Congress Passes IRS Reform Bill

Chris Gaetano
Published Date:
Jun 14, 2019

The Senate has approved a wide-ranging IRS reform bill without a controversial provision regarding free filing, and it now awaits the president's signature, according to Accounting Today.

The bill, called the Taxpayers First Act of 2019, was first approved by the House in April. The legislation, touted as the first major structural reform of the IRS in decades, had among its many parts a provision that would have codified into law an agreement that the government would never establish its own free filing service. The agreement had been made in exchange for private vendors offering such services to the lowest 70 percent of taxpayers (by income) instead.

reported that this provision precludes any effort to simplify tax filing directly through the government. It noted that the free services offered by these private firms are underpromoted, as evidenced by the fact that only 3 percent of eligible filers use them. In addition, it said, these companies often use the free-service program to cross-promote paid services, and the program leaves taxpayers vulnerable to data breaches and identity theft. What's more, Pro Public suggests that the provision would also shut down longstanding efforts to get the United States to use pre-filled tax forms that are either confirmed or contested by the taxpayer, as is done in most other countries in the world.

For example, while both the United States and the United Kingdom allow for withholding income tax, in the United Kingdom, most people don't have to file a return of any sort, and if they do, then the government simply sends them a return in the mail, with some relevant information already filled in. Estonia ups the ante, meanwhile, and simply fills out the entire return automatically and taxpayers either approve the document if they agree or dispute it if they don't, a process that takes about five minutes total.

In response to public criticism following the story, the House removed the controversial provision and approved the modified bill on Monday.

“Americans interact with the IRS more than any other federal agency," said Sen. Ron Wyden (D-Ore.), the ranking Democrat on the Senate FInance Committee. "Passage of the Taxpayer First Act will modernize the agency, allowing it to better serve taxpayers. Our bill includes critical provisions to improve customer service, protect personal data, preserve tax-preparation services and shield low-income taxpayers from abusive private debt collectors. Going forward, I will be closely tracking the IRS review of the Free File program and working to achieve a public filing program run by the IRS.”

“Not many people look forward to interacting with the IRS," said Sen. Charles Grassley (R-Iowa), the committee chair. "The process can be long, confusing and tedious. That’s particularly true for taxpayers who encounter frustrating situations that may seem unfair. It’s true for whistleblowers who aren’t treated respectfully, and it’s true for ordinary taxpayers who want to make sure their privacy and security are protected."

There are many other provisions in the bill. It would also:

Establish a new IRS Independent Office of Appeals: While the IRS had been instructed to develop an appeals process in 1998, this bill formally codifies it through the creation of a new office led by a new chief of appeals, who would report directly to the IRS commissioner. The appeals process this office would oversee would be "generally available to all taxpayers," and if the IRS decides not to grant a referral to the Independent Office of Appeals, then it must provide the taxpayer with a precise and detailed reason why, and instruct the taxpayer on how to protest the decision. The process would also increase congressional oversight through an annual written report on the number of requests for referral that were denied. The Office of Appeals would have to provide those who undertake the appeals process with access to nonprivileged portions of their case file relevant to the dispute within 10 days of the conference (in contrast to current law, which provides that such information is available only through a Freedom of Information Act request). 

Lower the e-Filing mandate threshold from 250 returns to 10: This requirement would be phased in between 2021 and 2024. The provision allows for an exception for those filing in areas with limited or no internet access. 

Strengthen the Office of the Taxpayer Advocate: The bill would require the IRS to respond to Taxpayer Advocate Directives and clarify a time period for that response. The taxpayer advocate would also get a time frame to appeal a response. Further, the taxpayer advocate would reduce the number of "most serious problems" in its report to Congress from 20 to 10. The IRS must also provide the taxpayer advocate with statistical support upon request. The taxpayer advocate, in turn, will be required to coordinate research efforts with the Treasury Inspector General for Tax Administration. 

Require all tax-exempt organizations to electronically file: Right now, only those with assets over $10 million and those that file more than 250 returns with the IRS have to file the Form 990 electronically. Organizations could get up to two years of relief from this requirement. 

Allow any concerned taxpayer to get an Identity Protection Personal Identification Number (IP PIN): Right now, only those who have been previous victims of identity theft can request one or is at significant risk of having their identity stolen. 

Require the IRS to develop and submit a comprehensive customer service strategy within a year: The strategy must address how the IRS intends to provide assistance to taxpayers and establish benchmarks and metrics to gauge their success.

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