Background The overall objective of the Army Facilities Standardization Program is to achieve savings and benefits in the programing, design, and construction of Army facilities of excellence. To meet AFSP’s objectives in a timely, efficient, and cost-effective manner, the Army established the nine Centers in 2006 to support the AFSP, as shown in figure 1. The AFSP operates under the direction of the Army Facilities Standardization Committee (Committee). As shown in figure 2 below, the Committee is chaired by the Assistant Chief of Staff for Installation Management (ACSIM) and composed of members from USACE and the U.S. Army Installation Management Command (IMCOM). Each of these offices has representatives who are either full-fledged or advisory members of the Centers of Standardization Management Board (the Board). The Board members directly oversee the activities of the Centers and are responsible for developing performance measures and reporting them to the Committee. The Centers have primary responsibility for developing and managing Army standard design packages for designated facility types. The Centers, among other things, ensure that these standard designs and construction of projects comply with two other sets of facility guidelines: DOD’s Unified Facilities Criteria (Facilities Criteria) and general Army standards. As we previously reported, the Facilities Criteria are overarching, DOD-wide technical manuals and standards used for planning, design, construction, restoration, and maintenance of DOD facility projects. These criteria must be used to the greatest extent possible by all DOD components. They are developed through the joint efforts of the U.S. Army Corps of Engineers, the Naval Facilities Engineering Command, and the Air Force Civil Engineer Center, and they are approved by the Engineer Senior Executive Panel of the Unified Facilities Criteria Program. According to Army Regulation 420-1, Army standards are the immutable, unchanging, required facility elements and criteria that define the fundamental purpose and function of a facility’s design and construction. These Army standards are authorized by the Committee. Army standard designs define the facility key components, features, and characteristics that must be included in the design and construction or major renovation of all facilities of the same type regardless of location, available funding, command preferences, or installation mission. Essentially, Army standard designs may consist of architectural and engineering drawings as well as written design specifications that a construction team can easily adapt or modify for site-specific requirements. Figure 3 below compares Army standard designs with Facilities Criteria and general Army standards. In addition to developing and managing Army standard design packages, the Centers’ staff function principally as engineering and architectural consultants within larger project teams as they monitor and oversee the appropriate use of Army standard designs (as well as any incorporated Army standards or Facilities Criteria). According to Centers officials, 12 full-time and 21 part-time staff are currently dedicated to the Centers. Staff are located in USACE headquarters in Washington, D.C., as well as in eight USACE districts and one Engineering and Support Center. Each Center specializes in and is responsible for specific facility types and their designs. While the Centers support the Army’s overall efforts for standardization, not every Army facility is built according to a standard design. Appropriate Centers staff are required to review every proposed Army construction project at its outset and, if an installation has requested a waiver from an existing Army standard or standard design, all voting members of the Committee may authorize waivers in accordance with certain procedures. According to Centers officials, Army standard designs have been developed for about 70 regularly constructed facility types out of the Army’s nearly 900 facility types. For example, the Army has standard designs for fire stations, chapels, dining facilities, and weapons storage. (See appendix II for a listing of the 70 facility types that currently have standard designs or for which standard designs are under development.) According to Centers officials, the Centers’ 70 facility types account for approximately 60 percent of Army Military Construction (MILCON) projects and represent an estimated 55 percent to 70 percent of the overall Army MILCON budget for any given year. (See appendix III for information on overall DOD standardization program, including the Navy and Air Force standard design programs.) In fiscal year 2019, the Centers reported a combined annual budget of about $6.2 million for their operations and personnel. The Centers Have Engaged in Activities That Support Key Objectives and Are Consistent with Key Principles and Concepts in OMB Guidance The Centers identified and engaged in a number of activities designed to support the key objectives found in their charter and these activities are consistent with key principles and concepts in OMB guidance for a disciplined capital programming process. The Centers’ charter includes the following three objectives: (1) developing and refining Centers’ policies and processes; (2) assuring consistent application of standards of the Centers program; and (3) monitoring the Centers’ execution to meet the overarching objectives and priorities of the AFSP and standardization process. To meet the three objectives, the Centers engage in different activities throughout the military construction process. Figure 4 below shows the various points at which the Centers are involved in the life- cycle of a military construction project and examples of the activities in which the Centers engage. For example, Engineer Regulation 1110-3- 113 states that during the design phase of projects, the Centers maintain a lead role and will be the technical lead for coordination, review, and acceptance of design deliverables, including providing field technical assistance, identifying and advising when a waiver is required and coordinating with appropriate authorities in this matter, and reviewing and editing requests for proposal documents—activities that according to our analysis support the Centers’ second objective. Based on our review of supporting documentation from five projects that used standard designs, we found that the Centers were undertaking the activities mentioned above. In addition, activities in which the Centers engaged during the design, construction, and post-construction phases of these projects were consistent with key principles and concepts in OMB guidance. Specifically, we found evidence that, for these five projects, Centers’ staff participated as integrated members of the project delivery teams in planning meetings, design reviews, assessments of the need for standard design waivers, value engineering studies, and life-cycle cost analyses during the projects’ design and construction phases. These activities were consistent with key principles and concepts in OMB guidance for a disciplined capital planning process, including that agencies should use integrated project teams, as appropriate, to manage the various capital programming phases or major acquisition programs within the agency. In addition, we found that other Centers’ activities—performing post- occupancy evaluations (POE) and updating standard designs when applicable—were also consistent with key principles and concepts in OMB guidance for a disciplined capital planning process. For instance, we found that a POE was completed for one project, a post-occupancy questionnaire was completed for another project, a POE was planned during fiscal year 2020 for a third project, and a fourth project was still under construction. According to OMB capital programming guidance, POEs are tools to evaluate the overall effectiveness of an agency’s capital acquisition process. The primary objectives of a POE include (1) identifying how accurately a project meets its objectives, expected benefits, and strategic goals of the agency and (2) ensuring the continual improvement of an agency’s capital-programming process based on lessons learned. The guidance identifies factors to be considered for evaluation in conducting a POE, such as standards and compliance, customer/user satisfaction, and cost savings. The guidance also notes that a POE should generally be conducted 12 months after the project has been occupied, to allow time for the tenant to evaluate the building’s performance and relevant aspects of project delivery. However, the guidance allows agencies some flexibility in the timing of a POE to meet their unique needs if 12 months is not the optimal timing to conduct the evaluation. Our review of Centers guidance and project documents also found that the Centers’ activities supported the Centers’ objectives as well as AFSP objectives and priorities. In addition, Centers officials emphasized that the Centers participate in all Army standard design construction projects to ensure that the facility designs support the objectives of the AFSP, specifically improving the programing, design, and construction processes for Army facilities. As shown in table 1 and further outlined below, we assessed whether the Centers’ activities undertaken on standard design construction projects were applicable to the Centers’ objectives. Then, for those that were applicable, we determined whether those activities supported the Centers’ objectives. (See appendix IV for a detailed analysis of how the Centers activities support the program’s objectives.) Centers use POEs to evaluate standard designs: We found, for example, that the POEs led by the Centers are designed to evaluate whether the project met fundamental Army functional and mission requirements, whether the project implemented Army standard design, and whether improvements to the design could be made. These reviews support Centers objectives 1, 2, and 3— developing and refining Centers’ policies and processes, consistently applying Army standard designs, and supporting AFSP objectives and priorities—by identifying areas of the design needing improvement, evaluating whether a facility was constructed in accordance with the approved project design, and eliciting customer feedback concerning whether the finished facility meets mission requirements. Centers review standard design waivers: The Centers review an installation’s waiver request and advise whether a waiver to Army standards or standard designs is required for that specific project. This process supports Centers objectives 1, 2, and 3—developing and refining Centers’ policies and processes, consistently applying Army standard designs, and supporting AFSP objectives and priorities. Specifically, part of the waiver review and approval process is the Centers’ assessing whether a waiver request represents a unique need of a specific end user or a possible permanent change to the Army standard design or Unified Facilities Criteria. In addition, if the Centers waive the use of or approve deviations from standard design prior to the beginning of the construction phase, it may reduce the number of change orders that occur during construction. Army Has Limited Performance Measures to Track the Centers’ Progress toward Key Objectives The Army, through its Centers of Standardization Management Board, is responsible for oversight of the Centers and has performance measures to track their progress in achieving one of their three key objectives. However, the Army does not have performance measures for assessing progress for their other two objectives. Army’s Centers of Standardization Management Board Is Responsible for Oversight of the Centers The Board provides oversight to the Centers in support of the AFSP. The Board members are responsible for developing, implementing, and reporting on program metrics. The Centers’ Charter