This bill — the Taxpayer First Act — would aim to modernize the Internal Revenue Service’s (IRS) information technology systems, infrastructure, and services to improve taxpayers’ experience with the agency. It would codify an independent appeals process for taxpayers, bolster enforcement of tax laws, and reform the tax court.
Title I — Putting Taxpayers First
INDEPENDENT APPEALS PROCESS
The IRS Independent Office of Appeals would be codified into law and provide for additional congressional oversight over decisions to withhold taxpayers from the administrative review process. The IRS had been required to establish an independent appeals process, but after doing so increasingly obstructed certain taxpayers from accessing the review process.
The IRS would be required to provide taxpayers with their case file prior to the start of any dispute resolution process. Under current law taxpayers have to file a Freedom of Information Act (FOIA) request to access their file.
Comprehensive Customer Service Strategy
The IRS would be required to develop and submit a comprehensive customer service strategy to Congress which addresses how the IRS will assist taxpayers, which will include metrics and benchmarks for measuring success.
Low-Income Exception for Payments Otherwise Required for Submission of an Offer-in-Compromise (OIC)
The IRS would be authorized to enter into an offer-in-compromise (OIC) agreement with a taxpayer to settle a tax debt at a lower amount than what the taxpayer owes. Generally, when proposing an OIC to the IRS, the taxpayer must pay an application fee and provide an initial non-refundable lump sum payment, which the IRS has the authority to waive. This would codify the IRS’ ability to not require taxpayers certified as low-income (defined as those with incomes below 250% of the federal poverty level) to include the application fee and initial payment when submitting an OIC application.
IRS Seizure Requirements with Respect to Structuring Transactions
The IRS would have to show probable cause that funds believed to have been structured to avoid Bank Secrecy Act (BSA) reporting requirements were derived from an illegal source or connected to criminal activity before seizing those funds. A post-seizure hearing would have to occur within 30 days of the seizure. If it’s determined that the funds and interest should be returned, the interest would be exempt from income tax.
If a court determines that the federal government should return funds and interest to an individual whose funds were seized by the IRS based on allegations of structuring, any interest paid by the federal government with respect to such funds would be exempt from income tax.
Clarification of Equitable Relief from Joint Liability
The Tax Court’s ability to give innocent spouses relief from joint liability would be codified. The Tax Court’s standard of review is clarified as on a “de novo” basis, meaning that the Tax Court will take a fresh look at the case without taking previous decisions into account. The review would be based on the administrative record and any newly discovered or previously unavailable evidence.
This section would clarify the IRS’ authority to issue John Doe summonses (summonses that don’t identify the person whom the summons is issued to) by emphasizing that the agency must narrowly tailor John Doe summonses to seek only information pertaining to the failure (or potential failure) of the person or group of persons to comply with federal tax law. This is consistent with the current IRS manual, which states that a John Doe summons may not be used for the purposes of a “fishing expedition.”
The Commissioner of the relevant operating division of the IRS and the Chief Counsel of the IRS would have to review and provide written approval of designated or related summonses prior to their issuance. In their written approval, they must state facts establishing that the IRS had previously made reasonable requests for the information and must be attached to the summons. The IRS would have to certify in any subsequent judicial proceedings that reasonable information requests were made.
Private Debt Collection and Special Compliance Personnel Program
Two additional categories of cases not eligible for referral to private collection agencies would be created: 1) taxpayers whose income is substantially derived from supplemental security income benefits or disability insurance benefit payments and 2) taxpayers with an adjusted gross income at or below 200% of the poverty level. Additionally, this provision would alter the definition of inactive tax receivables that can be assigned to private debt collection agencies to those where more than two years has passed since assessment of the tax debt and limits installment agreements between the taxpayer and private debt collection agencies to seven years.
Reform of Notice of Contact of Third Parties
A taxpayer under audit would have to be notified by an IRS employee before the IRS initiates third party contacts (such as friends, neighbors and clients) during the audit. Currently, this notice typically occurs at the beginning of an audit, early enough that it doesn’t function as a notice of impending contact. Under this provision, the IRS would be required to notify the taxpayer at least 45 days prior to the period of contact, which may not exceed a year.
