On June 13th, the Senate passed the Taxpayer First Act. The goal of the Taxpayer First Act is to restructure the IRS to better meet taxpayers’ needs. Although the bill is still awaiting presidential signature, its enactment is expected. The Act will require the IRS to make the following changes:
- Establish an independent Office of Appeals within the IRS
- Develop a comprehensive customer service strategy, including improving efficiency, modernizing technology and enhancing cyber security
- Exempt certain low-income taxpayers from payments required to submit an offer-in-compromise
- Modify tax enforcement procedures for seizure of property, issuing a summons, relief from joint liability, referral for private debt collection and IRS third party contacts
- Establish requirements for Congress to respond to Taxpayer Advocate Directives
- Permanently authorize the Volunteer Low Income Tax Assistance Matching Grant Program
- Modify procedures for whistleblowers
- Establish requirements for cybersecurity and identity protection
- Prohibit the rehiring of certain IRS employees who were removed for misconduct
- Allow the IRS to require additional taxpayers to file returns electronically
- Increase the penalty for failing to file a return
- Appoint a Chief Information Officer
- Create an Internet platform for Form 1099 filings
- Fully automate a program for disclosing taxpayer information for third-party income verification using the internet
- Establish uniform standards and procedures for the acceptance of electronic signatures
Some of the most wide-ranging provisions include changes to the IRS administrative appeals process. The Office of Appeals will be renamed the Independent Office of Appeals, underscoring that Appeals must be independent from the IRS and IRS Counsel. The Independent Office of Appeals will offer taxpayers an evaluation of IRS examination issues in a manner that is fair and impartial to both the government and the taxpayer, and offer the opportunity to settle those issues on the basis of the facts, the law and the hazards of litigation. The Act will codify Appeals’ mission to guarantee all taxpayers the right to a fair and impartial Appeals process that will promote voluntary compliance and a consistent application of the law such that public confidence in the integrity and efficiency of the IRS will be enhanced. The Chief of Appeals will continue to be appointed by the Commissioner, but certain eligibility requirements will be mandated by statute. Furthermore, the right to an administrative appeal of proposed IRS adjustments will be codified, and the IRS will have to provide detailed support for denying a taxpayer the right to an administrative appeal. This provision also provides certain taxpayers with access to the IRS examination case file prior to the Appeals conference.
Additionally, the Act will require the IRS to develop a plan to provide enhanced and secure customer service to taxpayers. The intention is to address one of the biggest taxpayer complaints: taxpayers’ inability to communicate directly with an IRS employee. The bill requires that within one year of enactment, the Secretary of the Treasury or his delegate must submit a comprehensive customer service strategy to Congress. The plan must be secure, designed to meet reasonable taxpayer expectations, and adopt appropriate best practices of customer service provided in the private sector. The plan should include online services, telephone call back services and customer service training for employees who provide customer service. The strategy also must include proposals to improve IRS customer service in the short term (the current and following fiscal year), medium term (approximately three to five fiscal years) and long term (approximately 10 fiscal years).
Other notable provisions include the expansion of the Identity Theft Protection Pin Program, which currently only allows victims of tax ID theft to obtain a personalized Identity Theft PIN (IP-PIN). Taxpayer ability to contact the IRS in the event on an ID related theft will be improved through the creation of a single point of contact within the IRS for ID theft matters. Additionally, there will be increased penalties for improper disclosure of return information by tax return preparers. The Act will also require the IRS to provide clearer notice to taxpayers regarding third party contacts during an audit to obtain additional information on the taxpayer under audit. Under the Act, the IRS will have to notify the taxpayer that the IRS is planning to contact a third party at least 45 days prior to the period of contact. Finally, the private debt collection process will be altered. Past due tax accounts will now only be assignable to private debt collection agencies if seven years has passed since assessment instead of the original two years.
The final version of the bill did remove one controversial provision, the expansion of the IRS’s free file program for low-to-middle income taxpayers. The removal of the provision saved, for another day, the controversy about whether the IRS could develop its own free file service, which would present a competitive threat to tax return preparation and filing software companies.
The bill is expected to be revenue neutral once implemented. Although it anticipated that the provisions of the bill will decrease revenue, the provisions are also expected to decrease expenditures and, therefore, produce an estimated $36 million in reduction to the federal deficit over the 10 year budget window.