Transcript eo2.commpartners.com

2013 IRS Update
Robert E. McKenzie
Arnstein & Lehr LLP
120 S. Riverside Plaza
Chicago, IL 60606
312-876-7100
[email protected]
IRS Staffing for Key Enforcement Personnel
2008
2009
2010
2011
2012
Revenue
Officers
5,492
5,451
6,042
5,619
5,186
Revenue
Agents
12,599 12,958 13,888 13,867 13,021
Special
Agents
2,631
Total
20,722 21,059 22,710 22,184 20,868
2,650
2,780
2,698
2,661
Preparer Regulation
• 2011 IRS issued regulations mandating that certain tax-return
preparers
– Complete 15 hours of continuing education each year and
– Pass an initial qualifying exam
– Undergo background checks
• Loving v. IRS, No. 12-385 (JEB) (D.D.C. Jan. 18, 2012), held
IRS’ lacks authority to continue preparer regulation.
• IRS has appealed
• As of now this is a victory for those not smart enough to pass a
test or ethical enough to survive a background check
PTINs Allowed
• Loving court issued an additional opinion and order on
2-1-2013, clarifying and modifying its previous
injunction.
• Denied the IRS' attempt to stay the injunction pending its appeal
• Modified the injunction allowing IRS to continue PTIN application and
assignment system may continue
E-file Mandate
• Tax return preparers who prepare 100 or more
individual or trust returns in 2011 will be required to
e-file
• Tax return preparers who prepare 10 or more
individual or trust returns in 2012 will be required to
e-file
• Form 8948 to explain last page
2013 TAS Report
• Complexity of the Tax Code
• Alternative Minimum Tax Corrodes Both the Tax System and the
Democratic Process
• IRS Is Significantly Underfunded to Serve Taxpayers and Collect Tax
• IRS Has Failed to Provide Effective and Timely Assistance to Victims of
Identity Theft
• IRS Harms Victims of Return Preparer Misconduct by Failing to Resolve
Their Accounts Fully
• the IRS Continues to Harm Taxpayers by Unreasonably Delaying the
Processing of Valid Refund Claims that Happen to Trigger Systemic
Filters
TAS Report
• IRS’s Compliance Strategy for the Expanded Adoption Credit Has Resulted in
Excessive Delays to Taxpayers, Has Increased Costs for the IRS
• IRS Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance
by Those who Inadvertently Failed to Report Foreign Accounts
• IRS’s Handling of ITIN Applications Imposes an Onerous Burden on ITIN
Applicants
• Preservation of Fundamental Taxpayer Rights Is Critical as the IRS Develops a
Real-Time Tax System
• Overextended IRS Resources and IRS Errors in the Automatic Revocation and
Reinstatement Process Are Burdening Tax-Exempt Organizations
• IRS Telephone and Correspondence Services Have Deteriorated Over the Last
Decade
TAS Report
• IRS Has Failed to Make Free Return Preparation and Free Electronic
Filing Available to All Individual Taxpayers
• IRS Is Striving to Meet Taxpayers’ Increasing Demand for Online
Services, Yet More Needs To Be Done
• Challenges Persist for International Taxpayers as the IRS Moves Slowly
• IRS Processing Flaws and Service Delays Continue to Undermine
Fundamental Taxpayer Rights to Representation
• IRS Lacks a Servicewide Strategy that Identifies Effective and Efficient
Means of Delivering Face-To-Face Taxpayer Services
• IRS Is Substantially Reducing Both the Amount and Scope of its Direct
Education and Outreach to Taxpayers
(Dollars in
Billions)
2008
2009
2010
2011
2012
Collection
$31.10
$26.90
$29.10
$31.10
$30.44
Examination
$15.80
$12.60
$16.90
$12.40
$10.20
Appeals
$4.80
$4.80
$6.70
$6.50
$4.20
Document
Matching
$4.70
$4.60
$4.90
$5.20
$5.27
Total
$56.40
$48.90
$57.60
$55.20
$50.20
Collection
2008
2009
2010
2011
2012
Levies
2,631,038
3,478,181
3,606,818
3,748,884
2,961,162
Liens
768,168
965,618
1,096,376
1,042,230
707,768
Seizures
610
581
605
776
733
CI Enforcement
Criminal Investigation
2008
2009 2010 2011 2012
Investigations
Initiated
3,749 4121
4706
4720
5125
Information &
indictments
2,547 2335
2645
2998
3390
State Information Sharing
• Form 1040, U.S. Individual Income Tax Return, as well
as other income tax and information returns, such as
Form 941, Employer’s Quarterly Federal Tax Return;
Form 730, Tax on Wagering; Form 1120, U.S.
