Docstoc

DEFERRED COMP

Document Sample
DEFERRED COMP Powered By Docstoc
					                                         Western States Bar Association Conference
                                                                         Questions
                                                                  October 19, 2007

COLLECTION

CDP APPEALS
Given that the Final Notice gives a taxpayer 30 days to file a CDP appeal, it is
critical (particularly for malpractice purposes) for a practitioner to know when
the 30 days expires. Often, practitioners rely on the copy sent to them by the
IRS and not the copy sent to the taxpayer. It is apparent that sometimes the
date on the practitioner's copy does not match the date on the taxpayer's
copy. Sometimes the taxpayer's copy has an earlier date. In the interest of
fairness, might it be a good idea for the IRS to require its employees to send
a copy of what actually went to the taxpayer, so there will be no confusion as
to the deadline for an appeal?

Answer:
This issue was previously worked and resolved through our IMRS system.

Issue: 07-000523

The IRS is sending the "Right to a Hearing" 30 day Letter to the taxpayers
with an earlier date on it than the "copy" of the letter which is sent to the
POA. Deadlines have been missed because the POA believed his copy to be a
true copy and set the follow up date accordingly. The Rep turning in this
information has talked to different IRS units and it appears everyone is
aware of the problem. This problem seems to be occurring frequent since last
fall. I asked the Rep turning in this information what unit is sending these
letters and he stated they are from different units such as Appeals, Collection
and ACS. There appears to be a similar issue in SAMS. The document is
attached. It states this is being worked as Project P0026493 which I was
unable to access to determine who is in charge. Solution: Internal policy
change. When issuing a 30 day letter from any unit to a POA it needs to have
the same date as the Taxpayers copy. This should be reinforced with a SERP
message. Possibly a clarification in the IRM.

Resolution:

07/16/2007 - Response: Currently, the Certified Return Receipt Request mail
(taxpayer’s letter) is in a separate print file. This print file (the taxpayer’s
letter) is sent to four campuses where they receive 1st priority. The POA
copies are in a different print file and are generally mailed first class.
Because we were printing the representative's letter from a different file than
the one used to print the taxpayer's letter, they frequently had different
dates. However, beginning July 1, 2007 the letters will be printed from the
same file and will have the same date.

Routinely, Final Notices are sent by the IRS (either by the Service Center or
a revenue officer) in situations where there appears to be no thought given
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
to whether it is an appropriate time to send that notice. As practitioners, we
feel compelled to file an appeal to protect the taxpayer. Especially given the
fact that the IRS is buried in CDP appeals, is it possible that more discretion
could be exercised before these notices are sent, to help avoid unnecessary
CDP appeals?

Answer:
We will work this through our IMRS system. Information will be sent to the
attendees when a resolution is received.
The final notices have a specific date; the response date is 35 days after the
date shown. Due to mailing times the response may be considered late if it
takes too long to receive it at the IRS.

EXAMINATION

DEFERRED COMP

Under Section 457(f) a participant in a deferred compensation plan is
required to include the compensation in gross income the 1st taxable year in
which there is not substantial risk of forfeiture. Thus, if an individual has
deferred compensation that becomes fully vested in 2006 of $100,000 to be
paid in 2016, the present value of the $100,000 in reported on his or her W-
2 for 2006.

The question is how does the employer report the difference between the
amount included in income in 2006 when the full $100,000 is paid in 2016 or
if the $100,000 is to accrue interest how is the interest reported in 2016.

The IRS states that the difference between the present value of the deferred
compensation reported in 2006 and the amount paid in 2016 and any
interest earned on the deferred compensation reported in 2006 is NOT to be
reported on Form 1099. If the individual is no longer an employee it should
not be reported on W-2.

How should it be reported by the former Employer? This is the same
question asked last year and the IRS had difficulty understanding the issue.

Answer:
Section 1.457-11(c) provides that any amount deferred under a Section 457
plan that is not subject to a substantial risk of forfeiture, i.e., a vested
amount, is currently included in gross income even if not actually or
constructively received and the amount subsequently paid or made available
is tax under Section 72. Basically it's a matter of where the amounts that
were reported in 2006, the individual would have a basis in that amount, the
$100,000 amount and any amount of actual distribution of the $100,000
including any interest that is earned on that. The taxpayer would have a




                                       2
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
basis in the amount of $100,000 and the interest would have to be taken in
income.

NOTE: We have asked for further clarification and will share with the group
when it is received.

COUNSEL AND EXAMINATION

DIRECTING IRS REQUESTS

The Regulations contain many references to actions that are to be taken by
an IRS District Director, or submissions that a taxpayer must make to a
District Director, which is a position that no longer exists at IRS. For
example, Treas. Reg. Sec. 1.1033(a)-2(c)(3) provides that a taxpayer may
request an extension of the replacement period under IRC Sec. 1033 for
involuntarily converted property, by submitting an application to the District
Director for the internal revenue district in which the taxpayer's return was
filed for the year of the conversion. What is the status of IRS efforts to
update these references to the District Directors? Any possibility of IRS
issuing a Rev. Proc., or other guidance, listing all such references to the
District Directors and listing a current official to whom responsibility for each
such matter now rests? Also, to whom at IRS would a taxpayer currently
submit a request under Treas. Reg. Sec. 1.1033(a)-2(c)(3)?

Answer:
IRM 1.11.2.6.1(3) lists some current titles and the outdated titles they
replaced. District Director has been replaced with Area Director. If your
taxpayer is an SBSE taxpayer, references to the District Director should be to
the Area Director (Examination) for the geographic area in which the
taxpayer resides if it relates to an examination matter and to the
corresponding Area Director (Collection) if it relates to a collection matter.
(7 Examination Area Directors and 7 Collection Area Directors). If your
taxpayer is an LMSB taxpayer, references to the District Director should be to
the appropriate Industry Director. We have raised your concerns about
having more guidance on the title of the relevant person to whom
submissions should be made. With respect to the specific question about
Treas. Reg. Sec. 1.1033(a)-2(c)(3), the request should be to the appropriate
Area Director. This reference is found on IRS.gov at
http://www.irs.gov/irm/part1/ch09s02.html#d0e173661 .


COUNSEL AND EXAMINATION

ECONOMIC SUBSTANCE DOCTRINE

Codification of the economic substance doctrine would provide tax
practitioners with a degree of certainty in the tax planning field. What advice



                                        3
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
can practitioners realistically provide to their clients regarding transactions
when the standard for economic substance appears to be a moving target
based upon the case law?

Answer:
We disagree that the standard is a moving target. It is not the role of the
IRS to impede or discourage bona fide business transactions, and the
economic substance doctrine, in particular, will not be used as a general anti-
abuse rule to be asserted every time the IRS confronts a tax shelter
transaction it doesn’t like. The economic substance doctrine should be used
only in those cases where the tax result produced by the transaction is not in
accord with Congressional intent and economic reality. Economic reality
controls for federal tax purposes. This means that subjective assertions of
business purpose, profitability, or characterization will not be accepted
without objective evidence of the same. Transactions that fall within the
literal terms of a Code provision but are contrary to the underlying legislative
purpose will be disregarded. It is the real deal, so to speak, that matters.

EXAMINATION

EIN/TIN ON PETITION


What is the procedure for a nonresident alien to obtain a tax identification
number (EIN) for such person's wholly owned domestic entity, where the
nonresident does not have a current income tax return filing requirement?

