Monday, March 23, 2009

March 23 IRS Electronic Distribution

Practitioner Email Group:


Newsroom :                                                                                        

1099 OID Scheme:

Practitioners:  be on the look out for possible schemes.

This scheme consist of false withholding credits and frivolous returns. Some of the items to look for are:
  • understatement of credits claimed by taxpayers through Form 1099-OID.
  • large refunds
  • reporting false withholding credits on Form 3949-A.
  • review form 1099's with false withholdings with no documentation.
  • form 2439 notice to shareholders of undistributed Long term Capital Gains.
  • and other bogus financial instrument such as bonded promissory notes.
Penalties associated with frivolous information are subject to $5,000 civil penalty under 6702(a).
Review the links below for for more information on the schemes.

Latest News


First-Time Homebuyers Have Several Options to Maximize New Tax Credit
IR-2009-27, March 18, 2009 — Taxpayers are reminded that they can claim homebuyer credit for 2009 purchases this year or by amending their 2008 tax return.

Commissioner Shulman's Senate Finance Testimony on Ponzi Schemes and Offshore Tax Evasion Legislation
March 17, 2009 — IRS Commissioner discusses revenue ruling and revenue procedure intended to assist fraud victims.

New Law Extends Net Operating Loss Carryback for Small Businesses; IRS To Ensure Refunds Paid Timely
IR-2009-26, March 16, 2009 – The IRS announced today that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in up to five prior years.

IRS Eliminates Inserts Related to Business Mailing
IR-2009-24, March 13, 2009 — In an effort to improve its communications with taxpayers, the Internal Revenue Service will eliminate the nearly dozen inserts that go into a notice informing businesses that they owe additional tax.

Filing Tax Returns from Home Computers Up 20 Percent in 2009
IR-2009-23, March 13, 2009 — More taxpayers are e-filing their tax returns this year. Includes filing season statistics for the week ending March 6, 2009.



Quick Alerts



Sent: Thursday, March 19, 2009 1:01:17 PM

Subject: 1065 MeF-Fiscal Year Partnership Returns


ATTN: Software Developers, Return Transmitters and Authorized IRS e-file Providers/EROs


Treasury Regulations Section  301.6011-3(a) provides that if a partnership with more than 100 partners is required to file a partnership return, the information required by the applicable forms and schedules must be filed electronically, unless a waiver from the electronic filing requirement has been granted.  Returns filed electronically must be made in accordance with applicable revenue procedures or publications. 


Announcement 2002-3 excludes Fiscal Year returns for Tax Year 2001 only. 


IRS Publications 4163 and 4164 will be updated for Tax Year 2009 to specifically clarify that Fiscal Year Filers with more than 100 partners are required to file their return electronically.  Please refer to Publication 4163, Part IV, and Publication 4164, Section 1.8, for information on exclusions to e-file.


Thank you for your continued support of the 1065 MeF Program.



Technical Guidance


Internal Revenue Bulletin: 2009-11 March 16, 2009 



Rev. Proc 2009-20    provides an optional safe harbor method for eligible taxpayers to deduct theft losses from criminally fraudulent investment arrangements that take the form of “Ponzi” schemes.  The safe harbor method provides a uniform, simplified method for eligible taxpayers to determine the amount and timing of their theft loss deductions. 

Revenue Ruling 2009-09    addresses the tax treatment of losses from criminally fraudulent investment arrangements that take the form of “Ponzi” schemes.  The ruling holds that the losses are theft losses and provides guidance on the character, timing, and amount of the loss deduction. 
Revenue Procedure 2009-20 and Revenue Ruling 2009-09 will be published in Internal Revenue Bulletin 2009-14  on  April 6, 2009.




Tax Talk Today.TV ( )

·         Specialty Taxes: Estate and Gift and Employment Taxes - Tuesday, May 12, 2009


IRS will no longer sponsor Tax Talk Today - The May 12, 2009 program will be the last live Tax Talk Today show.  Archived programs will be available online through Sept. 30, 2009.


