The Small Business Taxpayer Bill of Rights Act of 2025 aims to enhance taxpayer protections by modifying standards for awarding costs and fees, increasing civil damages for certain violations, and addressing misconduct within the IRS.
John Cornyn
Senator
TX
The Small Business Taxpayer Bill of Rights Act of 2025 aims to enhance taxpayer rights and protections by modifying standards for awarding costs and fees, increasing civil damages for certain IRS misconduct, and introducing measures such as banning ex parte discussions and limiting lien enforcement on primary residences. The bill also focuses on improving alternative dispute resolution procedures, increasing penalties for unauthorized disclosures, and ensuring fair treatment by the IRS through measures like mandatory termination for misconduct and reviews by the Treasury Inspector General. Additionally, it includes provisions for deductions for audit expenses, term limits for the National Taxpayer Advocate, IRS levy releases due to economic hardship, and the repeal of partial payment requirements for offers-in-compromise. This act seeks to create a fairer and more transparent system for small businesses and individual taxpayers interacting with the IRS.
Small Business Taxpayer Bill of Rights Act Aims to Boost Protections, Hike IRS Penalties up to $5M
The Small Business Taxpayer Bill of Rights Act of 2025 sets out to rebalance the scales between taxpayers—especially small businesses—and the IRS. This legislation rolls out a series of changes designed to enhance taxpayer protections, increase accountability for IRS actions, and streamline dispute resolution. Key provisions include significantly higher penalties for IRS misconduct, easier pathways for small businesses to recover costs after winning disputes, new rules for independent appeals, and limits on the IRS's ability to seize primary residences.
Giving Small Businesses a Better Shot
Several sections directly target the challenges faced by smaller operations. Under Section 2, small businesses (defined generally as those with average gross receipts under $50 million annually) that prevail against the IRS can recover costs and fees without facing the old net worth limitations. This could make challenging the IRS more feasible for businesses that previously couldn't risk the legal bills, even if they were in the right. Furthermore, Section 17 removes the requirement to make a partial payment upfront when submitting an offer-in-compromise (OIC) to settle tax debt, potentially opening this option to more cash-strapped taxpayers. Section 16 also expands the definition of 'economic hardship' for releasing an IRS levy to specifically include the financial condition of a viable trade or business, requiring the IRS to consider the business's survival (Sec. 16(a)(4)).
Putting Teeth into Taxpayer Rights and IRS Accountability
The bill significantly increases the stakes for IRS errors and misconduct. If an IRS employee recklessly or intentionally disregards tax laws, the maximum civil damages a taxpayer can seek jumps from $1 million to $5 million (Sec. 3), and the window to file such a claim extends from 2 to 5 years. Penalties for unauthorized disclosure or inspection of tax information also see a tenfold increase, from $1,000 to $10,000 per instance (Sec. 5), with similar hikes for other offenses by IRS personnel (Sec. 4, Sec. 9). Section 12 mandates placing employees on unpaid leave for certain misconduct and requires the Treasury Inspector General for Tax Administration (TIGTA) to review IRS selection criteria to prevent targeting based on ideology (Sec. 13). While the bill mandates termination for some violations, like improper ex parte communications (Sec. 6), it also gives the Commissioner discretion to apply lesser penalties in certain situations, the application of which will be key.
Reshaping Appeals and Disputes
Dealing with IRS appeals could look different under this act. Section 6 explicitly bans ex parte communications – private side chats between IRS appeals officers and other IRS employees about a case. Taxpayers gain the right to an independent conference where IRS compliance staff can only attend if the taxpayer agrees (Sec. 7). Crucially, Section 10 prevents the IRS Independent Office of Appeals from raising entirely new issues or justifications for a tax deficiency that weren't part of the initial determination, aiming to keep the focus on the original dispute. For those seeking alternatives to formal appeals, Section 8 strengthens access to mediation and arbitration, allowing taxpayers to request these options and even choose an independent, non-IRS mediator (cost-sharing applies unless the taxpayer meets low-income thresholds).
Other Notable Changes
Beyond the major themes, the bill includes several other adjustments. Section 11 adds hurdles for the IRS seeking to force the sale of a taxpayer's primary home to satisfy a tax lien, requiring a written determination that other assets are insufficient and that the sale won't cause economic hardship. For individuals undergoing intensive National Research Program (NRP) audits, Section 14 introduces a potential deduction of up to $5,000 for related expenses if the audit results in no tax increase. Finally, Section 15 establishes a 10-year term limit for the National Taxpayer Advocate to ensure fresh perspectives in taxpayer advocacy leadership.