Proposed Collection; Comment Request for Form 1040 and Schedules A, B, C, C-EZ, D, D-1, E, EIC, F, H, J, R, and SE, Form 1040A and Schedules 1, 2, and 3, and Form 1040EZ, and All Attachments to These Forms

DEPARTMENT OF THE TREASURY

Internal Revenue Service

Proposed Collection; Comment Request for Form 1040 and Schedules A, B, C, C-EZ, D, D-1, E, EIC, F, H, J, R, and SE, Form 1040A and Schedules 1, 2, and 3, and Form 1040EZ, and All Attachments to These Forms

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice and request for comments.

SUMMARY:

The Internal Revenue Service, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and continuing information collections, as required by the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). This notice requests comments on all forms used by individual taxpayers: Form 1040, U.S. Individual Income Tax Return, and Schedules A, B, C, C-EZ, D, D-1, E, EIC, F, H, J, R, and SE; Form 1040A and Schedules 1, 2, and 3; Form 1040EZ;

and all attachments to these forms (see the Appendix to this notice). With this notice, the IRS is also announcing significant changes to (1) the manner in which tax forms used by individual taxpayers will be approved under the PRA and (2) its method of estimating the paperwork burden imposed on all individual taxpayers.

DATES:

Written comments should be received on or before September 6, 2005 to be assured of consideration.

ADDRESSES:

Direct all written comments to The OMB Unit, SE:W:CAR:MP:T:T:SP, Internal Revenue Service, Room 6406, 1111 Constitution Avenue, NW., Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT:

Requests for additional information or copies of the form and instructions should be directed to Chief, RAS:R:TSBR, NCA 7th Floor, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 20224, or through the internet at

ChiefTSBR@irs.gov.

SUPPLEMENTARY INFORMATION:

Change in PRA Approval of Forms Used by Individual Taxpayers

Under the PRA, OMB assigns 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 individual 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) in OMB's database of approved information collections. If more than one form, recordkeeping requirement, and/or third-party disclosure requirement is approved under a single control number, then the burden estimate for that control number reflects the burden associated with all of the approved forms, recordkeeping requirements, and/or third-party disclosure requirements.

As described below under the heading “New Burden Model,” the IRS” new Individual Taxpayer Burden Model (ITBM) estimates of taxpayer burden are based on taxpayer characteristics and activities, taking into account, among other things, the forms and schedules generally used by those groups of individual taxpayers and the recordkeeping and other activities needed to complete those forms. The ITBM represents the first phase of a long-term effort to improve the ability of IRS to measure the burden imposed on various groups of taxpayers by the Federal tax system. While the new methodology provides a more accurate and comprehensive description of individual taxpayer burden, it does not estimate burden on a form-by-form basis, as has been done under the previous methodology. When the prior model was developed in the mid-1980s, almost all tax returns were prepared manually, either by the taxpayer or a paid provider. In this context, it was determined that estimating burden on a form-by-form basis was an appropriate methodology. Today, about 85 percent of all individual tax returns are prepared utilizing computer software (either by the taxpayer or a paid provider), and about 15 percent are prepared manually. In this environment, in which many taxpayers' activities are no longer as directly associated with particular forms, estimating burden on a form-by-form basis is not an appropriate measurement of taxpayer burden. The new model, 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 121 forms used by individual taxpayers. These include Forms 1040, 1040A, 1040 EZ, and their schedules and all the forms individual taxpayers attach to their tax returns (see the Appendix to this notice). For most of these forms, IRS has in the past obtained separate OMB approvals under unique OMB Control Numbers and separate burden estimates.

Since the ITBM does not estimate burden on a form-by-form basis, IRS is no longer able to provide burden estimates for each tax form used by individuals. The ITBM estimates the aggregate burden imposed on individual taxpayers, based upon their tax-related characteristics and activities. IRS therefore will seek OMB approval of all 121 individual tax forms as a single “collection of information.” The aggregate burden of these tax forms will be accounted for under OMB Control Number 1545-0074, which is currently assigned to Form 1040 and its schedules. OMB Control Number 1545-0074 will be displayed on all individual tax forms and other information collections. As a result of this change, burden estimates for individual taxpayers 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.” Since 74 of the 121 forms used by individual taxpayers are also used by corporations, partnerships, and other kinds of taxpayers, there will be a transition period during which IRS will report different burden estimates for individual taxpayers and for other taxpayers using the same forms. For those forms used by both individual and other taxpayers, IRS will display two OMB Control Numbers (1545-0074 and the OMB Control Numbers currently assigned to these forms) and provide two burden estimates. The burden estimates for individual taxpayers will be reported and accounted for as described in this notice. The burden estimates for other users of these forms will be determined under existing methodology based on form length and complexity.