We have two new pages that offer video and audio presentations on tax topics.  Visit our pages for small businesses and practitioners

We’ve partnered with this new Internet news channel for small businesses.   Look to the daily newscast every Wednesday for IRS news, and visit the IRS Partner Page on SBTV’s Web site for more IRS resources and information.


 IN THE NEWS MARCH 23, 2009 

1.             IRS Does Fewer Audits of Millionaires’ Taxes   *   Associated Press

2.             Tempo of Audits Drops for Wealthy   *   New York Times

3.             Millionaires' Audit Chances Fell 36% Last Year   *   USA Today

4.             IRS Disputes TRAC Report Citing Drop in Audits of High-Income Taxpayers   *   Tax Notes Today

5.             AIG Suing To Recover Taxes in IRS Dispute   *   Washington Post

6.             Dozens Get Free Tax Help at IRS   *   Courier-Post, South Jersey

7.             IRS Offers Free Tax Help to People at 'Super Sites'   *   Rochester Democrat and Chronicle

8.             Volunteers Give Hundreds in S. Florida Free Help Filling Out Tax Forms   *   South Florida Sun-Sentinel

9.             IRS Helps with Taxes   *   KIDK CBS 3 - Idaho Falls

10.        Health Care: New COBRA Payment Reporting Will Not Be Required on Form W-2, IRS Officials Say   *   BNA Daily Tax Report

11.        REGULATION: IRS Seeking Issuer Feedback on Arbitrage Burdens   *   Bond Buyer

12.        IRS to End ‘Tax Talk Today’; Practitioners Wary of Alternatives   *   Tax Notes Today

13.        IRS Tax Tip: Nine reasons to visit an IRS Taxpayer Assistance Center   *   Rome Sentinel

14.        Fatter Paychecks May Have a Catch   *   Detroit Free Press 

Read articles below

Associated Press March 23, 2009 , IRS Does Fewer Audits of Millionaires’ Taxes   By Jim Abrams

 Washington — The Internal Revenue Service is not living up to its pledge to crack down on wealthy tax cheats, a watchdog group says, citing a drop in audits of millionaires last year.

The tax agency disputes that, ascribing a “slight” decline in audits to its focus on getting people their economic stimulus checks.

Those with incomes of $1 million and above had a 5.6 percent chance of getting audited in fiscal 2008, which ended in September, down from 6.8 percent the previous year. The actual number of millionaires audited fell from 23,200 to 21,874, while the number of millionaires filing tax returns grew from 339,138 to 392,776.

“In the face of growing federal deficits and public calls to lower the tax gap — the amount of taxes due but not reported and paid — the drop in millionaire audits is surprising,” the Syracuse University-based Transactional Records Access Clearinghouse said in a report being released today.

It said the drop in audits of richer Americans contrasted with an IRS pledge last year that it was making strong progress in enforcement, especially of those with incomes above $1 million.

But IRS spokesman Terry Lemons said what they regarded as a “slight” drop in audits reflected a year in which the agency was dealing with budget constraints and making sure economic stimulus checks reached mailboxes and bank accounts.

The audit rate for those earning less than $200,000 was largely unchanged, at slightly less than 1 percent. For those with incomes of more than $200,000, the rate inched up from 2.87 percent to 2.94 percent.

The TRAC report said focus on high-earner returns is critical because of the revenue. Among millionaire audit cases where additional taxes were recommended, the average was $198,000 after face-to-face audits and $137,000 for audits done through correspondence.

New York Times , March 23, 2009  Tempo of Audits Drops for Wealthy By Lynnley Browning

While the number of wealthy Americans swelled in the last couple of years, they faced less scrutiny from tax authorities, according to a study of government data by outside researchers.

 The Internal Revenue Service audited only about four of every 100 Americans’ returns with income of at least $1 million in the fiscal year ended October 2008, according to the Transactional Records Access Clearinghouse, a research organization affiliated with Syracuse University.

The I.R.S. acknowledged that it had audited a smaller portion of these returns than in years past, but disputed the group’s interpretation of the data. The government calculated the audit rate at 5.6 percent among millionaires, compared with 4.4 percent by T.R.A.C.

The government estimated that the chance of a millionaire being audited declined last year by 19 percent — significant, but less severe than the 36 percent drop claimed by T.R.A.C.  

