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A Proposal for Pro-activeness
April 21, 2011
On April 6, 2011, IRS Commissioner Doug Shulman addressed the National Press Club and offered suggestions on improving tax return reporting. The goal of his proposal is to allow for more accurate reporting and a decrease in the number of audits due to mismatched information. Currently, when an employer sends out W-2’s to each employee, a copy of that W-2 is sent to the IRS as well. The employee then files his or her return and the IRS later matches the information on the return with the information submitted by the employer. The matching begins in May, after tax season ends. Shulman proposed the following:• Under the new system, the IRS would obtain all information returns, such as W2’s and 1099’s, before taxpayers file their returns. • After the collection of the information returns, taxpayers and professional return preparers would be able to access the information from the internet, and download the information into their tax return software. • Taxpayers would then supplement the returns with any self-reported information (i.e., self-reported income, stock basis, etc.). • Reported information which did not match IRS records would be automatically rejected and the taxpayer would be notified.
Shulman argues that this new approach will help promote more accurate reports which, in the long run, will save taxpayers, as well as the IRS, time and money. In order to make this new system work, the IRS will need to make significant technological investments. While Shulman acknowledged that this new initiative would not be in place any time soon, changes for the way taxpayers file their returns are already in the works. At first glance, this might appear to be one more tax filing hurdle to climb. That may or may not be true, but for those taxpayers like my clients who are audited years after filing, this would be a more than welcome change. Taxpayers often fail to hold onto their tax records and as a result, information which was once easily attainable is incredibly hard and burdensome to locate. When people file their taxes each year, the last thing they want to do is revisit them. Keep the issues in the present, and I believe the system runs much smoother. If the IRS can pull this off, then I am all for it. Commissioner Shulman – good luck to you.