IRS Update

MACE CPE Seminar

October 18, 2012

Richard G. Furlong, Jr.Senior Stakeholder Liaison

215-861-1551 richard.g.furlong@irs.gov

• Amount of tax liability faced by taxpayers not paid on time

• Tax gap estimates for 2006

– $450B, gross tax gap

– 83.1%, compliance rate

– 56%, Net misreporting rate on amounts not subject to information reporting

The Tax Gap

• Reducing opportunities for evasion

• Making a commitment to tax gap research

• Improve information technology

• Improving compliance activities

• Enhancing taxpayer service

• Reforming & simplifying tax law

• Coordinating with partners and stakeholders

Reducing the Tax Gap

Return Preparer Initiative

• Launched on June 4, 2009

–Mandatory registration and use of a PTIN

–Competency testing

–Continued education

–Public database

• E-News for Tax Professionals

Registered Tax Return Preparer

• Beginning in 2014, only RTRPs, EAs, CPAs and attorneys are authorized to prepare individual income tax returns for compensation

• RTRP credentials given to preparers having a current PTIN and who pass:

– Competency test

– Tax compliance check

Circular 230 governs

• CPAs, EAs or attorneys granted full rights

–Prepare and file tax returns

–Represent taxpayer before Appeals, Collection and Counsel

–Execute closing agreements, extensions, waivers, claims for refunds

–Signing documents on behalf of taxpayer

Right to Practice Before the IRS

Right to Practice Before the IRS

• RTRPs, granted limited rights

–May represent taxpayer before IRS employees during examination if RTRP signed tax return or claim for refund

–May not represent taxpayer before Appeals, Collections, or Counsel

Right to Practice Before the IRS

• Supervised preparers may not

–Sign returns

–Identify themselves as RTRPs

–Represent taxpayers before the IRS in any capacity

Phases of New Rules for Preparers

Phase 1PTIN Registration

Phase 1PTIN Registration

Phase 2Competency TestPhase 2Competency Test

Phase 3Continuing EdRequirements

Phase 3Continuing EdRequirements

Phase 4Compliance &Enforcement

Phase 4Compliance &Enforcement

Must register annually

Must renew PTIN

PTIN valid calendar year

Since 01/01/11, must use PTIN on return; not SSN.

Must register annually

Must renew PTIN

PTIN valid calendar year

Since 01/01/11, must use PTIN on return; not SSN.

IRS urging preparers to test now (RTRP or EA)

Schedule using PTIN Account

Topics: tax law and Form 1040 prep

IRS urging preparers to test now (RTRP or EA)

Schedule using PTIN Account

Topics: tax law and Form 1040 prep

New starting 2012 for RTRPs and RTRP candidates

15-hours for RTRP candidates annually

CE hours from authorized providers only

New starting 2012 for RTRPs and RTRP candidates

15-hours for RTRP candidates annually

CE hours from authorized providers only

Tax Compliance Check for all

Compliance letters and visits

Identifying those not in compliance

2014: Only certain authorized preparers can do 1040 prep.

Tax Compliance Check for all

Compliance letters and visits

Identifying those not in compliance

2014: Only certain authorized preparers can do 1040 prep.

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Overview of Return Preparer Requirements

 Category PTIN Tax

Compliance Check

IRS TestContinuing Education

Practice Rights 

Enrolled Agents  Yes  YesYes

(SEE)72 hrs / 3 yrs Unlimited

Registered Tax Return Preparers

 Yes  YesYes

(RTRP)15 hrs yr Limited

CPAs  Yes  Yes No Varies Unlimited

Attorneys  Yes  Yes No Varies Unlimited

Supervised Preparers

 Yes  Yes No No Limited

Non-1040 Preparers

 Yes  Yes No No Limited

Changes to Form 2848, Power of Attorney

• Joint returns

• Copies of notices and communications

• Acts authorized

• Representative designations

• Future developments

IRS Notices and Letters

• AUR/CP 2000 Notice

– Identifies discrepancy between income/payment IRS has on file and reported on Form 1040

