Tax Eve Filing Problems

IRS Hot Topics of the
Dan Breece
Lori Cacioppo
April 14, 2010
 Reminders
for Last Minute Tax Filers
 Get Recovery Tax Breaks
 Return Preparer Initiative
 Collection Issues
Reminders for Last Minute Tax
 Deadlines
 Recovery
Tax Breaks
 File Electronically
 Direct Deposit for Refunds
 Pay Electronically
 Extension of Time to File
 Installment Agreements
Don’t Miss the Deadline
Recovery Tax Breaks
 The
Homebuyer Credit
 Making Work Pay Credit
 American Opportunity Credit
 Home Energy Credit
 New Car Tax and Fee Deduction
Worker, Homeownership, and Business
Assistance Act of 2009 (WHBAA)
First time homebuyers have qualified for
refundable tax credits as part of the economic
stimulus package
With that program set to expire at the end of
November, Congress voted to extend and
expand the program
President Obama signed WHBAA into law,
November 6, 2009
First Time Homebuyer Credit
for 2008 Purchases
Maximum credit $7,500
Repayment over 15 years - starting on tax year
2010 return
Purchases must have been completed
between 4/9/2008 and 12/31/2008
First Time Homebuyer Credit
for 2009 and 2010 Purchases
First Time Homebuyers
Maximum credit $8,000 ($4,000 for married filing separately),
Purchase must be completed between 01/01/2009 and 4/30/2010
Long Time Homeowners
Maximum credit $6,500 ($3,250 for married filing separately)
Purchase must be completed between 11/7/2009 and 4/30/2010
Credit allowed to homebuyers who sign a binding contract by
4/30/2010 and close by 6/30/2010
No Repayment, unless home ceases to be main home within 3 years of
purchase date
Taxpayers can elect to claim credit on their prior year return. 2009
purchases can be claimed on a 2008 return, either original or
amended. 2010 purchases can be claimed on a 2009 return, either
original or amended.
Eligibility Requirements
Must be primary residence
Must close on the purchase prior to claiming credit
Must be a first-time homebuyer to claim the $7,500 credit for
2008 purchases or $8,000 credit for 2009/2010 purchases
Must not have not owned a home in the three years prior to
the purchase
Must be long-time resident of same principal residence to claim
$6,500 credit for purchases after 11/6/2009
Must have owned and used the same principal residence
for five consecutive years out of eight-year period ending on
date of new purchase
Must file Form 5405 with relevant return
Repayments of Credit
 For
2008 purchases, normally repaid in 15
equal annual installments beginning in
 For
2009/2010 purchases no repayment
required unless a repayment trigger within
3 years
Making Work Pay Credit
Maximum credit is 6.2% of earned income
 Refundable
 Phased out over modified AGI range of $75,000$95,000 ($150,000-$190,000 if MFJ)
 Available for tax years 2009 and 2010
 Figured on Schedule M or on 1040EZ worksheet
 Reduced by economic recovery payment and
government retiree credit
Hope Education Credit
 Hope
credit modified for 2009 and 2010
 Maximum credit $2,500
100% of the first $2,000 of expenses
25% of the next $2,000)
 Available
first four years of post-secondary
 Qualified expenses include course
materials, tuition, and fees
 40% credit is refundable
Nonbusiness Energy
Property Credit
 Increased
to 30%
 Limited to $1,500 for the total of all 2009
and 2010 purchases
 Qualifying property definition revised
including update to energy efficiency
Qualified Motor Vehicle Taxes
 New
deduction for qualified motor vehicle
taxes on purchase of certain new cars,
trucks, motorcycles or motor homes
 Elect to add to standard deduction or take
itemized deduction (if not electing sales
tax deduction)
 Limited to tax on first $49,500
 Applies to purchases made after February
16, 2009, and before January 1, 2010
Other Reminders
File Electronically
 Choose Direct
Deposit for Refunds
 Buy Savings Bonds
 Check for Errors
Pay Electronically
 Extension of Time to
 Installment
IRS Recommends
Increased Oversight of
Federal Tax Return
(Presenter name)
(Presenter title)
Return Preparer Review
 IRS Strategic Plan Objectives
 Oversight agency interest
 Consumer protection group concerns
 Taxpayer Advocate concerns
 Almost 9 out of 10 use a paid
Definition of Preparer for
These Recommendations
Any person who prepares for
compensation any return of tax or any
claim for refund of tax under the Internal
Revenue Code
Summary of Significant
