Burden Decrease Justification

Page 1 of 3

Brown Carolyn N
From:

Kirkland Glenn P

Sent;

Tuesday, May 15,2007 8:21 AM

To:

Durbala R Joseph; Brown Carolyn N

Subject: FW: Forms 8903 and 8913 ICE burden -- revised volume estimates for review
Add to file for these ICRs.
Thanks,
Glenn

From: Hunt, Alexander T. [mailto:[email protected]]
Sent: Monday, May 14,2007 7:03PM
To: Guyton lohn; Kroening, Linda M.
Cc: Hedemann Janice M; Kirkland Glenn P; Sottile Sue M; Tavenner Carolyn A; Lee Wu-Lang;
[email protected]; [email protected]; john [email protected];
Robert.Da [email protected]; Williams David R; Bayder Helene 0; Potter, Rachel F.; Larson, Lauren
Subject: RE: Forms 8903 and 8913 ICB burden -- revised volume estimates for review
John et al -- Thanks for providing these revised estimates. We will use these updated estimates in the
forthcoming ICE.

GlennlRobert -- Please submit non-substantive change requests that adjust the burden to reflect the revised
volume and burden numbers.

From: Guyton lohn [mailto:[email protected]]
Sent: Friday, May 11, 2007 1:23 PM
To: Kroening, Linda M.
Cc: Hunt, Alexander T.; Hedemann Janice M; Kirkland Glenn P; Sottile Sue M; Tavenner Carolyn A; Lee Wu-Lang;
[email protected]; [email protected]; [email protected];
Robert.Dahl @do.treas.gov; Williams David R; Bayder Helene B
Subject: Forms 8903 and 89 13 ICB burden -- revised volume estimates for review
Hi Linda --

I believe Alex has already addressed your first question below.
In response to your second two questions, 1 have provided the attached spreadsheet with updated CY2007
estimates of 300K and 2.4M non-business taxpayers for Forms 8903 and 8913, respectively.
If flscal year estimates are needed we will need to modify the volume estimates and resign ourselves to talking
about 8913 again in next year's ICB.
These estimates, while substantially below what was expected, reflect the current best estimates based on
available actuals for 8913 from last year and part~alyear data from t h ~ sfiling season for both forms.
Quantifying the impact of the take up rate lor these two credits required a fair bit of professional judgrient, but I
believe I was well guided in this regard.
I would l~keto thank David Williams, Carolynn Tavenner and her staff, along with Allen terman, Susan Nelson,
and John McClelland form OTA, for support of my statf w~thdata and assistance with the estimates.
Per Alex's request, I have also updated and attached the relevant IRS chapter of the ICB to reflect these changes
(except as noted) and expanded the TETR sect~onto add discussion of 1040-€2-T.
My suggested changes are tracked to assist your review. Please let me know if you have questions or if my
forecasting staff may be of further assistance.

Page 2 of 3

-- John
John Guyton
Chief, Forecasting & Service Analysis
IRS NHQ Office of Research
1RS:RAS:R
2028740607

From: Kroening, Linda M. rmailto;[email protected]]
Sent: Thursday, May 03, 2007 5:45 PM
To: Guyton John
Cc: Hunt, Alexander T.; Hedemann Janice M
Subject: RE: Form 8913 burden
Hi John, me again. We need some additional info. re: the burdens so that hopefully we can explain them better in
the report. So anything you can give us re: the following questions is much appreciated.

1. Can we quantify how much of the projected increase from 05 to 06 is from the shift in methodology?
2. For the manufacturing production credit, where did the 27 million filers come from? It seems high for # of
manufacturers although I recall that the way the statute defined "manufacture" was reatly loose. But if you
could give us some idea how you got that number.
3. For the Form 8913, could you give us the numbers of individuals we thought wouldlcould use the form?
Same for non-individuals?
We are running out of time to revise the report so anything you can get to us sooner rather than later will help.
Thanks much.

