Tax Administration: IRS' Efforts to Serve Small Business Taxpayers
(Testimony, 05/23/2000, GAO/T-GGD-00-138).

About 40 million small businesses and self-employed taxpayers in the
United States are responsible for remitting half of the taxes collected
by the Internal Revenue Service (IRS). The IRS Restructuring and Reform
Act of 1998 requires IRS to place more emphasis on providing better
service to taxpayers. This testimony discusses the factors that
complicate small business' efforts to comply with the tax laws and IRS'
efforts to provide better service to this important group of taxpayers.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-00-138
     TITLE:  Tax Administration: IRS' Efforts to Serve Small Business
	     Taxpayers
      DATE:  05/23/2000
   SUBJECT:  Tax administration systems
	     Taxpayers
	     Reporting requirements
	     Small business
	     Customer service
	     Self-employed
	     Performance measures
	     Voluntary compliance

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GAO/T-GGD-00-138

United States General Accounting Office
GAO

Testimony

Before the Committee on Small Business
U.S. Senate

For Release on Delivery
Expected at
10:00 a.m. EDT
on Tuesday
May 23, 2000
GAO/T-GGD-00-138

TAX ADMINISTRATION
IRS' Efforts to Serve Small Business Taxpayers

Statement of Cornelia M. Ashby
Associate Director, Tax Policy and
Administration Issues
General Government Division

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Statement
Tax Administration:  IRS' Efforts to Serve Small
Business Taxpayers
Page 11                          GAO/T-GGD-00-138
Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss the
factors that complicate small businesses' efforts
to comply with the tax laws and the Internal
Revenue Service's (IRS) efforts to provide better
service to this important group of taxpayers.
According to IRS, there are about 40 million small
businesses and self-employed taxpayers in the
United States who are responsible for remitting
nearly half of the taxes collected by IRS.

Congress, in the IRS Restructuring and Reform Act
of 1998, mandated that IRS place more emphasis on
providing better service to taxpayers. In
response, IRS has undertaken a long-term effort to
modernize itself, including reorganizing into four
operating divisions, each of which is to focus on
a particular group of taxpayers. One division, the
Small Business and Self-Employed Operating
Division (SB/SE) is to serve small corporations
and partnerships, farmers, and other self-employed
individuals-a group that we will call "small
businesses". One of SB/SE's major challenges will
be to help relieve the compliance burden,
including the time and other costs of complying,
that federal tax rules place on small businesses.

Our remarks today are based on the results of two
studies the Committee asked us to do-one on the
extent to which IRS' plans for SB/SE address
factors that have complicated past interactions
between small businesses and IRS and another on
IRS' new taxpayer burden estimation models. The
first study is ongoing, and our remarks today are
based on preliminary results. We have completed
the second study, and our report is being released
today.1

In summary, several factors have complicated the
interactions between small businesses and IRS.
First, small businesses are more likely than other
taxpayers to have compliance problems, which is
not surprising given the complex tax issues and
requirements that a small business can face and
the fact that small businesses do not always have
the kind of resources needed to understand and
deal with those issues and requirements. Second,
IRS' organizational structure and its focus on
correction rather than prevention have hampered
its ability to meet the needs of small businesses.
Third, small businesses are often reluctant to
seek help from IRS, which could be due in part to
past negative experiences.

Although IRS' plans for SB/SE address these
complicating factors, such things as the diversity
of the small business population, IRS' antiquated
computer systems, a shortage of staff with needed
skills, and the need for an integrated performance
management system will challenge IRS as it
implements those plans.

One aspect of performance management involves
development of an appropriate set of performance
measures, and one important measure is compliance
burden. IRS is pursuing a multi-phased approach in
developing new methods for estimating that burden.
With the help of a contractor, IRS is developing
models that, when compared with IRS' current
methodology, are designed to produce more
comprehensive estimates of federal income tax
compliance burdens and to provide IRS with a
greater capacity to analyze the impact of tax law
and administrative changes on those burdens.
However, as with all models, the specific
capabilities and precision of the new models will
depend on the quality of the underlying data.

Various Factors Complicate the Interactions
Between Small Businesses and IRS
From responses to our survey of small businesses2
and the results of interviews with IRS officials
and representatives of the small business
community, we identified several factors that
complicate the interactions between small
businesses and IRS. Those factors relate to (1)
the potential for noncompliance among small
businesses, (2) the way IRS has structured its
organization and allocated its resources, and (3)
the reluctance of small businesses to go to IRS
for help.

