Senate Finance Unveils Several IRS Reform Measures

The Senate Finance Committee released its version of legislation to retool the IRS, building off of the work that’s been done on the House side.

The Taxpayer First Act (S. 3246), bipartisan legislation to reform certain administrative practices at the Internal Revenue Service, is based on two earlier bills that were approved unanimously by the committee in 2016, according to a July 19 news release from Senate Finance Committee Chairman Orrin G. Hatch (R-UT) and ranking member Ron Wyden (D-OR).The new bill includes changes that would enhance whistleblower protections, reform the laws governing IRS employees, and impose measures to prevent identity theft and tax refund fraud. The bill contains provisions to increase electronic filing of tax returns by, for example, imposing a mandatory e-filing requirement for annual returns of tax-exempt organizations. The legislation would also add more protections for taxpayers, including a provision prohibiting the IRS from using funds for political targeting.

The Senate announcement comes about three months after the House passed a series of bills to revamp the IRS, including its own Taxpayer First Act (H.R. 5444), which contains measures to establish an IRS Independent Office of Appeals, eliminate the IRS Oversight Board and, for some reason, change the title of the IRS Commissioner to IRS Administrator.

Another bill, by Sens. Rob Portman (R-OH) and Benjamin L. Cardin (D-MD) is aimed at strengthening taxpayer rights and enhancing small business and low-income tax services. Portman and Cardin, who are both Finance members, were co-sponsors of the IRS Restructuring and Reform Act of 1998 when they served in the House. Their legislation is intended to complement to bill introduced by Hatch and Wyden.

At a July 26 hearing of the Finance Subcommittee on Taxation and IRS Oversight, Portman said that “after some sustained improvement, we have now gotten to the point where we’re back to some of the very same issues again.” The IRS, which is “tasked with helping Americans carry out one of their most basic duties is failing to serve the taxpayers in an effective manner. So, it’s an opportunity now to reboot.” He did not address how the failure to serve taxpayers in an effective manner was possibly related to the substantial decline in IRS funding authorized by Congress.

A large portion of the Finance Subcommittee hearing involved a discussion of the critical need to update IRS IT systems. IRS Taxpayer Advocate Nina Olson, who testified at the hearing, stated that IRS information technology lags far behind the rest of the federal government. She reminded Subcommittee members that the IRS uses the two oldest databases to be found in any federal agency, and utilizes 60 systems that cannot adequately communicate to one another. According to Olson, these technology issues reduce IRS responsiveness, hamper agent performance, and result in poor customer service.

John Sapp, chair of the IRS Electronic Tax Administration Advisory Committee, also testified and said that e-services need to be hardened in order to better protect taxpayers’ private information. He suggested that the e-service program should be configured in such a way that consumers would find it more accessible and easier to use, which would likely result in better compliance.

It is unclear what next steps the Finance Committee may take given the tight legislative calendar prior to the mid-term elections in November.

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