IMRS Monthly Overview - March 2012
The IMRS Monthly Overview provides synopses of some of the issues that were received and/or closed by the Issue Management Resolution System staff during the past month. The Monthly Overview is intended to inform the public about the work of IMRS, and highlights the issues that we think would be of most interest to external stakeholders. When the Monthly Overview is posted to IRS.gov, a tweet goes out to Twitter followers of @IRStaxpros. Please sign up if you would like to be notified.
Policy, Practice & Procedures
IMRS 12-0001595 – Electronically-filed registered domestic partnership returns are resulting in CP-2000s.
Issue: Electronically-filed RDP returns contain notes that cross-reference the partners' returns but the IRS is issuing notices (CP2000s, generally for the higher earner partner) questioning the amounts reported.
IMRS 12-0001596 – Requests for CSED/ASED information in writing
Issue: New procedures allow Practitioner Priority Service telephone line assistors to release ASED/CSED information to a tax practitioner with a valid Power of Attorney on file, regardless of whether the caller requests any other account related information. Practitioners would also like to be able to obtain the CSED/ASED information in writing for a requested account.
IMRS Issue 12-0001597 – IRS mailing address problems
Issue: A tax practitioner attempted to respond to Letter 4115C using the IRS address listed on the letter, but the mail was returned “undeliverable as addressed.”
Policy, Practice & Procedures
IMRS Issue 06-0000202 – Form 8027 treatment of gift card redemptions
Issue: How should the redemption of gift cards by restaurants be handled when preparing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips?
Response: Amounts redeemed with a gift card should be treated like cash. The amount redeemed is reported as a gross receipt to the extent the gift card is used to purchase food and beverages. If the patron may use the gift card for tipping as well, then the tip amount should be treated as a cash tip paid to the service provider. If the patron uses a credit card for tipping when redeeming the gift card for food and beverages, then the tip amount is reported as a charge receipt with a charged tip on Form 8027.
Issue 10-0001373 – Tolerance for streamlined installment agreements
Issue: Practitioners would like to see the streamlined installment tolerance increased from $25,000 to $50,000 to facilitate agreements.
Response: Thank you for your suggestion. The IRS continues to evaluate our processes and programs. As a result of our internal reviews and research, the IRS issued Interim Guidance SBSE 05-0112-013 (PDF), Streamlined Installment Agreements, dated Jan. 20, 2012, which increased the dollar threshold from $25,000 to $50,000 aggregate unpaid balance of assessment for individuals and out of business – sole proprietor streamlined installment agreements.
IMRS Issue 11-0001495 – Manager contact information requests in compliance cases
Issue: Tax professionals report encountering resistance from IRS examiners and revenue officers when they are asked to provide their supervisor’s contact information. They suggest including the supervisor’s contact information on the initial IRS correspondence to simplify matters and reduce adversarial encounters between practitioners and IRS compliance personnel.
Response - Collection policy: Every taxpayer has the right to speak to an IRS employee’s supervisor upon request. Typically, such requests are relayed to the supervisor from the employee, and the supervisor is required to contact the taxpayer within a reasonable period of time. Including supervisory contact information on initial letters and correspondence would not be in the best interests of taxpayers or the IRS. Taxpayers should deal with the employees assigned to their cases since they are familiar with the details of the case and in the best position to resolve tax issues. Providing two contact names and phone numbers could be confusing and possibly result in further unnecessary delays. If you have specific examples of taxpayers and/or representatives requesting to speak to a supervisor and not getting a return call, we would ask that you supply those examples so we can determine whether it is an isolated incident or a more widespread problem.
Response - Examination policy: The examiner's manager has an important role in the examination process as the audit moves past the initial contact phase. At the time of the initial interview, the examiner should provide the taxpayer and/or representative with their manager's name and telephone number. In addition, the examiner should provide their manager's name and telephone number at any time upon request. If the taxpayer or practitioner is unable to obtain manager contact information, they should contact the Stakeholder Liaison for their geographic area (refer to Stakeholder Liaison Contacts). The SL will provide them with the manager's name and telephone number. If the manager does not respond to contact from the taxpayer or practitioner, the taxpayer may also ask the SL for contact information for the next level manager.
IMRS Issue 11-0001498 – Clarification of Letter 4731 received by practitioner
Issue: A former tax preparer did not renew her PTIN because she left the tax preparation business in Oct. 2010 and did not prepare any tax returns for the 2010 tax calendar year (2011 filing season). She received a Letter 4731 from the IRS that stated it appeared returns were prepared with a PTIN assigned to her but not renewed. The preparer called the PTIN hotline number referenced on the letter she received and was told to disregard the letter if she did not prepare any returns. The practitioner is very concerned and would like to know why she received a letter indicating returns were filed with her PTIN.
