the new irs, id theft and advanced tax controversy · 1 the new irs, id theft and advanced tax...
TRANSCRIPT
1
The New IRS, ID Theft and Advanced Tax
ControversyPaul Tew
2
About the Speaker
Paul Tew, Senior Manager
IRS Practice & Procedure Services
Paul Tew is a member of Dixon Hughes Goodman’s
IRS Practice and Procedures Group. Tew, a former IRS
agent and team manager, brings 38+ years of Internal
Revenue Service experience to the firm. He has
extensive experience in the international tax area,
including transfer practice.
While with the IRS, Tew spent the majority of his time
as a revenue agent and team manager working in the
international tax area, focusing on the examination of
mid-size and large corporate entities with significant
cross-border transactions. A significant career
milestone was his identification and development of
transfer pricing issues on a large multi-national
company, representing the largest tax dispute resolved
in the history of the Internal Revenue Service.
3
The New IRS
4
The IRS’s LB&I Division
is Reorganizing
…AGAIN!!!
5
AND . . . .
They are changing their examination process.
6
Previously Organized by Industry
Now organized by Function (Practice Area)
7
LB&I Organizational Chart
Director
Western Compliance PA
Kimberly Edwards
Director
Pass Through Entities PA
Cheryl Claybough
Director
Enterprise Activities
Kathy Robbins
Director
Central Compliance PA
Tina Meaux
Director
Cross Border Activities PA
John Hinding
Director
Eastern Compliance PA
Lavena Williams
LB&I
Commissioner
Douglas O'Donnell
LB&I
Deputy Commissioner
Rosemary Sereti
Director
Withholding & International
Individual Compliance PA
Pamela Drenthe
Director
Program and Business
Solutions
Susan Latham
Director of Field
Operations East
Orrin Byrd
Director of Field
Operations West
Jolanta Sander
Director of Field
Operations
International
Individual
Compliance
Elise Gardner
Director of Field
Operations
Southwest
Paul Curtis
Director of Field
Operations West
Donald
Sniezek (a)
Director of Field
Operations North
Central
Katheryn
Houston
Director of Field
Operations South
Central
Margie
Maxwell (a)
Assistant Deputy
Commissioner International
Theodore Setzer
Assistant Deputy
Commissioner Compliance
Integration
David Horton
Director of Field
Operations
Transfer Pricing
Practice
Cheryl Teifer
Director Advance
Pricing and Mutual
Agreement
Hareesh Dhawale
Director
Compliance Planning and
Analytics
Christopher Larsen
Director
Data Mgt.
William Holmes
Director Financial
Institutions and
Products
Gloria Sullivan
Director Corporate/
Credit
Holly Paz
Director
Resource Solutions
Keith Walker
Director Technology
and Program
Solutions
Kathryn Greene (a)
Director
Treaty & Transfer Pricing
Operations PA
Sharon Porter
Director Treaty
Administration
Deborah
Palacheck
Director of Field
Operations
Foreign Payments
Practice
Johanna
McGeady-Murphy
Director of Field
Operations North
Atlantic
Catherine Jones
