The Internal Revenue Service will get a major revamp for the first time in decades, through President Trump’s Taxpayer First Act (TFA) of 2019. The new taxpayer-friendly law is meant to improve the IRS by restructuring, modernizing, and overall improving the IRS reputation which historically, hasn’t been the best.
There are numerous TFA changes designed to bring the IRS customer service and technology up to speed. Below are the highlights of what you need to know:
1. Independent Office of Appeals
A new fair and impartial IRS Independent Office of Appeals has been established under the direction of a new Chief of Appeals. The new office is a completely independent appellate administrative office set up to listen to taxpayers present their cases to the IRS. They will also work to resolve tax issues, such as income tax audit determination, without litigation.
The right of appeal is mandated to be “generally available to all taxpayers” with an intent to liberally allow IRS appears. If there should be a denial of a procedural right to appeal (as opposed to the substantive denial of the petition itself), the IRS must now provide a written notice with a detailed description of the facts involved and a detailed description of the reason for denial. They must also provide an annual written report to Congress that includes the number of rejected requests and their reasons for denials. Taxpayers may protest denial decisions.
Taxpayers must now be given access to non-privileged portions of the administrative file regarding disputed issues no later than 10 days before the IRS appeals conference. This will provide the taxpayer with the same information as the IRS, whereas in the past, taxpayers needed to go through the time-consuming process of filing a Freedom of Information Act request or requesting the administrative file from the IRS examiner. The right to access the file is limited only to those taxpayers whose adjusted gross income (AGI) does not exceed $400,000 and to entities whose gross receipts do not exceed $5 million.
Under the new act, IRS lawyers who render advice to IRS Appeals should not be the same lawyers who were initially involved in the case, or those involved in preparing the case for litigation.
It should be noted that while the changes to the Appeals process are generally beneficial to taxpayers, many are guidelines that may or may not be followed by the IRS.
2. Service Improvements
The IRS has been repeatedly criticized for poor customer service. In an effort to improve this reputation and become more businesslike, the TFA has required the IRS to formulate and submit a comprehensive customer service strategy within one year. The plan is to provide reasonable taxpayer services for online service, telephone callback services, and employee customer service training. IRS guidance and training materials must be updated and written in a manner that is easily understood by customer service employees. Additionally, the IRS is now prohibited from rehiring employees who had previously been fired for misconduct.
3. Summonses to Third Parties
For small business owners under examination, this new change is both favorable and important. Under the TFA, the IRS is limited from contacting third parties such as banks, customers, and contractors for information as opposed to first going directly to the taxpayer. The IRS now must provide reasonable advance notice (at least 45 days before the beginning of contact and no greater than one year in advance) to the taxpayer of a third-party summons. This new provision will allow the taxpayer to strategically understand the issue at hand and to provide any requested information.
4. Fewer “John Doe” Summonses
As it stands, the IRS can issue a “John Doe summons” to a bank or other third party for names if they suspect that someone of an unknown identity is not paying taxes. To restrict these unlimited actions, the TFA prevents the IRS from issuing these summonses unless the information sought identifies a specific tax law violation and is narrowly tailored and closely related to the tax noncompliance. However, it is unlikely that this additional IRS burden will significantly affect IRS enforcement activities, especially in identifying noncompliant foreign bank accounts.
5. Limits on Cash Structuring Transactions and IRS Seizures
Reporting of cash transactions of $10,000 or more is required by the Bank Secrecy Act. Because of this requirement, some individuals and businesses will “structure” their transactions to fall below the threshold in an attempt to avoid government detection. This is known as “structuring” and can be used to conceal illegal cash-generating activities or cash income earned legally to evade the payment of taxes.
Previously, the IRS has assumed this was done for unlawful reasons and has seized bank accounts, regardless of the fact that there were no charges or convictions made. Under the TFA, the IRS is required to have probable cause that the structuring was done in an illegal manner or connected to criminal activity prior to making a seizure. The TFA also establishes procedures for post-seizure notices and reviews of seizures based on suspected structuring violations. If a seizure is made, taxpayers can have a hearing in federal court within 30 days of that seizure. If the IRS fails to show probable cause, the seized funds are to be returned.
The above highlights some of the changes made by the TFA that make the IRS a little more bearable for taxpayers and businesses. Of course, this also means more guidance and more regulations to potentially come with it, but hopefully they will all be for the better.
Have more questions about the Taxpayer First Act and what it means for you and/or your business? Contact us today at (732) 351-4458 to discuss in more detail!