By Ryan Ellis
This week, the U.S. House of Representatives will vote on a series of bipartisan IRS structural reform bills. While many of these reforms are behind the scenes improvements to the way the service operates, there are ten changes in these bills that will have real-world, positive impacts on normal taxpayers:
Appeals Office. For the first time ever, there will be a taxpayer-focused office of appeals inside the IRS. The only mission of the office is to make appealing an IRS ruling easier and less frustrating for taxpayers.
Free File. Over the past fifteen years, the IRS has partnered with tax software companies to provide free, private sector tax software for moderate income taxpayers ($66,000 or less in 2018) with straightforward tax situations. This “free file alliance” is available to 70 percent of return filers, and has been used to file 50 million federal tax returns. Under the legislation considered this week, the free file program will be made permanent.
Asset Forfeiture Reform. One reform area that both parties have gotten behind in recent years is asset forfeiture reform. No government agency should have a profit motive to take your property away from you. Under the bills considered this week, the ability of the IRS to seize assets is further limited, and they are prohibited from reselling any asset except perishable goods.
Identity Theft Protection. There’s nothing scarier than finding out your identity has been stolen, and then further discovering that the thief filed a tax return on your behalf and stole your refund, too. The IRS has gotten much better at dealing with this over the past several years, and these bills provide even more tools. Any taxpayer that wants one will be able to request an identity protection PIN, essentially creating a dual factor authentication to file an income tax return. Additionally, victims of identity theft will have a single point of contact within the IRS to clean up the mess created by identity thieves.
Personal IRS Accounts. The IRS will be required to hire a chief information officer (CIO). In addition to cleaning up the technology messes at the IRS, the CIO will be tasked with setting up simple online accounts for any taxpayer. These secure accounts will be able to interact with the IRS in all sorts of ways, such as looking up prior tax returns, making payments, etc. If this works well, a paperless tax season could very easily be in the near future.
Making It Easier to Pay Taxes and Receive Refunds Electronically. The bills have sections that mandate ways in which the IRS can issue refunds electronically easier than today (picture getting your refund on your Venmo, for example), and also to make it easier to pay your taxes using a credit or debit card. All tax transactions in the future should be electronic with these provisions in mind.
Make the Mortgage Application Process Easier. Anyone who has bought a house knows that you have to authorize the mortgage lender to see your old tax returns. The process for doing this is cumbersome and can result in mortgage application delays which can be fatal for prospective buyers. One of these bills streamlines that process by bringing the request process into the 21st century–picture moving from faxes to automatic downloads.
E-Signatures. The IRS has already made some progress on accepting electronic signatures from taxpayers. However, one area this has lagged is in power of attorney grants, which are common when taxpayers want representation before the IRS. By allowing electronic signatures for power of attorney forms, the IRS can start interacting with tax preparers much quicker than today.
1099 electronic filing. Until very recently, there was not an easy way for small business owners and others who had to report payments to contractors to file the 1099-MISC forms electronically. Lacking enough forms to make it worth their while, many business owners chose to write out 1099s by hand and mail them in. The legislation this week requires the IRS to have a way for taxpayers to electronically upload 1099s directly to the service.
Electronic filing of 990 returns for non-profits. Non-profit organizations like charities, universities, and research institutions have to file Form 990 in order to document their income and expenses, even if they owe no tax. However, there have been wide exceptions granted for having to file these 990s electronically. That means researchers and others have a huge lag in tracking what happens in these groups. The legislation being considered imposes a near uniform requirement to e-file 990s.
This is a welcome development. Common sense, consensus, bipartisan reforms of the IRS should be a regular feature of the legislative process. What might be next?
This week, Senator John Cornyn will introduce a “Small Business Taxpayer Bill of Rights” act. The main features include:
Strengthen taxpayer protections (no last minute information add-on demands in audit appeals, no IRS secret conversations about taxpayers, and making it harder to put a lien on a home)
End IRS improper targeting of taxpayers (Lois Lerner-type offenses can be grounds for firing, auditing standards themselves must be audited, and any IRS employee who violates a taxpayer’s Constitutional rights can be fired)
Compensates taxpayers for IRS abuses (allows attorney fees to be recouped, increases civil damages that can be assessed on the IRS, and compensates taxpayers for no-change, so-called “super audits”)
Lowers compliance burden for taxpayers (creates an alternative dispute resolution system, makes offers in compromise easier, and helps small businesses stay in business while complying with their tax responsibilities)
Congress should pass the package of bipartisan IRS reform bills this year, and then get to work on next year’s batch.