IRS Hot Topics of the Day Dan Breece Lori Cacioppo April 14, 2010.

IRS Hot Topics of the IRS Hot Topics of the DayDay

Dan Breece Dan Breece

Lori CacioppoLori Cacioppo

April 14, 2010April 14, 2010

TopicsTopics

Reminders for Last Minute Tax FilersReminders for Last Minute Tax Filers Get Recovery Tax BreaksGet Recovery Tax Breaks Return Preparer InitiativeReturn Preparer Initiative Collection IssuesCollection Issues

Reminders for Last Minute Tax Reminders for Last Minute Tax FilersFilers

DeadlinesDeadlines Recovery Tax BreaksRecovery Tax Breaks File ElectronicallyFile Electronically Direct Deposit for RefundsDirect Deposit for Refunds Pay ElectronicallyPay Electronically Extension of Time to FileExtension of Time to File Installment AgreementsInstallment Agreements

Don’t Miss the DeadlineDon’t Miss the Deadline

Recovery Tax BreaksRecovery Tax Breaks

The Homebuyer CreditThe Homebuyer Credit Making Work Pay CreditMaking Work Pay Credit American Opportunity CreditAmerican Opportunity Credit Home Energy CreditHome Energy Credit New Car Tax and Fee DeductionNew Car Tax and Fee Deduction

Worker, Homeownership, and Business Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA)Assistance Act of 2009 (WHBAA)

First time homebuyers have qualified for First time homebuyers have qualified for refundable tax credits as part of the economic refundable tax credits as part of the economic stimulus packagestimulus package

With that program set to expire at the end of With that program set to expire at the end of November, Congress voted to extend and expand November, Congress voted to extend and expand the programthe program

President Obama signed WHBAA into law, President Obama signed WHBAA into law, November 6, 2009November 6, 2009

First Time Homebuyer CreditFirst Time Homebuyer Creditfor 2008 Purchasesfor 2008 Purchases

Maximum credit $7,500Maximum credit $7,500

Repayment over 15 years - starting on tax year Repayment over 15 years - starting on tax year 2010 return2010 return

Purchases must have been completed Purchases must have been completed between 4/9/2008 and 12/31/2008between 4/9/2008 and 12/31/2008

First Time Homebuyer CreditFirst Time Homebuyer Creditfor 2009 and 2010 Purchasesfor 2009 and 2010 Purchases

First Time HomebuyersFirst Time Homebuyers Maximum credit $8,000 ($4,000 for married filing separately), Maximum credit $8,000 ($4,000 for married filing separately), Purchase must be completed between 01/01/2009 and 4/30/2010 Purchase must be completed between 01/01/2009 and 4/30/2010

Long Time HomeownersLong Time Homeowners Maximum credit $6,500 ($3,250 for married filing separately)Maximum credit $6,500 ($3,250 for married filing separately) Purchase must be completed between 11/7/2009 and 4/30/2010Purchase must be completed between 11/7/2009 and 4/30/2010

Credit allowed to homebuyers who sign a binding contract byCredit allowed to homebuyers who sign a binding contract by 4/30/2010 and close by 6/30/20104/30/2010 and close by 6/30/2010

No Repayment, unless home ceases to be main home within 3 years of No Repayment, unless home ceases to be main home within 3 years of purchase datepurchase date

Taxpayers can elect to claim credit on their prior year return. 2009 Taxpayers can elect to claim credit on their prior year return. 2009 purchases can be claimed on a 2008 return, either original or purchases can be claimed on a 2008 return, either original or amended. 2010 purchases can be claimed on a 2009 return, either amended. 2010 purchases can be claimed on a 2009 return, either original or amended.original or amended.

Must be primary residenceMust be primary residence

Must close on the purchase prior to claiming creditMust close on the purchase prior to claiming credit

Must be a first-time homebuyer to claim the $7,500 credit for Must be a first-time homebuyer to claim the $7,500 credit for 2008 purchases or $8,000 credit for 2009/2010 purchases2008 purchases or $8,000 credit for 2009/2010 purchases• Must not have not owned a home in the three years prior to Must not have not owned a home in the three years prior to

the purchasethe purchase

Must be long-time resident of same principal residence to claim Must be long-time resident of same principal residence to claim $6,500 credit for purchases after 11/6/2009$6,500 credit for purchases after 11/6/2009• Must have owned and used the same principal residence Must have owned and used the same principal residence

for five consecutive years out of eight-year period ending on for five consecutive years out of eight-year period ending on date of new purchasedate of new purchase

Must file Form 5405 with relevant return Must file Form 5405 with relevant return

Eligibility RequirementsEligibility Requirements

Repayments of CreditRepayments of Credit

For 2008 purchases, normally repaid in 15 For 2008 purchases, normally repaid in 15 equal annual installments beginning in equal annual installments beginning in 20102010

For 2009/2010 purchases no repayment For 2009/2010 purchases no repayment required unless a repayment trigger within required unless a repayment trigger within 3 years3 years

Making Work Pay CreditMaking Work Pay Credit Maximum credit is 6.2% of earned income Maximum credit is 6.2% of earned income RefundableRefundable Phased out over modified AGI range of $75,000-Phased out over modified AGI range of $75,000-

