NEWSPAPER CARRIER TAX RELIEF
It was extremely difficult for newspaper carriers under the age of 18 to determine whether or not they were required to file self-employment tax payments. The TAP proposed that the IRS publications that discussed which types of income are subject to self-employment tax be revised to read “Earnings of newspaper carriers and vendors under the age of 18 are not subject to self-employment tax.”
When a taxpayer finds that he/she is unable to pay the taxes that are due, they have the ability to provide the IRS with an “offer” of something less than the total amount that is due. The IRS would then review the facts and could decide to “compromise” and accept the offer of a lesser amount. A number of taxpayers reported that they encountered a problem when submitting the OFFER-IN-COMPROMISE application. Instructions now inform taxpayers who were not required to file a tax return in the previous year(s) that they should attach an explanation of this fact. In addition, several wording changes were suggested to clear up other possible misunderstandings.
OBTAINING COPIES OF TAX RETURNS WHEN USING “FREE FILE”
A large number of taxpayers complained that they were unable to print out or download a copy of the return that they filed on line using the IRS “Free File” site. Members of the Free-File Alliance must now provide the capability to print out and download copies of returns filed for free for as long as they provide this service to their paying customers.
EARNED INCOME TAX CREDIT NOTICE AND LETTER IMPROVEMENTS
At the request of the Wage and Investment (W&I) Division of the IRS, the Earned Income Tax Credit (EITC) Committee examined form notices and letters for readability and clarity of instructions. After committee feedback, the IRS redesigned several standard notices and letters it mails to taxpayers to notify them of eligibility for the EITC when they haven’t claimed it, examination of the tax return with respect to the EITC, and announced sanctions for false claims of the EITC.
HEALTH BENEFITS EDUCATION FOR SMALL BUSINESS OWNERS
It was brought to the attention of the TAP that many small businesses were making decisions about whether to offer health benefits to their employees without being fully aware of the tax advantages that can make offering health benefits more affordable. The TAP proposed that the IRS partner with educational and professional organizations to provide clear, accurate, and balanced explanations of the tax treatment of health benefits to provide technical advice and encouragement to small businesses considering providing health benefits to employees. In response, the IRS reorganized small business outreach and education in 2005 within the newly created Communications, Liaison & Disclosure function in the Small Business/Self-Employed Division. The task of educating the small business community through partnerships with practitioner and small business/industry groups became the responsibility of Stakeholder Liaison with a headquarters and field component, for national and local outreach, respectively.
The TAP advanced the idea that there is an educational gap for many taxpayers with regard to understanding the importance of tax obligations and having the basic skills necessary to file a simple tax return. This was of particular concern for people with disabilities and those who are not English proficient. The IRS was encouraged to develop tax modules for the adult learner to promote tax education and develop the modules in different languages. Consequently, the IRS established an Asset Building/Financial Education (ABFE) Strategy team to write a three-year strategy for the tax education of adults. The strategy was implemented in fiscal year 2008 (beginning October 1, 2007).
INNOCENT SPOUSE RELIEF NOTICES
Many taxpayers who sought “innocent spouse” relief from amounts owed on joint returns were unaware that the law requires the IRS to notify the non-requesting spouse of the request for relief. TAP recommended that the Innocent Spouse Relief form be revised so that all information pertaining to the fact that the law requires that the spouse or former spouse be notified of the request for innocent spouse relief be CAPITALIZED and printed in bold letters.
EARNED INCOME TAX CREDIT – QUALIFYING CHILD DEFINITION
Taxpayers complained they found it very difficult to determine if they met the “qualifying child” requirements for the Earned Income Tax Credit (EITC). The EITC Committee provided comments on the interpretation of “caring for a child as your own.” This resulted in the deletion of the “cares for” language from the new definition of “qualifying child” in the EITC worksheet. Taxpayers and tax preparers now better understand these clarified instructions, resulting in a reduced number of rejected claims.
LONGER EXTENSION OF TIME TO FILE TAX RETURN
In order for taxpayers to request an extension of time to file their return, they were required to complete a form to obtain a four month extension. If during this period, the taxpayer found that they needed additional time to file, a different form needed to be submitted requesting two additional months. The TAP recommended eliminating the second form and revising the first one to provide an automatic six-month extension to file the return. It was also suggested the same logic be applied to extensions of business returns to achieve conformity. The IRS agreed to consolidate six forms into two, rendering four of these forms obsolete. The surviving forms for individuals and businesses will be simpler and take less time to prepare. The new process became effective January 2006 for the 2005 tax year. These changes are projected to save taxpayers and staff over 9 million man-hours.
