Issues Closed in Calendar Year 2011 Sorted by Subject
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IMRS 11-0001403 – Fax number on Letter 1058
Issue: A tax practitioner stated that Letter 1058 from ACS does not include the fax number for submitting the Form 12153, Request for a Collection Due Process or Equivalent Hearing, so it is not possible to fax the hearing request. The practitioner requested that the IRS include a fax number to better accommodate the response process.
Response: We believe this is a good idea. The Collection Due Process program was originally implemented on the basis that hearing requests would be submitted primarily by mail and that faxing would be reserved for those cases requiring an expedited filing, rather than used as a routine option. Adding fax numbers to the letter 1058/LT11 involves systemically linking the proper ACS support site location’s fax number with the taxpayer, the associated business operating division and the taxpayer’s state of residence.
Programming resources are limited and changes to the process are now taking up to two years. However, we will begin the process of determining if programming can be done in the future to systemically provide the proper fax number on the letter 1058/LT11. If we determine that the fax number can be added to the letter, it may result in ACS support sites receiving a significant increase in CDP requests via fax. Therefore, we will address staffing and equipment needs in the ACS sites to ensure they have the capacity to receive this increased fax volume.
In the interim, taxpayers or their representatives can obtain the appropriate fax number for submitting a CDP request by calling the number indicated on the letter 1058/LT11.
IMRS 11-0001400 – Correspondence audit contact number
Issue: A tax practitioner stated that the notices for two recent correspondence audits had generic contact phone numbers with only “Tax Examiner” listed as the contact person. The practitioner stated that he does not object to the IRS using generic phone numbers to handle these cases, but the workers who answer the phones should have the ability to handle an issue. If they can't, they should have a mechanism to either refer the call to the correct department or set up a callback. The case files should support the conclusions so the telephone operators can assist. The system should require callers to enter a case reference number and then use it to route them to the correct unit, or at least to the correct campus.
Response: Thank you for the feedback concerning our telephone service. Phone service was changed last July to ensure all calls are answered as quickly and completely as possible. Part of this change includes routing the call to the next available qualified assistor regardless of the assigned campus. As stated in this IMRS issue, a key component is the case documentation by the assigned examiner, which enables the assistor answering the phone to fully explain what is needed to the taxpayer. While this approach does not allow direct contact with the assigned examiner, our system has a mechanism in place to enable a phone assistor to leave case notes for the assigned examiner. Once the notes have been input to the system, an alert message can be sent to the assigned examiner if follow up action is required, including a call back to the taxpayer.
Based on your feedback we will review the process and reinforce appropriate procedures with our campus assistors. Thank you for bringing your concerns to our attention.
IMRS 11-0001391 – Amended returns for insurance company demutualization
Issue: A practitioner filed several amended tax returns to claim refunds for taxpayers who had previously claimed no basis for the sale of their stock acquired in insurance company demutualization after the Fisher case. The amended returns sent to the Fresno campus were processed and the refunds issued. The returns sent to Kansas City were not processed and no refunds were issued. Instead, Kansas City sent letters saying that the service was waiting pending the decision in the Dorrance vs. US case. The practitioner wants to know if there is Servicewide policy for processing amended returns claiming a basis for the sale of these stocks.
Response: Since a determination has not been made regarding these types of claims, the refunds should not have been issued. Internal Revenue Manual 21.5.3 contains the Servicewide policy, which should have been followed. We thank you for bringing this issue to our attention and apologize for any inconvenience.
IMRS 11-0001419 – First-Time Homebuyer Credit notice
Issue: A tax practitioner stated that a client who purchased a home in 2008 received a notice indicating that he was not required to repay the First-Time Homebuyer Credit.
Response: The taxpayer’s amended return claiming the $7500 First-Time Homebuyer Credit was incorrectly coded as a 2009 purchase. The taxpayer received the CP 03b notice, which says the credit does not have to be repaid instead of the CP 03a which states the credit has to be repaid over 15 years. The taxpayer's account has now been corrected to reflect a 2008 purchase year, and the first $500 installment is due with his 2010 tax return. We will send a letter of explanation to the taxpayer.
IMRS Issue # 11-0001427 - Excessive delay in reaching the Practitioner Priority Service call-site and request to include fax numbers on notices to expedite responses
Issue: A tax practitioner complained that responding to certain notices is extremely difficult if the wait time for the PPS is excessive. The practitioner would also like notice CP518 to provide a fax number for response.
Response: Wait times vary based on the time of day and the day of the week. PPS staffing is closely monitored and adjusted as needed to alleviate excessive wait times. PPS opens at 8 am EST, and wait time is generally between two and seven minutes during the morning hours and fluctuates as the day goes on. Monday and Friday call volumes are generally higher than other days of the week.
As we redesign notices, we add fax numbers when the business unit (e.g. Collection for 518 notices) states they can accept (and prefer) faxes. The decision about adding a fax number is decided individually for each redesigned notice. We will be working on the redesign of notices CP515, 516 and 518 in the next year or so, but the actual date will depend on when the information technology programming area can implement the redesigned notices. We will keep the request to include the fax number in mind when redesigning these and other notices and include the fax number where feasible and practicable.
