Lawmakers propose tax and IRS bills as filing season ends

Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.

Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the Improving IRS Customer Service Act, which would expand information on refunds available to taxpayers online and help taxpayers with payment plans if they need it.

The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.

"Taxpayers deserve a simple, stress-free experience when dealing with the IRS," Cassidy said in a statement Wednesday. "This bill makes the process quicker and easier for taxpayers to get the information they need."

He also mentioned the bill during a Senate Finance Committee hearing about tax season when questioning IRS CEO Frank Bisignano. During the hearing, Cassidy secured a commitment from Bisignano that the IRS would work with Congress to implement these reforms if the legislation were signed into law.

"I'm happy to meet with the team … and do all I can to make it as good as you want it to be," said Bisignano.

"My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly," said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise. 

"I know people are kind of desperate and don't know where to turn for cash, so I think this could really ease anxiety," he added. "This legislation is bipartisan and is likely to pass this Congress."

Cassidy and Warner introduced the Improving IRS Customer Service Act in 2024. Last year, Warner wrote to National Taxpayer Advocate Erin Collins at the IRS regarding the underperforming Taxpayer Advocate Service office in Richmond, Virginia, and advocated against any harmful personnel decisions that would negatively impact taxpayers.

"Taxpayers shouldn't have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse," Warner said in a statement. "I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available."

Stop CHEATERS Act

Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.

Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.

"Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS," Wyden said in a statement. "A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year."

Earlier this week. Wyden also introduced two other pieces of legislation aimed at cracking down on the use of grantor retained annuity trusts and private placement life insurance contracts to avoid or minimize taxes.

The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.

"As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let's enforce the tax laws already on the books," said King in a statement. "Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let's pass this legislation and make sure every American pays what they owe in taxes."

Carried interest

Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that Democrats as well as President Trump have pledged for years to curtail. The tax break mainly benefits hedge fund managers, private equity firm partners and venture capitalists, who have lobbied heavily to defeat attempts to end the lucrative tax break. The tax break was scaled back somewhat under the Tax Cuts and Jobs Act of 2017.

Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a summary of the bill. A carried interest entitles a fund manager to future profits of a partnership, also known as a "profits interest." Under current law, a fund manager is generally not taxed when a profits interest is issued and only pays tax when income is realized by the partnership, often in connection with  the sale of an investment that happens years down the road. Not only does this allow a fund manager to defer paying tax, but the eventual income from the partnership almost always takes the form of capital gain income, taxed at a preferential rate of 23.8% compared to the top rate of 40.8% for wage-like income.  

Under the bill, the Ending the Carried Interest Loophole Act, fund managers would be required to recognize deemed compensation income each year and to pay annual tax on that amount, preventing them from deferring payment of taxes on wage-like income. A fund manager's compensation income would be taxed similar to wages on an employee's W-2, subject to ordinary income rates and self-employment taxes.   

"Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole," Wyden said in a statement. "For several decades now we've had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start."

Repealing Corporate Transparency Act

The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly scaled back under the Trump administration to only require beneficial ownership information reporting by foreign companies to FinCEN, the Treasury Department's Financial Crimes Enforcement Network. 

If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies. 

"This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix," said Erica Hanichak, deputy director of the FACT Coalition, in a statement. "These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn't just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business."