In January 2025, Senators Crapo (Republican Chair of the Senate Finance Committee) and Wyden (Ranking Democrat on the Senate Finance Committee and immediately previous Chair) released a discussion draft of bipartisan legislation (tentatively with a name of the Taxpayer Assistance and Service Act (TAS)) aimed at improving IRS procedures and administration. The proposed legislation is intended to enhance the taxpayer experience by facilitating better communication between the IRS and taxpayers, streamlining tax compliance and dispute processes, and ensuring access to timely expert assistance.

The key points of the Senators’ announcement are as follows:

The draft legislation proposes "common-sense fixes" to IRS procedures and administration.
It is designed to improve communication between the IRS and taxpayers.
The legislation seeks to streamline tax compliance and dispute processes.
It aims to ensure that taxpayers have access to timely expert assistance.
The National Taxpayer Advocate, Erin Collins, supports the bill, noting it would significantly strengthen taxpayer rights.
The goal is to address challenges faced by taxpayers and stakeholders within the federal tax system.
The Senators are seeking comments on the discussion draft by March 31, 2025.

The press release indicates that the draft legislation is the result of several years of work and includes a variety of provisions intended to make the tax system more user-friendly and efficient for taxpayers.

Title I - Tax Administration and Customer Service

Title I of the proposed bill, titled "Tax Administration and Customer Service," includes sections 101 through 117, and focuses on improving the IRS’s processes and enhancing the taxpayer experience. Here’s a breakdown of the key provisions:

Section 101: Scanning and Digitization of Tax Returns and Correspondence

This section requires that electronically prepared tax returns that are printed and filed on paper include a code that the IRS can digitize by scanning.
It also requires the IRS to transcribe paper returns and correspondence that lack a code using scanning technology.
The IRS can use manual data entry if it is faster or more reliable than scanning, but this determination must be reported to Congress.
This provision is designed to reduce processing backlogs caused by manual data entry and establishes deadlines for implementation.
It is effective for individual income tax returns received during or after the calendar year beginning 180 days after enactment; for estate or gift tax returns received during or after the calendar year beginning more than 2 years after enactment; and any other returns or correspondence received during or after the calendar year beginning more than one year after enactment.

Section 102: Establishment of Dashboard to Inform Taxpayers of Backlogs and Wait Times

This section mandates the creation of an up-to-date dashboard on IRS.gov to provide taxpayers with specific information on backlogs and phone wait times during significant delays.
The goal is to reduce unnecessary calls and letters to the IRS.
This provision is effective for weeks beginning 180 days after enactment.

Section 103: Expansion of Electronic Access to Information about Refunds

This section requires upgrades to the IRS’s "Where’s my Refund?" tool, "Where’s my Amended Return?" tool, and Online Account (or any successor systems).
The upgrades should provide more individualized information about the status of refunds, including whether the return has been suspended, what the IRS has requested, and how to provide the information.
These upgrades are to be implemented by January 1 of the first calendar year that starts 12 months after the date of enactment.

Section 104: Expansion of Callback Technology and Online Accounts

This section sets deadlines for the IRS to deploy customer callback technology on virtually all customer-facing phone lines.
It also mandates upgrades to online accounts to allow taxpayers to view images of tax returns, documents, notices, and letters sent or received by the IRS.
Taxpayers should be able to authorize certain practitioners and preparers to view the same information, without requiring practitioners or preparers to log in to each client’s account separately.
Implementation is required by January 1 of the calendar year that begins more than 12 months after the date of enactment.

Section 105: Improvement of Notices of Math or Clerical Error

This section requires the IRS to provide more specific information in math error notices, including the type and nature of the error, the code section to which it relates, the specific line of the return where the error was made, and the IRS’s computation of any adjustments.
Notices must also list a response date in large bold font near the top.
The IRS is required to make similar changes to clarify math error abatement notices.
A pilot program is required to determine if sending math error notices by certified or registered mail would increase the response rate.
This provision is effective for notices sent after the date which is 12 months after the date of enactment.

Section 106: Automation of Refund Offset Bypass for Individuals Facing Economic Hardship

This section mandates that the IRS automatically bypass tax offsets for those eligible to claim the Earned Income Tax Credit (EITC).
This is intended to prevent economic hardship for those who are eligible for a refund offset bypass but may not be aware of it or fail to apply.
This provision is effective for offsets made after the date which is 12 months after the date of enactment.

Section 107: Installment Agreement Fees Eliminated for Certain Individuals

This section waives installment agreement (IA) fees for low-cost IAs that "direct debit" from a bank account, and for other IAs requested by low-income taxpayers.
This change aims to reduce barriers to repayment for those who cannot pay their taxes in full.
It is effective for installment agreements entered into more than 12 months after the date of enactment.

Section 108: Individuals Facing Economic Hardships Informed of Collection Alternatives

This section requires the IRS to inform taxpayers experiencing economic hardship of available collection alternatives such as partial payment installment agreements, offers-in-compromise, or having their account classified as "currently not collectible".
The IRS is required to identify taxpayers who are likely experiencing an economic hardship.
The Secretary, in consultation with the National Taxpayer Advocate, must report to Congress on the accuracy of the IRS in identifying taxpayers with economic hardship and whether its procedures could be used for other purposes.
This provision is effective 12 months after the date of enactment.

