IRS Update
MACE CPE Seminar
October 18, 2012
Richard G. Furlong, Jr.Senior Stakeholder Liaison
215-861-1551 [email protected]
• 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