April 28-29, 2003
Embassy Suites River Center
Covington, KY

Present:

• James Abraham
• David Cain
• Frank Claudman
• Dan Drumel
• Robin Gausebeck
• Dick Greenberg
• Glenn Hall
• Delford Jones
• Larry Lexow
• Leslie Malcolmson
• Joe Meissner
• Bob Meldman, Chair
• Dick Murphy
• Richard Morris, DFO
• Smedley, Teresa

Absent:

• Bob Burke
• Ivan Cotman
• Thad Davis

Staff Present:

• Sandy McQuin, Manager
• Mary Ann Delzer, Analyst
• Patti Robb, Note taker

Guests

• Jackie Nielson, Government Liaison & Disclosure
• Rebecca Johnson, Taxpayer Education and Communication, Territory Manager
• Carol Strayer, Local Taxpayer Advocate (LTA), Cleveland
• Connie Cropper, Management and Program Analyst, Cincinnati

Monday, April 28, 2003

Welcome/Announcements/Review Agenda
Meldman shared that the Joint Committee has asked that each committee fill out a satisfaction survey sheet after each meeting. Delzer will distribute after each meeting to all members and tally the results.

Meldman asked that each panel member give their thoughts on how the panel's year has gone to date.

Malcolmson - Feels the committees are moving too slowly on the Form 990 and 1040A issues.

Gausebeck - Positive and negative - moving slowly, but at orientation we were counseled to have patience. The notice issue committee has really gotten a lot done.

Delzer - Considering we have only had conference calls up until now, the committee is doing well.

Abraham - Frustrated at the length of time it takes to get anything done. But he has seen a lot of enthusiasm.

Quarles - Got lost on email so missed some calls. All fixed now.

Smedley - Not as much frustration. Knows the government moves slowly. Will be happy if we can see some things changed (concrete changes) by the end of our term.

Jones - Am a new panel member. Have only been on one call to date.

Meissner - Is amazed at how much information is needed to get one letter done. Can see it is going to take a lot of time to get results. It takes a lot of coordination.

Cain - Has passed the test to become an enrolled agent. Frustrated that the process takes so long-moves so slow. Now that tax season is over, can devote more time.

Claudman - Frustrated too. Now that tax season is over, can also devote more time to the committee.

Greenberg - Much like the rest of the committee, frustrated. Has tremendous appreciation for the quality of the IRS personnel.

Hall - Since being on TAP, has increased his level of comfort with the IRS. Sees issue committees as focus groups. Doesn't know if Area will get a lot done, but will set up issues for other upcoming issue committees. Does not feel the level of frustration as other panel members.

Murphy - So far, sees a good mesh of people working together. Feels invited and encouraged. Learning complexities of the system and is amazed that IRS is working as well as it is with the old computer system.

Drumel - Thinks progress is understandable. Need procedures on how to process issues. Overall, satisfied with the progress.

Lexow - His view of Area is to let people out there know about TAP. Knows nothing in government moves fast, so feels we are on pace.

Meldman - Met with Deryle Temple and Nina Olson recently. The staff is fantastic. Some of the frustration you may be feeling is what TAP can/can not do. We are taking on systemic problems, not legislative issues. Need to realize that when you work on issues. Must give recommendations, not just say to fix it. Need to look at both sides - maybe IRS just need to educate, not change something. Some are frustrated because he has tried to limit issues.

Need to think about what is an excused absence. Will define as not calling in to someone to let them know you will not be attending a meeting or be on a call.

Thinks the committee has done pretty well in terms of time worked. Maybe we need to bring expectations down a little.

Working an Issue (Morris)
Morris presented the steps to develop an issue. (See Attachment One) The DFO ensures that the committees comply with the FACA regulations and approves agendas. Thanks to all of you for volunteering. I understand everyone's frustration right now. We can achieve focus. We need to prioritize issues, then work them. Temple will hire four additional managers (in June) and we hope to hire more analysts. We are not here to lobby Congress. We cannot do that as a panel. You can do it as individuals.

