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The IRS held a public hearing on Thursday to gather feedback on how to implement a system in which the IRS would match information on tax returns with data from third-party information returns during the processing of the return. Under the proposed “real-time tax system,” if the IRS found discrepancies between the tax return and data in IRS records, the taxpayer would be given an opportunity to fix the problem before the return is accepted.
Under the current system, which IRS Commissioner Doug Shulman described as a “look back” system in a speech to the fall meeting of the Council for Electronic Revenue Communication Advancement last October, the IRS conducts compliance activities months after the tax return has been filed and processed. Shulman said, “This after-the-fact compliance approach can create problems and frustrations for both taxpayers and the IRS.” He noted that the IRS has up to three years to audit individuals’ returns, and that by the time issues are resolved, the taxpayer “may no longer have the money that was refunded to them” and may also owe penalties and interest.