In prepared remarks to the Leaders & Legends Series at the Johns Hopkins Carey Business School on May 18, IRS Commissioner Doug Shulman highlighted his agency's three strategic priorities, stressed the need for better data mining to increase compliance, and commented on its “new relationship” with corporate taxpayers. He also hinted that IRS may soon embark on a new effort to pre-match most income entries on Form 1040.
IRS's strategic priorities. Commissioner Shulman played up IRS's success in the three strategic priorities he established for the agency:
(1) Combat offshore tax evasion. Approximately 15,000 taxpayers took advantage of IRS's first voluntary disclosure program, with an additional 4,000 individuals making voluntary disclosures after that program closed. A second disclosure program offers tougher financial penalties, but no jail time, for taxpayers who come clean about their undisclosed foreign accounts. Shulman said that “we are well on our way to deterring the next generation of taxpayers from using hidden bank accounts to cheat on their taxes. Through our ongoing efforts, we are demonstrating that the world has become a smaller place... that we will eventually find you if you are hiding assets overseas... and that the average American taxpayer can believe the tax system is fair.”
(2) Tax return preparer initiative. Shulman gave good marks to IRS's initiative to subject tax return preparers who are not attorneys, certified public accountants (CPAs), or enrolled agents (EAs) to new registration requirements, competency testing, continuing education rules and ethical standards (i.e., Circular 230). He said IRS has registered over 700,000 return preparers and next year will start requiring any preparer who is not an attorney, CPA or EA to take a competency test and annual continuing education. Shulman declared that IRS's goal “is to ensure that taxpayers receive top quality service from this important industry, which is a key ally in our efforts to boost overall service and compliance.”
(3) Data mining to improve compliance. Shulman said that there's general agreement that withholding and third-party information reporting are powerful tools to improve and maintain taxpayer compliance. He said 96% of income subject to substantial information reporting and/or withholding, such as wages, interest, and dividends, is accurately reported on timely tax returns, but that only around 50% of income is accurately reported where there is little or no information reporting. IRS's Commissioner pointed to two new tools in its information reporting arsenal: the requirement for brokers, beginning this year, to report securities' basis (estimated to yield almost $6.7 billion in revenues over a 10-year period); and the requirement, beginning in 2012, for electronic payment processors, including credit and debit card processors, to make an annual information report to the merchant and IRS revealing the gross amount paid to the merchant during a calendar year. Also, Shulman revealed that he had created an office of compliance data analytics to work with IRS's business units to create hypotheses of ways to improve compliance; launch pilots to test those hypotheses; and then change business operations when the pilot turns out to be fruitful.
Pre-match of most income entries on Form 1040. Back in April, in another speech, Commissioner Shulman revealed that he would push for a “simplification initiative” that would involve these steps:
(1) IRS would get all information returns from third parties (W2s, 1099s, etc.) before individual taxpayers filed their returns.
(2) Taxpayers or their professional return preparers could then access that information, via the Web, and download it into their returns using commercial tax software.
(3) Taxpayers would then add any self-reported and supplemental information to their returns and file the returns with IRS.
(4) IRS would embed the core third-party information into its pre-screening filters, and immediately reject any return that did not match up with IRS records. The taxpayer would be asked to fix the discrepancy before IRS processed the return.
In his May 18 speech, Shulman appeared to telegraph that this initiative may launch soon. He said that IRS was on track to deliver a new, real-time relational account database for the tax filing season commencing in January 2012. He said this technology was one of the “keys for unlocking a potential new tax structure that could fundamentally change the way taxpayers and tax practitioners prepare and file individual returns. It would deal in real time and avoid audits that may take place three years after a return is filed.”
“New relationship” with corporate taxpayers. Shulman spoke of a “new relationship” with corporate taxpayers that would create:
* certainty regarding a taxpayer's tax obligations sooner rather than later;
* consistent treatment for taxpayers; and
* an efficient use of government and taxpayer resources by focusing on the issues and taxpayers that pose the greatest risk of tax noncompliance.
Shulman said IRS's Industry Issue Resolution program, Compliance Assurance Program, Fast Track Settlement and Uncertain Tax Positions reporting requirement are focused “on the goals of faster issue resolution and greater certainty for those taxpayers who want to be transparent,” and said they were IRS's “leading edge initiatives in our evolving relationship with corporate taxpayers.”