SUPPLEMENTARY INFORMATION:

Change in Paperwork Reduction Act (PRA) Approval for Information Returns

Under the PRA, the Office of Management and Budget (OMB) assigned a control number to each “collection of information” that it reviews and approves for use by an agency. A single information collection may consist of one or more forms, recordkeeping requirements, and/or third-party disclosure requirements. Under the PRA and OMB regulations, agencies have the discretion to seek separate OMB approvals for forms, recordkeeping requirements, and third-party reporting requirements or to combine any number of forms, recordkeeping requirements, and/or third-party disclosure requirements (usually related in subject matter) under one OMB Control Number. Agency decisions on whether to group individual requirements under a single OMB Control Number or to disaggregate them and request separate OMB Control Numbers are based largely on considerations of administrative practicality.

The PRA also requires agencies to estimate the burden for each collection of information. Accordingly, each OMB Control Number has an associated burden estimate. The burden estimates for each control number are displayed in (1) the PRA notices that accompany collections of information, (2) Federal Register notices such as this one, and (3) OMB's database of approved information collections. If more than one form, recordkeeping requirement, and/or third-party disclosure is approved under a single OMB Control Number, the burden estimate for that OMB Control Number reflects the burden associated with all the approved forms, recordkeeping requirements, and/or third-party disclosure requirements.

As described below under the heading “Updated Burden Estimate Methodology,” the Internal Revenue Service's (IRS) currently accepted burden estimate methodology, referred to as the RAAS Taxpayer Burden Model, is based on taxpayers' tax reporting experience taking into account, among other things, the forms and schedules used by those taxpayers and the recordkeeping and other activities needed to complete those forms. The transition of the information return ^[1] reporting burden represents the IRS's continued effort to improve the ability of IRS to measure the burden imposed on various groups of taxpayers by the Federal tax system. While the RAAS Taxpayer Burden Model methodology provides a more accurate and comprehensive description of information return reporting burden, it will not provide burden estimates on a form-by-form basis, as has been done under the previous methodology. When the prior model, known as the legacy Arthur D. Little (ADL) model was developed in the mid-1980s, almost all tax returns were prepared manually, either by the taxpayer or a paid preparer. In this context, it was determined that estimating burden on a form-by-form, line-by-line basis was an appropriate methodology. Information returns are increasingly being prepared ( printed page 66943) using software or with preparer assistance. In this current reporting environment, in which many taxpayers' activities are no longer directly associated with particular forms, estimating burden on a form-by-form basis is not an appropriate method of estimating taxpayer burden. The RAAS Taxpayer Burden Model methodology, which takes into account broader and more comprehensive taxpayer characteristics and activities, provides a much more accurate and useful estimate of taxpayer burden.

Currently, there are 51 forms used by information return issuers when complying with Federal tax laws. These include Forms 1098, 1099-B, 1099-DA, 1099-DIV, 1099-INT, 1099-MISC, 1099-NEC, 1099-R, 5498, W-9 and their schedules. For most of these forms, IRS has in the past obtained separate OMB approval under unique OMB Control Numbers and separate burden estimates.

The RAAS Taxpayer Burden Model methodology estimates the aggregate burden imposed for information reporting, based upon the reporting-related characteristics and activities of the issuers. IRS therefore will seek OMB approval of all 51 information reporting tax forms as a single “collection of information.” The aggregate burden of these tax forms will be accounted for under OMB Control Number 1545-0108, which is currently assigned to Form 1096. OMB Control Number 1545-0108 will be displayed on all information returns and related information collections. As a result of this change, burden estimates for information returns will now be displayed differently in PRA Notices on tax forms and other information collections, and in Federal Register notices. This new way of displaying burden is presented below under the heading “Proposed PRA Submission to OMB.”

Updated Burden Estimate Methodology

The RAAS Taxpayer Burden Model for Information Returns revises the estimates of the levels of burden experienced by information return issuers when complying with their federal reporting requirements related to information return reporting. It replaces the legacy ADL model methodology developed in the mid-1980s. Since that time, improved technology and modeling sophistication have enabled the IRS to improve the burden estimates. The RAAS Taxpayer Burden Model methodology provides taxpayers and the IRS with a more comprehensive understanding of the current levels of taxpayer burden. It reflects major changes over the past two decades in the way taxpayers prepare and file their returns. The RAAS Taxpayer Burden Model methodology also represents a substantial step forward in the IRS's ability to assess likely impacts of administrative and legislation changes on information reporting.