$95,000 ($150,000-$190,000 if MFJ)$95,000 ($150,000-$190,000 if MFJ) Available for tax years 2009 and 2010Available for tax years 2009 and 2010 Figured on Schedule M or on 1040EZ worksheetFigured on Schedule M or on 1040EZ worksheet Reduced by economic recovery payment and Reduced by economic recovery payment and

government retiree creditgovernment retiree credit

Hope Education CreditHope Education Credit Hope credit modified for 2009 and 2010Hope credit modified for 2009 and 2010 Maximum credit $2,500 Maximum credit $2,500

100% of the first $2,000 of expenses 100% of the first $2,000 of expenses 25% of the next $2,000)25% of the next $2,000)

Available first four years of post-secondary Available first four years of post-secondary educationeducation

Qualified expenses include course Qualified expenses include course materials, tuition, and feesmaterials, tuition, and fees

40% credit is refundable40% credit is refundable

Nonbusiness EnergyNonbusiness EnergyProperty CreditProperty Credit

Increased to 30%Increased to 30% Limited to $1,500 for the total of all 2009 Limited to $1,500 for the total of all 2009

and 2010 purchasesand 2010 purchases Qualifying property definition revised Qualifying property definition revised

including update to energy efficiency including update to energy efficiency requirementsrequirements

Qualified Motor Vehicle TaxesQualified Motor Vehicle Taxes

New deduction for qualified motor vehicle New deduction for qualified motor vehicle taxes on purchase of certain new cars, taxes on purchase of certain new cars, trucks, motorcycles or motor homes trucks, motorcycles or motor homes

Elect to add to standard deduction or take Elect to add to standard deduction or take itemized deduction (if not electing sales itemized deduction (if not electing sales tax deduction)tax deduction)

Limited to tax on first $49,500Limited to tax on first $49,500 Applies to purchases made after February Applies to purchases made after February

16, 2009, and before January 1, 201016, 2009, and before January 1, 2010

Other RemindersOther Reminders

File ElectronicallyFile Electronically Choose Direct Choose Direct

Deposit for RefundsDeposit for Refunds Buy Savings BondsBuy Savings Bonds Check for ErrorsCheck for Errors

Pay ElectronicallyPay Electronically Extension of Time to Extension of Time to

FileFile Installment Installment

AgreementAgreement

IRS Recommends IRS Recommends Increased Oversight of Increased Oversight of

Federal Tax Return Federal Tax Return PreparersPreparers(Presenter

name)(Presenter title)

BackgroundBackground

IRS Return Preparer ReviewIRS Return Preparer Review IRS Strategic Plan ObjectivesIRS Strategic Plan Objectives Oversight agency interestOversight agency interest Consumer protection group concernsConsumer protection group concerns Taxpayer Advocate concernsTaxpayer Advocate concerns Almost 9 out of 10 use a paid Almost 9 out of 10 use a paid

preparer/software preparer/software

Definition of Preparer for Definition of Preparer for These RecommendationsThese Recommendations

Any person who prepares for Any person who prepares for compensation any return of tax or any compensation any return of tax or any claim for refund of tax under the Internal claim for refund of tax under the Internal Revenue CodeRevenue Code

Summary of Significant Summary of Significant RecommendationsRecommendations

1.1. Registration, user fee, and Preparer Tax Registration, user fee, and Preparer Tax Identification Number (PTIN) usage requirements Identification Number (PTIN) usage requirements for for allall signing paid preparers signing paid preparers

2.2. Competency testing for signing paid preparers Competency testing for signing paid preparers who are who are notnot attorneys, certified public attorneys, certified public accountants, or enrolled agentsaccountants, or enrolled agents

3.3. Continuing education requirements of 15 hours Continuing education requirements of 15 hours per year for signing paid preparers who are per year for signing paid preparers who are notnot attorneys, certified public accountants, enrolled attorneys, certified public accountants, enrolled agents, enrolled actuaries, or enrolled retirement agents, enrolled actuaries, or enrolled retirement plan agentsplan agents

4.4. Tax compliance verification of Tax compliance verification of allall paid preparers paid preparers

1. Registration, User Fee, 1. Registration, User Fee, PTINPTIN

Recommendations: Recommendations: Implement mandatory registration and user Implement mandatory registration and user

fee for fee for allall signing paid federal tax return signing paid federal tax return preparerspreparers

Issue a PTIN to all registered preparersIssue a PTIN to all registered preparers

Require renewal registration and user fee Require renewal registration and user fee every three yearsevery three years

2. Competency Testing2. Competency Testing Recommendations:Recommendations:

Require all unenrolled signing paid return Require all unenrolled signing paid return preparers to pass a competency test within three preparers to pass a competency test within three years from the initial implementation date. No years from the initial implementation date. No grandfathering for experiencegrandfathering for experience

Attorneys, CPAs, and enrolled agents would be Attorneys, CPAs, and enrolled agents would be exempt from testing exempt from testing

Develop two levels of competency testsDevelop two levels of competency tests

1) Wage and non-business 1040 returns and 1) Wage and non-business 1040 returns and

