The American Institute of CPAs (AICPA) suggested solutions at a Senate Finance Committee hearing on April 16, 2013 about what Congress could do to curb tax identity theft and tax fraud and offered tax reform recommendations focused on simplifying tax laws for families and businesses. In addition, the AICPA’s testimony described the reasons this year’s tax filing season was so difficult for tax return preparers and offered a recommendation for easing one of the factors.
“One of the most important topics for our members is identity theft,” Jeffrey A. Porter, CPA, chair of the AICPA’s Tax Executive Committee, told members of the Senate Finance Committee. He said the AICPA supports the Internal Revenue Service’s (IRS) proposal to allow truncated Social Security numbers used on some information reporting forms. Porter said the AICPA was pleased the IRS’s proposed regulations addressed two of the AICPA’s 2011 recommendations – to make permanent the IRS pilot program to allow taxpayer identification numbers to be truncated on some forms and to permit filers to furnish payee statements electronically.
However, Porter said, the AICPA believes the IRS’s program will be more effective at preventing tax identity theft if Congress changes the law so that the IRS can expand the initiative to more forms and returns. For example, employees are vulnerable because employers are required to provide employees a W-2 with their full Social Security number.
“We urge Congress to permit truncation of Social Security numbers on all copies of W-2s other than the copy filed with the Social Security Administration,” Porter said. “We also urge you to consider extensive legislation to allow truncated Social Security numbers on all types of tax forms and returns provided to a taxpayer, employee or other recipient.”
For more information about the AICPA’s efforts to expand the IRS program to permit truncated Social Security numbers, read the March 27, 2013 article from The CPA Advocate.
Difficult Tax Filing Season
One of the contributing factors to making this tax filing season so challenging was the late issuance of corrected 1099 forms by brokerage firms, Porter said. He explained that generally a 1099 form must be furnished to taxpayers by February 15th. However, brokerage firms can amend a 1099 at any time.
“Over the last few years, we’ve noticed more brokerage firms issuing corrected 1099s, sometimes issuing multiple corrected forms on the same account,” Porter said. “These forms create anxiety, confusion and for some taxpayers, an increase in tax preparation fees. As a result, many taxpayers now have a tendency to wait until they have received their anticipated corrected 1099s before providing the records to their CPA.”
“We recommend that you consider legislation that would permit taxpayers to report corrected 1099 de minimis changes in their income in the year of receipt,” Porter told the lawmakers. “It would streamline the tax return reporting process for both the government and taxpayers.”
According to Porter, the other major contributor to a difficult tax filing season “was the late enactment of legislation and the resulting delay in the release of 31 tax forms.”
“Our members essentially lost the first half of filing season,” Porter said, “because the IRS could not accept tax returns that included certain forms until February or early March. Nevertheless, we believe the IRS did an outstanding job under difficult circumstances. They maintained an open dialogue with stakeholders and were responsive to our concerns. Earlier this year, we submitted a letter to Acting IRS Commissioner Steve Miller on the delayed release of forms. Within days, the IRS issued a notice, which provided the relief requested from late-payment penalties.”
Time Is Here for Tax Penalty Reform
Porter singled out tax penalty reform as an important area for Congress to consider because the United States’ tax system depends on voluntary compliance by taxpayers.
“Tax penalties should deter bad conduct without deterring good conduct or punishing the innocent,” he said. “Targeted, proportionate penalties that clearly articulate standards of behavior and are administered in an even-handed and reasonable manner encourage voluntary compliance with the tax laws. On the other hand, overbroad, vaguely-defined, and disproportionate penalties, particularly those administered as part of a system that automatically imposes penalties or that otherwise fails to provide basic due process safeguards, create a perception of unfairness that are likely to discourage voluntary compliance.”
Tax Reform should Embody Simplification
Porter said that the AICPA has “consistently supported tax reform simplification efforts because we are convinced such actions will reduce taxpayers’ compliance costs, encourage voluntary compliance, and facilitate enforcement actions.”
Among the most important tax reforms supported by the AICPA, Porter said, are repeal of the alternative minimum tax, the harmonization of education incentives, the enactment of consistent definitions in the Code, wherever possible, the repeal of unused provisions and the simplification of the Kiddie Tax rules. “We also believe in the simplification and harmonization of retirement planning vehicles,” he said.
Other witnesses at the hearing were Acting IRS Commissioner Steven T. Miller, National Taxpayer Advocate Nina E. Olson and the Social Security Administration’s Acting Deputy Commissioner for Retirement and Disability Policy Marianna LaCanfora.
For more information about the Senate Finance Committee hearing, read the April 16 Journal of Accountancy article.