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

This section establishes the short title of the Act as the "Small Business Taxpayer Bill of Rights Act of 2025" and sets forth the table of contents.

This section modifies the eligibility standards under Internal Revenue Code (IRC) section 7430—which authorizes the prevailing party in Tax Court proceedings, civil tax actions in federal court, or IRS administrative proceedings to recover reasonable litigation costs from the United States, subject to conditions including a $7 million net worth limit—to exempt eligible small businesses from that net worth limitation. It defines an eligible small business, for proceedings commenced in a taxable year, as (1) a non-publicly traded corporation, partnership, or sole proprietorship with average annual gross receipts of $50 million or less for the prior three taxable years (using rules similar to IRC section 448(c)(2) and (3)), with the $50 million threshold adjusted annually for inflation after 2025 (using 2024 as the base year and rounded to the next lowest multiple of $500); and (2) applies these changes to proceedings commenced after the date of enactment. (Thus, qualifying small businesses may recover costs regardless of net worth.)

This section increases maximum civil damages under IRC §7433(b) for reckless or intentional disregard of internal revenue laws (or negligence) by IRS employees to $5 million ($500,000 in negligence cases) from $1 million ($100,000). It also (1) adds inflation adjustments to those amounts for calendar years after 2025, based on the cost-of-living adjustment under IRC §1(f)(3) using calendar year 2023 as the base period and rounded to the next lowest multiple of $500; and (2) extends the statute of limitations for such actions to five years (from two years). The amendments apply to employee actions after enactment.

This section amends Section 7214 of the Internal Revenue Code to (1) increase the maximum fine for offenses by officers and employees acting under the revenue laws (e.g., demanding bribes or unlawful payments, disclosing returns) from $10,000 to $25,000 under subsection (a), and (2) increase the maximum fine for unlawfully receiving compensation from $5,000 to $10,000 under subsection (b). The section also requires annual inflation adjustments to those amounts for calendar years after 2025 using the cost-of-living adjustment under Code section 1(f)(3) with calendar year 2024 as the base year (rounded to the next lowest multiple of $100). These changes take effect on the date of enactment.

This section modifies civil damages for unauthorized inspection or disclosure of taxpayer returns and return information by (1) increasing the damages amount to $10,000 (from $1,000) in section 7431(c)(1)(A); (2) requiring annual inflation adjustment of the $10,000 amount for calendar years after 2025, based on the cost-of-living adjustment under section 1(f)(3) using calendar year 2024 as the base year and rounded down to the next lowest multiple of $100; and (3) extending the period for bringing an action to 5 years (from 2 years) in section 7431(d). The changes apply to inspections and disclosures occurring on or after the date of enactment.

This section prohibits ex parte communications between officers in the Internal Revenue Service (IRS) Independent Office of Appeals and other IRS employees regarding any matter pending before such officers (notwithstanding section 1001(a)(4) of the Internal Revenue Service Restructuring and Reform Act of 1998, which permitted certain communications). It requires the IRS Commissioner to terminate any employee found, via final administrative or judicial determination, to have violated this prohibition—deeming such termination a removal for cause on charges of misconduct—unless the Commissioner, at sole non-delegable discretion, imposes a lesser personnel action (with no administrative or judicial appeal permitted). The section further amends IRC §7803(d)(1)(E) to require the Treasury Inspector General for Tax Administration to report on any such terminations or mitigations.

This section establishes a taxpayer's right to a conference with the Internal Revenue Service Independent Office of Appeals (IRS Independent Office of Appeals) that excludes personnel from the IRS Office of Chief Counsel or compliance functions unless the taxpayer specifically consents to their participation. (Thus, the provision codifies independence in the appeals process, which resolves tax disputes impartially prior to litigation.)

This section amends IRC §7123, which authorizes the IRS Independent Office of Appeals to provide mediation and arbitration to resolve tax disputes before litigation, to require that such procedures and a related pilot program generally allow taxpayers to request mediation or arbitration in any case unless the Secretary publicly excludes the issue type or case class within 5 working days with an explanation. It further requires the procedures to (1) allow taxpayers to elect an independent mediator not employed by the IRS Appeals Office, selected from a roster of recognized neutrals, with costs shared equally except for individuals or small businesses (as defined in IRC §41(b)(3)(D)(iii)) with adjusted gross income not exceeding 250% of the poverty level (per OMB criteria) in the prior taxable year; and (2) permit such elections upon filing the case with Appeals or before deliberations commence. The amendments apply to cases on or after the date of enactment.

