FILENAME: MINUTES 11-2
TO:
JERRY ROSEN, CHAIR, TAX COMMITTEE
COPIES: TAX COMMITTEE MEMBERS
FROM: ART SELTZER, ACTING SECRETARY
SUBJECT: SPRING COMMITTEE DAY – TAXATION COMMITTEE MINUTES
Date: September 16, 2011
Time: 11:00 AM
Place: Marriott Courtyard
Columbia, Missouri
MEMBERS PRESENT:
Jerrold D. Rosen, Chair
Arthur M. Seltzer, Acting Secretary
Daniel J. Haake
Joe Marchbein
Patrice A. Moore
Galen W. Ramsey
David A. Ruth
Wendy D. Shireman
Richard M. Wise
Raymond J. Ziegler, Jr.
MSCPA Government Advocacy Consultant: Chuck Pierce
MSCPA Marketing & Communications Manager: Steve Peirick
MSCPA Marketing & Communications Director: Dena Hull
SPEAKER: Catherine Murphy, IRS, Stakeholder Liaison – Small Business/SelfEmployed Division
GUESTS: Mike Jacobson
John Roth
Next scheduled Committee meeting: Friday, May 11, 2012, 11:00 AM; Marriott
Courtyard, Columbia, MO (NOTE: 2nd Friday, not 3rd Friday)
PRECEDING GENERAL SESSION: Normally, the General Assembly is not in session
at the time of the fall meeting. However, this year the Special Session called by Governor
1
Nixon was in progress at the time. The attendees received briefings on matters under
consideration by Chuck Pierce of the Executive Committee and State Representative
Denny Hoskins, CPA. Highlights are summarized below.
At the time of the meeting, the future of the Economic Development measure, which
featured the proposal to use tax credits to fund an “aerotropolis” in St. Louis, was
uncertain as significantly differing measures had been passed by the two Houses. (Note:
A special session called to resolve the impasse failed to do so, and the General Assembly
adjourned without enacting enabling legislation.)
A complete review of the tax credit program is in process, and the expectation is that the
program will be substantially revised. The role of proposed credits is a major issue in the
economic development bill.
There is interest in enactment of a new amnesty program, in order to generate needed
revenue. Issues include: the length of time the amnesty window will remain open (the
Department wants it to be as early and brief as possible, to minimize the revenue loss,
and practitioners would prefer that it not end until after the 2011-12 tax season, to
maximize compliance and client service), and the Department’s desire for increased
penalties and procedural changes. Also, since issues under active consideration will not
be eligible for the amnesty, it will be necessary to define which issues will not be
covered.
There have been developments involving the proposed “Fair Tax” which were covered
more fully by Chuck Pierce in his meeting with the Committee, discussed below.
A measure to set the date for a 2012 presidential primary was vetoed by the Governor; at
present, Missouri does not have a primary scheduled. (Note: Missouri subsequently
scheduled a presidential primary for February 7, 2012, but no delegates will be awarded
based on the outcome. Delegates will be selected at caucuses scheduled for March 17,
2012.)
The question of whether the state’s “rainy day fund” can/should be used for natural
disasters (Joplin tornado, floods), or whether the funds should be taken from social
programs instead, is being debated.
TAXATION COMMITTEE SESSION: The meeting was called to order by the Chair,
Jerry Rosen, at approximately 11:10 AM. The agenda was distributed and approved.
Following introduction of the members, the minutes of the May 20, 2011 meeting
prepared by Art Seltzer were approved. Art noted that the various attachments were not
included in the circulated minutes, but will be included in the package mailed by the
Society to the full Committee.
IRS SPEAKER: The Chair introduced the speaker, Catherine Murphy of the IRS, who
regularly addresses the Committee on IRS issues. Her handout, which contains
documentation related to many of the items we discussed, is included in the minutes.
2
She discussed Notice 2011-6 (page 2 of handout), which relates to the new registration
requirements for “return preparers” which excludes lawyers and CPAs. Special rules
apply to “supervised preparers” and preparers who are not involved with 1040-series
returns. The IRS has yet to clarify the definitions. The specifications for the competency
test which non-certified preparers will have to take have now been released (IR-2011-89,
page 4 of handout). The release contains a list of recommended study materials, some of
which will be available to the candidates during the testing process. A user fee, probably
to be in the range of $100-$125, will be assessed each time the test is taken; this is in
addition to the PTIN user fee. Candidates must undergo a background check; they will
have to be fingerprinted, either at the test site or at any UPS store.
