A new Senate tax bill would reshape how the Internal Revenue Service examines partnerships and other pass-through businesses, putting taxpayer protections and IRS enforcement authority into the post-midterm policy debate. S. 5695, the Taxpayer Fairness and IRS Accountability Act, was introduced on November 9, 2026, and is now a proposal rather than enacted law. It has not passed either chamber and has not been sent to the president. Congress.gov bill text
The measure is high-interest because it would not simply change a tax rate. It would prohibit specific IRS organizational units, make some enforcement actions contestable in court, and potentially affect partnership audits. Its practical effect would depend on congressional action and court interpretation.
Facts: What S. 5695 would change
S. 5695 would add a new Section 7813 to the Internal Revenue Code. The bill identifies three categories of IRS activity that it would prohibit: the pass-through field operations unit within the Large Business and International Division, the division’s Pass-Through Entities practice and compliance areas, and any other IRS entity that materially duplicates examination authority assigned to the agency’s Small Business/Self-Employed or Large Business and International divisions. Full legislative text
The bill defines “materially duplicates” as having substantially overlapping authority to examine the same taxpayer segment, tax type, taxable period, or principal legal or factual issue. It says prohibited activity must stop and that the affected office, unit, task force, or other structure must be abolished. It also says the prohibition would apply even if the IRS changed an entity’s name, location in the organization, reporting relationship, or administrative designation.
The proposal would reach beyond internal management. It says certain examinations, deficiency assessments, penalties, collection actions, and related court proceedings could not begin or continue if they were conducted in violation of the proposed ban. Some notices would be treated as void if they were prepared by a prohibited entity and failed to disclose the violation. The listed notices include notices of deficiency, partnership-audit selection, certain penalties, unpaid tax, and a pre-levy hearing.
S. 5695 would also create potential taxpayer remedies. A court could enjoin a covered action and order a refund for amounts collected during a violation. If the IRS commissioner knowingly or negligently violated the restrictions during an examination, the affected taxpayer could sue the United States for actual damages, attorney’s fees, and costs, subject to administrative exhaustion and a two-year filing limit after discovery of the violation.
The bill’s text says its organizational amendments would generally apply as if they had been in effect on September 1, 2023. The notice-related provision would apply to specified notices issued on or after that date, while other provisions would take effect on enactment. Those retroactive features are part of the proposal and are not current law.
Facts: Why pass-through audits are the focus
The IRS says its Large Business and International Division handles tax administration for domestic and foreign businesses with U.S. reporting requirements and assets of at least $10 million, as well as global high-wealth and international-individual compliance programs. The agency’s current organizational page lists a Pass-Through Entities Practice Area and related pass-through examination functions. IRS organizational page
The agency announced in October 2024 that a new pass-through field operations unit had begun work in LB&I to conduct audits of pass-through entities more efficiently. The IRS also created a specialized legal office focused on partnerships, S corporations, trusts, and estates. IRS October 2024 releases
Pass-through businesses generally include partnerships and S corporations whose income is reported by owners rather than taxed only at the entity level. That structure can make an audit involve both the entity and individual or corporate owners. The bill’s sponsors argue that overlapping IRS units can burden lawful businesses and create the risk of uneven enforcement. The legislative findings are the sponsors’ stated rationale, not an independent finding by Congress or a court.
Analysis: A taxpayer-rights proposal with enforcement trade-offs
Supporters can frame S. 5695 as an accountability measure. Its core idea is that the IRS should not maintain multiple units with substantially overlapping authority over the same pass-through examinations. The proposed court remedies would give taxpayers a way to challenge actions they believe were taken by a prohibited structure, rather than requiring every dispute to remain inside the agency’s administrative process.
The main uncertainty is how a prohibition written around organizational overlap would work in practice. The IRS’s structure can change as responsibilities move between divisions, and pass-through cases often involve several tax years, entities, and owners. A court would need to determine whether a unit actually duplicated another unit’s authority and whether a notice or examination was sufficiently connected to a violation. Those questions could produce litigation before taxpayers or the agency had a settled interpretation.
There is also a potential enforcement trade-off. Limiting duplicated work could reduce administrative burden and improve consistency. But if the measure disrupts specialized pass-through expertise or invalidates cases after work has begun, it could delay examinations and collections. No Congressional Budget Office or Joint Committee on Taxation estimate is included, so its revenue and administrative effects are not yet established.
The wider IRS context is mixed. The National Taxpayer Advocate reported that the IRS processed about 138.6 million individual returns during the 2026 filing season and issued about 90.4 million current-year refunds, while also reporting significant service problems for taxpayers whose cases required manual help. 2026 National Taxpayer Advocate report That broader record helps explain why accountability proposals can attract attention, but it does not by itself prove that the pass-through units targeted by S. 5695 caused those service problems.
What happens next in Congress
Congress.gov classifies S. 5695 as introduced legislation. It must be approved by both chambers in identical form before it could reach the president. The introduction is therefore a policy signal, not a change in taxpayers’ current obligations or IRS authority.
The key questions are whether the Senate Finance Committee takes up the measure, whether lawmakers narrow its retroactive provisions, and whether the proposal is combined with other IRS oversight or tax-administration legislation. Until those steps occur, taxpayers and businesses should not treat the bill as a new audit rule or as a basis for ignoring an IRS notice.
As of November 14, 2026. S. 5695 remains introduced legislation.
