Senate committee drafts wide-ranging tax administration bill

The Senate Finance Committee released a so-called "Chairman's Mark" of the Taxpayer Assistance and Service Act ahead of a markup hearing Thursday of a sprawling bipartisan bill that would add new requirements for the Internal Revenue Service as well as tax preparers, including continuing education for unlicensed preparers.

Senate Finance Committee chairman Mike Crapo, R-Idaho, and the top Democrat on the committee, ranking member Sen. Ron Wyden, D-Oregon, first unveiled a discussion draft of the legislation in January 2025. This week's markup will be the first tangible signs of an advance in the bill, although National Taxpayer Advocate Erin Collins has frequently written about the benefits of the bill in her blog, including provisions related to innocent spouse relief. In contrast, the tax-writing House Ways and Means Committee has been pursuing a more piecemeal approach, recently approving eight separate tax administration bills earlier this month. The TAS Act would be the largest single overhaul to tax administration since the passage of the Taxpayer First Act of 2019 during President Trump's first term. Like the Taxpayer First Act, which followed on the heels of the Tax Cuts and Jobs Act of 2017, the TAS Act would follow after passage of the One Big Beautiful Bill Act last year. And like the Taxpayer First Act, it would be a bipartisan package rather than a reconciliation bill passed solely by Republicans like the TCJA and the OBBBA.

The Senate Finance Committee plans to hold a markup hearing on Thursday starting at 10:00 a,m. "Taxpayers deserve a tax system that is easy to navigate, delivers timely refunds and responds effectively when issues arise," Crapo said in a statement Tuesday.  "This week's markup demonstrates the Committee's bipartisan commitment to improving tax administration and ensuring the tax system works better for the American people."

 "Americans deserve a fair and efficient federal tax system that protects them from bad actors," Wyden said in a statement.  "This week the Finance Committee has an opportunity to meaningfully improve the tax filing process for Americans of all stripes on a bipartisan basis, and continue efforts to modernize the IRS to better serve taxpayers."

Even though the bill is bipartisan, its prospects are uncertain as President Trump is holding up other legislation in an effort to pressure Senate Majority Leader John Thune, R-South Dakota, and other Senate Republicans to pass his voting restriction legislation, the Save America Act, if necessary by eliminating the filibuster. 

Tax preparer regulations

Among the provisions affecting tax preparers, according to a summary of the legislation, the proposal would expand penalties for preparers who improperly alter returns. It would expand the definition of "return" to include any document purporting to be a return of tax, an administrative adjustment request under Section 6227, or a partnership adjustment tracking report under Section 6226(b)(4)(A). The expansion would ensure that return-preparer penalties apply not only to properly filed returns, but also to documents submitted as returns that do not meet all formal requirements. The proposal would further clarify that documents altered by a preparer after the taxpayer has reviewed and signed them are treated as returns for purposes of the preparer-penalty provisions. 

To deter "ghost" preparers who intentionally violate the rules, another would provision would make it a felony, punishable by a fine of up to $50,000 ($100,000 in the case of a corporation) or three years in prison, or both, to willfully fail to furnish a PTIN, willfully furnish an invalid PTIN, or willfully furnish a Preparer Tax Identification Number assigned to another person. These provisions apply to returns or claims for refund filed more than 18 months after the date of enactment. 

Another provision would require the IRS to give practitioners, return preparers with valid PTINs and qualified reporting agents access to client accounts without requiring them to log in to each client's account separately. The IRS would also be required to establish a program to prevent unauthorized disclosures by such persons and to publish an annual report on its activities. 

Another provision would direct the Treasury Secretary to establish a program to promote voluntary compliance with identifying number requirements and to allow preparers to correct inadvertent errors before penalties are imposed. The program would be developed in consultation with the National Taxpayer Advocate, low-income taxpayer clinics, and other relevant stakeholders, and is required to include procedures for identifying electronically submitted returns or claims that lack valid identifying numbers and providing preparers an opportunity to supply valid information before penalty assessment. 

In addition, the proposal would create a new criminal penalty for willful failure to furnish a valid preparer identifying number or for willfully providing an invalid identifying number with intent to evade or defeat statutory requirements. A violator would be guilty of a felony and may be fined up to $50,000 ($100,000 for corporations), imprisoned for up to three years, or both, in addition to the costs of prosecution. 

