selection criteria for audits, investigations, or refunds to detect bias based on race, religion, or political ideology, and recommend changes; includes reporting in semiannual updates.

• Tax Deduction for Audit Expenses (Sec. 14): Allows individuals (including small business owners) to deduct up to $5,000 in expenses for audits under the National Research Program if the audit results in no additional tax owed.

• Term Limit for National Taxpayer Advocate (Sec. 15): Sets a 10-year term for this IRS ombudsman role, starting 18 months after enactment, with reappointment possible.

• Easier Release of Levies for Business Hardship (Sec. 16): Directs the IRS to consider a business's financial viability, hardship impact, and potential harm to employees when deciding to lift tax collection levies (seizures of assets).

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

Most provisions include inflation adjustments starting after 2025 and apply to actions after enactment.

Significant Changes to Existing Law

• Penalty and Damage Increases: Multiplies fines and damages for IRS violations by 5–10 times, with longer filing windows, shifting the balance toward stronger deterrents against abuse.
• Procedural Safeguards: Introduces absolute bans on ex parte talks and new appeal issues for the IRS, expands independent mediation options, and repeals payment barriers for debt settlements—reforms not previously mandated.
• Anti-Bias Measures: Adds explicit TIGTA oversight for discriminatory audit criteria, including ideological bias in tax-exempt reviews, which was not required before.
• Employee Accountability: Mandates harsher discipline (e.g., automatic leave or termination) for specific misconduct, reducing Commissioner flexibility compared to prior rules.
• Taxpayer Relief: New deductions for audit costs, home lien protections, and business-specific levy considerations replace narrower existing provisions.

Potential Impacts

• On Government Agencies: The IRS faces stricter internal procedures, higher litigation risks from increased damages, more terminations or leaves for employees, and mandatory TIGTA reviews, potentially raising operational costs and requiring training to avoid bias or procedural errors. TIGTA's workload increases with new reporting duties.
• On Citizens and Small Businesses: Provides stronger protections against aggressive IRS actions, easier access to fee recovery and dispute resolution, and financial relief (e.g., deductions, levy releases, debt settlements), reducing burdens for owners of small businesses (up to $50 million in receipts). Broader taxpayers benefit from anti-disclosure rules and home safeguards, though low-income individuals get mediation fee waivers.
• On International Relations: No direct impacts; the bill focuses on domestic U.S. tax administration.

Main Stakeholders Affected

• Small Businesses: Primary beneficiaries, including non-public corporations, partnerships, and sole proprietorships with gross receipts under $50 million (adjusted for inflation), gaining enhanced rights in audits, appeals, and collections.
• IRS Employees and Leadership: Subject to higher penalties, mandatory discipline, and procedural limits, affecting officers, appeals staff, and the Commissioner.
• General Taxpayers: Individuals and families protected by disclosure rules, home lien limits, and audit deductions; low-income taxpayers get mediation cost relief.
• Oversight Bodies: TIGTA and the National Taxpayer Advocate, with expanded review roles and a fixed term for the Advocate.
• Tax-Exempt Organizations: Indirectly affected by rules against ideological bias in status reviews.

Notable Legal, Constitutional, or Political Implications

• Legal Implications: Bolsters taxpayers' ability to sue the IRS with higher damages and longer deadlines, potentially leading to more court challenges and settlements; clarifies appeal scopes to prevent IRS "ambush" tactics, promoting efficient dispute resolution.
• Constitutional Implications: Enhances due process (fair hearings without bias or ex parte influence) and equal protection by mandating reviews for discrimination based on race, religion, or ideology, aligning with Fifth and Fourteenth Amendment principles in tax enforcement.
• Political Implications: Addresses concerns over IRS overreach and perceived political targeting (e.g., in tax-exempt applications), fostering public trust in tax administration; could influence IRS funding or reforms in future budgets, though it may strain agency resources without new appropriations.

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

Sponsor

Sen. Cornyn, John [R-TX]

Recent Actions

• 2025-04-09: Read twice and referred to the Committee on Finance.
• 2025-04-09: Introduced in Senate

Bill Versions

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

Related Bills

• H.R. 2782 (119th Congress)