Small Businesses Have a Greater Potential for
Noncompliance
According to IRS, small businesses are more likely
than other taxpayers to have compliance problems.
IRS data show, for example, that small businesses
tend to have more collection cases involving
withheld employment taxes than do larger
businesses.

Complexity was the most commonly mentioned reason
why small businesses might have trouble complying.
Small businesses, like larger businesses, can
encounter such complex tax issues as employment
taxes and depreciation and are subject to multiple
layers of filing, reporting, and deposit
requirements. However, small businesses do not
always have the kind of resources on a continual
basis that they need to understand and deal with
those issues and requirements.

Other factors mentioned as contributing to a small
business' potential for noncompliance were (1) the
fact that business income, unlike wages and
investment income, is generally not subject to
withholding or some form of information reporting
and (2) cash flow limitations. It is generally
recognized that compliance is highest when taxes
have been withheld (as is the case with wages) or
when a third party (such as a bank or mutual fund)
reports payments (such as interest and dividends)
to IRS. Cash flow limitations can cause a small
business to become delinquent in making required
tax payments or in remitting taxes that have been
withheld from employees.

IRS Has Not Operated in a Way That Best Enables It
to Serve Small Businesses
IRS' ability to meet the needs of small businesses
has been hampered in the past by its
organizational structure and its focus on problem
correction versus prevention.

Under IRS' current organizational structure,
authority for serving taxpayers and administering
the tax code is decentralized to 33 districts and
10 service centers, each of which is organized
along functional lines, such as collection,
examination, and taxpayer service. Because IRS
allocates its resources, such as staff and
information systems, along geographic and
functional lines, it is designed to handle a wide
range of issues pertaining to all taxpayers-from
individuals whose sole income is from wages to
multi-national corporations-with little or no
focus on specific taxpayer segments, such as small
businesses. For example, IRS has dozens of
discrete databases that are function specific and
are designed to reflect transactions at different
points in the life of a return or information
report-from receipt to disposition. As a
consequence, IRS does not have any easy means to
access comprehensive information about small
business taxpayer accounts, which can inhibit its
ability to identify and resolve tax compliance
problems of small businesses.

IRS has also historically allocated most of its
resources to correcting problems after they occur
rather than preventing problems from occurring.
According to IRS, it allocates about 11 percent of
its budget for customer education and assistance
(i.e., problem prevention) compared to 72 percent
for compliance (i.e., problem correction). The
other 17 percent is allocated to customer account
services. This emphasis on correction versus
prevention can be especially problemmatic for
small businesses that need assistance up front and
that, absent that help, are at a high risk of
going out of business if problems arise. In other
words, by the time IRS determines that a small
business has a compliance problem and sets out to
correct the problem, it may be too late.

Small Businesses Are Often Reluctant to Go to IRS
for Help
Small business representatives told us that small
businesses are often reluctant to go to IRS for
help. In that regard, our survey results showed
that many small businesses (1) were either unaware
of key IRS services or knew of the services but
did not use them and (2) expressed negative
feelings about their past interactions with IRS.

Many Small Businesses Were Unaware of Key IRS
Services, and Many Who Knew of the Services Did
Not Use Them
IRS has certain services, such as outreach
seminars and a small business corner on its World
Wide Web site on the Internet, that it has
developed specifically for small businesses.
However, our survey indicated that many small
businesses are unaware of those services and many
others who know of the services do not use them.

For example, of the 398,105 small businesses in
our survey population, an estimated 52 percent
were not aware of IRS' outreach seminars, and an
estimated 38 percent were aware of the seminars
but had not used that service. Likewise, an
estimated 58 percent of our survey population were
not aware of the small business corner on IRS'
Internet site, while another 31 percent were aware
of that service but had not used it.

Small business owners participating in IRS focus
groups indicated that they had limited familiarity
with or use for IRS' products and services because
they relied on tax practitioners.3 Small business
representatives told us that small businesses
would rather rely on tax practitioners because
they are too busy, they do not trust IRS, or IRS'
services are not conveniently offered. For
example, one small business owner responding to
our survey commented that certain IRS services,
such as walk-in sites and outreach seminars, are
not available in small towns and that it would be
helpful if there was more information available on
IRS' Internet site. Another small business owner
commented that he would personally find it
difficult to contact any source other than a local
tax preparer for information because of fear of an
audit. He further suggested that IRS needs to
change the image that it treats small businesses
as tax cheats.

