Dear Chairman Hatch, Chairman Brady, Ranking Member Wyden, and Ranking Member Neal:
On behalf of National Taxpayers Union’s (NTU) members and supporters, I write to urge your timely consideration of important tax administration reforms that deserve enactment prior to the conclusion of this Congress. As you know, NTU led the coalition for the first “Taxpayer’s Bill of Rights” enacted via the Technical and Miscellaneous Revenue Act of 1988. NTU’s then-Executive Vice President was nominated to serve on the commission whose recommendations provided the foundation for the IRS Restructuring and Reform Act of 1998 (RRA 98). It is from this ongoing and abiding concern that we ask you to fashion the strongest possible IRS reform package capable of passing both chambers in the remaining weeks of 2018.
Earlier this week Chairman Brady publicly unveiled the Retirement, Savings, and Other Tax Relief Act, Division B of which commendably includes a version of the Taxpayer First Act that unanimously passed the House in April. For NTU, the most salient features of this legislation are:
- Creating a new Independent Office of Appeals, along with clarifying taxpayers’ rights to an administrative review of their case when being examined by the IRS;
- Addressing in statute the IRS’s harsh collection tactics that accused innocent small businesses of engaging in “structured transactions” and seized their assets;
- Strengthening a number of services and protections for moderate-income taxpayers;
- Prohibiting the use of non-government employees in questioning witnesses under oath in tax cases;
- Providing new guidance and managerial authority to fix some of the tax agency’s worst customer service problems in IT and identity theft;
- Making permanent the Free File Alliance program; and
- Requiring the IRS to develop for Congress’s consideration a comprehensive restructuring plan.
More than six months ago, NTU led a coalition statement from 11 citizen groups in support of the original Taxpayer First Act, noting that “Protecting taxpayer rights and ensuring that tax laws are administered fairly is an ongoing concern and improvements should be regularly enacted. We hope that the Senate will provide additional input and work with the House to make sure the best possible legislation reaches the President’s desk this year.”
In the spirit of those words, we hope that lawmakers in both chambers will consider several additional reforms introduced in subsequent Senate legislation (S 3278, the Protecting Taxpayers Act) that can build upon the progress the House has made so far this year. The bill’s authors, Senators Portman and Cardin, were also pivotal in crafting the IRS Restructuring and Reform Act of 1998.
S 3278 contains several safeguards to the examination process that can and should be permitted to augment the strong foundations for audit reforms contained in the Taxpayer First Act. These are:
- The right to an independent conference with the Office of Appeals, in which IRS Chief Counsel or compliance personnel would not be allowed without taxpayer consent (Section 601);
- Requiring the Commissioner to justify, in writing, decisions to deny taxpayer requests for referral to the Office of Appeals and prescribing taxpayer protest methods for such decisions (Section 604);
- Establishing greater accountability for IRS procedures to designate cases for litigation (Section 605); and
- Ensuring that the use of the designated summons in certain examinations is carefully limited to instances where the taxpayer truly is not cooperating with information requests (Section 701).
In September 2017 I testified before the Ways and Means Oversight Subcommittee that the IRS’s examination tactics surrounding designated summonses, designating cases for litigation, hiring of outside counsel, and other prerogatives consisted a major worry for taxpayers, owing to the historical tendency of tactics developed in one division of the IRS to be applied in other situations. Such is the case now. Enacting the sections of S 3278 outlined above would furnish preventative protection against the spread of practices that future Congresses will be forced to clean up.
In the interests of preventing other future tax administration challenges, a final reform package that passes this Congress would be well-served to include two additional provisions of S 3278. Section 303 would create a new standard for small businesses that would allow the release of tax levies due to certain hardship conditions.
Furthermore, Section 101 would establish an IRS Management Board in place of the current IRS Oversight Board. As you know, one of the centerpieces of RRA 98, the IRS Oversight Board, has not functioned well. During NTU’s service with the National Commission on Restructuring the IRS, few other issues created as much controversy or division among panel members. Some contend that the Oversight Board’s wounds were self-inflicted; we would observe that neither branch of government appeared enthusiastic about finding an implementation strategy for the Board that was lasting and workable. The original Taxpayer First Act (HR 5444) repealed the IRS Oversight Board with no replacement. The current version of the Taxpayer First Act thankfully avoids this mistake, but the status quo of an IRS Oversight Board unable to function due to lack of a quorum still exists. Section 101 is one remedy for this problem.
To be certain, S 3278 is not perfect. We would particularly caution against adoption of Section 202, which contemplates a new regulatory apparatus for paid preparers. As a coalition of 17 free-market organizations (including NTU) put it in a September 20 letter to Senators: “The IRS already has the tools it needs to identify, track, and penalize unscrupulous tax preparers without unnecessarily burdening the vast majority of law-abiding preparers with a costly licensing scheme.”
Finally, we believe that a few additional, well-drafted portions of the Small Business Taxpayer Bill of Rights (S 2689) deserve inclusion in IRS reform legislation this year:
- Section 6 prohibits ex parte communications between Appeals staff and other IRS employees on matters before Appeals;
- Section 10 clarifies certain prohibitions on raising new, unrelated issues during appeals; and
- Section 8 provides for an expanded and better defined Alternative Dispute Resolution mechanism for small businesses, which could be extended to individual tax filers with relative ease.
NTU has testified for various iterations of the Small Business Taxpayer Bill of Rights since 2015, not only because its relevance has endured, but also because it establishes protections applicable to many future administrative situations.
In the 20 years since the landmark IRS Restructuring and Reform Act became law, Congress has never been closer to agreeing upon a bipartisan package that can make such a positive difference in the impact of tax administration on Americans’ lives. We hope you will make the most of this opportunity, by embracing these recommendations. Thank you for your consideration, and should you have any questions, I am at your service.