President Barack Obama and Congress are currently discussing the outlines of the fiscal-year 2012 federal budget. Part of this discussion involves a number of tax administration initiatives being proposed by the Obama administration as highlighted in the Department of the Treasury’s February 2011 General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals. This document (referred to as the Green Book) is important because previous revenue proposals have made it into law in recent years, such as the preparer e-file mandate, which went into effect during the 2011 filing season, and the recently repealed increase in information reporting requirements (Forms 1099) for businesses.
The Green Book, about 150 pages in length, addresses revenue initiatives in such tax areas (among others) as individuals, corporations, partnerships, international taxation, exempt organizations, and employee benefits. This column focuses on some of the tax administration initiatives proposed by Treasury that are likely to be of strong interest to tax professionals.
Certified TIN for Contractors
This proposal would require a contractor to provide a certified taxpayer identification number (TIN) to a business if the contractor receives payments of $600 or more from that business during a calendar year. In addition, the proposal requires the business to verify the contractor’s TIN with the IRS; the IRS would be authorized to disclose (solely for this purpose) whether the TIN and contractor name match IRS records. Should the TIN be considered inaccurate, the business would be required to withhold a flat-rate percentage of the contractor’s gross payments. For the component of the initiative that many commentators believe may prove difficult to implement, the proposal would require the business to withhold 15%, 25%, 30%, or 35% of the gross payments, with the flat-rate withholding percentage selected by the contractor.
Repeal of Nonrefundable Payment Requirement for Offers in Compromise
Treasury is calling for repeal of a provision added to Sec. 7122 in 2006 that generally requires taxpayers to provide a nonrefundable payment with their application for an offer in compromise. Under current law, if the taxpayer is filing a lump-sum offer application with the IRS, he or she must generally include a nonrefundable payment of 20% of the initial offer amount with the offer application. In addition, with the submission of a periodic payment offer, current law requires the taxpayer to include a nonrefundable payment equal to the first proposed installment with the offer application.
The AICPA is supportive of Treasury’s position involving repeal of this nonrefundable payment requirement. Treasury’s Green Book states that these nonrefundable payments “substantially reduce access to the offer-in-compromise program.” The AICPA also agrees with Treasury that in the absence of repeal, the current provision makes it more difficult and costly for the government to collect even a portion of existing tax liabilities.
IRS Access to Information in National Director of New Hires
The U.S. Department of Health and Human Services maintains a database called the National Directory of New Hires (NDNH), which contains data from Forms W-4 for newly hired employees, quarterly wage data from state workforce and federal agencies, and unemployment data from state workforce agencies pertaining to persons who have applied for or received unemployment benefits. The purpose of the database is to help state child support enforcement agencies enforce child support obligations against parents.
Current provisions of the Social Security Act (42 U.S.C. ch. 7) permit the IRS to obtain data from the NDNH only for purposes of administering the earned income tax credit and verifying employment reported on a tax return. Treasury has proposed that the Social Security Act be amended to permit the IRS to access the NDNH for general tax administration purposes, such as data matching, preparation of substitute returns for “non-compliant” taxpayers, and enabling the Service to identify potential levy sources. IRS access to the NDNH would be protected by existing taxpayer privacy laws.
Tax Information Sharing with Local Jurisdictions
The IRS and Treasury are permitted to share federal tax returns and return information (FTI) with states and certain local government entities that are treated as states for information sharing purposes. When FTI sharing is authorized, reciprocal provisions generally authorize state and local governments to disclose information to the IRS. Current law treats Indian tribal governments (ITGs) as states for sharing certain information, such as certain charitable contributions, excise tax credits, and local tax deductions, but not FTI.
Treasury has proposed that ITGs be treated as states for FTI purposes if those ITGs assess alcohol, tobacco, or fuel excise taxes or income or wage taxes. Any ITG that receives federal tax returns and return information would be required to safeguard the FTI received.
Taxpayers Filing Paper Returns Required to Use 2D Barcode
The IRS has demonstrated that electronically filed returns are significantly cheaper to process, are more accurate, and create other tax administrative efficiencies for the IRS. In contrast, IRS employees must manually enter paper-filed returns into the IRS computer systems. Treasury has proposed that taxpayers who prepare their returns electronically but file those returns on paper would be required to use a 2D bar code for the paper-filed return. The bar code would permit the IRS to convert the paper return into an electronic format, alleviating the need for manually entering the return.
Benson Goldstein is senior technical manager (taxation) at the American Institute of CPAs in Washington, DC, and is staff liaison to the AICPA ’s IRS Practice and Procedures Committee. For more information about this column, contact Mr. Goldstein at firstname.lastname@example.org.