IRS Stakeholder Liaison Meeting – Denver

The following is a summary of the IRS’ most recent Stakeholder Liaison Meeting in Denver Colorado as prepared by Ann Burton, IRS Senior Stakeholder Liaison. It is jam packed with procedural information and status updates from line managers and group leaders of the various IRS operational functions including Collections, Examinations, Appeals, Tax Court etc. A worthy read for any practitioner navigating the seemingly troubled waters of IRS operations. I found some of the Q+A particularly enlightening. Towards the end there is also information on Colorado updates. Enjoy!

Dena Figueroa & Tammy Hobson, IRS Automated Collections – ACS

To help better protect taxpayer information, beginning January 5, 2014, we will no longer process transcript requests through the Transcript Delivery System (TDS) if an Identity Theft Indicator is on the taxpayer’s account. The tax professional will receive a message letting them know the transcript cannot be processed and the taxpayer will receive a notice alerting him or her of the request for the transcript and instructing them to contact the Identity Protection Specialized Unit.

If an ID theft indicator is on an account that is requesting transcripts, the taxpayer will need to contact the ID theft office to obtain transcripts.

Question: We were recently advised by an Internal Revenue Service representative from the Practitioner Priority Hotline that requests for account transcripts would, in the near future, not be acceptedtelephonically. A different representative from the Practitioner Priority Hotline did not know about that (assuming it is true), but advised that account transcripts and other related information will soon be unavailable on IRS E-Services. What (if any) of this is true?

Response: IRM (Transcript Requests) states the practitioner may order online if registered with e-services and having access to TDS (Transcript Delivery System). PPS (Practitioner Priority Service) may order transcripts for the practitioner even if the practitioner is registered for e-services. At this time, there is no information of removing e-services.

Question: At our last meeting, we were advised that all individual cases under $1,000,000 of accrued liability could be worked by ACS. Recently, while working with ACS on a collection case, we were advised that the cutoff is $250,000. What is the current dollar threshold for working an individual tax case with ACS? Is that set to change?

Response: ACS has the authority to resolve individual (i.e., Form 1040, Trust Fund Recovery Penalty) liabilities (i.e., initiating an Installment Agreement (IA), requesting a Currently Not Collectable (CNC)) up to $250.000. An ACS employee may initiate an In-Business Trust Fund (IBTF) IA on a business case involving trust fund liabilities up to $25,000; the IBTF must be on a Form 433D or 2159. The CR may initiate a 60-day extension of time to pay on business cases involving trust fund liabilities up to $999,999. See IRM ACS has the authority to work cases (i.e., issuing a levy if appropriate to move the case towards resolution) to $999,999.

Question: Why does the ACS issue Final Notices of Intent to Levy (typically, Letters 1058) to taxpayers on cases that exceed the dollar threshold where the case can actually be worked by them? For example, in a recent matter, we attempted to resolve a case in excess of $1,000,000 with ACS, but were advised that they lacked jurisdiction to work on the case. They further advised that the case would be sent to the queue for assignment to a revenue officer, but they subsequently issued Letter 1058. By doing this, aren’t they working on the very case that they purportedly lacked jurisdiction over? Moreover, by doing this, ACS accelerates the running of the late payment penalty with no immediate recourse at hand.

Response: It is not proper to issue an LT11 (Letter 1058) prior to sending the case to the queue for assignment to an RO per IRM Most likely the RO issued the LETER 1058C.

Question: Why is there such a disconnect between the phone numbers listed on centralized collection correspondence and the appropriate IRS office which the taxpayer/client needs to be talking to? For example, a client recently received a CP 504 Notice and we called the number on the notice. After being placed on hold for nearly one hour, and then discussing the case with the representative for an additional fifteen minutes, we were advised that we contacted the Taxpayer Information Service number. We were then transferred to the appropriate ACS phone number but were placed on hold for nearly one additional hour. Succinctly, why can’t a direct ACS phone number be placed on collection correspondence?

Response: The CP504 is tax period specific (i.e. Form 1040 for the period ending 12-31-2012) and does not reflect any other issues on the wider case. You may bypass Accounts Management by inputting your client’s TIN when prompted. The automated system should recognize one of your client’s tax periods is with ACS and transfer the call appropriately.

Question: We are noticing more cases where the fraudulent failure to file penalty (I.R.C. § 6651(f)) has been asserted, with facts which, historically, would have warranted only a standard late-filing penalty. Has there been a directive to utilize this penalty provision more frequently, and what factors does the Service look to these days when asserting this penalty?

