Panel backs electronic filing of income taxes

A congressional commission last week proposed a sweeping overhaul of the Internal Revenue Service that includes a plan to expand electronic filing of tax returns by businesses and individuals.

The recommendations of the National Commission to Restructure the IRS also include a controversial plan opposed by the White House to have the agency run by an independent board of directors instead of the Treasury Department. The battle over this plan which House Republican leaders endorsed last week is likely to dominate the debate over how to fix the IRS despite broad agreement on many of the rest of the commission's 52 proposals.

The panel's proposals cover issues ranging from how the IRS can improve its dealings with taxpayers and deploy information technology more effectively to a call for a simpler tax code. In its technology-related recommendations the commission said the IRS must make Year 2000 compliance "its highest priority" and align its systems with strategic business objectives.

Building a Better IRS

George Newstrom a vice president with Electronic Data Systems Corp.'s Government Systems Group and a commission member said the technology recommendations "go to the heart of building an IRS that can respond quickly and accurately to taxpayer needs and provide the quality of tax collection that is essential to a voluntary-compliance system."

Newstrom was among the commission members who did not sign the final report because they did not agree with all its recommendations. Newstrom opposed the installation of an outside board of directors.

Treasury had no comment on the panel's recommendations but a statement by commissioner Edward Knight Treasury's general counsel said the modernization plans address the agency's past problems.

Although the report identifies problems that commissioners think the IRS needs to address it does not for the most part prescribe specific solutions. But the panel included in an appendix to its report a detailed plan for expanding electronic filing to 80 percent of individual tax returns during the next 10 years saying that only a "comprehensive plan" would make this method "the preferred" way to file.

Upping Its Volume

The report said the IRS could accept more than 100 million returns a year - six times its current volume - without developing any new systems if it accepts all tax forms allows electronic payment and takes returns over the Internet. The plan calls for beginning an incentive program next year to entice people to file electronically.

This program includes:

* Making electronic filing free to taxpayers by subsidizing companies that transmit digital returns to the IRS. The IRS would begin paying these companies $2 for every electronic return they file and phase out the subsidy by 2004.

* Eliminating the signature form that taxpayers must submit when filing electronically and allowing digital returns to be filed without a signed paper.

* Providing a service through which people can file tax returns from their home computers starting in 2001 if the commercial marketplace has not produced a viable solution.

* Allowing taxpayers who file electronically to have more time to complete their returns.

An aide to commission co-chairmen Sen. Robert Kerrey (D-Neb.) and Rep. Rob Portman (R-Ohio) said lawmakers would introduce a bill next month to enact the panel's recommendations. Some IT industry observers said they worried that debate over the proposed IRS board of directors would delay the IRS' modernization plans.

IRS modernization "is just building momentum " said Olga Grkavac senior vice president of the Information Technology Association of America's Systems Integration Division. "We're going to be bringing that message to the congressional committees."

The commission also recommended that the IRS receive its current budget for the next three years.