This question stems from the situation where a nonresident alien forms a
domestic entity that needs to open a bank account or otherwise provide an
EIN to a third party for tax reporting purposes. In order to obtain an EIN, the
entity must of course file Form SS-4, and Box 7b of Form SS-4 requires the
nonresident owner's individual taxpayer identification number (ITIN). If the
owner does not already have an ITIN, he must file Form W-7 to obtain an
ITIN. However, under current IRS procedures, ITINs are normally not issued
unless and until a Form W-7 is filed along with a US tax return for the
nonresident (Form 1040NR). There are a few exceptions where Form W-7
may be filed and an ITIN issued without also filing a tax return (eg., where
the Form W-7 is filed to request an ITIN for purposes of nonresident
withholding), but the exceptions do not include requesting an ITIN for
purposes of being able to complete Form SS-4.

Answer:
An individual no longer needs to obtain an ITIN for the sole purpose of
obtaining an EIN. Although that used to be the case, that requirement has
been changed.




                                        4
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
We will work this through our IMRS system. Information will be sent to the
attendees when a resolution is received.

SS4 Unit

I have tried filing Form SS-4 with an attachment for Box 7b indicating that it
is not applicable because the owner is a nonresident alien who does not have
an ITIN. I have also tried filing Form SS-4 along with Form W-7 to request
an ITIN for purposes of processing the Form SS-4. In both situations, the
IRS has refused to process the Form SS-4 citing it being incomplete. I have
been told that Box 7b needs to be completed, and that the nonresident
owner needs to obtain an ITIN by filing Form W-7 along with his tax return.
However, in certain situations the nonresident owner does not currently (and
may never) have a US tax return filing obligation, and in other
situations the owner cannot file a tax return at that time because the tax
year for which the return would be filed has not ended. Consequently, the
Form SS-4 cannot be processed and the entity cannot obtain an EIN (and
open a bank account, etc., etc.). This situation is fairly common and quite
frustrating and burdensome.

Answer:
Forms SS-4 for international taxpayers should be filed at the Philadelphia
campus. I'm really surprised to hear these forms are being rejected as an
SSN or ITIN is not required for a foreign entity to obtain an EIN. I'm
including one of the manager's of a Philadelphia EIN assignment team in this
response.

The IRM 21.7.13 is clear on this issue. See IRS.gov at:
http://www.irs.gov/irm/part21/ch07s24.html If this is a wide spread
issue we will consider putting this in IMRS.

COUNSEL

2. In these days of identity theft, what procedural changes (if any) is the
United States Tax Court and the IRS taking to keep social security numbers
and other confidential information private? For example, is it still necessary
to include the taxpayer's SSN in the Tax Court Petition, given that the
Petition is a public record?

Answer:
Without access to a complete social security number, the Service will be
unable to identify or would misidentify taxpayers who have filed petitions
with the Tax Court. We need the social security number in order for us to
prevent premature and illegal assessment as well as to locate the taxpayer
administrative files. Currently the Tax Court Petition Forms do require that
the taxpayer identifying number be included. The Tax Court has proposed
rules changes which would not require that the taxpayer identifying number



                                       5
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
(TIN) be included on the petition but would require the petitioner to submit a
separate form containing the taxpayer identifying number. This form would
not be made public.

On the Collection side, the IRS is no longer including the complete TIN on
Notices of Federal Tax Lien (NFTL), which of course are public record once
filed in the local recorders’ offices. Only the last four digits are included.
(Note that NFTLs filed before this change went into effect are not being
retroactively redacted.) The IRS’s Special Assistant US Attorneys, who
handle bankruptcy court cases around the country, are of course adhering to
the rules requiring the redaction of TINs.

3. What is the Service’s position regarding the Tax Court’s proposed rules
preventing any of the parties in a Tax Court proceeding from revealing the
taxpayer’s social security number and financial account information?

Answer:
Proposed Rule 22.2 discourages parties and nonparties from including
taxpayer identification numbers, dates of birth, names of minor children, and
financial account numbers in documents filed with the Court. Pursuant to the
proposed rules: if a date of birth is provided, only the year should appear; if
a minor child is identified, only the minor child’s initials should appear; if a
financial account number is provided, only the last four digits of the number
should appear. The service needs an unredacted copy of the Notice of
Deficiency even if the public copy has the taxpayer identifying information
redacted. We hope that the final rules make provisions for the Service to
receive an unredacted copy of the Notice of Deficiency. The stipulation
process may also be an appropriate process to address some of these issues.

STAKEHOLDER LIAISON

ELECTRONIC TRANSCRIPTS AVAILABILITY FOR ATTORNEYS

Last year we queried whether there were any plans to make an arrangement
for attorney who do not prepare returns (and therefore do not e-file 5 or
more returns electronically) to have access to the IRS online transcript
delivery system. We were told that the current policy was being evaluated.
Please give us an update. It would be very helpful and less time consuming
for those working the Practitioner's Priority Line and at ACS if attorneys and
Enrolled Agents who do not prepare returns were to have access to the
transcript delivery system.

Answer at meeting:
E-Services Access for Circular 230 Representatives - They hope to have a
program in place in 2009/2010 to provide E-Services to individuals governed
by Circular 230 who do not prepare tax returns on a regular basis.




                                       6
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
Updated information: Sent to all attendees on 10/26/2007.

ELECTRONIC TRANSCRIPTS AVAILABILITY FOR ATTORNEYS

Last year we queried whether there were any plans to make an arrangement
for attorney who do not prepare returns (and therefore do not e-file 5 or
more returns electronically) to have access to the IRS online transcript
delivery system. We were told that the current policy was being evaluated.
Please give us an update. It would be very helpful and less time consuming
for those working the Practitioner's Priority Line and at ACS if attorneys and
Enrolled Agents who do not prepare returns were to have access to the
transcript delivery system.

We had given you information that the e-services planned to add all Circular
230 practitioners to this program without having to e-file any returns by
2009 or 2010.

This week we received information that the date this will be effective will be
November 1st of 2007. This is excellent news for those of you who are in
need of a transcript and would like access to our electronic system to obtain
these transcripts.

Additional Issue: There is a limit on transcripts received through Practitioner
Priority Service. Only able to get 3 years on return transcripts not 4 years.

NOTE: E-Services will provide the following transcripts.

Account Transcript File
     Any account active on IRS Master file

Return Transcript
      Current Year and 3 prior tax years

Record of Account
            Current Year and 3 prior tax years

Wage and Income Documents
           Six Years

Verification of Non-Filing
              Current Year and 3 prior tax years


COUNSEL AND EXAMINATION

ESTATE TAXES




                                       7
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
   1. Section 6166 provides for an election to defer the payment of estate
      taxes. The IRS requires the Estate (or transferee) to provide security
      for the deferred tax liability. The Regulations provide for a special
      estate tax lien (Reg. § 20.6324A-1) to attach to IRC Section 6166
      property interests in real or personal property. However, when my
      client's estate offered interests in a partnership or a corporation that
      held real estate as security for the lien we were advised that it was
      unacceptable and that only real estate was acceptable for the lien.
      Otherwise, our Section 6166 election would not be accepted even
      though this position is contrary to the Regulations. Is there an
      unwritten policy not to accept personal property?

