The Senate recently passed the Taxpayer First Act which aims to serve the dual purpose of offering taxpayers new protections while simultaneously improving how the IRS services its customers.  The Taxpayer First Act is soon expected to be signed into law by the President.

Taxpayer First Act

Protecting Against Identity Theft

Many of the Taxpayer First Act’s provisions address issues of tax-related identity theft. The bill requires the IRS to take several measures as soon as unauthorized use of a person’s identity is either suspected or confirmed. In order to comply, the IRS must give the taxpayer clear instructions on alerting law enforcement of unauthorized use. This should include the steps to follow for filing reports and to allow law enforcement to access the individual’s personal information during the investigation.  Additionally, the IRS is responsible for providing information about measures the taxpayer can take to further protect themselves from wrongdoing – particularly identity protection actions that may be useful such as establishing an identify protection personal identification number, or IP PIN.

The bill expands the use of IP PIN protections, currently available only to tax-related identity theft victims, by requiring the IRS to establish a program within five years that allows all taxpayers to establish IP PINs in order to better secure their identity when filing their tax returns.

The IRS is also mandated to notify any suspected victim when it:

  • Initiates an investigation into unauthorized use,
  • Substantiates unauthorized use during the course of the investigation, and
  • Takes action against or refers someone relating to the unauthorized use for criminal prosecution.

The Taxpayer First Act also requires that the IRS provide victims of tax-related identity theft with a single IRS point of contact that can be reached throughout the processing of their case. The contact is responsible for tracking the taxpayer’s case from inception to completion and coordinating with others at the IRS to resolve the taxpayer’s issues quickly.

Expanding Appeals Rights

The Taxpayer First Act not only codifies into law the IRS’ already-established, independent Office of Appeals, but also expands a taxpayer’s right to appeal regarding tax matters.

Currently, taxpayers can only access their case files by completing and filing a Freedom of Information Act, or FOIA, request.  Under the new law, the IRS must provide access to the nonprivileged portions of the taxpayer’s case file to certain taxpayers who are disputing issues and who have requested a conference with the Office of Appeals. The access must be given no later than 10 days before the taxpayer’s scheduled conference date.

If the IRS denies a taxpayer’s request to appeal an IRS notice of deficiency, the agency must give the taxpayer a written notice with a detailed description of the facts involved, the basis for the denial, a detailed explanation of how the basis for denial applies to the facts, and a description of the procedures for protesting the denial.

Improving Customer Service 

Should the Taxpayer First Act be made into law, the IRS will be given one year in which to develop and provide to Congress a complete customer service strategy that includes a taxpayer assistance plan that’s secure and meets the expectations of taxpayers. The plan is required to incorporate best practices for customer service from other industries and include a customer service training component for IRS employees.

Access to online and telephone callback services must also be integrated.  The IRS must establish helpful informative recordings – such as information on typical tax scams and how to report them as well as advice for protecting against identify theft and other tax crimes – that will play when customers who call any of the IRS’ help lines are put on hold.

Other Taxpayer First Act Stipulations

The Taxpayer First Act will impact areas as wide-ranging as cybersecurity, misdirected tax refund deposits, and private debt collection.  It also puts into place stricter requirements on whistleblower reforms, structuring, and electronic filing.

For example, the IRS will now be permitted to disclose to anyone who provides information that isn’t otherwise available to the IRS, tax return information related to the subsequent investigation. In fact, the bill makes mandatory the need for the IRS to provide whistleblowers with certain updates about these investigations and safeguards the whistleblower by including antiretaliation provisions.

The bill creates new categories of cases not eligible for future referral to private collection agencies to ensure that cases involving low-income taxpayers will stay within the IRS and not be referred to the private debt collection program.

The bill also protects taxpayers by limiting IRS enforcement abuses of structuring laws which had previously allowed the IRS to seize taxpayer assets when a taxpayer appeared to make bank deposits in amounts just under the $10,000 trigger for bank reporting requirements.

Finally, the Taxpayer First Act demands that the IRS will have to begin requiring individuals who are filing 10 or more returns to do so electronically (the prior threshold for mandatory electronic filing was 250 returns). This change will be phased in over a two-year period with those filing 100 returns or more being required to file electronically in 2021 and those with 10 or more needing to file electronically beginning in 2022. Special rules will apply to partnerships.

As more information becomes available on the Taxpayer First Act, we will update you.