On July 1st, 2019, President Trump signed the Taxpayer First Act into law with the purpose of requiring the Internal Revenue Service to make comprehensive reforms to its customer service practices, electronic data security and appeals processes. Overall, these new statutes will strength the principles in the taxpayer's bill of rights and make the IRS more accessible. It is a rare bipartisan bill in this hostile political climate, although the debate over its terms was not without controversy. An early version of the bill attempted to make it illegal for the IRS to create free tax preparation software (e.g. Free File) in an effort to increase the revenues of for-profit businesses like TurboTax and H&R Block, but that provision was quickly eliminated. Across the nation, tax professionals look forward to the improvements to the federal taxation system.
Here is a summary of the key provisions to this new law:
I. Independent Office of Appeals (Amends 26 U.S.C. §7804(e)).
- Inside the Internal Revenue Service, an office will be created known as the Independent Office of Appeals with the function "to resolve federal tax controversies without litigation on a basis which -
- "Is fair and impartial to both the Government and the taxpayer;" 26 U.S.C. §7804(e)(3)(A).
- "Promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws, and;" 26 U.S.C. §7804(e)(3)(B).
- "Enhances public confidence in the integrity and efficiency of the Internal Revenue Service." 26 U.S.C. §7804(e)(3)(C).
- The Independent Office of Appeals will be headed by the Chief of Appeals, who will report directly to the Commissioner of Internal Revenue. 26 U.S.C. §7804(e)(2).
- The Independent Office of Appeals should be accessible to all taxpayers, and the Internal Revenue Service must submit a written report to Congress annually that describes the number of requests for appeals that were denied. 26 U.S.C. §7804(e)(5)(B).
- "The Chief of Appeals shall have authority to obtain legal assistance and advice from the staff of the Office of the Chief Counsel", provided that the assistance and advice does not come from staff members involved for preparing a case for litigation on behalf of the IRS. 26 U.S.C. §7804(e)(6)(B).
- To improve access to case files, the Chief of Appeals shall ensure that a specified taxpayer, upon request, is provided access to the non-privileged portions of the case file on record regarding the disputed issues not later than 10 days before the date of such conference (or sooner on the taxpayer's request). 26 U.S.C. §7804(e)(7)(A). "Specified taxpayer" means a natural person whose adjusted gross income does not exceed $400,000.00 for the disputed tax year or any other entity whose gross receipts do not exceed $5 million for the disputed tax year. 26 U.S.C. §7804(e)(7)(C).
II. Improved Customer Service
- By July 1st, 2020, the Internal Revenue Service must submit to Congress a written comprehensive plan to implement a customer service strategy by adopting best practices found in the private sector, creating proposals for immediate customer service reforms in the short term (next 1 to 2 years), medium term (next 3 to 5 years) and long term (up to 10 years), updating training materials for customer service employees and identifying metrics and benchmarks to measure improvement.
- An low-income exception to the normal user fee charged for a taxpayer to submit an offer-in-compromise to the IRS is available to any taxpayer whose adjusted gross income does not exceed 250% of the poverty level in the most recent tax year. 26 U.S.C. §7122(c)(3).
III. Sensible Enforcement
- The Internal Revenue Service may only seize property under 26 U.S.C. §5317 (criminal or civil forfeiture) if it was derived from an illegal source or the funds were structured for the purpose of concealing the violation of a criminal law or regulation. The IRS must make a good faith effort to find anyone with an ownership in the property within 30 days. If a court of competent jurisdiction does not find, within 30 days of seizure, that there is probable cause that the property seized was derived from an illegal source or the funds were structured to conceal a criminal law violation. 26 U.S.C. §5317(c)(2)(B).
- Any review of an IRS decision regarding equitable relief from joint liability shall be reviewed de novo by the U.S. Tax Court and shall be based on administrative record established at the time of determination and any newly discovered or previously unavailable evidence. 26 U.S.C. §6015(e)(7). This applies to the portion of liability that has not been paid (provided it is within the statute of limitations period) or was already paid (provided it is within a period that the taxpayer can timely make a claim for refund). This change also eliminated the strict two-year time limit imposed by IRS regulation for a taxpayer to request equitable relief (resolving a long source of contention between Congress, the Internal Revenue Service and the U.S. Tax Court).