Section 109: Quarterly Notices to Certain Taxpayers with Delinquencies

This section requires the IRS to send notices to taxpayers with tax delinquencies at least every quarter, except for those whose accounts the IRS has determined are not collectible.
The IRS may send these notices electronically.
This provision is effective 24 months after the date of enactment.

Section 110: Low-Income Taxpayer Clinic (LITC) Funding Unlocked

This section removes the obsolete $6 million per year and $100,000 per clinic limits on LITC funding.
It also authorizes LITCs to match less than 100 percent of the grant (but not below 25 percent) if it would increase service to taxpayers.
This provision is effective for calendar years beginning after the date of enactment.

Section 111: Chief Counsel Reviews of Offers-In-Compromise Streamlined

This section streamlines the review process for offers-in-compromise (OICs) by requiring the IRS Office of Chief Counsel to issue an opinion only for OICs that the Secretary determines present significant legal issues.
This provision is effective for OICs submitted or pending on or after the date of enactment.

Section 112: Postponement of Certain Deadlines by Reason of Disasters Made Applicable to Limitation on Credit or Refund

This section extends the three-year lookback period for receiving a refund or credit when the IRS postpones a filing deadline due to a disaster.
It also extends the deadline for demanding payment when the IRS postpones a payment deadline.
These provisions are effective for claims filed and notices issued after the date of enactment.

Section 113: Modification of Procedural Requirements for Penalties and Disallowance Periods

This section clarifies that written supervisory approval is required before the IRS sends notice of its intent to apply a specific penalty or multi-year ban to the taxpayer.
It also requires the IRS to issue an annual report on all assessed penalties, beginning 24 months after the date of enactment.
These changes apply to notices sent after the date of enactment.

Section 114: Return of Amounts Collected in Excess of Accepted Offer-in-Compromise Amount

This section requires the IRS to release levies when it accepts an offer and to return amounts collected in excess of the offer amount, unless the agreement provides otherwise, or the taxpayer has defaulted on the offer.
The changes apply to compromises accepted after the date of enactment.

Section 115: Extension of Period for Return of Amounts Subject to Wrongful Levy

This section clarifies that the date of levy for electronic levies is the date the funds were received by the IRS, which may allow individuals subject to electronic levies to recover wrongfully levied funds that those subject to paper levies might not be able to recover.
This provision is effective with respect to any money levied upon or any amount of money received from the sale of property after the date which is 12 months after the date of enactment.

Section 116: Modification of Rules for Postponing Certain Deadlines by Reason of Disaster

This section authorizes the Secretary to postpone federal filing deadlines in response to a request by a governor (or the Mayor, in the case of the District of Columbia) with respect to state disasters, even if no federal disaster declaration has been made.
It also expands the mandatory federal filing extension from 60 days to 120 days.
This provision is effective for declarations made after the date which is 12 months after the date of enactment.

Section 117: Reports to Congress

This section requires the Secretary to provide a report to Congress on the implementation of sections 101, 103, 104, and 105 within two years after the date of enactment.
It also requires the Secretary to provide an annual report to Congress on efforts to identify, prevent, and resolve tax fraud, including identity theft, beginning not later than 12 months after the date of enactment.

In summary, Title I aims to modernize IRS processes, improve taxpayer access to information, and ensure that taxpayers are treated fairly. These changes are intended to make tax administration more efficient and user-friendly.

Title II - American Citizens Abroad

Title II of the proposed bill, titled "American Citizens Abroad," focuses on addressing the unique challenges faced by U.S. citizens living outside of the United States with sections 201 through 206 covering a variety of provisions. Here’s a breakdown of the key provisions:

Section 201: Combined Tax and Foreign Bank and Financial Account Reporting

This section aims to reduce the burden and confusion for individuals with foreign bank accounts by requiring them to file both the Foreign Bank Account Report (FBAR) and the FATCA (Foreign Account Tax Compliance Act) forms with the IRS.
Currently, FBAR forms must be filed with the Financial Crimes Enforcement Network (FinCEN), while FATCA forms are filed with the IRS.
Under the proposal, individuals would file both forms with their tax return, or if no return is filed, at the same time and manner as such a return, by the tax return due date.
The IRS would then be responsible for transmitting the FBAR to FinCEN.
This provision applies to returns and reports required to be filed after the date that is 24 months after the date of enactment.

Section 202: Study and Reports on Simplification

This section mandates a study by the Government Accountability Office (GAO) on the burdens of complying with federal tax laws for citizens living abroad, with a focus on low- and moderate-income citizens.
The study should identify problems related to:
- Filing tax returns and reports with the IRS and FinCEN in a timely, accurate, and affordable manner.
- Understanding and responding to inquiries from these agencies.
- Accessing services from the IRS and FinCEN.
- Accessing financial services abroad.
The GAO is required to submit a report to the Treasury and Congress within one year of the enactment of this bill and make it publicly available.
Following the GAO report, the Secretary of the Treasury must report to Congress within one year on actions taken to address the problems identified by the GAO and provide legislative recommendations.

Section 203: Simplification of Currency Exchange Rules

This section aims to simplify the rules for foreign currency transactions. It includes the following provisions:
- It would increase the exemption for foreign currency gains from $200 to $1,000 and index it annually for inflation.
- It would allow certain home mortgage currency gains and losses to offset gains and losses on a qualified residence, reversing the result of Rev. Rul. 90-79. This applies when the home is located outside of the United States.
- It would also allow a taxpayer to refinance a mortgage on a qualified residence that is denominated in a foreign currency without recognizing gain or loss on the currency, provided the home is overseas.
- It would allow qualified individuals working abroad to use an average conversion rate for salary (and other income identified by the Secretary) received during the year instead of a different conversion rate for each payment.
These provisions are effective for taxable years beginning after the date of enactment.