Limitation on Non-IRS Employees’ Access to Returns and Return Information
It would be prohibited for a person other than an IRS officer or employee from examining books, records, and witness testimony as part of an examination other than when serving as an expert. Additionally, only IRS employees or the Office of Chief Counsel are allowed to question a witness under oath.
Office of the National Taxpayer Advocate
The Office of the National Taxpayer Advocate (NTA) issues Taxpayer Advocate Directives (TADs), and this bill would strengthen TADs by requiring the IRS Commissioner or Deputy Commissioner to respond within a specified timeframe. Any TADs not honored by the IRS would have to be reported to Congress.
Modernization of IRS Organizational Structure
The IRS would be required to thoughtfully consider what a modern structure for the agency might look like, develop a plan for its implementation and submit a plan to Congress prior to making any organizational changes. The plan must consider how the IRS will prioritize taxpayer services, streamline and simplify its structure, better position itself to combat ongoing cyber threats, and take into account the Congressional priorities laid out in this package. The timely submission of the proposal to Congress would then remove the requirement of an organizational structure that features operating units serving particular groups of taxpayers with similar needs one year after the submission of the plan.
Return Preparation programs for Applicable Taxpayers
The IRS’s current Volunteer Income Tax Assistance (VITA) Program partners with IRS- certified volunteer organizations to provide free tax return filing assistance to low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other underserved communities. The VITA matching grant program would be permanently authorized to support VITA programs’ maintenance and expansion at up to $30 million a year. The IRS would be authorized to mass communications and other means to promote the benefits and encourage the use of the program.
Provision of Information Regarding Low-Income Taxpayer Clinics
Low Income Taxpayer Clinics (LITC) assist low-income taxpayers with representation in controversies with the IRS. This section would clarify that IRS employees are able to provide taxpayers in need of such assistance with information about the availability of and eligibility requirements for LITCs, including location and contact information.
Notice From IRS Regarding Closure of Taxpayer Assistance Centers
This section would require the IRS to provide public notice, including by non-electronic means, to affected taxpayers 90 days prior to the closure of a Taxpayer Assistance Centers (TAC). The notice must include information on alternative forms of assistance available for affected taxpayers and the date of the proposed closure. The IRS also must notify Congress and provide the reasons for the closure.
Rules For Seizure & Sale of Perishable Goods
The IRS would only be permitted to deem seized property as “perishable” if it’s liable to perish, as current law allows it to be so deemed if the property would lose value by being kept or can’t be kept without great expense. That leads to property being sold without minimum bid requirements and for significantly less than could be received at auction.
The IRS would be permitted to exchange information with whistleblowers if doing so would be helpful to an investigation. The IRS would be required to notify whistleblowers of the status of their claims at certain points in the review process. It’d also be authorized — but not required — to provide status updates at other points upon the whistleblower’s written request. To protect taxpayer privacy, it’d prohibit whistleblowers from publicly disclosing the information they receive from the IRS, under penalty of law. Additionally, anti-retaliation provisions similar to those provided to whistleblowers under the False Claims Act and the Sarbanes-Oxley Act are extended to IRS whistleblowers.
Customer Service Information
The IRS would be required to provide the following information over the telephone while taxpayers are on hold with an IRS call center: information about common tax scams, direction to the taxpayer on where and how to report such activity, and tips on how to protect against identity theft and tax scams.
Misdirected Tax Refund Deposits
The IRS would be required to establish procedures for taxpayers to report instances where they did not receive an anticipated electronic fund transfer or a refund was erroneously delivered to the wrong taxpayer, and also to ensure the IRS will recover the erroneous refunds and deliver them to the correct taxpayer.
TITLE II — 21st CENTURY IRS
CYBERSECURITY AND IDENTITY PROTECTION
Recent IRS efforts aimed at combating identity theft tax refund fraud (IDTTRF) through public-private partnerships would be codified into law.
