DESCRIPTION OF H.R. 1957,

THE “TAXPAYER FIRST ACT OF 2019”

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on April 2, 2019

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

April 1, 2019

JCX-15-19
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

TITLE I ─ PUTTING TAXPAYERS FIRST................................................................................. 2

A. Independent Appeals Process ............................................................................................. 2

Establishment of Internal Revenue Service Independent Office of Appeals................ 2

B. Improved Service ................................................................................................................ 6

Comprehensive customer service strategy.................................................................... 6

IRS Free File Program .................................................................................................. 6

Low-income exception for payments otherwise required in connection with a 

submission of an offer-in-compromise ......................................................................... 7

C. Sensible Enforcement ......................................................................................................... 9

Internal Revenue Service seizure requirements with respect to structuring

transactions ................................................................................................................... 9

Exclusion of interest received in action to recover property seized by the Internal 

Revenue Service based on structuring transaction...................................................... 11

Clarification of equitable relief from joint liability .................................................... 12

Modification of procedures for issuance of third-party summons.............................. 14

Private debt collection and special compliance personnel program ........................... 15

Reform of notice of contact of third parties................................................................ 17

Modification of authority to issue designated summons............................................ 18

Limitation on access of non-Internal Revenue Service employees to returns and

return information ....................................................................................................... 20

D. Organizational Modernization .......................................................................................... 23

Office of the National Taxpayer Advocate................................................................. 23

Modernization of Internal Revenue Service organizational structure ........................ 26

E. Other Provisions................................................................................................................ 27

Return preparation programs for applicable taxpayers............................................... 27

Provision of information regarding low-income taxpayer clinics .............................. 29

Notice from IRS regarding closure of taxpayer assistance centers............................. 30
ii

Rules for seizure and sale of perishable goods restricted to only perishable goods... 30

Whistleblower reforms................................................................................................ 31

Customer service information..................................................................................... 33

Misdirected tax refund deposits.................................................................................. 33

TITLE II ─ 21ST CENTURY IRS................................................................................................. 35

A. Cybersecurity and Identity Protection .............................................................................. 35

Public-private partnership to address identity theft tax refund fraud ......................... 35

Recommendations of Electronic Tax Administration Advisory Committee

regarding identity theft refund fraud........................................................................... 35

Information sharing and analysis center ..................................................................... 36

Compliance by contractors with confidentiality safeguards....................................... 40

Report on electronic payments.................................................................................... 42

Identity protection personal identification numbers................................................... 43

Single point of contact for tax-related identity theft victims...................................... 44

Notification of suspected identity theft....................................................................... 45

Guidelines for stolen identity theft refund fraud cases............................................... 47

Increased penalty for improper disclosure or use of information by preparers of 

returns ......................................................................................................................... 48

B. Development of Information Technology ........................................................................ 50

Management of Internal Revenue Service information technology ........................... 50

Internet platform for Form 1099 filings...................................................................... 51

Streamlined critical pay authority for information technology positions................... 51

C. Modernization of Consent-Based Income Verification System ....................................... 54

Disclosure of taxpayer information for third-party income verification .................... 54

Limit redisclosures and uses of consent-based disclosures of tax return

information.................................................................................................................. 56

D. Expanded Use of Electronic Systems............................................................................... 58

Electronic filing of returns.......................................................................................... 58

Uniform standards for the use of electronic signatures for disclosure

authorizations to, and other authorizations of, practitioners....................................... 60

Payment of taxes by debit and credit cards................................................................. 61

Authentication of users of electronic services accounts............................................. 62
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E. Other Provisions................................................................................................................ 63

1. Repeal of proposal regarding certain tax compliance procedures and reports ........... 63

Comprehensive training strategy ................................................................................ 63

TITLE III ─ MISCELLANEOUS PROVISIONS........................................................................ 65

A. Reform of Laws Governing Internal Revenue Service Employees.................................. 65

Prohibition on rehiring any employee of the Internal Revenue Service who was 

involuntarily separated from service for misconduct.................................................. 65

Notification of unauthorized inspection or disclosure of returns and return 

information.................................................................................................................. 66

B. Provisions Relating to Exempt Organizations.................................................................. 68

Mandatory e-filing by exempt organizations.............................................................. 68

Notice required before revocation of tax-exempt status for failure to file return....... 70

Increase in penalty for failure to file........................................................................... 73
1

INTRODUCTION

The House Committee on Ways and Means has scheduled a committee markup on

April 2, 2019 of H.R. 1957, the “Taxpayer First Act of 2019.” This document,1 prepared by the 

staff of the Joint Committee on Taxation, provides a description of the bill.

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 1957, the 

“Taxpayer First Act of 2019” (JCX-15-19), April 1, 2019. This document can also be found on the Joint Committee 

on Taxation website at www.jct.gov. All section references herein are to the Internal Revenue Code of 1986, as 

amended (herein “Code”), unless otherwise stated.
2

TITLE I ─ PUTTING TAXPAYERS FIRST

A. Independent Appeals Process

Establishment of Internal Revenue Service Independent Office of Appeals

Present Law

The IRS Reform and Restructuring Act of 1998 (“RRA98”) directed the Commissioner 

of Internal Revenue (the “Commissioner”) to restructure the Internal Revenue Service (“IRS”)

by establishing and implementing an organizational structure that features operating units 

serving particular groups of taxpayers with similar needs and ensures an independent appeals 

function within the IRS.2 Although the Code does not mandate the existence of an independent 

office within the IRS to review administrative determinations, it does require an independent 

administrative review of certain determinations,3 and further requires that the Commissioner 

ensure that the duties of IRS employees are executed in a manner consistent with rights inferred 

from other Code proposals.4

Under the general authority of the Secretary of the Treasury (“Secretary”) to interpret the 

Code and that of the Commissioner to administer the Code and to employ the persons necessary 

to do so,5 the IRS includes an Office of Appeals (“Appeals”) headed by a Chief, Appeals.6 That 

office traditionally functions as the settlement arm of the IRS. In doing so, it reviews 

administrative determinations arising both from collection and examination activities, and 

attempts to resolve them without need for litigation, including by using alternative dispute 

resolution methods such as arbitration or mediation. As a result, review of administrative actions 

is generally available prior to payment of any tax underlying the controversy. Exceptions occur, 

 2

 Pub. L. No. 105-206, sec. 1001(a).

3

 See, e.g., sections 6320 (notice and opportunity for hearing upon filing of notice of lien), 6330 (notice 

and opportunity for hearing before levy), 7122 (rejection of a proposed offer-in-compromise or installment 

agreement), as well as 7123 (alternative dispute resolution procedures). 

4

 Section 7803, as amended in 2015, embraces the taxpayer rights as general principles to be included in 

the training and evaluation of all employees. 

5

 Secs. 7803(a) (The duties and powers include the power to administer, manage, conduct, direct, and 

supervise the execution and application of the internal revenue laws or related statutes and tax conventions to which 

the United States is a party, and to recommend to the President a candidate for Chief Counsel (and recommend the 

removal of the Chief Counsel)) and 7804 (The Commissioner is authorized to employ such persons as the 

Commissioner deems proper for the administration and enforcement of the internal revenue laws and is required to 

issue all necessary directions, instructions, orders, and rules applicable to such persons, including determination and 

designation of posts of duty), and 7805 (Secretary authority to interpret the Code). 

6

 According to its website, the Office of Appeals and its predecessors have existed since 1927. 

https://www.irs.gov/compliance/appeals/appeals-an-independent-organization.
3

and include cases in which inadequate time remains on the limitations period for assessment and 

collection or those in which the only arguments raised by the taxpayer are frivolous positions.7

 

Similarly, if a case has reached a point at which litigation is initiated, the availability of 

consideration by Appeals may be limited. First, authority to settle cases referred to the 

Department of Justice for defense or initiation of litigation rests solely with that Department. 

Therefore, such cases are not eligible for referral to Appeals.

8

 The terms under which a case 

pending in the United States Tax Court (“Tax Court”) may be referred to Appeals are described 

in published guidance that centralizes the decision to withhold a case from Appeals to assure 

consistent standards are applied.9 

Employees of Appeals are compensated in accordance with the rules governing Federal 

employment generally.10 

Description of Proposal

The proposal codifies the requirement of an independent administrative appeals function 

by establishing within the IRS an office to be known as the Internal Revenue Service 

Independent Office of Appeals (“Independent Appeals”) and to be headed by an official known 

as the Chief of Appeals, as described below. The purposes and duties of the office as well as the 

taxpayers’ general right to seek consideration by that office, subject to certain limitations, are 

described below. 

Chief of Appeals and staff

The proposal grants authority to the Commissioner to appoint the Chief of Appeals, who 

is to be compensated at the same rate as the highest rate of basic pay established for the Senior 

Executive Service.11 The appointment is not subject to the rules under Title 5 of the United 

States Code that govern competitive service or the Senior Executive Service. The Chief of 

Appeals reports directly to the Commissioner of the IRS. The person appointed to the position is 

required to have experience in a broad range of Federal tax law controversies and management 

of large service organizations. 

The proposal also confirms that the Chief of Appeals and her employees are to have 

access to legal assistance and advice from staff within the Office of Chief Counsel about cases 

pending at Independent Appeals. Chief Counsel is responsible for ensuring that the attorneys are 

 7

 See section 6702(c), which requires that the Secretary periodically review and list positions that have 

been identified as frivolous for purposes of the frivolous return penalty.

8

 Sec. 7122.

9

 Rev. Proc. 2016-22, 26 C.F.R. sec. 601.106. Exceptions to the general rule in favor of requiring Appeals 

consideration include cases that are withheld in the interests of sound tax administration, among other reasons.

10 Part III of Title 5 of the United States Code prescribes rules for Federal employment, including 

employment, retention, and management and employee issues. 

11 5 U.S.C. sec. 5382.
4

able to provide independent advice. In doing so, to the extent practicable, staff assigned to 

answer inquiries from Independent Appeals should not include those involved in advising the 

IRS employees working directly on the case prior to its referral to Independent Appeals or in 

preparation of the case for litigation. 

Functions of Independent Appeals

Independent Appeals is intended to continue to resolve tax controversies and review 

administrative decisions of the IRS in a fair and impartial manner, for the purposes of enhancing 

public confidence, promoting voluntary compliance, and ensuring consistent application and 

interpretation of Federal tax laws. Resolution of tax controversies in this manner is generally 

available to all taxpayers, subject to reasonable exceptions that the Secretary may provide. Thus, 

cases of a type that are referred to Appeals under present law remain eligible for referral to 

Independent Appeals. 

The proposal includes a savings clause that requires application of rules similar to those 

in RRA98 to ensure continuity of the validity of administrative and legal proceedings, including 

legal documents related to such proceedings and existing delegations of authority. 

Enhancement of taxpayer access to Independent Appeals

In making access to Appeals generally available to all taxpayers, the establishment of the 

new office clarifies the rights of taxpayers to review administrative case files and to protest 

denial of access to Appeals. 

Taxpayer access to case files

The proposal requires that the administrative case file referred to Independent Appeals be 

available to certain individual and small business taxpayers. The specified taxpayers that are 

eligible are (1) individuals with adjusted gross incomes not exceeding $400,000 and (2) entities 

with gross receipts not exceeding $5 million for the taxable year to which the dispute relates. In 

determining whether persons are within the scope of the latter category, rules similar to those 

used to determine whether persons should be treated as a single employer for purposes of cash 

method accounting are to be applied.12 Eligible taxpayers must be able to review the nonprivileged portions of materials developed by the IRS not later than 10 days prior to the 

requested conference with Independent Appeals. In providing the materials, the IRS need not 

produce for the taxpayer the documents that were initially provided to the IRS by the taxpayer. 

In addition, the taxpayer may elect to waive the 10-day period and accept access to the materials 

on the date of the scheduled conference. 

Cases not referred to Independent Appeals

In cases in which the IRS has issued a notice of deficiency to a taxpayer, the 

Commissioner must prescribe notice and protest procedures for taxpayers whose request for 

 12 The aggregation rules are found at section 448(c)(2). 
5

Independent Appeals consideration is denied. Such protest procedures will be available to 

taxpayers who have received a notice of deficiency in cases other than those involving only 

frivolous positions within the meaning of the Code.13 The procedures must include a 

requirement that the Commissioner notify a taxpayer of the denial in a written statement that 

includes a statement of the facts underlying the basis for the denial of the request together with a 

detailed explanation of the reasons for denying the request for referral to Independent Appeals. 

In addition, the written notice must advise the taxpayer of the right to protest the denial of the 

request to the Commissioner and include information about how to lodge such a protest. 

The Commissioner must provide to Congress an annual written report detailing the 

number of denials of access to Independent Appeals and the reasons for such denials.

Effective Date

The proposal is generally effective upon the date of enactment, except with regard to the 

portion of the proposal allowing taxpayer access to case files, which is effective for cases in 

which the conference occurs more than one year after the date of enactment. 

 13 Sec. 6702(c). 
6

B. Improved Service

Comprehensive customer service strategy

Present Law

The Code provides that the Commissioner has such duties and powers as prescribed by 

the Secretary.14 Unless otherwise specified by the Secretary, such duties and powers include the 

power to administer, manage, conduct, direct, and supervise the execution and application of the 

internal revenue laws or related statutes. In executing these duties, the Commissioner depends 

upon strategic plans that prioritize goals and manage its resources. In the current strategic plan, 

the delivery of high quality and timely service to reduce taxpayer burden and encourage 

compliance is identified as Goal I.15

Description of Proposal

The proposal requires the Secretary to develop a comprehensive strategy for customer 

service and to submit such plan to Congress not later than the date which is one year after the 

date of enactment. The strategy will include: (1) a plan to determine appropriate levels of online 

services, telephone call back services, and training of employees providing customer services, 

based on best practices of businesses and designed to meet reasonable customer expectations; (2) 

an assessment of all services that the IRS can co-locate with other Federal services or offer as 

self-service options; (3) proposals for long-term improvements over the next 10 fiscal years, with 

appropriate short-term goals over the current and following fiscal year and mid-term goals over 

the next three to five fiscal years; (4) a plan to update guidance and training materials, including 

the Internal Revenue Manual, for customer service employees of the IRS to reflect such strategy; 

and (5) metrics for measuring the IRS’s progress in implementing its strategy. Within two years 

after the date of enactment, the Secretary or the Secretary’s delegate is required to make public 

the updated guidance and training materials in a user friendly fashion.

Effective Date

The proposal is effective on the date of enactment. 

IRS Free File Program 

Present Law

The IRS has entered into cooperative relationships with commercial return preparation 

service providers (known as the Free File Alliance) to provide free Federal tax preparation and 

electronic filing services to eligible low-income or elderly taxpayers. Some of these providers 

also offer free State tax preparation. This arrangement is commonly known as the Free File 

Program. Taxpayers generally must select a designated service provider through the IRS’s 

 14 Sec. 7803(a).

15 See Internal Revenue Service Strategic Plan FY2018 – 2022, Publication 3744, available at 

https://www.irs.gov/pub/irs-pdf/p3744.pdf. 
7

website to access commercial online software provided by the Free File Alliance companies to 

prepare and file their tax returns. To qualify, taxpayers must have adjusted gross income (AGI) 

of $66,000 or less (for 2018 returns). Each participating company sets its own eligibility 

requirements and not all taxpayers will qualify to use the software of all companies. There is no 

fee for taxpayers using the Free File Program, and Free File Alliance companies also do not pay 

any fee to the IRS to participate in the program.

Description of Proposal

The proposal requires the Secretary, or the Secretary’s delegate, in cooperation with the 

private sector, to maintain the current IRS Free File Program that provides free individual 

income tax preparation and electronic filing services to the lowest 70 percent of taxpayers by 

adjusted gross income (“AGI”) as ranked annually by the prior year taxpayer AGI data. The 

proposal requires the IRS Free File Program to continue to make available to taxpayers at all 

income levels a basic, online electronic fillable forms utility. The proposal further requires the 

IRS Free File Program work with State government agencies to enhance and expand the use of 

the program to provide needed benefits to taxpayers while reducing the cost of processing 

returns. 

The proposal also requires the Secretary, or the Secretary’s delegate, in cooperation with 

the private sector, to identify and implement innovative new program features to improve and 

simplify the taxpayer experience with completing and filing individual tax returns. 

Effective Date

The proposal is effective on the date of enactment.

Low-income exception for payments otherwise required in connection with a submission 

of an offer-in-compromise 

Present Law

The IRS is authorized to enter into offers-in-compromise under which the taxpayer and 

Federal government agree that a tax liability may be satisfied by payment of less than the full 

amount owed.16 An offer-in-compromise may be accepted on one of three grounds: (1) doubt as 

to liability, available in cases in which the validity of the actual tax liability is in question; (2) 

doubt as to collectability based on lack of sufficient assets from which the tax, interest, and 

penalties can be paid in full; or (3) effective tax administration, applicable in a case in which 

collection in full would cause the taxpayer economic hardship such that compromise rather than 

collection would better encourage tax compliance.17 If the unpaid tax liabilities total $50,000 or 

more, an offer-in-compromise can be accepted only if a public report is filed, supported by a 

written opinion from the IRS Chief Counsel, stating the reasons for the compromise, the amounts 

 16 Sec. 7122.

17 Treas. Reg. sec. 1.7122-1(b). For this purpose, economic hardship is defined under Treas. Reg.

sec. 301.6343-1.
8

of assessed tax, penalties and interest, and the amounts actually paid pursuant to the offer-incompromise.

18

Taxpayers making a lump sum offer-in-compromise must include a nonrefundable 

payment of 20 percent of the lump sum with the initial offer (herein, “upfront partial 

payment”).19 The IRS waives this upfront partial payment when an offer is submitted by a lowincome taxpayer, defined as an individual who falls at or below 250 percent of the poverty 

guidelines published by the Department of Health and Human Services, or such other measure 

that is adopted by the Secretary (herein, “low-income taxpayer”).20 Taxpayers seeking an offerin-compromise involving periodic payments must provide a nonrefundable payment of the first 

installment that would be due if the offer were accepted.21 

In general, a taxpayer is required to provide a user fee for processing the offer-incompromise.22 However, no fee will be charged if an offer either is based solely on doubt as to 

liability or is made by a low-income taxpayer.23

Description of Proposal

The proposal codifies the current low-income taxpayer exception with respect to any user 

fee or upfront partial payment imposed with respect to any offer-in-compromise. The proposal 

makes clear that the determination of low-income is based on the individual’s adjusted gross 

income as determined for the most recent tax year for which such information is available.

Effective Date

The proposal applies to offers-in-compromise submitted after the date of enactment.

 18 Sec. 7122(b); Treas. Reg. sec. 1.7122-1(e)(6). The $50,000 threshold was raised from $500 in 1996. 

Sec. 503 of the Taxpayer Bill of Rights 2, Pub. L. No. 104-168.

19 Sec. 7122(c)(1)(A).

20 Notice 2006-68, 2006-31 I.R.B. 105, July 31, 2006.

21 Sec. 7122(c)(1)(B).

22 Treas. Reg. sec. 300.3(b). The fee for processing an offer to compromise on or after January 1, 2014, is 

$186.

23 Treas. Reg. sec. 300.3(b)(i) and (ii).
9

C. Sensible Enforcement

Internal Revenue Service seizure requirements with respect to structuring transactions 

Present Law

The Bank Secrecy Act (“BSA”) mandates a reporting and recordkeeping system that 

assists Federal law enforcement and regulatory agencies in the detection, monitoring, and tracing 

of certain monetary transactions.24 The reporting requirements are imposed on individuals, 

financial institutions, and non-financial trades and businesses that act similar to financial 

institutions.

