House Approves Bill Blocking IRS Fines Without Specific Supervisory Approval

Another bill that was approved aims to solve inefficiencies in the Tax Court structure regarding pre-trial discovery documents.

The IRS building in Washington on Jan. 9, 2025. Madalina Vasiliu /The Epoch Times

The House of Representatives voted to pass two bills on Monday that increase protections for taxpayers in matters related to penalties imposed by the IRS and tax dispute proceedings in the U.S. Tax Court.

The first bill, HR 5346, the Fair and Accountable IRS Reviews Act, relates to supervisory approval for certain federal penalties imposed by IRS agents on taxpayers.

An IRS employee can impose certain federal penalties on taxpayers after gaining written authorization from their immediate supervisor.

Under present regulations, an immediate supervisor is broadly defined as an individual tasked with reviewing another employee’s proposed penalties, and not necessarily the supervisor to whom the IRS employee reports, according to a fact sheet from the House Committee on Ways and Means.

IRS agents can thus “shop around for sympathetic supervisors,” it said, which weakens taxpayer protections.

“This circular definition is so broad that IRS agents can obtain approval to apply tax penalties on taxpayers from virtually any other employee,” the fact sheet states.

The bill seeks to resolve the issue by defining an immediate supervisor “to be the person to whom the individual making the determination reports,” the fact sheet said.

In addition, the bill clarifies that supervisory approval of a penalty will only be considered timely if such approval is obtained in writing before a taxpayer is notified of such a penalty.

In a Dec. 3 statement, the House Ways and Means Committee said the bill will ensure that “rogue IRS agents are not levying fines and penalties on taxpayers without specific supervisory approval.”

The second bill, HR 5349, the Tax Court Improvement Act, seeks to expand the authority of the U.S. Tax Court in issuing subpoenas. The court will be authorized to extend certain petition deadlines and also institute other changes to court procedures.

The U.S. Tax Court is a federal trial court specializing in adjudicating disputes related to federal income tax, a process that typically takes place before formal tax assessments are conducted by the IRS, according to a fact sheet from the House Committee on Ways and Means.

The Tax Court is the only forum in the United States where taxpayers can litigate issues without having to first pay in full the taxes that are being disputed.

The bill aims to solve inefficiencies in the Tax Court structure, it said.

For instance, the court currently has limited pre-trial discovery powers, which cause “unnecessary delays in resolutions of cases” since there are limited options for parties in a trial to obtain documents relevant to a case in a timely manner, the fact sheet said.

The Tax Court Improvement Act solves this issue by expanding the court’s powers. It authorizes the court to sign subpoenas to produce relevant documents in the discovery phase of the case, ensuring that parties receive these documents prior to a hearing.

Since the bill allows the court to extend petition filing deadlines, it also resolves difficulties faced by taxpayers when timely filing is impractical and impossible, according to the fact sheet.

In addition, the Act will hold Tax Court judges to the same standards for disqualification that apply to other federal judges.

Other provisions of the bill include expanding the type of proceedings for which special trial judges may be appointed, authorizing special trial judges to impose a jail term of up to 30 days and a maximum fine of $5,000 for contempt of court, and requiring judges to recuse themselves in certain circumstances.

The bills have the backing of multiple groups, such as the National Taxpayers Union and the Taxpayers Protection Alliance. Both bills have been sent to the Senate.

Projected Revenues

The Congressional Budget Office (CBO) projects that the enactment of both bills will generate revenues over the coming decade.

In a Nov. 19 statement, the CBO said an analysis by the office and the Joint Committee on Taxation (JCT) estimates that enacting the Tax Court Improvement Act would increase revenues by a net $6 million between 2026 and 2035, with administrative costs rising minimally by less than $500,000 between 2026 and 2030.

CBO said in another Nov. 19 statement that the Fair and Accountable IRS Reviews Act is projected to boost revenues by $117 million between 2026 and 2035, with administration costs increasing by less than half a million dollars for the 2026–2030 period.

The passage of both bills comes as the IRS recently urged Americans to start preparing for filing taxes in the 2026 filing season, citing changes in tax laws and other factors.

The One Big Beautiful Bill Act, signed into law by President Donald Trump in July, will significantly affect federal taxes, deductions, and credits, according to agency officials.

“A little advance work preparing paperwork and organizing information now can help with filing tax returns quickly and accurately,” the agency said.