Issues Closed in Calendar year 2010 Sorted by Subject
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IMRS 10-0001241 – Telephone Calls Regarding AUR
Issue: A tax practitioner suggested that a telephone prompt allowing callers to reach the Automated Underreporter (AUR) Operations be added to the menu choices when calling the Practitioner Priority Service (PPS).
Response: Starting in April, callers to the PPS toll-free number will be able to self-direct their calls to AUR. They will be asked for the servicing center to ensure the call is routed to the proper business operating division.
IMRS 09-0001119 – Estimated Tax Payments
Issue: A wife called the toll-free help line to get the amounts of the estimated taxes that were paid for the year and was told information would only be given to the primary taxpayer on the account even though they will be filing a joint return.
Response: Telephone assistors who help customers with account inquiries must ensure they are disclosing account information to persons authorized to receive this information. Based on the information we received, there was no tax return filed. The assistor did not have return information to determine if a civil event occurred that would change the filing status, such as a divorce. To avoid an unauthorized disclosure, the assistor would need to verify this type of information. For this type of inquiry, the assistor can send a Record of Account transcript to the name and address of record in lieu of providing the estimated tax payment information to the secondary name (spouse) on the account.
As a result of the IMRS issue, toll-free assisters will now check the Remittance Transaction Research System (RTR) and provide verification of estimated tax payments to the secondary taxpayer on an account without a filed return when the preceding year shows a joint return with that same secondary taxpayer and the RTR shows a joint ES voucher or a joint check, showing the intent to make joint ES payments.
IMRS 10-0001263 – CP 501
Issue: A tax practitioner’s client received a collection notice from the IRS for 8 cents. The practitioner wants to know if we have a cut-off for money we are trying to collect, since the cost of postage and labor is far greater than the 8 cents the Service is trying to collect.
Response: In January, a change was made to the Tax Delinquency Accounts programming that resulted in this problem. A correction is scheduled to be implemented by the end of April.
IMRS 10-0001258 – Direct Access to IRS Assistor When Calling AUR Unit
Issue: Tax professionals would like an option added to the AUR Unit’s toll-free number that would enable them to reach an IRS assistor after accessing the automated response system and going through all the telephone prompts. In addition, option three should include information about the extensions available for CP2000 or CP2501 notices, not just the statement that there is no extension on a 90 day letter.
Response: The Automated Underreporter (AUR) program is aware of these concerns. We are in the process of developing toll-free enhancements and changes to the existing AUR telephone scripts. These enhancements and script changes are a direct result of feedback we received from our customers. Your suggestion to include messages to inform our customers they have the option to speak to an assistor and the option to request an extension of time to reply have been forwarded to the appropriate personnel for consideration during the revision process.
IMRS 10-0001309 – Erroneous Making Work Pay Refunds
Issue: A practitioner stated that she has three clients who received CP12M alerting them that the IRS adjusted their returns to allow for Schedule M, Making Work Pay Credit. All three taxpayers are dependents and not eligible.
Response: The IRS has identified that some returns were coded incorrectly, resulting in erroneous refunds for the Making Work Pay Credit. Taxpayers who are not eligible for and did not claim the Making Work Pay credit, but received the credit as part of their refund, must repay or return the credit. Effective June 15, the IRS implemented a change to the programming on the toll-free number provided on Notice CP-12M to include an option allowing customers to speak to a customer service representative after listening to the recorded announcement. Callers can reference the internal “SERP Alert” number 100297-dated June 1, 2010, if it appears that the erroneous refund was a result of the dependent status.
IMRS 09-0001120 – Collection Notices When Account is in Appeals
Issue: A taxpayer paid the tax and interest on a tax assessment and the request for abatement of the associated penalties was being heard in Appeals. However, the stakeholder continued to receive collection notices on the penalties. The stakeholder felt that the account should be placed in suspense pending resolution of the appeal because the only amount still due was what was being appealed.
Response: Every Accounts Management Campus has an Appeals Coordinator. On 5/14/2010, updates addressing referrals to Appeals were made to IRM 20.1.1, including the requirement that Appeals Coordinators suspend collection (and associated notices) on accounts transferred to Appeals for reconsideration.
IMRS 08-0000923 – Taxpayers’ Representatives Do Not Receive Copies of CP 251, Notice of Employment Tax Problem and CP 253, Request for W-2 Not Filed with Social Security
Issue: Notices CP251, Notice of Employment Tax Problem (CAWR) and CP 253, Request for W-2 Not Filed with Social Security Administration sent from the Combined Annual Wage Reporting (CAWR) unit are not sent to taxpayers' representatives. Neither the reporting agents listed on the RAF (Reporting Agent File) nor the powers of attorney listed on the Centralized Authorization File (CAF) receive copies of the discrepancy notices from the CAWR unit.
Response: Copies of the Notices CP251 and CP 253 were not mailed to the taxpayers' representatives due to system limitations. In March 2010, the CP 251 and CP 253 notices were discontinued and replaced by Letter 98C, Wages Reported per SSA; No Record of Return: Form 941, 942, 943 and Letter 99C, Wages Discrepancy Per SSA; Information. The change overcomes the previous system limitation and CAF/RAF copies are now sent to representatives.
IMRS 10-0001224 – Automated Collection System (ACS) Large Dollar Unit Wait Times
Issue: Practitioners complained that they have to wait twice when contacting the Automated Collection System (ACS) Large Dollar Unit. First, they have to wait to talk to an assistor on the general ACS call-in line and then they have to wait again in the large-dollar queue. The Practitioner Priority Service has a self-direct option to ACS at the beginning of the call, but callers still have to wait for an assistor to direct them to the Large Dollar Unit. They also said that they are often directed to the incorrect site by the general ACS assistors. In addition, they are sometimes disconnected after holding for a long time. It was suggested that a direct phone number to the correct Large Dollar Unit be included on the notice.
Response: If the practitioner enters a Taxpayer Identification Number when prompted, and the system recognizes it as a large dollar case, the call will automatically be routed to the Large Dollar Unit. If the caller enters no identification data, we have no choice but to screen the call a second time in a regular ACS unit or the Practitioner unit. ACS management continues to issue reminders to the customer representatives regarding the correct policy for call transfer. Additionally, we track the accuracy of calls transfers during the quality review process.
A systemic disconnect is built into all of our call routing systems. If a caller has waited on hold for two hours, the system assumes that there are routing problems and the call is automatically disconnected. We acknowledge that it is possible that systemic disconnects may have occasionally occurred in the past, and in response we have taken steps to virtually eliminate recurrence. Most importantly, the number of agents trained to answer these calls has significantly increased in the past year. To illustrate the impact of these changes, the average length of time a caller waits in queue in the Large Dollar application is now less than six minutes.