25 The requirements include reporting currency transactions exceeding $10,000. 

To circumvent these reporting requirements, individuals sometimes structure cash 

transactions to fall below the $10,000 reporting threshold (referred to as “structuring”). In other 

words, instead of conducting a single transaction in currency in an amount that would require a 

report to be filed or record made by a financial institution, an individual conducts a series of 

currency transactions, willfully keeping each individual transaction at an amount below 

applicable thresholds to evade reporting or recording. Structuring can be used to conceal illegal 

cash-generating activities, such as the selling of narcotics, and to conceal income earned legally 

in order to evade the payment of taxes. Structuring (or attempts to structure) for the purpose of 

evading the reporting and recordkeeping requirements26 is subject to both civil and criminal 

penalties.27

Present law authorizes forfeiture of property involved in transactions or attempted 

transactions28 in violation of these rules in accordance with the procedures governing civil 

forfeitures in money laundering cases.29

The Secretary has delegated responsibility for implementing and enforcing the BSA to 

the Director, Financial Crimes Enforcement Network (“FinCEN”), who in turn re-delegated

responsibility for civil compliance with the law to various Federal agencies including the IRS.30 

 24 The Bank Secrecy Act, 31 U.S.C. secs. 5311-5332.

25 31 U.S.C. sec. 5312(a)(1).

26 31 U.S.C. sec. 5324(a); 31 U.S.C. sec 5322.

27 A person who willfully violates the law is subject to a fine of not more than $250,000, or imprisonment 

for not more than five years, or both. 31 U.S.C. sec. 5324(a); 31 U.S.C. sec. 5322. 

28 31 U.S.C. sec. 5317(c)(2).

29 See 18 U.S.C. sec. 981.

30 Treasury Order 180-01, available at https://www.treasury.gov/about/role-of-treasury/ordersdirectives/Pages/to180-01.aspx, delegating authority to FinCEN. 31 C.F.R. sec. 103.56(b)(8). At the time of the 

initial delegation, FinCEN was an entity created by regulatory action, but has since been explicitly authorized by 

statute. 31 U.S.C. sec. 310. 
10

The scope of that delegation of authority was expanded by the USA PATRIOT Act of 2001,31

and includes authority to determine and enforce civil penalties.32 The IRS administers its 

delegated authority under the BSA through the IRS Small Business/Self-Employed Division, 

with assistance from the IRS Criminal Investigation Division (“IRS-CID”). 

If a person prevails in a civil forfeiture proceeding involving seizure of currency, the 

United States is liable for reasonable attorney fees and other litigation costs reasonably incurred 

by the claimant, post-judgment interest, and interest actually paid to the United States from the 

date of seizure or arrest of the property that resulted from the investment of the property in an 

interest-bearing account or instrument as well as imputed interest for any period for which no 

interest was paid.33 

Prior to October 2014, the IRS provided partial relief in structuring transactions involving 

a first offense, a legitimate funding source, and no criminal conviction. The IRS procedures also 

required its criminal investigation division to consider additional mitigating or aggravating 

factors. On October 17, 2014, IRS-CID issued guidance on how it will conduct seizures and 

forfeitures in its structuring cases.34 Pursuant to this guidance, the IRS will not pursue seizure 

and forfeiture of funds associated only with so-called “legal source” structuring unless (1) there 

are exceptional circumstances justifying the seizure and forfeiture and (2) the case is approved 

by the Director of Field Operations.

 31 Treasury Order 180-01. For a discussion of the relationship between FinCEN and the agencies to which 

it re-delegated authority, see, Office of Inspector General, “TERRORIST FINANCING/MONEY LAUNDERING: 

Responsibility for Bank Secrecy Act Is Spread Across Many Organizations,” OIG-08-030 (April 9, 2008), available 

at https://www.treasury.gov/about/organizational-structure/ig/Documents/oig08030.pdf.

32 A penalty may be assessed before the end of the six-year period beginning on the date of the transaction 

with respect to which the penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for collection may be 

commenced within two years of the later of the date of assessment and the date a judgment becomes final in any a 

related criminal action. 31 U.S.C. sec. 5321(b)(2).

33 28 U.S.C. sec. 2465(b)(1). The imputed interest that may be paid under that section is the amount that 

such currency, instruments, or proceeds would have earned at the rate applicable to the 30-day Treasury Bill, for any 

period for which no interest was paid (not including any period when the property reasonably was in use as evidence 

in an official proceeding or in conducting scientific tests for the purpose of collecting evidence), commencing 15 

days after the property was seized by a Federal law enforcement agency, or was turned over to a Federal law 

enforcement agency by a State or local law enforcement agency.

34 Memorandum for Special Agents in Charge Criminal Investigation, October 17, 2014, available at 

http://ij.org/wp-content/uploads/2015/07/IJ068495.pdf. Written Testimony of John A. Koskinen and Richard 

Weber, House Committee on Ways and Means Subcommittee on Oversight on “Financial Transaction Structuring,” 

May 25, 2016, available at https://www.irs.gov/uac/newsroom/written-testimony-of-john-a-koskinen-and-richardweber-before-the-house-committee-on-ways-and-means-subcommittee-on-oversight-on-financial-transactionstructuring-may-25-2016; New IRS Special Procedure to Allow Property Owners to Request Return of Property, 

Funds in Specific Structuring Cases, June 16, 2016, available at https://www.irs.gov/uac/newsroom/new-irs-specialprocedure-to-allow-property-owners-to-request-return-of-property-funds-in-specific-structuring-cases; Letter to 

Chairman Roskam and Ranking Member Lewis summarizing planned actions, June 10, 2016, available at 

http://waysandmeans.house.gov/wp-content/uploads/2016/06/6.9-Roskam-Lewis-Response-Letter-andEnclosure.pdf.
11

Description of Proposal

The proposal provides that in the case of a suspected structuring violation, the IRS may 

only pursue seizure or forfeiture of assets if either the property to be seized was derived from an 

illegal source or the transactions were structured for the purpose of concealing a violation of a 

criminal law or regulation other than rules against structuring. 

The proposal establishes post-seizure notice and review procedures for IRS seizures 

based on suspected structuring violations. The IRS must, within 30 days, make a good faith 

effort to find all persons with an ownership interest in the property seized and inform him or her 

of certain post-seizure hearing rights provided under the proposal. This 30-day notice 

requirement may be extended an additional 30 days if the IRS can establish to a court probable 

cause of an imminent threat to national security or personal safety. If a notice recipient requests 

a court hearing within 30 days of the notice, the property is required to be returned unless the 

court finds that there is probable cause to believe that a structuring violation occurred involving 

such property and the property to be seized was derived from an illegal source or the funds were 

structured for the purpose of concealing the violation of a criminal law or regulation other than 

the structuring proposals of the BSA.

Effective Date

The proposal is effective on the date of enactment. 

Exclusion of interest received in action to recover property seized by the Internal 

Revenue Service based on structuring transaction 

Present Law

Nothing in the Bank Secrecy Act (“BSA”) or the administrative guidance issued by the 

IRS affects the Federal tax treatment of the interest that may be paid to a successful litigant in 

civil asset forfeiture proceedings. The Code provides no specific exclusion from gross income or 

deduction from adjusted gross income for interest received by a successful litigant pursuant to an 

action to recover property seized by the IRS pursuant to the BSA. Accordingly, the interest 

received is includable in gross income under the Code. 

Description of Proposal

The proposal amends the Code to exclude from gross income any interest received from 

the Federal Government in connection with an action to recover property seized by the IRS 

pursuant to a claimed violation of the structuring provisions of the BSA.

Effective Date

The proposal applies to interest received on or after the date of enactment.
12

Clarification of equitable relief from joint liability

Present Law

If a married couple elects to file a tax return on which they report their income jointly, 

they are generally jointly and severally liable for the entire tax liability that should have been 

reported on the joint return.35 A spouse may be entitled to relief from joint liability, in whole or 

in part, under the innocent spouse relief proposals of the Code. 

Grounds for relief from joint liability

There are three types of relief: general innocent spouse relief; relief for spouses no 

longer married or legally separated (separation of liabilities); and equitable relief. The grounds 

for relief and its scope differ among these three types of relief. In addition, the first two types of 

relief must be sought no later than two years after the date the IRS began collection activities 

against the electing spouse. For equitable relief, there is no limitations period in the statute.

General relief from joint liability with respect to an understatement of tax is available to 

all joint filers who make a timely election for such relief and are able to establish the following.36 

First, the electing spouse must establish that the underpayment is attributable to the erroneous 

items of the other spouse. Second, the electing spouse must show that at the time of signing the 

return, he or she did not know or have reason to know there was an understatement of tax. 

Finally, relief is granted only if it is inequitable to hold the electing spouse liable for the 

deficiency in tax, based on all facts and circumstances. 

Separation of liabilities relief from joint liability with respect to a deficiency is available 

to persons who are no longer married, are legally separated, or were no longer living together in 

the 12 months ending with the date innocent spouse relief is elected.37 The individual electing 

relief on this basis must establish the portion of any deficiency that is appropriately allocable to 

him or her. Special rules are provided in the Code for determining allocation of items that 

benefit one spouse more than the other, property transfers, and children’s liability. Relief 

otherwise available is not permitted with respect to items of which a spouse was aware at the 

time the return was signed and which contributed to a deficiency. 

Equitable relief from joint liability may be available to those spouses who are ineligible 

under the proposals for general relief or separation of liabilities relief.38 Such relief is granted 

only if, taking into account all facts and circumstances, it is inequitable to hold the individual 

liable for the unpaid portion of tax or for a deficiency with respect to the joint return. 

 35 Sec. 6103(d). 

36 Sec. 6015(b).

37 Sec. 6015(c).

38 Sec. 6015(f).
13

Availability and scope of judicial review

If an individual elects to have the general relief proposals or the separation of liabilities 

relief proposals apply with respect to a deficiency, the individual may petition the Tax Court to 

review unfavorable determinations by the IRS with respect to the claimed relief. The Tax Court 

has held that its authority to review such IRS determinations is under a de novo standard.39 

The claim for relief from joint liability must be filed no later than 90 days after the notice 

of final determination on relief from joint liability and no earlier than the earlier of the mailing of 

such notice of final determination or the date which is six months after electing such relief. 

During the pendency of the Tax Court proceeding, or during the period in which a petition may 

be filed, collection action is restricted. 

In contrast to the above, the extent to which a denial of a claim for equitable relief from 

joint liability is also subject to judicial review by the Tax Court, the scope of that review, and the 

standard for any review have been the subject of conflicting appellate decisions. An abuse of 

discretion standard based on court review of the administrative record was held to be the correct 

standard in some instances,40 but other courts have permitted review of information beyond the 

administrative record while applying an abuse of discretion standard.41 Still others have applied 

a de novo standard to both the scope of the review and the standard of review.42

Description of Proposal

Under the proposal, Tax Court review of innocent spouse equitable relief cases is not 

limited to the administrative record, but it may consider evidence that is newly discovered or was 

previously unavailable. The proposal also clarifies that the Tax Court has jurisdiction to review 

a denial of equitable claims for relief from joint liability, and is not limited to a review for abuse 

of discretion by the IRS. 

The proposal allows taxpayers to request equitable relief with respect to any unpaid 

liability before the expiration of the collection period or, if paid, before the expiration of the 

applicable limitations period for claiming a refund or credit.

 39 Sec. 6015(e)(1). 

40 Jonson v. Commissioner, 118 T.C. 106, 125 (2002), aff’d on other grounds, 353 F.3d 1181 (10th Cir. 

2003); Mitchell v. Commissioner, 292 F.3d 800, 807 (D.C. Cir. 2002); Cheshire v. Commissioner, 282 F.3d 326, 

337-38 (5th Cir. 2002). 

41 Commissioner v. Neal, 557 F.3d 1262 (11th Cir. 2009).

42 Wilson v. Commissioner, 705 F.3d 980 (9th Cir. 2013); Porter v. Commissioner, 132 T.C. 203, 132 T.C. 

No. 11 (2009). 
14

Effective Date

The proposal applies to petitions or requests filed or pending on or after the date of 

enactment.

Modification of procedures for issuance of third-party summons 

Present Law

The IRS has broad statutory authority to require production of information in the course 

of an examination.43 A request for information in the form of an administrative summons is 

enforceable if the IRS establishes its good faith, as evidenced by the four factors enunciated by 

the Supreme Court in United States v. Powell.

44 The Powell factors require that the 

information is sought for a legitimate law enforcement purpose, is of a type that will shed light 

on the subject of the examination, is not already in the possession of the IRS, and that the IRS 

has complied with all applicable statutory requirements such as service of process. Subsequent 

to United States v. Powell, the legitimacy of using an administrative summons in furtherance of 

an investigation into criminal violations was validated in United States v. LaSalle National 

Bank,

45 in which the Supreme Court determined that the dual civil and criminal purpose was 

legitimate, so long as there had not yet been a commitment to refer the case for prosecution. 

The use of this summons authority to obtain information from third-parties is subject to 

greater procedural safeguards,46 but otherwise the same good faith elements are analyzed to 

determine whether the summons should be enforced.47 When the existence of a possibly noncompliant taxpayer is known but not his identity, as in the case of holders of offshore bank 

accounts or investors in particular abusive transactions, the IRS is able to issue a summons 

(referred to as a “John Doe” summons) to learn the identity of the taxpayer, but must first meet 

significantly greater statutory requirements to guard against fishing expeditions. 

An effort to learn the identity of unnamed John Does requires that the United States 

seek judicial review in an ex parte proceeding prior to issuance of the John Doe summons. In its 

application and supporting documents,48 the United States must establish that the information 

sought pertains to an ascertainable group of persons, that there is a reasonable basis to believe 

that taxes have been avoided, and that the information is not otherwise available.49 The 

 43 Sec. 7602.

44 United States v. Powell, 379 U.S. 48 (1964).

45 437 U.S. 298 (1978); codified in section 7609(c).

46 Sec. 7609.

47 Tiffany Fine Arts, Inc. v. United States, 479 U.S. 310 (1985).

48 Sec. 7609(h)(2) provides that the determination will be made ex parte, solely on the pleadings. 

49 Sec. 7609(f).
15

reviewing court does not determine whether the John Doe summons will ultimately be 

enforceable. Once a court has determined that the predicate for issuance of a summons is met, 

the summons is served, and the summoned party served may challenge enforcement of the 

summons, based on the Powell factors. It is not entitled to judicial review of the ex parte ruling 

that permitted issuance of the summons.50 Nevertheless, enforcement of a John Doe summons is 

likely to be subject to time-consuming challenges, possibly warranting an extension of the 

limitations period. 

Description of Proposal

The proposal prevents the Secretary from issuing a John Doe summons unless the 

information sought to be obtained is narrowly tailored and pertains to the failure (or potential 

failure) of the person or group or class of persons referred to in the statute to comply with one or 

more provisions of the Code which have been identified. The proposal is not intended to change 

the Powell standard or otherwise affect the IRS’s burden of proof.

Effective Date

The proposal applies to summonses served after the date that is 45 days after the date of 

enactment.

Private debt collection and special compliance personnel program

Present Law

Qualified tax collection contracts

The Code permits the IRS to use private debt collection companies to locate and contact 

taxpayers owing outstanding tax liabilities of any type51 and to arrange payment of those taxes 

by the taxpayers.52 For this purpose, the Secretary enters into qualified tax collection contracts 

for the collection of inactive tax receivables. Under these contracts, if the taxpayer cannot pay in 

full immediately, the private debt collection company offers the taxpayer an installment 

agreement providing for full payment of the taxes over a period of as long as five years. 

Inactive tax receivables are defined as any tax receivable (i) removed from the active 

inventory for lack of resources or inability to locate the taxpayer, (ii) for which more than 1/3 of 

the applicable limitations period has lapsed and no IRS employee has been assigned to collect 

the receivable; and (iii) for which, a receivable has been assigned for collection but more than 

365 days have passed without interaction with the taxpayer or a third party for purposes of 

 50 United States v. Samuels, Kramer & Co., and First Western Government Securities, Inc., 712 F.2d 1342 

(9th Cir. 1983), which affirmed a lower court determination that the issuance of the John Doe summons was not 

subject to review, but reversed and remanded to permit a limited evidentiary hearing on whether the Powell standard 

was met. 

51 This provision generally applies to any type of tax imposed under the Internal Revenue Code. 

52 Sec. 6306.
16

furthering the collection. Tax receivables are defined as any outstanding assessment which the 

IRS includes in potentially collectible inventory.

Certain tax receivables are not eligible for collection under qualified tax collection 

contracts, specifically a contract that: (i) is subject to a pending or active offer-in-compromise or 

installment agreement; (ii) is classified as an innocent spouse case; (iii) involves a taxpayer 

identified by the Secretary as being (a) deceased, (b) under the age of 18, (c) in a designated 

combat zone, or (d) a victim of tax-related identity theft; (iv) is currently under examination, 

litigation, criminal investigation, or levy; or (v) is currently subject to a proper exercise of a right 

of appeal. 

Special compliance personnel program

An amount not greater than 25 percent of the amount collected under any qualified tax 

collection contract is to be used to fund a special compliance personnel program. The Secretary 

is required to establish an account for the hiring, training, and employment of special compliance 

personnel. No other source of funding for the program is permitted, and funds deposited in the 

special account are restricted to use for the program, including reimbursement of the IRS and 

other agencies for the cost of administering the qualified debt collection program and all costs 

associated with employment of special compliance personnel and the retraining and 

reassignment of other personnel as special compliance personnel. Special compliance personnel 

are individuals employed by the IRS to serve either as revenue officers performing field 

collection functions, or as persons operating the automated collection system.

Description of Proposal

The proposal makes certain additional tax receivables of individual taxpayers ineligible 

for collection under qualified tax collection contracts. Such receivables involve a taxpayer (1) 

substantially all of whose income consists of disability insurance benefits under section 233 of 

the Social Security Act (referred to as Social Security Disability Insurance or SSDI) or 

supplemental security income benefits under title XVI of the Social Security Act (referred to as 

Supplemental Security Income or SSI) or (2) whose adjusted gross income, as determined for the 

most recent taxable year for which information is available, does not exceed 200 percent of the 

applicable poverty level (as determined by the Secretary).

The proposal also modifies the definition of inactive tax receivable by replacing the 

condition that more than 1/3 of the applicable limitations period has lapsed with the requirement 

that “more than two years has passed since assessment.” The proposal retains the requirement 

that no IRS employee has been assigned to collect the receivable. 

The proposal also modifies the definition of a qualified tax collection contract to allow 

the private debt collection company to offer the taxpayer an installment agreement providing for 

full payment of the taxes over a period of as long as seven years, replacing the current law period 

of five years. 

The proposal clarifies that the IRS may use funds from the special compliance personnel 

program account for various program costs, including the costs of hiring any personnel, 
17

communications, software, technology, and reimbursement of the IRS or other government 

agencies for the cost of administering the qualified tax collection program.

Effective Date

The proposal to make certain tax receivables of individual taxpayers ineligible for 

collection under qualified tax collection contracts and the proposal to modify the definition of 

inactive tax receivables applies to tax receivables identified by the Secretary (or the Secretary’s 

delegate) after December 31, 2020.

The proposal to modify the definition of a qualified tax collection contract applies to 

contracts entered into after the date of enactment.

