April 14, 2003

Present:

• Linda Bader
• Patrick Castleberry
• Laura DeMarais
• Maria Hermann-Pariente
• John Hollingsworth
• Tom Seuntjens
• Paul Smathers
• Nan Wilson
• Lillian Woo, Chair
• Frank Woods, Jr.
• Sandy McQuin, DFO

Absent:

• Denise Bigger
• Ken Logan

Guests:

• Steve Bankler
• Ken Eichner

Staff:

• Mary Ann Delzer, Program Analyst
• Patti Robb, Note Taker

Welcome/Announcements/Review Agenda

Roll Call

Review/Approve Minutes
Minutes were approved.

Subcommittee Reports

• AMT - This is a legislative issue. Think we should concentrate on the indexing for inflation portion of the President's Bill. The bills can be found at www.house.gov/jct

It is doubtful that the NTA would get involved in this.

Seuntjens - The memo with the legislative guidelines was supposed to be issued from Nina but I have not seen it yet. Just don't spend too many resources or time on this. Why don't you draft a memo or letter to Nina supporting indexing. Get it on the record.

Woo - Which bill would be best?

House Bill - 22

Senate Bill - 135

Senate Bill - 467

Smathers - Will Joint Committee do anything with this?

Seuntjens - The Joint Committee will not work this as it is not an action item. Submit a written request to the Joint Committee for May.

ACTION: Subcommittee should meet again and write a proposal. Forward the proposal to Nina Olson and the Joint Committee. Put more depth in this new report with actions you want the Joint Committee to take.

Bader - Let's try to get it back in the top 20 list in the NTA Annual Report to Congress.

Delzer - Put it in the TAP Annual report too. It can still have an impact even if Nina doesn't put it back in her top 20.

• E-filing - Report Follows

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. ¹

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 issue. We reviewed the original Free File Alliance Agreement² between the IRS and software providers willing to participate in the program. 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 Direct Deposit of Refunds should be eliminated. Taxpayers should be clearly informed that when they utilize direct deposit of their refund that the process from filing to a refund in an account takes only 10 days. Therefore "refund anticipation" loans are unnecessary. All members agreed that RAL's should have never been a part of the Free File Alliance Agreement, and should be eliminated.

4. Allow taxpayers to download returns and store them on their personal computers.

FreeFile Alliance members should provide taxpayers with the option of downloading their files and storing them, possibly as text files only. This would assist taxpayers meet the agency's requirement of keeping their returns for three years. In addition, the taxpayer will need to refer to his/her previous year's filed tax forms to complete the next year's taxes in a timely manner. Thus a "hardcopy" downloaded from the free-filing site is most desirable.

5. A point-of-service survey should be available for every return attempted.

All taxpayers who attempt to use FreeFile services should be surveyed as to their success in completing a return and their evaluation of the process so that improvement may be made. According to Mamo, the "Contact Us" link on the IRS web site had generated over 5000 e-mail responses from taxpayers who used FreeFile by the date of our meeting. However the committee members felt that this was not a sufficient form of feedback.

All members agreed there should be a method to effectively survey taxpayers who use FreeFile. We recommend a link back to an evaluation form on the IRS website or a point-of-service survey at a independent website to gather feedback from all users.

6. Have the IRS convert FreeFile Alliance members to independent contractor status with the agency, and pay a nominal fee per e-filed return.

Committee members recommended consideration of expanding the services of FreeFile Alliance members to include answering taxpayer questions, accessing records, and generally replacing the customer service function of the IRS. Because of the tax savings of e-filed returns versus paper returns, subcommittee members recommended a nominal fee-for-service for each return e-filed by an Alliance member. More extensive services provided by Free File Alliance members would allow for substantial cutbacks in IRS customer service and align with other outsourced services.

7. Allow taxpayers to file returns directly with the IRS and bypass the middleman.

Mamo characterized taxpayers who prepare their own returns using commercial software and send in the paper forms as "low hanging fruit on the tree." An article in the Washington Post states, the IRS is "devising a web-based system that would allow taxpayers to file their taxes directly on the agency's web site."³

8. Involve TAP members as partners on the review team.

Subcommittee members agreed with the National Taxpayer Advocate who recommended the inclusion of TAP members in the review of the FreeFile process.

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

² "Free On-Line Electronic Tax Filing Agreement," October 30, 2002.

³ "Taxpayers may be able to file directly to the IRS," January 26, 2003.