Corporation Income Tax Return; various Forms 1099,
U.S. Information Returns; and Form W-2, Wage and
Tax Statement.
Tax Gap
Total Tax Liabilities
Gross Tax Gap
Enforcement andLatePayments
Net Tax Gap
TaxYear 2001
(billions)
$2,112
$345(83.7%compliance)
$55
$290(86.3%compliance)
TaxYear 2006
(billions)
$2,660
$450(83.1%compliance)
$65
$385(85.5%compliance)
NRP Followup Study
• (NRP) study for individual taxpayers that provides
updated and more accurate audit selection tools and
support efforts to reduce the nation’s tax gap.
• About 13,000 every year since October 2007
• 2,000 employment tax NRP’s per year since 2009
Abusive Return Preparer
• CI component
• Undercover Ops
• Audits of 30 Clients
• Referral to Criminal investigation
• Referral to the office of professional liability
• Preparer penalties
• Referral to Department of Justice to seek an injunction ordering the
preparer to cease filing tax returns.
2012 Budget
• Congress stupidly cut the IRS budget thereby reducing
revenue much more than the savings from the budget cuts
• The IRS allocation is over $500 million below Obama's
request and is 2 ½% below last year, better than an
additional $600 million in cuts that the House Budget
Committee originally pushed for, and which IRS
Commissioner Doug Shulman said would rob the Treasury
of $4 billion in revenue. But the cut still is costly.
2013 Budget
• Administration’s Fiscal Year (FY) 2013 Budget request for the IRS was
approximately $12.8 billion, a $944.5 million increase (8%) over the FY
2012 enacted level but only a $639.3 million increase (5.3%) from the
level enacted for FY 2011
• Included $403 million in new IRS enforcement activities, which are
expected to raise $1.48 billion in revenue annually at full performance,
once new hires fully trained and develop broader experience by FY 2015.
This is a 4.3-to-1 return on investment.
• Budget not approved by Congress and IRS began Fiscal year frozen at
2012 level
• IRS now subject to the sequester meaning it has even fewer resources to
do its job
2014 Budget
• Prediction: Congress once again will severely
underfund IRS
Abusive Preparer
• IRS is aggressively pursuing abusive preparers.
• Exact Tax sued to be closed down
• Mo Money pursued
Abusive preparers
Investigations
Initiated
2012
443
2011
371
2010
397
276
233
202
202
176
182
178
172
84.3%
163
163
87.1%
145
132
88.6%
29
25
24
Prosecution
Recommendations
Indictments/Inform
ations
Convictions
Sentenced
Incarceration Rate*
Average Months to
Serve
Impact of ACE on Individual Tax Return
Examinations
Dirty Dozen
1. Identity Theft
2. Phishing
3. Return Preparer Fraud
4. Hiding Income Offshore
5. “Free Money” from the IRS & Tax Scams
Involving Social Security
6. Impersonation of Charitable Organizations
Dirty Dozen
7. False/Inflated Income and Expenses
8. False Form 1099 Refund Claims
9. Frivolous Arguments
10. Falsely Claiming Zero Wages
11. Disguised Corporate Ownership
12. Misuse of Trusts
APPEALS
• Strategic Priorities:
■ Increase taxpayer awareness of the Appeals process and their rights
within the process
■ Increase taxpayer awareness of alternative dispute resolution programs
■ Improve our processes to meet customer needs and expectations and
to reduce the length of the Appeals process while spending the right
amount of time with each taxpayer
■ Promote employee productivity, engagement, and satisfaction
Campus Appeals Program
• Any appeal from a compliance generated notice is
assigned to the campus appeals program.