OUTSOURCING OF TAX RETURN PREPARATION
The TAP recommended clarifications to IRS rulings and/or regulations under Internal Revenue Code sections 6713 and 7216, stating that providing return information to a third-party preparer outside the United States without the client taxpayer’s knowledge and consent constitutes unauthorized disclosure of return information and that client consent is valid only if the preparer prominently, fully, and clearly discloses if all or a significant portion of the preparation or processing of a return will be, or could be, outsourced to a non-U.S. location. The IRS agreed and modified Regulation § 301.7216-3 to provide specific instructions for informed consent from taxpayers before tax preparers may disclose taxpayer information to third-party preparers outside the United States.
SMALL BUSINESS TIME SAVINGS
The Employer’s Quarterly Federal Tax Return (Form 941) is extremely time consuming and difficult for small businesses to prepare. TAP suggested a large number of changes to these forms to reduce the time that a small business owner must spend completing them. The principal form has been revised to incorporate a number of these recommendations and a simplified form has been introduced that increased the requirement threshold from $100 per quarter to $500 per quarter. Beginning January 2007, eligible taxpayers file the simplified form annually rather than quarterly. To simplify things even more, a new form. Form 944, Employer’s ANNUAL Federal Tax Return, was introduced that offers small businesses a significant burden reduction by allowing them to file a single return rather than four quarterly returns per year. As a result, taxpayer and staff burden will be reduced by approximately 50 million hours.
ELECTRONIC FILING HELP FOR SMALL BUSINESSES
The TAP was charged with the task of trying to find out why small business owners do not make better use of electronic filing for their required reports and statements. The TAP concluded there were educational, financial and procedural deterrents to the use of electronic filing by small business owners in that the owners did not know how to use the equipment or software, they did not have the financial means of acquiring the equipment or software, and if they did have the education and equipment, they didn’t know how to go about filing the information electronically.
TAX PROFESSIONALS – INFORMATION TO HELP TAX PREPARERS FILE ELECTRONICALLY
A large number of tax professionals were using tax preparation software to produce tax returns for their clients but were not e-filing the returns. These preparers printed the returns for their clients who, in turn, mailed the returns to the IRS for processing. TAP produced a marketing kit explaining the facts about e-filing and some of the “myths” associated with e-filing along with key messages and a CD containing “E-File Made Easy.” The CD walks the preparer through the process of applying for an Electronic File Identification Number or “EFIN,” which is needed to file a return electronically.
DIFFICULTIES WITH “EARNED INCOME TAX CREDIT” WEBSITE
The Earned Income Tax Credit (EITC) website was difficult to navigate and not user-friendly. The website now has been updated and is easier to navigate as well as being easier to understand by those who are not computer literate.
SMALL BUSINESS REPORTING MADE EASIER
The simplified small-business income reporting form known as Schedule C-EZ, has a limit of $2,500. The TAP recommend, and the IRS agreed, that this amount be increased to $5,000. Approximately 500,000 additional taxpayers are now qualified to file the simplified income reporting form, reducing the tax preparation burden for taxpayers and staff by more than 5 million hours.
All TAXPAYERS – A METHOD TO IMPROVE READABILITY OF IRS LETTERS
The IRS has approximately 600 different letters it sends to taxpayers and business owners. Many of these letters are illegible (printed on dot-matrix printers) and difficult to understand. As a result, taxpayers often fail to respond. The TAP Notice Committee established a method to score the “readability” of various IRS letters, as well as to review and make recommendations for change.
FORMS AVAILABILITY AT TAXPAYER ASSISTANCE CENTERS
The IRS Taxpayer Assistance Centers (TAC) do not carry all IRS forms, instructions, and publications. The TAP recommended that, upon request, every IRS walk-in TAC should provide taxpayers with a paper copy of any IRS form, other than scannable forms, together with instructions needed to prepare the taxpayer’s current year’s tax return. IRS agreed and though printed copies are not stocked, forms and instructions will be printed for taxpayers when requested.
HELPING OLDER AMERICANS TO UNDERSTAND THE TAX CODE
The IRS distributes a guide intended to address the issues of older Americans and their taxes. TAP submitted suggestions for ways to improve this guide so that it is easier to read and more useful to the taxpayer. The IRS has agreed to enlarge the size of the font used in the various tables and footnotes throughout the guide as well as printing it on brighter paper to improve its readability. Additional reference material including form and publication numbers as well as toll free numbers that can be used to locate free tax preparation sites near their homes will be added. Information pertaining to Individual Retirement Accounts has been simplified and numerous definitions have been re-written to make them easier to understand.