of 2006 broadly identifies the mission and objectives of the Board, while more recent program guidance and regulations describe its functions in more detail. The Charter states that the mission of the Board is to provide corporate oversight and consistent Centers execution in support of the AFSP. In overseeing the Centers, it is key that the Board has performance measures that provide it with evaluative information to help make decisions about the program—information that tells them whether, and why, a program is working well or not. Performance measurement is the ongoing monitoring and reporting of program accomplishments, particularly progress toward pre-established goals. It is typically conducted by program or agency management and is critical for providing information concerning whether a program is working well or not. Performance measures may address the type or level of program activities conducted (processes), the direct products and services delivered by a program (outputs), or the results of those products and services (outcomes). Army’s Oversight Processes for the Centers Have Limited Performance Measures for Tracking Progress toward Achieving Centers’ Objectives The Army has a performance measure to support its first key objective. Each fiscal year, the nine Centers develop budget execution plans that outline how they will support the design standards for the specific facility types for which they have responsibility. In these plans, the Centers establish goals for updating specific existing standard designs and developing new standard designs (that is, the output from the Centers’ efforts). The Board’s primary oversight process consists of monitoring program execution of the nine Centers. According to Center officials, the Board reviews these execution plans at the semi-annual board meetings to determine whether the Centers are executing as planned, that is have the Centers met their goals for updating and developing standard designs. We found that this oversight process enables the Board to assess the progress each of the Centers has made toward achieving its goals for updating existing standard designs and developing new ones. For example, in fiscal year 2017 the Fort Worth Center completed all four of its planned standard design updates, and the Honolulu Center completed three of its four planned updates. We also found that the Board does not evaluate progress toward ensuring that the Centers consistently apply standard designs across the Centers of Standardization program (second objective of the Centers). Specifically, as shown in table 1 above, the Centers engage in a number of activities that support the consistent application of Centers standards on a project-by-project basis. However, the Board does not maintain, consolidate, or analyze information about how frequently the Centers engage in such activities, or how the Centers’ activities affect the program. That is because, according to Army and Centers officials, neither the Board nor the Centers have developed and implemented performance measures to assess the progress the Centers are making in ensuring that standard designs are consistently used. Absent such measures, the Army lacks assurance that standard designs are being applied, when appropriate, and that standard designs are being applied consistently across the service. In fact, to provide the project-specific documentation that we reviewed, the Centers needed to request documents from the USACE district office responsible for the projects. According to Centers officials, this was necessary because the Centers currently do not have a document management system in which project documentation is stored. Instead, as the USACE organization responsible for specific projects, each district maintains its own project records. The officials stated that USACE recently moved to a cloud-based system for storing project documents and is exploring whether this system could provide a more central document storage system. We note that having access to such information, along with creating appropriate performance measures, could enable the Board to measure whether progress has been made in ensuring that standard designs are applied consistently. In addition, we found that the Board does not evaluate whether the Centers are making progress in supporting the objectives and priorities of the AFSP (third objective of the Centers). One of the objectives of the AFSP is to reduce design costs and time, construction costs and time, and the number of change orders issued during construction. Although Army and Centers officials told us that the use of standard designs reduces project costs, time, and change orders, they could not provide supporting data. That is because, according to Army and Centers officials, neither the Board nor the Centers have developed and implemented performance measures to assess the effects of the use of standard designs. Creating such measures could enable the Army to assess the extent to which the Centers are reducing design costs and time, construction costs and time, and the number of change orders issued. DOD’s Fiscal Year 2020 Annual Performance Plan and Fiscal Year 2018 Annual Performance Report established a goal of simplifying, delivering faster, and reducing costs of product and service procurement. One of the performance measures associated with this goal was to reduce cost overruns and schedule delays by up to 50 percent for military construction projects. Developing and implementing performance measures related to reducing design costs and time, construction costs and time, and the number of change orders issued would enable the Centers to demonstrate the extent to which they are supporting DOD’s annual performance goals. Use of Standard Design Does Not Introduce Increased Liability to Facility Projects We found that the use of the standard design does not introduce increased liability for the Centers if issues arise during a construction project. Centers officials stated that a contractor could file a claim against the government if the contractor felt there was a flaw in the Army’s standard design or that using the standard design resulted in unanticipated costs during the design or construction phase. However, Centers officials stated that there have been no instances in which any of the Centers was a party to legal action related to the use of a standard design. According to Centers officials, the design for a facility project is typically developed by one of the USACE district offices or an architect-engineer contractor. Further, these officials stated that while the pertinent Army standard design guides the development of Army project designs, the final project design, certified by the USACE district office or an architecture/engineering contractor, represents the plan for a specific project. In addition, according to the Federal Acquisition Regulation (FAR), the architect-engineer contractor is responsible for the professional quality, technical accuracy, and coordination of all designs, drawings, specifications, and other services furnished by the contractor under its contract. Furthermore, the FAR states that the contractor shall, without additional compensation, correct or revise any errors or deficiencies in its designs, drawings, specifications, and other services. The FAR also stipulates that the contractor may be liable for government costs resulting from errors or deficiencies in designs furnished under the contract. Consequently, according to USACE officials, because the Centers are not responsible for the design of a specific project, they would not have increased liability in the event that changes were required during construction. Conclusion The Centers of Standardization develop and update Army standards and Army standard designs within the Army Facilities Standardization Program. In addition, the Centers are responsible for ensuring that the design and construction of Army military construction projects comply with approved Army standards and Unified Facilities Criteria. While the Army tracks the Centers’ program execution related to the Centers’ efforts to develop new and update existing standard designs (first objective of the Centers), it does not have performance measures for assessing progress toward the Centers’ other two objectives. Specifically, the Army does not have performance measures in place to assess the progress the Centers have made toward assuring consistent application of standards from the Centers’ program (second objective of the Centers) or monitoring the Centers’ execution to meet the overarching objectives and priorities of the AFSP and standardization process (third objective of the Centers) including, among other things, reducing design costs and time, construction costs and time, and change orders during construction. This hinders the Centers’ ability to determine how well they are supporting the objectives of both the Army Facility Standardization Program and DOD’s annual performance plans, as well as the Centers’ ability to demonstrate the extent to which they are achieving their objectives. Recommendations for Executive Action We are making two recommendations to the Secretary of the Army. The Secretary of the Army should ensure that the Assistant Chief of Staff for Installation Management, in conjunction with the Centers of Standardization and the U.S. Army Corps of Engineers, establish and implement performance measures to assess the progress the Centers are making in ensuring that standard designs are used consistently. (Recommendation 1) The Secretary of the Army should ensure that the Assistant Chief of Staff for Installation Management, in conjunction with the Centers of Standardization and the U.S. Army Corps of Engineers, establish and implement performance measures to assess the effects of the use of standard designs, specifically the progress the Centers are making in reducing design costs and time, construction costs and time, and change orders. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to the Department of the Army for review and comment. In its written comments, the Army concurred with both of our recommendations, and stated it would take actions to implement them. The Army’s comments are printed in their entirety in appendix V. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense and the Secretaries of the Army, Navy, and Air Force. