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The IRS: today and tomorrow.

It is a great pleasure to be here today to talk about what I hope to see the Internal Revenue Service accomplish during my time as Commissioner. Thank you for this opportunity to meet with you.

Your organization's long association with the IRS places you in a circle of those I know we can count on for candid advice and constructive suggestions. My door is always open to those who, like you, are interested in improving our tax system.

I would like to share with you a statement I included in my first Congressional testimony, which I delivered on the Taxpayer Bill of Rights before Senator Pryor's Finance Subcommittee:

"We invite you and the American people to Join with us in a new partnership dedicated to proceeding in a spirit of cooperation to make the system work better for all of our citizens. Together we have the opportunity to transform the system. Let us seize that opportunity!" That transformation is already well on its way.

You have undoubtedly heard it said that the IRS is at a crossroads. I believe we are at a crossroads, but I don't want anyone to interpret this image in the wrong way. Being at this particular crossroads does not mean standing still, waiting for the light to change before proceeding. It does not mean stopping to think about which turn to take to where you want to go. At this crossroads, we know which turn we have to take, we have the right of way and we do not even have to slow down.

Today, I will report to you on the progress we are making toward implementing the three major goals you have been hearing so much about - increasing voluntary compliance, reducing taxpayer burden, and improving productivity and customer satisfaction. We plan to reach these goals, not just through introduction of new technology, but through adopting a whole new philosophy about how we approach our work and how we see our role as facilitating compliance in the tax administration system.

As public accountants, you have a large stake in the changes being made at the Internal Revenue Service. You will benefit because you are taxpayers yourselves - business men and women - and because you spend much of your professional lives translating the tax law and its obligations for small businesses.

Far too often you and your clients are asked to deal with a tax system that does not differentiate between the Fortune 100 and the corner grocer. We must change this pattern. In the words of Judge Learned Hand, "[t]he language of the law must not be foreign to the ears of those who are to obey it."

Last week we reported on several initiatives the IRS is working on to reduce the burden of the tax system, particularly the burden on small business. These initiatives are a tangible demonstration of our commitment to reduce the burden of the tax system on the average citizen and the small business owner. Without a doubt, the most complex and frustrating aspect of a business is dealing with the employment tax system. Last week we proposed regulations to simplify the rules for making payroll tax deposits. The current system for making these deposits is so complex that it has become increasingly difficult to maintain a satisfactory level of compliance. Last year 1.5 million employers were assessed penalties for making payments which were either not timely or not adequate. That is 30% of all employers. I am not willing to believe that many people deliberately set out to break the rules.

Under the proposed regulations, large employers can deposit payroll taxes on fixed days of the week and smaller employers will make deposits monthly, consistent with common commercial practice for paying expenses. As many as 75% of the nation's more than five million employers will be able to use the monthly rule. We are moving on a fast track to get these new rules in place. In fact, we are shooting for January 1, 1993, as the start date. The new regulation should make your lives more simple, since fewer of your clients will run afoul of the complexities of the old system. We expect these simplifications to reduce penalties by more than 20%.

Another area where we are making headway in reducing the burden is with forms. We are developing shorter, simpler versions of business tax forms. We are making progress in simplifying some of the more common payroll forms.

We are now working on simplifying Form 941 for reporting Federal employment taxes. The 941- EZ would simplify quarterly filing for about 3.5 million employers. It takes out complexity by removing non-payroll items, such as back-up withholding, from the form. We are also developing simpler versions of business tax forms for the convenience of small filers. One example is a simpler Schedule C for unincorporated businesses. The new form will reduce from 31 lines to only a few lines the computations needed to arrive at net profit. We estimate that more than 3 million unincorporated businesses will be able to use this simplified form.

While we are on the subject of Schedule C, I am sure you know that at the January IRS-NSPA liaison meeting Donny Woods, Chair of the Federal Taxation Committee expressed your interest in getting some clarification on whether tax preparation fees for small businesses could be allocated and claimed on schedules C, E, and F or if all the cost had to be claimed on Schedule A. We acted on your concerns and put out a Revenue Ruling to make it possible to allocate the expenses.

I must admit that our timing could have been better. We put out the ruling on April 1. At the recent meeting of the Commissioner's Advisory Group, we were asked to give good news like that a little earlier in the future. As I said at the CAG meeting, we will learn from that mistake.

