On July 1, the President signed the Taxpayer First Act of 2019 (the Act) (P.L. 116-25) into law. It changes the management and oversight of the IRS with the aim of improving customer service and the process for assisting taxpayers with appeals. It also modifies IRS’s organization and provides some new safeguards to taxpayers in their interactions with the agency.
There are a number of provisions you and your clients should be aware of that are effectively already in action. In Part I of this column, I'll review some of this information.
First, the Act codifies the requirements of an independent administrative appeals function at the IRS (these rules had been carried in the agency's internal rules). In so doing, it renames the IRS Office of Appeals as the "IRS Independent Office of Appeals" (or, Independent Appeals). Independent Appeals is intended to continue to resolve tax controversies and review the administrative decisions of the IRS in a fair and impartial manner. Resolution of tax controversies in this manner is generally available to all taxpayers, subject to reasonable exceptions the IRS may provide.
The new rules require that the administrative case file referred to Independent Appeals be available to certain individual and small business taxpayers. Eligible taxpayers are those that, for the tax year to which the dispute relates, are: (1) individuals with adjusted gross incomes not exceeding $400,000, and (2) entities with gross receipts not exceeding $5 million for the tax year.
Where IRS has issued a notice of deficiency to a taxpayer, IRS must prescribe notice and protest procedures for taxpayers whose request for Independent Appeals consideration is denied.
The Independent Appeals rules are generally effective on July 1, 2019, except with regard to the change allowing taxpayer access to case files, which is effective for cases in which the conference occurs more than one year after July 1, 2019.
The Act requires the IRS to develop a comprehensive strategy for customer service, to submit a plan to Congress no later than July 2, 2020 (one year after the date of enactment) and to make the plan and training materials available to the public within two years of that date.
The strategy will include, among other things, a plan to determine appropriate levels of online services, telephone callback services and the training of customer service employees that is based on the best practices of businesses and designed to meet reasonable customer expectations.
With respect to offers-in-compromise submitted after July 1, 2019, the Act codifies the current low-income taxpayer exception for the user fee or upfront partial payment for offers in compromise (OIC). Under this exception, IRS does not require taxpayers certified as low income, defined as those with incomes below 250 percent of the Federal poverty level, to include the application fee and initial payment when proposing an OIC to the IRS. The Act also provides that the determination of low income is based on the individual's adjusted gross income as determined for the most recent tax year for which such information is available.
Effective July 1, 2019, the Act provides that, in the case of a suspected structuring violation (i.e., structuring transactions to avoid Bank Secrecy Act rules), the IRS may only pursue seizure or forfeiture of assets if either the property to be seized was derived from an illegal source or the transactions were structured for the purpose of concealing a violation of a criminal law or regulation other than rules against structuring.
Also, effective for interest received on or after July 1, 2019, the Act amends the Code to exclude from gross income any interest received from the federal government in connection with an action to recover property seized by IRS pursuant to a claimed violation of the structuring provisions of the BSA.
Effective for petitions or requests filed or pending on or after July 1, 2019, review of innocent spouse relief by the Tax Court is to be conducted on a de novo basis, meaning the court must take a fresh look at the case without taking previous decisions into account. The review must be based on the administrative record and any newly discovered or previously unavailable evidence.
Additionally, taxpayers may request equitable relief with respect to any unpaid liability before the expiration of the collection period or, if paid, before the expiration of the applicable limitations period for claiming a refund or credit.
Effective for summonses served after Aug. 15, 2019 (45 days after the date of enactment), the Act prevents the IRS from issuing a John Doe summons (one that doesn’t identify the taxpayer) unless the information sought is narrowly tailored and pertains to the failure (or potential failure) of the person or group or class of persons referred to in the statute to comply with one or more provisions of the Code which have been identified.
As part of its revision of the rules allowing for tax debts to be collected by private debt collection agencies, the Act provides that, effective for contracts with private collectors that are entered into after July 1, 2019, a qualified tax collection contract is one that (among other requirements) requests full payment from a taxpayer of federal taxes due, and, if such request cannot be met by the taxpayer, offers the taxpayer an installment agreement providing for full payment of the taxes due during a period not to exceed 7 years (had been 5 years under prior law). (Code Sec. 6306(b)(1)(B), as amended by Act Sec. 1205(c)).
Then, there's the matter of giving notice to a taxpayer of the IRS's contact with a third party. Effective for notices provided, and contacts of persons made, after Aug. 15, 2019 (i.e., more than 45 days after the date of enactment), the Act provides that IRS may not contact any person other than the taxpayer with respect to the determination or collection of the tax liability of the taxpayer without providing the taxpayer with notice at least 45 days before the beginning of the period of the contact. This replaces a requirement that reasonable notice be provided “in advance” to the taxpayer. The period of contact may not be greater than one year. The Act requires that notice be provided only if there is a present intent at the time such notice is given for the IRS to make such contacts (Code Sec. 7602(c)(1), as amended Act Sec. 1206).
Finally, I'll review designated summonses. Effective for summonses issued after Aug. 15, 2019 (i.e., issued more than 45 days after the date of enactment), the Act requires that before issuing a designated summons (an administrative summons issued to a large corporation or person to whom the corporation has transferred the requested books and records), the Commissioner of the relevant operating division of the IRS and the Chief Counsel must review and provide written approval of the summons. The written approval must state facts establishing that the IRS had previously made reasonable requests for the information and must be attached to the summons. Also, the IRS must certify in any subsequent judicial proceedings that a reasonable request for the information were made (Code Sec. 6503(j), as amended by Act Sec. 1207).
Next time, I'll review low income taxpayer clinics, whistleblower reforms and more.