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SB/SE Fair Compliance (Schedule C Non-filers) Committee Meeting Minutes
March 11, 2003
INFORMATION AND EDUCATION
Members in Attendance/Roll Call:
- Richard Cormier, Manassa, CO
- Richard Greenberg,
- Karen Kerrigan, Vienna, VA - Subcommittee Chair
- Owen Oatley, Holly Hill, FL
- Mary O'Brien, Designated Federal Official
Other Attendees:
- Michael Sollitto, Program Owner
Review of Problem - Michael Sollito
Michael Sollitto gave an overview of the problem statement: The question was asked about what is the IRS currently doing to promote education for Small Businesses and Self-employed. Michael described the function of TEC (Taxpayer Education and Communication) within the SB/SE organization. There is not a focus on nonfiling; instead, TEC focuses on Market Segments and different industries.
A study was done in California that concentrated on "why people don't file" The majority of the answers were:
- Inability to pay
- Life Crises
- Snowball effect of getting behind and trying to play catch-up
Another study concentrating on the 2002 Tax Forums as a focus group came up with the following reasons that some people do not file business returns:
- Inability to pay
- Poor records
- Procrastination
Michael also clarified approximately how many business returns were filed in a year. The number is 30 million. The IRS has identified that there are approximately 2 million nonfilers.
Discussion of problem, barriers, and solutions:
Dick Greenberg gave a synopsis of his meeting with Kathy Welsh
-----Original Message-----
From: GreenFdSci1@aol.com [mailto:GreenFdSci1@aol.com]
Sent: Sunday, February 23, 2003 2:07 PM
To: mary.a.delzer@irs.gov; mary.j.peterson@irs.gov
Subject: Minutes of 2/21/03 meeting arranged by Kathy Welsh
Thanks to Mary Delzer's initiative, Kathy Welsh arranged a meeting for me at
the Downers Grove, Illinois IRS office. Besides Kathy, twelve managers and
employees of the SB/SE Compliance Dept., Large and Mid-Size Business, Taxpayer
Advocate. Field Assistance, and Taxpayer Education and Communication
participated.
I opened the meeting with a short personal history and a background on the
TAP program and its aims. I then opened discussion on the 990, non-
compliance of small business operators, and issues that they, as IRS employees
thought might be addressed by TAP
Form 990:
While the group agreed that consideration for raising the $25,000 threshold is
warranted, they pointed out that it could introduce problems by bringing
fraudulent and even terrorist organizations under the non-reporting umbrella
Schedule C non-filers
There was little doubt in the minds of the group that the vast majority of
small business non-filers have never filed and have never wanted to file. SB/SE
employees have tried various carrot and stick strategies to encourage
compliance. The carrot works better than the stick, primarily because there is
not enough muscle in the current SB/SE staffing to make the stick approach
practical.
One approach might be to send Pub.334 to all small business proprietors known
to IRS. This is not a threat to the taxpayer, but at least lets them know that
the IRS knows they exist.
Programs offering the possibility of partial amnesty to delinquent businesses
who come forth voluntarily and accept probation for 3-5 years have had some
success' (One of the attendees made the point of NEVER referring to "amnesty"
as such because this is extremely irritating to the honest taxpayer). Volunteer
revelation of previous non-filing could carry a promise of waiving criminal
charges and dropping some penalties pending setting and adhering to some years
of probation.
By far the most agreement about solving the non-filer problem centered on
outreach programs, particularly the idea of setting up High School education
programs on dealing with the IRS and taxation. If necessary, classes on
taxation responsibility could be linked to consumer education classes. I came
away from the meeting that the group had the most faith in outreach as the
most viable long-range answer.
OTHER ISSUES;
1) The addition of an additional line to show the tax on taxable income on
Form 1040 as well as the final tax taken from Schedule D would be useful to
IRS as well as to the taxpayer
2) Imposition of a flat taxation rate for filers over the minimum deduction
levels on social security (say 50%) would take away the present confusion
that the 85% computation introduced
3) Using 1040 schedules in lieu of separate 1040A attachments when filing 1040A
would work, but separate Schedules A and B should be provided to ensure that
persons electing to take standard deductions wouldn't think that they should
or could itemize.
