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IRS Reform Legislation Signed into Law

More than 20 years after the last such overhaul, on July 1 President Trump signed into law bipartisan legislation to revamp the Internal Revenue Service. The newly enacted Taxpayer First Act of 2019 (H.R. 3151) overhauls the IRS’ operations and tax administration systems and implements new taxpayer protections. The House of Representatives approved similar legislation in April 2018, but it was never considered by the Senate.

“This signing is the culmination of a lengthy, bipartisan process undertaken by the Ways & Means Committee to implement pro-taxpayer reforms at the IRS for the first time in more than 20 years,” stated Rep. Richard Neal (D-MA), the House Ways & Means Committee Chairman, upon President Trump signing the legislation into law. “New protections for low-income taxpayers, practical enforcement reforms and upgraded assistance for taxpayers and small businesses will all now go into place.” 

While the legislation does not directly single out retirement plan compliance and reporting requirements or make direct changes to the Tax Exempt and Government Entities division, there are a few proposals that may be of interest.

In general, the new law directs the IRS to:

  • redesign the organizational structure of the agency;
  • create an independent appeals process to review taxpayer disputes;
  • revamp its enforcement procedures; and
  • enhance tax-filing assistance programs.

As for the IRS’ organizational structure, the legislation directs the Secretary of the Treasury to submit a comprehensive plan to redesign the organization by September 2020. The plan should reflect the taxpayer service priorities emphasized in the legislation, including ensuring that taxpayers receive the assistance they need readily, eliminating duplicate services and responsibilities, and combating cybersecurity and other threats.

Electronic Filing

In addition, all tax-exempt organizations would be required to file their Forms 990 electronically. Currently, only tax-exempt organizations that have assets greater than $10 million and those that file more than 250 returns with the IRS are required to file Form 990 electronically. The Treasury Secretary would be permitted to provide transition relief for up to two years for certain small businesses and those organizations that file Form 990-T related to unrelated business taxable income.

Also included is a requirement that the agency make available an online web application to allow the electronic preparation, filing and distribution of Form 1099, similar to the online services provided by the Social Security Administration.

The new law also seeks to strengthen cybersecurity and taxpayer identity protection measures by the agency, as well as upgrade its information technology and electronic systems.

An earlier version of the legislation included a provision that would have codified the existing Free File program and required the IRS to continue working with private stakeholders, but it was removed prior to final approval.

A Ways & Means Committee summary of the Taxpayer First Act can be viewed here (note that this document includes the Free File provision, which was removed from the bill).