New Burden Model

Data from the new ITBM revises the estimates of the levels of burden experienced by individual taxpayers when complying with the Federal tax laws. It replaces the earlier burden measurement developed in the mid-1980s. Since that time, improved technology and modeling sophistication have enabled the IRS to improve the burden estimates. The new model 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 new ITBM also represents a substantial step forward in the IRS' ability to assess likely impacts of administrative and legislative changes on individual taxpayers.

The ITBM's approach to measuring burden focuses on the characteristics and activities of individual taxpayers

rather than the forms they use.

1

Key determinants of taxpayer burden in the model are the way the taxpayer prepares the return (

e.g.

, with software or paid preparer) and the taxpayer's activities, such as recordkeeping and tax planning. In contrast, the previous estimates primarily focused on the length and complexity of each tax form. The changes between the old and new burden estimates are due to the improved ability of the new methodology to measure burden and the expanded scope of what is measured. These changes create a one-time shift in the estimate of burden levels that reflects the better measurement of the new model. The differences in estimates between the models do not reflect any change in the actual burden experienced by taxpayers. Comparisons should not be made between these and the earlier published estimates, because the models measure burden in different ways.

1

As IRS continues to develop the new burden model, the new method of estimating burden will be expanded to cover other groups of taxpayers (corporations, partnerships, tax-exempt entities, etc.).

Methodology

Burden is defined as the time and out-of-pocket costs incurred by taxpayers to comply with the Federal tax system. For the first time, the time expended and the out-of-pocket costs are estimated separately. The new methodology distinguishes among preparation methods, taxpayer activities, types of individual taxpayer, filing methods, and income levels. Indicators of complexity in tax laws as reflected in tax forms and instructions are incorporated in the model.

The new model follows IRS' classification of taxpayer types: individual taxpayers are taxpayers who file any type of Form 1040. “Self-Employed” taxpayers are individual taxpayers who file a Form 1040 and a Schedule C, C-EZ, E, or F, or Form 2106. All other individual taxpayers using a Form 1040 are “Wage and Investment” taxpayers. The taxpayer's choice of preparation method is identified as a major factor influencing burden levels. The preparation methods are:

• Self-prepared without software

• Self-prepared with software

• Used a paid tax preparer

The separate types of taxpayer activities measured in the model are:

• Recordkeeping

• Form completion

• Form submission (electronic and paper)

• Tax planning

• Use of services (IRS and paid professional)

• Gathering tax materials

Taxpayer Burden Estimates

Tables 1, 2, and 3 show the burden model estimates. In tax year 2003 the burden of all individual taxpayers filing Forms 1040, 1040A or 1040EZ averaged about 23 hours per return filed, or a total of more than 3 billion hours. Similarly, the average out-of-pocket taxpayer costs were estimated to be $179 per return filed or a total of $23.4 billion. Including associated forms and schedules, taxpayers filing Form 1040 had an average burden of about 30 hours, taxpayers filing Form 1040A averaged about 9 hours, and those filing 1040 EZ averaged about 7 hours.

The data shown are the best estimates from tax returns filed for 2003 currently available as of June 27, 2005. The estimates are subject to change as new forms and data become available. Estimates for combinations of major forms and schedules commonly used will be available and the most up-to-date estimates and supplementary information can be found on the IRS Web site:

http://www.irs.gov.

Proposed PRA Submission to OMB

Title:

U.S. Individual Income Tax Return.

OMB Number:

1545-0074.

Form Numbers:

Form 1040 and Schedules A, B, C, C-EZ, D, D-1, E, EIC, F, H, J, R, and SE; Form 1040A and Schedules 1, 2 and 3; Form 1040EZ; and all attachments to these forms (see the Appendix to this notice).