Abraham - We can bring an issue to Congress without being a lobbyist.

Morris - You need to look at the time you have. Where can you be the most effective.

Abraham - It is difficult to tell between systemic issues and legislative issues.

Morris - Legislative is where statutory change is required. Systemic are IRS service and customer satisfaction.

Meldman - Our mission is to look at IRS customer service and satisfaction.

Abraham - Most issues raised are from preparers.

Meldman - Spoke to Temple. She was to have a guidance document here but have not seen it yet. That is frustration.

Malcolmson - Waiting for a document from NTA too.

Meldman - Was told by Temple that analyst will not have time to support research for legislative changes.

Greenberg - Can we tweak the Form 1040?

Meldman - If you have constructive, distinct changes to recommend, then yes.

Abraham - I have raised ten issues to date. None have surfaced yet.

Morris - There are a myriad of issues to look at. There are so many, it is impossible to work them all. Need to focus on a couple at a time. Keep track of issues submitted, prioritize, then work them in order.

Jones - Use to lobby. Supports that all issues get on agenda, even if just to discuss. But they all need to be on record.

Morris - You are in control - What issues to work, what issues to put in the parking lot, and how many issues to work. If you tighten the focus, satisfaction will go up. A face-to-face meeting is much more productive than a conference call. As issues come forward, Delzer can do preliminary research.

Review/Approve Minutes
Minutes were approved by consensus.

Sub-committee Reports

• Form 990 - Meissner

Handout - Too complex for smaller groups required to file. Three possibilities for change:

1. revise form/requirements
2. assist groups required to file
3. enforcement - if you file but are missing information, it's considered not filed and you are penalized

Have a conference call scheduled for the end of May. We are moving along. Will have a report for the next meeting.

• Refund Anticipation Loans - Meissner

Still collecting information at this point. (Very early stage on this issue) Are other committees working on this issue? Is Ad Hoc considering this issue?

ACTION: Delzer will forward list of committees. Will we take lead? Will explore more - maybe send to Ad Hoc. Meissner will also talk to Analyst Gruber.

• Just In Time Notification - Smedley

Handout. Carryover issue from CAP. Have preliminary research from them. Gotten good feedback from various preparers. Tied in with e-file too. Some EITC returns e-filed did not get refunds as anticipated - being held for audit. Practitioners were not notified of this new procedure. This year received Package X, volume II in mid March. Much too late.

Recommend - print preliminary forms in draft. They can be apprised of possible implications when filing. If Package X comes out late, it is a huge waste of paper and postage. It is basically useless if not out in mid December. There has to be a partnership between the IRS and practitioners. They have to work together. Feels this issue should be elevated immediately. Lexow - Form 5500, Retirement Plans, this is available on line early but paper forms quite late. CCH, Turbo Tax, etc., get them much earlier.

ACTION: Delzer to contact IRS owner with this report on behalf of the subcommittee.

• Elimination of supporting forms 1040A - Gausebeck

1040A has three schedules

• dividend
• child and dependent credit
• credit for elderly or disabled

This has caused confusion. Spoke to IRS Owner, Nancy Harwell, about consolidating schedules. IRS position is when looking at 1040A filers, they don't like change. Would cause confusion if the form/instructions change. Decided to determine scope of problem. Did not get impression that this is wide spread. When e-filing, computer computes all information. Will get more information from IRS to determine if this is a priority issue. Frustrated with conversation with the program owner on this issue. Will contact her again after gather more information.

Greenberg - IRS employees I spoke to felt this was a good issue.

Gausebeck - Felt instructions were easy to follow.

Outreach
Lexow - Doing a column for practitioners, "What's on TAP." Looking for three volunteers to help write this column. Fairly short but addressing current issues. E-News for Tax Professionals-check to see if they would be interested in column. Trying to reach enrolled agents, state bars, tax preparers, and others who can bring information to the committee. This column is representing Area 4 issues - not the whole TAP. Would cover issues we are working on or are going to discuss. This is a commitment. This will be information only (i.e., Area 4 will be discussing . . .) About four paragraphs long.