IMRS Issue 11-0001432 – Incorrect CP-2000 issued for taxable USDA grants
Issue: Farmers received CP-2000 notices indicating they failed to report payments for taxable grants from the USDA. They properly reported the grants on Schedule F and self-employment taxes were paid. Although IRM 126.96.36.199.20.1(1) says the examiner is to compare grant amounts with entries on Form 1040, line 21, IRM 188.8.131.52.20.1(2) states USDA payments can be reported on Schedule F and examiner is to compare grant amounts with Schedule F entries.
Response: Based on our research of the cases involved, there appears to be a training issue that will be addressed. IRM 184.108.40.206.20.1(2)a requires a review of the return; specifically Schedule F lines 6a and 6b, to determine if grant income is reported. The case was worked according to procedure; however, the grant income reported on Schedule F, line 10 could not be validated since the breakdown statement from the electronically filed return was not available.
The content of attachments to e-filed returns is not available to AUR examiners: this is a Servicewide issue that is not unique to the AUR program. We are aware of the burden it creates for taxpayers and IRS compliance functions. With each tax year we see improvement, but information included on attachments to e-filed returns is not yet available universally.
IMRS Issue 11-0001444 – Delay in refunds on returns with repayment of 2008 First Time Homebuyer credit
Issue: Refunds for taxpayers whose 2010 tax returns were e-filed and who are paying back the 2008 First Time Homebuyer Credit have been delayed. When they check "Where's my refund?" the date to receive the refund keeps changing. When they call the IRS, they get differing explanations. Taxpayers want to know what is causing the refund delay.
Response: The IRS has released information on processing issues that are impacting a small percentage of tax returns involving repayment of the First Time Homebuyer credit, primarily involving 2008 home purchases. While we have processed most of these returns normally, the IRS recognizes the hardship caused by delayed refunds, and has assigned additional staff and resources to address the issues promptly. The full information is available on IRS.gov at:
IMRS Issue 11-0001449 - Dotted-line entries such as qualified charitable distribution
Issue: Taxpayer received a CP2000 notice indicating that the amount reported for their 2008 IRA distribution was $5,000 less than the amount reported by the payer. The payer reported the correct gross amount, but the taxable amount was reduced by a $5,000 contribution that was made from the IRA account directly to a charitable organization. The letters “QCD” were included on the dotted line next to the IRA income line on Form 1040 to notify the IRS that a portion of the distribution was not taxable.
Response: “Dotted line entries” such as “QCD” are not available to Automated Underreporter Program examiners when they review electronically filed returns, potentially resulting in the issuance of a CP 2000. We are working on a programming change to reformat the dotted line entries, but this solution may be affected by resource constraints. To avoid discrepancies based on missing dotted-line entries on e-filed returns, practitioners can electronically attach a note that explains the dotted line entry, since notes are visible to the AUR examiners.
IMRS Issue 11-0001399 - Form 944/Form 941 filing requirement notifications
Issue: A taxpayer received conflicting correspondence from the IRS regarding his employment tax filing requirements, and was unsure whether he should file the annual Form 944 or quarterly Forms 941.
Response: The IRS considers the impact of timing when issuing notices to employers requiring them to file Forms 941 rather than Form 944. In some situations the IRS allows employers to file a Form 944 for the current year even though they would technically no longer be eligible to do so. If the ineligibility is determined early enough in the current year (generally by the first week of March), the IRS issues a CP 250A notifying employers that they must file Forms 941 for the current year instead of Form 944. If the ineligibility to file Form 944 is not discovered until after the CP 250A notice cut-off date, the IRS will issue a CP 250B informing employers that they must continue to file Form 944 for the current year and that they must file Form 941 for the following year. Employers receiving Notice CP 250B also receive a CP 250C at the close of the current year reminding them that they must file Forms 941 for the following year. The IRS believes that the Form 944 program continues to serve the segment of employers for which it was designed. However, employers not wishing to participate in the Form 944 Program may opt out under Rev. Proc. 2009-51 provisions.
IMRS Issue 10-0001303 – Incorrect processing of Form 943 deposit record
Issue: The taxpayer is a Form 943 depositor, with a tax liability below $50,000 every year. Although he completes Form 943 listing the monthly record of tax liability as required by the instructions, he has consistently received notices to file F 943-A, Agricultural Employer's Record of Federal Tax Liability. When he calls the IRS, he is advised that there is no record of a tax liability in the system. He is concerned that the monthly record of tax liability as shown on the return is being overlooked when the return is processed.
Response: We have reviewed the returns in question and determined that an error was made during processing. The information on line 17 was overlooked during transcription and this resulted in issuance of Notice 207. This notice instructs taxpayers to submit a completed Form 943-A if they wish to appeal the proposed penalty amount. This instruction is the same for monthly schedule depositors or semi-weekly schedule depositors. The notice asks monthly schedule depositors to complete the 943-A rather than the monthly schedule on line 17 because receipt of a completed monthly schedule could be interpreted at the campus as an amended return. We apologize for the inconvenience caused and have taken corrective actions to minimize future processing errors of Form 943.
IMRS Issue 11-0001456 – Practitioner prefers CP2000 to CP2057
Issue: A tax practitioner stated that the CP2057 is more burdensome to the taxpayer/practitioner than the CP2000. The CP2057 requires the taxpayer to file a form 1040X if the proposed income adjustment is correct where the CP2000 does not. Is the CP2057 pilot project due to be terminated soon?