Section 204: Increase in Threshold for Simplified Foreign Tax Credit Rules and Reporting

This section increases the threshold for claiming a "simplified" foreign tax credit from $300 ($600 for joint returns) to $1,000 ($2,000 for joint returns).
It also indexes this threshold annually for inflation.
This provision is intended to reduce the burden of complex foreign tax credit rules for taxpayers residing abroad.
It is effective for taxable years beginning after the date of enactment.

Section 205: Extension of Time for Persons Outside the United States to Request Abatement of Math Error

This section provides taxpayers residing abroad with an additional 60 days (i.e., 120 days total) to respond to a math error notice, as they currently have for deficiency notices.
This provision is effective for notices sent over 180 days after the date of enactment.

Section 206: Reduced Burden for Lower Income Dual Citizen Expatriates; Clarification of Limitations Period

This section authorizes the Secretary to waive the filing certification requirement for certain dual citizens with limited contacts with the U.S., a tax home outside the U.S. and who file Form 8854, provided the Secretary determines the amount of unpaid taxes is reasonably likely to be de minimis.
This waiver applies to individuals whose expatriation date is on or after the first day of the first calendar year beginning after the date that is one year after the date of enactment.
The Secretary is authorized to provide transition relief for certain individuals who expatriated before that date and after the date of enactment.
The section also clarifies that the income tax limitations period for the expatriation year does not begin to run until the taxpayer files Form 8854. This clarification applies to returns filed after the date of enactment.

In summary, Title II seeks to ease the tax compliance burden for U.S. citizens living abroad by streamlining reporting requirements, simplifying currency exchange rules, increasing the threshold for simplified foreign tax credits, providing additional time to respond to math error notices, and providing relief for certain lower-income dual citizen expatriates.

Title III - Judicial Review

Title III of the proposed bill, titled "Judicial Review," focuses on modifying and clarifying the authority of the Tax Court and other courts in tax-related matters. It includes sections 301 through 312 which aim to improve the efficiency and fairness of the judicial process for taxpayers. Here’s a breakdown of the key provisions:

Section 301: Authorization of Subpoenas Before Hearings to Facilitate Settlements

This section expands the Tax Court’s pre-trial discovery powers by expressly empowering it to authorize a third-party subpoena for the production of documents before the hearing date.
The goal is to facilitate settlements and trial preparation by allowing litigants to obtain necessary documents more efficiently.
This provision is effective upon the date of enactment.

Section 302: Clarification of Tax Court Authority to Order Relief from a Judgment or Order

This section explicitly authorizes the Tax Court to provide relief from a final judgment or order in certain circumstances where justice requires, consistent with the power of district courts under Federal Rule of Civil Procedure 60.
It clarifies the Tax Court’s authority to correct clerical errors or oversights in orders or decisions that are not yet final.
This provision is effective upon the date of enactment.
Potential grounds for setting aside a judgment include mistakes, newly discovered evidence, and fraud.

Section 303: Authorization of Special Trial Judges to Hear Additional Cases and Address Contempt

This section allows parties in certain cases to consent to the assignment of a matter to a special trial judge, and to the entry of a judgment.
It extends to special trial judges contempt authority in limited circumstances.
The consent procedures are effective when the Tax Court adopts rules to implement them, and the contempt provision is effective upon enactment.

Section 304: Disqualification of Tax Court Judges and Special Trial Judges

This section extends to Tax Court judges and special trial judges the same standards for disqualification that apply to other federal judges.
This provision is effective upon the date of enactment.

Section 305: Notice, Review, and Burden of Production for Multi-Year Bans on Claiming Credits

This section addresses situations where the IRS disallows a taxpayer from claiming the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), or the American Opportunity Tax Credit (AOTC) for multiple years.
It requires the IRS to explain a ban in a notice of deficiency, provide that the Tax Court can redetermine bans in connection with its review of a deficiency in the year the ban is imposed, and clarify that the IRS has the burden of production for bans in any such proceeding.
The provision requiring bans to be stated on notices of deficiency applies to notices mailed 36 months after the date of enactment.
The provisions clarifying the Tax Court’s jurisdiction to redetermine bans are effective upon the date of enactment.
The provision requiring the IRS to bear the burden of production for bans applies to court proceedings beginning after the date that is 36 months after the date of enactment in connection with bans determined after that date.
A transition rule authorizes the Tax Court to redetermine certain bans determined in a prior year.

Section 306: Authorization of De Novo Review of Innocent Spouse Relief by the Tax Court and Other Courts

This section allows courts to consider all relevant evidence in reviewing innocent spouse cases.
It clarifies that it is not within the IRS’s discretion to withhold relief from those who qualify for equitable relief.
It also clarifies that the defense can be raised in tax cases before district courts and bankruptcy courts where the taxpayer’s liability is at issue.
These provisions are effective for petitions and requests filed or pending on or after the date of enactment.

Section 307: Clarification of Tax Court Jurisdiction to Apply Equitable Tolling in Deficiency Cases

This section clarifies that the Tax Court has jurisdiction to extend the deadline to file a petition in response to a notice of deficiency when it is equitable to do so.
It also provides that the Tax Court’s dismissal based on a determination not to toll the period is not a decision on the merits, which would prevent the taxpayer from raising substantive issues in another case.
The provision applies to filings made after the date of the enactment, and is not intended to create any inference concerning petitions filed on or before the date of the enactment.

