Freshly Signed Taxpayer First Act of 2019 Affects Private Debt Collectors

Yesterday President Trump signed into law the Taxpayer First Act of 2019 which, among other things, amends provisions related to income eligible for collection by private debt collectors.

In summary, the bill does the following:

• establishes the IRS Independent Office of Appeals to resolve federal tax controversies without litigation;
• requires the IRS to develop comprehensive customer service and IRS personnel training strategies;
• exempts certain low-income taxpayers from payments required to submit an offer-in-compromise;
• modifies certain tax enforcement procedures and requirements;
• establishes requirements for responding to Taxpayer Advocate Directives;
• establishes a Community Volunteer Income Tax Assistance Matching Grant Program;
• requires the IRS to give public notice of the closure of taxpayer assistance centers;
• modifies procedures for whistle-blowers;
• establishes requirements for cybersecurity and identity protection;
• provides notification to taxpayers of suspected identity theft;
• requires the appointment of a Chief Information Officer who shall develop and implement a multiyear strategic plan for IRS information technology needs;
• modifies requirements for managing IRS information technology;
• expands electronic filing of tax returns;
• prohibits the rehiring of certain IRS employees who were removed for misconduct;
• requires mandatory e-filing by tax-exempt organizations and notice before revocation of tax-exempt status for failure to file; and
• increases penalties for failure to file tax returns.

The bill also requires the IRS to implement:

• an Internet platform for Form 1099 filings,
• a fully automated program for disclosing taxpayer information for third-party income verification using the Internet, and
• uniform standards and procedures for accepting electronic signatures.

Amendments specific to debt collection

The new law exempts taxpayers from private collection activity whose income substantially consists of disability insurance benefits under section 223 of the Social Security Act or supplemental security income benefits under title XVI of the Social Security Act, as well as those with adjusted gross income less than 200 percent of the applicable poverty level.

Second, the law changes the calculation for eligibility of inactive receivables by replacing “more than 1/3 of the period of the applicable statute of limitation has lapsed” with “more than 2 years has passed since assessment”.

Third, the law increases the maximum length of installment agreements that private collectors can offer taxpayers from five years to seven.

Finally, the law clarifies items that may be treated as program costs eligible for use of Treasury funds for administering the qualified tax collection program. Newly eligible expenses include special compliance personnel, and “communications, software, technology” (where the law used to reference “telecommunications”).

insideARM Perspective

The Private Debt Collection program at the IRS has a long and storied history. This is the third-go around at such a program. insideARM most recently reported that this latest contract, awarded in 2016, has been successful.

Earlier attempts were in 1996 and 2006. Both programs were canceled amidst claims that they cost taxpayers more than they collected. However, these claims were disputed, even by the Government Accounting Office (GAO). See this 2010 article about problems with the decision to end the 2006 program.

It’s promising that this third attempt is merely undergoing tweaks rather than fighting an outcry for cancelation.

What's also interesting is the requirement for the IRS to submit a plan within one year to create a comprehensive customer service strategy, including a secure system that incorporates online/self-service options, telephone call back services, better employee training, and metrics and benchmarks for measuring progress. This sounds familiar. Kind of like the comprehensive overhaul of the student loan servicing system going on at the Department of Education (ED). However, this law simply creates the requirement to submit a plan, while ED is fully immersed in implementation. As the IRS plan is submitted we will be fully immersed in the 2020 election. We will have to wait to see whether that plan goes any farther than a paper concept.