Answer:
The IRS and Office of Chief Counsel are aware that there has been some
confusion on this question and possible inconsistency of treatment around
the Country. However, personal property interests proffered as security for
an IRC § 6324A lien may not be unilaterally rejected unless the proffered
property interests otherwise fail to meet the requirements for property
securing such a lien. The requirements are: 1) the proffered interests in
real or personal property must be expected to survive the period during
which estate tax is deferred under IRC § 6166; 2) the value of the property
interests are equal to the sum of the deferred tax plus the required interest,
and; 3) the property interests are designated in writing in the lien
agreement. In order to ensure consistency of treatment, a draft of legal
advice to the IRS to this affect is in final review in the Office of Chief
Counsel, and is expected to be issued by the date of the WSBA meeting.

Information from taxanalysts released 11/23/2007 is attached with
additional information.

   2. Is there any comment on the IRS' position regarding levying Exxon
      claimant’s soon-to-be paid settlement? Our concern is that there are
      40,000 claimants, 20% are now deceased, many without estates
      opened. How is the IRS going to handle the large number of stale
      probates in collection activities?

Answer:
We believe that, for the vast majority of deceased claimants, notices of
federal tax liens were filed and, for most, also served prior to the dates of
death. If a decedent's Exxon claim was encumbered by the government's
lien/levy prior to the DOD, the asset enters the decedent’s estate subject to
that encumbrance with the excess value belonging to the estate.

Where no probate case is opened, the IRS will instruct the fund administrator
to pay the levy as though the taxpayer were still alive. Where an informal
probate proceeding has been commenced (probably 90% of all Alaska
probates), the IRS will also instruct the administrator to honor the levy and
remit any remaining balance to the estate. In the case of no- or informal-


                                       8
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
probate cases, we believe that the family allowance, personal property
exemption, and homestead exemption, provided for by Alaska probate law,
can not be paid ahead of the IRS levy. The levy must be honored by the
fund administrator; the administrator remits the excess to the estate; the
estate can honor any applicable state exemptions out of that excess. The
homestead and personal property exemptions are ineffective under
conflicting federal law. The family allowance is applicable only for the first
year after the taxpayer's death. Only in those cases where a formal probate
is commenced, and the distribution becomes available within the one-year
family allowance period, would there be a valid priority issue. The IRS is
considering whether to honor the family allowance pursuant to its current
policy, despite the existence of a lien or levy prior to the date of death. We
note that there is no official position yet on this particular issue. .

We also believe that under Alaska law, informal probates are insufficient to
place a decedent's Exxon claim in custodia legis, and thus there would be no
bar to collecting our interests based on the filing date of the lien (if still in
effect) or date of levy on the fund.

If a formal probate is commenced, the property would be placed in custodia
legis, subject to the government's prior encumbrance. We have not yet seen
a formal case, and we will likely address the priority of the IRS levy in such
instances on a case-by-case basis, depending on the facts and
circumstances.

3. We have had several title companies telling us about their "new policy" to
require a letter from the IRS stating there is no estate tax due when an
estate is liquidating a parcel of real property. Often this is for non-taxable
estates. Where/from whom is the IRS going to provide these types of letters
- who should we be directing this type of request to?

Answer:
The IRS is able to provide transcripts of account, showing the amount of
estate tax due and paid, only for those estates that file a Form 706 federal
estate tax return. If no estate tax return was filed, the IRS will have no
information about that estate and will be unable to provide any information.
For estates that have filed an estate tax return and paid the estate tax due,
the executor should request a transcript of the estates account by filing a
Form 4506-T (Request for Transcript of Return (or account), with the
Cincinnati Campus at the following address:

RAIVS Team
P.O. Box 145500
Stop 2800 F
Cincinnati, OH 45250




                                        9
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
Note that the form 4506-T instructions currently tell all taxpayers requesting
transcripts other than those for individual taxpayers and Forms 1040, to file
their Forms 4506-T with various IRS Campuses, depending upon which
states the taxpayers would file the returns. Because all estate tax returns,
including those for non-U.S. citizens, are now processed at the Cincinnati
Campus, this question brought to light the inaccuracy of the instructions. SB
Counsel and the Cincinnati Campus are corresponding with Forms and Pubs
to correct the instructions.

COUNSEL

What are the procedures for providing the IRS with information on other
taxpayers with significant potential civil or criminal deficiencies pursuant to
the new ―whistleblower‖ statute?

Answer:
The new Whistleblower’s Office is working on guidance and procedures which
should be forthcoming. Despite the lack of procedures the Whistleblower’s
Office has been receiving tips and is reviewing them.
The existing Form 3949A can be used until new procedures are issued. The
form can be found at: http://www.irs.gov/pub/irs-pdf/f3949a.pdf . If the
form is not appropriate, a letter can be sent to the Internal Revenue Service,
Fresno, CA 93888.

COLLECTION

FINAL NOTICE OF INTENT TO LEVY (POA)

We have in some instances received a final notice of intent to levy for a client
under our Power of Attorney that was dated differently than the copy the
client received. We have been told that the glitch in the system is that the
notice to the taxpayer is issued and then there is a search of the CAF
database. If there is a POA, the Service then issues a notice to the
taxpayer's representative. Apparently, the process may take one or two
days to issue the notice to the POA, which may result in a different date. We
are told the IRS position is that the deadline for responding to the notice runs
from the date of the taxpayer's notice, not from the date of the POA's
notice. We are now requesting copies of such notices from our clients, but
can this glitch be corrected?

                         **********************
It is my experience that the IRS in certain instances issues Final Notices of
Intent to Levy with different dates to the taxpayer and the taxpayer’s
representative. In such a case, the copy which the taxpayer’s
representative receives is dated several days later than the one the taxpayer
receives. So, if a Collection Due Process Appeal is filed 30 days from the
date on the representative’s copy, it is untimely and then the taxpayer is
entitled to an Equivalent Hearing without judicial review.


                                        1
                                        0
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007

Is the IRS attempting to resolve this problem?

Answer:
This issue was previously worked and resolved through our IMRS system.

Issue: 07-000523

The IRS is sending the "Right to a Hearing" 30 day Letter to the taxpayers
with an earlier date on it than the "copy" of the letter which is sent to the
POA. Deadlines have been missed because the POA believed his copy to be a
true copy and set the follow up date accordingly. The Rep turning in this
information has talked to different IRS units and it appears everyone is
aware of the problem. This problem seems to be occurring frequent since last
fall. I asked the Rep turning in this information what unit is sending these
letters and he stated they are from different units such as Appeals, Collection
and ACS. There appears to be a similar issue in SAMS. The document is
attached. It states this is being worked as Project P0026493 which I was
unable to access to determine who is in charge. Solution: Internal policy
change. When issuing a 30 day letter from any unit to a POA it needs to have
the same date as the Taxpayers copy. This should be reinforced with a SERP
message. Possibly a clarification in the IRM.

Resolution:

07/16/2007 - Response: Currently, the Certified Return Receipt Request mail
(taxpayer’s letter) is in a separate print file. This print file (the taxpayer’s
letter) is sent to four campuses where they receive 1st priority. The POA
copies are in a different print file and are generally mailed first class.
Because we were printing the representative's letter from a different file than
the one used to print the taxpayer's letter, they frequently had different
dates. However, beginning July 1, 2007 the letters will be printed from the
same file and will have the same date.

Additional information from Collection:

   1. Question: Is the IRS attempting to resolve the discrepancies between
      the date on the taxpayer’s Final Notice and Demand (L-1058) and the
      date on the POA’s copy?

      Response: When the L-1058 is issued by a Revenue Officer through
      ICS, the POA receives a duplicate copy of the taxpayer notice minus
      any periods in which the POA is not authorized to receive
      correspondence. As long as there is a POA indicator on ICS, the L-937
      and a copy of the L-1058 will print automatically (Document 10042 (2-
      2006), ICS User Guide, Page 13-7).




