The Internal Revenue Service should not be forced into the “ill suited” role of certifying and enforcing privacy and accuracy standards for tax software providers, but should turn instead to established outside providers for those services, members of an Electronic Tax Administration Advisory Committee (ETAAC) said June 16.
Industry advisers presented their 2010 ETAAC recommendations to Congress to IRS officials, and also made a special report on a new subcommittee formed to address e-file security and tax software policies and programs. The report is expected to be released June 17.
This year's annual recommendations focus on tax preparer e-filing, business systems modernization, the IRS return preparer review, and new information reporting requirements.
The push to certify that tax software is accurate is coming from a number of different directions, ETAAC Chairman Phillip Poirier, a vice president in Intuit's consumer tax group, said. The Government Accountability Office has recommended that IRS do a risk assessment of the reliability, security, accuracy, and privacy of tax software.
“Software is a term that is too narrow,” he said. “It's really all the pipes to get the return from the preparer or the taxpayer to the IRS e-file system.” To that end, IRS has included software in its return preparer review, commenced a tax software risk assessment, and formed an ETAAC subcommittee.
That subcommittee's principal spokesman, Dave Olsen, said tax software certifications should not be left up to the IRS. “Effective and efficient oversight should not be attempted by trying to force the IRS into what may be ill-suited roles, by making them the direct certifier or enforcer of some of these requirements; but rather it would make sense to rely on third-party certification processes and standards-setting that can be applied in that broader context across the different portions of the industry,” Olsen, director of product management with CCH Small Firm Services, said.
Olsen told BNA that IRS has an interest in making sure standards are put in place for oversight and verification of IRS electronic systems that deal with transfer of tax data. These controls would deal with security and privacy. Oversight and verification of tax software will be necessary to address accuracy and reliability, he said. However, IRS is not the appropriate agent to create these measures, he said. “It does not have the resources or the expertise.”
The standards should be established by a self-regulatory organization with third parties being brought in to review the controls that have been put in place, he said.
Olsen also said there needs to be a full understanding of the differences between professional and self-preparer software. “Professionals do things differently than a self-preparer does,” he said.
Information Reporting
Some stakeholders have recommended accelerating Form 1099 information return reporting, but ETAAC said it has some concerns with that.
The IRS needs to consider the full impact of accelerated information reporting on both businesses and taxpayers, especially small- and medium-sized businesses, said Grant DeMeritte, tax compliance manager with Howard Hughes Medical Institute.
Beginning in 2012, businesses will be required to use Form 1099 to report to the IRS all payments to corporations in excess of $600 for goods or services, not just services and supplies, which had previously been the case, he said.
“We want to make sure the IRS is ready to handle the significant increase in the number of e-filed information returns—and not just the number of e-filed returns, but the potential for an increase in the number of e-filers,” he said. Many businesses may exceed the 250-form threshold for having to file in this category due to the new legislation, which was an offset to a portion of the Patient Protection and Affordable Care Act ( Pub. L. No. 111-148)—a requirement from which corporations were previously exempt.
IRS Response
An IRS official responded to the ETAAC recommendations by saying she heard a consistent theme—that more and better communication is needed. “It's so important but difficult to do well,” said Norma Brudwick, IRS deputy director for electronic tax administration and refundable credits. She also said IRS recognizes the importance of partnering with the industry, in part because of IRS's limited resources.
Brudwick also said she was glad to hear that industry understands that IRS is willing to make allowances for taxpayers that do not want to e-file. “We need to really always keep in mind the taxpayer,” she said.
Gustavo A Viera CPA
