2015 Representation Update

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2015 Representation Update

• All audio is streamed through your computer
  speakers.
• There will be several attendance verification
  questions during the LIVE webinar that must be
  answered via the online quiz at the conclusion to
  qualify for CPE.
• Todays webinar will begin at 200pm EDT
• Please note You will not hear any sound until
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2015 IRS Update

• Robert E. McKenzie
• Arnstein Lehr LLP
• 120 S. Riverside Plaza
• Chicago, IL 60606
• 312-876-7100
• remckenzie_at_arnstein.com

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Learning Objectives

• Recognize how current IRS enforcement programs
  work in a reduced budget environment
• Identify key changes to preparer regulations in
  2014
• Identify some of the most serious problems
  related to IRS budget cuts
• Determine how the current IRS exam, collection
  and criminal investigation priorities impact tax
  preparers and taxpayers.

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IRS Staffing for Key Enforcement Personnel
2010 2011 2012 2013 2014
Revenue Officers 6,042 5,619 5,186 4,748 4439
Revenue Agents 13,888 13,867 13,021 12,234 11,659
Special Agents 2,780 2,698 2,661 2,509 2437
Total 22,710 22,184 20,868 19,491 18535
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IRS Staffing
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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,
  2013), held IRS lacks authority to continue
  preparer regulation.
• IRS lost appeal in February 2014
• As of now this is a victory for those not smart
  enough to pass a test or ethical enough to
  survive a background check

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6-10-14 Regulations

• Modify the standards dealing with written advice
  and update certain other provisions.
• Amend Circular 230 by eliminating the rules
  governing covered opinions in Section 10.35 of
  the U.S. Tax Code, expand the requirements for
  written advice under Section 10.37.

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6-10-14 Regulations

• Regulations also broaden the scope of the
  procedures to ensure compliance under Section
  10.36, requiring that a practitioner with
  principal authority for overseeing a firms
  federal tax practice take reasonable steps to
  ensure the firm has adequate procedures in place
  for purposes of Circular 230 compliance.

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6-10-14 Regulations

• New 10.35 Practitioners must exercise competence
  when engaged in practice before the IRS, and that
  the prohibition on a practitioner endorsing or
  negotiating any check issued to a taxpayer
  regarding a federal tax liability applies to
  government payments made by any means.

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6-10-14 Regulations

• Eliminates the need to put disclaimer on emails
  letters
• This electronic mail transmission may contain
  confidential or privileged information. If you
  believe that you have received this message in
  error, please notify the sender by reply
  transmission and delete the message without
  copying or disclosing it. Pursuant to Internal
  Revenue Service guidance, be advised that any
  federal tax advice contained in this written or
  electronic communication, including any
  attachments or enclosures, is not intended or
  written to be used and it cannot be used by any
  person or entity for the purpose of (i) avoiding
  any tax penalties that may be imposed by the
  Internal Revenue Service or any other U.S.
  Federal taxing authority or agency or (ii)
  promoting, marketing or recommending to another
  party any transaction or matter addressed herein.

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New Voluntary Program

• Announced 6-26-14 for 2015 tax season
• Annual Filing Season Program
• For preparers who are not CPAs EAs or attorneys
• Tax return preparers who elect to participate in
  the program and receive a record of completion
  from the IRS will be included in a database on
  IRS.gov
• Database will include(CPAs), EAs enrolled
  retirement plan agents (ERPAs) and enrolled
  actuaries who are registered with the IRS

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Taxpayer Bill of Rights 6-10-14

• The Right to Be Informed
• The Right to Quality Service
• The Right to Pay No More than the Correct Amount
  of Tax
• The Right to Challenge the IRSs Position and Be
  Heard
• The Right to Appeal an IRS Decision in an
  Independent Forum
• The Right to Finality
• The Right to Privacy
• The Right to Confidentiality
• The Right to Retain Representation
• The Right to a Fair and Just Tax System

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2015 TAS Report

• In the preface to the report, Olson emphasizes
  four points
•  First, the budget environment of the last five
  years has brought about a devastating erosion of
  taxpayer service, harming taxpayers individually
  and collectively
• Second, the lack of effective administrative and
  congressional oversight, in conjunction with the
  failure to pass taxpayer rights legislation, has
  eroded taxpayer protections enacted 16 or more
  years ago
• Third, the combined effect of these trends is
  reshaping U.S. tax administration in ways that
  are not positive for future tax compliance or for
  public trust in the fairness of the tax system
  and
• Fourth, this downward slide can be addressed if
  Congress makes an investment in the IRS and holds
  it accountable for how it applies that
  investment.

