Archive for IRS Examination
In 2013, the IRS will focus the significant majority of their enforcement budget and subsequent activity in my opinion on three specific areas:
1. Abusive transactions and under reported income on partnership returns (IRS Form 1065).
2. Officer compensation as well as losses taken in excess of basis in Sub-chapter S Corporations (IRS Form 1120-S).
3. Under reported income via Automated Under Reporter Inventory Strategy Database (AUR-ISD)
In 2012, the IRS started a business information-matching program and a Form 1099-K matching program. The IRS sent new notices in late 2012 questioning businesses on the accuracy of their returns, based on information statements filed under business employer identification numbers (EINs). The IRS also matched Forms 1099-K to business returns and sent inquiries to taxpayers with potential discrepancies, requesting explanations for possible unreported income. I have been informed by reliable sources inside the Service that in 2013, the IRS will expand this effort to address small business under reporting vastly beyond its reaches in 2012.
Bessie Castro-Zepeda, Colorado Department of Revenue
Tax Practitioners only helpline; M-F 8am – 430pm (303) 232-2419
Capital Gain Subtraction: For 2012 returns, the department will make every effort to verify required documentation was included in the filing of the return before contacting the taxpayer for more information. That is why it is important the following supporting documents be submitted with the return.
□ A DR 1316 form, “Colorado Source Capital Gain Affidavit” must be completed and included with the return (electronic or paper). With e-filed returns, attaching the form to the electronic return or submitting it as an E-Filer Attachment in Revenue Online is not sufficient. For electronic returns, the information must be data entered on the DR 1316 portion of the return.
□ A copy of the closing statements for both the purchase and sale of the property, or official documentation from the county detailing purchase date and price and sale date and price
□ Copies of the first two pages of the corresponding federal return, Schedule D and any Schedule D attachments
□ If the capital gain was received via a pass-through entity, documentation that the interest in the underlying business satisfies the required five-year holding period
□ If the capital gain is claimed on a 2009 or prior year return and was due to the sale of stock or ownership interest, documentation verifying it was held for at least five years prior to the sale, that the company was a Colorado company for at least five years prior to the sale, and that the stock was acquired after May 9, 1994.
If form DR 1316 is included, and the capital gain subtraction claimed is $100,000 or less, the department will continue its practice of reviewing the capital gain subtraction claim two to three years after the return is originally filed, when the IRS provides federal return information to Colorado’s Discovery Section.
For more information, see publication FYI Income 15.
Kenneth Cooper, IRS Examination
Western Area has a lot of priority projects and initiatives coming up in the future. The work plan has expanded exponentially, yet the resources are getting smaller. With this type of blueprint, there is a sense of urgency to close cases.
Our return preparer visits have decreased. This year we did less than half of what we did last year. The visits were more educational visits than audits. We have completed the return preparer visits for this filing season.
Our high income non-filer program consists of individuals with an income of more than $200,000. There is a high non-response from these types of high income non-filers.
1099K information reporting is up tremendously.
Goretti Lysek and Tamara Hobson, Automated Collection Site (ACS)
There are currently three new changes to ACS.
Individual cases that can be worked in ACS have increased from $100,000-$250,000.
ACS is no longer asking for substantiation on financials unless the account will not be paid within the statute of limitations.
BMF/trust fund accounts have increased from $10,000 to $25,000 and now if a client can pay within 120 days they can be setup on an installment agreement for $999,999, or less than $1 million.
Question: Is there a change of when liens are filed?
Response: Liens are filed and starting at $10,000 and up. If you’re on a direct debit installment agreement the amount increases to $50,000. And of course a lien can be withdrawn if less than $25,000.
Comment: An ACS letter was received two weeks after the date on the letter. Practitioner will send the information to Debbie, who will forward it to Goretti.
Comment: Financial review on partial pay installment agreement letter not received then it is defaulted before we get the paperwork for the financial information.
