Modernizing the IRS With the Taxpayer First Act (H.R. 5444)

What is H.R. 5444?

(Updated February 1, 2020)

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.

This section would codify the IRS Independent Office of Appeals 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 withheld 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.

The IRS would be required to develop and submit to Congress a comprehensive customer service strategy which addresses how the IRS will assist taxpayers, which will include metrics and benchmarks for measuring success.

The existing Free File Program, which offers free tax preparation software and electronically fillable forms, would be codified into law. Programs providing free tax return assistance for low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other underserved communities would be permanently -- rather than temporarily -- funded with matching grants.

The IRS would have to show probable cause that funds believed to have been structured to avoid Bank Secrecy Act 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.

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.

A taxpayer under audit would have to be notified by an IRS employee before the IRS initiates third party contacts 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.

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.

Recent IRS efforts aimed at combating identity theft tax refund fraud (IDTTRF) through public-private partnerships would be codified into law. Recommendations by the Electronic Tax Administration Advisory Committee to address the threat of IDTTRF.

The IRS would also 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.

The IRS would require individuals filing 10 or more returns would be required to file them electronically, with the requirement phased in between 2021 and 2024 (the current threshold for this requirement is 250 returns). All tax-exempt organizations that are required to file annual returns would have to submit them electronically. 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 required to develop and implement an IT strategic plan in alignment with the IRS’s overall goals to ensure adequate consideration and planning for the IRS’s long-term IT needs. Robust and secure online accounts for taxpayers and their preparers would have to be developed by 2023 in order to supplement (not replace) other taxpayer services offered by the IRS, in addition to an internet portal for filing Forms 1099.

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. The IRS Oversight Board, which has been ineffective because of the lack of a quorum for a few years, would be permanently eliminated.

Judges in the Tax Court would be subject to the same grounds for disqualification as judges of other federal courts to ensure independence and impartiality. The judicial terminology of “opinion”, “judgment”, and “magistrate judges” used by other federal courts would be adopted by the Tax Court to provide greater clarity. References in current law to the Board of Tax Appeals would be eliminated as they’re “deadwood” (ie obsolete).

Argument in favor

This commonsense, bipartisan bill would modernize the IRS for the first time in decades by improving the independent appeals process, taxpayers services, and enforcement.

Argument opposed

Lawmakers in Congress from both sides of the aisle should leave the IRS alone, it may not be perfect but there’s no need for this sweeping of a modernization.

Impact

Taxpayers; the IRS; and Congress.

Cost of H.R. 5444

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Lynn Jenkins (R-KS) introduced this bill to modernize the IRS:

“I ran for Congress to reform our broken tax code and I am honored to have played a part in the most significant tax reform in 30 years. However, tax reform was only half of our promise. Our attention must now turn to modernizing the IRS and improving the taxpayer experience. As a CPA, I know from experience the IRS can be very frustrating to deal with. I am proud of the work this subcommittee has done to advance this initiative in a bipartisan fashion. The IRS reform bill we are releasing today will be a giant step forward in improving the taxpayer experience.”

Original cosponsor Rep. John Lewis (D-GA) added:

“The Oversight Subcommittee took our time and conducted thoughtful, bipartisan work to improve taxpayer administration. We held eight public hearings and hosted five roundtable discussions on many of the legislative proposals included in this draft bill. As a result, this is the first time in many years that we will have a bipartisan taxpayer services bill ready for Tax Day. Unfortunately, the bill does not repeal the private debt collection program, but it makes good progress in protecting low- and middle-income taxpayers from harassment and abuse. Overall, this experience reminds me of the way that our Committee used to function, and it was wonderful. We produced a serious, thoughtful bill that puts the taxpayer first. I am proud of the process and product, and I hope that we will maintain the bipartisan spirit throughout Committee and Floor consideration.”

This legislation passed the House Ways and Means Committee on a voice vote and has the support of four bipartisan cosponsors evenly divided between Republicans and Democrats.

Media:

• House Ways and Committee Press Release
  
• Cosponsoring Rep. John Lewis (D-GA) Press Release
  
• Section-by-Section