A series of IRS reform related bills passed by the House on April 17 are still pending in the Senate, but it is unclear as to how the upper chamber will proceed. The Senate Finance Committee is currently reviewing the House bills and will craft its own package in the coming weeks.

According to intel gathered by the Tax Policy Update team, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) are unlikely to hold a markup for the bill. All changes will need to be made during the drafting process. Additionally, the regulation of paid return preparers may still be in play, though it is unlikely that this politically fraught provision will make it into the final bill.

Last week, Chairman Hatch said that he is working closely with Ranking Member Wyden, as the committee moves forward with legislation. Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) are heading up efforts for the committee. Both have indicated that they hope to introduce a package of noncontroversial bills, though Sen. Portman would like to hold hearings on the provisions. This will likely push the release of a bill until after Memorial Day recess.

House Ways and Means Chairman Kevin Brady (R-TX) noted that he doesn’t envision any issues on the Senate side, though he does expect it to take some time for the committee to reach an agreement on a final bill. Chairman Brady was told that the Senate will likely use the House bill as a “baseline.” The Senate will likely recycle parts of S. 3156 and S. 3157, two bills on taxpayer rights and identity theft protection that were marked up by the Senate Finance Committee in 2016.

Check out our comparison of the 2016 taxpayer identity theft legislation marked up by the Senate and the House-passed Taxpayer First Act.

Identity thieves continue to become increasingly sophisticated. The IRS noted an increase in fake filings for C corporations, S corporations, partnerships, and returns from trusts and estates. Forms 1120, 1120S, 1041, and Schedule K-1 are all affected by the rise in fraud.

Cybercriminals are using stolen Employer Identification Numbers (EINs) to file fake returns. The IRS has asked businesses to contact the IRS if extension requests were denied because of duplicate EIN numbers or if they receive tax transcripts or other notices from the IRS that they did not request.

The House Ways and Means Committee will hold a markup for a series of bills related to IRS reform on April 11 at 10 a.m. Among the bills to be considered is The Taxpayer First Act – a bipartisan measure to improve IRS operations and tax administration procedures.

House Ways and Means Oversight Subcommittee Chairwoman Lynn Jenkins (R-KS) and Ranking Member John Lewis (D-GA) released a discussion draft of the bill over the spring break recess. The measure would overhaul the tax collection agency and modernize its information technology infrastructure. The overall goal is to improve taxpayer services and customer experience with the IRS.

The discussion draft is the product of 11 subcommittee hearings and roundtables over the past three years. The six-title bill includes provisions to reform the independent appeals process; improve customer service; promote sensible enforcement; enhance cybersecurity protection; modernize the IT infrastructure; and update the Tax Court. Most of the provisions in the bill have bipartisan and bicameral support.

Here are some noteworthy highlights:

  • Modify Select Official Titles. The current title of “Commissioner of Internal Revenue” would be changed to “Administrator of the Internal Revenue Service.” The current title of “Deputy Commissioner” would be changed to “Deputy Administrator.”
  • Establish an IRS Independent Office of Appeals. This provision would ensure that all taxpayers are able to access the administrative review process, so that their cases can be heard by an independent decision maker. This includes codifying the IRS Independent Office of Appeals and providing for additional Congressional oversight over decisions to stop taxpayers from engaging in the administrative review process.
  • Codify IRS Free File Program. This provision would codify the existing Free File Program and work with stakeholders to improve and promote the program. This is a bipartisan proposal spearheaded by Reps. Peter Roskam (R-IL) and Ron Kind (D-WI).
  • Limit Access to Information. This provision would prohibit a person, other than IRS personnel, from examining books, records, and witness testimony as part of an examination, unless they are serving as an expert.
  • Establish a Single Point of Contact for Identity Theft Victims. This provision would establish a single point of contact within the IRS for any taxpayer who is a victim of identity theft.

Interestingly, the bill does not include any provisions to regulate paid tax return preparers — an issue that has been hotly debated in recent years.

A full section-by-section summary of the discussion draft is available here.

With a shrinking pot of funding and workforce constraints, the IRS may have difficulties offering in-person appeals conferences at the taxpayer’s preferred location. As a result, the IRS appeals office is evaluating two pilot programs:

(1) Virtual appeals conferences: The virtual conference pilot program gives taxpayers and practitioners the option to remotely attend IRS appeals conferences through a web-based screen-sharing platform. So far, the program has received favorable feedback, though the IRS acknowledges that the conferences are not for everyone.

(2) Compliance-staff attendance at Appeals Team Case Leader (ATCL) conferences: This program allows IRS compliance officials who have historically not been present for appeals conferences to attend with technical employees.

The two programs were launched last year and the agency will be seeking external and internal feedback as it works on fine-tuning the pilots.

