NSA Officers Meet With IRS Commisioner: Discuss Practitioner Concerns

The leadership of NSA met with IRS Commissioner John Koskinen on August 10 to discuss a range topics relating to the services the IRS provides to tax preparers.  The participants in the meeting included NSA President Kathy Hettick; NSA First Vice President Al Giovetti; NSA Second Vice President Brian L. Thompson; NSA Secretary-Treasurer Curt Lee; and NSA Executive Vice President John Ams. 
 

Topics raised during the meeting included:

FIELD AUDITS:  2nd VP Thompson noted that many tax practitioners work 14 to 18 hours a day seven days a week, especially from March 15th through April 15, when client meetings take up most of the working day and follow up work requires a tax professional to work into the night.  For that reason, NSA recommends that no in-person tax audits be scheduled between March 15 and April 20 if the tax professional informs the IRS auditor that all available appointments times have already been reserved by tax clients.  This would allow the practitioner to review all available information and prepare for the audit in a manner that would be beneficial to all.

CORRESPONDENCE AUDITS:  Secretary-Treasurer Lee informed Commissioner Koskinen that it often happens that, even if a tax practitioner has timely filed the information requested by the IRS auditor, the practitioner will continue to receive letters from the IRS requesting the information already submitted, demanding tax payments because there is no record of a timely submission, or requesting payment even though none is due based on the submitted information.  He and President Hettick suggested that the IRS develop a system whereby submitted information from the tax practitioner is logged in as having been timely received so that the automatic follow up letters from the IRS are stopped.  Further, they recommend that the system should also notify the taxpayer/practitioner that the information has been received by the IRS and that all related correspondence from the IRS will be stopped until the information has been processed.

FILING FORM 2848:  Participants noted that the process for having a Power of Attorney Form 2848 registered in the CAF system is cumbersome and inefficient.  1st VP Giovetti recommended that the process be streamlined as it once was with e-services.  He said that tax practitioners and their clients would be able to respond to IRS correspondence if they are able to quickly and efficiently register the POA and receive the taxpayer’s tax transcripts.

E-SERVICES IMPROVEMENTS:  President Hettick told the Commissioner that tax practitioners are increasingly frustrated that electronic services widely available from other financial entities are still unavailable from the IRS.  She said that NSA recognizes that the IRS has important security concerns, but that many commercial banks, credit card companies, retailers, etc., have security concerns as well.  She said that they have resolved their concerns, with some recent exceptions, so that electronic communications with their clients is now commonplace.  NSA believes tax administration would be much more efficient if the IRS developed and made available similar electronic products.  She recommended that IRS develop E services to allow taxpayers and tax professions to:

• Submit an inquiry on any IRS correspondence similar to what was capable on the EAR submit form 1040X electronically;
• Have a chat capability to answer procedural questions; and 
• Communicate through e-mail or through a dedicated portal with taxpayers and tax professionals.

Commissioner Koskinen responded that he was fully supportive of a number of the recommendations and, with appropriate budget support from Congress, hoped to announce technology advancements at the IRS as soon as possible.

Audit-Year POA's Limits Right to Taxpayer Documents From Prior Years

Where a person is granted power of attorney to represent a taxpayer for a specific year that is under audit, the IRS cannot release to the POA documents from other years based only on a representation that they are somehow relevant to the audit.  Rather, the POA must show the documents from other years were used in the examination.
 
That is the conclusion reach by the IRS Office of Chief Counsel in informal legal advice, CCA 201631011, released July 29.
 
The Chief Counsel document said that, similarly, a POA acting under authority of Form 2848, Power of Attorney and Declaration of Representative, doe not have authority to request third-party documents—such as partnership or corporate returns available to the taxpayer under tax code Section 6103(e)—outside the context of the exam.
 
The POA “cannot request corporate or partnership returns on behalf of the taxpayer pursuant to section 6103(e) based simply on the theory that those documents are relevant to the exam,” the June 8 e-mail said.
 
A specifically authorized “attorney-in-fact” granted general authority to act for another person, versus the limited authority granted under Form 2848, may make requests on the person's behalf under Section 6103(e), the Office of Chief Counsel said.
 
