H.R. 5445, 21st Century IRS Act

Floor Situation

On Tuesday, April 17, 2018, the House will consider H.R. 5445, the 21st Century IRS Act, under a closed rule. The bill was introduced on April 10, 2018, by Rep. Mike Bishop (R-MI), and was referred to the House Committee on Ways and Means, which ordered the bill reported, by voice vote, on April 11, 2018.

Summary

H.R. 5445 improves cybersecurity and taxpayer identity protection and modernizes the information technology at the Internal Revenue Service (IRS). Specifically, the legislation does the following:

Title I: Cybersecurity and Identity Protection

Title I requires the Secretary of the Treasury to work collaboratively with the public and private sectors to protect taxpayers from identity theft refund fraud.

In addition, the title requires the Electronic Tax Administration Advisory Committee (ETAAC) to study and make recommendations to the Secretary regarding models to prevent identity theft and refund fraud and authorizes the Secretary to participate in an Information Sharing and Analysis Center (ISAC) to centralize and enhance data compilation and analysis to facilitate sharing actionable data and information with respect to identity theft and refund fraud.

The title further requires that state, local, or federal agencies to conduct on-site reviews every three years of all of its contractors and agents receiving federal returns and return information. Finally, the title requires the Secretary, in coordination with the Bureau of Fiscal Service and the IRS, to issue a report describing how new payment platforms can be utilized to increase the number of tax refunds paid by electronic funds transfer.

Title II: Development of Information Technology

Title II requires the IRS to appoint a Chief Information Officer (CIO) for the development, implementation, and maintenance of information technology for the IRS; developing and maintaining a multi-year plan for information technology needs at the IRS; and requires the Chief Procurement Officer and the CIO to consult on the all significant technology acquisitions in excess of $1 million.

Further, Title II requires the Secretary to develop secure, individualized online accounts to provide services to taxpayers and their designated return preparers and develop a process for accepting tax forms and other supporting documentation in electronic format by December 31, 2023. Finally, the title requires the Secretary to make an internet website available by January 1, 2023 that allows for the preparation, filing, and distribution of Forms 1099 and maintains records of completed and submitted Forms 1099.

Title III: Modernization of Consent-Based Income Verification System

The Income Verification Express Services (IVES) Program requires that transcript information requests be submitted to the IRS by fax and then the transcripts are furnished electronically to a secure mailbox. Title III requires the Secretary to implement a qualified disclosure program that is fully automated, accomplished through the Internet, and through which disclosures are accomplished in as close to real-time as is practicable.

The title also provides that persons designated by the taxpayer to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted, and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.

Title IV: Expanded Use of Electronic Systems

Title IV relaxes the current restrictions on the authority of the Secretary to mandate electronic filing based on the number of returns required to be filed by a taxpayer in a given taxable period. First, it phases in a reduction in the threshold requirement that taxpayers have an obligation to file a specified number of returns and statements during a calendar year. Second, it authorizes the Secretary to waive the requirement that a Federal income tax return prepared by a specified tax return preparer be filed electronically if a tax return preparer applies for a waiver and demonstrates that the inability to file electronically is due to lack of internet availability.

The title also requires the Secretary to publish guidance to establish uniform standards and procedures for the acceptance of taxpayers' signatures appearing in electronic form with respect to such requests or power of attorney and removes the prohibition on paying any fees or providing any other consideration in connection with the use of credit, debit, or charge cards for the payment of income taxes.

Background

Title I Background:

The Security Summit, formed in 2015, is a partnership of the IRS, state tax agencies, and the private-sector tax industry to address tax refund fraud caused by identity theft. In 2016, the Security Summit members identified and agreed to share more than 20 data components relating to Federal and state returns to improve fraud detection and prevention.

In addition, the Security Summit created an Identity Theft Tax Refund Fraud ISAC to enable the IRS and the states to work together with external third parties to serve as an early warning system for tax refund fraud, identity theft schemes, and cybersecurity issues.

The IRS Reform and Restructuring Act of 1998 (RRA 98) authorized the ETAAC to provide input to the IRS on electronic tax administration. ETAAC’s responsibilities involve researching, analyzing, and making recommendations on a variety of electronic tax administration issues.

Title II Background:

The Code describes duties and responsibilities for the Commissioner, the Chief Counsel, and the Office of the Taxpayer Advocate of the IRS. It does not presently enumerate duties and responsibilities of an IRS CIO. In addition, the Code does not expressly provide for the development of individualized online accounts, and does not presently require the IRS to make available an internet platform for the preparation or filing of information returns, such as the series, Form 1099.

Title III Background:

Under section 6103(c), the IRS may disclose the return or return information of a taxpayer to a third party designated by the taxpayer in a request for or consent to such disclosure. Treasury regulations set forth the requirements for such consent.

Mortgage lenders and others in the financial community use the IVES Program to confirm the income of a borrower during the processing of a loan application. The IRS imposes a $2.00 fee for each transcript requested. The requested transcript information is delivered to a secure mailbox on the IRS's e-Services electronic platform, generally within two to three business days. To participate in the IVES Program, companies must register and identify employees to act as agents to receive transcripts on the company's behalf.

Under section 7206, it is a felony to willfully make and subscribe any document that contains or is verified by a written declaration that it is made under penalties of perjury and which the maker or subscriber does not believe to be true and correct as to every material matter. Upon conviction, such person may be fined up to $100,000 ($500,000 in the case of a corporation) or imprisoned up to three years, or both, together with the costs of prosecution. If a Federal employee makes an unauthorized disclosure or inspection, a taxpayer can bring suit against the United States in Federal district court.

Title IV Background:

Section 2001(a) of RRA 98 set a goal for the IRS to have at least 80 percent of all Federal tax and information returns filed electronically by 2007. Section 2001(b) of RRA requires the IRS to establish a 10-year strategic plan to eliminate barriers to electronic filing. Present law requires the Secretary to issue regulations regarding electronic filing and specifies certain limitations on the rules that may be included in such regulations.

As a general rule, returns and return information are confidential and cannot be disclosed unless authorized by the Code. Under section 6103(c), the IRS may disclose the return or return information of a taxpayer to a third party designated by the taxpayer in a request for or consent to such disclosure. Treasury regulations set forth the requirements for such consent.

The Code generally permits the payment of taxes by commercially acceptable means such as credit cards. The Secretary may not pay any fee or provide any other consideration in connection with the use of credit, debit, or charge cards for the payment of income taxes.

Cost

The Joint Committee on Taxation estimates the bill would have no effect on federal revenues, and the provision addressing payment of taxes by debit and credit cards would have gains of less than $500,000 for the 2018-2028 period.

Staff Contact

For questions or further information please contact Jake Vreeburg with the House Republican Policy Committee by email or at 2-1374.