2) Wage and small business 1040 returns (would 2) Wage and small business 1040 returns (would expand to include other business returns in later expand to include other business returns in later years) years) (more)(more)

2. Competency Testing2. Competency Testing Recommendations (continued):Recommendations (continued):

Allow individuals to take the tests an unlimited Allow individuals to take the tests an unlimited number of times during the initial three-year number of times during the initial three-year implementation phaseimplementation phase

Individuals who pass the test will be permitted to Individuals who pass the test will be permitted to sign returns as paid tax return preparerssign returns as paid tax return preparers

After completion of the initial registration phase After completion of the initial registration phase and testing has begun, new unenrolled and testing has begun, new unenrolled preparers would be required to pass the preparers would be required to pass the competency test prior to receiving a PTINcompetency test prior to receiving a PTIN

3. Continuing Education3. Continuing Education

Recommendations:Recommendations: Require all unenrolled signing paid preparers Require all unenrolled signing paid preparers

to complete 15 Continuing Professional to complete 15 Continuing Professional Education (CPE) hours per year, including 3 Education (CPE) hours per year, including 3 hours of federal tax law updates, 2 hours of hours of federal tax law updates, 2 hours of ethics, and 10 hours of federal tax lawethics, and 10 hours of federal tax law

During three-year renewal registration, require During three-year renewal registration, require self-certification of 45 hours of CPE self-certification of 45 hours of CPE completion (IRS will perform random completion (IRS will perform random verification)verification)

4. Tax Compliance4. Tax Compliance

Recommendations: Recommendations: During the three-year phase-in period, tax During the three-year phase-in period, tax

compliance checks would be performed on all compliance checks would be performed on all preparers after registrationpreparers after registration

After the three-year phase-in period, the IRS After the three-year phase-in period, the IRS would begin conducting tax compliance checks would begin conducting tax compliance checks prior to issuance or renewal of a PTIN. Similar to prior to issuance or renewal of a PTIN. Similar to the testing requirement, tax compliance would the testing requirement, tax compliance would become a condition of registration for new become a condition of registration for new applicants. applicants. (more)(more)

4. Tax Compliance4. Tax Compliance

Recommendations (continued): Recommendations (continued):

Existing preparers with potential tax compliance Existing preparers with potential tax compliance violations would be referred to the IRS Office of violations would be referred to the IRS Office of Professional Responsibility for investigation Professional Responsibility for investigation

Additional RecommendationsAdditional Recommendations

Apply Circular 230 ethical standards to all signing Apply Circular 230 ethical standards to all signing and nonsigning paid preparersand nonsigning paid preparers

Develop a comprehensive return preparer Develop a comprehensive return preparer enforcement strategy enforcement strategy

Develop a public awareness campaign to Develop a public awareness campaign to educate taxpayers, preparers, and employees on educate taxpayers, preparers, and employees on the new requirements and standards the new requirements and standards

Create a public database Create a public database

(more)(more)

Additional RecommendationsAdditional Recommendations

Establish an IRS task force that will seek the Establish an IRS task force that will seek the input of the software industry to address identified input of the software industry to address identified risks on software dependence and the possibility risks on software dependence and the possibility of establishing industry standardsof establishing industry standards

Convene a working group to review the refund Convene a working group to review the refund settlement product industry and explore settlement product industry and explore opportunities to improve efficiency of refund opportunities to improve efficiency of refund deliverydelivery

Efforts This Filing SeasonEfforts This Filing Season Helping taxpayers choose a reputable preparerHelping taxpayers choose a reputable preparer

Sending 10,000 letters to preparers with large Sending 10,000 letters to preparers with large volumes of returns with error-prone issuesvolumes of returns with error-prone issues

Visiting thousands of preparers who receive the Visiting thousands of preparers who receive the letters to discuss preparer obligations and letters to discuss preparer obligations and responsibilities responsibilities

Posing as taxpayers for the purpose of Posing as taxpayers for the purpose of determining non-compliance determining non-compliance

Working closely with the Department of Justice to Working closely with the Department of Justice to pursue civil or criminal action as appropriatepursue civil or criminal action as appropriate

Also Coming Soon…Also Coming Soon…Preparer E-File MandatePreparer E-File Mandate

Legislation was signed in late 2009 Legislation was signed in late 2009 mandating preparers that file more than 10 mandating preparers that file more than 10 individual or trust returns to e-file beginning individual or trust returns to e-file beginning 1/1/20111/1/2011

IRS has not yet issued rules or regulationsIRS has not yet issued rules or regulations

Analysis is underway on whether the Analysis is underway on whether the mandate will be phased in and whether mandate will be phased in and whether there will be exceptions, waivers, or there will be exceptions, waivers, or taxpayer opt-outstaxpayer opt-outs

In PreparationIn Preparation

If you file more than 10 individual or trust returns, If you file more than 10 individual or trust returns, are you enrolled and accepted to e-file? Do you are you enrolled and accepted to e-file? Do you have an Electronic Filing Identification Number have an Electronic Filing Identification Number (EFIN)?(EFIN)? If yes, all you need to do is file your customers’ returns If yes, all you need to do is file your customers’ returns

electronicallyelectronically

If no, the first step is to enroll to participate in IRS e-file, If no, the first step is to enroll to participate in IRS e-file, also known as becoming an Electronic Return Originator also known as becoming an Electronic Return Originator (ERO). You may do this anytime. Visit IRS.gov and (ERO). You may do this anytime. Visit IRS.gov and click on the e-file logo.click on the e-file logo.

