A bill to amend the Internal Revenue Code of 1986 to modify procedural requirements for penalties and disallowance periods.
- Sponsor
- Sen. Bennet, Michael F. [D-CO]
- Committees
- Finance Committee (primary)
- Last action
- Jul 28, 2026
Bottom line
This bill aims to enhance taxpayer protections and transparency in the IRS penalty and tax credit disallowance process by requiring supervisory approval and public reporting.
What it actually does
The bill amends the Internal Revenue Code to require explicit supervisory approval for the assessment of tax penalties and the imposition of certain "disallowance periods" related to tax credits, specifically the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit. This approval must be obtained before the taxpayer receives an "appealable notice," which is defined as the first written notice offering appeal rights. Additionally, the bill mandates annual public reporting by the Treasury on all penalties assessed by the IRS.
Proponents argue
Supporters argue that this bill strengthens taxpayer rights by ensuring that penalty assessments and disallowance periods are not automatically applied without proper human review and supervisory approval. They contend that requiring approval before an appealable notice is sent provides taxpayers with a fairer process and reduces instances of erroneous or arbitrary penalties, thereby improving public trust in the IRS. The reporting requirement is also seen as a crucial step towards greater transparency and accountability within the agency.
Opponents contend
Critics might argue that these new procedural requirements could significantly slow down the IRS's ability to process tax returns and enforce tax laws, potentially leading to delays in refunds or increased administrative burdens. They might contend that the existing system already has sufficient safeguards and that adding more layers of approval, especially for automatically calculated disallowance periods, could strain IRS resources and reduce efficiency, ultimately impacting overall tax administration.
The bill is very short and straightforward, making it highly accessible for a reader to understand its core provisions within a short timeframe.
Section 1(a), amending Section 6751(b)(1) of the Internal Revenue Code of 1986.
Enhanced Supervisory Approval for Tax Penalties and Credit Disallowances
This provision modifies existing law to require that no tax penalty or "disallowance period" (a period during which a taxpayer cannot claim certain tax credits) can be assessed unless a supervisor or the IRS Office of Servicewide Penalties personally approves the decision in writing. Crucially, this approval must happen before the IRS sends the taxpayer the first notice that allows them to appeal the decision.
Supporters argue
Supporters argue this provision strengthens taxpayer rights by ensuring a higher level of scrutiny for penalty and disallowance decisions, preventing automated or unchecked assessments. They believe it will lead to fairer outcomes and reduce the burden on taxpayers to challenge potentially incorrect IRS actions.
Critics contend
Critics might contend that this requirement could create significant bureaucratic hurdles for the IRS, slowing down enforcement actions and increasing administrative costs. They may argue it could make it harder for the IRS to efficiently collect taxes and deter non-compliance.
Tradeoffs
This provision balances the goal of taxpayer protection and due process against the IRS's need for efficient and timely tax administration and enforcement.
Section 1(b), adding new Section 6751(d) to the Internal Revenue Code of 1986.
Clarification of Disallowance Periods and Supervisory Approval for Automated Credit Denials
This section defines "disallowance period" specifically for the Child Tax Credit (Section 24), American Opportunity Tax Credit (Section 25A), and Earned Income Tax Credit (Section 32). It further clarifies that even if a disallowance period for these credits is automatically calculated by electronic means, it still requires the supervisory approval mandated by the bill, overriding an existing exception for certain automated penalties.
Section 1(d).
Mandated Annual Public Reporting on IRS Penalty Assessments
This provision requires the Secretary of the Treasury to publish an annual report, starting 24 months after the bill's enactment, detailing all penalties assessed by the IRS during the preceding calendar year. The report must include relevant data broken down by each IRS organizational unit involved in penalty assessment and enforcement, and track the progression and final results of penalties through determination, assessment, and review processes.
This provision explicitly states that the existing exemption for certain automatically calculated penalties from supervisory approval (found in Section 6751(b)(2)(B)) shall not apply to the newly defined "disallowance periods" for the Child Tax Credit, American Opportunity Tax Credit, and Earned Income Tax Credit.
Section 1(b)(2), amending Section 6751(d) of the Internal Revenue Code.
Why it matters:This is standard legislative drafting to modify the application of an existing rule to a new context. It's precise but requires careful reading to understand its full implication.
Case for: Supporters argue this ensures that even disallowances that might otherwise be processed automatically receive human supervisory review, providing a critical safeguard for taxpayers, especially those relying on these important credits, against errors or unfair automated decisions.
Case against: Critics might argue that overriding the automated penalty exemption for these high-volume credits could significantly increase the manual workload for the IRS, leading to delays in processing returns and potentially hindering the efficiency of tax administration.
Estimated impact: This provision ensures that millions of potential disallowances for key tax credits will require human supervisory review, impacting a large segment of taxpayers and IRS operations.