Taxpayer Advocacy Panel

Summary on Burden Data for Schedule C Filers
Jones provided the members with a summary of the research performed by OPERA (Office of Program Evaluation and Risk Analysis) on the burden found by Schedule C filers. The data presented is based on a survey conducted among 4,400 business owners in the year 2000.

Jones indicated that the main question is how the IRS defines “burden”. The factors taken into account to define burden are:

Understanding the tax rules
Tax Planning
Recordkeeping
Obtaining the forms
Completing the forms
Contacting the IRS for Assistance
Money spent on tax information, software and preparers

Kieliszek indicated that burden can be summarized as “time + money”.

Within the Schedule C, Jones added, items such as wages, other income, mortgage interest and depreciation where those that most respondents seemed to consider most “burdensome”. Jones continued to explain the Summary (attachment) and indicated that for wages reported on line 26 of the Schedule, there was more burden when a paid preparer was used and for the business use of the home deduction there was less burden when the paid preparer was used.
The Summary was provided to the Subcommittee working on the Schedule C Issues prior to this meeting for their discussion.

Subcommittee Report-Out

Subcommittee on Schedule C Issues of Burden
This subcommittee met on March 5th. Among the issues of their discussion was providing more taxpayers with publications such as Publications 583 and 334 which provides much information to Schedule C filers on how to fulfill their tax responsibilities. They also decided to create a top-10 list of the most common issues that an employer or new business would face and simplifying the information provided on the issues to improve communication. Another decision was to create an algorithm for depreciation that would assist taxpayers in deciding what type of depreciation is most beneficial to select. A follow-up on a suggestion made by member Patrice Marker was to recommend a required attachment to the tax return when depreciation is used to indicate the cost of the item prior to depreciation and the method of depreciation selected. This suggestion would assist tax preparers when tax preparers change from year to year.

One last suggestion this subcommittee would like to make is for the Schedule C- EZ to allow reporting of a net operating loss. Along with this issue, an item of discussion was the definition of a profit business vs. a hobby. Since the IRS considers that a business “for profit” is one that has profited three out of five years of continuing operations, it should follow that a business should be allowed to report a loss using the simplified Schedule C-EZ.

This Subcommittee will meet on April 2nd, at 1:00 PM ET.

Subcommittee on Aging Issues
This subcommittee discussed the worksheet to calculate the taxability of Social Security. Mull and Margulies took two separate approaches to improve the explanation between income and taxable social security. While Mull created a flowchart, Margulies created a data chart.

Analyst Kathy Welsh of the Office of Taxpayer Burden Reduction liked both ideas and will share the charts with her team for decision.

This Subcommittee will meet on April 1st at 12:00 PM ET.

Public Participation
None

Closing
Zgoda thanked all participants. The next Committee meeting will be April 10, 2008 at 2:00 ET