SBSE Issue Committee Meeting Minutes

January 6, 2005

Opening of the Meeting
Nagel opened the meeting and welcomed all the members. He noted some additions to the agenda by introducing TAP Chair Gwen Handelman and TAP Director Bernie Coston who would be speaking about the possible restructuring of the SBSE Issue.

SBSE Issue Committee Configuration/Support
Handelman explained the reasons behind the Joint Committee supporting the idea to increase membership on the SBSE Committee. It would help alleviate the unusually higher number of members on all the other Issue committees due to the SB/SE Program Owner’s last minute decision to support not two issue committees but only one committee. As an enlarged Issue committee, the SB/SE Issue committee could function as two committees for internal TAP purposes while the SB/SE program owners could service it as one committee. Handelman explained in more detail the idea of dividing the existing members into two full, self-reliant subcommittees that would have their chairs represent them on the Joint Committee but which, for purposes of the FACA (Federal Advisory Committee Act), would work under the umbrella of the SBSE Issue Committee. The two subcommittees would work on SBSE (Small Business, Self-Employed) issues and be under the guidance of the same SBSE Program Owner – Helene Bayder.

Coston briefly reiterated Handelman’s explanation of the plan and added that the Program Owner’s support was needed in order for this organizational arrangement to work. He indicated that further discussions within TAP would occur regarding this possible restructuring during the course of the following weeks.

Roll Call

Panel Members Attending

• Clayton Agena, Honolulu, HI
• Nancy Allen, Roswell, GA, Vice Chair
• Margaret Balcom, Concord, CA
• Aaron Bell, Kenmore, NY
• Bill Bly, Wayne, PA
• Paul Brubaker, York, PA
• Charlotte Cassady, Talbotton, GA
• Paul Duquette, Amherst, WI
• Donna Hafer, Burlington, KY
• Edward Hanna, Tampa, FL
• Steven Hoffman, Columbus, OH
• Bradley Moore, Decatur, GA
• Paul Nagel, Glen Cove, NY, Chair
• Owen Oatley, Holly Hill, FL
• Howard Perkins, Suisun City, CA
• Charles Silva, Provincetown, MA
• Mary Suther, Dallas, TX
• William White, St. Joseph, MO

Absent

• Robert Forst, Encino, CA
• Stanley Miller, St. Louis, MO
• Sallie Richardson, Taylorsville, UT
• Steve Rue, Mechanicsville, VA
• Lynwood Sinnamon, Arlington, VA

Quorum was met.

TAP and IRS Attendees

• Helene Bayder, SB/SE Program Owner
• Michael Chessman, TAP SBSE Liaison
• Meglan Knights, Analyst, Office of Taxpayer Burden Reduction
• Dave Coffman, TAP Analyst
• Audrey Jenkins, TAP Analyst
• Marisa Knispel, TAP Analyst
• Judi Nicholas, TAP Program Manager
• Sandra Ramirez, Designated Federal Official (DFO)

Program Owner Presentation (Side note: Pre-read documents were e-mailed to the committee, specifically, the draft versions of the new extension forms and the proposals noted below)
Helene Bayder of the SBSE Office of Taxpayer Burden Reduction and Program Owner for the TAP’s SBSE Issue Committee thanked the members for their interest in resolving the SBSE issues that the IRS currently faces. She introduced Meglan Knights, also of the Office of Taxpayer Burden Reduction, who would explain the Extension Project. The Filing Extension Project seeks to simplify the process and the forms that certain businesses and that individuals use to apply for extensions of time to file their income tax returns. Knights would like the committee’s feedback and recommendations on this topic and on the IRS’ current suggestions/plan for the changes.

An impetus to change the process and forms came from a Treasury Inspector General for Tax Administration (TIGTA) audit and report that noted that the IRS may want to establish a uniform October 15 due date for ALL extensions (since by law a taxpayer is granted up to a 6 month extension, when requested, from the usual April 15th date). TIGTA also suggested that the IRS reduce the number of existing extension forms from the current approximately 12 forms to a lesser number as by providing so many forms the IRS may have complicated the process or made it burdensome rather than convenient.

In their own review, the IRS found that they were asking for information from the applying taxpayer that was not being used by the IRS in the extension approval process.

To further bolster the argument for reducing the number of extension forms, IRS noticed that the extension of time to file the Form 1120 (the corporate income tax return) only requires the filing of one form (Form 7004) to receive a 6-month extension while all other taxpayers (non-corporate tax filers) need to submit two extension forms to receive the full six month extension.

The Extension Project also looked at filing trends of years 2000 – 2002. In doing this, they realized that the extensive process was a worthwhile burden reduction opportunity.

The Project team is making the following proposals:

1. Create a uniform six-month extension for ALL non-corporate taxpayers. This will result in the consolidation of six of the current extension forms.
2. Remove the signature requirement and request for explanation on the extension forms.
3. Decrease the number of forms by consolidating the two extension forms for individuals from two to one and combine four of the business extension forms into one.

Proposed date to launch the changes is January 2006. As of that date, an individual requesting an extension of time to file would only submit one form for the full six-month extension. Knights took questions at this time.

White asked; why can’t taxpayers just file (without requesting extensions) since there is no such thing as an extension of time to pay the income tax? Why not let taxpayers file late and pay the late filing (which is a really a late paying) penalty without submitting an extension form? Knights noted that corporations are required to pay before they are granted an extension to file and for individuals the Tax Code dictates that a request for extended filing date be submitted for approval by the IRS. Chessman added that filing of the extension form not only allows the IRS to track taxpayers and ensure voluntary compliance, but that also for Statute of Limitations purposes that are implications dependent on whether an extension was filed or not filed with IRS. Nagel noted that taxpayers at times need to file an extension and show one was filed for other reasons.