Another provision would require a paid, non-credentialed tax return preparer to demonstrate suitability to be a tax return preparer by providing information about the competence and character of the preparer, passing a criminal background and tax compliance check, taking up to 18 hours of continuing education each year, and demonstrating completion of the required CE. The provision would prohibit the IRS from requiring the preparer to take an exam or attend classes from any particular CE provider, so long as the CE used by the preparer includes written materials and meets minimum standards established by the Secretary. The Treasury Secretary would be required to post on its website educational programs that meet its standards and the providers of such programs. Before renewing a PTIN, the provision would authorize the Treasury Secretary to require a preparer to complete additional CE (but not more than the 18-hour maximum) on specific subject areas that are based on the errors identified on returns filed under the preparer's PTIN. The Treasury Secretary would be able to continue the voluntary Annual Filing Season Program or an equivalent track and continue to permit a tax return preparer who has met the program's requirements to continue to have limited rights to represent taxpayers before exam just like those with an AFSP certificate. The Treasury Secretary would also continue to offer to list participants on its website, as long as they satisfy the requirements. 

Sweeping legislation

Here are the main provisions of the wide-ranging proposal, compiled with the help of AI via Google's Gemini Notebook:

Title I: Tax Administration and Customer Service

This title focuses on modernizing IRS systems and improving the administrative experience for everyday taxpayers:

• Digitization of Tax Returns: Requires the IRS to accept and process all returns and amended returns electronically. It mandates the use of optical character recognition technology (or similar tools) to transcribe paper returns and correspondence, unless manual entry is determined to be faster and more reliable.
• Real-Time Backlog and Wait Time Dashboard: Requires a real-time, user-friendly dashboard on IRS.gov showing call volumes, wait times, and callback availability.
• Upgrades to "Where's My Refund?": Mandates upgrades to online refund-tracking tools to show highly specific details, such as if a return has been suspended, why it was suspended, and what information is needed.
• Callback Expansion: Establishes a congressional goal that by 2028, the IRS must offer a callback option on all major lines when calls are not answered within five minutes.
• Online Account Upgrades: Expands online portals to let taxpayers and authorized representatives view a rolling six-year history of returns, notices, and letters, and upload responses directly. It also enables tax practitioners to access multiple client accounts without logging in separately.
• Automatic Refund Offset Bypass: Requires the IRS to automatically bypass tax refund offsets for the Earned Income Tax Credit (EITC) for low-income taxpayers who are classified as "currently not collectible" (CNC).
• Installment Agreement Fee Waivers: Eliminates fees for setting up installment payment plans for taxpayers whose adjusted gross income does not exceed 250 percent of the applicable poverty level.
• Economic Hardship Notifications: Mandates a program to identify taxpayers facing economic hardship and actively inform them of alternative collection options (e.g., offers-in-compromise, CNC status).
• Quarterly Delinquency Notices: Replaces annual reminder notices with quarterly notices that estimate future accruing penalties and interest.
• Low-Income Taxpayer Clinic (LITC) Funding: Unlocks funding by removing the $6 million annual aggregate cap and the $100,000 clinic limit, while allowing the IRS to reduce matching-fund requirements down to 25% to expand coverage.
• Streamlined Chief Counsel OIC Reviews: Restricts the requirement for written Chief Counsel legal opinions on accepted Offers-in-Compromise (OICs) over $50,000 only to cases involving significant legal issues.
• Procedural Penalty Requirements: Clarifies that written supervisory approval is required before the IRS issues a notice of a penalty or credit disallowance period that allows for administrative or judicial review.
• Wrongful Levies: Clarifies that the two-year period to request the return of wrongfully levied money begins on the date the IRS actually receives the funds, protecting those affected by delayed electronic remittances.
• Fraud Reporting: Mandates annual reports to Congress detailing IRS and Security Summit efforts to prevent and resolve various forms of tax fraud, including identity theft.