Section 308: Clarification of Tax Court Jurisdiction to Determine Tax Liability in Collection Due Process Appeals

This section allows taxpayers to challenge the IRS-determined tax liability in a Collection Due Process (CDP) hearing if they did not have a prior opportunity to dispute it in Tax Court.
This provision is effective on the date of enactment.

Section 309: Authorization of the Tax Court to Issue Refunds in Collection Due Process Cases

This section allows the Tax Court to order a refund or credit in all CDP cases in which it has jurisdiction to determine a taxpayer’s tax liability, subject to the limitations period.
It would be effective for petitions filed after the date of enactment.

Section 310: Authorization of the Tax Court to Hear Suits for Refunds or Credits

This section expands the Tax Court’s jurisdiction to determine tax liabilities and refunds in refund cases that could be reviewed by a district court or the Court of Federal Claims.
It would be effective for actions filed after the date that is 18 months after the date of enactment.

Section 311: Authorization to Use Deficiency Procedures for Certain Penalties

This section grants the IRS the authority to assess a civil penalty using deficiency procedures if it has identified the penalty in guidance as one that is not otherwise assessable.
The IRS is authorized to send a notice of deficiency for matters not covered by the penalty deficiency notice.
This provision would be effective on the date of enactment.

Section 312: Authorization to Allow Claims for Refund in Certain Cases Where Full Tax Not Paid

This section creates an exception to the full-payment rule for taxpayers who are paying their tax liability in installments or whose account the IRS has determined is currently not collectible.
The provision authorizes the court to dismiss the case (which may be refiled later) if the taxpayer stops making installment payments or is no longer in currently not collectible status.
This provision is effective for actions filed on or after the date of enactment.

In summary, Title III aims to improve the fairness and efficiency of tax-related judicial proceedings by expanding the authority of the Tax Court, clarifying its jurisdiction, and ensuring that taxpayers have access to a fair and impartial review of their cases. It addresses various issues, from pre-trial discovery to the availability of refunds, to innocent spouse relief, and to the ability to challenge penalties.

Title IV - Office of the Taxpayer Advocate

Title IV of the proposed bill, titled "Office of the Taxpayer Advocate," focuses on enhancing the independence and effectiveness of the National Taxpayer Advocate (NTA) and the Taxpayer Advocate Service (TAS). It includes sections 401 through 405, which address various aspects of the NTA’s authority and operations.

Here’s a breakdown of each section:

Section 401: NTA Authorization to Direct Hire Attorneys

This section grants the NTA the authority to directly hire attorneys within the Office of the Taxpayer Advocate.
These attorneys would report directly to the NTA, rather than to the IRS Chief Counsel.
The proposal does not change the role of IRS Chief Counsel attorneys or bar the NTA from continuing to receive advice from them.
This measure aims to ensure the NTA has independent legal counsel.

Section 402: NTA Authorization to Make Personnel Decisions

This section clarifies that the NTA has the authority to take independent personnel actions for all TAS employees, not just those in local offices.
This provision aims to protect the independence of TAS by ensuring the NTA has control over personnel decisions for national office employees who advocate for systemic changes.
This provision is effective 12 months after the date of enactment.

Section 403: Access to Internal Revenue Service Information, Legal Advice, and Meetings

This section requires the IRS to provide the NTA and her employees with access to all information, including legal advice, necessary to fulfill their statutory duties.
This includes access to taxpayer information, legal advice from the Office of Chief Counsel, and meetings between taxpayers and IRS employees, when requested by the taxpayer.
Providing such information or legal advice to TAS does not affect otherwise applicable privileges.
The IRS is required to provide this access within two weeks, unless agreed otherwise, and must include in the NTA’s Annual Report to Congress any failure by the IRS to provide such information or access.
This provision ensures TAS has the necessary resources to advocate for taxpayers.

Section 404: Repeal of Limitation Period Suspension for Taxpayers Seeking Assistance from TAS

This section repeals section 7811(d), which extends the period of limitations within which the IRS may assess or collect tax when a taxpayer requests assistance from TAS in writing.
The IRS has not implemented this provision since its enactment in 1988, and such an extension is considered unnecessary, as TAS does not take actions that would cause these periods to lapse.
The provision also creates an unnecessary distinction between taxpayers who request TAS assistance in writing and those who request assistance by phone.
This provision is effective on the date of enactment.

Section 405: Operations to Assist Taxpayers Experiencing Hardships During a Lapse in Appropriations

This section clarifies that during a lapse in appropriations, the IRS (including TAS) may incur obligations in advance of appropriations to assist any taxpayer experiencing an economic hardship.
This would also allow the IRS to comply with any Taxpayer Assistance Order issued, even during a government shutdown.
This provision aims to ensure that taxpayers experiencing hardships continue to receive assistance even during government shutdowns.
This provision is effective on the date of enactment.

In summary, Title IV seeks to strengthen the Taxpayer Advocate Service by providing the NTA with more control over personnel and access to necessary information while clarifying certain authorities and responsibilities to ensure that TAS can effectively assist taxpayers.