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Decline in Taxpayer Service Levels

• IRSs diminished service expectations for FY 2015
  are as follows
• The IRS is unlikely to answer even half the
  telephone calls it receives, and levels of
  service may average as low as 43.
• Taxpayers who manage to get through are expected
  to wait on hold for 30 minutes on average and
  considerably longer at peak times.
• The IRS will answer far fewer tax-law questions
  than in past years.  During the upcoming filing
  season, it will not answer any tax-law questions
  except basic ones.  After the filing season, it
  will not answer any tax-law questions at all,
  leaving the roughly 15 million taxpayers who file
  later in the year unable to get answers to their
  questions by calling or visiting IRS offices.
• Tax return preparation assistance has been
  eliminated.

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TAS Consequences of Budget Cuts

• As a consequence, the IRS has already reduced its
  workforce by nearly 12,000 employees and projects
  further reductions will be needed during FY
  2015. 
• In addition, the IRS has reduced the amount it
  spends on employee training since FY 2010 by
  83. 
• These cutbacks leave the IRS with a shrinking
  workforce whose employees are less equipped to do
  their jobs.

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Among the Most Serious Problems"

• Lack of Clear Rationale for Taxpayer Service
• Resource Allocation Decisions.
• Lack of a Functional IRS Presence in Many Areas. 
  
• Potential Patient Protection and Affordable Care
  Act (ACA) Burdens
• Offshore Voluntary Disclosure (OVD) Program
  Inequities

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Most Litigated
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(Dollars in Billions) 2010 2011 2012 2013 2014
Collection 29.10 31.10 30.44 31.40 33.20
Examination 16.90 12.40 10.20 9.83 12.51
Appeals 6.70 6.50 4.20 6.83 6.47
Document Matching 4.90 5.20 5.27 5.29 4.97
Total 57.60 55.20 50.20 53.35 57.15
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Exam by Income Amount 2013 2014
     
All returns .96 .86
No adjusted Gross Income 6.04 5.26
1 under 25,000 1.00 .93
25,000 under 50,000 .62 .54
50,000 under 75,000 .60 .53
75,000 under 100,000 .58 .52
100,000 under 200,000 .77 .65
200,000 under 500,000 2.06 1.75
500,000 under 1 million 3.79 3.62
1 million under 5 million 9.02 6.21
5 million under 10 million 15.98 10.53
10 million or more 24.16 16.22
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Collection
2010 2011 2012 2013 2014
Levies 3,606,818 3,748,884 2,961,162 1,855,095 1,995,987
Liens 1,096,376 1,042,230 707,768 602,005 535,580
Seizures 605 776 733 547 432
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Criminal Investigation
2012 2013 2014
Investigations Initiated 5125 5314 4297
Prosecution Recommendations 3701 4364 3478
Informations/Indictments 3390 3865 3272
Convictions 2634 3311 3110
Sentenced 2466 2812 3268
Percent to Prison 81.5 80.1 79.6
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Continuing NRP Study

• (NRP) study for individual taxpayers that
  provides updated and more accurate audit
  selection tools and support efforts to reduce the
  nations tax gap.
• About 10,000 to 14,000 every year since October
  2007
• 2,000 employment tax NRPs per year 2009 to 2011
• 2014 examined 2500 corporate returns with assets
  under 250,000

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2015 Budget

• President once again asked for increased IRS
  funding
• Congress once again severely underfund IRS
  thereby costing the American taxpayer billions
  in lost revenue
• Suppose you were an idiot. And suppose you were
  a member of Congress. But then I repeat
  myself.-- Mark Twain
• There is no distinctly native American criminal
  class...save Congress.-- Mark Twain
• In my many years I have come to a conclusion
  that one useless man is a shame, two is a law
  firm and three or more is a congress. -- John
  Adams

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Dirty Dozen

• 1. Phone Scams
• 2. Phishing
• 3. Identity Theft
• 4. Return Preparer Fraud
• 5. Offshore Tax Avoidance
• 6. Inflated Refund Claims

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Dirty Dozen

• 7. Fake Charities
• 8. Hiding Income with Fake Documents
• 9. Abusive Tax Shelters
• 10. Falsifying Income to Claim Credits
• 11. Excessive Claims for Fuel Tax Credits
• 12. Frivolous Tax Arguments

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APPEALS

• In a webcast on July 15th, 2013 the Chief of the
  IRS Office of Appeals announced a change in
  procedures within the next few months. As
  currently set forth in the IRM, Appeals can raise
  new issues if
• (a) the Appeals Officer is quite certain that
  the IRS would win in court
• (b) the necessary facts are readily available
  and
• (c) the additional tax liability is material.
• Appeals also sometimes refers cases back to the
  auditors for further factual development. As part
  of its judicial approach and culture project,
  Appeals decided that changes in these procedures
  would better reflect its mission and function.

