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A new report from an Internal Revenue Service advisory group points to the high costs of information reporting and how the IRS can reduce the burden.
The report, from the IRS’s Information Reporting Program Advisory Committee, describes some of the challenges in information reporting, and how the IRS’s perpetually constrained budget often keeps the agency from acting on the recommendations from the committee’s annual reports.
“In many instances, we have been told that the IRS cannot pursue our recommendations because the IRS lacks the resources to open additional projects,” said the report. “As a result, both taxpayers and the IRS suffer.”
However, the IRPAC report notes that information reporting requirements have continued to rise in recent years, thanks to legislation from Congress. “An ongoing wave of new information reports shifts new and substantial burdens to payors and financial intermediaries,” said the report. “In just the last 6 years, Congress has added information reporting for cost basis on securities sales, reporting of financial payments under the Foreign Account Tax Compliance Act (FATCA) and health care coverage and enrollment under the Affordable Care Act (ACA).”
The Financial Institute Forum estimated the cost to brokers and other financial intermediaries for implementing cost basis reporting was more than $500 million for the initial reporting period of 2011 to 2013, the report pointed out.
The report describes a number of small changes the IRS can make, for example, in the area of 972CG penalty abatement requests, and the IRS process for evaluating reasonable cause waivers for payors. The IRS assesses the penalties when information returns have been submitted with errors in the name or Taxpayer Identification Number or the returns were filed late.
“Payors may seek abatement of the penalty if they can show they acted in a reasonable manner and the errors were not caused due to willful neglect,” wrote IRPAC chairperson Michael Gangwer. “Our report details the pain that payors experience in obtaining this waiver and recommends that the IRS take appropriate steps to address a serious issue that we believe will lead to a reduced burden on payors and IRS personnel alike and allow valuable resources to be better allocated.”
The report also makes recommendations on alleviating some of the reporting requirements under FATCA and the ACA, along with electronic delivery of Forms W-2 and 1095-C, identity theft and other topics.
“Effective information reporting results in effective tax administration,” said IRS Commissioner John Koskinen in a statement. “The committee’s recommendations are an important line of sight into how we can improve the IRS information reporting program.”
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