Abstract:

These forms are used by individuals to report their income tax liability. The data is used to verify that the items reported on the forms are correct, and also for general statistics use.

Current Actions:

Changes are being made to the forms and the method of burden computation.

Type of Review:

Extension of currently approved collections.

Affected Public:

Individuals or households.

Estimated Number of Respondents:

130,200,000.

Total Estimated Time:

3.0 billion hours.

Estimated Time Per Respondent:

23.3 hours.

Total Estimated Out-of-Pocket Costs:

$23.4 billion.

Estimated Out-of-Pocket Cost Per Respondent:

$179.

Table 1.—Taxpayer Burden for Individual Taxpayers Who Filed Form 1040, by Preparation Method

Major form filed or type of

taxpayer

Number of returns (millions)

Average burden

Average for all preparation methods

Hours

Costs (dollars)

Self-prepared without tax software

Hours

Costs (dollars)

Self-prepared with tax software

Hours

Costs (dollars)

Prepared by paid professional

Hours

Costs (dollars)

All Taxpayers Filing Form 1040, 1040A and 1040EZ

130.2

23.3

$179

16.4

$17

27.9

$44

22.9

$268

Major Form Filed:

Taxpayers Filing Form 1040 (and associated forms)

88.2

30.5

242

26.9

$21

36.6

52

28.7

338

Taxpayers Filing Form 1040A (and associated forms)

23.3

9.1

62

10.8

29

11.5

44

7.4

82

Taxpayers Filing Form 1040EZ

18.7

7.2

29

7.0

1

10.1

9

5.5

60

Type of Taxpayer *:

Wage and Investment

94.6

11.8

93

11.5

14

17.8

35

9.0

142

Self-Employed

35.6

53.9

410

48.5

31

68.4

81

53.9

522

Note:

Detail may not add to total due to rounding.

* You are a “Wage and Investment” taxpayer (as defined by IRS) if you did not file a Schedule C, Schedule C-EZ, Schedule E, Schedule F, or Form 2106. If you filed a Schedule C, Schedule C-EZ, E, or F, or Form 2106, you are a “Self-Employed” taxpayer.

Table 2.—Taxpayer Burden for Taxpayers Who Filed Form 1040, by Preparation Method

Type of taxpayer * and common combinations of forms filed

Average burden

Average for all preparation methods

Hours

Costs (dollars)

Self-prepared without tax software

Hours

Costs (dollars)

Self-prepared with tax software

Hours

Costs (dollars)

Prepared by paid professional

Hours

Costs (dollars)

Common Filing Combinations of Wage & Investment Taxpayers

Wage and Investment Taxpayers

11.8

$93

11.5

$14

17.8

$35

9.0

$142

Form 1040 and other forms and schedules, but not Schedules A and D

9.2

88

12.2

17

15.8

34

6.6

118

Form 1040 and Schedule A and other forms and schedules, but not Schedule D

16.3

126

19.2

17

22.6

41

11.9

198

Form 1040 and Schedule D and other forms and schedules, but not Schedule A

17.6

159

22.5

14

27.3

48

12.9

223

Form 1040 and Schedules A and D and other forms and schedules

24.6

239

32.8

13

35.4

44

18.1

365

Common Filing Combinations of Self-Employed Taxpayers

Self-Employed Taxpayers

53.9

$410

48.5

$31

68.4

$81

53.9

$522

Form 1040 and Schedule C and other forms and schedules, but not Schedules E or F or Form 2106

59.4

245

51.4

24

74.6

63

56.1

323

Form 1040 and Schedule E and other forms and schedules, but not Schedules C or F or Form 2106

44.7

591

37.5

43

57.7

100

42.8

717

Form 1040 and Schedule F and other forms and schedules, but not Schedules C or E or Form 2106

34.8

238

38.1

37

49.7

81

34.8

238

Form 1040 and Form 2106 and other forms and schedules but not Schedules C, E, or F

55.4

242

42.0

32

62.5

80

55.8

283

Form 1040 and forms and schedules including more than one of the SE forms (Schedules C, E, or F or Form 2106)

69.4

618

72.0

40

88.3

99

65.7

746

* You are a “Wage and Investment” taxpayer (as defined by IRS) if you did not file a Schedule C, Schedule C-EZ, Schedule E, Schedule F, or Form 2106. If you filed a Schedule C, Schedule C-EZ, E, or F, or Form 2106, you are a “Self-Employed” taxpayer.