• TIGTA has reported that it is not as effective as face to face.
• The campus appeals personnel are poorly trained and lack
field experience. Contrasts with the well trained
experienced former RA’s & RO’s assigned to the local
appeals offices.
• When your client receives a notice from a campus allowing
an appeal your protest should always request that your
client be given a face to face conference in your local office.
Ernst & Young Settlement
• No Prosecution Agreement on tax shelters
• Over $100 million
Whistleblowers
Cases Received
Awards Paid
Collections over $2,000,000
2010
2011
2012
7,577
7,471
8,634
97
9
97
4
128
12
Total Amount of Awards
Paid32
$18,746,327
Amounts Collected33
$464,695,459 $48,047,500 $592,498,294
Awards paid as a percentage of
amounts collected
4.0%
$8,008,430 $125,355,799
16.7%
21.2%
ALERT!! Misclassified Workers
• 9-21-11 IRS announced Voluntary Worker Classification Program
• Employers can apply for the program by filing Form 8952,
Application for Voluntary Classification Settlement Program, at
least 60 days before they begin treating the workers as
employees.
• A taxpayer who participates in the VCSP will agree to
prospectively treat the class of workers as employees for future
tax periods.
• In exchange, the taxpayer will pay 10 percent of the employment
tax liability that may have been due on compensation paid to the
workers for the most recent tax year, determined under the
reduced rates of section 3509
December & February Modifications
• The VCSP, has been modified in Announcement 2012-45 to:
– •Permit a TP under IRS audit, other than an employment tax audit, to be
eligible to participate in the VCSP
– •Current eligibility requirement that a TP who is a member of an affiliated
group within the meaning of section 1504(a) is not eligible to participate in the
VCSP if any member of the affiliated group is under employment tax audit
– •TP is not eligible to participate if the taxpayer is contesting in court the
classification of the class or classes of workers from a previous audit by the
IRS or Department of Labor; and
– •Eliminate the requirement that a TP agree to extend the period of limitations
on assessment of employment taxes as part of the VCSP closing agreement
with the IRS.
– IRS will not require 1099 compliance until 6-30-13
2011 Settlement Offer Unreported Offshore
Income
• Voluntarily and timely disclose unreported offshore income.
• Pay back-taxes and interest for 8 years,
• Pay either an accuracy or delinquency penalty on all eight years.
• File Form TD F 90-22.1 (FBAR)
• Pay 25% penalty on highest balance in foreign bank accounts if over
$75,000 and 12.5% for smaller accounts
• Offer expired on 9-8-11.
2012 Settlement Offer Unreported Offshore
Income
• Program continues in 2013
• Voluntarily and timely disclose unreported offshore income.
• Pay back-taxes and interest for 8 years,
• Pay either an accuracy or delinquency penalty on all eight years.
• File Form TD F 90-22.1 (FBAR)
• Pay 27.5% penalty on highest balance in foreign bank accounts if
over $75,000 and 12.5% for smaller accounts
• Opt out option
• Offer does not have an expiration date
2012 Settlement Offer Unreported Offshore
Income
• Will impose a 27.5% penalty on offshore income producing property
and on any property purchased from $$ in the account
• No facts are allowed to be presented in mitigation
• All taxpayers will be audited
• Opt-out
• Quiet disclosure
ID Theft Hot Line
• Operational on October 1, 2008
• Toll free number: 1-800-908-4490
• Hours of Operation: Monday - Friday, 8:00 a.m. - 8:00 p.m.
your local time
• In January, IRS began marking individual tax accounts
involving verified victims of identify theft using a special filter
to note their accounts
ID Theft
•
•
•
•
Form 14026
Fax to: (978) 247-9965.
Mail to:
Internal Revenue Service
P.O. Box 9039
Andover, MA 01810-0939
Practitioner Priority Service
•1-866-860-4259
New Preparer Complaint Form
• Form 14157.
