Bloomberg News

IRS Commissioner Calls for Real-Time U.S. Tax Filing System

December 14, 2011

(Updates with Shulman comments starting in fourth paragraph.)

Dec. 8 (Bloomberg) -- Internal Revenue Service Commissioner Douglas Shulman called today for development of a real-time tax filing system that would enable the agency to collect 1099s, W- 2s and other tax documents before taxpayers file their full returns.

The early collection of documents would allow the IRS to reject returns that didn’t match records before processing, reducing burdens on the agency and on filers, Shulman said at a public meeting at IRS headquarters in Washington.

Shulman spoke at what the IRS billed as the first of a series of meetings to discuss long-term changes needed to set up a real-time system.

In addition to making filing easier, a real-time system “would significantly improve compliance,” Shulman said.

He said IRS computer operations have improved enough to allow the agency to make fundamental changes in how taxes are filed. In the upcoming filing season, Shulman said, the IRS expects to process all returns on a 24-hour cycle, instead of a weekly cycle.

Shulman said the IRS needs to catch up with consumers who have become used to quick transactions with banks and other financial institutions.

“I think the American people have a different kind of expectation,” he said.

‘After-the-Fact’ Model

The IRS currently operates on what is known as an after- the-fact model of processing -- evaluating a tax return and supporting documents only after a return has been filed. If IRS personnel question a return, a tax filer must retrieve records two years after the occurrence of the activity subject to possible taxation, Shulman said.

Many problems could be avoided if taxpayers could check information in returns against data reported to the IRS by employers and other income sources, he said.

Shulman had earlier spoken about a real-time filing program in April, during a speech at the National Press Club in Washington.

The IRS is considering the new tax-filing system as it offers buyouts to 5,400 employees in anticipation of a budget cut by Congress. Shulman did not directly address the budget issue in his remarks today. Information about a real-time tax system distributed by the agency highlighted cost savings for consumers and the government.

Possible Cost Savings

A handout distributed at the IRS meeting said long-term benefits to the government would include “billions in net revenue and cost savings resulting from upfront quality checks on tax returns being filed with IRS.”

Taxpayers would save millions of dollars in penalties and interest and have millions of fewer contacts with the agency under a real-time system, according to the IRS handout.

Among those attending today’s meeting were tax preparers, software developers and consumer advocates, who questioned Shulman and other IRS officials about how the agency would manage issues such as changes in law by Congress and people who file before the IRS receives their tax documents.

“This is going to take a while to get there,” Shulman said.

--Editors: Jodi Schneider, Leslie Hoffecker

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Mark Silva at Msilva34@bloomberg.net


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