U.S. Senate Finance Committee Chair Chuck Grassley (R-IA) and Sen. Ron Wyden (D-OR) have introduced legislation aimed at improving experiences for taxpayers. The bill, referred to as the Taxpayer First Act of 2019, is intended to modernize the Internal Revenue Service (IRS) and strengthen taxpayer protections.
Here’s a quick peek at some of the provisions in the bill:
A new IRS Independent Office of Appeals. Under the proposed legislation, an Independent Office of Appeals would generally be available for all taxpayers as part of the administrative review process. Additionally, the bill would allow taxpayers access to “the case against them,” meaning that the IRS would be required to provide certain individual and business taxpayers with their case files, if requested, before any dispute resolution process begins (that’s not currently the case).
Improvements in IRS customer service. The bill would require the IRS to develop and submit “a comprehensive customer service strategy” to Congress. The strategy must also establish metrics and benchmarks for measuring success (something that the NTA has been passionate about).
Guarantees for FreeFile, Volunteer Income Tax Assistance (VITA) and other assistance programs. Currently, free tax help and free filing options are available for certain taxpayers including low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other underserved communities. The proposal would provide resources to ensure that these programs continue, and would permanently authorize the VITA matching grant program.
Seizure modifications. Over the past few years, the IRS has made news with seizures related to structuring. Structuring occurs when large transactions are broken into smaller ones to avoid bank reporting requirements which kick in at $10,000. If you do that with the intent to evade, it’s illegal and the IRS can seize certain assets. Amid concerns about abuse and misunderstandings, the proposal would require that the IRS show probable cause that the structuring was linked to an illegal source or connected to other criminal activity. The new law would also provide new administrative procedures, including a post-seizure hearing within 30 days of the seizure.
Clarification of equitable relief from joint liability. Typically, married couples who file tax returns jointly are both responsible for the total tax due on the return. Some exceptions apply, including innocent spouse relief (you can read more here). The provision clarifies that the Tax Court has jurisdiction to redetermine equitable claims for relief, meaning that each taxpayer would be responsible for their fair share. It would also make clear that the standard of review shall be de novo (remember that tax lawyers love Latin – that means “a fresh look”) so that a review will be based on the record as well as any newly discovered or previously unavailable evidence.
Modification of procedures for issuance of a third-party summons. Remember the Coinbase/Bitcoin case? The key feature in that case was the issuance of a John Doe summons, which is one that does not specifically identify the person in the summons (more on the Coinbase case here). Currently, the IRS can issue a John Doe summons as part of an investigation of a specific, unidentified person or group or class of persons whose identity is not ascertainable. This provision seeks to clarify the IRS’ authority to issue John Doe summonses by emphasizing that the IRS must narrowly tailor such a summons – in other words, no fishing expeditions.
New threshold for private debt collections. Rather than put an end to a program that many, including the National Taxpayer Advocate (NTA), consider a terrible idea – ferreting out debt collection to private companies – Congress wants to change the rules. After reports of abuse, Congress took a second look, noting that IRS does not have a filter in place to prevent low-income individuals from being referred for collection. This, even though the NTA reported that a disproportionate number of taxpayers on private debt collector lists are poor: 80% are taxpayers below 250% of the federal poverty level and 1/3 of taxpayers turned over for collection have income below $20,000. The new law creates a specific low-income exemption to prevent such referrals to private collection agencies.
Reform of notice of contact of third parties. During an audit, the IRS is required to notify a taxpayer before initiating third-party contacts. This provision requires that the IRS provide notice to taxpayers at least 45 days before contacting third parties, including friends, neighbors, and clients.
Cybersecurity and identity theft protection. With a nod to the seriousness of identity theft, the new law proposes several changes, including expanding the Identity Protection Personal Identification Number (IP PIN) program and establishing a single point of contact within the IRS for any taxpayer who is a victim of identity theft.
Modernization. The bulk of the new law focuses on bringing the IRS into the 21st century, including technology improvements. Chief among them, establishing secure online accounts for taxpayers and allowing the IRS to directly accept credit and debit card payments without the need to go through a third party processor.
Changes to the Office of the National Taxpayer Advocate. The National Taxpayer Advocate (NTA) reports directly to the IRS Commissioner, and also submits an annual report to Congress (you can read more about this year’s report here). This provision would require a response from the IRS Commissioner within a specific amount of time and would limit the number of “most serious problems” included in the NTA Annual Report to Congress to ten.
Whistleblower reforms. This provision would allow the IRS to exchange information with whistleblowers where doing so would be helpful to an investigation. It also requires the IRS to notify whistleblowers of the status of their claims and would prohibit whistleblowers from disclosing information they receive from the IRS.
Electronic filing of returns. Currently, the IRS requires tax professionals who are filing more than 250 returns for individuals to file them electronically. This provision eventually would lower that threshold to ten and would be phased in. The magic number for electronically filing returns would drop to 100 for partnerships. An exception would exist for tax preparers located in geographic areas with limited or no internet access.
Notice required before revocation of tax-exempt status for failure to file a return. Under the Pension Protection Act of 2006, most tax-exempt organizations are required to file an annual information return or notice with the IRS regardless of how much (or little) income the organization receives. Failure to do so for three consecutive years results in an automatic loss of tax-exempt status (more on that here). This provision requires the IRS to notify an organization after the organization’s second consecutive failure to file to give the organization time to file an information return and prevent their tax-exempt status from being revoked.
Increase in penalty for failure to file. The provision would increase penalties for failure to file tax returns by about $100.
Hold times. In what I view as the most controversial of the proposed changes, the provision instructs the IRS to provide the following information over the telephone, while taxpayers are on hold: information about common tax scams, direction to the taxpayer on where and how to report such activity, and tips on how to protect against identity theft and tax scams. That’s right. As I read it, that means no more hold music. Whatever will tax professionals complain about now?
If much of this sounds familiar, it is: a similar bill was introduced (and failed) last year (you can read about it here). They’re trying again – with some key additions and changes.
“There’s no federal agency Americans interact with more than the IRS, and it’s critical that it be reformed and modernized to better serve taxpayers,” Wyden said. “Our bill would strengthen tax-preparation services for low-income Americans, improve agency technology and better protect taxpayers’ personal data. This legislation has strong bipartisan support and I’m hopeful it will be passed without delay.”
The bill has been discussed in the House Ways and Means Committee, as well as the Senate Finance Committee. The House Ways and Means Committee is expected to vote on the bill next week.