A bill to amend the Internal Revenue Code of 1986 to increase criminal and civil penalties for unauthorized disclosure of taxpayer information, and for other purposes.
- Sponsor
- Sen. Daines, Steve [R-MT]
- Committees
- Finance Committee (primary)
- Last action
- Jun 11, 2026
Bottom line
The bill aims to bolster taxpayer privacy and data security by substantially increasing penalties for unauthorized disclosures, particularly targeting IRS contractors.
What it actually does
This bill significantly increases both criminal and civil penalties for the unauthorized disclosure of taxpayer information. It raises the maximum criminal fine from $5,000 to $250,000 and imprisonment from 5 to 7 years for individuals. Crucially, it establishes a new felony offense for IRS contractors who willfully fail to maintain safeguards, resulting in unauthorized disclosure, imposing fines up to $500,000 or 25% of their contract value. Additionally, it increases the minimum civil damages for unauthorized disclosures from $1,000 to $5,000.
Proponents argue
Proponents argue that stronger penalties are essential to deter unauthorized access and disclosure of sensitive taxpayer information, which is paramount for maintaining public trust in the IRS. They emphasize the need to hold all entities, including third-party contractors, to the highest standards of data security, especially given the increasing reliance on external vendors for handling federal data. The increased penalties reflect the serious harm caused by such breaches and provide a more robust deterrent.
Opponents contend
While the core intent of protecting taxpayer information is widely supported, potential concerns from some might revolve around the severity of the new contractor penalties. Critics could argue that the fines, particularly the 25% of contract value, might be disproportionately high for certain types of contractors or could create an overly punitive environment that discourages companies from contracting with the IRS, potentially limiting access to specialized expertise. However, no direct organized opposition is typically raised against measures designed to enhance data privacy and security.
The bill is short and clearly written, making it accessible for a quick read and easy comprehension of its core provisions.
Section 1(a)(1)
Increased Criminal Penalties for Unauthorized Disclosure
This provision amends Section 7213(a) of the Internal Revenue Code of 1986 to significantly increase the criminal penalties for individuals who unlawfully disclose taxpayer returns or return information. The maximum fine for such offenses is raised from $5,000 to $250,000, and the maximum prison sentence is extended from 5 years to 7 years. This applies to various scenarios of unauthorized disclosure by federal and state employees, and other specified persons.
Supporters argue
Proponents argue that the previous penalties were insufficient to deter serious breaches of taxpayer privacy. Increasing fines and imprisonment terms sends a clear message about the gravity of these offenses and provides a stronger deterrent against malicious or negligent disclosures, thereby better safeguarding sensitive financial data.
Critics contend
No specific opposition is typically raised against increasing penalties for unauthorized disclosure, as protecting taxpayer privacy is a widely supported goal. However, some might generally argue for a focus on preventative measures rather than solely punitive ones, or question if the increased penalties will truly deter highly sophisticated actors.
Tradeoffs
The primary tradeoff is between the desire for robust deterrence and ensuring that penalties are proportionate. While higher penalties aim to deter, they also increase the potential severity of consequences for individuals, which could lead to more protracted legal battles.
Section 1(a)(2)
New Felony for IRS Contractor Safeguard Failures
This section creates a new felony offense, Section 7213B, specifically for contractors of the Internal Revenue Service. If an IRS contractor willfully fails to implement or enforce required safeguards for protecting confidential taxpayer information, and this failure results in an unauthorized disclosure, the contractor can be fined the greater of $500,000 or 25% of the total amount obligated under all contracts with the IRS during the fiscal year they first accessed the disclosed information. This provision also includes conforming amendments to other sections of the Internal Revenue Code to reflect this new offense.
Section 1(b)
Increased Civil Damages for Unauthorized Disclosure
This provision amends Section 7431(c)(1)(A) of the Internal Revenue Code of 1986 to increase the minimum amount of civil damages a taxpayer can receive for an unauthorized inspection or disclosure of their return or return information. The minimum damage award is raised from $1,000 to $5,000 per act of unauthorized disclosure. This provides a more substantial remedy for individuals whose privacy has been violated.
Section 1(c)
Effective Date
This section specifies that the amendments made by this Act, which increase criminal and civil penalties for unauthorized disclosures of taxpayer information, will apply to any disclosures or inspections that occur after the date the Act is officially enacted into law. This means that any unauthorized disclosures happening before the enactment date would be subject to the old penalty structure, while those after would fall under the new, stricter rules.
These subsections include clerical and conforming amendments. Specifically, 1(a)(2)(C) amends sections 6103(e)(11), 6105(d), 7431(e), and 7513(c) of the Internal Revenue Code to incorporate references to the new Section 7213B, which establishes the felony offense for IRS contractors. The amendment to 7431(e) is particularly notable as it expands the requirement for the Secretary to notify taxpayers of unauthorized inspections or disclosures to include violations of the new Section 7213B(a).
Section 1(a)(2)(B) and (C)
Why it matters:This is standard legislative practice to ensure that new provisions are properly integrated into existing law and that all related sections are updated. It's not necessarily evasive, but the technical nature makes it less prominent.
Case for: These amendments are crucial for the new contractor liability provision to function correctly within the existing legal framework. The expansion of taxpayer notification ensures that individuals are informed when a contractor's failure leads to a breach, which is vital for transparency and accountability.
Case against: There is no direct case against these conforming amendments, as they are necessary for the bill's coherence. However, if the underlying new felony provision were controversial, these amendments would inherit that controversy.
Estimated impact: Ensures the new contractor felony is legally enforceable and that taxpayers are notified of breaches stemming from contractor failures, reinforcing the bill's core intent.
The definition of 'contractor of the Internal Revenue Service' is provided in subsection (b) of the newly inserted Section 7213B. It states that the term means 'any person described in section 6103(n) (including any officer or employee of such person) in connection with a written contract with the Internal Revenue Service.' Section 6103(n) broadly refers to persons to whom returns and return information may be disclosed for purposes of tax administration, including contractors, agents, and other third parties.
Section 1(a)(2)(A), new Section 7213B(b)
Why it matters:This is a common legislative technique to avoid redundancy and ensure consistency with existing statutory definitions. It's standard practice rather than an attempt to obscure.
Case for: Using an existing, well-established definition from Section 6103(n) ensures that the new felony provision applies consistently to all types of third parties already authorized to receive taxpayer information under contract with the IRS. This avoids creating conflicting definitions or unintended gaps in coverage.
Case against: No specific case against this definitional approach. The primary concern would be if the scope of 6103(n) itself were deemed too broad or too narrow for the purposes of this new felony, but that would be a critique of existing law rather than this bill's drafting.
Estimated impact: Clarifies the broad range of entities and individuals (including their officers and employees) who are subject to the new felony penalties for safeguard failures, ensuring comprehensive coverage for IRS contractors.