On March 25, 2026, the House Ways and Means Committee unanimously approved a slate of five bipartisan bills aimed at delivering targeted tax relief to vulnerable populations and modernizing Internal Revenue Service (IRS) operations. For CPAs and Enrolled Agents, this legislative package introduces critical modifications to the Internal Revenue Code and IRS procedures that will directly impact tax planning and controversy representation. The proposed statutory changes address the tax-free treatment of legal settlements for sexual assault survivors (H.R. 2347), extend generous casualty loss rules and exclusions for disaster and wildfire victims (H.R. 5366), and expand the above-the-line educator expense deduction to include early childhood teachers (H.R. 5334). Furthermore, the package includes critical operational reforms that mandate a more taxpayer-friendly IRS through sweeping customer service and online account upgrades (H.R. 7971), while simultaneously strengthening protections, anonymity, and evidentiary standards for tax whistleblowers (H.R. 7959). The following article provides a detailed, code-level analysis of how each of these five bills proposes to alter the existing tax landscape for practitioners and their clients.

Navigating Proposed Changes to IRC § 104: An Analysis of the Survivor Justice Tax Prevention Act (H.R. 2347)

The Survivor Justice Tax Prevention Act (H.R. 2347) recently achieved significant legislative movement, unanimously passing the House Ways and Means Committee with a 41-0 vote on March 25, 2026. For CPAs and Enrolled Agents (EAs) advising clients on the taxability of legal settlements, this bipartisan bill introduces critical modifications to Internal Revenue Code (IRC) Section 104, specifically addressing the disparate tax treatment of compensatory damages awarded to survivors of sexual assault.

The Current Landscape of IRC § 104(a)(2) Under current tax law, IRC § 104(a)(2) generally excludes from gross income the amount of any damages (excluding punitive damages) received "on account of personal physical injuries or physical sickness". Furthermore, the code explicitly states that emotional distress is not treated as a physical injury or physical sickness.

For practitioners, this statutory language has historically created strict limitations and harsh tax realities. Because not all sexual assaults result in observable physical injuries—and because psychological trauma is often classified merely as emotional distress—some victims of sexual assault are currently required to pay taxes on the compensatory damages they receive.

Proposed Revisions to Section 104(a) H.R. 2347 fundamentally alters Section 104(a)(2) by striking the existing text and bifurcating the exclusion into two distinct prongs.

Revised Section 104(a)(2)(A) - Maintaining the Status Quo for Physical Injuries: The bill retains the existing, familiar exclusion for damages received on account of "personal physical injuries or physical sickness". For clients with traditional physical injury claims, the application of the law remains unchanged.
New Section 104(a)(2)(B) - Exclusion for Sexual Acts and Contact: The bill introduces a new, targeted exclusion for damages received on account of "any sexual act" (as defined in 18 U.S.C. § 2246(2)) or "sexual contact" (as defined in 18 U.S.C. § 2246(3)). Crucially, the statute explicitly states that this exclusion applies "whether or not there are medical records or observable injuries of such act or contact". By severing the requirement for observable physical harm, this subsection ensures that all compensatory damages attributable to sexual assault are excluded from gross income.

New Section 104(d): Reallocating the Burden of Proof One of the most significant procedural changes for tax practitioners representing clients under audit is the bill's treatment of the burden of proof. H.R. 2347 redesignates the existing Section 104(d) (which currently houses cross-references) as subsection (e), and inserts a new Section 104(d) titled "Burden of Proof With Respect to Whether Damages Are on Account of Sexual Act or Sexual Contact".

Under this newly proposed Section 104(d), if a court decision or settlement agreement explicitly states that the damages received are on account of a sexual act or sexual contact (as defined in the new subsection (a)(2)(B)), that statement alone shall be treated as "credible evidence" for the purposes of shifting the burden of proof under IRC § 7491(a). Furthermore, the taxpayer will be statutorily treated as having met the substantiation requirements of § 7491(a)(2) regarding the nature of the damages.