Collection Issues Collection Issues

NoticesNotices Federal Tax LiensFederal Tax Liens Installment AgreementsInstallment Agreements Offer in CompromiseOffer in Compromise Appealing Collection IssuesAppealing Collection Issues

Issuance of NoticesIssuance of Notices

Who Works WhatWho Works What

After the last notice is issued:After the last notice is issued:

Status 26: Worked by a Revenue OfficerStatus 26: Worked by a Revenue Officer

Status 24: Queue – may be Status 24: Queue – may be worked by worked by

Campus, ACS, TAC or Field Collection Campus, ACS, TAC or Field Collection

Status 22: Referred to the Automated Status 22: Referred to the Automated

Collection System (ACS)Collection System (ACS)

• May also be worked at Taxpayer Assistance Centers May also be worked at Taxpayer Assistance Centers

(TAC) – walk-in sites(TAC) – walk-in sites

Federal Tax LienFederal Tax Lien Legal claim against property as security Legal claim against property as security

for tax debtfor tax debt

Arises after assessment, notice and Arises after assessment, notice and

demand, and neglect or refusal to paydemand, and neglect or refusal to pay

NFTL is filed to establish priority against NFTL is filed to establish priority against

competing creditorscompeting creditors

Appeal rights after filing Appeal rights after filing

Levy/Seizure AuthorityLevy/Seizure Authority Final Notice issued at least 30 days prior to levyFinal Notice issued at least 30 days prior to levy

Seizure: Property that is held by the taxpayerSeizure: Property that is held by the taxpayer

Car, Boat, House, etc.Car, Boat, House, etc.

Levy: Property that belongs to the taxpayer that is held by Levy: Property that belongs to the taxpayer that is held by

someone elsesomeone else

Wages, bank accounts, retirement accounts, etc.Wages, bank accounts, retirement accounts, etc.

Levy on assets easily converted to cash firstLevy on assets easily converted to cash first

Appeal Rights prior to levy within 30 days of noticeAppeal Rights prior to levy within 30 days of notice

Collection Due Process hearing with Appeals DivisionCollection Due Process hearing with Appeals Division

Installment AgreementsInstallment Agreements TP can not full pay immediatelyTP can not full pay immediately TP can make paymentsTP can make payments TP can Full Pay prior to expiration of the TP can Full Pay prior to expiration of the

Collection StatuteCollection Statute TP can make payments up to the TP can make payments up to the

expiration of the Collection Statute expiration of the Collection Statute Penalty and Interest continue to accruePenalty and Interest continue to accrue

Payroll DeductionsPayroll Deductions Direct DebitsDirect Debits Monthly RemittancesMonthly Remittances

Streamlined Installment Streamlined Installment AgreementsAgreements

Income TaxIncome Tax Business or IndividualBusiness or Individual

Out-of-Business Payroll TaxesOut-of-Business Payroll Taxes

Balance due less than $25KBalance due less than $25K

Can full pay in five yearsCan full pay in five years

All Federal tax returns must be filed All Federal tax returns must be filed

Financial statement may be requiredFinancial statement may be required

Generally, Federal Tax Lien is consideredGenerally, Federal Tax Lien is considered

Traditional Installment AgreementsTraditional Installment Agreements

Collection Information Statement is requiredCollection Information Statement is required Collection Financial Standards are used to help determine a Collection Financial Standards are used to help determine a

taxpayer's ability to pay a delinquent tax liabilitytaxpayer's ability to pay a delinquent tax liability Allowances for food, clothing and other items, known as the Allowances for food, clothing and other items, known as the

National Standards. Taxpayers are allowed the total National Standards. Taxpayers are allowed the total National Standards amount for their family size and income National Standards amount for their family size and income level, without questioning amounts actually spentlevel, without questioning amounts actually spent

Maximum allowances for housing and utilities (based on Maximum allowances for housing and utilities (based on family size) and transportation, known as the Local family size) and transportation, known as the Local Standards, both vary by County. Unlike the National Standards, both vary by County. Unlike the National Standards, the taxpayer is allowed the amount actually Standards, the taxpayer is allowed the amount actually spent or the standard, whichever is lessspent or the standard, whichever is less

What is an Offer in Compromise?What is an Offer in Compromise?