The proposal relating to the use of the special compliance personnel program account 

applies to amounts expended from the account after the date of enactment.

Reform of notice of contact of third parties

Present Law

The IRS may not contact any person other than the taxpayer with respect to the 

determination or collection of the tax liability of the taxpayer without providing reasonable 

notice in advance to the taxpayer that the IRS may contact persons other than the taxpayer. The 

IRS is required to provide periodically to the taxpayer a record of persons contacted during the 

prior period by the IRS with respect to the determination or collection of that taxpayer’s tax 

liability. This record is also required to be provided upon request of the taxpayer. This notice 

requirement does not apply to criminal tax matters, if the collection of the tax liability is in 

jeopardy, if the Secretary determines for good cause shown that disclosure may involve reprisal 

against any person, or if the taxpayer authorized the contact.

Description of Proposal

The proposal replaces the requirement that the IRS provide reasonable notice in advance 

to the taxpayer with a requirement that the taxpayer be provided, at least 45 days before the 

beginning of the period of contact, notice that contacts with persons other than the taxpayer are 

intended. The period of contact may not be greater than one year. However, notices are 

permitted to be issued to the same taxpayer with respect to the same tax liability with periods 

specified that, in the aggregate, exceed one year. The proposal requires the notice to be provided 

only if there is a present intent at the time such notice is given for the IRS to make such contacts. 

This intent can be met on the basis of the assumption that the information sought to be obtained 

will not be obtained by other means before such contact.

Effective Date

The proposal applies to notices provided, and contacts made, after the date which is 45 

days after the date of enactment.
18

Modification of authority to issue designated summons 

Present Law

During an audit, the IRS may informally request that the taxpayer provide additional 

information necessary to arrive at a fair and accurate audit adjustment, if any adjustment is 

warranted. Not all taxpayers cooperate with such requests, whether by failing to respond or by 

providing inadequate or incomplete responses. In such cases, if the necessary information 

cannot be developed from other witnesses or sources, the IRS seeks information by issuing an 

administrative summons.53 If the taxpayer does not cooperate with the request in the summons, 

the IRS may refer the summons to the Department of Justice to seek and obtain an order for 

enforcement in Federal court. If the summons in question was issued to a third-party rather than 

the taxpayer, the taxpayer may petition the court to quash an administrative summons.

54 

In United States v. Powell, 55 the U.S. Supreme Court articulated four basic elements 

necessary to establish that the government issued a summons in good faith: (1) the investigation 

must be conducted for a legitimate purpose; (2) the information sought is relevant to and “may 

shed light on” that legitimate purpose; (3) the requested information is not already in the 

possession of the IRS; and (4) the IRS complied with all statutorily required administrative 

steps. All petitions to enforce an administrative summons must include allegations and 

supporting declarations to establish that the good faith standards are met.56 Although the good 

faith standards established in United States v. Powell apply to all administrative summonses, 

they are not the sole source of limitations on the IRS’ ability to compel production of 

information during an examination.57 

Neither service of an administrative summons nor government-initiated action for judicial 

enforcement is sufficient to suspend the limitations period.58 As a result, in the case of an 

examination of complicated issues of a large corporation, involving voluminous records, 

 53 Sec. 7602.

54 Sec. 7609.

55 United States v. Powell, 379 U.S. 48, at pp. 57-58, (1964).

56 Department of Justice, Tax Division, Summons Enforcement Manual, (updated through July 2011), 

available at https://www.justice.gov/sites/default/files/tax/legacy/2011/08/31/SumEnfMan_July2011.pdf.

57 See, e.g., secs. 7602 (summonses in furtherance of a criminal investigation may be issued, provided that 

the IRS has not referred the investigation to the Department of Justice for prosecution of the taxpayer whose tax 

liability is the subject of the summons), 7609 (summons issued to a third-party record-keeper), 7611 (examinations 

of churches), 7612 (summons for computer software). Summonses to obtain information responsive to a request for 

exchange of information under a tax treaty present special enforcement issues, both procedural and substantive as 

well. Mazurek v. United States, 271 F.3d 226 (5th Cir. 2001). 

58 In the case of third-party summonses, the limitations period is suspended if a taxpayer named in the 

summons initiates a proceeding to quash the summons, or if compliance with the summons remains unresolved as of 

the date which is six months after service of the summons.
19

numerous witness interviews, and possible expert reports, the general three-year period for 

assessment may be inadequate to allow for completion of an examination.59 In such cases, the 

limitations period is often but not always extended by agreement of the parties. An 

uncooperative taxpayer could force a premature conclusion to an audit by delaying responses and 

allowing the statute to expire. To guard against such situations in cases in which the IRS 

requires additional information and time to complete its work,60 the Code authorizes issuance of 

a designated summons that triggers suspension of the limitations period if judicial enforcement 

proceedings are initiated. 

A designated summons is an administrative summons that is issued to a large corporation 

(or person to whom the corporation has transferred the requested books and records) with respect 

to one or more taxable periods currently under examination in the Coordinated Industry Case 

program and meets three conditions. First, it must be reviewed and approved by the Division 

Commissioner and Division Counsel of the relevant IRS operating division or organization with 

jurisdiction over the return. Second, it must be issued at least 60 days before the expiration of 

the assessment limitations period (as extended). Finally, it must clearly state that it is a 

“designated summons.”61 No more than one designated summons may be issued with respect to 

a return under examination. 

If a designated summons is issued, and the taxpayer complies without any judicial 

enforcement proceeding, no suspension of the limitations period occurs. If the government 

initiates enforcement proceedings, the limitations period is suspended for the judicial 

enforcement period of that summons and any related summonses, i.e., summonses relating to the 

same return and issued within 30 days after the issuance of the designated summons. If the court 

proceeding results in an order to comply with the summons, the limitations period is also 

suspended for a period of 120 days from the first day after the close of the judicial enforcement 

period. In addition, the limitations period expires no earlier than 60 days after the close of the 

judicial enforcement period, if the court does not order compliance with the summons. 

 59 Sec. 6501(income taxes are generally required to be assessed within three years after a taxpayer’s return 

is filed, whether or not it was timely filed); sec. 6501(c)(there are several circumstances under which the general 

three-year limitations period does not begin to run, including failure to file a return or filing a false or fraudulent 

return with the intent to evade tax, extensions by agreement of the taxpayer and IRS, substantial omissions of 

income, or failure to disclose or report a listed transaction as required under section 6011 on any return or statement 

for a taxable year); sec. 6503 (there are also circumstances under which the three-year limitations period is 

suspended, including the issuance of a designated summons).

60 In describing the proposal when it was first enacted, the Conference report for the Omnibus 

Reconciliation Act of 1990 explained, “This proposal is designed to preserve the ability of the IRS to conclude the 

audit and assess any taxes that may be due regardless of the length of time that it might take to obtain judicial 

resolution of the summons enforcement lawsuit.” H. Rept. 101-964, p. 1073. Omnibus Budget Reconciliation Act 

of 1990, Conf. Rept. to Accompany H.R. 5835.

61 Section 6503(j) refers to the regional officials and the Coordinated Examination Program or their 

successors. The Division Counsel and Commissioner of the relevant office with jurisdiction over the return have 

been identified in regulation as the appropriate successor officials. Treas. Reg. sec. 301.6503(j)-1. In addition, the 

Coordinated Industry Case program is the successor to the Coordinated Examination Program. 
20

Since enactment of the designated summons proposal in 1990, few such summonses have 

been issued.

62 The IRS is now required to submit annual reports to Congress on the number of 

designated summonses issued each year.63 Since 1995, three have been issued, most recently in 

2014.64 

Description of Proposal

Under the proposal, issuance of a designated summons must be preceded by review and 

written approval of the summons by the head of the relevant operating division and the Chief 

Counsel, who may delegate the authority to approve the summons, but not below the level of the 

person in the Office of Chief Counsel who is the counterpart to the head of the operating 

division. The written approval must state facts establishing that the IRS had previously made 

reasonable requests for the information and must be attached to the summons. In subsequent 

judicial proceedings concerning the enforceability of the summons, the IRS must establish that 

the prior reasonable requests for information were made. 

Effective Date

The proposal applies to summonses issued after the date that is 45 days after the date of 

enactment.

Limitation on access of non-Internal Revenue Service employees to returns and return 

information

Present Law

Returns and return information

General rule of confidentiality

As a general rule, returns and return information are confidential and cannot be disclosed 

unless authorized by the Code.

65 The definition of return information is very broad and 

generally includes any information received or collected by the IRS with respect to liability 

 62 The earliest designated summons, involving a request to require testimony from an officer of Chevron 

Corporation, was enforced. United States v. Derr, 968, F 2d 943 (Cir. 9th 1992). See also United States v. Norwest, 

116 F.3d 1227 (8th Cir. 1997) (court enforced IRS request to produce tax preparation software licensed to Norwest) 

and United States v. Caltex Petroleum, 12 F. Supp. 2d 545 (N.D. Tex. 1998) (denied IRS request to produce the 

software code used to calculate foreign tax credits).

63 Sec. 1002(b) Taxpayers Bill of Rights Act 2, Pub. L. 104-168 (1996). 

64 United States v. Microsoft, Case No. C15-00102-RSM (W.D. Wash. May 5, 2017) (in ruling on validity 

of privileges, the Court ordered further document production in compliance with the designated summons and 

related summonses, pursuant to the earlier opinion enforcing the designated summons, at United States v. Microsoft, 

154 F. Supp. 3d 1134(W.D. Wash. 2015)). 

65 Sec. 6103(a).
21

under the Code of any person for any tax, penalty, interest or offense. The term “return 

information” includes, among other items: 

a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, 

deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, 

deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is 

being, or will be examined or subject to other investigation or processing, or any other 

data, received by, recorded by, prepared by, furnished to, or collected by the Secretary 

with respect to a return or with respect to the determination of the existence, or possible 

existence, of liability (or the amount thereof) of any person under this title for any tax, 

penalty, interest, fine, forfeiture, or other imposition, or offense . . .. 66

Disclosure exception for tax administration contracts (section 6103(n))

There are several exceptions to the general rule of confidentiality. One exception permits 

the disclosure of returns and return information in connection with written contracts or 

agreements for the acquisition of property or services for tax administration purposes (“tax 

administration contractor”).67 

Summons authority

In general

For the purposes of ascertaining the correctness of any return, making a return when none 

has been made, determining the liability of any person for any internal revenue tax, and certain 

other purposes, the Secretary is authorized to examine any books, records, or other data which 

may be relevant or material to such inquiry, and to take such testimony of the person concerned, 

under oath, as may be relevant or material to such inquiry. The Secretary also is authorized to 

issue summonses to appear before the Secretary at the time and place named in the summons to 

produce books, records and other data and to give testimony, under oath, as may be relevant or 

material to such inquiry. 

Summons interview regulations

Under the Treasury regulations, a person authorized to receive returns and return 

information as a tax administration contractor may receive and examine books, papers, records, 

or other data produced to comply with the summons, and, in the presence and under the guidance 

of an IRS officer or employee, participate fully in the interview of a witness summoned by the 

IRS to provide testimony under oath.68

 66 Sec. 6103(b)(2)(A).

67 Sec. 6103(n).

68 Treas. Reg. sec. 301.7602-1(b)(3).
22

Proposed Treasury regulations would narrow this authority by excluding non-government 

attorneys from receiving summoned books, papers, records, or other data, or from participating 

in the interview of a witness summoned by the IRS to provide testimony under oath.69 An 

exception to this general exclusion is provided with respect to non-government attorneys hired 

for their expertise in an area other than Federal tax law. The proposed regulations would allow 

the IRS to hire an attorney who has specialized knowledge of foreign, state, or local law,

including tax law, or in non-tax substantive law, such as patent law, property law, or 

environmental law. It would not permit the IRS to hire an attorney for non-substantive 

specialized knowledge, such as civil litigation skills. These changes are proposed to be effective 

for examinations begun and summonses served by the IRS on or after March 27, 2018.

Description of Proposal

The proposal provides that the Secretary shall not, under the authority of section 6103(n) 

(relating to tax administration contracts), provide to a tax administration contractor any books, 

papers, records or other data obtained by summons, except when such person requires such 

information for the sole purpose of providing expert evaluation and assistance to the IRS 

(including, for example, access to such information by translators). Further, no person other than 

an officer or employee of the IRS or Office of Chief Counsel may on behalf of the Secretary 

question a witness under oath whose testimony was obtained by summons. The proposal is not 

intended to restrict the Office of Chief Counsel’s ability to use court reporters, translators or 

interpreters, photocopy services, and other similar ancillary contractors.

Effective Date

The proposal is generally effective on the date of enactment and applies to any tax 

administration contracts under section 6103(n) in effect on the date of enactment.

 69 Prop. Treas. Reg. sec. 301.7602-1(b)(3), 83 Fed. Reg. 13206 (March 28, 2018).
23

D. Organizational Modernization

Office of the National Taxpayer Advocate 

Present Law

In general

The Office of the Taxpayer Advocate (“OTA”) is expected to represent taxpayer interests 

independently in disputes with the IRS. The National Taxpayer Advocate (“NTA”) supervises 

the OTA. The NTA reports directly to the Commissioner and is entitled to compensation at the 

same rate as the highest rate of basic pay established for the Senior Executive Service under 

section 5382 of Title 5 of the United States Code, or if the Secretary so determines, at a rate 

fixed under section 9503 of such title. 

The OTA has four principal functions:

1. to assist taxpayers in resolving problems with the IRS;

2. to identify areas in which taxpayers have problems in dealing with the IRS;

3. to propose changes in the administrative practices of the IRS to mitigate problems 

identified in (2); and 

4. to identify potential legislative changes that may be appropriate to mitigate such 

problems.

Taxpayer Assistance Orders

A taxpayer can request a Taxpayer Assistance Order (“TAO”) if the taxpayer is suffering 

or about to suffer a “significant hardship” as a result of the manner in which the internal revenue 

laws are being administered by the IRS.70 A TAO may require the IRS within a specified time 

period, to release property of the taxpayer that has been levied upon, or to cease any action, take 

any action as permitted by law, or refrain from taking any action with respect to the taxpayer

under specified proposals.

71 

 70 Sec. 7811(a)(1)(A). Significant hardship is deemed to occur if one of four factors exists: (1) there is an 

immediate threat of adverse action; (2) there has been a delay of more than 30 days in resolving the taxpayer’s 

problems; (3) the taxpayer will have to pay significant costs (including fees for professional services) if relief is not 

granted; or (4) the taxpayer will suffer irreparable injury, or a long term adverse impact if relief is not granted.

Sec. 7811(a)(2). The NTA may also issue a TAO if the taxpayer meets requirements to be set forth in regulations. 

Sec. 7811(a)(1)(B).

71 Sec. 7811(b). A TAO or action taken by the NTA applies to persons performing services under a 

qualified tax collection contract to the same extent and to the same manner as such order applies to the IRS.
24

The Commissioner, or the Deputy Commissioner may rescind a TAO issued by the NTA, 

only if a written explanation of the reasons for the modification or rescission is provided to the 

NTA.72

Taxpayer Assistance Directives

While a TAO is specific to a particular taxpayer, a Taxpayer Assistance Directive 

(“TAD”) is systemic, intended to address groups of taxpayers. Delegation Order 13-3 authorizes 

the NTA to issue TADs to mandate administrative or procedural changes to improve the 

operation of a functional process or to grant relief to groups of taxpayers (or all taxpayers) when 

implementation will protect the rights of taxpayers, prevent undue burden, ensure equitable 

treatment or provide an essential service to taxpayers.73 The authority to modify or rescind a 

TAD is delegated to Deputy Commissioner for Operations Support, Deputy Commissioner for 

Services and Enforcement, and to the NTA.

Annual Reports

The NTA is required to submit two reports annually to the House Committee on Ways 

and Means and to the Senate Finance Committee.74 One report, due June 30 of each year, covers 

the OTA’s objectives for the fiscal year beginning in that calendar year. Besides statistical 

information, the report must contain a full and substantive analysis of the objectives.

The other report, due December 31 of each year, concerns the activities of the OTA. The 

content of this report is set by statute.75 Generally, the report must cover initiatives taken to 

improve taxpayer services and problems encountered, as well as the actions taken to resolve 

them and the results. Specifically, the report must cover the 20 most serious problems 

experienced by taxpayers. The report also must identify the 10 most litigated issues for each 

category of taxpayer and the areas of the tax law that impose significant compliance burdens on 

taxpayers or the IRS. Recommendations received from individuals with the authority to issue 

TAOs, and any TAO not promptly honored by the IRS, must also be included in the report. The 

report must also set forth recommendations for administrative and legislative action to resolve 

problems encountered by taxpayers.

The NTA, is required by statute to submit the reports directly to the Congressional 

committees without prior review of the Commissioner, the Secretary, or any officer or employee 

of the Treasury, the Oversight Board, or the Office of Management and Budget (“OMB”).

76

 72 Sec. 7811(c). The NTA also may modify or rescind a TAO issued by the NTA.

73 Delegation Order 13-3, Internal Revenue Manual 1.2.50.4 (January 17, 2001).

74 Sec. 7803(c)(2)(B).

75 Sec.7803(c)(2)(B)(ii)(I) through (XI).

76 Sec. 7803(c)(2)(B)(iii).
25

Description of Proposal

Taxpayer Advocate Directives

In the case of any TAD issued by the NTA pursuant to a delegation of authority from the 

Commissioner, the Commissioner or Deputy Commissioner shall modify, rescind or ensure 

compliance with such directive not later than 90 days after issuance of such directive. If the 

TAD is modified or rescinded by a Deputy Commissioner, the NTA may (not later than 90 days 

after such modification or rescission) appeal to the Commissioner and the Commissioner must 

(not later than 90 days after such appeal is made) either (1) ensure compliance with such 

directive as issued by the NTA, or (2) provide the NTA with the reasons for any modification or 

rescission made or upheld by the Commissioner pursuant to such appeal. 

The NTA’s annual report is to identify any TAD that is not honored by the IRS in a 

timely manner. 

Annual Reports to Congress

The proposal modifies requirements of the annual report on NTA activities to require a 

summary of the 10 most serious problems encountered by taxpayers. Before beginning any 

research or study, the NTA is required to coordinate with the U.S. Treasury Inspector General for 

Tax Administration (“TIGTA”) to ensure that the NTA does not duplicate any action that TIGTA 

has already undertaken or has a detailed plan to undertake. The proposal requires the IRS provide 

the NTA, upon request and to the extent practicable, with statistical support in connection with 

the preparation of the annual report on NTA activities. Such support is to include statistical 

studies, compilations and the review of information provided by the NTA for statistical validity 

and sound statistical methodology. With respect to any statistical information included in such 

report, the report is to include a statement of whether such statistical information was reviewed 

or provided by the IRS, and if so whether the IRS determined such information to be statistically 

valid and based on sound statistical methodology. The IRS review and provision of statistical 

support does not violate the requirement that the report be submitted directly without prior 

review or comment from any officer or employee of the Department of the Treasury or specified 

other persons.

Salary of the National Taxpayer Advocate

The proposal eliminates the provision relating to the determination of the NTA’s salary 

under 5 U.S.C. sec. 9503. As under present law, the NTA is entitled to compensation at the same 

rate as the highest rate of basic pay established for the Senior Executive Service under section 

5382 of Title 5 of the United States Code.