Volunteers: Jim Abraham, Dan Drumel, Delford Jones, Larry Lexow.

Larry will update information as to who will do and which month they are due.

Public Comment
None.

New Issues

• 1099-S - Drumel

Realtor said the form wasn't difficult to do, but it was difficult to get the form. Most realtors use title companies - don't do their own closing.
ACTION: Drumel will check with title companies and attorneys who do closings, to get their input.

• Increase acceptance of e-file returns - Cain

Sometimes returns are rejected when e-filed but accepted when paper returns are sent in. Why not the same rules for both?

Meldman - it is just a matter of the speed (time) which an error is detected.

Abraham - Submitted this same issue already.

Meldman - This is simply an issue of skirting the system.

Cain - Practitioners are keepers of information. If filed electronically and rejected, they then do a paper return, send it in, then someone at the IRS has to input all this information. Seems silly.

Malcolmson - Causes are W-2s not matching, dependent SSN already used. What other reasons cause reject?

Claudman - Birthdays don't match SSN, names don't match SSN.

Meldman - Should we work this issue?
     9 - yes
     6 - no
     1 - abstention

Meissner - Afraid the solution will be worse than the problem.
Cain is the chair, Smedley, Malcolmson, Abraham on sub committee. Check with IRS to get their input. Report back to committee.

• W-4 Withholding Tables - Smedley

Can be inaccurate if you work a couple jobs or file a joint return.
Sub Committee - Smedley is the chair, Gausebeck and Greenberg on sub committee. Look at/do research. Report at next meeting.

• E-File over 65 - Hall

Hall is chair, Jones and Claudman on sub committee.
ACTION: Delzer will identify owner and do preliminary research.

• Refund Envelope Window - Quarles

Future Meeting Planning The next face -to-face meeting:

       1st Choice - September 22-23 in Indianapolis, IN
       2nd Choice - September 22-23 in Chicago, IL
       3rd Choice - September 22-23 in Detroit, MI
Travel in on September 21 - home on the 23rd or 24th.

Outreaches - How to get the TAP Word Out
Suggestions? How do we get TAP information out? We have to rely on public service announcements (PSA). We cannot pay to advertise. Panel members need to work to get the word out. The more we accomplish as a committee, the easier it will be to get press.

Quarles - I talked to CPAs in Michigan and used the power point presentation.

Gausebeck - The power point presentation is a good starting point.
We don't have a lot of money. If a press release goes out and gets picked up, it will cause an increase in internet hits.

Cain - How about working with the State Departments of Revenue?
We have to remember that we deal with federal taxes only.

Tuesday, April 29, 2003

The members of Area 5 toured the Cincinnati Campus to observe the Pipeline Operations. The committee was also briefed on various service center operations by the following:

• Peggy Bogadi, Director, Cincinnati Submission Processing Center
• Dan Myers, Director, Cincinnati Accounts Management Center
• Betsy Kamenar and Steve Fehring, Examination Operations (representing Cincinnati Compliance Services Center)
• Connie Hemingway and Diana Huebner, Innocent Spouse Operations

Tour guides:

• Sue Allen, Site Coordinator Staff
• Dorothy Barry, SB/SE Communications, Campus Branch
• Tom Miller, SB/SE Communications, Campus Branch

• Carrol McCorkle, Receipt and Control Operations
• Sue Becker and Kathy Lazarus, Document Perfection Operations
• Jim Fish, Data Conversion Operations
• Phyllis Erkins, Input Correction Operations

Area 5 thanks the employees of the Cincinnati Campus for organizing the Pipeline tour and subsequent briefings. The presentations will help the members of Area 5 better understand the complicated process of tax administration.

New Issues

• Check Box - IRS interprets this to mean one time, one issue. Meldman could not find anything in the Regulations about this issue.

Delzer - Area 3 is working this issue.

Meldman - Will prioritize new issues. Will not start one until we finish one that is already in process.

