Congress Finds Common Ground on Fixing the IRS

A bipartisan group of senators is advancing a package of more than 60 changes to the IRS and federal tax administration, bringing together a series of practical reforms designed to make the tax system easier for families and businesses to navigate.

The U.S. Senate Finance Committee advanced S. 3931, the "Taxpayer Assistance and Service (TAS) Act" by a 26-1 vote. Rather than pursuing a major rewrite of tax policy, the legislation addresses persistent problems with IRS administration, taxpayer service and taxpayer protections.

The package would expand electronic processing of tax returns, allow taxpayers to handle more matters through IRS online accounts, strengthen protections against unscrupulous tax preparers and provide taxpayers with greater protections in disputes with the government. Other provisions address problems ranging from tax withholding for independent contractors to Americans taken hostage or wrongfully detained abroad.

Taken together, the proposals represent the kind of 80/20 reforms that rarely attract much attention in Washington but can make a meaningful difference for taxpayers.

Modernizing an Outdated IRS

Some of the legislation's most significant provisions would reduce the IRS's continued reliance on paper and manual processing.

The bill would require the IRS to accept and process returns and amended returns electronically and expand the digitization of paper returns and correspondence. The Senate Finance Committee notes that manual data entry contributes to processing backlogs and that even some electronically filed amended returns have been printed and processed manually.

The legislation would require greater use of optical character recognition and similar technology to convert paper submissions into digital records.

Taxpayers would gain more capabilities through IRS online accounts as well. Families, businesses and authorized representatives would be able to conduct more tax matters electronically, including accessing information and communicating with the agency.

These changes would move routine interactions away from paper correspondence, manual processing and telephone calls and toward the digital services taxpayers increasingly expect from financial institutions and government agencies.

Targeting Unscrupulous Tax Preparers

The legislation would strengthen oversight of paid tax return preparers, particularly fly-by-night operators who can prey on poor and vulnerable taxpayers during filing season.

Millions of Americans depend on paid preparers to file their taxes. When an unscrupulous preparer submits an inaccurate or fraudulent return, however, the taxpayer can be left dealing with the consequences long after the preparer has disappeared.

The package would strengthen standards for paid preparers and provide additional tools to address abusive conduct. The goal is straightforward: better enforcement against bad actors while preserving access to legitimate tax preparation services.

Strengthening Taxpayer Protections

Several provisions would strengthen taxpayers' rights when challenging IRS actions or seeking judicial review.

The legislation includes changes involving innocent spouse cases and access to the U.S. Tax Court. It would expand eligibility for the Tax Court's simplified small-case procedures, providing more taxpayers with a less costly avenue for resolving disputes with the IRS.

The package addresses Americans caught in far more extraordinary circumstances as well. Taxpayers who are taken hostage or wrongfully detained abroad would receive relief from certain tax penalties and IRS levy actions while they are being held.

Americans returning from captivity should not face accumulated tax penalties or collection actions because they were unable to deal with the IRS while being held overseas.

A New Option for Small Businesses and Contractors

The TAS Act would give small businesses and independent contractors another option for handling tax payments.

Businesses and contractors could voluntarily agree to income tax withholding when both parties prefer that arrangement. Contractors who want taxes withheld as they earn income could avoid having to manage the entire payment separately, while businesses would have a defined process for accommodating that preference.

Choosing voluntary withholding would not, by itself, change the worker's classification as an independent contractor.

The provision recognizes that businesses and contractors should have flexibility to choose an arrangement that makes tax compliance easier when both sides agree.

An 80/20 Taxpayer Agenda

The legislation is the product of bipartisan work and incorporates proposals aimed at problems taxpayers encounter when dealing with the IRS.

Senate Finance Committee Chairman Mike Crapo and Ranking Member Ron Wyden disagree on many of the largest questions facing federal tax policy. Yet the committee's 26-1 vote demonstrates broad agreement that taxpayers should have better digital services, stronger protections and a more functional tax administration system.

The package is deliberately incremental. It combines dozens of targeted changes rather than attempting another sweeping restructuring of the IRS.

That approach is part of its strength. Congress does not need to agree on every question of tax policy to agree that returns should be processed efficiently, taxpayers should have useful online tools, vulnerable Americans should be protected from predatory preparers and people challenging the IRS should receive fair treatment.

CFE Takeaway

S. 3931, the "Taxpayer Assistance and Service (TAS) Act" is a rare bipartisan opportunity to make the federal tax system work better for the people required to use it.

Digitizing returns, expanding IRS online accounts, policing unscrupulous tax preparers, strengthening judicial protections, giving businesses and contractors more flexibility and protecting Americans held hostage abroad are practical reforms with broad appeal.

Congress should advance the package and give taxpayers something Washington produces too infrequently: common-sense improvements supported by both parties.