We are exploring the feasibility of adding a new toll-free number to the large dollar notices. However, changes to our call routing environment generally require an eighteen-month lead-time for implementation, and will still only benefit those who receive an actual "large dollar" notice. Practitioners responding to any other form of Collection notice will still need to be screened.
IMRS 10-0001347 – Check for Amended Returns by Automated Underreporter (AUR)
Issue: A tax practitioner asked if the IRS checks to see if an amended return has been filed prior to issuing a CP 2000 showing proposed changes to an income tax return.
Response: When an amended return is received and there is no indication it is related to an AUR notice, IRS computers are updated with the transaction code that indicates receipt of an amended return. The AUR system is designed to search for new transactions, amended returns, etc., and tax examiners are instructed to follow IRM 22.214.171.124.3.3, Transaction Codes Reflecting Tax Liability.
When an amended return is received in response to an AUR notice, the response is routed to the AUR area and is recorded on the AUR system as correspondence received. Therefore, the phone assistors would only have record of correspondence received, not specifically that an amended return was received.
In the example submitted by the practitioner, the correspondence (amended return) was considered and a recomputed CP2000 Notice issued on July 29, 2010.
IMRS 10-0001351 – Correspondence Audits – Disallowance of Extension Request and Sales Tax Deduction
Issue: Many practitioners stated that when requesting an extension for a correspondence audit they were told by the telephone assistor that an extension was not necessary or being granted for correspondence audits because the next letter would give 90 more days. Practitioners also reported the disallowance of the Florida Schedule A - Sales Tax Deduction when the amount came from the IRS sales tax table.
Response: Thank you for the feedback regarding requests for additional time to respond to campus examination notices. Our procedures direct our examiners to grant additional time when requested by taxpayers and preparers. We looked into this and found some of our offices may not be following this guidance in all situations. We have reinforced these procedures with each office and we will be following up at our upcoming site visits.
It is difficult to respond without the specifics of the case related to the disallowance of the sales tax deduction. However, our procedures and training address the proper treatment of state taxes. If this assessment has been made, we suggest you request audit reconsideration.
IMRS 10-0001353 – Rejected Form 8868, Application for Extension of Time to File an Exempt Organization Return
Issue: Requests for automatic extensions of time to file Form 990, Return of Organization Exempt from Income Tax are being erroneously rejected as untimely. When the taxpayer responds to the CP211C, Application for Extension of Time to File an Exempt Organization Return - Denied, with a copy of Form 8868 showing a time & date stamp from the software used to print it, the campus is saying it is insufficient and asking for a copy of the postmark. This problem often arises when multiple Forms 8868 are mailed in a single envelope.
Response: The procedures cited in IRM 3.10.72 should have been followed by the Campus employees processing the applications. Unfortunately, due to human error, mistakes inevitably happen. In this case, the individual 8868s in the envelope (which contained multiple Forms 8868) were not date-stamped, so the IRS used the processing date and not the received date to determine timeliness. The IRS will be issuing an alert to the area responsible for date-stamping Forms 8868 to remind them of the procedures that need to be followed when multiple applications are received in a single envelope.
Once organizations receive Notice CP211C, they should file their return as soon as possible. If it isn't possible to file before the return due date, a statement providing reasonable cause for late filing should be attached to their return when filed. If a penalty is assessed, the organization can request abatement of the penalty.
To reduce the possibility of returns being date-stamped incorrectly, practitioners should submit a single return in each envelope. Practitioners should also be aware that electronic filing eliminates the possibility of human error and provides an acknowledgement of receipt and proof of the received date. A list of approved e-File providers, some offering free filing of Forms 8868, can be found on the e-file for Charities and Non-Profits section of the IRS.gov.
IMRS 10-0001357- Erroneous CP276B
Issue: A problem was identified in the way the first quarter HIRE credit (line 12e) was applied when computing the Failure to Deposit Penalty on second quarter Forms 941. As a result, erroneous CP276B notices were issued.
Response: Incorrect CP276B and CP207 notices were generated for the Form 941 Tax Period ending June 30, 2010. There was a programming problem and the HIRE credit arising from the first quarter and claimed on second quarter Forms 941 was not used in the systemic FTD penalty calculation. This resulted in the computer charging incorrect penalties in some cases, and generating incorrect CP 276B systemic waiver notices in others. A recovery was run to reverse the incorrectly assessed FTD penalties. No corrective action is necessary for the incorrect CP 276B notices since no penalty was charged, and this situation will not be considered for future determinations of whether First Time Abate relief will be granted. If you contact the IRS regarding this issue, refer to SERP Alert #100471 dated September 7, 2010.
IMRS 10-0001363 - Extension Due Date for Certain Disaster Victims
Issue: There appears to be a widespread systemic problem that erroneously listed the extension due date for individual taxpayers in some federally declared disaster areas as 11-11-10 (which is 6 months from the postponement period), instead of 10-15-10.
Response: The Disaster Program office is aware of certain disaster accounts where the automatic six-month extension was added to the end of the relief period, resulting in a return filing due date of 11/11/10 instead of 10/15/10. Current disaster procedures allow the Form 4868 approval to run concurrent with the disaster relief period, and not to exceed the later of the relief end date or 10/15 of the filing year, whichever is later. Due to a systemic error, programming for this process was overridden, and a full six months after the end of the relief period was approved in some cases. Affected accounts are in FEMA declaration areas 1893, 1894, 1895, and 1897 only, with a disaster relief period end date of 05/11/2010. In order to avoid any burden to taxpayers or confusion regarding the extended due date, IRS will honor the posted extension date. When contacting IRS, please refer to SERP Alert #100470 issued on September 7, 2010.
IMRS 10-0001343 – Form 941 “Zero” Returns
Issue: Subsequent to filing Form 941 “zero” tax returns, the practitioner reports receiving IRS notices indicating the IRS has no record of the return being filed. The practitioner requests clarification of the correct procedures to follow when filing “zero tax” Forms 941.
Response: An original return reporting zero tax would be processed just like a Form 941 return reporting taxes. We recommend the taxpayer resubmit a signed copy of the Form 941.
IMRS 11-0001371 – Processing of Multiple Forms 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns) In One Envelope
Issue: A tax practitioner mailed multiple Forms 7004 in one envelope to Ogden, postmarked 3/15/10. Six of these were rejected with the taxpayer receiving Form 6513, Extension of Time to File, stating the extension was not approved because it was filed after the date the return was due.
