2010 IRPAC Report Letter from the Chair
The purpose of IRPAC is to provide recommendations to the IRS for the continued improvement of the tax information reporting program. IRPAC provides a public forum for the IRS to meet on a regular basis with tax professionals engaged in both the production and use of tax information returns to discuss issues and to work in partnership to develop solutions. The importance of IRPAC’s role continues to grow as laws requiring more complex and voluminous information returns stretch the resources of both IRS and the information reporting community.
Congress recognized the critical function of tax information reporting in the federal tax system when it recommended that the IRS consider “the creation of an advisory group of representatives from the payer community and practitioners interested in the information reporting program to discuss improvements to the system.” The Information Reporting Program Advisory Committee (IRPAC) was formed in 1991 as a result of this recommendation, which is contained in the final conference report for the Omnibus Budget Reconciliation Act of 1989. Congress believed that such an advisory group would be helpful for the purpose of discussing “problems and the feasibility of complying with, or the economic impact of, rules and regulations affecting the reporting industry.”
IRPAC serves as an advisory body to the Commissioner of Internal Revenue. As reflected in its Charter, IRPAC’s duties are to identify, research, analyze and provide recommendations regarding specific information reporting issues, current or proposed IRS information reporting policies, programs and procedures, and when necessary, suggest improvements to information reporting operations and/or administration of the Information Reporting Program. IRPAC is not permitted to engage in lobbying activities, but may comment on the benefits and burdens of legislation that includes tax information reporting provisions.
Over the past 20 years IRPAC has worked in partnership with the IRS to improve the information reporting program in a manner that facilitates the gathering of information useful to the IRS while balancing the burden placed on the parties required to provide it. Key initiatives in recent years aimed at raising revenue and increasing voluntary compliance will result in an exponential increase in the volume and complexity of information returns required to be filed in the very near future. Four such initiatives are particularly worthy of note, and are discussed in greater detail in the report that follows.
1) Expansion of Form 1099-MISC Reporting: A provision in the Patient Protection and Affordable Care Act of 2010 added a new information reporting requirement under Internal Revenue Code (IRC) Section 6041 that will require all businesses to issue Forms 1099 for goods purchased after 2011 and will expand the scope of Section 6041 to require reporting with respect to payments made to corporations. Under prior law, reporting was required for the purchase of services but was not required for the purchase of goods, and payments to corporate vendors were exempt from reporting. IRPAC met with the IRS to discuss the challenges presented by these changes in law and issued two comment letters providing extensive analysis of the implications of these changes on the IRS and offering recommendations for the reduction of burdens on the IRS and the information reporting community.
2) Cost Basis Reporting: In late 2008, legislation was passed mandating the reporting by financial institutions of customer cost basis in securities transactions. IRPAC was engaged early in cost basis discussions and continued to meet with IRS executives and Chief Counsel in 2010 to discuss the challenges of implementing the cost basis reporting rules. IRPAC published four comment letters this year offering comprehensive comments and recommendations.
3) Section 6050W Reporting: Also in 2008, section 6050W was added to the IRC, requiring reporting of payments made in settlement of payment card and third party network transactions. IRPAC was also engaged early in these discussions and continued to meet with the IRS in 2010. IRPAC issued a comment letter in early January 2010 relating to the proposed section 6050W regulations, and our report summarizes those recommendations and comments on the final regulations published in August.
4) Foreign Account Tax Compliance Act (FATCA): Expansive new withholding and tax information reporting rules impacting payments of U.S. source income to foreign financial institutions and non-financial foreign entities became law in March 2010. IRPAC began reviewing earlier versions of this legislation in 2009, and continued discussions with the IRS and Treasury in 2010. A summary of those discussions is contained in this report and IRPAC intends to issue a formal written comment letter relating to FATCA guidance released in Notice 2010-60.
IRPAC is generally supportive of the federal government’s efforts to combat tax avoidance and close the tax gap, and agrees that tax information reporting plays an important role in these efforts. We also recognize that laws requiring more information reporting must be implemented in a manner that carefully balances the benefits to be gained with the burdens on both the IRS and the information reporting community; and this is particularly important when multiple new requirements, such as those highlighted above, impact the same institutions and have overlapping implementation time frames.
During 2010, IRPAC also recognized the increasing importance and complexity of payroll and employee benefits information reporting by forming a new subgroup focused on these issues. It is expected that this group will continue to work with the IRS on the challenges of reporting required under the recently enacted Patient Protection and Affordable Care Act, as well as other employee benefit and payroll related reporting issues. The breadth and depth of issues addressed by IRPAC in 2010 are impressive and there are success stories to tell. I encourage readers to review the Executive Summary and each of the detailed subgroup reports that follow.
The 2010 IRPAC team consists of 29 members, 22 of whom focus on matters related to information reporting. The members focused on information reporting worked together within the structure of four subgroups: Emerging Compliance Issues, Burden Reduction, Employee Benefits and Payroll and Ad Hoc. The Tax Gap subgroup conducted its tasks independently. Detailed reports from each of these groups are contained herein, and cover a variety of issues as summarized in the Executive Summary. The Appendix also contains comment letters issued by IRPAC for this year to date.
Throughout my three-year term on IRPAC, I have been impressed with the breadth and depth of knowledge of its members with whom it has been my pleasure to serve. As IRPAC’s 2010 Chair, I have witnessed their dedication, hard work and professionalism and wish to thank them for the many hours they have devoted as volunteers to improve the tax information reporting program. In particular, I would like to thank the four subgroup chairs with whom I worked closely throughout the year: Douglas Borisky, Barbara McArthur, Elizabeth Dold and Stephen LeRoux.
IRPAC operates under the direction and with the assistance of the Office of National Public Liaison (NPL), under the leadership of Candice Cromling, Director of NPL, and could not function without their support. Our success is due in large part to the organizational skills of IRPAC Program Manager, Caryl Grant, and the persistence of our NPL liaisons: Anjali Garg, Velancia Matthews, Jane Agule and Michael Singleton, in setting up meetings with our IRS partners. On behalf of all IRPAC members, I would like to thank the members of NPL who continue to provide outstanding support and share in our successes.
This is an exciting time to be a tax information reporting professional. Our skills are in high demand within the industries that employ us, and our insights and experience are critical to the continued improvement of the tax information reporting program. As IRPAC looks forward to continuing its partnership with the IRS in the challenging years to come, I wish both partners continued success in balancing the needs of tax compliance with the burdens on the information reporting community.
Lisa M. Chavez
2010 IRPAC Chair