Registration, user fee, and Preparer Tax
Identification Number (PTIN) usage requirements
for all signing paid preparers
2. Competency testing for signing paid preparers
who are not attorneys, certified public
accountants, or enrolled agents
3. Continuing education requirements of 15 hours
per year for signing paid preparers who are not
attorneys, certified public accountants, enrolled
agents, enrolled actuaries, or enrolled retirement
plan agents
4. Tax compliance verification of all paid preparers
1. Registration, User Fee,
 Implement mandatory registration and user
fee for all signing paid federal tax return
Issue a PTIN to all registered preparers
Require renewal registration and user fee
every three years
2. Competency Testing
 Require all unenrolled signing paid return
preparers to pass a competency test within three
years from the initial implementation date. No
grandfathering for experience
Attorneys, CPAs, and enrolled agents would be
exempt from testing
Develop two levels of competency tests
1) Wage and non-business 1040 returns and
2) Wage and small business 1040 returns (would
expand to include other business returns in later
years) (more)
2. Competency Testing
Recommendations (continued):
 Allow individuals to take the tests an unlimited
number of times during the initial three-year
implementation phase
Individuals who pass the test will be permitted to
sign returns as paid tax return preparers
After completion of the initial registration phase
and testing has begun, new unenrolled
preparers would be required to pass the
competency test prior to receiving a PTIN
3. Continuing Education
 Require all unenrolled signing paid preparers
to complete 15 Continuing Professional
Education (CPE) hours per year, including 3
hours of federal tax law updates, 2 hours of
ethics, and 10 hours of federal tax law
During three-year renewal registration, require
self-certification of 45 hours of CPE
completion (IRS will perform random
4. Tax Compliance
 During the three-year phase-in period, tax
compliance checks would be performed on all
preparers after registration
After the three-year phase-in period, the IRS
would begin conducting tax compliance checks
prior to issuance or renewal of a PTIN. Similar to
the testing requirement, tax compliance would
become a condition of registration for new
applicants. (more)
4. Tax Compliance
Recommendations (continued):
Existing preparers with potential tax compliance
violations would be referred to the IRS Office of
Professional Responsibility for investigation
Additional Recommendations
Apply Circular 230 ethical standards to all signing
and nonsigning paid preparers
Develop a comprehensive return preparer
enforcement strategy
Develop a public awareness campaign to
educate taxpayers, preparers, and employees on
the new requirements and standards
Create a public database
Additional Recommendations
Establish an IRS task force that will seek the
input of the software industry to address identified
risks on software dependence and the possibility
of establishing industry standards
Convene a working group to review the refund
settlement product industry and explore
opportunities to improve efficiency of refund
Efforts This Filing Season
Helping taxpayers choose a reputable preparer
Sending 10,000 letters to preparers with large
volumes of returns with error-prone issues
Visiting thousands of preparers who receive the
letters to discuss preparer obligations and
Posing as taxpayers for the purpose of
determining non-compliance
Working closely with the Department of Justice to
pursue civil or criminal action as appropriate
Also Coming Soon…
Preparer E-File Mandate
Legislation was signed in late 2009
mandating preparers that file more than 10
individual or trust returns to e-file beginning
IRS has not yet issued rules or regulations
Analysis is underway on whether the
mandate will be phased in and whether
there will be exceptions, waivers, or
taxpayer opt-outs
In Preparation
If you file more than 10 individual or trust returns,
are you enrolled and accepted to e-file? Do you
have an Electronic Filing Identification Number
If yes, all you need to do is file your customers’ returns
If no, the first step is to enroll to participate in IRS e-file,
also known as becoming an Electronic Return
Originator (ERO). You may do this anytime. Visit and click on the e-file logo.