Table 3.—Taxpayer Burden for Taxpayers Who Filed Form 1040, by Activity

Form or schedule

Percent of returns filed (percent)

Average time burden of taxpayer activities (hours per return)

Total time

Recordkeeping

Tax planning

Form completion

All other activities

Average costs per return

(dollars)

All Taxpayers

100%

23.3

14.1

3.2

3.2

2.8

$179

Form 1040

68

30.5

19.1

4.2

3.8

3.5

242

Form 1040A

18

9.1

4.3

1.1

1.9

1.8

63

Form 1040EZ

14

7.2

2.5

1.5

2.1

1.2

29

Type of Taxpayer *

100

Wage and Investment

73

11.8

5.0

2.3

2.7

1.8

93

Self-Employed

27

53.9

38.1

5.8

4.4

1.2

410

Note:

Detail may not add to total due to rounding.

* You are a “Wage and Investment” taxpayer (as defined by IRS) if you did not file a Schedule C, Schedule C-EZ, Schedule E, Schedule F, or Form 2106. If you filed a Schedule C, Schedule C-EZ, E, or F, or Form 2106, you are a “Self-Employed taxpayer.”

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB Control Number.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Request for Comments

Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital

or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Approved: July 6, 2005.

R. Joseph Durbala,

Acting IRS Reports Clearance Officer.

Appendix

OMB No.

Form

Title

0028

926

Return by a U.S. Transferor of Property to a Foreign Corporation.

0043

970

Application To Use LIFO Inventory Method.

0047

982

Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment.

0074

1040 (SCH A)

Itemized Deductions.

0074

1040 (SCH B)

Interest and Ordinary Dividends.

0074

1040 (SCH C)

Profit or Loss From Business.

0074

1040 (SCH D)

Capital Gains and Losses.

0074

1040 (SCH E)

Supplemental Income and Loss.

0074

1040 (SCH F)

Profit or Loss From Farming.

0074

1040 (SCH R)

Credit for the Elderly or the Disabled.

0074

1040 (SCH SE)

Self-Employment Tax.

0074

1040 (SCH J)

Income Averaging for Farmers and Fishermen.

0074

1040 (SCH EIC)

Earned Income Credit.

0074

1040 (SCH H)

Household Employment Taxes.

0074

1040 (SCH D-1)

Continuation Sheet for Schedule D.

0074

1040 (SCH C-EZ)

Net Profit From Business.

0121

1116

Foreign Tax Credit.

0134

1128

Application To Adopt, Change, or Retain a Tax Year.

0073

1310

Statement of Person Claiming Refund Due a Deceased Taxpayer.

0139

2106

Employee Business Expenses.

1441

2106 EZ

Unreimbursed Employee Business Expenses.

0071

2120

Multiple Support Declaration.

0140

2210

Underpayment of Estimated Tax by Individuals, Estates, and Trusts.

0140

2210 F

Underpayment of Estimated Tax by Farmers and Fishermen.

0070

2350

Application for Extension of Time To File U.S. Income Tax Return.

0145

2439

Notice to Shareholder of Undistributed Long-Term Capital Gains.

0068

2441

Child and Dependent Care Expenses.

0067

2555

Foreign Earned Income.

1326

2555 EZ

Foreign Earned Income Exclusion.

0152

3115

Application for Change in Accounting Method.

0155

3468

Investment Credit.

0159

3520

Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.

0895

3800

General Business Credit.

0062

3903

Moving Expenses.

0162

4136

Credit for Federal Tax Paid on Fuels.

0059

4137

Social Security and Medicare Tax on Unreported Tip Income.

0166

4255

Recapture of Investment Credit.

0172

4562

Depreciation and Amortization.

0173

4563

Exclusion of Income for Bona Fide Residents of American Samoa.

0177

4684

Casualties and Thefts.

0184

4797

Sales of Business Property.

0187

4835

Farm Rental Income and Expenses.

0191

4952

Investment Interest Expense Deduction.

0192

4970

Tax on Accumulation Distribution of Trusts.

0193

4972

Tax on Lump-Sum Distributions.

