IRS Outlines Additional Steps to Assist Unemployed

The Internal Revenue Service has announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems. See the announcement here.

The steps include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday "open houses" offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.

Taxpayers Cannot Rely On Preparer to Avoid Penalty

Taxpayers met with their preparer with respect to their 2005 federal income tax return and gave the preparer financial documents, including a 2005 Form SSA-1099, Social Security Benefit Statement, indicating that they had received $21,445 of Social Security benefits in 2005. Petitioners did not give the preparer a 2005 Form 1099-DIV, Dividends and Distributions, indicating that they had received $216 of dividend income, or a 2005 Form 1099-INT, Interest Income,indicating that they had received $24 of interest income.

Subsection (a) of Section 6662 imposes an accuracy-related penalty of 20 percent of any underpayment that is attributable to causes specified in subsection (b). Among the causes justifying the imposition of the penalty is any substantial understatement of income tax as defined in Section 6662(d). The Section 6662(a) penalty is not imposed if a taxpayer can demonstrate (1) reasonable cause for the underpayment and (2) that the taxpayer acted in good faith with respect to the underpayment.

Reliance on the advice of a professional can give the taxpayer a defense of reasonable cause.

The Tax Court found that Taxpayers did not rely in good faith on their preparer’s advice because they did not examine their return before it was submitted to the IRS. See Estate of Edsel Stiel v. Commissioner, TC Memo 2009-278.

Most Litigated Tax Issues

The National Taxpayer Advocate 2009 Annual Report to Congress list the following as the most litigated tax issues.  You can find the report here.

1.  Appeals from Collection Due Process (CDP) Hearings Under Internal Revenue Code Sections 6320 and 6330

2.  Summons Enforcement Under Internal Revenue Code Sections 7602, 7604, and 7609

3. Trade or Business Expenses Under Internal Revenue Code Section 162 and Related Section

4.  Gross Income Under Internal Revenue Code Section 61 and Related Sections

5.  Accuracy-Related Penalty Under Internal Revenue Code Section 6662

6.  Frivolous Issues Penalty Under Internal Revenue Code Section 6673 and Related Appellate-Level Sanctions

7.  Civil Actions to Enforce Federal Tax Liens or to Subject Property to Payment of Tax Under Internal Revenue Code Section 7403

8.  Failure to File Penalty Under Internal Revenue Code Section 6651(a)(1) and Estimated Tax Penalty Under Internal Revenue Code Section 6654

9.  Family Status Issues Under Internal Revenue Code Sections 2, 24, 32, and 151

10.  Relief from Joint and Several Liability Under Internal Revenue Code Section 6015

IRS Sends Letter To Preparers

The Internal Revenue Service is taking a number of steps to contact paid tax return preparers to improve the accuracy and quality of filed tax returns and heighten awareness of preparer responsibilities. They  are sending letters to and visiting a segment of the return preparer community to provide information on the kinds of errors they are seeing. This letter can be found here describes common errors made by taxpayers and return preparers and their general responsibilities as a return preparer. It is reported that preparers are being visited by Special Agents and Revenue Agents.

The Truth About Frivolous Tax Arguments

The IRS has published an article titled The Truth About Frivolous Tax Arguments.  The 83 page article can be found here and discusses various issues the IRS considers frivolous.

Remarks by the Commissioner of Internal Revenue

The IRS has announcement a new schedule to be attached to a corporate tax return listing uncertain tax positions.  See the remarks of the Commissioner here.

Pro Se Nurse Wins Against the IRS

A nurse represented herself and won her case against the IRS.  The Tax Court in Singleton-Clarke v. Commissioner, T.C. Summary Opinion 2009-182 found that the nurse's advanced degree did not qualify her for a new trade or business, and held that she could deduct her education expenses for 2005.

Top Ten Common mistakes for 1040X

• Schedule A missing when change to itemized deductions. Correspondence is then necessary.

• No original signature (copy). Correspondence is then necessary.

• Schedule C not included when amending schedule C or it does not indicate which Taxpayer it is for when the return is Married Filing Jointly (MFJ). Correspondence is then necessary.

• Schedule EIC is not attached when EIC is amended. Correspondence is then necessary.

• TP does not indicate exemptions name and SSN/ITIN number in exemption section when adding or removing and exemption. Correspondence is then necessary.

• Taxpayer requests direct deposit of their amended refund or adds direct deposit information for their original refund, since direct deposit information cannot be added on an amended return, we must correspond.

• Form 5405 not attached when claiming the First-Time Homebuyer Credit.

• Signature is other then the taxpayer and no supporting documentation is attached or indicated. (i.e. Form 2848, Durable POA, parent for minor, etc)

• Missing schedules and/or forms for Line 7 credits. Correspondence is then necessary.

Other common mistakes:

• Taxpayer files Head of Household (HOH) with no exemptions and does not indicate Qualifying dependents (QND) name and/or SSN.

• Taxpayer removes an exemption but not Recovery Rebate Credit (RRC). This requires additional correspondence.

• TP does not indicate if a child is eligible for Child Tax Credit (CTC) but takes the credit or the reverse.

IRS Telephone Directory for Practitioners

See this link for an IRS telephone directory for practitioners that list numbers for all states.

First Wednesday Tax Forum

The next First Wednesday Tax Forum will actually be held on the second Wednesday, January 13, 2010. Special Agents Todd Norwood and Elisa Rodriguez of IRS Criminal Investigation will be speaking on Refund Fraud and Fraud Detection. This will be an interesting and informative presentation. As tax season arrives, learn what you need to know to protect yourself and your clients.

Requisite Knowledge and Experience: None is needed

Advance Preparation: None is needed.

This is an update presentation.

The presentation is lecture style.

The First Wednesday Tax Forum will meet from 7:30-9:10 AM at the University of Phoenix, Dallas/Ft. Worth Campus. The University of Phoenix Campus is located in Churchill Tower, 12400 Coit Road, Dallas, Texas. Park in the parking garage behind the building. Come to the front of the building on the first floor. Registration is $15 per course. CPAs and enrolled agents receive 2 hours of CPE credit. If you plan to attend, please send an e-mail to dawn@tjtaxlaw.com. Make checks payable to Townsend & Jones, L.L.P., and mail to 8100 Lomo Alto, Suite 238, Dallas, Texas 75225. Phone 214-696-2661.