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact Diana Maurer at (202) 512-9627 or maurerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. Appendix I: List of Projects GAO Reviewed Appendix II: Facility Types Supported by Centers of Standardization According to Centers officials, a total of 12 full-time and 21 part-time staff are assigned to the Centers of Standardization. Each Center specializes in and is responsible for specific facility types and their designs. Table 3 below lists the current staffing levels and the facility types supported by each of the Centers. Appendix III: Department of Defense Standardization Program The Department of Defense’s (DOD) department-wide standardization program has the goals of improving military operational readiness, reducing total ownership costs, and reducing cycle time. Overseen by the Office of the Under Secretary of Defense for Research and Engineering (OUSD(R&E)), the Department of Defense Standardization Program is described in DOD Manual 4120.24, which outlines its governing council, definitions, and procedures that apply to all components within the department. Under the Defense Standardization Program, DOD component heads ensure that materiel standardization, including information technology and facilities, is addressed throughout the acquisition process. The three overarching goals of the Defense Standardization Program are to (1) improve military operational readiness, (2) reduce total ownership costs of the department, and (3) reduce cycle times. The manual also defines the following terms: Standard. A document that establishes uniform engineering or technical criteria, methods, processes, and practices. Standardization. The process of developing and agreeing on (by consensus or decision) uniform engineering criteria for products, processes, practices, and methods for achieving compatibility, interoperability, interchangeability, or commonality of materiel. Defense standard. A document that establishes uniform engineering and technical requirements for military-unique or substantially modified commercial processes, procedures, practices, and methods. There are five types of defense standards: interface standards, design criteria standards, manufacturing process standards, standard practices, and test method standards. DOD’s Unified Facilities Criteria (Facilities Criteria) and Unified Facilities Guide Specifications (UFGS) provide facility planning, design, construction, operation and maintenance, sustainment, restoration, and modernization criteria for facility owned by the DOD. The Facilities Criteria contain technical guidance; introduce new and innovative technology; or provide mandatory requirements to implement laws, regulations, executive orders, and policies prescribed by higher authority documents. The Facilities Criteria also define performance and quality requirements for facilities to support their mission throughout their life cycle. According to DOD guidance, the Facilities Criteria provide the most current operationally effective, cost-efficient, and safe criteria at the time of publication. Both the Facilities Criteria and UFGS are developed through the joint efforts of the U.S. Army Corps of Engineers, the Naval Facilities Engineering Command, and the Air Force Civil Engineer Center, and are approved by the Engineer Senior Executive Panel of the Unified Facilities Criteria Program. The Facilities Criteria and UFGS systems were designed not only to establish uniformity among defense facilities, but to standardize and streamline the process for developing, maintaining, and disseminating construction criteria. The procedures for the development and maintenance of the Unified Criteria and Unified Specifications are outlined in Military Standard 3007G, which is updated by the Engineering Senior Executive Panel. Each military department (Army, Navy, and Air Force) has its own facilities standardization program that implements the Unified Criteria and Unified Specifications as well as service-specific facilities criteria, standards, and guides. The Army’s program, known as the Army Facilities Standardization Program (AFSP), is the oldest among the three departments, having been initiated in 1993. Due largely to the unique construction needs of the Army, the AFSP is the most complex and comprehensive of the facility standardization programs. It utilizes two levels of guidance for standardized facility types: a broad standard, called “Army Standards,” and a specific standard, called “Standard Design.” The Department of the Navy program began in 2014 and provides policy and standards for the design development, and revision of Navy project documents in Navy and Marine Corps Design and Facilities Criteria, while the Air Force program was started in 2016 and provides criteria in an Air Force Instruction for design and construction of Air Force facilities. Appendix IV: Crosswalk of Key Centers of Standardization Activities and Objectives The Centers of Standardization (Centers) undertake a number of activities designed to support the key objectives found in their charter, which includes supporting the objectives of the Army Facilities Standardization Program (AFSP). Table 4 identifies each of these activities along with the specific objectives that we determined the activities support. developing and refining Centers of Standardization policies and processes, assuring consistent application of standards of the Centers’ program, and monitoring the Centers’ execution to meet the overarching objectives of the AFSP and standardization process. increased credibility with the Congress through more consistent construction program development, increased consistency in facility types with equal treatment among Army Commands, installations, and users, improved master planning and site development activities, improved design quality, and the promotion of design excellence, simplified design and construction project management, reduced design costs and times, reduced construction costs and time, and reduced change orders during construction, and increased customer satisfaction through improved responsiveness to users’ functional and operational requirements. Appendix V: Comments from the Department of the Army Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments


Background The platform economy is relatively new. Its rise has been tied to the development of the iPhone and Apple’s app store, which launched in 2008. Smart phones and apps made it easier for people to develop online marketplaces where buyers and sellers could connect to exchange goods. Since then, more platform companies have emerged, expanding into marketplaces for a host of services. This expansion has increased the ways in which people could sell their services or goods and lowered the barriers to entering this type of work. Platform companies generally facilitate the match, transaction, and payment between those seeking goods or services online and those providing them. Platform companies can be divided into marketplaces for services or goods and can be further divided into two types of services— transportation or other types of services—and two types of goods—retail or short-term rental. See figure 1 for a description of the different platform company marketplaces. Transportation platforms comprise the largest sector of the platform economy—by revenue and number of workers—and include companies like Uber and Lyft. Examples of platform companies providing other types of services include Care.com (child or senior care) and Upwork (a range of freelance services). Retail platforms like Etsy and eBay provide an online marketplace for goods. Companies that facilitate short-term rental include Airbnb (property) or Kerb (parking spaces). Platform companies also vary by the number and degree of specialization of services offered. For example, platform companies could be differentiated by the range of services offered, from those that offer a single service, such as transporting people and goods, to those that are a one-stop source to access workers specializing in an array of fields such as legal, information technology, marketing, writing, design, and accounting. Further, companies have adopted different business models. Some set prices while others allow the worker and customer to negotiate a price for the good or service provided. While platform workers can choose whether to accept work, companies are not committed to pay workers for a set number of hours, which allows companies to more easily manage demand fluctuations. Many platform companies classify workers providing services as independent contractors rather than as employees. This classification has implications for companies and workers. For independent contractors, companies are not responsible for paying a minimum wage or overtime and do not typically provide benefits such as paid leave, health insurance, or retirement plans. Furthermore, numerous labor protections that apply to employees do not apply to independent contractors. Companies also do not have to withhold and remit federal income or employment taxes for independent contractors. Instead, the worker is responsible for estimating, saving, and remitting these taxes each quarter to IRS. Furthermore, a platform company that operates as an intermediary between buyers and sellers to transfer funds for transactions—for example, a ride-hailing company that matches drivers and riders and processes those riders’ payments to drivers—may act as a third party settlement organization (TPSO) under IRS regulations, depending on its circumstances. Acting as a TPSO can further reduce the tax reporting requirements for these companies. SB/SE oversees taxpayers filing tax returns as self-employed individuals with business income, such as independent contractors, and businesses with less than $10 million in total assets. SB/SE aims to promote compliance among this population by raising awareness through outreach and education about tax obligations and how to comply. SB/SE also takes enforcement actions such as audits to pursue noncompliance, although with budget cuts, the number of audits has dropped considerably over time. Platform Work Has Some Unique Characteristics, but Lack of Data Complicates Efforts to Describe the Workforce Unique Characteristics of Platform Work Affect Tax Responsibilities and Information Reported While the nature of the work may be similar, key differences exist among traditional independent contractors, platform workers, and employees. We use the term platform worker for those workers that platform companies classify as independent contractors, which is the focus of our report. A major similarity is that all three types of workers provide services to customers in a business transaction, regardless of whether the customer is another business or an individual such as a homeowner. However, the three types of workers differ in terms of payments, tax responsibilities, and the information reported to IRS and workers. Figure 2 summarizes these differences, which are discussed below. A major difference is how these workers provide their services and receive payments. Traditional independent contractors directly provide their services to and receive payments from a business or an individual customer. Employees provide services through an employer who pays them wages. Unlike the other two types of workers, the platform worker provides services through a third party intermediary—the platform company—that uses online tools to connect workers with customers and facilitates payment between them. Platform workers that are classified as independent contractors have different tax obligations than employees. Independent contractors are generally expected to pay the full amount of their personal federal income and self-employment taxes—which are comprised of Social Security and Medicare taxes—through quarterly estimated tax payments to IRS. For employer-employee relationships, both the employer and the employee each pay roughly half of the Federal Insurance Contribution Act (FICA) taxes—which are comprised of Social Security and Medicare taxes. An employer is required to withhold income taxes and the employee portion of FICA taxes from wage payments made to the employee and pay these taxes to IRS. Additionally the employer is required to pay its own portion of the FICA taxes to IRS. These workers have different requirements for filing annual tax returns. Generally, independent contractors, including those that are platform workers, are to use Schedule C, Profit or Loss from Business (Sole Proprietorship), to report their self-employment revenues and expenses, and to calculate net income; the Schedule C is to be attached to their Form 1040. Employees are to report wage amounts received on their Form 1040. Businesses also differ in information-reporting obligations for workers classified as independent contractors and employees. Generally speaking, when a business pays an independent contractor, the business is required to report annual payments of $600 or more on Form 1099- MISC; for tax year 2020, businesses are to start using Form 1099-NEC to report such payments. Instead of a Form 1099-MISC (or Form 1099- NEC), TPSOs are required to file Form 1099-K to report annual payments made through their payment networks that exceed $20,000 and 200 transactions. When paying employees, businesses are to file a Form W- 2 annually to report all wages paid. A difference between platform workers and traditional independent