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IRS computer upgrades will speed up 2012 return processing and eventually make real time taxes a real possibility

Real time tax talk

The IRS wants to deal with taxpayers in the here and now.

You say that's what you thought was happening.

Not really.

Although we filers are very aware of deadlines, like the due date by which we must file our 1040s or estimated tax payments, once the IRS gets those documents, time shifts.

Federal tax collectors operate on a "look back" system. Essentially, they don't get around to examining our returns until some time, often a lot of time, after we file them.

Back to the tax future: IRS Commissioner Douglas Shulman wants his employees to move to a more "real time" approach, or upfront matching of tax returns when they are first filed.

Under this scenario, the IRS would compare information submitted on a tax return with third-party information immediately during processing.

If an issue is found, say you forgot to report some 1099-MISC income, the IRS would let you know and you could correct the oversight before the agency officially accepts your filing.

That would mean you wouldn't get a notice months or possibly years later about a problem with a return you'd long forgotten about.

Even better, since the inquiry would be soon after you filed, there'd be no scrambling to find records to answer the IRS questions.

Shulman, who discussed this approach during a speech before the National Press Club in April, says a real time tax processing approach would reduce the burdens for taxpayers and improve overall compliance upfront.

The YouTube video starts at Shulman's real time tax processing remarks. To view the full event click here.

The current after-the-fact tax compliance approach can be a real dilemma for taxpayers, who may no longer have the money that was refunded to them, but it turns out, they were not entitled to, said Shulman.

There's also possible sticker shock because interest and perhaps penalties may have been accruing on any tax due for the up to three years that the IRS has to audit a return.

And then there is the PR problem.

Shulman noted that taxpayers often ask, "Why didn’t you notify me earlier?" when they finally hear from the IRS. "This hurts the IRS' image and contributes to a 'gotcha' perception," said the commish.

The IRS is listening: So what do you think?

At a hearing today at the IRS headquarters in D.C., Shulman and crew are finding out the real time tax thoughts of consumer groups, the tax professional community and government representatives. 

At a future public meeting scheduled for early next year, the IRS will get input from, among others, representatives of the employer and payroll community, the software industry, financial institutions and additional government representatives.

Aside from government representatives appearing to be over represented, the hearings are a good idea.

So is this real time tax approach.

I've had a few inquiries from the IRS before and I know that in addition to being a pain to dig out the records, it kind of freaked me out to hear from the IRS in non-tax season. If I'm still in tax mode and hear from the IRS, it shouldn't be as jarring.

When the IRS or some media outlet that's covering today's D.C. hearing releases details of the meeting, I'll pass them along.

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Tax Refund Calculator

This is a great post. I actually use my family’s taxes to increase our savings rate. My husband is an awful saver, and tends to spend most of what is left in his accounts after his half of the bills are paid. I’m the saver, and so am in charge of our investments and our liquid fund. I’ve always had him *increase* his withholding when he’s started new jobs. He forgets he’s paying more of our tax bill (especially since I also do our taxes). When our fat refund comes in February, he gets a little fun money, and I roll the rest into our IRA and house fund. This way, we both pay half the bills, and both save almost the same amount of money over the course of the year, without any arguments.

tax filing 2011

Great article! Do I assume correctly that you mean taxes owed after withholding? So if a Chapter 13 filer has had almost all of the 2011 tax withheld, then there is nothing "owed" on January 1, 2012?

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