An agreement between the taxpayer and the IRS that An agreement between the taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full settles the taxpayer’s tax debt for less than the full amount owedamount owed

Objectives of the OIC ProgramObjectives of the OIC Program

Resolution in best interest of both the taxpayer and Resolution in best interest of both the taxpayer and the governmentthe government

Provide taxpayer a fresh start toward future Provide taxpayer a fresh start toward future compliancecompliance

Obtain what can be reasonably collected as early as Obtain what can be reasonably collected as early as possible and at least costpossible and at least cost

Revenue that may not be collectable through other Revenue that may not be collectable through other meansmeans

Basis of OICsBasis of OICs Doubt as to Collectibility -Doubt as to Collectibility - doubt that the tax liability doubt that the tax liability

could be fully paid during the life of the statutecould be fully paid during the life of the statute

Effective Tax Administration -Effective Tax Administration - exceptional circumstance exceptional circumstance exists: public policy/equity/economic hardshipexists: public policy/equity/economic hardship

Doubt as to Liability - Doubt as to Liability - doubt exists that the assessed tax doubt exists that the assessed tax is correctis correct

OIC Payment TermsOIC Payment Terms

Lump Sum Cash OfferLump Sum Cash Offer Short Term Periodic Payment OfferShort Term Periodic Payment Offer Deferred Periodic Payment OfferDeferred Periodic Payment Offer

Lump Sum Cash OfferLump Sum Cash Offer Payable in five or fewer installments upon written notice Payable in five or fewer installments upon written notice

of acceptanceof acceptance

Offer must be accompanied by 20% of the amount being Offer must be accompanied by 20% of the amount being offered and the $150 application fee or a completed Form offered and the $150 application fee or a completed Form 656-A656-A

20% payment is not refundable, regardless of the 20% payment is not refundable, regardless of the outcome of the OICoutcome of the OIC

Determining the Lump Sum Offer Determining the Lump Sum Offer AmountAmount

5 or fewer installments in 5 months or less:5 or fewer installments in 5 months or less:- Realizable value of assets + amount that could be Realizable value of assets + amount that could be

collected over 48 months (or time remaining on collected over 48 months (or time remaining on statute, whichever is less)statute, whichever is less)

5 or fewer installments in more than 5 months but within 5 or fewer installments in more than 5 months but within 24 months :24 months :

- Realizable value of assets + amount that could be Realizable value of assets + amount that could be collected over 60 months of payments (or time collected over 60 months of payments (or time remaining on statute, whichever is less)remaining on statute, whichever is less)

Determining the Lump Sum Offer Determining the Lump Sum Offer Amount Amount (continued)(continued)

5 or fewer installments in more than 24 months:5 or fewer installments in more than 24 months:- Realizable value of assets + amount that could be Realizable value of assets + amount that could be

collected over the time remaining on the statutecollected over the time remaining on the statute

Short Term Periodic Payment OfferShort Term Periodic Payment Offer

The offer amount must be paid within 24 months of the The offer amount must be paid within 24 months of the date the IRS received the offerdate the IRS received the offer

The first installment and the $150 application fee or a The first installment and the $150 application fee or a completed Form 656-A are due upon filingcompleted Form 656-A are due upon filing

Determining the Short Term Determining the Short Term Periodic Payment Offer AmountPeriodic Payment Offer Amount

The offer amount must equal or exceed:The offer amount must equal or exceed:

The realizable value of assets + what could be The realizable value of assets + what could be collected over 60 months of payments, or the time collected over 60 months of payments, or the time remaining on the statute, whichever is lessremaining on the statute, whichever is less

Deferred Periodic Payment OfferDeferred Periodic Payment Offer

Payable in installments in 25 or more months but Payable in installments in 25 or more months but within the life of the remaining statutory period for within the life of the remaining statutory period for collectioncollection

Offer must be accompanied with the first proposed Offer must be accompanied with the first proposed installment payment and the $150 application fee, or a installment payment and the $150 application fee, or a completed Form 656-Acompleted Form 656-A

Determining the Deferred Periodic Determining the Deferred Periodic Payment Offer AmountPayment Offer Amount

The offer amount must equal or exceed:The offer amount must equal or exceed:

The realizable value of assets + the amount that The realizable value of assets + the amount that could be collected through monthly payments could be collected through monthly payments during the remaining life of the collection statute.during the remaining life of the collection statute.

Processability CriteriaProcessability Criteria

The Taxpayer Must:The Taxpayer Must:

1. Not be a debtor in open bankruptcy1. Not be a debtor in open bankruptcy

2. Submit $150 application fee or Form 656-A2. Submit $150 application fee or Form 656-A

3. Submit 20% payment if filing a Lump Sum Cash 3. Submit 20% payment if filing a Lump Sum Cash offer, or the first installment payment if filing a offer, or the first installment payment if filing a Short Term or Deferred Periodic Payment offer, or Short Term or Deferred Periodic Payment offer, or submit Form 656-Asubmit Form 656-A

OIC ProcessingOIC Processing

Offer must be filed with COIC site: Memphis or Offer must be filed with COIC site: Memphis or Holtsville. Holtsville.