Small Businesses Had Mixed Feelings About Their
Past Interactions With IRS
Small businesses can have a variety of
interactions with IRS ranging from general written
advice, such as that provided through tax
publications, to more personalized service, such
as that provided over the telephone or at walk-in
sites, to enforcement actions, such as audits.
Negative reactions of small businesses to any such
interactions in the past can complicate their
future relationships with IRS.

Our survey included several questions about small
businesses' interactions with IRS over the past 5
years, including their level of satisfaction or
dissatisfaction with several aspects of IRS'
service. More small businesses in our study
population were satisfied with the overall quality
of IRS' service than were dissatisfied. However,
when asked about selected interactions with IRS,
small businesses had mixed feelings. For example,
when asked about the availability of forms and
publications or IRS' timeliness in issuing
refunds, many more businesses commented positively
than negatively. The opposite was true, however,
when they were asked about such things as the
understandability of forms, publications, and
notices; the accessibility of IRS' telephone
assistance; and the levying of penalties.

Several respondents who expressed dissatisfaction
with certain aspects of IRS' service provided
narrative comments to explain their feelings. For
example, one respondent commented that IRS'
instructions have too much fine print and not
enough plain English. Two additional examples
follow:

"when I do finally get a phone call through, I
[dislike] all of the menus that you go through and
the passing from one person to another when you
finally do get to talk with a human. I also
despise the noncaring, uninterested attitude that
I usually get from IRS employees."

"The frustrating thing about [IRS] is they send
you a notice about tax discrepancies, you answer
and about a month later you get another notice.
You answer again and then you get a notice telling
you this is your final notice. They need to have a
person assigned to your tax problem so you could
call them and work it out. It seems most of the
time the person sending you the notice never sees
your replies."

     Some small business owners and
representatives said that, although IRS can
improve its services, dissatisfaction with IRS is
often misplaced. For example, one small business
representative said that many small businesses
that are dissatisfied with IRS have likely had
little experience with IRS and are really
expressing their dissatisfaction with the complex
tax code.

Reorganization May Enable IRS to Address Factors
That Have Complicated Its Interaction With Small
Businesses, But Implementation Will Not Be Easy
IRS is implementing a major reorganization that is
to, among other things, structure the agency
around four primary customer segments and
operating divisions. One of those operating
divisions-SB/SE-is to focus on taxpayer education
and assistance, specialized account services, and
revamped compliance efforts tailored to small
businesses.

The various changes discussed in IRS' plans for
the new organization indicate that it will be
taking steps to address those factors that have
been identified as complicating the interaction
between IRS and small businesses. Although the new
organization may not be able to do much to reduce
the complexity facing small businesses, it should
be able to help businesses better deal with those
complexities and increase taxpayer satisfaction.
By dedicating an operating division to small
businesses, increasing its knowledge base on the
characteristics and needs of the population, and
customizing its products and services to meet
those needs, IRS intends to shed the limitations
of its historic structure and improve its customer
focus.

Under the new organization, IRS also intends to
shift the allocation of its resources to help
small businesses meet their tax requirements. For
example, IRS currently allocates few resources
toward problem prevention activities, such as
taxpayer education and assistance, compared to
problem correction (e.g., enforcement) activities.
IRS recognizes the need for a greater focus on
education and assistance and intends to increase
the number of staff dedicated to small business
education and communication from fewer than 100 in
its current organization to about 1,300 in SB/SE.

Although IRS intends to increase its taxpayer
education efforts, it recognizes that many small
businesses are reluctant to go to IRS for help. To
increase the effectiveness of its efforts, IRS
intends to provide needed information by
partnering with tax practitioners and other
outside organizations from which small businesses
are less reluctant to seek help and by focusing
attention on those small businesses most in need
of help, such as start-up businesses.

IRS also intends to improve overall compliance
among small businesses through a revamped
compliance strategy that integrates its
traditional enforcement activities (exam and
collection), while blending in a mixture of
education and outreach services, using a risk-
based approach. For example, IRS' current
collection process is a "one-size fits all"
approach that treats all taxpayers alike. Under
its new approach, IRS intends to segment small
businesses with collection issues by risk. A low
risk small business would most likely receive a
blend of education and enforcement activities,
while a high-risk small business might receive
aggressive enforcement action. The goal of this
approach is to intervene as early and quickly as
possible to address small business compliance
issues.  Specific details about this new approach,
such as the criteria that will be used in
assessing risk, have yet to be developed.

