IRS Exploring A Real-Time Tax System

The IRS recently held the second in an anticipated series of public meetings on a real-time tax system. The January 25 meeting in Washington, D.C. brought together IRS officials, software providers, payroll processors, and state officials.

"A real-time tax system would be a change in process across all aspects of the tax ecosystem changing many behaviors and processes that stakeholders are accustomed to," Dave Olsen, director of product management for CCH Small Firm Services, a business unit of Wolters Kluwer Tax and Accounting, told the IRS. Olsen also cautioned that late legislation would complicate the process.

• Real-time system. IRS Commissioner Douglas Shulman described a real-time tax system as moving away from the "after-the-fact" business model to one that would operate substantially more in "real-time." A real-time tax system, for individual returns, could verify many elements when the return is filed, Shulman explained.  The goal of this initiative, called the Real-Time Tax System, is to improve the tax filing process by reducing burden for taxpayers and increasing overall compliance. Under such a system, the IRS could match information submitted on a tax return with third-party information at the beginning of return processing and provide the opportunity for taxpayers to fix the tax return if it contains data that does not match IRS records. Currently, the IRS conducts a significant number of compliance activities months after the tax return has been filed and processed.   

Information returns. The processing of Forms W-2, Wage and Tax Statement, and various Forms 1099 could move to a real-time system, industry representatives said. However, a real-time system would require changes to current procedures. "Moving the deadline for providing Forms W-2 to employees earlier than the current deadline of January 31, could allow an earlier deadline for filing Form W-2 information with the Social Security Administration (SSA) and/or the IRS," Lori Brown, representing the American Payroll Association, said.