President Trump signed the Taxpayer First Act into law on Monday, after the package of far-reaching IRS reforms received strong bipartisan support in the House and Senate last month.
The bill would overhaul some key aspects of the Internal Revenue Service, particularly the Office of Appeals, as well as encourage the IRS to modernize its technology and submit a plan to Congress for overhauling its operations (see
The bill establishes an independent Office of Appeals and strengthens taxpayers’ right to an appeal, including full notice and protest procedures and open access to case files. It also directs the IRS to develop a comprehensive training strategy for its employees to foster a stronger culture at the agency and reinforce taxpayer rights. In addition, the bill requires the IRS to issue uniform guidance for the use of electronic signatures, and reauthorizes streamlined critical pay authority for IRS technology employees to make it easier to hire the best technical staffers needed to overhaul the IRS IT infrastructure.
House Ways and Means Committee Chairman Richard E. Neal, D-Mass., noted that the bill came after years of work on a bipartisan basis, and he credited Rep. John Lewis, D-Ga., for his work on the legislation. “This signing is the culmination of a lengthy, bipartisan process undertaken by the Ways and Means Committee to implement pro-taxpayer reforms at the IRS for the first time in more than 20 years,” he said in a statement. “New protections for low-income taxpayers, practical enforcement reforms, and upgraded assistance for taxpayers and small businesses will all now go into place. I applaud Congressman John Lewis’ unwavering commitment to this legislation over the years — thanks to his tireless work, the IRS will be a more just agency, and taxpayers will benefit from improved services and safeguards.”
The bill also protects low-income taxpayers by permanently authorizing, and authorizing additional funding for, the Volunteer Income Tax Assistance program, codifying it into law. In addition, it codifies low-income taxpayer exceptions from fee waivers and lump sum payments associated with IRS payment plans. However, lawmakers eliminated a controversial provision that would have codified the Free File Alliance into law after a controversy erupted over whether it would prevent the IRS from developing free tax preparation software of its own.
The bill directs the IRS to issue procedures for when direct deposits of tax refunds are sent to the wrong account. It also modifies the IRS’s legal authority to issue a designated summons, or a summons that freezes the statute of limitations for taxpayers, to ensure this enforcement tool is only used for uncooperative taxpayers. It also preserves the IRS Oversight Board so Congress can work to reconstitute the board and have it work in the way it was originally designed to help set the long-term strategic direction of the agency.
Many of those provisions came from the Protecting Taxpayers Act that Sen. Rob Portman, R-Ohio, introduced with Sen. Ben Cardin, D-Md., last year. “The legislation the president signed into law today includes many of the provisions from my Protecting Taxpayers Act, the IRS reform bill I introduced with Senator Cardin last year,” Portman said in a statement Monday. “In particular, this bill includes provisions that establish an Independent Office of Appeals and strengthen taxpayers’ right to an appeal, an important taxpayer right first established in the 1998 IRS reform legislation that I authored in the House. The bill also preserves the IRS Oversight Board, giving the IRS and Congress a chance to revitalize the Board so that it may achieve its original purpose, acting as a board of directors for the agency.”
Rep. Kevin Brady, R-Texas, the ranking Republican on the House Ways and Means Committee, also praised the new law. “I’m proud that after three years of thoughtful bipartisan work, our bold package of reforms to the Internal Revenue Service are the law of the land,” he said in a statement. “Thank you to President Trump for signing this historic legislation, which is the biggest and boldest step in over 20 years to redesign and restructure the IRS into an agency with a singular mission — quality taxpayer service. This bipartisan law requires the IRS to submit to Congress in 2020 a plan to redesign the agency so that it serves taxpayers first. For the first time, it puts into law a truly independent appeals process so our taxpayers claims are heard fairly. It also levels the playing field to ensure taxpayers have the same information as the agency, better protects our taxpayers' information, and reins in past IRS abuses to guarantee families and local businesses never have to fear having their accounts and property seized without fair and due process.”
Other provisions help protect taxpayers from tax-related identity theft and improve taxpayer interaction with the IRS should they become a victim of this crime and expand to all taxpayers an IRS program that currently only allows victims of tax ID theft to obtain a personalized PIN that better secures their identity. The bill also puts in place new safeguards to protect taxpayers against recent IRS enforcement abuses of so-called “structuring laws” in which the IRS targets taxpayers who appear to be making deposits of less than $10,000 to get around bank-reporting requirements. The law also modifies the IRS's private debt collection program to ensure lower-income Americans are not targeted.
“This bipartisan, bicameral bill represents years of hard work and consensus building," said Senate Finance Committee Chairman Chuck Grassley, R-Iowa. "It’s a big first step toward strengthening taxpayer protections and turning the IRS into the customer service organization it ought to be. This new law is a victory for taxpayers, and its critical reforms are long overdue.”
The law also includes a number of anti-retaliation protections for tax whistleblowers, including the right to reinstatement and double back-pay; prohibition of mandatory arbitration; expeditious administrative remedies with the right to go to federal court for a jury trial; and compensatory damages such as special damages, attorneys' fees, and costs, awarded only to a whistleblower who prevails in an employment case. The Taxpayer First Act also improves upon the existing IRS whistleblower reward program by permitting full and open communication between the IRS Whistleblower Office and whistleblowers to facilitate cooperation between whistleblowers and the IRS necessary to fully prosecute tax frauds.
“The Taxpayer First Act closes the largest loophole in corporate protections,” stated tax fraud whistleblower attorney Stephen M. Kohn, a partner at Kohn, Kohn & Colapinto. “For the first time employees who expose tax fraud, which often include violations of the Bank Secrecy Act and anti-money laundering law, are protected from retaliation. Whistleblowers have uncovered tens of billions of dollars in tax frauds yet lacked minimum job protections.”
His partners worked closely with whistleblower attorney Dean Zerbe, a senior policy analyst at the National Whistleblower Center and partner at Zerbe, Miller, Fingeret, Frank & Jadav, and the National Whistleblower Center for several years promoting the reforms.
“Today’s IRS reform bill includes much-needed reform in the tax whistleblower program to allow improved and greater communication with tax whistleblowers,” Zerbe stated. “Currently, it can be frustrating for the whistleblower — who commonly gets little to no information about the status of her submission to the IRS. Today, Congress directs the IRS to open the kimono a little bit so that whistleblowers can know the key facts about their submission — such as whether the IRS has referred the matter for exam and whether the taxpayer has made a tax payment. The improved communication with the whistleblower will be a big help to the IRS whistleblower program — providing comfort to whistleblowers and encouraging new whistleblowers to come forward.”
The IRS sent out a statement Tuesday praising the legislation. "The IRS welcomes passage of the Taxpayer First Act, and we are pleased this important legislation received full bipartisan support," said the IRS. "IRS leaders have had extensive discussions with Congress about this measure for more than a year as it was being developed. The legislation is wide-ranging and touches on a number of areas across the IRS. We believe these changes and many others in the bill will help the IRS and the nation’s tax administration system move forward."
