IRS forms, schedules, and instructions - TEI comments and IRS response.

IRS Forms, Schedules, and Instructions - TEI Comments and IRS Response

Introduction

The increasing complexity of the tax law during the 1980s has spawned not only uncertainty, but also ever increasing compliance burdens. These burdens leave the realm of the potential or hypothetical and enter reality when taxpayers undertake to complete the tax forms and schedules that are developed to implement the law. Thus, statutory provisions are "translated" into the real world by the IRS's tax forms, schedules, and instructions - they paint a vivid portrait of the trememdous recordkeeping and compliance burdens imposed by the Internal Revenue Code. It is critical, therefore, that proper attention be focused on the development and revision of forms, schedules, and instructions to reduce ambiguity, minimize data collection burdens, and ensure consistency of application.

As an organization of tax professionals who must cope with both the complexity and the tedium of the tax laws on a daily basis, Tax Executives Institute believes it is uniquely qualified to comment on the means through which the law is implemented. We believe that our diversity and the professional training of our members enable us to bring an important, balanced, and practical perspective to the forms, schedules, and instructions drafted by the Internal Revenue Service.

At the outset, we wish to commend the IRS Forms Division for the herculean job it has done in developing forms to implement the Tax Reform Act of 1986 and other recent legislation. Given the uncertain scope of many statutory provisions and the lack of timely regulatory guidance, the Forms Division has frequently faced a daunting task. We offer the following comments and suggestions to facilitate the revision of forms in a manner that eases the compliance burden for taxpayers and the government alike.

Timing of Information

Releases Regarding Forms

The preparation of corporate tax returns is a time-consuming and complicated process. Large corporations must develop formal schedules and procedures to accumulate the data needed to prepare the federal tax return. These "tax packages," which may have to be translated into several different foreign languages, are sent to subsidiaries, divisions, and branches before the end of the taxable year so that the local personnel will know what data is needed before the year-end closing process.(1) It normally takes local personnel up to four months after the year-end closing to compile the necessary tax data.

Once collected from outlying locations, the information is first reviewed, analyzed, and, if necessary, returned to the field for clarification. Once finalized, the information is then entered into databases at corporate headquarters where the federal tax return is prepared and assembled. The analysis of that data will affect not only calculations, but also the elections to be made on the corporate tax return. The more complicated the substantive law (e.g., the Code's foreign tax credit and sourcing rules), the more onerous and time consuming the task. In short, the filing of a corporate tax return is a year-round process requiring thousands of hours of preparation and processing.

Because of the lead time required for obtaining information from subsidiaries, virtually intolerable administrative burdens are placed on corporations when regulations, notices, and forms are issued after the end of the year. Indeed, notices issued within a few days (or even a few months) of the filing deadline simply cannot be taken into account in filing the return.

Sufficient time is also required to develop substitute forms. Such forms generally take many months to create and cannot be generated by merely pushing a button. Adequate lead time is essential if the compliance system is to operate in a rational and efficient manner.

When notices are issued late in the filing season, taxpayers may find themselves confronted with an obligation to file amended federal - as well as state and local - returns. To avoid this costly burden, changes to the forms should be released well in advance of the beginning of this corporate tax cycle.

IRS Response: Adopt. We make every effort to issue tax forms and related announcements and notices as early as possible. We also make special efforts to provide advance information on anticipated changes through our summer early release program, which provides draft copies of our major tax forms to the public. Through the Tax Practitioner Forms Distribution Program, it is possible to receive copies of most tax forms, schedules, instructions, and publications in advance of normal distribution.

Because of late legislation, delays in receipt of OMB clearances, or printing scheduling problems, it is not always possible to have all tax forms available at the beginning of the tax year. When forms have been delayed in the past, they were released through the Public Affairs Office so that tax services (BNA, CCH, RIA, etc.) could publish them and insure their delivery to practitioners sooner than they would otherwise be available.

...