IRS Holds First Hearing on Real-Time Tax System

[taxea]

google this article...it should make for interesting posts.

I for one hope they find a way to do it so that it doesn't cause us more problems during the tax season. I think it is a great idea and hope they give us sufficient detail in their first notice to correct the problem so the return will not reject.

[Gary2]

google this article...it should make for interesting posts.

I for one hope they find a way to do it so that it doesn't cause us more problems during the tax season. I think it is a great idea and hope they give us sufficient detail in their first notice to correct the problem so the return will not reject.

Do you mean this article: http://www.journalofaccountancy.com/Web/20114879.htm ? May I respectfully suggest posting the actual link, because Google results can change over time, plus more people will follow a link than go to the trouble of typing or cutting or pasting something into their favorite search engines.

Assuming that's the right article, it's justifiably sparse. There are some obvious questions, like will they prohibit people from filing until after Jan 31 (the deadline for mailing W-2s, assuming they can get the W-3s filed by then as well). Right now I'm sure people will agree it's a great idea in principle, but it will be easier to comment after the details start coming into focus.

[Koss]

Real-time Auditing of Returns

Gary2 wrote:

Do you mean this article: http://www.journalofaccountancy.com/Web/20114879.htm ?

No, not that article. This article, published by the IRS, as IR-2011-114:

http://www.irs.gov/pub/irs-news/ir-11-114.pdf

Although I think the JofA article is actually a bit more interesting than IR-2011-114. The JofA article was written after the public meeting took place, and it contains some interesting comments by a representative of AICPA.

I'm pretty sure the approach will be a little more nuanced than "if the information returns don't match, then the return is rejected." At least not rejected as we know it.

Here's what I envision:

You transmit a return in which the taxpayer reported wages of $19,455.00, and withholding of $3,210.00. The return receives a preliminary rejection, along with an IRS notification that explains that the IRS database shows that the taxpayer received the following Forms W-2:

XYZ Corporation
Wages 19455.00
W/H 3210.00

Billy Bob Gas, Lottery, Booze & Nicotine
Wages 203.40
W/H 12.16

So you contact the taxpayer and explain all this.

Scenario #1:

The taxpayer says, "Ohhhhh... Geeee... I remember working there, when we lived in Idaho... but we moved a long time ago. That can't be right. I quit way back around... geez, I quit before Christmas. That was over a year ago! There must be some mistake. They must be looking at last year!

And you have a conversation with your client, in which you explain that if they worked there in December 2010, they probably got their final paycheck in January, 2011. So the IRS is probably right.

And you re-submit the return, using the data provided by the IRS. Everyone's happy, and the taxpayer gets their refund in about two weeks. No CP-2000 in May.

Scenario #2:

The taxpayer firmly insists that he has never worked for that employer, and that it must be an error.

So you re-submit the return with the original data, but it is submitted as a mismatched return.

And the IRS proceeds to conduct an audit or verification process during the initial processing of the return. The issue gets resolved before any refund is issued.

Or, in the alternative, the IRS may issue a partial refund, i.e., the amount the refund would be if we assume for the moment that the IRS is correct. Then, after the issue is resolved, the taxpayer gets the rest of the refund.

In other words, it's a pre-refund audit.

The IRS is already doing this in some EIC cases. And they did it for a very large segment of returns that claimed the First Time Homebuyer Credit.

The returns will be accepted electronically. But when there's a mismatch, unless the taxpayer agrees in real-time to change the return to what the IRS thinks it should be, you can forget about getting a refund in two weeks. The entire return will go into a review status. They might get the partial refund in three or four weeks.

Or something like that.

This is all speculation on my part. But the idea is very feasible.

BMK

[JohnH]

Employer copies of w2 forms are not due to SSA until Feb 28. So how does real time tax preparation work unless the taxpayer waits until sometime after that date.

[Gary2]

So you re-submit the return with the original data, but it is submitted as a mismatched return.