Collection Issues
 Notices
 Federal
Tax Liens
 Installment Agreements
 Offer in Compromise
 Appealing Collection Issues
Issuance of Notices
Who Works What
After the last notice is issued:
Status 26: Worked by a Revenue Officer
Status 24: Queue – may be worked by
Campus, ACS, TAC or Field Collection
Status 22: Referred to the Automated
Collection System (ACS)
• May also be worked at Taxpayer Assistance Centers
(TAC) – walk-in sites
Federal Tax Lien
Legal claim against property as security
for tax debt
Arises after assessment, notice and
demand, and neglect or refusal to pay
NFTL is filed to establish priority against
competing creditors
Appeal rights after filing
Levy/Seizure Authority
Final Notice issued at least 30 days prior to levy
Seizure: Property that is held by the taxpayer
Car, Boat, House, etc.
Levy: Property that belongs to the taxpayer that is held by
someone else
Wages, bank accounts, retirement accounts, etc.
Levy on assets easily converted to cash first
Appeal Rights prior to levy within 30 days of notice
Collection Due Process hearing with Appeals Division
Installment Agreements
TP can not full pay immediately
TP can make payments
TP can Full Pay prior to expiration of the
Collection Statute
TP can make payments up to the
expiration of the Collection Statute
Penalty and Interest continue to accrue
Payroll Deductions
Direct Debits
Monthly Remittances
Streamlined Installment
Income Tax
Business or Individual
Out-of-Business Payroll Taxes
Balance due less than $25K
Can full pay in five years
All Federal tax returns must be filed
Financial statement may be required
Generally, Federal Tax Lien is considered
Traditional Installment Agreements
Collection Information Statement is required
Collection Financial Standards are used to help determine a
taxpayer's ability to pay a delinquent tax liability
Allowances for food, clothing and other items, known as the
National Standards. Taxpayers are allowed the total
National Standards amount for their family size and income
level, without questioning amounts actually spent
Maximum allowances for housing and utilities (based on
family size) and transportation, known as the Local
Standards, both vary by County. Unlike the National
Standards, the taxpayer is allowed the amount actually
spent or the standard, whichever is less
What is an Offer in Compromise?
An agreement between the taxpayer and the IRS that
settles the taxpayer’s tax debt for less than the full
amount owed
Objectives of the OIC Program
Resolution in best interest of both the taxpayer and
the government
Provide taxpayer a fresh start toward future
Obtain what can be reasonably collected as early as
possible and at least cost
Revenue that may not be collectable through other
Basis of OICs
Doubt as to Collectibility - doubt that the tax liability
could be fully paid during the life of the statute
Effective Tax Administration - exceptional circumstance
exists: public policy/equity/economic hardship
Doubt as to Liability - doubt exists that the assessed tax
is correct
OIC Payment Terms
Lump Sum Cash Offer
Short Term Periodic Payment Offer
Deferred Periodic Payment Offer
Lump Sum Cash Offer
Payable in five or fewer installments upon written notice
of acceptance
Offer must be accompanied by 20% of the amount being
offered and the $150 application fee or a completed Form
20% payment is not refundable, regardless of the
outcome of the OIC
Determining the Lump Sum
Offer Amount
5 or fewer installments in 5 months or less:
- Realizable value of assets + amount that could be
collected over 48 months (or time remaining on
statute, whichever is less)
5 or fewer installments in more than 5 months but within
24 months :
- Realizable value of assets + amount that could be
collected over 60 months of payments (or time
remaining on statute, whichever is less)
Determining the Lump Sum
Offer Amount (continued)
5 or fewer installments in more than 24 months:
- Realizable value of assets + amount that could be
collected over the time remaining on the statute
Short Term Periodic Payment Offer
The offer amount must be paid within 24 months of the
date the IRS received the offer
The first installment and the $150 application fee or a
completed Form 656-A are due upon filing
Determining the Short Term
Periodic Payment Offer Amount
The offer amount must equal or exceed:
The realizable value of assets + what could be
collected over 60 months of payments, or the time
remaining on the statute, whichever is less
Deferred Periodic Payment Offer
Payable in installments in 25 or more months but
within the life of the remaining statutory period for
Offer must be accompanied with the first proposed
installment payment and the $150 application fee, or a
completed Form 656-A
Determining the Deferred Periodic
Payment Offer Amount
The offer amount must equal or exceed:
The realizable value of assets + the amount that
could be collected through monthly payments
during the remaining life of the collection statute.
