Douglas Shulman, Commissioner of the Internal Revenue Service, said that the tax agency has begun working on a "real-time tax system" in which tax returns are screened and analyzed at the point of filing against third-party data already submitted to the IRS. Shulman described his vision of a real-time tax system in his speech before the AICPA's National Tax Conference on November 8, 2011.
This isn't the first time that Shulman has discussed such a system. The Commissioner previously discussed his vision of a more robust tax processing system in April 2011 when speaking at the National Press Club.
Shulman envisions that taxpayers and their tax professionals could download financial data from W-2s, 1099s and other tax-related documents into their tax software. Similarly, the IRS's computers could cross-check tax returns against this set of third-party information, and notify taxpayers of any discrepancies that need to be addressed. This could help "avoid audits that may take place years after a return is filed."
Shulman said that the IRS plans to hold "a public meeting to discuss these issues and solicit feedback and ideas."
One idea that already seems off-the-table, however, is for the IRS to pre-populate tax returns using third-party data. "Now, I've been asked a lot whether this vision is one of the IRS pre-filling tax returns and sending them out. That's not what this project is about." Such a system is already being deployed in California with the ReadyReturn program.
I thought we already had the capability of being able to download information from W-2s and other tax forms to tax software. Or is that just the company identification information?
Some tax software providers enable users to download W-2 and 1099 information into their software by downloading that information directly from the employer or financial institution, but so far there’s no capability to download that data directly from the IRS.
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I agree that having Real Time Tax System would help to eliminate all those audits that tax payers have to deal with. And also, I believe that having such a system would help to eliminate identity theft and tax return fraud that has been on the rise lately. My question is, what took so long?