DEPARTMENT OF THE TREASURY, Internal Revenue Service, (M:P), 6009 Oxon Hill Road, Suite 700, Oxon Hill, MD 20745

R -- ASSISTANCE TO DEFINE AND MEASURE TAXPAYER BURDEN SOL CBD&&&97060001 DUE 072597 POC Contract Specialist, William Pinkston, Faxs 202/283-1514 The Internal Revenue Service (IRS) is considering contracting for assistance to define and measure taxpayer burden. Sources are sought to provide information on their capabilities and technologies currently available in the market. This information will be used to develop a precise statement of work. In performing its mission, IRS attempts to ensure compliance with the tax laws at the lowest possible cost. A key element of the overall cost of the tax system is the cost imposed on taxpayers: setting up and maintaining records, preparing returns, waiting for refunds, responding to inquiries regarding the return, etc. The tax system's "burden" cost, which includes both taxpayer time and out-of-pocket costs, is as real as the IRS budget cost of processing taxpayer returns or conducting audits. In keeping with this perspective, the IRS Strategic Plan and Budget states that reducing taxpayer burden is a primary corporate objective. To perform its mandate effectively, the IRS must have an unambiguous definition of taxpayer burden and a practical, objective means to measure and monitor it. The following sections discuss (1) specific concerns IRS has with its current measure of taxpayer burden, (2) the current IRS definition of taxpayer burden and what might be included in a new burden measure, and (3) the functional requirements of a new IRS measure of taxpayer burden. Concerns with Current IRS Measure of Taxpayer Burden The Service's current measure of taxpayer burden was developed to comply with the Paperwork Reduction Act (PRA) of 1980. The measure, developed with the assistance of Arthur D. Little, Inc., is based on taxpayer survey data from 1984. For tax forms subject to PRA, the measure estimates the average time taxpayers spend: (1) keeping records; (2) learning about tax law; (3) preparing tax forms; and (4) copying, assembling, and sending tax forms to IRS. Although ADL was an improvement over IRS s previous burden measure, it has a number of weaknesses: Burden is measured in hours, not dollars: A fundamental shortcoming of the ADL model is that burden is measured in hours of taxpayer time, not in dollars. Because the IRS's budget and the revenue it collects are counted in dollars, it is difficult to make budget and revenue tradeoffs with taxpayer burden. ADL covers only tax form burden: Because it was developed to measure the paperwork burden of tax forms and regulations subject to PRA, the ADL model does not cover the burden resulting from IRS enforcement or customer service activities like audits, collections, refunds, phone calls, etc. Outdated estimates: Although the ADL model permits IRS to update burden estimates to reflect changes in tax forms and taxpayer filing habits, the 1984 survey data used to the construct the model may no longer be relevant. Furthermore, with the numerous changes in tax laws and the increased use of computers and tax preparation software since the mid-1980's, the underlying assumptions in ADL may not be valid. Defining Taxpayer Burden IRS currently defines burden as the time, expense, and dissatisfaction taxpayers experience in complying with their tax obligations. In the abstract, taxpayer burden includes all costs, explicit or implied, of understanding the tax laws, completing and filing the tax return, maintaining the records necessary to comply, responding to any IRS requests for clarification, etc. Although the conceptual definition of burden seems straightforward, a good deal of confusion and debate still exist on what aspects of tax system cost should be included in models attempting to measure taxpayer burden. For example: Dissatisfaction & psychic burden: Is it practical for IRS to measure explicitly the dissatisfaction costs of compliance? For example, if the value of time spent in tax preparation (burden) is specified as the amount one would have to be paid to prepare someone else's tax return, all costs would be captured and a separate dissatisfaction category, even if measurable, would be unnecessary. Statutory vs. administrative burden: Is it possible to develop objective estimates of the portion of taxpayer burden attributable to tax law versus the portion attributable to tax administration, for which IRS is responsible? Compliant vs. non-compliant taxpayer burden: Should IRS identify and differentiate between burden placed on compliant taxpayers, inadvertently non-compliant taxpayers, and tax-evading non-compliant taxpayers? Requirements of a New Taxpayer Burden Measure An efficient tax system will attempt to (1) minimize the total costs associated with collecting a tax dollar or (2) maximize legitimate taxes collected for a given cost. Under either strategy, the IRS must measure the total taxpayer burden cost of the tax system and identify tradeoffs between burden and budget costs that improve the efficiency of the tax system. Therefore, a new measure of taxpayer burden should have the following attributes: * Measure the total taxpayer burden cost of the Federal income tax system, including burden from tax forms, IRS enforcement efforts, and customer service activities; * Measure burden both in time and in dollars so that IRS burden reduction initiatives can be evaluated on their budget and revenue impact; * Measure the burden impact of fundamental changes to the tax code; * Measure the burden impact of significant changes in tax administration, such as converting to a system in which all tax returns and tax payments are processed electronically; * Measure the burden impact of changes in IRS operations, such as increased toll-free assistance, Internet access to IRS forms and publications, and shorter refund cycle times; * Measure burden for different groups of taxpayers (e.g., individual, self-employed, retired, small-business, large company, etc.); * Measure the impact of a wide range of programs so IRS can evaluate and compare the taxpayer burden impact of current policies and planned initiatives; and, * Use information for measuring burden that can be updated each year easily and cheaply. Please annotate whether your firm is a large, small, or disadvantaged business under SIC 8721, size standard of $6 million in annual receipts. NOTE: This is for planning purposes ONLY. There is no Request for Proposals at this time. No oral communication shall be accepted. Questions and/or responses pertaining to this announcement may be faxed to the individual listed above. (0197)

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