There are many forms that are sent to taxpayers by employers, banks, customers, retirement fund administrators, and others with whom the taxpayer had a buy or sell transaction with.

These forms are often labeled W-2, 1098 or 1099, and are sent to the taxpayer at the end of every tax year. For example a 1099-INT is a reporting of bank interest.

As part of its document matching process, the IRS compares the detailed reporting of various income and expense forms from its own database of information on an individual tax return to its own database. At present, the IRS uses the “look back” approach to matching.

A taxpayer files his or her return and then the IRS may audit that return up to three years after the tax return is filed. In many cases a taxpayer may be assessed additional taxes, interest and penalties based on a tax return error that was not intentional, but simply a mistake.

In its annual 2012 report, the IRS Oversight Board suggests that in the future, the IRS would employ “real time” matching procedures. The document matching would take place at the time a tax return is filed and would not be processed until the matching is complete.

At present, more than 99 percent of US individual tax returns are processed electronically. Although the ‘real time’ concept is clear, we conclude that there are still many hurdles to overcome, with no current plan for implementation.