PROPOSALS FOR CHANGES TO TAX ADMINISTRATION FROM MAX BAUCUS

In “Draft Tax Reform Proposals from the Senate Finance Committee” fellow tax-blogger William Perez from ABOUT.COM tells us –

“Senator Max Baucus, chairman of the Senate Finance Committee, released three separate drafts of tax reform proposals this {actually last – rdf} week.

On November 19, Baucus released proposals for reforming how businesses are taxed on their international operations.

 

On November 20, Baucus released proposals dealing mostly with tax administrative issues.

And on November 21, Baucus released proposals to reform rules around depreciation.”

William does an excellent job of listing some of the more interesting of Max’s 72 proposed changes relating to tax administration.  The proposals cover a wide variety of issues around filing returns, dealing with identity theft, information reporting, electronic filing, tax collections, due dates, access to court systems on tax issues, and the sharing tax-return data among government agencies.  

Below is the list of proposed changes as outlined in William’s post, with my comments on the specific proposals in bold italics -

Proposals for Information Returns:

• Proposes that the deadline for filing Forms W-2 and W-3 with the Social Security Administration be moved to February 21 (rather than the last day of February for paper filers and March 31 for electronic filers).  Fine with me.  I usually have all of mine done by mid-January the latest.  The sooner the information can got into the federal system the sooner the IRS can match W-2 information to 1040 information.  I just want to be sure the deadline for getting W-2s to taxpayers remains at January 31^st.

• Proposes that information documents (such as 1099 forms) do not need to be corrected if the error is $25 or less.  I don’t care either way.

• Proposes that the IRS set up a web site where businesses can prepare and file 1099 forms.  This sounds like a good idea to me.  Make it so.

• Proposes that if a tax return is mailed in on paper and the return was prepared electronically using software, that the tax return be printed with a scannable code so that the IRS can process the return more quickly by scanning it in.  I do not use tax preparation software, so this does not affect me.  I have no opinion either way.

• Proposes to eliminate the $10 minimum threshold for reporting interest income on Form 1099-INT and to require financial institutions to report the existence of deposit accounts even if no interest was earned.  This also sounds good to me.  Currently, due to the $10 minimum threshold, many taxpayers erroneously think that they do not have to report interest income if it is less than $10.00.

• Would require additional information be reported on Form 1098 mortgage interest statement. The additional information would be the outstanding loan balance, the address of the property, whether the loan was refinanced during the year, the amount of real estate taxes paid from an escrow account, and the date the loan originated.  Again -  sounds good to me.  Most 1098s already list the amount of real estate taxes paid from escrow. 

• Would require insurance companies to report the sale or transfer of life insurance policies along with the seller's cost basis in the policy.  I am not aware of any problem in this area.  Don’t insurance companies already issue 1099-R forms with this information if necessary?  

• Would require schools to report only the amount received from students for tuition on Form 1098-T, rather than the current rules that permit schools to report either the amount received or the amount billed.  Yes! Yes! Yes!  Please!  It should report ONLY the amount RECEIVED from ALL sources (including student loans and scholarships).  From this number the amount reported for scholarships on the 1098-T can be deducted when preparing the tax return.   99% of Form 1098-Ts that I see each year report only amount billed – so the current 1098-T is basically as useful as tits on a bull!

Tax Filing Proposals:

• Would require businesses and self-employed persons to separate out on their tax returns income that was reported on a 1099 versus income that was not reported on a 1099, and similarly to report expenses for which a 1099 was issued and expenses for which a 1099 wasn't issued.  I guess it couldn’t hurt – although I do not see a real need for this.

• Proposes new due dates for business returns: partnership returns would be due on March 15th, S-corporation returns would be due on March 30th, and C-corporation returns would be due on April 15th.  I support anything that will get Form K-1 in the hands of partners/shareholders earlier.  I would make partnership and sub-S returns due March 15^th, and would support extending the filing date for C-corporations till April 15^th. 

Proposals Related to Identity Theft:

• Would restrict access to the Death Master File.

• Would direct the IRS to assign a single point of contact for identity theft victims.

• Would impose new criminal penalties for stealing a person's identity and using that to file fraudulent tax returns.

• Would permit Social Security numbers to be truncated on Forms W-2 issued to employees.

• Would expand the IRS's access to the National Directory of New Hires database maintained by the Department of Health and Human Services.

• Would require the IRS to notify a taxpayer if the IRS suspects the taxpayer's identity was stolen and used to file a false tax return.

• Would direct the IRS to study whether the Indentity Protection Personal Indentification Number program could be expanded to taxpayers other than identity theft victims.

I would support anything to help prevent identify theft, and to make resolution of tax-related problems easier.  But I would want the Social Security number on the W-2 that a client gives me to continue to contain the complete number.

Proposals Relevant to Tax Professionals:

• Would require tax preparers to meet due diligence requirements on tax returns claiming the child tax credit.  No! No! No! No more unnecessarily excessive “due diligence” requirements for tax preparers!  We are NOT social workers!  Better idea – do away with the refundable Child Tax Credit.

• Would clarify that the IRS has the authority to regulate tax return preparers.  NO! NO!  A millions times NO!  Definitely not!

• Would require tax preparers to file returns electronically.  ONLY if the return  can be submitted DIRECTLY to the IRS online with NO CHARGE to the taxpayer or tax preparer – like the current NJWebFile system in New Jersey!!!  Or ONLY if the tax preparer uses tax preparation software to prepare returns!!!!  A tax preparer MUST NOT be forced to purchase flawed and expensive software in order to submit returns electronically.  I will NEVER use flawed and expensive tax preparation software to prepare 1040s – and if required to so do by the IRS I will be forced to retire prematurely.

Proposals Related to Tax Collections:

• Would permit the IRS to continuously levy up to 100% of payments by the federal government to Medicare providers.  I would support this as a way of collecting delinquent taxes from the providers.  I would allow the IRS to levy up to 100% of any payment to any government contractor with outstanding tax debt.

• Would waive the user fee for setting up an installment agreement if the taxpayer agrees to pay through automatic withdrawals from a bank account.  Sounds good to me.  Make it so.

• Would permit the State Department to revoke or deny passports to persons who owe more than $50,000 in unpaid federal taxes.  NO!  I do not support going this far.

Data Sharing Proposals:

• Would permit the IRS to share tax return data with the Bureau of Economic Analysis and the Bureau of Labor Statistics.  I do not see any problem with this.

So – what do you think about these proposals?

TTFN