Benefits & ERISA Law

Potential for IRS Data Mining Created by New Form 5307

By Suzanne Wynn

The new edition of Employee Plan News, released today by the IRS, contains this warning information about the new Form 5307 - it is important that customers send in the original copy of the application and not a photocopy. Photocopies of the bar code will not scan properly.

It seems that the bar code contains important information that will be optically scanned into the IRS’ computer system. What information the IRS is optically scanning from the bar code is not known. The same edition of Employee Plan News contains information that the DOL/EBSA is moving forward with the development of the EFAST2 system, which will receive, process, store, publicly disclose, distribute, and archive approximately one million Form 5500 submissions filed annually via the Internet. Mandatory electronic filing of Form 5500 is required for plan year 2009 filings, which will be filed in 2010.

Additionally, in this edition of Employee Plan News, Monika Templeman explains that one of the IRS’ critical priorities for this year is to target noncompliance through data-drive case selection methodologies.

In the private sector, this is called data mining and has been going on for years. It is a little disquieting that the IRS will be data mining both Form 5307s and Form 5500s. The new Form 5307 was first announced in Announcement 2008-23, and is available now. Use of the new Form 5307 becomes mandatory beginning Octoboer 1, 2008.

The IRS will still permit practitioners to create their own version of IRS bar coded Form 5307s and Schedules 8717 and 8905 by following the procedures in Publication 1167. The IRS notes that:

The substitute version of the form that is created MUST mirror (exactly) the IRS-printed Form 5307. (emphasis provided by the IRS).

The IRS is offering a limited number of paper copies of Form 5307 and Schedules 8717 and 8905, imprinted with bar codes for optical scanning through their form ordering service at 1-800-TAX-FORM.

Full post as published by Pension Protection Act Blog on June 23, 2008 (boomark / email).