SEC. 3. CIVILDAMAGES FOR — Internal Revenue Bulletin 1997-43

UNAUTHORIZED INSPECTION OF RETURNS AND RETURN INFORMATION; NOTIFICATION OF UNLAWFULINSPECTION OR DISCLOSURE.

(a) CIVIL DAMAGES FOR UNAUTHORIZED IN S P E C T I O N.—Subsection (a) of section 7431 of the Internal Revenue Code of 1986 is amended— (1) by striking “D ISCLOSURE” in the headings for paragraphs (1) and (2) and inserting “IN S P E C T I O N O R D I S C L O

(3) Subsection (f) of section 7431 of such Code, as redesignated by subsection (b), is amended to read as follows: “(f) DEFINITIONS.—For purposes of this section, the terms ‘inspect’, ‘inspection’, ‘return’, and ‘return information’have the respective meanings given such terms by section 6103(b).”.

SURE”, and

(2) by striking “discloses” in paragraphs (1) and (2) and inserting “inspects or discloses”. (b) NOTIFICATION OF UNLAWFUL INSPEC

(4) The section heading for section 7431 of such Code is amended by inserting “INSPECTION OR” before “DISCLOSURE”.

(5) The table of sections for subchapter B of chapter 76 of such Code is amended by inserting “inspection or” before “disclosure” in the item relating to section 7431.

T I O N O R DI S C L O S U R E.—Section 7431 of such Code is amended by redesignating subsections (e) and (f) as subsections (f) and (g), respectively, and by inserting after subsection (d) the following new subsection:

“(e) NO T I F I C AT I O N O F UN L AW F U L IN

I. Summary and Background . . . . . . . . . . .14

A. Summary . . . . . . . . . . . . . . . . . . . . . .14 B. Background and Reasons for

“(1) paragraph (1) or (2) of section 7213(a), “(2) section 7213A(a), or “(3) subparagraph (B) of section 1030(a)(2) of title 18, United States Code,

(6) Paragraph (2) of section 7431(g) of such Code, as redesignated by subsection (b), is amended by striking “any use” and inserting “any inspection or use”. (e) EF F E C T I V E DAT E.—The amendments made by this section shall apply to inspections and disclosures occurring on and after the date of the enactment of this A c t .

I. SUMMARY AND BACKGROUND

A. SU M M A RY

H.R. 1226, as reported by the Commit

Legislation . . . . . . . . . . . . . . . . . . . . .15 C. Legislative History . . . . . . . . . . . . . . .15 II. Explanation of the Bill . . . . . . . . . . . . . .15 III. Vote of the Committee . . . . . . . . . . . . .15 IV. Budget Effects of the Bill . . . . . . . . . . .15

A. Committee Estimates of

October 27, 1997 14 1997–43 I.R.B.

tee on Ways and Means, provides for a criminal penalty for unauthorized willful inspection (“browsing”) of tax returns and return information. The bill provides for civil damages for unauthorized inspection, and also contains a notification requirement.

B. BACKGROUND AND REASONS FOR

LEGISLATION

Widespread indications of browsing have made it imperative that Congress create a criminal penalty in the Internal Revenue Code to penalize this behavior.

C. LEGISLATIVE HISTORY

Committee bill

H.R. 1226 was introduced by Chairman Archer (for himself, Ms. Dunn, Mr. Rangel, Mrs. Johnson of Connecticut, Mr. Coyne, Mr. Thomas, Mr. Herg e r, Mr. Camp, Mr. Ensign, Mr. Hayworth, Mr. We l l e r, Mrs. Kennelly of Connecticut, M r. Levin, Mr. Kleczka, Mr. Lewis of Georgia, Mr. Neal of Massachusetts, Mr. Jefferson, Mr. Tanner, Mrs. Thurman, and M r. Portman) on April 8, 1997. The bill was considered in a Committee on Ways and Means markup on April 9, 1997, and was ordered favorably reported, with an amendment, by voice vote.

II. EXPLANATION OFTHE BILL

PRESENT LAW

The Internal Revenue Code prohibits disclosure of tax returns and return information, except to the extent specifically authorized by the Internal Revenue Code (sec. 6103). Unauthorized willful disclosure is a felony punishable by a fine not exceeding $5,000 or imprisonment of not more than five years, or both (sec. 7213). An action for civil damages also may be brought for unauthorized disclosure (sec. 7431). There is no explicit criminal penalty in the Internal Revenue Code for unauthorized inspection (absent subsequent disclosure) of tax returns and return information. Such inspection is, however, explicitly prohibited by the Internal Revenue Service (“IRS”).1 In a recent case, an

Federal wire fraud statute (18 U.S.C. 1343 and 1346) and a Federal computer fraud statute (18 U.S.C. 1030) for unauthorized inspection. However, the U.S. First Circuit Court of Appeals overturned this conviction.2 Unauthorized inspection

Budget authority

this conviction.2 Unauthorized inspection

of information of any department or agency of the United States (including the IRS) via computer was made a crime under 18 U.S.C. 1030 by the Economic Espionage Act of 1996.3 This provision

Espionage Act of 1996.3 This provision

does not apply to unauthorized inspection of paper documents.