For CPAs and EAs handling tax controversy, this provision is a powerful shield. It explicitly prohibits the IRS from requiring a victim to provide medical records to substantiate their claim for exclusion. By establishing the settlement agreement or court decision as presumptive evidence, the bill ensures that taxpayers are not forced to relitigate the traumatic details of their assault with the IRS during an examination.

Effective Date and Practice Implications If enacted into law, the amendments made by H.R. 2347 will apply to amounts received pursuant to decisions made and agreements entered into after the date of the Act's enactment. However, practitioners should note a special anti-abuse rule preventing the retroactive application of these benefits to older settlements: an agreement will not be treated as "entered into after the date of enactment" if it merely replaces, supersedes, or revises a pre-enactment agreement.

For CPAs and EAs, H.R. 2347 underscores the importance of precise legal drafting. Should this bill become law, tax professionals must collaborate closely with legal counsel during the settlement phase to ensure that settlement agreements explicitly state when damages are awarded "on account of a sexual act or sexual contact." This specific phrasing will be required to seamlessly trigger the evidentiary protections of the newly proposed IRC § 104(d).

Analyzing the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366): Impact on Casualty Losses and Wildfire Settlements

Legislative Movement The Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) recently achieved key legislative momentum. On March 25, 2026, the bill was unanimously approved by the House Ways and Means Committee with a 43-0 vote. This bipartisan legislation aims to expand and extend tax relief for taxpayers impacted by major natural disasters and wildfires.

Amendments to IRC § 165: Extending Generous Casualty Loss Rules Under current law, IRC § 165(h) generally imposes strict limitations on personal casualty losses, requiring them to exceed a per-casualty dollar floor and limiting the deductible amount to the excess over 10% of the taxpayer's adjusted gross income (AGI). While prior legislation temporarily eased these rules for disasters occurring between December 28, 2019, and July 4, 2025, that relief is slated to expire, leaving fewer disaster victims eligible for a deduction.

H.R. 5366 revamps the statute to extend these generous provisions via the following specific revisions:

New Section 165(h)(6) - Special Rule for Qualified Net Disaster Losses: The bill adds paragraph (6) to explicitly define and provide favorable treatment for a "qualified net disaster loss". It defines "qualified disaster-related personal casualty losses" as those arising in a qualified disaster area declared by the President under the Stafford Act, provided the incident period begins on or after December 28, 2019, and before January 1, 2027. Crucially, this new subsection allows taxpayers to deduct these specific disaster losses without subjecting them to the standard 10% AGI reduction threshold.
Revised Section 165(h)(1) - Adjusted Dollar Limitation: Current law applies a $100 per-casualty floor for most personal casualty losses (which was temporarily adjusted to $500 for certain years). H.R. 5366 amends this subsection to stipulate that while standard casualty losses retain a $100 floor, qualified disaster-related personal casualty losses (as defined in the new paragraph (6)) will be subject to a $500 per-casualty limitation.
Related Revision to Section 63(b) - Relief for Non-Itemizers: To ensure equitable relief, the bill amends IRC § 63(b) by adding paragraph (8), which allows taxpayers who do not elect to itemize their deductions to increase their standard deduction by the amount of their qualified net disaster loss.

These amendments to Section 165 and Section 63 will apply to taxable years beginning after December 31, 2024.

New IRC § 139M: Exclusion for Wildfire Relief Payments For CPAs and EAs advising clients who receive lawsuit settlements or compensation funds related to wildfires, H.R. 5366 introduces a highly favorable new statutory carve-out: IRC § 139M - Compensation for Losses or Damages Resulting from Certain Wildfires.

Broad Exclusion from Gross Income: Section 139M(a) dictates that gross income shall not include any amount received as a "qualified wildfire relief payment".
Expansive Definition of Relief Payments: Section 139M(b)(1) defines a qualified wildfire relief payment as compensation for losses, expenses, or damages incurred as a result of a qualified wildfire disaster. Practitioners should note that this explicitly includes compensation for additional living expenses, lost wages (unless paid directly by the employer), personal injury, death, or emotional distress, provided the damages are not otherwise compensated by insurance.
Extended Disaster Window: Section 139M(b)(2) defines a "qualified wildfire disaster" as any Federally declared disaster resulting from a forest or range fire declared after December 31, 2014, and before January 1, 2027. The exclusion applies regardless of when the actual settlement payment is received, ensuring retroactive protection for older disasters.
Section 139M(c) - Denial of Double Benefit: To prevent "double-dipping," this subsection dictates that taxpayers cannot claim any deduction or credit for expenditures that were compensated by excluded wildfire relief payments. Furthermore, taxpayers may not increase the basis (or adjusted basis) of any property using funds excluded under this section.