Director of Field
Operations Mid-
Atlantic
Dennis Figg
Director
Northeastern Compliance PA
Barbara Harris
Deputy Director
Pass Through
Entities
Clifford
Scherwinski
Director of Field
Operations
Great Lakes
Stephen
Whiteaker
Director of Field
Operations
Southeast
John Hinman (a)
Senior Advisor
Elizabeth Wagner
Large Business & InternationalExecutive Organizational Chart
8
Cross Border Activities
Director
Cross Border Activities PA
John Hinding
DFO East
Orrin Byrd
DFO West
Jolanta Sander
Territory 3
Stephen Kraemer
Territory 4
Darlene Scifert
Territory 2
Anna Petinova
Program Manager
Violette Walter
Territory 1
Bharati Shenoi
Territory 5
Donald Murray
Territory 7
Roger Benesch
Territory 8
Jackie Topping
Territory 6
Ismael Carreno
Territory 9
Donald Focht
Team 1330
Michael Reidy
Team 1506
Brian McDonald
Team 1371
Brenda Sarini
Team 1571
Michael Connelly
Team 1572
Phillip DeLeo
Team 1659
Norman Gaudet
Team 1152
Krishanand
Naraine
Team 1153
Thomas Wan
Team 1503
John Marino
Team 1154
Jesus Melon
Team 1372
Mark Skepner
Team 1374
Fred Perla
Team 1505
Neil Smuckler
Team 1687
Julie Levin
Team 1660
Edward Horvath
Team 1682
Pegene
McPhadden
Team 1686
John Carrig
Team 1570
Shimshon
Mizrachi
Team 1136
Marina Milton
Team 1573
Kathryn
Misegades
Team 1733
Carla McBride
Team 1736
Richard Cosler
Team 1738
Patricia Carlo
International Practice
Network (IPN) Team
1149
Inbound
Richard Blumenthal
IPN Team 1150
Crossover
Frank Santoro
Team 1376
Maria Hardrick
Team 1520
Carol Freshour
Team 1688
John Kogler
Team 1732
Dan Orsini
Team 1735
Kathy Lindamood
Team 1737
Valerie Hartwick
IPN Team 1147
Outbound
Cindy Kim
Team 1358
TBD
Team 1373
Geoffrey Miller
Team 1375
Fred Savaglio
Team 1377
Mustafa Tayebali
Team 1379
Theresa Newton
Team 1380
Karen Willingham
Team 1631
Ronald Webster
Team 1635
Keith Reed
Team 1443
Maureen
McMahan
Team 1444
Manju Banthiya
Team 1445
Marcia
Vanderpool
Team 1446
Joseph Reneau
Team 1447
Donna Wilkerson
Team 1449
Ronald Taylor
Team 1213
Patrick Roecker
Team 1215
Young Kang
Team 1216
TBD
Team 1218
Lynn Warner
Team 1636
Scott Watson
Team 1275
Gloria Ramirez
Team 1313
Sylvia Sanders
Team 1634
Arcadio
Castellanoz
Team 1637
Mark Giarratano
Team 1638
David Couch
Executive
Assistant
Paul Kruse
9
Treaty & Transfer Pricing Operations
DFO Transfer
Pricing Practice
(TPP)
Cheryl Teifer
Territory East
Matthew Hartman
Director APMA
Hareesh Dhawale
Director
Treaty & Transfer Pricing
Operations PA
Sharon Porter
Director Treaty
Administration
Deborah Palacheck
Economist
Rahm Mohan
Territory South
Deborah Dickson
IPN
John Kaffenberg
Territory North
Shah Mobed
Territory West
Nancy Bronson Exchange Of
Information (EOI)
Tina Masuda
Automatic EOI
Aziz Benbrahim
Treaty Assistance
and Interpretation
Team (TAIT)
U.S. Territories
Jennifer Best
Joint International
Tax Shelter
Information Centre
(JITSIC)
Nanette Hamilton
Team 1424
Darline Farr
Team 1425
Martha Regan
Team 1427
Walter Choi
Team 1428
