The Internal Revenue Service Advisory Council has released its annual report featuring recommendations on a wide range of tax administration matters, including a suggestion that the IRS expand its voluntary correction programs to make it easier for taxpayers to self-report any prior year non-compliance.
“Given the finite resources available for IRS enforcement efforts and the voluntary nature of the U.S. tax system, it is appropriate for the IRS to encourage taxpayers to discover tax compliance errors,” said the IRSAC report. “This can be done by promoting standardized methods to correct errors. When an error is discovered, the entity should be able to bring the error to IRS’s attention and pay a negotiated amount that approximates the actual tax liability if the error was not made. Closing agreements could be used for some taxes; for income taxes this could involve a process for adjusting the current year’s tax filing. In cases where the error is relatively small and not likely to have a material tax effect, it should be possible to avoid adjusting the information returns, but rather just to pay a negotiated compliance fee amount. Currently, IRS policy and taxpayers’ anecdotal experiences are more discouraging than encouraging.”
The IRSAC noted that the IRS is often unwilling to enter into a closing agreement for unpaid employment taxes if the number of affected employees is small, even if the taxpayers are unsophisticated in tax matters and will need professional advice to determine if an amended return is required and to prepare the amended return. Employers have anecdotally found that the IRS has been increasingly unwilling to allow Form W-2 underreporting to be resolved by the employer without furnishing Forms W-2c to the affected employees, even when the only meaningful change to report is a change in Social Security wages.
IRSAC also recommended in the report that the IRS needs sufficient funding to operate efficiently, provide timely and useful guidance to taxpayers and enforce current law, so that respect for the voluntary tax system is maintained.
It also suggested that the IRS should reduce the processing time for Form 2848, "Power of Attorney and Declaration of Representative," as well as review the Transcript Request Policy for the Practitioner Priority Service toll-free line. Other recommendations involve risk-assessing large taxpayers, strategies to increase use of online payment agreements, modifications to Notice CP2030, guidance to practitioners regarding their professional obligations, Treasury Circular 230 enrollment of former IRS employees, and Schedule M-3, "Net Operating (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More."
“Members of IRSAC devote significant amounts of their own time to provide us with valuable feedback regarding current issues of tax administration,” said acting IRS commissioner Danny Werfel in a statement. “We appreciate their important contribution.”
IRSAC is an advisory group to the entire agency whose primary purpose is to provide an organized public forum for senior IRS executives and representatives of the public to discuss relevant tax issues. The advisory group held a public meeting in Washington, D.C., on Wednesday.
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