A bill to amend the Internal Revenue Code of 1986 to improve the notice and review procedure with respect to multi-year bans on claiming credits.
- Sponsor
- Sen. Bennet, Michael F. [D-CO]
- Committees
- Finance Committee (primary)
- Last action
- Jul 28, 2026
Bottom line
This bill aims to provide taxpayers with greater transparency and judicial recourse when the IRS imposes multi-year bans on claiming specific refundable tax credits, enhancing due process in tax administration.
What it actually does
This bill amends the Internal Revenue Code of 1986 to enhance taxpayer protections and due process concerning multi-year disallowance periods for specific refundable tax credits, including the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit. It mandates that the IRS provide more detailed notices when denying these credits and imposing multi-year bans, grants the Tax Court explicit jurisdiction to review these disallowance periods, and shifts the burden of production to the IRS in certain related court proceedings. It also provides a mechanism to lift improperly imposed disallowance periods and a transition rule for reviewing past cases.
Proponents argue
Proponents argue that the bill strengthens taxpayer rights by ensuring individuals receive clear explanations for credit denials and multi-year bans, and by providing a judicial avenue for challenging these significant penalties. This improves fairness and due process, particularly for low- and middle-income taxpayers who often rely on these credits and may lack the resources to navigate complex IRS procedures without clear guidance.
Opponents contend
Opponents might argue that these changes could increase the administrative burden on the IRS, potentially prolonging tax disputes and requiring significant resource allocation for system updates and increased litigation. They might also contend that shifting the burden of proof could make it harder for the IRS to combat fraud effectively, potentially leading to an increase in erroneous or fraudulent credit claims.
The bill is relatively short and focused, making it accessible for an informed reader to understand its core provisions within a reasonable timeframe.
Section 1(a)
Enhanced Notice Requirements for Credit Denials and Multi-Year Bans
This provision amends Section 6212(a) of the Internal Revenue Code to require the IRS to provide more detailed notices to taxpayers when denying credits under sections 24 (Child Tax Credit), 25A (American Opportunity Tax Credit), or 32 (Earned Income Tax Credit). The notice must identify the denied credits, state the specific grounds for each denial, inform the taxpayer about the multi-year ban consequence, and provide the grounds for any imposed disallowance period, including its length.
Supporters argue
Supporters argue this provision is crucial for taxpayer fairness, allowing individuals to understand precisely why their credits are denied and what steps they need to take to rectify issues or appeal. It prevents taxpayers from being blindsided by multi-year bans and ensures due process.
Critics contend
Critics might suggest that mandating more detailed notices could increase the administrative burden on the IRS, potentially slowing down the processing of deficiency notices and requiring significant resource allocation for system updates.
Tradeoffs
This provision balances the need for clear taxpayer communication and due process against potential administrative overhead for the IRS in generating more comprehensive notices.
Section 1(b)
Tax Court Jurisdiction Over Multi-Year Disallowance Periods
This section grants the Tax Court explicit jurisdiction to review and redetermine the imposition of multi-year disallowance periods for credits under sections 24, 25A, and 32. It allows the Tax Court to determine if such a disallowance period should be imposed, even if asserted by the Secretary in an amended answer. A significant transition rule is included, allowing the Tax Court to retroactively review disallowance periods imposed before the bill's effective date if the original notice lacked adequate grounds for the disallowance.
Section 1(c)
Shift in Burden of Production for Disallowance Periods
This provision amends Section 7491(c) of the Internal Revenue Code to clarify that the IRS bears the burden of production in court proceedings regarding the application of any disallowance period. Furthermore, for certain disallowance periods related to fraud or reckless disregard, the standard of proof required from the IRS will be the same as for fraud cases under Section 7454(a), which typically requires clear and convincing evidence.
Section 1(d)
Modification of Disallowance Period Rules and Statute of Limitations
This section modifies the rules for imposing multi-year disallowance periods for the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit. It clarifies that a disallowance period is triggered by a deficiency notice or a final Tax Court determination. Crucially, it also allows a disallowance period to be lifted if the Tax Court determines it was not properly imposed. Additionally, it suspends the statute of limitations for filing a claim for credit or refund during any period in which the imposition of a disallowance period is pending before the Tax Court, protecting taxpayers' ability to claim refunds if the ban is overturned.
This transition rule grants the Tax Court jurisdiction to retroactively review disallowance periods imposed before the bill's effective date. Specifically, if a deficiency notice for a disallowance period was mailed before 36 months after enactment and did not include the grounds for the disallowance, the Tax Court can redetermine whether that disallowance period was properly imposed. It also grants the Tax Court jurisdiction to determine the amount of any overpayment for taxable years within such a disallowance period, overriding the usual statute of limitations for refunds.
Section 1(b)(3)
Why it matters:It is standard legislative practice to include transition rules when new legal frameworks are introduced, to manage the shift from old to new law. However, its significant retroactive impact on potentially numerous past cases makes it particularly consequential.
Case for: Proponents argue this rule ensures fairness for taxpayers who were subject to multi-year bans without adequate explanation under previous rules, providing a necessary avenue for redress and the potential recovery of legitimate credits.
Case against: Critics might argue that reopening past cases could create significant administrative burdens for the IRS and the Tax Court, potentially leading to a flood of new petitions and complicating tax administration for prior years, without a clear estimate of the fiscal impact.
Estimated impact: Potentially affects a large number of taxpayers who received credit denials and multi-year bans in the years leading up to the bill's enactment, allowing them to seek review and potentially refunds for those years.