Effective Date

The proposal is generally effective on the date of enactment. The proposal as it relates to 

the salary of the NTA applies to appointments to the position of the NTA made after March 31, 

2019.
26

Modernization of Internal Revenue Service organizational structure 

Present Law

RRA98 directed the Commissioner to restructure the IRS by eliminating or substantially 

modifying the three-tier geographic structure (national, regional, and district) in place at the time 

and replacing it with an organizational structure that features operating units serving particular 

groups of taxpayers with similar needs.77

Description of Proposal

The Secretary (or the Secretary’s delegate) is required to submit to Congress by 

September 30, 2020, a comprehensive written plan to redesign the organization of the IRS. The 

comprehensive plan will (1) ensure the successful implementation of the priorities specified by 

Congress in this bill; (2) prioritize taxpayer services to ensure that all taxpayers easily and 

readily receive the assistance they need; (3) streamline the structure of the agency including 

minimizing the duplication of services and responsibilities; (4) best position the IRS to combat 

cybersecurity and other threats to the IRS; and (5) address whether the Criminal Division of the 

IRS should report directly to the Commissioner. 

Beginning one year after the date on which a comprehensive plan to modify the 

organization of the IRS is submitted to Congress, the proposal removes the RRA98 requirement 

of an organizational structure that features operating units serving particular groups of taxpayers 

with similar needs. 

Effective Date

The proposal is effective on the date of enactment.

 77 Pub. L. No. 105-206, sec. 1001(a).
27

E. Other Provisions

Return preparation programs for applicable taxpayers

Present Law

The Code provides that the Secretary may allocate up to $6 million per year for matching 

grants to certain qualified low-income taxpayer clinics.78 Eligible clinics are those that charge 

no more than a nominal fee to either represent low-income taxpayers in controversies with the 

IRS or provide tax information to individuals for whom English is a second language. No clinic 

can receive more than $100,000 per year.

A qualified low-income taxpayer clinic includes (1) a clinical program at an accredited 

law, business, or accounting school, in which students represent low-income taxpayers, or (2) an 

organization exempt from tax under Code section 501(c) that either represents low-income 

taxpayers or provides referral to qualified representatives. A clinic is treated as representing 

low-income taxpayers if (i) at least 90 percent of the taxpayers represented by the clinic have 

income that does not exceed 250 percent of the poverty level, as determined in accordance with 

criteria established by the Director of the OMB,

79 and (ii) the amount in controversy for any 

taxable year is $50,000 or less.80

While the Code does not provide funding for matching grants, funding for such grants 

was provided by the Consolidated Appropriations Act, 2019.

81 Congress appropriated 

approximately $2.492 billion to the IRS for taxpayer services, of which not less than $18 million 

is to be made available for a Community Volunteer Income Tax Assistance (“VITA”) matching 

grants program for tax return preparation assistance. VITA is a program created by the IRS in 

1969 that utilizes volunteers to provide tax return preparation and filing service assistance to 

certain low-income taxpayers and members of underserved populations.

Description of Proposal

The proposal codifies the VITA program and provides that the Secretary, unless

otherwise provided by specific appropriation, may allocate from otherwise appropriated funds up 

to $30 million per year in matching grants to qualified entities for the development, expansion, 

or continuation of qualified tax return preparation programs assisting applicable taxpayers and 

members of underserved populations. The Secretary is authorized to award a multi-year grant 

not to exceed three years.

 78 Sec. 7526.

79 For a family of four, the 2019 income limit in the 48 contiguous states, Puerto Rico, and the District of 

Columbia is $64,375, available at https://www.irs.gov/advocate/low-income-taxpayer-clinics/low-income-taxpayerclinic-income-eligibility-guidelines.

80 Sec. 7463.

81 Pub. L. No. 116-6, Div. D, Title I (February 15, 2019). 
28

The grant funds may be used for ordinary and necessary operation costs (including for 

wages or salaries of persons coordinating the activities of the program, to develop training 

materials, conduct training, and perform quality reviews of the returns for which assistance has 

been provided under the program, for equipment purchases, and for vehicle-related expenses 

associated with remote or rural tax preparation services), outreach and educational activities 

relating to the eligibility and availability of income supports available through the Code, and 

services related to financial education and capability, asset development, and the establishment 

of savings accounts in connection with tax return preparation.

Matching funds are required to be provided on a dollar-for-dollar basis for all grants 

provided. Matching funds may include: (1) the salary (including fringe benefits) of individuals 

performing services for the program; (2) the cost of equipment used in the program; and (3) other 

ordinary and necessary costs that may be associated with the program. Indirect expenses, 

including general overhead of any entity administering the program, are not counted as matching 

funds.

In awarding grants, priority is given to applications that (1) demonstrate assistance to 

certain applicable taxpayers with an emphasis on outreach, (2) demonstrate taxpayer outreach 

and education around available income supports available through the Code, and (3) demonstrate 

specific outreach and focus on one or more underserved populations. 

The proposal requires the Secretary to establish procedures for periodic site visits not less 

than once every five calendar years (i) to ensure the program is carrying out the stated purpose 

and (ii) to determine whether the VITA grant program meets certain program adherence 

standards as the Secretary will require. If any qualified return preparation program is awarded a 

grant and is subsequently determined not to meet the adherence standards or not to be carrying 

out the stated purposes, such program will not be eligible for additional grants unless the 

program provides sufficient documentation of corrective measures established to address any 

deficiencies determined.

Qualified return preparation program means any program (1) that provides assistance to 

individuals, at least 90 percent of whom are applicable taxpayers, in preparing and filing Federal 

income tax returns, (2) that is administered by a qualified entity, (3) in which all volunteers who 

assist in the preparation of Federal income tax returns meet the training requirements prescribed 

by the Secretary, and (4) that uses a quality review process which reviews 100 percent of all 

returns. Qualified entity means any entity that (1) is an eligible organization (as defined), (2) is 

in compliance with Federal tax filing and payment requirements, (3) is not debarred or 

suspended from Federal contracts, grants, or cooperative agreements, and (4) agrees to provide 

documentation to substantiate any matching funds provided under the VITA grant program. 

Eligible organization means (1) an institution of higher education described in section 102 (other 

than subsection (a)(1)(C) thereof) of the Higher Education Act of 1965, as in effect on the date of 

enactment, and that has not been disqualified from participating in a program under Title IV of 

such Act, (2) an exempt organization described in Code section 501(c), (3) a local government 

agency, including a county or municipal government agency, and an Indian tribe, as defined in 

section 4(13) of the Native American Housing Assistance and Self-Determination Act of 1996 

(“Act”), including any tribally designated housing entity (as defined in such Act), tribal 

subsidiary, subdivision, or other wholly owned tribal entity, or (4) a local, State, regional, or 
29

national coalition (with one lead organization that meets the eligibility requirements described 

above acting as the applicant organization). If no eligible organization is available to assist the 

targeted population or community, the eligible organization includes a State government agency

and a Cooperative Extension Service office. 

Applicable taxpayer means a taxpayer who has income for the taxable year that does not 

exceed an amount equal to the completed phaseout amount under section 32(b) for a married 

couple filing a joint return with three or more qualifying children, as determined in a revenue 

procedure or other published guidance.82 Underserved population includes populations of 

persons with disabilities, persons with limited English proficiency, Native Americans, 

individuals living in rural areas, members of the Armed Forces and their spouses, and the elderly.

The proposal allows the IRS to use mass communications and other means to promote the 

benefits and encourage the use of the program. The Secretary can provide taxpayers information 

regarding qualified return preparation programs receiving grants and those programs are 

encouraged to advise taxpayers of the availability of, and eligibility requirements for receiving, 

advice and assistance from local or regional low-income taxpayer clinics. The programs are also 

encouraged to provide taxpayers information regarding the location and contact information for 

the low-income taxpayer clinics.

Effective Date

The proposal is effective on the date of enactment. 

Provision of information regarding low-income taxpayer clinics

Present Law

The Code provides that the Secretary is authorized to provide up to $6 million per year in 

matching grants to certain qualified low-income taxpayer clinics.83 Eligible clinics are those that 

charge no more than a nominal fee to either represent low-income taxpayers in controversies 

with the IRS or provide tax information to individuals for whom English is a second language. 

No clinic can receive more than $100,000 per year. 

A qualified low-income taxpayer clinic includes (1) a clinical program at an accredited 

law, business, or accounting school, in which students represent low-income taxpayers, or (2) an 

organization exempt from tax under Code section 501(c) that either represents low-income 

taxpayers or provides referral to qualified representatives. A low-income taxpayer is an 

individual whose income does not exceed 250 percent of the poverty level, as determined in 

accordance with criteria established by the Director of the OMB.

 82 For 2019, the amount is $55,952. Rev. Proc. 2018-57, 2018- 49, I.R.B. 827, 832, December 3, 2018.

83 Sec. 7526.
30

The Department of the Treasury prohibits its officers and employees from referring 

taxpayers to qualified low-income taxpayer clinics for advice and assistance.84

Description of Proposal

The proposal allows officers and employees of the Department of the Treasury to advise 

taxpayers of the availability of, and eligibility requirements for receiving, advice and assistance 

from qualified low-income taxpayer clinics that receive funding under the Code, and to provide 

location and contact information for such clinics.

Effective Date

The proposal is effective on the date of enactment.

Notice from IRS regarding closure of taxpayer assistance centers

Present Law

The IRS operates taxpayer assistance centers (“TAC”) around the country to provide 

face-to-face assistance with preparing tax returns and understanding tax laws.

The IRS is not currently required to publish information or give notice to Congress before 

closing a TAC. 

Description of Proposal

The proposal requires the IRS to publish (including by non-electronic means such as 

local press and other media), 90 days in advance, a notice containing information identifying the 

TAC proposed for closure, the date of the proposed closure, and the relevant alternative sources 

of assistance that may be utilized by affected taxpayers. The proposal also requires the IRS to 

provide, 90 days in advance, a report to Congress containing the information in the notice, the 

reasons for a proposed closure of the TAC, and other information as the Secretary may find 

appropriate.

Effective Date

The proposal is effective on the date of enactment.

Rules for seizure and sale of perishable goods restricted to only perishable goods

Present Law

Under the Code, if it is determined that any tangible property seized to satisfy unpaid 

taxes (1) is liable to perish, (2) is liable to become greatly reduced in price or value by keeping, 

or (3) cannot be kept without great expense, the property may be sold after it has been appraised 

 84 5 C.F.R. sec. 3101.106(a).
31

and the owner has been given an opportunity to pay the appraised value or furnish bond for 

payment.85 The general procedures governing the sale of seized property that are set forth in the 

Code (e.g., requiring 10-day notice before sale and the determination of a minimum bid) are not 

applicable to sales of perishables.86 Instead, the streamlined procedures referred to above apply 

to the sale of perishable goods.87

Description of Proposal

The proposal limits the property that may be sold pursuant to the streamlined procedures 

to property that is liable to perish. 

Effective Date

The proposal applies to property seized after the date of enactment.

Whistleblower reforms

Present Law

In general

Under section 7623, individuals who submit information leading to detection of 

underpayment of tax or to detection, trial, and punishment of persons guilty of violating internal 

revenue laws, may file a claim for an award of 15 to 30 percent of recovered funds resulting 

from such action. 

Disclosure rules for whistleblowers

Section 6103 provides a general rule of confidentiality for returns and return information: 

“returns and return information shall be confidential and except as authorized by this Title . . . 

[none of the specified recipients] shall disclose any return or return information obtained by him 

. . .”88 One of the exceptions to the general rule of confidentiality permits the IRS to make 

investigative disclosures of return information to third parties. The disclosures, subject to the 

conditions provided in regulations, are to be made to the extent necessary to obtain information, 

which is not otherwise reasonably available, with respect to the correct determination of tax, 

liability for tax, the amount to be collected, or with respect to the enforcement of any proposal of 

 85 Sec. 6336.

86 Sec. 6335.

87 Sec. 6336; Treas. Reg. sec. 301.6336-1.

88 Sec. 6103(a).
32

Title 26.89 The third party recipient of the return information furnished during an investigative 

disclosure is not subject to the general rule of confidentiality provided by section 6103.

There is no provision of section 6103 to provide whistleblowers with status updates 

regarding what the IRS has done with the information provided by the whistleblower. Such 

status information would be the return information of the taxpayer being audited/investigated for 

additional tax liability.

A taxpayer can file or sue for civil damages for the unauthorized disclosure and/or 

inspection of returns and return information.90 In addition, criminal penalties apply for the 

willful unauthorized disclosure or inspection of returns and return information.91

Protection against retaliation

Though other statutes such as the False Claims Act92 currently protect some individuals 

from employer retaliation, those who file claims under the Code are not explicitly afforded these 

same protections.

Description of Proposal

This proposal amends section 6103 to: (1) allow the IRS to exchange information with 

whistleblowers to the extent disclosure is necessary in obtaining information, which is not 

otherwise reasonably available, with respect to the correct determination of tax liability or the 

amount to be collected with respect to the enforcement of any other proposal of the Code; and 

(2) require the Secretary to notify the whistleblower as to the status of their case not later than 60 

days after: (i) the case has been referred for an audit or examination; and (ii) the taxpayer makes 

a payment of tax with respect to the tax liability to which the information provided by the 

whistleblower relates. Subject to such requirements and conditions prescribed by the Secretary, 

upon written request by the whistleblower and so long as the disclosure would not seriously 

impair Federal tax administration, the Secretary is to provide information on the status and stage 

of any investigation, and in the case of a determination of the amount of any award, the reasons 

for such determination. To ensure taxpayer information is protected, whistleblowers receiving 

information under this provision are subject to the general rule of confidentiality and criminal 

penalties for unauthorized disclosure of taxpayer information.

The proposal adds to section 7623, anti-retaliation whistleblower protections for 

employees. A person who alleges discharge or other reprisal by any person in violation of these 

protections may file a complaint with the Secretary of Labor (within 180 days after the date on 

which the violation occurs), and if the Secretary of Labor has not issued a final decision on such 

complaint within 180 days (and the delay is not due to the bad faith of the claimant), an action 

 89 Treas. Reg. sec. 301.6103(k)(6)-1.

90 Sec. 7431.

91 Secs. 7213 and 7213A.

92 31 U.S.C. sec. 3730(h)(2).
33

may be brought in the appropriate district court. The remedies provided are consistent with those 

currently available under the False Claims Act, including compensatory damages of 

reinstatement, 200 percent of back pay and all lost benefits, with interest, and compensation for 

other special damages including litigation costs, expert witness fees, and reasonable attorney 

fees. 

Effective Date

The modifications made to the disclosure rules apply to disclosures made after the date of 

enactment. The protections from retaliation are effective on the date of enactment. 

Customer service information 

Present Law

The Code provides that the Commissioner has such duties and powers as prescribed by 

the Secretary.93 Unless otherwise specified by the Secretary, such duties and powers include the 

power to administer, manage, conduct, direct, and supervise the execution and application of the 

internal revenue laws or related statutes. In executing these duties, the Commissioner depends 

upon strategic plans that prioritize goals and manage IRS resources. In the current strategic plan, 

empowering and enabling all taxpayers to meet their tax obligations is identified as one of six 

strategic goals.94

Description of Proposal

The proposal requires the IRS to provide the following information over the telephone, 

while taxpayers are on hold with the IRS call center: information about common tax scams, 

direction to the taxpayer on where and how to report such activity, and tips on how to protect 

against identity theft and tax scams. 

Effective Date

The proposal is effective on the date of enactment.

Misdirected tax refund deposits

Present Law

The Internal Revenue Manual (“IRM”) defines an erroneous refund as the receipt of any 

money from the IRS to which the recipient is not entitled. The IRM provides procedures for IRS 

 93 Sec. 7803(a).

94 See Internal Revenue Service Strategic Plan FY2018 – 2022, Publication 3744, available at 

https://www.irs.gov/pub/irs-pdf/p3744.pdf. 
34

employees to identify and recover such erroneous refunds.95 In addition, the IRS website 

provides information to taxpayers who wish to return an erroneous refund that was issued to 

them, either by paper check or direct deposit.96

The Code provides that any tax refunds which are erroneously made may be recovered by 

civil action brought in the name of the United States.97 Recovery of an erroneous refund by civil 

action is allowed if the action is begun within two years after the refund is made, or five years if 

it appears that any part of the refund was induced by fraud or misrepresentation.98

Description of Proposal

The proposal requires the Secretary to prescribe regulations within six months of the date 

of enactment of this Act to establish procedures to allow taxpayers to report instances in which a 

refund made by the Secretary by electronic funds transfer was not transferred to the account of 

the taxpayer, to coordinate with financial institutions to identify and recover these payments, and 

to deliver refunds to the correct accounts of taxpayers.

Effective Date

The proposal is effective on the date of enactment.

 95 Internal Revenue Service, Internal Revenue Manual, Erroneous Refunds, Ch. 21.4, sec. 21.4.5.2 

(October 9, 2015).

96 Internal Revenue Service, Topic Number 161- Returning an Erroneous Refund- Paper Check or Direct 

Deposit, last updated January 28, 2019, available at https://www.irs.gov/taxtopics/tc161.

97 Sec. 7405.

98 Sec. 6532(b).
35

TITLE II ─ 21ST CENTURY IRS

A. Cybersecurity and Identity Protection

Public-private partnership to address identity theft tax refund fraud 

Present Law

The Security Summit, formed in 2015, is a partnership of the IRS, State tax agencies, and 

the private-sector tax industry to address tax refund fraud caused by identity theft. In 2016, the 

Security Summit group members identified and agreed to share more than 20 data components 

relating to Federal and State returns to improve fraud detection and prevention. For example, 

group members are sharing computer device identification data tied to the return’s origin, as well 

as the improper or repetitive use of the numbers that identify the internet address from where the 

return originates.99 Tax software providers agreed to enhance identity requirements and 

strengthen validation procedures for new and returning customers to protect their accounts from 

theft. Along with the IRS, 40 State departments of revenue, and 21 tax industry members have 

signed onto a Memorandum of Understanding regarding roles, responsibilities and information 

sharing pathways among the IRS, States and industry.100 In 2017, the IRS reported there was a 

40 percent decline in the number of taxpayers reporting to the IRS that they are victims of 

identity theft, attributing the decline to the initiatives of the Security Summit.101

Description of Proposal

The proposal requires the Secretary (or the Secretary’s delegate) to work collaboratively 

with the public and private sectors to protect taxpayers from identity theft tax refund fraud.

Effective Date

The proposal is effective on the date of enactment.

Recommendations of Electronic Tax Administration Advisory Committee regarding 

identity theft refund fraud 

Present Law

RRA98 authorized the Electronic Tax Administration Advisory Committee (“ETAAC”). 

ETAAC was intended to provide input to the IRS on electronic tax administration. ETAAC’s 

responsibilities involve researching, analyzing, and making recommendations on a variety of 

 99 Internal Revenue Service, 2016 Security Summit: Protecting Taxpayers from Identity Theft Tax Refund 

Fraud (June 2016) at p. 3. https://www.irs.gov/pub/newsroom/6_2016_security_summit_report.pdf. 

100 Ibid.

101 Internal Revenue Service, IR- 2018-21, Key IRS Identity Theft Indicators Continue Dramatic Decline in 

2017; Security Summit Marks 2017 Progress Against Identity Theft (February 8, 2018).
36

electronic tax administration issues. Pursuant to RRA98, ETAAC reports to Congress annually 

concerning:

• IRS progress on reaching its goal to electronically receive 80 percent of tax and 

information returns;

• Legislative changes assisting the IRS in meeting the 80 percent goal;

• Status of the IRS strategic plan for electronic tax administration; and

• Effects of e-filing tax and information returns on small businesses and the selfemployed. 