- The IRS may not contact any person other than the taxpayer with respect to the determination or collection of his or her tax liability unless such contact occurs with-in a one-year period AFTER the IRS gives notice of intent to taxpayer for third-party contact AND the notice is given 45 days before the one-year period begins. Amended 26 U.S.C. §7602(c)(1). The Internal Revenue Service shall not issue any summons or subpoenas to third-parties UNLESS the information sought to be obtained is narrowly tailored to information that pertains to the failure (or potential failure) of the person or group to comply with one or more provisions of the internal revenue code. Amended 26 U.S.C. §7609(f).
- A taxpayer whose income substantially consists of Social Security Disability Income (SSDI) or Supplemental Security Income (SSI) may NOT have that income garnished by private debt collectors who are executing upon a tax collection contract. Amended 26 U.S.C. §6306(d)(3).
IV. Modernization of IRS Organizational Structure
- By September 30th, 2020, the Internal Revenue Service must submit to Congress a written comprehensive plan to redesign the organization of the IRS in order to ensure the implementation of the Taxpayers First Act of 2019, to best position the IRS to combat cybersecurity threats, prioritize taxpayer services, and streamline the structure to avoid duplicated department responsibilities.
- The Internal Revenue Service shall take measures to improve cybersecurity and identity protection by:
- Creating an information sharing and analysis center to enhance data compilation and security;
- Tighten up procedures to ensure contractor compliance with confidentiality safeguards;
- Establish a program for identity protection personal identification numbers to help verify social security numbers;
- Create a single point-of-contact for tax-related identity theft victims;
- Notify individuals as soon as practically possible of the unauthorized use of his or her identity; and
- Develop and implement guidelines (in coordination with the National Taxpayer Advocate) for management of cases involving stolen identity refund fraud.
- Inside the Internal Revenue Service, the position of Internal Revenue Service Chief Information Officer (IRS CIO) shall be created and responsible for the following duties:
- "Be responsible for the development, implementation and maintenance of information technology for the Internal Revenue Service". 26 U.S.C. §7803(f)(3)(A).
- "Ensure that the information technology of the Internal Revenue Service is secure and integrated." 26 U.S.C. §7803(f)(3)(B).
- "Maintain operational control of all information technology for the Internal Revenue Service." 26 U.S.C. §7803(f)(3)(C).
- "Be the principal advocate for the information technology needs of the Internal Revenue Service." 26 U.S.C. §7803(f)(3)(D).
- "[D]evelop and implement a multiyear strategic plan for the information technology needs of the Internal Revenue Service." 26 U.S.C. §7803(f)(4)(A).
V. Other Provisions
- The Department of Treasury shall establish a Community Volunteer Income Tax Assistance Matching Grant Program for the purpose of making grants to provide matching funds for the development, expansion or continuation of qualified tax return preparation programs assisting applicable taxpayers and members of underserved populations. 26 U.S.C. §7526A(a).
- Whistleblowers who expose tax fraud from their employers are now protected by anti-retaliation laws that now provide the right to reinstatement and double-pay, the right not to be subjected to mandatory arbitration, the right to expedited administrative remedies and the right to compensatory damages for prevailing in an employment suit. 26 U.S.C. §7623(d).
- The Internal Revenue Service, by January 1st, 2020, must establish procedures to allow for taxpayers to report instances where a tax refund was not deposited in the taxpayer's account and to promptly deliver the misdirected refund to the correct location. 26 U.S.C. §6402(n).
- The Internal Revenue Service, by January 1st, 2023, must make available an Internet website or other medium for users to prepare and file Forms 1099 (as opposed to being forced to use a pay service with a third-party provider).
In addition, the National Taxpayer Advocate gains more authority and prominence under this Act. If a Taxpayer Advocate Directive (TAD) is issued by the Advocate's office, then the IRS is required to comply within 90 days or the Commissioner must provide a reason for non-compliance. The Advocate will also report to Congress annually on the number of TADs that are not complied with by the Internal Revenue Service.
This law will certainly lead to new tax regulations in the future as the Internal Revenue Service works to come into compliance with these congressional mandates. This may require consultation with a qualified tax professional to ensure you are on top of these changes before the next tax obligation is due. If you have any questions about the Taxpayers First Act of 2019 or any other aspect of federal taxation, do not hesitate to contact the attorneys at Kershaw, Vititoe & Jedinak PLC today.