THE United States Internal Revenue Service (IRS) has agreed to set timelines for phased implementation of Real Time Tax (RTT) process.

RTT is a system conceived to improve verification of contents of information returns submitted by third parties with individual income tax returns. Its successful implementation would obviously check under-assessment of tax and improve revenue.

IRS communicated this decision to the Government Accountability Office (GAO) through a letter dated 28 th May 2013 in response to the latter's recommendations in its report captioned ‘Tax Refunds - IRS Is Exploring Verification Improvements, but Needs to Better Manage Risks'. GAO annexed IRS letter in its report released on 4 th June.

The letter says: "The IRD agrees with GAO that a timeline for critical phases and essential activities and a risk management framework, will help managers assess progress of the real time tax exploratory effort and provide the information needed to weigh potential risks, costs and benefits. We will address these items as the IRS continues to explore the real time tax concept.

In early 2011 the then IRS Commissioner outlined a vision for a RTT system-a strategy to improve verification by matching third party information to income tax returns before refunds are issued. IRS started exploring options for RTT later that year.

Noting that IRS's exploratory efforts are in their early stages and RTT concept would transform into a concrete mechanism over time, GAO had recommended that IRS identify time frames for RTT exploratory effort's critical phases and essential activities and develop a risk management framework for RTT that includes a record of risk analyses.

According to the report, the Internal Revenue Service (IRS) receives few information returns before issuing most tax refunds. In 2012, IRS issued 50 percent of tax year 2011 refunds to individuals by the end of February, but had only received 3 percent of information returns. Most information returns are not received by IRS until after mid-April, and IRS conducts the first match of tax and information returns in July, with subsequent matches in February and May of the following year. For tax year 2010, over a year passed on average before IRS notified taxpayers of matching discrepancies, and IRS recognizes that this long time lag burdens taxpayers.

GAO has concluded that "Real Time Tax has the potential to provide substantial benefits, including reducing taxpayer burden and improving compliance by moving some information matching earlier in the tax season. However, it also may require significant and possibly costly changes to tax administration and impose new burdens on third parties. Careful consideration of risks and alternatives for mitigating those risks is crucial in weighing the potential benefits and costs of Real Time Tax options."

The report says: "While IRS has taken important steps in exploring the feasibility of Real Time Tax, much remains unknown because the exploratory effort is still underway. IRS has not yet developed time frames for the exploratory effort's critical phases and essential activities, and we anticipate IRS may revise time frames as it obtains new information from its exploratory efforts. In addition, IRS has not created a risk management framework, which would provide valuable information about potential costs and benefits to IRS management."

It adds: "Given the potential scope of a Real Time Tax system, both agreed-upon time frames and a record of risk management considerations are likely to be important management tools that will help inform IRS management's decisions about the future of Real Time Tax and help Congress oversee IRS's efforts."