The new IRC § 139M will apply to payments received in taxable years beginning after December 31, 2025.

Expanding the Educator Expense Deduction: A Practitioner's Guide to the Proposed SEED Act (H.R. 5334)

Legislative Movement The Supporting Early-childhood Educators’ Deductions (SEED) Act (H.R. 5334) recently achieved significant legislative momentum. On March 25, 2026, the bill garnered strong bipartisan support, passing unanimously out of the House Ways and Means Committee with a 43-0 vote.

The Current Landscape of IRC § 62 Under current tax law, IRC § 62(a)(2)(D) establishes an above-the-line deduction for certain trade and business expenses incurred by teachers. This provision allows an "eligible educator" to deduct out-of-pocket expenses for professional development, books, supplies, and computer equipment up to a statutory base amount of $250.

However, CPAs and EAs are often forced to disallow this deduction for pre-school teachers because of how the tax code defines eligibility. IRC § 62(d)(1)(A) currently defines an "eligible educator" strictly as an individual who is a "kindergarten through grade 12 teacher, instructor, counselor, principal, or aide" working at least 900 hours a year. Furthermore, IRC § 62(d)(1)(B) defines a qualifying "school" solely as one providing elementary or secondary education (K-12) as determined under State law.

Proposed Revisions to IRC § 62 H.R. 5334 specifically targets the definitions in Section 62(d) to bring early childhood educators into the fold. The bill makes the following statutory changes vs. current law:

Revised Section 62(d)(1)(A) - Expanding the Definition of "Eligible Educator": The bill amends the statutory definition of an eligible educator by striking the phrase "a kindergarten through grade 12 teacher" and replacing it with "an early childhood or kindergarten through grade 12 teacher". According to the Ways and Means Committee, this expansion is explicitly designed to allow individuals who teach or care for children ages 0 to 5 to deduct their out-of-pocket professional expenses.
Revised Section 62(d)(1)(B) - Redefining a "School": Because early childhood education often takes place outside of traditional school settings, the SEED Act completely rewrites this subsection to create a specific, two-pronged definition of a qualifying school.
- New § 62(d)(1)(B)(i) - Early Childhood Facilities: Under this new language, an early childhood education school or childcare facility qualifies if it provides educational or childcare services for more than 2 individuals under the age of 6 (excluding any individuals who reside at the facility). Furthermore, the facility must either operate at the public expense or receive a fee, payment, or grant for providing these services, regardless of whether the facility operates for profit.
- New § 62(d)(1)(B)(ii) - Standard K-12 Schools: The bill retains the existing definition for traditional elementary and secondary schools.
Revised Section 62(a)(2)(D) - Conforming Amendment: The bill updates the heading of the deduction itself to align with the new definitions, changing it from "CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY SCHOOL TEACHERS" to "CERTAIN EXPENSES OF EARLY CHILDHOOD, ELEMENTARY, AND SECONDARY SCHOOL TEACHERS".

Impact and Effective Date By removing the penalty currently faced by early childhood educators, H.R. 5334 grants them the same tax benefits as traditional K-12 teachers. The House Ways and Means Committee notes that, with current inflation adjustments to the statutory base, this deduction is available for up to $350 of expenses per year for taxpayers who take the standard deduction. Taxpayers who itemize can also deduct qualifying expenses above the $350 threshold.

For CPAs and EAs, this bill will open up a valuable above-the-line deduction for a newly eligible class of clients in the education and childcare sectors. If enacted, these amendments will apply to expenses paid or incurred in taxable years beginning after December 31, 2025.

