recommended reading

Obama plan to beef up tax info system draws mixed reviews

A proposal by President Obama to ramp up an information system to weed out erroneous tax returns is drawing a mixed reaction from policy and contracting experts.

The Obama administration's fiscal 2010 budget recommends shifting discretionary funds to beef up a system that searches for discrepancies between a taxpayer's return and reports from third parties, such as employers.

"If the [Internal Revenue Service] can crack down on high net worth scofflaws' -- people and businesses' -- payment of back taxes and fines, [that] improves the federal balance sheet and is one more step toward balancing the budget," said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a market research firm.

The IRS proposal aligns with Obama's pledge to reduce the federal deficit and increase accountability in government through technology.

Last week, "The president made a point of saying that the feds were going to look carefully at tax loopholes that favor offshore-based entities. This is one of the governmental functions that has a high potential return," Bjorklund said.

The program targeted for expansion, the Automated Under-Reporter system, enabled IRS to collect 22 percent more tax dollars in fiscal 2008 than in 2007, according to the Treasury Department.

Obama's budget projects that spending $7.19 million over five years on enhanced tax enforcement, partly through the expanded use of AUR, would reap an estimated $13.35 million in savings.

But some federal IT observers aren't convinced of the system's efficacy.

"It's a little bit disappointing to see emphasis on back-end outcomes rather than trying to invest in [systems] that prevent these things from happening in the first place," said Larry Allen, president of the Coalition for Government Procurement, a trade group for federal contractors.

The administration instead should focus on establishing a clearer tax code, creating user-friendly e-filing systems and improving taxpayer outreach, he said. "Those are all front-end systems that would lessen the need to crank out spending on enforcement and catching wrongdoers," Allen added.

Recent Government Accountability Office reports have noted weaknesses in the current AUR system.

A January report found that the system does not identify the reasons for mismatches -- whether, for example, the problem was due to misreporting on the taxpayer's end, a mistake by an employer or an IRS error in transcribing paper forms.

A July 2007 GAO report stated that AUR -- one of the main programs to check sole proprietor tax compliance -- has "a limited reach."

Information returns that the system uses to verify sole proprietors' income only cover about 25 percent of such taxpayers' gross receipts and generally few of their expenses, GAO said.

"Barriers to submitting information returns, including complex requirements and lack of convenient electronic filing, also limit AUR's reach," the report added.

IRS officials told GAO that due to resource constraints, they do not always contact taxpayers when AUR finds a discrepancy.

Some tax policy analysts say enhancing the system could deter tax evasion.

"Not surprisingly, when you know somebody is watching, you are more likely to do what you're supposed to do," said J.D. Foster, a senior fellow in the economics of fiscal policy at the Heritage Foundation, a research institute.

But, "If you think you're being required to send in all this information and there is no one at the IRS who is capable of doing anything with it ... taxpayer compliance might go down and taxpayer outrage might go up," he said.

Threatwatch Alert

Thousands of cyber attacks occur each day

See the latest threats


Close [ x ] More from Nextgov

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Modernizing IT for Mission Success

    Surveying Federal and Defense Leaders on Priorities and Challenges at the Tactical Edge

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • Effective Ransomware Response

    This whitepaper provides an overview and understanding of ransomware and how to successfully combat it.

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.


When you download a report, your information may be shared with the underwriters of that document.