MW Attorneys brings taxpayers the latest and most important tax news coming from the IRS. Stay up to date with all our IRS related posts.

IRS Seeking Comments on Rules Re: Appeals Office Communications

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The IRS is proposing updates on the rules regarding ex parte communications between the Appeals Office and other IRS representatives and departments. The IRS stated: “[t]hese rules are necessary to ensure that the Office of Appeals remains an independent and flexible vehicle for settling audit and collection-related disputes between taxpayers and the IRS.” The proposed rules are set out in Notice 2011-62.

Basically, if the Appeals Office is going to communicate with another division or department within the IRS, the taxpayer, or the taxpayer’s representative, must be given an opportunity to participate in that communication. As far as I’m concerned, any strengthening of this rule is a good change. However, it seems to me that there are far too many exceptions to the proposed ex parte communications rules, almost to the point that the exceptions swallow the rule.

If you agree, or if you have other comments you wish to submit, contact the IRS by August 18, 2011. Visit the IRS Newsroom for mailing, emailing, and hand delivery instructions.

Taxpayer Advocate Interview

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Nina Olson, head of the Taxpayer Advocate Service (TAS) recently spoke with Kiplinger. Check out the details here. She doesn’t really say anything we haven’t heard her say before, but we do learn that her Washington D.C. office is adorned with toy bulldogs to help remind her staff that they are charged with the task of protecting the little guy from the ruthlessness of the IRS.

IRS Open House This Weekend

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On Saturday, July 16, 2011, the Internal Revenue Service (IRS) will have open houses at Taxpayer Assistance Centers across the country. The purpose of the open house is to provide help with tax filing issues during the weekend. The participating IRS Taxpayer Assistance Centers will be offering the same services that are normally offered on weekdays.

Among the services offered include accepting payments and making payment arrangements. In other words, you don’t have to wait until Monday to pay the IRS. However, for taxpayers seekingtax relief, the Taxpayer Assistance Centers will likely not meet their needs.

IRS Chasing Ghosts

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The Internal Revenue Service (IRS) recently announced it will be sending letters to taxpayers who appear to have had tax preparation assistance by ghosts. Such “ghost preparers” are paid tax preparers who attempt to elude IRS oversight programs by not signing the tax returns they prepare. The IRS warns taxpayers that they should never rely on a paid tax preparer that refuses to sign their tax returns and fails to enter a Preparer Tax Identification Number (PTIN).

In the letter to be sent to taxpayers, the IRS will inform such taxpayers of how to file a complaint against their paid tax preparers who failed to sign their returns and explain how to choose a legitimate tax preparer in the future. According to the IRS, the goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and that such authorized preparers sign the tax returns they prepare, and use their identifying number when required to do so.

Additionally, on July 7, 2011, the IRS began to send approximately 100,000 compliance letters to tax preparers who failed to comply with regulations governing third-party tax preparation. All compensated tax return preparers must obtain a PTIN and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation. Compensated tax preparers who are not tax attorneys, certified public accountants, or enrolled agents, must pass a competency exam and suitability check.

The approximately 100,000 paid tax return preparers under scrutiny may have used outdated PTINs or social security numbers as identifying numbers on returns they prepared this past filing season. The letters sent by the IRS explain a new oversight program and informs preparers of how to register for a new PTIN, or how to renew an old PTIN.

IRS Drops Investigation of Big-Shot Donors

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The IRS had been investigating five unnamed donors who each contributed hundreds of thousands, if not millions of dollars, to certain unnamed 501(c)(4) tax-exempt organizations. The nonprofit organizations then spent this money on political advertising. This occurred during the 2010 elections, and is expected to occur in 2012 as well. The question was whether or not these donors had to pay a 35% gift tax on their donations. But it’s not really a question any longer because the IRS decided not to pursue further examinations.  Why did the IRS drop the investigation? Because they just don’t have any rules/case-law/guidance on this issue.

As part of their statement, the IRS noted that they will “review the need for additional guidance or legislation [and] it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.”

It was instant tax relief for these donors.  Tax relief, tax avoidance, whatever you want to call itthey didn’t have to pay, and they didn’t have to lift a finger in their defense. Imagine that, 3.8 million words in the tax code and the IRS is still suggesting there isn’t enough.