Supreme Court Rules for Taxpayer on 3
Year Statute of Limitations for Audits
• Home Concrete & Supply, LLC, Sup. Ct. Dkt. No. 11139 (U.S. 4/25/12), aff’g 634 F.3d 249 (4th Cir. 2011)).
• IRS not allowed 6 years to audit tax shelters
• My case at the Supreme Court Beard V.
Commissioner
OICs
2011 2012
Fresh Start
• Over the past 3 years the IRS has announced a series of
initiatives for struggling taxpayers
• The initiatives are known as Fresh Start
LATEST FRESH START
INITIATIVE
• 5-21-12
• Revises calculation of future income for OICs
• Expands allowable expense categories
• Liberalizes valuation of vehicles
• Liberalizes valuation of assets used in business
• Reduces use of dissipated asset theories
• Reduces multiplier for determining future income
component of RCP
Reduced Valuation of Assets
• As a general rule, equity in income producing assets will not be added
to RCP of a viable business unless the assets are not critical to the
business
• Reduce the value of TP cash by $1,000 and by the amount of allowable
expenses because it will be used for those expenses
• Reduce the value of vehicles, planes & boats used to produce income
or for health & welfare of the family by $3,450 each
• Less use of dissipated asset theory
– If liability did not exist at the time TP at time of transfer
– Withdrawals from IRA’s & 401K’s to invest in a business if taxpayer did not
owe taxes at that time
– 3 year period for asserting dissipated assets including the year of
submission
Calculation of Future Income
• Offers to be paid in 5 or fewer payments use 12 as
multiplier instead of prior 48
– Example: TP can pay $300 per month the RCP is $3,600 not
$14,400
• Offers of 6 or more payments use 24 as multiplier
instead of 60
– Example TP can pay $300 per month the RCP would be $7,200
not $18,000
– A deferred offer can no longer exceed 24 months
Future Income Component
• More expenses allowed
– Student loan payments
– Payments to state agencies proportional to federal payment
– Charge card payments
– No longer only allow car payments to projected payoff date
– Extra $200 per month allowed for vehicles with more than 75,000 miles or 6
years or older
Summary of 5-21-12 Changes
• Offers will now be accepted for a lot lower amount
• New Form 656 & instructions for OICs
• Most liberal OIC policies since adoption of the allowable
expense standards in the 90’s
• The new policies can be used in negotiating installment
agreements also
3-7-12 Fresh Start Provisions
• Announced 3-7-12
• Certain taxpayers who have been unemployed for 30
days or longer will be able to avoid failure-to-pay
penalties. In addition, the IRS is doubling the dollar
threshold for taxpayers eligible for Installment
Agreements to help more people qualify for the
program.
• Penalty relief for the unemployed on failure-to-pay
penalties
IRS Revised Rules for Streamlined
Installment Agreements
• Announced 1-12-12
• The revised procedures now allow taxpayers up to 72 months to pay their
tax obligations.
• The new procedures also increase the maximum amount subject to the
relaxed streamlined agreements from $25,000 to $50,000.
• Form 9465-FS was to be used if your liability was greater than $25,000
but not more than $50,000. Though Form 9465-FS was meant to be used
by taxpayers with liabilities greater than $25,000 but not more than
$50,000, it could be used by all taxpayers to request an installment
agreement. <$25,000 may also use Form 9465.
• 72 months to pay up from 60 months
Revised Form 9465
• In April, 2013 the IRS changed rules.
• Form 9465-FS eliminated and replaced by revised Form
9465
• No longer need financial statement for amounts between
$25,000 and $50,000
Eligibility
• The new rules for Form 9465 only to individuals who:
– Who owes income tax on Form 1040,
– Who may be responsible for a Trust Fund Recovery Penalty,
– Who was self-employed and owes self-employment or
unemployment taxes and is no longer operating the business,
– Who is personally responsible for a partnership liability and
the partnership is no longer operating, or
– Owner who is personally responsible for taxes in the name of
a limited liability company (LLC) and the LLC is no longer
operating.
HAVE A LESS
TAXING YEAR!!!!!
Thank You!!