Response: Research indicates the Forms 7004 (Request for Extension) were received in one envelope. The employees in our Receipt & Control Operation (RCO) who open and stamp the appropriate received date on the incoming forms did not completely follow procedures. When multiple Forms 7004 are received in the same envelope, RCO employees are directed to extract the contents, attach the envelope to one of the forms received and date stamp the envelope postmark date on the remaining Forms 7004 received in the same envelope. The envelope postmark date is critical information needed to determine the timeliness of the receipt of the request. In this case, the employee attached the envelope to one of the Forms 7004 received and then overlooked stamping the envelope postmark date stamp on the remaining Forms 7004 contained within the envelope. That meant the remaining documents were processed as late filed because the received date placed on the document (based on the actual receipt in RCO) was after the due date of the extension.
We apologize for any inconvenience caused by this omission. The RCO function handled large volumes (2.1M) of extensions during a very compressed time at the peak processing period when these forms were received. We have taken several steps to address and prevent these types of errors including issuing quality alerts and reminders to all RCO employees.
We continue to work to improve the manual processing of Forms 7004 filed via paper. However, filing the Forms 7004 electronically would eliminate the human errors we periodically encounter with paper processing.
IMRS 10-0001333 – Form 6513 Mailed with No Entity Information
Issue: A tax practitioner received Forms 6513, Extension of Time to File, for several clients indicating the extensions were not approved because the extension requests were not timely received. The forms contained no taxpayer identifying information, such as name, SSN, form or tax period. The practitioner was unable to match the Forms 6513 with the corresponding client records.
Response: The instructions in IRM 3.11.212 have been updated to address this issue. Previously, the instructions stated to either photocopy the extension request or attach a label with the name and address where the form will be mailed. The revised procedure deletes the option to use the label when sending Form 6513 and instructs IRS submission processing staff to always make a photocopy of the original extension request if they are not mailing back the original. The use of the mailing label would only be practical when mailing the form back to an individual entity. The instruction to use the label was not intended for mailing the forms to a practitioner with several clients.
Communication and Outreach
IMRS 10-0001317 – Affordable Care Act, Tax Credit for Employee Health Insurance Expenses of Small Employers
Issue: Practitioner requests that the “3 simple steps” example of employers receiving the credit be expanded to show employers with over 10 employees and/or over $25,000 average wages how to easily compute the possible credit.
Response: Notice 2010-44, issued May 17, 2010, provides more information and examples.
IMRS 09-0001143 – International Tax Issues
Issue: A practitioner suggested that education and outreach be developed to explain the tax obligations for small businesses dealing with foreign entities. Due to the expanding global economy, smaller companies conducting business internationally need to be educated in order to comply with their tax responsibilities.
Response: A National Phone Forum on International Tax Issues was held in April, 2010. In addition, IRS is creating a collection of pages to appear on IRS.gov under the following title: "Taxation of Aliens by Visa Type and Immigration Status." We are also working on updating and reissuing IRS Publication 953, International Tax Information for Businesses. When completed, these two projects will significantly increase the amount of tax information available to Small Businesses that wish to do business with foreign entities.
Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) Collector Issues
IMRS 10-0001212– Net Operating Loss (NOL) Carry-back for All Businesses;
IMRS 10-0001211– First Time Homebuyer Credit Expanded and Extended
Issue: WHBAA generated a substantial number of inquiries from stakeholders.
Response: The Collector Issues were established by the IMRS to act as a central repository for questions/concerns on the provisions of WHBAA. Stakeholders elevated questions by contacting their local stakeholder liaisons. As questions were answered, the responses were provided to the stakeholders who raised the issues and were also considered for inclusion on the Q & A pages of IRS.gov. Many of the Q & As on IRS.gov are a direct result of the questions stakeholders asked. See IRS.gov for Q & A’s on the 5 -year Net Operating Loss Carryback Election for Small Businesses and First-Time Homebuyer Credit.
IMRS 09-0001152 – Outreach and Education Material for New Requirements for Tax Professionals
Issue: Outreach and education materials to help the tax professional community comply with the e-filing mandate as well as the new requirements for federal tax return preparers are requested.
Response: IRS presented a webinar; New Requirements for Federal Tax Return Preparers – Learn the Who, What, When and Howon June 9, 2010. The webinar is archived and available to view on
IMRS 10-0001218 Economic Recovery Payment
Issue: Taxpayers requested a tool to check to see if they received the Economic Recovery Payment.
Response: The IRS developed the “Did I Receive an Economic Recovery Payment?” look-up tool which gives taxpayers an easy way to determine if they received the one-time $250 ERP payment and which agency made the payment. Taxpayers can call 866-234-2942 to access the phone application. There is also a Web application on IRS.gov. Using the IRS look-up tool, taxpayers will have to enter three pieces of information to determine if they received an ERP:
- Date of birth
- Zip code from the last filed return
A separate telephone call or Web inquiry must be made for each taxpayer, even if filing a joint tax return. Agency contact information and tips for avoiding refund delays relating to your economic recovery payment can be found in IRS Tax Tip 2010-21.
IMRS 09-0001188 – Installment Agreement
Issue: A practitioner reported that when he needed to modify an existing installment agreement so that it would be paid by direct deposit, he was able to log on to the Online Payment Agreement (OPA) on IRS.gov using the credentials screen but received an error message after entering the bank information and could go no further. He contacted three different help desk resources at the IRS for assistance but none had any knowledge of OPA or how to correct the problem.
Response: In researching this issue, we found an error in the system. The error will be corrected by July 2010. Until the error is corrected, use the caller ID instead of the signature date for authentication.
Forms, Publications & Products
IMRS 10-0001199- Form 941, Employer’s Quarterly Federal Tax Return
Issue: Taxpayers who completed Schedule H for household employees received notices asking them to file Form 941 for 2008. They believe the notices are erroneous since their employees are domestic employees and meet the requirement to use Form 1040 Schedule H.
Response: The notice was issued as a result of our new selection process for identifying delinquent tax returns, the Business Master File Case Creation Non-filer Identification Process (BMF CCNIP). BMF CCNIP utilizes third party data, including information from Forms W-3 the business has issued, to identify potential delinquencies. For the Employer Identification Number (EIN) related to this issue, the taxpayers are Schedule H filers, and use the EIN solely to report and pay household help employment taxes. However, there is no indication of this on the Business Tax Account. Because Forms W-2 and W-3 were filed using the EIN, a notice requesting the 941 tax returns or an explanation for noncompliance was generated. The taxpayer should reply to the CP 259 notice using the notice response page.