                                       1
                                       1
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
      IDRS downloads POA information to ICS. It updates every time the
      case is updated or every time it is refreshed, at least every three
      weeks (Document 10042 (2-2006), ICS User Guide, Page 5-24). In
      addition to the updates through IDRS, ICS can be manually updated
      by the Revenue Officer to add or delete periods with POA authority.

      A less common way of generating the L-1058 is through ICS Word
      Macros. When using this method, a prompt is displayed asking the
      Revenue Officer, ―Do you want a POA Letter 937?‖ If the Revenue
      Officer opts to print the L937 they will need to print a duplicate copy of
      the L-1058 to send to the POA.

      From the Collection Field perspective, both methods send the POA
      their copy of the notice with the same date as the taxpayer notice.
      There should not be discrepancies with the notices issued by the
      Revenue Officer.


EXAMINATION

FOREIGN TAX CREDIT

What is the procedure for a US beneficiary of a foreign trust to receive credit
equal to their beneficial share of tax withheld for the foreign trust?

There appears to be a reporting and matching problem with respect to U.S.
federal income taxes withheld for foreign trusts. Often these foreign trusts
invest in U.S. securities that pay dividends. Since the shareholders are
foreign trusts, 30% tax is withheld at the source and reported on Forms 1042
and 1042S for the foreign trust. However, when the foreign trust distributes
the dividend income to a U.S. beneficiary and passes along the credit for U.S.
taxes withheld, the IRS is denying the credit to the beneficiary. The service
centers respond that no withholding has been credited to the U.S.
beneficiary. Copies of the Forms 1042 and 1042S are no help since they do
not mention the U.S. beneficiary and are for different amounts.

Answer:
If a foreign person has a liability, 30% is the maximum rate unless the
person is from a tax treaty country. If the foreign person is from a treaty
country, that person should file a return to take advantage of the lower
treaty rate.

CRIMINAL INVESTIGATIONS

FRAUD / INFORMANT’S REWARD

How should practitioners utilize the recent changes in Internal Revenue Code
§7623 to enhance compliance?


                                       1
                                       2
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007

Answer:
Guidance should be released December 15th. The existing Form 3949A can
be used until new procedures are issued. The form can be found at:
http://www.irs.gov/pub/irs-pdf/f3949a.pdf . If the form is not
appropriate, a letter can be sent to the Internal Revenue Service, Fresno, CA
93888.

EXAMINATION AND APPEALS

JOINT & SEVERAL LIABILITY (H&W)

What instruction, if any, is given to revenue agents and appeals officers
regarding settlements of tax liability where only one spouse is prepared to
sign the Form 870? This occurs in situations involving resolution of tax
shelter disputes and in civil cases brought after criminal
prosecutions/convictions. I seem to recall that the Service issued guidance to
the field on how to bifurcate the taxpayers’ accounts but I do not see it
happening very often and if I raise the issue, the first reaction is to ―punish‖
both spouses by issuing a 30-day or 90-day letter rather then completing the
settlement with the willing spouse.

Answer:
The Exam IRM section that explains the procedure is 4.10.8.11.1.1, found at
http://www.irs.gov/irm/part4/ch10s14.html#d0e154600 on IRS.gov.
The Appeals IRM is 8.8.1.1.4 at
http://www.irs.gov/irm/part8/ch07s01.html#d0e31768 .

COLLECTION

OFFER IN COMPROMISE

1. It has been our experience that when submitting a client's offer in
compromise to the revenue officer, the offer is treated differently than if it
were sent directly to the OIC unit in Memphis. On two separate occasions, we
submitted an offer in compromise to the revenue officer handling the
taxpayer's matter and it was eventually rejected on the basis that it was
submitted to cause a "delay in collection." When we called the Memphis OIC
unit to inquire about this, we were told that when a taxpayer submits the
offer to the revenue officer working the taxpayer's case, the revenue officer
can submit the offer to the OIC unit with a Form 657 stating the revenue
officer's "recommendations" about the offer and that the OIC unit in Memphis
does whatever the revenue officer indicates for them to do on that form. The
only offers we have seen returned due to "delay in collection" have been
those offers submitted to the revenue officer first. Apparently, the Memphis
OIC unit does not independently return offers for delay in collection and thus




                                       1
                                       3
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
will not return an offer due to "delay in collection" unless they are told by a
revenue officer to do so.
Also, we have noticed from reviewing IRS transcripts of our client's cases,
that the revenue officer sometimes "sat on" the offer (in some cases, for
several months) before forwarding it to the OIC unit.
Are offers in compromise treated differently based on whether the taxpayer
submits the offer to the revenue officer or directly to the OIC unit in Memphis
or Brookhaven? What authority or obligation does a revenue officer have with
regard to any OIC he or she receives in the course of trying to collect a tax?
How long is a revenue officer allowed to "sit on" the offer before he or she
must send it along to the OIC unit?

Answer:
Generally the Revenue Officer (RO) recommendation should be followed.
This is assuming they have initiated some action on the case. The OIC Unit
is supposed to review the F657 before making a decision on the offer. If a
taxpayer is working with an RO the offer should be submitted through the
Revenue Officer. In theory, all verification is also to be submitted with the
OIC. The Revenue Officer should review the financial documentation and
conduct an analysis. They should inform the taxpayer/POA when additional
information is necessary to facilitate the completion of the offer. If all info is
received, the offer is assigned and a decision can be made on the merits of
the proposal. If the Revenue Officer finds they have been circumvented in
the offer process, they should prepare a F657 detailing the results of their
investigation and forward it to the appropriate OIC processing center to be
associated with the offer. Many of the RO recommendations result in the
offers being transferred to a field Offer Specialist who then makes a
recommendation based on the findings in the case. Not all meet the criteria
for "solely to delay" even when the RO has recommended the offer be
returned. However, if the RO has completed a thorough financial analysis
and documented the taxpayer's ability to pay there is no need for the Offer
Spec to conduct another analysis. When the RO has given the TP a figure,
say for an IA payment, and that amount is disregarded and an offer is
submitted for an amount far less than would be secured via the IA; that
would be considered solely to delay. IRM 5.8.5.2 (2) states "Collection
issues that have been previously addressed during a balance due
investigation by field personnel will not be re-examined unless there is
convincing evidence that such reinvestigation is absolutely necessary...."
The Revenue Officer should not "sit" on an offer for longer than it takes to
secure the supporting documents required in order to complete their
requirements. If they receive an offer without supporting documents they
should request the required information prior to submitting it to the
processing center. Unfortunately, I do not have a specific answer to this
because each situation is different. Since implementation of TIPRA requires
payments with the offers, it should not be so easy for the RO to hold on to
the offer. If the payment is not processed, the TP/POA should be contacting
the RO or GM for the status.



                                        1
                                        4
                                          Western States Bar Association Conference
                                                                          Questions
                                                                   October 19, 2007
So in some respects the offer is treated differently depending on how it is
submitted. It should be to the benefit of all though.
As for what authority or obligation does the RO have when the offer is
received in the course of trying to collect a tax? That depends on what stage
are they in? Have they issued any enforcement notice? Although many
times it would seem as if an offer is submitted as solely to delay a collection
action, that is in fact what it is - however we need to determine if the
enforcement action will be in the best interest of all parties.
There are many variables. The RO should be up front, they should not hold it
for months. If they cannot secure the required information they should
either return it and any related payments with an explanation, or they should
forward it to the appropriate center for processing and should always
complete a F657.

