Taxpayer First Act: A Summary of Key Provisions

The Taxpayer First Act, signed into law on July 1, 2019, is a bipartisan effort to overhaul the Internal Revenue Service (IRS). As the first major reform of the agency in over two decades, its goals are to enhance taxpayer rights, modernize technology, and reform the IRS’s organizational structure. The act mandates a broad rethinking of the agency’s approach to customer service, compliance, and training to build greater public confidence.

Strengthening Taxpayer Rights and Protections

The Taxpayer First Act enhances protections for taxpayers, especially victims of identity theft. The law mandated a single point of contact within the IRS for individuals whose identities have been compromised in a tax-related context. This provides victims with a consistent resource to guide them through resolution. The act also requires the IRS to proactively notify taxpayers if it detects suspected identity theft.

The act provides relief for individuals seeking innocent spouse protection, which applies to a spouse who filed a joint return and was unaware their partner understated the tax liability. It strengthened these protections by changing how such cases are reviewed in Tax Court. The court can now consider all relevant information, not just what the IRS previously reviewed.

The act placed new limits on the IRS’s ability to seize property to satisfy a tax debt, specifically addressing the practice of “structuring.” This involves making cash transactions just below the $10,000 reporting threshold to avoid detection. Before seizing property in such cases, the IRS must now show probable cause that the funds were from an illegal source or structured to hide other criminal activity. The law also established a post-seizure notice and review process.

Reforming IRS Structure and Operations

The Taxpayer First Act initiated a restructuring of the IRS by requiring the agency to develop a comprehensive reorganization plan. This plan must outline how the IRS will streamline its structure, minimize service duplication, and better position itself to combat modern threats like cybersecurity risks.

A structural reform was the formal establishment of the IRS Independent Office of Appeals, codifying it in law to ensure its independence in resolving tax disputes before they reach the courts. The law grants all taxpayers access to this office for legitimate claims and requires a written explanation from the IRS if it denies a request for an appeals conference. Certain individuals and small businesses also have access to non-privileged portions of their case files before a conference.

The act mandates comprehensive training for all IRS employees on taxpayer rights and customer service. This includes specific instruction on the Taxpayer Bill of Rights, developed in partnership with the Taxpayer Advocate Service. The goal is to equip employees to resolve taxpayer issues effectively and respectfully, fostering a more service-oriented culture.

Modernizing IRS Technology and Services

The Taxpayer First Act focuses on modernizing the IRS’s services and technology. The law required the agency to develop a comprehensive customer service strategy to improve the taxpayer experience across all channels, including phone, in-person, and online platforms. This plan involves updating guidance for customer service employees to ensure they provide timely and accurate assistance.

The act pushes for upgrades to the IRS’s IT infrastructure, including the development of secure online accounts. These accounts allow individuals and businesses to view tax information, communicate with the IRS, and resolve issues electronically. The legislation also encourages collaboration with public and private partners to enhance cybersecurity and protect taxpayer data.

To improve efficiency, the act expanded requirements for electronic filing. It progressively lowered the threshold for the number of returns a filer can submit on paper, mandating e-filing for those who file more than a specified number annually. For example, the threshold for most returns was reduced from 250 to 10 over a few years. This mandate extends to various returns, including those for partnerships and tax-exempt organizations.

Changes to Enforcement and Collection Procedures

The Taxpayer First Act modified enforcement and collection procedures, including the Offer in Compromise (OIC) program. The OIC program allows certain taxpayers to resolve their tax liability for less than the full amount owed. To make the program more accessible, the act exempts low-income taxpayers from paying a user fee when submitting an OIC application.

The legislation addressed the IRS’s use of private debt collection agencies. While it codified the agency’s authority to use private collectors for certain overdue tax debts, it also added new taxpayer protections. The act exempts low-income individuals and taxpayers experiencing certain economic hardships from having their accounts turned over to private collection agencies.

New rules were established for how the IRS issues notices to taxpayers. The act requires the IRS to provide a taxpayer with notice at least 45 days before it begins contacting third parties, such as banks or employers, about a tax debt. This gives the taxpayer a window of opportunity to respond and make arrangements before these contacts are made.