Subsequent development: On November 8, 2011, IRS Comm. Shulman announced that
implementation of the fingerprinting requirement would be delayed until further notice,
although other aspects of the preparer regulation plan would go forward. A report of the
announcement and related matters is included in the appendix.
The IRS has sent about 100,000 letters to preparers who used their SSNs or old PINs. It is
expected that there will be 2,400 or so follow-up visits to these preparers.
One issue discussed was whether the preparer of a no-fee (family or friend’s) return
should sign the return and report his PTIN. There is a difference of opinion among the
attendees who responded; some do and some don’t.
Subsequent development: The AICPA has requested that the MSCPA and other state
societies submit comments on the Proposed Regulations. The MSCPA was to form a task
force, to provide comments on the proposed regs. The comment period will end on
October 23, 2011. The MSCPA did not submit any comments.
Joe Marchbein reported that Dave Williams, who heads the program at the IRS National
Office, has indicated that the Service will be lenient in enforcing the PTIN rules for 2010
returns. He has no information about 2011 yet.
There was considerable discussion about the new 1099 rules. Even though the
controversial generic requirement was repealed by statute, there are a number of issues
affecting 2011 returns.
The IRS has issued a new Form 1099-K (page 6) for Merchant Card and Third Party
Network payments. There is a corresponding change to Schedule C (page 7), requiring
taxpayers to identify these payments and report them separately. This will require
education of clients, and revision of accounting systems to segregate this data. This
change will be effective for 2011 returns.
It is not yet clear whether the 1099s will be on the cash or accrual basis.
Dave Ruth asked whether the 1099-K will be generated by the national credit card
company or the individual bank which issues the card. We don’t have an answer yet.
3
Catherine noted that there is a minimum requirement; 200 separate transactions or
gross receipts of $20,000.
Another unanswered question is whether cash withdrawals on credit cards will be
included in the reported amount, in which case it would be necessary for the taxpayer to
back out the cumulative withdrawals in order to avoid overpaying tax.
Subsequently, the IRS advised that it will not require breakout of merchant
receipts from other receipts for 2011. The form instructions direct that the merchant payer
line should be left blank.
The Form 1099-B has been substantially revised for 2011 (page 8), to accommodate the
new requirement that basis be reported by the broker. Separate reporting will be required
for short-term and long-term transactions, and for transactions for which basis and
holding period information is not available. Conforming changes have been made to
Form 1040 Schedule D (page 10), and a new Form 8949 (page 9) has been developed, to
facilitate segregating and reporting the newly classified information; a separate Form
8949 will be needed for each category.
Gain information reported by brokers is not necessarily reliable. Particularly in the case
of owner deaths, the broker’s records are often not updated to reflect basis adjustments.
Similarly, adjustments for nontaxable distributions and distributions from publicly-traded
partnerships are routinely overlooked by the brokers. Will it no longer by appropriate to
use Form 8453 and mail in the detailed supporting schedules for electronically filed
returns?
Catherine noted that the IRS has emphasized assessing more penalties, and apparently is
not as lenient in granting reasonable cause exceptions.
She noted that for 2011, the IRS is moving to a 2D Bar Code system for W-2s. If the
software permits, practitioners can scan in the W-2s to eliminate some data entry and
reduce the chance of error. This treatment will not be available for anyone who has an
ITIN.
She noted the new “fresh start” program for lien withdrawals (page 11). She discussed
the difference between withdrawals, which should get the lien off the taxpayer’s credit
record (it was suggested that it really doesn’t) and release, which doesn’t. Joe Marchbein
reported that Taxpayer Advocate Nina Olsen is trying to get the IRS to raise the dollar
thresholds, so that more liens will qualify.
The Offer in Compromise program (page 14) has been streamlined. There will be fewer
information requests mailed, and where appropriate the examiner will request additional
information by phone.
The IRS has provided an additional extension of time to file and pay taxes for estates of
beneficiaries who died in 2010, and beneficiaries who sold assets received from these
estates (page 15), to deal with delays resulting from the IRS’s failure to issue the
necessary forms.