– Typically gives taxpayer 30 days to provide supporting documentation or agree with proposed adjustment

• CP14, Balance Due, No Math Error

• CP501, Reminder Notice, Balance Due

• CP503, Reminder Notice, Balance Due

• CP504, Urgent Notice, Balance Due

Collection Letters

• Injured spouse

• Innocent spouse

–Files MFJ

–Seeks relief from liability

Injured Spouse vs. Innocent Spouse

Response to FMS Notice

• Financial Management Service administers the Treasury Offset Program

• Tax Refund or overpayment may be reduced by FMS to pay:

–Past due child support

–Delinquent student loans

–State income tax obligations

–Unemployment compensation debt

Injured Spouse Claims - Filing

Non-obligated spouse must File Form 8379, Injured Spouse Allocation to request his/her share of refund

–Before offset occurs: Attach F8379 to paper return and write “Injured Spouse” on top left corner

–After offset occurs: File stand alone Form 8371 including both spouse’s SSN

• No. 1 consumer complaint reported to FTC for past 12 years

• Top priority for IRS

• IRS identity theft strategy focus:

–Prevention and detection

–Protection

–Victim assistance

Identity Theft

Protecting Taxpayers’ IRS Records

If fraudulent use of SSN is suspected:

• Notify IRS immediately

• Contact IRS Identity Protection Specialized Unit at 800-908-4490

• Complete Form 14039, Identity Theft Affidavit

• Take protective actions

Protect Records and Minimize Risk

• Taxpayers:

–Never provide personal information via phone, mail, or online

–Shred or destroy unwanted documents

–Update anti-virus software on home PC

• Tax Practitioners:

–Safeguard clients personal information

–Warn clients about e-mail “from IRS”

–Advise clients to check credit reports and financial records

IRS is Taking Action

• Identity Protection Specialized Unit

–Central point for ID theft victims

–Individual assistance

• Developed filters to stop first-time perpetrators

• Use of IP PIN

• Nationwide sweeps

• Penalty relief - individual taxpayers

• Installment agreements

–Streamlined definition expanded

–Includes some business taxes

• Offers in compromise – streamlined definition expanded

Collection Update – Fresh Start

Installment Agreements

• Expanded Fresh Start provisions mean more taxpayers can use streamlined installment agreements

–IA threshold without financial statement increased to $50,000

–Taxpayers owing up to $50,000 in back taxes, maximum term raised to 72 months

Offers In Compromise – Fresh Start

• Expanding the Streamlined OIC process

• Adding flexibility

• Revising financial analysis procedures

• Revising allowable living expenses

• The 2012 re-engineered TDS has increased capacity and improved look and feel

• Types of Transcripts

–Account

–Return

–Record of account

–Wage and income documents

–Verification of non-filing

Transcript Delivery System

e-services Secure Mailbox

• Practitioner Priority Service 866-860-4259

New service for Campus CorrespondenceExamination

• E-help Desk – 866-255-0654

Helps with all online issues

IRS Practitioner Hotlines

• Tax exempt and government entities 877-829-5500

–Exempt organizations

–Retirement plan administrators

–Government entities

• Employment tax 800-829-4933

–Business returns or accounts

Other IRS Hotlines

• Available to any filer of information returns

• Required of businesses filing 250 or more information returns for any calendar year

• Requirements for filing with FIRE

–Purchase third party software

–Apply with IRS – Form 4419

–Establish FIRE account

Filing Information Returns Electronically Program

• Provides guidance to IRS employees and useful to businesses and tax professionals

• New ATGs for 2012:

–Art galleries

–Continuation of employee healthcare coverage

–Interest charge domestic international sales corporation return

Audit Technique Guides

1120S Officers’ Compensation

• Continued compliance issue

• Situations where zero or very small wages paid to, officer yet significant distributable income

• Officer performs significant services

• Employment taxes reduced or eliminated

• New case: Watson