Is IRS Reform on The Way?

NSTPCongress

Is IRS Reform on The Way?

The Ways and Means Committee on April 2 approved legislation by voice vote that would rework some IRS operations — setting up a vote on the House floor in the coming weeks.

The legislation, the Taxpayer First Act of 2019, is a bipartisan, bicameral measure that is supported by the leaders of both tax-writing committees in Congress. The measure is expected to sail through the House, but it’s unclear when the Senate will act on companion legislation introduced by Senate Finance Committee leaders Chuck Grassley (R-IA) and Ron Wyden (D-OR) March 28. A spokesman for Grassley didn’t offer a timeline but said there’s no reason the bill shouldn’t pass the Senate since it has such broad support.

Provisions in the legislation include the following:

IRS Modernization – The Treasury Department would have to develop a plan to modernize the IRS’s structure by September 30, 2020. The plan would have to consider whether the Criminal Investigation Division should report directly to the head of the IRS, instead of the deputy commissioner for services and enforcement.

Online Services – The Treasury Department would have to create an online service for taxpayers to prepare and file 1099 forms, which are generally used for income other than salary, wages, and tips. The platform would be similar to one used by the Social Security Administration. It would have to be available by January 1, 2023. It couldn’t replace the agency’s current services and would have to comply with security standards.

The Treasury Department would have to publish guidance for accepting electronic signatures when taxpayers request to disclose their information to a practitioner or delegate power of attorney.

The Treasury Department would have to verify the identity of any individual who opens an e-services account before they could use the platform.

Electronic Filing – Tax preparers who file 100 or more returns would be required to file electronically beginning in 2021, and those who file 10 or more returns would have to file electronically beginning in 2022. Currently, only individuals filing more than 250 returns are required to do so. For partnerships, the threshold would be 200 returns for 2018, decreasing to 50 returns by 2021.

Tax preparers could be exempted if they’re in an area with limited internet.

All tax-exempt organizations would be required to file online. Currently, only those with assets greater than $10 million and those with more than 250 returns must file online. The provisions would be effective for tax years beginning after the bill’s enactment, but the IRS could provide a two-year delay to some organizations.

The IRS would have to make nonprofits’ electronic returns publicly available.

Electronic Payments – The IRS could directly accept credit and debit card tax payments if the taxpayer pays the card fee. The agency is currently barred from charging fees when accepting payment.

Identity Theft – The IRS would establish a single point of contact for identity theft victims. Designated teams would help taxpayers with delayed returns or other issues resulting from tax-related identity theft. The teams would coordinate with other IRS employees and would be responsible for resolving cases.

Customer Service – The Treasury Department would have to develop an IRS customer service strategy within one year of the bill’s enactment.

The IRS would have to update the Internal Revenue Manual and other materials to reflect the strategy within two years of the bill’s enactment.

Taxpayer Advocate – The IRS would have 90 days to modify, rescind, or ensure compliance with a directive from the National Taxpayer Advocate. The directives mandate changes to tax administration and other IRS processes.

The Advocate could appeal to the head of the IRS if the agency modified or rescinded a directive. The IRS head would have to ensure compliance or provide a justification for not honoring a directive. The advocate would report to Congress on directives the IRS didn’t honor.

Free File – The measure would codify the operations of the IRS Free File program, which partners with businesses to provide free tax return preparation to the lowest 70 percent of taxpayers by adjusted gross income (currently $66,000 or less).

The Free File program would have to collaborate with state governments to expand its use, and with the private sector to identify further innovations for the program.

Independent Office of Appeals – The bill would codify and make changes to the Office of Appeals, which would be renamed the Independent Office of Appeals. It would be led by a chief of appeals, who would be appointed by the head of the IRS.

The office would resolve tax controversies in a way that avoids litigation. It would have to be fair and impartial and would have to promote consistency and public confidence in the IRS.

Appeals Process – If a taxpayer with a notice of deficiency requested referral to the office and the IRS objected, it would have to provide a detailed explanation of the basis for its decision. The agency would have to report to Congress annually on the number of requests that were denied.

The appeals office could obtain legal assistance and advice from staff of the Office of Chief Counsel who, to the extent practicable, aren’t involved in the case.

The appeals office would have to give certain taxpayers access to the non-privileged portions of their case files at least 10 days before a conference with the office. The requirement would apply to individuals with adjusted gross income of $400,000 or less, or organizations with gross receipts of $5 million or less. The provision would be effective for conferences occurring one year after the bill’s enactment.

Asset Seizure – The IRS would be barred from seizing money from people who evade reporting requirements for large financial transactions if the agency could not prove criminal intent.

If the Treasury Department suspects reporting requirements haven’t been met or the reported information has been misstated, it’s authorized to seize all property involved in the offense in conjunction with the Justice Department.

Summonses – The bill would limit when the IRS could issue a “John Doe” summons, in which information is sought from an unidentified person. A summons could only seek information pertaining to noncompliance with a specific federal tax law, beginning 45 days after the bill’s enactment.

Private Debt Collectors – The IRS would be barred from referring debt owed by certain low-income taxpayers to private debt collectors. It would apply to:

  • Taxpayers with incomes below 200 percent of the federal poverty level (FPL).
  • Taxpayers with incomes primarily derived from Social Security disability insurance or Supplemental Security Income benefits.

A section by section summary of the legislation provided by the Ways and Means Committee is available here. A description of the legislation provided by the congressional Joint Committee on Taxation is available here.

Contact your congressional representative if you would like to weigh in on the proposed changes.