IRPAC Seeks Greater Recognition of Reporting Community by IRS

Dear Commissioner Shulman:

The Information Reporting Program Advisory Committee (IRPAC) appreciates the opportunity to recommend items that should be included on the 2011-2012 Guidance Priority List in response to Notice 2011-39.¹

IRPAC recognizes the challenges the Service faces in developing and implementing new reporting and withholding policies and procedures in light of the ever-growing focus on information reporting and its role in reducing the tax gap. Just within the last few years, legislative changes have expanded information reporting to new levels with the enactment of credit card reporting under Code section 6050W, mandatory 3% withholding under Code section 3402(t), cost basis reporting under Code section 6045, Patient Protection and Affordable Care Act, and Foreign Account Tax Compliance Act. With these additional reporting programs comes a heightened responsibility for IRPAC to fulfill its mission to reduce taxpayer burden and improve the overall administration of information reporting.

In that vein, we strongly recommend that the Guidance Plan include a new subcategory under "Tax Administration" entitled "Information Reporting" that focuses on the efficient implementation and administration of information reporting, with fair consideration of taxpayers (including the reporting community) burdens. This would include an understanding of the lead times needed by the reporting community to implement new programs and changes to existing programs, and consideration of the data requested in light of the availability and costs associated with producing that data, and the usefulness of the data collection.

A number of priority items can be added to this new subcategory, including:

1. Issues Previously Raised By IRPAC. IRPAC produces an annual report that outlines a number of issues that are of critical importance to the reporting community, and should be considered for inclusion on the Guidance Plan. For example, see IRPAC's June 11, 2010 letter in the Appendix to the 2010 report that demonstrates the need for guidance on the last known addresses for businesses.

2. Automatic Extension of Filing Deadlines. Critical to the use of electronic medium used in today's submission of many information returns it is very important to understand that (1) software vendors need sufficient time to create the form in proper electronic format, (2) the payor community requires sufficient processing time once forms (and instructions) are issued in final form by the Service in order to successfully implement changes to information returns (and, with new data elements, to develop procedures to gather and track such data), and (3) with respect to data provided by an outside source (e.g., employers or third party), these parties also require lead time to gather and transmit to their service providers or payors the information requested on the information return. Therefore, compliance is not possible upon the issuance of the final form by the Service, and depending on the form and the extent of the changes, and the availability of the requested data, this deployment process may well extend beyond 18 months.

Accordingly, IRPAC strongly recommends that, at a minimum, the Service should grant an automatic six month extension of any filing deadline if the Service issues the final form (and instructions) within six months of the filing deadline. Moreover, for extensive changes to an existing form (or a new form), an 18-monlh extension or generous penalty relief provisions are warranted. This extension and penalty relief provisions should be established as a standard IRS practice, which is not dependent on extension requests from the taxpayer community.

3. Increased Commitment to Forms and Publications. The importance of forms and publications can never be overstated, as they are the key to effective compliance with the Internal Revenue Code. Therefore, it is critical to consider these provisions at the onset when developing the rules and dedicate the proper resources so that these materials can be provided timely in order to properly implement the provision. Moreover, engagement of IRPAC at the onset of developing the forms and publications (or changes thereto) will facilitate implementation of the rules. There are numerous examples where a delay in the Service's issuance of the form (and instructions), or a failure to seek IRPAC's input prior to implementing a change, has restricted compliance (e.g., Forms 1099-INT, 1099-B, 1099-K, 1097-BTC, 5305-B, 5305-SB). Accordingly, IRPAC recommends that the Service develop a uniform procedure of engagement with IRPAC at the onset of the process for developing new forms or changes to existing forms.

Moreover, to the extent that more focus is placed on electronic communications through the Service's website, for example the use of FAQs, while we appreciate the timeliness of this information, it is equally important that the taxpayer (and reporting community) can rely on this information without penalty exposure, and that the information posted cannot be changed without adequate disclosure.

4. De Minimis Exception for Corrected Information Filings. Issuing corrected information returns (e.g., Forms 1099, W-2) for unintended errors and late reclassifications of distributions by issuers that result in a net change of less than $10 is extremely burdensome on the taxpayer, the reporting community, and the Service. Therefore, we strongly recommend that a de minimis exception be available, making such corrections optional. This approach is consistent with the Code's reporting requirement for many types of 1099s that no return is required for payments under $10.