“We essentially audited as many millionaires as in the previous year, but there were more returns,” said Terry Lemons, an I.R.S. spokesman. The I.R.S. said it audited just over 23,000 returns of the nearly 340,000 filed by millionaires in 2007. That compares with just over 21,800 returns filed by 398,000 millionaires in 2008. 

While the number of millionaires was growing, the I.R.S. had to shift its focus last year to processing tax rebate checks related to the first economic stimulus package, from the Bush administration last summer.  

Mr. Lemons added that wealthy Americans with at least $10 million in income still stood the highest chance of any income group of being audited — about 10 percent. 

T.R.A.C., which has a long-running dispute with the I.R.S. over how to interpret data, said an agency official told it on Friday that audit rates for previous years had been misreported, leading to a discrepancy between the two organizations on the size of the decline for audits of millionaires. 

Because it takes years to conduct audits, scrutiny last year almost certainly involved those tax returns filed while the economy was still booming, before the subprime mortgage collapse, stock market plunge and federal bailout of the financial system. 

“Given the lag between the year that income is received, a return is filed, and then becomes subject to audit, the drop in the audits occurred for those returns with income earned at the height of the real estate boom, just before the economy turned sour,” the T.R.A.C. report said. 

The income of the 400 wealthiest Americans swelled in 2006, to an average of $263 million, according to I.R.S. data. Since 1996, this group’s share of the nation’s total wealth has nearly doubled to more than 22 percent. 

USA Today,  March 23, 2009   Millionaires' Audit Chances Fell 36% Last Year  By Sandra Block, USA TODAY

IRS audits of taxpayers with income of $1 million or more declined by more than a third last year, despite the agency's claims that it stepped up scrutiny of wealthy taxpayers, a new study says.

Audits of wealthy taxpayers dropped at least 36% in fiscal 2008 from 2007, according to a report released today by the Transactional Records Access Clearinghouse. TRAC is a research group affiliated with Syracuse University.

The drop in audits affected returns filed by taxpayers who earned income at the height of the real estate boom, before the economy turned sour, the report said.

In December, the IRS acknowledged that audits of wealthy taxpayers fell in 2008 but said the decline was much lower. In fiscal 2008, the IRS said, wealthy taxpayers had a 5.6% chance of being audited, down from 6.8% a year earlier. The IRS attributed the 19% decline to a drop in enforcement staff from the year before. Also, the IRS said, it had to divert staff to handle billions of dollars in stimulus checks.

TRAC said recently published IRS data suggest that wealthy taxpayers had just a 4.4% chance of being audited in fiscal 2008.

"In the face of growing federal deficits and public calls to lower the tax gap — the amount of taxes due but not reported and paid — the drop in millionaire audits is surprising," the report said.

The IRS disagrees with TRAC's analysis and stands by its earlier report, IRS spokesman Terry Lemons said.

Several studies have shown that wealthy taxpayers are more likely to hide income from the IRS. Taxpayers with adjusted gross incomes of $500,000 to $1 million fail to report 21% of their income on average, vs. 7% for those earning $40,000 to $50,000, according to a 2008 analysis by Joel Slemrod, a University of Michigan economics professor, and IRS economist Andrew Johns.

The TRAC report also found that face-to-face audits of wealthy taxpayers have plummeted even more than overall audits. Only 3.1% of wealthy taxpayers were subjected to a face-to-face audit in 2008, the same level as five years ago, the report found. The remaining wealthy taxpayers were subjected to less-intensive correspondence audits, which are conducted by mail.

Lemons said TRAC discounts the value of correspondence audits, which the IRS believes are a cost-effective way to recover unpaid taxes.

"Any suggestion that we're somehow going soft on taxpayers because we're doing correspondence audits is wrong," he says.

Even with the decline, the IRS remains focused on targeting wealthy individuals, Lemons said.

"If you're in this million-dollar category," he said, "you're more likely to be audited now than three, four or five years ago." 