contractors is that platform companies often have information on workers’ earnings and some expenses that could help workers file tax returns. For example, a ride-hailing company has information on fares, tips, and miles driven for each customer as well as fees and other charges. Traditional independent contractors who provide rides to individuals typically have no equivalent third party to provide such information. Platform Workforce Size and Characteristics Are Uncertain but Many Believe It Is Growing The population of platform workers is difficult to count, due in part to the variation in terms and definitions used to describe these workers such as gig, on-demand, sharing economy, contingent, and freelance, among others. As a result of these and other barriers, efforts to measure the size of the platform workforce through household surveys or administrative data have produced estimates that lack certainty; these estimates of the workforce size generally have ranged from around 1.5 million to 2 million for recent years and suggest that the platform workforce may be growing. In 2017, the Department of Labor’s Bureau of Labor Statistics (BLS) collected data on alternative employment. BLS’s survey found there are an estimated 1.6 million “electronically-mediated workers,” defined as those obtaining work through mobile apps and websites that connect workers with customers and arrange payment. However, in January 2019 we reported that several factors may have contributed to an undercount of platform workers. For example, survey questions may not have captured individuals who engage in platform work on a part-time or sporadic basis. BLS has stated that it will not use the same questions again and it is working with stakeholders and the Committee on National Statistics of the National Academies of Science, Engineering, and Medicine to address survey limitations. Despite the difficulties estimating the size of the workforce, two studies and stakeholders we interviewed have concluded that the platform workforce is growing. For example, in a review of customer checking account transactions, the JP Morgan Chase Institute documented a five- fold increase between 2012 and 2018 to about 2.3 million families receiving at least one payment from known platform companies. Two studies have also found that the majority of platform workers work part time, for a short time, for secondary income, and for relatively low earnings. For its sample, the JP Morgan Chase & Co. Institute found that platform work was not the primary source of income for most families that participated in the platform economy between 2012 and 2018. Yet the study also found that platform work can account for roughly 20 percent of workers’ income during months when they are actively engaged in platform work. Also, while the number of platform workers who provide transportation has increased, their average monthly earnings fell steadily between 2014 and 2018. In another study, IRS used tax data to attempt to estimate the population of platform workers, which it termed “gig workers.” Similar to BLS, IRS attempted to count workers who use websites and mobile apps to connect with customers to obtain short-term work and to receive payment through the company that owns the website or mobile app. IRS identified the names and Employer Identification Numbers of companies providing labor services and matched Forms 1099-MISC and 1099-K issued by the companies to workers. IRS estimated the number of workers who received a Form 1099-K or 1099-MISC from known labor platform companies increased from roughly 20,000 in 2012 to 1.9 million in 2016, then dropped to 1.3 million in 2017. However, IRS’s methodology had limitations that make the study an uncertain source for determining the number of platform workers. First, IRS cannot easily identify the universe of platform companies because it is rapidly changing and not well documented. Second, according to IRS, an unknown number of platform workers receive neither a Form 1099- MISC nor a Form 1099-K, for reasons we discuss later in the report. In sum, the data IRS receives do not allow it to accurately count the number of platform workers or determine their tax reporting behaviors. Certain Tax Form Changes Could Help IRS Better Understand the Size, Characteristics, and Reporting Behaviors of the Platform Worker Population Given the limited data IRS has on the platform workforce, IRS cannot be assured that it knows enough about the size, characteristics, and behaviors of this workforce to better understand how to help workers comply with tax obligations. According to federal standards for internal control, managers should collect and use quality information to achieve an entity’s objectives. IRS officials we interviewed acknowledged that identifying platform workers is challenging given limitations within IRS’s data. IRS does not have a straightforward way for taxpayers to indicate on their tax forms whether they performed platform work. For example, Schedule C—the form that independent contractors are to use to report profit or loss—includes a series of yes/no checkboxes near the top of the form; however, it does not have a checkbox to indicate whether any reported income or expenses are from platform work. Similarly, Schedule C has a six-digit code to indicate the type of business or activity conducted, but it does not include a code for all platform workers. Although this information would be self-reported and imperfect, it would provide more information than IRS has on platform workers. Obtaining more information on the number of platform workers and their tax filing and reporting behaviors could help IRS develop ways to assist platform workers in complying with their tax obligations. For example, if IRS had more data on the types of deductions that certain types of workers were reporting, IRS would be better able to craft guidance on such deductions or do outreach to help those types of workers comply. Further, without changes to Schedule C, IRS cannot cross-check whether workers who self-identify as platform workers are also identified as platform workers on Forms 1099 filed by platform companies; a cross- check would enhance IRS’s understanding of the platform workforce. For example, if the cross-check shows that the number of workers who self- identify as platform workers significantly exceeds the number of Forms 1099 filed, IRS may have to work with platform companies to understand the filing shortfall. Conversely, if the number of filed Forms 1099 is significantly higher, IRS may need to enhance outreach efforts to make platform workers more aware of their tax obligations. Challenges for Platform Workers Include Awareness of Tax Responsibilities, Limited Income Information, and Saving and Remitting Quarterly Taxes We identified three areas of challenges for platform workers’ compliance with their tax obligations. First, according to our stakeholder interviews, platform workers may be less aware of their tax responsibilities than some independent contractors. Independent contractors typically have to advertise or seek referrals to gain customers, develop a network of peers, and learn about rules related to licensing or certifications. These activities can educate them about the basic responsibilities of being self- employed, including their tax obligations. In contrast, entry into platform work can be quick and workers may begin the activity without time to learn how their tax obligations differ from those of employees. For example, someone with a car, a valid driver’s license, and a smart phone can start working as a ride-hailing driver after they register with an app. Likewise, some platform workers may approach platform work as a hobby, an artistic endeavor, or something they do for a short time or in addition to another job. They may not realize that the company is treating them as an independent contractor, that the platform income may affect their taxes owed, and that they may need to track their expenses and make quarterly tax payments. As a second challenge, platform workers may have limited information about the payments they receive for their work. TPSOs are not required to file information returns to report earnings information to workers or IRS if the workers receive $20,000 or less in annual payments or have 200 or fewer transactions. Available tax data from tax year 2016 suggest that only around 30 percent of platform workers who were known to IRS had gross platform-related earnings higher than $5,000. Hence, most platform workers are likely not receiving an information return from the company. As a result, workers may not be aware that their income is taxable and IRS is less able to the check the workers’ tax compliance. A third challenge, according to stakeholders, is the burden associated with the steps platform workers must take to estimate, save, and remit quarterly tax payments. Because earnings of some platform workers may be low and earnings and expenses may fluctuate, they can have difficulty estimating their taxes owed and setting aside money to pay the taxes. They may also find it time consuming or costly to track expenses and determine profit. To the extent these burdens and difficulties confuse workers, they are less likely to pay the estimated tax payments fully and on time and may incur a penalty as a result. One stakeholder from a large tax preparation firm raised the concern that if the penalty or amount owed is more than workers can afford, they are at risk of falling into a cycle of noncompliance. IRS’s Strategy to Promote Compliance by Platform Workers Features Enhanced Communication, but Lacks Key Details for Monitoring Feedback and Clarifying Guidance In response to a February 2019 recommendation by the Treasury Inspector General for Tax Administration, IRS formed a team of officials from across the agency to develop a strategy to promote compliance among platform workers. The strategy focuses on two challenges for platform workers: (1) raising awareness about federal tax obligations, and (2) easing burden by identifying improvements to instructions, guidance, or forms that platform workers are likely to use. As part of the strategy, IRS developed a communications plan that includes a redesign of IRS web pages for platform workers and companies, outreach activities to the workers and various stakeholders, and a review of IRS guidance and related forms or instructions. IRS Redesigned Its Web Pages to Improve the User Experience for Platform Workers and Companies The IRS Communications & Liaison office is managing the communications plan to educate platform workers and companies about their tax and reporting responsibilities. A key component of the plan is to redesign IRS web pages that provide tax information for platform workers and companies. IRS changed the name to the Gig Economy Tax Center (previously it was called the Sharing Economy Tax Center) and launched it in January 2020 before the start of the filing season (see fig. 3). As part of this effort, IRS is working to make web pages more user friendly for platform workers as well as platform companies. IRS’s Online Services (OLS) conducted research on the expectations, behaviors, motivations, and needs of self-employed individuals. According to OLS officials, IRS used insights about platform workers from the research coupled with user testing of the new web pages to inform the redesign effort. IRS’s steps to redesign the web pages align with selected leading practices for improving the online user experience, such as taking steps to make the pages useful and findable (see table 1). It is too soon to know whether the intended users find the new pages useful, usable, findable, and credible, as envisioned by the practices. IRS’s Outreach Activities for Increasing Awareness among Platform Workers and Companies Lack Key Details for Monitoring Their Feedback IRS’s communications plan included outreach activities to raise