SBSE Burden Reduction Issue Committee Meeting Minutes
June 8 - 9, 2007, San Diego, CA
Face to Face

Friday, June 8, 2007
Saturday, June 9, 2007

Friday, June 8, 2007
Program Owner

• Bayder, Helene - Office of Taxpayer Burden Reduction
• Jones, Allen - Office of Taxpayer Burden Reduction

Committee Members Present

• Behnkendorf, Larry - Waterford, MI - Member
• Bensen, Milissa - Hermiston, OR - Member
• Bly, Bill - Wayne, PA - Chair
• Cordeiro, Daryll - Mobile, AL - Member
• Davidson, Charles - Redding, GA - Member
• Edwards, Byron - Roswell, GA - Member
• Gursey, Gregory - Anchorage, AK - Member
• Kasturi, Sonny - West Orange, NJ - Member
• Maisch, Steven - Arlington, WA - Member
• Margulies, Howard - North Easton, MA - Member
• O’Donnell, Marie - Riverwoods, IL - Member
• Richardson, Lovella - Knoxville, TN - Member
• Shah, Rajiv - Columbia, MO - Member

Committee Members Absent

• Guthmann, Howard - St. Paul, MN - Vice Chair
• Barry, Shaun - Franklin Square,NY - Member
• Havey, Dorothy - Lincolnville, ME - Member
• Jason, Julie - Greenwich, CT - Member

TAP Staff

• Jenkins, Audrey - Brooklyn, NY - DFO
• Knispel, Marisa - Brooklyn, NY - Analyst
• Odom, Meredith - Brooklyn, NY - Secretary

Guests

• Aubrey Hone, Jason Turner and Brian Wong of the Legal Aid Society of San Diego      

Bly welcomed members, staff and guests. He requested that each member introduced himself/herself to guests and provided an example of a positive experience either with the TAP or personal to share with all present.

Roll Call
Quorum has been met

National Office Report/ Announcements/Introductions
Bly informed the committee on the status of TAP member recruitment and other issues related to the organization.

He informed the committee that Helene Bayder has accepted another position within the IRS and thanked her for her dedication to the TAP. He also presented Bayder with a Certificate of Appreciation from the TAP and with a gift from the committee members

TAP/SBSE Coalition
Patterson, formally of Communications, now the Director of Office of Taxpayer Burden Reduction spoke with members via teleconference. Patterson thanked the committee for their hard work and for volunteering

Update on SBSE TBR Issue Committee Proposals – 2005-2007
Bayder updated the committee on issues worked during these years such as the creation of Form  944, Employer’s Annual Federal Tax Return which allows employers whose annual liability for social security, Medicare and withheld federal income taxes of $1,000 or less to file and pay these taxes only once a year instead of every quarter. Among the Committee’s suggestions was the elimination of a line requesting census information. The Form became available to the public last January but the IRS has not received much feedback on its success. In 2006, the Committee worked on issues such as the Office in Home and simplification of Form 8829, Innocent Spouse, and the S- Election Project. Jones would give a briefing on the last two later on. Other issues were: Electronic Installment Agreement, the new Form 940 for unemployment tax, extension to file individual tax return or Form 4868, mis-classification of employees (employee v.s. independent contractor, rounding off (a legislative issue) examination notices and preparing the taxpayer for the exam process and the Publication 3498 that explains this, and recently the issue of Appointment of Agent, Form 2678, and the Schedule R for Form 941. Bayder also thanked the Committee for their recommendations and suggestions on issues like gambling and a survey that the OPERA organization provided.

TAP/SBSE Coalition
Patterson, formally of Communications, is now the Director of Office of Taxpayer Burden Reduction. She introduced to the members via teleconference and thanked them for their hard work and dedication.

1120S Election Project- Allen Jones of the Office of Taxpayer Burden Reduction gave the following summary and update:

Background

• TIGTA recommended that IRS simplify the election process an make it easier for the taxpayer to file the initial Form 1120S
• Project started January 2006
• Reduce internal cost associated with processing and correspondence
• Promote efficient and accurate assessment of tax against the correct entities
• Support e-file submission option for initial Form 1120S

Revised 1120S Election Process

• Draft Revenue Procedure provides and additional simplified method for taxpayers to request relief for late S corporation elections
• Revised Forms 1120s and 2553 and Instructions
• Programming changes for processing Forms 1120S and 2553
• Reduced burden
• Faster and more accurate processing

Next Steps

• Complete programming changes
• Complete Form and Instruction revisions
• Finalize draft Revenue Procedure
• Scheduled release date of January 2008

Innocent Spouse Relief, Form 8857 Project- Allen Jones also presented this summary and update:

Background

• Problems with Innocent Spouse claim processing resulting in rejects
• Problems with taxpayer’s correctly completing Form 8857
• Confusion with Form 8379, Injured Spouse Allocation
• Established team in June 2005 to research the issue

Revised Innocent Spouse Relief, Form 8857

• Combined Form 8857 and Form 12510, Questionnaire for Requesting Spouse
• Faster Processing
• Less Correspondence
• Easier to Understand
• Allows taxpayers to request relief for up to 3 years per form

Next Steps

• Finalize Communications/Marketing Plan
• Pint final version of revised Form 8857 by June 30, 2007
• Release revised Form 8857 by July 31, 2007

Small Business Burden Reduction Project- new issue presented by Allen Jones

Status
The project is in the preliminary data/information gathering phase. After the business case is developed, a proposal will be submitted to the Taxpayer Burden Reduction Council for formal approval

Proposed Scope
The focus of the project is to address sole proprietor/small businesses that file Form 1040, Schedule C. The scope will be narrowed to identify specific market segments (i.e., gross receipts, industry, etc.) with unique burden issues and address common burden issues for all small businesses.