Comment: Direct debit installment agreement payments coming out two to three days late creates a default on the installment agreement
Response: There were some issues in late June with direct debit installment agreements going to Collection. About 54% were deemed late and now the program is being analyzed.
Comment: There seems to be a disconnect when we contact ACS and speak to three different people and receive three different answers about an installment agreement.
Stephanie Valencia, Taxpayer Advocate
Nina Olson’s report to Congress was released this week.
The alternative minimum tax patch has been fixed permanently.
Taxpayer Advocate office will not accept any return cases until March. Hardship cases will get looked at individually.
An open house will be held in Denver in March or April with case advocates and managers. Debbie Rodgers will receive the information to forward to all practitioners.
Andrea Ventura, Collection
Collection has a new Area Director Tom Mathews who reports to the Western area on January 14.
Trust fund recovery protests – If we receive new information within 60 days we can revisit the claim. The taxpayer uses Form 1153W to reopen the case.
Collection has new Form 433A and 433B Collection Information Statements. Form 433A has more details about wage earner/self-employed individuals. Section 5 includes monthly income and expenses. We can use the old forms until June 1, 2013.
Some issues with direct debit installment agreements are that the revenue officer did not get an original signature on the direct debit application, and the bank information was incorrect.
Question: The new collection information statement forms don’t ask for supporting information, why?
Response: Substantiation is still necessary in most cases. A priority of the area Director is to reduce defaults on installment agreements. The Revenue Officer determines what type of supporting documents may be required after making contact with the taxpayer or their representatives.
I’ve worked with many good people inside the IRS on a wide variety of cases. So please do not get me wrong I’m not bashing ALL IRS employees. However like any big bloated bureaucracy I’ve also worked with some real shit heads inside the IRS who take their orders to advocate on behalf of the US government a little too seriously. When indeed government bureaucrats should be focused on getting maters resolved some use their vested authority to wreak havoc on good people’s lives using what I refer to as procedural maneuvers.
One such example is when IRS Revenue Officers can negatively impact the ability of taxpayers to obtain appropriate and effective representation during collection investigations. According to the Treasury Inspector General for Tax Administration (TIGTA) “IRS employees are required to stop an interview if the taxpayer requests to consult with a representative and may not bypass a representative without supervisory approval.” Evidently this is not happening as provided for by law in that “between October 2010 and September 2011, TIGTA’s Office of Investigations closed 19 direct contact complaints involving IRS employees, of which eight were disciplined or counseled for their actions by IRS management officials.” AKA – a slap on the wrist.
The IRS’s compliance with Internal Revenue Code Sections 7521(b)(2) and (c) is in my opinion woefully inadequate. The audit report I reference goes on to state that “in the sample of 73 cases, TIGTA found that 14 revenue officers deviated from procedures by: 1) contacting the taxpayer directly, instead of the authorized representative, on the initial or subsequent contact in the collection investigation, 2) not sending copies of taxpayer correspondence to the authorized representative, or 3) not allowing enough time for the taxpayer to obtain a representative.” The report in question clearly states “IRS personnel are intentionally disregarding the direct contact provisions of the Internal Revenue Code.”
As such if you are under investigation you need to know your rights. You also need to keep in mind that IRS employees are specifically trained to create the perception that they are ‘helping’ you ‘achieve compliance’ when indeed they are compiling evidence to portray you as a delinquent or even a criminal. Check out the report yourself here ->
The following are the notes from the most recent IRS Stakeholder Liaison Meeting held in Denver Colorado as prepared by IRS Senior Stakeholder Liaison Deborah Rodgers
Michael Shuler, Local Taxpayer Advocate
Nina Olson, the National Taxpayer Advocate’s (NTA) objectives report was released in June, revealed some issues that will be coming out in the annual report in January. Some of Nina’s concerns were around the difficult filing season. The expiring tax provisions cause chaos for the tax professionals and taxpayers, when Congress waits until the end of the year to address these provisions. The AMT tax, sales tax deduction, mortgage insurance premium deduction, and age 70 1/2 IRA charitable contributions are included in this list and are usually retroactive when reinstated.