Title V - Tax Return Preparers

Title V of the proposed bill, specifically sections 501-504, focuses on tax return preparer penalties and aims to address issues such as improper return alterations, misuse of identification numbers, and general misconduct. Here’s a breakdown of the key provisions:

Section 501: Penalties for Tax Return Preparers Who Improperly Alter Returns

This section expands the definition of a "return" for the purpose of preparer penalties to include any document that purports to be a return, not just the original return filed by the taxpayer. This means that if a tax preparer alters a return after it has been signed by the taxpayer, the preparer will still be subject to penalties. This closes a loophole where preparers could alter a return, for example, to claim an unreasonably large refund or to change the direct deposit information to have the refund deposited into the preparer’s account, and avoid penalties because the altered submission would not be considered a "return" under the previous definition.
This provision is effective upon the date of enactment.

Section 502: Penalties for Invalid or Appropriated Preparer Identification Numbers

This section addresses the issue of preparers using invalid or someone else’s Preparer Tax Identification Number (PTIN).
A penalty of $250 will be imposed for each failure to furnish a valid PTIN.
- A PTIN is considered invalid if it is assigned to another person, does not exist, is inactive or expired, has been withdrawn, or is suspended or revoked.
A $250 penalty will also be imposed on Electronic Return Originators (EROs) who provide an incorrect Electronic Filing Identification Number (EFIN).
The maximum penalty under this section is $75,000.
These penalties will not apply if the failure is due to reasonable cause and not willful neglect.
The Secretary is required to establish a program to help preparers and EROs avoid these penalties, including allowing them to withdraw the return(s) or provide a valid number.
The section also introduces a criminal penalty for the willful misuse of a PTIN:
- It is a felony, punishable by a fine of up to $50,000 ($100,000 for corporations) or 2 years in prison, or both, to willfully fail to furnish a PTIN, willfully furnish an invalid PTIN, or willfully furnish a PTIN assigned to another person.
These provisions apply to returns or claims for refund filed after the date that is 18 months after the date of enactment.

Section 503: Penalties for Improper Tax Preparation or Misappropriation of Refunds

This section increases penalties for various forms of tax preparer misconduct. The penalties for the following are increased:
- Failure to furnish a copy of a return or claim for refund to the taxpayer: $250 per offense, up to $50,000 maximum.
- Failure to sign a copy of a return or claim for refund: $250 per offense, up to $75,000 maximum.
- Failure to furnish the preparer’s identifying number: $250 per offense, up to $75,000 maximum.
- Failure to retain a completed copy of the prepared return or a list of taxpayers for whom returns were prepared: $250 per offense, up to $50,000 maximum.
- Failure to file correct information returns identifying the return preparers employed by a person: $250 per item, up to $75,000 maximum.
- Misappropriating a refund by endorsing or negotiating a check or altering direct deposit information on a return: $1,000 per check or transfer, or the full amount of the check/transfer, whichever is greater.
These changes are effective on the date of enactment.

Section 504: Authority to Deny, Revoke, or Suspend Preparer Tax Identification Numbers

This section grants the IRS the authority to deny, suspend, or revoke a PTIN for preparers who do not meet suitability or continuing education requirements, are found to be incompetent or disreputable, or violate regulations.
It requires non-credentialed tax return preparers to demonstrate suitability by providing information about their competence and character, passing a criminal background and tax compliance check, completing up to 18 hours of continuing education (CE) each year, and demonstrating they have attended and participated in CE.
The IRS may not require the preparer to take an exam or attend classes from a particular CE provider, as long as the provider includes written materials and meets the minimum standards set by the Secretary. The IRS must post on its website a list of approved educational programs and providers.
The Secretary may require a preparer to complete additional CE (up to 18 hours) on specific topics if errors are identified on returns filed under the preparer’s PTIN.
Licensed attorneys, CPAs, and enrolled agents (EAs) are exempt from the suitability and CE requirements.
- Similarly, preparers licensed or registered by a state with comparable requirements are also exempt.
The IRS may preliminarily suspend a PTIN for up to 180 days if necessary to prevent serious economic harm to taxpayers or serious impairment of federal tax administration.
The IRS may impose a penalty of up to $1,000 for each non-willful violation and up to $5,000 for a willful violation with intent to defraud.
Final disciplinary determinations with respect to a practitioner or preparer must be posted on the internet within 30 days, after redacting information that could identify third parties.
The IRS is also required to annually publish the 10 most frequent errors on returns prepared by tax return preparers and the top 10 reasons preparers were subject to penalties or discipline.
A person who is paid to prepare an offer-in-compromise must include an identifying number on the offer, or be subject to a penalty of $250 per offer, up to a maximum of $75,000 unless the failure is due to reasonable cause.
This section is effective 180 days after the date of enactment, but preparers with an Annual Filing Season Program (AFSP) certificate on the date of enactment will be treated as satisfying the educational requirements for the year the certificate applies.

In summary, Title V aims to regulate tax preparers more strictly and protect taxpayers from fraud, incompetence, and misconduct by imposing penalties, establishing suitability requirements, and expanding the IRS’s authority to oversee the tax preparation industry. These provisions also align with the goals of the proposed bill by improving taxpayer experience.