IMRS 10-0001280 – Form 1040X
Issue: Practitioners are concerned that there has not been a great deal of publicity regarding the redesign of Form 1040X and want to know if the Service will offer a grace period for amended returns inadvertently submitted on the old version before returning them as unprocessable or incomplete.
Response: Taxpayers should submit amended returns using the Form 1040X with the revision date of January 2010. However, amended returns that have already been submitted on the prior version of the 1040X will be processed: the return will not be returned to the taxpayer as unprocessable or incomplete.
IMRS 09-0001106 – Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099R, Distribution From Pensions Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Issue: Headliner 258 does not match the instructions for Form 4852 regarding the proper timing and use of the form. This has created confusion.
Response: Headliner 258 was removed from IRS.gov and paragraph two under “Purpose of Form” in the Form 4852 instructions will be revised.
IMRS 07-0000622 – Publication 4161, Federal Tax Guidelines for the Barber and Cosmetology Industry, Publication 4143, Learning the Art of Doing Business – Student Guide and Publication 4143-A, Learning the Art of Doing Business – Instructor Guide
Issue: Stakeholder requests that the IRS reconsider the decision to discontinue Publications 4161, 4143, and 4143-A.
Response: The Cash Audit Technique Guide was revised in April 2010 and now includes much of the information on the Cosmetology Industry that was previously contained in the discontinued publications.
IMRS 10-0001318 – Form 8498, Program Sponsor Agreement for Continuing Education for Enrolled Agents
Issue: If a practitioner organization fails to file Form 8498 timely, may the form be filed retroactively? If not, is there any recourse?
Response: Section 10.6(g)(5) of Circular 230 states that, in general, a sponsor maintains its status as a qualified sponsor during the sponsor enrollment cycle. There is no provision in Circular 230 that will allow an organization to file for renewal retroactively. Any advertisement or published material stating that the organization is recognized by the Director as an approved sponsor should be discontinued until a request for recognition is submitted and approved.
IMRS 10-0001277 – Vehicle Identification Numbers
Issue: Texas Department of Transportation is experiencing mismatches with Vehicle Identification Numbers (VIN) on IRS Form 2290 and the VINs in their database because applicants are not entering the full VIN on Form 2290 and IRS is accepting the form without a full VIN.
Response: The Form 2290 was recently revised to have boxes for each of the VIN characters rather than an open undefined line entry. The expectation is that each box should be filled in. The Service will look into further revisions that would require an explanation when a VIN is not 17 characters. The IRM will be changed to read: “Use Form 2290 instructions to ensure the Parts I and II are complete and accurate. For most vehicles, a complete VIN will consist of 17 digits. Vehicles manufactured prior to 1981 were not required to have a 17 digit VIN. Both Schedules '1' must be identically completed. Every effort should be made to ensure the taxpayer has provided a complete VIN. Failing to provide a complete VIN may prevent the taxpayer from registering the vehicle with their state.”
IMRS 10-0001335 – Form 433-F, Collection Information Statement
Issue: A practitioner reported a problem with the fillable Form 433-F, Collection Information Statement on IRS.gov. Form 433-F requests a date of birth entry in Section E (Wage Information); however, when the date of birth is entered it populates as a dollar figure.
Response: The fillable Form 433-F was revised to correct and replace the erroneous birth date field in Section E. The new Form 433-F revision is available on IRS.gov (PDF).
IMRS 10-0001321 - Schedule M
Issue: A practitioner had several clients who filed married filing jointly and then received notices concerning the credits available on Schedule M when one taxpayer received social security (SS) benefits and the other was a retired government employee who did not receive SS benefits. While the former taxpayer did receive the Making Work Pay credit, the latter taxpayer was denied the Government Retiree credit.
Response: Submission Processing determined that there was an error in the Schedule M programming and made the necessary corrections.
IMRS 10-0001279 – Form 8888, Direct Deposit of Refund to More than One Account
Issue: Effective January 2011, the state of Maryland will be required to allow for the direct deposit of a tax refund into at least two accounts at one or more financial institutions. Their office is looking at form design and system impacts, in particular, IRS Form 8888. The Maryland comptroller requested guidance on how the IRS determines which account is offset when amounts are owed.
Response: Detailed guidance has been provided to the Maryland comptroller regarding IRS refund offset procedures. The guidance outlined the two types of refund offsets as well as the procedures for determining the bank account (listed on the Form 8888) from which the refund offset would be deducted.
IMRS 10-0001296 - Form 1099R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.
Issue: When using a commercial tax preparation software program, a program error that affects federal retirees using 1099R who have health insurance premiums paid by their pension administrators causes medical premiums to be entered twice, once when the information is input from the 1099R and again when the taxpayer inputs their medical expenses on Schedule A.
Response: The software provider identified approximately 15,000 customers whose returns could be affected. They notified all customers and set up a dedicated toll-free line for affected customers to call. They also assisted customers with completing Form 1040X. IRS issued an alert that included the dedicated phone line.
IMRS 09-0001189 - Improper Coding of Form 1099-R
Issue: Practitioners have problems with improper coding in Box 7 by payers that issue Form 1099-R. The payers include brokerage houses, retirement funds from both the private and public sector, and other financial institutions. When the taxpayer receives disability or death benefits rather than a normal distribution, the 1099-R Box 7 frequently shows a distribution code 1, (rather than a 3 or 4) which means the distribution generally is subject to the 10 percent premature distribution penalty. When taxpayers and practitioners ask for a corrected statement from the payer, the payer refuses, stating that practitioners can get the error corrected with IRS without the payer having to make the correction. It has become more frustrating for the practitioner community as they feel attaching Form 5329 should alleviate any processing concerns.
Response: We explored your issue with our Tax Exempt and Government Entity business unit and with Campus Compliance Services. According to TE/GE, distribution code 1 is a legitimate code for the payer to use on Form 1099-R. The Form 5329 is designed for the individual to assert that they meet one of the exceptions. According to CCS, when there is inconsistency with the Form 5329 exception code or explanation and the distribution type, further explanation is requested. Normally, the issue is resolved through taxpayer correspondence without the requirement of a corrected information return.
Also, retirement pay is generally taxable whether or not the retirement was due to disability unless the amounts received are excludable from income as provided in IRC 104 (Compensation for Injuries or Sickness). The Form 1099-R does not identify the type of disability, so when the distribution is not reported on the tax return, Automated Underreporter considers the income taxable. The taxpayer is contacted, and again, the issue is normally resolved through taxpayer correspondence without requirement of a corrected information return.
Since distribution code 1 is a legitimate code to use and inconsistencies or issues with reporting can be resolved through correspondence without corrected information returns, we did not determine a need for additional education and outreach materials. We encourage you to visit our Retirement Plan Community for retirement plan issues.
