House committee advances IRS reform legislation

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The House Ways and Means Committee voted Tuesday to approve far-reaching bipartisan legislation to overhaul key facets of the way the Internal Revenue Service operates, including the appeals process, sending the bill to the House for consideration.

The Taxpayer First Act aims to strengthen and modernize the IRS, improve taxpayer services, and protect taxpayers from identity theft. An earlier version of the bill was passed by the House last April, but didn’t make much progress in the Senate beyond the Senate Finance Committee. Lawmakers from both parties reintroduced the legislation last month (see Congress reintroduces IRS reform legislation).

The package includes more than 45 provisions. It would create an independent office of appeals within the IRS so that taxpayers know they are being treated fairly when resolving a dispute with the agency. Taxpayers would get access to the same information as the IRS during the dispute resolution process. The bill would also require the IRS to submit to Congress a plan to redesign the structure of the agency to improve efficiency, enhance cybersecurity and better meet taxpayer needs. It would also ensure that, when the IRS performs an audit, actual notice is provided to taxpayers before the agency contacts friends, neighbors, and clients.

“The Taxpayer First Act contains many provisions that would help low- and moderate-income taxpayers,” said House Ways and Means Committee chairman Richard Neal, D-Mass. “For example, one important provision would codify the existing IRS Free File program, under which the IRS partners with the tax preparation community to offer free online tax filing to people whose incomes fall in the bottom 70 percent. I’ve been a long-time champion of the Free File program. Another important provision would codify the Volunteer Income Tax Assistance program, under which the IRS partners with nonprofit and community groups to offer income tax assistance to people with low incomes, limited English skills, or other barriers to tax compliance.”

The bill would also require the IRS to submit to Congress a comprehensive plan to improve its customer service strategy, based on best practices from the private sector. The legislation would also strengthen IRS accountability by codifying the roles and responsibilities of the IRS chief information officer and requiring annual information technology strategic planning. It would require easier electronic submission of tax forms and supporting documentation.

The bill also aims to strengthen the IRS’s ability to combat identity theft and tax refund fraud by creating a single point of contact for victims of identity theft to help them navigate the bureaucracy and resolve their issues as soon as possible. The bill would codify the Security Summit in which the IRS collaborates with state tax authorities and the tax prep industry on cybersecurity. It would give the IRS the ability to share information with specified members of the Information Sharing and Analysis Center that was created by the Security Summit. To provide taxpayers with better protection against identity theft, the legislation would expand to all taxpayers an IRS program that currently only allows victims of tax ID theft to obtain an identity protection PIN, or IP PIN, to help secure their identity.

The legislation would also codify the Volunteer Income Tax Assistance program, giving the IRS up to $30 million to provide matching grants to qualifying tax preparation sites. In addition, the bill would overhaul the IRS’s enforcement tools to avoid unnecessary seizures of taxpayer assets using civil asset forfeiture. Individual and business taxpayers wouldn’t need to worry about having their assets seized without proper, timely and fair notice under the bill. The legislation would install new safeguards to protect taxpayers against recent IRS enforcement abuses of so-called “structuring laws” in which the IRS moves to seize assets if a taxpayer appears to be trying to circumvent banking secrecy laws by depositing amounts of just under $10,000 in their bank account. The bill also makes some improvements in the IRS whistleblower program and in the IRS private debt collection program, which allows some private contractors to collect delinquent taxes on behalf of the IRS.

“The Taxpayer First Act, led by Mike Kelly and Oversight Chairman John Lewis, are the first structural reforms to the Internal Revenue Service in over two decades,” said Rep. Kevin Brady, R-Texas, the ranking Republican on the House Ways and Means Committee, who spearheaded the passage of the Tax Cuts and Jobs Act in 2017, a tax reform package that divided Congress along partisan lines, in contrast to the IRS reform bill. “The House passed almost identical measures nearly unanimously multiple times last year. These reforms will transform the IRS into an agency with a singular mission: quality, taxpayer service. We are refocusing the agency to live up to its mission of serving taxpayers, improving information technology and cybersecurity, and reining in its enforcement powers to prevent future abuse. I’m glad that, working together in a bipartisan and bicameral fashion, we are able to move these important reforms forward.”

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, teamed up last month with the top Democrat on the committee, ranking member Ron Wyden, D-Ore., on introducing companion legislation in the Senate.

The House Ways and Means Committee also approved on Tuesday legislation known as the SECURE Act that would provide the ability for part-time workers to participate in their employers’ 401(k) plans (see House panel votes to relax rules for retirement savers). The legislation also includes a tax credit for automatic 401(k) enrollment for small employers. “Automatic enrollment has been shown to increase employee participation and retirement savings,” said Neal. “Our bill creates a new tax credit of up to $500 per year to employers to defray startup costs for new section 401(k) plans that include automatic enrollment. The SECURE Act also allows long-term, part-time workers to participate in their employers’ 401(k) plans. Women are more likely to work part-time than men. So this legislation is particularly important for women, and I thank Representative Murphy for her leadership in this area.”

The bill would also modify the limits on the age at which taxpayers could contribute to individual retirement account plans and withdraw money from them. The current age limit for making contributions to traditional IRAs would be eliminated under the bill, and people would now be required to pull from their accounts at the age of 72, instead of 70 and a half under current law. The SECURE Act also builds on the expansions made to 529 education savings accounts as part of the Tax Cuts and Jobs Act, allowing 529s to be used for costs associated with apprenticeships, homeschooling, and student loans.

Neal said that he and Brady will also be working together on an additional retirement bill in the future. “While we are taking an important first step today, much more needs to be done,” he said. “Over the coming months, the Ranking Member and I plan to put together another bill that will close the coverage gap, simplify the retirement system, and help Americans preserve their assets in retirement.”

Also on Tuesday, the committee voted to advance the BRIDGE for Workers Act, which makes a time-sensitive fix to the unemployment insurance program's Reemployment Services and Eligibility Assessments provisions. It clarifies that states have the flexibility to provide reemployment services to more people who may have lost their job, through no fault of their own, so they can get back to work faster.

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Finance, investment and tax-related legislation Tax laws Richard Neal Kevin Brady IRS