No Tax on Wrongful Delay Act of 2026
Summary
The "No Tax on Wrongful Delay Act of 2026" aims to amend the Internal Revenue Code of 1986 by exempting from gross income any interest paid by the IRS to taxpayers who prevail in audits or litigation. This exemption would apply to interest paid on overpayments of internal revenue taxes following IRS examinations, taxpayer-initiated suits for credit or refund, or civil actions by the United States for tax collection or recovery. The bill intends to provide tax relief to taxpayers who experience delays in receiving overpayment interest from the IRS.
Expected Effects
If enacted, this bill would change how the IRS treats interest payments made to taxpayers after successful audits or litigation. Taxpayers would no longer be required to pay income tax on these interest payments. This could result in a net financial benefit for those who have experienced delays in receiving tax refunds and associated interest.
Potential Benefits
- Reduced Tax Burden: Taxpayers who win cases against the IRS will not have to pay income tax on the interest received on overpayments.
- Financial Relief: Provides additional financial relief to taxpayers who have already experienced delays and incurred costs in resolving tax disputes.
- Fairness: Addresses a perceived inequity where taxpayers are taxed on interest intended to compensate them for delays caused by the IRS.
- Simpler Tax Filing: Simplifies tax filing for those receiving such interest payments, as they no longer need to calculate and report this income.
Potential Disadvantages
- Potential Revenue Loss: The federal government may experience a slight decrease in revenue due to the exemption of these interest payments from gross income.
- Complexity in Implementation: The IRS may need to update its systems and procedures to properly implement and track this exemption.
- Limited Scope: The benefit is limited to taxpayers who have successfully challenged the IRS and received interest payments, potentially excluding others in need of tax relief.
Constitutional Alignment
This bill appears to align with the general welfare clause of the US Constitution, as it seeks to provide financial relief to taxpayers who have been subjected to wrongful delays by the IRS. While the Constitution does not explicitly address taxation of interest payments, the power to tax and regulate revenue is granted to Congress under Article I, Section 8. The bill does not appear to infringe upon any specific constitutional rights or limitations.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).