Title VI - Appeals

Title VI of the proposed bill, titled "Appeals," focuses on enhancing the independence, authority, and accessibility of the IRS Independent Office of Appeals. It includes sections 601 through 605, which aim to provide taxpayers with a fair and impartial process for resolving tax disputes without litigation. Here’s a detailed look at each section:

Section 601: Authorization for Office of Appeals to Hire Attorneys

This section enhances the independence of the Office of Appeals by authorizing it to hire its own attorneys who report directly to the Chief of Appeals, rather than to the IRS Office of Chief Counsel.
The intent is to ensure that Appeals has independent legal advice, as the Chief Counsel’s attorneys often provide legal analysis to the IRS enforcement functions and advocate for the Commissioner’s positions in court.
This provision is effective on the date of enactment.

Section 602: Authorization for Office of Appeals to Direct Hire Certain Individuals

This section addresses the challenge that the Office of Appeals has faced in hiring qualified personnel, especially those who do not work for IRS enforcement functions.
It authorizes Appeals to use "direct hire" authority to quickly hire qualified candidates who do not work for IRS enforcement functions, supporting Appeals’ independence from the IRS enforcement functions whose decisions it reviews.
This provision is effective on the date of enactment.

Section 603: Responses to Claims for Refund Required; Appeal of Claims for Refund Authorized

This section mandates that the IRS review timely claims for refund and mail a notice of determination to the taxpayer within 36 months, or another date agreed to by the parties.
The notice must include a detailed explanation of the determination and instructions for appealing to the Office of Appeals.
Taxpayers can appeal a disallowance within 30 days.
If the IRS fails to respond timely, the taxpayer can treat it as a disallowance and appeal to Appeals. In such cases, the IRS must pay additional interest (an additional 1 percent, up to $1,000, annually adjusted for inflation) on any refund due.
The period for filing suit is suspended during any such appeal.
Frivolous claims are excluded from the requirement to provide a detailed written explanation or access to Appeals.
This provision is effective for claims received more than 12 months after the date of enactment.

Section 604: Appeals of Returned Offers

This section clarifies that taxpayers can appeal a determination that an offer-in-compromise is "non-processable" to the Office of Appeals.
This provision addresses concerns that offers can be rejected without a clear appeal process, even if they are potentially processable.
This provision is effective on the date of enactment.

Section 605: Purposes and Duties of Independent Office of Appeals; Right of Appeal Clarified

This section reinforces the mission of the Office of Appeals as resolving tax controversies without litigation, while enhancing voluntary compliance and confidence in the IRS.
It clarifies that Appeals must consider the hazards of litigation (i.e., the likely outcome if the dispute were litigated) in resolving any case referred to it.
It expands access to Appeals by emphasizing a taxpayer’s right to access Appeals, while codifying limited exceptions. The exceptions only include appeals:
- Of disputes that do not involve liability for tax, penalties, or additions to tax, as Appeals’ core mission is to resolve controversies concerning tax liabilities.
- Based solely on the argument that a statute, regulation, or other guidance issued by the Secretary is unconstitutional or otherwise invalid, unless there is an unreviewable decision from a federal court holding that the item is unconstitutional or otherwise invalid.
- Of a position rejected in federal court and identified as frivolous by the Secretary (or an associated penalty).
- Of issues resolved by a closing agreement.
- Of a matter that could interfere with the criminal prosecution of a tax-related offense.
- Of a case that Chief Counsel has designated for litigation and is prepared to litigate timely.
The provision does not prevent Appeals from hearing cases or classes of cases that it is not required to hear, and it does not affect other statutory provisions that expressly grant or deny taxpayers a review by Appeals.
This provision is effective as of the date of enactment.

In summary, Title VI seeks to strengthen the IRS Independent Office of Appeals by increasing its independence, clarifying its authority, and expanding access to its services. It provides the office with the tools needed to function as an effective and impartial forum for taxpayers to resolve disputes, ensuring a more fair and efficient tax administration system.

Section VII - Whistleblowers

Title VII of the proposed act, titled "Whistleblowers," focuses on strengthening the IRS whistleblower program by improving the review process for award determinations, ensuring the protection of whistleblowers, and providing more transparency and accountability in the program. It includes sections 701 through 708, which address key issues related to whistleblower claims and awards. Here’s a detailed look at each section:

Section 701: Standard and Scope of Review of Whistleblower Award Determinations

This section changes the standard of review for IRS whistleblower award determinations by the Tax Court from "abuse of discretion" to "de novo".
This means the Tax Court will take a fresh look at the record and evidence to determine the soundness of the IRS decision.
The review will be based on the administrative record at the time of the decision and any newly discovered evidence.
This provision is effective for petitions pending on or filed on or after the date of enactment.

Section 702: Exemption from Sequestration

This section exempts IRS whistleblower awards from budget sequestration, ensuring that whistleblowers receive the full congressionally mandated awards.
This provision is effective for any sequestration order issued after December 31, 2022.

Section 703: Whistleblower Privacy Protections

This section clarifies that whistleblowers will proceed anonymously before the Tax Court unless the court determines there is a heightened societal interest in knowing the whistleblower’s identity that outweighs the potential harm of disclosure.
This provision aims to protect whistleblowers from potential jeopardy and encourage them to come forward with information.
This provision is effective for petitions that are pending on, or filed on or after, the date of enactment.

Section 704: Modification of IRS Whistleblower Report

This section requires the IRS Whistleblower Program’s annual report to Congress to list the top ten areas where whistleblowers have identified tax avoidance schemes.
This provision seeks to give Congress real-time information on violations to assist in strengthening the tax laws.
This provision is effective for reports for fiscal years ending after the date of enactment.

