The Republican and Democratic leaders of a congressional subcommittee overseeing the Internal Revenue Service released draft legislation Monday to overhaul the IRS for the first time since 1998.
House Ways and Means Oversight Subcommittee Chairman Lynn Jenkins, R-Kan., and ranking member John Lewis, D-Ga., released a discussion draft of a bipartisan bill they called the Taxpayer First Act. Among other provisions, the bill would codify the IRS Independent Office of Appeals and provide more congressional oversight over decisions to withhold taxpayers from the administrative review process.
Another provision would give taxpayers greater access to “the case against them.” Under current law, taxpayers only have access to their case file if they make a request under the Freedom of Information Act. The bill would require the IRS to provide the taxpayer with their case file before the start of any dispute resolution process.
Other provisions would curb the IRS’s ability to seize funds from taxpayers suspected of structuring transactions to avoid Bank Secrecy Act reporting requirements. The IRS would need to show probable cause that funds believed to have been structured to avoid BSA reporting requirements come from an illegal source or are connected to other criminal activity. This provision also would provide procedural protections for individuals, including a post-seizure hearing within 30 days of the seizure. If a court determines the government should return the funds and interest to an individual whose funds were seized by the IRS based on structuring allegations, the interest would be exempt from income tax. The bill would also restrict the IRS’s ability to categorize seized goods as “perishable,” which allows the agency to seize and sell a taxpayer’s property on the same day for significantly less than a normal auction would allow.
Another provision would clarify the IRS’s authority to issue John Doe summonses by emphasizing the IRS would need to narrowly tailor a summons to seek only information that pertains to the failure (or potential failure) of the person or group of persons to comply with federal tax law. That way, a John Doe summons couldn’t be used for a “fishing expedition.”
Under another provision, the IRS would be required to develop and submit to Congress a comprehensive customer service strategy addressing how the agency intends to provide assistance to taxpayers, partly by ensuring adequate customer service training for IRS employees and taking into account best practices from the private sector. The strategy would have to establish metrics and benchmarks for measuring the IRS’s success.
“As a CPA, I know from experience the IRS can be very frustrating to deal with,” Jenkins said in a statement. “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.”
Another provision would provide more certainty for organizations that participate in the IRS’s Volunteer Income Tax Assistance program by permanently authorizing matching grants to support VITA programs. Yet another provision would codify the IRS’s existing Free File Program and work with stakeholders to improve and promote the program.
The bill would also provide a low-income exception for payments otherwise required in connection with a submission of an offer-in-compromise. This provision would require the IRS to eliminate the application fee and initial payment requirement for taxpayers with incomes below 250 percent of the federal poverty level.
“The Oversight Subcommittee took our time and conducted thoughtful, bipartisan work to improve taxpayer administration,” said Lewis in a statement. “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.”
One provision could provide some changes in the private debt collection program. Certain types of cases already are not eligible for referral to private collection agencies, including deceased taxpayers, taxpayers under the age of 18, and those with pending installment or offer-in-compromise agreements. Currently, the IRS doesn’t have a filter in place to prevent low-income individuals with incomes below 250 percent of the federal poverty level from being referred for collection. The provision would create a low-income exemption to prevent referrals to private collection agencies.
Another provision would require the IRS to provide public notice, including by non-electronic means, to affected taxpayers 90 days before the closure of a Taxpayer Assistance Center. The notice would need to include information about alternative forms of assistance available for impacted taxpayers. The IRS would also have to notify Congress of the closure and provide the reasons for doing so.
Lewis characterized the legislation as a bipartisan effort. “Overall, this experience reminds me of the way that our committee used to function, and it was wonderful,” he said. “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.”
One provision would codify recent efforts of the IRS, through its Security Summit, to foster a partnership to combat identity theft tax refund fraud with public and private stakeholders. Another would codify the recent change in the charter of the IRS’s Electronic Tax Administration Advisory Committee to address the growing threat of identity theft tax refund fraud. One of the provisions would eliminate the IRS Oversight Board, a nine-person panel that oversees the IRS's administration of the tax laws, because it has been unable to form a quorum in recent years. Another provision would make Tax Court judges subject to the same grounds for disqualification as other federal court judges.
Yet another provision would require mandatory electronic filing for annual returns of exempt organizations. Currently, only tax-exempt organizations that have assets greater than $10 million and those that file more than 250 returns with the IRS are required to file Forms 990 electronically. Under this provision, all tax-exempt organizations required to file annual returns with the IRS would have to submit their returns electronically. This provision also provides transitional relief for small organizations by allowing the IRS to delay the requirement for up to two years.
The lawmakers are asking for comments on the draft proposal, along with any suggested metrics for measuring its eventual success, to be sent by April 6 to email@example.com.
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