Tax Notes Today  March 20, 2009 IRS Disputes TRAC Report Citing Drop in Audits of High-Income Taxpayers
Published by Tax Analysts(R)

An academic report released March 23 suggested that the IRS's audit rate of high-income Americans "may have plummeted" from fiscal 2007 to 2008, but an IRS spokesman argued March 20 that the author's finding was "misleading" because it compares the statistical equivalent of "apples to oranges."

The report, authored by Susan Long of the Transactional Records Access Clearinghouse, found that figures in the annual IRS Data Book released March 13 suggest that the "millionaire audit rates last year may have plummeted even more than" the IRS previously reported. (For the report, see Doc 2009-6358.)

The IRS in a December 2008 announcement dealing with enforcement reported that the number of audit examinations of individuals with incomes of $ 1 million or higher declined 5.7 percent, from 23,200 in 2007 to 21,847 in 2008. The audit rate for millionaires, however, declined nearly 19 percent, from 6.84 percent of millionaire returns audited in 2007 to 5.57 percent of such returns audited in 2008. There were nearly 53,000 additional returns with incomes of $ 1 million or higher filed for 2008. (For prior coverage, see Doc 2008-26989 or
2008 TNT 247-1.)

But Long's report, "IRS Audit Rate for Millionaires Plummets," says that figures in the IRS Data Book "would indicate that in the last year the audit rate actually declined by at least 36 percent." Long calculated an audit rate of 4.4 percent of millionaire returns audited in 2008. That figure was derived from an IRS table showing how many audits per 100 returns were done on returns with $ 1 million or more in adjusted gross income, which includes taxpayers' losses.

IRS spokesman Bruce Friedland told Tax Analysts that the data from 2007 that Long used to show the 36 percent decline in 2008 are based on returns with $ 1 million or more in income from so-called positive income, which does not include losses.

"It's a slightly different slice, but they are not really comparable because of the underlying definitions," Friedland said, adding that 2008 was the first year the IRS began collecting data based on adjusted gross income.

Long told Tax Analysts that the report acknowledged the difference between millionaire returns based on AGI and those based on positive income. But she noted that "it's not apples and oranges. They are really highly related concepts."

Regardless of which numbers are used, Long said, the bigger question is why the drop occurred. "Was this a policy decision to reduce the number of audits for millionaires or did it just happen?" she asked.

Washington Post   March 21, 2009  AIG Suing To Recover Taxes in IRS DisputeFirm Says It Has Duty to Press On

By David S. Hilzenrath, Washington Post Staff Writer - Page D01  

As AIG takes billions of dollars from the federal government to stay afloat, it is suing the government for millions more.

The big insurer is trying to recover $306.1 million of taxes, interest and penalties from the Internal Revenue Service. Among other things, AIG is contesting an IRS determination last year that the company improperly claimed $61.9 million of tax credits associated with complex international transactions.

AIG has also asked a court to make the government reimburse it for money spent suing the government.

Given that the government owns 79.9 percent of AIG and has been using taxpayer money to fill a seemingly bottomless hole at the company, the lawsuit might seem like a case of biting the hand that feeds it. But an AIG spokesman said the company has an obligation to press its case.

AIG believes it overpaid the IRS, and it "has a duty to its shareholders, including the government and other shareholders, to insure that it pays the proper amount of taxes," spokesman Mark Herr said by e-mail.

Washington tax lawyer Martin Lobel agreed with that assessment.

 "If in fact they honestly believe that they're entitled to a refund of those taxes, it would be a breach of their fiduciary duty not to" sue, Lobel said.

 "On the other hand, the sense of entitlement from AIG is awesome," Lobel said.

Because the dispute pits the government against a company that has essentially become a ward of the government, the only clear winners are likely to be lawyers, legal experts said. The legal expenses could consume millions of dollars, they said.

 "You're dealing with yourself, and you're paying a lawyer to do it. It seems kind of bizarre," said an international tax lawyer who spoke on condition of anonymity because he was not authorized to comment publicly.

Lawyers at the firm Sutherland Asbill Brennan, which is representing AIG, did not respond to an interview request.

The lawsuit was reported previously by the Wall Street Journal.