COIC site is determined by the taxpayer’s state of COIC site is determined by the taxpayer’s state of residenceresidence Exception: DATL offers must be filed with Exception: DATL offers must be filed with HoltsvilleHoltsville

COIC makes all processability determinationsCOIC makes all processability determinations

FieldField The Field OIC groups work the following types of cases:The Field OIC groups work the following types of cases:

* CorporationsCorporations* PartnershipsPartnerships* Estates and TrustsEstates and Trusts* Trust Fund Recovery Penalty (TFRP) – Doubt as to Liability Trust Fund Recovery Penalty (TFRP) – Doubt as to Liability

(DATL) only(DATL) only* Any business with employeesAny business with employees* Closely held corporationsClosely held corporations* LLP and LLC LLP and LLC * Sole proprietors with gross receipts over $500,000Sole proprietors with gross receipts over $500,000

Field (continued)Field (continued)

Field OIC groups are located in three Collection Areas:Field OIC groups are located in three Collection Areas:

– CaliforniaCalifornia– Gulf StatesGulf States– South AtlanticSouth Atlantic

Doubt as to Liability ProcessingDoubt as to Liability Processing

Most Doubt as to Liability offers are processed and Most Doubt as to Liability offers are processed and worked by a centralized Doubt as to Liability Unit in worked by a centralized Doubt as to Liability Unit in the Brookhaven Campusthe Brookhaven Campus

Low Income GuidelinesLow Income Guidelines

• Used to determine eligibility for exception to the Used to determine eligibility for exception to the application fee application fee

• Used to determine eligibility for exception to Used to determine eligibility for exception to initial and all subsequent payments due during initial and all subsequent payments due during course of offer investigationcourse of offer investigation

• Only applies to individualsOnly applies to individuals

• Annual income level is based on the IRS OIC Low Annual income level is based on the IRS OIC Low Income Guidelines.Income Guidelines.

Payment DesignationsPayment Designations Taxpayers may designate the application of the 20% Taxpayers may designate the application of the 20%

initial payment with the offer and periodic payments initial payment with the offer and periodic payments submitted while the offer is being investigatedsubmitted while the offer is being investigated

Designation must be in writing at the time of payment Designation must be in writing at the time of payment and specify taxable year, period, and type of taxand specify taxable year, period, and type of tax

$150 application fee cannot be designated$150 application fee cannot be designated

Payment DesignationsPayment Designations(continued)(continued)

Payments in excess of the required amount will be Payments in excess of the required amount will be applied to tax unless designated as a depositapplied to tax unless designated as a deposit

Payments are considered “payments on tax” and are not Payments are considered “payments on tax” and are not refundablerefundable

Deposits are refundable if the offer is later returned, Deposits are refundable if the offer is later returned, rejected, or withdrawnrejected, or withdrawn

Form 656 - Most Common ErrorsForm 656 - Most Common Errors

Tax periods missing or incorrectTax periods missing or incorrect OIC amount missing or not consistent with the termsOIC amount missing or not consistent with the terms Taxpayer identification numbers missing or incorrectTaxpayer identification numbers missing or incorrect OIC includes joint liabilities without signatures or OIC includes joint liabilities without signatures or

both partiesboth parties OIC submitted by a husband and wife with joint OIC submitted by a husband and wife with joint

liability taxes but also includes the single liabilities of liability taxes but also includes the single liabilities of one of the taxpayers.one of the taxpayers.

Most Common Reasons for a Most Common Reasons for a “Processable Return”“Processable Return”

Failure to provide financial informationFailure to provide financial information

Failure to stay in compliance with estimated tax Failure to stay in compliance with estimated tax paymentspayments

Waiver of fee not substantiatedWaiver of fee not substantiated

Returns not filedReturns not filed

Tax Liens, Impact on Statutes, & Tax Liens, Impact on Statutes, & Appeal RightsAppeal Rights

Tax liens may be filed during the offer investigationTax liens may be filed during the offer investigation Tax liens not released until offer payment terms are Tax liens not released until offer payment terms are

satisfiedsatisfied Statute of limitations for collection is suspended for Statute of limitations for collection is suspended for

pending offerspending offers IRC § 7122 – provides for appeal of rejection of an IRC § 7122 – provides for appeal of rejection of an

offer offer

FY 2008 Program ResultsFY 2008 Program Results

Receipts: 43,989Receipts: 43,989

Dispositions:Dispositions: TotalTotal % of Total% of Total

Non processable returns: Non processable returns: 4,706 10% 4,706 10% Acceptances: Acceptances: 10,67710,677 23% 23% Rejections: Rejections: 11,608 11,608 25% 25% Returns: Returns: 13,32913,329 29% 29%

Case Cycle TimeCase Cycle Time COICCOIC

* 92% of offers processed by COIC are currently 92% of offers processed by COIC are currently closed within 6 months or lessclosed within 6 months or less

FieldField* 74% of offers worked in our Field groups are 74% of offers worked in our Field groups are

currently closed in 9 months or lesscurrently closed in 9 months or less

Finally….Finally…. Before FilingBefore Filing

* Explore all collection options Explore all collection options * Review processability checklist in Form 656Review processability checklist in Form 656* Ensure taxpayer is current with all filing and paying Ensure taxpayer is current with all filing and paying

requirementsrequirements* Include all required fees and paymentsInclude all required fees and payments* Carefully complete financial statements and Form Carefully complete financial statements and Form

656656

Appealing Collection ActionsAppealing Collection Actions

Traditional AppealsTraditional Appeals Denied OICs, Trust Fund Recovery Denied OICs, Trust Fund Recovery

