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Reinventing the Internal Revenue Service: IRS and the National Performance Review.

Over the past several years, the Internal Revenue Service has been revamping its administrative structure and rethinking its relations with taxpayers and practitioners. More recently, Vice President Al Gore released the report of his National Performance Review (NPR), entitled From Red Tape to Results: Creating a Government that Works Better and Costs Less. This report makes numerous recommendations for improvements at IRS, many of which the Service was already on its way to fixing.

At NSPA's National Convention, Commissioner of Internal Revenue Margaret Richardson outlined several areas in which she felt voluntary compliance could be improved--one of the major concerns of the NPR. Following the release of the Vice President's report, the Service issued Fact Sheet 93-3, which reviews programs currently in place that will be charged with implementing the six major recommendations under the reinventing government plan.

Increasing Voluntary Compliance

The National Performance Review states its "support of the current efforts of the IRS under compliance 2000 to improve voluntary compliance and other efforts to collect taxes already owed to the Federal government." In her first few months, Commissioner Richardson indicated her commitment to the dual goals of returning nonfilers to the system while at the same time, keeping current filers from dropping out of the system. She noted several areas of compliance she would like to improve and asked NSPA to contribute ideas. These areas are:

* Improving compliance in small corporations;

* Increasing the effectiveness of the nonfiler initiative;

* Reducing opportunities for electronic filing fraud; and,

* Reducing complexity in the administration of the tax system.

She stressed the importance of communication between practitioner groups such as NSPA and the Internal Revenue Service in resolving problems with the system and improving voluntary compliance.

Modernizing the IRS

According to the NPR, the Service's Tax System Modernization (TSM) initiative, "currently in its initial stages, would ease taxpayer burdens due to manual return processing and inaccessible information, and enable IRS to provide a level of service comparable to private sector financial institutions." The Service notes that it plans to have its system technologically current by the year 2001, at a cost of $8 billion above what it would cost to keep the existing system running over the same period of time. IRS points out the following benefits already resulting from the TSM program:

* Enhanced efficiency in responding to taxpayer questions: Information regarding taxpayer accounts is now available to IRS employees on line, eliminating the delay in handling minor errors caused by retrieving taxpayer files from a central location.

* Prototype in place for paperless employment return filing: Taxlink, the Service's program that will eventually lead to filing of all employment tax documents electronically, is currently being tested with three banks in the southeast.

Fostering Federal-State Cooperative Initiatives by the IRS

Vice President Gore's report suggests that, "Cooperative relationships between the IRS and state tax administrations, including joint filing of data, should improve taxpayer service as well as collection activity while reducing costs." Already working on relations in this area, the Service notes that its FedState program encourages cooperation between Federal and state tax administrators and implements joint projects in tax administration. One of the cornerstones of this program is the coordination of joint state and Federal electronic filing, available in 15 states in 1993 with another nine states expected to participate next year. In 1994, the Service expects to see almost two million joint electronically-filed returns.

Simplifying Employer Wage Reporting

The NPR recommends that, "The administrative burden caused by our current employer wage-reporting requirements could be reduced while maintaining or improving the effectiveness of government operations by developing and implementing a simplified wage reporting system." Currently in Phase II of its development, the Service's Wage Reporting Simplification Project (WRSP) will accomplish much of the NPR's goals in this area when fully implemented. Phase I was the development of an initial proposal. Phase II is the solicitation of responses from Service personnel and external stakeholders to the proposal.

As currently proposed, the program would create a central wage reporting clearinghouse at the Federal level. Employers would report all wage information, including FICA, FUTA, SUTA and state income tax figures, on one comprehensive summary form. This form would go to the Federal clearinghouse, which would be responsible for forwarding the information to the proper authorities. The proposal appears to hold considerable merit and NSPA is responding to the draft program description.

Another pilot program currently working in 11 states may eliminate the necessity for filing a separate copy of an employee's Form W-2 with state tax authorities. The Service currently provides participating states with the necessary information from the Federal W-2s electronically. Eventually, over 40 million W-2s may no longer need to be filed as a result of this program.

Government-Wide Recommendations Applicable to IRS

The NPR report goes on to make more general suggestions applicable to the government as a whole. The IRS Fact Sheet notes two areas in which the Service is working to achieve the goals set forth by the vice president's task force.

Improving Agency Compliance with Employment Tax Reporting Requirements

The Review suggests that, "Many Federal agencies do not fully comply with Federal tax reporting requirements," and that, "Responsibilities for compliance should be more fully communicated and enforced." The Service notes in its fact sheet the benefits of information reporting on prospective Federal contractors and points out difficulties--such as missing and improper taxpayer identification numbers--that hinder their efforts to review compliance of government contractors.

IRS reports that last year alone, they took action in 599 cases based on Federal contractor information involving $50 million in total delinquent taxes. Given the value of the program as it currently exists, the Service feels strongly that with more effective information reporting by government agencies, it will locate more delinquent taxpayers.

Providing Customer Services Equal to the Best in the Business

One mandate that the NPR seeks for all government agencies is the idea of providing better customer service to those who come in contact with a Federal government office. IRS points to several items that it feels signal an improvement in their relations with the taxpaying public:

* Increased accuracy rate in answering telephone inquiries.

* Improved timeliness and accuracy in correspondence with taxpayers.

* Responses to taxpayer input on simplification of forms and filing processes.

* Reduction in turnaround time for refunds due to taxpayers.

* Increased accuracy in processing paper returns.

While no government agency operates without room for improvement, the Service is taking steps to correct problems that have come to light in the way it handles information and in the way it works with taxpayers and tax practitioners. If you have any suggestions for improvements, please feel free to contact NSPA's Federal Affairs Department.

Jeffrey Lear, Director of Federal Affairs & Tax Counsel
COPYRIGHT 1993 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Lear, Jeffrey
Publication:The National Public Accountant
Date:Nov 1, 1993
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