This week the Internal Revenue Service (IRS) published a request for public comment regarding Tax Form 1041 and its associated schedules related to income taxes on estates and trusts. This form is used to report the income, deductions, gains, and losses of estates and trusts, and the distributions to beneficiaries.
The IRS published this request in compliance with the Paperwork Reduction Act that requires the Office of Management and Budget (OMB) to provide Congress with reports on the actual burden imposed on taxpayers to complete federal forms, which are also known as “information collections” (ICs). Agencies are required to request public comment and get OMB approval for each new IC. Periodically, agencies must resubmit ICs for comment, review, and renewal.
OMB's Office of Information and Regulatory Affairs publishes data on each federal agency’s forms and schedules on its website. Each IC has a unique identifying control number and the website includes some historical information on recent approvals, documentation of the agencies' justification for their estimates, and information on feedback that was submitted pursuant to comment requests. It also includes an estimate of the number of respondents who use each form, and, where applicable, an estimate of the time spent complying with the forms and any out-of-pocket expenses.
For example, the Form 1041 OMB control number is 1545-0092. In the public comment notice, the IRS estimates that this form and its schedules will result in 10,067,925 respondents – up from 9,433,703 estimated at the time of the previous approval – and consume a total of 331.5 million compliance hours (32 hours, 38 minutes per respondent).
The previous Supporting Statement posted with the Form 1041 collection did not include an estimate of out-of-pocket expenses. The IRS noted that it is “currently in the process of revising the methodology it uses to estimate burden and costs. Once this methodology is complete, IRS will update this information collection to reflect a more precise estimate of burden and costs.”
As the IRS request notes, comments need to be submitted by May 16, 2022. The comments can either be submitted via the mail addressed to Andres Garcia, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224 or by email to omb.unit@irs.gov. The comments should also include the "OMB Number 1545-0092."
Public feedback can help the IRS improve its tax forms so that they are easier to understand and to make compliance with them less of a burden. Feedback can also help the IRS improve its time burden estimates associated with the forms. In addition to the basic act of filling out the form, this includes time spent gathering and organizing records and understanding the forms’ and schedules’ instructions.
The IRS periodically revises and updates the model it uses to estimate time burdens per respondent. These models account for differences in complexity of returns’ of high earners compared to lower income earners and also take into account differences between small and large businesses, for example.
Feedback from respondents would be a valuable input that the IRS can use to calibrate its models and complete a calculation of the missing out-of-pocket expenses noted above.
The time spent on taxes and forms imposes opportunity costs on taxpayers. NTUF reported that complying with the tax code last year ate up over 6 billion hours with a net economic cost of over $300 billion, including the $220 billion opportunity cost (calculated using private sector labor costs) and $84 billion in out-of-pocket expenses related to filing. However, the compliance burden could be higher because there were several sections of the tax code where the IRS was not able to establish an estimate of the time or expense burdens.
By taking some extra time to provide feedback to the IRS, taxpayers could do themselves a favor down the road. Additional ICs that are open for public comment are listed on OIRA’s website. With better data, the IRS and policymakers will have a better idea of problem areas of the tax code, those which impose undue time and expense burdens relative to the amount of taxes they collect.