For years, Congress has legislated tax changes without regard to the burden placed on the IRS and with no real plan to help the agency modernize its systems to better handle its ever-increasing workload. With the scare of the government shutdown and the problems with implementing the Tax Cuts and Jobs Act, it appears that Congress has finally gotten the message.
Bipartisan legislation known as The Taxpayer First Act of 2019 (H.R. 1957) passed the House of Representatives in April 2019, and a companion bill, S. 928, is pending in the Senate. The 100-page bill contains numerous taxpayer protections and calls for a redesign of the structure of the agency to improve efficiency, modernize technology, enhance cyber security and better meet taxpayer needs. It’s not just about funding. The legislation provides a number of mandates for change addressing specific taxpayer problems.
One criticism of the legislation is that it blocks the IRS from providing its own free tax filing software and instead sets in stone the current system of having the IRS free file program fulfilled by commercial software companies, such as H&R Block, Intuit, and TaxSlayer. Nonetheless, the legislation made it through the Democratic House likely because it guarantees that free tax filing for those with incomes under $66,000 will continue and curbs private debt collection for low-income taxpayers.
Major Provisions
The bipartisan legislation includes the following noteworthy changes:
- Internet platform for Form 1099 filings. Requires the IRS to develop an internet portal for filing Forms 1099 with the IRS. The portal is to be modeled after a Social Security Administration (SSA) system that allows individuals to file Forms W-2 with SSA.
- Personal PINs and Identity Theft. Allows all taxpayers to obtain a personalized PIN that better secures their identity. Also includes other provisions to help protect taxpayers from tax ID theft and improves taxpayer interaction with the IRS when identity theft occurs.
- Structuring Seizures/$10,000 Deposits. Puts in place new safeguards to protect taxpayers against IRS enforcement abuses of so-called “structuring laws” where the IRS seizes a taxpayer’s assets when it believes large transactions are broken into smaller ones to avoid reporting requirements for $10,000 deposits. Under the bill, the IRS will have to show probable cause that the structuring was linked to an illegal source or connected to other criminal activity.
- Independent Appeals Office. Establishes an independent office of appeals within the IRS allowing taxpayer cases to be heard by an independent decision maker. This provision also would require the IRS to provide individual and business taxpayers with their case files, if requested, prior to the start of any dispute resolution process.
- Contacting Third Parties in Audits. Requires the IRS to give taxpayers notice of their intent to contact third parties in an audit, including friends, neighbors, and clients. Specifically, the provision requires that the taxpayer be notified at least 45 days prior to the period of contact, which may not be greater than one year.
- Narrower Summons Authority. The legislation restricts the IRS’s ability to issue John Doe summonses, those that do not identify the persons being sought. The IRS instead must narrowly tailor a summons to seek only information that pertains to the failure of a person or group of persons to comply with Federal tax law. The most high-profile John Does summons issued by the IRS in recent years is the request for the list of bitcoin traders on Coinbase, a virtual currency business.
- Technology Modernization. Requires the IRS to submit to Congress plans to redesign the structure of the agency to improve efficiency, modernize technology systems, enhance cyber security and better meet taxpayer needs.
- Electronic filing of returns. Lowers the threshold for required electronic filing of returns to 10 or more returns by 2021. The threshold for partnerships is 50 or more returns beginning in 2020.
- Comprehensive customer service strategy. Within one year of enactment, the IRS is required to develop and submit to Congress a comprehensive customer service strategy.
- Equitable relief from spousal joint liability. Married couples who file tax returns jointly usually are both responsible for the entire tax liability. However, the tax Code provides relief for innocent spouses. The bill clarifies that the Tax Court has de novo jurisdiction to redetermine equitable claims for relief from joint liability. This means the Tax Court can consider the claim as a new action.
- Whistleblower Program. The bill improves the IRS whistleblower program by:
- authorizing the IRS to communicate with whistleblowers during the processing of their claims, while also protecting taxpayer privacy; and
- extending to IRS whistleblowers the anti-retaliation provisions that are presently afforded to whistleblowers under other whistleblower laws.
- Private Debt Collection. The legislation modifies the private debt collection program to prevent targeting of lower-income taxpayers.
- Exempt Organizations Efiling and Revocation. Requires expanded electronic filing of returns for exempt organizations and requires the IRS to notify organizations before revocation of their tax-exempt status for failure to file return.
Other provisions include the restriction of non-agency personnel’s access to taxpayer information, limiting the authority of the IRS to seize perishable goods, and modification of the IRS’s authority to issue summonses to large corporations.
A 12-page section-by-section summary of the legislation by the Senate Finance Committee can be found here.
“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,” said Senate Finance Committee ranking member, Ron Wyden (D-Oregon) in a statement on the bill. “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.”
While the legislation has broad bipartisan support and is likely to make it through Congress, the Trump Administration’s support is less clear. There have been no official statements on the current legislation either way out of the Treasury Department. Whether the bill becomes law remains to be seen, but it appears headed for enactment.
Lucia Nasuti Smeal is a guest blogger on tax topics for Frazier & Deeter. Smeal is an attorney, a tax professor with Georgia State University’s J. Mack Robinson College of Business, and former editor of Tax Notes Today, published by Tax Analysts. Smeal also worked as a legislative analyst for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker on current tax developments.