Section 705: Interest on Whistleblower Awards

This section seeks to ensure that the IRS pays awards in a timely manner by having interest accrue on an award if the IRS fails to provide notice of a preliminary award recommendation within 12 months of the first date on which all proceeds are collected and no opportunity remains for the taxpayer to contest the liability or seek a refund.
In general, this provision is effective 180 days after the date of enactment with interest accruing on awards beginning 18 months after the date of enactment.

Section 706: Correction Regarding Deduction for Attorney’s Fees

This section ensures conformity of tax treatment of attorney’s fees between the IRS’s mandatory and discretionary award programs and with other federal whistleblower award programs by not including attorney’s fees in income under either program.
This provision is effective for taxable years ending after the date of enactment.

Section 707: Nondisclosure of Return Information by Whistleblowers

This section prohibits whistleblowers from re-disclosing taxpayer information obtained from the IRS unless the information has already been disclosed in a judicial or administrative proceeding.
It clarifies that whistleblowers are not barred from redisclosing information that has been disclosed to the public in a judicial proceeding.
This clarification concerning whistleblowers does not create an inference that section 6103 currently bars others from redisclosing information that has been disclosed to the public in a judicial proceeding.
This provision is effective as of the date of enactment.

Section 708: Appeal of Award Determinations

This section allows whistleblowers to appeal an IRS award determination to the Office of Appeals within 30 days of the determination.
Appeals can evaluate the same hazards of litigation that the IRS would face in court and potentially settle award disputes more quickly without litigation, and without the risk of disclosing either the whistleblower’s identity or information about third parties in court.
An Appeals determination would be subject to further review by the Tax Court.
This provision is effective as of the date of enactment.

In summary, Title VII is intended to strengthen the IRS whistleblower program by providing more transparency, fairness, and protection for those who report tax law violations. It enhances the review process, ensures that whistleblowers receive the awards they are due, and offers them the option of appealing their award determination to the Office of Appeals.

Title VIII - Hostages

Title VIII of the proposed bill, titled "Hostages," focuses on providing tax relief and protections for individuals who have been unlawfully or wrongfully detained or held hostage abroad, and their families. It includes sections 801 and 802, which aim to address the unique challenges these individuals face related to tax obligations. Here’s a breakdown of each section:

Section 801: Postponement of Tax Deadlines for Hostages and Individuals Wrongfully Detained Abroad

This section extends tax deadlines for any "applicable individual" who is unlawfully or wrongfully detained or held hostage abroad, as well as their spouse.
An applicable individual is defined as a U.S. national unlawfully or wrongfully detained abroad, or taken hostage abroad, as determined by the Secretary of State and the Attorney General, respectively.
The Secretary of State and the Attorney General are required to provide the Secretary of the Treasury with lists of eligible individuals each year.
The period of time during which the individual is detained or held hostage is disregarded when determining whether tax-related acts were performed on time, the amount of any interest or penalties, and the amount of any credit or refund.
- This means that tax deadlines are postponed during the period of detention, and penalties and interest will not accrue during that time.
This section also provides a special rule for overpayments, applying the rules of section 7508(b) for purposes of this section.
This provision is effective for taxable years ending after the date of enactment.

Section 802: Refund and Abatement of Penalties and Fines Paid by Eligible Individuals

This section allows eligible individuals (or their spouses or dependents) to apply for a refund or abatement of any penalties, fines, and interest paid that are attributable to the period they were detained or held hostage.
The Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General, will establish a program to facilitate these refunds and abatements.
The Secretary of State and the Attorney General will compile a list of individuals who were applicable individuals between January 1, 2021, and the date of enactment, and provide it to the Secretary of the Treasury.
The Secretary of the Treasury will provide notice to individuals on this list that they may be entitled to relief.
- Individuals who were released on or before the date of enactment will receive notice within 90 days of the enactment.
- Individuals who are released after the date of enactment will receive notice within 90 days of their release.
The provision extends the limitations period under section 6511 for claiming refunds to one year after the IRS provides the individual with notice that they may be entitled to relief.
This provision is effective for taxable years ending on or before the date of enactment.

In summary, Title VIII provides essential protections and relief for individuals who have been unlawfully or wrongfully detained or held hostage abroad, recognizing the unique challenges they face when meeting their tax obligations. It ensures that they are not penalized for circumstances beyond their control and are able to recover any penalties or fines they may have paid during their detainment.

Title IX - Small Business

Title IX of the proposed bill, titled "Small Businesses," includes sections 901 through 906 and focuses on implementing changes to ease tax burdens and improve tax processes for small businesses and individual taxpayers. Here’s a breakdown of each section:

Section 901: Implementation of Voluntary Withholding Agreements for Payments to Independent Contractors

This section permits voluntary withholding on payments made to independent contractors (ICs).
Under current law, ICs have to pay their estimated taxes directly, which can be a burden. This provision would allow businesses to withhold taxes for ICs if both parties agree.
The provision treats the payments to ICs as if they were wages paid to employees, for tax purposes.
The Secretary is directed to issue regulations or guidance on the amount to be withheld and the types of payments that qualify as non-wage remuneration.
This provision is effective on the date of enactment.

Section 902: Extension of Time for Making S Corporation Elections

This section modifies the rules for electing to be treated as an S corporation.
Currently, small businesses that incorporate may miss the election deadline, which is typically before the filing deadline of their first income tax return. This provision aims to address this issue.
It would allow taxpayers to elect S status on their first timely filed corporate income tax return.
It also permits late elections to revoke S status if the delay was due to reasonable cause.
The provision is effective for elections for taxable years beginning after the calendar year of enactment, and for revocations made after the date of enactment.