• Addition to line 42, Form 1040/Schedule D shadowed description:

The Problem: The taxpayer is instructed to enter the amount corresponding to the line 41 taxable income and filing status listings in the tax table on Line 42. However, if a portion of the taxpayer's income is taxed at a different rate because of Schedule D calculations, Schedule D instructs the taxpayer to enter the smaller figure from Line 38 or Line 39 of Schedule D on line 42 of Form 1040.

Thus, any taxpayer benefiting from the Schedule D computation will automatically have a figure on Line 42 that does not correspond to the Line 41 figure listed in the tax table.

Suggested Solution: Add a line to Form 1040 (42A ?) for listing the original tax table figure as well as the lower Schedule D amount so that both can be displayed on Form 1040. Parking Lot

• Rollover Checkbox: Drop. Correspondence letter.

• Simplify SS Worksheet/SS Worksheet line 1

ACTION: Greenberg will write up for Gausebeck to present at the Joint Committee meeting.

• Schedule SE, Explain %: Already in instructions. Drop. Correspondence letter.

Suggested that Ad Hoc address forms and instructions or maybe this could be developed into a new issues committee.

Original Issue Discount (OID) - Abraham - handout. This is a legislative issue.

Meldman suggested that conference calls be scheduled every six weeks instead of on a monthly basis. Would like to have three face-to-face meetings plus the all-inclusive panel meeting in Washington, D.C., in October. The face-to-face meetings could be one full day. Would like to get a set dollar amount to work with for meeting planning rather than be limited to two face-to-face meetings. Let us utilize our portion of the budget to our best advantage.

ACTION: Gausebeck will present this proposal at the Joint Committee meeting.

Closing/Assessment
Jones - Good meeting.

Smedley - Helpful meeting. Accomplished a lot more during a face-to-face meeting as opposed to a conference call. Please email her with comments or suggestions for "just in time notification." Will then complete her report.

Abraham - Thought we agreed to surface issues. List them all so they are visible. Seems to be resistance to some issues brought up. Spent a lot of time writing up 11 issues, only to have them rejected.

Gausebeck - Valuable chance to meet each other and develop as a committee. Feels energized again. Thanks to Morris for insight on first day of meeting. Hopes all will be more focused.

Malcolmson - Continues to be educated. Feeling a little less frustrated. Not all gone, but less. Hopes to address some big issues - not just small ones.

Lexow - Great tour of the service center. Got a chance to meet with the "on TAP" sub committee.

Greenberg - Educational experience. Blown away by such a diverse group. Came together very well. Meldman is great leader - wonderful job! Morris - great job putting things in perspective. If I didn't feel good about TAP before, I sure do now. Don't look forward do all TAP meeting in October. Better having committees meet.

Drumel - Very good meeting. Got moving. Hope to continue to make strides.

Murphy - Glad we met in Kentucky. Would like to see more public participation. More energized by all the input.

Hall - Got a lot done at this face-to-face. Good seeing how things operate at the service center. All issues brought up at the meetings are in the minutes. Need to put in process.

Claudman - Face-to-face is well worth while.

Cain - Didn't feel good about Area 4 until this meeting. Conference calls not very productive. Feels good about where we are going to go in the future. Hoping in future will solidify things even more. Face-to-face is the only way to go.

Meldman - This committee does not run itself. Delzer is instrumental. Staff has been great. Morris is great as moral support and guidance. McQuin and Robb are very supportive. It is very hard being chair. Don't know if taking on legislative issues is a good thing or bad, but the NTA is the one who will take them on. We will not. Personal feelings must be put aside. As a member of TAP, we have procedures. Word came down that we were not to work legislative issues. NTA said she was going to send out a letter with instructions on handling legislative issues. Have not seen it yet. All-in-all, did a good job here. Cannot let this get too stressful. We are only into this six months to date. Have another 18 to go. Should all be downhill from here. Some things will be taken up, some won't.

Morris - Would like to thank the staff for their support. Have some guidance now. Sorry about the bureaucracy. Great job!