Response: The IRS continuously strives to develop initiatives to increase voluntary compliance while minimizing the impact to both customer burden and IRS resources. The CP2057 is part of a “soft notice” initiative designed to serve as an educational tool, encourage self-correction and improve voluntary compliance. The soft notice asks taxpayers to voluntarily correct an apparent misreporting by either filing an amended return or not repeating the action in the following year. The CP2057 provides information that may or may not lead to the need for an amended return. If receipt of CP2057 makes taxpayers aware that the information on a filed tax return is incorrect, it is incumbent upon them to file an amended return. Recent IRS tests using soft notices have proven successful in leveraging limited resources to address noncompliance. Based on the results of this test, we expect the project to be expanded.
IMRS Issue 11-0001455 – Erroneous self-employment tax adjustment
Issue: Several taxpayers stated that they had W-2 income over the $106,800 Social Security wage base limit and correctly completed the Schedule SE on Form 1040, including line 8a ("Total Social Security wages and tips....”), but the IRS did not give them credit for Social Security taxes withheld on Form W-2. The taxpayers received IRS math error notice CP12 requesting payment.
Response: Although the printed Schedule SE entries were properly completed, we found that taxpayers reporting this problem all used the same software. The IRS contacted the software provider, and they determined that the wage amount on Schedule SE was not transmitted to the IRS on electronically filed returns. This resulted in the issuance of math error notices. The provider subsequently updated the software, notified users of the problem and is working with the IRS to resolve the impacted taxpayers’ accounts. An alert was posted to notify IRS phone assistors of this problem.
IMRS Issue 11-0001484 – Erroneous Making Work Pay Credit refunds
Issue: Schedule C and F filers incorrectly received math error notices CP11 or CP11M. The IRS changed the original returns and issued erroneous refunds for the Making Work Pay Credit. The specific situations reported involved taxpayers who filed Schedule C or F, reported a loss, and used the optional method of calculating self-employment tax.
Response: The earned income for the Making Work Pay Credit is manually computed by tax examiners when a loss is present on Schedule C or F. Existing procedures require tax examiners to determine the Making Work Pay Credit by using the Earned Income Worksheet (2010 Schedule M Instructions, Line 1a, page M-2) to compute the amount for line 1a and enter the manually computed Making Work Pay Credit amount in the field designated for line 63. However, the employees did not follow the appropriate procedures in the cases cited, resulting in the erroneous math error notices. We have re-emphasized the proper procedures and apologize for the inconvenience caused to the taxpayers.
IMRS Issue 11-0001474 – CP11 Notice does not reflect timely payments
Issue: A tax practitioner complained that clients are receiving CP11 balance due notices that do not reflect payments made timely on a timely filed return.
Response: The processing of balance due returns is normally delayed to allow time for payments to post before notices are issued. However, a CP11 notice is generated automatically when a math error is identified on the return. This notice reflects the changes to the return and provides the adjusted balance due. Because it is issued as soon as the math error is identified, it does not always reflect payments sent with the return. We apologize for the confusion.
IMRS Issue 10-0001370 – Correcting erroneous account information for direct deposit refunds
Issue: A tax professional requested that the IRS institute a procedure for correcting erroneous bank account numbers entered on electronically filed returns for direct deposit of refunds. Currently the IRS is unable to correct account information, so these refunds may be deposited into the wrong account.
Response: The IRS generally cannot stop a refund once the return has been accepted. As a reminder to tax professionals, you can help your clients ensure their funds arrive as intended by referring to Publication 4542, Splitting Federal Income Tax Refunds (PDF) at IRS.gov which says:
Encourage clients to bring their account and routing numbers for return preparation and to double-check the accuracy of account and routing numbers entered on tax returns.
The IRS assumes no responsibility for taxpayer error, which could result in different scenarios:
- If a taxpayer omits a digit in the account or routing number of an account and the number does not pass the IRS’ validation check, the IRS will mail the taxpayer a check for the entire refund;
- If a taxpayer incorrectly enters an account or routing number and the designated financial institution rejects and returns the deposit to the IRS, the IRS will issue a check for that portion of the refund; or
- If a taxpayer incorrectly enters an account or routing number that belongs to someone else and the designated financial institution accepts the deposit, the taxpayer must work directly with the respective financial institution to recover his/her funds.
IMRS 11-0001484 – Incorrect error notices for Making Work Pay credit
Issue: Practitioners report that their clients are incorrectly receiving math error notices regarding the Making Work Pay credit on returns involving Schedules C or F reporting a loss.
Response: The systemic computation of Making Work Pay earned income is a manual process done by the tax examiner when a loss is present on Schedules C or F. Submission Processing has procedures in place instructing the tax examiner to manually compute the Making Work Pay credit by using the Earned Income Worksheet, line 1a, found on page M-2 of the 2010 Schedule M Instructions, to compute the amount for line 1a and entering the manually computed Making Work Pay Credit amount in the field designated for line 63. The issuance of math error notices was due to policy and procedures in IRM 3.12.3 not being followed by tax examiners in the Error Resolution program. We apologize for the inconvenience caused to the taxpayers.
