Authorization of the Tax Court to issue refunds in collection due process cases

(a) In general Section 6330(d)(1) is amended— (1) by striking The person may and inserting the following: (A) In general The person may, (2) by inserting and, unless a challenge was precluded under subsection (c), with respect to the determination of any overpayments of tax for the taxable periods or events at issue in the determination after matter, and (3) by adding at the end the following new subparagraphs: (B) Determination and enforcement of overpayments Rules similar to the rules of paragraphs (1) and (2) of section 6512(b) shall apply for purposes of this paragraph. (C) Limitation on amount of credit or refund (i) In general In the case of any petition under subparagraph (A), no credit or refund shall be allowed or made of any portion of the tax unless the Tax Court determines as part of its decision that such portion was paid— (I) after the notice described in subsection (a)(1) or section 6320(a)(1) (as the case may be) was given, (II) within the period which would be applicable under section 6511(b)(2), (c), or (d), if, on the date the notice described in subsection (a)(1) or section 6320(a)(1) (as the case may be) was given, a claim had been filed (whether or not filed) stating the grounds upon which the Tax Court finds that there is an overpayment, or (III) within the period which would be applicable under section 6511(b)(2), (c), or (d), in respect of any claim for refund filed within the applicable period specified in section 6511 and before the date the notice described in subsection (a)(1) or section 6320(a)(1) (as the case may be) was given— (aa) which had not been disallowed before that date, (bb) which had been disallowed before that date and in respect of which a timely suit for refund could have commenced as of that date, or (cc) in respect of which a suit for refund had been commenced before that date and within the period specified in section 6532. In a case described in subclause (II) where the date the notice described in subsection (a)(1) or section 6320(a)(1) (as the case may be) is given is during the third year after the due date (determined without regard to any extensions) for filing the return of tax and no return was filed before such date, the applicable period under subsections (a) and (b)(2) of section 6511 shall be 3 years. (ii) Date notice was given For purposes of this subparagraph— (I) if notice was given under subsection (a)(2) or section 6320(a)(2) by mail, the date the notice was given shall be the date such notice was mailed, and (II) if notice was given under subsection (a)(2) or 6320(a)(2) by leaving such notice at the dwelling or usual place of business of the person, the date the notice was given shall be the date such notice was left.. (b) Suspension of period of limitations for credit or refund during proceedings (1) In general Section 6330(e)(1) is amended by inserting section 6511 (relating to limitations on credit or refund), after section 6502 (relating to collection after assessment). (2) Prohibition on crediting of overpayments against disputed tax liability during collection action proceedings Section 6402 is amended by adding at the end the following new subsection: (o) Prohibition on crediting of overpayments against disputed tax liability during collection action proceedings If a hearing is properly requested under section 6320(a)(3)(B) or 6330(a)(3)(B), and an underlying tax liability referred to in section 6330(c)(2)(B) is properly disputed at such hearing, such tax liability shall not, except with the consent of the taxpayer, be taken into account under subsection (a) for the period during which the period of limitations for filing a claim for credit or refund relating to such tax liability is suspended by reason of section 6330(e).. (c) Clarification of application of certain levy hearing rules to lien hearings Section 6330(c)(2)(A) is amended by striking unpaid tax or the proposed levy and inserting unpaid tax, collection action, or proposed collection action. (d) Effective date (1) In general Except as otherwise provided in paragraph (2) or (3), the amendments made by this section shall apply to cases pending on or after the date of the enactment of this Act. (2) Prohibition on crediting of overpayments The amendment made by subsection (b)(2) shall apply with respect to any period described in section 6402(o) of the Internal Revenue Code of 1986 (as added by this section) if any portion of such period is after the date of the enactment of this Act. (3) Clarification of application of certain levy hearing rules to lien hearings The amendment made by subsection (c) shall take effect on the date of the enactment of this Act.