President Donald Trump signed a bipartisan package of IRS and tax administration reforms into law June 21.
The Taxpayer First Act (H.R. 3151
) passed by voice vote in the Senate on June 13 after passing by voice vote in the House on June 10. The bill omits a provision that would have codified the Free File program after that provision stalled an earlier version of the bill (H.R. 1957) in the Senate. The bill generally seeks to update IRS technology, address cybersecurity and make various improvements to customer service and tax administration. It includes provisions that would:
- Codify an independent appeals process with limited ability for the IRS to deny taxpayers’ access
- Require the IRS to create a comprehensive customer service plan
- Create an internet platform for filing Form 1099
- Allow tax payments by debit or credit cards
- Lower the threshold for when electronic returns are required
- Require electronic filing for tax exempts filing any Form 990 or Form 8872
- Increase the minimum failure to file penalty for a failure over 60 days to $330
The Taxpayer First Act was among only a handful of tax priorities with a realistic chance of enactment this year. Next up is legislation reforming and expanding retirement incentives, another proposal with overwhelming bipartisan support. The House passed its version, the Setting Every Community Up for Retirement Enhancement (SECURE) Act (H.R. 1994
), in May. Like the Taxpayer First Act, Senate leaders are unlikely to allow floor time for the SECURE Act or use it as a vehicle for other tax priorities. It will likely require a unanimous consent agreement in the Senate. Objections from a handful of senators — including Sen. Ted Cruz, R-Texas, who is unhappy that a provision expanding Section 529 plans to homeschooling was removed — have prevented Senate passage. Tax writers are still hoping to overcome the objections, but if not, the Senate could try to move an amended version by unanimous consent or pass their own similar bill, the Retirement Enhancement and Savings Act (RESA) (S.972
) (for more information see our prior Legislative Update
). Technical corrections to the Tax Cuts and Jobs Act, and renewal of the popular expired tax provisions known as extenders are also possible this year but don’t enjoy as much bipartisan support. They will likely be subject to heavy negotiations and will need another legislative vehicle to carry them.
The following offers more details on the Taxpayer First Act.
Independent appeals process
The Taxpayer First Act codifies the IRS Office of Appeals into the Internal Revenue Code. The requirements for IRS’s Independent Office of Appeals in the legislation largely mirror how the current Office of Appeals operates but limits the ability of the IRS to deny taxpayers’ access to Appeals.
Lower electronic filing thresholds
The bill reduces the return thresholds for which the IRS can require electronic filing. For taxpayers other than partnerships, the threshold will be reduced from 250 returns per year to 100 in 2021 and to 10 in 2022. For partnerships, the bill sets the thresholds at 150 for calendar year 2019, 100 for 2020, and 50 for 2021. For years 2022 and beyond, the threshold applicable to all other taxpayers also applies to partnerships. Taxpayers can also apply for a waiver.
Mandatory electronic filing for tax exempts
The bill generally requires electronic tax filing for tax-exempt organizations that file a Form 990 or Form 8872. It grants the IRS discretion to offer two-year transition relief for small organizations, which are defined as those with gross receipts less than $200,000 for the taxable year and with aggregate gross assets of less than $500,000 at the end of the taxable year. This transition relief may also extent to organizations filing Form 990-T.
The bill also requires the IRS to provide notice to tax-exempt organizations before revoking their tax-exempt status.
Online platform for individual filing
The bill requires the IRS to establish a website by Jan. 1, 2023, that allows individual taxpayers to prepare and file Forms 1099; prepare Forms 1099 for distribution to recipients other than the IRS; and maintain a record of completed, filed and distributed Forms 1099. The online platform is not meant to replace existing services provided by the IRS but rather supplement them.
The legislation includes a series of reforms to certain IRS enforcement procedures, including provisions that:
- Limit the IRS’s ability to seize assets in transactions structured to evade the $10,000 reporting threshold under the Bank Secrecy Act (BSA)
- Include interest from recovery of BSA seizures in income
- Allow taxpayers to present evidence outside the administrative record on innocent spouse relief at the Tax Court and extend the time period for requesting relief
- Limit the IRS’s authority to issue John Doe summons to information that is narrowly tailored and pertains to identified failures to comply with the tax code
- Exclude tax debt of certain low-income taxpayers from the private debt collection program
- Require the IRS to provide at least 45 days’ notice to contact third parties for examination or collection
- Tighten the requirement for issuing a designated summons
- Bar IRS contractors from questioning witnesses, and limit contractors’ access to taxpayer information
The bill contains a number of provisions aimed at taxpayer protection, cybersecurity, and identity theft, including provisions to:
- Allow the IRS to participate in an information sharing and analysis center to combat identity theft
- Require reviews of contractor access to taxpayer data
- Require the IRS to make the Identify Protection Personal Identification Number program available to all taxpayers
- Require the IRS to create a single point of contact for identify theft
- Require the IRS to notify taxpayers in cases of unauthorized use of identity
- Require the IRS to development guidelines for handling refund fraud cases
- Increase the penalties for preparer disclosure of tax return information related to an identity theft crime
- Require identity verification for any taxpayer opening an e-Services account
- Require the IRS to notify taxpayers of unauthorized access of tax information by IRS employees
The bill also seeks to modernize the IRS and update information technology through provisions that would:
- Require the IRS to create a plan to redesign the organization of the IRS
- Strengthen the Office of the National Taxpayer Advocate
- Codify the role of an IRS Chief Information Office
- Reinstate critical pay authority for IT positions at the IRS
- Strengthen limits on uses of tax information by third parties that taxpayers authorize to receive information
- Require the IRS to establish uniform standards for electronic signatures
- Allow taxpayers to pay taxes and fees with debit and credit cards
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