IMRS 10-0001245- Form 2848, Power of Attorney and Declaration of Representative, Designation H and CP2000 Representation
Issue: Form 2848 designation H is used by unenrolled preparers who represent taxpayers when a return is under examination and the practitioner prepared the return. A practitioner questioned whether a CP2000 constitutes an examination for the purposes of using a Form 2848 to represent the taxpayer.
Response: We researched the issue and determined that current guidance does not consider a CP 2000 an examination. As a result, we worked with Chief Counsel to clarify the procedures and expanded the guidance to include a CP2000 as an examination. This change will result in an IRM update.
Policy, Practice & Procedures
IMRS 10-0001257 – Request for Revised Procedures in Handling Rejected Form 656-A Offer in Compromise Cases
Issue: Practitioners would like appeal rights afforded in Offer in Compromise (OIC) cases when the 656-A has been rejected. Currently the only available options are to pay or speak to OIC Examiners or their managers. Unfortunately, practitioners have stated that they are having trouble reaching managers and are not getting timely callbacks. As a result, practitioners have suggested the following:
- Low-income rejections must be accompanied by a specific finding as to why the low-income waiver is being rejected and taxpayers must be provided at least 30 days to appeal the finding. The appeal need not be to the Office of Appeals. The appeal can be to an OIC manager - other than the manager of the person making the determination. This way it can be maintained internally and processed quickly.
- Once 90 days has expired from the time the 656-A is submitted, then the IRS should not be able to contest it. Essentially, the IRS should have only 90 days to dispute the low-income claim.
Response: A review of the Internal Revenue Code and the related regulations indicates that there are no formal appeal rights associated with Form 656-A. The income limits for the low-income waiver are clearly outlined in Form 656-B (PDF). PerIRM 126.96.36.199.1(5), if the Service determines the income for the family size exceeds the IRM Low Income Guidelines and a Form 656-A has been included with the offer, the taxpayer and/or the taxpayer’s representative will be contacted to request the required payment and application fee. If the taxpayer does not respond in a reasonable amount of time, the offer will be returned. The return letter states that the taxpayer does not meet the qualifications for the Form 656-A and advises the taxpayer to contact the Service within 30 days if the taxpayer believes the offer was returned in error.
As a result, we must respectfully disagree with the practitioner’s suggestion to limit the amount of time the IRS has to evaluate whether a taxpayer meets the income qualification for the low-income waiver.
IMRS 10-0001236 Offers in Compromise (OIC)
Issue: Practitioner suggests that the Service have a two-tiered OIC by treating high dollar and low dollar cases differently in the amount of documentation required for substantiation.
Response: Each offer should be investigated based on the facts and circumstances of the individual case. The amount of the outstanding tax liability may or may not impact the complexity of the investigation necessary to render an accurate determination of the Reasonable Collection Potential (RCP). While offer specialists have a duty to investigate and clarify any discrepancies or inconsistencies, there should be a specific and valid reason for every piece of documentation requested from the taxpayer.
IMRS 10-0001231 – Notice of Federal Tax Lien
Issue: Practitioner states that filing a tax lien is preventing taxpayers from securing employment and suggests that if a lien prevents someone from joining the military then maybe withdrawal would be appropriate.
Response: You suggest allowing withdrawal of Notices of Federal Tax Lien when a taxpayer is seeking employment. The reason provided is that the public notice of a tax debt will remove the taxpayer from employment consideration. Withdrawal applications and investigations are based on individual case facts and, even if a scenario may be valid on a particular application, the use of anecdotal fact patterns would not be an appropriate basis on which to make procedural changes in policy.
The Fair Credit Reporting Act (FCRA) contains national standards for employment screenings, though not when the screenings are done in-house by the employer. Also, the standards do not apply to salaries above a certain amount. The IRS does not set or influence these hiring standards. We understand that it is more difficult to obtain a job in the current economy and that financial records are checked by many employers pre-employment. However, withdrawing a public notice of lien would provide an unfair advantage over other job competitors who are current with their financial obligations and would not result in elimination of the valid tax debt. In accordance with IRC 6321, the government has a legal right to file the Notice of Federal Tax Lien and failure to do so could compromise its ability to collect the outstanding tax liability. IRC 6323(j) provides for withdrawal of notice in certain circumstances.
IMRS 10-0001256 Penalty Abatement
Issue: A tax practitioner objects to the IRS practice that utilizes the First-time Penalty Abatement policy, if the penalty was erroneously assessed by the IRS, and feels this should be reserved for reasonable cause situations.
Response: IRS penalty policy, and specifically the First-time Abate Administrative Waiver Policy, does not take precedence over account resolution procedures. If a taxpayer provides information showing that he or she has complied with a requirement that IRS did not initially recognize as having been complied with, the account will be adjusted to show this; in most circumstances, the adjustment will result in the automatic reversal of penalties and/or interest. The IRS policy for penalty relief consideration as outlined in IRM 20.1 only applies when a taxpayer did not comply with a requirement for which he or she was penalized. The language in the notice issued to the taxpayer is based on the Penalty Reason Code (PRC) the employee used when abating the penalty and the PRC cannot be reversed. However, the taxpayer’s account should be properly coded by the employee who abated the penalty to show that the return was in fact filed timely. In the example given by the tax practitioner, while the incorrect PRC could prevent a systemic analysis from identifying the fact the return was filed timely, documenting the account to show the return was filed timely will enable a manual analysis to verify that the taxpayer was compliant for that tax period should they incur a penalty in a subsequent tax period for late filing of a return.
IMRS 10-0001240 – Late Filing Fees for Small Partnerships
Issue: Practitioner requests that the penalty abatement provision in Revenue Procedure 84-35 that waives penalties for late filing for small partnerships (fewer than 10 partners) also apply to S corporations with 10 or fewer members.
Response: The reason there is no penalty waiver under IRC Section 6699 for S corporations with a certain number of members stems from the lack of legislative intent. There is no mention of any waiver in the legislative history of IRC Section 6699 and it does not appear that a waiver provision for S Corporations with a small number of members was intended. This is in contrast to IRC Section 6698, where such a waiver was explicitly intended. With the Congressional intent in mind, the Service published guidance in the form of a Revenue Procedure containing criteria under which partnerships with 10 or fewer partners will not be subject to the penalty under IRC Section 6698.
IMRS 08-0000835 – Form 1099-INT, Interest Income
Issue: A credit union would like to know if they are required to send out Forms 1099-INT to known incorrect addresses. There is a potential identity theft issue if companies/financial institutions send out 1099’s to known bad addresses just to meet the requirements set forth in the instructions. Additional clarification and guidance is needed.