The Bipartisan Budget Act of 2018, enacted on Feb. 9, retroactively renewed for tax year 2017 a number of tax extenders that expired at the end of 2016. In order for taxpayer to claim the benefits, the IRS has had to reprogram its processing systems.

On Feb. 22, the IRS announced that it is ready to process 2017 returns claiming the following:

  • Exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness).
  • The mortgage insurance premiums treated as qualified residence interest.
  • Deduction for qualified tuition and related expenses.

In the coming weeks, the IRS will work closely with tax professionals and the tax-preparation industry to ensure that software processes can accommodate the new provisions. The IRS emphasized that filing electronic returns is the best way to ensure that returns are processed accurately and refunds are properly issued.

The IRS will also continue to update its systems to handle returns claiming the other tax benefits extended by the Bipartisan Budget Act, though many of these benefits impact a smaller number of taxpayers. The IRS noted that taxpayers eligible for these benefits can file an amended return once systems are fully updated.

President Donald Trump will officially nominate Charles Rettig as IRS commissioner later today, according to a White House official.  Rettig is currently a tax lawyer with the firm Hochman, Salkin, Rettig, Toscher, and Perez, P.C. and has been with the firm for 35 years. Rettig would replace Treasury Assistant Secretary for Tax Policy David Kautter who has served as acting IRS commissioner since November 2017, when former Commissioner John Koskinen left the agency at the end of his term.

In case you missed it, check out our write-up on Rettig here.

On Jan. 30, the House Ways and Means Oversight Subcommittee, chaired by Rep. Lynn Jenkins (R-KS), convened a member-day hearing to discuss various legislation to improve tax administration, IRS operations, and taxpayer services. This hearing is a continuation of the subcommittee’s efforts to restructure the IRS.

The hearing came at a difficult time for the IRS, as it is grappling with budgetary constraints, loss of personnel, and an uphill task to implement the GOP’s new tax law.

During the hearing, GOP members and one Democrat, subcommittee ranking member John Lewis (D-GA), offered proposals to improve the IRS. Below is a list of key recommendations discussed at the hearing.

  • Oversight Subcommittee Chairman Lynn Jenkins (R-KS): Focus on the IRS’s dispute resolution process, without litigation, by ensuring that taxpayers have access to face-to-face meetings and an independent review of agency assessments.
  • Subcommittee ranking member John Lewis (D-GA): Eliminate the private debt collection program, which costs about three times more than it collects. Rep. Lewis also asked for better funding of the agency, improvements to the low-income taxpayer clinics, and oversight over paid-return preparers.
  • Rep. Dave Schweikert (R-WA): Use third-party data verification to speed up refund processing, replacing algorithms, which encourage cybercriminals to design clever workarounds.
  • Rep. Mike Bishop (R-MI): Find a way to assist the efforts of the IRS Security Summit – Rep. Bishop’s office is looking for a list of ideas that outline ways in which they might be helpful, absent legislation.
  • Rep. Tom Reed (R-NY): Introduce a call-back feature for those who have limited access to IRS centers due to geographic location.
  • Rep. LaHood (R-IL): Provide for free file permanence (H.R. 3641); and give the Taxpayer Advocate’s Office the necessary resources to ensure the IRS commissioner responds to taxpayer concerns in a timely manner.
  • Rep. Jason Smith (R-MO):  Modify the IRS’s appeals procedures by restricting the agency’s authority to designate cases for litigation without permitting an appeal. (Preserving Taxpayers’ Rights Act – H.R. 3220).
  • Rep. Jim Renacci (R-OH): Enact additional measures to prevent tax refund fraud, including the establishment of a centralized point of contact for victims of identity theft and a requirement that the IRS notify victims of identity theft. (Identity Refund Fraud Prevention Act of 2017 – H.R. 439).
  • Rep. Tom Rice (R-SC): Require the IRS to provide uniform guidance on the use of electronic signatures, instead of antiquated “wet” signatures. (Electronic Signature Standards Act of 2017 – H.R. 3153).
  • Rep. Bill Posey (R-FL): Provide simplified tax forms for individuals 65 and over. (Seniors’ Tax Simplification Act of 2017 – H.R. 2721).

President Donald Trump plans to nominate Charles “Chuck” Rettig to be the next commissioner of the Internal Revenue Service (IRS). If nominated and confirmed by the Senate, Rettig would serve a five-year term as head of the revenue collection agency. Rettig would replace Treasury Assistant Secretary for Tax Policy David Kautter who has served as acting IRS commissioner since November 2017, when former Commissioner John Koskinen left the agency at the end of his term.

Though White House aides have yet to comment on Rettig’s potential nomination, Senate Finance Chairman Orrin Hatch (R-UT) has praised his qualifications, saying the agency needs a leader with knowledge of the tax code.

