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IMRS Industry Issues Quarterly Report - September 2012

Issue Management Resolution System – Turning Issues into Answers

The Issue Management Resolution System (IMRS) was designed to capture, develop and respond to stakeholder issues. IMRS also identifies nationwide trends in the reporting, filing and paying requirements that may indicate a need to change IRS processes or procedures.

This report provides synopses of some of the issues raised by or of interest to our industry stakeholders. Stakeholders should forward significant issues regarding IRS policies, practices and issues to their Stakeholder Liaison (SL) Local Contacts.

IMRS Issue 12-0001674 – Revision to Consolidated Annual Wage Reporting letter

Issue:  Employers would like to see Letter 99C, Letter of Employment Tax Problem (CAWR), revised to show amounts for each of the four 941s in a column format with a fifth column showing the grand combined totals. Currently, only the combined grand total is shown, making it difficult for employers and taxpayers determine where the discrepancy occurred.

Response: The IRS concurs with this suggestion. The document matching staff has been working with the Office of Taxpayer Correspondence to revise the CP251, which will replace the 99C Letter. The revised notice will include columns for all four quarters. We are currently on target to implement the revision effective with the new consolidated annual wage reporting download in April 2014.

IMRS Issue 12-0001641 – Real estate losses more than $25,000

Issue: Many times individuals deduct real estate losses more than the $25,000.00 limit. Only real estate professionals can claim losses above this limit, and many do not qualify. They may misunderstand the law and/or are misinformed by their preparers.

Response: The following article was included in e-News for Small Businesses on 8/22/2012:
Individuals who are not real estate professionals are generally subject to passive activity loss limitations even if they materially participate in the rental.

Real estate professionals report rental real estate activities in which they materially participated as nonpassive. But real estate professionals who do not materially participate in the rental activity are generally subject to passive activity loss limitations. Publication 925, Passive Activity and At-Risk Rules, has more information on who qualifies as a real estate professional and passive activity limits.

IMRS Issue 12-0001605 – Form 990 extensions

Issue: Notice 2012-4 granted an automatic extension for filing Form 990 to certain exempt organizations. The notice required organizations to attach a reasonable cause statement to the 990 return, referencing Notice 2012-4, in order to avoid receiving a system-generated penalty notice for late filing. Organizations that failed to attach the reasonable cause statement with the return are being advised to mail in the statement in order to get the penalty abated. It was suggested that the IRS adopt a more streamlined procedure, perhaps a phone call to PPS or the Tax Exempt Organization line.

Response: An organization that erroneously receives a system-generated penalty notice for late filing from the IRS should call the telephone number provided on the penalty notice to request penalty abatement in accordance with Notice 2012-4.

IMRS Issue 12-0001638 – Automated Underreporter CP2000 notices issued for USDA grants properly reported on Form 1040

Issue: Taxpayers who properly reported USDA grants on Form 1040 are receiving Automated Underreporter CP2000 notices for the grant income.

Response: Campus coordinators were alerted when this issue was identified, and they clarified the procedures for the examiners. However, AUR examiners cannot view electronic attachments that reflect a breakdown of the amount(s) reported. An AUR notice is issued if AUR cannot determine that the grant income was reported. Although we recognize the burden it creates for taxpayers and IRS compliance functions, taxpayers should continue to provide a timely explanation to AUR to resolve these issues. The ability to view attachments to e-filed returns is still being tested with Modernized e-File. However, full implementation of this technology is still several years out.

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Page Last Reviewed or Updated: 22-Aug-2014