Use of New Technologies for Tax Administration

One of the trends I think really got underway in 2010 regarding the tax law was new and expanded uses of various technologies by the IRS and state tax agencies. These include:

• Going green or paperless - The IRS and California Franchise Tax Board both stopped mailing paper returns to people. Other states likely did as well. This also reduces costs for the tax agencies, but really reflects the fact that many tax returns can be prepared and filed without the need for paper.
• Interactive websites - The IRS had a webpage that allowed individuals to enter their name, birth date and social security number to get information on whether they received a Recovery Act Payment. The California FTB has a variety of online verification and payment features it is encouraging taxpayers and practitioners to use. It includes the ability to schedule an electronic payment of taxes (such as estimated taxes) up to one year in advance.
• Web-based guidance - The IRS made greater use of FAQs to get information to taxpayers and practitioners, especially when quick guidance was needed, such as for the payroll exemption enacted for employers in March 2010. While FAQs are a good way to get timely information released, it is not traditional guidance and some questions and safeguards are missing. For example, how long will the FAQs be posted? When an answer is changed, what happens to the original answer? I have a short article on this topic - “How Heavy is an IRS FAQ?” AICPA Tax Insider (11/11/10)
• Twittering - The IRS is releasing updates and making announcements on Twitter. Some state tax agencies are as well including California (more than one - see John, Steve, Marlene, and Steve/FTB Advocate), Minnesota, and Oregon. Again, while this seems to be a good use of available technology and perhaps is just duplicating other existing outlets for information, it raises a question of whether tax practitioners should be following these tweets. Is this the new level of professional conduct and expectations? And ...what about this? - I received an email on December 13 saying that the Franchise Tax Board was now following me on Twitter! That doesn't bother me, but perhaps some people don't want to be followed by a tax agency. What rules should exist for this or are none warranted - that is, you Tweet, you can be followed?
• Others - continued use of YouTube, offering of webinars, auditors getting information related to examinations from the Internet, and more.

Hopefully we'll see more uses of technology where it can improve compliance and administration. Yet, it seems we also need some additional guidance or actions such as:

1. The IRS elevating FAQs to the level of revenue rulings and notices so they can be relied upon as "authority."
2. Statements from tax agencies on whether practitioners are obligated to follow tax agency tweets. This would include some reference in rules of conduct.
3. When a practitioner is allowed to input client data into a tax agency's secure, interactive website without violating any rule of conduct or whether they must always ask a taxpayer first.

What do you think?

I hope you have a very happy, healthy, and tax error free 2011!