For partners of similar stature to those representing AIG, fees can run from $700 to $900 per hour, said Dan Binstock, managing director of BCG Attorney Search, a legal recruiter.

 AIG's dispute with the IRS focuses on taxes for 1997 and dates at least as far back as March 2008, when the IRS sent AIG a bill for taxes it said the company should have paid. Without conceding, AIG last summer paid the bill. Several weeks later, the government threw the failing company an $85 billion lifeline. Since then, the federal bailout of AIG has soared to more than $170 billion.

The lawsuit spotlights AIG's use of intricate cross-border deals engineered to raise money for the company while minimizing taxes. The deals typically involved foreign banks and AIG subsidiaries incorporated in the Cayman Islands.

The transactions, of a general type commonly used by multinational corporations, took advantage of the notion that the U.S. government and foreign governments would look at the same deal differently, generating benefits on both ends and allowing the parties to translate those benefits into lower borrowing costs for AIG, the international tax lawyer said.

Though the deals defy simple explanation, AIG's lawsuit conveys a sense of them, noting for example that, in one transaction, the Bank of Ireland "acquired nominal legal title" to shares of an AIG subsidiary called Maitengrove Finance while another AIG subsidiary "retained equitable title and beneficial ownership" of the shares "for federal income tax purposes."

The deals involved AIG Financial Products, the subsidiary whose financial alchemy brought AIG to the brink of collapse.

 In the lawsuit, AIG is also seeking to recoup taxes it claims it overpaid as a result of having overstated its taxable income. The company, which was shaken by an accounting scandal years ago, later corrected past financial statements.

Courier-Post, South Jersey , March 22, 2009 Dozens Get Free Tax Help at IRS LaVinia DeCASTRO • Courier-Post Staff   

When Valderia Webster learned the Internal Revenue Service was offering free tax preparation, she jumped at the opportunity.

"It's close and convenient," said the Pennsauken resident, who was among the dozens of people who flocked to the IRS office in Cherry Hill on Saturday, where federal workers were at hand to help them with the paperwork. "It's very helpful to have somebody to do it for you."

More than 250 IRS offices nationwide were open on "Super Saturday" to offer free tax preparation to those who earn $42,000 or less.

In New Jersey, IRS offices in Cherry Hill, Jersey City, Newark, Paterson and Trenton were open.

Community Groups also joined in, offering free tax preparation at more than 1,000 sites nationwide, including New Jersey Citizen Action in Camden.

"We make sure we maximize their deductions and tax credits," IRS spokesman Gregg Semanick said.

By 8:30 a.m., a half hour before the Cherry Hill office opened its doors, a dozen people were already waiting outside, Semanick said. By 10 a.m., the office had already helped about two dozen people file their tax return, Semanick said.

This is Webster's second year having federal workers prepare her tax return.

 "I had an accountant do it before," Webster said. "This saves you a lot."

Those with an adjusted gross income of $56,000 or less who couldn't make it to Super Saturday can still file for free through the IRS Web site.

 About 70 percent of all taxpayers qualify for the free electronic filing, Semanick said.

"The good thing about electronic filing is that you get your refund in as little as 10 days," Semanick said.

Traditional filers have to wait up to six weeks to get a refund check, Semanick said.

New Jerseyans are taking advantage of the service.

 By March 19 of last year, 1.4 million New Jersey residents had filed electronically. Almost 60 percent of all New Jersey tax returns were filed electronically last year. By Thursday, the number of electronic filings had increased to 1.6 million, Semanick said.

Rochester Democrat and Chronicle (NY)   March 22, 2009 , IRS Offers Free Tax Help to People at 'Super Sites'

By Alan Morrell

Trent Chaney of Rochester got his taxes done for free Saturday at an office behind the Volunteers of America building, at 214 Lake Ave.

Chaney said he expected to get about $350 more in his tax return this year than in previous years. He also got information that could result in more of a financial windfall in the future.

"There were a few things that I didn't know about, like about buying a home, getting a car loan, correcting credit," Chaney said. "I intend to check into them."

Chaney is among thousands of area taxpayers this year who have taken advantage of the program, which combines free tax preparation, financial education and asset building. The volunteer program, done in coordination with the Internal Revenue Service, is overseen locally by a coalition called Creating Assets, Savings & Hope, or CASH.