PS - Hi Janice.

From: Guyton John [mailto:[email protected]]
Sent: Thursday, May 03, 2007 1251 PM
To: Kroening, Linda M.
Cc: Hunt, Alexander T.; Hedemann Janice M
Subject: RE: Form 8913 burden
Hi Linda -The burden shown for 891 3 is only for the business use of this dual use form.
The individual portion is rolled up in the 1040-series burden estimates.
Only the individual portion is derived from the Individual Taxpayer Burden Model.
The business portion -- and thus the published 8913 eslimate -- are from the old AOL methodology adminrstered
by Forms and Publica!ions.
My understanding is that most of the taxpayers using 8913 are businesses as most ind~vidualselected the
standard amount.
1 should also add that the ICE is typ~callydeveloped prior to the filing season and thus reflects the expected
volume for a particular form.
1 think i t is no secret that that the actuals for TETR-related activity have come rn well below expectations.
The originally projected volume contributes significantly to the large 8913-related spike.
In contrast, and only due to an accident of this year's production schedule, the individual taxpayer TETR
provlslons were scored based on updated volume estimates from the mrddle of the filing season.
As such they do not reflect the h~ghvolume assumptions used for the 8913, or that we might have use prlor to the
start of the filing season.
You are welcome to give me a call if you'd like me to clarify t h ~ sfurther. I am on a call until 2:30 but available later
today.

-- John
Chief, Forecasting & Service Analysis
IRS HQ Off~ceof Research
1RS:RAS:R
202 874 0607

From: Kroening, Linda M. [mailto:[email protected]]
Sent: Thursday, May 03,2007 12:13 PM
To: Guyton John
Subject: Form 8913 burden
HI John, I understand that a big spike in the papenrvork burden this year relates to the Form 8913 for telephone
excise tax. How does the model work in estimating that? Does it calculate the burden based on taxpayers
eligible to claim the refund? So that all those that chose the safe harbor $30 would be in the original burden
estimate? Thanks.

2007 ICB proposed revisions estimated CY2007 volume avg time burden (hours) total time burden (hours)'
8903 business
300,000
31.88
8,700.000
8913 business & tax exempt
2,400,000
28.19
67,600,000

Source: volumes -- IRS:RAS:R, avg burden -- IRS Forms & Pubs
* Total may not match product of components due to independent rounding.

Chapter 3. Recent Developments in Taxpayer Burden
A continuous themc in OMB's annual reports to C a n g r e ~ son the Paperwork Reduction
Act has been the predominant role played by the Internal Revenue Service (IRS) in the
Federal government's information collection activities. Due 11, the nature of the Federal
income tax system, IRS atTects the lives and businesses of Americans like no other
agency. Accordingly, in FY 2006 IRS again accounted for a I:~rgeshare (79 perucrr t) of
the Federal government's reporting burden on Ihe public. As we report in this year's
ICB, significant changes in IRS burden have affected the government to~ail.

As shown in Figure 6, Treasury's share of all PFLA burden (made up slmost entirely of
IRS burden hours) has been close to YO percent since FY 1999. IRS experienced a slight
downward trend in burden over the past tbur tiscal years. T h ~ trend
s
stopped In FY 2006
with an increase in IRS burden that is expected to continuc in FY 2007. While IRS
administers a large number of information cnllec~ionsthat are subject to the PRA, three
collections in partiail:~explain much of the current developments in taxpayer burden.
This chapter discusses these three collections-a new form introduced in I
T 2006, a p a r
of related forms that will be used only once by taxpayers in FY 1007, and the individual
tax return. which was the focus of significant burden estimation and accounting changes
In Fk'2006.

I

Figure t Tr~asuqBurdena?a P e ~ ~ e W g e - A
o lfl Bur*n,u 1999 -

I$La

2000

2001

2M:

2003

nscel Year

Jm4

2005

2006

20(17 _

-

_

2007(8~0

-- - .