ETAAC members come from State departments of revenue, large tax preparation 

companies, solo tax practitioners, tax software companies, financial services industry and low 

income and consumer advocacy groups.102

Description of Proposal

In addition to the requirements under present law, the proposal requires ETAAC to study 

(including through organized public forums) and make recommendations to the Secretary 

regarding methods to prevent identity theft and refund fraud.

Effective Date

The proposal is effective on the date of enactment.

Information sharing and analysis center 

Present Law

Information Sharing and Analysis Center

The Security Summit, formed in 2015, is a partnership of the IRS, State tax agencies, and 

the private-sector tax industry to address tax refund fraud caused by identity theft. In 2016, the 

Security Summit created an Identity Theft Tax Refund Fraud Information Sharing and Analysis 

Center (“ISAC”).103 The ISAC is a secure, web-based venue for States, industry and the IRS to 

share and exchange information. The ISAC enables the IRS and the States to work together with 

external third parties to serve as an early warning system for tax refund fraud, identity theft 

schemes, and cybersecurity issues. A third-party contractor hosts, maintains, and facilitates the 

web-based leads reporting and information sharing process for the ISAC. 

 102 Electronic Tax Administration Advisory Committee, Publication 3415, Annual Report to Congress

(June 2018) at Appendix B. https://www.irs.gov/pub/irs-pdf/p3415.pdf. 

103 Internal Revenue Service, 2016 Security Summit: Protecting Taxpayers from Identity Theft Tax Refund 

Fraud (June 2016) https://www.irs.gov/pub/newsroom/6_2016_security_summit_report.pdf.sec. 
37

Confidentiality and disclosure of return information

As a general rule, returns and return information are confidential and cannot be disclosed 

unless authorized by the Code.104 The definition of return information is very broad and 

generally includes any information received or collected by the IRS with respect to liability 

under the Code of any person for any tax, penalty, interest or offense. The term “return 

information” includes, among other items: 

a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, 

deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, 

deficiencies, overassessments, or tax payments, whether the taxpayer’s return was, is 

being, or will be examined or subject to other investigation or processing, or any other 

data, received by, recorded by, prepared by, furnished to, or collected by the 

Secretary with respect to a return or with respect to the determination of the 

existence, or possible existence, of liability (or the amount thereof) of any person 

under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or 

offense . . . (emphasis added)105

There are several exceptions to the general rule of confidentiality. Such exceptions 

include proposals to permit disclosures to State tax administration officials, for IRS employees 

and officers to make investigative disclosures, and rules to allow one authorized party to disclose 

to another authorized party with the permission of the Commissioner.106

The IRS exchanges confidential information with State tax agencies under the authority 

of section 6103(d). The disclosures are made pursuant to written request from the head of the 

State tax agency, which designates the State tax officials who can receive the information. The 

information can only be used for State tax purposes, not for general State civil or criminal law 

enforcement. The State officials can redisclose the information to other officers and employees 

of the State tax agency, the agency’s legal representative, or the agency’s contractors (but only 

for State tax administration purposes). The IRS uses this authority to alert State tax 

administration officials to tax refund fraud schemes.

IRS officers and employees may disclose return information to the extent that such 

disclosure is necessary in obtaining information, which is not otherwise reasonably available, 

with respect to the correct determination of tax, liability for tax, or the amount to be collected, or 

with respect to the enforcement of any other proposal of Title 26. Such disclosures are to be 

made only in such situations and under such conditions as the Secretary may prescribe by 

 104 Sec. 6103(a).

105 Sec. 6103(b)(2)(A).

106 Sec. 6103(d) (disclosures to States), 6103(k)(6)(investigative disclosures) and the Treasury regulations 

under sec. 6103(p)(2)(B).
38

regulation.107 This proposal generally cannot be used to provide confidential return information 

on an industry-wide basis to alert return preparers to potential fraud schemes.

Under the Treasury regulations, returns or return information that have been obtained by 

a Federal, State, or local agency, or its agents or contractors, in accordance with section 6103 

(the first recipient) may be disclosed by the first recipient to another recipient authorized to 

receive such returns or return information under section 6103 (the second recipient).108 The 

disclosure must be approved by the Commissioner. The second recipient may receive only such 

returns or return information as authorized by the proposal of section 6103 applicable to such 

recipient and only for a purpose authorized by and subject to any conditions imposed by section 

6103, including applicable safeguards.

Preparer disclosure penalties

The Code provides for a civil penalty for a tax return preparer who (i) discloses any 

information furnished to the preparer for, or in connection with, the preparation of such return or 

(ii) uses such information for any purpose other than to prepare or assist in preparing any such 

return.109 There is a corresponding criminal penalty under section 7216 of the Code for knowing 

or reckless conduct. The same exceptions from the imposition of the criminal penalty apply for 

purposes of the civil penalty. In general, the penalty does not apply for disclosures permitted by 

the Code or pursuant to an order of a court. Further, the penalty does not apply to the use of 

information in the preparation of, or in connection with the preparation of State and local tax 

returns and declarations of estimated tax of the person to whom the information relates. The 

Code also permits the Secretary to provide additional exceptions through regulations. The 

Secretary has prescribed by regulation the circumstances not involving tax preparation in which 

disclosure and use of a taxpayer’s information by a tax return preparer is permitted.110

Penalties for the unauthorized disclosure or inspection of return information

The unauthorized disclosure of a return or return information is a felony punishable by 

fine of up to $5,000, five years imprisonment or both. Unauthorized inspection is a 

misdemeanor, punishable by a fine of up to $1,000, one year imprisonment, or both.

Description of Proposal

ISAC participation and performance metrics

The proposal provides that the Secretary (or the Secretary’s delegate) may participate in 

an information sharing and analysis center. The purpose of such participation is to centralize, 

standardize and enhance data compilation and analysis to facilitate sharing actionable data and 

 107 Sec. 6103(k)(6); Treas. Reg. sec. 301.6103(k)(6)-1.

108 Treas. Reg. sec. 301.6103(p)(2)(B)-1.

109 Sec. 6713.

110 Treas. Reg. secs. 301.7216-1, 301.7216-2 and 301.7216-3.
39

information with respect to identity theft tax refund fraud. The proposal requires the Secretary 

(or the Secretary’s delegate) to develop metrics for measuring the success of such center in 

detecting and preventing identity theft tax refund fraud.

Disclosure of return information to certain ISAC participants

In general

The proposal authorizes the disclosure of specified return information to ISAC 

participants who have entered into a written information sharing agreement with the Secretary. 

Under such procedures and subject to such conditions as the Secretary may prescribe, the 

Secretary may disclose specified return information to specified ISAC participants if such 

disclosure is in furtherance of effective Federal tax administration relating to the following: (1) 

the detection or prevention of identity theft tax refund fraud; (2) validation of taxpayer identity; 

(3) authentication of taxpayer returns; or (4) the detection or prevention of cybersecurity threats 

to the IRS.

Terminology

Specified ISAC participant

The term “specified ISAC participant” means any person designated by the Secretary as 

having primary responsibility for a function performed by the ISAC and any return preparer (or 

other person) subject to section 7216 and who is a participant in the ISAC. A person is only a 

specified ISAC participant if such person has entered into a written information sharing 

agreement with the Secretary. The information sharing agreement must set forth the terms and 

conditions for the disclosure of information to such person, including the requirements imposed 

on such person for the protection and safeguarding of such information. The information sharing 

agreement must require that recipients of return information under the proposal are required to 

affirmatively report to TIGTA any unauthorized access or disclosure of information and any 

breaches of any system holding the information. 

Specified return information

For purposes of the proposal, the term “specified return information” means, in the case 

of a return filed electronically, which is in connection with a case of potential identity theft tax 

refund fraud, return information related to the electronic filing characteristics of such return. 

Such characteristics include: internet protocol address, device identification, email domain 

name, speed of completion, method of authentication, refund method, and such other return 

information relating to the electronic filing characteristics of such return as the Secretary may 

identify. In addition, with respect to a return prepared by a tax return preparer in connection 

with a case of potential identity theft refund fraud, “specified return information” also includes 

identifying information with respect to such tax return preparer, including the preparer taxpayer 

identification number (“PTIN”) and electronic filer identification number (“EFIN”) of such 

preparer.

With respect to a return for which identity theft refund fraud has been confirmed by the 

Secretary (pursuant to such procedures as the Secretary may provide), “specified return 
40

information” also includes the name and taxpayer identification number of the taxpayer as it 

appears on the return, and any bank account and routing information provided for making a 

refund in connection with such return.

Finally, in the case of any cybersecurity threat to the IRS, information similar to that 

associated with cases of potential identity theft refund fraud (e.g., electronic characteristics and 

preparer identifying information) are considered specified return information with respect to 

such threat.

Restriction on use of disclosed information

Any return information received by a specified ISAC participant under the proposal is to 

be used only for the purposes of and to the extent necessary in (1) performing the function the 

person is designated to perform with respect to the ISAC, (2) facilitating authorized disclosures 

to return preparers who are specified ISAC participants, and (3) facilitating disclosures 

authorized under section 6103(d) to State tax authorities who are participants in the ISAC. 

Return information received by specified ISAC participants who are return preparers is treated 

for purposes of section 7216 as information furnished to such person for, or in connection with, 

the preparation of a return of tax. 

Data protection, safeguards, penalties

As noted above, to be a specified ISAC participant, the person must enter into an 

information sharing agreement that includes, among other responsibilities, requirements for the 

protection and safeguarding of information received under the proposal. The return information 

disclosed under the proposal is subject to such protections and safeguards as the Secretary may 

require by regulations, other guidance, or written information sharing agreement. Recipients of 

return information under the proposal are subject to civil and criminal penalties for the 

unauthorized disclosure or inspection of returns or return information. 

Effective Date

The proposal is generally effective on the date of enactment. The disclosure proposals 

are effective for disclosures made on or after the date of enactment.

Compliance by contractors with confidentiality safeguards 

Present Law

Section 6103 permits the disclosure of returns and return information to State agencies, as 

well as to other Federal agencies for specified purposes. Section 6103(p)(4) requires, as a 

condition of receiving returns and return information, that State agencies (and others) provide 

safeguards as prescribed by the Secretary of the Treasury by regulation that are necessary or 

appropriate to protect the confidentiality of returns or return information.111 It also requires that 

 111 Sec. 6103(p)(4)(D).
41

a report be furnished to the Secretary at such time and containing such information as prescribed 

by the Secretary regarding the procedures established and utilized for ensuring the confidentiality 

of returns and return information.112 After an administrative review, the Secretary may take such 

actions as are necessary to ensure these requirements are met, including the refusal to disclose 

returns and return information.113

Under present law, employees of a State tax agency may disclose returns and return 

information to contractors for tax administration purposes.114 These disclosures can be made 

only to the extent necessary to procure contractually equipment, other property, or services, 

related to tax administration.115

The contractors can make redisclosures of returns and return information to their 

employees as necessary to accomplish the tax administration purposes of the contract, but only to 

contractor personnel whose duties require disclosure.116 Treasury regulations prohibit 

redisclosure to anyone other than contractor personnel without the written approval of the IRS.117

By regulation, all contracts must provide that the contractor will comply with all 

applicable restrictions and conditions for protecting confidentiality prescribed by regulation, 

published rules or procedures, or written communication to the contractor.118 Failure to comply 

with such restrictions or conditions may cause the IRS to terminate or suspend the duties under 

the contract or the disclosures of returns and return information to the contractor.119 In addition, 

the IRS can suspend disclosures to the State tax agency until the IRS determines that the 

 112 Sec. 6103(p)(4)(E).

113 Sec. 6103(p)(4) (flush language) and (7); Treas. Reg. sec. 301.6103(p)(7)-1.

114 Sec. 6103(n) and Treas. Reg. sec. 301.6103(n)-1(a). “Tax administration” includes “the administration, 

management, conduct, direction, and supervision of the execution and application of internal revenue laws or related 

statutes (or equivalent laws and statutes of a State)...” Sec. 6103(b)(4).

115 Treas. Reg. sec. 301.6013(n)-1(a). Such services include the processing, storage, transmission or 

reproduction of such returns or return information, the programming, maintenance, repair, or testing of equipment or 

other property, or the providing of other services for purposes of tax administration.

116 Treas. Reg. sec. 301.6103(n)-1(a) and (b). A disclosure is necessary if such procurement or the 

performance of such services cannot otherwise be reasonably, properly, or economically accomplished without such 

disclosure. Treas. Reg. sec. 301.6103(n)-1(b). The regulations limit the quantity of information to that needed to 

perform the contract.

117 Treas. Reg. sec. 301.6103(n)-1(a).

118 Treas. Reg. sec. 301.6103(n)-1(e)(3).

119 Treas. Reg. sec. 301.6103(n)-1(e)(4).
42

conditions are or will be satisfied.120 The IRS may take such other actions as are deemed 

necessary to ensure that such conditions or requirements are or will be satisfied.121

Description of Proposal

The proposal requires that a State, local, or Federal agency conduct on-site reviews every 

three years of all of its contractors or other agents receiving Federal returns and return 

information. If the duration of the contract or agreement is less than three years, a review is 

required at the mid-point of the contract. The purpose of the review is to assess the contractor’s 

efforts to safeguard Federal returns and return information. This review is intended to cover 

secure storage, restricting access, computer security, and other safeguards deemed appropriate by 

the Secretary. Under the proposal, the State, local, or Federal agency is required to submit a 

report of its findings to the IRS and certify annually that such contractors and other agents are in 

compliance with the requirements to safeguard the confidentiality of Federal returns and return

information. The certification is required to include the name and address of each contractor or 

other agent with the agency, the duration of the contract, and a description of the contract or 

agreement with the State, local, or Federal agency.

The proposal does not apply to contracts for purposes of Federal tax administration.

The proposal does not alter or affect in any way the right of the IRS to conduct safeguard 

reviews of State, local, or Federal agency contractors or other agents. It also does not affect the 

right of the IRS to initially approve the safeguard language in the contract or agreement and the 

safeguards in place prior to any disclosures made in connection with such contracts or 

agreements.

Effective Date

The proposal is effective for disclosures made after December 31, 2022. 

Report on electronic payments 

Present Law

The Secretary is not currently required by Congress to examine expansion of electronic 

fund transfers.

Description of Proposal

Not later than two years after the date of the enactment, the Secretary, or the Secretary’s 

delegate, in coordination with the Bureau of Fiscal Service and the IRS, and in consultation with 

private sector financial institutions, is required to submit a written report to Congress describing 

how the IRS can utilize new payment platforms to increase the number of tax refunds paid by 

 120 Treas. Reg. sec. 301.6103(n)-1(e)(4).

121 Ibid.
43

electronic funds transfer. The report is required to consider the interests of reducing identity 

theft tax refund fraud, reducing the IRS’s costs in delivering tax refunds, the costs and any 

associated fees charged to taxpayers (including monthly and point-of-service fees) to access their 

tax refunds, the impact on individuals who do not have access to financial accounts or 

institutions, and ensuring payments are made to accounts that comply with the Bank Secrecy 

Act122 and the USA PATRIOT Act of 2001.123 The report is required to include legislative 

recommendations necessary to accomplish these goals.

Effective Date

The proposal is effective on the date of enactment. 

Identity protection personal identification numbers

Present Law

In 2011, the IRS launched a pilot program to test the Identity Protection Personal 

Identification Number (“IP PIN”). The IP PIN is a unique six-digit identifier that authenticates a 

return filer as the legitimate taxpayer at the time the return is filed. The IP PIN allows taxpayers 

affected by identity theft to avoid delays in filing returns and receiving refunds. The IRS verifies 

the presence of the IP PIN at the time of filing, and rejects returns associated with a taxpayer’s 

account where an IP PIN has been assigned but is missing. For the 2018 filing season, the IRS 

issued IP PINs to almost 3.5 million taxpayers who had identity theft markers on their tax 

accounts.124

In January 2014, the IRS also started a limited pilot program under which taxpayers who 

obtained an electronic filing PIN through an IRS authentication website and live in the District of 

Columbia, Florida, or Georgia were provided an opportunity to obtain an IP PIN.125 These 

locations were selected because they had the highest per capita rate of tax-related identity theft 

when the initiative was piloted. Residents in these places do not need to be identity theft victims 

to participate. Recently, the IRS expanded the program to allow taxpayer who filed their federal 

tax return last year as a resident of Michigan, California, Maryland, Nevada, Delaware, Illinois, 

or Rhode Island to be eligible for an IP PIN.

 122 31 U.S.C. secs. 5311-5332.

123 Pub. L. No. 107-56. 

124 Inspector General for Tax Administration, Department of the Treasury, Results of the 2018 Filing 

Season (TIGTA 2019-40-013), December 19, 2018, available at 

https://www.treasury.gov/tigta/auditreports/2019reports/201940013fr.pdf.

125 Internal Revenue Service, FAQs about the Identity Protection Personal Identification Number (IP PIN), 

available at https://www.irs.gov/identity-theft-fraud-scams/frequently-asked-questions-about-the-identityprotection-personal-identification-number-ip-pin#q2.
44

Description of Proposal

Within five years of the date of enactment, the Secretary or the Secretary’s delegate is 

required to establish a program to issue an IP PIN to any individual residing in the United States

who requests one to assist the Secretary in verifying the individual’s true identity. For each 

calendar year beginning after the date of enactment, the Secretary is required to expand the 

issuance of IP PINs to individuals residing in such States as the Secretary deems appropriate, 

provided that the total number of States served by the program continues to increase. 

Effective Date

The proposal is effective on the date of enactment.

Single point of contact for tax-related identity theft victims

Present Law

Tax-related identity theft generally takes one of two forms: refund fraud or employment 

fraud. In refund fraud, a perpetrator may obtain a taxpayer’s identifying information, submit an 

individual income tax return using a falsified Form W-2, Wage and Tax Statement, and 

fraudulently claim a refund. In employment fraud, the stolen identifying information is used in 

order to obtain employment. The returns then filed using the stolen identity may be based on the 

actual wages and withholding of the identity thief. Victims of the employment fraud include the 

individuals whose identifying information was stolen as well as the businesses whose systems 

may have been breached to obtain that personal information. 

The IRS describes its procedures for addressing both types of fraud in the Internal 

Revenue Manual.126 The IRS initially established the Identity Protection Specialized Unit 

(“IPSU”) to assist victims of identity theft, but taxpayers were also referred to other operating 

units of the IRS to deal with various aspects of their cases.127 Subsequently reorganized and 

renamed the Identity Theft Victim Assistance (“IDTVA”) organization, the unit is staffed with 

specially trained employees who are able to assess each case, identify issues, and assist the 

taxpayer in getting the correct return filed, refunds issued, etc.128 The IDTVA organization’s 

work is coordinated by the IRS’s Identity Protection Program through the auspices of an 

oversight office within the Wage and Investment Operating Division.129

 126 Internal Revenue Service, Internal Revenue Manual, Identity Protection and Victim Assistance, Ch. 23, 

sec. 25.23.1 et seq. (October 2018).

127 Inspector General for Tax Administration, Department of the Treasury, Most Taxpayers Whose 

Identities Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer Service (TIGTA 2012-40-

050), May 2012. 

128 A description of the services provided by the IDTVA organization is available at 

https://www.irs.gov/uac/Newsroom/IRS-Identity-Theft-Victim-Assistance-How-It-Works. 