 The free tax preparation is for people who make less than $42,000 annually. But the assistance is more than that, said Frank Steinebach of Rochester, site manager for the Lake Avenue office.

 "There are lots of programs that people without lots of money don't know about," he said. "Some come in and don't know about savings accounts. They go to a check-cashing place instead."

 Customers can get information about food stamps, heating-assistance programs and credits for first time home buyers, said Paul Usinski, an IRS official based in Buffalo.

 "This opens people's eyes to other opportunities that they might not be aware of," he said.

 The IRS has offered the program for about seven years.

 About 14,000 local households have been helped this year, said Rita Eygabroad, director of the CASH coalition. Nationally, more than 2.6 million returns were filed through the program last year.

About 300 coalitions in 12,000 sites are involved this year.

Along with the Lake Avenue site, the program is offered locally at two other "super sites" that are open six days a week through tax season, one in South Town Plaza in Henrietta and the other at the former KMart site in Irondequoit. Six other sites offer more limited hours.

Brittany Nelson of Rochester was another customer at the Lake Avenue site on Saturday. Her reasons for being there?

 "First off, it's free," the 22-year-old said with a smile. "And the service was good. I'm buying savings bonds. I knew about them before, but I never went and got them."

 Additional Facts  To learn more

The CASH Free Tax Return Assistance program is offered Monday through Saturday at three local

"Super Sites": 214 Lake Ave.; 3333 West Henrietta Road, Henrietta; and 999 East Ridge Road,

Irondequoit. Other sites have more limited hours. Walk-ins are welcome. For more, call (585) 242-6485 or go to, and click on CASH.

South Florida Sun-Sentinel , March 22, 2009,  Volunteers Give Hundreds in S. Florida Free Help Filling Out Tax Forms  By Rachel Hatzipanagos   

Verna Marshall usually gets her tax questions answered by an accountant.  "I can't afford to get one now," said Marshall, 58, who had started her own investment company two years ago. "I'm just not used to this type of market. Nothing is the same anymore. " 

 So, on Saturday, Marshall and about 500 others in South Florida had their tax questions answered — and in some cases prepared free — courtesy of the Internal Revenue Service. The program — Super Saturday — is a chance for those who make $42,000 or less to get their taxes done free. Nationwide, 250 taxpayer centers were open, including 20 in South Florida.

"They explained everything to me. It was wonderful," said Lucila Huancollo, 59, who works as a housekeeper. She went to the IRS site in Plantation, along with 50 other taxpayers. "It was a big help."

This is the second year the IRS has offered the service. Taxpayers, regardless of income level, also could speak with professionals about setting up payment plans to pay their taxes.

Most of those helping were volunteers trained to work on simple returns. Hispanic Unity of Florida, based in Hollywood, helped 4,000 people file their tax returns last year, said Sandra Tobon, economic development supervisor for the agency.

This year, they have trained 150 volunteers participating at 10 sites.

"Every year, we get more clients," Tobon said. "In the last two years, the economy has forced people to start looking for more free services." The IRS offers the programs during the workweek and holds the weekend event to accommodate work schedules. 

"We are hoping all the folks who are distressed with the economy come out here," said Chuck Buckla, regional manager for the tax assistance centers. "A lot of people can't take time off work, so this is a good opportunity for them."

 For information on filing your taxes, call the IRS at 800-829-1040.

 KIDK CBS 3 - Idaho Falls , March 21, 2009   IRS Helps with Taxes  By Justine Beauvais

POCATELLO - "I have more confidence in them than I do of myself," says Pamela Cherry.

 For some people, getting taxes done can be a hassle, but the Internal Revenue Service made it a little easier.

"I stressed over it because after I did it myself on-line they claimed they didn't have it so I was like no I'm going to make sure it gets done and I don't have to worry about it," says Cherry.

Hundreds of IRS offices nationwide opened their doors for a Super Saturday event to assist people with taxes.

"I think it's amazing how these people work and it was really wonderful to get this assistance," says Lorin Toft.

