Tax Compliance ReportTax Compliance Report

January 30January 30thth, 2009, 2009

Major Themes of StudyMajor Themes of StudyMajor Themes of StudyMajor Themes of Study

IRS and other states also have income tax IRS and other states also have income tax compliance issues.compliance issues.Estimating the level of compliance is extremely Estimating the level of compliance is extremely complex.complex.Level of compliance is just an estimate and Level of compliance is just an estimate and can vary over time.can vary over time.Measuring improvement will be complex, too.Measuring improvement will be complex, too.We use a balanced approach to address We use a balanced approach to address compliance: education, assistance, and compliance: education, assistance, and enforcement.enforcement.

Major Themes of Study (cont.)Major Themes of Study (cont.)

Third-party reporting and verification is crucial Third-party reporting and verification is crucial to compliance.to compliance.

Complexity of the tax code contributes to Complexity of the tax code contributes to noncompliance.noncompliance.

We need to optimize audit case selection and We need to optimize audit case selection and improve some processes. improve some processes.

Disclosure laws hinder our ability to partner Disclosure laws hinder our ability to partner with others to improve compliance.with others to improve compliance.

What We Learned About What We Learned About Compliance in OregonCompliance in Oregon

Taxpayers believe not paying taxes is serious; Taxpayers believe not paying taxes is serious; and believe they will be caught if they cheat by and believe they will be caught if they cheat by a large amount.a large amount.

50+ percent of taxpayers use preparers.50+ percent of taxpayers use preparers.

Third-party verification of income or deductions Third-party verification of income or deductions is critical to compliance.is critical to compliance.

Withholding on salaries and wages contributes Withholding on salaries and wages contributes to very high degree of compliance.to very high degree of compliance.

What We Learned About What We Learned About Compliance in Oregon (cont.)Compliance in Oregon (cont.)

The Department needs to be perceived as The Department needs to be perceived as more aggressive in tax enforcement.more aggressive in tax enforcement.

The Department needs to increase The Department needs to increase enforcement efforts.enforcement efforts.

Taxpayers comply because:Taxpayers comply because:

– Moral/social reasons (want to contribute to Moral/social reasons (want to contribute to well-being of society)well-being of society)

– Fear of being audited or penalizedFear of being audited or penalized

What We’re Doing to Improve What We’re Doing to Improve ComplianceCompliance

We match our response to taxpayer’s We match our response to taxpayer’s behavior.behavior.

– If taxpayers are willing to work with us, If taxpayers are willing to work with us,

we’ll help.we’ll help.

– If they are not willing to work with us, If they are not willing to work with us,

we’ll use enforcement tools.we’ll use enforcement tools.

Education and AssistanceEducation and Assistance

Taxpayer service call centerTaxpayer service call center

Forms, publications, websiteForms, publications, website

Face-to-face in communityFace-to-face in community

Other outreach to practitioners and Other outreach to practitioners and businessesbusinesses

Verification and AuditVerification and Audit

1.8 million 2007 personal income tax returns1.8 million 2007 personal income tax returns

Adjustments in processing for obvious errorsAdjustments in processing for obvious errors

10 field and satellite offices with audit staff10 field and satellite offices with audit staff

CP 2000 (matching 3CP 2000 (matching 3rdrd party information from party information from IRS to returns)IRS to returns)

Compliance focus areas:Compliance focus areas:– Partnerships/other flow-through entitiesPartnerships/other flow-through entities– Cash-based businessesCash-based businesses

Verification and Audit (cont.)Verification and Audit (cont.)

Challenges to audit programChallenges to audit program

– Auditor turn overAuditor turn over

– Auditors take 3-5 years to become highly Auditors take 3-5 years to become highly proficientproficient

– Outdated systems, processesOutdated systems, processes

Department lacks robust audit case management Department lacks robust audit case management systemsystem

Collection and Filing EnforcementCollection and Filing Enforcement

Collections transformationCollections transformation– Re-engineering processesRe-engineering processes– New toolsNew tools– Automated call distributor (POP)Automated call distributor (POP)– Make better use of private collection agenciesMake better use of private collection agencies

Challenges to collections programChallenges to collections program– Outdated systemsOutdated systems– Turnover of staffTurnover of staff– Taxpayers don’t have sufficient understanding of Taxpayers don’t have sufficient understanding of

penalties and interestpenalties and interest

Collection and Filing Enforcement Collection and Filing Enforcement (cont.)(cont.)

