2009 Information Reporting Program Advisory Committee Public Report Executive Summary
Legislative Proposals Subgroup
Administration’s Proposals – Tax Information Reporting and Withholding
On May 11, 2009, Treasury released its “General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals” (the Green Book). A number of the proposals in the Green Book relate to tax information reporting and withholding requirements. On June 25, 2009, IRPAC issued a letter to Commissioner Shulman discussing the implications for the IRS, as well as payers, withholding agents and taxpayers, of these provisions of the Green Book and making a number of preliminary recommendations regarding the implementation of the proposals if they are enacted.
Cost Basis Subgroup
Notice 2009-17 – Reporting of Customer’s Basis in Securities Transactions
In late 2008, legislation passed mandating cost basis reporting. Early in 2009, the IRS issued Notice 2009-17 seeking public opinion on 36 questions and subsequently engaged in dialogue with stakeholders. IRPAC and IRS held numerous working meetings and conference calls to discuss the questions in the Notice. IRPAC’s complete written responses were published as letters dated March 2 and June 23, 2009.
Emerging Compliance Issues Subgroup
Widely Held Fixed Investment Trusts (WHFITs)
For calendar years 2007 and 2008 the IRS informed trustees and middlemen of widely held fixed investment trusts that the Service would not impose penalties as a result of failure to comply with WHFIT reporting rules which were effective beginning January 1, 2007. IRPAC recommends that the IRS provide additional penalty relief and allow a continued deferral of WHFIT statement reporting.
Build America Bonds
The American Recovery & Reinvestment Act of 2009 (ARRA) authorizes state and local governments to issue taxable Build America Bonds to finance capital expenditures, choosing either to receive a direct federal subsidy payment for a portion of borrowing costs equal to 35 percent of the total coupon interest paid to investors or to pass through tax credits to investors. These new instruments, particularly those that pass through tax credits, pose challenges to the information reporting community. Financial institutions have difficulties in distinguishing taxable state and local government bonds from the more common tax-exempt issues. Tax reporting for bonds that pass through credits require special reporting steps and are even harder to distinguish. IRPAC has asked IRS to post key identifying information on its website for payers to locate Build America Bonds that require the special reporting.
IRC §6050W was added to the Internal Revenue Code July 30, 2008, by section 3091 of the Housing Assistance Tax Act of 2008. On February 20, 2009, IRS issued Notice 2009-19 in which the Service asked for input on this subject, specifically with regard to ten questions they posed. IRPAC responded with its comments in a letter dated March 17, 2009.
Comments on Internal Revenue Manual on Form 1042 Examinations
When the IRS revises Internal Revenue Manual (IRM) Section 4.10.21 (Form 1042 Examinations) IRPAC suggests the IRS consider the suggested revisions discussed with the U.S. Withholding Agent Team in August 2008.
Use of Logos on Substitute Information Returns and Payee and Wage Statements
The general prohibition against including slogans, advertising and logos on substitute information returns, payee statements and employee wage statements reporting amounts paid during the 2010 calendar year set forth in Revenue Procedure 2008-36 and Revenue Procedure 2008-33 should be postponed and IRS should issue guidance permitting limited exceptions to the general prohibition effective in future years.
Missing or Incorrect Taxpayer Identification Numbers on Forms 1099-MISC
The IRS requested to meet with IRPAC to discuss its concern that a relatively large number of Forms 1099-MISC are filed by payers with missing or incorrect payee taxpayer identification numbers (TINs). To address this issue, IRPAC recommended that the IRS consider providing additional guidance targeted to reach advisors who assist or provide advice to payees on how to provide accurate legal name/TIN information to payers. IRPAC also suggested the IRS provide more advice to small business payers (and their software providers) regarding the collection of TINs from payees and the Form 1099-MISC filing requirements.
Claim for Refund of Over-Withholding by Foreign Persons Investing Through a Qualified Intermediary
A qualified intermediary (QI) reports U.S. source income paid to direct foreign account holders on a pooled basis, and generally does not separately issue Forms 1042-S to the direct foreign account holders whose payments are included in the pooled reporting. A foreign account holder who needs to file a U.S. income tax return to claim a refund for amounts over-withheld by their QI does not have a Form 1042-S issued in their name to substantiate the amounts withheld. IRPAC requested that the IRS provide some guidance regarding how such an account holder can substantiate the amount of tax withheld by providing alternative documentation in lieu of a Form 1042-S issued in their name.
Burden Reduction Subgroup
Supplemental W-4 Instructions for Non-resident Aliens
IRPAC recommends that IRS create online Form W-4 instructions for on- resident aliens, in the form of a notice, which can be provided separately to individuals to enable them to complete the Form W-4 more accurately. IRPAC drafted a sample Notice for IRS consideration which was submitted to the Large and Mid-Size Business (LMSB) operating division, for technical review and further discussion as required within the Service.
