TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, June 21, 2018

National Taxpayer Advocate: The IRS Should Provide More Guidance To Participants In The Sharing Economy

Taxpayer Advocate (2016)ina Olson (National Taxpayer Advocate), Participants in the Sharing Economy Lack Adequate Guidance From the IRS:

In my most recent Annual Report to Congress, I included the IRS’s efforts to reach out to participants in the sharing economy (also know as the “gig economy”) as a Most Serious Problem. ...

These new entrants to the sharing economy will need to spend significant time learning about their tax compliance obligations and devote many hours to recordkeeping. For example, the IRS estimates that it takes taxpayers nearly 40 hours to learn about depreciation methods, keep records, and report the depreciation to the IRS. Yet, according to a recent survey conducted by NASE, 69 percent of entrepreneurs who participate in the sharing economy received absolutely no tax guidance from the service coordinators.

The NASE survey results underscore the importance of educating sharing economy participants about certain basic tax obligations (i.e., making required quarterly estimated payments throughout the year to avoid penalties). There is an opportunity to create a culture of tax compliance among participants in the sharing economy from the outset. Establishing the tax compliance norms for this emerging industry in its infancy will assist the IRS as this segment of taxpayers grows.

This leads us to the question, “What exactly can the IRS do to help sharing economy participants comply with their tax obligations?” If we operate under the premise that most taxpayers want to comply with the law, the IRS needs to expand its presence within the sharing economy to enable that compliance. In my 2017 Annual Report to Congress, I described several ways the IRS can provide improved taxpayer service to this growing sector.

One easy way is for the IRS to repackage existing content and tailor it for participants in a sharing economy. ... In addition, the IRS should consider developing a one-page brochure or flyer that touches on some very basic points relevant to service providers in a shared economy. ... 

Because the IRS has not issued industry-specific guidance outlining the common tax issues faced by participants of the sharing economy, many service providers have turned to the internet to ask tax-related questions. ... Rather than ignore the existence of these online forums and the benefits they provide, the IRS may want to take an active role in such discussions. Certainly, the IRS could not provide specific tax advice through online forums and discussion groups, but it could answer general questions, link to the IRS website for relevant information, and provide the phone number for IRS assistors when appropriate. If the IRS wanted to be even more helpful, it could designate liaisons to monitor online forums to identify emerging issues. A benefit of these exchanges is that the IRS will learn about specific challenges and issues facing this segment of the economy and thereby do a better job of tailoring its guidance for both taxpayers and IRS employees.  

It is clear there is a segment of the sharing economy that seeks guidance on how to comply with their tax obligations. By proactively engaging in the discussion, the IRS can positively shape the norm for participants in the sharing economy.

http://taxprof.typepad.com/taxprof_blog/2018/06/national-taxpayer-advocate-the-irs-should-provide-more-guidance-to-participants-in-the-sharing-econo.html

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Comments

I doubt many of these people will "spend significant time researching their tax obligations" as Nina reported. In fact, many consider this tax-free income and will avoid the IRS if at all possible. And most will be successful, since the IRS already has more than it can handle.

Posted by: Smitty | Jun 21, 2018 8:36:28 AM

A major factor in the success if Uber and Lyft is that drivers do not adequately budget for rapid depreciation of their vehicles and increased repair expenses. The IRS will have difficulty getting these people to pay their taxes in advance.

Posted by: AMTbuff | Jun 21, 2018 8:59:47 PM