– Lack of resources to detect, prevent criminal Lack of resources to detect, prevent criminal fraudfraud

– Confidentiality of Taxpayer InformationConfidentiality of Taxpayer InformationBalance between privacy and effective Balance between privacy and effective administrationadministration

Need to share some information with partner Need to share some information with partner agenciesagencies

Change only for income tax compliance and Change only for income tax compliance and income tax crimesincome tax crimes

Best PracticesBest Practices

CollectionsCollections– Develop a business intelligence platformDevelop a business intelligence platform– Automate self-service optionsAutomate self-service options– Data matching with bank account informationData matching with bank account information– As much third-party information as possible, As much third-party information as possible,

and the tools to use itand the tools to use it– Case management systemsCase management systems– Analytical tools to select casesAnalytical tools to select cases

Recommendations: Recommendations: What We Will DoWhat We Will Do

Change how we use private collection Change how we use private collection agenciesagencies

Extend collection hoursExtend collection hours

Protect infrastructure of withholding programProtect infrastructure of withholding program

Use additional third-party informationUse additional third-party information

Improve audit methods, increase trainingImprove audit methods, increase training

Work with licensing boards to increase Work with licensing boards to increase compliancecompliance

What We Will Do (cont.)What We Will Do (cont.)

Increase compliance by state contractorsIncrease compliance by state contractors

Develop tools for education in schoolsDevelop tools for education in schools

Develop policy option package for 2011 – Develop policy option package for 2011 – criminal prosecutioncriminal prosecution

Explore feasibility of secure e-mailExplore feasibility of secure e-mail

Evaluate core systemsEvaluate core systems

Evaluate reporting and withholding on real Evaluate reporting and withholding on real estate transactions beyond nonresidentsestate transactions beyond nonresidents

Recommendations: Recommendations: Policy Changes - 2009Policy Changes - 2009

Expand disclosure authorityExpand disclosure authority

– Licensing boardsLicensing boards

– Board of Tax Practitioners; Board of Board of Tax Practitioners; Board of AccountancyAccountancy

– State and local law enforcementState and local law enforcement

– DOR and banking industry data matchDOR and banking industry data match

Recommendations: Recommendations: Policy Changes - 2011Policy Changes - 2011

Consider proposals we will develop during Consider proposals we will develop during interim:interim:

– Licensing – tax compliance as a requirementLicensing – tax compliance as a requirement

– State Contracts – verifying tax complianceState Contracts – verifying tax compliance

– Withholding on real estate transactions – Withholding on real estate transactions – report on results and recommendations for report on results and recommendations for enhancementenhancement

Recommendations: Recommendations: Additional Resources – 2009 (POP)Additional Resources – 2009 (POP)

Policy Option Package in Governor’s BudgetPolicy Option Package in Governor’s Budget

Self-sufficiency website for taxpayersSelf-sufficiency website for taxpayers

Automated call distributorAutomated call distributor

Establish additional positions for collectionsEstablish additional positions for collections

Total cost of POP for 24 months = Total cost of POP for 24 months = $ 6,373,976 (44 positions)$ 6,373,976 (44 positions)

GF dollars generated in 2009-2011 biennium = GF dollars generated in 2009-2011 biennium = $19,304,956$19,304,956

Net revenue generation = Net revenue generation = $12,816,205$12,816,205

Recommendations: Recommendations: Additional Resources – 2011 Additional Resources – 2011

Business intelligence platformBusiness intelligence platform

Partnership return processing systemPartnership return processing system

Advertising about return preparersAdvertising about return preparers

Possible POP for criminal prosecutionPossible POP for criminal prosecution

Funding for periodic taxpayer surveysFunding for periodic taxpayer surveys

ConclusionConclusion

Tax compliance hard to measureTax compliance hard to measure

Many factors contribute to noncomplianceMany factors contribute to noncompliance

We have many strategies in place to We have many strategies in place to improve complianceimprove compliance

We can do moreWe can do more

With your help, we believe we can have a With your help, we believe we can have a greater impact on compliancegreater impact on compliance