In a speech to the National Press Club on April 6, 2011, IRS Commissioner Shulman laid out the basics of a plan to improve compliance, audit efficiency and make use of an approach already available from banks and investment firms. He proposed "a potential new structure of tax administration … a structure of opportunity …and a fundamentally different way to run our tax system.
"In essence, I believe taxpayers, third parties in the tax system, and the government would be better served if we moved our processes forward and reduced the need for after-the-fact look-backs as a mode of operation.
"The vision is relatively straightforward. The IRS would get all information returns from third parties (W2s, 1099s, etc) before individual taxpayers filed their returns. Taxpayers or their professional return preparers could then access that information, via the Web, and download it into their returns, using commercial tax software. Taxpayers would then add any self-reported and supplemental information to their returns, and file the returns with us. We would embed this core third-party information into our pre-screening filters, and would immediately reject any return that did not match up with our records. That’s right; we reject the return and ask you to fix it before we process it. We would then have more accurate returns and deal with many more problems up-front. We could shift resources to spend more money getting it right in the first place, and do less back-end auditing."
He noted that today, some people get a notice from the IRS months and years after they have filed their return noting a missing information return. The taxpayer then owes tax, interest and likely a penalty as well. Shulman wants to reorder the processing to let taxpayers know before they file their return, what information returns the IRS has received for them.
I think this makes a lot of sense, is a good use of technology and should reduce compliance costs for individuals. Simplification of the income tax could enable the IRS to actually send a completed return for many individuals. If, for example, the dependency exemption, child credit and other family provisions were consolidated to one deduction or credit, the IRS could use W-4 data to input that. Based on family size and income level, the IRS could calculate an EITC for eligible taxpayers.
Shulman also states: "What I’m offering is a vision for a journey that’s firmly grounded in reality but brims with potential." ... "And this is all about working smarter… a theme of mine too since I became Commissioner. In the case of the IRS, it means evolving to keep pace with change, constantly looking ahead, and being innovative and more imaginative with available resources inside and outside the agency."
Sounds good to me - our tax system was designed in an era of paper and pencil, carbon copies and the abacus. It is past time to move it into the Internet era - doing the same thing that private industry has done to be more efficient and provide better information and service to customers.
What do you think?
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3 comments:
I agree, this is a good use of technology. I wonder how much further ahead of the game they could be if there was not “an under investment in technology over the past 20 years” as Shulman states in his remarks. I would think improvements from the use of technology would breed better compliance, lower the tax gap and in turn lower the deficit. Hopefully they will continue to make investment in technology a budget priority.
On the down side, I wonder if this isn’t the first step toward removing individuals from the process of preparing and filing their own return. While this could be viewed as lowering the compliance burden and simplifying the process, there may be a downside. If the IRS takes over this effort on behalf of most households then taxpayers will loose an import and possibly their only connection to the government. Without this connection, will the payment of income tax become less transparent? Think about the sales taxes, even though it is printed on the receipt, how many of us look to see how much sales take we paid on our last purchase? How many times do you tell the clerk you don’t need the receipt? Could this lead to disinterest by taxpayers and have the unintended consequence of lowering transparency? Lack of transparency could end up making it easier to raise rates and provide less pressure on spending restraints. (Which will most likely raise the deficit!) With more information reporting, will taxpayers have privacy concerns and feel the government is more intrusive? In which case, will taxpayers feel the allure of the underground economy and become noncompliers? Well I doubt it, but these are interesting questions and the answers may surprises us as technology marches forward.
I agree, this is a good use of technology. I wonder how much further ahead of the game they could be if there was not “an under investment in technology over the past 20 years” as Shulman states in his remarks (http://www.irs.gov/newsroom/article/0,,id=238204,00.html).
I would think improvements from the use of technology would breed better compliance, lower the tax gap and in turn lower the deficit. Hopefully they will continue to make investment in technology a budget priority.
On the down side, I wonder if this isn’t the first step toward removing individuals from the process of preparing and filing their own return. While this could be viewed as lowering the compliance burden and simplifying the process, there may be a downside. If the IRS takes over this effort on behalf of most households then taxpayers will loose an import and possibly their only connection to the government. Without this connection, will the payment of income tax become less transparent? Think about the sales taxes, even though it is printed on the receipt, how many of us look to see how much sales take we paid on our last purchase? How many times do you tell the clerk you don’t need the receipt? Could this lead to disinterest by taxpayers and have the unintended consequence of lowering transparency? Lack of transparency could end up making it easier to raise rates and provide less pressure on spending restraints. (Which will most likely raise the deficit!) With more information reporting, will taxpayers have privacy concerns and feel the government is more intrusive? In which case, will taxpayers feel the allure of the underground economy and become noncompliers? Well I doubt it, but these are interesting questions and the answers may surprises us as technology moves us all forward.
I agree, this is a good use of technology. I wonder how much further ahead of the game they could be if there was not “an under investment in technology over the past 20 years” as Shulman states in his remarks. I would think improvements from the use of technology would breed better compliance, lower the tax gap and in turn lower the deficit. Hopefully they will continue to make investment in technology a budget priority.
On the down side, I wonder if this isn’t the first step toward removing individuals from the process of preparing and filing their own return. While this could be viewed as lowering the compliance burden and simplifying the process, there may be a downside. If the IRS takes over this effort on behalf of most households then taxpayers will loose an import and possibly their only connection to the government. Without this connection, will the payment of income tax become less transparent? Think about the sales taxes, even though it is printed on the receipt, how many of us look to see how much sales take we paid on our last purchase? How many times do you tell the clerk you don’t need the receipt? Could this lead to disinterest by taxpayers and have the unintended consequence of lowering transparency? Lack of transparency could end up making it easier to raise rates and provide less pressure on spending restraints. (Which will most likely raise the deficit!) With more information reporting, will taxpayers have privacy concerns and feel the government is more intrusive? In which case, will taxpayers feel the allure of the underground economy and become noncompliers? Well I doubt it, but these are interesting questions and the answers may surprises us as technology marches forward.
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