awareness. For example, to publicize the redesigned web pages, the plan envisions targeting audiences such as platform workers and companies, news media, national tax publications, tax professionals, government agencies, IRS employees, and other groups. IRS created and distributed products such as a national news release about the new web pages and articles for newsletters and other products for tax professionals, small businesses, and payroll providers. IRS created a one-page electronic brochure to inform platform workers about their tax obligations and available tools to help them (see fig. 4). IRS intends to encourage platform companies to provide the brochure to workers. IRS is also using social media such as Twitter and Instagram to target platform workers and direct them to the redesigned web pages through posts such as those seen in figure 5. To assess the effectiveness of its efforts to increase awareness, including whether outreach efforts are driving people to the new web pages, IRS plans to compare data analytics for the redesigned site with the previous site. OLS plans to analyze changes in website traffic volume and taxpayer behavior—such as click patterns and how long users stay on the page—3 months after the launch of the redesigned pages and again 6 months later, and make changes as warranted. IRS’s office of Tax Outreach, Partnership, and Education (TOPE) is supporting awareness efforts by building relationships with partners, such as platform companies and organizations that advise platform workers. The communications plan provides a high-level description of efforts to engage with partners. Goals are to increase partner use of IRS social media, develop more industry-specific content, and increase TOPE involvement in virtual and face-to-face partner events and conferences, among others. IRS also plans to leverage these new partnerships to solicit feedback on its communication efforts to ensure they meet the needs of platform workers and companies. However, the communications plan lacks details about how IRS will monitor feedback from stakeholders. Specifically, IRS does not have a process for documenting and evaluating feedback based on the various communications efforts and products tailored for platform workers. According to federal standards for internal control, management should establish two-way reporting of quality information to achieve its objectives. Management should monitor activities and periodically evaluate the quality of information received to achieve its objective. According to IRS officials, they do not have the time or staff to document all feedback received. Further, they said the value of responding quickly to stakeholder comments supersedes the value of documenting and evaluating feedback. Given limited resources, IRS could choose to do something simple like creating a spreadsheet that captures feedback received, such as stakeholder emails, and document whether it led to changes. IRS has dedicated time and resources to better understand platform workers’ tax- related challenges and has undertaken multifaceted communication efforts to address them. Without a process to monitor feedback, IRS may miss opportunities to find better ways to drive platform workers toward the redesigned web pages, to ensure the redesigned web pages are meeting platform workers’ needs, or to strengthen communication efforts to enhance tax compliance. These opportunities could become more important as the platform worker population grows and evolves. IRS Guidance and Instructions Do Not Always Clarify Tax Obligations for Platform Workers IRS identified changes to forms, guidance, and other publications that could make it easier for platform workers to understand which forms apply to them. According to IRS officials, the Gig Strategy Team reviewed tax forms, publications, instructions, and training materials relevant to independent contractors, including platform workers. The team concluded that it did not need to create new forms or publications, although it identified 10 forms, instructions, guidelines, and publications that could be updated to be more helpful to platform workers. For example, the team suggested that IRS make several changes to update the instructions for Form 1040, such as adding a reference to Form 1099-K and clarifying that platform economy work can be a trade or business. The team also suggested that IRS revise the Form 1099-K instructions for payees to indicate how this form could clarify information on business gross receipts. IRS did not approve the gig strategy team’s requested changes to clarify the instructions for Forms 1040 and 1099-K for 2020. However, IRS is considering making these changes in 2021. According to IRS officials, they want to ensure these changes complement each other and the guidance is clear for taxpayers. According to federal standards for internal controls, management should communicate both internally and externally information necessary to achieve the entity’s objectives. Moreover, research based on behavioral insights has shown that introducing small interventions or removing small obstacles can significantly improve effectiveness.For example, interventions should be attractive (to draw people in) and easy (use simple, plain language). Leading practices suggest that people respond to information that is relevant to them. One way to do this is to include examples that help people recognize when information is relevant. For example, adding a brief reference to the gig or platform economy to the Form-1099 K payee instructions, along with a simple description of what the taxpayer should do, such as “show total payments from a company that facilitated a match, transaction, and payment for goods or services,” could help platform workers understand that the forms apply to them. By not including plain language for the Form 1099-K and 1040 instructions, platform workers are less likely to recognize which information applies to them. Simplifying one aspect of the tax system for platform workers by making the forms easier to understand could lead to enhanced tax compliance. IRS and Congress Have Options to Improve Voluntary Tax Compliance, but Tradeoffs Exist According to our prior work, a good tax system should be equitable, economically efficient, and simple, transparent, and administrable. However, the challenges we have discussed—such as the lack of awareness and information—are complicating the tax system for platform workers and limiting IRS’s ability to more effectively collect taxes. We identified nine options from our literature review and stakeholder interviews to address these challenges and enhance tax compliance for platform workers (see table 2). For each option, we analyzed available data on the potential design and tradeoffs, including the potential costs and benefits. We discuss two options related to reporting and two options related to withholding in the sections below. For five options related to simplifying the reporting and filing processes, we found that the available data and research did not support a full assessment of potential pros and cons. We discuss those five options in appendix II. Increasing Information Reporting on Payments Made to Platform Workers Could Help Improve Tax Compliance Many platform workers are not receiving a Form 1099 on their self- employment income, and therefore may be unaware of their tax reporting obligations. It is difficult to estimate how many workers are not receiving these forms because of limitations in available data. However, IRS found that the number of workers receiving Forms 1099-K or 1099-MISC from known labor platform companies dropped more than 30 percent from 2016 to 2017. Such a decline in information reporting for platform workers can be attributed to three factors. First, reporting thresholds for TPSOs were set at a high level to prevent unnecessary information reporting to IRS. When Congress enacted the Housing and Economic Recovery Act of 2008, TPSOs applied mainly to online marketplaces for goods, like eBay, and companies that facilitated payments, like PayPal. The act required information reporting by TPSOs for payments made through their payment networks only if those payments exceed both $20,000 and 200 transactions annually. Individuals who were generally not engaged in business or not producing a profit, such as casual sellers of goods, would likely fall below these thresholds. Second, IRS created a “tie-breaker rule” to avoid duplicative reporting which also led to no Form 1099 being filed in some cases. Businesses, including TPSOs, are in general required to report certain transactions on Form 1099-MISC, while TPSOs are also required to report certain transactions on Form 1099-K. IRS instituted a rule to break the “tie” that exists when a TPSO is required to report the same transactions on both Forms 1099-MISC and 1099-K. Specifically, the rule states that payments made through a TPSO’s payment network are not required to be reported on Form 1099-MISC, subject to an annual $600 threshold. Instead, TPSOs’ payments are required to be reported on Form 1099-K, subject to the annual $20,000 and 200 transactions thresholds. Third, since 2008, new platform companies have emerged that fit the TPSO designation but that facilitate payments for workers providing services rather than goods. These payments often fall below the combined annual $20,000 and 200 transaction thresholds. Options to increase information reporting for platform workers would help raise awareness about their tax obligations while lowering their burden. As a result, platform workers would be more likely to comply with tax obligations. The following sections discuss our analysis of two options. Amend the “Tie-Breaker Rule” for TPSOs The “tie-breaker rule” could be amended to reverse the rule for payments made through a TPSO’s payment network. This would result in more reporting on Forms 1099-MISC under Internal Revenue Code (IRC) Section 6041, rather than on Forms 1099-K under IRC Section 6050W. Given the much lower threshold for the Form 1099-MISC versus the thresholds for the Form 1099-K, more workers would receive reports on their payments and IRS would receive more reports, too. Information reporting under the regulations related to IRC Section 6041 would generally increase for TPSOs that facilitate the provision of services. If the TPSO makes a payment for a service on behalf of another and performs management or oversight for the payment, then that TPSO would generally be responsible for filing a Form 1099-MISC, subject to the annual $600 threshold. Also, TPSOs that facilitate payments of rentals and also provide management or oversight of those payments would likely be subject to the $600 threshold. Reporting would remain unchanged for some types of companies. Because payments for goods are generally not reportable under IRC Section 6041, reporting would not change for online marketplaces that facilitate the sale of goods only. Because of the management and oversight requirements of IRC Section 6041, TPSOs that only facilitate payments would also generally not be affected by a change to the tie- breaker rule (see fig. 6). IRS Counsel has discussed amending the tiebreaker rule, but has yet to take action. According to IRS, Counsel has had to address other priorities, such as reviewing rules and publishing guidance related to Public Law 115-97, commonly known as the Tax Cuts and Jobs Act of 2017. Without amending this rule, the lack of information-return reporting for many workers complicates their efforts to comply with their tax obligations and IRS’s ability to ensure that these workers are correctly reporting their income. When workers do not receive forms related to their self-employment income, they have more difficulty determining how much money they made for computing taxable income. IRS analysis indicates that taxpayers are more likely to report their income that is subject to some information