McQuin - Thank you for doing a very hard job. Annual report - there will be opportunities to include issues that may not be finished. This design is not etched in stone. Encourage you all to look at different ways to improve the process. Look to the future.

Next Conference Call
Scheduled for Wednesday, June 4, at 11 a.m. CDT.

Attachment One

Taxpayer Advocacy Panel Mission:
The Taxpayer Advocacy Panel listens to taxpayers, identifies taxpayers' issues, and makes suggestions for improving IRS service and customer satisfaction.

Steps in Developing an Issue:

1. Preliminary Research.

1. The issue is brought to an area committee by email, telephone, fax, outreach efforts, a panel member's personal experience, or by written correspondence.
2. The program analyst assigned to the area committee performs preliminary research on the issue. The term preliminary research is used to include the following types of research: If the issue is statutory in nature, the analyst might look up the Internal Revenue Code section and analyze how the code affects the issue. If it is a complaint about the wording of a notice or publication, obtain copies of the notice or publication and research the pertaining policy or statute. Basically, enough research so the committee can make an informed decision on whether to drop, monitor, combine, or develop the issue further.
3. The program analyst provides a written report to the committee on the issue and the preliminary research.

2. Review. The area committee reviews the report and based on their analysis may request additional research or information on the subject or they may determine enough information is available to make a decision to drop, monitor, further develop the issue for elevation, or elevate the issue directly.

3. Drop. The committee drops an issue if they determine, IRS is sufficiently handling the issue or the issue has little or no impact on customer service and satisfaction.

4. Combine. The committee may decide the issue is compatible with or identical to another issue they are developing and combine the two. Or, they may decide it is related to another committee's focus and forward the information to that committee.

5. Monitor. There are two reasons a committee might monitor an issue:

1. The committee believes the IRS is working to resolve the issue but would like to take a new look after a policy is implemented to ensure it is working as intended.
2. After prioritizing the issues, it's determined the issue has merit but the committee cannot immediately develop the issue.

Question point: How does Area 4 want to handle the monitoring of issues?

6. Prioritize. Given the resources and the time committee members are willingly to volunteer to develop an issue, issues should be prioritized.

7. Develop an Issue. Obtain a sufficient amount of information about the issue to determine if the issue should be forwarded to the Joint Committee or if the issue should be handled locally. The committee can obtain the information through a variety of ways, for example: Talk to subject matter experts about the issue, the experts could be from within or outside of the IRS. Analyze statistics on the issue. Or, talk to citizens, IRS employees, or practitioners to determine if they've had similar experiences. Committee members should inform TAP staff what additional information is needed before they can determine the merit of the issue and make recommendations. The TAP staff will work with SB/SE and W & I point of contacts to provide the necessary information.

EXAMPLE:

TO: TAP Joint Committee

FROM: Area X

DATE:

RE: FREEFILE DISCUSSION & RECOMMENDATIONS

Executive Summary

Responding to the question of whether the IRS would be able to achieve the e-filing goal set by Congress in 1998, Mr. Terry Lutes (director of the IRS' Electronic Tax Administration) said "It's difficult to see how we're going to make it".¹ The Tax Payer Advocate members would like to see the e-filing initiative succeed and offer this report as a starting point in reviewing the process of offering "free online e-filing" to the American taxpayers.

The subcommittee members felt after discussion with the Area X TAP members in their XXXXX meeting that the recommendations listed in their report be prioritized by order of importance and/or implementation. After an exchange of opinions, the recommendations/issues were ranked in the following descending order:

As can be seen from the grouping of the Recommendations/Issues above, the top issues involve bringing the Taxpayer Advocacy Panel members into the review process and analysis of taxpayers' feedback of this year's e-filing effort. The next three recommendations revolved around simplifying next year's e-filing process and making the process easier to understand. The last three issues were viewed as being longer-ranged or more difficult for the IRS to implement. However the subcommittee members believed that these issues should be considered as the e-filing process evolves.