REASONS FOR CHANGE

The Committee believes that it is important to have a criminal penalty in the Internal Revenue Code to punish this type of behavior. The Committee also believes that it is appropriate to provide for civil damages for unauthorized inspection parallel to civil damages for unauthorized disclosure.

EXPLANATION OF PROVISIONS

Criminal penalties (sec. 2 of the bill and

new sec. 7213A of the Code) The bill creates a new criminal penalty in the Internal Revenue Code. The penalty is imposed for willful inspection (except as authorized by the Code) of any tax return or return information by any Federal employee or IRS contractor. The penalty also applies to willful inspection (except as authorized) by any State employee or other person who acquired the tax return or return information under specific provisions of section 6103. Upon conviction, the penalty is a fine in any amount not exceeding $1,000,4 or imprisonment of not

unauthorized inspection, and that it is appropriate to fire employees who do this.

Civil damages (sec. 3 of the bill and sec.

7431 of the Code) The bill amends the provision providing for civil damages for unauthorized disclosure by also providing for civil damages for unauthorized inspection. Damages are available for unauthorized inspection that occurs either knowingly or by reason of negligence. Accidental or inadvertent inspection that may occur (such as, for example, by making an error in typing in a TIN) would not be subject to damages because it would not meet this standard. T h e bill also provides that no damages are available to a taxpayer if that taxpayer requested the inspection or disclosure.

The bill also requires that, if any person is criminally charged by indictment or information with inspection or disclosure of a taxpayer’s return or return information in violation of section 7213(a) or (b), section 7213A (as added by the bill), or 18 U.S.C. section 1030 (a)(2)(B), the Secretary notify that taxpayer as soon as practicable of the inspection or disclosure.

EFFECTIVE DATE

The bill is effective for violations occurring on or after the date of enactment.

III. VOTE OFTHE COMMITTEE

In compliance with clause 2(l)(2)(B) of rule XI of the Rules of the House of Representatives, the following statement is made concerning the vote on the motion to report the bill. The bill (H.R. 1226) was ordered favorably reported, as amended by voice vote on April 9, 1997, with a quorum present.

I V. BUDGETEFFECTS OFTHE BILL

A. COMMITTEE ESTIMATES

In compliance with clause 7(a) of rule XIII of the Rules of the House of Representatives, the following statement is made concerning the estimated budget effects of the bill as reported.

The bill, as reported, is estimated to have an indeterminate revenue effect.

B. BUDGET AUTHORITYAND TAX

EXPENDITURES

enue Service (“IRS”).1 In a recent case, an

individual was convicted of violating the

ceeding $1,000,4 or imprisonment of not

more than 1 year, or both, together with the costs of prosecution. In addition, upon conviction, an officer or employee of the United States would be dismissed from office or discharged from employment.

The Congress views any unauthorized inspection of tax return information as a very serious offense; this new criminal penalty reflects that view. The Congress also believes that unauthorized inspection warrants very serious personnel sanctions against IRS employees who engage in

2 U.S. v . Czubinski, DTR 2/25/97, p. K–2. 3P.L. 104–294, sec. 201 (October 11, 1996). 4Pursuant to 18 U.S.C. sec. 3571 (added by the Sentencing Reform Act of 1984), the amount of the fine is not more than the greater of the amount specified in this new Code section or $100,000.

fine is not more than the greater of the amount spec- In compliance with subdivision (B) of

1IRS Declaration of Privacy Principles, May 9, 1994. ified in this new Code section or $100,000. clause 2(l)(3) of rule XI of the Rules of

1997–43 I.R.B. 15 October 27, 1997

the House of Representatives, the Committee states that the provisions of the bill as reported involve no new or increased budget authority.

Tax expenditures

In compliance with subdivision (B) of clause 2(l)(3) of rule XI of the Rules of the House of Representatives, the Committee states that the provisions of the bill as reported involve no new or increased tax expenditures.

C. COST ESTIMATE PREPARED BY THE CON GRESSIONAL BUDGET OFFICE

In compliance with subdivision (C) of clause 2(l)(3) of rule XI of the Rules of the House of Representatives, requiring cost estimate prepared by the Congressional Budget Office, the Committee advises that the Congressional Budget Office has submitted the following Statement on this bill.