2. What is the IRS policy on whether a 20% quick sale value discount will be
given on real estate, or whether that percentage will be some lesser figure?
Who makes this determination as to the percentage discount?

Is there an exception to the 20% down payment rule when the source of the
offer is borrowing and taxpayer can establish that there is a reliable
borrowing source? The problem is that sometimes it is difficult for the
taxpayer to go to the borrowing source twice in connection with an offer.

Answer:
The Quick Sale Value is referred to in IRM 5.8.5.3.1
http://www.irs.gov/irm/part5/ch08s05.html#d0e80658 . In a situation
where the asset must be sold quickly (90 days or less) it would be
appropriate to use a percentage other than 80%. When an asset has been
sold or a sale is pending there is no reduction for QSV. Although the market
in Southern California has slowed, in the past few years there was no
reduction for QSV since the properties generally sell in less than 90 days. A
reduction would be given for closing costs and tax consequences, if any. So,
a 20% reduction is never required for real estate, it is generally up to the
Offer Specialist to determine what reduction is appropriate and justify the
amount used.
Currently there is no exception to the 20% TIPRA payment for a cash offer or
the monthly payments required for the IA/deferred payment offers. The only
exception is the waiver for those who qualify. They must meet the low
income guidelines.

APPEALS

PAYMENT APPLICATION / INTEREST ACCRUAL

In an ongoing appeal covering 2 separate years, the taxpayer made an
advance deposit. When the appeal was completed the Service took the
advance deposit and applied it to the earlier year and refunded the excess
with out applying it to the second year. I instructed the taxpayer to not cash


                                      1
                                      5
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
the check and wait for the second year adjustment and return the check.
Now the taxpayer is getting billed for the interest on the second year as if no
advance payment was made and the IRS can't find the check. What went
wrong in the procedure so that these problems can be avoided?

Answer:
This appears to be a posting error. Rev. Proc. 2005-18 states a request must
be in writing to correct. You will need to file Form 3911. You can also cash
the check and then send in the amount and request an abatement of the
interest accrued.

EXAMINATION/APPEALS/COLLECTION - OPR

POWER OF ATTORNEY

   1. I have had multiple experiences with this issue: Because of potentials
      for conflict of interest, I seldom agree to represent a husband and wife
      at any phase of an income tax dispute. Whenever I submit a POA with
      only one spouse’s name on it, I inevitably get resistance from the
      revenue agent/appeals officer/revenue officer who insists that because
      a joint return was filed, they need a joint POA. I know that the Service
      management understands that this is not the case but what is being
      done to train field personnel to stop insisting on joint POA’s?
   2. What is being done to train field personnel to stop insisting on joint
      POAs?

      Answer:
      The following references from the IRM address the concerns of the
      representative’s question. The RO or RA should be directed to these
      references if the validity of the 2848 is in question.

      ―If a husband and wife filed a joint tax return, both spouses must sign
      the Form 2848 if the listed representative(s) will be representing both
      spouses with respect to the liabilities reported for the tax period
      covered by the joint tax return. If only one spouse signs the Form
      2848, the listed representative(s) is permitted access to the tax
      information related to the joint tax return, but he only represents the
      spouse who signed the form, not-withstanding that the husband and
      wife filed a joint tax return. Separate Forms 2848 must be submitted
      by the spouses if different representatives will be representing each
      spouse with respect to the liabilities reported for the tax period
      covered by the joint return.‖ (IRM 5.1.1.7(7)(d), Processing Third
      Party Authorizations)
      http://www.irs.gov/irm/part5/ch01s01.html#d0e572

      ―If a joint return was filed, the taxpayers may each have his/her own
      representative, and thus, two separate POAs would be filed.‖ (IRM




                                       1
                                       6
                                          Western States Bar Association Conference
                                                                          Questions
                                                                   October 19, 2007
      4.11.55.1.6.1(3), Joint Tax Returns)
      http://www.irs.gov/irm/part4/ch11s10.html

      We are not aware that this is a widespread problem and consequently
      are not designing a training strategy. It is suggested that if a
      practitioner is running into this they should address the issue with the
      RO and the Group Manager.

Additional information:
Stakeholder Liaison will submit an IMRS issue regarding additional training
on this situation.


CAF                   ******************************

2. We are having a large number of Powers of Attorney (Treasury Form
2848) returned from the Internal Revenue Service Center indicating such
things as the second page is missing (when both pages were provided to the
local Internal Revenue office), or that an employer identification number is
missing (in the case of a trust fund recovery matter when we are only
looking for individual information). I am getting feedback that other
practitioners are having the same experience. Can anything be done about
this?

Answer:
If the second page of a fax is not received there may have been a paper jam
or part of the fax did not print or we simply did not receive it. We do need
the 2nd page for processing and it will be returned to the Rep for the missing
illegible/pages. Sorry for any inconvenience this may be causing the Reps.

If you indicate a 1041, 941 in the tax matters of the Form 2848 an EIN is
required. If you are simply asking for 1040 information for the trust they
need to indicate 1040 or civil penalties in the tax matters and provide the
SSN number of the taxpayer.

Additional information: If you are still experiencing problems with this
issue you need to contact the Stakeholder Liaison in your area. They will
need all the information from you and should be able to work it through the
IMRS system.

COLLECTION

SOL/CSED

   1. The Bankruptcy Abuse Prevention and Consumer Act of 2005 added a
      new flush paragraph at the end of section 507(a)(8) to suspend an
      otherwise applicable time period when collection is prohibited. This
      picks up a collection due process request but does not affect an offer


                                      1
                                      7
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
      in compromise suspended under section 507(a)(8)(A). When there are
      both a collection due process request and an offer in compromise in
      process during the 240 day rule how does the IRS calculate the
      suspension days for purposes of the 240 day rule and discharge
      ability? For example assume that 100 days after an assessment is
      made both an offer in compromise and a collection due process are
      submitted and that both are withdrawn 50 days later and assume the
      50 day suspension under the collection due process request was
      proper.



Answer:
We do not see tacking on two 90 day periods and we believe that the 90
days would be tacked on at the conclusion of the latest
taxpayer/debtor OIC/CDP or other related administrative process that would
affect the stay.

EXAMINATION

2. Recently, Examination has refused to provide any extensions on the time
for responding to 30-day letters, citing a new "currency" policy. This puts
practitioners, especially those who have not represented the taxpayer during
the course of an audit, at a significant disadvantage. Is there a policy within
SBSE or LMSB to refuse extensions? If so, are there any exceptions?

Answer:
The Small Business/Self Employed Division does not have a policy on this
issue; it may be an area policy. The decision sits with the manager.

TEGE OR CAMPUS

TAX EXEMPT

The IRS has stated that it is working to reduce the backlog on applications
for tax-exempt status. What progress has been made in reducing the
backlog? How long is it now taking to process a tax-exempt status
application?

Answer:
This was an IMRS issue and has been worked and resolved. The issue
information is shown below.

Issue: 07-0000361

Issue: The Northwest Area received an inquiry from a practitioner who had
submitted an application for tax exempt status in March, 2006 and has not



                                       1
                                       8
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
received a response. When he inquired about the status, he was told that
they were overburdened with applications and he would probably not hear
anything before January, 2007. According to Taxpayer Advocate Service,
they are aware of the problem and the delays. According to TE/GE, they
currently have over 13,000 applications in-house and do not have the
manpower to timely process these applications.

