One example of a third-party network is certain toll collection  networks. However, the Strategic Roadmap and other IRDM plans do not document  coordination with some significant recent and ongoing servicewide  initiatives, such as Workforce of Tomorrow and the Nonfiler Strategy. IRS Did Not Use Substantiated Projections of Form 1099-K Volume for IRDM Resource Planning Decisions

IRDM did not use substantiated volume projections for the new Form  1099-K in some of its budget and risk management decisions because  official projections were not available when those decisions were made. Additional IRS Communication and Guidance, and Release of Future Draft Form Instructions, Could Benefit Industry Implementation

		IRS Communication with Industry Stakeholders Early in the Rulemaking Process Was Thorough

Prior to preparing the proposed regulations for cost basis and transaction  settlement reporting, IRS counsel met in person and via phone with  industry stakeholders to gain an understanding of issues facing the  industries. Despite Noteworthy Efforts, IRS Did Not Meet Its Target Dates for Issuing Regulations

Due, according to IRS officials, to unanticipated complexities of the cost  basis and transaction settlement industries, IRS counsel did not meet its  target dates for issuing final regulations for either reporting requirement,  as shown in figure 2. Reporting data are due to IRS in  2012 for both laws. Additional IRS Communication on Rulemaking, Guidance, and Outreach May Improve Industry Implementation

After IRS’s issuance of final regulations, industry stakeholders sought  clarification of certain issues. IRS did not provide additional written  guidance or participate in outreach events until after the effective dates of  the regulations. IRDM Plans for IT Systems, New Workflows and Organization, and Research Are Expected to Improve the Compliance Programs for Individual and Business Taxpayers

		Planned Enhancements Should Allow for New Information Return Data to be Used in New and Existing Compliance Efforts

IRDM’s plans to use the new cost basis and transaction settlement  reporting data rely upon new IT systems that are expected to  automatically match information returns to tax returns. IRS Has Plans to Assess Implementation and Outcomes, but Needs to Identify and Document IRDM Performance Measures Early on to Ensure Necessary Data Collection

		IRDM Is Documenting Lessons Learned, but Lacks Accountability for Implementing Improvements

At the end of each IRDM IT project milestone IRDM produces a lessons  learned document, in accordance with IRS’s Enterprise Lifecycle  Guidance, which requires a lessons learned report at the end of each life- cycle phase. Although IRDM has identified dates on which to begin collecting  performance measure data, officials did not provide a plan to develop and  finalize the measures. IRS agreed in principle with our recommendation to, whenever possible,  release draft instructions of new or significantly revised forms. Using the IRS Web site to post  expected release dates for outreach, regulations, and guidance would help  external stakeholders anticipate IRS actions and plan their  implementation of the laws. bjectives of this report, we focused on the  To assess IRS’s implementation plans for the new requirements, we  compared the Internal Revenue Service’s (IRS) plans, such as the IRDM  Strategic Roadmap and the IRDM Program Management Plan, to criteria  from prior GAO reports, the Internal Revenue Manual, and other  sources. To analyze IRS’s plans to assess the implementation process, we reviewed the existing lessons learned documentation. We also interviewed IRS officials in the  Small Business/Self Employed (SB/SE) division, MITS, and Forms and  Publications. Appendix III: Assessment of MITS’s IRDM Cost Estimate

We assessed the Modernization and Information Technology Service  (MITS) group’s Information Reporting and Document Matching (IRDM)  program cost estimate to determine the extent to which it meets best  practices established by the GAO Cost Estimating and Assessment  Guide.
Why GAO Did This Study

Effective implementation of two 2008 laws by the Internal Revenue Service (IRS) could increase taxpayers' voluntary compliance. Those laws require reporting to IRS and taxpayers of cost basis for sales of certain securities and of transaction settlement information (i.e., merchants' income from payment cards or third party networks). In response to a congressional request, GAO (1) assessed IRS's implementation plans for the laws; (2) determined the extent to which IRS issued timely regulations and guidance and did outreach; (3) examined how IRS will use the new data to improve compliance; and (4) analyzed IRS's plans to assess implementation and measure performance and outcomes. GAO compared IRS's implementation plans to criteria in past GAO work and other sources; interviewed industry groups and agency officials, and reviewed rulemaking documents; examined IRS's plans to use the new data; and compared IRS's measures and evaluation plans to GAO criteria.

What GAO Found

IRS is implementing cost basis and transaction settlement reporting through the new Information Reporting and Document Matching (IRDM) program in the Small Business/Self Employed (SB/SE) and Modernization and Information Technology Services (MITS) divisions. IRDM plans show several elements of effective program management, but do not document coordination with some related IRS projects such as Workforce of Tomorrow. IRS estimated IRDM costs, but MITS's estimate does not reflect some best practices, such as adjusting for inflation. Also, IRDM did not use substantiated tax form volume projections in some budget and risk decisions. To date, IRS spent about $28 million on IRDM and requested another approximately $82 million. IRS outreach with industry stakeholders was thorough early in the rulemaking process, but IRS missed its target dates for issuing regulations by about 1 year due, according to IRS officials, to time needed to learn the complex industries. After IRS released final regulations, industry stakeholders sought clarification of certain issues. IRS did not release additional written guidance until after the regulations' effective dates, which industry stakeholders said may affect their implementation of the new reporting requirements. Although IRS released drafts of the newly required or revised forms, they did not release draft instructions prior to the regulations' effective dates. To use the new data, IRS is developing systems that are expected to improve IRS's existing matching of information returns to individual tax returns and expand matching to business taxpayers. The initial enhancements are to be operational in 2012. IRDM appropriately plans to conduct research and test data quality. IRDM regularly documents lessons learned; however, IRDM has not assigned responsibility or established procedures to use them. IRDM also developed preliminary performance measures to assess the implementation and outcomes, including effects on revenue and compliance. However, IRDM has not documented a plan to finalize the performance measures, such as methodology.

What GAO Recommends

GAO recommends, among other things, that IRS improve cost estimation, form volume projections, stakeholder communication, and performance management. IRS generally agreed with the recommendations, but did not describe plans to release draft form instructions or communicate target guidance release dates, both of which would aid industry implementation.