4
The handout contains material concerning the new health care credit available to
qualifying small employers (page 17). Catherine noted that the IRS has been disappointed
by the limited number of claims. Several attendees who have dealt with the issue in their
practices say they are not surprised; the necessary bookkeeping is difficult – and
expensive, even if much of the detail work is passed on to the client – and many clients
who ran the numbers were unable to qualify.
Joe Marchbein asked about the IRS effort to obtain electronic Quickbooks files for use in
audits. The IRS has been successful, even where challenged in Court, in obtaining these
files instead of spreadsheet summaries. One issue involves segregating the records for the
tax year(s) under examination; Mike Jacobson noted that a third-party vendor will make
available software which facilitates this, at a modest cost. Information provided by this
vendor is included in the appendix.
Subsequent developments: On October 6, 2011, the IRS issued proposed regulations
requiring preparers to file Form 8867, Paid Preparer’s Earned Income Checklist, with
every return for which an Earned Income Credit is claimed. This is in addition to the
existing requirement that the preparer retain a copy of the checklist, or equivalent data, in
his records to evidence due diligence. A copy of the release, IR-2011-98, is included in
the appendix.
The Taxpayer Advocate Service has announced that, because of budget limitations,
criteria for acceptance of cases will be changed to permit its focus on taxpayers needing
assistance the most. An article on the subject is included in the appendix.
The IRS has announced a program of preparer visits to enforce compliance requirements.
Tits Web site contains the text of the letter which will be sent to about 20,000
practitioners, who have been identified as potential problems because they prepare large
numbers of Schedule A, C and E which are perceived as “typically containing
inaccuracies.” The preparer letter and related documentation from the IRS Web site are
included in the appendix. Information concerning this program has been provided by
Scott Bonacker, who noted that attendees at a California tax institute were told by the IRS
that “occasionally” practitioner visits will include Criminal Investigation Division
personnel, a clear warning of the possibility of criminal prosecution of the preparer.
On November 22, 2011, the IRS released a new version of Form 2848. A copy of this
form is included in the appendix. One important change is that when a married couple is
represented by a practitioner, each spouse must file a separate Form 2848. Scott
Bonacker notes that the new instructions do not affirmatively state that the older versions
are no longer valid. He also notes that a beneficial result of the change is that attention to
potential conflicts of interest will be drawn to the attention of the practitioner as well as
the married couple.
COMMITTEE REPORTS:
5
IRS liaison: Jerry Rosen indicated that he would attend the IRS/AICPA meeting in
Washington as the Society’s representative. He has prepared an article for the March
ASSET, a copy of which is included in the appendix.
We have not yet received information concerning the annual practitioners’ liaison
meeting. It is not known whether there will be a liaison meeting this year. (Note: There
wasn’t.)
See comment above concerning formation of a task force to provide the AICPA with
feedback concerning the proposed regulations concerning the tax preparer requirements.
MO Department of Revenue Liaison: No report
Legislative Review: No activity in the subcommittee. See notes concerning Chuck
Pierce’s comments, above and below, concerning legislative activity and related matters.
Contiguous States: Randy Hilger, who was not in attendance, normally drafts the annual
article on tax developments in contiguous states. As noted below, the article was
scheduled for inclusion in the November Asset. However, it did not appear in the
November issue, and presumably has been delayed and will appear in a subsequent issue.
CPE Liaison: No report
Technical Issues: No report
Art Seltzer noted that at the June 2010 networking session, he had discussed with Eileen
Hutchinson (E-mail: Eileen.hutchinson@geha.com), who is an insurance company
executive, the idea of liaison between the Taxation Committee and the Benefits
Committee. He spoke to her again before this Committee meeting. Attempts to generate
an article for Tax Talk continue to be unsuccessful.
Tax Talk: We have arranged for preparation of the regular Tax Talk articles for the next
several issues of the Asset, as follows:
September 2011 – Wendy Shireman, Self-rented property (Done)
November 2011 – Randy Hilger, contiguous states developments (Delayed)
January 2012 – John Price, RBG, Sec. 179 Asset Allocations (Done)
March 2012 – Jerry Rosen, Washington Tax Division meeting summary (Done)
May 2012 – Art Seltzer, Roth conversion strategies (Drafted)
July 2012 – Joe Marchbein, topic to be determined
September 2012 – Pat Reuter, topic to be determined
November 2012 – Randy Hilger, contiguous states developments
In addition to the regular Tax Talk articles, which under the guidelines should not exceed
700 words, longer feature articles of up to 1500 words are also desired. For Tax Talk
articles which can not fit within the space limitations, a short published version with a
longer version to be published on-line is appropriate.