IMRS Issue 11-0001512 – E-file of married-filing-joint returns without spouse’s Individual Taxpayer Identification number
Issue: A stakeholder requested an e-file programming change for next season to allow a U.S. citizen to file Form 1040 as married filing separately without having the return reject because an Individual Taxpayer Identification number was not entered for a spouse who is ineligible to be granted an ITIN (because the secondary spouse has no federal filing requirement).
Response: We anticipate a change to the e-file system to allow these types of returns in January 2012 for tax year 2011. Please note that we do not yet have specifics on the parameters of the programming and that other restrictions may apply which could result in the prevention of returns being e-filed.
IMRS Issue 11-0001502 - Access to Practitioner Priority Service (PPS) line for Canadian tax professionals
Issue: A CPA working for a Canadian firm located in Canada raised the concern that the Practitioner Priority Service line is a toll-free number not accessible from outside the United States. This firm has many clients who are U.S. citizens and residents. Although they realize that the use of e-Services might be a viable alternative, the CPAs in his firm would like to have the same services available to them that are available to their counterparts in the U.S. Is it possible to secure a long-distance telephone number for the PPS?
Response: Customer service representatives on the International Line, 267-941-1000, already assist overseas practitioners representing their clients. While this line is not dedicated for practitioners' use, the contact representatives who staff it have the same skills as the agents who staff the Practitioner Priority Service. Funding is not currently available to establish a toll number for international practitioners to contact the Practitioner Priority Service. The potential for an initiative of this kind depends upon factors such as budget, programming resources and policy decisions.
IMRS Issue 11-0001473 – Self-employment tax on returns claiming a self-employed health insurance deduction
Issue: The IRS issued notices incorrectly adjusting the SE tax of taxpayers claiming the SE health insurance deduction and accepted returns that computed the SE tax incorrectly. Will the IRS be reviewing returns that may have been computed incorrectly?
Response: If you believe the IRS incorrectly recalculated or incorrectly denied a deduction taken for the self-employed health insurance deduction or any other deduction, submit an amended return along with an explanation of what you believe to be the correct amounts. If a refund was issued as a result of IRS changes, whenever possible return the uncashed check along with the amended return and your explanation citing why it is being returned. If the refund was direct-deposited, the original bank routing information should be provided.
All items reported on tax returns are subject to review at any time. This can be done when the return is being processed or through an audit at a later date. However, it is always beneficial to advise us as soon as possible if you feel an error was made so that it can be corrected. Early detection and correction can avoid additional interest and penalty charges, where applicable. Taxpayers may contact the IRS for further assistance with any of the above actions. Tax professionals can call the toll-free Practitioner Priority Hotline at (866) 860-4259 for guidance.
Communication and Outreach
IMRS 10-0001301 – e-News for Payroll Providers
Issue: The IRS offers 17 different e-news subscription services for tax professionals and small businesses. However, none of these 17 subscription services is specifically targeted at payroll professionals. An electronic newsletter for payroll professionals is requested.
Response: The new e-News for Payroll Providers contains information about legislative changes, new employment tax procedures and other information specifically affecting federal payroll tax returns. This new e-mail service was a result of payroll provider requests elevated through the IMRS system.
IMRS Issue 11-0001355 – Addresses for submitting comments not included in articles soliciting comments
Issue: Two recent Newswire press releases regarding changes in the regulation of tax preparers solicited comments on the changes outlined in the articles. However, neither article contained any information regarding how to submit comments. It is suggested that Newswire contain a physical or email address when soliciting comments. In both cases, addresses were available but difficult/not possible for the public to locate on IRS.gov.
Response: Thank you for the suggestion you recently submitted. We will ensure that when proposed regulations are issued in the future, links for submitting comments are included in our email distributions.
IMRS Issue 11-0001414 – Request for application to verify estimated tax payments
Issue: Practitioners would like an application on IRS.gov where they can check the estimated tax payments that have been made to a taxpayer’s account.
Response: Although the idea has merit, funding issues prevent the IRS from pursuing it at this time.
IMRS Issue 11-0001423 - Link encoding in IRS e-newsletters
Issue: Hyperlinks in IRS e-newsletter subscriptions now have link encoding, so the links do not work when copied or forwarded via email. Since IRS partner organizations share items with their members, it becomes a problem when hyperlinked material in news items loses functionality.
Response: If both the sender and recipient of the e-mail are using Internet Explorer there should be no problem with the link. However, to avoid any possible problems with other types of users, we recommend that the sender first open the link and allow the web page to load completely, and then copy and paste that link into an email to forward to others.
IMRS Issue 10-0001316 – Request for listing of active Servicewide surveys
Issue: An internal stakeholder recommended a new landing page on IRS.gov for all active Servicewide customer satisfaction surveys. A single point of control identifying surveys for both internal as well as external stakeholders will provide survey recipients a resource to verify the authenticity of the survey.
Response: The IRS conducts customer satisfaction surveys by telephone, by mail and online to capture taxpayer and tax practitioner opinions and suggestions for improving our products and services. The surveys are administered by contractors who have passed a rigid security screening process to maintain respondent confidentiality. An IRS survey will never ask for personal information like a Social Security number, taxpayer identification number or any credit card or bank information, but respondents still question whether surveys are phishing schemes.
As a result of the IMRS issue, a new page that provides a listing of current and recent IRS sponsored surveys was created on IRS.gov, and there is a process in place to make sure the page is maintained. Respondents can now search “customer satisfaction surveys” if they question the authenticity of a survey. Future survey letters will direct respondents to the new page on IRS.gov.
