NEW IMRS ISSUES
Policy and Procedure
IMRS 08-0000940 – CP2000
Issue: Doctors who work for a large health care provider are partners and receive a K-1. The K-1 shows guaranteed payments and an ordinary income amount. The payments and income amount were added and entered as nonpassive income on Schedule E. An amount of unreimbursed expenses is listed under the nonpassive loss column. Practitioner has received CP2000s for these doctors indicating they have not included the guaranteed payments. Information Returns Processing transcripts clearly show the ordinary income and guaranteed payments separately. If added together, they equal the amount of nonpassive income on the return.
IMRS 08-0000934 – Disaster Assistance
Issue: Practitioner suggests the IRS hold town hall meetings for local practitioners in areas affected by disaster. These meetings should be held prior to disaster assistance to inform practitioners of specific disaster provisions. Practitioner also suggests that IRS automatically identify affected taxpayers and place an indicator on their accounts. In addition, practitioner advises that IRS has failed to meet the 24-hour payment processing time for taxpayers affected by disasters, which is resulting in clients being assessed interest and penalties on late payments, and has not provided the appropriate states with correct zip codes to identify areas affected by disasters.
IMRS 08-0000928 – Processing Payments
Issue: Practitioner advises the IRS is taking too long to process payments to taxpayer accounts resulting in enforcement activity and erroneous notices.
RECENTLY CLOSED ISSUES
Campus
IMRS 08-0000851 – Letter 525, General 30 Day Letter
Issue: Practitioner’s client received a Letter 525 as a first notice and feels the wording is written too strongly.
Response: Typically Letter 525 is used as a second contact with taxpayers during the examination process. It is the cover letter that accompanies the proposed examination adjustments report. We are currently reviewing the letter and considering major revisions to the language. Our guidelines are to reference the date of the correspondence and, as suggested, it would be a good idea to reference the original letter date in situations where there is no response from a taxpayer. We will do our best to incorporate the suggested changes from the practitioner into the final product.
IMRS 07-0000476 - Form 2848
Issue: Practitioner advised that he was not receiving copies of notices. The practitioner sent in Form 2848 with a response to a Letter 89C. Taxpayer received subsequent notices on the same issue; however, the practitioner did not.
Response: After researching this issue, we determined that the practitioner incorrectly completed Form 2848 regarding civil penalties. Instructions for Form 2848 have been updated advising practitioners to enter "IRA civil penalty" on line 3 of the form.
E-Services
IMRS 08-0000839 – Electronic Funds Withdrawal (EFW)
Issue: Practitioners are concerned about incorrectly entering a client’s bank account information and would like to know if the IRS verifies account numbers against taxpayer names.
Response: Minimal validation of the bank account number and the Routing Transit Number (RTN) is performed in order for the payment record to be successfully transmitted with the e-filed return. (See Publication 1346, Attachment 1.) Once the payment record is successfully transmitted through IRS e-file, the payment record is electronically transferred to our Treasury Financial Agent (TFA) acting on behalf of the IRS. In many cases, a taxpayer’s requested payment date may not allow the pre-notification process to be completed in time for the taxpayer’s payment to be processed timely. For example, if a payment initiated today was scheduled to settle tomorrow, there would not be enough time to verify the prenote with the bank and still process the payment with tomorrow’s date. However, for payments received at least six business days prior to the requested payment date, the TFA does a prenote. During this process, the TFA sends the payment record request to the taxpayer’s financial institution where it is matched against the information on file for this taxpayer. The financial institution notifies the TFA if they find a discrepancy, such as no match on the account number. As long as the institution responds to the TFA prior to the requested payment date, a letter is issued to the taxpayer indicating a discrepancy was found. The letter indicates the bank account validation error that was returned by the financial institution. If there is insufficient time to send this letter and the payment rejects, another letter is sent to the taxpayer that explains the reason the direct debit request was not accepted by the financial institution, and provides other payment options. If a taxpayer or his/her practitioner inputs an incorrect bank account number and/or RTN that results in a rejected EFW debit request, and the taxpayer does not use other means to assure timely payment (credit card, EFTPS, check or money order) by the due date of the return, the taxpayer is responsible for any penalty and/or interest charged by the IRS for late payment. It is a good idea for tax practitioners to ask their clients to confirm the correct account number and RTN with their bank and assure that sufficient funds will be available in the account they specified on the requested payment date. The most common reasons for rejection are insufficient funds in the account, problems with the account number (such as invalid account, unable to locate account – probably due to a missing account number or transposition in account number) and invalid RTN. If the taxpayer’s financial institution mistakenly withdraws funds from someone else’s account, then the taxpayer and institution must resolve that issue. This occurrence is rare with the EFW program. The Automated Clearing House guidelines provide procedures to financial institutions for processing payments, prenotes, etc. Once a payment is sent to the TFA for processing, the taxpayer or tax practitioner cannot amend the payment record. However, they can cancel the payment record by calling (888) 353-4537 and then submit the payment using another payment method.