Form SSA-7028, Notice to Third Party of Social Security Number Assignment
IRPAC recommends that IRS allow payers to accept from the payee any official SSA document with the name/TIN on file with SSA or investigate whether any current IRS systems can provide individual payees a document that is sufficient to stop backup withholding. Or IRPAC recommends that IRS encourage SSA to restore issuance of Form SSA-7028 until a viable disclosure form is developed. If the first recommendations are not possible then IRS should consider a temporary suspension of the Form SSA-7028 requirement and allow payers to follow the first notice rules upon receipt of a subsequent notice until a permanent solution is in place.
Support Misclassified Employee Relief under Section 530 of the Revenue Act of 1978 (Section 530 Relief)
IRPAC recommends additional training and outreach relative to Section 530 Relief.
E-Services – Expansion of Services
IRPAC recommends that IRS expand access to e-Service incentive products to include business entities and their affiliated companies who e-file on their own behalf (e.g., consolidated 1120) and entities who file information returns on their own without a “Reporting Agent” relationship. IRPAC also asked IRS to investigate the feasibility of being able to submit a Power of Attorney (POA) electronically with the filing of the tax return.
Form 1098, Mortgage Interest Statement
Small Business Self-Employed (SBSE) division requested IRPAC feedback on a proposal to require financial institutions to report deductable mortgage on Form 1098. As an alternative, IRPAC recommends that the Service modifies the instructions for Form 1098 and/or Reg. 1.6050H-2 to require the Recipient/Lender to report the address of the mortgaged property, the principal amount of the loan, and the amount of real estate taxes paid during the year. These changes should only be required for new loans and sufficient time should be provided for implementation.
Form 8886, Reportable Transaction Disclosure Statement
IRPAC recommend that the Commissioner change the reporting requirements for partners, shareholders and beneficiaries of pass-through entities that appropriately file Form 8886 at the entity level. IRPAC recommends IRS clarify that the reporting requirements under section 6011 will terminate for the corporate participants in the Lease-in/Lease-out (LILO) and Sale-in/Sale-out (LILO/SILO) Settlement Initiative after the year of actual or deemed termination of the tax shelter related transactions. IRS should consider adding a provision to all closing agreements or settlements related to reportable transactions that specifies the reporting obligation, if any, for that transaction in subsequent years.
Comments on a Moratorium on Enforcement and on Methods for Determining Personal Call Usage on Employer-Provided Cell Phones – Notice 2009-46
In light of the pending legislation to remove cell phones from the definition of listed property, IRPAC recommends the temporary suspension of enforcement of the listed property rules as they impact cell phone use as well as the related employee income inclusion for personal cell phone use.
Ad Hoc Subgroup
IRPAC recommends that the IRS provide additional guidance to government entities that must comply with the withholding provisions of IRC §3402(t) and that the IRS considers higher withholding thresholds.
Simplifying Employer Tax Compliance for Non-resident Aliens
IRPAC recommends that IRS place on irs.gov under the International Taxpayer page, links based on visa type to allow employers as well as non-residents to manage and understand withholding and reporting requirements.
Barter Exchange Education, Back-up Withholding and “B” Notice Requirements
IRPAC recommends follow-up for the results of two studies, 1) for the abatements granted to barter exchanges for non-matching TIN civil penalties and 2) for instances where non-matching TIN penalties have been assessed without appropriate notice being sent. IRPAC recommends continued openness to accept “as needed” revisions to Topic 420 – Bartering Income and Bartering Tax center IRS.gov website sections.
Federally Declared Disaster Casualty Losses
IRPAC recommends that the IRS publish more written guidance on valuations and other federally declared disaster casualty loss issues.
Electronic Furnishing of Form 1098-T, Tuition Statement
IRPAC recommends that Form 1098-T would be most effectively and securely delivered electronically based on students’ negative consent.
IRPAC recommends that the IRS publish more written guidance on what amounts to include on Form 1040 from the Form 1098-T. Another recommendation is to include a sentence on line 2 under the Instructions to Students that indicates this amount may not be the correct amount to report on Form 8863, Education Credits (Hope and Lifetime Learning Credits) or Form 8917, Tuition and Fees Deduction.
TIN Masking on Payee 1099s
IRS should issue guidance immediately permitting payers to issue payee statements showing only the last four digits of a payee’s TIN.
IRPAC recommends that the Service use the e-Channel program (rather than Filing Information Returns Electronically (FIRE)) to process the new Form 8955-SSA. Provide an optional, simple paper and electronic registration statement for retirement plan sponsors who are not required to file a Form 5500 or Form 5500-EZ. Expand the Employee Plans Compliance Resolution System (EPCRS) to accept voluntary correction of late Form 5500-EZ filings.
IRS should provide necessary funding to implement information reporting using the Electronic Tax Administration (ETA) e-Channel program.
IRPAC recommends that IRS enhance their e-Services product to support the information reporting industry.
IRPAC has made comments on the draft Forms 3921 and 3922 in order to more fully comply with IRC §6039 and proposed Treasury Regulations section 1.6039-1.
Form 945-X and Instructions
IRPAC members have concerns about the length of the instructions and the lack of definitions for certain key terms.