IMRS Issue 11-0001507, Reminder of tax deposit responsibility for employers who use third-party payroll providers
Issue: A stakeholder liaison requested outreach to remind employers who use third-party payroll providers that they are ultimately responsible for the deposit and payment of federal tax liabilities.
Response: The IRS issued Special Edition Tax Tip 2011-05, Three Tips for Employers Outsourcing Their Payroll, on Sept. 2, 2011.
IMRS Issue 11-0001466 - Request for change to Quick Alerts subscription categories
Issue: Quick Alert subscribers are receiving numerous Quick Alerts containing information that does not apply to them. The IRS should have two Quick Alert services: one targeted at software providers/transmitters and the other targeted at electronic return originators.
Response: Changes were made to the program based upon both internal and external stakeholder feedback. We consider all suggestions carefully and determine what steps the IRS should take based on those suggestions. We determined that the creation of a new "Technical" QuickAlerts category would best satisfy the needs of all stakeholders.
Effective 11/01/2011, QuickAlerts will have four subscription categories:
- General Notifications
- General IRS e-file Service Center Messages
Subscribers to the new "Technical" category will receive QuickAlerts on Schema Information and Software (PATS/ATS) Testing. The "PATS Testing" topic will be removed from the Alerts category. No other topics will move from their existing categories. Subscribers who want to receive the Technical e-file information, mainly intended for software developers, transmitters and states, should access their QuickAlerts subscription and subscribe to the new category.
Forms, Publications & Products
IMRS Issue 11-0001409 – Late receipt of 940 and 941
Issue: Taxpayers are complaining they still have not received Forms 940 and 941 for the end of 2010.
Response: Forms 940 and 941 were shipped late due to late law changes. Starting the first quarter of 2011, business taxpayers will no longer receive certain tax packages in the mail from the IRS. Most importantly, Form 941, Employer’s Quarterly Federal Tax Return, and Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, will no longer be mailed. Search “business package mailings” on IRS.gov for the complete list of forms, publications and packages that will no longer be mailed.
IMRS Issue 11-0001410 – Form W-4 confirmed as correct
Issue: The new Form W-4 for 2011 has a much lower dollar indicator for married vs. single filing status than it has for the past few years. People are questioning whether the form is correct.
Response: All income limitation, deduction limitation and withholding table amounts on the 2011 Forms W-4 and W-4P have been confirmed with the U.S. Department of the Treasury as correct. Because withholding calculations take into account many factors, they may sometimes appear to be inappropriate. Specifically, the income limitation amounts $40,000 ($10,000 if married) included in the second bulleted item under Line H of Form W-4 (Line G for W-4P) have been verified as correct.
IMRS Issue 11-0001422 – Form 1041 Instructions, request for reasonable cause relief
Issue: A penalty abatement request based on reasonable cause for late filing was disallowed after the taxpayer followed the Instructions on Form 1041 to attach the request to the original return (prior to return processing).
Response: If the penalty is assessed, the taxpayer will receive a notice. At that time, the taxpayer can submit/resubmit their request for relief. The Form 1041 instruction to attach the request for relief from late filing directly to the return will be removed for the 2012 filing season.
IMRS 11-0001445 – Processing revisions of Form 1040X
Issue: When practitioners generate amended returns from their computer software, the returns can have a different format depending on the year involved. Practitioners seek guidance as to which version of Form 1040X, Amended U.S. Individual Income Tax Return, to submit on behalf of their taxpayers.
Response: All revisions of Form 1040X will be accepted.
IMRS Issue 11-0001499 - Revision of Form 656, Offer in Compromise
Issue: A stakeholder asked when the old version of Form 656 will no longer be accepted by IRS.
Response: As of July 5, 2011, IRS will only accept the current March 2011 revision of Form 656, Offer in Compromise (PDF), which is available at IRS.gov.
Policy, Practice & Procedures
IMRS 10-0001301 – Social Security number masking
Issue: A tax practitioner would like to e-mail Form 8879, IRS e-file Signature Authorization, to clients for signature. The form is not sent anywhere, but is kept for three years by the practitioner e-filing the return. Because of identity theft concerns, the practitioner asked if it is permissible to mask the SSN by using "X"s and showing only the last four numbers.
Response: A pilot program regarding truncating of Social Security numbers is outlined in Notice 2009-93. This pilot addresses the mailing of information returns to the person whose SSN is being truncated. Because the SSNs on Forms 1040 and 8879 are being provided to the IRS as part of an income tax return filing, it is unlikely that the results from the pilot will be transferable. Therefore, the SSNs on these forms cannot be truncated at this time. As an alternative, the taxpayer can return Form 8879 by other electronic means, such as a Form 8879 that is posted on a secure Web site for the practitioner to access, as permitted under Rev Proc 97-22 and Treasury Regulations 1.6107-2T & 1.6695-1T.
IMRS 10-0001397 – 2010 Return Filing Due Date Affected by Emancipation Day
Issue: A tax practitioner wants to know if the filing date for 2010 Forms 1040 will be affected by Emancipation day (Sat., Apr. 16, 2011), a legal holiday in the District of Columbia, or Patriot’s day (Mon., Apr. 18, 2011), a legal holiday in Massachusetts, where the Andover campus is located.