Another way we are hoping to address filing burden is the Single Wage Reporting proposal we are pursuing. As you know, under the present arrangement, you send W-2 forms to the Social Security Administration, 1099 forms and employment tax returns to the IRS, and then file much of the same data with state and local agencies. In the end, the various government agencies wind up sharing the data anyway.

We are hoping to design a Single Wage Reporting which would do away with the need to file duplicate W-2 forms with the IRS, SSA, and various state and local jurisdictions. You would file with only one agency and that agency would share the data with all who need it.

Another of the more exciting efforts now underway is TAXLINK. This system is designed to test ways to take the paper out of the Federal Tax Deposit system. Last year, employers filed more than 80 million paper coupons.

I am sure you are well aware of the problems that the paper coupons can generate, including incorrect addresses and wrong tax and tax period designations. We hope to be able to eliminate all that.

Next month, we will begin a test in three states - South Carolina, Florida, and Georgia - to replace paper FTD coupons with electronic funds transfer. The program will be offered on a voluntary basis to employers who want to make deposits without leaving their offices. Think of it - no more trips to the bank and standing in line.

TAXLINK and other tests are important because they show that we are looking for more electronic options to reduce burden and improve the quality of our service to you and your clients. This past filing season, about 11 million individual returns were filed electronically, nearly 10% of the total. The speed with which these returns are processed gets all the publicity, but the key benefit is actually improved quality. The error rate falls dramatically for electronic returns, from 15% for paper returns to 2%.

This year, we extended the electronic filing option to include balance due returns. Although only 45,000 taxpayers took advantage of this opportunity this year, this option has the potential to open electronic filing to millions more taxpayers. We have extended the electronic return program in seven states through a pilot program combining federal and state returns. Taxpayers provide information at only one. source and the data move electronically to the appropriate tax agency.

As much pleasure as I took in getting to announce these specific burden reduction efforts last week, I want to make it clear that our progress is not merely motion for motion s sake. Unless the projects are all headed in the same direction - unless the arrows all point the same way - we are not likely to make real progress.

That is the reason our strategic objectives are so vitally important. Quite frankly, the three goals we have set for ourselves - greater voluntary compliance, reduction of the taxpayer burden, and improved productivity and customer service- are leading the IRS to a whole new way of doing business. We are thinking differently about the traditional roles of our functional organizations. The walls between our functional components are surely becoming more permeable.

Two major components of our overall strategy are Compliance 2000 and Tax Systems Modernization.

At its most basic level, Compliance 2000 is a new way to think about the ad- ministration of the tax law. Traditional thinking means enforcement of compliance through examination, col- lection, criminal investigation and litigation. Compliance 2000 is designed to move us away from these after-the-fact activities and to focus on "front-loading" our efforts to gain compliance the first time around.

In the past, we generally enter the picture after the return is filed (or not filed), after the mistake has been made, after the money is owed. This philosophy has bred programs that focus on compliance on a case-by-case basis. Typically, as we have found instances of non-compliance, we have audited, corrected and collected whatever was appropriate in that individual case. While this approach generally produces a correct individual tax result, it often leaves unaddressed the reason the taxpayer failed to comply initially.

Compliance 2000 is re-defining what we mean when we speak about compliance. It recognizes that a good part of what we call noncompliance with the tax laws is caused by the taxpayer's lack of understanding of what is required in the first place. Given that reality, it makes better business sense to help broad segments of taxpayers comply. We need not rely solely on after-the-fact, case-based enforcement. Compliance 2000 means we take an active role in being the taxpayer's advocate, in pushing for improvements in both the tax law and in our own procedures.

I see the efforts I have already discussed in the area of payroll taxes are examples of Compliance 2000 at work. The new FTD regulations are a frontal assault on complexity and burden and will be a shot in the arm for compliance. The same can be said for initiatives such as Single Wage Reporting and forms simplification. There is no doubt that early assistance makes a lot of sense for both the taxpayer and the tax system.

But there will always be instances where things go awry. We will still audit returns. We will always have delinquent accounts to collect and delinquent returns to secure. But taxpayers, their representatives and the government all win when we abandon the traditional adversarial relationship and work together cooperatively in an atmosphere of greater trust and respect. Compliance 2000 is not simply for those who try to comply and make it. Compliance 2000 cannot be abandoned even when we find non-compliance.

