The Small Business Taxpayer Bill of Rights Act of 2025 seeks to strengthen protections for taxpayers, with a particular focus on small businesses, by modifying various aspects of the Internal Revenue Code and IRS procedures. It aims to provide greater recourse against IRS misconduct, improve the fairness of the appeals process, and offer more flexible dispute resolution options. The bill defines an eligible small business as one with average annual gross receipts not exceeding $50,000,000 over the preceding three years, making them eligible for certain benefits without regard to net worth limitations.

Key provisions include significantly increasing the maximum civil damages taxpayers can claim for reckless or intentional disregard of internal revenue laws by IRS employees, from $1,000,000 to $5,000,000, and extending the statute of limitations for such actions to five years. Penalties for IRS officers and employees who commit offenses in connection with revenue laws are also increased, as are civil damages for unauthorized inspection or disclosure of tax returns and return information. These monetary amounts are subject to inflation adjustments in future years.

The bill introduces new procedural safeguards within the IRS appeals process, including a ban on ex parte discussions between Appeals officers and other IRS employees, with potential termination for misconduct. Taxpayers are granted a right to an independent conference with the IRS Independent Office of Appeals, excluding personnel from Chief Counsel or compliance functions unless consented to. Furthermore, it expands the availability of alternative dispute resolution procedures, allowing taxpayers to request mediation or arbitration and elect independent mediators, with cost exceptions for low-income individuals and small businesses.

Additional protections include a ban on the IRS raising new issues on appeal that were not part of the initial determination, ensuring a focused review. It also limits the enforcement of liens against a taxpayer's principal residence unless other property is insufficient and such action would not create economic hardship. The bill repeals the partial payment requirement for submissions of offers-in-compromise and allows a deduction of up to $5,000 for expenses related to certain audits that result in no increase in tax liability.

The legislation also addresses IRS accountability and oversight by mandating termination for certain misconduct, including developing discriminatory methodologies for reviewing tax-exempt status applications, and requiring unpaid administrative leave for other misconduct. The Treasury Inspector General for Tax Administration (TIGTA) is tasked with reviewing IRS criteria for audits and examinations to identify and eliminate discrimination based on race, religion, or political ideology. Finally, it requires the IRS to consider the economic viability of a business when determining whether to release a levy due to economic hardship, and establishes a 10-year term limit for the National Taxpayer Advocate.