Response: Emancipation Day, which is observed in the District of Columbia, falls on Friday April 15. Therefore, all taxpayers have until Mon., Apr. 18, 2011 to file their 2010 individual tax returns and pay any tax due. By law, District of Columbia holidays affect tax deadlines in the same way that federal holidays do, so all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17, 2011 to file their 2010 tax returns. See IR-2011-4, IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18; Taxpayers Impacted by Recent Tax Breaks Can File Starting in Mid- to Late February, for more information on the start of the 2011 filing season.
Taxpayers in Massachusetts and Maine will also have until Mon., Apr. 18, 2011 to file their 2010 federal tax returns. The federal filing deadline has not been extended even though April 18 is Patriots Day, a legal holiday in these states.
IMRS Issue 11-0001411 – Workers’ take-home pay affected by changes in 2011 payroll taxes
Issue: Employees expected to see their take-home pay increase due to the 2% reduction in Social Security withholding, but checks are remaining about the same or even decreasing.
Response: Income tax withholding is increasing for many workers in 2011 due to the expiration of the Making Work Pay Credit. This income tax withholding increase, however, is partially or fully offset by a two-percentage point reduction in the social security employee tax rate in 2011, from 6.2 percent to 4.2 percent of wages paid, provided by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The offset is partial for workers with modest incomes. Publication 15 (PDF), (Circular E), Employer’s Tax Guide, contains the wage bracket tables. For any Social Security tax over withheld during Jan., employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than Mar. 31, 2011. The reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.
IMRS Issue 06-0000208 – New procedures for handling payments in Taxpayer Assistance Centers
Issue: Practitioners raised concerns that assistors at the TACs were refusing to accept payments, documents and returns requested by revenue officers or other Small Business/Self-Employed IRS employees if the requesting employee was not available to accept them.
Response: We developed procedures for the consistent handling of remittances and other documents received in IRS offices. If a remittance is made by check at a TAC and the requesting employee is not available, the TAC will process the payment and provide the requesting employee with a photocopy of the payment and indicate where the payment was applied. If the IRS representative cannot determine the intended recipient or application of a remittance received in an IRS facility, the remittance will be sent to one of our submission processing sites for research and appropriate application.
If tax returns or other documents are brought to the TAC and the requesting employee is unavailable, the TAC will accept the documents and place them in a secure (locking) location in the TAC. On a daily basis, an SB/SE representative will pick up the documents.
Internal Revenue Manual sections IRM 220.127.116.11.5 Documents and IRM 18.104.22.168.10, Payments, contain the new procedures.
IMRS Issue 10-0001204– Notice of Federal Tax Lien filings
Issue: Practitioners voiced concerns about Notice of Federal Tax Lien (NFTL) filings prior to taxpayer contact as well as those filed automatically when taxpayers enter into installment agreements. They feel that filing of the NFTL causes undue hardship for many taxpayers and that subordination and/or discharge of the lien are not viable options since the NFTL remains on the credit report. Practitioners would like taxpayer contact to be a pre-requisite to filing a NFTL.
Response: Taxpayers are provided multiple opportunities to voluntarily resolve their tax liabilities before any decision is made to file a Notice of Federal Tax Lien. Recently the IRS has taken a number of steps to enhance procedures around lien filing and lien withdrawals. We would like to refer you to our recently published page on IRS.gov that provides additional information on new lien withdrawal information – search “Fresh Start.” You may also access the Interim Guidance Memorandums that include current procedures on lien withdrawals, etc – search “Interim Guidance by IRS Business Process” on IRS.gov.
IMRS Issue 11-0001415 – Proper processing of Form 2848, Power of Attorney, by the CAF
Issue: A tax practitioner is having a problem when submitting Forms 2848 to the Centralized Authorization File that lists multiple representatives. A four-page POA form was submitted showing four representatives, along with a cover letter, but the CAF unit did not recognize and add the information.
Response: We apologize for the unfavorable experience you had with getting the power of attorney for multiple representatives processed through our CAF processing site. We have taken actions to address your issue. The clerical CAF function at all three CAF sites has been reminded to not separate faxed pages that are clearly marked to stay together. The examiners were also alerted to this issue and advised to take steps to locate missing pieces of information before taking any rejection action.
IMRS Issue 11-0001454 – International Centralized Authorization File address
Issue: The International CAF function would like assistance in informing practitioners of their new address and fax number. The new information for the Philadelphia Campus Accounts Management International CAF team is:
2970 Market Street
Mail Stop 3-E08.123
Philadelphia, PA 19104
Response: This new contact information was publicized in the Apr. 1, 2011, IMRS Hot Issues report and in the Apr. 1, 2011, e-News for Tax Professionals electronic newsletter.
IMRS Issue 11-0001421 – Erroneous rejection of POA for level H (unenrolled) preparer
Issue: A tax practitioner reported that the CAF unit erroneously rejected Form 2848, Power of Attorney, stating that the practitioner was a Level H (unenrolled) return preparer and did not prepare the returns in question when in fact she did prepare the returns.