Response: We are unaware of any directive to assert the Fraudulent Failure to File (FFTF) penalty under IRC 6651(f). IRM lists the factors used to assert the FFTF penalty. These factors are: The taxpayer refuses to, or is unable to, explain the failure to file; the taxpayer’s statement does not agree with the facts of the case; there is a history of failing to file or late filing, but an apparent ability to pay; the taxpayer fails to reveal or tries to conceal assets; the taxpayer pays personal and business expenses in cash when cash payments are not usual, or cashes rather than deposits checks that are business receipts; and the taxpayer is aware of the filing requirement.

Question: Are there any plans for a “Fresh Start Initiative” payment plan hotline to minimize wait times when calling the general collection phone numbers?

Response: There are no plans for a Fresh Start Initiative hotline at this time.

Kenneth Cooper, IRS Examination

Examination is focusing on several things this fiscal year.

Exam continues to place a strong emphasis on identifying and stopping tax schemes and abusive preparers through use our lead development center. Referrals are received from internal and external sources including tax professionals. Exam works closely with W & I and the return preparer’s office to identify questionable preparers. Exam also conducts parallel investigations were criminal investigation and examination conducts separate but contemporaneous investigations. In fiscal year 2012, Department of Justice obtained 54 injunctions. In the first five months of fiscal year 2013, 27 injunctions were obtained.

Another priority is the flow through entities. Tier structuring of flow through entities are challenging to SBSE. Using tier structures may obscure the economic reality or substance of transactions. Over the years, there has been an increase in the use of flow through entities. A partnership strategy is being initiated by SB/SE and LB & I focusing on work load and issue identification, as well as increasing the knowledge and expertise of our workforce in this area.

The offshore voluntary disclosure initiative has slowed down somewhat since the 2009 initiative. All cases from 2009 have closed. Tax year 2009 received 15,000 applications which resulted in 11,000 audits. There are still a few cases left for 2011. 2011 received 18,000 applications which resulted in 12,000 audits. 2011 still has a few cases in the pipeline that should be closed shortly. Tax year 2012 has some open cases but nothing near as high as 2009 and 2011.

The offshore voluntary disclosure program allowed Internal Revenue Service to collect more than $5.5 billion in back taxes interest and penalties from the approximate 38,000 voluntary disclosures made to date.

Question: How is the opt out situation working?

Response: : Cases where taxpayers opt out of the ODVI program are sent to the Opt Out Committee located in the Midwest area to be worked. Exam has not been receiving Opt Out cases back from the Opt Out Committee at this time. The opt out program seems to be working well.

The national research programs are still around. There is currently a 1040 study that is a multi-year program. There is a corporate one year study involving 2500 corporate returns with assets under $250,000. These returns have been classified and have been sent to the field and there is an employment tax and fuel tax program.

High Income High Wealth taxpayers are another focus of examination. Rentals, flow through entities and cash transactions are related to these types of taxpayers. 12.5% of taxpayers who earn 1 million or more are being audited. Taxpayers who earn $200,000-$1 million have a 1% chance of being audited, which is pretty high.

Exam continues to make preparer visits in the field. In 2013, there were over 3000 E file, pre-filing season and due diligence visits.

Exam also initiates Preparer Action Cases (PACS) . A preparer action cases is an investigation where clients of questionable preparers are examined to determine whether preparer penalties and/or injunctive actions against the preparer are warranted. PACs are used to treat the most egregiously noncompliant preparers.

Another issue facing exam is the identity theft of taxpayers. Compliance employees provide assistance to identity theft victims, including placing identity theft tracking indicators on the victim’s accounts and coordinating with a specialized unit in the campus to correct their accounts and get them their correct refund.

Michael Rogers, IRS Governmental Liaison

Internal Revenue Service has 6.5 million hits on YouTube. The videos on YouTube assist taxpayers in learning about Internal Revenue Service procedures, policies and practices. Several videos include information on tax law.

The identity theft telephone number is 1-800-908-4490.

Internal Revenue Service worked closely with FEMA to assist in staffing disaster recovery centers during the Colorado Flooding Disaster.

Eric Jaeger, IRS Taxpayer Advocate Service

The delay in the start of the filing season will likely cause concern for taxpayers who have hardships and want to request an expedite refund for tax year 2013. TAS cannot, even in a hardship situation, get a return processed before the start of the filing season (return acceptance period).

