What the Taxpayer First Act (116-69) Means for You

In July 2019, the Taxpayer First Act was signed into law, representing the most substantial restructuring of the Internal Revenue Service (IRS) in over two decades. The primary goal of the act is to fundamentally shift the agency’s focus towards taxpayer service, modernize its operations, and codify numerous taxpayer rights into law. The legislation mandates a broad rethinking of how the IRS is structured and interacts with the public, addressing everything from internal organization to the technology that underpins the entire tax system.

IRS Reorganization and the Appeals Process

A component of the Taxpayer First Act is the formal establishment of the IRS Independent Office of Appeals. This provision gives the office new structural independence to resolve tax controversies on a fair and impartial basis, separate from the IRS’s enforcement and collection divisions. The office is headed by a Chief of Appeals who reports directly to the IRS Commissioner, a reporting line intended to insulate its decision-making process. The law requires this new office to provide taxpayers with full access to the non-privileged portions of their case file upon request, promoting transparency.

Beyond the creation of the Independent Office of Appeals, the Act mandated that the IRS develop and submit a comprehensive reorganization plan to Congress. This plan was required to outline a strategy for modernizing the agency’s structure to better serve taxpayers. Key objectives included improving taxpayer services, streamlining functions to increase efficiency, and enhancing employee training to better equip IRS personnel to handle taxpayer inquiries and issues effectively.

Enhanced Taxpayer Protections

The Taxpayer First Act expanded safeguards for individuals, particularly through changes to “innocent spouse” relief under Internal Revenue Code Section 6015. This relief allows a person to be absolved of responsibility for tax liabilities from a joint tax return. The Act codified a rule that gave the Tax Court jurisdiction to review all innocent spouse cases, ensuring taxpayers have a judicial avenue if the IRS denies their request for equitable relief. The Act also instructed the IRS to consider new factors when evaluating these claims, recognizing that issues like domestic abuse can impact a spouse’s ability to challenge items on a joint return.

Another protection involves new restrictions on the IRS’s ability to issue a “designated summons.” A designated summons is a tool the IRS can use to demand information, and its issuance automatically extends the statute of limitations for assessing tax. The Act now requires that a designated summons can only be issued after review and approval by the IRS Chief Counsel’s office. This adds a layer of high-level scrutiny to prevent its misuse as a routine tool for extending deadlines.

The Act also provided a new protection for a taxpayer’s primary home. It increased the dollar amount threshold for which the IRS can seize a principal residence to satisfy a tax liability. The law raised this limitation from $5,000 in aggregate assessed tax debt to $10,000, indexed for inflation. This adjustment makes it much more difficult for the IRS to use its most severe collection action for relatively small tax debts.

Modifications to IRS Enforcement and Collection

The Taxpayer First Act introduced new rules governing the IRS’s use of private debt collection agencies. A key provision now prohibits these private contractors from collecting taxes from individuals whose income is determined to be at or below 200 percent of the federal poverty level. This protection is designed to shield the most financially vulnerable taxpayers from contact with private collectors, ensuring their cases are handled directly by IRS employees who may offer more flexible resolution options.

Further modifications were made to the Offer in Compromise (OIC) program, which allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owed. The Act established a protection where the IRS is now legally barred from levying a taxpayer’s property or assets while their OIC application is being processed. This automatic stay on collection actions provides critical breathing room for taxpayers attempting to negotiate a settlement in good faith.

Cybersecurity and Identity Theft Prevention

A focus of the Taxpayer First Act is the enhancement of measures to combat tax-related identity theft. The law mandated the creation of a single, centralized point of contact within the IRS for any taxpayer who has been identified as a victim of identity theft. This ensures that individuals can work with a dedicated representative to resolve their case. This streamlined approach is designed to reduce taxpayer frustration and provide more effective and consistent assistance.

The Act also formally authorized the Information Sharing and Analysis Center (ISAC). This program creates a collaborative framework for the IRS, state tax agencies, and private-sector partners to share information about emerging cyber threats and identity theft schemes. The ISAC serves as a central hub for analyzing threat intelligence and developing coordinated responses to protect the nation’s tax system.

Electronic Filing and Administrative Adjustments

The Taxpayer First Act implemented changes to filing requirements for tax-exempt organizations. Under the Act, most non-profits, charities, and other tax-exempt entities are now required to file their annual information returns electronically. This mandate applies to forms in the Form 990 series. This shift to mandatory e-filing is intended to improve the efficiency of IRS processing and make the data from these returns more readily available for public oversight.

The legislation also adjusted penalties associated with the failure to file a tax return on time. The Act increased the minimum penalty for a failure to file that extends beyond 60 days from the due date. For tax returns due in 2025, the penalty is the lesser of $510 or 100 percent of the tax owed. This change was implemented to create a stronger deterrent against significant filing delays.