Information Reporting: IRS Could Improve Cost Basis and Transaction Settlement Reporting Implementation
GAO-11-557
Published: May 19, 2011. Publicly Released: Jun 20, 2011.
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Highlights
Effective implementation of two 2008 laws by the Internal Revenue Service (IRS) could increase taxpayers' voluntary compliance. Those laws require reporting to IRS and taxpayers of cost basis for sales of certain securities and of transaction settlement information (i.e., merchants' income from payment cards or third party networks). In response to a congressional request, GAO (1) assessed IRS's implementation plans for the laws; (2) determined the extent to which IRS issued timely regulations and guidance and did outreach; (3) examined how IRS will use the new data to improve compliance; and (4) analyzed IRS's plans to assess implementation and measure performance and outcomes. GAO compared IRS's implementation plans to criteria in past GAO work and other sources; interviewed industry groups and agency officials, and reviewed rulemaking documents; examined IRS's plans to use the new data; and compared IRS's measures and evaluation plans to GAO criteria.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should document in IRDM plans any coordination between IRDM and the Workforce of Tomorrow and Nonfiler Strategy projects. IRS should develop procedures or requirements to incorporate in IRDM planning documents the integration between IRDM and any other servicewide projects which could affect IRDM. |
The Internal Revenue Service (IRS) added a section to the Information Return and Document Matching (IRDM) Strategic Roadmap, a key planning document for the program, that shows how IRDM is aligned with other servicewide projects. Although IRS did not develop specific and procedures or requirements to incorporate IRDM alignment into IRDM planning documents, the IRS documented the necessary alignments as we recommended.
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should, for future updates to MITS's IRDM cost estimate, ensure that the revised estimate is developed in a manner that reflects the four characteristics of a reliable estimate discussed in this report. | As of August 2013, the Internal Revenue Service (IRS) officials told us it will not be updating the original cost estimate for the Information Reporting and Document Matching (IRDM) program that we assessed in this report, as the system is nearing the Operations and Maintenance phase of development. In July 2012, IRS developed a new estimate for IRDM Release 2, which builds on the capabilities of the original IRDM system. GAO assessed the IRDM Release 2 estimate, with respect to the four characteristics of a reliable estimate, in report GAO-13-401. GAO found that the estimate substantially met the practices for a comprehensive, well-documented, and accurate cost estimate and partially...
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should clearly document the assumptions and rationale for Form 1099 volume projections used in resource planning decisions, and consult with research analysis and statistics when developing projections. |
In July 2011, the Internal Revenue Service's Research, Analysis and Statistics division published official Form 1099-K volume projections for fiscal years 2012 through 2012. The projections, available in Publication 6961, include a discussion of methodology and data sources for the projections
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should work with Treasury to share with the public its plans and expected release dates for IRDM regulations and formal guidance. IRS could consider including information similar to what is posed on the Department of Transportation's or the Financial Industry Regulatory Authority Web sites. IRS should also include other pertinent information regarding IRDM implementation, such as upcoming informal guidance, including frequently asked questions, upcoming outreach, and description of the letter ruling process. |
As of September 2015, the Internal Revenue Service (IRS)had published frequently asked questions about cost basis and transaction settlement reporting on its Third Party Reporting Information Center web page, and information on private letter rulings elsewhere on www.irs.gov. However, the agency did not provide evidence of coordination with Treasury to share potential release dates for regulations or formal guidance.
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should, for future releases of new or significantly revised forms, whenever possible, release draft instructions to facilitate the most useful comments. |
In tax year 2011 the Internal Revenue Service (IRS) changed its process and procedures to include the release of all forms' draft instructions for external comments, whenever feasible. In November 2011, IRS posted on its Web site the 2012 draft instructions for Form 1099-B, "Proceeds From Broker and Barter Exchange Transactions," and requested comments on the draft.
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should document a plan to assign responsibility and establish a procedure to follow up on the lessons learned identified after each milestone phase. |
In 2011, the Internal Revenue Service changed their lessons learned review process and developed a template for tracking lessons learned, which included a section that identified to whom the action was assigned and when the action was expected to take place.
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| Internal Revenue Service | To improve implementation of cost basis and transaction settlement reporting, the Commissioner of Internal Revenue should develop a plan to establish and implement IRDM performance measures. The plan should include documentation of the process and rationale for developing and using IRDM performance measures, including information such as the methodology, data sources, and targets, in order to establish that the performance measures have the necessary attributes of efficient measures. |
The Internal Revenue Service (IRS) developed and implemented a performance measurement plan for the Information Return and Document Matching (IRDM) program, which was updated in June 2013 and July 2014. The plan includes a performance measurement framework and process for measuring and reporting data. IRS also provided performance measure definitions, methods and data sources, a data dictionary, and targets.
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Cost analysisElectronic data processingFormsInformation technologyInternal controlsPerformance measuresProgram managementReporting requirementsSecuritiesTax returnsTaxpayersVoluntary complianceFinancial reportingInformation sharingProgram coordination