The modification of the TAS Case Acceptance criteria that began about a year and a half ago has been extended for the next year. Specifically, TAS will not accept non-hardship cases involving: original return processing; unpostable/rejected tax returns; injured spouse claims; and amended returns (even if the case would otherwise meet TAS criteria). The reasoning behind this decision is to enable TAS to effectively assist those taxpayers who are experiencing an economic hardship. Economic hardship criteria includes the following:

  1. The taxpayer is experiencing economic harm or is about to suffer economic harm. This usually involves a privation of necessary living expenses such as housing, food, medical care, transportation, etc.

  2. The taxpayer is facing an immediate threat of adverse action. This includes a threat of enforcement action such as the filing of a levy or lien.

  3. The taxpayer will incur significant costs if relief is not granted (including fees for professional representation). The term “significant” is meant to be relative to the individual circumstances of the taxpayer.

  4. The taxpayer will suffer irreparable injury or long term adverse impact if relief is not granted. This can include a loss of livelihood, ability to conduct business or other lasting effects caused by an IRS action.

In reference to other meeting comments and concerns about the ongoing difficulties encountered due to identity theft, it was noted that recent case receipts in TAS for identity theft issues are down nearly 40% in comparison to a year ago. This may be attributable to the IRS doing a better job of working these cases, since TAS would normally become involved only when the IRS is unable to resolve the issue, or when a taxpayer is encountering an economic hardship.

The initial contact, once a TAS case is established, is three business days for economic hardship cases and five business days for systemic hardship cases.

Stephen Boyd, IRS Criminal Investigation

Criminal Investigation’s priorities are high impact cases and our mission is to investigate these cases, people in jail, publicize the outcome as a deterrent. Identity theft cases have tripled and are still on the rise. Criminals have determined that ITIN’s have been easy to obtain, and are using fraudulent ITINS for tax. Some practitioners go through a certification training program that allows them to certify documents for taxpayers to obtain an ITIN number.

There are special agents throughout the world, working with foreign banks that are cooperating with the United States.

As one of our priorities Criminal investigation has an on-going effort to combat sovereign citizens.

We are working with the State to assist with compliance within the marijuana industry in compliance. Compliance includes not selling to minors, trafficking across State lines and following the regulations for grow houses.

Cathy Schum, IRS Collection

Implemented January 1, installment agreement and offer in compromise fees have increased. Installment agreement fees have increased to $120 and offer in compromise fees have increased to $186. The fee to reinstate a defaulted installment agreement has increased to $50. The user fee for a direct debit installment agreement remains unchanged at $52. Health and Human services reduction is at $43.

All revenue officers have an E- fax number, which makes faxing documents more efficient.

Disaster relief for the 11 counties affected by the flooding has ended.

When collection receives cases identified as an identity theft case, the revenue officer will work the case according to specific guidelines in the IRM. A taxpayer that self identifies, are instructed to contact the identity theft unit.

Marijuana cases are handled on case-by-case basis. It is a difficult situation due to banking issues.

Matthew Houstma, Area Counsel

Counsel had two recent retirements, attorney Randy Preheim and paralegal Robert Boyer both retired within the last month.

Counsel had a December calendar, and currently have a January calendar with 2 to 3 trials per calendar.

Counsel has some medical marijuana cases that may be docketed this fall. The issues revolve around 280E issues, business expenses.

1099K-credit card reporting notices are going out to taxpayers, allowing them to explain the differences in what the credit card company reported and what was claimed on the return. If the initial notice is ignored, then that stat notice will be sent out to the taxpayer.

There are still some easement cases out there to be resolved.

Counsel will stop accepting bankruptcy cases, due to staffing shortage.

Counsel is interested in feedback from any pro se petitioners who received the letter Counsel is sending with their Answer explaining the Appeals and Tax Court process. Please send Debbie your feedback to pass along to Matthew.

Matthew will pass along the feedback on the new notices being sent to taxpayers that seem to bury the intent of the notice.

Highlights of recent tax legislation

2013 Colorado Tax Updates

Income Tax Filing Status for Same-Sex Couples

Posted: November 29, 2013

State Income Tax Filing Status Guidance for Same-Sex Couples who file Joint Federal Income Tax Returns

The Internal Revenue Service (IRS) rule on August 29, 2013, that same-sex couples legally married in any state must file a joint Form 1040 or two returns filing separately with the IRS, regardless of the marriage law of the state where they live. IRS officials said the ruling was made to provide certainty and clear, coherent tax filing guidance. The IRS ruling applies to all federal tax purposes, including income and gift and estate taxes.

