The IRS Electronic Tax Administration Advisory Committee (ETAAC), in its 2023 Annual Report to Congress, has made a series of recommendations "for improving the taxpayer experience and reinforcing IRS accountability." The committee stated, "We believe that these recommendations, if implemented, will contribute to a more streamlined, efficient, and taxpayer-centric tax system."

According to Forbes, the ETAAC was authorized pursuant to the IRS Restructuring and Reform Act of 1998. It is required to report to Congress on issues related to electronic tax administration, such as the taxpayer experience, identity theft and refund fraud. The committee also contributes to the development of the IRS Strategic Operating Plan.

An introductory letter from the committee's chairs and vice chairs states, "We commend the IRS for the significant strides they have made in enhancing the taxpayer experience over the past year. However, it is essential that we stress the importance of continuing to promote IRS accountability for the Inflation Reduction Act funding it received and associated project prioritization. Congress has made a substantial investment in the IRS, and with that investment, it is crucial to ensure ongoing accountability in the appropriate utilization of funds. It is imperative that the taxpayer's journey remains one that encourages voluntary compliance, instills trust, provides high levels of service, and inspires confidence in our nation's tax system."

The report makes a total of 26 recommendations, including one addressing the lower threshold amounts for Form 1099-K:

1. ETAAC recommends that Congress pass timely tax legislation and engage the IRS and appropriate stakeholders prior to passing legislation.

2. ETAAC recommends the IRS prioritize and allocate funding to IRS.gov modernization and search engine optimization.

3. ETAAC recommends the IRS prioritize the Online Account toolset expansion.

4. ETAAC recommends the IRS provide properly authenticated third parties the ability to “Pull” information return data on demand.

5. ETAAC recommends the IRS provide Form 1099-NEC data to States on an expedited basis.

6. ETAAC recommends the IRS prioritize e-filing of 94X returns and enhancing duplicate 94X processing.

7. ETAAC recommends IRS enable online user access control for large business taxpayers.

8. ETAAC recommends the IRS update Form 1099-K and educational materials to enable easy compliance.

9. ETAAC recommends the IRS educate taxpayers and payers on their information reporting filing obligations to increase compliance and aid enforcement.

10. ETAAC recommend the IRS prioritize educating payers on Nonresident Alien (NRA) withholding and 1042-S filing obligations.

11. ETAAC recommends the IRS should continue to reduce Identity theft fraud by increasing transparency between information return stakeholders and the IRS.

12. ETAAC recommends the IRS make tax information documents digitally available in real-time, empowering taxpayers to easily export their tax data into third party tax software.

13. ETAAC recommends increasing electronic filing rates and enhancing paper processing.

14. ETAAC recommends the IRS enhance transparency in tax return processing and tax issue resolution.

15. ETAAC recommends the IRS deploy a public-facing dashboard with key customer service and processing metrics.

16. ETAAC recommends the IRS revisit the duration of third- party designee authority and enable taxpayers to complete powers of attorney and tax information authorizations as part of the electronic filing process.

17. ETAAC recommends the IRS and Congress do more to regulate paid tax return preparers and take steps to
address issues related to incompetent and unscrupulous conduct.

18. ETAAC recommends the IRS and Congress evaluate making improvements in the communication, marketing,
and accessibility of existing free tax filing programs before investing in the development and implementation of an IRS Direct eFile platform.

19. ETAAC recommends that if a Direct File option is implemented, Congress and IRS should ensure that it adheres to security standards implemented by the current Free File program.

20. ETAAC recommends the IRS consider funding two additional VITA/TCE new grant programs.

21. ETAAC recommends Congress maintain stable, consistent, multi-year funding authorized through the Inflation Reduction Act, provide the IRS with adequate discretionary annual appropriations, and enable greater flexibility to align funding between IRS appropriations to meet mission needs.

22. ETAAC recommends technology modernizations that are not a “lift and shift” and leverage commercial off-the-
shelf solutions whenever possible.

23. ETAAC recommends system modernizations and General Master File legacy system retirement while leveraging key stakeholder feedback and experience.

24. ETAAC recommends the IRS consider new human capital strategies to compensate for higher attrition and customer service demands.

25. ETAAC recommends the IRS develop key metrics to be used internally and externally to measure customer service, taxpayer experience and promote transparency.

26. ETAAC recommends the IRS provide timely legal guidance on federal and state laws that impact tax administration.

With regard to the Form 1099-K recommendation (No. 8), the report states, "With the transition to online marketplaces and payments, the IRS recognized certain payments were going unreported and sought to correct this with the introduction ofForm 1099-K. ... The original thresholds only required payers to report transactions where gross payments exceeded $20,000 and there were more than 200 transactions. Given the(relatively) high thresholds in comparison to other information returns, amounts normally reportable on Form 1099-K have gone unreported, which led Congress to lower the thresholds to $600 with no transaction limit with the American Rescue Plan Act of 2021, beginning with Tax Year 2022. However, on December 23, 2022, the IRS announced a one-year delay in the threshold reduction to enable payers and the IRS to prepare for the increase in 1099-K volumes to be filed and processed."

The report continues, "The 1099-K threshold reduction will improve the mechanism for enforcement. ... However, the threshold reduction will significantly increase the administrative burden on the IRS in executing that enforcement as it will be difficult to reconcile amounts reported versus the income on the return."

The report then elaborates on its recommendation: "[I]f the 1099-K is going to continue to be a catch-all, ETAAC proposes the IRS update Form 1099-K and its instructions in advance of the 2023 tax filing season to pre-empt and prevent the exacerbation of current reporting and enforcement issues in advance of the new thresholds taking effect as follows: add codes to the 1099-K to accurately reflect the amount reported as unadjusted gross sales much like the W-2 has codes in Box 12 to indicate type of income such as elective deferrals, Roth contributions, etc. Examples might include A: Online marketplace sales of goods or services, B: Fees paid in relation to online marketplace sales of goods or services, C: Refunds paid in relationship to online marketplace sales of goods and services, D: Reimbursements, etc. Additionally, for each code, the IRS can provide explicit instructions to taxpayers on where to report this information on their return."

The report adds, "To reduce complexity for taxpayers, the IRS might consider removing the monthly amounts on the recipient copies of the 1099-K, given these amounts do not aid taxpayers in reporting amounts on their return. Taxpayers will understand how to report 1099-K amounts on their income tax return, resulting in higher rates of compliance and preventing underpayment notices, interest and penalties. Software providers and practitioners will be able to automate the ingestion of the 1099-K and population of the amounts in the correct area of the return. More taxpayers will accurately report their income, and the IRS will be able to automate reconciling 1099-Ks to income tax returns, reducing the tax gap and cutting down on the human capital costs of processing notices as well as reducing paper."