Recommendations to Prevent Identity Theft Refund Fraud
The IRS would be required to consider recommendations by the Electronic Tax Administration Advisory Committee to address the threat of IDTTRF. Recent changes to the ETAAC charter, charging it with making recommendations to the Treasury Secretary regarding methods to prevent IDTTRF, would be codified.
Information Sharing and Analysis Center
The IRS would be encouraged — but not required — to participate in an IDTTRF information sharing and analysis center (ISAC) with state and private sector partners. Limited return information could be shared, such as IP address and the speed at which the return was filed, with paid return preparers who are members of the ISAC. This provision would also require the Treasury Secretary to develop metrics for the ISAC’s success in detecting and preventing IDTTRF.
Compliance by Contractors with Confidentiality Safeguards
This section would establish additional confidentiality safeguards on return information provided to contractors. It’d prohibit the IRS from providing taxpayer information to any contractors or other agents of a federal, state, or local agency unless the contractor has safeguards in place to protect the confidentiality of return information and agrees to conduct on-site compliance reviews every three years. Under this proposal, the federal, state, or local agency is required to submit a report of its findings to the IRS and annually certify that contractors and other agents are in compliance with the requirements to safeguard the confidentiality of federal returns and return information.
Identity Protection (IP) Personal Identification Numbers
The IRS would be required to set up a program under which any concerned taxpayer — regardless of their state of residents — can request an IP PIN to use in filing his or her tax return. This would establish voluntary access to IP PINs nationally over a five-year period.
Single Point of Contact for Tax-Related Identity Theft Victims
Tax-related identity theft victims would have a single point of contact within the IRS for any taxpayer who is a victim of identity theft. The single point of contact would be responsible for tracking the taxpayer’s case to completion and coordinating with other units to resolve the taxpayer’s issues as quickly as possible. This provision is intended to address concerns over the lack of continuity of assistance when taxpayers are victims of tax related identity theft.
Notification of Suspected Identity Theft
The IRS would be required to notify a taxpayer if there has been any suspected unauthorized use of a taxpayer’s identity or that of the taxpayer’s dependents, if an investigation has been initiated and its status, whether the investigation substantiated any unauthorized use of the taxpayer’s identity, and whether any action has been taken (such as a referral for prosecution). Furthermore, when an individual is charged with a crime, the IRS would have to notify the victim as soon as possible, giving such victims the ability to pursue civil action against the perpetrators.
Guidelines for Stolen Identity Refund Fraud Cases
The IRS would be required to develop and implement publicly available caseworker guidelines reducing IDTRRF victims’ burdens as they work with the IRS to sort their tax affairs out. These guidelines may include procedures to reduce the amount of time victims would have to wait to receive their tax refunds, the number of IRS employees with whom victims would need to interact, and the timeframe within which the issues related to the IDTTRF should be resolved.
Increased Penalty for Improper Disclosure of Use of Information by Return Preparers
An increased monetary penalty would be imposed for the disclosure of taxpayer identity information by a return preparer in cases where such information is used in an identity theft crime, whether or not related to the filing of a tax return. This provision is intended to provide a strong incentive for tax preparers to secure client records, thereby decreasing the likelihood of those records being stolen by identity theft criminals.
DEVELOPMENT OF INFORMATION TECHNOLOGY
Management of IRS Technology
The position of IRS Chief Information Officer (CIO) would be codified, and the role would be given clear roles and responsibilities. The IRS would be required to develop and implement an IT strategic plan, in alignment with the overall goals of the IRS, to ensure adequate consideration and planning for its long term IT needs. Finally, the IRS would be required to finish its plans for the completion of the Customer Account Data Engine (CADE 2) and have a third party independently verify and validate planning for CADE 2 and Enterprise Case Management system(s) generally within a year of enactment.