--

Cunrnent mil:Need to review this
c o r n a t . Ihe petcentages ciled atove.
Rgue 6,and other W t e d chapten Tor
chnngrs conforming to those nn& below
m h s chilmr.

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Form 8903: Domestic Production Activities Deduction

The Arneri~mJobs Creation Act of 2004 created ~ h Domestic
c
Product~onActiv~ties
Deduction, a tax benefit for certain domestic product ion activities. The new deductivn
and
provides a tax savings against income attributable to donlcstic production :~~,tivlties,
1s available for tax years beginning after December 3 1, 2004.
Qualified production activities include mat~ufacturing.produc~
ng. growing, and the
conslruction and substantla1 renc~vationof real property. Thz praiiuctiun of certain filtns
is also 3 qualifying activity as are certain engineering nr architectural services.

To help taxpayers s a l ~ u l a t et h ~ deduction,
s
IRS crzstcd Form 8903. Due to the
complexity of lhr: form and length of the instructions, IRS estimates that the average time
to complete i t for non-individual taxpayers is almost 32 hours. With 2pproximately 300
thousandpon-individual taxpayers expected to prepare and file Form 8903, lRS estimntes .
that the total burden of the new form 1sS.7million .hours
- - - fibr this population.
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345 4

Forms 8913 and 1040-EZ-T: The Telephone Excise Tax Refund
The telephone tax refund is a one-time payment availa hIc to taxpayers Filing a 2006
Federal income tax return. It is intended to refund previously collected Federal excise
taxes o n long-d~stanceor bundled servlce. It is available lo anyone who paid such taxes
on landline, wireless, nr Voice over Internet Protocol ( V o P ) service. IRS i s refilnding
the taxes paid on long-dihtance o r bundled service billed to taxpayers for the period after
Fzb. 28,2003, and before Aug. 1, 2006.

I

To understand the reasons behind this tax refund and the creation of Forms 8913 and
1040-EZ-T,one must begin with a three percent excise tax that was instituted in 1898 to
finance the Spanish-American war, and that had been legally collected for many years.
Due to recent changes in the telecommunications industry, part (but not all) of this tax
was n o longer appl~cable.The applicability of the tax bec:ime the subject of debate, and
was ultimately rcqolved by the courts.
Until the matter was resolved by the coutts, the IRS continued (npprt~priately)to collect
the laxes, and would have crlntinued collecting them if the IRS h ~ ultimately
d
prevailed
in the court cases. Once the issued had been resolved bs the courts, however, IRS needed
to stop collecting the excise tax and make refunds of already-paid taxes (back to the date
of thc initial court cases, which was over three yews ago).

1.
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While the avnilab~lityof this refund was guod news for taxpayers. the burden of
calculating and claiming the refundgay
hignificant. To assist laxpayers eligble for
thls one-tirne credit, IKS created Fomm $9 13, Credit for ~ederal-TelephoneExcise ?'ix
Paid. 1RS assumes that ne;irly 2 4rnillion non-individual tilzrs will file Form 8913, w ~ t h
an avcrage burden of ovcr 28 hours per filer. The large average burden is due to the

r~ileted:
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complexity of calculating the credit or refund. F ~ l r r sfor
, example, must have phone
records for each month of the refund period for w h ~ c ha credit o r retund is requested, and
they must calc.utatz the interest due on the refund. To reduce this burden, IRS developed
a Business and Nonprofit Estimat~onMetho4 that requires on1y six consecutive months uf
phone records. Even with this method, available to many taxpayers, the aggregate burden
fur non-individual taxpayers for this o n e - t h e col leution is$7 .h millirln hours
Burden associa tcd w ~ t hthe telephone excise tax incurred by individusls is covered uniler
control number 1545-0074, with the exception of certain individuals only filing a return
for purposes of claiming the credit. To meet the needs of these taxpayers, whom would
otherwise typ~cally not need to a file a return, IKS creatcd Form 1044.-EZ-T. This form is
only used for claiming the telephone excise tax refund and 1s covered under ui~ntrol#
XXXX-XXXX. Approximately one m~llionindividuals are expected to use this form
with an average burden of almost two and 3 halt' hours. The a s p e g a t e hurdcn tor this
one time collection, over 2.4 million hours, cornpates favorably with the higher burden
that would have been required had these ind~vidualsbeen requ~redto file a full income
tax return i n order to claim this credit.