Modernizing IRS Operations: What the Taxpayer Experience Improvement Act (H.R. 7971) Means for Tax Practitioners

Legislative Movement The Taxpayer Experience Improvement Act (H.R. 7971) recently gained major legislative momentum. On March 25, 2026, the bill received unanimous, bipartisan support, advancing out of the House Ways and Means Committee with a 43-0 vote. Driven in part by a 2023 Government Accountability Office (GAO) report revealing that roughly 33% of IRS IT applications and 23% of its software are between 25 and 64 years old, this bill imposes strict new statutory requirements on the IRS to modernize its customer service capabilities and increase transparency for taxpayers and their representatives.

For CPAs and Enrolled Agents (EAs), this legislation promises to alleviate some of the most frustrating administrative bottlenecks in modern tax practice. Here is a section-by-section breakdown of how the bill would change current IRS operations.

Section 2: Establishment of Dashboard to Inform Taxpayers of Backlogs and Wait Times

The Change: Currently, when practitioners or taxpayers call the IRS, wait times are unpredictable, and processing backlogs are often a "black box." Section 2 mandates the creation of a real-time public dashboard on the IRS website.
Key Requirements: The dashboard must display, for each applicable phone extension, the number of callers connected to a representative, the number of callers waiting, the longest current wait time, and whether callback service is available. It also mandates an embedded tool to estimate wait times and an API allowing third-party software developers to access and display this data.
Processing Delays: Importantly, if the IRS experiences a "significant delay" in processing a category of returns or documents (defined as failing to process items within 21 days of receipt), it must publicly post information the following week regarding the earliest date of the items currently being processed. These requirements will apply 12 months after the bill's enactment.

Section 3: Expansion of Electronic Access to Information About Returns and Refunds

The Change: Currently, tools like "Where’s My Refund?" and "Where's My Amended Return?" provide limited, often generic status updates. Section 3 forces the IRS to completely overhaul these tools to provide "individualized, specific, and up-to-date information".
Key Requirements: Under the bill, the tools must show when a return is received and completed, the estimated refund date, and specific payment details (such as the partial account and routing number for direct deposits, or the address for a paper check). Crucially for resolving controversies, if a return's processing is suspended, the system must display the exact reason for the suspension, the specific information requested by the IRS, the manner to submit it, and the due date. This must be implemented by January 1 of the first calendar year beginning more than 12 months after enactment.

Section 4: Expansion of Callback Technology

The Change: While the IRS has sporadically utilized callback technology on certain lines, its application is inconsistent.
Key Requirements: Section 4 expresses the Sense of Congress that all taxpayers should have the option to receive a callback. It sets a target for the IRS to provide a callback option by calendar year 2028 for any call made to an applicable phone extension (including international callers) that has not been answered within 5 minutes.

Section 5: Expansion of Online Accounts and Practitioner Access

The Change: Currently, IRS online accounts offer fragmented document visibility, limited interactive capabilities, and clunky interfaces for representatives. Section 5 mandates a comprehensive overhaul of the online account system, specifically empowering tax professionals.
Key Requirements for Taxpayers: The IRS must create a centralized website or mobile app where taxpayers can view any return, document, notice, or letter sent by or to the IRS over the preceding 6-year period (applied prospectively from enactment). Furthermore, it allows taxpayers to directly respond to IRS notices by uploading documents through the portal.
Key Requirements for CPAs and EAs: For tax professionals, this section is a game-changer. It explicitly requires the IRS to grant authorized representatives (including those authorized under 31 U.S.C. § 330, such as CPAs and EAs, as well as qualified reporting agents) the ability to access these portals and transmit responses on behalf of their clients. Most importantly, Section 5(c) dictates that the system must allow a representative to access information for multiple clients simultaneously without the requirement to individually and separately log into each taxpayer's account.
Security and Rollout: To protect against abuse, the IRS must establish a program to investigate and address unauthorized access by designated representatives, publishing annual statistical data on access revocations and misconduct. Before launching this portal, the IRS is statutorily required to conduct focus groups with tax professionals to ensure the system is built appropriately. This section must take effect by January 1 of the first calendar year beginning more than 18 months after enactment.

