Taxpayer First Act - Enforcement

Structuring transactions and IRS seizures (Sections 1201 and 1202)

The Bank Secrecy Act requires businesses to report currency transactions that are more than $10,000. These mandates help federal law enforcement and other agencies, such as the IRS, detect, monitor and trace certain transactions and enforce laws.

Some people plan transactions to fall below $10,000. This is called "structuring." It often conceals cash made from illegal activities. However, some people structure legally earned income to evade taxes.

The Taxpayer First Act changes how the IRS can respond to suspected structuring. In these cases, the IRS may only seize assets or require the taxpayer to forfeit assets if:

  • the property to be seized came from an illegal source, or
  • the transactions were structured to conceal illegal activities beyond structuring.

The IRS must provide notice within 30 days after a seizure to all who have an ownership interest in the property.

In addition, a taxpayer may exclude from gross income any interest received from the federal government in connection with recovering property seized by IRS in a structuring violation.


Clarification of equitable relief from joint liability "Innocent spouse relief" (Section 1203)

In general, married individuals who file joint tax returns are both responsible for all the tax that should be reported on their return. However, the tax code provides relief from joint liability for certain innocent spouses. One example is equitable relief, which is granted if it is deemed unfair to hold an individual liable for their spouse's tax debt or assessment.

Taxpayers must request this relief before the end of the debt's collection period. If the debt was paid, they must request relief before the end of the period for claiming a refund or credit.

The Act now requires that the Tax Court review innocent spouse relief on a de novo basis. This means the Tax Court must take a fresh look at the case without taking previous decisions into account. The review would be based on the administrative record and any newly discovered or previously unavailable evidence.


Modification of procedures for issuance of third-party summons "John Doe summonses" (Section 1204)

For summonses served after August 15, 2019, the Act prevents IRS from issuing a John Doe summons unless it meets certain criteria.

The IRS can issue a John Doe summons if the information sought is narrowly tailored and pertains to failure (or potential failure) to comply with provisions outlined in the statute. The statute also defines the types of persons or groups for which the IRS can issue a John Doe summons.


Taxes collected by private collection agencies (Section 1205)

The Act prohibits IRS from using private collection agencies to recover delinquent taxes from certain individuals.

  • Those whose income is substantially all supplemental security income benefits
  • Those whose income is substantially all disability insurance benefit payments
  • Those whose adjusted gross income is below 200% of the applicable poverty level.

This change applies to inactive tax receivables identified by the IRS in 2021 and later.

The Act changed the definition of inactive tax receivable. It replaces the condition that more than 1/3 of the applicable limitations period has lapsed. The new requirement is that more than two years has passed since assessment."

The Act also changes the length of installment agreements that private debt collectors can offer. Collectors can now offer individuals a seven-year agreement, instead of five.


Notice to taxpayer of IRS contact with third party (Section 1206)

Previous law said the IRS may not contact anyone other than the taxpayer to determine or collect taxes without providing reasonable notice. The Act now requires 45 days' notice before the beginning of the period of contact. The period of contact may not be greater than one year. The Act requires that the IRS notify the taxpayer only if there is a present intent at the time of the notice for IRS to make such contacts.


Designated summonses (Section 1207)

For summonses issued August 15, 2019 or later, the commissioner of the related IRS division and the Chief Counsel must review and give written approval to issue a designated summons. The approval must be attached to the summons.

The approval must state facts establishing that the IRS previously requested the information. The Act also requires that the IRS certify in any subsequent proceedings that it made reasonable requests for the information.

Limits on actions by IRS contractors (Section 1208)

The Act states that the IRS cannot provide information obtained under Code Sec. 6103(n) to a contractor unless the contractor needs it for the sole purpose of serving as an expert. This provision ensures that only IRS employees or the IRS Office of Chief Counsel can question a witness under oath, when the witness's testimony was obtained as allowed by Code Sec. 7602. ​


Penalty for failure to file (Section 3201)

The Act increased the minimum penalty for failure to file under Code Sec. 6651(a) from $205 to $330. However, the Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, was passed at the end of 2019 and increased the minimum again to $435.

If a return is filed more than 60 days after its due date without reasonable cause, the failure to file penalty may not be less than:

  • $435 or
  • 100% of the amount required to be shown as tax on the return.

This applies to returns where the due date (including any extension) is after December 31, 2019.


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