Key Takeaways:
- House bills are aiming to clarify IRS penalty approval rules and court procedures.
- Bipartisan support for the updates exists, but passage will likely depend on broader legislation.
- Right now, taxpayers can still challenge improperly assessed penalties under the current law.
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What’s driving the recent IRS and Tax Court reform proposals?
Congress is revisiting how the IRS applies penalties and how the Tax Court handles disputes. The House Ways and Means Committee recently passed two bipartisan bills that aim to clarify these processes. While the measures are still working their way through Congress, they signal a broader effort to modernize tax administration.
MGO is closely monitoring these developments to keep our clients informed and ready.
What does the Fair and Accountable IRS Review Act propose?
This bill (H.R. 5346) clarifies when the IRS must secure written approval from a supervisor before proposing penalties. Right now, current law requires this approval under Section 6751(b), but the statute doesn’t define when the process starts…or who qualifies as the “immediate supervisor.”
The new bill would require approval before any written penalty communication is sent to the taxpayer. MGO’s tax team is already seeing increased interest in this issue from those taxpayers who are navigating exam cycles where penalties are raised early in negotiations.
How would this affect IRS enforcement?
The proposed rules could reduce instances where penalties are used as leverage during early stages of an audit. It also gives taxpayers and advisors a clearer path to challenge penalties when the IRS skips required steps.
At MGO, we support tax teams by reviewing procedural compliance and helping assess penalty defenses based on timing and documentation gaps.
What changes are included in the Tax Court Improvement Act?
The second bill (H.R. 5349) proposes procedural updates for the U.S. Tax Court, including:
- Expanding subpoena authority
- Confirming that the Court has jurisdiction over equitable tolling issues
These changes are designed to give taxpayers a more consistent opportunity to resolve disputes, especially where timing issues affect filing deadlines.
Could these bills pass soon?
The bills received unanimous support in committee, but full passage will likely require inclusion in a broader legislative package. Our team tracks all progress on these measures alongside other tax policy changes that affect exam, appeals, and litigation strategy.
What other tax administration bills are under consideration?
The House has already passed several bills that touch related areas like:
- H.R. 1152: Extends the “mailbox rule” to electronic tax filings
- H.R. 998: Limits the IRS’s math error authority
- H.R. 1155: Allows lost refund checks to be reissued electronically
- H.R. 997: Expands authority of the National Taxpayer Advocate
- H.R. 517: Increases natural disaster filing relief from 60 to 120 days (now signed into law)
The Senate Finance Committee has released a discussion draft of its own tax administration package, which includes similar reforms and additional proposals,such as expanded regulation of tax return preparers.
What does this mean for you as a taxpayer now?
Even without these bills being enacted, current law still offers opportunities to challenge penalties if the IRS doesn’t follow proper approval procedures. Reasonable cause and other relief options may also apply.
We work with our clients to evaluate penalty notices, assess documentation, and prepare responses aligned with IRS protocols and taxpayer rights.
What’s the best way to prepare for possible changes?
Tax leaders should:
- Review current penalty workflows and approval documentation
- Assess the impact of proposed timing and supervisory requirements
- Stay connected to updates from both House and Senate tax committees
MGO supports organizations navigating IRS exam and appeals processes and helps integrate new guidance into risk and compliance strategies.
How MGO Can Help You Prepare for What Comes Next in Tax Administration
The increased legislative focus on fairness and procedural clarity shows that IRS enforcement is under the microscope. Whether or not these bills pass, tax leaders should expect closer attention to how penalties are assessed and resolved.
MGO works closely with finance and tax professionals to interpret evolving legislation, support penalty response strategies, and connect tax policy to operational planning. Staying proactive allows organizations to protect their position while adapting to new compliance expectations. Contact us to learn more.