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Mr. MCINTOSH. Thank you, Mr. Kucinich. As always, your perspective has contributed another good idea. Perhaps the subcommittee ought to ask the agencies to identify those areas where Congress is creating paperwork burdens and we can pass those on to other committees and try to work on our colleagues as well.
Mr. KUCINICH. I think that's good. And, again, I salute you for caring about this because Americans need individuals who are you know, who want to make this process work better, and I thank you for doing that.
Mr. MCINTOSH. We'll work and develop a letter to all the agencies. Maybe we can send that. Let's plan on sending it out so we can then solicit some ideas of where the law can be changed to help reduce the burden as well.
Let me now ask Mr. Terry, who is a great member of this committee, if you have any opening remarks.
Mr. TERRY. I don't have any prepared remarks but I do want to place a couple of observations into the record. One is I agree with my friend and colleague from Ohio that it is frustrating when we try and do something right, like deal with the estate tax, death tax, and one of my frustrations in Congress is sometimes we have to take little steps toward the right direction. Nothing would please me more than to help the Code by just eliminating the estate tax section. That would be easier and we could reduce that level of paperwork instead of trying to ease the burden and thereby increasing paperwork.
But it is frustrating that there hasn't been sufficient steps taken I think by a variety of agencies to reduce their workload, the paperwork load on particularly small businesses. When I'm around in my district talking to small business owners, particularly those that deal with Federal agencies, that's one of their single most frustrations. Their No. 1 is labor availability and No. 2 is that so much of their small labor force that they have on staff is dedicated to simply complying.
And here's the rhetorical observation that I'm just going to put into the record, Mr. Chairman. In your statement you pointed out this administration's increase in paperwork. And that shouldn't come as any surprise considering this administration has a philosophy of bypassing Congress and legislating through regulation, regulation equals paperwork on businesses. These folks that are here today to justify their noncompliance are part of the executive branch. So to me it's a simple answer to that rhetorical question of why there has been little to no effort in the last year to reduce the paperwork burden on American citizens.
Mr. MCINTOSH. Thank you. Let us now hear from our witnesses today. It is the policy of the full committee to ask all witnesses before each of the subcommittees to be sworn in. So let me ask each of you to please rise now.
Mr. MCINTOSH. Let the record show that each of the witnesses answered in the affirmative. Let me now welcome Mr. Rossotti, Commissioner of the IRS. I know it's a tense time as we're approaching that April 17th deadline but I appreciate your coming and spending some time with us on this critical question. Share
with us a summary of your testimony. The entire remarks will be put into the record. And welcome. Thank you.
STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER, IN
TERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
Mr. ROSSOTTI. Thank you very much, Mr. Chairman and Mr. Kucinich and Mr. Terry. I really do appreciate the opportunity to be here this morning to testify concerning some of our efforts related to paperwork and more generally, administrative burden, particularly on small business taxpayers. Since I last appeared before your committee we have made some progress to simplify forms and optimally, to reduce the number of taxpayers who would even have to file certain forms.
Our efforts are detailed in my written testimony. I would just like to mention in my oral testimony two initiatives. First one, I'm very pleased to announce here this morning that, beginning in the 2001 filing season, paid return preparers will be able to use the third party authorization check box on all Form 1040 series returns with the exception of those filed by phone. This means we expect that taxpayers will initially save about 2 million hours by using this check box feature instead of having to file separate forms for authorizing third party disclosure authorizations or powers of attorney declarations.
Further-that's just the initial saving. For many taxpayers and for people who prepare their returns the real savings in both time and frustration will be in eliminating the need for the taxpayers to receive and respond to notices and correspondence which we know they would prefer to have sent to their designees. So we estimate that this will save about another 1.8 million hours by allowing the IRS to work directly with these designees in resolving such items as error notices and original correspondence related to taxpayer accounts. This change is not only, we think, an important step in reducing burden and improving service; it's also an excellent example of our new approach, which is to solicit input directly from taxpayers and their representatives on how we can improve things.
This particular proposal I want to stress was actually originated and championed by citizens on our Citizens Advisory Panel in south Florida, which is one of our four advisory panels.
The second initiative I want to mention this morning involved the Schedule D. As you know, Mr. Chairman, due to the booming market many more people have capital gains than they used to. Now for tax year 1999, which is the year that people are currently filing returns for, those taxpayers whose only capital gains are from mutual fund distributions may not need to file a Schedule D at all. Instead, what we have done is we allowed them to report these gains directly on Form 1040, line 13. So rather than filing a 54-line Schedule D, they will be able to use a worksheet which they don't even have to file with us, which will allow them to then enter these data directly on the Schedule 1040. This will represent we estimate about a 24 million hour reduction, this one change, for 6 million taxpayers that are filing right now in this filing season. Now, Mr. Chairman, having mentioned these two which I think are very positive and some others in my written testimony, I still want to acknowledge, as you noted in your statement, there is much more room for improvement. We take very seriously the charge of this committee and our taxpayers to reduce paperwork and appreciate your leadership in calling attention to this issue.
I do want to note, even as we discussed last year, paperwork per se does not actually capture the full range of taxpayer burdens in dealing with the IRS nor does it represent all the opportunities we have to reduce the burden. I think in order to truly reduce all of the burdens the taxpayers have to comply with the Tax Code we need to be creative and look not only to redesigning and simplifying forms but other opportunities. If you look at the broader economy I think you would find that most successful businesses are improving customer service and efficiency, not so much only by redesigning their forms but by taking advantage of new technologies and new business practices. And that's also a major thrust of the IRS.