Response: The regulations under Treas. Reg. 1.6042-4(d) require that the Form 1099, or an acceptable substitute, be provided to the recipient either in person or by first class mail to the recipient's last known address. There is no exception to this general rule and, therefore, the credit unions are required to send the 1099-INT to the recipient, regardless of whether they know the address is incorrect.
However, the IRS issued Notice 2009-93, Truncating Social Security Numbers on Paper Payee Statements, creating a pilot program allowing filers of information returns to truncate an individual payee’s nine-digit identifying number on paper payee statements for calendar years 2009 and 2010 if filers meet the requirements set forth in the notice. This notice only applies to paper payee statements in the Form 1098 series, Form 1099 series, and Form 5498 series. Substitute and composite substitute statements (within the meaning of Treas. Reg. § 301.6722-1(a)(1)) that meet the requirements of this notice are also included. The identifying number is a social security number, IRS individual taxpayer identification number, or IRS adoption taxpayer identification number. Truncating the identifying number will help to prevent identity theft issues when sending information returns to known incorrect addresses.
IMRS 10-0001266 – Complete Social Security Numbers (SSN) on Checks or Money Orders Remitted to IRS
Issue: Tax Professionals and clients have concerns about taxpayers putting their full SSN on checks remitted to IRS in payment of a balance due. Page 74 of the Form 1040 instructions directs taxpayers to put their full SSN on checks.
Response: The SSN Elimination and Reduction program is presently working on mid-to-long-term solutions to address the use of SSNs on checks remitted to IRS in payment of a balance due. To ensure payments are posted to the correct account, we encourage taxpayers to include their SSNs on checks and money orders submitted to the IRS. IRS processes millions of returns and payments each year, including many from taxpayers with the same or similar names. If you are concerned about providing the SSN, you may consider using the Electronic Federal Tax Payment System. EFTPS is a secure alternative to mailing a check.
IMRS 10-0001217 – Paper Refund Check Received when Direct Deposit Requested
Issue: A tax practitioner questioned why two of his clients who were due refunds of over $1 million received them by paper check as opposed to direct deposit as requested. Both clients are individual taxpayers filing Form 1040.
Response: Our current internal control procedures do not provide for direct deposit of refunds over $1 million because they are removed from our normal processing routine to verify the return was processed correctly. Once verified, we must issue a manual refund, and most manual refunds are issued on paper. Our manual refund process is currently undergoing a full process review which includes determining the feasibility of issuing direct deposit manual refunds for next filing season. If there is no change to our internal processing procedures, we will add information to IRS.gov to explain situations that may result in a paper refund check even when direct deposit is elected.
IMRS 10-0001330 – Mutual Commitment Date
Issue: A practitioner would like the Mutual Commitment Date (MCD) in writing so both the taxpayer and the Exam revenue agent can reasonably expect the case to close by the established date. The current procedure does not require the MCD to be written. The ending date of the exam is frequently changed as the case progresses, especially if the MCD is provided orally by the revenue agent.
Response: The MCD is the date the examiner expects to issue a report of proposed changes or make a no-change determination. It is based on information known at the end of the first appointment, including the amount of time estimated to gather additional information needed to resolve the issues and a discussion between the examiner and taxpayer of mutual responsibilities and expectations during the audit. At the end of the initial appointment the examiner discusses the MCD with the taxpayer or representative and they reach consensus on a date. The MCD is modified if the facts of the audit substantially change after the first appointment. In the event the examiner is unable to reasonably meet the MCD (defined as being within 30 days), the examiner is required to discuss the case with his/her manager, and work with the manager and taxpayer/representative to determine a new MCD based on the facts of the particular case. The MCD is not binding on either party but acts as a mutually agreeable goal for issuance of the report. The MCD is recorded in the administrative workpapers in the examiner’s case file. The examiner should provide the MCD to the taxpayer and/or representative in writing when requested. This is often done by notating the date on Form 4564, Information Document Request.
IMRS 10-0001320 - Correspondence Audit
Issue: Numerous practitioners reported their clients had received 90 day letters without any prior notification of ongoing audits.
Response: According to the IRS program owner, in each case the Audit Information Management System showed that initial contact and 30-day letters were generated. When additional practitioners reported similar occurrences, we resubmitted this issue with 90-day letter examples. The Campus researched printing and mailing functions to verify that initial contact and 30-day letters were issued. They responded that the additional cases also showed record of initial contact and 30-day letters on their system. The mailing function was unable to verify issuance of correspondence because too much time had lapsed since the notices were issued. However, if current examples are available, these examples can be submitted for research and review.
IMRS 10-0001275 – Initial Audit Contact
Issue: Some practitioners raised concerns about the Examination practice of contacting taxpayers and practitioners by phone to schedule the initial appointment. They indicated this could result in taxpayers falling victim to identity theft if thieves pose as IRS examiners and contact individuals by phone to obtain personal tax information. Practitioners asked that IRS change its procedures so that all taxpayers and representatives are notified of audits using the U.S. Postal Service.
Response: Generally, initial appointments for field examinations are scheduled using telephone contact and a confirmation letter; office examination appointments are generally scheduled using written communication. Because examiners use proper calling techniques when making initial contact by telephone, we consider our practice to be safe. Examiners immediately identify themselves and state the purpose of the call, and are also required to provide their employee identification number and telephone number. When the initial appointment is made by telephone, a follow-up letter is mailed to the taxpayer confirming the time/place of the examination and the records which are to be available. These techniques should reassure a taxpayer that they are dealing with the IRS and an audit is forthcoming. If during the initial contact the taxpayer questions whether or not the examiner works for IRS, the examiner should discontinue the call. The examiner will advise the taxpayer that they will send an appointment letter confirming the examination.
There are advantages to using telephone contact to schedule examinations for both the taxpayer and the IRS, including:
- It allows examiners to schedule the initial appointment based on the taxpayer’s availability thus reducing the number of rescheduled appointments.
- The examiner will briefly explain the audit process to the taxpayer, and ask the taxpayer if a power of attorney will be involved. If yes, the examiner will explain the procedures necessary to submit a power of attorney.
- It allows the examiner to determine the type of records maintained; explain what records should be available for the examination and prepare an Information Document Request tailored to the taxpayer’s specific records. Under no circumstances will the telephone conversation be used to verify items appearing on an income tax return; inspection of records or other data will not be made by telephone.
Taxpayers and representatives who receive questionable telephone calls from individuals who claim to work at the IRS may report the fraudulent misrepresentation by calling the TIGTA toll-free hotline at 800-366-4484, visiting the TIGTA Web site, or sending an e-mail to: email@example.com.