Colorado’s state tax code is directly tied to that of the federal government and uses Federal Taxable Income as the starting point of its state income tax return. Therefore, it is necessary for every Colorado taxpayer to file their state income tax return using the same filing status that they elected on their federal income tax return. Departing from federal tax filing status would require the recalculation of taxable income and would impose significant difficulties in the administration of Colorado personal income tax. Colorado taxpayers must use the same filing status on state tax returns as elected on federal tax returns to utilize information from their federal tax return when completing their Colorado state income tax return.

To provide Colorado taxpayers with clarity about how to file state income taxes in light of the August 2013 IRS ruling, the Department of Revenue has promulgated an emergency regulation that says the same thing outlined here. When the rule is available in the Colorado Register on the Colorado Secretary of State Web site, the link will be provided on this page. The department is providing this information on its Web page to provide guidance to taxpayers and tax professionals. The department recommends taxpayers review the IRS ruling and the emergency rule (when published) and consult with a tax advisor regarding tax filing status questions.

Colorado’s state tax code is directly tied to that of the federal government regarding filing status. The register reference for the emergency rule is 1 CCR 201-2 Income Tax 1 – eff 11/27/2013 (C.R.S. 39-22-104.1.7), which can be found on the Secretary of State website. (EmergencyJustificationPathAttach2013-01225.DOC)

Deborah Rodgers, Stakeholder Liaison

2014 Tax Season to Open Jan. 31; e-file and Free File Can Speed Refunds

WASHINGTON – The Internal Revenue Service today announced plans to open the 2014 filing season on Jan. 31 and encouraged taxpayers to use e-file or Free File as the fastest way to receive refunds.

The new opening date for individuals to file their 2013 tax returns will allow the IRS adequate time to program and test its tax processing systems. The annual process for updating IRS systems saw significant delays in October following the 16-day federal government closure.

“Our teams have been working hard throughout the fall to prepare for the upcoming tax season,” IRS Acting Commissioner Danny Werfel said. “The late January opening gives us enough time to get things right with our programming, testing and systems validation. It’s a complex process, and our bottom-line goal is to provide a smooth filing and refund process for the nation’s taxpayers.”

The government closure meant the IRS had to change the original opening date from Jan. 21 to Jan. 31, 2014. The 2014 date is one day later than the 2013 filing season opening, which started on Jan. 30, 2013 following January tax law changes made by Congress on Jan. 1 under the American Taxpayer Relief Act (ATRA). The extensive set of ATRA tax changes affected many 2012 tax returns, which led to the late January opening.

The IRS noted that several options are available to help taxpayers prepare for the 2014 tax season and get their refunds as easily as possible. New year-end tax planning information has been added to this week.

In addition, many software companies are expected to begin accepting tax returns in January and hold those returns until the IRS systems open on Jan. 31. More details will be available in January.

The IRS cautioned that it will not process any tax returns before Jan. 31, so there is no advantage to filing on paper before the opening date. Taxpayers will receive their tax refunds much faster by using e-file or Free File with the direct deposit option.

The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

IRS systems, applications and databases must be updated annually to reflect tax law updates, business process changes and programming updates in time for the start of the filing season.

The October closure came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major work streams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

IRS Business Master File Shutdown

The IRS will begin accepting 2013 business tax returns on Monday, Jan. 13, 2014. This start date applies to both electronically-filed and paper-filed returns. The Jan. 13 start date does not apply to Form 1041, the return filed by estates and trusts, and unincorporated small businesses that report their income on Form 1040. The start date for 1041 and all 1040 filers is Jan. 31, 2014.

Revenue Procedure 2014-11 provides procedures for reinstating the tax-exempt status of organizations that have had their tax-exempt status automatically revoked under section 6033(j) of the Internal Revenue Code for failure to file required annual returns or notices for three consecutive years.

Reinstating Tax-Exempt Status

Revenue Procedure 2014-11 provides procedures for reinstating the tax-exempt status of organizations that have had their tax-exempt status automatically revoked under section 6033(j) of the Internal Revenue Code for failure to file required annual returns or notices for three consecutive years.

Practitioner Priority Services Changes

Effective January 6, 2014, the IRS will limit Practitioner Priority Service to responding only to requests from tax professionals who are actively working with their clients to resolve tax account issues.

Difficulty of Care Payments

Notice 2014-7 advises taxpayers that certain payments received by an individual care provider under these state Medicaid Home and Community-Based Services Waiver programs are difficulty of care payments excludable from gross income.