What Is the Taxpayer First Act?

Definition and Examples of the Taxpayer First Act

Woman paying taxes online with credit card

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The Taxpayer First Act was signed into law July 1, 2019, in an effort to make the IRS more taxpayer-friendly and to enforce some taxpayers’ rights. It addresses identity-theft protection, customer service, the appeals process, and tax collection.

What Is the Taxpayer First Act?

The Taxpayer First Act includes numerous single-spaced pages of revisions to the tax code, most of them designed to create a new and improved IRS. It puts rules and restraints in place for the seizure of assets, as well as whistleblower reforms.

The U.S. Senate Committee on Finance provides the entire Taxpayer First Act of 2019 for those interested in reading it.

How Does the Taxpayer First Act Work?

The act obligates the Department of the Treasury to come up with a customer service plan for the IRS, as well as a plan to reorganize the structure of the IRS.

Some smaller requirements were put into place more immediately. For example, you'll hear a recording that addresses identity theft and tax scams the next time you call the IRS and you’re placed on hold. It should offer options to those who know or suspect they have been victims of these crimes.

And remember how frustrating it used to be to try to pay your taxes with a credit or debit card? You had to go through an approved third party who would then transmit the payment to the IRS. This act fixes that. You can pay taxes directly to the IRS with a credit or debit card under its terms, although there's a fee.

Types of Provisions in the Act

The Taxpayer First Act includes numerous other provisions as well, many of which won't affect the average American taxpayer.

Rehiring Fired Agents

The IRS is no longer permitted to rehire employees who were terminated due to misconduct. The agency rehired literally hundreds of these employees in 2014 alone.

Moreover, the act obligates the IRS to notify any taxpayer if an IRS employee is disciplined for actions related to their tax return, specifically disclosing information contained there or viewing documents they’re not entitled to see. It isn’t clear what the taxpayer can do about such a situation, however.

This rule applies to employees of other state and federal agencies as well.

An Independent Office of Appeals

The IRS might be trying to be a bit friendlier, but this doesn’t mean the agency is going to look the other way when taxpayers make mistakes, whether unintentionally or otherwise. The act also requires the IRS set up an Independent Office of Appeals to hear taxpayer disputes.

The idea behind the appeals process is to address issues without the need for litigation. An independent third party will make decisions, leaving the tax court out of it.

You’ll know what you’re up against, too, before you engage in the appeals process, because the act requires the IRS provide taxpayers with their case files in advance. This provision isn’t automatic, however. You have to make an official request for your file.

Tax Assistance Program Adjustments

The Volunteer Income Tax Assistance (VITA) program gets some attention, too. The act requires that the Department of the Treasury set up a grant-matching program to allocate money toward tax-preparation assistance for low-income taxpayers and to educate the public about the availability of this assistance.

As for those Taxpayer Assistance Centers that you can turn to for help, the act obligates the IRS to provide all affected taxpayers with at least 90 days’ notice before they close any of them, and it must tell taxpayers where they can find assistance instead.

Other Refund Fraud and Identity Theft Measures

The Taxpayer First Act places restraints on who outside the IRS has access to your tax return and information. The IRS is no longer permitted to divulge information on your tax return to any local, state, or federal agency or its contractors, unless that entity has specific measures in place to protect the information.

Tax law has long prohibited the IRS from sharing your tax information with “other parties” in general, but the agency is permitted to disclose it to select entities, including state tax agencies, law enforcement, and the Social Security Administration.

The Taxpayer First Act requires the IRS issue personal identification numbers (PINs) to taxpayers in an effort to combat tax-related identity theft, and to contact taxpayers if the agency has reason to believe that their identities have been infringed upon. It must also provide identity-theft victims with a single point of contact within the IRS for assistance.

PINs have been available for some time, but only to taxpayers who’ve already had their tax lives compromised. The Taxpayer First Act makes PINs available to anyone whose identity has been stolen, regardless of whether their tax accounts were affected. Essentially, anyone can request a PIN now.

Pros and Cons of the Taxpayer First Act

Here's some good news in addition to these other numerous provisions: The Taxpayer First Act will protect you if you've requested a direct deposit of your tax refund but you haven’t receive the money. It permits the IRS to take action to recover refunds that are transmitted to the wrong taxpayer, and to make sure the right taxpayer gets the money. This hasn’t always been the case. Historically, the IRS’s hands have been tied in such a situation.

The act also aids taxpayers with regard to the collection of taxes they owe. The IRS can no longer involve private debt-collection agencies to assist them in collecting from low-income taxpayers or those whose incomes derive from disability insurance, although other taxpayers don’t share this protection.

The act extends IRS installment agreements to seven years if you’re willing to pay what you owe but need some extra time to come up with the money. Taxpayers previously only had five years to settle their tax debts using this option.

Now for the bad news. The penalty for failure to file a tax return has been $205 or 100% of the tax due, whichever is less, for years. That $205 was indexed for inflation, so it crept upward from time to time, but the Taxpayer First Act really ramps it up for tax returns that were due any time after December 31, 2019. The penalty was increased to $330. Then further legislation hiked it up to $435, where it remains as of 2021.

Key Takeaways

  • The Taxpayer First Act was signed into law in July 2019 in an effort to create a kinder, gentler IRS.
  • The IRS was required to submit a plan for improved customer service by the end of fiscal year 2020.
  • The act also includes several smaller, but no less appreciated, provisions such as refund fraud and identity-theft measures.