President Signs IRS Reform Bill, the Taxpayer First Act
On July 1, President Trump signed the IRS reform bill, H.R. 3151, the Taxpayer First Act (the Act). The Act includes provisions to improve customer service, provide a process of assisting taxpayers with appeals, increase certain penalties, and update electronic filing requirements. To combat identity theft and fraud, the Act provides for the modernization of IRS’ information technology systems, and expanded use of electronic information systems. House Ways & Means Committee Chairman Richard E. Neal (D-MA) noted that the Act was the “culmination of a lengthy, bipartisan process undertaken by the…Committee to implement pro-taxpayer reforms at the IRS for the first time in more than 20 years.”
Establishment of the IRS Independent Office of Appeals. Sec. 1001 of the Act establishes the IRS Independent Office of Appeals to resolve tax controversies without litigation. “Specified taxpayers” will be provided access to the non-privileged portions of the case file of the disputed issues no later than 10 days before the conference. A “specified taxpayer” is a taxpayer whose gross receipts do not exceed $5,000,000 for the taxable year of the dispute. The section also makes conforming amendments to related provisions. This section is effective July 1, 2019.
Comprehensive Customer Service Strategy. Sec. 1101 of the Act requires the Secretary of the Treasury to submit to Congress a customer service strategy that: (1) provides best practices used in the private sector, (2) improves customers service over time, (3) includes a training plan for IRS customer service employees and updating the Internal Revenue Manual, and (4) identifies benchmarks to measure progress. Guidance and training materials must be available no later than July 1, 2021.
Reform of Notice of Contact of Third Parties. Sec. 1206 amends Code Sec. 7602(c)(1) and provides that the IRS is prohibited from contacting any other person other than the taxpayer regarding the determination or collection of tax liability unless the IRS contacts the third party during a period of no more than one year of the period of the notice. Taxpayers must be informed no later than 45 days if the IRS contacts a third party regarding the notice. This section applies to notices and contacts of persons made after the date which is 45 days after July 1, 2019.
Amendments to Office of the National Taxpayer Advocate Provisions. Under “Organizational Modernization,” Sec. 1301 amends Code Sec. 7803(c) regarding Taxpayer Advocate Directives. It includes a reduction of the number of the most serious problems encountered by taxpayers from at least 20 to at least 10 to be included in the Taxpayer Advocate’s annual report to Congress. This section is effective July 1, 2019.
Modernization of IRS’ Organizational Structure. Sec. 1302 of the Act directs the Secretary of the Treasury to submit to Congress by Sept. 30, 2020, a plan to redesign the organization of the IRS that will, among other things, prioritize taxpayer services, streamline the agency and reduce duplicate efforts, and improve cybersecurity.
Identity Fraud Procedures and Provisions. The Act contains a number of provisions that provide procedures for protecting personal identification numbers, notifying taxpayers of suspected identity theft, and guidelines for stolen identity refund fraud cases. The provisions includes a process for handling situations where identity theft is used to obtain employment.
Electronic Filing System for Forms 1099. Sec. 2102 of the Act requires the Secretary of the Treasury, no later than Jan. 1, 2023, to provide a website that allows taxpayers to file Form 1099s in a similar manner as the Business Services Online site of the Social Security Administration. The system would allow taxpayers to prepare and file Forms 1099, prepare 1099s for distribution to recipients, and maintain a record of filed and distributed 1099s.
Scheduled Decrease in Threshold for Electronic Filing Mandate of W-2s and 1099s. Sec. 2301 of the Act amends Code Sec. 6011(e)(2)(A) which sets the electronic filing mandate for Forms W-2s and 1099s to employers who file 250 or more forms. The Act provides a scheduled decrease to the electronic filing threshold from 250 to 100 forms for the 2021 calendar year and decreases the threshold to 10 forms for calendar years after 2021. The provision provides a waiver for areas without internet access.
Use of Electronic Signatures. Sec. 2302 of the Act requires the Treasury Secretary, by Jan. 1, 2020, to publish guidance establishing the uniform standards and procedures for electronic signatures for disclosing taxpayer information to a practitioner or a power of attorney granted to a practitioner.
Payment by Debit and Credit Cards. Sec. 2303 amends Code Sec. 6311(d)(2) to permit the IRS to accept payment by debit and credit cards if the any fees associated to accepting such payment is recouped.
Verification of Identity of Users of IRS e-Service Tools. Sec. 2304 requires the Treasury Secretary to implement a system, by Dec. 29, 2019, to verify the identity of individuals opening an e-Services account prior to use of its services.
Increased Penalties for Failure to File Returns. Sec. 3201 of the Act amends Code Sec. 6651(a) and increases the minimum penalty for failure to file returns within 60 days of the due date from $215 to $330, applicable to returns required to filed after Dec. 31, 2019.