Proposed Reg Issued Regarding Return Preparer PTINs

The IRS has issued the first proposed regulations related to Return Preparer Review Implementation. REG-134235-08 outlines a mandatory requirement for return preparers to use Preparer Tax Identification Numbers (PTINs) and provides examples of the meaning of the term tax return preparer for the purposes of the IRC section 6109.  See the proposed Regulation here.

Summary of Health Care

House Speaker Pelosi has issued a summary of the health care reform act.  The summary can be found here.

New IRS Program - Rapid Response Appeals Process

The IRS is implementing a pilot program that provides new priority procedures for pyramiding in-business trust fund (IBTF) Collection Due Process (CDP) cases in Appeals. This program is referred to as the Rapid Response Appeals Process (RRAP).  A description of the program can be found here.

Tax Court Denies Charitable Deduction

In Friedman v. Commissioner, TC Memo 2010-45, the Tax Court denied the taxpayers claimed charitable contribution deductions for the donation of equipment.  The Tax Court found that the taxpayers did not strictly comply with the substantiation requirements of Section 1.170A-13, Income Tax Regs.  On the otherhand the taxpayers contend their documentation satisfied the substantial compliance doctrine according to Bond v. Commissioner, 100 T.C. 32, 40-41 (1993).  The Tax Court found that the taxpayers did not establish substantial compliance because they did not provide adequate descriptions of the equipment and did not identify the valuation methods used, the manner of acquisition, and the cost bases of the equipment.

The Tax Court further held that the taxpayers' documentation did not satisfy the requirement of Section 170 of the Internal Revenue Code in that the taxpayers did not obtain contemporaneous written acknowledgments of the donations.

Penalties under Section 6662(a) of the Code were also imposed.

IRS Releases 2009 Data Book

The Internal Revenue Service has announced the release of the 2009 IRS Data Book, an annual snapshot of agency activities for the fiscal year.  You can view the Data Book here.

IRS Updates List of Dirty Dozen Tax Scams

The Internal Revenue Service issued its 2010 "dirty dozen" list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.  The list can be found here.

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.