Information Reporting, Fraud Top Concerns in Report to IRS

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By Michael Trimarchi

Problems that prevent the information-reporting process from working as effectively as it should were among the issues reported in the annual report to the Internal Revenue Service from the Information Reporting Program Advisory Committee.

The 2016 report, issued Oct. 26, also discussed penalties, Forms W-9 and frequently asked questions on the IRS website.

Added information reporting related to the Affordable Care Act, among other information requirements, created burdens for employers, the report said. The IRS, in response, said it could not pursue IRPAC recommendations to ease reporting rules because it lacks the resources to add projects to do so. “As a result, both taxpayers and the IRS suffer,” the report said.

The federal advisory panel recommended that the IRS correct problems that prevent employer requests to stop penalties for mismatched name and taxpayer ID numbers from being properly judged and quickly addressed. Until then, the panel recommended that the IRS suspend imposing further penalties for information returns showing mismatched names and IDs.

IRPAC views Form W-9, Employee's Withholding Allowance Certificate, as “one of the building blocks of the information-reporting process and recommends continued improvements that both simplify and bring clarity to the form.”

The IRS also needs to implement a process to archive past FAQs so that employers that rely on the guidance to file information returns can later show the basis for a position that has been taken, the report said. The report, as it did in 2015, recommended that the IRS explain reasons for changing or deleting previous FAQs.

Among other recommendations:

•Treasury regulations that now allow employers to electronically deliver Forms W-2, Wage and Tax Statement, and 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, to employees should be amended to establish e-delivery as a default. Employees would retain the option to decline participation and receive paper forms. Employers now offering e-delivery must have each employee agree to participate to be relieved of printing and delivering a paper W-2 to the employee.

• The IRS should issue a tax tip that advises taxpayers to not request a correction to Forms 1095-C or 1095-B, Health Coverage, that had properly truncated Social Security numbers or date of birth reporting that was purposely not included.

•To help fight identity theft, the report recommended that federal employer identification numbers be truncated on information returns. The report said the IRS should expand its pilot program that adds verification codes to the W-2s. The program should be expanded to protect all businesses, the report said.

The IRS said it plans to further expand the program to other information reporting forms issued by all businesses. IRPAC said the federal IDs of the employer and the insurance company issuing coverage should be truncated on Forms 1095-B and 1095-C.

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bna.com. To contact the editor responsible for this story: Howard Perlman at hperlman@bna.com.

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