Internet Platform for Form 1099 Filings
The IRS would be required to develop an internet portal that facilitates taxpayers filing Forms 1099 with the IRS. The internet portal is to be modeled after a Social Security Administration (SSA) system that allows individuals to file Forms W-2 with SSA. The website will provide taxpayers with access to resources and guidance provided by the IRS, and allow taxpayers to prepare, file, and distribute Forms 1099, and create and maintain taxpayer records.
Streamlined Critical Pay Authority for IT Positions
Streamline Critical Pay (SCP) authority would be reauthorized for the IRS with respect to IT positions through September 20, 2023.
MODERNIZATION OF CONSENT-BASED INCOME VERIFICATION SYSTEM
Disclosure of Taxpayer Information for Third-Party Verification
The IRS would be authorized to develop an automated system to receive Income Verification Express Service (IVES) forms (currently, forms are sent to the IRS via secure fax). It’d also be authorized to charge a separate user fee on all IVES requests over a two-year period to fund the new system’s development.
Limit Redisclosures and Uses of Consent-Based Disclosure of Tax Return Information
Tax return information redisclosures by the taxpayer’s designee would be limited to only those redisclosures to which the taxpayer has expressly consented.
EXPANDED USE OF ELECTRONIC SYSTEMS
Electronic Filing of Returns
The IRS would eventually require individuals filing 10 or more returns to file them electronically, with the requirement phased-in between 2019 and 2021 (the current threshold for this requirement is 250 returns). In the case of a partnership, the applicable number is 200 in the case of calendar year 2018, 150 in the case of calendar year 2019, and 100 in the case of calendar year 2020. The provision also provides an exception to this requirement for tax preparers located in geographic areas with limited or no internet access.
The IRS would be required to publish regulations and guidelines allowing electronic signatures to be used to request taxpayer information for the purposes of disclosures to a practitioner or to execute a power of attorney.
Payment of Taxes by Debit and Credit Cards
The IRS would be allowed to directly accept credit and debit card payments for taxes as long as the fee is paid by the taxpayer. The IRS would be directed to minimize these fees when entering into contracts to process credit and debit cards.
Authentication of Users of Electronic Services Accounts
The IRS would be required to verify the identity of anyone opening an IRS e-Services account before they’re able to use such services.
Repeal of Provision Regarding Certain Tax Compliance Procedures and Reports
This section strikes a provision requiring the IRS to develop procedures and produce an annual report for streamlining compliance with the tax code so IRS resources can be directed to help prevent IDTTRF instead.
Comprehensive Training Strategy
The IRS would be required to submit a comprehensive training strategy to Congress. This would address streamlining current training processes, developing annual training on taxpayer rights, improving technology-based training and better focusing on fair resolution of taxpayer disputes.
TITLE III — MISCELLANEOUS PROVISIONS
REFORM OF LAWS GOVERNING IRS EMPLOYEES
Prohibition on Rehiring Any IRS Employee Who Was Involuntarily Separated From Service For Misconduct
The IRS Commissioner would be prohibited from rehiring any previous IRS employee who’d been involuntarily separated for misconduct. These misconduct offenses may include fraud, failure to file a return, falsification of documents, and unauthorized access to taxpayer information.
Notification of Unauthorized Inspection or Disclosure of Returns and Return Information
The Treasury Secretary would be required to notify a taxpayer if any disciplinary or adverse action is taken against an IRS employee or employee of any other federal or state agency for unauthorized inspection or disclosure of their information.
PROVISIONS RELATING TO EXEMPT ORGANIZATIONS
Mandatory E-Filing by Exempt Organizations
All tax-exempt organizations that are required to file annual returns would have to submit them electronically.
Notice Required from Revocation of Tax-Exempt Status for Failure to File Return
The IRS would be required to notify an organization after its second consecutive failure to file an information return, in order to give the organization time to file an information return and prevent the revocation of their tax-exempt status.
Increase in Penalty for Failure to File
This bill increases the minimum penalty for failing to file taxes to $330 for returns required to be filed after December 31, 2019.