 With the economic downturn, financially distressed taxpayers turned to the free service.

 Those earning $42,000 or less had the opportunity to receive help on tax return preparation, and anyone could stop by to ask questions or have a payment plan arranged.

"Since I've never filled out a tax form before, it was just a great experience," says Toft.

With many lost jobs and reduced income people could see if they were eligible for the earned income tax credit, which on average, adds an extra $2,000 benefit.

 "What kind of income do I have, where does it come from and why, did I work," says Toft.

 An additional service the event provided, to help people get their refunds quickly, by either a direct deposit or through the mail.

And with a bit of a time crunch, efficiency played a big part.

"To get it done quick. I wait until the last minute and it's bad I know," says Cherry.

And once it's done, a break until next year.

 "It's taken care of and I feel good," says Cherry.

Daily Tax Report , The Bureau of National Affairs, Inc.  Federal Tax & Accounting  March 23, 2009

Health Care: New COBRA Payment Reporting Will Not Be Required on Form W-2, IRS Officials Say

Internal Revenue Service officials March 20 said the agency has decided not to require reporting of new payments from COBRA health benefits on the Form W-2, but said IRS is still considering how--or whether--to require other reporting of the benefits.

The news came during a broad-ranging update of IRS issues at an American Payroll Association conference, which focused largely on employment taxes and addressed the question of new Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in depth.

John Tuzynski, chief of employment tax operations for IRS's Small Business/Self-Employed Division, said IRS soon will have a third set of frequently asked questions and answers out on the new provisions, which allow assistance-eligible individuals to pay just 35 percent of their COBRA insurance and give employers the ability to take a credit on their federal employment tax returns for the remaining 65 percent.

COBRA Notice Expected Soon   

In addition, Tuzynski said, IRS is drafting a notice on the provisions, which will address, among other things, the meaning of "involuntarily terminated." He noted that "we're looking to get that on the street as soon as possible," and said the COBRA issue will remain his top priority through 2009 and into 2010.

The SB/SE official shared a panel with David Williams, IRS director of electronic tax administration and refundable credits. Both officials said that while an affirmative decision has been made not to require reporting of the benefits on the W-2 for now, the agency is still considering options for other reporting and taxpayers still should maintain records in case IRS decides to do an audit.

Williams said the W-2 decision was made in part because "this is legislation that's moving very quickly" and for now, "this is a piece of the law that will go away." The government does have compliance concerns, however, and he stressed that "there may be a longer-term change that may involve more reporting if there is a permanent provision."

 Reporting Options Considered

Although IRS still could decide not to require any reporting, Tuzynski said, for the time being the agency continues to consider its options, including requiring reporting on a Form 1099-MISC, a Form 1099-H that already is used for health care tax credits, or even potentially a new Form 1099-COBRA. However, one practitioner asked that IRS not use the latter name because it could confuse thousands of people not using the new benefits.

The panel also covered numerous other employment tax issues. Tuzynski said in response to recommendations from the Treasury Inspector General for Tax Administration, IRS is working to implement an agencywide program to address employment taxes, beginning by Dec. 31 of this year.

The strategy will involve a multiyear approach, will identify compliance gaps and necessary actions, will focus on front-end compliance, will utilize enhanced automation, and will focus on legislative recommendations, he said.

 NRP Audits Set for November

A key focus will come under the National Research Program, where IRS plans to launch a three-year audit initiative in November 2009 that could involve as many as 2,000 employment tax examinations, Tuzynski told practitioners. The audits will be based on the random selection of returns across all four operating divisions, he said.

 IRS will be looking for trending in four categories, including worker compensation, fringe benefits, nonfilers, and officer compensation, the official noted.

Moving beyond NRP, another area of concern remains backup withholding, he said. IRS has seen a declining number of filings of Form 945, while at the same time the numbers of Forms 1099 without taxpayer identification numbers (TINs) or with mismatches has dramatically increased. "That's not the kind of trend we like to see in tax administration," he said. The agency is in the process of doing 100 audits in this area, with a focus on 1099s with no TINs, Tuzynski said.