Background
With the 2002 filing season, the IRS instituted "FreeFile," a new electronic system for filing taxes geared to individual taxpayers. With the help of 17 FreeFile partners, the IRS has increased the number of e-filers substantially. March 2003 numbers indicate that individual e-filers are up nearly 30% over this time last year. ²

Scope of the Subcommittee's Work
The subcommittee met with Mr. Paul Mamo, the IRS Electronic Tax Administration Analyst, in teleconference on March 19, 2003 to discuss the issues. We reviewed the original Free File Alliance Agreement between the IRS and software providers willing to participate in the program.³ The IRS's involvement is limited and thus, a taxpayer leaves the IRS website and enters a commercial software website to prepare a FreeFile return.

Members of the subcommittee attempted to enter basic returns on E-file Alliance members web sites with mixed results. A few of the Alliance members' sites were exceptional--for example, TurboTax and Free 1040 Tax Returns, Inc.; on others, it proved difficult to enter data or locate the "free" button. Some sites were unavailable to use and impossible to access, others indicated missing data on the return, but with no locator or clear explanation of what was missing on the screen. Many providers limited forms available for free-filing, some non-filable exceptions were Forms 8283 (non-cash contributions), Schedule C (small business), and K-1 (partnership income). In addition, fees were charged at some of the sites for storage of the completed return and to file a related state-tax return.

Subcommittee members reviewed numerous articles on e-filing that ranged from glowing recommendations to taxpayer's reporting of concerns and problems. Some of the themes that were repeatedly mentioned were:

Marketing of related services; inability to bypass charges for filing; difficulty returning to an incomplete return; and, certain necessary forms unavailable.

On the other hand, some taxpayers were very satisfied with the services that they received and intended to e-file again next year.

Taxpayer Concerns
Because of the link from the IRS web site, taxpayers are interpreting Alliance members as being endorsed by the IRS. The actual criteria for selection of the providers were a capability to handle and transmit a large number of electronic returns and a willingness to participate.

Taxpayers who used one of the FreeFile sites for tax preparation expect it to be what it says it is--free tax preparation for those who meet certain criteria. Often it is a free federal tax return with marketing of other related consumer services--including mortgage refinancing and Refund Anticipation Loans (RALs)--and a charge for filing a state return.

Recommendations

1. Limit the number of FreeFile Alliance members.
   The initial Agreement between the IRS and the Consortium of FreeFile Alliance members specifies that the term of the Agreement will be three years with an automatic option to renew. The number of providers should be limited, either as Alliance members resign from the consortium; or, based on input from and/or dissatisfaction of users.
2. Standardize the software across providers.
   Taxpayers would appreciate standard features; no matter what provider they select to file their return. Easy access to forms not available for free-filing, upfront disclosure of fees for storage and state filing, and the opportunity to return and complete the return are areas where standardization would be helpful.
3. Limit commercialization/marketing of firm's other services to users.
   Based on the business of the provider, seemingly pertinent products and services are marketed to taxpayers. It is the suggestion of the committee members that the marketing of Refund Anticipation Loans (RALs) to taxpayers who opt for

4, 5, 6, 7, 8......

Conclusion
FreeFile is an initiative created to help the agency reach its long-range goal of 80% of all returns submitted by 2007 will be electronically filed. The advantages for a taxpayer who files electronically are improved accuracy, none to few computational errors, and receiving faster refunds. This appears to be a win-win situation, especially without a fee for filing. It is imperative that the first year of this project is carefully evaluated, and a survey of taxpayers who used the free services completed. Then, improvements to the system can be made. Future success and sustained growth of individual e-filing depend on it.

NOTES AND REFERENCES

¹ Coombes, A. "E-file resistance: Rate rises, but IRS says long-term goal tough to meet," CBS.MarketWatch.com, April 16, 2003.

² IRS News Release: IR-2003-33. "Strong Growth in Computer Returns and Federal/State e-file," March 12, 2003.

³ "Free On-Line Electronic Tax Filing Agreement," October 30, 2002.

⁴ "Taxpayers may be able to file directly to the IRS," January 26, 2003.