The Taxpayer Advocate Service is an independent organization within the IRS. Its purpose is to ensure that every taxpayer is treated fairly and to help taxpayers know and understand their rights. The current Taxpayer Advocate is Nina Olson. Each year the National Taxpayer Advocate (NTA) releases their Annual Report to Congress. This report describes the challenges the IRS is facing. Federal law requires that the NTA’s annual report identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. The following are the highlights of this year’s recommendations that affect payroll:
- Alternative to Form W-4: The report recommends scraping the Form W-4 altogether and analyzing the feasibility of adopting an IRS-determined withholding code. This approach is currently being utilized in the U.S. tax administration. It also recommends that withholding be expanded at the source to encompass not only wages, but taxable interest, pensions, dividends, capital gains, IRS income, unemployment and even, potentially, certain earnings as an independent contractor.
- Furnishing Information Returns Electronically: Information return data to taxpayers should be furnished electronically for direct importation into tax return preparation software or to authorized tax return preparers.
- Lower Electronic Filing Thresholds: The report recommends requiring employers with more than five employees to file Forms W-2 electronically.
- Form 941 Filing: Recommends requiring Form 941 contain information about each employee’s name, address and social security number. To promote electronic filing, direct the IRS to use the fillable form currently on the IRS website and reformat so the form can be electronically filed, at no cost, directly from the website.
- Effects of the new tax law and the shutdown on overall IRS workloads: With all of the new tax forms needed to incorporate the changes to the tax code the IRS was overwhelmed. Add to this the shutdown and the antiquated systems (IRS has two of the oldest IT systems in the federal government) and you have a recipe for potential disaster. Because of these issues the IRS is now having to process more than five million pieces of mail and over 87,000 amended returns. All manually. IT modernization was the number one recommendation in this report.
Whether or not the recommendations are implemented is anybody’s guess. But as the situation is becoming more intense at the IRS for meeting deadlines and handling the workload with antiquated systems it will be well remembered to monitor this report for any upcoming legislative changes. Especially in the area of electronic filing, lowering thresholds and replacing the Form W-4.
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