Don't Mess With Taxes

Rep. Lynn Jenkins (R-Kansas) and fellow Ways and Means member Rep. John Lewis (D-Georgia) have offered a bill to revamp the IRS.

Remember the kinder, gentler Internal Revenue Service? That was the goal of the IRS Restructuring and Reform Act of 1998, which sought to ease up on the tax agency's aggressive collection actions back then.

Now two Ways and Means Committee members are looking to remake the IRS into a modern, more efficient agency that provides taxpayers a better experience.

I'm pretty sure that modernizing and refining processes for better efficiency can eventually be accomplished.

As for the improved taxpayer experience goal? I don't ever see IRS.gov challenging social media hot spots, but it's worth a try to make online and in-person tax interactions less distressing.

So kudos to Rep. Lynn Jenkins, a Republican (and CPA) from Kansas, and Rep. John Lewis, a Democrat from Georgia. Jenkins chairs the Ways and Means Oversight Subcommittee. Lewis is ranking member of that panel. Not only are the two House members tackling a big issue, they are crossing that political third-rail aisle to do so! 

The bipartisan pair's legislative discussion draft, which they have dubbed the Taxpayer First Act, incorporates elements from at least 18 IRS reform bills introduced by their colleagues in the last few months.

The 10-page summary document looks at the draft legislation's six titles, which cover appeals, improved service, enforcement, cyber security and identity theft, modernization and the U.S. Tax Court.

From that, here are 10 items in Jenkins' and Lewis' Taxpayer First Act, which in good IRS acronymese fashion I'm going to refer to as TFA, that I found particularly interesting. (Side note and shameful plug, the links in the following comments are to previous blogs posts on those topics.)

1. E-filing expansion
Effectively make electronic filing the only way for paid tax professionals to submit returns. The TFA would lower the threshold to 10 instead of the current 250 as the number of returns that an individual must file in order to be subject to an electronic filing requirement.

Don't panic tax filing traditionalists. The lower threshold would be phased in starting in 201 and completed by 2024. Jenkins' and Lewis' proposal also would provide exempt tax preparers located in parts of the county with limited or no internet access from the e-filing requirement.

In addition, all tax-exempt organizations that are required to file annual returns with IRS will have to do so electronically.

As for getting and keeping individual taxpayers in the e-filing ranks, the TFA would codify the existing Free File program. This would, according to the bill's authors, help the IRS and its electronic tax preparation partners in the Free File Alliance improve and promote the program.

Also in the electronic tax realm, the TFA would require the IRS to "develop robust and secure online accounts" for taxpayers and their preparers by 2023. Under such a system, the IRS would create a process for the secure acceptance of tax forms and supporting documentation in an electronic format.

These moves, according to the draft, is the next step in the IRS' current limited online assistance through its web applications. However, taxpayer access to their online accounts would supplement, not replace, other IRS services to taxpayer that are provided by phone or in person.

2. IRS direct credit, debit card payments
One of the more popular electronic tax options is payment of tax bills by credit or debit cards. Currently, the IRS cannot accept credit and debit card payments for taxes directly due to a restriction on the payment of fees charged by the card issuer. That means the IRS must use a third-party processor to accept credit and debit card payments. And those processors, being private businesses, charge a fee for the tax payments.

The TFA would give the IRS the authority to directly accept credit and debit card tax payments. The fee, however, would remain and still would have to paid by the taxpayer paying by plastic.

If there's still a fee associated with the e-payments, I'm not sure this would be better. Do we really want our payment info and all our personal tax data in the same place, which already is a target of hackers? 

3. Tax offer price break for some
When folks just can't pay their tax bills, either by credit card or even installment payments, they can try to settle with the IRS. This is done through an officer in compromise (OIC), under which Uncle Sam accepts less that the debtor's full, overdue tax obligation. But getting the IRS to accept such a write-down comes at a price, specifically an application fee.

The TFA would eliminate the offer-in-compromise application fee and initial payment requirement for taxpayers with incomes below 250 percent of the federal poverty level

4. Identity theft efforts strengthened, consolidated
The IRS commitment to fighting tax identity theft and associated tax refund fraud is one of the agency's top priorities. The TFA recognizes those efforts and would codify the IRS' recent efforts to foster a "public-private partnership to address identity theft refund fraud." This would ensure that the IRS' existing Security Summit efforts to educate and protect taxpayers and combat tax ID theft and refund fraud remain an agency priority.

In addition, the TFA would require the IRS to establish a single point of contact for identity theft victims. It also calls for the IRS to set up a program under which any concerned taxpayer can request an Identity Protection Personal Identification Number (IP PIN) to use in filing his or her return

5. Private debt collectors added limit
One of the more contentious tax issues is the use of private debt collectors to bring in some overdue taxes. In 2015, a transportation bill included language requiring the IRS to, for the third time, hire private bill collectors.

TFA cosponsor Lewis is adamantly opposed to this program. "Unfortunately, the bill does not repeal the private debt collection program, but it makes good progress in protecting low- and middle-income taxpayers from harassment and abuse," said Lewis.