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IRS Scandal

• News broke on 5-10-13 that IRS had slowed
  processing of organizations with tea party,
  progressive, occupy or patriot in their names
  were asked more questions prior to granting
  501c(4) tax exempt status
• 501(c)4 status established for Civic Leagues,
  Social Welfare Organizations, and Local
  Associations of Employees may keep donors secret
• Proper status was 527 tax exempt but must
  disclose donors
• There are many Congressional investigations
• The current uproar is because politicians of both
  parties like to keep donors secret

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Whistleblowers
  2010 2011 2012 2013
Awards Paid 97 97 128 122
Collections over 2,000,000 9 4 12 6
Total Amount of Awards Paid 18,746,327 8,008,430 125,355,799 53,054,302
Amounts Collected 464,695,459 48,047,500 592,498,294 367,042,420
Awards paid as a percentage of amounts collected. 4.0 16.7 21.2 14.6
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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

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In the News

• Credit Suisse pleads guilty and pays a 2.6
  billion penalty, marking a watershed in a
  campaign that has led to charges against more
  than 100 people since 2009
• Over 100,000 Foreign Banks to Share Tax Info with
  IRS
• Zwerner Jury Determines 150 FBAR Penalty
  Applies
• 106 Swiss banks cooperating with U. S.

34
FATCA

• Effective 6-30-14
• Over 150 countries have signed agreements for
  their banks to report accounts of U. S. taxpayers
  to IRS
• Over 100,000 foreign financial services will
  report to IRS beginning March 2015

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Credit Suisse Indicted

• Credit Suisse was indicted on 5-19-14
• It has entered into plea deal to plead guilty to
  a felony offense of aiding abetting tax fraud
• It paid a penalty in excess of 2.6 billion
• Agreed to have a monitor to prevent further
  violations
• Justice Department now pursuing the names of
  American depositors

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2012 Settlement Offer Unreported Offshore Income

• Program continues in 2014
• 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

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New Program

• Announced 6-18-14
• Streamlined for non-wilful
• 5 for TPs in U. S.
• 0 for TPs abroad
• Higher penalty for those banking with 12 banks if
  have not applied by 7-1-14

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New Program

• Penalty increases from 27.5 to 50 if, before
  the taxpayers OVDP pre-clearance request is
  submitted, it becomes public that the financial
  institution where the underlying financial
  account is maintained is under investigation by
  the IRS or the Department of Justice.

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ID Theft Hot Line

• Operational on October 1, 2008
• Toll free number 1-800-908-4490
• Hours of Operation Monday - Friday, 800 a.m. -
  800 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

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ID Theft

• Form 14026
• Fax to [phone].
• Mail to
• Internal Revenue Service
• P.O. Box 9039
• Andover, MA 01810-0939

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Practitioner Priority Service

• 1-866-860-4259

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Collection Higher User Fees

• Prior to 2014 the fee for an IA was
• 105,
• a reduction to 52 for a direct debt agreement,
  and
• 45 to restructure or reinstate a defaulted IA. 
• As of 1-1-2014, IA fees are 
• 120 for an IA and
• 50 to restructure/reinstate a defaulted IA. 
• Direct debit agreement fee does not change. 
• Prior to 2014 the fee for an OIC was 150.
• As of January 1, 2014, for an OIC is 186.  The
  no fee for low-income taxpayers continues to
  apply.

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Offer Environment
 Offers in compromise (thousands) 2012 2013 2014
Number of offers received 64 74 68
Number of offers accepted 24 31 27
Accepted 38 42 40
Amount of offers accepted 195,652 195,379 179,354
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Fresh Start

• Between 2009 and 2012 the IRS had a series of
  initiatives for struggling taxpayers
• The initiatives are known as Fresh Start

46
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. lt25,000 may also use Form 9465.
• 72 months to pay up from 60 months

47
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

48
LAST 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

49
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 IRAs 401Ks 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

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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

51
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

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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 90s
• The new policies can be used in negotiating
  installment agreements also

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Questions?
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