0803

5074

Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands (CNMI).

0203

5329

Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.

0704

5471

Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

0216

5713

International Boycott Report.

0219

5884

Work Opportunity Credit.

0712

6198

At-Risk Limitations.

0227

6251

Alternative Minimum Tax—Individuals.

0228

6252

Installment Sale Income.

0231

6478

Credit for Alcohol Used as Fuel.

0619

6765

Credit for Increasing Research Activities.

0644

6781

Gains and Losses From Section 1256 Contracts and Straddles.

0790

8082

Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).

0881

8271

Investor Reporting of Tax Shelter Registration Number.

0889

8275

Disclosure Statement.

0889

8275 R

Regulation Disclosure Statement.

0908

8283

Noncash Charitable Contributions.

0915

8332

Release of Claim to Exemption for Child of Divorced or Separated Parents.

1210

8379

Injured Spouse Claim and Allocation.

0930

8396

Mortgage Interest Credit.

1008

8582

Passive Activity Loss Limitations.

1034

8582 CR

Passive Activity Credit Limitations.

0984

8586

Low-Income Housing Credit.

1021

8594

Asset Acquisition Statement.

1007

8606

Nondeductible IRAs.

0988

8609 (SCH A)

Annual Statement.

1035

8611

Recapture of Low-Income Housing Credit.

0998

8615

Tax for Children Under Age 14 With Investment Income of More Than $1,600.

1002

8621

Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

1032

8689

Allocation of Individual Income Tax to the Virgin Islands.

1031

8697

Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.

1073

8801

Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts.

1620

8812

Additional Child Tax Credit.

1128

8814

Parents' Election to Report Child's Interest and Dividends.

1173

8815

Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989.

1505

8820

Orphan Drug Credit.

1190

8824

Like-Kind Exchanges.

1205

8826

Disabled Access Credit.

1288

8828

Recapture of Federal Mortgage Subsidy.

1266

8829

Expenses for Business Use of Your Home.

1282

8830

Enhanced Oil Recovery Credit.

1374

8834

Qualified Electric Vehicle Credit.

1362

8835

Renewable Electricity and Refined Coal Production Credit.

1829

8836

Qualifying Children Residency Statement.

1552

8839

Qualified Adoption Expenses.

1410

8840

Closer Connection Exception Statement for Aliens.

1411

8843

Statement for Exempt Individuals and Individuals With a Medical Condition.

1444

8844

Empowerment Zone and Renewal Community Employment Credit.

1417

8845

Indian Employment Credit.

1414

8846

Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.

1416

8847

Credit for Contributions to Selected Community Development Corporations.

1561

8853

Archer MSAs and Long-Term Care Insurance Contracts.

1567

8854

Initial and Annual Expatriation Information Statement.

1910

8858

Information Return of U.S. Persons With Respect to Foreign Disregarded Entities.

1584

8859

District of Columbia First-Time Homebuyer Credit.

1606

8860

Qualified Zone Academy Bond Credit.

1569

8861

Welfare-to-Work Credit.

1619

8862

Information To Claim Earned Income Credit After Disallowance.

1618

8863

Education Credits.

1924

8864

Biodiesel Fuels Credit.

1668

8865

Return of U.S. Persons With Respect to Certain Foreign Partnerships.

1622

8866

Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method.

1722

8873

Extraterritorial Income Exclusion.

1804

8874

New Markets Credit.

1805

8880

Credit for Qualified Retirement Savings Contributions.

1810

8881

Credit for Small Employer Pension Plan Startup Costs.

1809

8882

Credit for Employer-Provided Childcare Facilities and Services.

1807

8885

Health Coverage Tax Credit.

1800

8886

Reportable Transaction Disclosure Statement.

1911

8889

Health Savings Accounts (HSAs).

1928

8891

U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans.

1914

8896

Low Sulfur Diesel Fuel Production Credit.

NEW

8898

Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possesion.

NEW

8900

Qualified Railroad Track Maintenance Credit.

NEW

8903

Domestic Production Activities Deduction.

NEW

8904

Marginal Wells Oil and Gas Production Credit.

0007

T (Timber)

Forest Activities Schedules.

[FR Doc. 05-13593 Filed 7-7-05; 8:45 am]

BILLING CODE 4830-01-P