Don't Mess With Taxes

As the Internal Revenue Service explores a future that will make more of its customer services digital, it is getting support from an advisory committee.

The Electronic Tax Administration Advisory Committee (ETAAC) issued its annual report last week, recommending that the IRS expand its electronic filing efforts and digital strategy.

ETAAC also suggests the IRS expand expanded electronic filing of more tax returns, particularly employment taxes. That business tax segment is dramatically lagging in electronic filing participation.

The report points out that in 2016 the IRS exceeded, for the fifth straight year, its 80 percent electronic filing goal for individual tax returns. Other major tax returns, however, fall short of that threshold.

And when it comes to the just a third of e-filed Forms 94x, ETAAC says this trend will likely continue until the IRS implements a new electronic signature process for these returns.

Individual return plateau: As for potential expansion of electronically filed individual returns, ETAAC notes that the IRS must continue its work in this area.

"Individual returns, which represent 76.8 percent of the 2016 filing season volume, continue to experience e-file growth, albeit at a slower pace than in prior years," according to the ETAAC report. "This is understandable, given that the individual return e-file rate is rapidly approaching 90 percent."

That means, however, that the rate of growth in individual e-filing will likely be more gradual unless the IRS focuses on ways to understand and address the remaining barriers to individual return e-filing, according to ETAAC.

Improving the Tax Ecosystem: The latest ETAAC report also looked at ways the IRS could improve efficiency and reduce the burden on taxpayers when it comes to digital interactions.

To assist in these improvements to what ETAAC calls the Tax Ecosystem, the committee offers 11 recommendations on improvements it says will increase fraud prevention and detection, as well as taxpayer compliance.

The suggestions that caught my eye include:

• Providing a voluntary registration process for tax filers to authenticate their identities.
• Releasing refunds only after the IRS can reasonably verify taxpayers and their withholding.
• Requiring payers to collect a certified Taxpayer Identification Number (TIN) from all contractors receiving payments subject to Form 1099-MISC reporting for non-employee compensation.
• Adding an indicator to 1099 forms that allows payers to flag payments made to presumed U.S. persons subject to backup withholding.     

ETAAC also has some suggestions for Congress. It says the House and Senate should:

• Fund the IRS specifically to compile information returns in a manner that allows real-time matching of tax returns to information returns on file, and
• Provide the IRS with the authority to question and correct returns that do not match information returns.

Compliance costs: Will a more digital approach to taxes help with taxpayer compliance? Maybe.

A related question is whether more online tax resources will help reduce our compliance costs. As I noted last week at my other tax blog, filling out all those returns, either by hand or online, takes time. And that time costs a lot of money, around $409 billion in compliance costs, according to a recent Tax Foundation study.

Also over at Bankrate Taxes last week I commemorated Sunday's anniversary of the legalization of same-sex marriage nationwide. Check out these tax and estate planning tips for all the couples who were able to wed following the historic June 26, 2015, Supreme Court decision in Obergefell v. Hodges.

I usually post my additional tax thoughts over at Bankrate on Tuesdays and Thursdays. And I usually post highlights of those items here at the ol' blog the following weekend.

But, as you can tell from this Monday item, thanks to Brexit and time I spent this past weekend with my golf fan mother, during which we not surprising discussed Brexit and The Donald's Scottish golf course renovations, my schedule got pushed. 

Thanks for your patience. I promise to try (emphasis on try) to get back on schedule -- or shedule for my British friends -- in this new week.  

You also might find these items of interest:

• Digital IRS is costing those who can least afford it
• IRS 'Future State' plans and service, security concerns  
• IRS picks crowdsourced Tax Design Challenge winners