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IMRS Monthly Overview – January 2014

The IMRS Monthly Overview provides synopses of some of the issues received and/or closed by the Issue Management Resolution System staff during the past month. The Monthly Overview informs the public about the work of IMRS and highlights issues that we think would be of most interest to external stakeholders. When the Monthly Overview is posted to, a tweet goes out to Twitter followers of @IRStaxpros. Please sign up if you would like to be notified.



IMRS Issue 13-0001841 – Automated Underreporter CP 2000s issued erroneously for state refunds
IRS issued CP2000 notices indicating state/local income tax refunds are taxable when taxpayers did not deduct state/local taxes in the prior year.

Response: The temporary state sales tax option made it difficult to systemically look back to the prior return and screen out these cases. Extensive programming to add a formula for each state is now in place to filter out these cases for tax year 2012 and forward. Taxpayers who receive a CP2000 for tax year 2011 for the state income tax refund and opted to use the general sales tax deduction the prior year should call the number on the notices or fax responses and their cases will be corrected.\

Policy, Practice, Procedures

IMRS Issue 13-0001762 – Repetitive preparer EITC audits
A tax practitioner complained that EITC due diligence visits had been conducted for two years with no findings warranting penalties. He received a third notice and is inquiring whether the repetitive audit procedures under IRM, as described in Publication 1, Your Rights as a Taxpayer, apply to preparer audits.

Response: Return preparer EITC due diligence visits are not subject to repetitive audit consideration, since procedures refer to the examination of an individual's tax return and not to a preparer's obligation to satisfy EITC due diligence requirements. The IRS routinely provides Publication 1 to taxpayers and practitioners. It's an important publication providing a general description of taxpayer rights. Not all sections of this publication are applicable to all situations. We apologize for any confusion.

Preparers are selected for EITC due diligence audits based on the scoring model developed by IRS. A preparer may be selected in multiple years because returns prepared continue to exhibit questionable characteristics.

Going forward, IRS will incorporate a filter into the model to better identify preparers who have been audited for due diligence and no changes were made. If these preparers continue to show up in the scoring, we generally will not audit the preparer for due diligence compliance in the subsequent year.

Although the preparer may have improved the quality of EITC returns, the preparer may continue to receive letters if the rate of questionable returns is above the norm established for the program. The concept is to let the paid preparer know there’s still room for improvement because they continue to prepare questionable returns.

NOTE: Current and previous reports are also available on this site. The monthly overviews are posted for this year 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.

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Page Last Reviewed or Updated: 09-Jan-2015