Response: Level H representation requires that the practitioner had prepared the return in question and that the return be under examination by the IRS. The letter sent to the preparer to inform her of the reason for rejection was incorrect because it stated that she did not prepare the returns and they were not under examination. We apologize for this error and the confusion it caused. The letter should have indicated the correct reason for rejection: while this practitioner prepared both returns, at the time the 2848 was filed neither the 2008 nor the 2009 return was being examined by the IRS.
IMRS Issue 11-0001451 – Audit reconsideration for office audits
Issue: An Exam group manager reported that Publication 3598, What You Should Know About the Audit Reconsideration Process, does not provide clear directions regarding where to send reconsideration requests for taxpayers who have had office audit examinations. The publication appears tailored to campus examinations. The manager also requested clarification of the audit IRM.
Response: Revisions are planned for Publication 3598, What You Should Know About the Audit Reconsideration Process, and IRM 4.13, Audit Reconsideration - Area Office Examination, to clarify procedures for office audit reconsiderations. In the interim, taxpayers should file audit reconsideration requests with the campus where they filed their original tax return.
IMRS 11-0001463 – State energy rebates
Issue: A tax practitioner’s client received a Form 1099 from the state reporting a payment from the state’s home energy rebate program. The practitioner doesn’t think the payments are taxable or that the 1099 should have been issued.
Response: Many energy incentives are referred to as “rebates” even though they do not constitute rebates for federal tax purposes. Generally, only a manufacturer, distributor or installer of equipment can properly make a rebate for the costs of energy conservation equipment. Energy incentive payments from state and local governments that are includible in gross income must be reported using box 6 of Form 1099-G. There is no minimum dollar threshold for this reporting requirement.
IMRS Issue 09-0001144 – Release of source codes during examination
Issue: A tax practitioner requested the source codes during an audit. He was instructed to make a Freedom of Information Act request.
Response: In most circumstances, source codes can be released to a requester during the course of an examination. However, we cannot disclose source codes if their release would seriously impair or impede tax administration or would identify, or tend to identify, a confidential informant.
Source codes can be requested directly from the examiner, but the decision to redact source codes under the circumstances described above must be made by the examiner’s manager. Managers have been delegated the authority to withhold this information based on IRC 6103(e)(7) impairment considerations. While the manager's decision cannot formally be appealed, it can be elevated to the territory manager. If a requester disagrees with management's decision, a FOIA request might be appropriate because that venue provides appeal rights for any denials of information based on applicable FOIA exemptions.
IMRS Issue 11-0001465 – Collection action in Trust Fund Recovery Penalty cases
Issue: When the Trust Fund Recovery penalty is assessed against an individual for unpaid corporate payroll taxes, the IRS should make it easier for the corporation to enter into an installment agreement to address both the corporate and individual liabilities. The IRS representative handling the corporate case should be able to suspend collection on the individual while the corporation is resolving the matter. In addition, when IRS enters into an installment agreement with the corporation, there should be an automatic hold on collection against the individual unless the company defaults.
Response: The IRS has procedures in place and is able to withhold collection of the assessed Trust Fund Recovery penalty while the business is paying through an installment agreement. The IRS may withhold the assertion or collection of the TFRP while the business is attempting to resolve the liability through another method, such as an installment agreement. The specific facts and circumstances surrounding both the business and individual officers in each case would determine the actions taken by the IRS.
IMRS Issue 10-0001234 – Improper call routing of Schedule H questions
Issue: A practitioner called the Practitioner Priority Service regarding a household employee question. Although she asked for the business tax law section, six employees refused to direct her call there. Instead she was referred to other areas such as individual accounts management. She finally was referred to the business tax law section where an assistor gave her the help she needed and confirmed that household help and Schedule H questions should be answered by the business section. However, the entire process took three hours.
Response: As a result of your experience, IRM 22.214.171.124.8 is being updated to add specific directions on the appropriate call routing. This change will take effect 10/1/2011. Thank you for bringing this to our attention and giving us an opportunity to improve our customer service.
IMRS Issue 11-0001433 – Use of electronic accounting records in an audit
Issue: When the IRS requests electronic accounting records for an examination, the files provided may include records for other periods that are not part of the audit. Is there a way to limit the access to other years and what assurances are there that IRS will not view or use the other information that is not part of the open audit?
Response: IRS has recently revised and expanded the Use of Electronic Accounting Software Records Frequently Asked Questions on IRS.gov, and the posted information addresses this concern.
IMRS Issue 11-0001480 – Practitioner Priority Service limits
Issue: A tax practitioner would like to know if there is a limit on the number of taxpayer cases the PPS can assist with or on how many transcripts the practitioner can request during one call.
Response: Practitioner Priority Service assistors are limited to providing 10 transcripts per phone call and limited to servicing up to five clients per call. These limits are intended to be consistent throughout the PPS program. Any inconsistency may have been the result of assistors providing more than the limit when they perceived the additional requests as minimal.
IMRS Issue 08-0000840 – Bankruptcy trustee notices
Issue: Bankruptcy trustees are receiving notices for balance due and/or delinquent returns after a bankruptcy is closed, sometimes many months after closure.
Response: IRS Tips for Bankruptcy Trustees was published on IRS.gov on June 17, 2011, and offers some helpful tips for bankruptcy trustees who receive IRS collection notices.
IMRS Issue 11-0001462 – Form 2848 processing problems
Issue: A tax professional reported problems processing a Form 2848 with several pages that was faxed to the Centralized Authorization File unit. In addition, several tax professionals reported Form 2848 processing delays of more than ten days.
