Taxpayer First Act Provisions

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Taxpayer Experience

The Taxpayer First Act renames the IRS Office of Appeals as the IRS Independent Office of Appeals. This office will continue to resolve tax controversies and review administrative decisions of the IRS in an impartial manner. However, it has some new requirements.

  • The new rules require the Independent Office of Appeals to make its referred case files available to:
  • Individuals with adjusted gross incomes of $400,000 or less for the tax year to which the dispute relates;
  • Entities with gross receipts of $5 million or less for the tax year to which the dispute relates.

In addition, when the IRS or Chief Counsel has issued a notice of deficiency to a taxpayer and denies the taxpayer's request for referral to the IRS Independent Office of Appeals, the IRS must now issue a notice to explain the reasons. It also needs to tell the taxpayer how to protest the denial.

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The Act requires the IRS to develop a thorough strategy for customer service. The IRS needs to submit the plan to Congress. The plan, updated guidance and training materials must also be available to the public.

The strategy will include best practices of customer service provided in the private sector, including, online services, telephone call back, and training of employees. The strategy must incorporate best practices of businesses to meet reasonable customer expectations.

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The Act provides a new way for low-income taxpayers to waive the application fee for an Offer-in-Compromise (OIC).

A taxpayer qualifies to waive the fee if their income is at or below 250% of the federal poverty level. In the past, the IRS waived the fee based on someone’s monthly gross income. The new method uses adjusted gross income (AGI) from the taxpayer’s most recent tax return.

A taxpayer who does not qualify under the new AGI method may request a waiver using their current household's gross monthly income, as entered on Form 433-A (OIC), for the next 12 months.

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Volunteer Income Tax Assistance (VITA) program volunteers help low-income and other underserved taxpayers prepare income tax returns. The Act codifies the VITA program and allows Treasury to allocate up to $30 million per year in matching grants for VITA. Treasury can award the grants to qualified entities to develop, expand, or continue qualified programs.

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The Act allows Treasury Department personnel to advise taxpayers about low-income taxpayer clinics. Treasury staff can now provide information about the availability of clinics, eligibility requirements, locations and contact information for the clinics.

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The Act requires IRS to publicly notify affected taxpayers 90 days before closing a Taxpayer Assistance Center (TAC). The notice must be available non-electronically and must include the date of the proposed closure and alternative ways for taxpayers to get help. It also requires that the IRS submit a written report to Congress that includes the reasons for such proposed closure, and information as the Secretary may determine appropriate.

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Property seized after July 2, 2019 may only be sold if it is perishable.

The Act allows IRS to exchange information with whistleblowers when doing so would be helpful to an investigation. It requires IRS to notify whistleblowers of the status of their claims at certain points in the review process. It also authorizes, but does not require, the IRS to provide status updates at other times upon written request.

To protect taxpayer privacy, the Act prohibits whistleblowers from publicly disclosing information they receive from IRS.

The Act also provides several anti-retaliation protections to IRS whistleblowers.

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The Act requires IRS to provide the following information while taxpayers are on hold with the IRS call center:

  • Information about common tax scams
  • How to report tax scams
  • Tips on how taxpayers can protect themselves against identity theft and tax scams

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The Act requires IRS to establish procedures for handling misdirected electronic tax refund deposits. These procedures should:

  • Allow taxpayers to report when an electronic refund was not transferred to their account.
  • Establish coordination with financial institutions to identify and recover these payments.
  • Deliver refunds to the correct accounts of taxpayers.

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The Act extends the requirement to e-file to all tax-exempt organizations required to file statements or returns in the Form 990 series or Form 8872 (Political Organization Report of Contributions and Expenditures). The Act also requires that IRS make the information provided on the forms available to the public in a machine-readable format as soon as possible.

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The Act requires that IRS provide notice to an organization that fails to file a Form 990-series return or postcard for two consecutive years. The notice must state that IRS has no record of receiving a return or postcard from the organization for two consecutive years and inform the organization that their tax-exempt status will be canceled if the organization fails to file a return or postcard by the due date for the next return or postcard. The notice must also contain information about how to meet the annual information return and postcard requirements.