Strengthening the Shield: An Analysis of the IRS Whistleblower Program Improvement Act (H.R. 7959)

Legislative Movement On March 25, 2026, the House Ways and Means Committee unanimously passed the IRS Whistleblower Program Improvement Act (H.R. 7959) with a 41-0 vote. Recognizing that the IRS Whistleblower Program is a critical anti-fraud tool that has collected over $7.37 billion since 2007, this bipartisan legislation aims to enhance protections, expedite awards, and provide a more favorable standard of review for whistleblowers challenging IRS determinations.

For CPAs and EAs representing clients in whistleblower claims, H.R. 7959 introduces highly favorable procedural and substantive modifications to Internal Revenue Code (IRC) Section 7623 and Section 62.

Revisions to IRC § 7623: Empowering and Protecting Whistleblowers The bill makes three primary additions and revisions to the existing framework of IRC § 7623(b):

Revised Section 7623(b)(4) - Expanding the Scope of Review:
- Current Law: Section 7623(b)(4) simply states that any award determination "may, within 30 days of such determination, be appealed to the Tax Court". In practice, this has often restricted the Tax Court to reviewing only the administrative record compiled by the IRS.
- The Change: H.R. 7959 changes the statutory language from "appealed to" to "reviewed by" the Tax Court. More importantly, it mandates that the Tax Court's review "shall be de novo and shall be based on the administrative record established at the time of the original determination and any additional newly discovered or previously unavailable evidence". This provides a significantly more favorable standard of review, guaranteeing that practitioners can introduce new, critical evidence that was previously unavailable during the administrative phase.
New Section 7623(b)(6)(D) - Statutory Guarantee of Anonymity:
- Current Law: While the IRS Whistleblower Office heavily guards whistleblower identities during the administrative process, Section 7623(b)(6) currently lacks explicit statutory guarantees of anonymity once a case proceeds to litigation.
- The Change: The bill adds subparagraph (D), "Whistleblower Anonymity Before the Tax Court." It dictates that, notwithstanding standard public record rules in the Tax Court, a whistleblower shall proceed anonymously for all proceedings under this section. The court may only pierce this anonymity if it specifically finds that a societal interest exists for disclosing the identity that exceeds the potential harm to the whistleblower. This ensures clients are not compelled to identify themselves publicly when challenging an IRS action.
New Section 7623(b)(7) - Imposing Interest on Delayed Awards:
- Current Law: There is currently no statutory mechanism to pay whistleblowers interest on delayed award determinations, even if the IRS has successfully collected the proceeds.
- The Change: To encourage timely award payments, the bill creates a new penalty for IRS delays. Section 7623(b)(7) dictates that if the Secretary fails to provide notice of a preliminary award recommendation before the "applicable date," the final award amount shall include interest calculated at the overpayment rate under IRC § 6621(a). The "applicable date" is defined as 12 months after the date on which all proceeds have been collected, provided that the statutory period for filing a refund claim has expired or the taxpayer has agreed with finality to the liability and waived/resolved refund rights.

Changes to Other IRC Sections: Correcting the Deduction for Attorney's Fees under § 62 Beyond Section 7623 itself, the bill addresses an important discrepancy regarding the deductibility of legal fees.

Revised Section 62(a)(21)(A)(i) - Above-the-Line Deduction:
- Current Law: IRC § 62(a)(21)(A)(i) allows taxpayers an above-the-line deduction for attorney fees and court costs paid in connection with an award under "section 7623(b)". By explicitly referencing subsection (b), this technically excludes awards granted under Section 7623(a)—which applies to discretionary awards or cases that do not meet the $2 million dispute threshold.
- The Change: H.R. 7959 strikes "7623(b)" and inserts "7623". By removing the subsection limitation, the bill allows the above-the-line deduction to apply to all IRS whistleblower awards, aligning the tax treatment of attorney's fees with the standards applied under other federal whistleblower programs.

Additional Non-Code Requirements Finally, for practitioners monitoring IRS enforcement trends, the bill amends the Tax Relief and Health Care Act of 2006 to mandate that the Secretary's annual report to Congress include a specific list and descriptions of the top tax avoidance schemes (up to 10) disclosed by whistleblowers during the fiscal year.

Prepared with assistance from NotebookLM.