Similarly, as many have noted and as we discussed last year, I believe after this hearing, Mr. Chairman, we also need to revisit our methodology about how we actually calculate burden. Frankly, in the world of new software we need to find a more comprehensive and better way. We are working actively on that.
Now, quite frequently the Tax Code, as several members have noted, also limits our options and opportunities as to where we can redesign or eliminate tax forms. And in some cases, in order to actually help taxpayers comply with the Tax Code and avoid filing errors, we actually increased the number of lines on a form or publication or in a worksheet, as we recently did with the EITC. Although it's counted as an increase in burden the extra lines may actually be easier for the taxpayer.
So those are some issues that we continue to deal with in trying to look broadly at reducing the overall burden while we still try to update our methodology.
Let me just stress, in conclusion, that we are attempting within the constraints of the law and the regulations to reduce the paperwork burden, but we're also looking at this broader spectrum of taxpayer burden of which paperwork is a part. For the long and short term we will work with the Congress, the taxpayers and our small and large businesses and their representatives to determine how we can best help them meet their obligations, pay what they need to pay, with the least burden and the least chance of error.
Thank you, Mr. Chairman.
PREPARED TESTIMONY OF
CHARLES O. ROSSOTTI
NATIONAL ECONOMIC GROWTH,
APRIL 12, 2000
Mr. Chairman and distinguished Members of the Subcommittee, I am pleased to testify on the Internal Revenue Service's efforts to reduce paperwork and administrative burden on taxpayers, particularly on our small business taxpayers.
Since I last appeared before the Subcommittee, the IRS has made progress to eliminate forms, lines on forms, and optimally, reduce the number of taxpayers who were required to fill out specific forms. However, there is still much room for improvement.
The IRS takes very seriously the Subcommittee's charge and taxpayers' desire to reduce paperwork burden, and we appreciate your leadership on this issue. However, as we discussed after last year's hearing, paperwork does not fully capture the full range of taxpayer burden, nor the opportunities to reduce it.
In order to make truly meaningful reductions in taxpayer burden, we must be far more creative than redesigning and simplifying forms. If one looks at the broader economy, most successful businesses are improving customer service and efficiencies not by redesigning forms but by taking advantage of new technologies and business practices.
To better serve taxpayers and reduce their burden, the IRS must also take advantage of best business practices and modern technology. In addition, we must revisit our methodology for calculating burden to see if there is a better measure for calculating the impact of our efforts upon taxpayer burden.
Quite frequently, a very complex and changing Tax Code limits our options and opportunities as to where and how we can redesign, reduce or eliminate tax forms. Indeed, in order to help taxpayers better understand their tax filing requirements and avoid filing errors, we may increase the number of lines on a form or publication, or add a worksheet, as we recently did regarding the Eamed Income Tax Credit.
Although under the present measurement system, these additions may be calculated as increasing paperwork, there are nevertheless, obvious benefits to taxpayers
and the Federal Government. One of the overriding themes in improving IRS business practices is to shift from addressing taxpayer problems well after returns are filed to addressing them as early as possible, and in fact, preventing problems upfront wherever possible. This approach follows the well-established quality principle that it is far less expensive to eliminate defects than to fix them afterwards. As a rule, if a taxpayer files a correct return, no further costs are incurred by either the taxpayer or the IRS. Our goal is to help taxpayers get it right the first time and thereby minimize their contacts with the IRS. Sometimes this may require an up-front investment of time and guidance.
Mr. Chairman, before I discuss our specific paperwork reduction initiatives, let me stress again that we must address not only paperwork reduction, but also the broad spectrum of taxpayer burden of which it is a part. For both the short and long term, the IRS will work with the Congress, taxpayers, small and large businesses and their representatives to determine how we can help taxpayers understand their tax obligations, and pay them as easily as possible with the least burden and the least chance of error.
PAPERWORK REDUCTION/SIMPLIFICATION INITIATIVES
Checkbox Burden Reduction Project
Mr. Chairman, I am pleased to announce today that beginning in the 2001 filing season, Paid Return Preparers can use the Third Party Authorization Checkbox on all Form 1040 Series returns with the exception of TeleFile. This checkbox indicates the taxpayer's desire to allow the IRS to discuss the tax return and attachments with the preparer while the return is being processed. This provides for a significant reduction in paperwork for millions of taxpayers. It also finally lays to rest a problem with which we have been grappling for years and which we are most pleased to resolve.
The proposal to include a checkbox on the family of 1040 returns is a direct response to requests from our external stakeholders, such as the National Society of Accountants, National Association of Tax Practitioners, National Association of Enrolled Agents and, and most recently, the South Florida Citizen Advocacy Panel (CAP).
The Boards of Directors of the external stakeholder organizations meet annually with the RS Commissioner and propose methods to enhance cooperation between the Agency and the practitioner community and to make filing easier. The checkbox issue has been on our collective agendas for a number of years and numerous proposals were made to address this issue. However, they proved to be unworkable for a variety of reasons, ranging from representation questions to systems, equipment and capac issues.
The checkbox designation I am announcing today should enable practitioners to expedite the resolution of questions concerning the processing of the taxpayer's retum. It should also reduce the number of contacts necessary to resolve processing questions and eliminate the need for the submission of paperwork for a Power of Attomey, which is not required to resolve simple problems with a taxpayer's account. Our initiative also