Response: We apologize for the unfavorable experience you had with getting powers of attorney timely processed through the CAF processing sites. It appears that you took the necessary steps to get a multi-page authorization processed by following the guidelines outlined in the Form 2848 instructions. To address this issue going forward, we reminded the CAF function employees at all three CAF sites that faxed pages that are clearly marked to stay together should not be separated. We also alerted the examiners to this issue and reminded them that they should take steps to locate missing pieces of information before taking any rejection action. We continue to track and monitor receipts and closures at all CAF sites. None of the sites was reporting inventory over ten days old at the time of the issue submission. We apologize for the delay.
IMRS Issue 11-0001460 - Correspondence from Appeals not sent to all representatives listed on Form 2848
Issue: A practitioner stated that when a case is forwarded to Appeals and there are two or more representatives’ names listed on the Form 2848, correspondence is only sent to the representative whose name is listed first. The correspondence should be sent to all listed representatives per the instructions on Form 2848.
Response: We agree that Appeals should send correspondence to all representative(s) listed on Form 2848 if Line 7 is completed indicating such, but our current case management inventory system only sends it to the first listed representative. Unfortunately, due to programming resource issues, our system cannot be re-programmed. Appeals will review the Service-wide Internal Revenue Manual to determine if our policies need to be revised and/or clarified. We are reminding our Appeals workforce to follow the instructions designated on the Form 2848 and that any computer limitations do not remove the Appeals employee’s responsibility to provide information to all of the taxpayer's authorized representatives.
IMRS Issue 11-0001381 – Electronic issuance of Forms 1099
Issue: A tax practitioner has concerns about allowing companies to issue Forms 1099 electronically. He believes some companies may not be following IRS regulations, and wants to know how to report them for IRS follow up. He also believes that all companies should be required to send 1099s by mail since many taxpayers don't know to look online for their forms.
Response: If a payer does not follow the proper procedures when furnishing statements electronically, they have not met the requirement to furnish the correct statement to the payee. If you have specific information that a company is not properly complying with the requirements when furnishing statements electronically, complete Form 3949-A, Information Referral (PDF), and mail it to the address on the form. Form 3949-A can be found on IRS.gov. The regulations and the instructions in Publication 1179 require taxpayers to consent to the electronic furnishing of Forms 1099, and allow taxpayers to opt out of electronic furnishing once they have given consent. Taxpayers who have difficulty keeping track of electronic statements are encouraged to request them by mail.
IMRS Issue 11-0001443 – Name control for trusts
Issue: An attorney who assigns bulk employer identification numbers for trusts and submits the information to IRS is unable to obtain the correct name control for e-filing.
Response: Without a valid Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization, the IRS cannot release the name control we assigned to the entity. The taxpayer (owner of the EIN) receives a CP575 (Notice of EIN Assignment) that contains the name control assigned in the header section of page 2.
The IRS is currently analyzing the name control assignment process as it relates to e-File and EIN assignment. We made changes to e-File to allow a broader search for a name control for this filing season and this has proven to be successful.
When establishing an EIN for a trust, here are some general guidelines to help you determine what the assigned name control will be:
- Omit any names of trustees from the primary name.
- Place the individual's name at the beginning of your trust name.
- Do not enter the words "dated,” “under,” or “for the benefit of” at the beginning of the trust name.
- Do not enter the alpha month - replace with corresponding numeric character.
- Omit the word "the" from the beginning of your trust name.
IMRS Issue 11-0001482 – Problems processing tax returns of H2-A visa workers
Issue: A tax practitioner with a low income tax clinic repeatedly receives notices assessing self-employment tax on H2-A visa workers. H2-A visa workers are exempt under IRC 3121(b)(1). The practitioner requests guidance on how to prepare these returns to alert IRS of the exemption.
Response: Math error notices were issued because a Schedule SE was included with the return. A tax return for an H2-A visa worker should be filed in the following manner: exclude Schedule SE; enter "exempt, see attached statement" on the Self-Employment Tax line of Form 1040; and attach a statement of explanation.
IMRS Issue 11-0001522 – Failure to pay penalty assessed on returns on extension
Issue: Practitioners in Massachusetts, New York and Alabama reported that clients who had filed valid 1040 extensions received CP 14 notices assessing the failure to pay penalty. 90% of the balances due were paid with the extension request. The returns were e-filed and the remaining balance due was later paid by check prior to the extended due date of the returns.
Response: An extension of time to file is not an extension of time to pay. Any balance due on returns on extension must be fully paid at the time the return is filed in order to avoid the failure to pay penalty: taxpayers do not have until the extended due-date to pay if the return is filed prior to the extended due-date. The Treasury Regulations, Title 26, Part 301: 301.6651-1(c)(3) state that reasonable cause will be presumed IF the taxpayer pays at least 90% of the tax shown on the return on or before the original due date (without regard to extensions), and pays the remainder when the return is filed. Accordingly, the computer is programmed to check four things when a return is processed before assessing the failure to pay penalty:
- Did the taxpayer have an extension of time to file?
- Did the taxpayer file by the extended due date?
- Did the taxpayer pay at least 90% of the tax shown on the return on or before the original return due date?
- Has the remainder of the tax shown on the return been paid in full?