IRS Reform 2018

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Congress passed a fairly significant tax code reform in December of last year and now the House just passed a series of bills that reform the Internal Revenue Service.

The IRS reform bills will now go to the Senate for consideration. The last time the IRS was reformed was back in 1998.

At that time, the IRS was viewed as being viciously evil and wielded too much power over taxpayers. That reform ultimately curtailed many of the abuses taxpayers had been complaining about for years and new laws were passed that allowed taxpayers to sue the IRS for damages if the IRS went back to its abusive ways.

However, that was 20 years ago and a whole host of new issues have cropped up.
Much of it is out of the IRS’s control due in part to their lack of proper funding and antiquated technology. Rep. John Lewis (D-Ga.), the lead Democrat on the Ways and Means oversight subcommittee, said the technical issues show the need for more funding for the IRS, whose budget is significantly lower than it was eight years ago.

These new IRS reform bills have a lot of focus on technology and security. For instance, e-filing tax returns is the norm these days and taxpayer identity theft has become a major issue. The reform would direct the Justice Department to establish expedited review procedures in identity theft cases involving impersonators of IRS agents.

The reform would also require the Treasury to establish a program for issuing identity protection personal identification numbers (IP PIN) upon a taxpayer’s request. This would prevent identity thieves from filing a taxpayer’s income tax return, because the fraudster would not know the IP PIN verification number. Further, the reform would require the IRS to provide identity theft victims with a single point of contact at the agency.

The IRS’s public-private partnership to fight identity theft and the role of an IRS chief information officer would be codified. The use of e-filing systems would also be expanded, and the IRS would be allowed to directly accept debit/credit card tax payments. Can you believe that the IRS, who is part of the Treasury Department that prints our currency, cannot directly take debit/credit card payments, but has to use a third party for the transactions?

The other part of the tax reform focuses on customer service and enforcement. It would require the IRS to provide 90 days of notice before it closes a taxpayer assistance center and it would permanently extend the IRS’s free-file program that allows low- and middle-income taxpayers to use free tax-preparation software. The IRS would also have to set up an “independent appeals office” with a new appeals office director.

Currently, IRS appeals is supposed to be a neutral party to review and resolve a dispute based on the merits of the case and the hazards of litigating the case.

However, IRS appeals is made up of Internal Revenue Service employees and is not as independent as one might think, and I believe this change will assist taxpayers in disputes with the IRS. Congress hopes a more independent appeals office will prevent taxpayers from bringing tax issues to a costly and lengthy court battle.

The IRS reform would also rename the IRS “Commissioner” to the IRS “Administrator.” Congress thinks that Administrator is friendlier sounding than Commissioner.

The IRS Administrator would be required to submit a reorganization plan to Congress by Sept. 30, 2020. What that reorganization plan may be is anybody’s guess, but it shows that Congress thinks there is more work to be done to transform the IRS into a modern-day institution.

I don’t think these bills go far enough to reform the IRS, but they are a good step in the right direction.

In my practice, I see many failings with the IRS on a daily basis and can attest to their lack of technology. A major communication device that I still use with the IRS is the fax machine. Modern business practices have moved passed the fax machine, but the IRS still uses it to insulate their systems from any potential virus threats. A budding dangerous technology the IRS is likely to adopt to cut labor costs will be advanced artificial intelligence systems. These systems could create a whole new host of problems for taxpayers.

That, however, is a topic for another day.

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