Congress focuses on IRS funding, reform

Tax Hot Topics newsletterAlong with the House of Representative’s release of the so-called Tax Reform 2.0, Congress has also turned its focus on IRS modernization, funding, and confirmation of two political appointments.

On July 19, the House passed legislation that would fund the IRS at $11.9 billion for the 2019 fiscal year, which begins in October. The legislation includes funding of $77 million for the implementation of the Tax Cuts and Jobs Act (TCJA). In fiscal year 2018, Congress dedicated $320 million to the IRS for implementation of the TCJA. The Senate, meanwhile, is considering its own funding package that is expected to be largely in line with the House. Adjusting for inflation, the IRS’ budget has declined overall since 2010.

With respect to modernizing the agency, the top Senate tax writers introduced their own version of the Taxpayer First Act. The Senate version of the bill contains various taxpayer rights provisions, including expanding voluntary income tax assistance programs, requiring the IRS to give notice when a taxpayer assistance center is proposed to be closed, and enacting certain whistleblower reforms.  

The bill also focuses on stolen identity refund fraud and requires a single point of contact for victims of such theft. Finally, the bill proposes improvements to the e-filing system, including a requirement that electronically prepared paper returns contain a scannable code.

The Senate version of the Taxpayer First Act differs in some significant respects from the House version. Notably, the Senate version does not contain a provision mandating the development of online accounts or portals, a directive to modernize and restructure the IRS organization, or the creation of an independent Office of Appeals.

It remains unclear if Congress can reconcile their differences with these two IRS modernization bills, which do have bipartisan support. Nonetheless, given the proximity to the 2018 midterm elections, as well as other issues impacting the Senate’s attention, including the confirmation hearings for Judge Brett Kavanaugh’s nomination to the Supreme Court, time is limited, and an administrative bill affecting the IRS may not be a high priority for leadership. Unrelated tax issues may also play a role in determining whether these modernization bills are ultimately passed.

For example, the confirmation vote of Charles Rettig, nominee for IRS commissioner, was delayed due to Senate Democrats’ objection to new IRS donor disclosure rules (Rev. Proc. 2018-38), which advised that tax-exempt entities, other than Section 501(c)(3) groups, would no longer be required to report identifying information of contributors on Schedule B. Rettig’s confirmation vote is expected to be held the week of July 30.

The nominee for Chief Counsel of the IRS, Michael Desmond, had a confirmation hearing before the Senate Finance Committee on July 26.

Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi
Senior Manager, Washington National Tax Office
T +1 202 521 1511

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