Title II: American Citizens Abroad

This title addresses compliance and reporting challenges unique to U.S. citizens living overseas:

• FBAR & Code Simplification Study: Requires the Treasury to study and report on how to combine and simplify duplicative reporting requirements under the Foreign Bank Account Report (FBAR) and the Internal Revenue Code (e.g., Form 8938).
• GAO Burden Study: Directs the Comptroller General to study and report on the compliance burdens faced by U.S. citizens living abroad, specifically highlighting issues with foreign retirement accounts, exchange rates, and communication.
• Math Error Response Extension: Doubles the response window from 60 to 120 days for taxpayers living outside the U.S. to request an abatement of a math error notice.

Title III: Judicial Review

This title makes significant changes to the powers, jurisdiction, and procedures of the U.S. Tax Court:

• Pre-Trial Subpoenas: Authorizes the Tax Court to issue third-party subpoenas for the production of documents or discovery without requiring a scheduled hearing.
• Relief from Final Decisions: Grants the Tax Court authority similar to Federal Rule of Civil Procedure 60 to correct clerical errors or set aside final judgments in cases of fraud on the court, mistakes, or newly discovered evidence.
• Special Trial Judges: Authorizes Chief Judges to assign any case within the court's jurisdiction to a special trial judge if the parties consent, and gives special trial judges limited contempt-of-court authority.
• Recusal Standards: Formally applies the mandatory federal judicial recusal and disqualification standards to Tax Court judges and special trial judges.
• Credit Disallowance Ban Review: Grants the Tax Court jurisdiction to review and redetermine the IRS's imposition of multi-year bans (2-year or 10-year bans) on claiming EITC, CTC, or AOTC.
• Innocent Spouse Relief Review: Clarifies that Federal district, bankruptcy, and Tax Court reviews of innocent spouse relief determinations are de novo, allowing courts to consider all relevant evidence beyond the IRS administrative record.
• Nonjurisdictional Filing Deadlines: Declares that Tax Court deadlines for deficiency, collection due process (CDP), and innocent spouse petitions are nonjurisdictional and subject to equitable tolling, estoppel, waiver, and forfeiture. It also clarifies that filing location inaccessibility for any part of a due date tolls the deadline.
• CDP Liability Challenges: Allows taxpayers to challenge their underlying tax liability during a CDP hearing if they did not receive a notice of deficiency or have a prior opportunity to dispute the liability in a Federal court.
• Refunds in CDP Cases: Confers jurisdiction on the Tax Court to determine overpayments and order refunds or credits in CDP cases.
• Tax Court Standalone Refund Suits: Grants the Tax Court concurrent jurisdiction to hear standalone tax refund suits for amounts of $2 million or less.
• Bypassing the Full Payment Rule: Permits taxpayers who are current on an installment agreement or classified as currently not collectible to file refund suits without paying the full disputed liability upfront.
• Small Case Threshold: Doubles the jurisdictional ceiling for electing simplified "Small Case" (S case) procedures from $50,000 to $100,000 and indexes the threshold for inflation.

Title IV: Office of the Taxpayer Advocate

This title strengthens the independent oversight role of the Taxpayer Advocate Service (TAS):

• Direct Hire of Attorneys: Empowers the National Taxpayer Advocate (NTA) to directly hire independent counsel who report only to her, rather than reporting to the IRS Chief Counsel.
• Personnel Decisions: Clarifies the NTA's authority to make personnel decisions for all TAS staff, including national office employees.
• Unrestricted Access to IRS Info: Mandates that the IRS provide the NTA with access to information, meetings, and legal advice necessary to assist taxpayers and prepare annual congressional reports.
• Repealing Limitation Suspensions: Repeals Section 7811(d), which suspended the statute of limitations for taxpayers requesting TAS assistance in writing, ensuring telephone and written requests are treated equally.
• Funding During Government Lapses: Authorizes TAS to incur obligations in advance of appropriations during government shutdowns to continue assisting taxpayers experiencing economic hardships.

Title V: Tax Return Preparers

This title aims to curb fraud and increase the competence of paid tax preparers:

• Broadened Definition of "Return": Expands the definition of a tax return to include documents purporting to be returns (such as altered or incomplete drafts), ensuring preparer penalties apply.
• Increased Civil & Criminal Penalties: Raises the penalty for failing to provide a valid Preparer Tax Identification Number (PTIN) to $250 per failure (up to a $75,000 annual maximum) and establishes a felony criminal penalty for willfully providing invalid PTINs. Other civil preparer penalties (e.g., failure to sign, provide copy) are also increased.
• Misappropriation of Refunds: Replaces standard check negotiation penalties with a strict penalty for refund misappropriation equal to the greater of $1,000 or the full misappropriated amount.
• PTIN Qualification and Regulation Framework: Establishes a statutory registration framework requiring paid, non-credentialed preparers to meet Federal suitability checks and complete up to 18 hours of continuing education (CE) annually. Licensed attorneys, CPAs, and Enrolled Agents are exempt from these extra suitability and CE requirements. The IRS is granted statutory authority to deny, suspend, or revoke PTINs for misconduct.

