Friday, March 23, 2012
Shulman discusses IRS budget and priorities for FY 2013 in written Testimony of Douglas Shulman before the House Appropriations Committee Subcommittee on Financial Services and General Government on FY 2013 IRS Budget
On March 21, in testimony before the House Subcommittee on Financial Services and General Government, IRS Commissioner Douglas Shulman spoke about President Obama's fiscal year (FY) 2013 budget request for IRS, discussed how those resources would be allocated, and addressed IRS's progress and goals regarding a number of key programs and initiatives.
Return preparer program. Under Code Sec. 6109(a)(4), any return or claim for refund prepared by a tax return preparer must include the identifying number for securing the proper identification of the preparer (usually his social security number), his employer or both. However, for tax returns or refund claims filed after Dec. 31, 2010, the identifying number that a domestic or foreign tax return preparer must include with the preparer's signature on tax returns and refund claims is his preparer tax identification number (PTIN), or such other number as IRS prescribes in forms, instructions, or other guidance. A number of detailed requirements are also associated with the PTIN program. (See Weekly Alert ¶ 1 02/17/2011 and Weekly Alert ¶ 4 02/17/2011 for a two-part Practice Alert on the subject.)
Shulman referred to IRS's return preparer program as “one of the most important initiatives the IRS has undertaken in recent memory.” He noted that, since September of 2010, almost 840,000 individuals have registered and obtained a Preparer Tax Identification Number (PTIN). This has enabled IRS to, among other things, learn about the size and composition of the return preparer community.
After PTIN registration was in place, in November of 2011, IRS launched a new competency test for certain tax return preparers who prepare Form 1040 returns but who are not attorneys, CPAs, or enrolled agents, or supervised by one of them in a firm. These individuals now must complete 15 hours of continuing education each year from IRS-approved providers.
Additionally, IRS remains focused on finding “unscrupulous” preparers, with its compliance efforts focused on those areas of greatest risk.
CADE2. In January of 2012, IRS began a new system, known as CADE2 (Customer Account Data Engine), which automatically processes returns daily instead of weekly. This will help IRS to resolve issues more quickly, allow for faster refunds, and further IRS's goal of moving into a “real time” system (see below).
Offshore tax evasion. The Offshore Voluntary Disclosure Program (OVDP), which gives U.S. taxpayers with income in undisclosed offshore accounts a second chance to get current with their taxes (see Weekly Alert ¶ 18 09/01/2011), was reopened in 2012. Shulman stated that IRS has already collected more than $4.4 billion from the two previous OVDPs, and his decision to reopen the program was driven by continued interest from taxpayers and practitioners.
Large business issue resolution. Shulman discussed a number of developments regarding IRS programs designed to promote certainty, consistency, and efficiency for both large taxpayers and IRS. They include:
... the Compliance Assurance Program (CAP), under which participating large corporations work collaboratively with an IRS team to identify and resolve potential tax issues before the tax return is filed each year, was made permanent earlier this year;
... the Industry Issue Resolution Program (IIR), which helps IRS and corporate taxpayers resolve long-standing, industry-specific areas of uncertainty;
... Fast Track Settlement, which allows a taxpayer to settle an issue with an Appeals officer during the audit process. Shulman noted that, according to recent data, 83% of cases accepted into Fast Track resulted in a resolution;
... the Uncertain Tax Position (UTP) initiative, notably involving the use of Schedule UTP. This requires certain corporations to report certain U.S. federal income tax positions taken on their return, with the goal of resolving issues faster and targeting taxpayers and issues with the highest risk of noncompliance. According to Shulman, approximately 1,900 taxpayers have filed Schedule UTP, disclosing approximately 4,000 issues; and
... Joint Audits, the protocol for which is currently being developed in the FTA (Forum on Tax Administration), a global body of tax authorities focused on governments moving from information sharing to coordinated action.
Customer service. Shulman highlighted a number of technology-based ways that IRS is improving customer service:
... E-filing, which for 2011 rose to 77.2% of individual returns and 33.9% of business returns;
... IRS.gov, which received almost 323 million visits for the 2011 filing season;
... Social and new media, including Twitter and YouTube; and
... IRS2Go, IRS's first smartphone application which lets taxpayers check on the status of their refund and obtain other helpful tax information.
Enforcement. For FY 2011, IRS compliance activities returned $55.2 billion to the Treasury as a result of its examination and collection programs. Shulman also touted the indirect effects of IRS's enforcement efforts, noting that over $2 trillion is paid voluntarily and on a timely basis every year.
Real-time tax system. Shulman discussed IRS's vision of a “real-time” tax system, under which IRS would move away from the look-back model where audits can occur years after a return is filed. Essentially, IRS would embed more information return data into its pre-screening filters and provide taxpayers with an opportunity to fix the return before IRS accepts it, if it contains data that conflicts with IRS's records. (See Weekly Alert ¶ 3 04/14/2011 for more details.) Benefits of such a system include increased confidence in the accuracy of returns, dealing with problems while the records are still available, and easier taxpayer access to the tax professional who prepared the return.
Two public meetings have been held on the subject, both of which Shulman described as “very helpful.”
FY 2013 budget. Included in the Administration's FY 2013 budget request, which totals approximately $12.8 billion, are the following:
... $403 million for “new IRS enforcement activities,” with over $340 million of those activities aimed at boosting revenue collection. Once fully implemented, these activities are expected to raise $1.48 billion in annual revenue;
... $200 million in “incremental examination and collection programs” that are expected to generate more than $1.1 billion in addition annual enforcement revenue by FY 2015;
... $35 million to strength return preparer compliance;
... $128 million to support IRS efforts to implement programs that are designed to ensure compliance with, and help taxpayers understand, recent tax law changes, such as basis reporting on securities sales; and
... funding to IRS to continue to develop new information technology systems.