That reminds me of something tangentially related: This year, the IRS will allow e-filing of imperfect returns, meaning returns that were rejected once, and resubmitted with the "imperfect" flag set. It's not clear to me yet exactly which imperfections will be allowed. I imagine name mismatches will be (which are only sometimes a pain), but "ex-spouse claimed the kids first" remain an open question. It would be great if they are allowed, but I'm not sure yet.

It's related in the sense that it shows the IRS has already implemented a mechanism for e-filing of returns that don't match their records.

[Koss]

Due Dates

So how does real time tax preparation work unless the taxpayer waits until sometime after that date.

It doesn't. It's a fantasy. To make it a reality, they'll either move up the due date, or make the taxpayer wait, or...

Use data that they already have on file from 941s, maybe?

Wait and see.

BMK

[Jiggers]

I agree, for it to work, the filing deadline would have to be moved to something like 10/15 or later with the earliest filing date of June 15.

W-2's don't go direct to the IRS. They go to SSA first.

If this was a perfect world, and every business did what they were supposed to by the specified deadline, it still wouldn't work.

[taxmandan]

"...hope they give us sufficient detail in their first notice to correct the problem" that alone would be a miracle.

I suspect like all the other IRS initiatives to improve filing, this one will take 10-12 years of starts & stops before it becomes even marginally useable.

[taxea]

Do you mean this article: http://www.journalofaccountancy.com/Web/20114879.htm ? May I respectfully suggest posting the actual link, because Google results can change over time, plus more people will follow a link than go to the trouble of typing or cutting or pasting something into their favorite search engines.

Assuming that's the right article, it's justifiably sparse. There are some obvious questions, like will they prohibit people from filing until after Jan 31 (the deadline for mailing W-2s, assuming they can get the W-3s filed by then as well). Right now I'm sure people will agree it's a great idea in principle, but it will be easier to comment after the details start coming into focus.

I suggested google so all available articles could be reviewed and because any updates will be there whenever searched.
I'm sure it won't be ready this year because they are still discussing working out the many issues.

[taxea]

That reminds me of something tangentially related: This year, the IRS will allow e-filing of imperfect returns, meaning returns that were rejected once, and resubmitted with the "imperfect" flag set. It's not clear to me yet exactly which imperfections will be allowed. I imagine name mismatches will be (which are only sometimes a pain), but "ex-spouse claimed the kids first" remain an open question. It would be great if they are allowed, but I'm not sure yet.

It's related in the sense that it shows the IRS has already implemented a mechanism for e-filing of returns that don't match their records.

You got this info where? I would like to read it.

[Gary2]

You got this info where? I would like to read it.

The only authoritative info I know that's easily available can be found on the IRS error code page, under codes 501 and 504 (name/SSN mismatch for EIC and dependency, respectively). Note that there's a dependency upon the software provider, so your mileage may vary.

The rest was speculation from someone who usually doesn't speculate, so I'm marginally more optimistic than I would normally be for a rumor.

Just having the name mismatch ability would be a help. I've seen cases of a multi-word family name where different kids were entered into the Social Security computers in different ways, with no ability to tell from the Soc. Sec. cards which was which. For example, imagine Desiderio Alberto Arnaz y de Acha III going in as last name "de Acha" while Desi Jr. going in as "Arnaz IV"? (and why is he Desi Jr. when he's really the 4th?)

[outwest]

In Idaho

tax refund are never quicker than 4 weeks. Reason? The state tax commission runs a series of checks on the return before turning the refund loose. Is the w2 employer an Idaho employer? Is it a married filing separate? ( As a community property state, these are often done incorrectly) Any problem with the checks, and the refund gets pushed to 8 weeks minimum. Paper is always 8 weeks.

The processing chief claims millions in intercepted erroneous refunds. Plans are in the future to expand this as error filters are identified.

FWIW

[Koss]

Imperfect Return

You got this info where? I would like to read it.

This has been available for a couple of years. But as Gary noted, it hinges on certain functionality in the tax software. And it appears to be available only for cases where the reject is caused by a mismatch in the name and SSN of a dependent.

Check this page on the IRS website:

http://www.irs.gov/efile/article/0,,id=180182,00.html

BMK