Senators propose fixes to IRS administration

Senate Finance Committee chairman Mike Crapo. R-Idaho, and ranking member Ron Wyden, D-Oregon, issued a discussion draft Thursday of bipartisan legislation aimed at improving procedures and administration at the Internal Revenue Service, with the support of the American Institute of CPAs.

The draft legislation, known as the Taxpayer Assistance and Service Act, comes only days after the IRS opened the tax filing season facing a hiring freeze imposed by the new Trump administration, leading to rescinded job offers.

"As the tax filing season gets underway, this draft legislation suggests practical ways to improve the taxpayer experience," Crapo and Wyden said in a joint statement. "These adjustments to the laws governing IRS procedure are designed to facilitate communication between the agency and taxpayers, streamline processes for tax compliance and disputes and ensure taxpayers have access to timely expert assistance."

The discussion draft includes policies that would:

• Require the IRS to improve "math error" notices so that taxpayers are better positioned to timely respond to them;
• Streamline review of offers-in-compromise to facilitate the taxpayers' resolution of tax debts;
• Simplify foreign bank account report (FBAR) compliance so that fewer taxpayers will fail to file key forms;
• Clarify and expand Tax Court jurisdiction so that more taxpayers can pursue their claims in an appropriate venue;
• Expand the independence of the National Taxpayer Advocate (NTA) from the IRS;
• Increase civil and criminal penalties on tax professionals that deliberately take actions to harm their clients;
• Expand taxpayer access to the IRS Independent Office of Appeals;
• Extend the so-called "mailbox rule" to electronic submissions so that taxpayers have certainty their materials are submitted on time;
• Protect taxpayers by adopting reasonable standards and due process for issuing and revoking return Preparer Tax Identification Numbers, or PTINs;
• Strengthen the IRS whistleblower program while protecting the confidentiality of taxpayer information;
• Protect hostages from unfair tax processes and penalties.

The proposals in the discussion draft reflect in many ways nonpartisan legislative proposals recommended by the National Taxpayer Advocate, along with standalone tax administrative bills introduced by congressional members.  The provisions aim to reduce or eliminate challenges faced by taxpayers and other stakeholders within the current federal tax administrative system. 

"This bipartisan draft bill, several years in the making, would significantly strengthen taxpayer rights in nearly every facet of tax administration," said National Taxpayer Advocate Erin Collins in a statement.  "I encourage taxpayers and the tax professional community to carefully review the draft and provide feedback to refine it, and I encourage Congress to prioritize the passage of this common sense bill to ensure stronger protections for taxpayers and a more fair and transparent tax system."

Collins also wrote a blog post about it Thursday, saying, "If ultimately enacted, the TAS Act will rank with the IRS Restructuring and Reform Act of 1998 and the Taxpayer First Act of 2019 among the most significant pieces of taxpayer rights legislation Congress has passed."

The AICPA expressed its support Thursday for the discussion draft, and said it strongly supports and endorses the following provisions found in the Taxpayer Assistance and Service Act:

•  Sec. 101. Scanning and Digitization of Tax Returns and Correspondence.
• Sec. 102. Establishment of Dashboard to Inform Taxpayers of Backlogs and Wait Times.
• Sec. 103. Expansion of Electronic Access to Information about Refunds.
• Sec. 104. Expansion of Callback Technology and Online Accounts.
• Sec. 105. Improvement of Notices of Math or Clerical Error.
• Sec. 108. Individuals Facing Economic Hardships Informed of Collection Alternatives.
• Sec. 112. Postponement of Certain Deadlines by Reason of Disasters Made Applicable to Limitation on Credit or Refund.
• Sec. 116. Modification of Rules for Postponing Certain Deadlines by Reason of Disaster.
• Sec. 405. Operations to Assist Taxpayers Experiencing Hardships During a Lapse in Appropriation.
• Sec. 504. Authority to Deny, Revoke, or Suspend Preparer Tax Identification Numbers.
• Sec. 903. Quarterly Installments for Estimated Income Tax Payments by Individuals.
• Sec. 904. Establishment of a Failure-to-Pay Penalty Safe Harbor for Individuals.
• Sec. 905. Extension of Mailbox Rule to Electronic Submissions and Payments.

"We are grateful to Senators Wyden and Crapo for putting together a thoughtful package that will provide much-needed support to taxpayers," said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement. "When passed, the TAS Act will be one of the most significant tax packages we will have seen in recent years. It will be instrumental in establishing a foundation that helps simplify some of the laborious tax filing processes and allows taxpayers to better meet their tax obligations. We look forward to working with Senators Wyden and Crapo as this discussion draft moves forward."

The Government Accountability Office released a report Thursday on the 2024 tax filing season that found the IRS improved its live service for taxpayers last year and began to modernize some of its operations, but timeliness issues remain.