reporting (an estimated 83 percent compliance) compared to little or no information reporting (an estimated 45 percent). Sending more information returns may add costs for some companies; however, stakeholders had differing views on how significant those costs would be. Determine Appropriate Form 1099 Reporting Thresholds In addition to amending the tie-breaker rule, stakeholders, as well as our literature review, discussed changing the various reporting thresholds. IRS and the Department of the Treasury (Treasury) have unique access to tax data and could analyze whether the 1099-K and 1099-MISC reporting thresholds are set at levels appropriate for tax administration. The 1099-MISC threshold was enacted in 1954 and the 1099-K reporting threshold was enacted in 2008; neither reflect the development of the platform economy. These changes include the emergence of companies that facilitate workers’ earning income by renting their houses or by providing transportation services, among many other activities. Informed stakeholders suggested that the current 1099-K thresholds may be appropriate for some TPSOs, such as online marketplaces that facilitate the sale of goods or companies with a primary function of facilitating payments. Different thresholds may be more appropriate for other activities facilitated by platform companies, such as renting houses or other assets. For example, a lower dollar threshold and no transaction threshold may be appropriate for home rentals because substantial income could be generated from even one transaction and provider costs may be limited. However, some service providers incur significant costs, such as drivers who must pay to own and operate a vehicle. Some stakeholders suggested that a threshold of $600 was more appropriate than a threshold of $20,000 and 200 transactions. Even so, some stakeholders suggested that typical costs to service providers may justify a threshold higher than the $600 threshold set in 1954. We found no available analysis of tax or other data showing whether the reporting thresholds for Forms 1099-MISC and 1099-K are appropriate for today’s economy or what the thresholds should be. The NEW GIG Act of 2019, which was introduced in Congress in March 2019, would raise the Form 1099-MISC reporting thresholds from $600 to $1,000. It would also lower the Form 1099-K reporting threshold from $20,000 and 200 transactions to $5,000 or 50 transactions for TPSOs making payments to those primarily engaged in the sale of goods, among other actions. Aligning reporting thresholds with today’s economy would support tax administration for IRS, as IRS studies have shown that information reporting increases tax compliance. It would also help reduce compliance burden for workers, since they would have clear information on their earnings. Withholding Estimated Taxes Owed Could Ease Burden for Platform Workers Platform workers can be burdened in estimating, saving, and remitting quarterly payments for income, Social Security, and Medicare taxes. Companies are not allowed to withhold and remit these taxes for platform workers who are treated as independent contractors and who want to participate in voluntary withholding—except where backup withholding is required. Voluntary tax withholding that satisfies quarterly tax payment requirements could reduce the workers’ burden and promote their tax compliance. We identified two actions that IRS could take on voluntary tax withholding. Implement Voluntary Withholding IRS could work with Treasury to implement voluntary withholding on payments to independent contractors for services. Voluntary withholding would be an option where it would be voluntary for companies to participate; for those companies that choose to participate, it would be voluntary for the independent contractor to participate. According to IRS Counsel, IRS has the statutory authority to take this action if the Secretary of the Treasury finds that withholding would be appropriate and would improve tax administration, and if the company and independent contractor agree to such withholding. According to IRS officials, IRS and Treasury have not determined whether they intend to pursue such an action. Voluntary withholding could be implemented by adjusting existing procedures and using the existing requirements for paying estimated taxes each quarter as a foundation. For example, to enable companies to solicit workers’ choices on when and how much to withhold, IRS could create a form similar to the Employee’s Withholding Certificate, Form W- 4, which employees complete so that employers can withhold the correct estimated federal income tax from employees’ wages. Workers could choose to vary the amounts withheld and the frequency of withholding as long as they met the quarterly estimated tax requirements. Alternatively, IRS could create guidance similar to what exists for workers who opt-in to electronically receive tax forms from their companies. Companies could use the existing procedures for tax withholding on wages paid or for backup withholding to withhold and remit the taxes to IRS. Companies would need to develop other design features, such as how they inform workers about participation. If the withholding is voluntary for companies, any burden is limited to those companies that choose to participate. For workers who choose to participate, they would still have the burden of estimating the amount of taxes owed for each quarter, but their burden to save and remit those taxes could be reduced. If some workers find that withholding is not appropriate for them, they could continue to use the existing system for quarterly tax payments. As long as workers choose withholding amounts that satisfy these quarterly estimated tax requirements, IRS would not need to design default percentages or dollar amounts to be withheld. While withholding could potentially help all types of independent contractors, voluntary withholding would specifically address some challenges that platform workers face. For example, platform workers have had challenges meeting the quarterly estimated tax requirements when their work is part time or sporadic. Giving workers and the companies the flexibility to structure tax withholding would better ensure that these challenges are addressed and the taxes are paid. Furthermore, this voluntary withholding regime would help those workers who choose to participate set aside a sufficient amount of money for taxes throughout the year, reducing the likelihood of an unanticipated large tax bill and tax penalty at the end of the year. Tax withholding plays a critical role in supporting voluntary compliance. IRS’s analysis indicates that withholding helps induce higher compliance in reporting income; higher compliance can help to reduce the tax gap—the difference between tax amounts the taxpayers should have paid and what they paid voluntarily and on time. Assess Requiring Companies to Offer Voluntary Withholding to Workers Another option we reviewed involved Congress requiring companies to offer the withholding of taxes for remittance to IRS. That is, the companies must offer withholding; it would still be voluntary for the independent contractor to participate. Given that IRS does not currently allow for voluntary withholding on payments to independent contractors, we could not determine the need for such a requirement. If IRS implements withholding that is voluntary for companies, it would have the opportunity to collect and assess information on the need for such a requirement. For example, IRS could determine whether workers who volunteer to participate in withholding are able to better meet their estimated quarterly tax payments. IRS also could determine whether companies are offering withholding. If IRS finds that voluntary withholding bolsters compliance while reducing burden for workers, but that platform companies are not offering it, IRS could recommend that Congress take action. In considering which platform companies could be required to offer voluntary withholding, a starting point would be TPSOs. Focusing the requirement on TPSOs would likely be less burdensome than on other platform companies. TPSOs already settle payments to multiple parties; withholding and remitting taxes to IRS would only be one more type of payment that the TPSOs would process. This requirement would benefit platform workers who wished to participate in voluntary tax withholding and who work for TPSOs. More workers would have the option to have their taxes withheld. Because worker participation would remain voluntary, the need to determine default percentages or dollar amounts for withholding could be avoided as long as the worker met the quarterly requirement for paying estimated taxes. Some stakeholders suggested the option of mandatory withholding for platform workers to help them avoid a tax penalty. However, mandatory withholding could be burdensome for workers who need to balance cash flow and other spending priorities. Additionally, if participation in withholding is mandated, IRS would need to determine minimum withholding amounts. Because different businesses involve different typical expenses, it may be difficult to create an appropriate withholding rate across all business types. Creating multiple withholding rates for different types of businesses instead could be complicated and burdensome. Conclusions The platform economy is still relatively new but available evidence suggests that it is growing and presenting tax-related challenges for both workers and IRS. While IRS has addressed some of these challenges, it could do more to promote voluntary compliance among platform workers by further raising awareness and easing taxpayer burden. IRS developed a communications plan to raise awareness among platform workers of their tax responsibilities; however, the plan lacks details about how IRS will monitor stakeholder feedback. Having a process for documenting and evaluating feedback would help assure that IRS’s communications efforts are addressing platform workers’ tax-related challenges, even as the population grows and evolves. Additionally, IRS could better understand the platform workforce if it had a straightforward way to collect data to identify platform workers. IRS has identified changes to forms, guidance, and other publications that could make it easier for platform workers to understand which forms apply to them. However, IRS has not yet taken actions such as adding plain language to instructions and publications that clearly indicate when a form applies to a platform worker. Making instructions and publications easier to understand by adding a simple description could help platform workers comply with their tax obligations. IRS could help ease taxpayer burden by taking steps to increase information reporting for these workers. Platform companies that act as TPSOs do not have to report income information on many workers because reporting thresholds are much higher than what most workers earn. Amending IRS rules to require such reporting at lower thresholds would provide workers with more information to comply with their tax responsibilities and would give IRS additional information to support enforcement efforts. Taxpayer burden could also be eased through a voluntary withholding program for platform workers. IRS and Treasury have the statutory authority to take such an action if the Secretary of the Treasury finds that withholding would be appropriate; however, IRS and Treasury have not determined whether they intend to pursue it. Voluntary withholding could help platform workers save and remit their taxes to IRS. This would address specific challenges platform workers face, such as low or fluctuating income. Once a voluntary withholding program is created, IRS would be able to assess its impacts and, if warranted, work with Treasury on a proposal to Congress to require TPSOs to offer voluntary withholding on payments for platform workers and other