This bill mandates that the IRS provide taxpayers with more specific details about the information it intends to seek from third parties and grants taxpayers at least 45 days to respond before such contact occurs.
W. Steube
Representative
FL-17
The Taxpayer Notification and Privacy Act enhances taxpayer rights by requiring the IRS to provide more specific details about the information it intends to seek from third parties during an examination or collection inquiry. This legislation mandates that taxpayers receive at least a 45-day opportunity to provide the specified information themselves before the IRS contacts external sources like banks or employers. These new specificity requirements aim to increase transparency while maintaining exceptions for existing tax liability collections.
IRS Must Give Taxpayers 45-Day Heads-Up Before Contacting Banks or Employers for Information
The Taxpayer Notification and Privacy Act is making some important tweaks to how the IRS handles investigations, specifically when they need to talk to third parties—think your bank, your employer, or maybe a vendor you work with. Essentially, this bill forces the IRS to be more transparent and gives you a chance to handle things yourself before they start calling around.
The New Rules of Engagement
Right now, if the IRS decides it needs information about you from a third party, they have to send you a notice. This bill, however, significantly beefs up what that notice must contain. Under this new rule, the IRS must now identify each specific item of information they plan to ask the third party for. But here’s the key catch: this specificity requirement only kicks in if the IRS hasn't already asked you for that information and if you could reasonably provide it yourself.
Crucially, once you get that detailed notice, you get a mandatory 45-day window to respond. This is your chance to gather the documents or information the IRS is seeking and hand it over directly. The goal is to give you control over the process and potentially prevent the IRS from contacting your employer or bank unnecessarily, which can be awkward and disruptive. For a small business owner, this means you might be able to preempt a call to your main supplier, keeping your business relationships private and professional.
Where the IRS Still Holds the Cards
While the bill is a win for taxpayer privacy and due process, it does include a couple of significant exceptions where the IRS can skip the detailed notice and the 45-day waiting game. The first exception is pretty straightforward: if the IRS is trying to collect an existing tax liability, they don't have to follow these new notification rules. If you already owe them money and they are in collection mode, they can proceed without the extended warning.
The second exception is a bit more of a wildcard. The Secretary of the Treasury can bypass the specificity and waiting period requirements if they determine the information is simply “necessary,” regardless of whether you could provide it or if they’ve asked you already. This gives the Treasury a broad, discretionary power to sidestep the new rules in cases they deem sensitive or urgent. While this flexibility might be necessary for complex fraud cases, it is a broad grant of authority that could potentially be used to circumvent the new privacy protections.
What This Means for Your Paperwork
If you find yourself under an IRS examination, this bill aims to give you a procedural advantage. Instead of getting a vague notice followed by the IRS contacting your bank manager, you’ll know exactly what they are looking for and have over a month to gather it yourself. This not only increases transparency but also gives you a critical opportunity to get ahead of the investigation. The changes to Section 7602(c) of the Internal Revenue Code are set to take effect 12 months after the law is enacted, giving the IRS time to update its procedures for handling these contact notices.