Recommended Action: A recommended solution is that a communication
package should be developed to share this information with our partners.
TE/GE recently posted information at
http://www.irs.gov/charities/article/0,,id=156733,00.html to inform the
public of the delays and provide a description of the process and the current
status of applications. They will be updating this site to continue to provide
status of applications and to inform users of the applications they are
currently processing.

Response: 11/16/2006 - Closed
11/16/2006 - Response provided by Roberta (Bobby) Zarin. Item printed on
E-News and Digital Dispatch 11-14-06."Are your exempt organization clients
asking, "Where is My Exemption Application?" If so, the Exempt
Organizations office at the IRS has recently launched a webpage that will
help you answer that question. Click here for a brief explanation of the
exemption application process, status of the applications currently being
worked, and information about other steps you can take to facilitate the
process."

Where Is My Exemption Application
How to find out the status of an application for tax-exempt status.

Question: When will revised Form 990 be released? Is Form 990-PF going to
be revised?

Answer:
Draft Redesigned Form 990 - June14, 2007
The IRS has released for public comment a discussion draft of a redesigned
Form 990, Return of Organizations Exempt from Income Tax, filed by many
public charities and other exempt organizations.

Revised Forms 990 and 990PF are scheduled to be released on 12/12/2007.
Here are urls for the posting schedule and the list of draft forms:

http://www.irs.gov/formspubs/article/0,,id=103641,00.html

http://www.irs.gov/taxpros/lists/0,,id=97782,00.html


http://www.irs.gov/pub/irs-tege/rp2007_52.pdf


                                       1
                                       9
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007


COUNSEL

TAX PATENTS

How, if at all, is the Service interacting with the U.S. Patent & Trademark
Office regarding the issuance of patents on tax strategies?




Answer:

Since 2004, the IRS has worked with the Patent and Trademark Office to
make the tax patent system more transparent and make information about
tax patents more accessible. A classification system has been created to
help the Patent and Trademark Office identify whether a patent application
includes a tax strategy. We have encouraged practitioners – such as the
American Bar Association and the American Institute for Certified Public
Accountants – to contribute their expertise to the effort. IRS personnel have
participated in UPSTO training on business method patents and searching the
public patent information website.

In November 2006, the IRS and Treasury Department issued a notice of
proposed rulemaking and temporary and final regulations under sections IRC
§§ 6011, 6111, and 6112. In the preamble to those proposed regulations,
the IRS and Treasury Department expressed concern, shared by many
commentators, regarding the patenting of tax advice or tax strategies that
have the potential for tax avoidance, which might be interpreted by
taxpayers as approval by the IRS and Treasury Department of the
transaction and adversely impede efforts to obtain information regarding tax
avoidance transactions and have an impact on effective tax administration.
The proposed regulations requested comments regarding the creation of a
new category of reportable transaction to address these concerns.

After consideration of the comments received, the IRS and Treasury issued
new proposed regulations with respect to patented transactions on
September 24, 2007. The 2007 proposed regulations create a new category
of reportable transactions – "patented transactions." A patented transaction
is a transaction for which a taxpayer directly or indirectly pays a fee to a
patent holder or the patent holder's agent for the right to use a tax-planning
method that the taxpayer knows or has reason to know is the subject of the
patent, or a patent holder or the patent holder's agent has the right to
payment for another person's use of a tax planning method that is the
subject of the patent. The taxpayer must receive a tax benefit from use of
the patented strategy. Patents involving mathematical calculations or



                                       2
                                       0
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
mechanical assistance in the preparation of tax returns are excluded, and the
regulations do not apply to patent-protected tax preparation software or
other tools used to perform or model mathematical calculations or to provide
mechanical assistance in the preparation of tax or information returns. The
regulations also provide guidance regarding when person is a material
advisor with respect to a patented transaction under section 6111, with a list
maintenance obligation under section 6112, and reduce the threshold
amounts in section 6111(b) with respect to patented transactions from
$50,000 to $250 and from $250,000 to $500.

EXAMINATION

TAX RETURN PREPARER PENALTIES

Congress has just passed legislation effective May, 2007 that sets the
standards for Tax Return Preparer penalties at a higher level than those for
Taxpayers. That is, a Return Preparer can now be penalized (the higher of
50% of their charges or $1,000) if the Client's return does not disclose any
item that can not be justified as "more likely than not" to succeed (51%), or
includes an item for which the authority is less than "substantial" or a
"reasonable basis" (33 1/3%). However, Taxpayer penalties require
disclosure only if the "substantial authority" standard is not met and prohibits
reporting if there is "no realistic possibility of success" (say 20-25%). Does
the Western Region intend to attempt to make these difficult percentage
determinations and penalize a return preparer, even though the Taxpayer
will not be penalized? This creates a huge conflict between the Taxpayer and
his return preparer, and encourages the Taxpayer to hide information from
the return preparer, seek a new preparer who will take the risk of the
penalty, or prepare the return themselves. Has IRS determined any practical
solution for dealing with this problem, or do they see it as one for the
Taxpayer and their Return Preparer to work out?

Answer:
It is premature to talk about this.
Information on the proposed changes has been included in the folder given to
all attendees.

EXAMINATION / COLLECTION / CRIMINAL INVESTIGATION /
COUNSEL/APPEALS

TAX SHELTER PENALTIES AND C.I. FRAUD

1. A recent proposal from OTSA to a law firm to settle its §§ 6707/6708
penalty exposure calls for the payment of its "allocable share of the penalty".
"Allocable share" is defined as that ratio of the fees which the firm received
to the total fees received by all parties involved in the transaction(s).




                                       2
                                       1
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
      The firm is quite a way down the food-chain, arguably, tangentially
      exposed (at best, secondarily responsible for registration) as a
      "material advisor" under § 6111(b)(1) through its rather pedestrian
      involvement in providing basic boiler-plate legal documentation for
      some "MIDCO" transactions.

      Accordingly, it is also quite unaware of what the "total fees received by
      all [especially the significant player] parties" might be. It is believed
      likely, however, that the firm's "allocable share" of the penalty will
      greatly eclipse its net worth.

      In addition, the firm is being ". . . asked to waive all otherwise
      applicable privileges held by it that might otherwise prevent disclosure
      of any documents".

      At the same time, while purporting (through a proposed closing
      agreement) to give the firm some comfort that the Service ". . . does
      not intend to refer the firm to . . ." CI, the proposal hedges the bet,
      dependent upon the receipt of "additional information [which] becomes
      available and [which might] warrant a criminal referral." Moreover,
      the proposal expressly withholds such assurances as to any of "the
      firm's employees/
      Partners/shareholders [et al]."

              If the firm fails/refuses to accept the proposal (within 30 days),
      it will be "scorched- earth". Full assessment of, both, §§ 6707 and
      6708 penalties (without any apportionment); no settlement later,
      based upon apportionment; and, everyone is put-to-the-sword.

      We recognize that there might have been some fairly "bad actors"
      involved in some very "aggressive tax strategy" deals. But, is this
      extreme, one size-fits-all, draconian approach really appropriate for all
      participants? Is this really good public/tax administration policy to
      economically bludgeon out-of-existence in this fashion some very
      highly respected firms of marginal involvement/connection with these
      transactions? Particularly, all in 20/20 hindsight?

      Is OTSA the ultimate authority? Is there any local option? Does
      Appeals have any discretion?

