This is the ninth in a series of ten client alerts summarizing the key provisions of the Taxpayer Assistance and Service Act, a bipartisan legislative package introduced on February 26, 2026, by Senate Finance Committee Chairman Mike Crapo (R-Idaho) and Ranking Member Ron Wyden (D-Oregon) to improve service and administration at the Internal Revenue Service. Title IX proposes significant changes in order to reduce compliance burdens for small businesses and independent contractors. For a general overview of the legislation, please refer to the Introduction and summaries of Titles I, II, III, IV, V, VI, VII, and VIII.
Section 901: Voluntary Withholding for Independent Contractors
Under current law, independent contractors face the burden of directly paying estimated taxes on a quarterly basis, and some, including the IRS, would prefer to have taxes withheld from payments to independent contractors. Although the Treasury Secretary is authorized under Internal Revenue Code section 3402(p)(3) to provide for voluntary withholding when both parties agree, the Government Accountability Office and National Taxpayer Advocate have recommended that the IRS issue guidance implementing voluntary withholding agreements, but no such guidance has been issued. The bill expressly permits voluntary withholding on non-wage remuneration for independent contractors when both parties agree and directs the IRS to issue implementing regulations.
Section 901: Failure-to-Pay Penalty Safe Harbor
Taxpayers who request filing extensions receive additional time to prepare their returns but not to pay, and a failure-to-pay penalty applies to amounts not paid by the original April deadline even if the taxpayer needs an extension. While section 6654(d) provides a safe harbor for estimated tax penalties based on prior-year liability, no similar safe harbor applies to the failure-to-pay penalty. Under these provision, individuals would be protected from failure-to-pay penalties if they timely pay 125 percent of the prior year’s tax liability by the due date without regard to extensions, even if they file an extension.
Section 903: Electronic Mailbox Rule
The statutory “mailbox rule” – which treats late-received documents as timely if taxpayers can show they were timely mailed – does not apply to most electronic submissions. For example, an electronic payment submitted through the Electronic Federal Tax Payment System on the due date can be treated as late, but a check placed in the mail on the due date will be treated as timely if postmarked on that date. The bill would extend the statutory mailbox rule to electronic submissions of documents and payments using transmission methods permitted by the Treasury Secretary, provided they are received within three business days.
Section 904: Third-Party Contact Specificity
Because asking third parties for information about a taxpayer can damage the taxpayer’s reputation or business, the IRS is required to provide advance notice of third-party contacts. However, the IRS is not required to tell taxpayers what information it needs or give them a reasonable opportunity to provide the information themselves. Under this provision, the IRS would be required to provide taxpayers with notices identifying the specific information it plans to request from third parties and give taxpayers an opportunity to provide the requested information themselves.
Conclusion
Title IX of the Taxpayer Assistance and Service Act reflects the recognition that small businesses and independent contractors face disproportionate compliance burdens under the current tax system. By enabling voluntary withholding arrangements for independent contractors, creating a failure-to-pay penalty safe harbor modeled on the existing estimated tax safe harbor, modernizing the mailbox rule to cover electronic submissions, and requiring greater specificity in third-party contact notices, these provisions would meaningfully reduce the administrative and financial risks that small businesses encounter in meeting their federal tax obligations. If enacted, Title IX would bring welcome relief to small business taxpayers and would align the Internal Revenue Code more closely with the realities of modern business operations and electronic commerce.
The next post in this series will review Title X, which focuses on miscellaneous reforms to tax administration.