The IRS has issued Publication 4523 (PDF), Beware of Phishing Schemes, and Publication 4535 (PDF), Identity Theft Protection Victim Assistance, to assist the public in protecting their personal tax information and provide guidance if a taxpayer does become a victim of phishing or identity theft.
More information on phishing, identity theft and scams can be found on IRS.gov in various Web articles and news releases. Start with Suspicious e-Mails and Identity Theft and How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.
IMRS 08-0000709 - Revoke Listings
Issue: Revoke listings need to be sent to all reporting agents to help prevent filing of partial year Forms W-2 because it creates discrepancies in CAWR and AUR.
Response: Revoke listings are now automated. See information posted on IRS.gov.
IMRS 09-0001031 – Request for Notification of Internal Revenue Manual Changes
Issue: A practitioner requested that the IRS implement a system that would allow practitioners to be alerted when there are changes to the Internal Revenue Manual.
Response: When gathering information for the e-News services, editors consider the newsworthiness of an item and the number of people affected by the information. After collaborating with an editor, we determined that many IRM revisions are processing and case handling issues that would primarily be of interest only to IRS employees and other revisions would be of interest only to external customers with significant knowledge of the IRM. Based on this determination, we chose not to publish information in e-News for Small Businesses or to forward information for e-News for Tax Professionals. Please note that the IRM will still be available at IRS.gov.
IMRS 10-10001215 – E-File Annual Shutdown
Issue: A request has been made to change the date of the annual system maintenance power outage that results in a shutdown of e-file over the Columbus Day weekend. The current date coincides with the 1040 filing deadline for taxpayers on extension.
Response: Annually, the IRS is required to conduct power outages at our Enterprise Computing Center to perform maintenance procedures. Based on several factors, the most prudent time to schedule the outage is the Monday of a holiday weekend. Traditionally, Labor Day weekend has been the first outage. We prefer that the second outage occur over Veterans Day weekend when the holiday results in a Monday office closure. When the Veterans Day holiday is not observed on a Monday, the outage must instead take place over Columbus Day weekend. We are aware that a Columbus Day weekend outage often occurs shortly before the Form 1040 final filing deadline and that this may pose an inconvenience for tax preparers. We apologize for any inconvenience this may cause. We plan to provide a two-week advance notice of outages by advertising the shutdowns in e-News for Tax Professionals and QuickAlerts.
IMRS 10-0001361– CP2000 - Acknowledgement of Faxed Information
Issue: A practitioner would like acknowledgement of receipt when information is faxed to AUR tax examiners. When the practitioner faxes documentation in response to CP2000 for clients to AUR unit, there is no response until the taxpayer receives an adjustment notice or closure letter 60 days later.
Response: All correspondence received in an AUR site is worked on a first received/first worked basis, regardless of the delivery method. The received date is determined by the earliest IRS received date, which would be the fax date or the date the mail was delivered to an IRS facility. Receipt of correspondence is verified in the AUR program (fax or mail) with a stamped AUR received date, batched and subsequently worked in IRS received date order. If a completed response cannot be sent within 30 days, an interim letter is sent to inform the taxpayer that we have received their correspondence, but have not completed all actions necessary on their case.
The AUR program follows the established IRS policy regarding timeliness of responses to taxpayer correspondence. A response to taxpayer correspondence is considered timely when initiated within 30 calendar days from the earliest IRS received date. When a response cannot be initiated timely, an interim response is provided within 30 calendar days from the earliest IRS received date. The current AUR correspondence procedures comply with existing IRS correspondence policy requirements.
We share your concerns about providing better customer service. We have evaluated the resources needed to issue acknowledgement letters for every piece of correspondence that requires a tax specialist review. However, our analysis indicates this is not feasible due to resource limitations. Most fax machines provide delivery confirmation at the time the fax is sent, which should serve as receipt confirmation.
In an effort to address this concern, AUR has begun using E-Fax technology that allows transmission of a faxed Form 2848 directly to the telephone assistor. Receipt of additional faxed information is acknowledged while the representative is still on the telephone, permitting discussion of a client’s account.
IMRS 10-0001228 – Processing Delay of Form 2848, Power of Attorney and Form 8821, Tax Information Authorization
Issue: Several tax professionals have complained about delays in processing Form 2848, Power of Attorney (POA) and Form 8821, Tax Information Authorization (TIA), in particular through the Memphis Centralized Authorization File unit. Some tax professionals have reported processing delays of three to four weeks.
Response: We certainly understand and are aware of the concerns regarding the backlog of Forms 2848 and Forms 8821 processed at the Memphis campus. We have taken several steps to improve and streamline the process. Extra resources were utilized at all three processing sites to get the inventory to a manageable level. At the present time, all three CAF units are reporting that they are closing Forms 2848 and Forms 8821 within 5 days of receipt. A re-write of Internal Revenue Manual 21.3.7, Processing Third Party Authorizations onto the Centralized Authorization File (CAF), will be released soon. This rewrite addresses several processing issues that may have caused processing delays in the past. The Centralized Authorization File (CAF) – Authorization Rules web page provides additional guidance on CAF procedures. In addition, IRS Video Portal has the following helpful video: Making Authorizations Easier - Do's and Don'ts of Forms 2848 and 8821.
IMRS 10-0001352 – Form 2290, Heavy Highway Vehicle Use Tax Return, for 25 or more vehicles
Issue: A taxpayer reported that a Taxpayer Assistance Center customer service representative stated that the TAC will not manually stamp Form 2290, Schedule 1, because of the e-File mandate for Form 2290 for taxpayers with 25 or more registered vehicles. The tax professional believes all TAC centers should still be manually stamping Form 2290, Schedule 1, for these taxpayers.
Response: In the American Jobs Creation Act, the IRS was directed to provide electronic filing of the Form 2290, Heavy Highway Vehicle Use Tax Return. Form 2290 has joined the ever-growing number of tax forms and schedules that can be electronically filed, providing taxpayers the speed and reliability that millions of taxpayers and business owners already enjoy. Taxpayers who register 25 or more vehicles for any taxable period are statutorily required to electronically file their Form 2290 tax return. However, until the IRS provides further direction, they will accept paper returns and manually stamp Form 2290, Schedule 1, in TACs and accept paper returns by mail from all filers of Form 2290. Taxpayers who are required to e-file will be advised of the e-file requirement and encouraged to electronically file their tax returns.
IMRS 11-0001389 – Problems with Automated Substitute for Return
Issue: A tax professional received Letter 2566 with an automated substitute for return and reported a problem with the ASFR not picking up all the federal income tax withheld.