6
Committee members are encouraged to volunteer themselves or their colleagues to write
articles. A copy of the guidelines for contributors to the Asset and the MSCPA’s on-line
newsletter is included in the appendix.
EXECUTIVE COMMITTEE SPEAKER: Chuck Pierce met with the Committee to
elaborate on his comments at the preceding general session.
Fair Tax developments: We had previously been told that nine separate versions of the
“fair tax” ballot language had been submitted to the Secretary of State’s office for
approval; it was expected that eventually the proponents would select one to throw their
weight behind. All nine of these versions have been dropped. Instead, four new versions
have been prepared, and two of them (which are very similar to the other two) have been
approved. The texts of the ballot language for the two approved versions, as announced
by Secretary of State Carnahan on September 14, 2011, are included in the appendix.
The proponents have given up on the possibility of getting something enacted by the
legislature, so they are attempting to have a measure enacted by initiative petition. There
remains a lot of muscle behind the proposal, and the proponents are planning to get
something on the 2012 November general election ballot. Chuck expects the proposal to
be finalized within the next couple of months, so the proponents can begin the task of
building public support. He believes that the final deadline for getting a proposal on the
November ballot is next April or May.
Chuck indicated that the nine original versions have been scrapped, so the rules we have
been anticipating are gone. The full texts of versions 10 through 13, current as of
November 8, 2011, are included in the appendix; they are substantially identical with
only a few differences. Most of the existing sales tax exemptions would remain; the
proposals to tax fees for professional services and proceeds of real estate sales in the sales
tax base have been scrapped, and these are included in the list of 27 detailed exemptions
which are substantially identical in each of the four versions. The changes would be
implemented in stages, part in 2014 and the remainder in 2016. The rate would be 7%
(5%, subject to a one-time adjustment to purportedly minimize revenue loss, in 2014 and
2015). There would be a 5.5% sales tax (4% in 2014 and 2015) on food. Much of the
anticipated revenue has vanished, which arguably should weaken the case for enactment,
but apparently the proponents do not care and are pushing it anyway! The ballot
language (See appendix) is will be brief and concise, and arguably misleading.
Under the proposal, the combined state and local rate would be capped at 10%. If, as
expected, the state would impose its tax at the proposed maximum of 7%, any local
government which imposes a tax of more than 3% would have to get voter approval for
the excess.
The “prebate”, which was an important part of the early versions and would have
provided cash payments to reimburse taxpayers for some of the additional tax which they
would incur, has also been scrapped. Will this cause a backlash against the proposal from
7
adversely affected low-income taxpayers who currently pay no taxes? Chuck noted that
the proponents are cohesive and well-funded; the opponents are likely to be disjointed
and underfunded, so the proponents may be able to blur the debate sufficiently to enable
passage.
Comment: Although it was my understanding that the MSCPA would not be taking a
formal position on the Fair Tax, at least not without input from our task force – the tax
on professional services which appeared to be a specific concern of the leadership is
not present in any version of the bill – I was told by a representative of the supporting
coalition that the MSCPA has joined an opposing coalition. The Taxation Committee
was not involved in this decision, and has not been formally advised of it.
Update: On April 13, 2012a Cole County circuit judge ruled that the proposed ballot
language was insufficient, because it was designed to deceive voters with biased
wording about the measure’s potential budget impact. It remains to be determined
whether the proponents would be able to prosecute a successful appeal or circulate
petitions to place adequate language on the ballot within the prescribed time period.
Material concerning this development is included in the Appendix.
Amnesty: Because it could be projected to raise revenue, Chuck suggested that it may
well pass.
No tax due requirement: The Department of Revenue wants to impose a new
requirement, that service businesses be required to file a “no tax due” statement as a
precondition to getting a business license. This has opposition in the Senate.
MARKETING DEPT. SPEAKER: Steve Peirick, the MSCPA’s new marketing
coordinator, met with the Committee to discuss the possible use of new media to
facilitate the Committee’s activities. He expressed the opinion that the listserv is an
obsolete technique with a limited life expectancy, and that the Committee and its
members who are not already using them should consider using Facebook, Twitter and
Linked-In. He is available to work with the Committee in implementing new procedures,
and he provided some basic information in a handout which is included in the Minutes.