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IRS Modernization

This provision has multiple sections with specific requirements for the IRS information technology (IT) organization. First, the IRS Commissioner must appoint an IRS Chief Information Officer (CIO), a position currently occupied by an acting CIO. The IRS CIO is responsible for developing, implementing and maintaining IT systems for the IRS, as well as ensuring that technology is secure and integrated with IRS systems. The CIO must maintain operational control of all IRS technology and act as the chief advocate for the agency's technology needs, while also consulting with the Chief Procurement Officer on significant technology acquisitions.

Another section of this provision requires the CIO to develop and implement a multiyear strategic plan for the IRS' information technology. This plan must be reviewed and updated annually. Recognizing the significance of Enterprise Case Management and the Customer Account Data Engine 2 program, which is designed to replace the core components of one of the agency's major legacy systems, the law also requires independent verification and validation of these project plans.

The Act requires IRS to develop an Internet portal by January 1, 2023 that allows taxpayers to electronically file Forms 1099. The portal is to be modeled after a Social Security Administration (SSA) system that allows employers to file Forms W-2 with SSA. The website will provide taxpayers with IRS resources and guidance, and allow them to prepare, file and distribute Forms 1099, and create and maintain tax records.

The Act reauthorizes streamlined critical pay (SCP) authority for IRS with respect to IT positions. This authority ends on Sept. 30, 2025. The SCP authority gives IRS a management tool to quickly recruit and retain employees with high levels of expertise in technical or professional fields that are critical to the success of IRS's restructuring efforts. The authority was originally authorized for ten years and extended twice.

The Act requires IRS to develop an automated system to receive third-party income verification forms. This system would replace the current system, which relies on secure fax.

Also, the provision authorizes IRS to charge a separate user fee on all Income Verification Express Services (IVES) requests over a two-year period to fund the development of the new system.

Prior law prohibited any requirement that persons who file fewer than 250 returns during a calendar year do so electronically. Under the Act, the 250 is reduced to 100 in calendar year 2021, and from 100 to 10 after 2021.

In the case of a partnership, the number will be 200 for calendar year 2018, 150 for calendar year 2019, 100 for calendar year 2020, and 50 for calendar year 2021.

The Act also authorizes IRS to waive the requirement that a tax return preparer must file electronically. A preparer may apply for a waiver and demonstrate that their inability to file electronically is due to lack of internet availability (other than dial-up or satellite service) in the geographic location where the return preparation business is operated.

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The Act requires IRS to publish guidance to establish uniform standards and procedures for the acceptance of taxpayers' electronic signatures, which are meant to authorize disclosure to a practitioner or for any power of attorney granted by a taxpayer to a practitioner.

Under prior law, IRS was prohibited from directly accepting credit and debit card payments for taxes due to a restriction on paying card issuer fees. IRS instead used a third-party processor to accept credit and debit card payments.

The Act enables IRS to directly accept credit, debit, or charge cards for the payment of income taxes provided that the fee is paid by the taxpayer.

The Act requires IRS to verify the identity of any individual opening an e-Services account before he or she is able to use the service.

The Act repeals a provision in Restructuring and Reform Act of 1998 legislation that requires IRS to study the possibility of implementing a return-free tax system for tax years beginning after 2007.

IRS Organization

The Act improves the way the IRS interacts with the Taxpayer Advocate Service. It also requires more coordination between the Advocate and oversight organizations.

The Act requires the IRS commissioner or a deputy commissioner to respond to Taxpayer Advocate Directives (TADs). It also clarifies the timeline for the response. The Act also requires the National Taxpayer Advocate (NTA) to report to Congress any TADs the IRS has not addressed.

The IRS also must provide statistical support to the NTA upon request, to the extent practical.

The Act also requires the NTA to coordinate research efforts with the Treasury Inspector General for Tax Administration (TIGTA).

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Under the Act, the Treasury Department is required to develop a comprehensive plan to redesign the organization of the IRS. Treasury must submit the plan to Congress by Sept. 30, 2020. Among other things, the plan must:

  • Streamline the agency's structure to minimize duplicate services and responsibilities.
  • Best position IRS to combat cybersecurity threats and others.
  • Address whether the IRS Criminal Investigation Division should report directly to the commissioner.

One year after the IRS submits the plan to Congress, former law about the IRS's organizational structure will no longer apply. Earlier law required IRS to organize in operating units that serve groups of taxpayers with similar needs.