Said the IRS:

“Questions have been raised regarding the application of gift tax to contributions to I.R.C. § 501 (c)(4) organizations. This is a difficult area with significant legal, administrative, and policy implications with respect to which we have little enforcement history. My office will be coordinating with the Office of Chief Counsel to determine whether there is a need for further guidance in this area.

Until further notice, examination resources should not be expended on this issue. It is anticipated that any future examination activity would be after the coordination described above and would be prospective only after notice to the public. Thus, the Service should not expend examination resources initiating referrals or developing audits. Accordingly, all current examinations relating to the application of gift tax to contributions to I.R.C. § 501(c)(4) organizations should be closed.”

Click here for the official July 7th IRS memo from Steven Miller, Deputy Commissioner for Services and Enforcement.

IRS Crashes Party at Fiesta Bowl

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The Fiesta Bowl is scrambling to avoid needing tax relief. The Fiesta Bowl, a non-profit organization, is facing Internal Revenue Service (IRS) scrutiny for giving elected officials expensive gifts since 2002, which may not have served the Fiesta Bowl’s tax-exempt purpose. Presently, the Fiesta Bowl, because of its non-profit status, does not have to pay federal or state income taxes. However, if such gifts were not in furtherance of the Fiesta Bowl’s tax-exempt purpose, the IRS may levy a fine or may revoke the Fiesta Bowl’s non-profit status. Therefore, the Fiesta Bowl is now seeking information from gift recipients that such gifts were indeed proper, or it is seeking a monetary reimbursement for its “gifts”. Fifteen elected officials have since amended their financial disclosure reports to reflect gifts received from the bowl.

Taxpayer Advocate Wants More Money Spent on Collections

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Shouldn’t the Taxpayer Advocate be focused on providing high quality tax relief within the bounds of the law?

The Taxpayer Advocate Service (TAS) describes themselves as an “independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. ”

Today the TAS submitted its biannual report to Congress which evaluates IRS’s progress in 2010 and spells out its objectives for 2012. Here are some key points:

  • IRS resources are being strained due to new programs and less funding. New programs have resulted in higher call/inquiry volumes and there is less money available to pay for employees to field these calls and question.
  • TAS praises the IRS for making improvements to lien filing procedures, but does not believe it is doing enough. TAS suggests that the IRS cease filing liens based on amount owed, and instead look at the individual ability to pay. If the taxpayer is suffering from an economic hardship, no lien should be filed.
  • Dwindling resources resulted in more “bright-line” tests used by IRS employees; in other words, less discretion and less consideration of taxpayers’ individual circumstances.

The TAS also cited an interesting statistic: In 2010 the government spent $12.1 billion to run the Collections Department of the IRS, and that department collected $2.35 trillion in revenue (that’s $194 for each dollar spent). The TAS cited this statistic to show just how successful the IRS is in collecting taxes and to make their case for increased funding for these collection efforts. In fact, the TAS wants the IRS to be exempt from budget caps or reductions.

In my opinion, the TAS’s push for more funding seems inconsistent with their stated goal of looking out for the best interests of the taxpayer. What kind of advocate would be so interested in beefing up Collections?

IRS Seizes Super Bowl Ring

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Even pro football players need tax relief from time to time. Fuzzy Thurston, former Green Bay Packers lineman, owes $1.7 million in back taxes and now the IRS is auctioning off his ring from Super Bowl II to help pay what he owes. His tax debt originated from a restaurant chain he started after his football career had ended. He failed to turn over payroll taxes he withheld from his employees income. Thurston also has a ring from Super Bowl I that the authorities are trying to track down. However, rings like his are worth a mere $20,000 – $30,000, so the IRS would have to locate about 50 such rings to bring him into full compliance.

Summer School

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If you’re worried about your kid’s brain turning to mush over summer vacation, how about a free online tax course?  The IRS’ Understanding Taxes program is perfect for high school or college aged youngsters.  The course offers 24 lessons divided into 6 themes dealing with tax history and tax theory (the “Hows” of taxes).  And there is a separate set of 14 lessons dealing with the application of tax principles (the “Whys” of taxes).  The Understanding Taxes program includes activities, tutorials, fact sheets, simulations, and of course, every kid’s favorite: assessments.  This is one way to keep them on their toes until they return to school in the fall.