Key Takeaways:
- IRS agents may soon face clearer limitations on when they can propose penalties, potentially reducing their use as leverage in exams.
- The proposed Tax Court reforms could increase procedural fairness in disputed matters, especially around tolling deadlines.
- Taxpayers have existing procedural rights and may already challenge improperly assessed penalties, so you should note that legislation could reinforce these protections.
—
The House Ways and Means Committee recently approved two bipartisan bills that would revise IRS penalty procedures and expand Tax Court authority. While these bills reflect continued Congressional focus on tax administration, their fate may depend on broader legislative vehicles currently under consideration in the Senate.
Key Legislative Highlights
1. Fair and Accountable IRS Review Act (H.R. 5346)
This bill would provide clarity on supervisory approval requirements for IRS penalties under Section 6751(b). The proposed language specifies that supervisory approval must occur before any written penalty communication is issued to a taxpayer. This is designed to reduce ambiguity around the terms “initial determination” and “immediate supervisor.”
2. Tax Court Improvement Act (H.R. 5349)
Key procedural reforms include expanding the Tax Court’s subpoena powers and affirming its authority to address equitable tolling questions. These updates could create more consistency in how taxpayers can present and defend their cases.
Additional House-Passed Tax Administration Bills
Several complementary bills passed earlier this year are aimed at improving IRS processes, including:
- H.R. 1152: Expands the mailbox rule to electronic filings.
- H.R. 998: Limits the IRS’s use of math error authority.
- H.R. 1155: Authorizes electronic replacement of stolen refund checks.
- H.R. 997: Grants the Taxpayer Advocate Service authority to hire in-house legal counsel.
- H.R. 517: Now law (P.L. 119-29), extends disaster-related filing relief from 60 to 120 days.
Senate Response and Broader Reform Outlook
The Senate Finance Committee has released a draft of the Taxpayer Assistance and Service Act, which mirrors several House provisions but includes new items, such as regulation of tax return preparers. The challenge lies in reconciling House and Senate versions and identifying a viable legislative path before year-end.
What This Means for Taxpayers
Even without new legislation, taxpayers already have avenues to contest penalties where the IRS hasn’t followed required procedures. Many penalties can also be reduced or removed with valid reasonable cause arguments. Organizations receiving penalty notices should carefully evaluate the IRS’s process for compliance with current law.
How MGO Can Help: Supporting Taxpayers Facing Procedural and Penalty Challenges
MGO’s tax team supports tax leaders and CFOs navigating a shifting legislative environment by providing experienced guidance on all IRS procedures, penalty abatement strategies, and Tax Court readiness.
We can assist your organization in assessing whether IRS actions align with statutory requirements, like supervisory approval under Section 6751(b), and help you prepare documentation to support your reasonable cause claims. In light of these emerging reforms, we also monitor legislative developments and offer insights tailored to your organization’s compliance objectives.
Contact us to learn how we can guide you in responding confidently to IRS notices and disputes.