In Defense of Checking With IRS

Republican members of House Ag have written to USDA objecting to the requirement that producers sign IRS forms granting FSA access to their data (see this post). From the letter:

We did offer a choice to producers. Congress allowed for a verification of income statement, prepared by a certified public accountant or another third party acceptable to you, to be submitted every three years that confirms the producer’s adjusted gross income which makes he or she eligible to receive payment.

By forcing every producer to give USDA the power to verify with the IRS information submitted by the farmer or rancher takes away this choice, unnecessarily invades privacy and contravenes the intent of Congress. We, of course, do not want ineligible producers receiving payments, but Congress provided an explicit mechanism to address the problem without involving the IRS

So why would FSA bureaucrats do differently? Basically because it's easier, more accurate, less expensive and less revealing of private data. Other than that, the Republicans' suggestion would create jobs, increasing the employment of CPA's, so no doubt FSA should scrap its plan and go with the Republican one.

Shall I explain? (Note, I don't really know what FSA is planning, but I know the sort of proposal I would take to USDA management and IRS, if I were still there.)

Very simply put:

• FSA would create a file of the tax ID's of the producers subject to the AGI limit.
• FSA would give the file to IRS.
  
• IRS would, from their data, create a file of tax ID's whose tax return shows an AGI amounts over $500,000 (or whatever is the appropriate figure). Note the actual amount wouldn't be on the file, just the fact the AGI level was exceeded.
  
• IRS would match the data on the two files, and create a return file showing the tax ID's of the matches.
• FSA would take the return file and sit down with the producers to resolve the discrepancy between their statement that their AGI was below the limit and IRS indication it was above.

That solution appeals to a DC bureaucrat--it treats everyone the same, all the work of handling people who are complying with the rules (i.e. 99 percent) is done by computers, and you only have to disturb people when there's a good possibility of a problem of fraud.

I'm not sure what appeals to a county office bureaucrat--is it easier to explain to a producer why he or she needs to sign the IRS form or why they need to get a CPA? My guess is the latter.

Far be it from me to suggest that any farmer would ever have a CPA lie, but as a taxpayer I'd sooner trust IRS's report.

It would be an interesting question to see if Pell Grants are checked with IRS. See this for required documents