Small Business Taxpayer Bill of Rights Raises IRS Misconduct Payout Cap to $5 Million and Bans Upfront OIC Payments

The Small Business Taxpayer Bill of Rights Act of 2025 is essentially an overhaul of the IRS rulebook, stacking the deck with new rights and safeguards for taxpayers, especially small businesses, while dramatically increasing the penalties for IRS misconduct. Think of it as a significant rebalancing of power between the tax collector and the taxpayer.

This bill doesn’t mess around. It immediately raises the maximum amount you can sue the IRS for if an employee intentionally or recklessly ignores tax laws, jumping the civil damages cap from $1 million to $5 million (Sec. 3). Plus, you get more time to file that lawsuit—the window goes from 2 years to 5 years. For small businesses, the bill removes the net worth cap entirely for recovering legal costs in tax disputes, meaning if your business has under $50 million in gross receipts (indexed for inflation), you can fight the IRS and potentially get your legal bills covered, regardless of your total net worth (Sec. 2).

Accountability Gets Real: Firing and Fines

If you’ve ever felt like the IRS had all the power, this bill aims to change that by making accountability mandatory. For certain violations by IRS employees, like improper disclosure of private tax information, the fine is doubled from $5,000 to $10,000 per violation (Sec. 9). Furthermore, the bill introduces a mandatory termination clause for employees who violate the new ban on secret, one-sided conversations (ex parte discussions) during an appeal (Sec. 6). If an IRS employee tries to influence an appeal decision behind closed doors, the Commissioner must fire them, although the Commissioner does retain sole, non-appealable discretion to impose a lesser, but still serious, penalty like a 90-day unpaid leave.

Fair Play in Appeals and Debt Settlement

Two major changes address fairness in the dispute process. First, the IRS Independent Office of Appeals can no longer “sandbag” you. If you appeal an initial audit on one issue, the Appeals Office is now banned from raising any new issues or finding additional taxes owed that weren’t in the original determination (Sec. 10). This means the scope of the appeal is locked down, protecting you from having the IRS expand the dispute against you.

Second, if you’re struggling with tax debt and want to submit an Offer-in-Compromise (OIC)—asking the IRS to settle for less than you owe—the bill repeals the requirement to make a partial payment upfront (Sec. 17). This eliminates a major financial hurdle for individuals and businesses trying to get a fresh start, ensuring that the process of settling debt is more accessible to those who are genuinely struggling.

Protecting Your Home and Privacy

The bill also provides crucial protection for your most valuable asset: your home. The IRS is now severely limited in its ability to place a lien on your principal residence. They can only do so if they first determine in writing that selling all your other assets won’t cover the tax debt and that placing the lien will not cause you severe economic hardship (Sec. 11). This is a significant safeguard against losing your primary home over tax disputes.

On the privacy front, the minimum civil damages you can sue for if the government improperly inspects or shares your private tax data jumps from $1,000 to $10,000 (Sec. 5). Meanwhile, the Treasury Inspector General for Tax Administration (TIGTA) is now mandated to review the IRS’s audit selection criteria every six months to ensure they are not unfairly targeting taxpayers based on race, religion, or political beliefs (Sec. 13). If TIGTA finds discriminatory criteria, they must work with the IRS to eliminate them. This provision aims to ensure the audit process remains purely about tax compliance, not ideology.