Senators Rob Portman, R-Ohio, and Ben Cardin, D-Md., introduced bipartisan legislation Thursday to make the Internal Revenue Service more accountable to taxpayers, as well as revive the IRS’s regulation of tax preparers, as a panel of tax experts testified before their subcommittee about improving tax administration at the IRS.
The Protecting Taxpayers Act aims to improve customer service at the IRS, overhaul the appeals process and increase taxpayer protections. The bill would also change the IRS’s organizational structure and management, transform its enforcement procedures, enhance small business and retirement plan tax administration, improve service to low-income taxpayers, and strengthen the IRS’s technology infrastructure.
“Americans work hard every day to provide for themselves and their families, and, as taxpayers, the federal government works for them,” Portman said in a statement. “Too often, however, the federal government isn’t responsive to the needs of the people it serves, and the IRS has not always served the interests of taxpayers. It has been 20 years since the last significant IRS reform, and it is time to update the agency once again. The bipartisan Protecting Taxpayers Act will restructure and reform the IRS to make it more responsive and accountable to the needs of taxpayers and help restore Americans’ faith in this agency.”
The bill complements legislation recently introduced by Senate Finance Committee Chairman Orrin Hatch, R-Ohio, and the ranking Democrat on the committee, Sen. Ron Wyden, D-Ore. (see Senate panel advances IRS commissioner and introduces IRS reform bill). That bill aims to increase taxpayer protections and electronic filing, enhance whistleblower protections, reform policies concerning IRS employees, increase scrutiny of IRS audit criteria, and support prevention of identity theft and tax refund fraud.
The Portman-Cardin bill would reform the IRS Oversight Board, changing the name to the IRS Management Board while streamlining the membership structure to quickly reconstitute the board, which hasn’t been operating lately because not enough members have been confirmed by the Senate to make up a quorum. The bill would also increase the board’s involvement in the agency’s budget request process, require approval of a wider range of strategic and performance plans to help drive the overall strategic direction of the agency, and increase coordination with other oversight functions for the agency.
The bill would also require approval of compensation and bonuses for senior executives at the agency to help create stronger performance incentives and realign training of IRS employees with the mission and overall strategic direction of the agency. It would require the IRS to submit a comprehensive employee training strategy; emphasize the Taxpayer Bill of Rights, customer service, and IT advancements in the agency’s approach to employee training; and allow greater flexibility at the IRS for face-to-face training among different divisions.
“Our tax system is complicated, and the Protecting Taxpayers Act will continue the work of modernizing tax administration so the IRS can operate more efficiently and provide improved service to taxpayers,” Cardin said in a statement. “Americans of all income levels deserve a responsive, effective IRS, and the updates contained in this bipartisan bill will help keep the IRS on that path.”
The Portman-Cardin bill would also reinstate the IRS’s authority to regulate paid tax return preparers "in a balanced way," as well as send quarterly notices of deficiency instead of annual notices to promote increased compliance and ensure fewer taxpayers are sent to collections. It would direct the IRS to set up procedures for taxpayers to report instances where electronic fund transfers or refunds were erroneously delivered, as well as modify the authority to issue a designated summons, or a summons that freezes the statute of limitations for taxpayers, to only uncooperative taxpayers. In addition, it would limit access of non-IRS employees to returns or return information, including a prohibition on questioning witnesses under oath.
During the Senate Finance Subcommittee on Taxation and IRS Oversight hearing, enrolled agent Phyllis Jo Kubey, representing the National Association of Enrolled Agents, testified about the need for more improvements at the IRS. “In the past decade, we have observed a decline in the level of IRS service,” she said in her opening statement. “Superior customer service — and tax practitioners are customers too — will improve all IRS functions.”’
She noted that the IRS needs direction and resources to recruit high-level executives and staff to administer the tax law. Earlier this year, her organization, the NAEA, released an IRS reform white paper and Kubey described some of the NAEA’s priorities: Grant the IRS a reformed, streamlined, critical pay hiring authority, stipulating the areas of expertise covered by the program, and create and fund a dedicated training division within the IRS that streamlines the education process, and ensures that tax law and administrative policies are taught and supported consistently. “As part of this centralized division, research state-of-the-art tax administration techniques at the state, local, and international levels, and incorporate what works into training and practice,” she added.
NAEA executive vice president Robert Kerr told Accounting Today that Kubey’s testimony would reflect some of the NAEA’s priorities for the IRS. “We need to keep in mind that the agency has a number of different customers that it needs to serve,” he said. “The obvious customers are individuals and businesses. But perhaps the less obvious ones are tax professionals. We have on the order of 700,000 tax professionals that prepare 80 million returns in a year. It’s a huge leverage point that the agency could and should take advantage of. In that space, we are keenly interested in minimum standards for return preparers, which is going to surprise nobody. We’ve been at work in the field on that for the better part of 15 years. And there’s also some movement out there to provide an electronic signature for powers of attorney, Forms 2848 and 8821. Right now our members who are able to represent taxpayers have to send them pieces of deadwood [paper] in order for people to sign them and fax them to the IRS. It is a profoundly cumbersome and illogical procedure. Why do we need ink on deadwood if all we’re going to do with it is put it on a fax machine? And oh, by the way, who has a fax machine nowadays? Half of them should be in the Smithsonian anyway.”