Individual Tax Return Burden
As explained in last year's ICB, in FY 2006 IRS updated its burden estimation
methndology for calculating the PRA burden of individual taxpayers. Under LRS' next'
Individual Taxpayer Burden Mudel (lTBM), the aggregate burden for all individual
forms and schedules was estimated to be three b~lliunhours. This total burden figure
reflected the burden asl;i~intedwith Forms 1040. I040A, 1040EZ, 1WONR, or 1040NREZ, and their ussi)~.~ated
schedules and other tar forms that can be att:~chedto these
forms. Under the new methodology. call f o r m s used by individual Income taxpayers are
assigned a single control number: 15.15-0074.

The new three billion hour burden estimate was 1.44billion hours higher than was
previous1 y assigned lo Control Number 1545-0074. Much of this increase W A S due to
double counting of individual burden that had previousl y been accounted for in separate
information collections. Previously, each individual tax form was assigned a separate
control number. and each had u separate burden estimate. As noted above, the previously
separate burden estimates from other control numbers are now ~ncludedunder Control
Number 1555-0074. As a result. 1RS has had to (I ) discontinue OMB's approval ot'
individual tax h r m s now covet-ed tinder t 545-0074 and (2) adjust the burden ut' "dualuse" forms (i.e., those tiled by both individual and non-individual taxpayers) to reflect the
fact that the portion of burden imposed on individual taxpayers is now accounted for
under 1545-0074.
In last year's ICE, OMR reported that approximately 1.19 hilllon hours of the 1.44 billion
hour 1ncre:isc was due to double-counting. Since then, IRS has reviewed the burden
accounting changes and found that 93 million of the 1.19 billion hours w a s previously
accounted for under Control Number 1545-0074, arid should not have heen considered

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double counling. With this change, the total adjustment increase in individual taxpaycr
burden in FY 2006 was approximutrly 343 million hours, instead of 250 million hours.
This adjustment increase, however, rctlzcts a new e.dirtlnte crf burdctt, rwt an actual
ohnnge in burr1.ct.n imposed on taxpayers. For FY 2007,lRS estimates that the total
burden imposed on individual taxpayers i s 3.3 1 billion hours.
Annual burden changes estimated by ITBM ~ e f l e v tthe three major PRA catesfirles of
change: statutory changcs. 1RS discretionary changes, and adjustments Statutory
changes are retlected in the mudel by changing tax parumeters (such as the amount of he
AMT exemption for married taxpayers fillng jointly) and by making adjustments to the
mode1 code and input data to reflect new provisions. IRS discretionary changes are
reflected in the model by chancing administrative parameters (such as the Jvcurnentation
requirements for cla~niinga deductton for certain charitilble contributions) and by editing
the compliance burden attr~butesassociated with the forms, instructions, a t ~ pirblications
J
to reflect any changes. Adjustments made using ITBM fall i n t o three major
subcategories. ( I ) n change in the number of filers due to population or economic
changes; ( 2 ) changes in the Consumer Price Index and other ~ n f l a t ~ oand
n wage growth
adjustment factors: and (3) c h a n g s from technical adjustments made during the process
of inputt~ngupdated data ~ n t othc model. Each year, an updated input data file i s
incorporated into the model as the new data become ~vallable.The comh~natlonof these
three component K determines the annual adjustment in reported burden