Who is Charles Rettig? Rettig is not well known in Washington’s tax policy circles. He has been a tax lawyer with the firm Hochman, Salkin, Rettig, Toscher, and Perez, P.C. for 35 years. He has built a broad practice advising U.S. taxpayers in foreign and domestic voluntary disclosures, civil tax examinations where civil penalty issues or assertions of fraudulent conduct were at issue; and defending criminal tax fraud investigations and prosecutions. During his career, Rettig has represented clients before the IRS, the Tax Division of the U.S. Department of Justice, various state taxing authorities, and in federal and state courts.

In addition to his tax practice, between 2010 and 2011, Rettig was appointed to serve as chair of the IRS Advisory Council (IRSAC). IRSAC advises the IRS on various tax administration issues, making recommendations on existing and emerging policy. IRSAC issues an annual report making various suggestions on operational improvements, best practices for IRS activities, standards for tax professionals, and procedural issues.

Given his IRSAC tenure, Rettig is a familiar name to several IRS officials who have worked with him on the council and on several tax litigation matters. Still, he is a somewhat unusual choice for commissioner. For the past two decades, after the IRS Restructuring and Reform Act of 1998, commissioners have come from the business world.

Political Ties. While Rettig is not a newcomer to Washington, he has few notable political ties. In the past, he has made campaign contributions to both Republican and Democratic candidates. That said, Rettig has generally given more to Democrats than Republicans. Sen. Brian Schatz (D-HI) has received the most from Rettig over the years — about $8,000 in total. Rettig has also donated to former Senate Finance Committee Chairman Max Baucus (D-MT) and to Sen. Kamala Harris (D-CA).

Prior to the 2016 presidential election, Rettig donated equally to both President Barack Obama and former GOP presidential nominee Mitt Romney. During the last election, Rettig supported President Trump and made contributions to his campaign and a political action committee.

Trump Tax Returns. While Rettig may not have major political ties to the president, he did opine on the topic de jour – the president’s tax returns. In a Feb. 2018 Forbes Magazine article, Rettig wrote: “Is there any legal impediment to Trump publicly releasing his tax returns? Absolutely not. Would any experienced tax lawyer representing Trump in an IRS audit advise him to publicly release his tax returns during the audit? Absolutely not.”

Rettig went on to caution that people might not find all the information they seek in Trump’s tax returns. He noted that an overall financial picture will not surface by simply reviewing Trump’s returns since he likely “pays taxes at a lesser rate than many of us given the nature of his real estate and similar investments being subjected to lower tax rates than salaries earned by the rest of us.” Rettig also wrote that any “maneuvering” by tax professionals to lower Trump’s tax rate is likely legal and even encouraged by the tax code.

Views on the IRS. In a departure from the GOP’s penchant for IRS-bashing, Rettig is sympathetic to Koskinen’s views on the agency, noting that certain lawmakers should consider toning down criticism of the IRS.

Rettig has outlined his views on the role the agency should play as well: “The IRS must balance service to the taxpayer community with an appropriate degree of enforcement of our nation’s tax laws.” Rettig acknowledged the IRS’s public fall from grace, noting that the agency must seek to gain taxpayer confidence. Rettig also discussed various other issues at the IRS, including tactics to keep employees motivated and the importance of preserving a deep berth of institutional knowledge to train new employees.

In his written work, Rettig also displays familiarity with the structure of the agency, noting that the IRS’s tax administration operations often depend on who commissioners appoint to management positions, including, most importantly the deputy commissioner for services and enforcement having responsibility for overseeing the four primary operating divisions of the IRS — the Wage and Investment Division, the Large Business and International Division, the Small Business/Self-Employed Division, and the Tax Exempt Governmental Entities Division.

Given the importance Rettig placed on these positions, if he is appointed to serve as commissioner, this will be something to watch out for. Who Rettig chooses to fill these rules will offer clues on the future of the agency, especially amidst the GOP’s continued efforts to restructure the IRS.

Views on Koskinen. Shortly after former President Obama’s nomination of Koskinen, Rettig acknowledged that Koskinen had an uphill task ahead of him, especially given that the agency had recently been accused of targeting taxpayers for extra scrutiny based on their political ideology. Rettig wrote that based on Koskinen’s previous experiences, he would “likely perform in a politically satisfactory manner” and that “he deserves our support and respect for his willingness to assume the position of Commissioner” given the state of affairs at the agency.

An Uphill Task. Like former Commissioner Koskinen, if Rettig is confirmed, he will face an uphill battle at the IRS — albeit with less vitriol from the GOP. In addition to implementing the GOP’s tax law, he must contend with the damage caused by years of underfunding. Rettig will also have to continue the agency’s modernization efforts, implement a new cybersecurity framework, oversee the 2017 filing season, and potentially head the agency during a massive restructuring.