Taxpayer First Act

Welcome to In Dispute, the latest news and developments in the tax disputes landscape from KPMG’s Tax Dispute Resolution network. This podcast series provides timely insights into a variety of tax controversy topics.

Hi, I’m Mike Dolan, and I lead the IRS Practice, Procedure and Administration group in KPMG LLP’s Washington National Tax practice.

For the past couple of years, Tax Cuts and Jobs Act (fondly known as TCJA) has consumed the attention of most tax professionals. In the meantime, the Taxpayer First Act (TFA) – signed into law last July contains nearly 50 provisions that will impact the tax ecosphere at both the macro and micro levels.

At the macro level

In the immediate term, three overarching macro mandates will require IRS attention. Those mandates address customer service, training and organizational restructuring.

On customer service

Treasury is required to submit to congress a written comprehensive IRS customer service strategy and the strategy should include:

• A plan to provide assistance to taxpayers that is:
  • secure
  • will meet reasonable taxpayer expectations and
  • adopts appropriate best practices from the private sector, including:
    • online services
    • telephone call-back services and
    • training of employees that provide customer services
• The Act calls for the IRS to structure its strategy into short term, medium term and long term implementation segments; and
• To create metrics and benchmarks that will permit measurement of the progress in implementing the strategy.

On the training front

The Commissioner is required to submit to Congress a written report providing a comprehensive training strategy for employees of the IRS, at a minimum the report much include a plan to:

• Streamline current training processes;
• Develop annual training on taxpayer rights, including the role of the office of Taxpayer Advocate, for employees that interface with taxpayers; and
• Improve technology-based training

As for reconsidering its organizational structure

Treasury is also required to develop a comprehensive plan to redesign the organization of the IRS. Among other things, the plan must:

• Prioritize taxpayer services to ensure that all taxpayers easily and readily receive the assistance they need;
• Streamline the agency's structure to minimize duplicate services and responsibilities;
• Best position IRS to combat cybersecurity threats; and
• Address whether the IRS Criminal Investigation Division should report directly to the commissioner.
• As an important aside, one year after IRS submits its restructuring report to Congress, the restrictions on organizational structure which were part of the IRS Restructuring and Reform Act of 1998 will be repealed
• You will recall that RRA 1998 required IRS to migrate from a district & regions geographic-based structure to its current nationalized constituency-focused Operating Divisions –
  • Large Business and International
  • Small Business & Self-employed
  • Tax Exempt and Governmental Entities
  • Wage and Investment

TFA Office

The Service established a Taxpayer First Act Office and tasked it with shepherding these three large cross-organizational efforts and also providing overall coordination and communication strategies for the entire suite of TFA changes. 

The statute requires that the comprehensive customer service and training strategies be submitted to congress by July 2, 2020 and the redesign plan by September 30, 2020.

At the micro level

Some of the more noteworthy targeted provisions of the TFA include:

Establishment of an Independent Office of Appeals

• The IRS appeals function, originally established administratively, is now enshrined in statue as the Independent Office of Appeals. 
• Additionally, new provisions narrow the circumstances in which a taxpayer can be denied access to appeals. 
• The new law also provides “specified taxpayers” the right to receive all non-privileged portions of their administrative case file prior to their appeals hearing.

TFA includes a number of focused provisions which provided increased taxpayer protections in certain enforcement matters, for example the IRC is amended to:

• require Third Party Summonses to be narrowly drawn.
• add precision to the conditions under which Notice of Contact of Third Parties should be utilized.
• require additional scrutiny and approval of a Designated Summons.
• limit non-IRS personnel access to taxpayer books, record, data, etc., except where such person is engaged as an expert. 
  • This provision also precludes non-IRS personnel from questioning witnesses involved in an IRS examination. 

E-Filing mandates are expanded:

• Preparers filing certain numbers of returns have been required to do so electronically. 
• The TFA reduced the mandatory e-filing thresholds to 150 in 2019, to 100 in 2020 and 50 in 2021.
• Tax-exempt organizations will be required to file Forms 990 electronically for taxable years beginning in 2019 -- Small tax-exempts have until 2021.
•  Any organization required to file an unrelated business income tax return under IRC 511 must do so electronically

There are also a number of cybersecurity and identity protection provisions, including:

• Expanding the availability and use of Identity Protection Personal Identifier numbers.
• Providing any taxpayers whose return has been delayed or adversely affected due to tax related identity theft with a single point of contact to assist throughout the resolution process, and
• A requirement that public guidelines be developed for managing cases involving identity refund fraud, including key standards for resolving such cases and issuance of refunds.

Implementation of the TFA will require a substantial investment of energy and dollars. The operational impacts of the IRS’s ten year downward budget trajectory has been well documented. That trajectory will have to change if there is to be any serious chance of delivering the type change envisioned by the TFA. Achievement of it objectives will require the sustained support and investment of the administration and the appropriators. We will look forward to the plans that are scheduled to emerge this summer.