All of this assumes that the various changes
discussed in IRS' plans come to fruition. However,
implementing the new operating division will not
be easy. Some of IRS' plans, such as those related
to partnering, might not take long to implement.
Others, such as those related to risk-based
enforcement, could take much longer.

Besides time, there are several other challenges
that the new operating division and IRS must
confront. For example, the size and diversity of
the taxpayer population for which the new
operating division will be responsible could
stretch the capabilities of management and staff
and dilute the division's customer focus. The new
division also will be (1) hindered in its ability
to deliver new programs and services by antiquated
information systems and a shortage of staff with
needed skills and (2) challenged, as is all of
IRS, to develop an integrated performance
management system that creates incentives for
employee behavior that supports organizational
goals.

Challenges to SB/SE's Taxpayer Focus
Although creation of SB/SE should facilitate a
sharper focus on the needs and problems of small
businesses than is possible under the current
organization, the division will be challenged by
the need to (1) serve a large and diverse
population and (2) devise effective procedures for
dealing with taxpayers who migrate between
operating divisions.

According to IRS, the approximately 40 million
taxpayers to be served by SB/SE include about 6.2
million small partnerships and corporations; 19.3
million partially or fully self-employed
individuals;4 13 million individual filers with
supplemental income or business expenses;5 and 1.2
million non-small business taxpayers who are
considered specialty tax filers.6 Compared to
SB/SE, (1) the Wage and Investment Income
Operating Division is to serve a larger but less
diverse customer segment (about 116 million
taxpayers who only have wage and investment
income) and (2) the Large and Mid-size Business
Operating Division is to serve a smaller and less
diverse population (about 210,000 corporations and
partnerships with assets of more than $5 million).

The diversity of the small business population
will require that SB/SE staff specialize in a wide
range of tax issues and deal with a wide range of
taxpayer needs. For example, the needs of wage
earners who also operate small, one-person
businesses from their homes can vary significantly
from corporations that employ 100 persons and have
gross receipts in excess of $1 million.

Besides handling the workload for its own diverse
population, SB/SE is also expected do work for
other operating divisions. For example, SB/SE is
to conduct certain audit and collection activities
for the Wage and Investment Income Operating
Division. These additional responsibilities could
stretch the capabilities of management and staff
in SB/SE and dilute its taxpayer focus.

Taxpayer migration also poses a challenge to the
taxpayer focus intended by the reorganization.
Migration refers to scenarios under which a
taxpayer might qualify as a small business one
year but not the next, or vice versa. These
scenarios could cause taxpayers to change
operating divisions from year to year under the
new organization. For example, according to IRS
data, about 2.2 million individuals who had filed
for tax year 1995 as pure wage earners (i.e., the
kind of taxpayer for which the Wage and Investment
Income Division is to be responsible) filed for
tax year 1996 as sole proprietors (i.e., SB/SE-
type taxpayers) and 1.7 million individuals who
had filed as sole proprietors for tax year 1995
filed as pure wage earners for tax year 1996.
Similarly, a corporation or partnership could have
more than $5 million in assets one year (and thus
be part of the population to be served by the
Large and Mid-size Business Operating Division)
and $5 million or less in assets the following
year (which would make it part of SB/SE).

IRS acknowledges that taxpayer migration could
present account management problems for SB/SE and
other operating divisions. Specifically, this
issue could lead to disparate treatment of
taxpayers and hamper IRS' ability to provide end-
to-end accountability because the responsibility
for managing a migrating taxpayer's account could
shift from one operating division to another. IRS
is working on plans to put processes in place to
allow for greater interaction between the account
management units within the operating divisions to
properly manage and serve migrating taxpayers.

Challenges to SB/SE's Ability to Deliver New
Programs and Services

SB/SE will also be challenged to deliver the
various new programs and services discussed
earlier. In general, the division's challenges
derive from (1) antiquated computer systems and
(2) a shortage of staff with needed skills.