End of Report
DeMarais - Some TAP members would like to be involved in the evaluative process for next year. TAP should have input.

Seuntjens - Agrees. #8 in the report is critical. The Joint Committee will look at the whole report.

Hermann-Pariente - Can an executive summary be put on top of this report with the recommendations ranked?

Seuntjens - the Joint Committee will use the document as is. The subcommittee can add things as need be.

Discussion of New Issues

• Complexity of Real Estate - Seuntjens will work on this issue during the summer months. Woo and Castleberry volunteered to work this issue with him.
• Elimination of Tax Dividends - Wilson saw an article on this in the Wall Street Journal this morning (4/14/03). It is being discussed by lawmakers. On hold.
• Redesign Form 2441, Child and Dependent Care Expenses
• Improve Calculation Contribution for the SEP and SIMPLE - This is a procedural issue. This is something the committee could make an impact on.
• Joint Dependent Status - Legislative issue.
• Standardize W-2 - Discussed at the meeting in Kansas City.
  What about putting a barcode on the W-2?
• Retiree Withholding - DeMarais and Hermann-Pariente will work this issue.
• National Standards for Food/Housing OIC - Not realistic numbers.
• Schedule D Threshold to $1500
• Eliminate Schedule R/Elderly Credit
• Eliminate 1040A
• Improve Definition of "Passenger Auto"
• Volunteer E-Filing - Need to improve the system. This is a uniformity issue. Seuntjens asked whom this would be directed to? McQuin - We could support this with SPEC. DeMarais and Hermann-Pariente will work this issue.

ACTION: All issues without volunteers to work will be put into the parking lot.

Outreach
Hermann-Pariente - Was in contact with Congressman. She is building a list of associations who might be interested in a TAP presentation.

Bader - Has been very busy with multilingual committee. She is traveling to Cincinnati to look at the kiosks. She is also working the ID theft issue of Rev. Maryannah Mosley.

Castleberry-Spoke at an OK Congressional Liaison meeting. Also talked to a taxpayer referred by the staff. Taxpayer had a serious problem with AMT as she won an SSA recovery of $160,000.00. One-half the dollars went to the attorney, but all was taxed for AMT purposes.

DeMarais - Made a presentation to the Freelance Communicators. Still handing out forms at the library. Another SRMLC meeting coming up.

Hollingsworth - Will attend SRMLC meeting after the tax season.

Seuntjens - SRMLC meeting coming up.

Smathers - Continues to attend the SRMLC meetings.

Warren - Met with the North Texas Practitioners Council. Will also be contacting other organizations.

Wilson - Went to a Congressional Liaison meeting and spoke about TAP.

Woo-Attending the Congressional Liaison meeting the first week in May in San Antonio.

Office Report
ACTION: Delzer will send out an interest sheet for the upcoming tax forums:
     St. Louis: August 19-21
     San Antonio: September 2-4
     If you live in the vicinity and wish to attend, please let her know.

Is anyone interested in combining the next face-to-face meeting with a tax forum?

We are still waiting to hear from National Office about the power point CDs.

Public Comment

Steven Bankler:
Bankler stated he was concerned that he did not get the sub committee reports before the meeting. He stated electronic filing efforts aimed at low-end preparers for the masses. IRS has trouble targeting high-end preparers and the problem is the rules are too strict. It should be that if you can file it on paper, you can file it electronically. For instance can't e-file if have home office for two businesses or if you have a W-2 with 50% withholding. Committee seems to meet only with IRS analyst, no paid preparers. Only seeing one side of the story. Should review IRS e-file program.

As far as the face-to-face meeting, the Tax Forum is a good idea. Committee should let people know they are there. Other problem is that there is no way to contact the members individually. Website does not list emails, addresses or phone numbers.

Bankler stated he does not like the meeting format. He believes the public should be allowed to speak after each segment of the agenda.

Kenneth Eichner:
Eichner stated the committee should make better effort to communicate.

He stated the definition of a car, as opposed to a truck is simple--it is less than 6000 lbs.

Eichner stated that there is an injustice, in regard to AMT, for employees who are not reimbursed for their mileage. They often lose their miscellaneous deduction for mileage because of the AMT. He asked how the dates were chosen for the Tax Forums.

Eichner recommended the members read the National Taxpayer Advocate Report to Congress. He said it was slow, but a good read.

He also stated he wanted to see the sub-committee reports before the meeting.