Penalties, Other PenaltiesPenalties, Other Penalties

Collection Appeals ProgramCollection Appeals Program Pub. 1660 Collection Appeal RightsPub. 1660 Collection Appeal Rights

Collection Due ProcessCollection Due Process Pub. 1660 Collection Appeal RightsPub. 1660 Collection Appeal Rights

The Collection Appeals ProgramThe Collection Appeals Program Taxpayers can appeal under CAP when they are told by an Taxpayers can appeal under CAP when they are told by an

IRS employee that a IRS employee that a lien, lien,

• Can also appeal denied requests to withdraw, discharge, or Can also appeal denied requests to withdraw, discharge, or subordinatesubordinate

levy, or levy, or seizure action seizure action

• Must 1Must 1stst appeal within 10 days to the field Collection manager after appeal within 10 days to the field Collection manager after Notice of Seizure is providedNotice of Seizure is provided

will be or has been taken, or that an installment agreement will be or has been taken, or that an installment agreement is denied or terminated is denied or terminated

Generally, quicker and available for a broader range of Generally, quicker and available for a broader range of collection actionscollection actions

Determinations should be made within 5 days of receipt by AppealsDeterminations should be made within 5 days of receipt by Appeals

The Collection Appeals ProgramThe Collection Appeals Program Under CAP:Under CAP:

Lien, Levy and SeizureLien, Levy and Seizure

• Collection is generally suspended unless in jeopardy Collection is generally suspended unless in jeopardy

Installment AgreementInstallment Agreement

• Collection is suspended for first 30 days after denial Collection is suspended for first 30 days after denial

or termination (unless in jeopardy)or termination (unless in jeopardy)

• Collection is generally suspended while under Collection is generally suspended while under

appeal if timely filed appeal if timely filed

The CAP ProcessThe CAP Process

The taxpayer must first discuss the case with The taxpayer must first discuss the case with the group manager the group manager

If resolution is not reached, the taxpayer may If resolution is not reached, the taxpayer may request an appeals hearingrequest an appeals hearing Use Form 9423 Collection Appeals Request for Use Form 9423 Collection Appeals Request for

field (non-Campus) casesfield (non-Campus) cases Must be submitted to the Collection manager Must be submitted to the Collection manager

within 2 days of managerial conferencewithin 2 days of managerial conference

The CAP ProcessThe CAP Process The decision made in the CAP hearing is The decision made in the CAP hearing is

FINALFINAL

No subsequent CDP after lien or levy No subsequent CDP after lien or levy

notice is later issued (if not previously notice is later issued (if not previously

done)done)

There is no judicial review There is no judicial review

Collection Due ProcessCollection Due ProcessCDP available if you receive one of the following CDP available if you receive one of the following

notices:notices: Notice of Federal Tax Lien Filing (L1372)Notice of Federal Tax Lien Filing (L1372)

IRS must notify TP within 5 days of filingIRS must notify TP within 5 days of filing TP must file hearing request within 30 days (date will be TP must file hearing request within 30 days (date will be

specified on notice)specified on notice) Final Notice of Intent to Levy (L1058 or 11)Final Notice of Intent to Levy (L1058 or 11)

Collection action suspended for 30 days from notice Collection action suspended for 30 days from notice datedate

TP must file hearing request within 30 daysTP must file hearing request within 30 days Notice of Jeopardy LevyNotice of Jeopardy Levy Notice of Levy on Your State Tax Refund Notice of Levy on Your State Tax Refund

Right to HearingRight to HearingForm 12153 Request for a Collection Due Process HearingForm 12153 Request for a Collection Due Process HearingTP may raise issues relating to unpaid tax:TP may raise issues relating to unpaid tax: Appropriateness of collection actionsAppropriateness of collection actions Collection alternativesCollection alternatives

Offer-in-CompromiseOffer-in-Compromise Installment AgreementInstallment Agreement

Spousal defensesSpousal defenses Innocent or Injured SpouseInnocent or Injured Spouse

Amount of taxAmount of tax No 90-day letter receivedNo 90-day letter received No other opportunity to dispute tax liabilityNo other opportunity to dispute tax liability

TP may not raise any of the above issues considered at a TP may not raise any of the above issues considered at a prior administrative or judicial hearing prior administrative or judicial hearing

Right to HearingRight to Hearing Collection action is generally suspended Collection action is generally suspended

during the 30 days after the levy notice during the 30 days after the levy notice and during the appeal process if appeal and during the appeal process if appeal was filed timely (unless in jeopardy)was filed timely (unless in jeopardy)

Late Request (after 30 days)Late Request (after 30 days) Equivalent HearingEquivalent Hearing

• Same considerationSame consideration• No right to judicial reviewNo right to judicial review• Collection actions not statutorily suspendedCollection actions not statutorily suspended

Location of CDP or Equivalent HearingLocation of CDP or Equivalent Hearing Local Appeals OfficeLocal Appeals Office

• Frivolous arguments not considered in officeFrivolous arguments not considered in office Telephone Telephone

Frivolous ArgumentsFrivolous Arguments

Taxpayer must raise valid issuesTaxpayer must raise valid issues Appeals will NOT consider the following argumentsAppeals will NOT consider the following arguments

Constitutional, Religious, Moral, Conscientious, Political, Constitutional, Religious, Moral, Conscientious, Political, etc. etc.

