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Require Workers to Re-File Forms W-4 by Next October, IRSAC Says

Posted on Nov. 21, 2019

All employed taxpayers should be required to fill out a new Form W-4 withholding certificate before the start of the new fiscal year because of the revamped form’s complexity, according to the IRS Advisory Council.

The 2020 Form W-4 will be “a step in a new direction” whose “changes will be a surprise to almost all employees,” Jim Paille, chair of IRSAC’s Small Business/Self-Employed subgroup, told an IRSAC public meeting in Washington November 20.

The recommendation came in IRSAC’s 2019 Public Report, released the same day.

Employers used to be told not to assist their employees in completing the document, but “the complexities of the new W-4 will add additional pressure on employers to take a more active part in the taxpayer education process,” Paille said.

Sitting in on IRSAC’s morning session, IRS Commissioner Charles Rettig offered no comment on the Form W-4 resubmission idea. An IRS official told Tax Notes that the tax agency received the advisory commission’s final report on the same day it was released to the public.

Paille observed that both employees and employers using the pre-Tax Cuts and Jobs Act Form W-4 will find navigating two systems confusing. Software vendors would also have to support the old and new withholding systems at considerable cost indefinitely, he added.

The new IRS withholding estimator is a big improvement on the first couple of iterations, Paille said. But it still requires employees to have computer access, a recent pay stub, and their most recent Form 1040 to complete its calculation, he noted. “I’m not sure that’s going to happen on the first day of employment,” he said.

IRSAC’s report is the first submitted by the advisory committees — IRSAC, the Information Reporting Program Advisory Committee, and the Advisory Committee on Tax Exempt and Government Entities — whose merger into a single, 35-member group was announced in November 2018.

Getting Specific

Martin Bentsen, speaking for IRSAC’s Large Business and International subgroup, said the IRS should consider using the compliance assurance process program to tackle specific issues rather than a broad sweep of large-taxpayer compliance.

LB&I taxpayers with certified audited statements and assets over a specific threshold amount should be able to file a form asking the IRS for a decision on a specific issue or issues for a given year, Bentsen said.

LB&I Commissioner Douglas O’Donnell said his office has been studying issue-specific approaches to CAP. “We need to work to see what we can do with that,” he said.

IRSAC’s LB&I subgroup further asked that the IRS establish CAP safe harbors by accepting certified independent accountants’ book treatments, “where the taxpayer will provide all of the facts that are relevant,” and allow the agency to accept, challenge, or reject all or some of the treatments. That system could avoid costly and time-consuming examinations, said LB&I subgroup member Sheldon Kay.

The safe harbors could apply to foreign tax credit receipts, which accountants must already record for financial reporting purposes; solar investment tax credits that could be valued using Department of Energy installed cost data; and cross-border intercompany transactions tracked by federal regulators under the Federal Reserve Act, which is “virtually identical” to the tax code’s section 482 requirements, the IRSAC report explained.

Thumbs-Up on OPR, Free File

IRSAC made dozens of other recommendations to the IRS, including urging the commissioner to advocate for attorney positions slated to be eliminated from the Office of Professional Responsibility.

The IRS announced plans in April to eliminate GS-905 OPR attorneys and replace them with non-attorney posts. While acknowledging that the ultimate decision lies with Treasury, “IRSAC does believe that the role of the . . . attorney is really critical to the role of OPR, and [for] independence and fairness to the taxpayers,” said committee co-chair Kathy Hettick.

Rettig told the meeting that IRS Chief Counsel Michael Desmond “has his eyes on that” issue.

In contrast to last year’s report, the advisory committee gave a solid endorsement to the IRS’s Free File public-private partnership of low- to moderate-income tax return preparation assistance.

IRSAC’s 2018 public report criticized the Free File program’s memorandum of understanding with the IRS, Hettick noted. The IRS later contracted a review of the program by MITRE Corp., she said.

“We are still advocating for the recommendations that we made that have not been fully implemented,” Hettick said, but added, “The IRSAC does believe it is a viable program.”

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