IRS' antiquated computer systems have long
hindered agency efforts to manage operations and
better serve taxpayers. IRS has struggled with
systems modernization for years, and we have made
numerous recommendations to correct management and
technical weaknesses that jeopardized the
modernization process.7 Although IRS has made
progress in addressing our recommendations, it has
yet to fully implement them. More specifically,
IRS needs to fully implement key controls that are
needed to effectively guide and constrain
modernization initiatives. These controls include
(1) completing a blueprint for modernization; (2)
implementing a "systems life cycle" process,
including development of business cases, to manage
system investments; and (3) establishing a fully
operational management structure to oversee
systems modernization.  Without systems
improvements, IRS managers will continue to have a
difficult time monitoring and managing program
outcomes-including identifying taxpayer needs and
evaluating the effectiveness of programs to meet
those needs.

Improvements to IRS' information systems are
critical to SB/SE's overall success. IRS
acknowledges, for example, that small business
taxpayer education and communication initiatives
depend on substantial investments in computer
hardware and software and that major systems
changes will be required to support a risk-based
compliance strategy.

A shortage of staff with needed skills can also
adversely affect SB/SE's ability to deliver new
programs and services. For example, the operating
division intends to improve taxpayer education and
assistance through research and analysis of
taxpayer characteristics and behavior. However,
according to IRS, it does not have enough
employees who possess the requisite skills, such
as market research, forecasting, and trend
analysis. Such limitations could delay the
operating division's ability to develop and
deliver specialized education and assistance to
small businesses.

SB/SE and IRS Will Be Challenged to Develop and
Implement a Performance Management System
A coherent organization and management structure
dedicated to small businesses will not
significantly improve service to taxpayers without
a performance management system that aligns
employee, program, and strategic performance
measures and creates incentives for behavior that
supports agency goals. IRS has made some headway
in this area as it develops a new set of
performance measures balancing customer
satisfaction, employee satisfaction, and business
results and updates its employee evaluation
system.

Although IRS has clearly made progress in
implementing new performance measures, it is
missing a key indicator for voluntary compliance.
Such a measure is essential for a number of
reasons. Regularly measuring progress in voluntary
compliance is important to guage whether IRS is
accomplishing a key aspect of its mission. Also,
the information about taxpayers that would be
generated in measuring voluntary compliance may
help IRS identify the characteristics of taxpayers
who have difficulty understanding and meeting
their tax responsibilities. Finally, the data IRS
would develop as part of any voluntary compliance
measurement effort may allow IRS to better direct
its enforcement resources to those taxpayers that
willfully flaunt the tax laws, thus reducing the
burden on compliant taxpayers. The absence of a
measure of voluntary compliance could hinder SB/SE
more than other operating divisions because, as
already mentioned, the SB/SE population generally
has a greater potential for noncompliance. IRS
recognizes that it needs a reliable and meaningful
measure of voluntary compliance and is working
with a contractor to determine how to measure
compliance with the least burden on taxpayers.
However, that effort is still in its early stages.

A second critical aspect of performance management
is an employee evaluation system that reflects the
organization's mission. As mentioned earlier,
SB/SE intends to refocus its compliance
capabilities to provide a mix of education and
outreach along with an integration of examination
and collection-IRS' traditional compliance
activities. IRS recognizes that a successful blend
of customer service and compliance activities will
require not only a substantial shift in employees'
skills and abilities but also a significant change
in employee attitude and behavior. IRS recognizes
that to achieve this shift and a more balanced mix
of customer service and traditional compliance
activities, employees must have a clearer line of
sight between their day-to-day activities, their
resulting performance evaluations, and the
agency's broader goals. IRS is exploring several
different approaches for revising its employee
evaluation system to make the relationship between
employee performance and agency performance more
transparent.

IRS Is Pursuing a Multi-phased Approach in
Developing New Burden Estimation Methods
Besides measuring voluntary compliance, as
discussed earlier, it is also important that IRS
be able to measure compliance burden. To do that,
IRS is pursuing a multi-phased strategy.
Initially, IRS is focusing on taxpayers who are to
be served by the new Wage and Investment Income
Operating Division (W&I)-those taxpayers who
derive all of their income from wages, pensions,
interest, dividends, and capital gains. In
subsequent phases, IRS plans to develop estimates
for other taxpayer groups, such as small
businesses and the self-employed and large and mid-
sized businesses.

IRS' incremental approach is intended to mitigate
the risks associated with developing a new
methodology for estimating compliance burden. The
approach should give IRS and its contractors an
opportunity to incorporate lessons learned from
early phases of the process into later efforts. It
also gives IRS the flexibility to significantly
modify or terminate the overall development
process or its relationship with a particular
contractor. IRS' Office of Program Evaluation and
Risk Analysis is responsible for overseeing the
contractor's work.