Tape Recording NOT permitted for CDP or Equivalent Tape Recording NOT permitted for CDP or Equivalent

hearing espousing above argumentshearing espousing above arguments Appeals will STILL solicit alternative collection Appeals will STILL solicit alternative collection

methods or valid challenges to underlying audit methods or valid challenges to underlying audit issues issues

What Happens After the Hearing?What Happens After the Hearing?

Account adjustment if necessaryAccount adjustment if necessary

Waiver requested for agreed Waiver requested for agreed CDP casesCDP cases

““Decision Letter” sent in Decision Letter” sent in Equivalent Hearing casesEquivalent Hearing cases

In CDP cases where taxpayer will not sign the In CDP cases where taxpayer will not sign the waiver, Appeals will issue a waiver, Appeals will issue a ““Determination LetterDetermination Letter” that addresses: ” that addresses:

Whether the IRS has verified that it followed Whether the IRS has verified that it followed legal and procedural requirementslegal and procedural requirements

The issues raised by the taxpayerThe issues raised by the taxpayer Whether the collection action balances the Whether the collection action balances the

government’s need to collect with the taxpayer’s government’s need to collect with the taxpayer’s concerns about intrusivenessconcerns about intrusiveness

Taxpayer’s right to petition the CourtTaxpayer’s right to petition the Court Tax Court or District Court within 30 days after Appeals Tax Court or District Court within 30 days after Appeals

determinationdetermination

What Happens After the What Happens After the Hearing?Hearing?

What Happens After the What Happens After the Hearing?Hearing?

When are Cases Returned for When are Cases Returned for Collection?Collection?

Request WithdrawnRequest Withdrawn

Equivalent HearingEquivalent Hearing – when decision rendered – when decision rendered

Agreed CDPAgreed CDP – when waiver accepted – when waiver accepted

Unagreed CDPUnagreed CDP – when no Court petition is – when no Court petition is filed or when judicial review finalizedfiled or when judicial review finalized

Taxpayer can return to Appeals if:Taxpayer can return to Appeals if:

Appeals’ determination is not carried outAppeals’ determination is not carried out

Taxpayer has a change in circumstancesTaxpayer has a change in circumstances

Before returning to Appeals under this provision, Before returning to Appeals under this provision,

taxpayer must exhaust all other administrative taxpayer must exhaust all other administrative

remediesremedies

Retained JurisdictionRetained Jurisdiction

Comparing CAP and CDPComparing CAP and CDP

Important distinction between CDP and CAP:Important distinction between CDP and CAP:

Under CDP a lien or levy action MUST have Under CDP a lien or levy action MUST have

occurred firstoccurred first

Taxpayers may request CAP Taxpayers may request CAP beforebefore or after lien or or after lien or

levy actionlevy action

CDP Expands Taxpayer RightsCDP Expands Taxpayer Rightsto Resolve Disputesto Resolve Disputes

1.1. The taxpayer has judicial rights following CDP The taxpayer has judicial rights following CDP

determination, but not following CAP decisiondetermination, but not following CAP decision

2.2. Appeals officers have broader authority in resolving a CDP Appeals officers have broader authority in resolving a CDP

case than in resolving a CAPcase than in resolving a CAP

Can propose other solutionsCan propose other solutions

3.3. A taxpayer A taxpayer maymay have the right to challenge an underlying have the right to challenge an underlying

liability during a CDP Hearing, but not during a CAPliability during a CDP Hearing, but not during a CAP

Tips for Collection CasesTips for Collection Cases

Try to resolve the case as early in the Try to resolve the case as early in the

process as possibleprocess as possible

Taxpayer must be in full compliance Taxpayer must be in full compliance

during resolution periodduring resolution period

Tips for Collection-related CasesTips for Collection-related Cases

Taxpayer should bring the following records Taxpayer should bring the following records to the conference:to the conference: Current, verifiable financial statementsCurrent, verifiable financial statements Recent bank and wage statementsRecent bank and wage statements Verification of loan balancesVerification of loan balances Reliable valuations of assetsReliable valuations of assets Documentation supporting a qualified challenge Documentation supporting a qualified challenge

to the underlying tax liability, if appropriateto the underlying tax liability, if appropriate

ResourcesResources Form 9465: Installment Agreement RequestForm 9465: Installment Agreement Request Publication 594: What You Should Know Publication 594: What You Should Know

About the Collection ProcessAbout the Collection Process Publication 4165: An Introduction to Publication 4165: An Introduction to

Collection Due Process Hearings Collection Due Process Hearings Publication 1660: Collection Appeals Rights Publication 1660: Collection Appeals Rights Publication 1854: How to Prepare A Collection Publication 1854: How to Prepare A Collection

Information StatementInformation Statement Publication 971: Innocent Spouse ReliefPublication 971: Innocent Spouse Relief Publication 4183: Injured Spouse ClaimsPublication 4183: Injured Spouse Claims

Collection Issues Collection Issues

Questions?Questions?