129 Internal Revenue Service, Internal Revenue Manual, Identity Protection and Victim Assistance, Ch. 23, 

sec. 25.23.1 et seq. (October 2018).
45

If a victim thinks he or she is not being properly served by the IRS or the IDTVA 

organization, the victim may be eligible for assistance from the Taxpayer Advocate Service 

(“TAS”). In such instances, the TAS will assign a case advocate to the taxpayer’s account.

Description of Proposal

The proposal requires the Secretary to establish procedures to implement a single point of 

contact for taxpayers adversely affected by identity theft. The single point of contact consists of 

a team of specially trained employees who can work across functions within the IRS to resolve 

problems for the victim and who are accountable for handling the case to completion. The 

makeup of the team may change as required to meet IRS needs, but the procedures must ensure 

continuity of records and case history and may require notice to the taxpayer in appropriate 

instances. 

Effective Date

The proposal is effective on the date of enactment.

Notification of suspected identity theft 

Present Law

Section 6103 provides that returns and return information are confidential and may not be 

disclosed by the IRS, other Federal employees, State employees, and certain others having access 

to the information except as provided in the Code.130 The definition of “return information” is 

very broad and includes any information gathered by the IRS with respect to a person’s liability 

or possible liability under the Code for any tax, penalty, interest, fine, forfeiture, or other 

imposition or offense.131 Thus, information gathered by the IRS in connection with an 

investigation of a person for a Title 26 offense, such as fraud, is the return information of the 

person being investigated and is subject to the confidentiality restrictions of section 6103. 

As an exception to section 6103’s general rule of confidentiality, the Code permits a 

taxpayer to receive his or her own tax return, and also can receive his or her return information if 

the Secretary determines that such disclosure would not seriously impair Federal tax 

administration.132 With respect to fraudulent tax returns, if the victim’s name and Social 

Security number (“SSN”) are listed as either the primary or secondary taxpayer on a fraudulent 

return, a victim of identity theft, or a person authorized to obtain the identity theft victim’s tax 

information, may request a redacted copy (one with some information blacked-out) of a 

 130 Sec. 6103(a). 

131 Sec. 6103(b)(2). 

132 Sec. 6103(e)(1) and (7). The Code also permits the disclosure of returns and return information to such 

persons or persons the taxpayer may designate, if the request meets the requirements of the Treasury regulations and 

if it is determined that such disclosure would not seriously impair Federal tax administration. Sec. 6103(c).
46

fraudulent return that was filed and accepted by the IRS using the identity theft victim’s name 

and SSN.133

In cases not involving violations of Title 26, under a Privacy Act Notice, TIGTA is 

allowed to disclose information to complainants, victims, or their representatives (defined to be a 

complainant’s or victim’s legal counsel or a Senator or Representative whose assistance the 

complainant or victim has solicited) concerning the status and/or results of an investigation or 

case arising from the matters of which they complained and/or of which they were a victim, 

including, once the investigative subject has exhausted all reasonable appeals, any action taken. 

Information concerning the status of the investigation or case is limited strictly to whether the 

investigation or case is open or closed. Information concerning the results of the investigation or 

case is limited strictly to whether the allegations made in the complaint were substantiated or 

were not substantiated and, if the subject has exhausted all reasonable appeals, any action 

taken.134

Description of Proposal

If the Secretary determines that there has been or may have been an unauthorized use of

the identity of any individual, the proposal requires the Secretary to, without jeopardizing an 

investigation relating to tax administration, as soon as practicable, notify the individual of such 

determination, and: (1) provide instructions to the individual about filing a report with law 

enforcement; (2) identify any steps to be taken by the individual to allow investigating law 

enforcement officials to access the taxpayer’s personal information; (3) provide information 

regarding actions the individual may take to protect themselves from harm relating to the 

unauthorized use; and (4) offer identity protection measures to the individual, such as the use of 

an identity protection personal identification number. 

At the time this information is provided (or, if not available at such time, as soon as 

practicable thereafter), the Secretary shall issue additional notifications to such individual (or 

such individual’s designee) regarding: (1) whether an investigation has been initiated in regards 

to such unauthorized use; (2) whether the investigation substantiated an unauthorized use of the 

taxpayer’s identity; and (3) whether any action has been taken with respect to the individual who 

committed the substantiated violation, including whether any referral has been made for criminal 

prosecution of such individual, and, to the extent such information is available, whether such 

person has been criminally charged by indictment or information. 

For purposes of this proposal, the unauthorized use of the identity of an individual includes the 

unauthorized use of the identity of the individual to obtain employment (herein “employmentrelated identity theft”). In making a determination as to whether there may have been an 

unauthorized use of the identity of an individual to obtain employment, the Secretary shall review 

certain information returns, as well as information provided to the IRS by the SSA, which indicates 

that the SSN used does not correspond with either the name on the information return or the name on 

 133 See, Internal Revenue Service, Instructions for Requesting Copy of Fraudulent Returns (March 18, 

2019), available at https://www.irs.gov/individuals/instructions-for-requesting-copy-of-fraudulent-returns. 

134 See 75 Fed. Reg. 20715 (April 20, 2010) (relating to TIGTA Office of Investigation files).
47

the tax return reporting the income. This proposal requires the Secretary to examine the 

statements, information returns, and tax returns described in the proposal for any evidence of 

employment-related identity theft, regardless of whether such statements or returns are submitted 

electronically or on paper. The proposal amends the Social Security Act to require the 

Commissioner of Social Security to request information described in the proposal not less than 

annually. The proposal also requires that the IRS establish procedures to ensure that income 

reported in connection with the unauthorized use of a taxpayer’s identity is not taken into 

account in determining any penalty for underreporting of income by the victim of identity theft.

Effective Date

The proposal applies to determinations made after the date that is 6 months after the date 

of enactment.

Guidelines for stolen identity theft refund fraud cases 

Present Law

Disparate elements in the tax laws and administration are implicated in identity theft. 

The tax aspects of identity theft can generally occur in one of two ways. In refund fraud, a 

perpetrator obtains someone else’s identifying information and submits an individual income tax 

return using the name and Social Security number of the victim, with a falsified Form W-2, 

Wage and Tax Statement, and fraudulently claims a refund. In other cases, the stolen identifying 

information is used in order to obtain employment; the returns then filed by the persons 

employed using the stolen identity may be based on the actual wages and withholding. Victims 

of the fraud include the individuals whose identifying information was stolen as well as the 

businesses whose systems may have been breached to obtain that personal information. 

The IRS describes its procedures for addressing both types of fraud in its manual. Its 

work is coordinated by the IRS’s Identity Protection Program through the auspices of an 

oversight office.135 

In the 2014 Annual Report to Congress, the NTA included a review of fraudulent refund 

claims that included the theft of a taxpayer’s identity.136 The review found that such cases 

involved multiple issues requiring coordination among several business units of the IRS and took 

approximately six months to resolve. Identity theft victims were required to deal with multiple 

persons within the IRS to resolve the issues, either because a case involved multiple business 

units or was transferred among multiple employees within a business unit. 

 135 Internal Revenue Service, Internal Revenue Manual, Identity Protection and Victim Assistance, Ch. 23, 

sec. 25.23.1 et seq. (October 2018).

136 National Taxpayer Advocate, “Identity Theft Case Review Report: A Statistical Analysis of Identity 

Theft Cases Closed in June 2014,” 2014 Annual Report to Congress, available at 

http://www.taxpayeradvocate.irs.gov/reports-to-congress/2014-annual-report-to-congress/research-studies. 
48

Description of Proposal

The proposal requires the IRS in consultation with the NTA, to develop and implement 

publicly available casework guidelines for the handling of refund fraud cases that would have the 

effect of reducing the administrative burdens on victims of identity theft. The guidelines may 

address both procedures and metrics for determining whether the procedures are successfully 

implemented. Among the issues to be considered are the standards for opening, assigning, 

reassigning or closing a case; the average length of time in which a case with an identity theft 

issue should be resolved; the average length of time a victim entitled to a tax refund may have to 

wait to receive such refund; and the number of IRS offices and employees with whom a victim 

should interact to resolve a case. 

Effective Date

The proposal is effective on the date of enactment, with guidelines to be implemented 

within one year of the date of enactment. 

Increased penalty for improper disclosure or use of information by preparers of returns

Present Law

The Code provides both civil and criminal penalties for a tax return preparer who 

discloses any information furnished to the preparer for, or in connection with, the preparation of 

such return or uses such information for any purpose other than to prepare or assist in preparing, 

any such return. The civil penalty is $250 for each unauthorized disclosure or use up to $10,000 

per calendar year.137 The corresponding criminal penalty under section 7216 provides that 

knowing or reckless conduct is a misdemeanor, subject to a fine up to $1,000, one year of 

imprisonment, or both, together with the costs of prosecution.

Section 6103(b)(6) defines “taxpayer identity” as the name of the person with respect to 

whom a return is filed, his or her mailing address, his or her taxpayer identifying number or a 

combination thereof.

Description of Proposal

The proposal increases the civil penalty for the unauthorized disclosure or use of 

information by tax return preparers from $250 to $1,000 for cases in which the disclosure or use 

is made in connection with a crime relating to the misappropriation of another person’s taxpayer 

identity (“taxpayer identity theft”). The proposal also increases the calendar year limitation from 

$10,000 to $50,000. The calendar year limitation is applied separately with respect to 

disclosures or uses made in connection with taxpayer identity theft.

The proposal also increases the criminal penalty for knowing or reckless conduct to 

$100,000 in the case of disclosures or uses in connection with taxpayer identity theft.

 137 Sec. 6713.
49

Effective Date

The proposal applies to disclosures or uses on or after the date of enactment. 
50

B. Development of Information Technology

Management of Internal Revenue Service information technology 

Present Law

The Code describes duties and responsibilities for the Commissioner, the Chief Counsel, 

and the OTA of the IRS.138 It does not presently enumerate duties and responsibilities of an IRS 

Chief Information Officer (“IRS CIO”). 

Also, the Code does not explicitly provide for development and implementation of a 

multiyear strategic plan for the information technology needs of the IRS, and does not require 

verification and validation of major acquisitions of information technology by the IRS, including 

the Customer Account Data Engine 2 (“CADE 2”) and the Enterprise Case Management System 

(“ECM”).

Description of Proposal

Under the proposal, the Commissioner is required to appoint an IRS CIO. The 

Commissioner and the Secretary will act through the IRS CIO with respect to the development, 

implementation, and maintenance of information technology for the IRS. The IRS CIO will be 

responsible for the development, implementation, and maintenance of information technology 

for the IRS, for ensuring that the information technology of the IRS is secure and integrated, for 

maintaining operational control of all information technology for the IRS, for acting as the 

principal advocate for the information technology needs of the IRS, and for consulting with the 

Chief Procurement Officer of the IRS to ensure that the information technology acquired for the 

IRS is consistent with the strategic plan, described below.

The IRS CIO will also be responsible for developing and implementing a multiyear 

strategic plan for the information technology needs of the IRS. This plan should include 

performance measures of such technology and its implementation, and a plan for an integrated 

enterprise architecture of the information technology of the IRS. It should take into account the 

resources needed to accomplish such a plan, as well as planned major acquisitions of information 

technology by the IRS. The plan should also align with the needs and strategic plan of the IRS. 

The IRS CIO will review and update this plan at least once a year, taking into account the 

development of new information technology and the needs of the IRS.

Under the proposal, the Commissioner will develop plans for each phase of CADE 2,

except phase one, and enter into a contract with an independent reviewer to verify and validate 

implementation plans developed for each phase, except phase one, and for the ECM. 

Furthermore, the Chief Procurement Officer of the IRS is directed to regularly consult with the 

IRS CIO and to identify all significant IRS information technology acquisitions in excess of 

$1,000,000, providing written notification to the IRS CIO of each such acquisition in advance of 

acquisition. 

 138 Sec. 7803.
51

The verification and validation of phase two of CADE 2 and the ECM are to be 

completed within one year after the date of enactment. The development of plans for all 

subsequent phases of CADE 2 should be completed within one year after the date of enactment 

and the verification and validation of each phase should be completed within one year after the 

date on which the plan for such phase is completed.

Effective Date

The proposal is generally effective on the date of enactment. 

Internet platform for Form 1099 filings 

Present Law

The Code does not presently require the IRS to make available an internet platform for 

the preparation or filing of information returns, such as the Form 1099 series. 

Description of Proposal

The proposal requires the Secretary of the Treasury (or his or her delegate) to make 

available, by January 1, 2023, an internet website or other electronic medium (the “website”), 

with a user interface and functionality similar to the Business Services Online Suite of Services 

provided by the Social Security Administration.139 The website will allow persons, with access 

to resources and guidance provided by the IRS, to prepare, file, and distribute Forms 1099, and 

maintain a record of completed, filed, and distributed Forms 1099. The Secretary is required to 

ensure that the services provided on the website are not a replacement for services currently 

provided by the IRS, and that the website comply with applicable security standards.

Effective Date

The proposal is effective on the date of enactment.

Streamlined critical pay authority for information technology positions

Present Law

The IRS is currently subject to the personnel rules and procedures set forth in Title 5 of 

the United States Code. Under these rules, IRS employees generally are classified under the 

General Schedule or the Senior Executive Service. 

 139 Available at http://www.ssa.gov/bso/bsowelcome.htm.
52

The RRA98 provided the IRS with certain personnel flexibilities, one of which was the 

streamlined critical pay authority.140 This authority was originally provided for 10 years; it was 

extended on two occasions and ultimately expired on September 30, 2013.141 

Under RRA98, the Secretary of the Treasury, or his delegate, was authorized to fix the 

compensation of, and appoint up to 40 individuals to, designated critical technical and 

professional positions, provided that: (1) the positions require expertise of an extremely high 

level in a technical or professional field and are critical to the IRS; (2) exercise of the authority is 

necessary to recruit or retain an individual exceptionally well qualified for the position; (3) 

designation of such positions is approved by the Secretary; (4) the terms of such appointments 

are limited to no more than four years; (5) appointees to such positions are not IRS employees 

immediately prior to such appointment; and (6) the total annual compensation for any position 

(including performance bonuses) does not exceed the rate of pay of the Vice President of the 

United States.

These appointments would not be subject to the otherwise applicable requirements under 

Title 5. All such appointments would be excluded from the collective bargaining unit and the 

appointments would not be subject to approval of the OMB or the Office of Personnel 

Management.

Also, OMB was authorized to approve increases in the pay level for certain critical pay 

positions requested by the Secretary. These critical pay positions would be critical, technical and 

professional positions other than those designated under the streamlined authority described 

above. OMB was authorized to approve requests for critical position pay up to the highest total 

compensation that does not exceed the rate of pay of the Vice President of the United States.

According to TIGTA, during the years in which it had streamlined critical pay authority, 

the IRS exercised that authority to fill 168 positions, the majority of which were in the 

Information Technology function of the IRS.142 

Description of Proposal

The proposal reinstates streamlined critical pay authority at IRS for positions in its 

information technology operations that are necessary to ensure the functionality of such 

operations. Such authority is reinstated during the period beginning on the date of the enactment 

of section 7812 of the Code, and ending on September 30, 2025, for appointees to such positions 

who were not IRS employees prior to the date of enactment of this Act.

 140 Pub. L. No. 105-206, 112 Stat. 712 (1998).

141 In December 2007, the Consolidated Appropriations Act, 2008, Pub. L. No. 110–161, 121 Stat. 1844, 

(2008), extended the original deadline to July 23, 2013. Subsequently, the Consolidated and Further Continuing 

Appropriations Act 2013, Pub. L. No. 113-6, 127 Stat. 198 (2013), extended the deadline to September 30, 2013.

142 TIGTA, The Internal Revenue Service’s Use of its Streamlined Critical Pay Authority,” Ref. No. 2015-

IE-R001, (December 5, 2014), available at https://www.treasury.gov/tigta/iereports/2015reports/2015ier001fr.pdf. 
53

The proposal reinstates the ability to provide payment for recruitment, retention, 

relocation incentives, and relocation expenses for positions in information technology operations 

at the IRS. Such authority is reinstated during the period beginning on the date of the enactment 

of section 7812 of the Code, and ending on September 30, 2025. 

The proposal also reinstates the ability to pay performance bonuses for senior executives 

who have program management responsibility over the information technology operations at the 

IRS. Such authority is reinstated during the period beginning on the date of the enactment of 

section 7812 of the Code, and ending on September 30, 2025. 

Effective Date

The proposal is effective for payments made on or after the date of enactment. 
54

C. Modernization of Consent-Based Income Verification System

Disclosure of taxpayer information for third-party income verification

Present Law

Disclosure of return information with consent of the taxpayer

As a general rule, returns and return information are confidential and cannot be disclosed 

unless authorized by Title 26.143 Under section 6103(c), the IRS may disclose the return or 

return information of a taxpayer to a third party designated by the taxpayer in a request for or 

consent to such disclosure. Treasury regulations set forth the requirements for such consent.144 

A request for consent to disclosure in written form must be a separate written document 

pertaining solely to the authorized disclosure. At the time the consent is signed and dated by the 

taxpayer, the written document must indicate: (1) the taxpayer’s taxpayer identity information; 

(2) the identity of the person(s) to whom disclosure is to be made; (3) the type of return (or 

specified portion of the return) or return information (and the particular data) that is to be 

disclosed; and (4) the taxable year(s) covered by the return or return information. The 

regulations also require that the consent be submitted within 120 days of the date signed and 

dated by the taxpayer.

Income Verification Express Service (IVES)

Mortgage lenders and others in the financial community use the IRS’s Income 

Verification Express Service (IVES) to confirm the income of a borrower during the processing 

of a loan application.145 Customers of IVES fax to a specified IRS office a signed Form 4506-T 

(“Request for Transcript of Tax Return”) or Form 4506T-EZ (“Short Form Request for 

Individual Tax Return Transcript”). The IRS provides three types of transcript information as 

part of the IVES program: (1) a return transcript; (2) Form W-2 (“Wage and Tax Statement”) 

transcript information; and (3) Form 1099146 transcript information. 

 143 Sec. 6103(a).

144 Treas. Reg. sec. 301.6103(c)-1. The regulations also specify the requirements for a nonwritten request 

for information or consent to disclosure to allow a third party to provide information or assistance relating to the 

taxpayer’s return or to a transaction or other contact between the taxpayer and the IRS.

145 Internal Revenue Service, Income Verification Express Service, 

https://www.irs.gov/individuals/international-taxpayers/income-verification-express-service (January 31, 2019). 

146 There are various Forms 1099: Form 1099-B, Proceeds From Broker or Barter Exchange Transactions; 

Form 1099-DIV, Dividends and Distributions; 1099-INT, Interest Income; 1099-MISC, Miscellaneous Income; 

1099-OID, Original Issue Discount; or 1099-R, Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc.
55

The IRS imposes a $2.00 fee for each transcript requested. The requested transcript 

information is delivered to a secure mailbox on the IRS’s e-Services electronic platform, 

generally within two to three business days.

To participate in the IVES program, companies must register and identify employees to 

act as agents to receive transcripts on the company’s behalf.147 According to the Form 13803 

(“Application to Participate in the Income Verification Express Services (IVES) Program”), the 

IRS conducts a suitability check on the applicant and all the principals listed on the application to 

determine the applicant’s suitability to be an IVES participant. After an applicant passes the 

suitability check and the IRS completes processing the application, the IRS notifies the applicant 

of acceptance to participate in the program.