CONSOLIDATED SOURCE OF INFORMATION FOR DISASTER VICTIMS
Information for taxpayers in Presidentially designated disaster areas was hard to find. TAP suggested that the IRS provide a consolidated source of information for these victims to simplify their search. The IRS agreed to expand publications targeting casualties, disasters and theft along with the Disaster Losses Kit for Individuals. In addition, the IRS will create publications specifically dealing with particular disasters when disasters occur that affect a greater number of taxpayers.
OBTAINING AN INDIVIDUAL TAXPAYER ID NUMBER (ITIN) FOR A DEPENDENT SPOUSE
Taxpayers filing a U. S. Nonresident Alien Income Tax Return experienced problems when applying for Individual Taxpayer Identification Numbers (ITINs) for their dependent spouses. The TAP recommended making changes to the dependent spouse ITIN application forms to prevent the applicant and dependent spouse forms from getting separated during processing. The IRS responded by adding additional instructions to the ITIN application form, making it easier to match up separated portions of the applications and eliminating the need to make specific form changes.
INCREASING AWARENESS OF TAP IN PUBLICATIONS
Many people in the general public are unaware of the TAP. Therefore, it was recommended that the IRS include a brief statement identifying the TAP’s mission and the TAP’s web address to some commonly-used IRS publications. The IRS agreed to include information about TAP in appropriate publications in its inventory.
REVISED INNOCENT SPOUSE RELIEF FORM
The IRS is revising its Innocent Spouse Relief form to incorporate a number of suggestions and improvements suggested by the TAP Burden Reduction Committee. The new easier to understand form is expected to eliminate an estimated 30,000 follow-up letters annually. The redesigned form will help educate taxpayers that an innocent spouse can be relieved of responsibility for paying tax, interest and penalties if his or her spouse (or former spouse) improperly reported items or omitted items on their tax return.
DIRECT DEPOSIT OF REFUND TO MORE THAN ONE ACCOUNT
Form 8888, Direct Deposit of Refund, was used for the first time in 2006 allowing taxpayers to directly deposit refunds into more than one account. The TAP Ad Hoc Committee reviewed the form and instructions and requested wording modifications to mitigate potential misunderstandings. For example, additional wording was added to the instructions that made it clear that by directing deposits to individual accounts (from jointly filed tax returns) one spouse may receive the refund to the exclusion of the other spouse.
IRS WEB SITE NAVIGATION
The IRS website (www.irs.gov) allows taxpayers to download forms, instructions, and publications by form or publication number. However, many taxpayers do not know the number of the form or publication they need. The TAP recommended that a “Search by Keyword” function be added for forms, instructions and publications. The IRS agreed to conduct a usability analysis to determine whether a modification to the search engine or other alternative will best address any usability deficiencies.
ELIGIBILITY FOR EDUCATION CREDITS
In an earlier version of Form 8863, Education Credits (Hope and Lifetime Learning Credits), the instructions did not caution taxpayers that adjusted gross income (AGI) limits may disqualify taxpayers from taking these credits. Therefore, a taxpayer potentially could have completed the entire form before realizing he/she was not eligible. Beginning with the 2007 Form 8863, the IRS implemented the TAP’s suggestion to alter the form by adding the words “See instructions to find out if you are eligible to take the credits” directly below the form title.
SPANISH CORRESPONDENCE AVAILABILITY
The TAP became concerned that taxpayers whose primary language was Spanish did not have the option to receive correspondence in Spanish. In response, the IRS implemented systemic changes that allow taxpayers to request letters and notices be reissued in Spanish via toll-free assistance. Notice of the availability of a Spanish-language counterpart is now printed on IRS correspondence. In addition, all toll-free services offer assistance in Spanish as the first alternative when calling regarding a notice or letter.
ACCURACY OF IRS-PROVIDED INFORMATION
Many taxpayers believe the information given to them by the IRS is inaccurate or inconsistent. There is a wide-spread perception that if they contact the IRS more than once about the same issue, they will get different answers to their question. The TAP proposed that the IRS develop a comprehensive IRS-wide plan for continuous quality improvement of customer services, and inform and educate taxpayers about quality improvement efforts and their results. The IRS has begun to address this issue in its Taxpayer Assistance Blueprint (TAB). The Taxpayer Services Program Management Office (TSPMO) is charged with implementing TAB. IRS has instructed the TSPMO to work with TAP to ensure that stakeholders have a forum through which their feedback and recommendations can be introduced and discussed.