Processability Criteria
The Taxpayer Must:
1. Not be a debtor in open bankruptcy
2. Submit $150 application fee or Form 656-A
3. Submit 20% payment if filing a Lump Sum Cash
offer, or the first installment payment if filing a
Short Term or Deferred Periodic Payment offer, or
submit Form 656-A
OIC Processing
Offer must be filed with COIC site: Memphis or
COIC site is determined by the taxpayer’s state of
Exception: DATL offers must be filed with
COIC makes all processability determinations
The Field OIC groups work the following types of cases:
Estates and Trusts
Trust Fund Recovery Penalty (TFRP) – Doubt as to Liability
(DATL) only
Any business with employees
Closely held corporations
Sole proprietors with gross receipts over $500,000
Field (continued)
Field OIC groups are located in three Collection Areas:
– California
– Gulf States
– South Atlantic
Doubt as to Liability Processing
Most Doubt as to Liability offers are processed and
worked by a centralized Doubt as to Liability Unit in
the Brookhaven Campus
Low Income Guidelines
Used to determine eligibility for exception to the
application fee
Used to determine eligibility for exception to
initial and all subsequent payments due during
course of offer investigation
Only applies to individuals
Annual income level is based on the IRS OIC
Low Income Guidelines.
Payment Designations
Taxpayers may designate the application of the 20%
initial payment with the offer and periodic payments
submitted while the offer is being investigated
Designation must be in writing at the time of payment
and specify taxable year, period, and type of tax
$150 application fee cannot be designated
Payment Designations
Payments in excess of the required amount will be
applied to tax unless designated as a deposit
Payments are considered “payments on tax” and are not
Deposits are refundable if the offer is later returned,
rejected, or withdrawn
Form 656 - Most Common Errors
Tax periods missing or incorrect
OIC amount missing or not consistent with the terms
Taxpayer identification numbers missing or incorrect
OIC includes joint liabilities without signatures or
both parties
OIC submitted by a husband and wife with joint
liability taxes but also includes the single liabilities of
one of the taxpayers.
Most Common Reasons for a
“Processable Return”
Failure to provide financial information
Failure to stay in compliance with estimated tax
Waiver of fee not substantiated
Returns not filed
Tax Liens, Impact on Statutes, &
Appeal Rights
Tax liens may be filed during the offer investigation
Tax liens not released until offer payment terms are
Statute of limitations for collection is suspended for
pending offers
IRC § 7122 – provides for appeal of rejection of an
FY 2008 Program Results
Receipts: 43,989
Non processable returns:
 Acceptances:
 Rejections:
 Returns:
% of Total
Case Cycle Time
* 92% of offers processed by COIC are currently
closed within 6 months or less
* 74% of offers worked in our Field groups are
currently closed in 9 months or less
Before Filing
* Explore all collection options
* Review processability checklist in Form 656
* Ensure taxpayer is current with all filing and paying
* Include all required fees and payments
* Carefully complete financial statements and Form
Appealing Collection Actions
 Traditional Appeals
Denied OICs, Trust Fund Recovery
Penalties, Other Penalties
 Collection Appeals
Pub. 1660 Collection Appeal Rights
 Collection
Due Process
Pub. 1660 Collection Appeal Rights
The Collection Appeals Program
Taxpayers can appeal under CAP when they are told by an
IRS employee that a
• Can also appeal denied requests to withdraw, discharge, or
levy, or
seizure action
• Must 1st appeal within 10 days to the field Collection manager after
Notice of Seizure is provided
will be or has been taken, or that an installment agreement
is denied or terminated
Generally, quicker and available for a broader range of
collection actions
Determinations should be made within 5 days of receipt by Appeals
The Collection Appeals Program
Under CAP:
Lien, Levy and Seizure
• Collection is generally suspended unless in jeopardy
Installment Agreement
• Collection is suspended for first 30 days after denial
or termination (unless in jeopardy)
• Collection is generally suspended while under
appeal if timely filed
The CAP Process
The taxpayer must first discuss the case with
the group manager
 If resolution is not reached, the taxpayer may
request an appeals hearing