independent contractors. Recommendations for Executive Action We are making the following seven recommendations to IRS: The Commissioner of IRS should change Schedule C or Form 1099-NEC so that taxpayers can identify if they received payment for platform work. (Recommendation 1) The Commissioner of IRS should develop a process for monitoring feedback on its communications efforts and products tailored for platform workers, which should include documenting and evaluating feedback. (Recommendation 2) The Commissioner of IRS should clarify the instructions and publications for Forms 1040 and 1099-K by adding plain language to clearly indicate to platform workers that the forms apply to them. (Recommendation 3) The Commissioner of IRS should work with the Secretary of the Treasury to amend the 6050W “tie-breaker rule” that applies to duplicative reporting requirements so that payments made through a TPSO’s third party payment network are reportable under Section 6041, rather than under Section 6050W. (Recommendation 4) The Commissioner of IRS should work with Treasury to determine what thresholds would be the most appropriate for payment information reporting and, if warranted, recommend that Congress adjust the thresholds. (Recommendation 5) The Commissioner of IRS should work with the Secretary of the Treasury to implement withholding that is voluntary for companies making payments for services to platform workers and other independent contractors who choose to participate. (Recommendation 6) The Commissioner of IRS should assess the impact of withholding that is voluntary for companies, once implemented, and if warranted, work with the Secretary of the Treasury on a proposal to Congress that would require TPSOs to offer tax withholding to platform workers and other independent contractors who choose to participate. (Recommendation 7) Agency Comments We provided a draft of this report to Treasury and IRS for review and comment. IRS provided written comments, which are reproduced in appendix III and summarized below. Of our seven recommendations, IRS agreed to implement or consider two recommendations, said it could not agree with two recommendations due to other priorities, disagreed with two, and said it could not implement a recommendation that flowed from another recommendation. IRS also provided technical comments, which we incorporated as appropriate. IRS agreed to refine its process for monitoring feedback on its communication efforts and products but was silent on documenting and evaluating the feedback (Recommendation 2). The value of monitoring feedback will be minimized unless IRS has a process for documenting and evaluating it over time. In addition, IRS agreed to consider clarifying the language in the instructions and publications for Forms 1040 and 1099-K (Recommendation 3). We revised this recommendation by deleting the word “examples” from the clarifications to make. IRS stated that it could not agree to work with Treasury to (a) amend the 6050W “tie-breaker rule” and (b) determine appropriate thresholds for payment information reporting and, if warranted, recommend that Congress adjust the thresholds (Recommendations 4 and 5). For both recommendations, IRS said it cannot commit to implementation dates because of higher priority guidance projects, especially in light of the many new tax provisions enacted by Congress. We acknowledge IRS’s need to prioritize guidance projects, but we do not understand why it does not agree to address problems that will persist into the future absent corrective actions or why IRS believes it cannot agree unless it commits now to a future implementation date. In fact, IRS stated that it has a long- term guidance project under development for amending the rule to clarify definitions. IRS said it would consider our recommendation on amending the rule as it develops its 2020-2021 plan for guidance priorities. As for our recommendation on determining reporting thresholds, IRS said it is willing to meet with Treasury officials to discuss the need to analyze the current thresholds. IRS disagreed with our recommendation to change Schedule C or Form 1099-NEC so that taxpayers can identify if they received payments for platform work (Recommendation 1). IRS said it has no evidence that platform workers pose a greater compliance risk and that the platform worker designation, by itself, would not be a selection factor for compliance actions. We found that IRS has not measured this risk, in part, because it cannot easily identify the workers. Further, we did not intend that IRS use the data to initiate compliance against the workers; our report discussed using the data to identify workers and their reporting behaviors to improve services and voluntary compliance. IRS concluded that the additional taxpayer burden and its costs were not warranted at this time. IRS did not identify the level of burden or costs, and the burden from checking a box on Schedule C does not seem high. We asked about the costs to revise the forms to add a checkbox but IRS did not provide them. As for IRS’s costs to capture the data, we note that IRS’s costs to transcribe the data would be zero for returns filed electronically. Individual taxpayers (including platform workers) electronically filed 138 million of 156 million (89 percent) tax returns—which includes the Schedule C— during 2019. If IRS intends to help these workers become more aware and reduce their taxpayer burdens to comply, identifying them and their tax behaviors would enhance those efforts. IRS disagreed with our recommendation to work with Treasury to implement withholding that is voluntary for companies making payments for services to workers who choose to participate (Recommendation 6). IRS said that its role is to administer tax law rather than propose tax policy changes. As we discuss in the report, IRS has the authority to take this action if the Secretary of the Treasury agrees that the action would improve tax administration and our recommendation focuses on working with Treasury officials. IRS also stated that it cannot commit to an implementation date for publishing guidance on a voluntary withholding program due to higher priorities, including implementing various COVID- 19 relief programs. As stated above, we do not understand why current higher priorities would prevent IRS from taking future corrective actions or why IRS believes it must commit to an implementation date at this time. We continue to believe that voluntary withholding has potential to improve compliance and reduce taxpayer burden Finally, IRS said it would not assess the impact of such voluntary withholding and thus not work with Treasury on a proposal to Congress that would require third party settlement organizations to withhold taxes for workers who choose to participate (Recommendation 7). IRS’s rationale was that it disagreed with the voluntary withholding recommendation. As stated above, we believe this proposal has potential to improve compliance and an assessment would help inform Congressional deliberations about additional statutory changes that could enhance tax compliance among platform workers. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will copies of this report to the relevant congressional committees, the Secretary of the Treasury, the Commissioner of IRS, and other interested parties. In addition, this report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff has any questions about this report, please contact me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology You asked us to review issues related to platform workers and tax compliance. This report (1) examines what is known about the platform workforce and what can be done to improve the available Internal Revenue Service (IRS) data, (2) identifies challenges platform workers face complying with federal tax obligations, (3) assesses IRS actions to promote tax compliance among this population, and (4) assesses additional options to promote tax compliance. This sector and its workers are referred to by different names including sharing, on-demand, gig, and platform. We selected the term platform because it was the most comprehensive and relevant to online work arrangements. For example, neither sharing nor gig communicates that the work could be full time and for income. Platform worker also clearly communicates that workers are using an online app or other platform to find and secure work. While platform workforce does not have a standard definition, for the purposes of this report we defined it as workers who provide goods or services to customers through an online platform operated by a company that facilitates the match, transaction, and payment. To identify what is known about platform workers, we conducted a literature review of peer-reviewed material; trade and industry articles; government reports; conference papers; general news; association, nonprofit, and think tank publications; hearings and transcripts; and working papers that described the platform economy in the United States and related tax issues. We searched publication databases such as Proquest and Dialog for keywords like gig, contingent, sharing, or platform, and tax, IRS, or compliance to identify studies that were relevant to our research objectives. We also conducted semistructured interviews with selected stakeholders and reviewed documents provided by them to obtain information on and descriptions of platform workers. Through these interviews, we obtained stakeholder views on (1) the use of the term “platform workforce,” (2) its size and composition, (3) workers’ understanding of and compliance with tax obligations, and (4) federal, state, and private-sector-level efforts and policy proposals to help workers comply with their tax obligations. We conducted close to 30 interviews with knowledgeable individuals that we selected to represent varied areas of expertise and perspectives including Department of the Treasury and IRS officials; academics and other researchers; state government tax and revenue officials from the Massachusetts Department of Revenue, the California Franchise Tax Board, the Maryland Department of Labor & Regulations, and the Vermont Department of Taxation; private-sector and nonprofit tax preparers; tax software developers; and platform company representatives and workers. We interviewed representatives from four companies–Airbnb, Thumbtack, Etsy, and eBay; and two representatives from professional associations, Technet and Internet Association, that include platform companies among their members. Company representatives from Uber, Lyft, Taskrabbit, Upwork, Snag, and Postmates participated in the Technet group interview. We also interviewed representatives from organizations that work directly with platform workers such as the Freelancers Union, Center on Budget and Policy Priorities and Creating Assets, Savings and Hope Campaign of Maryland, National Association of Self-Employed, and the Independent Drivers Guild (IDG). IDG also set up 30-minute phone calls for us with five full-time drivers who use mobile apps to connect with customers. We were also invited to attend a panel from the National Academies of Science on the platform workforce. The panel included experts from the Aspen Institute, JP Morgan Chase, the Federal Reserve Board, the Census Bureau, and various think tanks and universities. We identified potential interviewees through a literature search, and recommendations from our initial interviews. We selected interviewees based on their relevance to the scope of our review. We also aimed for balance between those who could serve as a proxy specifically for low- income platform workers, and those who work with people across the income spectrum. Although the results of these interviews are not generalizable to the views of all stakeholders, they still provide important insight into and illustrative examples of the challenges platform workers face understanding