Our new Offer-In-Compromise procedures illustrate our change in approach. Those of you who are long-term observers of the Service know that we have been reluctant to accept a taxpayer's offer to compromise its debt for less than face value, even when the debt exceeds the taxpayer's ability to pay. Over the past few years, we accepted very few offers in compromise. Today, our policy reflects an increased openness to offers-in-compromise. We have streamlined the procedures for taxpayers who are making these requests and we are instructing our agents to give those requests greater consideration.

Offers-in-compromise are hardly the first option anyone would choose. But they are a viable alternative in a bad situation, and they give taxpayers the chance to move beyond their tax problems and get a fresh start. In the long term, this approach should increase voluntary compliance by helping us keep taxpayers in the system.

Compliance 2000 is an exciting development taking shape in the Service today. However, to reach all the dimensions of change which are possible with Compliance 2000, we must continue to modernize our antiquated computer system.

Tax Systems Modernization. A 10-year, multi-billion dollar initiative to update the Service's computer and information systems - is absolutely fundamental to our future success. Our 30-year-old computer systems place severe limitations on our ability to retrieve the information stored in our computers. Much of the frustration and burden on taxpayers and IRS employees alike can be traced directly to our antiquated systems.

How many of you have been caught up in the paper chase with a service center to resolve a problem when a phone call should have done it?

How many of you have waited weeks to resolve an account issue, such as deposits that are not associated with the correct tax period? I am happy to report that those delays are nearing an end.

New projects coming on-line will put more complete information in the hands of front-line IRS employees. More and more employees will be able to resolve taxpayer inquiries over the phone on the first contact. TSM will enable us to leave behind our current paper-based system and move to an environment where the information we have can be used, retrieved and delivered electronically. Several of the TSM projects being implemented right now will bring together on the IRS employee's computer screen both account data and information directly from the return filed by the taxpayer.

Let me explain how we are using these tools to improve telephone assistance. Well over half of the 35 million calls in 1991 on our assistance lines were about letters or notices we sent to taxpayers about their accounts.

I recently toured our San Francisco District office to see their pioneering efforts in one-stop service. They are making phenomenal progress, combining modern computer systems which give telephone assistors greater access to service center account data with increased authority to make adjustments without having a request in writing. The rate of call-in account problems resolved in a single contact has increased from 56% to 77%.

Many of you will soon start to see the effects of this effort as we roll it out nationwide in the next year. You do not have to convince me that the time you spend resolving account problems with the IRS is a major hidden expense for you.

So the ability to do most of your business with a single phone call should be a major benefit.

Our goal is to resolve 95% of taxpayer inquiries through one-stop service. This long-term goal is being implemented incrementally as new features of Tax Systems Modernization become available. Part of one-stop service depends on the installation of new computer hardware. We have installed more than 800 new computer terminals to allow our employees to go on line to resolve taxpayer account problems.

Another aspect of one-stop service is to give our employees the power to make more decisions on the spot. As we give our employees access to better information on their computer screens, giving them the authority to make decisions is the next logical step. One-stop service is only one example of the many improvements in taxpayer service and burden reduction that will flow from modernization. So far, TSM implementation has eliminated more than 900,000 unnecessary taxpayer contacts annually, and we hope eventually to eliminate some seven million taxpayer contacts. We estimate that TSM will save taxpayers and their representatives 5.9 billion hours and at least 1.1 billion dollars.

The IRS is in the midst of dramatic improvements. The initiatives already under way demonstrate our commitment to reaching the goals we have set for ourselves. We will not accept business as usual for the future. We will be the leaders in change.

These are times of great challenge and of great opportunity. We can change the system. It can be better. When I say "we," I do not mean just the IRS. Meeting this challenge requires cooperation. It requires that the IRS work in partnership with organizations such as the NSPA. Let me assure you that I plan to make the nurturing of such partnerships my guiding principle as Commissioner. I regard it as essential to long-term improvement in tax administration. I know that I can count on you to help strengthen our partnership.

Thank you again for the invitation to address you today. I look forward to many years of working with the NSPA for better tax administration for all Americans.
COPYRIGHT 1992 National Society of Public Accountants
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:From the IRS Commissioner: 1992 NSPA National Issues Conference; Internal Revenue Service
Publication:The National Public Accountant
Article Type:Transcript
Date:Jul 1, 1992
Previous Article:A shot in the arm for medical and travel expense by plane.
Next Article:The future of small business in America.

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