Taxpayer First Act to Reform IRS Appeals Process & Provide More Taxpayer Protections

Presenters/Authors
Pillars on a Government building

On July 1, 2019, President Donald Trump signed into law the Taxpayer First Act of 2019, H.R. 3151 (Act). The Act revises requirements for the IRS regarding its organizational structure, customer service, enforcement procedures, cybersecurity and identity protection, management of information technology and use of electronic systems. Here are some highlights of the Act.

Creating Independent Means for Taxpayers to Appeal IRS Actions

The Act establishes the IRS Independent Office of Appeals to promote an impartial and consistent application of federal tax laws. Specifically, under the supervision of the Chief of Appeals—a newly created role appointed by and reporting directly to the IRS commissioner—this office is tasked with resolving federal tax controversies without litigation.

This appeals process will be available to all taxpayers; however, the IRS Independent Office of Appeals may deny a request for an appeal by providing the taxpayer with a written notice detailing the facts involved, the basis for the decision to deny the request, an explanation of how the decision applies to the facts of the case and the procedures required to protest the denial. The appeals office also is required to submit to Congress an annual report stating the number of denials and on what basis the requests were denied.

This provision is effective July 1, 2019.

Limiting Private Debt Collectors’ Capacity to Target Certain Taxpayers

In 2004, Congress authorized the IRS to use private debt collection agencies to locate and contact taxpayers owing outstanding tax liabilities and arrange for payment of those taxes. Although Congress walked back this authority in 2009, the Fixing America’s Surface Transportation Act reinstituted this program, with some limitations, in 2015.

Now, the Act further restricts this authority by prohibiting the IRS from referring certain taxpayers’ debt to private collectors. The Act broadens the group of taxpayers protected from referral to include those whose income substantially consists of disability insurance or supplemental Social Security income benefits and individuals with adjusted gross income that doesn’t exceed 200 percent of the applicable poverty level.

The Act also requires the IRS to wait at least two years before referring tax receivables to private collection and modifies the definition of a qualified tax collection contract to allow a more generous seven-year installment period versus the five-year period under previous law.

This provision applies to tax receivables identified by the IRS after December 31, 2020.

Limiting Access of Non-IRS Employees to Tax Returns & Return Information

In general, the IRS and other government personnel are prohibited from disclosing taxpayers’ returns and return information, except for certain exceptions such as third-party specialists who may assist in tax liability determinations. The Act further narrows non-IRS employee access to tax returns and return information by allowing disclosure only for the purpose of providing expert evaluation and assistance to the IRS.

The effective date of this provision is July 1, 2019.

Enhancing IRS-Related Cybersecurity & Identity Protections

According to IRS data, in 2018 the IRS received 199,000 identity theft affidavits from taxpayers and 649,000 identity theft returns were confirmed and stopped by the IRS. While these numbers reflect significant progress toward mitigating tax-related identity theft, cybersecurity remains a major concern for taxpayers. Consequently, the Act calls upon the Electronic Tax Administration Advisory Committee, established by the IRS Restructuring and Reform Act of 1998, to study and make recommendations on methods to detect and prevent identity theft and refund fraud.

Other cybersecurity-related provisions in the Act include confidentiality compliance standards for contractors, notification to taxpayers of suspected identity theft, establishment of a single point of contact for tax-related identity theft victims and the option to issue a personal identification number (upon taxpayer request) to be used in connection with a taxpayer’s Social Security number to help the IRS verify the taxpayer’s identity.

Other Key Provisions

The Act also includes provisions related to the following:

  • Maintaining and developing IRS information technology and customer service procedures
  • Expanded electronic return filing requirements, including the requirement for all tax-exempt organizations to electronically file Form 990
  • Implementation of a fully automated, internet-based third-party income verification program
  • Enhanced standard of review for innocent spouse relief cases
  • Codification of the Volunteer Income Tax Assistance program, which provides free tax return filing assistance to underserved communities
  • Increased penalties related to a taxpayer’s failure to file or improper disclosure by a tax preparer

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