William Bosworth
Team 1457
William Karl
Team 1467
Steven Berthene
Team 1468
Elisabeth
Alexander
Team 1469
Robert Maxon
Team 1458
Bradley Moore
Team 1459
Natalie Blum
Team 1460
Peter Carey
Team 1461
Matthew Herring
Team 1408
Loraine Dearth
Team 1409
Mary Lindert
Team 1414
Kim Murtaugh
Team 1415
TBD
Team 1477
Sohelia Crane
Team 1478
Jeffery Riter
Team 1884
Paul Isherwood
Team 1885
Roderick
Weissler
Team 1886
Charles Adelberg
Team 1889
Joseph DiPaolo
Team 1138
Economist
TBD
Team 1139
Income Shifting
Traci DeBoer
Team 1
TBD
Team 5
Burton Mader
Team 9
Patricia Fouts
Team 2
Russell Kwiat
Team 3
Judith Cohen
Team 4
TBD
Team 6
TBD
Team 7
TBD
Team 8
TBD
Team 10
Dennis Bracken
Team 11
Charles Larson
Team 12
Ho Jin Lee
Team 1
Anthony Ferrise
Team 2
Indu Subbiah
Treaty/EOI IPN
Nicole Welch
Team 1
Laurence Jeffery
Team 2
Floyd Penn
Team 3
Kalpesh Gandhi
Team 4
Ivy Chamblin
Team 1
Tefera Beyene
Team 2
Michael Hayden
Team 3
TBD
Team 4
TBD
Executive Assistant
Carla Langland
Assistant to the
Director
J.D. Carroll
Team 1
9
Team 5
9
Team 9
9
Team 2
9
Team 3
9
Team 4
9
Team 6
9
Team 7
9
Team 8
9
Team 10
9
Team 11
9
Team 12
9
APMA Teams Report to Director
Program
Manager
Donna
McComber
Program
Manager
Peter Rock
Report to Director
Of APMA
Program
Manager
Nancy
Wiltshire
10
Geographic Practice Area
CA RI
GA
NJ
MA
NH
MD
VT
ME
NY
PA
OH WV
KY
IN
TN
MS
AR
MO
IA
IL
MI
MN
ND
SD
NE
KS
WY
CO
NMAZ
UT
ID
NV
OR
WA
AK
MT
OK
TXLA
WI
AL
FL
8
DE
HI VA
DCNC
SC
DFO-W DFO-SW DFO-SC DFO-NC DFO-GL DFO-SE DFO-NA DFO-MA
West Central Northeast East
Engineers
CAS
GHW
TCS
11
Eastern ComplianceDirector
Eastern Compliance PA
Lavena Williams
DFO
Great Lakes
Stephen Whiteaker
DFO
Southeast
John Hinman (a)
Atlanta
Territory 3
Joseph Banks
Maitland
Territory 4
Mark Furtak
Nashville
Territory 2
Brian Calhoun (a)
Plantation
Territory 5
Carlton Hill
Cincinnati
Territory 1
Pete Puzakulics
Downer’s Grove
Territory 8
Robert Budney
Farmington Hills
Territory 9
Donna Zeppiero
Chicago
Territory 7
Renee Banks
Independence
Territory 10
Dan Callahan
Milwaukee
Territory 6
Diane Flouro
Team 1522
Columbus
Robert Piatka
Team 1708
Columbus
Perry Tuttle
Team 1525
Dayton
John Eercaw (a)
Team 1362
Cincinnati
Deborah Munson
Team 1186
Lexington
Emanuel Hampton
Team 1266
Nashville
Cornell Radford
Team 1341
Nashville
Sharon Pritchett
Team 1606
Nashville
William Tillman
Team 1268
Memphis
Billy Childress*
Team 1406
Memphis
Michael Jordan
Team 1021
Atlanta
Catherine Brooks
Team 1051
Atlanta
Keith Garrison*
Team 1192
Durham
Lisa Hedgepeth
Team 1201
Charlotte
Teresa Parrish
Team 1204
Atlanta
Charles Daniel
Team 1367
Atlanta
Janet Walsh
Team 1208
Jacksonville
Owen Taylor
Team 1366
Maitland
Kathleen
Matthews
Team 1405
Tampa
David Valerio
Team 1710
Maitland
Karen Carreiro-
Smithson
Team 1716
St. Petersburg
Jacquelyn
Rookwood
Team 1718
Jacksonville
Adrian Hirmiz
Team 1364
Plantation
Manmeet Gulati
Team 1713
Plantation
Jeanette Reuter-
Fromkin
Team 1717
