What Is the Taxpayer First Act?

The Taxpayer First Act Explained

Woman paying taxes online with credit card
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DEFINITION
The Taxpayer First Act was signed into law on July 1, 2019 in an effort to make the IRS a more taxpayer-friendly entity and to enforce some taxpayers’ rights. The IRS wants to be liked just like everyone else—or, at least, our federal legislators want taxpayers to like the IRS. The Taxpayer First Act of 2019 takes some steps in the right direction.

The Taxpayer First Act was signed into law on 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.

Definition of the Taxpayer First Act

The Taxpayer First Act's many changes to the tax code were mostly 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 the Taxpayer First Act Works

The act obligated 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 when 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's many other provisions don't affect the average American taxpayer.

Rehiring Fired Agents

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

The IRS must also notify you if an IRS employee is disciplined for actions related to your tax return. This specifically means disclosing information from the return or viewing documents the employee is not entitled to see. It isn't clear what the taxpayer can do about such a situation, however.

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 required 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 also know what you're up against before you engage in the appeals process. The act requires the IRS to 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. Still, 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 to 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

Pros
  • Protects direct deposit refunds

  • Extends installation agreements

  • Extends installation agreements

Cons
  • Increased penalties

Pros Explained

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 received 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. However, 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.

Cons Explained

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 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 2022.

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 improve customer service by the end of fiscal year 2020.
  • The act also included several smaller, but no less appreciated, provisions such as refund fraud and identity-theft measures.

Frequently Asked Questions (FAQs)

What is the main purpose of the Taxpayer First Act?

The goal of the Act is to help taxpayers with tax-related payments and processes, and to resolve any conflicts or controversies in a neutral manner through the Taxpayer Advocate Service.

What is the consent requirement under the Taxpayer First Act?

The consent requirement is a way to keep taxpayers' information private. If you make use of any of the services the Act provides for, you'll likely come across a provision in writing that asks for your permission prior to sharing any of your tax information with third parties who may be involved in a case or controversy.

Why am I being asked to fill out a Form 4506?

IRS Forms 4506-C, 4506-T, and 4506T-EZ (also be called "IVES requests") are the forms the IRS uses to verify that you have given your consent to a third party to access your tax transcripts. This is usually a mortgage lender or other source that needs detailed financial information.

Article Sources

  1. IRS. "Taxpayer First Act."

  2. Congress.gov. "H.R.3151 - Taxpayer First Act."

  3. United States Senate Committee on Finance. "Taxpayer First Act of 2019," Page 10.

  4. United States Senate Committee on Finance. "Taxpayer First Act of 2019," Page 11.

  5. United States Senate Committee on Finance. "Taxpayer First Act of 2019," Page 6.

  6. Congress.gov. "H.R. 3151—Taxpayer First Act."

  7. United States Senate Committee on Finance. "Taxpayer First Act of 2019," Page 12.

  8. IRS. "Collection Procedural Questions 3."

  9. Taxpayer Advocate Service. "Highlights of the Taxpayer First Act and Its Impact on TAS and Taxpayer Rights."

  10. Freddie Mac. "Taxpayer First FAQ."

  11. IRS. "IVES Request for Transcript of Tax Return."