Title VI: Independent Office of Appeals

This title bolsters the independence of the IRS Appeals function:

• Independent Counsel: Authorizes the Chief of Appeals to appoint independent counsel who report directly to Appeals rather than the IRS Chief Counsel.
• Direct Hire Authority: Permits Appeals to directly hire qualified candidates who do not work for IRS enforcement functions.
• Response to Refund Claims: Requires the IRS to respond to timely refund claims within 12 months; failures to respond are deemed disallowances that taxpayers can appeal. Delayed determinations will trigger a one percent interest rate penalty paid by the IRS.
• Processability Review for OICs: Mandates an independent review of IRS decisions to return an OIC as nonprocessable, allowing taxpayers to appeal processability decisions.
• Hazards of Litigation: Clarifies that Appeals must evaluate and consider all hazards of litigation in resolving tax controversies, while narrowing the categories of cases excluded from Appeals consideration.

Title VII: Whistleblowers

This title improves protections and incentives for individuals who report tax noncompliance:

• De Novo Tax Court Review: Replaces the highly deferential "abuse of discretion" review with a de novo standard of review for Tax Court appeals of whistleblower award determinations.
• Exemption from Sequestration: Explicitly exempts whistleblower awards from budget sequestration orders.
• Whistleblower Privacy: Mandates that whistleblowers proceed anonymously in Tax Court unless a public societal interest in disclosure outweighs potential harm.
• Schemes Reporting: Requires the Whistleblower Office to list the top ten tax avoidance schemes disclosed by whistleblowers in its annual report.
• Whistleblower Award Interest: Requires the IRS to pay interest on awards if it fails to notify a whistleblower of a preliminary award determination within 12 months of collecting all proceeds.
• Above-the-Line Deductions: Harmonizes rules to allow whistleblowers to deduct legal fees above-the-line for both mandatory and discretionary award programs.

Title VIII: American Hostages and Wrongfully Detained Individuals

This title creates crucial tax administrative relief for U.S. nationals held captive:

• Postponement of Tax Deadlines: Postpones tax filing and payment deadlines, interest, and penalties for hostages and wrongfully detained individuals (and their spouses) during detention, using annual lists provided by the State Department and Attorney General.
• Retroactive Abatement: Establishes a program to refund or abate interest, penalties, or additional tax assessments accrued between January 1, 2021, and the bill's enactment.

Title IX: Small Businesses

This title cuts administrative red tape for smaller companies:

• Voluntary Withholding for Independent Contractors: Expressly permits businesses to withhold income taxes on non-wage remuneration for independent contractors under voluntary agreements.
• Extension of the Mailbox Rule: Extends the statutory mailbox rule to electronic submissions and payments, treating them as timely if authorized by the due date and received within three business days.
• Specific Third-Party Contact Notice: Requires pre-contact notices to explicitly identify the information the IRS is seeking from a third party and provides the taxpayer at least 45 days to produce that information first.

Title X: Miscellaneous

This title includes final administrative and technical adjustments:

• Education Loan Information Sharing: Permits the Department of Education to redisclose borrower tax data to the Congressional Budget Office (CBO) to assist in student loan cost estimation and analysis.
• Large Partnership Electronic Filing: Reduces the e-filing partner threshold for partnerships from 100 to more than 50 partners, or if the partnership's assets equal or exceed $1,000,000.
• Limitations Period Protection: Clarifies that third-party tax preparer fraud does not indefinitely toll the statute of limitations for the innocent taxpayer; the unlimited fraud exception to the assessment period is restricted to cases where the fraud intent was that of the taxpayer (or spouse in a joint return).
• Section 7508A Correction: Implements a technical, non-substantive correction to the numbering of Section 7508A