Miami
Ivan Ceballos
Team 1739
Miami
Salvatore
Sargiotto
Team 1173
Appleton
Dawn Leigh
Team 1029
Chicago
Nancy Li
Team 1352
Downer’s Grove
Pat Wozek
Team 1176
Waukesha
Jean Klajbor
Team 1357
Waukesha
Bertram Bennett
Team 1356
Schiller Park
Chris Therman
Team 1727
Schiller Park
TBD
Team 1483
Green Bay
Tom Muhowsi (a)
Team 1725
Waukesha
Linda Fanning
Team 1355
Chicago
Liza Valdez
Team 1532
Chicago
Anita Bowens
Team 1721
Chicago
Len Clay
Team 1724
Chicago
Michael Lynch
Team 1481
Downer’s Grove
Judith Kranjc
Team 1728
Downer’s Grove
John Stance*
Kim Ahern (a)
Team 1612
Springfield
Billie Langfelder
Team 1722
Decatur
Judith Lawrence
Team 1526
Clinton Township
Tom Reckling
Team 1484
Flint
Grant Gellert
Team 1527
Portage
Christopher
Pelton
Team 1528
Grand Rapids
Michelle Lauer
Team 1183
Independence
TBD
Team 1707
Independence
Peggy Bender*
Team 1706
Akron
Susan Kurzweil
Team 1705
Toledo
Chuck VanBelle
Team 1690
Troy
Ann Kulik
Team 1694
Troy
David Combs
Team 1698
Ann Arbor
Rochelle Hiebl
Team 1187
Fort Wayne
Jeanine Goeglein
Team 1403
Louisville
Jennifer Hamilton
Team 1485
Indianapolis
Patrick Dimmitt
Team 1729
Carmel
Stacy Gibbons
Team 1308
Birmingham
James Pickett
Team 1536
Grand Rapids
Hasson Klepser
Team 1529
Farmington Hills
Donald Suman
Team 1691
Troy
Barry Levy
Team 1175
Schiller Park
James Dressel
Team 1534
Schiller Park
Louis Olivieri
Team 1531
Schiller Park
Allen Mina*
Tax Comp. Specialists/
JC Reviewers
Territory 11
James O’Hara
Team 1230
Seattle
TBD
Team 1332
New York
Valary Arthur
Team 1431
Glendale
Gwendolyn
Hogans
Team 1521
Cincinnati
Jon Dunn*
Team 1524
Farmington Hills
Michael Zielinski
Team 1533
Chicago
Daniel Mielcuch
Team 1544
South Portland
Kathleen Burns
Team 1703
Independence
Maureen Lippert
Team 1762
Farmer’s Branch
Glynwood Fisher
Executive Assistant
Brenda Jackson
Program Manager
Examination
Practice Network
Lou Liotine
Team 1401
Charlotte
James Robson
Team 1667
Greensboro
Charles Philipp
Team 1711
Atlanta
Ralph Williams
Team 1954
Joint Committee
Review
Celeste Dinkins
Team 1184
Cincinnati
Janet Phillips
Team 1719
Fort Meyers
Maria Podell
12
Summary of changes to the LB&I examination
process
13
LB&I IDR
Enforcement Process
(Initiated in 2014)
14
Issue Draft IDR
Agree on a Due Date
Issue Final IDR
If Reply is not Timely . . .
15
Issue Delinquency Notice (Letter 5077) within 10 Days
Allows as Much as 15 Additional Days to Respond
If Reply still not Tendered . .
16
Issue Pre-Summons Letter (Letter 5078)Within 14 Days of Default on Delinquency Notice
Allows as Much as 10 Additional Days to Respond
17
Replacement of Publication 4837(QEP Guide)
Publication 5125
(Revised 2-2016)
Effective 5/1/2016
18
IRM 4.46
(Revised March 2016)
Sets Clear Expectations
19
Encourages Transparency & Collaboration
Issue and Campaign Driven Examination Process
20
New Claim for Refund Requirement
New Facts Acknowledgment Process
Modified Risk Assessment Process
21
Questions?