Description of Proposal

As noted above, the current IVES program requires that transcript information requests 

be submitted to the IRS by fax and then the transcripts are furnished electronically to a secure 

mailbox. After a specified time period, the proposal requires the Secretary (or his delegate) to 

implement a qualified disclosure program that is fully automated, accomplished through the 

Internet, and through which disclosures are accomplished in as close to real-time as is 

practicable. The program is to comply with applicable security standards and guidelines. The 

term “qualified disclosure” means a disclosure made pursuant to section 6103(c) to a person 

seeking to verify the income of a taxpayer who is a borrower in the process of a loan application. 

“Qualified disclosure” is intended as a reference to the types of disclosures made under the 

current IVES program. The proposal is not intended to exclude current uses of the IVES 

program.

To cover the costs of implementing such a program, for a two-year period beginning six 

months after the date of enactment, the Secretary is authorized to assess and collect a fee for 

qualified disclosures at such rates as the Secretary determines are sufficient to cover the costs 

related to implementing the program, including the costs of any necessary infrastructure or 

technology. Such fees are in addition to any other fee assessed and collected for such 

disclosures. The amounts received from the fees assessed and collected are to be deposited in and 

credited to an account solely for the purpose of carrying out the activities associated with 

implementing the qualified disclosure program. Not later than one year after the close of the 

two-year period, the Secretary is required to implement the program.

Effective Date

The proposal is effective on the date of enactment.

 147 Applicants also must choose one or more of the reasons listed on the form as the basis for using the 

IVES program: mortgage services, background check, credit check, banking service, licensing requirement, or other 

(must be specified).
56

Limit redisclosures and uses of consent-based disclosures of tax return information

Present Law

In general

As a general rule, returns and return information are confidential and cannot be disclosed 

unless authorized by Title 26.148 Under section 6103(c), a taxpayer may designate in a request or 

consent to the disclosure by the IRS of his or her return or return information to a third party. 

Treasury regulations set forth the requirements for such consent.149 The request or consent may 

be in written or non-written form. The Treasury regulations require that the taxpayer sign and 

date a written consent. At the time the consent is signed and dated by the taxpayer, the written 

document must indicate (1) the taxpayer’s identity information; (2) the identity of the person to 

whom disclosure is to be made; (3) the type of return (or specified portion of the return) or return 

information (and the particular data) that is to be disclosed; and (4) the taxable year covered by 

the return or return information. The regulations also require that the consent be submitted 

within 120 days of the date signed and dated by the taxpayer. Present law does not require that a 

recipient receiving returns or return information by consent maintain the confidentiality of the 

information received. Under present law, the recipient is also free to use the information for 

purposes other than for which the information was solicited from the taxpayer.

Criminal penalties

Under section 7206, it is a felony to willfully make and subscribe any document that 

contains or is verified by a written declaration that it is made under penalties of perjury and 

which such person does not believe to be true and correct as to every material matter.150 Upon 

conviction, such person may be fined up to $100,000 ($500,000 in the case of a corporation) or 

imprisoned up to three years, or both, together with the costs of prosecution.

Under section 7213, criminal penalties apply to: (1) willful unauthorized disclosures of 

returns and return information by Federal and State employees and other persons; (2) the offering 

of any item of material value in exchange for a return or return information and the receipt of 

such information pursuant to such an offer; and (3) the unauthorized disclosure of return 

information received by certain shareholders under the material interest proposal of section 6103. 

Under section 7213, a court can impose a fine up to $5,000, up to five years imprisonment, or 

both, together with the costs of prosecution. If the offense is committed by a Federal employee 

or officer, the employee or officer will be discharged from office upon conviction. 

Under section 7213A, the willful and unauthorized inspection of returns and return 

information can subject Federal and State employees and others to a maximum fine of $1,000, up 

to a year in prison, or both, in addition to the costs of prosecution. If the offense is committed by 

 148 Sec. 6103(a).

149 Treas. Reg. sec. 301.6103(c)-1.

150 Sec. 7206(1).
57

a Federal employee or officer, the employee or officer will be discharged from office upon 

conviction.

Civil damage remedies for unauthorized disclosure or inspection

If a Federal employee makes an unauthorized disclosure or inspection, a taxpayer can 

bring suit against the United States in Federal district court. If a person other than a Federal 

employee makes an unauthorized disclosure or inspection, suit may be brought directly against 

such person. No liability results from a disclosure based on a good faith, but erroneous, 

interpretation of section 6103. A disclosure or inspection made at the request of the taxpayer 

will also relieve liability. 

Upon a finding of liability, a taxpayer can recover the greater of $1,000 per act of 

unauthorized disclosure (or inspection), or the sum of actual damages plus, in the case of an 

inspection or disclosure that was willful or the result of gross negligence, punitive damages. The 

taxpayer may also recover the costs of the action and, if found to be a prevailing party, 

reasonable attorney fees. 

The taxpayer has two years from the date of the discovery of the unauthorized inspection 

or disclosure to bring suit. The IRS is required to notify a taxpayer of an unauthorized inspection 

or disclosure as soon as practicable after any person is criminally charged by indictment or 

information for unlawful inspection or disclosure.

Description of Proposal

Under the proposal, persons designated by the taxpayer to receive return information 

shall not use the information for any purpose other than the express purpose for which consent 

was granted and shall not disclose return information to any other person without the express 

permission of, or request by, the taxpayer.

Effective Date

The proposal is effective for disclosures made six months after the date of enactment. 
58

D. Expanded Use of Electronic Systems

Electronic filing of returns 

Present Law

RRA98 states a Congressional policy to promote the paperless filing of Federal tax 

returns. Section 2001(a) of RRA98 set a goal for the IRS to have at least 80 percent of all 

Federal tax and information returns filed electronically by 2007.151 Section 2001(b) of RRA98 

requires the IRS to establish a 10-year strategic plan to eliminate barriers to electronic filing.

Present law requires the Secretary to issue regulations regarding electronic filing and 

specifies certain limitations on the rules that may be included in such regulations.152 The statute 

requires that Federal income tax returns prepared by specified tax return preparers be filed 

electronically,153 and further requires that all partnerships with more than 100 partners be 

required to file electronically. For taxpayers other than partnerships, the statute prohibits any 

requirement that persons who file fewer than 250 returns during a calendar year file 

electronically. With respect to individuals, estates, and trusts, the Secretary may permit, but 

generally cannot require, electronic filing of income tax returns. In crafting any of these required 

regulations, the Secretary must take into account the ability of taxpayers to comply at a 

reasonable cost.

The regulations require corporations that have assets of $10 million or more and file at 

least 250 returns during a calendar year to file electronically their Form 1120/1120S income tax 

returns (U.S. Corporation Income Tax Return/U.S. Income Tax Return for an S Corporation) and 

Form 990 information returns (Return of Organization Exempt from Income Tax) for tax years 

ending on or after December 31, 2006.154 In determining whether the 250 returns threshold is 

met, income tax, excise tax, employment tax and information returns filed within one calendar 

year are counted. 

The Code provides that failure to comply with information reporting requirements is 

subject to a failure to file correct information return penalty but provides a de minimis exception 

for failures that are attributable solely to noncompliance with the electronic filing requirements. 

Under the de minimis exception, failure to satisfy the electronic filing requirements results in 

 151 The Electronic Tax Administration Advisory Committee, the body charged with oversight of IRS 

progress in reaching that goal, projected an overall e-filing rate of 80.1 percent in the 2017 filing season based on all 

Federal returns. See Electronic Tax Administration Advisory Committee, Annual Report to Congress, June 2017, 

IRS Pub. 3415, page 5.

152 Sec. 6011(e). Sec. 6011(e) uses the term “magnetic media” and Treasury regulation section 301.6011-2 

defines this term to include electronic filing.

153 Section 6011(e)(3)(B) defines a “specified tax return preparer” as any return preparer who reasonably 

expects to file more than 10 individual income tax returns during a calendar year. 

154 Treas. Reg. secs. 301.6011-5 and 301.6033-4.
59

imposition of a failure to file penalty155 if a failure arises with respect to (1) more than 250 

information returns; (2) more than 100 information returns in the case of a partnership having 

more than 100 partners; or (3) a return described in Section 6011(e)(4).156 Accordingly, there is 

a penalty waiver on the electronic filing requirements on the first 250 information returns or in 

the case of the first 100 information returns in partnerships with more than 100 partners.

Description of Proposal

The proposal relaxes the current restrictions on the authority of the Secretary to mandate 

electronic filing based on the number of returns required to be filed by a taxpayer in a given 

taxable period. First, it phases in a reduction in the threshold requirement that taxpayers have an 

obligation to file a specified number of returns and statements during a calendar year in order to 

be subject to a regulatory mandate. That threshold is reduced from 250 to 100 in the case of

calendar year 2021, and from 100 to 10 in the case of calendar years after 2021. 

Notwithstanding these thresholds, in the case of a partnership the applicable number is 200 in the 

case of calendar year 2018, 150 in the case of calendar year 2019, 100 in the case of calendar 

year 2020, and 50 in the case of calendar year 2021.

157

The proposal authorizes the Secretary to waive the requirement that a Federal income tax 

return prepared by a specified tax return preparer be filed electronically if a tax return preparer 

applies for a waiver and demonstrates that the inability to file electronically is due to lack of 

internet availability (other than dial-up or satellite service) in the geographic location in which 

the return preparation business is operated. 

The proposal modifies the special rule for failure to meet magnetic media requirements to 

conform with the changes made above.

Effective Date

The proposal is effective on the date of enactment. 

 155 Sec. 6721.

156 Sec. 6724.

157 There is no change to the requirement that partnerships having more than 100 partners must file 

electronic returns notwithstanding these thresholds.
60

Uniform standards for the use of electronic signatures for disclosure authorizations to, 

and other authorizations of, practitioners 

Present Law

Disclosure of return information by consent of the taxpayer

As a general rule, returns and return information are confidential and cannot be disclosed 

unless authorized by the Code.158 Under section 6103(c), the IRS may disclose the return or 

return information of a taxpayer to a third party designated by the taxpayer in a request for or 

consent to such disclosure. Treasury regulations set forth the requirements for such consent.159 

A request for consent to disclosure in written form must be a separate written document 

pertaining solely to the authorized disclosure. At the time the consent is signed and dated by the 

taxpayer, the written document must indicate (1) the taxpayer’s taxpayer identity information; 

(2) the identity of the person(s) to whom disclosure is to be made; and (3) sufficient facts 

underlying the request for information or assistance to enable the IRS to determine the nature 

and extent of the information or assistance requested and the return or return information to be 

disclosed in order to comply with the taxpayer’s request. The regulations also require that the 

consent be submitted within 120 days of the date signed and dated by the taxpayer.

Electronic signatures

The Secretary is required to develop procedures for the acceptance of signatures in digital 

and other electronic form.160 Until such time as such procedures are in place, the Secretary may 

waive the requirement of a signature for, or provide for alternative methods of signing or 

subscribing, a particular type or class of return, declaration, statement or other document 

required or permitted to be made or written under the internal revenue laws and regulations. The 

Secretary is required to publish guidance as appropriate to define and implement any waiver of 

the signature requirements or alternative method of signing or subscribing. The IRS currently 

accepts electronic signatures for some applications, such as the Income Verification Express 

Services (“IVES”) program.161

Section 12.101 of the Federal Acquisition Regulations require all Federal agencies to 

consider commercially available items in the acquisition process.162

 158 Sec. 6103(a).

159 Treas. Reg. sec. 301.6103(c)-1. 

160 Sec. 6061.

161 Internal Revenue Service, Income Verification Express Services (IVES) Electronic Signature 

Requirements, https://www.irs.gov/individuals/international-taxpayers/income-verification-express-services-iveselectronic-signature-requirements (August 2, 2018).

162 Specifically, section 12.101 provides that agencies: (1) conduct market research to determine whether 

commercial items or nondevelopmental items are available that could meet the agency’s requirements; (2) acquire 

commercial items or nondevelopmental items when they are available to meet the needs of the agency; and (3) 
61

IRS Forms

Form 2848 (Power of Attorney and Declaration of Representative) is used to authorize an 

individual to represent the taxpayer before the IRS. The individual must be eligible to practice 

before the IRS. 

Form 8821 (Tax Information Authorization) authorizes an individual or organization to 

request and inspect a taxpayer’s confidential tax return information. Form 4506-T (Request for 

Transcript of Tax Return) authorizes an individual or organization to request and inspect 

transcripts of a taxpayer’s confidential return information. These forms do not authorize an 

individual to represent the taxpayer before the IRS.

Description of Proposal

For a request for disclosure to a practitioner with consent of the taxpayer, or for any 

power of attorney granted by a taxpayer to a practitioner, the proposal requires the Secretary to 

publish guidance to establish uniform standards and procedures for the acceptance of taxpayers’

signatures appearing in electronic form with respect to such requests or power of attorney. Such 

guidance must be published within six months of the date of enactment. For purposes of the 

proposal, a “practitioner” means an individual in good standing who is regulated under 31 U.S.C. 

sec. 330 (relating to practice before the Department of the Treasury).

Effective Date

The proposal is effective on the date of enactment.

Payment of taxes by debit and credit cards 

Present Law

The Code generally permits the payment of taxes by commercially acceptable means 

such as credit cards.163 The Secretary may not pay any fee or provide any other consideration in 

connection with the use of credit, debit, or charge cards for the payment of income taxes.164

Description of Proposal

The proposal removes the prohibition on paying any fees or providing any other 

consideration in connection with the use of credit, debit, or charge cards for the payment of 

income taxes to the extent taxpayers paying in this manner are fully responsible for any fees or 

 require prime contractors and subcontractors at all tiers to incorporate, to the maximum extent practicable, 

commercial items or nondevelopmental items as components of items supplied to the agency.

163 Sec. 6311.

164 Sec. 6311(d)(2).
62

consideration incurred. The proposal requires the Secretary to seek to minimize the amount of 

any fee or other consideration that the Secretary pays under any contract.

Effective Date

The proposal is effective on the date of enactment.

Authentication of users of electronic services accounts

Present Law

The IRS has developed a suite of web-based products, called e-Services Online Tools for 

Tax Professionals, which provides multiple electronic products and services to tax professionals. 

Description of Proposal

The proposal requires the IRS to verify the identity of any individual opening an eServices account before he or she is able to use such services.

Effective Date

The proposal is effective not later than 180 days after the date of enactment.
63

E. Other Provisions

1. Repeal of proposal regarding certain tax compliance procedures and reports

Present Law

Under present law, taxpayers generally are required to calculate their own tax liabilities 

and submit returns showing their calculations. RRA98 requires the Secretary of the Treasury or 

his delegate (“Secretary”) to study the feasibility of, and develop procedures for, the 

implementation of a return-free tax system for appropriate individuals for taxable years 

beginning after 2007.165 The Secretary is required annually to report to the tax-writing 

committees on the progress of the development of such system. The Secretary was required to 

make the first report on the development of the return-free filing system to the tax-writing 

committees by June 30, 2000.

Description of Proposal

The proposal repeals section 2004 of RRA98. 

Effective Date

The proposal is effective on the date of enactment.

Comprehensive training strategy

Present Law

The Code provides that the Commissioner has such duties and powers as prescribed by 

the Secretary.166 Unless otherwise specified by the Secretary, such duties and powers include the 

power to administer, manage, conduct, direct, and supervise the execution and application of the 

internal revenue laws or related statutes. In executing these duties, the Commissioner depends 

upon strategic plans that prioritize goals and manage its resources. In the current strategic plan, 

cultivating a well-equipped, diverse, flexible and engaged workforce is identified as one of six 

strategic goals.167

Within the IRS, the OTA is expected to represent taxpayer interests independently in 

disputes with the IRS. The OTA has four principal functions: (1) to assist taxpayers in resolving 

problems with the IRS; (2) to identify areas in which taxpayers have problems in dealing with 

the IRS; (3) to propose changes in the administrative practices of the IRS to mitigate problems in 

areas in which taxpayers have issues in dealing with the IRS; and (4) to identify potential 

 165 Pub. L. No. 105-206, sec. 2004.

166 Sec. 7803(a).

167 See Internal Revenue Service Strategic Plan FY2018 – 2022, Publication 3744, available at 

https://www.irs.gov/pub/irs-pdf/p3744.pdf. 
64

legislative changes which may be appropriate to mitigate such problems.168 The NTA supervises 

the OTA. The NTA reports directly to the Commissioner.

Description of Proposal

The proposal requires that the Commissioner submit to Congress a written report 

providing a comprehensive training strategy for employees of the IRS. The report is to be 

submitted not later than one year after the date of enactment of this Act, and is to include: a plan 

to streamline current training processes, including an assessment of the utility of further 

consolidating internal training programs, technology, and funding; a plan to develop annual 

training regarding taxpayer rights, including the role of the OTA, for employees that interface 

with taxpayers and the direct managers of such employees; a plan to improve technology-based 

training; proposals to focus employee training on early, fair, and efficient resolution of taxpayer 

disputes for employees that interface with taxpayers and the direct managers of such employees, 

as well as ensure consistency of skill development and employee evaluation throughout the IRS; 

and a thorough assessment of the funding necessary to implement such a strategy. 

Effective Date

The proposal is effective on the date of enactment. 

 168 Sec. 7803(c).
65

TITLE III ─ MISCELLANEOUS PROVISIONS

A. Reform of Laws Governing Internal Revenue Service Employees

Prohibition on rehiring any employee of the Internal Revenue Service who was

involuntarily separated from service for misconduct 

Present Law

Employees of the IRS are subject to rules governing Federal employment generally, as 

well as rules of conduct specific to Department of the Treasury and the IRS.169 Standards of 

Ethical Conduct for Employees of the Executive Branch are supplemented by additional rules 

applicable to employees of the Department of the Treasury.170

The Code provides that the Commissioner has such duties and powers as prescribed by 

the Secretary.171 Unless otherwise specified by the Secretary, such duties and powers include the 

power to administer, manage, conduct, direct, and supervise the execution and application of the 

internal revenue laws or related statutes and tax conventions to which the United States is a 

party, and to recommend to the President a candidate for Chief Counsel (and recommend any

removal of the Chief Counsel). Unless otherwise specified by the Secretary, the Commissioner 

is authorized to employ such persons as the Commissioner deems proper for the administration 

and enforcement of the internal revenue laws and is required to issue all necessary directions, 

instructions, orders, and rules applicable to such persons,172 including determination and 

designation of posts of duty. 

RRA98 requires the IRS to terminate an employee for certain proven violations 

committed by the employee in connection with the performance of official duties.173 The 

violations include: (1) willful failure to obtain the required approval signatures on documents 

authorizing the seizure of a taxpayer’s home, personal belongings, or business assets; (2) 

providing a false statement under oath material to a matter involving a taxpayer; (3) with respect 

to a taxpayer, taxpayer representative, or other IRS employee, the violation of any right under the 

U.S. Constitution, or any civil right established under Titles VI or VII of the Civil Rights Act of 

1964, Title IX of the Educational Amendments of 1972, the Age Discrimination in Employment 

Act of 1967, the Age Discrimination Act of 1975, sections 501 or 504 of the Rehabilitation Act 

of 1973 and Title I of the Americans with Disabilities Act of 1990; (4) falsifying or destroying 

documents to conceal mistakes made by any employee with respect to a matter involving a 

 169 Part III of Title 5 of the United States Code prescribes rules for Federal employment, including 

employment, retention, and management and employee issues.