This section doubles the civil penalty for unauthorized inspection or disclosure of taxpayer return information to $10,000 (from $5,000) in paragraphs (1), (2), (3), and (4) of IRC §7213(a); requires those amounts to be increased annually after 2025 by the cost-of-living adjustment under IRC §1(f)(3) with calendar year 2023 as the base year (rounded to the next lowest multiple of $100); and applies these changes to disclosures made after the date of enactment. (These penalties apply to IRS personnel and certain others who unlawfully access or disclose confidential taxpayer information.)

This section establishes in new IRC § 7531 a prohibition on the Internal Revenue Service Independent Office of Appeals considering or deciding, during review of an appeal, any issue outside the scope of the initial IRS determination (i.e., typically from an audit or notice of deficiency). Matters deemed outside that scope include (1) any issue not raised in a notice of deficiency or examiner's report, (2) any tax deficiency not included in the initial determination, and (3) any new theory or justification for a tax deficiency. The prohibition does not limit taxpayers' rights to raise new issues on appeal. The provision applies to matters filed or pending with the IRS Independent Office of Appeals on or after enactment.

This section limits IRS enforcement of tax liens against a taxpayer's principal residence (as defined in IRC §121(i.e., the taxpayer's main home)) by prohibiting civil court actions under IRC §7403(a)(1) unless the Secretary of the Treasury determines in writing that (1) the taxpayer's other property, if sold, is insufficient to pay the tax liability and (2) enforcement will not create economic hardship for the taxpayer. Such determinations may not be delegated below the Commissioner of Internal Revenue or an IRS district or assistant district director. The limitation applies to actions filed after enactment.

This section amends Section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998—which requires termination of IRS employees for specified misconducts violating taxpayer rights—as follows: (1) adds as a new mandatory termination offense, in paragraph (b)(11), the development or use of any methodology applying disproportionate scrutiny to a section 501(c) tax-exempt organization application based on the ideology expressed in the organization's name or purpose; (2) requires, in subsection (c)(1), unpaid administrative leave of at least 90 days for any employee not terminated for a subsection (b) misconduct; and (3) limits, in subsection (c)(1), the Commissioner's authority to impose alternative punishments except for misconduct described in subsection (b)(3)(A).

This section amends duties of the Treasury Inspector General for Tax Administration (TIGTA) under 5 U.S.C. §412(k)(1) to require TIGTA to (1) review criteria used by the Internal Revenue Service (IRS) to select tax returns (including applications for tax-exempt status) for examination, audit, deficiency assessment or collection, criminal investigation or referral, refunds, or heightened scrutiny to determine whether such criteria discriminate against taxpayers based on race, religion, or political ideology; and (2) consult with the IRS on recommended amendments to eliminate any identified discrimination. The section further amends 5 U.S.C. §412(g) to require TIGTA semiannual reports—prepared pursuant to the Inspector General Act of 1978, 5 U.S.C. §405(b)—to include (1) a statement affirming completion of the required reviews and IRS consultations; and (2) descriptions and explanations of any discriminatory criteria identified.

This section establishes an above-the-line deduction under new IRC §224 for individuals of up to $5,000 in qualified National Research Program (NRP) expenses paid or incurred in a taxable year. Qualified NRP expenses are amounts otherwise deductible under IRC §162 or §212(3) that relate to an NRP audit of the taxpayer's income tax return (i.e., an IRS compliance research audit program), but only if the audit results in no increase in tax liability; the deduction applies to taxable years beginning after enactment, with no double benefit allowed under other Code provisions.

This section establishes a 10-year term for the National Taxpayer Advocate (i.e., the senior Internal Revenue Service official who assists taxpayers in resolving IRS issues, identifies taxpayer rights problems in tax administration, and reports semi-annually to congressional tax committees), with the initial term commencing 18 months after enactment and subsequent terms beginning the day after the prior term expires (allowing reappointment to multiple terms). The term of any individual serving as National Taxpayer Advocate on the date of enactment ends the day before that initial term commences, unless reappointed to a subsequent term.

This section revises the criteria under IRC §6343(a)(1)(D) for the IRS to release a levy due to economic hardship to include the financial condition of a taxpayer's viable trade or business. It further directs the Secretary, in determining economic hardship for business taxpayers, to consider (1) the economic viability of the business, (2) the nature and extent of the hardship created by the levy (including whether the taxpayer exercised ordinary business care and prudence), and (3) the potential harm to individuals if the business is liquidated. The changes apply to levies made after the date of enactment.

This section repeals the partial payment requirement for offers-in-compromise (OICs) under IRC §7122(c) (i.e., the prior mandate that taxpayers submit 20% of a lump-sum OIC or the first proposed installment payment of a periodic OIC). It further provides that user fees for an OIC reduce the assessed tax or other amounts subject to the OIC; makes conforming amendments to IRC §§7122 and 6159; and applies to OICs submitted after enactment.