22
Identity Theft
23
Total Population
of US
330,000,000
24
Total Population
of US over
18 Years of Age
250,000,000
25
Number of Americans
Whose PII has been
Compromised and Used
100,000,000
26
27
Number of Americans
Whose PII has Been Stolen
150,000,000
(60% of adult population)
28
Some Sources of Breaches
• eBay: 145 million records accessed
• Home Depot: 109 million records accessed
• JP Morgan Chase: 83 million records accessed
• Anthem: 80 million records accessed
• Heartland: 130 million records accessed
• Target: 70 million records accessed
• JP Morgan Chase: 76 million records accessed
29
So…
If You Think Your
PII is Safe
and Sound…
30
31
Strategies for
Dealing with
ID Theft
32
Freeze Your Credit
www.Equifax.com
www.Experian.com
www.TransUnion.com
33
Complete and Submit
Form 14039
(Identity Theft Affidavit)
34
35
Take a Look At
• Publication 5027 (ID Theft Information for Taxpayers
• Publication 4524 (Security Awareness for Taxpayers
• Apply for an IP-PIN
36
Most Importantly…RELAX!!!!!
37
Questions?
38
Advanced Tax
Controversy
39
#1 - If the IRS has placed a target on your back, let’s use their own tools as a defense.
40
Audit Technique
Guides
41
41
42
1.Go to irs.gov2.Search “Audit Technique Guides”
43
• Aerospace Industry
• Air Transportation
• Architects and Landscape Architects
• Art Galleries
• Attorneys
• Business Consultants
• Capitalization of Tangible Property
• Capitalization v Repairs
• Cash Intensive Businesses
• Child Care Provider
• Coal Excise Tax
• Conservation Easement
• Construction Industry
• Continuation of Employee Healthcare Coverage
• Cost Segregation
• Credit for Increasing Research Activities
• Entertainment
• Equity (Stock)
• Excise Tax on Indoor Tanning Services
• Excise Tax on Obligation Not in Registered Form
• Excise Tax on Obligation Not in Registered Form D
• Executive Compensation –Fringe Benefits
• Factoring of Receivables
• Farmers
• Fishing
• Foreign Insurance
• Golden Parachute
44
• Hardwood Timber Industry
• IC-DISC
• Inland Waterways
• IRC §42 Low-Income Housing Credit
• IRC 162(m) Salary Deduction Limitation
• IRC §183 Activities Not Engaged in for Profit
• Lawsuits, Awards, Settlements
• Low-Income Housing
• Ministers
• New Markets Tax Credit
• New Vehicle Dealerships
• Non-qualified Deferred Compensation
• Oil and Gas Industry
• Ozone Depleting Chemicals
• Partnerships
• Passive Activity Losses
• Placer Mining
• The Port Project
• Real Estate Property Foreclosure and Cancellation of Debt
• Reforestation Industry
• Rehabilitation Tax Credit
• Research Credit Claims
• Retail Industry
• Sections 48A and 48B
• Split Dollar Life Insurance
• Structured Settlement Factoring
• Timber Casualty Loss
• Veterinary Medicine
• Wine Industry
45
#2 - An easy solution to what can be an expensive problem.
46
47
First Time Abate
IRM 20.1.1.3.6.1
48
Applies to:
Failure to File (FTF)Failure to Pay (FTP)
Failure to Deposit (FTD)
49
Applicable if:
1.There were no penalty assertions in the prior three tax years on the same type of return
2. You are filed and paid up, i.e. have filed all currently due tax returns and owe the IRS no monies OR you have entered into an installment agreement(payment plan) with the IRS and are current with those payments.
50
Not available for event based filings
Not available for tax-exempt filings
51
Forms 5471
IRM 21.8.2.1.1 (Campus Consolidation and Program Centralization)
IRM 20.1.9.3 (IRC 6038-Information Reporting With Respect to Foreign Corporations and Partnerships
IRM 21.8.2.21(Form 5471-Information Return of U.S. Persons With Respect to Certain Foreign Corporations)
52
Forms 5472
IRM 21.8.2.1.1 (Campus Consolidation and Program Centralization)
IRM 20.1.9.5 (IRC 6038A(d)-Information Reporting for Certain Foreign-Owned Corporations)
IRM 21.8.2.22(Form 5472-Information Return of a 25% Foreign-Owned U.S. Corporation of a Foreign Corporation Engaged in a U.S. Trade of Business)
53
#3 – Yes, I am consulting with IRS subject matter experts, but they’re mine. You can’t have them!!!
