Tax Administration: Alternative Filing Systems

GGD-97-6 Published: Oct 16, 1996. Publicly Released: Oct 16, 1996.
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GAO reviewed the possible benefits, impediments, and costs of establishing a tax agency reconciliation filing system, focusing on: (1) the estimated number of taxpayers that would not have to prepare returns in such a system; (2) the system's operational characteristics; (3) potential advantages and disadvantages to taxpayers and the Internal Revenue Service (IRS); and (4) major impediments to and costs in establishing this type of system under existing federal tax laws.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service A tax agency reconciliation type filing system could make it easier and cheaper for taxpayers to fulfill their tax return filing responsibilities. Because of these factors and the technological advances made since the 1987 IRS return-free filing study, the Commissioner of Internal Revenue should reexamine the feasibility and desirability of designing and implementing a tax agency reconciliation system. The reexamination should include a determination of methods to increase trust among taxpayers in IRS ability to administer such a system fairly and accurately. It should also assess the added burdens and costs that such a system would have on employers, affected financial institutions, and other stakeholders and develop ways of mitigating these burdens and costs.
Closed – Not Implemented
IRS rejected the recommendation because it stated that the costs of a tax agency reconciliation system would be more than the costs to process electronically filed returns. Contrary to IRS position, the Internal Revenue Service Restructuring and Reform Act of 1998 requires IRS to develop procedures for implementing a return-free filing system for taxable years beginning after 2007. IRS is to report to Congress each year, beginning in 1999, on its progress.
Internal Revenue Service Because of the uncertainty about stakeholder receptivity to such a system, if the reexamination results in IRS initially determining that an agency reconciliation system may be feasible and desirable, the Commissioner of Internal Revenue should expand the reexamination to include a limited pilot test. Such a test would provide IRS with useful data for addressing stakeholder concerns and demonstrating its ability to administer such a system fairly and accurately. If all of the improvements necessary to fully implement a tax agency reconciliation system are not feasible in the short term, it may still be possible to test the concept in one or more states that have no income tax.
Closed – Not Implemented
This recommendation is no longer applicable since the IRS Restructuring and Reform Act of 1998 requires IRS to implement a return-free system. However, to fulfill the requirement in the act, IRS would have to test any return-free filing system it develops.

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