170 Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. Part 2635; 

Supplemental Standards of Ethical Conduct for Employees of the Department of the Treasury, 5 C.F.R. Part 3101; 

Department of the Treasury Employee Rules of Conduct, 31 C.F.R. Part 0. 

171 Sec. 7803(a).

172 Sec. 7804.

173 Pub. L. No. 105-206, sec. 1203(b), July 22, 1998.
66

taxpayer or a taxpayer representative; (5) assault or battery on a taxpayer or other IRS employee, 

but only if there is a criminal conviction or a final judgment by a court in a civil case, with 

respect to the assault or battery; (6) violations of the Code, Treasury Regulations, or policies of 

the IRS (including the Internal Revenue Manual) for the purpose of retaliating or harassing a 

taxpayer or other IRS employee; (7) willful misuse of section 6103 for the purpose of concealing 

data from a Congressional inquiry; (8) willful failure to file any tax return required under the 

Code on or before the due date (including extensions) unless failure is due to reasonable cause; 

(9) willful understatement of Federal tax liability, unless such understatement is due to 

reasonable cause; and (10) threatening to audit a taxpayer for the purpose of extracting personal 

gain or benefit.

RRA98 provides non-delegable authority to the Commissioner to determine that 

mitigating factors exist, that, in the Commissioner’s sole discretion, mitigate against terminating 

the employee. The Act also provides that the Commissioner, in his sole discretion, may establish 

a procedure to determine whether an individual should be referred for such a determination by 

the Commissioner. TIGTA is required to track employee terminations and terminations that 

would have occurred had the Commissioner not determined that there were mitigation factors 

and include such information in TIGTA’s annual report to Congress.

Description of Proposal

Under the proposal, a former employee of the IRS who was involuntarily separated due 

to misconduct under subchapter A of Chapter 80 of the Code, under chapters 43 or 75 of Title 5 

of the United States Code, or whose employment was terminated under section 1203 of RRA98, 

cannot be reemployed by the IRS. 

Effective Date

The proposal is effective with respect to the hiring of employees after the date of 

enactment.

Notification of unauthorized inspection or disclosure of returns and return information 

Present Law

Section 7431 provides for civil damages resulting from an unauthorized disclosure of 

inspection of return information. If a Federal employee makes an unauthorized disclosure or 

inspection, a taxpayer can bring suit against the United States in Federal district court. If a 

person other than a Federal employee makes an unauthorized disclosure or inspection, suit may 

be brought directly against such person. No liability results from a disclosure based on a good 

faith, but erroneous, interpretation of section 6103. A disclosure or inspection made at the 

request of the taxpayer will also relieve liability. 

Upon a finding of liability, a taxpayer can recover the greater of $1,000 per act of 

unauthorized disclosure (or inspection), or the sum of actual damages plus, in the case of an 

inspection or disclosure that was willful or the result of gross negligence, punitive damages. 

The taxpayer may also recover the costs of the action and, if found to be a prevailing party, 

reasonable attorney fees. 
67

The taxpayer has two years from the date of the discovery of the unauthorized inspection 

or disclosure to bring suit. The IRS is required to notify a taxpayer of an unauthorized inspection 

or disclosure as soon as practicable after any person is criminally charged by indictment or 

information for unlawful inspection or disclosure.

Description of Proposal

The proposal requires the Secretary to notify a taxpayer if the IRS or a Federal or State 

agency (upon notice to the Secretary by such Federal or State agency) proposes an administrative 

determination as to disciplinary or adverse action against an employee arising from the 

employee’s unauthorized inspection or disclosure of the taxpayer’s return or return information. 

The proposal requires the notice to include the date of the unauthorized inspection or disclosure 

and the rights of the taxpayer as a result of such administrative determination. 

Effective Date

The proposal is effective for determinations proposed after 180 days after the date of 

enactment.
68

B. Provisions Relating to Exempt Organizations

Mandatory e-filing by exempt organizations

Present Law

In general

RRA98 states a Congressional policy to promote the paperless filing of Federal tax 

returns. Section 2001(a) of RRA98 set a goal for the IRS to have at least 80 percent of all 

Federal tax and information returns filed electronically by 2007.174 Section 2001(b) of RRA98

requires the IRS to establish a 10-year strategic plan to eliminate barriers to electronic filing.

Present law requires the Secretary to issue regulations regarding electronic filing and 

specifies certain limitations on the rules that may be included in such regulations.175 The statute 

requires that Federal income tax returns prepared by specified tax return preparers be filed 

electronically,

176 and that all partnerships with more than 100 partners file electronically. For 

taxpayers other than partnerships, the statute prohibits any requirement that persons who file 

fewer than 250 returns during a calendar year file electronically. With respect to individuals, 

estates, and trusts, the Secretary may permit, but generally cannot require, electronic filing of 

income tax returns. In crafting any of these required regulations, the Secretary must take into 

account the ability of taxpayers to comply at reasonable cost.

The regulations require corporations that have assets of $10 million or more and file at 

least 250 returns during a calendar year to file electronically their Form 1120/1120S income tax 

returns and Form 990 information returns for tax years ending on or after December 31, 2006.177 

In determining whether the 250 return threshold is met, income tax, information, excise tax, and 

employment tax returns filed within one calendar year are counted. 

Tax-exempt organizations

Most tax-exempt organizations are required to file an annual information return or notice 

in the Form 990 series. Since 2007, the smallest organizations − generally, those with gross 

receipts of less than $50,000 − may provide an abbreviated notice on Form 990-N, sometimes 

referred to as an “e-postcard.” Which form to file depends on the annual receipts, value of 

 174 The Electronic Tax Administration Advisory Committee, the body charged with oversight of IRS 

progress in reaching that goal projected an overall e-filing rate of 80.1 percent in the 2017 filing season based on all 

Federal returns. See Electronic Tax Administration Advisory Committee, Annual Report to Congress, June 2017, 

IRS Pub. 3415, page 5. 

175 Sec. 6011(e). Section 6011(e) uses the term “magnetic media,” which the Treasury regulation section 

301.6011-2 defines to include electronic filing.

176 Section 6011(e)(3)(B) defines a “specified tax return preparer” as any return preparer who reasonably 

expects to file more than 10 individual income tax returns during a calendar year. 

177 Treas. Reg. secs. 301.6011-5 and 301.6033-4.
69

assets, and types of activities of the exempt organization. The public can view electronic images 

of Forms 990, 990-EZ, and 990-PF online, or purchase hard or soft copies from the IRS.178 

In general, only the largest and smallest tax-exempt organizations are required to 

electronically file their annual information returns. First, as indicated above, tax-exempt 

corporations that have assets of $10 million or more and that file at least 250 returns during a 

calendar year must electronically file their Form 990 information returns. Private foundations 

and charitable trusts, regardless of asset size, that file at least 250 returns during a calendar year 

are required to file electronically their Form 990-PF information returns.179 Finally, 

organizations that file Form 990-N (the e-postcard) also must electronically file.180 

Description of Proposal

The proposal extends the requirement to e-file to all tax-exempt organizations required to 

file statements or returns in the Form 990 series or Form 8872 (“Political Organization Report of 

Contributions and Expenditures”). The proposal also requires that the IRS make the information 

provided on the forms available to the public (consistent with the disclosure rules of section 6104 

of the Code) in a machine-readable format as soon as practicable. 

Effective Date

The proposal generally is effective for taxable years beginning after the date of 

enactment. Transition relief is provided for certain organizations. First, for certain small 

organizations or other organizations for which the Secretary determines that application of the efiling requirement would constitute an undue hardship in the absence of additional transitional 

time, the requirement to file electronically must be implemented not later than taxable years 

beginning two years following the date of enactment. For this purpose, small organization 

means any organization: (1) the gross receipts of which for the taxable year are less than 

$200,000; and (2) the aggregate gross assets of which at the end of the taxable year are less than 

$500,000. In addition, the proposal grants IRS the discretion to delay the effective date not later 

than taxable years beginning two years after the date of enactment for the filing of Form 990-T 

(reports of unrelated business taxable income or the payment of proxy tax under section 

6033(e)).

 178 See https://www.irs.gov/charities-non-profits/copies-of-eo-returns-available, last updated August 16, 

2018. 

179 Taxpayers can request waivers of the electronic filing requirement if they cannot meet that requirement 

due to technological constraints, or if compliance with the requirement would result in undue financial burden on the 

taxpayer. Treas. Sec. 301.6033-4. 

180 See Form 990-N, “Electronic Notice for Tax-exempt Organizations Not Required to File a Form 990 or 

990-EZ.”
70

Notice required before revocation of tax-exempt status for failure to file return

Present Law

Applications for tax exemption

Section 501(c)(3) organizations

Section 501(c)(3) organizations (with certain exceptions) are required to seek formal 

recognition of tax-exempt status by filing an application with the IRS (Form 1023 (Application 

for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code) or Form 

1023-EZ (Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the 

Internal Revenue Code)).181 In response to the application, the IRS issues a determination letter 

or ruling either recognizing the applicant as tax-exempt or not. Certain organizations are not 

required to apply for recognition of tax-exempt status in order to qualify as tax-exempt under 

section 501(c)(3) but may do so. These organizations include churches, certain church-related 

organizations, organizations (other than private foundations) the gross receipts of which in each 

taxable year are normally not more than $5,000, and organizations (other than private 

foundations) subordinate to another tax-exempt organization that are covered by a group 

exemption letter.

A favorable determination by the IRS on an application for recognition of tax-exempt 

status generally will be retroactive to the date that the section 501(c)(3) organization was created 

if it files a completed Form 1023 within 15 months of the end of the month in which it was 

formed.182 If the organization does not file Form 1023 or files a late application, it will not be 

treated as tax-exempt under section 501(c)(3) for any period prior to the filing of an application 

for recognition of tax exemption.183 Contributions to section 501(c)(3) organizations that are 

subject to the requirement that the organization apply for recognition of tax-exempt status 

generally are not deductible from income, gift, or estate tax until the organization receives a 

determination letter from the IRS.184

Other section 501(c) organizations

Most other types of section 501(c) organizations – including organizations described 

within sections 501(c)(4) (social welfare organizations, etc.), 501(c)(5) (labor organizations, 

 181 See sec. 508(a). 

182 Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations are allowed an automatic 12-month 

extension as long as the application for recognition of tax exemption is filed within the extended, i.e., 27-month, 

period. The IRS also may grant an extension beyond the 27-month period if the organization is able to establish that 

it acted reasonably and in good faith and that granting relief will not prejudice the interests of the government. 

Treas. Reg. secs. 301.9100-1 and 301.9100-3.

183 Treas. Reg. sec. 1.508-1(a)(1).

184 Sec. 508(d)(2)(B). Contributions made prior to receipt of a favorable determination letter may be 

deductible prior to the organization’s receipt of such favorable determination letter if the organization has timely 

filed its application to be recognized as tax-exempt. Treas. Reg. secs. 1.508-1(a) and 1.508-2(b)(1)(i)(b).
71

etc.), or 501(c)(6) (business leagues, etc.) – are not required to apply for recognition of taxexempt status. Rather, organizations are exempt under these subsections if they satisfy the 

requirements applicable to such organizations. However, an organization that intends to operate 

as a section 501(c)(4) organization must notify the Secretary no later than 60 days after its 

formation that it is operating as such by filing form 8976 (Notice of Intent to Operate Under 

Section 501(c)(4)). In addition, in order to obtain certain benefits such as public recognition of 

tax-exempt status, exemption from certain State taxes, and nonprofit mailing privileges, such 

organizations voluntarily may request a formal recognition of exempt status by filing a Form 

1024 (Application for Recognition of Exemption under Section 501(a)) or Form 1024-A 

(Application for Recognition of Exemption under Section 501(c)(4) of the Internal Revenue 

Code). 

Annual information returns

Exempt organizations are required to file an annual information return, Form 990 (Return 

of Organization Exempt From Income Tax), stating specifically the items of gross income, 

receipts, disbursements, and such other information as the Secretary may prescribe.185 Exempt

from the requirement are churches, their integrated auxiliaries, and conventions or associations 

of churches; the exclusively religious activities of any religious order; certain institutions whose 

income is excluded from gross income under section 115; an interchurch organization of local 

units of a church; certain mission societies; certain church-affiliated elementary and high 

schools; and certain other organizations, including some that the IRS has relieved from the filing 

requirement pursuant to its statutory discretionary authority.186

An organization that is required to file an information return, but that has gross receipts 

of less than $200,000 during its taxable year, and total assets of less than $500,000 at the end of 

its taxable year, may file Form 990-EZ. If an organization normally has gross receipts of 

$50,000 or less, it must file Form 990-N (“e-postcard”), if it chooses not to file Form 990 or 

Form 990-EZ. Private foundations are required to file Form 990-PF rather than Form 990.

Revocation of exempt status

In general

An organization that has received a favorable tax-exemption determination from the IRS 

generally may continue to rely on the determination as long as “there are no substantial changes 

in the organization’s character, purposes, or methods of operation.”187 A ruling or determination 

letter concluding that an organization is exempt from tax may, however, be revoked or modified: 

 185 Sec. 6033(a). An organization that has not received a determination of its tax-exempt status, but that 

claims tax-exempt status under section 501(a), is subject to the same annual reporting requirements and exceptions 

as organizations that have received a tax-exemption determination.

186 Sec. 6033(a)(3); Treas. Reg. secs. 1.6033-2(a)(2)(i) and (g)(1).

187 Treas. Reg. sec. 1.501(a)-1(a)(2). 
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(1) by notice from the IRS to the organization to which the ruling or determination letter was 

originally issued; (2) by enactment of legislation or ratification of a tax treaty; (3) by a decision 

of the United States Supreme Court; (4) by issuance of temporary or final Regulations by the 

Treasury Department; (5) by issuance of a revenue ruling, a revenue procedure, or other 

statement in the Internal Revenue Bulletin; or (6) automatically, in the event the organization 

fails to file a required annual return or notice for three consecutive years (discussed in greater 

detail below).188 A revocation or modification of a determination letter or ruling may be 

retroactive if, for example, there has been a change in the applicable law, the organization 

omitted or misstated a material fact, or the organization has operated in a manner materially 

different from that originally represented.189 Upon revocation of tax-exemption or change in the 

classification of an organization (e.g., from public charity to private foundation status), the IRS 

publishes an announcement of such revocation or change in the Internal Revenue Bulletin.

Automatic revocation for failure to file information returns

If an organization fails to file a required Form 990-series return or notice for three 

consecutive years, the organization’s tax-exempt status is automatically revoked.190 A 

revocation for failure to file is effective from the date that the Secretary determines was the last 

day the organization could have timely filed the third required information return or notice. To 

again be recognized as tax-exempt, the organization must apply to the Secretary for recognition 

of tax-exemption, irrespective of whether the organization was required to make an application 

for recognition of tax-exemption in order to gain tax-exemption originally.191

If, upon application for tax-exempt status after an automatic revocation for failure to file 

an information return or notice, the organization shows to the satisfaction of the Secretary 

reasonable cause for failing to file the required returns or notices, the organization’s tax-exempt 

status may, in the discretion of the Secretary, be reinstated retroactive to the date of 

revocation.192 An organization may not challenge under the Code’s declaratory judgment 

procedures (section 7428) a revocation of tax-exemption made for failure to file annual 

information returns. 

The Secretary is authorized to publish a list of organizations whose exempt status is 

automatically revoked.

Description of Proposal

The proposal requires that the IRS provide notice to an organization that fails to file a 

Form 990-series return or notice for two consecutive years. The notice must state that the IRS 

 188 Rev. Proc. 2019-5, sec. 12, 2019-1 I.R.B. 230, at p. 257 (January 2, 2019).

189 Ibid. at p. 258.

190 Sec. 6033(j)(1).

191 Sec. 6033(j)(2).

192 Sec. 6033(j)(3); Rev. Proc. 2014-11, 2014-3 I.R.B. 411 (January 13, 2014).
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has no record of having received such a return or notice from the organization for two 

consecutive years and inform the organization about the revocation of the organization’s taxexempt status that will occur if the organization fails to file such a return or notice by the due 

date for the next such return or notice. The notice must also contain information about how to 

comply with the annual information return and notice requirements under sections 6033(a)(1) 

and 6033(i).

Effective Date

The proposal applies to failures to file returns or notices for two consecutive years if the 

return or notice for the second year is required to be filed after December 31, 2019.

Increase in penalty for failure to file

Present Law

The Federal tax system is one of “self-assessment,” i.e., taxpayers are required to declare 

their income, expenses, and ultimate tax due, while the IRS has the ability to propose subsequent 

changes. This voluntary system requires that taxpayers comply with deadlines and adhere to the 

filing requirements. While taxpayers may obtain extensions of time in which to file their returns, 

the Federal tax system consists of specific due dates of returns. In order to foster compliance in 

meeting these deadlines, Congress has enacted a penalty for the failure to timely file tax 

returns.193

A taxpayer who fails to file a tax return on or before its due date is subject to a penalty 

equal to five percent of the net amount of tax due for each month that the return is not filed, up to 

a maximum of 25 percent of the net amount.194 If the failure to file a return is fraudulent, the 

taxpayer is subject to a penalty equal to 15 percent of the net amount of tax due for each month 

the return is not filed, up to a maximum of 75 percent of the net amount.195 The net amount of 

tax due is the amount of tax required to be shown on the return reduced by the amount of any 

part of the tax that is paid on or before the date prescribed for payment of the tax and by the 

amount of any credits against tax that may be claimed on the return.196 The penalty will not 

apply if it is shown that the failure to file was due to reasonable cause and not willful neglect.197

If a return is filed more than 60 days after its due date, and unless it is shown that such 

failure is due to reasonable cause, then the failure to file penalty may not be less than the lesser 

 193 See United States v. Boyle, 469 U.S. 241, 245 (1985).

194 Sec. 6651(a)(1).

195 Sec. 6651(f).

196 Sec. 6651(b)(1).

197 Sec. 6651(a)(1).
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of $205198 or 100 percent of the amount required to be shown as tax on the return. If a penalty 

for failure to file and a penalty for failure to pay tax shown on a return both apply for the same 

month, the amount of the penalty for failure to file for such month is reduced by the amount of 

the penalty for failure to pay tax shown on a return.199 If a return is filed more than 60 days after 

its due date, then the penalty for failure to pay tax shown on a return may not reduce the penalty 

for failure to file below the lesser of $205 or 100 percent of the amount required to be shown on 

the return.200

The failure to file penalty applies to all returns required to be filed under subchapter A of 

Chapter 61 (relating to income tax returns of an individual, fiduciary of an estate or trust, or 

corporation; self-employment tax returns, and estate and gift tax returns), subchapter A of 

chapter 51 (relating to distilled spirits, wines, and beer), subchapter A of chapter 52 (relating to 

tobacco, cigars, cigarettes, and cigarette papers and tubes), and subchapter A of chapter 53 

(relating to machine guns and certain other firearms).201 The failure to file penalty is adjusted 

annually to account for inflation. The failure to file penalty does not apply to any failure to pay 

estimated tax required to be paid by sections 6654 or 6655.202

Description of Proposal

Under the proposal, if a return is filed more than 60 days after its due date, then the 

failure to file penalty may not be less than the lesser of $330 (adjusted for inflation) or 100 

percent of the amount required to be shown as tax on the return.

Effective Date

The proposal applies to returns with filing due dates (including extensions) after 

December 31, 2019.

 198 The $205 amount is adjusted for inflation.

199 Sec. 6651(c)(1).

200 Ibid.

201 Sec. 6651(a)(1).

202 Sec. 6651(e).