Five Takeaways from the Taxpayer First Act of 2019

Perhaps the most significant item addressed in the bill is the establishment of a new independent appeals function within the IRS. Before the passage of this new code, the IRS would notify the taxpayer of inaccuracies or changes to their tax documents and a proposed action for collection. The taxpayer is also made aware of their right to contest the findings with the IRS Office of Appeals.

While it has been widely understood that this body of appeals within the IRS has been independent in the cases it undertakes, this fact has not been explicitly codified in any legislation. Pre-Act rules only address the appeals themselves and the appeals process, not how the IRS should organize itself internally.

Now, under the new law, the IRS will be required to hold independent administrative appeals processes under the newly-designated IRS Independent Office of Appeals. The provision “seeks to ensure that generally all taxpayers are able to access the administrative review process, allowing for their cases to be heard by an independent decision maker.” Furthermore, the law pushes for more transparency within the IRS through the availability of administrative case files for certain individual and business taxpayers.

Sensible enforcement

This section of the TFA seeks to further define just practices for tax law enforcement, notably through the refinement of seizures practices and joint tax liability laws.

The existing Bank Secrecy Act (BSA) mandates reporting and recordkeeping requirements in order to aid Federal law enforcement and regulatory agencies in the detection of nefarious transactions. In order to stay below the reporting threshold, some individuals may conceal transactions, known as structuring, in an attempt to shroud illegal dealings. These kind of actions obviously implicate civil and criminal penalties if discovered. If an individual is suspected of structuring, the IRS is entitled to pursue seizure or forfeiture of assets.

The TFA now amends the BSA to clarify that the IRS may only pursue seizures or forfeitures if the assets in question are deemed to be structured to conceal illegal procurement or to be used in legal violation. The law also establishes a process for post-seizure notice and the individual’s right to review procedures.

Another clarification made by the act is in the case of joint liability in tax filing. Existing law states that married couples who file taxes together are jointly responsible for any ramifications incurred from the return. The TFA now provides relief from liability for certain innocent spouses. The law goes on to lay out a standard of review to be conducted on a de novo basis, where the case would be reviewed without taking any previous rulings into account.

Emphasis on improved customer service and modernization

If you have ever interfaced with the IRS, you know that its customer service efforts could be improved. That’s why the TFA puts forth a provision that requires the IRS to come up with a comprehensive strategy to revamp its customer service offerings. The organization has one year to develop and submit the plan to Congress and two years to put the plan into action.

According to the TFA, the plan is to focus largely on the modernization of customer touchpoints such as online portals and telephone services. This is to be coupled with an overhaul of customer-facing employee training to satisfy modern customer service demands.

Reformation of whistleblower policies

Whistleblower protections are an integral part of the IRS’s ability to discover and monitor unscrupulous activity by taxpayers, and the TFA looks to strengthen the relationship between those whistleblowers and the IRS. Under the new law, the IRS is “allowed to exchange information with whistleblowers where doing so would be helpful to an investigation.”

The provision also mandates that the IRS to notify whistleblowers of the status of their claims during the review process and authorizes the IRS to provide updates to whistleblowers at other junctures at the request of the whistleblower. However, this section of the TFA also explicitly prohibits whistleblowers from publicly disclosing any of this information to preserve taxpayer privacy.

Increased focus on identity protection

In an increasingly digital world, concerns have arisen around institutional ability to safeguard consumer information, and the IRS is no exception. This section of the TFA addresses multiple facets surrounding the issue of identity protection and lays out several guidelines to ensure focus on combating consumer identity fraud.

The first specification made is a continued effort to foster partnership between public and private stakeholders in order to counter identity theft tax refund fraud (IDTTRF). The next section tasks the existing Electronic Tax Administration Advisory Committee (ETAAC) to shift a great deal of focus to address the growing threat of IDTTRF through study of the matter and subsequent recommendations to the Secretary of the Treasury.

Other organizational provisions in this section include increased information sharing between the IRS and stakeholders to more quickly identify threats of IDTTRF, and it requires the Secretary of the Treasury to compile a report on how to more effectively use new payment platforms to increase the use of EFTs for tax refunds. The section also calls for improvements for victims of IDTTRF in the form of identity protection PINs, notification of suspected identity theft, and resources for those already affected by identity fraud.

Overall, the Taxpayer First Act is a substantial win for the common taxpayer, seeing a huge emphasis placed on the accountability of the IRS and other government entities and considerable changes made to the taxpayer experience with the IRS. For a more detailed look, the full bill can be read on the Senate website here.

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Jeff McNeal is a Product Manager for Canopy, a provider of practice management, tax resolution, tax preparation and and other solutions for professional tax firms.