and complying with federal tax obligations. To assess IRS actions to promote tax compliance, we reviewed IRS research on the platform workforce and other documents describing current and planned actions to identify taxpayers who are platform workers and to promote their tax compliance, including the Gig Economy Compliance Strategy. We also interviewed IRS officials from the Small Business/Self-Employed Division; Research, Applied Analytics, and Statistics Division; Communications & Liaison Office, including officials from the Offices of Online Services and Tax Outreach, Partnership, and Education; and the Office of Chief Counsel about their efforts to develop, implement, and assess the impact of the new strategy. We identified criteria for assessing elements of IRS’s strategy such as its research, communication materials, and evaluation plan. We based these criteria on Standards for Internal Control in the Federal Government and leading practices for designing web materials to improve the user experience. The relevant internal control principles focus on information and communication and monitoring. The leading practices posted at usability.gov describe principles for creating a meaningful and valuable online user experience. To assess options to promote tax compliance, we identified options from our literature review and our interviews of stakeholders and selected those that were commonly cited as potential solutions for the challenges. We then sent 39 stakeholders a list of the potential solutions to solicit their views on these options, including whether they supported or opposed the option. Twenty-eight stakeholders, including those from academia, the research sector, government, platform companies, tax preparation firms, and worker advocacy, provided their views. We analyzed their responses to help us identify strengths, weaknesses, and other considerations associated with each option. We also assessed each option using “criteria for a good tax system” described in our prior work. These criteria state that a good tax system should be equitable, economically efficient, and simple, transparent, and administrable. We focused on whether individual options would increase simplicity by reducing compliance burden; enhance transparency by helping taxpayers better understand their tax obligations; and improve tax administration by helping IRS more effectively collect taxes. We found that the available data and research for some options did not support a full assessment of the pros and cons that might be offered by the option. We describe these options in appendix II. We conducted this performance audit from February 2019 to May 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Other Options to Help Platform Workers Comply with Their Federal Tax Obligations One set of options we identified focused on simplifying aspects of the tax system to help platform workers comply with their tax obligations. For all of them, sufficient evidence did not exist on how the option would be designed or on the tradeoffs such as costs and benefits. Some of the options require legislative action, and other options could be costly for the Internal Revenue Service (IRS) to implement. Balancing the pros and cons is a policy decision for IRS and the Department of the Treasury (Treasury) or Congress to make and more research would be needed. The following discusses our analyses of these options including what information would be needed to design the option and compare the tradeoffs. Create a Standard Business Deduction According to some stakeholders, properly tracking and deducting expenses from gross income can be burdensome for self-employed workers, including platform workers. A common feature of platform work is using an asset, such as a car or house, for personal and business use; for example, a car owner may use his or her personal car for occasional ride-hailing work. Stakeholders and several articles from our review discussed how the rules for apportioning expenses for personal and business use and determining which ones are deductible can be complicated, especially for part-time or short-term drivers or renters. Some stakeholders as well as some articles mentioned that Congress could consider creating a standard business deduction that platform workers could use. Platform workers, especially those who may not have the necessary knowledge or experience, may not track all eligible business deductions and overpay income and self-employment taxes. They may improperly overstate their expense deductions to offset income, contributing to the tax gap. Creating a standard business deduction could reduce the complexity associated with the current system. However, different businesses involve different expenses, and it may be difficult to create an appropriate standard deduction across all business types. Creating multiple standard deductions for different types of businesses could be complicated and burdensome, and could ultimately reduce tax revenue if the standard deduction exceeds actual expenses for many platform workers. Additionally, a standard business deduction limited to only platform workers would be difficult to design because no regulatory or statutory definition of the term platform worker exists. Further, providing the standard deduction option only for platform workers would raise disparate treatment concerns. Given the limited data on the number and tax reporting characteristics of platform workers, we could not analyze the potential benefits and costs of creating a standard deduction. Require Platform Companies to Inform Workers about Federal Tax Obligations Because platform workers may be unaware of their federal tax obligations, Congress could consider requiring platform companies to inform workers who are classified as independent contractors about their tax obligations. While platform companies may incur some burden to inform platform workers, some could leverage existing processes to inform their workers. For example, when platform companies hire such workers, they could inform them about their tax obligations. Officials at platform companies we contacted raised concerns about the legal risks for them to develop the information provided to the workers. Platform companies would not necessarily need to develop the information provided. IRS developed a one-page publication that platform companies could provide to workers to inform them about tax obligations (see fig. 4). The publication is available in an electronic format for sharing with workers. However, no statutory or regulatory definition of a platform company exists. Without a definition, IRS could not equitably enforce the requirement. Alternatively, the requirement to provide the information could be limited to third party settlement organizations (TPSO) which have been defined. However, even a well-designed requirement could have limited impact on awareness. IRS is collaborating with partners such as platform companies to better inform workers about their tax obligations. To the extent that this collaboration as well as other IRS actions help make workers more aware, Congress may not need to consider requiring platform companies to inform their workers. Require Platform Companies to Provide Expense Information Congress could require platform companies to provide available payment and expense information to platform workers who are independent contractors. Multiple stakeholders suggested that sharing this information is a best practice for raising awareness and helping workers comply with tax obligations. Some platform companies already provide a dashboard to workers showing total payments and other data, like miles driven. Platform companies have visibility over the full range of payments and some expenses for workers. While some companies would be providing data or providing online access to data that they already have, requiring information-sharing may increase their administrative burden to at least some extent. However, we did not find information on how much more burden would be created, which could vary based on the type of platform company. Further, given no statutory or regulatory definition of a platform company, a legal definition would need to be created or the requirement to provide the information could be limited to a subset of companies, such as TPSOs. Because several prominent platform companies already provide expense information, Congress may not need to add a legal obligation on the companies. We did not find sufficient evidence to show that this legal requirement would benefit most platform workers. Likewise, IRS considered adding information to its website encouraging platform companies to provide available payment and expense information their workers, but decided not to do so. IRS officials explained that many platform companies are already providing workers with this information. They also expressed concerns that platform workers might rely on this information, and not maintain their own records, which could cause challenges if platform companies do not track all available expenses or income. According to IRS officials, they will continue to update the website to include tips for platform companies to help workers comply with their tax obligations. Clarify Form 1099-K Definition of Gross Amount The Internal Revenue Service Advisory Council (IRSAC) found that the definition of “gross amount” for reporting purposes on Form 1099-K includes items that are not part of the economic transaction between the purchaser and the seller or service provider. This includes refunds, fees, discounts, and other items. IRSAC recently recommended that the definition of “gross amount” for the purposes of reporting on Forms 1099- K should exclude these items, which are not taxable income for the platform worker, and include only payments to the workers for their service. IRS officials have identified some practical drawbacks to implementing this proposal. For example, determining what is includable and what is excludable from the “economic transaction” can vary from industry to industry and from taxpayer to taxpayer. Depending on the industry or activity, the gross transaction amount may not be itemized to specify what is included; for example, many payment settlement entities would not know whether sales tax is included in a transaction amount. IRS officials stated that it is not clear whether this proposal would provide any value to the worker or IRS given the variations. Make Electronic Delivery of Forms 1099 the Default IRS could work with Treasury to allow for electronic delivery of Forms 1099 by default. The default delivery method is mail, and workers must opt-in to receive forms electronically. When a worker receives the form electronically, the worker may receive an email notification that the electronic form is available for download in a secure online account. Platform company officials with whom we spoke said sending forms by mail can be burdensome due to mailing costs and the costs of finding accurate mailing addresses. However, they generally have accurate email addresses because that is how they exchange information with platform workers. Allowing electronic delivery of Forms 1099 by default could reduce the burden for companies, while ensuring that more workers receive their forms. However, new rules would be needed to ensure that workers are easily able to opt-out of electronic delivery, and receive the forms on paper if they wish. We were not able to collect sufficient data on the cost or savings for companies and barriers for workers. Appendix III: Comments from the Department of the Treasury Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments James R. McTigue, Jr. (202) 512-9110, mctiguej@gao.gov Key contributors to this report include: Julie Anderson, Rob Gebhart, Sarah Gilliland, Gina Hoover, Jesse Mitchell, Ed Nannenhorn, Jessica Nierenberg, Robert Robinson, Eden Savino, Tom Short, AJ Stephens, and Peter Verchinski.