IRS tests partnership with state government

A small business owner in Montana must file three tax forms each quarter. One form goes to the Montana unemployment insurance office, one to the Montana revenue department and one to the IRS.

Under a pilot project kicking off later this year, the IRS and Montana will combine the three forms into one, marking the first time a state and the IRS are creating a "single-point filing system" for business.

"This is a taxpayer burden reduction program," said Robert Barr, assistant IRS commissioner for electronic tax administration. "The pilot project will help the small business individual comply more easily with the law."

Participants in the program will complete one form and mail it into the Montana revenue department. The revenue department will key in the data and then transmit data electronically to the state unemployment office and to the IRS.

"People were saying, 'This just seems ridiculous. I put the same information on these three different forms. Isn't there a way the government can capture this information one time for me?'" said Mary Bryson, director of the Montana revenue department. "We're really excited about demonstrating how successful this project could be in reducing the burden on taxpayers."

Congress approved the Montana project in the 1997 Taxpayer Relief Act. A similar project with the state of Iowa that would test end-to-end electronic filing is included in the IRS restructuring act currently under consideration on Capitol Hill.

The Montana project is part of the Simplified Tax and Wage Reporting System initiative, under which the IRS is working with the Treasury Department, the Social Security Administration and the Labor Department to find ways to reduce reporting burdens on businesses.

One issue the Montana project has raised concerns confidentiality. Federal rules limit the IRS's ability to share taxpayer data with other organizations. Legislative amendments included in the IRS restructuring act will ease restrictions on sharing taxpayer information between the state and federal government, Bryson said.

The IRS did not have to set up a new system to receive the Montana data, Barr said, because the agency already allows small businesses to file their quarterly returns electronically.