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D. Murali

THERE are two things certain in life, they say. Death and taxes. And for the many who spend sleepless nights, it may not be death that daunts them but the taxman who stalks their nightmares. He is after our lives, the harried taxpayers fret often, but in the US they are putting LIFE into the tax system.

A new scheme launched by the Internal Revenue Service (IRS) - the nation's tax collection agency that provides America's taxpayers "with top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all" - is called the Limited Issue Focused Examination (LIFE).

The IRS Web site informs that its large and mid-size business (LMSB) division - that serves taxpayers with assets in excess of $10 million - is implementing this "new streamlined examination process".

LIFE hinges on enhanced interaction between the IRS and the taxpayer, "working together on the issues most significant to the return, resulting in a more focused examination and reduced resource utilisation." A major `culture shift' and an effort, it asserts, "to institutionalise `best practices' and provide consistency in the treatment of taxpayers." LIFE initiative would involve a formal agreement, a memorandum of understanding (MoU), between the IRS and taxpayer to govern key aspects of the examination. It will specify `dollar-limit thresholds'. These would be established on a case-by-case basis. While the IRS will agree not to raise issues below the threshold, the taxpayer, on his part, will agree not to file claims above the brink. One may call it a `live-let live' policy, or a win-win scenario.

Life after LIFE is forecast as "an atmosphere where the examination process is less difficult, less time-consuming, less expensive and less contentious for all involved". Thus, working together, both the IRS and the taxpayer are expected to focus their resources and time on the issues most significant to the return under examination. The MoU has to set out the scope of issues under examination and the time span during which the examination will occur. When a MoU is in place, the participating taxpayer agrees to provide the IRS with computations and work-papers that document and explain the issues under examination. The only occasions when there could be breach of threshold are situations of fraud, a tax shelter issue, a coordinated issue, or an issue that runs contrary to public policy.

There are high hopes pinned on LIFE. But as the LMSB Commissioner, M Larry Langdon, puts it poetically, "LIFE is a two-way street." For, to make it work, both the taxpayers and the taxman have to work cooperatively.

If our Finance Minister decides to implement a similar scheme, he might most likely call it `Seema' for limit, since we already have ample `S' words such as Saral, Samman, and so on.

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