IRS Must Now Give Taxpayers 45-Day Heads-Up and Specific List Before Contacting Banks or Employers

If you’ve ever worried about the IRS digging into your finances without you knowing, this bill is designed to offer a little more transparency and privacy. The Taxpayer Notification and Privacy Act changes the rules for how the IRS has to notify you when it decides to go fishing for information from a third party—like your bank, your employer, or even your biggest client—to determine your tax liability.

The New 45-Day Warning and The Specificity Requirement

Currently, the IRS generally has to tell you when they plan to contact someone else about your taxes. This bill significantly tightens that requirement under Section 7602(c) of the Internal Revenue Code. Moving forward, if the IRS is seeking information that hasn’t been requested from you already, and that you could reasonably provide yourself, the notice they send you must now list each specific item of information they intend to seek from the third party. Think of it like getting the exact menu before they order. Crucially, the bill also mandates that the IRS must give you a minimum of 45 days to respond before they actually make that third-party contact. This means if the IRS wants to see your bank statements from 2021, they have to tell you exactly that, and give you 45 days to provide those statements yourself before they call the bank.

The "Necessary" Loophole

While this sounds like a big win for taxpayer privacy and due process—giving you time to either provide the information or challenge the request—there’s a significant carve-out. The bill states that the requirement to list every specific item of information does not apply if the Secretary of the Treasury determines that the information sought from the third party is “necessary.” This is a classic piece of legislative language that creates a bit of a gray area. What exactly constitutes “necessary” is left undefined, potentially allowing the IRS to bypass the specificity requirement in cases where they feel the need for speed or broad access outweighs the taxpayer’s right to detailed notice. For the average person, this means the protection is strong, but the IRS still holds a discretionary “break glass in case of emergency” card.

Who Benefits and Who Pays the Administrative Cost?

This legislation is a clear benefit to taxpayers, especially those under audit or investigation, by introducing a significant layer of transparency and time to respond. It provides a formal window to manage the information flow and potentially prevent the IRS from contacting business associates or employers prematurely. However, the IRS itself will bear the administrative burden. Tax enforcement often relies on speed and the element of surprise, and requiring IRS agents to meticulously detail every piece of information they seek and then wait 45 days could significantly slow down complex investigations. For routine inquiries, this change is manageable, but for time-sensitive cases, the new procedural hurdles could strain resources. It’s a classic trade-off: enhanced individual privacy versus potentially slower government enforcement. Note that these changes won't kick in immediately; the bill provides an effective date of more than 12 months after the Act is enacted, giving the IRS time to update its forms and procedures.