The first phase of the development process focuses
on the design and implementation of models for
estimating the federal income tax compliance
burden of W&I taxpayers. This taxpayer group was
selected for the initial phase because it accounts
for a large share of IRS' overall compliance
burden and because its burden may be the easiest
to estimate. The conceptual definition of
compliance burden developed for this group, along
with the theoretical framework for measuring that
burden, are supposed to build a foundation for
developing burden estimates for other taxpayer
groups.

The timing of later phases will depend on resource
availability and the accumulation of experience.
IRS expects to contract out later this year for a
study that would develop a methodology for
estimating the time and money that self-employed
individuals spend preparing and filing their
federal income tax returns. The agency also
expects to begin work on employment taxes later
this year and on small corporate taxpayer burden
in calendar year 2001.

New Estimation Models for W&I Taxpayers Are in
Development
IRS has begun to implement its strategy by
contracting for the development of two models
that, when combined, should provide more reliable
estimates of W&I taxpayers' prefiling, filing, and
postfiling compliance burdens. Compared with IRS'
current methodology, these models are designed to
produce more comprehensive estimates of federal
income tax compliance burdens and to provide IRS
with a greater capacity to analyze the impact of
tax law and administrative changes on those
burdens. As with all such modeling, the specific
capabilities and precision of the new models will
depend on the quality of the underlying data.

PricewaterhouseCoopers, the contractor engaged to
assist IRS in the initial phase of its strategy,
began work on the modeling effort in September
1998. The first model, which is to estimate
prefiling and filing burdens is expected to be
delivered to IRS in May 2001. A second model,
which is to estimate postfiling burdens, also is
expected to be designed by then, but the
operational model is to be delivered at a later
date. The cumulative cost of this initial effort
is expected to reach approximately $5 million by
the end of fiscal year 2001. Expenditures for
later years have not yet been determined.

Mr. Chairman, this concludes my prepared
statement. I would be happy to answer any
questions you or other Members of the Committee
might have.

Contact and Acknowledgements

For further information regarding this testimony,
please contact Cornelia M. Ashby at (202) 512-
9110. Individuals making key contributions to this
testimony included David Attianese, Kirk Boyer,
Stuart Kaufman, Daniel Lynch, Marvin McGill, Yong
Meador, Anne Rhodes-Kline, Samuel Scrutchins,
Margarita Vallazza, and James Wozny.

_______________________________
1 Tax Administration:  IRS Is Working to Improve
Its Estimates of Compliance Burden (GAO/GGD-00-11,
May 22, 2000).
2 We sent a survey to a stratified random sample
of 1,000 small businesses representing a study
population of 398,105 small businesses nationwide.
We identified the study population from the
membership list of the National Federation of
Independent Businesses (NFIB). After considering a
number of national organizations that represent
small businesses, we chose NFIB because its
membership was the largest and included members
from a wide range of business sectors. We reached
a general consensus regarding this choice with
cognizant officials from IRS, the Small Business
Administration, and a number of other membership
organizations that represent small businesses.
Fifty-five percent of the small businesses
responded to our survey. The results of our survey
can only be generalized to the population of NFIB
members.
3 According to IRS, between 80 and 88 percent of
small businesses rely on tax practitioners to
prepare their returns.
4 According to IRS, as many as one-half of self-
employed filers receive the vast majority of their
income from wages, not business-related
enterprises, and should be considered "incidental"
business filers. Nevertheless, these filers are
included in IRS' definition of small business and
in the population to be served by SB/SE.
5 Supplemental income earners are wage earners who
file a Form 1040 with a Schedule E for rental,
royalty, or other supplemental income. Wage
earners with business expenses file a Form 1040
with a Form 2106 attached.
6 Specialty tax filers include international
filers and filers of fiduciary, excise, and estate
tax returns.
7 Tax Systems Modernization:  Management and
Technical Weaknesses Must Be Corrected If
Modernization Is To Succeed (GAO/AIMD-95-156, July
26, 1995) and Tax Systems Modernization: Blueprint
Is a Good Start But Not Yet Sufficiently Complete
to Build or Acquire Systems (GAO/AIMD/GGD-98-54,
Feb. 24, 1998).
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