The Taxpayer First Act (the Act) of 2019 was signed into law on July 1, 2019. The bill, having gone through a few changes on its way to the president’s desk, passed with bipartisan support – a rare thing in Washington these days. The law aims to reform the Internal Revenue Service (IRS) by making it more taxpayer-friendly and has been praised by the American Institute of Certified Public Accountants (AICPA). The summary of the bill, its titles and subtitles signal a much-needed pivot to the way the IRS fits into the 21st-century economic narrative. Among the areas of impact, the main themes include customer service, enforcement procedures, cybersecurity and identity protection, management of information technology, and use of electronic systems. While the following issues and actions are not exhaustive, they do highlight the key points of reform.
ISSUE: CUSTOMER SERVICE
ACTION: The IRS will adopt best practices of private sector customer service providers, starting with a comprehensive training plan. They will officially benchmark and track their endeavors and be responsible for measuring their success.
ISSUE: IDENTITY THEFT PROTECTION
ACTION: The IRS is required to work behind the scenes and take their position front and center to assure greater identity protection. By 2024, any taxpayer will be able to request a personal identification number (PIN) to use when filing their tax return. The IRS is also legally bound to notify taxpayers of suspected fraud and point them in the right direction for next steps. Finally, if a taxpayer’s return is adversely affected by identity theft, the IRS must provide a single point of contact to track the case and resolve the issue.
ISSUE: CARD PAYMENTS
ACTION: Now, taxpayers can skip the third-party service when paying their bill. The new law allows the IRS to accept direct payment as long as the taxpayer agrees to pay the processing fees. The IRS is also tasked with securing contracts with minimal fees.
ISSUE: INFORMATION PROTECTION
ACTION: The Act locks down taxpayer information as it relates to contractors, such as outside attorneys, when it is obtained by summons. Furthermore, by 2023, disclosures of tax information for third party income verification must be fully automated and accomplished in real-time.
ISSUE: INDEPENDENT REVIEW
ACTION: Tax disputes will get a second look under the Act. Taxpayers with a legitimate claim now have legal access to an independent appeals process. The IRS is also required to provide written notice of denial to the taxpayer and Congress and turn over its case files to qualified individual and business taxpayers.
ISSUE: AUDIT NOTICE
ACTION: The IRS loves the word “reasonable.” When it comes to audit inquiries, the ambiguity of the term has now come to an end. The Act demands a 45-day notice requirement before contact with a third party can be made.
ISSUE: INTERNET FILING
ACTION: The IRS has been tasked with creating a secure online user interface that allows taxpayers to prepare and file Forms 1099 electronically. The platform, which must be established by 2023, will also keep a historical record of submitted forms.
ISSUE: SEIZURE LIMITATIONS
ACTION: Small business owners that structure their bank deposits can rest a little easier. Legal deposits that fall below the $10,000 threshold are no longer subject to the threat of IRS seizure.
ACTION: The Act prohibits consent-based disclosures from being used for purposes other than their original intent.
The Taxpayer First Act is a welcome change. The Act helps protect business owners from IRS seizures and allows them to avoid the expenses and time-consuming process of having to go through the courts to reclaim their assets. Perhaps the most critical component of the new law is the attention to cybersecurity and customer service. Small business owners will still need to interact with the IRS, but if the law accomplishes its goal, the process will be easier and safer.
How will this law impact my payroll compliance?
It is important to note that several of the Taxpayer First Act provisions will directly influence your company’s payroll operations.
1. The IRS has been tasked with creating a secure online server for e-filing because the new law reduces the threshold for mandatory e-filing. Currently, businesses only need to file online if they employ 250 or more. The new law lowers the threshold to 100 in calendar-year 2021, and only 10 in calendar-year 2022 and on.
2. The new law requires the IRS to verify individuals as they open accounts to use the new e-Service features. Because of the new information and identity protection measures outlined above, e-Services are expected to take a little bit longer than they have in the past. Accounting services personnel should factor this potential delay into their timelines.
3. Although the IRS internet filing platform may not be up and running until January 1, 2023, the interface will be familiar, similar to the SSA’s Business Services Online.
4. One of the law’s most significant changes directly impacts nonprofits. Under the Act, all tax-exempt organizations must e-file Form 990 and Form 8872. This provision, unlike many of the others, goes into for tax years beginning after July 1, 2019. Organizations whose tax year began July 1 will receive transition relief.
5. Finally, it is worth mentioning that the law institutes a new position within the IRS, Chief of Appeals. This person will oversee the Independent Office of Appeals and report to the IRS Commissioner. The Chief and their office will embody independent review by seeking to resolve tax disputes outside the courtroom.
If you have questions about the law in its entirety or want to know how this legislation will impact your company’s payroll operation compliance, give the professionals in our office a call today.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.