54
55
IPG – Issue Practice Group
IPN – International Practice
Network
56
#4 – I’m sorry, but I can’t allow that business expense unless you can provide contemporaneous supporting documentation. When Revenue Agent’s make up their own rules.
57
IRM 4.10.7.4.2
If a taxpayer cannot precisely document amounts spent for expenses while away from home on business, examiners may establish that reasonable amounts were spent for such items if taxpayers can clearly establish the following:
Dates of departure and return for each trip away from home, and number of days away from home, destinations or locality of travel, for example, name of city or town, business reason for travel or nature of business benefit derived or expected to be derived, and proof that expenditures were incurred.
58
IRM 4.10.7.3.2 – Oral Testimony
The Internal Revenue Code requires all taxpayers to keep adequate records. There are times, due to unusual circumstances, when records do not exist. In such cases, oral testimony may be the only evidence available. Therefore, oral statements made by taxpayers to examiners represent direct evidence which must be thoroughly considered.
59
IRM 4.10.7.3.9 – Documentary Evidence
While documentary evidence has great value, it should not be relied on to the exclusion of other facts. Facts can also be established by oral testimony and there will be occasions when courts will give greater weight to oral testimony than to conflicting documentary evidence.
60
IRM 4.10.7.4.2 – Reasonable Determinations
Close approximations of items, not fully supported by documentary proof, can be frequently be established through reliable secondary sources and collateral evidence.
The practice of disallowing amounts claimed because there is no documentary evidence available, which will establish the precise amounts beyond any reasonable doubt (even though it is clear that the taxpayer did incur some expense) ignores commonly recognized business practice, as well as the fact that proof may be established by credible oral testimony.
61
#5 – I think that there is an adjustment to this item on your tax return. I’m going to prepare a quick NOPA on this item and I’d like for you to sign off on that NOPA telling me that you are in agreement.
62
Playing To Your Fear
63
The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
64
IRM 4.10.7.2Researching Tax Law
Conclusions reached by examiners must reflect correct application of the law, regulations, court cases, revenue rulings, etc. Examiners must correctly determine the meaning of statutory provisions and not adopt strained interpretations.
65
IRM 4.10.7.5.3Field Examinations
. . . once the examination is completed, examiners will explain the basis of the proposed adjustments to taxpayer and/or his representative. The examiner should solicit agreement to the issues and attempt to secure agreement to the proposed tax liability. Examiners should be prepared to cite the law, regulations, rulings, and court decisions on which their conclusions are based and provide the taxpayer with copies of workpapers explaining the proposed adjustments.
66
#6 – Your own personal device for mass intelligence gathering and how and when to use it.
67
Freedom of Information Act (FOIA)
Passed in 1967
Provides the public the right to request access to records from any federal agency subject to certain disclosure exemptions.
68
Potential IRS FOIA Uses
1. Secure general information regarding prior IRS examinations.
2. Secure copies of agent’s workpapers from prior examinations.
3. Secure data from prior examinations to be used to limit the scope of a current examination.
69
However . . . . . . . . .
My Personal Favorite
Making a FOIA request to obtain the name and contact information of the person currently assigned to your account.
70
Helpful IRM Cites
11.3.13.9
71
72
73
#7 - Form 1120S/1065
Late Filing Strategies
74
IRC 6698/6699
Provides the penalty regime for 1065/1120S late tax return filings.
$195/Partner or Shareholder per month
times the Number of months late, up to 12 months.
