Bipartisan legislation to reform the IRS has been signed into law by the President, a noteworthy achievement by a divided government. The Taxpayer First Act, H.R. 3151,
- establishes an independent IRS Appeals office,
- restructures the IRS customer service function,
- expands innocent spouse relief, and
- improves the IRS’s response to identity theft.
What the legislation does not do is mandate commercial-free filing services, a controversial provision that was in earlier versions of the bill. The earlier language blocked the IRS from providing its own free tax filing software. After negative press reports, Congress removed that language from the bill, opting instead to study whether the IRS should provide its own software.
A description of the major provisions of the new law was included in FD Insights in earlier coverage. One interesting provision is a revenue raiser buried at the end of the bill, which increases the penalty for failure to file returns by the due date. While this penalty is typically based on a percentage of the amount of tax owed, a minimum penalty applies equal to the lesser of $205 (indexed for inflation) or 100 percent of the amount required to be shown on the return. The final Act increases the penalty to $330 for returns required to be filed after December 31, 2019. This provision is estimated to raise $219 million over 10 years. The point? Congress no longer passes revenue-neutral bills.
The reaction to the legislation has been positive, particularly from taxpayer advocacy groups. “From strengthening the appeals process to providing vulnerable taxpayers with more remedies to setting higher expectations for IRS customer service, the Taxpayer First Act is a major accomplishment for which both parties can be proud,” the National Taxpayers Union remarked upon passage.
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.