IMRS Issue 08-0000818 – E-Services Disclosure Authorization
Issue: E-services Disclosure Authorization needs to recognize Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Response: Form 1023 is used to apply for recognition as a tax-exempt organization under IRC 501(c)(3). The e-services Disclosure Authorization is not designed for this process. However, the IRS has proposed a project to look at allowing EO/EP applications, including the Form 1023, to be filed electronically. If this project is selected and approved, the earliest it can be implemented will be Tax Year 2011. We will not allow the electronic filing of Form 2848 for Form 1023 until the Form 1023 can be electronically filed.
IMRS 08-0000814 Links from E-Services
Issue: When IRS sends practitioners a ten day reminder to change their passwords in e-services; practitioners ask that the email contain a link to the e-services registration log-in page. In addition, they request a link in e-services to check the expiration date of passwords.
Response: We reviewed your suggestions and agree they have merit. We will be adding them to our list of possible enhancements for the future. However, we do not currently have estimated timeframes for implementation.
Forms, Publications and Products
IMRS 08-0000914 – Form 2758, Application for Extension of Time to File Certain Excise Income, Information, and Other Returns
Issue: Clients are erroneously receiving notices of failure to file Form 2758 when, instead, it was a partnership return that was not filed.
Response: In mid-June, 250,000 Notices CP259 were issued erroneously due to a programming error. The notices were sent to taxpayers intending to request a delinquent tax return for Forms 1120, 1065, and 1041. Instead, the notices requested taxpayers submit Forms 2758, 7004 or 709-A. The IRS will issue apology letters to those taxpayers affected by the erroneous notices.
IMRS 08-0000912 – Form 3115, Change in Accounting Method
Issue: When practitioner requested a technical referral line to call with questions on Form 3115, specifically accounting method change codes, he was advised to request a letter ruling.
Response: Each year approximately 33 million individuals, businesses, and tax-exempt entities contact the IRS via our toll-free telephone service. We strive to deliver the best possible service to the largest number of people but, to accomplish this, we must instruct our employees that certain types of inquiries are simply “out of our scope” due to their complexity and the time required for the necessary research. Form 3115 falls into this category. However, based on your suggestion, we looked at the possibility of creating a technical referral line for issues such as this, but determined we are unable to do so because of staffing and funding limitations.
IMRS Issue #08-0000843 – Form 1041, U.S. Income Tax Return for Estates and Trusts
Issue: Stakeholder reports that, when calling the IRS, they frequently encounter difficulties making the assistor understand that, as fiduciary, they are authorized to discuss an account. Stakeholder suggests the IRS provide a telephone number on all notices involving Form 1041 that will direct them to a representative who understands fiduciary/trust relationships.