Proposed Objectives
Determine the types and amount of burden on various market segments of small businesses. Develop short-term and long-term solutions to reduce burden and the tax gap for filing Form 1040, Schedule C and reporting income and expenses for specific small business market segments.

Proposed Methodology

• Identify small business market segments
• Identify error and burden rates for specific line items on schedule C for each market segment
• Identify common burden issues for all small businesses
• Determine which market segment(s) that burden and tax gap reduction can have the greatest impact
• Develop burden reduction solutions for each market segment and tax issue in a comprehensive pre-filing, filing and post filing approach

Assumptions

• Burden can be reduced for specific market segments of small business
• There is a correlation between reporting errors ( contributing to the tax gap) and burden
• Small business’ inadvertent errors and misunderstanding of the tax law contribute to the tax gap
• Incomplete or inaccurate recordkeeping by small businesses contribute to the tax gap resulting in understated income and over reporting of expenses
• Reducing the tax gap will increase tax compliance burden on small business taxpayers.

Potential Issues/Line Items

• Record Keeping & Complexity
• Overstated Expenses
• Understated Income
• Depreciation Schedules & 179 Expense
• Car & Truck Expenses
• Advertising
• Depletion
• Bad Debts

Capital Gains Tax Reporting Burden Project- new issue presented by Allen Jones.

Status
On January 6, 2006 GAO conducted an audit titled “Capital Gains Tax Noncompliance”, which estimated and $11 billion capital gains tax gap figure. The project was initiated on April 11, 2006. In June 2006, GAO issued a draft report titled “Requiring Brokers to Report Securities Cost Basis Would Improve Compliance if Related Challenges are addressed”.

The project was suspended in July 2006 due to pending legislation from Treasury and Congress on this issue. The tax gap legislative proposal for third-party (broker/dealers) reporting on securities transactions is one of the top five proposals in the Presidents Budget Request for Fiscal Year 2008. This issue is both a tax gap and taxpayer burden issue. If the legislation is approved, we will continue to develop solutions to support the legislation.

Scope
The scope of the project is to reduce taxpayer burden and address compliance issues related to taxpayer’s detailed securities transaction information on Form 1040, Schedule D/D-1. This would include identifying methods for accurate reporting of capital gains and losses through computation of adjusted cost basis. It also addresses electronic filing burden issues relative to Form 1040, Schedule D/D-1. In addition to filing Schedule D/D-1, it also includes the possibility of revising Form 1099-B, Proceeds From Broker and Barter Exchange Transactions to report adjusted cost basis by financial institutions (brokers).

Objectives
Develop short-term and long term solutions to address capital gains tax reporting burden issues, while balancing IRS compliance responsibilities. Determine the types and amounts of existing burden on taxpayers, practitioners, financial institutions and other stakeholders. Recommend solutions based on analysis of impact on taxpayers, practitioners, financial institutions and other stakeholders.

Methodology
Identify internal and external stakeholder concerns and issues.
Frame the recommendations in a pre-filing, filing and post filing approach. Develop functional recommendations within the framework of pre-filing, filing and post filing activities. Develop recommendations to support approved legislation.

Assumptions
Filing and reporting burden can be reduced for taxpayers, practitioners and financial institutions. Voluntary compliance will increase with improved third-party reporting. Capital Gains Tax Gap can be reduced with more accurate third-party reporting and more detailed information for enforcement activities. Practitioners and Congress will support financial institution (broker/dealer) tracking and reporting of adjusted cost basis of gain or loss on securities. IRS operating divisions will provide resources to support tax gap reduction recommendations by GAO and members of Congress. Tax software vendors will be interested in supporting electronic filing of securities transactions. The detail needed to accurately compute and report adjusted cost basis will be difficult to secure in some cases (i.e., wash sales, stock splits, mergers, poor record keeping, etc.).

Subcommittee Break-Out
Two subcommittees were formed to work on the two new issues described above.

Saturday, June 9, 2007
Attendees: Same attendees. No guests.

Subcommittee Break-Out
Subcommittees met again this morning to continue discussion of their respective issues.

Subcommittee Report-Out:

Subcommittee on Small Business Burden Reduction Project
Milissa Bensen (chair) reported that the subcommittee believes the Project involves separate issues which should be addressed separately. Among the issues are: education, what the IRS identifies as “small business” , the Schedule C and the burden of the taxpayer to complete this form as well as issues that are relevant to the Schedule (depreciation, cost of goods sold, office in home deduction, etc). The subcommittee feels that the tax gap issues related to filers of the Schedule derives from several sources such as “underground” industries and the “e” economy which are difficult to track.

Subcommittee on Capital Gains Tax Reporting Project
Byron Edwards (chair) reported that the Schedule D-1 is a burden and subcommittee suggests the ability to provide summary of stock transactions. The subcommittee advises that legislation should be passed prior to working on this project. They suggest the use of vendor tax software (e.g. Turbo tax) as the e-filing solution for reporting details on Sch D-1. Also, the broker should track cost basis. The use of FIFO is recommended as primary method to compute cost basis but we need a method to compute basis on wash sales, inheritances, etc of stock.

Public Input
No public guests at the end of this day but guests did participate and provided suggestions on June 8th.

*These minutes were approved by the TAP Area/Issue Committee on July 30, 2007