Response: A problem has been identified with the system where the ASFR program misread the information for the withholding on the document. Corrective action is being taken to resolve the issue.
IMRS 10-0001372 – Practitioner Priority Service (PPS), Centralized Authorization File (CAF) and E-Help Line Delays
Issue: Practitioner Priority Service delays continue to be a problem. Several tax professionals reported delays over 55 minutes. Some stated the wait is over 15 minutes in the morning and afternoon. In addition, CAF unit delays in recording authorizations causes delays in PPS. There is still a problem with CAF unit delays in posting authorizations. The e-Help line wait is more than hour. Is there any relief?
Response: The PPS wait times vary based on the time of day and/or the day of the week. PPS staffing is closely monitored and adjusted as needed to address excessive wait times. PPS opens at 8:00 am EST and wait time is generally between two to seven minutes during the morning hours. Call volumes are higher on Mondays and Fridays than other days of the week.
CAF units have, with few exceptions, maintained a five day processing time since mid July. However, if practitioners call PPS and their Power of Attorney /Tax Information Authorization has not been processed to the CAF, they can fax a copy of the form to the PPS assistor while on the phone and get immediate assistance.
For 2010, the average hold time at the e-help desk has been around four minutes; currently our hold times are less than two minutes. The longest wait times we have experienced were about 30 minutes, and this happened only twice during the year. During the middle of January, due to the start up of the new e-file season, the average hold time reached 23 minutes. We experienced an unexpected increase in call volume during the middle of May and average hold times exceeded 15 minutes.
IMRS 10-0001359 – E-File Receipt as Proof of Submission of Delinquent Returns for Revenue Agents/Revenue Officers
Issue: Now that the Congress/IRS is mandating e-filing for preparers in 2011, a tax professional wants to know the official policy and/or whether there will be a change in this policy for field compliance/collection personnel (revenue agents and revenue officers) as it relates to the acceptance of an e-filing receipt instead of/in lieu of requiring paper returns.
Response: The following is the response from Small Business/Self Employed Division, Examination and Collection. Examination - If a taxpayer is under examination for a prior, subsequent or related return, examiners will ask the taxpayer to file delinquent returns with them, so they can inspect the return to ensure it contains proper information to avoid processing delays, address penalties and make a determination regarding the audit potential of the delinquent return. These actions result in a more efficient resolution of the taxpayer’s examination.
If a taxpayer chooses to electronically file a delinquent return an examiner has requested, they may encounter processing issues that could prolong their examination. For example, if a Substitute for Return has been filed by the Service and the taxpayer subsequently submits an e-filed return, the taxpayer’s return will not pass the validity checks and will reject prior to filing. As a result, the taxpayer will have to file a paper return. Taxpayers who successfully file electronically may be asked to provide the examiner with a copy of the e-file receipt as well as the return, since the examiner must make a determination regarding the audit potential of the late filed return.
Electronic filing of a delinquent return has been limited to filing a current year delinquent return by the due date of an extended return (e.g. a 2009 delinquent return had to be e-filed by 10/15/2010, the due date for an extended 2009 return). However, beginning with phase two of the 1040 Modernized e-File roll-out, which will take place in January 2011, some preparers will be able to electronically file their clients’ 2009 tax year returns, assuming the clients return only includes the forms and schedules currently eligible for e-file under the 1040 MeF platform. This will be the first year taxpayers will be able to electronically file a prior year return.
We are reviewing our policies and procedures related to securing delinquent returns in the field. Based on our review, we will update them to incorporate appropriate guidance.
Collection - Generally, providing a copy of an e-file return and e-file receipt would be acceptable for collection employees; however, there are situations when a paper return could be required. If a practitioner questions the need for the paper return and is not satisfied with the reason given by the employee, the practitioner may talk to the employee's supervisor
IMRS 10-0001315 – Claiming the Education Credit
Issue: A tax professional reported a problem in claiming the education credit for his client. The parent did not claim the dependent exemption due to income limitations, and the dependent also did not claim the exemption. The dependent claimed the non-refundable education credit and it was disallowed. When the tax practitioner called the PPS line, they were told the dependent must claim himself, which he cannot. The practitioner would like the procedures to get the education credit in this situation.
Response: Earlier in the 2010 filing season there was a systemic problem with processing education credits for dependents. The issue concerned dependents who were erroneously disallowed the non-refundable education credit on Form 8863.
If a student is a claimed dependent of another taxpayer, only that taxpayer may claim the education tax credit for the student's qualified tuition and related expenses. However, if another taxpayer is eligible to, but does not claim the student as a dependent, only the student may claim the education tax credit for the student’s qualified tuition and related expenses. This applies to the non-refundable Hope credit.
To address the systemic problem, IRS mailed Letter 544C to impacted taxpayers who were erroneously disallowed the credit. These letters were sent out October 26 through November 12, 2010. These accounts will be adjusted to allow the credit. If the taxpayer does not owe any additional tax, the credit will be refunded.
Taxpayers who did not receive Letter 544C and believe their credit was erroneously disallowed should file Form 1040X, Amended U.S. Individual Tax Return. In Part C of the Form 1040X, Explanation of Changes, a specific statement should be provided. For example, “Dependent student not claimed on parent’s tax return and eligible for the non-refundable portion of the Hope Credit.”
IMRS 10-0001305 – Social Security Number (SSN) Redaction
Issue: Due to the increased problem of identity theft, full Social Security numbers on IRS-Exam correspondence should be omitted or suppressed to avoid full disclosure of the entire SSN. IRS-Exam sends correspondence to taxpayers utilizing Report Generation Software (RGS) which does not exclude or suppress the taxpayer's SSN. In many instances, sensitive taxpayer information, such as personal financial information, is also enclosed with the exam correspondence. Is it possible for RGS to implement a safeguard to protect the taxpayer's full SSN?
Response: Exam is aware of the possible disclosure issues in using full social security numbers on correspondence and other forms generated from RGS. The IRS is looking into ways to reduce or eliminate disclosure of personally identifiable information and SSN redaction is one of the potential solutions under consideration.
IMRS 10-0001332 – Suspension of Collection Notices while Case Is in Appeals
Issue: A taxpayer had several years of tax returns under examination, and one period went to Appeals. The return in Appeals had a potential overpayment that would settle any outstanding balances generated by the other tax years under examination. During the lengthy appeal process, the taxpayer continued to receive notices on the other returns where the audits resulted in balances due. The IRS currently has no mechanism in place to hold notices indefinitely on modules with outstanding balances while an appeal is in process.
Response: IRS personnel have discretion to suspend collection action on an account for a period of time.