IRS reform faces obstacles in Senate, unlikely vehicle for other tax legislation

Tax Hot Topics newsletterThe Senate’s top tax writers are working to fast-track the bipartisan IRS administration bill that passed the House of Representatives earlier this month, but have ruled out using it as a vehicle for retroactively renewing the expired tax provisions known as extenders or enacting other tax legislation.

The Taxpayer First Act (H.R. 1957) sailed through the House by unanimous voice vote on April 9, but has encountered some resistance from Senate Democrats amid concerns over a provision to codify the Free File agreement between the IRS and a consortium of tax return preparation service providers. For more information on the Taxpayer First Act, as well as a bipartisan package of retirement incentives recently advanced by the House Ways and Means Committee, see our latest Tax Legislative Update.

Under the Free File agreement, which was first established in 2002, the consortium offers free return preparation and filing software to taxpayers below a certain income threshold in exchange for the IRS pledging not to offer similar, competing services of its own. The agreement is automatically renewed every two years but contains a termination clause. Opponents argue codifying it would permanently bar the IRS from implementing a tax agency reconciliation, or “return-free filing,” system under which the agency could pre-fill or at least partially prepare taxpayer returns with tax information it already receives from employers, lenders and other institutions.

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.), who both sponsored the bill’s identical Senate companion, have pushed back against that claim. Wyden is now working to reassure concerned Democrats, but his task is complicated by Senate leadership’s desire to “hotline” passage of the bill. The hotline process expedites Senate legislation by allowing it to be approved without debate or amendment, but it can be blocked with a single objection. Eleven senators have signed onto Sen. Elizabeth Warren’s (D-Mass.) recently reintroduced Tax Filing Simplification Act, which implements return-free filing and explicitly bars the IRS from entering into agreements that restrict its ability to provide tax return preparation and filing services.

The need for unanimous consent is also why Grassley has opted not to push for extenders to be included in the legislation. Grassley has been the most ardent proponent of renewing the popular provisions, but has conceded that a different legislative vehicle will be required. Other items likely to be put on hold include some technical corrections to the Tax Cuts and Jobs Act and a proposal to give the IRS authority to regulate tax return preparers.

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

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143
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