CCAs are provided to IRS field attorneys, revenue agents or appeals officers and contain written interpretations of revenue provisions.

Tax Scammers Now Target Tax Professionals – BE AWARE

The IRS yesterday issued a news release alerting tax professionals to a new tax scam involving fake emails purporting to be from tax software providers.
 
The IRS said that in the new scheme, which was identified as part of the IRS Security Summit process, tax professionals are receiving emails pretending to be from a tax software companies. The email scheme requests the recipient to download and install an important “software update” via a link included in the e-mail. 

Once a recipient clicks on the embedded link, they are directed to a website prompting them to download a file appearing to be an update of their software package.  The file has a naming convention that uses the actual name of their software followed by an “.exe extension.”

Upon completion of this so-called update, tax professionals are led to believe they have downloaded a software update when in fact they have loaded a program designed to track the tax professional’s key strokes, which is a common tactic used by cyber thieves to steal login information, passwords, and other sensitive data.  A copy of IR-2016-103 is available here.

And that is not all.
 
The IRS is also seeing a surge in automated calls warning individuals to settle their “tax bills” and demanding payments using iTunes or other gift cards.

In most cases, the robocalls claim to be a last step before legal action ensues, the Internal Revenue Service said in an Aug. 2 news release (IR-2016-99).  Requesting payment on a gift card—a relatively new trend—is a “clear indication of a scam,” the IRS said.
 
“It used to be that most of these bogus calls would come from a live person. Scammers are evolving and using more and more automated calls in an effort to reach the largest number of victims possible,” IRS Commissioner John Koskinen said. “Taxpayers should remain alert for this summer surge of phone scams, and watch for clear warning signs as these scammers change tactics.”

The IRS – and NSA - urges all readers to take the following steps:

• Be alert for phishing scams: do not click on links or open attachments contained in e-mails and always utilize a software providers main webpage for connecting to them. 
• Run a security “deep scan” to search for viruses and malware; 
• Strengthen passwords for both computer access and software access; make sure your password is a minimum of 8 digits (more is better) with a mix of numbers, letters and special characters; 
• Educate all staff members about the dangers of phishing scams in the form of emails, texts and calls; 
• Review any software that your employees use to remotely access your network and/or your IT support vendor uses to remotely troubleshoot technical problems and support your systems. Remote access software is a potential target for bad actors to gain entry and take control of a machine. 

Tax Professionals should also review Publication 4557, Safeguarding Taxpayer Data, A Guide for Your Business, which provides a checklist to help safeguard taxpayer information and enhance office security.

IRS Issues Chief Counsel Telephone Directory for August

Have a question about a regulation?

The Internal Revenue Service issued its August telephone directory of Office of Chief Counsel attorneys.

The directory, released on August 2, lists the staff person responsible by Internal Revenue Code section, subject area, office symbol, name and telephone number.

A copy of the directory is available here.

Taxpayers Can Renew Expiring ID Numbers Starting in October

Some taxpayers will need to renew their individual taxpayer identification numbers starting in October, or risk a tax refund delay and possible disqualification for certain tax credits, the IRS announced on August 4.

All ITINs—nine-digit tax processing numbers—that the Internal Revenue Service issued before 2013 that have been used on a tax return in the last three years will begin expiring at the end of this year, and the IRS is implementing an annual rolling renewal schedule, according to an IRS news release, IR-2016-100.  ITINs that have not been used on a tax return in the last three years will also expire at the end of the year, the IRS said.

Those ITIN groups represent about 11 million taxpayers, though taxpayers who don't plan on filing a tax return next year don't need to take action, Debra Holland, IRS wage and investment division commissioner, said on an Aug. 4 press call.

ITINs with middle digits of 78 and 79 will be the first batch up for renewal—starting on Oct. 1—under the IRS's rolling schedule. The IRS will mail about 400,000 letters in the next few weeks alerting taxpayers to renew their ITINs. 