Response: We apologize for the difficulties encountered due to our required identity checks. In our on-going attempts to safeguard the privacy of taxpayers, we ask for specific information to carry out the Internal Revenue laws of the United States. Form 2848, Power of Attorney and Declaration of Representative establishes accounts on our CAF system and Form 56, Notice Concerning Fiduciary Relationship is used to alert the IRS of the creation or termination of a fiduciary relationship under Section 6903. IRS regulations also provide that you must be prepared to furnish evidence (i.e., the social security number or other identification number of the individual or entity for which you are acting) that substantiates your authority to act as a fiduciary for the person for whom you are acting. The principal purpose of this disclosure is to secure proper identification of the taxpayer. We also need this information to gain access to the tax information in our files and properly respond to your request. Unless the corporate fiduciary files Form 56, has a Form 2848, or a Form 8821, Tax Information Authorization on file, he is not authorized by the IRS to receive tax account information. Two people can be listed on Form 56, with only one sort line on TXMOD. The corporate fiduciary could add his name when Form 56 is filed. We recommend that the names of all persons contacting IRS on behalf of your trust accounts appear on Forms 56 and 2848. After the corporate fiduciary has been confirmed on our system, we suggest use of the Practitioners Priority Service line at (866) 860-4259. Personnel on this line are very skilled in dealing with authorized third parties. Unfortunately, due to resource constraints, a phone number specifically for Form 1041 issues cannot be established.
Policy and Procedure
IMRS 08-0000936 – Enrolled Agents
Issue: Some enrolled agents will not prepare business returns and don’t feel comfortable being tested on business returns during the enrolled agent exam. Has the IRS considered another enrolled agent title that only includes individual returns and ethics?
Response: We have no plans of changing our current enrolled agent testing process.
IMRS 08-0000877 – Filing Electronically
Issue: Practitioner would like to know why returns submitted with payment and mailed by midnight are considered timely but an electronic return with payment submitted at midnight is considered untimely.
Response: Generally an electronic payment (i.e., an electronic funds withdrawal) submitted with an IRS e-file return is considered received when both return and payment have been successfully transmitted, with allowance for a re-transmittal timeframe from the initial transmittal. An electronic postmark is issued. Please refer to Publication 1345(PDF) Chapter 4, page 37 for more information.
IMRS 08-0000792 – Earned Income Tax Credit and Exemptions
Issue: Practitioner advises that parents authorized to claim child’s exemption/EITC must provide evidence of their right to claim each year due to unauthorized claim by other parent filing first. Practitioner suggests the unauthorized parent’s account be coded to require verification of right to claim in subsequent years.
Response: We understand the frustration and inconvenience when the rightful parent is denied EITC during electronic return processing due to a duplicate claim condition caused by someone else filing electronically earlier and claiming the same child. We recently made process improvements to minimize the burden on the rightful parent when our systems are able to confirm which parent is entitled to claim the child for EITC. Unfortunately, since we cannot always determine who is entitled to the claim, many are required to file a paper return to get the credit. We appreciate the suggestion to put an indicator on the unauthorized parent’s account, but are unable to pursue this recommendation because we have no way of determining whether circumstances have changed since the prior year. Family circumstances can change from year-to-year so an unauthorized parent in the previous year might be the authorized in the current year. Also, since we do not have a duplicate claim until a subsequent return is filed claiming the qualifying child, we have no reason to deny the EITC at the time the first return was filed if the other EITC requirements appear to be met. In addition, we do not have the legal authority to deny the claim without giving the taxpayer due process.
NOTE: Current and previous reports can be accessed from the Tax Professionals page on IRS.gov. (The Monthly Overviews are posted for the periods May 2006 through the current month. You can also access the 2007 Closed Issues Sorted by Subject report on the same page.) We invite you to raise your issues/concerns with your local liaison representative. A listing of Stakeholder Liaison (SL) Local Contacts can be found at IRS.gov, keywords “Stakeholder Liaison (SL) Local Contacts,” or follow the link on the IMRS page. This list is also available for downloading.
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