Answer:
While we cannot discuss specific cases, the Office of Tax Shelter Analysis
may assert penalties under section 6707 (for failure to furnish information
regarding reportable transactions) or section 6708 (for failure to maintain
required lists with respect to reportable transactions), an opportunity to
contest the penalties in Appeals will be afforded. Appeals will exercise its
independent judgment in determining whether the penalties apply.



                                       2
                                       2
                                           Western States Bar Association Conference
                                                                           Questions
                                                                    October 19, 2007
CRIMINAL INVESTIGATIONS AND COUNSEL


2.     Rumor has it that, notwithstanding the push on enforcement,
prosecutions are down. Can you give us the criminal stats? How many
investigations have been: (a) commenced; (b) referred; (c) accepted by
DOJ; (d) forwarded to the US Attorney; (e) Indicted; (f) Prosecuted; (g)
Convicted; (h) Sentenced; (i) Jailed.

      What's the average jail time?

      How many "pure tax cases" (i.e., not "tag-along" charges to other
      criminal proceedings) are represented in these numbers?

      What is the percentage of administrative to grand jury investigations?

Answer:
Agents spend time on cases as follows:
50% on Legal income
36% on Illegal income
11% on Narcotics cases
2.6% Counter-terrorism
Numbers are up even though agent numbers are down.

Incarcerated: 4211
Referred: 2837
Accepted by Department of Justice: 94.6% with 90.2% prosecuted.
81.2% were jailed with the average jail time being 39 months.
Pure tax cases equal 1664

OPR

   2. What are the stats from OPR? How many referrals? How many
      pursued to sanction? What are some of the major kinds of matters
      being referred? How many have involved citations under Circular 230,
      § 10.20? (What specific § 10.20 violations have been involved?) How
      many involve practitioner tax non-compliance?

Answer:
For enforcement purposes, we cannot issue exact statistics, however we
receive over 500 referrals a year. Many are closed because we either do not
have jurisdiction over the individual, or there has not been an actionable
violation under our regulations. Tax compliance issues, reciprocal actions
due to loss of license by a state bar or CPA organization, or discipline by the
state organization, issues involving client’s returns, false and misleading
statements, and due diligence issues are the majority of our cases. We
cannot give you specific information about citations under section 10.20.



                                       2
                                       3
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
COUNSEL

4.      How (if at all) will Allen v. Commissioner, 128 T.C. No. 4 (2007) affect
        the Service's approach to assertion of the civil fraud penalty?

Answer:
The IRS will proceed cautiously with respect to Allen. We recognize that
under Allen in order to extend the statute of limitations with respect to the
taxpayers the IRS would have to establish fraud on the part of the preparer.
In Allen, the preparer had been criminally convicted, and the taxpayer had
conceded that his return was fraudulent. These facts are certainly not going
to be present in a large number of cases. Without a stipulation from the
taxpayer, the IRS will have to prove the preparer’s fraud which, as we all
know, is a difficult burden. The bottom line is that whether Allen applies will
depend on the facts of each case.

COLLECTION AND APPEALS

     5. We were recently advised that an offer-in-compromise submitted while
        a request for a CDP hearing is pending will be worked directly by the
        Appeals Settlement Officer (and not forwarded to Memphis or
        Brookhaven). Is this correct? What provision of the Manual governs
        this new procedure? Why the change (not that we're complaining)?

Answer:
See IRM section 8.13.2.10 at
http://www.irs.gov/irm/part8/ch12s04.html#d0e48333.

COLLECTION AND STAKEHOLDER LIAISON

     6. Transportation, housing and grocery expenses are all escalating as a
        function of the dramatic increase in energy prices. Is the Service
        giving any consideration to revising, more frequently than annually, its
        "allowable" amounts for these expenses? (The last revision was
        February 6, 2006, when the average retail price of gasoline was $2.31)
        Alternatively, are Service employees authorized to allow for greater
        amounts, where appropriate?

Answer:
The standards were updated on October 1st. Standard Living Allowance
allowed amounts can be higher with documentation such as Health Care,
Housing and Transportation.

      Updated Allowable Living Expense standards released Oct. 1
      The IRS released the 2007 Allowable Living Expense (ALE)
      standards today. To help you understand these changes, check out
      these two tools:



                                        2
                                        4
                                     Western States Bar Association Conference
                                                                     Questions
                                                              October 19, 2007
         Allowable Expense calculator to help you compute expenses
          based on the new standards and
         Online training to further explain the changes.

COUNSEL

  7. In light of the Stein decisions (viz., in re: privilege/compelled
     waiver/attorneys fees, etc. issues) in the Southern District, is the
     Service/DOJ giving any consideration to re-thinking its parallel
     proceedings policies?

  Answer:
  Not at this time. Civil/criminal parallel investigations are relatively rare,
  but are a tool that will continue to be used in appropriate cases. In most
  instances parallel investigations occur in the context of promoter or
  preparer investigation. These cases in particular stop the bleeding of the
  public fisc through a civil injunction but where the conduct is so egregious
  that criminal prosecution is appropriate. Civil injunctions can generally be
  obtained faster than a criminal conviction, so where there is a scheme
  promoted that is costing the government considerable amounts (in the
  millions) of unreported and unpaid taxes, it is important to shut it down.
  In some instances it is decided to discontinue a criminal investigation
  following a civil injunction, so long as the enjoined individual complies
  with the terms of the injunction. In other situations, the civil
  investigation may be suspended while the criminal
  investigation/prosecution proceeds.

COLLECTION

  8. When a request for an installment agreement is denied by a revenue
     officer, a form 9423 (Collection Appeal Rights) is sent to the taxpayer.
     Why is this same practice not followed when the denial issues from
     ACS?

     Answer:
     When an IA request is rejected by the Independent Reviewer, the
     following documents are mailed to the TP:|

     Letter 2272c, Installment Agreement Cannot Be Considered, giving
     appeal rights and reason for rejection

     Publication 594, What You Should Know About The IRS Collection
     Process

     Publication 1660, Collection Appeal Rights




                                      2
                                      5
                                     Western States Bar Association Conference
                                                                     Questions
                                                              October 19, 2007
      The procedures are located in IRM 5.19.1.5.4.12.1 Cases Returned
      from Independent Review.


COLLECTION

   9. What is the maximum length of time available to a taxpayer within
      which to pay a cash offer? (It used to be 90 days; but, the new Form
      656 instructions don't specify).

   Answer:
   This can be confusing due to the new changes on the offer form. A "cash
   offer" should be paid in 5 or fewer installments. If the installment
   payments exceed 6 months we use a factor as if it were a deferred
   payment offer. The Offer Specialist is to make a determination on
   whether it is in the best interest of the government to consider protracted
   installments.

CRIMINAL INVESTIGATION

TELEPHONE TAX REFUND / C.I.

We've been hearing about a lot of criminal investigations of the telephone
tax refund in the East - is this happening in the West, or will it be
happening out here?

Answer:
Simultaneous search warrants were issued in both the east and the west with
most occurring in Las Angeles, Miami, Dallas and New Orleans. Actions were
taken in March then problems decreased.

EXAMINATION

TRANSFER OR EXCHANGE NOTICE

What is the IRS' systematic process when it receives a Treas. Reg. 1.897
Notice?

Clarification from attorney who submitted the question.

I had the question about the Treas. Reg. 1.897 Notice. The Notice is a
Statement regarding United States Real Property Interest under Treasury
Regulation Section 1.897-2(h)(2). I just wanted to know what the IRS does
with these when we mail them to the FIRPTA unit. I often send them in and
never hear a word again. I had another practitioner at the meeting ask me to
forward to him your answer.