National Taxpayer Advocate Nina Olson discussed during the hearing how the IRS was falling short on servicing taxpayers. “During the 2018 filing season, only 37 percent of taxpayer calls (about 13.0 million) were routed to employees, while 63 percent (about 22.6 million calls) were directed to automation or reflected taxpayer hang-ups,” she said in her written testimony. “Thus, the benchmark level of service reflects only the minority of calls directed to IRS employees — not the majority of calls directed to automation. As a result, while the IRS is reporting a benchmark level of service of 80 percent, IRS employees answered only 10.4 million calls on the Accounts Management lines out of 35.7 million calls received. That’s 29 percent. If we assume callers generally want to speak to an employee for live assistance, 29 percent is a more accurate reflection of the taxpayer experience than 80 percent. For IRS leaders trying to assess which programs need priority attention, this difference in results is huge.”
The Protecting Taxpayers Act also includes other provisions for improving small business and retirement plan tax administration. It would create a safe harbor for employer-only tip audits if employers comply with certain employee education and IRS employee audit programs. The bill would also clarify the reporting requirements for tip income in certain industries where tips are common practice. In addition, it would streamline the process for corporations to make an S corporation election. It would also direct the IRS to release federal tax levies on businesses that cause the business economic hardship. In addition, it would realign the quarterly reporting of estimated tax payments for small businesses. The bill would also allow retirement plan administrators, except as otherwise provided in regulation, to self-correct all inadvertent plan violations without additional submissions to the IRS.
To better serve low-income taxpayers, the bill would establish an income threshold to prevent certain low-income taxpayers from referral to the private debt collection program. It would also codify the Volunteer Income Tax Assistance program, providing for specific authorization on matching grants to support VITA, and authorizing the award of multi-year grants. It would clarify the fact that IRS employees are able to provide taxpayers with information about availability and eligibility requirements for Low-Income Taxpayer Clinics, including location and contact information. It would also codify the current low-income taxpayer exception with respect to user fees and up-front partial payments associated with any offer-in-compromise.
Rebecca Thompson, project director of the Taxpayer Opportunity Network, Prosperity Now, testified during the hearing about the VITA program. She is a VITA volunteer site coordinator with the Northern Virginia CASH Coalition. “For nearly half a century, the IRS has enlisted the support of community partners leveraging the strength, skill, and goodwill of tens of thousands of volunteers to provide free tax preparation and filing for low-income Americans during the annual tax filing season,” she said. “VITA volunteers come from all walks of life and endure a rigorous training and certification process to help low-income, elderly, disabled and limited English-speaking tax filers fulfill their civic obligation by filing an accurate tax return, claim federal and state credits for which they are eligible, and access other financial capability building services to strengthen their family’s household financial well-being at tax time.”
The Protecting Taxpayers Act would reinforce the taxpayer’s right to independent appeal by requiring the IRS to send a proposed notice of deficiency detailing the taxpayers’ opportunity for administrative review with the Office of Appeals. It would also require the IRS to provide a detailed explanation and right to protest in the limited event taxpayers are denied access to the appeals process. In addition it would direct the IRS to give taxpayers access to all of their non-privileged case files prior to an appeals proceeding. The bill aims to protect against undue influence and preserve the independence of the appeals process by preventing IRS compliance personnel from participating in appeals proceedings without the direct consent of the taxpayer. It would also provide full notice and protest procedures for tax controversies that are designated for litigation by the IRS.
Other provisions of the bill would strengthen the IRS IT infrastructure by reauthorizing streamlined critical pay authority for the recruitment and retention of information technology employees at the IRS through Sept. 30, 2023. It would also require the Treasury to publish guidance to establish uniform standards for the acceptance of taxpayers’ signatures appearing in commercially provided electronic forms.
John Sapp, the outgoing chair of the IRS’s Electronic Tax Administration Advisory Committee, testified during the hearing about the IRS’s technology. “The need to supplement traditional IRS service delivery channels (phone, in person, etc.) is obvious,” he said. “Electronic services — online but increasingly mobile — are an essential element in enhancing IRS’ overall service channels. Both consumers and businesses expect to be able to conduct much of their business electronically, but they also expect to be able to talk with someone when necessary.”
Sapp also told lawmakers about the threat from cybercriminals to taxpayers filing their returns with the IRS. “This fight will never end,” he said. “As we close one door, the criminals look to find another. We need to raise our cybersecurity game across the board.”
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