Integrate Financial Filings, Reporting, Payments

1. Integrate government financial filings, reporting, and payments
processing.

The Secretary of the Treasury should implement integrated financial
filings, reporting, and payments processing by January 1997.  This
integration should address such areas as individual tax filing and
account settlement; business reporting, including wage and withholding
information; data from financial institutions; and other employer and
employee financial data required by federal, state, and local government
agencies.

The integrated filing, reporting, and payment processing program should
be piloted by the IRS to prove the concepts and quantify the
benefits--not only to citizens in terms of enhanced governmental
services, but to the governmental process at large.  A network such as
the Treasury 's Consolidated Data Network and its successor, the
Treasury Communications System, could provide an evolutionary migration
path to full implementation minimizing the incremental costs.

To fully implement joint electronic filing of federal, state, and local
tax returns, all states and localities that levy income taxes should
agree on an uniform wage code that would enable the use of electronic
data interchange. Separate federal and state tax filings defeat the
purpose of trying to eliminate duplication and make government more
efficient. State and local information would similarly flow to a federal
access point for data interchange of financial and employment
information when required by any federal agency.

In order to make electronic filing more efficient, a digital signature
standard that can stand on its technical merits in a judicial court
challenge must be adopted.3 Presently, when citizens file returns
electronically, they are typically required to sign and mail a paper
certificate to the IRS to be matched with the electronic return.

To protect the privacy and confidentiality of individuals and
corporations, a method of electronic verification, coupled with a
privacy system that has the public's trust, must be employed. Without
these safeguards, public fears concerning disclosure of information and
governmental concern for data integrity would remain a problem.4

One possible scenario might be that a citizen uses an electronic
government services kiosk or home personal computer to file tax return
information with the IRS, including appropriate data the state and local
governments may require.  The data would be transmitted to an IRS
service center to be processed, verified for accuracy, and then
forwarded to the state, thus meeting the filing requirements of both
entities in one step. This approach could be expanded to include the
joint auditing of financial data and the joint collection of taxes--the
genesis of a virtual tax financial data agency for business and
individuals.

Both small and large business alike could benefit from the reduction in
the number of reports that have to be submitted to numerous federal
agencies and state and local governments.  Simplified filing of business
financial and employment data could benefit small business operators as
desktop computers with communications capabilities are now in widespread
use. Until the infrastructure is in place, state and local governments
(or the Postal Service) could provide access service for small business
reporting and taxpayer financial information filing.

Endnotes

3. For further information see IT10: Develop Systems and Mechanisms to
Ensure Privacy and Security.

4. Ibid.