Congress Aims to Protect Taxpayers Through IRS Reform

The U.S. Senate has passed a broad package of reforms aimed at the IRS, which President Trump is expected to sign into law. The Taxpayer First Act contains several new protections for taxpayers, along with provisions intended to improve the IRS’s customer service, among other things.

More security, less identity theft

Tax-related identity theft is addressed throughout several of the bill’s provisions. For example, the bill generally requires the IRS to notify a taxpayer promptly when it suspects or confirms an unauthorized use of the individual’s identity. The IRS also must:

• Provide instructions to the taxpayer on how to file a report with law enforcement on the unauthorized use
• Inform individuals of any steps they should take to permit law enforcement to access personal information during the investigation
• Provide taxpayers with information regarding actions they can take to protect themselves from harm
• Offer identity protection measures, such as the use of an “identity protection personal identification number” (IP PIN)

Currently, IP PIN protection is available only to victims of tax-related identity theft. This bill requires the IRS to establish a program within five years that allows all taxpayers to request IP PINs to better protect their identity when filing tax returns.

The IRS must provide additional notifications to a suspected victim regarding whether it has initiated an investigation into unauthorized use of an account, and then whether it has substantiated such use. The individual must also be notified when any action has been taken against someone relating to the unauthorized use or whether any referral for criminal prosecution has been made.

Throughout the processing of cases, the IRS must ensure that victims of tax-related identity theft have a single point of contact at the agency. That contact must coordinate with other IRS employees and track the taxpayer’s case to completion to resolve the issues as quickly as possible.

Broader rights to appeal

The Taxpayer First Act codifies into law the IRS’s existing, independent Office of Appeals. Taxpayers’ rights of appeal regarding tax matters are also expanded.

For example, under the law, the IRS must provide certain taxpayers who request a conference with the Office of Appeals with access to the nonprivileged portions of the case file no later than 10 days before the scheduled conference date. Currently, in order to gain access to their case files, taxpayers must file a Freedom of Information Act request.

Generally, the resolution process available through the appeals office is available to all taxpayers. If a taxpayer’s request to appeal an IRS notice of deficiency is denied, the IRS must give the taxpayer a written notice with a detailed description of the facts involved, the basis for the denial and a detailed explanation of how the basis applies to the facts. The notice also must describe the procedures for protesting the denial.

Enhancements to customer service

In this bill, one year is given to the IRS to develop and submit a comprehensive customer strategy to Congress. The strategy must include a plan to extend assistance to taxpayers that’s secure and designed to meet reasonable taxpayer expectations. The plan must implement suitable private-sector best practices in customer service, including online services, telephone callback services and training of customer service employees.

Separately, if a taxpayer is on hold during a telephone call, the bill requires the IRS to supply helpful information that includes common tax scams, where and how to report tax scams, and additional advice on how taxpayers can protect themselves from identity theft and tax crimes.

Further provisions

The Taxpayer First Act tackles many other areas, including:

Structuring. The bill establishes new protections from IRS enforcement abuses of so-called “structuring laws.” Those laws let the agency seize taxpayer assets when a taxpayer appeared to make bank deposits in amounts just under the $10,000 trigger for bank reporting requirements.

Whistleblower reforms. If a whistleblower has provided information, the bill permits the IRS to disclose tax return information (to the extent necessary to obtain information that isn’t otherwise reasonably available) related to the investigation. It also mandates certain updates to whistleblowers on investigations and adds antiretaliation provisions.

Electronic filing. Eventually, the IRS will require individuals filing 10 or more returns — down significantly from the current 250-return threshold — to file electronically. The lower threshold will be phased in, falling to 100 returns for 2021 and 10 returns in 2022. Special rules apply to partnerships.

But there’s more

Cybersecurity, innocent spouse relief, private debt collection, misdirected tax refunds and a variety of other areas will be affected with this bill. Contact a Weaver professional today and we’ll keep you informed of these and other relevant tax developments.

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