CALCULATIONS OF SOCIAL SECURITY BENEFITS TAXATION
Notice 703, Read This To See If Your Social Security Benefits May Be Taxable, accompanies every social security benefits statement mailed to taxpayers and includes a worksheet used for determining the taxability of benefits. A married-filing-separate taxpayer who lived apart from his or her spouse the entire year is entitled to a $25,000 tax-free base amount on their benefits. However, since the worksheet did not provide this information, many eligible taxpayers may have missed this exclusion and overpaid tax on their social security benefits. The TAP recommended additional wording to specifically advise married taxpayers living apart from their spouses of this provision. This change is being implemented for tax year 2008.
PROVIDING AGI TO USE E-SERVICES
Some applicants for the e-services online tool for tax professionals were concerned about providing their personal adjusted gross incomes (AGI) when registering for IRS e-services. This was of particular concern for tax professionals who use the service solely for business, not personal, purposes and who also work for a tax preparation company or with other tax preparers. The TAP did not object to the use of AGI for authentication but suggested that the IRS explain more fully and clarify why AGI is a good authentication variable. The IRS agreed to comply with the TAP’s request.
REINSTATE PROBLEM SOLVING DAY
Prior to 2001 the IRS sponsored “Problem-Solving Days” to provide periodic one-on-one taxpayer assistance to resolve difficult taxpayer issues. The TAP recommended to the IRS to reinstate Problem-Solving Days at Taxpayer Assistance Centers (TAC) where sufficient resources and expertise exists to resolve the majority of case types anticipated. In response, the IRS has reinstated Problem-Solving Days during the 2009 filing season. Taxpayers eligible to claim the Earned Income Tax Credit will be targeted for assistance as well as those with other complex taxpayer issues.
PROCESSING OF PAPER TAX RETURNS
The manual processing of paper tax returns is expensive, inefficient, and can have a significant error rate. Therefore, the TAP recommended that the IRS adopt automated scanning and data entry technology to process paper returns. The IRS agreed with this recommendation and has proposed implementing Modernized Submission Processing (MSP) software beginning with FY 2010, subject to budgeting approval. In addition to improved processing time and error reduction, the new technology is expected to generate a cost savings of over $50 million annually.
INCORRECT SSA-1099 FORMS ISSUED
It was discovered that approximately 2.7 million incorrect SSA-1099 forms were mailed by the Social Security Administration. The TAP requested an immediate intervention to give notice to taxpayers. An Alert was prepared and distributed to taxpayers for notification of the incorrect forms.
NOTICE OF DEFICIENCY
When taxpayers sign Statutory Notices of Deficiency they are agreeing to the assessment as presented and to not petition the Tax Court for a resolution of the IRS’s proposed deficiency. The TAP believed the notice did not provide full disclosure because some taxpayers were signing the notice without the understanding that they were giving up further recourse against the proposed deficiency. Therefore, the TAP proposed increased font size and a bold lettered sentence before the signature line indicating that the taxpayer’s signature precluded petitioning the Tax Court or further dispute against the proposed tax assessment. The IRS agreed to incorporate changes in the notice for clarity.
REQUEST TO SPEAK TO A SUPERVISOR
The IRS did not have a consistent written policy for handling requests to speak with a supervisor at IRS call sites. The TAP suggested wording to strengthen the written policy to provide taxpayers with access to a supervisor within 24 hours of a request.
The IRS acknowledged the need to provide expeditious access to a supervisor and agreed to modify the instructions for toll-free employees to handle such requests consistently and expeditiously.
SCHEDULING OF AUDIT APPOINTMENTS
The TAP noted that the Internal Revenue Manual (IRM) was ambiguous regarding the timing of the initial interview in an audit. There was no minimum time frame between contact with the taxpayer and the initial interview to allow the taxpayer adequate preparation time. The TAP recommended that after contacting the taxpayer, the IRS schedule the first appointment no sooner than ten business days from the date of the call unless requested by the taxpayer. Consequently, the IRS modified its IRM to allow professional judgment in setting the initial appointment but to establish a reasonable time and place for the initial appointment that is convenient for both the taxpayer and the examiner.