IRS Chief Emphasizes Improving Compliance

by Leroy Baker, Tax-News.com, New York

29 October 2010

During his keynote speech at the Fall Tax Meeting of the American Institute of Certified Public Accountants (AICPA), the United States Commissioner of Internal Revenue, Douglas H. Shulman, looked at the possibilities for the Internal Revenue Service (IRS) to work with other stakeholders in the tax system in order to improve compliance.

Within a constantly changing and more complex tax system, he pointed out that the IRS needs to maximize the use of its limited resources, by “tapping into the experience, specialized knowledge, infrastructure, technology and activities of other players in the tax system and making them an integral part of its service and compliance strategies.”

By leveraging their joint resources, he emphasized to the AICPA that “we can advance and support common objectives and outcomes we both desire, such as certainty, clarity and not wasting time and resources. The bottom line is that we can achieve far more working together than either of us could by working alone.”

He said that IRS's tax return preparer initiative was an integral part of that leveraging – the improving of both compliance and its ability to deliver better service to taxpayers, “by helping them to file accurate returns from the get-go and avoid potentially time-consuming problems later on”.

“It is important to see the return preparer initiative as reflecting and adapting to changing elements in and around our tax system,” he continued. “Sixty years ago, no one would have thought of e-File or IRS.gov. Today, no one would think of an effective and efficient tax administration system without them.”

“Growing tax code complexity fuelled an explosive growth in tax return preparation. Once a cottage industry, today, more than 8 out of 10 taxpayers use a tax preparer or tax software. And there are now an estimated 1m individuals preparing tax returns for a fee. Working with the taxpayer, they can prevent inadvertent errors which can save both taxpayers and the IRS headaches and precious resources down the road.”

“Qualified return preparers”, he concluded, “can also advise taxpayers on the risk associated with a possible reporting position. They can also explain taxpayer rights and responsibilities. So, we at the IRS see the professional return preparer community as a strong ally in our efforts to boost overall service and compliance.”

He confirmed that the IRS's return preparer initiative is now undergoing a staged implementation process. The launch last month of the new online PTIN application system will give the IRS an “important and better line of sight into the return preparer community than it has ever had before. It can leverage that information to help it better analyze trends, spot anomalies and potentially detect fraud.”

He also reported on how the IRS is “working smarter” with some of the largest corporate taxpayers. Its new uncertain tax position (UTP) reporting requirement is a “key element of a larger programme to retool the relationship with these taxpayers and create greater efficiency and certainty.”

“Guided by the fundamental principle that transparency is essential to achieving an effective and efficient self-assessment tax system,” he said, “the IRS took a major step towards transparency this past January with Announcement 2010-9 to require business taxpayers to report basic information regarding their uncertain tax positions when they filed their tax returns. Last month we released the Final Schedule UTP and Instructions effective for 2010 tax years along with a directive to provide guidance to IRS examiners and other personnel.”

“This new requirement,” he emphasized, “gets to the heart of information we need. The consistent treatment and the efficient use of government and taxpayer resources by focusing on issues and taxpayers that pose the greatest risk of tax non-compliance.”

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