Section 903: Quarterly Installments for Estimated Income Tax Payments by Individuals

This section changes the deadlines for individual estimated tax payments to even quarterly intervals.
Currently, these payments are due at confusing three-month, two-month, three-month, and four-month intervals. The new schedule would be April 15, July 15, October 15, and January 15.
The provision is effective for installments due in taxable years beginning after the date of enactment.

Section 904: Establishment of a Failure-to-Pay Penalty Safe Harbor for Individuals

This section creates a safe harbor for individuals regarding the failure-to-pay penalty.
Taxpayers who request an extension to file their taxes may still incur a penalty for not paying by the April deadline, even with the extension. The current law allows individuals to avoid an estimated tax penalty by making four equal estimated tax payments that total 100% (or 110% for high income individuals) of the tax shown on the prior year’s return, but no similar provision exists for failure-to-pay penalties.
Under this provision, the failure-to-pay penalty is waived for individuals who timely pay, without regard to any extension, at least 125% of the amount of tax required to be shown on the person’s prior year return by the due date.
This safe harbor does not apply to
- Entities,
- Those who have not fully paid when they file their return,
- Those who do not file by the extended due date,
- Those who did not file during the prior year, or
- Those whose prior-year return covered less than a 12-month period.
Interest continues to accrue on any unpaid tax during the extension period.
The provision is effective for taxable years beginning more than 12 months after the date of enactment.

Section 905: Extension of Mailbox Rule to Electronic Submissions and Payments

This section extends the mailbox rule to electronic submissions and payments.
Currently, the mailbox rule, which treats a document or payment as timely if it was mailed by a certain date, does not apply to electronic submissions. This can cause issues with electronic payments made on the due date.
This provision would treat electronic submissions as timely if they are sent by the due date, regardless of when they are received by the IRS.
The Secretary is required to issue regulations by the effective date to implement this provision.
The provision is effective for documents and payments sent one year or more after the date of enactment.

Section 906: Specificity of Third-Party Contact Notices

This section requires the IRS to be more specific in third-party contact notices.
The IRS is required to provide advance notice to taxpayers when contacting third parties for information. Currently, the IRS is not required to tell the taxpayer what specific information is needed, or give them an opportunity to provide the information first.
This provision requires the IRS to identify the specific information it plans to request from a third party, and provide taxpayers with an opportunity to provide the information.
This does not apply if the taxpayer would not be expected to have the information, or if another statutory exception applies.
The taxpayer has at least 45 days to respond to the notice.
The provision is effective 12 months after the date of enactment.

In summary, Title IX is designed to reduce tax burdens, simplify processes, and provide relief to small businesses and individual taxpayers. It covers a range of issues, including withholding for independent contractors, S corporation elections, estimated tax payments, failure-to-pay penalties, the mailbox rule for electronic submissions, and third-party contact notices.

Title X - Miscellaneous

Title X of the proposed bill, titled "Miscellaneous," encompasses sections 1001 through 1003, addressing various tax-related issues that do not fit into the other titles. Here’s a breakdown of each section:

Section 1001: Authority for Redisclosure of Certain Tax Information Related to Education Loans to the Congressional Budget Office (CBO)

This section allows the Congressional Budget Office (CBO) to receive certain tax information from the Department of Education (ED).
The CBO previously received income information of student loan and Pell grant recipients from ED, which ED collected directly from borrowers.
Currently, ED gets this income information from the IRS, which is considered federal tax information (FTI).
FTI can only be disclosed as authorized by law. While the CBO receives FTI for other purposes, it is not authorized to receive this specific borrower data.
This provision would amend section 6103(l)(13)(D) to authorize the CBO to continue receiving this data.
The CBO needs this data to conduct analysis for Congress.
It also requires ED to submit an annual report to the Secretary of the Treasury regarding any authorized redisclosures, unauthorized redisclosures, and unauthorized use or access.
This provision is effective for disclosures made after the date of enactment.

Section 1002: Authorization to Require Large Partnerships to File on Magnetic Media

This section authorizes the Secretary to require large partnerships to file tax returns electronically.
Currently, partnerships are required to file electronically if they file at least 10 returns or have more than 100 partners.
Certain partnerships with significant assets or economic activity are not required to file electronically.
This provision would authorize the Secretary to require electronic filing for partnerships with assets or liabilities greater than $10,000,000 or any item of income or loss greater than $10,000,000 in any of the three preceding taxable years.
It does not change the requirement for partnerships with more than 100 partners or filing at least 10 returns to e-file.
This provision is effective for returns filed on or after January 1 of the first calendar year beginning after the date of enactment.

Section 1003: Imposition of Penalty for Erroneous Claims Relating to Employment Taxes

This section would impose a penalty for excessive claims related to employment taxes.
Currently, a 20% penalty applies to an excessive claim for refund or credit of income tax, unless the excessive claim was due to reasonable cause. This penalty does not apply to excessive claims for refund or credit of employment tax.
This provision would apply the 20% penalty to excessive claims for refund or credit of employment tax.
The provision would be effective for claims filed after the date of enactment.

In summary, Title X addresses various miscellaneous tax-related issues. It allows the CBO to access necessary tax information for its analyses, mandates electronic filing for large partnerships to improve tax administration, and introduces a penalty for excessive employment tax claims to ensure compliance.