Taxpayers must complete a Form W-7, Application for IRS Individual Taxpayer Identification Number, to renew an ITIN. Taxpayers do not need to attach a tax return when submitting their Form W-7, and can choose to renew the ITINs of all family members at the same time, rather than renewing them piecemeal over several years, the IRS said.

The changes are required by the Protecting Americans from Tax Hikes Act (Pub. L. No. 114-113). Taxpayers who don't renew an expired ITIN before filing their next tax return may be ineligible for tax credits such as the Child Tax Credit and American Opportunity Tax Credit, the IRS said.  “The IRS will be taking steps to help taxpayers with these changes, and we're designing this effort to minimize the burden as much as possible,” IRS Commissioner John Koskinen said in the release.  The IRS laid out the expiration schedule for ITINs issued before 2012 in Notice 2016-48, which is scheduled to publish in Internal Revenue Bulletin 2016-33 dated Aug. 15.  The IRS will alert taxpayers in 2017 once it determines what middle digits will expire next

According to the IRS website, ITINs are issued to taxpayers:

• who are not eligible for a Social Security number;
• who are a nonresident or resident alien required to file a tax return;
• who are the dependent or spouse of a U.S. citizen or resident alien; or
• who are the dependent or spouse of a nonresident alien visa holder.

Also beginning on Oct. 1, the IRS will not accept passports that lack a date of entry into the U.S. as a standalone identification document for dependents from countries other than Canada or Mexico, or dependents of military members living overseas.  Affected taxpayers must submit U.S. medical records for dependents under the age of six or U.S. school records for dependents under the age of 18, along with the passport, the IRS said.  Dependents who are at least 18 years old may submit a rental statement, bank statement or utility bill along with their passport, the IRS said.

 A copy of the IRS News Release, IR-2016-100, is available here.

Draft Payroll Form 8974 for Research Tax Credit Released

The IRS released a draft of Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, for employers to claim a new payroll research tax credit.  The Form, when final, can be used to claim a credit of up to $250,000 of the employer portion of the payroll tax. 

Employers will be able to use the Form starting with Social Security tax due for 2016.  Release of the draft Form 8974 follows the issuance of two updated forms—Forms 6765 and 941—that are to be used with Form 8974 for claiming the research credit and that contain new lines regarding the credit.

The amount entered into the new Line 44 of the updated Form 6765, Credit for Increasing Research Activities, generally is to be entered into Line 5 of Form 8974.

Social Security tax amounts in Column 2 of Lines 5a and 5b of the updated Form 941, Employer's Quarterly Federal Tax Return, are to be entered into Lines 8 and 9 of Form 8974, and the credit amount in Line 12 of Form 8974 is to be entered into the new Line 11 of the updated Form 941.

Employers claiming the payroll research tax credit must file Form 8974 with Form 941.

Employers will be able to use Form 8974 starting with jointly filing the form with the 2016 fourth-quarter Form 941.

Tax Preparers Get Class Status to Recover PTIN Fees

Tax preparers may proceed as a class in their suit to recover allegedly excessive fees the IRS charged them for a preparer tax identification number (Steele v. United States, 2016 BL 255410, D.D.C., No. 14-1523, 8/8/16).

In February, the U.S. District Court for the District of Columbia certified a class seeking a declaratory judgment that the Internal Revenue Service lacked the authority to charge a fee for the issuance or renewal of an ID number.

But the court refused to certify a class for restitution of the fees, which the return preparers alleged were unlawfully assessed. The court said the return preparers failed to show that the government had properly waived its sovereign immunity for the action seeking monetary damages.

Upon reconsideration, however,, the court ruled August 8 that the Administrative Procedure Act Section 702 waives sovereign immunity for “actions seeking relief other than money damages.” The plaintiffs here seek restitution of fees they have already paid, which is a form of equitable relief, not money damages, the court said in an opinion by Judge Royce C. Lamberth.  Once it established that it had jurisdiction, the court found certification of a monetary class appropriate because classwide issues predominate.

The tax preparers challenged the IRS's requirement that they obtain and pay to renew a preparer tax identification number after September 2010. Initial registration was $64.25 with a $63 annual renewal fee. The IRS lowered the fee to $33 in 2015.