4) Current regulations practically guarantee that illegal aliens have to go
underground to get work. After a year of no tax refunds, they aren't going to
bother to file at all. IRS and Immigration need to figure out immediately how
to handle the problem to their mutual benefit before we wind up with an insolvable
situation.
Kathy Welsh did a great job in bringing the group together. I also appreciate the
fact that these people took time out of their schedules to participate in the
discussions.
Dick Greenberg
Owen Oatley sees the reason that contributes to non-filing is the complexity of the tax laws.
E-filing may help with decreasing the effects of tax law complexity.
Some of the solutions:
Send Publication 334 to all known business entities. At least this would make those entities realize that the IRS knows they are out there.
Question/Action Item - What is the distribution of Publication 334? Mary will look into it.
Another idea is to start with Education in High Schools. Make this a part of the high school curriculum.
Action Item: Each member will find out what is on the high school curriculum in his or her state.
State of Florida is very proactive about the education concerning Florida Sales Tax.
Another barrier to nonfiling is that the IRS seems to not follow-up when someone who has filed doesn't file. (Could letters or phone calls increase compliance?) The suggestion would be to at least send a follow-up notice asking the question concerning why filing stopped. Mary stated that this could be very time intensive and tie up resources for the IRS. There are a multitude of reasons that people stop filing. (out of business, no filing requirements for the year, hobby, etc.)
Another barrier discussed concerning nonfiling is the fear of penalties and interest.
Amnesty or for a better language is to give some sort of incentive for fiiling taxes. Self interest in filing a return. Some ideas:
- Get your money working for you - no filing - no credit for SSA
- Earned Income tax credit may apply if you file.
- Offer in compromises :?
Partnering opportunities for education:
TEC
Small Business Administration (SBA)
Closing/Assessment and Next Steps
- Michael will contact SBA and TEC about what focus groups are doing with the nonfiling question.
- Did IRS do anything on Advertising Ad Councils
- Mary will send to all panel members the SB/SE TEC marketing and communication guide (what products IRS currently provides for marketing and education; The IRS business tax calendar and marketing business card; the CD rom - Starting a new business.
FILING REQUIREMENTS
Members in Attendance/Roll Call:
- Edward Hanna, Tampa, FL (Absent)
- Manning Mosley III,
- Paul Nagel, Glen Cove NY
- Mary O'Brien, Designated Federal Official
- Bob Taylor, Pittsburgh, PA
Other Attendees:
- Michael Sollitto, Program Owner
Review of Problem - Michael Sollito
Michael gave a background of the different requirements for filing a Form 1099, SCH SE, and the dollar amount required to receive Social Security Credit.
Discussion of problem, barriers, and solutions:
Some of the barriers discussed were:
- Discrepancy in dollar amounts creates confusion and complexity
- Consistency in dollar amounts reduces taxpayer burden (simplicity)
- More IRS outreach programs
Question: How much is the IRS proactive in matching programs between Form 1099's and Form 1040's?
Solutions:
- Requirement to take an employment tax class and/or pass an examination before starting a business.
- Require that all Sch C have an associated EIN number (codes?)
- Require that all Form1099's associated with a Sch C be attached to the return before a deduction will be given. Require that you identify who you are paying.
- Improve Sch C… Simplify. The cost of completing Forms and filing is prohibitive
Brainstorm ways to get input:
- Contact SBA to see if they will do a survey
- Get Feedback from non-practitioner groups
- TAP panel members as a source
Closing/Assessment and Next Steps
Action: All sub-committee members will speak to a couple of business owners to get a general idea of problems with completing Sch C, inconsistencies in filing requirements, etc. and be ready to report back at next meeting.
Action: Mary will send IRS pub on available marketing products produced by SB/SE
SIMPLIFICATION OF ESTIMATED TAX PAYMENTS
Members in Attendance/Roll Call:
- Patrick Castleberry
- Mary O'Brien, Designated Federal Official
- Teresa Smedley
- Charles Taylor
Other Attendees:
- Michael Sollitto, Program Owner
Review of Problem - Michael Sollito
Michael shared some insights that came out of the IRS 2002 Tax Forums as well as
Discussion of problem, barriers, and solutions:
Closing/Assessment and Next Steps
Paul asked the members for comments or assessments of the meeting. The members had no additional comments and Paul adjourned the meeting.
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