The IRS already cannot send private collection agencies old tax debts owed by deceased taxpayers, taxpayers younger than 18 and debts where taxpayers have pending installment or offer-in-compromise agreements. However, the IRS does not have a filter in place to prevent low-income individuals' tax bills being sent to bill collectors, a practice that opponents of the program say is happening.

The TFA would change that by prohibiting bill collectors from getting cases where owing taxpayers have incomes below 250 percent of the federal poverty level. Yes, this is the same break point that applies in the previously mentioned (#3) OIC fee relief

6. Structuring rules more stringent
One of the few things Democrats and Republicans on Capitol Hill can agree on is that the IRS' civil asset seizure program needs revisions. An effort to do that, specifically when it comes to what are known as structuring transactions, was made in the Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act. This bill passed the House last September, but has languished in the Senate.

In structuring cases, financial transactions are conducted in a way that avoids triggering the filing of reports by financial institutions under the Banking Secrecy Act. Some businesses, however, have had assets seized even though their financial moves were legal transactions associated with their legitimate operations.

The TFA would impose new restrictions on the IRS' ability to seize taxpayer property for suspected structuring. The tax agency would be required to show probable cause that funds believed to have been structured to avoid Bank Secrecy Act reporting are in fact derived from an illegal source or connected to other criminal activity before funds can be seized

7. VITA validated
The Volunteer Income Tax Assistance (VITA) program would get more secure funding under the TFA.

VITA offers free tax return filing assistance to low-income populations, persons with disabilities, taxpayers with limited English proficiency and other underserved communities. The services are available nationwide via programs administered by IRS-certified volunteer organizations.

The IRS has, since 2008, awarded matching grants to some of these organizations to help maintain and expand their VITA services. TFA would provide certainty for these organizations by permanently authorizing matching grants to support VITA programs.

8. IRS advocacy, oversight office changes
I'm a big fan of independent groups that hold the IRS' feet to the fire when it comes to taxpayer service since I served as a member of the Taxpayer Advocacy Panel (TAP). But the TFA says some revamping is needed to make IRS oversight operations work better.

The National Taxpayer Advocate (NTA), currently Nina E. Olson, and her office, which is separate from but works with the TAP, now can issue Taxpayer Advocate Directives (TADs) after identifying systemic problems that need changes. The Taxpayer First Act would strengthen TADs by requiring a response from the Commissioner or Deputy Commissioner and clarifying the time period for that response.

It also requires the National Taxpayer Advocate to report to Congress any directive that the IRS does not honor.

The TFA also streamlines some of the National Taxpayer Advocate's other responsibilities. Notably, it reduces the number of most serious taxpayer problems to be included in the NTA Annual Report to Congress from "more than 20" to 10. While I'm always curious as to what the Taxpayer Advocate finds problematic for taxpayers, I agree that a sharper focus on fewer areas that could be addressed is good.

Jenkins' and Lewis' bill also requires the IRS to provide the NTA statistical support when asked, as well as requires the NTA to coordinate research efforts with the Treasury Inspector General for Tax Administration (TIGTA).

Another groups that keeps an eye on the IRS, however, would be eliminated. The TFA says that the IRS Oversight Board, which was created as part of the 1998 IRS restructuring law, has of late become ineffective. Given that the panel has had trouble even attaining a quorum over the past few years so that it could do its job, the TFA would dismantle the board.

9. Independent appellate process
In cases where taxpayers have issues with IRS findings, the TFA would establish an independent office of appeals. This would replace the current system, under which the IRS has broad discretion to establish an administrative review process for tax disputes and to determine taxpayer access to that review process.

Sometime tax disputes go further, specifically to the court system. The U.S. Tax Court is a major arbiter of tax law. To ensure the best legal minds sit on the tax-specific court, the TFA would make Tax Court judges subject to the same grounds for disqualification as judges of other federal courts.

10. Customer service strategy
And, of course, there's the main reason for the TFA, as well as for its name: putting taxpayers first. To accomplish that, Jenkins and Lewis want the IRS to develop and submit to Congress a comprehensive customer service strategy. The working plan would be due within a year after enactment of the bill.

The Ways and Means members want the strategy to address how the IRS intends to provide assistance to taxpayers, in part by ensuring adequate customer service training for its own employees and taking into account best practices from the private sector.

The customer service plan also must establish metrics and benchmarks for measuring IRS success in implementing the strategy.

Your 2 cents: As noted earlier, much of what's in the Taxpayer First Act is based on previous legislative proposals. It also incorporates testimony offered during more than 11 Oversight Subcommittee events, including hearings and round-table discussions over the last three years.

However, if you discover an issue or area that's been overlooked in the TFA draft, Jenkins and Lewis want to know.

You can send the Ways and Means Oversight Subcommittee your comments on the draft, as well as any suggestions, specifically those dealing with additional metrics in order to measure the success of the proposed legislation, via email ([email protected]).

Jenkins and Lewis know everybody's busy, especially with the April filing deadline bearing down on us, taxpayer and tax professionals alike, but they'd appreciate getting comments by next Friday, April 6.