The RAAS Taxpayer Burden Model methodology focuses on the characteristics and activities of information return issuers rather than solely focusing on the forms they file. Key determinates of taxpayer burden in the model are the type of forms issued, number of forms issued, and whether the issuer is newly issuing that form. Indicators of tax law and administrative complexity, as reflected in the tax forms and instructions, are incorporated into the model. The legacy ADL model methodology primarily focused on the number of line items on each tax form. The changes between the old and new burden estimates are due to the improved ability of the RAAS Taxpayer Burden Model to measure burden and the expanded scope of what is measured. These changes create a one-time shift in the estimate of imposed burden. It is important to note that the difference between the legacy and revised estimates does not reflect any change in the actual burden imposed on taxpayers.

Tax Compliance Burden

Tax compliance burden is defined as the time and money taxpayers spend to comply with their tax filing responsibilities. Time-related activities include recordkeeping, tax planning, gathering tax materials, learning about the law, and completing and submitting the return. Out-of-pocket costs include expenses such as purchasing tax software, paying a third-party preparer, and printing and postage. Tax compliance burden does not include a taxpayer's tax liability, economic inefficiencies caused by sub-optimal choices related to tax deductions or credits, or psychological costs.

As has been done for individual taxpayer burden since 2005, business entity burden since 2014, tax-exempt organization burden since 2018, employer reporting burden since 2023, and trust and estate burden since 2024, both the time expended and the out-of-pocket costs for information return issuers are estimated. The RAAS Taxpayer Burden Model methodology relies on surveys that gather data about time spent and out-of-pocket costs incurred for pre-issuing and issuing activities for information return issuers. The methodology establishes econometric relationships between tax return characteristics and reported compliance costs. The methodology controls for the substitution of time and money by monetizing time and reporting total compliance costs in dollars. The RAAS Taxpayer Burden Model methodology better reflects taxpayer compliance burden because, in a world of electronic tax preparation, time and out-of-pockets costs are governed by the information required rather than the form on which it is ultimately reported. Importantly, even where various information return issuers complete the same tax form lines, the RAAS Taxpayer Burden Model methodology differentiates the cost incurred to complete those forms based on characteristics of those issuers. Key characteristics that serve as coefficients in the information return burden model are:

• Type of form issued
• Number of forms issued
• Whether the issuer is newly issuing the form type

The RAAS Taxpayer Burden Model methodology uses the following stratification for information return issuers:

Proposed PRA Submission to OMB

Title: U.S. Information Returns and Related Forms, Schedules, Attachments, and Published Guidance.

OMB Control Number: 1545-0108.

Form Numbers and Published Guidance: Forms include but are not limited to Forms 1098, 1099-B, 1099-DA, 1099-DIV, 1099-INT, 1099-MISC, 1099-NEC, 1099-R, 5498, W-9 and all related forms, schedules, and attachments.

Abstract: These forms, schedules and attachments are used by information return issuers when complying with Federal tax laws. This information collection covers the burden associated with preparing and issuing information returns and related forms, schedules, and attachments, and complying with published guidance.

Current Actions: The burden estimation methodology for information returns is being transitioned from the legacy Arthur D. Little (ADL) model to the RAAS Taxpayer Burden Model. The changes discussed above result in a burden hour estimate of 140,987,248, a decrease in total estimated time burden of 2,420,759,231 hours. The newly reported total out-of-pocket cost estimate is $6,179,662,122 and total monetized burden is $13,962,431,740. The change related to the transition of the burden estimate from the legacy ADL methodology to the RAAS Taxpayer Burden Model is a one-time change. In addition, changes are being made to forms included in this estimate to be current with enacted legislation.

Type of Review: Revision of a currently approved collection.

Affected Public: Information return issuers.

Estimated Number of Respondents: 79,536,100.

Estimated Total Time (Hours): 140,987,248.

Estimated Time per Respondent (Hours): 1 hour 46 minutes.

Estimated Monetized Time ($): 7,782,769,618.

Estimated Out-of-Pocket Costs ($): 6,179,662,122.

Estimated Total Monetized Burden ($): 13,962,431,740.

Note:

Total Monetized Burden = Out-of-Pocket Costs + Monetized Time

Note:

Reported time and cost burdens are national averages and do not necessarily reflect a “typical” case. Most taxpayers experience lower than average burden, with taxpayer burden varying considerably by taxpayer type.

Authority:44 U.S.C. 3501 et seq.

Appendix-A: Forms and Schedules

Appendix-B: Guidance Documents

91 FR 66942