Real Time Matching- Feedback Wanted

The IRS is seeking input from tax professional community, consumer groups and government reps on the idea of a Real time Tax System. The concept is that the matching of tax return info and what has been submitted to the IRS will happen when the return is filed and not months later. Right now it can take 12 to 18 months for the matching process to result in IRS notices to taxpayers.

This meeting with tax pros, consumer and government groups will be in Washington DC on Dec. 8^th at 9am at the IRS Headquarters Building Auditorium. If you are interested in attending, you should e-mail the IRS at CL.NPL.Communications@irs.gov or call them at 202-622-3359. There will be other meetings after the first of the year for different groups. This is reported in IR-2011-114 which hasn't shown up on the IRS website at this time.

Since I will be in school that day, I thought I would share my feedback here.

In theory, it’s a good idea.  I would like to see the CP2000 and other notices be sent out sooner. It can be hard to reconstruct info to answer a notice 18 months later. But info matching depends on the IRS having the 1099 and W-2 info in their computers to compare to the tax return info. A reverse of the current process.

I will prepare my W-2s as soon as I get my payroll software update. With any luck, I can start right after Christmas. Once they’re done, I’ll file them. But most employers aren’t that quick. W-2s and 1099s don’t have to be to the IRS until Feb 28^th at the earliest. That’s just 6 weeks before the April 15^th filing deadline. While there may be ways to speed up getting 1099s and W-2s ready to match, for real time processing to work the tax filing deadline will have to be moved back. You have to have the 1099s and W-2s in first then match it to what the taxpayer files. Taxpayers will get their W-2s and 1099s in January but they’ll have to wait until later in the year to file their return. I predict a wave of lost papers which will increase to matching errors. Even if the filing deadline is only moved back 3 months that means we’ll be finishing extensions in January. And I think 3 months is very optimistic. I can see us preparing most of the returns for 2012 in 2014 under a real time system.

There will have to be a second matching sweep to take into consideration late filed info returns and things like K-1s and amended returns. So the new system could cost more.

And I can imagine the outcry from taxpayers who count on their refund in February and would now have to wait months for their money.  It might die down in later years if the first year goes well. But, I bet there will be several years of changes while the system is tweaked.

I hope this process of meetings and stakeholder input will give the IRS some ideas to speed up the matching program. But to get real time matching would be an upheaval of our system. The question is how much will that really save in money and aggravation? A CP2000 sent 16 months after the return is filed can provide a challenge to get records together for that taxpayer. But re-issuing lost W-2s and 1099s and helping clients come up with missing docs would be a bigger problem and affect more people.

Comments

[Gustav]

Some of the problems in late notices have been due to firms that went bankrupt or just closed their doors and couldn't afford to have someone prepare the W-2's and 1099's. With the current economy, and the large number of business closings, I can see this as only getting worse. In theory I guess, it may be okay, but Murphy's law usually prevails.