IRS Commissioner Seeks Changes in Annual Tax Filing Process
U.S. Tax Forms
Daniel Acker/Bloomberg
U.S. Department of the Treasury Internal Revenue Service 1040 Individual Income Tax forms for the 2010 tax year.
U.S. Department of the Treasury Internal Revenue Service 1040 Individual Income Tax forms for the 2010 tax year. Photographer: Daniel Acker/Bloomberg
U.S. Internal Revenue Service Commissioner Douglas Shulman outlined a “vision for a more real-time tax system” that would reduce the need for audits after returns are filed.
Shulman said the IRS should receive all paperwork such as W-2 and 1099 forms before individuals file their returns. That would allow the agency to flag potential problems before it processes tax returns, instead of sending out refund checks and then starting audits.
“This would not only change the face of taxpayer service but also compliance,” he said in a speech today at the National Press Club in Washington. “Unlike today’s look-back model, we would do a 180-degree turn, and most basic compliance activities would be done up-front, and we would reject a return right away if a problem was detected.”
Shulman said implementing such changes would require new investments in technology and would require payroll processors and businesses to alter their annual tax-filing calendars. That could include accelerating the Feb. 28 deadline for Form 1099, which is used for independent contractors, he said.
Under this plan, Shulman said, taxpayers could have a better working relationship with the IRS.
‘Significant Gains’
“The payoffs are huge,” he said. “Taxpayers avoid the hassle factor, and back-end audits are much more focused on issues that require real follow-up. We would see significant gains in both service and compliance that actually have the potential to save billions of dollars across the public and private sectors in reduced administrative burden.”
He said there would be fewer cases in which auditors would seek to reclaim refunds from prior years, after taxpayers have spent the money and forgotten the precise details of their tax returns.
The changes Shulman outlined would mark major shifts for businesses and taxpayers, and would take years to implement, said Edward Karl, vice president for taxation at the American Institute of Certified Public Accountants in Washington.
“The issue is: Do the preparers of the 1099 have accurate and complete information to be able to do it?” he asked.
He also said that allowing taxpayers to know what information the IRS has about them would also serve to show what the agency doesn’t have. That could discourage taxpayers from reporting other income.
“This could be a problem with voluntary compliance,” Karl said.
To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net
To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net
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