Congress Expands Taxpayer Rights With Taxpayer First Act of 2019

Taxpayers can be happy that Congress passed – and the President signed on July 1, 2019 – an expansion and strengthening of taxpayer rights as well as a focus on cybersecurity and protection from identity theft for taxpayers.  This legislation (which I discussed an earlier version), coupled with expanded funding for the IRS in a separate bill brings an overall theme of providing improved services to taxpayers — certainly positive steps for taxpayers.

In a divided Congress, it is to the credit of Chairmen Grassley (R-IA) of Finance and Neal (D-MA) of Ways and Means as well as ranking members Senator Wyden (D-OR) and Congressman Brady (R-TX) and Subcommittee Chairman Lewis (D-GA) and Ranking Member Kelly (R-PA) that they were able to find common ground and agreement on this legislation that will provide meaningful benefit to taxpayers.

Key provisions in the new bill: 

  1. Independent Appeals Process

The ability for taxpayers – especially individuals and small businesses – to challenge the IRS position without having to undertake the cost and expenses of court is of great importance.  Key is that the IRS appeals be seen as an independent shop.  At my shop, we have found great success for our clients in being able to present the taxpayer’s understanding of the facts and the law to IRS appeals.

The new law puts in place statutorily that the IRS office is independent — underscoring what has been the intent of Congress and the understanding of taxpayers.  The law also directs that IRS Appeals can have independent advice from IRS Chief Counsel; the taxpayer can have access to the case files; and, establishes the rights of the taxpayer to protest if denied the right to go to appeals.

These are good steps by Congress – but a sharp eye needs to be on the IRS to ensure that the IRS does not play fast-and-loose with the ability of taxpayers to go to IRS Appeals.  I’m eye-blinked at cases I’ve seen where the IRS is seeking to deny a taxpayer the right to go to IRS Appeals (akin to – oh, you need to fill out this form on pink paper, with a red pen – sorry no appeals, and no soup for you).  The IRS needs to look at how this provision of denial of appeals (along with the right of the taxpayer to protest that denial) is handled in practice.  In addition, Congress (and the newly independent IRS Appeals office) needs to brush back IRS efforts to try and strong-arm their way into taxpayer’s meetings with IRS appeals.  These meetings are for the taxpayer to present her case to the independent IRS appeals office – not for the IRS exam/counsel team to get another bite of the apple.

2.  Innocent Spouse – De Novo Review For Equitable Liability

The title pretty much says it all.  After much grinding – some courts were looking at arbitrary and capricious as the standard of review (abuse of discretion) for cases where the IRS denies equitable relief for an innocent spouse.  This is a good fix by the Congress to bring the standard of review to de novo – essentially a new look of facts and law by the court – which has long been the understanding of the Congress of Tax Court review.

3.  Modification Of Procedures For Issuance Of Third-Party Summons

Ah – one of my favorite issues – and can be quite important as a protection to taxpayers – especially small business owners – from the IRS reaching out and contacting third parties (think banks, customers, contractors, etc.) for information (instead of first going to the taxpayer).  Here, the Congress requires the IRS to provide reasonable notice in advance to the taxpayer of a third party summons – at least 45 days before the beginning of contacts – and not greater than a year before.  This provides the IRS an opportunity to go back to its original implementation of the safeguards on third party contacts contained in the 1998 IRS restructuring act – and provide taxpayers a meaningful opportunity to first provide the information that the IRS is seeking prior to contacting third parties.  Congress needs to make certain that the IRS defines “reasonable notice” as providing the taxpayer an understanding of what the issue is and the information being requested that relates to that issue.

4.  Office of the National Taxpayer Advocate – Taxpayer Advocate Directives

Unfortunately, taxpayers are losing a great advocate – Nina Olson – who will be retiring at the end of this month and going to raise goats and sheep.  However, the good news is Congress is putting more teeth into the Advocate’s issuance of Taxpayer Advocate Directives (TAD) – which deal with systemic problems taxpayers are seeing (as opposed to Taxpayer Assistance Orders (TAO) that deal with individual taxpayers).

If a TAD is issued by the Advocate, then the IRS must essentially comply within 90 days.  If the TAD is modified or rescinded by a Deputy Commissioner the Advocate may appeal to the Commission and the Commissioner must within 90 days either ensure compliance with the original directive or provide the Advocate a reason for any modification.  The Advocate annual report will identify any TAD that is not honored by the IRS (“I’m going to tell mom”).  I would say this certainly puts some focus on TAD’s coming from the Advocate.  Now if we could just get more teeth in the TAO as well – too often the IRS ignores the Advocate raising issues on individual taxpayers – failing to recognize that it is in the IRS’ own interest to provide good and fair service to taxpayers.

5.  Whistleblower Reforms

I will discuss these more in a separate piece – but quickly the reforms provide protections for tax whistleblowers from retaliation (good idea) and also allow for improved and expanded communication with whistleblowers about the status of their claims – most helpful.

6.  Cybersecurity and Identity Protection

The IRS to its credit has taken active steps to curtail identity theft.  I would give speeches just a few years ago and more than half of the accountants would raise their hands in response to the question of whether they had a client who had been subject to identity theft.  Thanks to the IRS’ work – those numbers have dropped like a stone.

Despite this good news, the concerns of cybersecurity for small and medium-sized businesses as well as CPAs remain significant.  My shop, alliantgroup/RGCybersecurity has developed a 17 Point CheckList to help companies make sure they can stay ahead of this serious problem.

The reforms on cybersecurity and identity theft include allowing greater information sharing from the “Identity Theft Tax Refund Fraud Information Sharing and Analysis Center “ISAC” (a partnership of IRS, state tax agencies and private sector) – and to allow for improved centralization and standardization regarding identity theft and cybersecurity.

A host of reforms to deal with identity theft – include requiring the IRS to have a single point of contact for identity theft victims (no more dealing with a different person everytime you call the IRS – hallelujah – now if we could just get that for all taxpayers . . . ); notification to taxpayer if the IRS suspects they have been subject to identity theft; establish guidelines for dealing with identity theft cases; and, increased penalties for unauthorized disclosures.  All good news.

These are just some of the highlights of the Taxpayer First Act — all in all a good day’s work for the Congress – and good news for taxpayers.

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