Tax Legislative Activity

Baucus Releases Second Proposal on Tax Administration

On Wednesday, November 20, Senate Finance Committee Chairman Max Baucus (D-MT) released the second in his series of staff discussion drafts to reform the nation’s tax code, this one on tax administration.

In making the case for reforming the rules regarding tax administration, Chairman Baucus noted that Americans spend more than 6 billion hours filing over 150 million federal income tax returns. The Chairman reported that tax refund fraud through identity theft has risen and that non-compliance with the tax laws remains problematic.

Proposal Summary

In his summary of today’s proposal, Chairman Baucus outlined the goals of reforming America’s tax administration, which include:

  • Simplify the tax filing process.
  • Remove “deadwood” from the tax code.
  • Leverage technological achievements that have occurred since the last major tax reform effort in 1986.

To achieve these policy goals, the Chairman includes these proposals.

First, Chairman Baucus offers proposals to improve the information return filing process. For example, under the proposal taxpayers would no longer be required to file corrected information returns if the error is less than $25.  In addition, the IRS would be required to develop a simple internet platform for preparing and filing Forms 1099 that is functionally similar to the Business Services Online platform; returns generated by a computer but filed on paper will be required to contain a scannable code so that the IRS can efficiently input return information; and information returns, including Forms W-2 and 1099, will be filed with the government by February 21 of each year, rather than by February 28 (for paper) and March 31 (for electronic).

Second, Chairman Baucus proposes reforms to filing deadlines. His draft would change certain filing deadlines so that taxpayers receive information needed to file complete returns more efficiently. The changes to filing deadlines are based on a provision in S.420, the “Tax Return Due Date Simplification and Modernization Act of 2013,” which was sponsored by Senator Michael Enzi (R-WY) in the 113th Congress.

Third, Chairman Baucus would expand electronic filing. The number of returns that trigger an electronic filing would be gradually reduced over a three year period from 250 returns to 25. Under the proposal, paid return preparers would be required to electronically file all tax returns and information documents they prepared for their clients. Forms M3 and 990 would be required to be filed electronically and electronic filing of Forms 5500 would be increased. The latter proposal is based on a provision of S.1289, the “TAX GAP Act of 2011,” sponsored by Senator Tom Carper (D-DE) in the 112th Congress.

Finally, the reform draft would repeal “deadwood” provisions and make several technical corrections. The Joint Committee on Taxation (JCT) has identified 108 provisions that may be obsolete and ripe for elimination. Chairman Baucus plans to repeal these identified provisions to the extent that it would be consistent with other aspects of tax reform. In addition, the JCT has also prepared legislative language that would address provisions in the code in need of technical correction. Chairman Baucus plans to also address these technical corrections as well; to the extent it is consistent with other aspects of tax reform.

More Reform Proposals to Follow and Comments Requested

Yesterday, the Chairman released a draft on international tax reform and we expect the Chairman to release one more draft this week, on cost recovery and accounting issues. Comments are requested on all aspects of the staff discussion draft and although comments will be accepted at any time, the staff requests that they be turned in by January 17, 2014, to receive full consideration.