In 2013 , the Bush tax cuts sunset. These include the long-term capital gains rate cuts, child tax credit and the adoption credit.
Tax fraud and identity theft are growing. Innocent people are caught in the system to prevent fraud ID theft. The ID theft line is understaffed. One in nine calls were getting through during the filing season.
The Advocate’s office is also concerned about IRS disregarding the Taxpayer Assistance Orders (TAOs). The TAO process is provided by statute. A TAO is effective because it can raise issues to higher levels of management. Taxpayer Advocate Service is successful with TAOsevery day, but there are issues with the program raised in the NTA’s Objectives Report, including there not being any consequences if the TAO is disregarded. The Systemic Advocacy Management System also known as SAMS is another very effective way to raise issues. Every one of these will get a high level contact and some result in systemic advocacy projects. Sam’s link is: http://apps.irs.gov/app/samsnet/IssueQualification.jsp
Question: Are you aware of any steps to fix the OVDP program?
Response: No. The OVDP program is closed. The OVDI is the current program. TAS has raised the issue through TAOs and a TAD about IRS not following their own FAQ #35 which appeared to state that reasonable cause and mitigating factors could be considered in the calculation of the closing agreements.
Comment: In cases of inadvertent or inherited funds one size does not fit all.
Response: The IRS says that the participants can always withdraw from the voluntary program. Most people don’t look at withdrawal as a viable option. It should be considered in those types of cases.
Comment: A lot of practitioners are concerned about their advice. Although we cannot offer comment on what advice to provide to your clients, the National Taxpayer Advocate is continuing to advocate for changes to the program that will address the “one size does not fit all” criticism and provide for a more fair process for those who did not shift assets overseas to avoid tax reporting but inadvertently got caught in a non-disclosure.
Bessie Castro-Zepeda, Colorado Department of Revenue
Q: Why does the CDOR send out tax notices disallowing credits and deductions on e-filed returns PRIOR to reviewing the supporting documentation that is mailed in with form DR 1778 “E-filer Attachment Form”?
A: It is the policy of the Taxpayer Service Division, in the event of a review of a credit or deduction claimed on an e-filed return, to wait 30 days for supporting documentation to be received. If the documentation is not received after the 30 day window, the credits/deductions are denied and a letter is sent requesting the backup documentation.
Q: Why is the CDOR disallowing the Colorado Minimum Tax Credit on line 31 of Form 104CR when the credit is simply a calculation based from information reported on the Federal return?
A: The Colorado Minimum tax credit is being disallowed in cases where Form 104AMT is missing or incomplete. There may have initially been a training issue where the credit was being disallowed incorrectly by an examiner but for the most part, the credit is denied due to missing or incomplete information.
In general, CDOR and, specifically the Income Tax Accounting Section, only denies credits/deductions when there is missing or incomplete documentation. The tax booklet makes it clear what documentation is needed when a credit is claimed. Most of the issues we (Income Tax Accounting Section) run into are missing documentation on amended returns. The taxpayer may have claimed a credit on the original filing and supplied the appropriate documentation, but if the credit is unchanged (or even reduced) on the amended form and there is no supporting documentation we will deny it.
A few tips for filing this year: It is highly encouraged that e-file is used to file returns. Also, we encourage the use of our website, Revenue Online (www.colorado.gov/revenueonline) to file protests and for taxpayers to review their accounts. This is the preferred method to correspond with DOR as the phone system is very difficult to get through on.
The inclusion of forms (104cr, 104pn) and all backup documentation on original AND amended returns needs to be stressed. Even if a credit remains unchanged on an amended filing, it will be denied if the corresponding form is not attached.
To ensure payments are correctly posted to the proper account, ACH debits are recommended – as well as payment through our online portal (this is done through Revenue Online website).