Answer:



                                      2
                                      6
                                            Western States Bar Association Conference
                                                                            Questions
                                                                     October 19, 2007
Notices filed under 1.897-2(h)(2) are filed with the Ogden IRS Campus. We
do not correspond with either the foreign interest holder or the domestic
corporation after receipt of the notice.

APPEALS AND COUNSEL

TRUST FUND RECOVERY PENALTY

Some IRS Appeals offices take the position that in considering litigating
hazards, U. S. Court of Federal Claims and Federal Circuit cases will not be
taken into account. This appears to be a new stance. Since taxpayer has the
right to choose between that trial court and federal district court, if taxpayer
indicates that the case will be taken to the U.S. Court of Federal Claims, how
can the IRS justify not taking applicable precedent into account?


Answer:
From Kathy Arras: We do consider hazards of litigation, but have trouble
finding cases that are on point. If a case is on point, it will be considered.

From Counsel: Without knowing more specifics about a case, we can’t really
give an answer. While as a general rule the IRS should consider relevant
case law in judging the litigation hazards, there are situations where one
court may have taken a position with which other courts have disagreed and
the IRS may be seeking to have the correct legal position determined by a
higher court.

TAXPAYER ADVOCATE

LEVY

1. In the past, when the IRS' ACS Support improperly levied on a client's
account, we could file a Form 911, Application for a Taxpayer Assistance
Order (A TAD), with the local Taxpayer Advocate Service (TAS). When
appropriate, the TAS could cut to the chase and released the levy, pending
resolution of the dispute the client had with the IRS.

Answer:
From Deborah Grant: TAS has never had this authority-- §7811 lists the
TAO authority. If we believe that it is necessary, we will go to ACS—if a
serious hardship.

TAXPAYER ADVOCATE

Recently, we have been told by the TAS that it no longer has the ability to do
anything about an IRS levy, even if it were clearly wrong - we are told to
contact ACS Support directly. Why has this very useful and effective ability to
address an IRS levy been taken away from TAS?




                                        2
                                        7
                                             Western States Bar Association Conference
                                                                             Questions
                                                                      October 19, 2007
 2. In a fairly straightforward case that was presented to the Taxpayer
Advocate's Office regarding an improper levy the Taxpayer Advocate was
advised by the Service Center that they could not help the Taxpayer
Advocate's Office. When we subsequently contacted the same Service
Center, they recommended contacting the Taxpayer Advocate's Office for
assistance. Any suggestions?

Answer:
From Deborah Grant: TAS can easily get a release of lien if the lien is
improper, if it the wrong taxpayer, or if the lien is filed prior to the final
notice. A Taxpayer Assistance Order has a lot of teeth.

COLLECTION

3. Internal Revenue Service levies on social security generally levy upon
15% or 100% of the benefits payable to a taxpayer. When is the Internal
Revenue Service authorized to levy upon 100% of a taxpayer's social
security benefits? In the event that an Internal Revenue Service levy is
capturing 100% of the taxpayer's benefits, is the Internal Revenue Service
also entitled to a levy on the portion of social security benefits to be applied
to pay t he taxpayer's Medicare Part B premiums?

   Answer:
   Internal Revenue Service levies on social security generally levy upon
   15% or 100% of the benefits payable to a taxpayer. When is the IRS
   authorized to levy upon 100% of a taxpayer’s social security benefits? In
   the event that an Internal Revenue Service levy is capturing 100% of the
   taxpayer’s benefits, is the IRS also entitled to a levy on the portion of
   social security benefits to be applied to pay the taxpayer’s Medicare Part
   B premiums?

       The first part of this question references the IRS authority to either
       levy 15% or 100%. I am assuming that the writer is referencing
       levies issued under the Federal Payment Levy Program (FPLP). It is
       true that under FPLP 15% of Social Security Administration benefit
       payments under Title II of the Social Security Act may be levied (IRM
       5.11.7.2.1.1(2)(e), IRS/FMS Interagency Agreement – Federal
       Payments Subject to the FPLP). Supplemental Security Income (SSI)
       will not be subject to the FPLP. Under the FPLP program, Social
       Security can’t be levied at 100%. IRC 6331(h) allows a continuous
       levy of up to 100% of any specified payment due to a vendor of goods
       or services sold or leased to the Federal government; Social Security
       does not fall into this category. See Exhibit 5.11.7-2, Table of Federal
       Payments subject to FPLP provides for additional details.

       The Revenue Officer can make the decision to block or release the
       FPLP against the SSA and issue Form 668-A/668-W (IRM
       5.11.7.2.5.1(1) FPLP or Paper Levy (Form 668-A/668-W)). Both FPLP


                                         2
                                         8
                                          Western States Bar Association Conference
                                                                          Questions
                                                                   October 19, 2007
      and Form 668-A/668-W will not attach to the same levy source at the
      same time (IRM 5.11.7.2.5.1(2) FPLP or Paper Levy (Form 668-A/668-
      W)). Once the FPLP levy is released, the RO may issue a levy against
      SSA using Form 668-W. The taxpayer is provided a copy of
      Publication 1494 with Notice 483. Publication 1494 is used to calculate
      the amount exempt from a levy on wages, salary and other income.
      Section two of Publication 1494 allows for an additional exempt
      amount for taxpayers at least 65 years old and/or blind. Notice 483
      provides instructions to the taxpayer for submitting a statement of
      exemptions and filing status (IRM 5.11.6.1.1(3), Social Security). In
      this circumstance the levy may exceed the 15% under the FPLP but
      does not attach to 100%.

      There are circumstances in which a Revenue Officer will disallow
      exemptions if the taxpayer has more than one source of income; the
      case must meet one of the following conditions (IRM 5.11.5.4.4(1),
      Taxpayers with More than One Source of Income):

      If the taxpayer is getting the exempt amount from one source of
      income that is levied, and another source of income is levied too, then
      the RO will include Letter 1697(P) with the second levy to tell the
      employer not to allow any exempt amount

      If the taxpayer has a source of income that is not levied and that
      source of income is at least as much as the exempt amount, then
      Letter 1697(P) can be included with a levy on another source of
      income to tell the employer not to allow the exempt amount.

      In these cases the levy will attach to 100%; however, by policy, a levy
      only attaches the taxpayer’s usual take home pay (IRM 5.11.5.4.5(1),
      Taxpayer’s Payroll Deductions and P-5-29)). This leads into the
      answer to the second part of question 3, is the IRS entitled to levy the
      portion of SSA benefits to be applied to pay the taxpayer’s Medicare
      Part B premium? Generally, the RO will allow the taxpayer to maintain
      deductions they already have when the levy is served. If the RO
      contacts the employer to disallow a deduction the taxpayer can
      request managerial review (IRM 5.11.5.4.5(2), Taxpayer’s Payroll
      Deductions).

Additional information:
Question 1. Taxpayer Assistance does not have the authority to release a
levy or a lien. See Code Section 7811. A Taxpayer Assistance order can be
done and send to ACS.
Question 2. The toll free number is to customer service, not a case
advocate. If it is a straight forward situation should be released
immediately.

Information from Collection.


                                      2
                                      9
                                         Western States Bar Association Conference
                                                                         Questions
                                                                  October 19, 2007
We typically do not take Medicare Part B premium portion of payment.
If the payments to the taxpayer are government payments the system
automatically does a levy.
There used to be an income threshold (25,000 or less no levy was done).
The threshold went away. Taxpayer Advocate is working this issue.




                                     3
                                     0

				
DOCUMENT INFO