Congress approves IRS reform legislation

The law revamps the appeals process, requests for innocent spouse claims, and private debt collection rules, among other revisions.
By Alistair M. Nevius, J.D.

The Taxpayer First Act of 2019, P.L. 116-25, became law on July 1, reconfiguring IRS Appeals and changing other administrative practices and procedures.

The act establishes an "Independent Office of Appeals" within the IRS, with a new Chief of Appeals reporting directly to the IRS commissioner. The purpose of the new office, as described in new Sec. 7803(e)(3), is to resolve federal tax controversies without litigation on a basis that "(A) is fair and impartial to both the Government and the taxpayer, (B) promotes consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and (C) enhances public confidence in the integrity and efficiency" of the IRS. The resolution process afforded by the Independent Office of Appeals is generally available to all taxpayers, and, if an appeal request is denied, the IRS must provide a written notice explaining why.

The act requires the IRS to develop a comprehensive customer service strategy, to be submitted to Congress within one year of enactment. The IRS is directed to come up with a plan to:

  • Provide better assistance to taxpayers;
  • Assess what services the IRS can "co-locate" with other federal services;
  • Propose ways to improve IRS customer service;
  • Update guidance and training materials for IRS customer service employees; and
  • Identify metrics and benchmarks for measuring progress in implementing the strategy.

The act eliminates the offer-in-compromise fee for taxpayers whose adjusted gross income is 250% or less of the applicable poverty level.

The act makes two changes to the innocent spouse relief provisions of Sec. 6015. Sec. 6015(e) is amended to provide that any determination under Sec. 6015 will be reviewed de novo by the Tax Court. The equitable relief provision of Sec. 6015(f) is amended to add a limitation that a request for equitable relief may be made only for the portion of any tax liability that has not been paid, as long as the request is made before the expiration of the applicable Sec. 6502 limitation period, or that has been paid, as long as the request is made during the period in which the individual could submit a timely claim for refund or credit.

The act further limits the types of tax receivables that can be assigned to private debt collection services. The changes remove taxpayers (identified by the IRS after Dec 31, 2020) substantially all of whose income consists of Social Security disability or Supplemental Security Income benefits under Sections 223 and 1616 of the Social Security Act and those whose income does not exceed 200% of the applicable poverty level. The maximum length of an installment agreement that can be offered by private debt collectors is increased from five years to seven years.

The act adds language to Sec. 7803(c) requiring the IRS to modify, rescind, or ensure compliance with national taxpayer advocate directives within 90 days after their issuance.

The act requires the Treasury secretary to submit to Congress a plan to redesign the organization of the IRS to ensure implementation of the priorities specified by Congress in the act, prioritize taxpayer services, streamline the agency's structure, position the IRS to combat cybersecurity threats, and address whether the IRS Criminal Investigation Division should report directly to the commissioner.

Among its other provisions, the act:

  • Creates a matching grant program to expand the Volunteer Income Tax Assistance program;
  • Requires the IRS to create a single point of contact for tax-related identity theft victims and to notify taxpayers if it suspects they are victims of identity theft;
  • Increases the penalty for improper disclosure or use of information by a tax return preparer, if the use or disclosure is made in connection with taxpayer identity theft. The penalty in such cases will be $1,000 (instead of $250) for each disclosure, with an annual maximum of $50,000 (instead of $10,000);
  • Directs the IRS to create an online platform to allow taxpayers to prepare and file Forms 1099;
  • Requires mandatory e-filing by tax-exempt organizations;
  • Requires the IRS to notify organizations before revoking their exempt status for failure to file a return for three years specifically, after two years of nonfiling, the IRS must notify the organization that it has no record of a return for two consecutive years and that revocation will occur after the third year; and
  • Increases the Sec. 6651 failure-to-file penalty to $330.

—By Alistair M. Nevius, J.D., the JofA's editor-in-chief, tax.

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