Knights concluded her presentation by saying that the Project’s proposal would create significant advantages in reducing the cost to the IRS by 75% and by reducing taxpayer burden (8M hours of time) and the workload levels.

Several members commented that the proposals were positive. Nagel noted to Knights that the draft new Form 4868 (extension to file for individuals) indicated the due date as October 15 but that date did not address the fiscal year filer [whose return is not due April 15 so the extension date would be other than October 15]. He suggested that the title simply note that it is a 6-month extension. Knights took note. Nagel also asked why the extension to file Form 990 (which is only an information reporting return for non-profit organizations) was not part of the project. Deferring to Chessman, he responded that the Forms 8868 and 8857 were not included in the consolidation because the TEGE (Tax Exempt and Government Entities) organization did not wish to be included in the Project.

Chessman indicated that the SBSE would like to have the committee’s recommendations within six weeks. Ramirez suggested that subcommittees be formed to work these issues.

Review of Issues from the Schedule C Non-Filer Issue Committee
A list of these issues with their specific explanation was provided to the members as an attachment to the meeting agenda. Bayder went over these issues to explain whether or not they were within the Committee’s scope. The issues are:

1. Requiring persons paying non-employee compensation other than in a trade or business to report those payments.
   
   Bayder indicated this issue is not within SBSE’s scope and that the National Taxpayer Advocate has recommended a legislative recommendation on this issue in her Report to Congress.
   
   
2. Including a payment publication with the tax return package.
   This was done in previous years, Bayder said. She did not know, however, whether or not a publication or notice is currently included.
   
   
3. Revising notices sent to non-filers.
   
   The IRS is looking at all notices and thus have set long term priorities of which notices will be reviewed and changed/eliminated according to these priorities. Bayder will follow up on the status of the the nonfiler notices (CP 515 and CP518).
   
   
4. Sending a completed substitute Form 1040 prepared by the IRS to non-filers.
   
   Bayder explained the Substitute for Return (SFR) process that the IRS uses. The unit responsible for this process is currently analyzing the process and addressing their recommendations to the IRS.
   
   
5. Increasing compliance of e-commerce users.
   
   A group has just begun looking at issues created by e-commerce (i.e., addressing/ closing the gap between compliance and e-commerce users.) Moreover, it is a controversial or sensitive issue as new or separate treatment can’t be doled out by IRS to e-users under current regulations.
   
   
6. Increasing penalties for the willful failure to file.
   
   This is a legislative issue, not within our purview to address.
   
   
7. Adding a message to the IRS non-filer notices to educate non-filers about Installment Agreements.
   
   Same as #3 above (Bayder will check the priority on these).
   
   
8. Simplifying reporting of non-employee compensation.
   
   Bayder explained that the IRS needs to understand the character of income (which simplification may reduce) as is gleamed from the Schedule C (of the Form 1040) and there is the obvious problem of lack of space on the Form 1040 to add lines for reporting this income. Chessman noted that the number of lines and font size reduction has been maxed out. Brubaker noted that our society is actually moving to a contracted (form 1099) state where more and more persons who are not “a business” or “in business” should not be burdened to be treated as such (i.e., required to file Schedule C.) Nagel added that tax preparation chains also charge taxpayers by the number and complexity of forms needing to be filed. White agreed with Nagel and Brubaker.
   
   
9. Improve the filing of Form W-4 with the IRS.
   
   Bayder said the IRS is on the verge of completing a critical overhaul of Form W-4 expected to be complete within six months. If the Committee has suggestions Bayder can pass them along to that study group.
   
   
10. Facilitate and hasten the filing of Form 1099s for payers/taxpayers.
    
    Chessman said that if the committee or person who made the suggestion can flesh out their recommendation he can follow up with the Electronic Tax Administration function and Compliance on this issue and report to the Committee. Cassady volunteered to do this and provide it to Marisa to share with the committee for input and review.
    
    
11. Streamlining business tax returns, such as Form 1120S and Form 1065.
    
    Chessman said this is certainly a good issue for this Committee and encouraged the formation of a subcommittee to look at this issue.
    
    
12. Improving the IRS website.
    
    Bayder indicated that although it is an award-winning website if the person who made the suggestion could be more specific she could respond more fully.

Formation of Subcommittees
TAP staff will email all members the list of the three issues that the Program owners asked the Committee to consider at this time. Each member is to respond as to which issue they wish to work on with others as a subcommittee. The issues are: 1) extension of time to file the individual tax return, 2) extension of time to file the business tax returns and 3) streamlining business returns – Form 1120S and Form 1065. (The latter could involve the simplification and creation of another form, to be named 1120S-A, that would be a shorter and simpler version of the Form 1120S (comparable to Form 1040A and the longer Form 1040).

Closing/ Assessment
Nagel thanked the members and the IRS staff for participating on the call and conducted a round robin of the members for them to express their opinion of the meeting took place.

Public Input
None.

Action Items
Knispel will email all the members the list of issues for them to select their preference. Members will respond accordingly.

Knispel will e-mail the SBSE roster to the committee.

Bayder will follow up on the status of the nonfiler notices (CP 515 and CP518).

Cassady to draft 1099 recommendation to share with committee.

NEXT MEETING:
Teleconference on Thursday, February 4th at 3:00 PM ET.