1. Tax Compliance Report January 30 th, 2009

2. Major Themes of Study IRS and other states also have income tax compliance issues. Estimating the level of compliance is extremely complex. Level of compliance is just an estimate and can vary over time. Measuring improvement will be complex, too. We use a balanced approach to address compliance: education, assistance, and enforcement.

3. Major Themes of Study (cont.) Third-party reporting and verification is crucial to compliance. Complexity of the tax code contributes to noncompliance. We need to optimize audit case selection and improve some processes. Disclosure laws hinder our ability to partner with others to improve compliance.

6. What We Learned About Compliance in Oregon Taxpayers believe not paying taxes is serious; and believe they will be caught if they cheat by a large amount. 50+ percent of taxpayers use preparers. Third-party verification of income or deductions is critical to compliance. Withholding on salaries and wages contributes to very high degree of compliance.

7. What We Learned About Compliance in Oregon (cont.) The Department needs to be perceived as more aggressive in tax enforcement. The Department needs to increase enforcement efforts. Taxpayers comply because: –Moral/social reasons (want to contribute to well-being of society) –Fear of being audited or penalized

11. What We’re Doing to Improve Compliance We match our response to taxpayer’s behavior. –If taxpayers are willing to work with us, we’ll help. –If they are not willing to work with us, we’ll use enforcement tools.

12. Education and Assistance Taxpayer service call center Forms, publications, website Face-to-face in community Other outreach to practitioners and businesses

13. Verification and Audit 1.8 million 2007 personal income tax returns Adjustments in processing for obvious errors 10 field and satellite offices with audit staff CP 2000 (matching 3 rd party information from IRS to returns) Compliance focus areas: –Partnerships/other flow-through entities –Cash-based businesses

14. Verification and Audit (cont.) Challenges to audit program –Auditor turn over –Auditors take 3-5 years to become highly proficient –Outdated systems, processes Department lacks robust audit case management system

15. Collection and Filing Enforcement Collections transformation –Re-engineering processes –New tools –Automated call distributor (POP) –Make better use of private collection agencies Challenges to collections program –Outdated systems –Turnover of staff –Taxpayers don’t have sufficient understanding of penalties and interest

16. Collection and Filing Enforcement (cont.) –Lack of resources to detect, prevent criminal fraud –Confidentiality of Taxpayer Information Balance between privacy and effective administration Need to share some information with partner agencies Change only for income tax compliance and income tax crimes

17. Best Practices Collections –Develop a business intelligence platform –Automate self-service options –Data matching with bank account information –As much third-party information as possible, and the tools to use it –Case management systems –Analytical tools to select cases

18. Recommendations: What We Will Do Change how we use private collection agencies Extend collection hours Protect infrastructure of withholding program Use additional third-party information Improve audit methods, increase training Work with licensing boards to increase compliance

19. What We Will Do (cont.) Increase compliance by state contractors Develop tools for education in schools Develop policy option package for 2011 – criminal prosecution Explore feasibility of secure e-mail Evaluate core systems Evaluate reporting and withholding on real estate transactions beyond nonresidents

20. Recommendations: Policy Changes - 2009 Expand disclosure authority –Licensing boards –Board of Tax Practitioners; Board of Accountancy –State and local law enforcement –DOR and banking industry data match

21. Recommendations: Policy Changes - 2011 Consider proposals we will develop during interim: –Licensing – tax compliance as a requirement –State Contracts – verifying tax compliance –Withholding on real estate transactions – report on results and recommendations for enhancement

22. Recommendations: Additional Resources – 2009 (POP) Policy Option Package in Governor’s Budget Self-sufficiency website for taxpayers Automated call distributor Establish additional positions for collections Total cost of POP for 24 months = $ 6,373,976 (44 positions) GF dollars generated in 2009-2011 biennium = $19,304,956 Net revenue generation = $12,816,205

23. Recommendations: Additional Resources – 2011 Business intelligence platform Partnership return processing system Advertising about return preparers Possible POP for criminal prosecution Funding for periodic taxpayer surveys

24. Conclusion Tax compliance hard to measure Many factors contribute to noncompliance We have many strategies in place to improve compliance We can do more With your help, we believe we can have a greater impact on compliance