A Sikich Legislative Tax Update on the Taxpayer FIrst Act
On June 13, 2019 the Senate gave final approval to the “Taxpayer First Act” (H.R. 3151), an IRS reform bill that passed the House on June 10, 2019.
The legislation had significant bipartisan support and will bring about various changes in how the IRS operates and interacts with taxpayers. The President is expected to sign the bill. (Update: President Trump signed this bill into law on July 1, 2019.)
Background on the IRS Reform Bill
The recent “Tax Cuts and Jobs Act” (“TCJA”) brought historic comprehensive tax changes impacting individuals and businesses in all industries. One area, however, that was not included in TCJA were any reforms in how the IRS operates. Congress has been working in a bipartisan manner over the past several years to address various issues with several IRS functions and some of its internal structure. Since these IRS reform efforts did not get enacted in 2018, they were brought up again in 2019.
Earlier this year, the IRS reform bill worked through the House with bipartisan backing. While there was also broad bipartisan support in the Senate, there was an item related to a free e-filing service that was of concern to many members in both the House and Senate. This item was removed from the bill. The revised bill then passed the House and Senate by wide margins.
Key Items in the Bill
Two key themes in this IRS reform bill are: (1) to put taxpayers first, and (2) to bring the IRS up to the 21st century in how it operates and utilizes technology. More specifically, here are several of the key reform measures in the bill:
- Comprehensive customer service approach to be adopted by the IRS for its interaction with taxpayers. This includes improved customer service; sensible enforcement measures; an IRS Independent Office of Appeals; and a revised and modernized structure within the IRS.
- The reform bill will also address cybersecurity and protections against tax identity theft. Some of the tax identity theft measures include: a public-private partnership that will address identity theft and tax refund fraud; a single point of contact for tax-related identity theft victims; a notification to taxpayers from the IRS of suspected identity theft; and new guidelines for stolen identity theft cases.
- Further, the bill fosters the development of new information technology on several fronts by the IRS, including comprehensive training.
- There will also be expanded use of electronic systems for interaction by taxpayers with the IRS. This will include e-filing of returns. The current threshold to require use of e-filing of returns is 250 returns, but this will drop to 100 returns by 2021, and then down to 10 returns after 2021. Further, in the case of a partnership, the number of returns requiring e-filing is phased down over a four-year period as follows: 200 for 2018; 150 for 2019; 100 for 2020; and 50 for 2021.
- In addition, there will be new rules for: use of uniform standards for electronic signatures; payment of taxes with credit and debit cards; and for authentication of users.
- There are further restrictions on disclosures and uses of taxpayer information, and increased penalties for improper disclosures of information by tax return preparers.
- The bill also contains a prohibition on the rehiring of any IRS employee who was involuntarily separated from service for misconduct.
- There is also an increase in the penalty for failure to file a tax return. For a tax return that is filed more than 60 days after its due date, the current penalty is $205 (or the amount of tax shown on the return if this is lower). This late filing penalty will now be increased to $330. This change is effective for tax returns with due dates after December 31, 2019.
There are several other provisions in this IRS reform bill. Please click here for a description of this proposed legislation by the Staff of the Joint Committee on Taxation (JCT) in Congress.
Please note the final bill passed by Congress did not contain: (1) the “IRS Free File Program” on Page 6 of this JCT description; and (2) the “Report on electronic payments” on Page 42.
While this IRS reform bill may not impact the tax liability of you or your business, it may soon impact how you deal with the IRS. Please contact your Sikich tax advisor with any questions.