OLD BUSINESS: The Committee has formed a task force, chaired by John Lindbloom,
to work with the Legislation committee on Fair Tax issues as required. The other
members of the task force are Jerry Rosen, Jeff Becker, Joe Marchbein, Art Seltzer and
James Thomas. The MSCPA has not taken a formal position on this issue and the task
force has not yet been convened. (However, see comment to the contrary in the preceding
discussion.)
The Chair suggested that a worthwhile project for the Committee would be a discussion
of best practices for tax departments. He offered, as an example, whether or when powers
of attorney should be sent in with tax returns. Given the lack of attendance, he indicated
that he would add it to the agenda for the September meeting.
8
OPEN DISCUSSION:
Quickbooks audits: Jerry Rosen noted that the IRS effort to obtain and use Quickbooks
files has generated mixed results; some agents have displayed flexibility. Joe Marchbein
referenced a District Court case in which IRS enforcement of a summons contested by
the taxpayer was ordered. Mike Jacobson noted that a third-party vendor, CPA Karl Irvin,
charges about $200 for a license which will permit a CPA to extract clients’ needed files
without requiring closing of the books. Information from the vendor’s Web site is
included in the appendix.
Mail audits: Jerry Rosen noted practical problems generated by IRS mail audits. Dan
Haake noted the short response deadlines imposed by the IRS, which sometimes follow
extended delays caused by IRS failure to act on the cases. Joe Marchbein suggested that
time and costs can be saved by scanning and e-mailing requested documents to the agent,
and using the priority 800 number hotline on the notice to get quality help from the
Service. Dan Haake noted that electronic filing permits the Service to organize and
analyze information in advance of the audit more efficiently in advance of the audit
meeting; he has seen agents bring printed multi-year schedules to the initial meeting.
Trust and estate expenses: John Roth advised that proposed regulations concerning the
2% limit on deductions have been released. He noted that some expenses which normally
would be considered as business expenses, such as expenses of rental properties, are
defined by the regulations as subject to the 2% limit.
Prop. Reg. ¶1.67-4 is included in the minutes. (Comment: Art Seltzer notes that he reads
the proposed regulation to apply only to amounts included in the definition of
“miscellaneous itemized deductions” under Section 67(b), which by definition would
exclude expenses of rental properties.)
Missouri Food Pantry Tax Credit: It was noted that the Missouri credit for contributions
of cash or food to qualifying food pantries sunset on August 31, 2011, so no further
contributions will qualify. Individuals’ credits must be claimed on returns filed by April
15th of the following year. A summary from the Department’s Web site is included in the
minutes.
Disaster losses: The practical issues related to calculating and reporting disaster losses
were discussed, as well as the option to report the loss from a federally declared disaster
on an amended return for the prior tax year. Art Seltzer noted that the AICPA has
developed practitioner guides for disaster loss issues.
ANNOUNCEMENTS:
None
ADJOURNMENT: The meeting adjourned at approximately 2:00 PM. The next meeting
of the Committee will be held Friday, May 11, 2012 at the regular meeting site, the
Courtyard by Marriott, Columbia, MO. Although the meetings are normally held on the
third Fridays of May and September, this meeting has been moved to the second Friday.
9
APPENDIX
Agenda
Taxation Committee mission statement
Roster of Committee Members
Minutes of Committee Meeting, May 20, 2011
Presentation, Catherine Murphy, IRS
Shulman Announces Delay in Fingerprinting Requirement, JOA, 11/8/11
IR-2011-98: IRS Issues Proposed Regulations That Would Require Tax Preparers to File
Due Diligence Checklist with All EITC Claims Submitted in 2012
IRS Taxpayer Service Limits its Assistance (Accounting Today, 10/11/11)
IRS Return Preparer Letter and related explanations
New version of Form 2848, 11/22/11
ASSET article on IRS/AICPA Washington meeting, Jerry Rosen
Guideline for Writers, Asset and MSCPA on-line newsletter
Approved ballot language, two Fair Tax initiative proposals
MSCPA Status Update – Mega Sales Tax Proposal
Information concerning Quickbooks downloads
Presentation, Steve Peirick, MSCPA Marketing & Communications Manager
Prop. Reg. ¶1.67-4, Costs paid or incurred by estates or non-grantor trusts
Food Pantry Tax Credit, Missouri Dept. of Revenue release
10