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Annette Nellen
Time to move Sec. 7523 budget information into the Digital Age

When was the last time you or your clients flipped through the instruction booklet for Form 1040?

November 8, 2012
by Annette Nellen, Esq., CPA

Since the Form 1040 instruction booklet is no longer mailed to filers and few people are likely printing it from the IRS website or reading it online, most of the roughly 140 million individual filers miss some federal budget information. That information consists of two pie charts that are required to be included in the instruction booklet for Form 1040, U.S. Individual Income Tax Return, under Sec. 7523. This provision was added by the Omnibus Budget Reconciliation Act of 1990 (OBRA), P.L. 101-508, effective for the 1991 instruction booklets.

This article includes the income and outlay pie charts for a few years (in case you missed them in the online instruction booklets). Suggestions for better dissemination and improvement of the data are offered.

Background

The legislative history for Sec. 7523 noted that income and outlay charts for the federal government had been included in Publication 17, Your Federal Income Tax. OBRA called for the charts to be included in the Form 1040 instructions. The categories of income and outlays for the charts are spelled out in Sec. 7523 (see the charts below). Three footnotes are also required (see footnotes 2 to 4 to the 2010 data below).

Given the number of individuals required to file Form 1040, placement of the pie charts in the Form 1040 instructions, which was mailed to filers in 1991, was an effective way to distribute the information. However, the IRS stopped mailing the instruction booklets starting with returns for 2010, and mailings had dropped prior to this 2010 decision. The IRS reported that for 2009, just 8% of individuals received a booklet in the mail due to the increase in filers using a paid preparer, software, and e-filing. (See IRS, “Tax Package Mailing to End Following Growth of e-File.”)

Selected charts from 1990 to 2010

The most recently published pie charts reproduced here are from page 97 of the 100-page 2011 Form 1040 booklet.

1

The pie charts first published per Sec. 7523 in the 1991 instructions are reproduced below.

2
3

 

For contrast with the 1990 and 2010 data, the pie charts for 2000, from the 2001 Form 1040 instructions, are reproduced below.

4

How to improve use of the pie chart data

The most obvious improvement for getting the pie chart budget data to individuals would be to amend Sec. 7523 to require that the charts be posted on the IRS website. An easy-to-find link for federal budget information should be required. The pie charts for all years back to at least 1990 should be available. The information should continue to be included in the Form 1040 instructions as well.

Additional suggestions to improve both the dissemination of the data and its usefulness include the following:

  • Require the budget data link that should be added to the IRS website to be included on the website of every member of Congress, Treasury, the White House, and the Congressional Budget Office. While IRS.gov is a popular website, inclusion of the data on other websites will help with its distribution.
  • The data website should include a note encouraging viewers to include the link on their own website and provide a descriptor (title) and logo to help identify the data and its source.
  • Include the dollar amounts along with each percentage noted in the charts.
  • Include a pie chart showing categories of tax expenditures and the percentage and dollar amount for each. For example, the tax expenditures for the tax preferences for education (such as the lifetime learning credit and Coverdell education savings account) would be combined under the category of education spending.
  • Include a pie chart showing how the total amount of tax expenditures are allocated to different types of filers (individuals, corporations, etc.) and how the ones used by individuals are claimed by different groups of individual filers based on adjusted gross income.
  • Provide the national debt figure and each person’s share of it and show this data for the past three years.
  • Include explanations of the budget items, the budgeting process, and the concept of tax expenditures.
  • Include the names, web addresses, and email addresses of members of Congress so website viewers can ask questions about the budget data or seek additional information.
  • Allocate funds to have an appropriate government agency find appropriate public websites for posting the budget link information or running pop-up ads to help more people be aware the availability of the data.

Looking forward

Easy access to budget information was a good idea in 1990, and it is still a good idea. But Congress’s approach for 1990 has outlived its effectiveness because today few individuals need to access the Form 1040 instructions. Those who do access it online will likely use the “find” feature of their browser to obtain the information they seek for preparing their return and not see the budget pie charts. Moving the budget information to the websites of the IRS, all members of Congress, and other federal websites should result in millions of individuals finding it.

When instruction booklets were mailed to individuals, the information was “pushed” out to a broad audience. Having it on the website alone is passive and will not achieve the original intent of Sec. 7523 to get the information in the hands of millions of individuals. Continued work on ways to push the information should be explored. A proposal by Rep. Jim McDermott, D-Wash., for a detailed taxpayer receipt calls for that receipt to be mailed to individuals (H.R. 1583 (112th Congress)). The taxpayer receipt proposal of Rep. Michael Quigley, D.-Ill., and Sen. Bill Nelson, D-Fla., calls for finding a way to email the receipt to taxpayers soon after they file their return (H.R. 1527 (112th Congress) and S. 437 (112th Congress)).

With tax reform and addressing the federal debt likely activities for the upcoming 113th Congress, modernizing Sec. 7523 this year would improve government transparency and better enable individuals to understand and contribute to discussions and actions to reform our tax system.

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Annette Nellen, Esq., CPA, is a tax professor and director of the MST Program at San José State University. She is an active member of the tax sections of the AICPA, ABA, and California State Bar. She chairs the AICPA’s Individual Income Taxation Technical Resource Panel. She has several reports on tax policy and reform and a blog.