Dear Commissioner Koskinen:
The Information Reporting Program Advisory Committee (IRPAC) presents its annual report to you in an environment of ever-increasing complexity for both taxpayers and tax practitioners. Each one of us on the committee thanks you for the personal interest you have taken in our work and the work of other Internal Revenue Service (IRS) advisory committees. That personal interest, and the interest and cooperation of IRS representatives who have met with us this year, show in a tangible way that the IRS wants to work with the public to improve tax administration.
At the outset I want to offer thanks to my fellow committee members for their dedication, hard work, and perseverance this year. I also thank the Office of National Public Liaison for all its efforts and success in making this a productive year for IRPAC. A finer group of cat-herders I have not witnessed.
This year IRPAC worked as an entire committee on one issue of major concern to all of us – the TIN Matching Program. As a group we met with IRS representatives on several occasions and engaged in some lively discussions, and we set forth our recommendations and discussion on TIN Matching separately as a standalone issue.
IRPAC currently divides itself into four subgroups that meet throughout the year with IRS personnel to discuss information reporting topics in these broad categories:
1. Burden Reduction (BR) (Julia Chang, Chair): The BR subgroup began focusing on many issues faced by individuals and small business taxpayers in 2013. The subgroup continued to make suggestions to improve those forms many individuals and small businesses struggle with, and brought up a few new issues during 2014 to reduce confusion and incorrect filing of forms. Discussions with IRS during the year on one of the issues resulted in acceptance of recommended wording for a line description on 2014 Form 8889. This issue, as well as recommendations on instructions to Form 2848, are discussed further in the BR subgroup’s report. The subgroup also continued working closely with IRS personnel on several issues reported by IRPAC in prior years. There has been some progress, especially putting helpful information on the webpage at IRS.gov, for Form 1099-MISC. Concerns regarding Forms 1099-MISC and W-9, as well as corresponding instructions to those forms, and a de minimis threshold for Form 1099 corrections, are once again included in the BR subgroup’s report.
2. Emerging Compliance Issues (ECI) (Julia Shanahan, Chair): The ECI subgroup continued in 2014 to work with the IRS seeking additional guidance on issues associated with Form 1099-K reporting on payment card and third party network transactions. The subgroup also made recommendations, detailed in its report, on cost basis reporting, as well as on reporting issues of particular concern to colleges and universities regarding Form 1098-T on tuition payments, and Form 8300 on reporting of cash payments over $10,000.
3. Employee Benefits & Payroll (EB&P) (Rebecca Harshberger, Chair): The EB&P subgroup has worked throughout the year with the IRS on many aspects of the implementation of the Affordable Care Act (ACA), in particular regarding the reporting to be done by insurance companies and employers that will help the IRS to verify compliance by individual taxpayers with the coverage mandate. The subgroup also focused efforts on ACA education resources being made available by the IRS to both tax professionals and the taxpaying public. In addition to work on the ACA, the EB&P subgroup’s report reviews its work with the IRS on third-party sick pay reporting issues and reporting and withholding of pension payments from U.S. plans to nonresident aliens.
4. International Reporting & Withholding (IR&W) (Frederic Bousquet, Chair): The IR&W subgroup has worked closely with the IRS and Treasury regarding the implementation of the Foreign Account Tax Compliance provisions of Subtitle A of Title V of the HIRE Act (commonly referred to as FATCA) through an ongoing dialogue regarding the FATCA regulations, the coordinating regulations under Chapters 3 and 61, and other published guidance that were issued in 2013 and 2014, together with Forms W-8, Form 1042, Form 1042-S and Form 8966. The subgroup intends to continue this dialogue and provide input with regard to the regulations, associated forms, and the foreign financial institution (FFI) registration process. The IR&W subgroup report contains recommendations about three broad areas of concern regarding FATCA compliance: (1) the regulations; (2) IRS forms and instructions; and (3) intergovernmental agreements and FATCA registration.
Working for a large multinational manufacturer in the technology sector, I see every day how our environment is rapidly getting both smaller and larger. The world has shrunk: at relatively low cost billions of people can communicate by voice or even video with others around the globe on devices that fit in the palm of a hand. The Dick Tracy watch exists, except it has more capacity than most of us could even have imagined a decade ago. The world has expanded: through big data and social networks we are able to access enormous quantities of information, stay in touch “in real time” with many people, and permit information about ourselves to be gathered and shared, again all in the palm of a hand. The medical tricorder of Star Trek fiction may well become a reality in our lifetimes.
How does this rapidly changing technological environment affect tax administration, and particularly information reporting? The minor commercial interactions of everyday life are now captured in detail electronically, organized and stored in large databases, and transferable in vast quantities with the push of a button or the click of a mouse. What once was a simple cash purchase -- for example, buying a cup of coffee -- is often now an economic transaction that involves borrowing, a commitment to pay interest, a fee for facilitating the purchase itself, and possibly many other separate transactions, all of which require tracking for tax purposes. And this is just one example.
Perhaps it is unavoidable that the IRS as revenuer and regulator will be reacting to developments around it, always playing catch up to technological changes. IRPAC appreciates that the IRS currently lacks but needs adequate resources to enhance its systems capabilities, and to fulfill its expanding enforcement and administrative obligations under recent legislation such as ACA and FATCA. It seems to me as well that the IRS may be reaching a tipping point where the default approach for all manner of tax reporting moves to an electronic medium rather than paper, for administrative efficiency, cost, and environmental reasons.
A more complex and seemingly shrinking world presents ongoing challenges to both tax practitioners and taxpayers, as well as the IRS. We hope this report, our recommendations, and a continuing dialogue with IRPAC will assist you as you lead the IRS and continue the work of maintaining and administering a voluntary tax compliance system that serves our country.
Boyd J. Brown
2014 IRPAC Chair