Response: Tax practitioners should call the PTIN information line (Primary Toll-Free: 877-613-PTIN (7846), TTY: 877-613-3686, toll number for international callers: +1 915-342-5655) to report suspected misuse of a PTIN and provide any information available regarding the person or entity they believe may be using it. The former tax preparer in the scenario above should call back and have the assistors on the PTIN Information line take a referral. Generally, preparers will not have any liability for returns filed under their PTIN by someone else. At some point, but not for the 2012 filing season, there will be a way for preparers to get a count of the number of returns prepared under their PTIN. They can use this information to determine if there are too many, and therefore potentially fraudulent usage of their PTIN.
Issue 12-0001549 – S-corporation officers will not follow preparer’s advice to take wages
Issue: The owners of an S corporation perform substantial services for the corporation but refuse to take wages. They do take distributions from the corporation. The preparer reminds them in writing, at least once a year, that their procedure is improper and that they should be taking salaries for at least some of the distributions. Is the preparer of the Form 1120-S subject to disciplinary action (doing something wrong) in this instance?
Response: The Office of Professional Responsibility does not issue "advisory opinions" or provide written advice in response to hypothetical scenarios. We suggest that preparers refer to Circular 230 and we strongly encourage them to become thoroughly familiar with it, particularly Section 10.34 (Standards with respect to tax returns and documents, affidavits and other papers) and 10.51 (Incompetence and disreputable conduct).
A practitioner may not sign a tax return that he/she knows lacks a reasonable basis, contains an unrealistic position, is a willful attempt to understate the liability for tax or is a reckless or intentional disregard of IRS rules or regulations. Practitioners should also become familiar with Internal Revenue Code sections 6694(a) and 6694(b).
Issue 12-0001536 – PTIN requirement for tax resolution operations
Issue: Tax resolution operations do a lot of advertising on radio, TV and the Internet and promise to help taxpayers to resolve their debts to the IRS for "pennies on the dollar." Employees of these types of businesses should be required to have a PTIN in order to engage in substantive discussions related to these matters.
Response: Individuals who are paid to prepare Forms 656, 433, etc. for others are already required to have a PTIN. These forms are not included in the list of exempt forms found in Notice 2011-6. Additionally, Circular 230 provides the Office of Professional Responsibility direct jurisdiction over individuals and firms providing tax resolution services. Recent amendments to Circular 230, effective Aug. 2, 2011, establish several new rules. Among them is section 10.8 - Return Preparation and Application of Rules to Other Individuals, added specifically for this purpose. Section 10.8(c) states (Terms are in boldface for emphasis):
Any individual who for compensation prepares, or assists in the preparation of, all or a substantial portion of a document pertaining to any taxpayer's tax liability for submission to the Internal Revenue Service is subject to the duties and restrictions relating to practice in subpart B, as well as subject to the sanctions for violation of the regulations in subpart C. Unless otherwise a practitioner, however, an individual may not prepare, or assist in the preparation of, all or substantially all of a tax return or claim for refund, or sign tax returns and claims for refund.
The above applies to preparers of described documents, regardless of professional designation, to include those affiliated with tax resolution firms. Individuals compensated to prepare such documents are subject to the duties and restrictions described in subpart B of Circular 230 and subject to sanction under subpart C. Imposition of a monetary penalty is one sanction available. The final sentence of the section reinforces the difference between documents and tax returns. You MUST be a practitioner to prepare/sign tax returns.
Tax resolution firms need to thoroughly familiarize themselves with Circular 230. Sections 10.36, Procedures to Ensure Compliance, 10.34(b) Standards for Documents and Other Papers and 10.34(d) Relying on Information Furnished by Clients are particularly important.
PTIN requirements and recent revisions to Circular 230 represent major developments to better address deceptive practices and/or misconduct in the tax resolution arena.
Communication and Outreach
IMRS Issue 12-0001548 – Archiving e-News publications on IRS.gov
Issue: A Stakeholder Liaison employee recommends that e-News publications, (for example e-News for Small Businesses and e-News for Tax Professionals), be archived on IRS.gov for future access by external stakeholders. Currently the e-News publications are emailed to subscribers but are not archived for later viewing.
Response: The concept for the e-newsletters is that people will sign up rather than go onto IRS.gov and read archives. Also, items that may be accurate at the time of issuance could be inaccurate later, links can be outdated, etc. Additionally, since the resources required to maintain archives would be considerable, this recommendation does not make good business sense.
NOTE: Current and previous reports are also available on this site. The monthly overviews are posted for the prior two years through the current month. You can also access reports for issues closed in prior years on the same page.
We invite you to raise your issues/concerns with your local stakeholder liaison.