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Taxpayer First Act of 2019: Good News for Taxpayers

The Taxpayer First Act (TFA), H.R. 3151, that President Trump signed on July 1, 2019, expands and strengthens taxpayer rights and even touches on cybersecurity and identity theft. The overall theme of the legislation is to provide improved customer service to taxpayers. This bodes well for taxpayers who have had to deal with a hostile IRS for years. Here are some of the key provisions of the new law.

An Independent Appeals Process

The establishment of an Independent Office of Appeals makes it easier to deal with the IRS. Taxpayers will be able to challenge the position of the IRS without incurring any court costs. The point is to allow for the resolution of controversies without litigation in a way that is fair and impartial.

The IRS already has a process for reviewing its decisions, but taxpayers do not have guaranteed access to it. As a result, the settlement of many tax disputes takes place in court. The TFA mandates the IRS to avail the appeals process to all taxpayers as long as they have legitimate claims. The IRS must give Congress and the taxpayers written notices if it chooses to deny a request for review.

The rules set by the taxpayer first act demand that filing a case to Independent Appeals be available to select individuals and small business taxpayers. To qualify, individuals must have an adjusted gross income that is less than $400,000 for the tax year corresponding to the dispute, while small business taxpayers must have gross receipts of less than $5 million.

Overall, these procedures are aimed at making the appeals function more independent.

Restrictions on Contacting Third Parties

Section 1206 of the act stipulates the IRS must provide notice to the taxpayer and wait 45 days before contacting a third party about collection or determination of tax. After giving the notice, the IRS can only contact third parties for up to one year. After the year elapses, the IRS has to send out a new notice to the taxpayer. The IRS cannot issue a notice if it has no intention of contacting third parties at the time of issue.

Section 1206 also demands that when the IRS issues a designated summons, the commissioner and chief counsel must provide written approval. The approval must:

  • Contain facts showing that the taxpayer received reasonable information requests.
  • Be an attachment to the designated summons.

Organizational Modernization

The TFA demands the commissioner or deputy commissioner rescind, modify, or enforce compliance with  all Taxpayer Advocate Directives within 90 days. It also gives the National Taxpayer Advocate (NTA) a chance to appeal any modified or rescinded directive. The commissioner has to provide reasons for rescission or modification.

The Annual Report sent to Congress by the NTA will now address the 10 most pressing taxpayer problems instead of 20. The NTA will now coordinate with the Treasury Inspector General for Tax Administration before commencing with any statistical or research studies.

The act requires the Secretary of Treasury to submit a comprehensive plan to Congress on the organizational redesign of the IRS. The revamped structure will feature operating units that serve specific groups of taxpayers with similar needs. The provision gives the IRS leeway to structure the organization as it deems fit.

Improve Information Technology

The TFA looks to strengthen the accountability of the IRS for its IT spending. The IRS wants to take information sharing a notch higher by incorporating artificial intelligence into its operations. This will help curb identity theft and taxpayer fraud. For this reason, the IRS is bound to use computer data analytics even more.

To facilitate this, the TFA requires that the commissioner enters into a contract with third parties. These third parties should oversee the implementation of the Customer Account Data Engine-2 (CADE) and the Enterprise Case Management System.

Better Protection from Identity Theft

The Taxpayer First Act has several provisions touching on identity theft. Section 2003 mandates the IRS to participate in information sharing and analysis to prevent identity theft and tax refund fraud. The “Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (ISAC)” will help with this. ISAC is a partnership between the private sector, state tax agencies, and the IRS.

Taxpayers will now be able to request a special IP PIN (Identity Protection Personal Identification Number) to use when they are filing their tax returns. Moreover, victims of identity theft will now have a single point of contact with the IRS. This means that there will be a team or person responsible for dealing with a taxpayer’s case to completion. This should fast-track the resolution of issues. There will also be hefty penalties for return preparers who disclose taxpayer identity information. Consequently, preparers should employ measures to protect the records of taxpayers. The IRS is also expected to notify taxpayers if it detects suspicious or unauthorized use of their identities.

Modernization of Consent-Based Income Verification System

For a fee, the IRS must automate and make available online all processes and procedures for requesting a qualified disclosure to verify creditworthiness or income.

To safeguard the taxpayer, the details obtained through this process are only meant for income and creditworthiness verification. To use the information for any other purpose, the taxpayer must give his or her express permission.

Digital Signatures

The TFA allows taxpayers to use electronic signatures when dealing with the IRS. The use of tax signatures will simplify the back and forth involved when taxpayers are filing their tax returns.

Failure to File Penalties

Taxpayers who fail to file their taxes within 60 days of the due date should pay a penalty of the lesser of   either $330 or 100% of the amount owed in taxes. This went up from $205 before the TFA.

For more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).

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