75
1065 Penalty Abatement Strategies
1. Revenue Procedure 84-35
2. Reasonable Cause
3. First Time Abatement
76
Revenue Procedure 84-35A domestic partnership composed of 10 or fewer partners and coming within the exception outlined in section 6321(a)(1)(B) of the Code will be considered to have met the reasonable cause test and will not be subject to the penalty imposed by section 6698 for the failure to file a complete or timely partnership return
77
IRC 6231(a)(1)(B)(i) defines partnerships as follows:
(i) In general. The term "partnership" shall not include any partnership having 10 or fewer partners each of whom is an individual (other than a nonresident alien), a C corporation, or an estate of a deceased partner.
78
1120S Penalty Abatement Strategies
1. Reasonable Cause
2. First Time Abatement
3. Revenue Procedure 84-35 for Forms 1120S(What???!!!???)
79
Substitute For Return(SFR)
If you don’t file a tax return, the IRS can file one for you.
80
IRC 6020(b)(1)&(2)
(b) Execution of return by Secretary
(1) Authority of Secretary to execute return
If any person fails to make any return required by any internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise.
(2) Status of returns
Any return so made and subscribed by the Secretary shall be prima facie good and sufficient for all legal purposes.
81
But, since Form 1065 and 1120S returns are not tax paying entities, the IRS has no reason to create a SFR to assess any tax due.
82
IRC 6651(g)(1)
(g) Treatment of returns prepared by
Secretary under section 6020(b)
In the case of any return made by the Secretary under section 6020(b)—
(1) Such return shall be disregarded for purposes of determining the amount of the addition under paragraph (1) of subsection (a)
83
IRM 20.1.2.2.10
Substitute for Return-IRC 6651(g)1. Pursuant to IRC 6020(b), a “substitute for
return” (SFR) is prepared by the Service when it is determined that a taxpayer is liable for filing the tax return, but failed to do so even after notification from the Service.
2. IRC 6651(g)(1) provides that a return prepared under IRC 6020(b) does not constitute the taxpayer’s return for determining whether or when the taxpayer filed a return for the purpose of computing the penalty for filing late under IRC 6651(a)(1).
84
#8 - Accuracy-Related Penalty Strategies
(IRC 6662 And the IRS’s Automatic Penalty Regime)
85
IRC 6662Imposes a penalty of 20% of the tax deficiency attributed to:
1. Negligence or disregard of rules and regulations
2. Any substantial understatement of income tax(exceeds 10% of tax reported per return, or $5,000.
86
IRC 6751(b)(1)(b) Approval of assessment
(1) In general
No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.
87
IRC 6751(b)(2)
(2) Exceptions Paragraph (1) shall not
apply to—
(A) any addition to tax under section
6651, 6654, or 6655; or
(B) any other penalty automatically calculated through electronic
means.
88
IRM 20.1.5, 1.6, §9Managerial Approval of Penalties
9. Any penalties automatically calculated through electronic means are excluded from IRC 6751(b)(1) requirement.
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IRM 20.1.5, 1.6, §9.B.B. However, if a taxpayer responds either
to the initial letter proposing a penalty or to the notice of deficiency that the program automatically issues, an IRS employee will have to consider the taxpayer’s response. Therefore, the IRS employee will have to make an independent determination as to whether the response provides a basis upon which the taxpayer may avoid the penalty.
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The employee’s independent determination of whether the penalty is appropriate means the penalty is notautomatically calculated through electronic means. Accordingly, IRC 6751(b)(1) requires managerial written approvalof an employee’s determination to assert the penalty.