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The Act requires IRS to submit a written report to Congress providing a complete training strategy for IRS employees.

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The Act prohibits IRS from rehiring any employee who has been dismissed for misconduct.

The Act requires IRS to notify a taxpayer if IRS or a Federal or State agency recommends disciplinary action against an employee found to have accessed or disclosed the taxpayer's return or return information without permission.

Cybersecurity and Identity Protections

The Act formalizes the IRS' ongoing Security Summit efforts to work collaboratively with the public and private sectors to protect taxpayers from identity theft refund fraud.

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The Act formalizes the changes made to Electronic Tax Administration Advisory Committee's (ETAAC) charter: ETAAC will study and make recommendations to IRS about additional ways to prevent identity theft and refund fraud.

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The Act authorizes IRS to participate in the Information Sharing and Analysis Center (ISAC). The Act allows the IRS to disclose certain return information to ISAC participants if the information helps with:

  • detecting or preventing identity theft tax refund fraud;
  • validating a taxpayer's identity;
  • authenticating taxpayer returns, or
  • detecting or preventing cybersecurity threats to IRS.

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In the future, the IRS will not be able to provide taxpayer information to any contractors or other agents of a federal, state or local agency, unless the contractor is able to protect the confidentiality of return information and they agree to conduct on-site compliance reviews every three years. The federal, state or local agency is required to submit a report of its findings to IRS and certify every year that their contractors and other agents are meeting the requirements to protect the confidentiality of tax return information.

The Act requires the Secretary to establish a program to issue an IP PIN to any U.S. resident who requests one. Additionally, the Act requires the Secretary to expand the issuance of IP PINs every year to people living in states that IRS determines are appropriate, as long as the number of states served by the program continues to increase.

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The Act requires IRS to establish single-point-of contact procedures for taxpayers whose tax return processing has been delayed or negatively affected by tax-related identity theft. The contact will track the taxpayer's case to completion and coordinate with other IRS employees to resolve case issues as quickly as possible.

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Effective January 1, 2020, the Act requires IRS to notify a taxpayer:

  • If it finds any suspected unauthorized use of a taxpayer's identity, or the identity of any of the taxpayer's dependents,
  • If the IRS has initiated an investigation of the suspected identify theft and the status of the investigation,
  • Whether the investigation proved unauthorized use of the taxpayer's identity, and
  • Whether any action has been taken (such as a referral for prosecution).

Also, when an individual is charged with identity theft, IRS must notify the victim as soon as possible, giving them the ability to pursue civil action against the suspect.
In this case, the unauthorized use of someone's identity includes when it is used to obtain employment.

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The Act requires that IRS, in consultation with the National Taxpayer Advocate (NTA), develop and implement publicly available caseworker guidelines that reduce the administrative burdens for victims of identity theft tax refund fraud (IDTTRF) as they work with IRS to sort out their tax issues. These guidelines must be implemented no later than July 2, 2020 and may include procedures to reduce the:

  • amount of time victims would wait to receive their tax refunds,
  • the number of IRS employees with whom victims would need to interact, and
  • the timeframe to resolve the issues related to the IDTTRF.

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The Act increases the civil penalty for the unauthorized disclosure or use of information by tax return preparers. The former penalty was $250 and the new amount is$1,000. The penalty applies to cases in which the disclosure or use is made in connection with a crime relating to the misuse of another person's taxpayer identity ("taxpayer identity theft").

The Act also increases the calendar year limit from $10,000 to $50,000. The calendar year limit is applied separately with respect to disclosures or uses made in connection with taxpayer identity theft.

The Act also increases the criminal penalty for knowing or reckless conduct to $100,000 in the case of disclosures or uses in connection with taxpayer identity theft.

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Section 2202 of the Taxpayer First Act amended the provisions of IRC section 6103(c) by adding the following language: "Persons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer."

This provision limits the redisclosure and use of return information in the case of taxpayers who have consented to the disclosure of their return information by the Internal Revenue Service to a third party under IRC section 6103(c). Section 2202 of the Taxpayer First Act applies only to disclosures made by the Internal Revenue Service after December 28, 2019, and any subsequent redisclosures and uses of such information disclosed by the Internal Revenue Service after December 28, 2019.

Enforcement

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.

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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.

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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.

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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.

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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.

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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.

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. ​

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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.