The Senate voted to approve the Taxpayer First Act, H.R. 3151, on Thursday, three days after the House of Representatives had also approved it by a voice vote. The bill now goes to President Donald Trump for his signature. [Update: The president signed the bill into law on July 1, 2019.]
An earlier version of the bill, H.R. 1957, would have codified the IRS’s Free File program “including any subsequent agreements and governing rules established pursuant thereto.” As part of the Free File program, the IRS has entered a memorandum of understanding with companies in the tax software industry that includes a pledge that the IRS will not develop its own tax preparation software. Some in Congress raised concerns that codifying the Free File program would prohibit the IRS from ever developing its own tax preparation software. Others in Congress disputed that this would be the result; however, the Free File language does not appear in the bill as it was passed.
The bill establishes an “Independent Office of Appeals” within the IRS. A new Chief of Appeals position is created by the bill, reporting directly to the IRS commissioner. The purpose of the new Independent Office of Appeals, 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 to be generally available to all taxpayers, and, if an appeal request is denied, the IRS must provide a written notice explaining why.
The bill requires the IRS to develop a comprehensive customer service strategy, to be submitted to Congress within one year of the enactment of the bill. The IRS is directed to come up with a plan to provide better assistance to taxpayers, to assess what services the IRS can “co-locate” with other federal services, to propose ways to improve IRS customer service, to update guidance and training materials for IRS customer service employees, and to identify metrics and benchmarks for measuring progress in implementing the strategy.
The bill eliminates the offer-in-compromise fee for taxpayers whose adjusted gross income is 250% or less of the applicable poverty level.
The bill 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 that portion of any tax liability that has not been paid, as long as the request is made before the applicable Sec. 6502 limitation period, or 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 bill makes further limitations on the types of tax receivables that can be assigned to private debt collection services. The changes remove taxpayers if substantially all of their income consists of disability insurance benefits and taxpayers 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 bill 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 bill 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 bill, 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 bill:
- Creates a matching grant program to expand the Volunteer Income Tax Assistance (VITA) 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 would be required to 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.
— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.