An IRS revamp?
The last time Congress considered transformative revisions to the Internal Revenue Service was in 1998. Now, two decades later, they’re taking another shot at it. H.R. 1957, the Taxpayer First Act of 2019, was passed with bipartisan support by the House in early April. It was placed on the Senate’s legislative calendar on April 11.
“With a new Tax Code, it is time for a new tax administrator,” said Kevin Brady, the top Republican on the House Ways and Means Committee. “I applaud the House for passing the Taxpayer First Act — a bold step to redesign the IRS to be an agency with one singular mission: putting taxpayers first. We are refocusing the agency to live up to its mission of serving taxpayers, overhauling the IRS’s tools of enforcement, and strengthening the IRS’s ability to proactively combat identity theft and fraud.” Brady urged swift action by the Senate to pass the legislation.
Among other provisions, the act would:
- Establish an IRS Independent Office of Appeals to resolve federal tax controversies without litigation;
- Require the IRS to develop a comprehensive customer service strategy;
- Continue the IRS Free File program;
- Modify tax enforcement procedures that address issues such as the seizure of property, issuing a summons, joint liability, referral for private debt collection, and contacting third parties;
- Exempt certain low-income taxpayers from payments required to submit an offer-in-compromise;
- Establish requirements for responding to Taxpayer Advocate directives;
- Modify procedures for whistleblowers;
- Establish requirements for cybersecurity and identity protection; and,
- Increase the penalty for failing to file a return.
“It is expected to pass the Senate,” said Rochelle Hodes, a partner at Top 10 Firm Crowe LLP who formerly worked on issues in the Taxpayer First Act with the Office of Tax Policy at the Treasury. “But it’s hard to predict. On the one hand there is great comity between the House and Senate on both sides regarding the House bill, [but] other tax issues will arise in the Senate that could make immediate passage by the full chamber something that might not be as quick as some suggest. For example, Senators Cardin and Wyden introduced a provision to regulate tax return preparers. It was introduced as a stand-alone bill, but based on what I’ve read, they think it would be an item to include in the Taxpayer First Act. Preparer regulation has not been well received by all members because of the aspect of giving the IRS additional authority. It’s not something they relish, so that could be a complication ... Also, there are proponents of extenders of various sorts and flavors. Senator Grassley put forward what he believes are appropriate extenders but others in the Senate have different ideas. There are also corrections to tax reform, and who knows what issues that may raise? The basic tension in Congress over this is the existence of these issues interfering with something that seems to have bipartisan bicameral support, so it’s a mixed bag in the Senate, although both Senators Grassley and Wyden said they agree with the provisions in the House bill.”
The provision in the bill that stands out the most is the IRS Independent Office of Appeals, according to Hodes: “It hasn’t really changed a lot. For example, it says the chief of Appeals reports directly to the commissioner. That’s exactly how it exists today. The biggest part is codification. It’s intended to address concerns that people have raised about lack of independence. One of the specific provisions is the independence of the Office of Chief Counsel. The bill provides that the chief of Appeals has authority to obtain the legal assistance and advice from the Office of Chief Counsel, but the chief counsel ‘shall ensure, to the extent practicable, that such assistance and advice is provided by staff who were not involved in the case and are not involved in preparing the case for litigation.’”
“Appeals has always been an administrative function created internally by the IRS,” Hodes noted. “One consequence of the provision for the Independent Office of Appeals is that it will raise the profile and raise the oversight of this particular office. Congress will be looking at that.”
Ryan Losi, executive vice president of Virginia-based CPA firm Piascik, welcomed an independent Office of Appeals. “We do a fair amount of tax controversy, and it seems as though the appeals process is heavily weighted in favor of the IRS,” he said. “They don’t show all of their cards, but we have to show ours.”
More generally, Losi said, the service needs to be more responsive to the needs of the public. “Taxpayer service has been terrible. The prior commissioner said that with their limited budget, IRS focus would be on employee morale and getting through tax season. We’ve had wait times as long as three hours, which ended in a ‘courtesy hangup,’ so there is room for improvement.”
Losi also welcomed the provision providing for a partnership between the IRS and local nonprofits to offer tax assistance. “Remember when local libraries had all the forms, and often had a volunteer to help taxpayers fill out their returns? Now taxpayers have to go online, so it’s good to help the public comply with a very complicated Tax Code.”
“We’re a voluntary tax-paying society,” Losi observed. “Of all the countries that have a voluntary tax system, we have the highest compliance rate in the world. Taxpayers want to pay their correct tax — when you’re the best, shouldn’t your tax agency focus on being supportive and accommodating? I would like to see the service become more taxpayer-friendly, and understand that it is serving the taxpayer, not the other way around.”
The establishment of an Independent Office of Appeals is a step in the right direction, according to Gary DuBoff, a principal in the tax and accounting department at Miami-based Top 100 Firm MBAF. “Any kind of division between ‘church and state’ in this area is good.”
The use of e-signatures for a power of attorney is gratifying, said DuBoff. “Right now, you need to fax or mail the power of attorney to a separate and distinct office that handles it.”
The second half of the bill is more than simply “putting taxpayers first,” noted DuBoff. “It’s about modernization — a 21st century wish list,” he said.
Perhaps taking a cue from proposals in the act, in mid-April the IRS announced a multi-year plan to update and modernize its systems.
“But all of this will cost money,” said DuBoff.
Hodes agreed. “This is not a funding bill,” she said. “At the end of the day, everything comes down to money. A major complaint about Appeals is that it takes too long. That’s because Appeals doesn’t have enough people. ‘Giving everyone the right to an appeal’ means having enough Appeals officers so taxpayers don’t have to wait 18 months or two years for their case to be heard.”