Panel Seeks to Scrap April 15 Tax Deadline

Taxpayers will have to change a time-honored tradition if Congress accepts recommendations made Thursday to push back the federal income tax deadline one to two months past the current April 15 deadline.

The proposal was approved in a vote by the National Commission on Restructuring the Internal Revenue Service, which was appointed last year by Congress to find ways to improve the troubled tax agency’s operations.

The commission concluded that the April 15 deadline causes too great a crunch for taxpayers, employers and the IRS, leading to errors that are both costly for the government and frustrating for taxpayers. By pushing the date back, the commission asserted, employers would have more time to prepare correct W-2s and taxpayers would have more time to get tax returns in order.

“The reason we recommended this date change is that we want to smooth out the filing season for the taxpayer and the tax administration system,” said Rep. Rob Portman (R-Ohio), co-chairman of the commission. “Right now, there is this tremendous spike in activity around this one date that is counterproductive for the taxpayers and tax administration.”

Under the commission’s proposal, electronic tax returns would face a June 15 deadline and traditional paper tax returns a May 15 deadline. By allowing an extra month for electronic returns, the commission hopes that taxpayers would have an incentive to file by computer.

In a report that will be issued later this month, the commission will make 49 recommendations to improve the tax system. The changes include the appointment of an outside board to control the IRS, a suggestion that drew a sharp rebuke from Treasury Secretary Robert E. Rubin.

Rubin, however, declined to discuss the proposed change in the April 15 deadline, saying that the Treasury Department has not yet received the commission’s official recommendations.

The April 15 deadline is something of a national institution, and changing it is bound to have significant, if unforeseen, effects on the habits of Americans and potentially on the economy.

The multibillion-dollar tax-preparation industry is built around the April 15 deadline. The IRS hires more than 25,000 employees at its 10 regional service centers each spring to handle the rush. The postal system braces each year to handle the deluge of tax returns, and post offices stay open to midnight on April 15.

By extending and staggering the deadline for tax returns, Portman said, the commission hopes to relieve some of the current stress. In addition, regional IRS centers would not need to hire as many seasonal workers, who are increasingly difficult to recruit at the relatively low wages paid by the IRS.

The proposal also would include moving back the deadline for issuing W-2 and 1099 forms, which report wages and other income, by as much as a month, according to Ernie Dronenburg, a member of the restructuring commission and the chairman of the California Board of Equalization in Sacramento.

Small businesses object to the Jan. 31 deadline for issuing W-2s, saying that it is too soon after the end of the fiscal year.

Dronenburg said the recommendations are part of a thread that runs through the report to increase the use of electronic filing of tax returns. Such returns reduce errors, increase compliance and cut IRS costs, the report said.

The report noted that taxpayers and the IRS together make errors on 22% of paper tax returns, with mistakes divided between those made in mathematical calculations by tax preparers and those made by IRS personnel keypunching the returns into IRS computers.

By comparison, the error rate on electronic returns is below 5% because the math is done by computer and there is no IRS middleman typing in the returns.

“The idea is to get clean information in and get mistakes out,” Dronenburg said. “All those things could happen if we push the date back. All our recommendations circle around the fact that the customer has to be treated better.”

Portman and Dronenburg, as well as others, said Congress will have to consider a date change carefully because the economic effects could be significant.

A later date for filing returns could amount to an interest-free loan for the government because a great many Americans overpay their taxes during the year and receive refunds only after filing with the IRS in the spring. But Portman said taxpayers still could get early refunds by filing their returns earlier in the year.