The House Ways and Means Committee is set to move legislation that aims to improve taxpayer interactions with the IRS by making long-awaited tweaks to some agency functions.
The bipartisan bill (H.R. 1957) would take a narrower approach than Republicans initially proposed in the lead-up to the 2017 tax law, when they wanted to completely reorganize the IRS. The bill would make more targeted changes, such as creating an independent appeals function and calling on the Internal Revenue Service to develop a comprehensive customer service strategy.
“Anytime that the government can take a step toward ensuring confidence that the system is fairly administered, it’s a very large step forward in improving relations between the IRS and the community, and I think the bill goes a long way in accomplishing that,” said Guinevere Moore, a partner at Johnson Moore LLC in Chicago.
Though previous proposals to revamp the agency have sputtered in Congress, the current concept is backed by tax writers in the House and Senate—a signal that it may have legs. Ways and Means will mark up the text on April 2. The Senate companion (S. 928) was released the same day as the House version.
David Kautter, the Treasury Department’s assistant secretary for tax policy, said the department hasn’t staked out a formal position on the bill, although much of it seems reasonable.
“I think restructuring the IRS, allowing it to change its organizational structure, made a lot of sense,” he said April 1 at a Washington conference.
The bill’s narrower approach could be one reason why it has drawn consensus so far, said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. The bill doesn’t confront the major issues the agency has faced, such as funding shortfalls.
Still, that possibility of an overhaul may not be completely off the table.
The bill would require the IRS—by Sept. 30, 2020—to submit a re-organization plan to Congress. That plan would have to detail how the agency could better position itself to combat ongoing cyber threats, and should address whether the agency’s Criminal Investigation division should report directly to the IRS commissioner.
The provision may reflect a lack of agreement among lawmakers about how they should proceed with reorganizing the agency, Gleckman said.
“You can certainly make the argument that a good rethinking of how the IRS is structured wouldn’t be a bad idea, but people can’t agree on what it should look like,” he said.
IRS Commissioner Chuck Rettig is the right person to implement the plan, Moore said. He is someone who won’t accept the status quo and is always looking to find the most efficient and effective way to do things, she said.
“I think that this a real opportunity for everybody within the IRS to put their thinking caps on and think about what is the most effective way to implement reorganization,” she said.
The House bill largely mirrors a previous IRS reform bill (H.R. 7227) that the House passed at the end of the 115th Congress, albeit with two differences: it contains no reworks to the U.S. Tax Court and contains a new pay-for—a larger penalty for individuals who file their tax returns more than 60 days late.
Under the bill, that penalty can’t be less than the lesser of $330, up from $205, or the amount of tax required to be shown on the return. The change would bring in $219 million over a decade, according to an estimate from the Joint Committee on Taxation.
The bill would create a new IRS Independent Office of Appeals, led by a Chief of Appeals who would be appointed by the IRS commissioner. The person filling that role would be required to have experience in tax law and management of service organizations.
The provision also would require the IRS to provide taxpayers with case files prior to the beginning of any dispute resolution process. This would help bridge the gap between represented and unrepresented taxpayers, where there usually exists a significant disparity in access to information, said Moore, who regularly practices before the IRS and U.S. Tax Court.
Practitioners also pointed to sections of the bill that seek to address the agency’s service capacity: one section would require the IRS to develop a comprehensive customer service strategy that must address how it would provide assistance to taxpayers and ensure adequate training for its employees.
“The IRS should be at least as efficient as Amazon,” said Frank Agostino, founder and president of Agostino & Associates in Hackensack, N.J. If taxpayers are treated as well as customers, they are more likely to willingly comply with the tax laws, said Agostino, a former attorney with the IRS’s District Counsel.
The IRS’s lagging customer service capacity was under scrutiny during the five-week shutdown that began in late 2018. Its rate of answering phone calls fell to about one-third of the time as callers waited upwards of 40 minutes.
Private Debt Collection
Lawmakers also reached a compromise on the agency’s private debt collection program.
The IRS uses four private debt collection agencies to pursue long-overdue tax debts. As of September 2018, the program has brought in $88.7 million since Congress required it be restarted in April 2017.
The bill would bar the IRS from referring debt to private collection agencies if a taxpayer’s income is below 200 percent of the federal poverty level. Earlier versions of the legislation had set the threshold at 250 percent.
But critics remain adamantly critical about the purpose of the program itself.
“Private collection agencies work on commission, subjecting taxpayers to unnecessarily aggressive collection agents who keep a portion of the revenue that should otherwise go the U.S. Treasury,” said National Treasury Employees Union President Tony Reardon. The NTEU represents thousands of IRS employees.
House Ways and Means Chairman Richard Neal (D-Mass.) April 1 described the IRS private debt collection program is “very iffy.” But the changes in H.R. 1957 would bring some relief, he said.
—With assistance from Kaustuv Basu and Lydia O’Neal