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, April 11, 1997.

Hon. BILL ARCHER, Chairman, Committee on Ways and Means, House of Representatives, Washington, DC.

DE A R MR. CH A I R M A N: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1226, the Taxpayer Browsing Protection Act.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Mark Grabowicz.

Sincerely,

JUNE E. O’NEILL, Director.

Enclosure.

H.R. 1226—Taxpayer Browsing

Protection Act

H.R. 1226 would ban the authorized inspection of federal tax returns or tax return information. Violators of the bill’s provisions would be subject to a criminal fine and imprisonment. In addition, H.R. 1226 would permit taxpayers whose returns are unlawfully inspected to bring a civil action against the United States.

CBO estimates that enacting this legislation would have no significant impact on the federal budget. While the bill could lead to increases in both direct spending and receipts, the amounts involved would

be less than $500,000 a year. Because H.R. 1226 could affect direct spending and receipts, pay-as-you-go procedures would apply.

Enacting H.R. 1226 could increase government receipts from criminal fines. Such fines would be deposited in the Crime Victims Fund and would be spent in the following year. Thus, direct spending from the fund would match the increase in revenues with a one-year lag. In any case, CBO estimates that the criminal fines would likely total less than $500,000 a year.

Enacting this legislation also could increase civil actions by taxpayers against the Internal Revenue Service. Successful litigants would be paid from a permanent, indefinite appropriation for Claims, Judgments, and Relief Acts. CBO estimates that any increase in direct spending from such payments also would total less than $500,000 annually.

H.R. 1226 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act of 1995 and would not impose costs on state, local, or tribal governments.

The CBO staff contact for this estimate is Mark Grabowicz. This estimate was approved by Robert A. Sunshine, Deputy Assistant Director for Budget Analysis.

With respect to subdivision (D) of clause 2(l)(3) of rule XI of the Rules of the House of Representatives, the Com

V. OTHER MATTERS TO BE

DISCUSSED UNDER THE

RULES OFTHE HOUSE

A. COMMITTEE OVERSIGHT FINDINGS

AND RECOMMENDATIONS

With respect to subdivision (A) of clause 2(l)(3) of rule XI of the Rules of the House of Representatives (relating to oversight findings), the Committee advises that it was the result of the Committ e e ’s oversight activities concerning reports of unauthorized “browsing” of taxpayer’s returns and return information by Internal Revenue Service personnel that the Committee concluded that it is appropriate to enact the provisions contained in the bill as reported.

B. SUMMARY OF FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE

ON GOVERNMENT REFORM

AND OVERSIGHT

mittee advises that no oversight findings or recommendations have been submitted to this Committee by the Committee on Government Reform and Oversight with respect to the provisions contained in the bill.

C. CONSTITUTIONAL AUTHORITY

STATEMENT

With respect to clause 2(l)(4) of Rule XI of the Rules of the House of Representatives (relating to Constitutional A u t h o r i t y ), the Committee states that the Committee’s action in reporting this bill is derived from Article I of the Constitution, Section 7 (“All bills for raising revenue shall originate in the House of Representatives”) and Section 8 (“The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts * * * of the United S t a t e s ” ) .

D. INFORMATION RELATING TO

UNFUNDED MANDATES

This information is provided in accordance with section 423 of the Unfunded Mandates Act of 1995 (P.L. 104–4).

The Committee has determined that the provisions of the bill do not impose a Federal mandate on the private sector nor a Federal intergovernmental mandate. Thus, the provisions of the bill do not affect the competitive balance between the private sector and State, local, and tribal government.

E. AP P L I C A B I L I T YO F HO U S E RU L E

X X I 5 (C)

Rule XXI5(c) of the Rules of the House of Representatives provides, in part, that “No bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase shall be considered as passed or agreed to unless so determined by a vote of not less than threefifths of the Members.” 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 increase within the meaning of the rule.

VI. CHANGES IN EXISTING LAWMADE BYTHE BILL,

AS REPORTED

In compliance with clause 3 of Rule XIII of the Rules of the House of Representatives, changes in existing law made

October 27, 1997 16 1997–43 I.R.B.

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).

INTERNALREVENUE

CODE OF 1986

Subtitle F–Procedure

and Administration

CHAPTER 75—CRIMES, OTHER OFFENSES, AND

FORFEITURES

SubchapterA—Crimes

PA RT I — G E N E R A LP R O V I S I O N S

Sec. 7201. Attempt to evade or defeat tax.

Sec. 7213A . Unauthorized inspection of

returns or return information.