Use Form 9423 Collection Appeals Request for
field (non-Campus) cases
Must be submitted to the Collection manager
within 2 days of managerial conference
The CAP Process
The decision made in the CAP hearing is
No subsequent CDP after lien or levy
notice is later issued (if not previously
There is no judicial review
Collection Due Process
CDP available if you receive one of the following
 Notice of Federal Tax Lien Filing (L1372)
Final Notice of Intent to Levy (L1058 or 11)
IRS must notify TP within 5 days of filing
TP must file hearing request within 30 days (date will be
specified on notice)
Collection action suspended for 30 days from notice
TP must file hearing request within 30 days
Notice of Jeopardy Levy
 Notice of Levy on Your State Tax Refund
Right to Hearing
Form 12153 Request for a Collection Due Process Hearing
TP may raise issues relating to unpaid tax:
 Appropriateness of collection actions
 Collection alternatives
Spousal defenses
Innocent or Injured Spouse
Amount of tax
Installment Agreement
No 90-day letter received
No other opportunity to dispute tax liability
TP may not raise any of the above issues considered at a
prior administrative or judicial hearing
Right to Hearing
Collection action is generally suspended
during the 30 days after the levy notice
and during the appeal process if appeal
was filed timely (unless in jeopardy)
 Late Request (after 30 days)
Equivalent Hearing
• Same consideration
• No right to judicial review
• Collection actions not statutorily suspended
Location of CDP or Equivalent Hearing
Local Appeals Office
• Frivolous arguments not considered in office
Frivolous Arguments
Taxpayer must raise valid issues
Appeals will NOT consider the following arguments
Constitutional, Religious, Moral, Conscientious, Political,
Tape Recording NOT permitted for CDP or Equivalent
hearing espousing above arguments
Appeals will STILL solicit alternative collection
methods or valid challenges to underlying audit
What Happens After the Hearing?
Account adjustment if necessary
Waiver requested for agreed
CDP cases
“Decision Letter” sent in
Equivalent Hearing cases
What Happens After the
In CDP cases where taxpayer will not sign the
waiver, Appeals will issue a
“Determination Letter” that addresses:
Whether the IRS has verified that it followed
legal and procedural requirements
The issues raised by the taxpayer
Whether the collection action balances the
government’s need to collect with the taxpayer’s
concerns about intrusiveness
Taxpayer’s right to petition the Court
Tax Court or District Court within 30 days after Appeals
When are Cases Returned for
Request Withdrawn
Equivalent Hearing – when decision rendered
Agreed CDP – when waiver accepted
Unagreed CDP – when no Court petition is
filed or when judicial review finalized
Retained Jurisdiction
Taxpayer can return to Appeals if:
Appeals’ determination is not carried out
Taxpayer has a change in circumstances
Before returning to Appeals under this provision,
taxpayer must exhaust all other administrative
Comparing CAP and CDP
Important distinction between CDP and CAP:
Under CDP a lien or levy action MUST have
occurred first
Taxpayers may request CAP before or after lien or
levy action
CDP Expands Taxpayer Rights
to Resolve Disputes
The taxpayer has judicial rights following CDP
determination, but not following CAP decision
Appeals officers have broader authority in resolving a CDP
case than in resolving a CAP
Can propose other solutions
A taxpayer may have the right to challenge an underlying
liability during a CDP Hearing, but not during a CAP
Tips for Collection Cases
 Try
to resolve the case as early in the
process as possible
 Taxpayer
must be in full compliance
during resolution period
Tips for Collection-related Cases
Taxpayer should bring the following records
to the conference:
Current, verifiable financial statements
Recent bank and wage statements
Verification of loan balances
Reliable valuations of assets
Documentation supporting a qualified challenge
to the underlying tax liability, if appropriate
Form 9465: Installment Agreement Request
Publication 594: What You Should Know
About the Collection Process
Publication 4165: An Introduction to
Collection Due Process Hearings
Publication 1660: Collection Appeals Rights
Publication 1854: How to Prepare A Collection
Information Statement
Publication 971: Innocent Spouse Relief
Publication 4183: Injured Spouse Claims
Collection Issues