Twenty years after the last major overhaul of the IRS, key members of Congress on both sides of the aisle believe the agency is long overdue for a makeover and needs to return to its “service first” mission.
House Ways & Means Oversight Subcommittee Chairman Lynn Jenkins (R-KS) and Ranking Member John Lewis (D-GA) on March 26 released a “discussion draft” of proposed legislation – “The Taxpayer First Act” – to improve the IRS’s operations and tax administration system.
“At a time when most Americans are able to spend entire days working with just their iPhones, the IRS still relies on fax machines for many official communications. This means tax-preparers spend countless hours sending faxes to the IRS. Imagine the racket in that building,” Rep. Jenkins wrote in a CNN op-ed announcing her legislation. “The legislation will overhaul the IRS for the first time since 1998 and improve IRS customer service by replacing outdated IT systems. It will also upgrade the IRS’s cybersecurity and identity theft protection abilities — both of which are badly needed,” she added.
Jenkins and Lewis explain in a summary that the draft is the culmination of more than 11 Oversight Subcommittee events, including hearings and roundtable discussions over the last three years, and incorporates provisions from at least 18 different bills. The discussion draft also comes as the agency attempts to implement the expansive changes under the Tax Cuts and Jobs Act.
Numerous issues under the IRS’s umbrella are addressed in the draft, including:
reestablishment of an independent appeals process;
cybersecurity and identity-theft protection; and
information technology modernization and expanded use of electronic disclosure.
The subcommittee is inviting stakeholders to comment and provide specific suggestions, preferably by Apr. 6, 2018. Comments may be submitted via email to [email protected].
While the proposed draft does not directly single out retirement plan compliance and reporting requirement changes, there are a few proposals that may be of interest.
Development of online accounts and portals (Sec. 502): Similar to the goal of increasing electronic filing established in the 1998 restructuring legislation, this provision establishes a new goal for the IRS to develop secure online accounts for taxpayers and their preparers by 2023. It also mandates that the IRS develop a process for the secure acceptance of tax forms and supporting documentation in an electronic format.
Internet platform for Form 1099 filings (Sec. 503): The legislation directs the IRS to develop an internet portal that would facilitate taxpayers filing Forms 1099 with the IRS. The portal would be modeled after the Social Security Administration system that allows individuals to file Forms W-2 with SSA.
Mandatory electronic filing for annual returns of exempt organizations (Sec. 522): All tax-exempt organizations required to file annual returns with the IRS would have to submit their returns electronically. The provision provides transition relief for small organizations by allowing the IRS to delay this requirement for up to two years. Currently, only tax-exempt organizations that have assets greater than $10 million and those that file more than 250 returns with the IRS are required to file Form 990 electronically.
Authority to modernize the organization of the IRS (Sec. 535): The legislation would authorize the IRS to develop a plan for modernizing the structure of the agency, but it would be required to submit the plan to Congress prior to making any organizational changes. The summary explains that the 1998 restructuring legislation mandated that the IRS establish organizational units serving particular groups of taxpayers, rather than geographic organizational structure. The lawmakers argue that the mandated structure no longer allows the IRS to organize itself efficiently to best meet its mission.
Public-private partnership to address identity theft refund fraud (Sec. 401): This provision would codify efforts by the IRS, through its Security Summit, to develop a partnership aimed at combatting identity theft tax refund fraud (IDTTRF) with public and private stakeholders.
Information sharing and analysis center (Sec. 403): The legislation directs the IRS to participate in an IDTTRF information sharing and analysis center (ISAC) with state and private sector partners. The IRS has participated in a pilot program, but there are current statutory limits to the IRS’s ability to share tax return information with its partners that is essential to combating these fraud threats, according to the summary.
Seizure requirements with respect to structuring transactions (Sec. 301): The IRS would be required to show probable cause that funds believed to have been structured to avoid Bank Secrecy Act (BSA) reporting requirements are derived from an illegal source or connected to other criminal activity. According to the summary, an Oversight Committee investigation found that the IRS was seizing structured funds by small business owners who had legitimate reasons for keeping their transactions under $10,000, such as insurance policies that only protected cash-on-hand up to $10,000.
Funding and Reform
The IRS has dealt with a number of serious issues over the past several years, and its task of overseeing and enforcing the collection of tax revenues was not necessarily made any easier with the enactment of the TCJA.
According to the National Taxpayer Advocate’s annual report released in January, the IRS needs an additional $495 million in fiscal years 2018 and 2019 to implement the TCJA, but the recently enacted omnibus spending bill increased the agency’s budget by $195.6 million over FY 2017 levels.
Overall, the IRS was appropriated $11.43 billion for fiscal year 2018, with $320 million of that to be used to implement the TCJA, such as updating tax schedules, forms and systems. Enforcement functions received $4.86 billion, which was the same amount from the FY 2017 level.
It appears increasingly likely that restructuring the IRS will move to the forefront of Congress’ tax policy agenda, but whether such efforts can be enacted this year is another matter. In a Feb. 27 “views and estimate” letter, House Ways and Means Committee Chairman Kevin Brady (R-TX) outlined the committee’s schedule for the remainder of the year, noting his intent to turn to IRS restructuring legislation following enactment of the TCJA.
Now that most of the so-called “must-pass” legislation has been approved for the year — namely the omnibus budget funding bill for fiscal year 2018 – it is anticipated that legislative activity will slow down considerably as the midterm elections approach.