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# 9 - Using Private Letter Rulings to Resolve Problems and Seize
Opportunities
9100 Relief
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Reactive PLRs
• Inadvertent Termination of subchapter S trust (QSST) election
• Late 953(d) election
• Late subchapter S election
• Late dual consolidated loss election
• Late IT Reg. 1.48-4 election
• Late election under IRC 47(a)(2)
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Reactive PLRs
• Late election pursuant to IRC 754
• Late IRC 1022 election
• Late election not to deduction additional first year depreciation-IRC 168(k)
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Treasury Regulations § 301.9100-3
• Granted if the taxpayer provides evidence which establishes that:
– The taxpayer acted reasonably and in good faith
– Relief will not prejudice the interests of the Government
• PLR request (Rev. Proc. 2016-1) must be used to request relief
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Treas. Reg. § 301.9100-3(b) -- Reasonable Action
and Good Faith
• A taxpayer will be treated as acting reasonably and in good faith if:
– The taxpayer applies for relief before discovery by the IRS;
– Events beyond the taxpayer's control caused the failure to make the election;
– The taxpayer was unaware of the necessity for the election;
– The taxpayer relied on the written advice of the IRS; or the taxpayer reasonably relied on a competent and qualified tax professional who failed to advise the taxpayer to make the election
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Treas. Reg. § 301.9100-3(b)(3) --Reasonable Action
and Good Faith
• A taxpayer is deemed to not have acted reasonably or in good faith if the taxpayer:
– Seeks to alter a return position for which an accuracy-related penalty could have been imposed;
– Was informed in all material respects of the required election, but chose not to file the election
– Uses hindsight in requesting relief
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Treas. Reg. § 301.9100-3(c) -- Prejudice to the
Interests of the Government
• The government's interests are prejudiced if:
– Granting relief would result in a lower tax liability for the aggregate of all taxable years affected by the election;
– The statute of limitations under I.R.C. § 6501 has expired.
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Treas. Reg. § 301.9100-3(c)
• Please note that there are special rules for accounting method and period regulatory election relief requests.
• See Treasury Reg. § 301.9100-3(c)(2) & (3).
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Procedural Requirements
• Must provide affidavit and declaration from taxpayer describing events that led to the failure and must provide significant detail if using a reliance on the tax advisor defense.
• Must provide affidavit and declaration from other relevant parties.
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Can 9100 Relief Be Used to Revoke an Election
For purposes of 9100 Relief, “election” is defined broadly to include:
– “An application for relief in respect of tax” (Treas. Reg. § 301.9100-1(b))
• PLR 201239012 – Extension of time to revoke IRC 501(h) election(lobbying expenses)
• PLR 9627019 – Extension of time to revoke IRC 453(d)(4) election(installment method)
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# 10 - Tax Attributes and the Statute of Limitations
Surprises That Thrill and Chill!!!
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Common Tax Attribute Carryovers• Net Operating Loss
• General Business Credits
• AMT Credits
• Capital Losses
• Charitable Contribution
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??????
Can the IRS adjust a tax attribute emanating from a closed tax year or years that is being utilized in an open tax year?
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Yes, They Can!!!Mennuto v. Commissioner
56 TC 910 (1971)
Calumet Industries v. Commissioner
95 TC 257 (1990)
Hill v. Commissioner
95 TC 437 (1990)
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But…It’s a Two-Way Street
Notice Number 200913022
PLR 9504032
Revenue Ruling 77-225
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One Caveat
Changes to the tax attribute must not meet the definition of a change in the accounting method under IRC 446 and 481.
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#11 – Tax Legislation That You Will Like
Restructuring and Reform Act of 1998
The IRS Receives Their Spanking
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Taxpayer Bill of Rights
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Taxpayer Bill of Rights
The Right to Be Informed
Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
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Taxpayer Bill of Rights
The Right to Quality Service
Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about
inadequate service.
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Taxpayer Bill of Rights
The Right to Pay No More than the Correct Amount of Tax
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
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Taxpayer Bill of Rights
The Right to Challenge the IRS’s Position and Be Heard
Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
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Taxpayer Bill of Rights
The Right to Appeal an IRS Decision in an Independent Forum
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
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Taxpayer Bill of Rights
The Right to Finality
Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
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Taxpayer Bill of Rights
The Right to Privacy
Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
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Taxpayer Bill of Rights
The Right to Confidentiality
Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
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Taxpayer Bill of Rights
The Right to Retain Representation
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seekassistance from a Low Income Taxpayer Clinic if they cannot afford representation.
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Taxpayer Bill of Rights
The Right to a Fair and Just Tax System
Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.
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Questions?
