Navigating Current and Future IRS Changes
In a move that could significantly affect how tax practitioners manage IRS information requests, National Taxpayer Advocate Erin Collins has voiced strong opposition to proposed IRS regulations that would dramatically reduce third-party notice requirements from 45 days to as few as 10 days in certain circumstances.
The Core Issue
The proposed changes would create exceptions to taxpayer protections established by both the 1998 IRS Restructuring and Reform Act and the 2019 Taxpayer Protection Act. These laws currently require the IRS to provide a 45-day notice before contacting third parties—such as tax preparers or financial institutions—for information related to tax assessment or collection.
"This proposed change could create significant operational challenges for tax professionals and their clients," Collins warned in her recent blog post addressing the issue.
The IRS's proposed regulations would allow for a shortened 10-day notice period when:
- Less than one year remains on the statute of limitations for collection
- The case involves issues where the IRS bears the burden of proof in court proceedings
- The taxpayer has declined to extend the statute of limitations
- The IRS plans to involve the Justice Department in reducing assessments to judgment or foreclosing federal tax liens
Current Exceptions vs. Proposed Changes
Under existing law, the 45-day requirement can only be bypassed in three specific situations:
- When the taxpayer provides explicit authorization
- If the IRS determines a notice could jeopardize collection or risk reprisal
- In cases involving ongoing criminal investigations
Why It Matters to Your Practice
Collins argues these changes could unfairly penalize taxpayers for delays outside their control. "The IRS typically has three years to assess additional tax and ten years to collect unpaid tax," she notes. "The statute of limitations exists to provide certainty and finality to both taxpayers and practitioners."
For tax managers and small firm operators, these changes could mean:
- Compressed response timelines for information requests
- Increased pressure to maintain readily accessible client records
- Need for updated client communication protocols
- Potential revision of engagement letters to address shortened notice periods
Collins has called for the IRS to reconsider these proposed regulations and suggested that Congress might need to step in with additional taxpayer protections for third-party contacts.
Practice Tips
- Review your current document retention and retrieval systems
- Update client communication protocols to handle expedited requests
- Consider implementing automated notification systems
- Maintain detailed documentation of all client interactions and IRS correspondence
Tax professionals should monitor this developing situation closely as it could significantly impact day-to-day practice management and client service delivery.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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