House passes IRS reform bill again, this time without Free File provision

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The House voted for a second time to approve bipartisan legislation to overhaul some key aspects of the way the Internal Revenue Service operates, but this time without a controversial provision that would have codified the Free File Alliance into law.

The House originally passed the far-reaching package of legislation, known as the Taxpayer First Act, in April with strong bipartisan support, although the Senate has yet to take up the bill (see House passes IRS reform bill). It includes provisions that would overhaul the IRS appeals process, enhance cybersecurity at the IRS, and require the IRS to develop a new customer service strategy, among other items. But a previously obscure provision that would enshrine the longtime Free File Alliance, in which tax prep software companies offer some free versions of their software, attracted extra scrutiny after a series of articles in the investigative news site ProPublica claimed the provision would prevent the IRS from developing its own free tax filing software. The articles highlighted how some vendors such as Intuit and H&R Block had lobbied for the provision, while making it difficult to find their own free tax prep offerings, prompting the IRS to launch an investigation of the program (see IRS to probe Free File program). Some lawmakers, including Sen. Elizabeth Warren, D-Mass., also called for an investigation by the Federal Trade Commission, and last week Congress decided to drop the controversial provision from the Taxpayer First Act. The legislation, minus the Free File Alliance provision, passed on a voice vote Monday afternoon.

The bill contains many other provisions that promise to help taxpayers in their dealings with the IRS and to modernize the IRS’s technology. The bill authorizes the restructuring of the IRS to better serve taxpayers and makes the Office of Appeals more independent. It requires the IRS to submit to Congress a comprehensive customer service plan to better serve workers and local businesses. The bill would also rein in abuses by overhauling the agency’s enforcement tools. In addition it would provide the IRS with tools to overhaul its IT infrastructure to help protect taxpayers from cyberattacks and helps the IRS better serve taxpayers.

Lawmakers in the House urged their colleagues in the Senate to take up the legislation and send it to President Trump’s desk. “These historic reforms will transform the IRS into an agency truly focused on taxpayer service,” said Rep. Kevin Brady, R-Texas, the top Republican on the House Ways and Means Committee. “For the first time in 20 years, we are overhauling the agency’s enforcement tools while increasing taxpayers’ protection from identity theft and fraud.”

The bill has been in the works since the previous Congress, when lawmakers put together a set of IRS reforms after passage of the Tax Cuts and Jobs Act at the end of 2017. Sen. Rob Portman, R-Ohio, pointed out that the bill includes a number of his legislative priorities that were included as part of the Protecting Taxpayers Act he introduced with Sen. Ben Cardin, D-Md., last year. Those provisions include preserving the IRS Oversight Board and reconstituting it so it can help set the long-term strategic direction of the agency; and establishing an independent Office of Appeals at the IRS and strengthen taxpayers’ right to an appeal, including full notice and protest procedures and open access to case files. The IRS would also be directed to develop a comprehensive training strategy for its employees to foster a stronger culture of reinforcing taxpayer rights at the agency. The IRS would be required to issue uniform guidance for the use of electronic signatures for tax returns. The bill would reauthorize streamlined critical pay authority for IRS information technology employees to make it easier to hire the best technical staffers needed to overhaul the IRS IT infrastructure. It would protect low-income taxpayers by permanently authorizing, and authorizing additional funding for, the Volunteer Income Tax Assistance program. In addition, the bill would codify low-income taxpayer exceptions from fee waivers and lump sum payments associated with IRS payment plans. It would direct the IRS to issue procedures for when direct deposits of tax refunds are sent to the wrong account. The IRS’s legal authority to issue a designated summons, or a summons that freezes the statute of limitations for taxpayers, would be modified to ensure this enforcement tool is only used for uncooperative taxpayers.

“The House-passed bill includes many of the provisions from my Protecting Taxpayers Act, the IRS reform bill I introduced with Senator Cardin last year,” Portman said in a statement. “In particular, this bill includes provisions that establish an Independent Office of Appeals and strengthen taxpayers’ right to an appeal, an important taxpayer right first established in the 1998 IRS reform legislation that I authored in the House. The bill also preserves the IRS Oversight Board, giving the IRS and Congress a chance to revitalize the Board so that it may achieve its original purpose, acting as a board of directors for the agency. This bill represents the most significant reform to the IRS in two decades and is an important first step toward restoring full faith in one of our government’s most important agencies. There is still plenty of work that we can do to continue to modernize and strengthen the agency so that it better serves American taxpayers, and I look forward to Senate Finance consideration of additional IRS reform initiatives now that a new Commissioner is fully in place. I would urge my Senate colleagues to join me in passing this bipartisan, bicameral legislation so that it can be sent to the president’s desk for his signature.”

Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, welcomed the House’s passage Monday of the revised package of legislation and added that he too hopes to get it passed in the Senate. “Legislation to modernize the IRS so it better serves taxpayers has been years in the making,” he said in a statement. “The bipartisan Taxpayer First Act contains critical provisions to improve customer service, protect personal data and shield low-income taxpayers from the agency’s problematic private debt collection program. I’m hopeful that the Senate will pass the amended bill as soon as possible.”

Little substantial legislation has been passed so far this year in the Senate amid partisan squabbling, but the bill's strong bipartisan support may aid its passage.

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Finance, investment and tax-related legislation Kevin Brady Ron Wyden Rob Portman IRS