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

This bill, titled the Small Business Taxpayer Bill of Rights Act of 2025, is designed to enhance the rights and protections afforded to small businesses in their dealings with the Internal Revenue Service (IRS). Below are the key provisions of the legislation:

Modification of Standards for Awarding Costs and Fees

The bill proposes changes to make it easier for small businesses to recover certain costs and fees related to tax proceedings. Specifically, it removes the net worth limitation that currently applies, allowing small businesses with net worths above this limit to still be eligible for cost recovery.

Civil Damages for IRS Misconduct

The legislation increases the civil damages that small businesses can claim against the IRS for reckless or intentional disregard of tax laws. The amount of damages is raised from $1 million to $5 million, and from $100,000 to $500,000 for negligence. It also extends the time frame to bring such actions from 2 years to 5 years.

Modifications for IRS Employee Offenses

The bill amends penalties for IRS officers and employees who engage in misconduct relating to tax laws. It raises the penalty from $10,000 to $25,000 for certain offenses, with similar adjustments for other lesser offenses.

Civil Damages for Unauthorized Disclosure

It increases the monetary penalties for unauthorized inspection or disclosure of taxpayer information from $1,000 to $10,000 and extends the period for bringing actions for these damages from 2 years to 5 years.

Ex Parte Communications

This provision prohibits any ex parte communications (private discussions) between IRS enforcement employees and managers regarding ongoing cases, aiming to increase transparency and fairness in decision-making processes.

Right to Independent Conference

The bill gives taxpayers the right to a conference with the IRS Independent Office of Appeals without involvement from IRS enforcement personnel, unless specifically permitted by the taxpayer.

Alternative Dispute Resolution

Taxpayers can request mediation or arbitration for disputes with the IRS, promoting alternative methods to resolve conflicts outside of traditional litigation. Independent mediators can be involved unless excluded by the IRS.

Increased Penalties for Unauthorized Disclosures

The bill raises penalties related to unauthorized disclosures of taxpayer information to a consistent $10,000 and adjusts these amounts annually for inflation.

Limitation on Appeals

The IRS will not be allowed to raise new issues during the internal appeals process, ensuring that only matters initially addressed are considered on appeal.

Liens Against Principal Residences

It restricts the enforcement of liens against taxpayers’ principal residences unless the IRS demonstrates that all other means of repayment are insufficient and that such action won’t cause economic hardship.

Additional Provisions for IRS Misconduct

The bill also includes provisions that mandate the termination of IRS employees engaged in certain types of misconduct regarding tax-exempt status reviews, particularly where disproportionate scrutiny is applied based on ideology.

Review by Treasury Inspector General

The legislation allows the Treasury Inspector General for Tax Administration to review criteria used by the IRS to select taxpayers for audits to ensure there is no discrimination based on race, religion, or political beliefs.

Deduction for Audit Expenses

It permits individuals to deduct up to $5,000 for expenses related to certain tax audits, provided these do not increase tax liability for the year under audit.

Term Limit for the National Taxpayer Advocate

The term of the National Taxpayer Advocate is set at 10 years, allowing for better continuity in taxpayer advocacy efforts.

Release of IRS Levy Due to Economic Hardship

The bill modifies current provisions to allow the IRS to consider economic hardship when determining whether to release levies on business taxpayers’ assets.

Repeal of Partial Payment Requirement for Offers-in-Compromise

It removes the requirement for taxpayers to make partial payments when submitting offers to settle tax debts under an "offer-in-compromise" arrangement.

Effective Date

Most provisions in the bill will take effect upon its enactment, with specific provisions having tailored effective dates.

Relevant Companies

None found.