Employment Tax Legislation Possible

On the legislative front, the official said, taxpayers could see legislation in the "not too distant future" similar to legislation introduced by then-senator Barack Obama in 2007, the Independent Contractor Proper Classification Act (S. 2044).

 That bill would have allowed prospective reclassification of workers beginning after a determination that the worker is an employee, and it would have given IRS more authority to write regulations in the employment tax area than it currently has.

Tuzynski said the 2007 bill is "a prototype of what we might expect to see later this year," but he stressed that "I can't tell you whether I would endorse it." He added he could not speak for IRS or the Treasury Department.

Judicial Issues Addressed 

Addressing judicial issues, the IRS official said the agency is still trying to decide what to do in the case of Peno Trucking v. Commissioner. In an unpublished opinion, the U.S. Court of Appeals for the Sixth Circuit Oct. 3, 2008, reversed a U.S. Tax Court decision that found that Peno Trucking Inc. was not entitled to relief from tax liability under Section 530 of the Revenue Act of 1978 (Peno Trucking Inc. v. Commissioner6th Cir.No. 07-1869,10/3/08).

The court of appeals found that IRS did not present any evidence that Peno Trucking's treatment of its truckers, in an employee versus an independent contractor dispute, was inconsistent with that of an independent contractor. It also said IRS did not present any tax returns filed by Peno that would be inconsistent with its truckers' independent contractor status (194 DTR K-9, 10/7/08).

State Information Sharing Program a Priority

Moving to still another topic, Tuzynski said he continues to prioritize IRS's work in closely coordinating with states to share information on so-called questionable employment tax practices (QETP). Thirty-two states currently are participating in the program and the official said IRS met with administrators from 15 eastern states, Washington, D.C., and Puerto Rico in December 2008 to discuss the program.

Williams, in his part of the program, stressed that IRS is working hard in the employment tax electronic filing arena but continues to face challenges. He said that on the individual side of the equation, "it's a constant struggle." Even though the forms are now available electronically, "they are still IRS forms and publications," he said, noting that many individuals prefer tax software to trying to fill out the forms on their own. "They want the help, they don't want to make a mistake," Williams said.

Electronic Filing a Challenge

He said the concept of employment tax Free File, at this point, is a difficult one, and acknowledged that, with regard to modernized electronic filing, "we have a long way to go with you."

 In a broader sense, Williams said, payroll tax administrators have an important role to play as taxes take center stage in the administration's efforts to help the troubled economy.

 "Now that you're on the map, it's time to make sure you're part of the conversation when the next tax policy thing starts to happen," he said.

 By Alison Bennett

 Bond Buyer , March 23, 2009 , REGULATION: IRS Seeking Issuer Feedback on Arbitrage Burdens  By Peter Schroeder

The Internal Revenue Service is seeking information from tax-exempt bond issuers about how much of a burden existing arbitrage regulations place on them. 

The agency issued the request for comments Thursday in an effort to determine how much time issuers spend collecting information and monitoring their investments to ensure they do not earn "arbitrage."

The term arbitrage is defined as earnings on bond proceeds that materially exceed the yield on the bonds. If arbitrage is detected, an issuer generally is required to rebate that amount to the IRS for the bonds to remain tax-exempt.

The agency estimates that it takes a tax-exempt issuer roughly 14.5 hours to compile and file forms to rebate arbitrage, but it is asking them to weigh in on whether that burden estimate is accurate.

The IRS also wants to know: whether issuers think it is collecting the right arbitrage-related information from them; how it could improve the collection and quality of its information; how it could minimize the burden of information collection through technology; and how much it costs the issuer to establish and maintain services for collecting arbitrage information.

The deadline for submitting written comments is May 18.

Tax Notes Today  March 20, 2009  IRS to End ‘Tax Talk Today’; Practitioners Wary of Alternatives
Published by Tax Analysts(R)

 The IRS's recent announcement that it will end its Tax Talk Today television series and substitute alternative video, audio, and online tax education services has displeased some practitioners.

 Citing "changing audience needs" and the "IRS's evolving ability" to provide continuing professional education (CPE) credits and other services to tax professionals, IRS spokeswoman Nancy Mathis told Tax Analysts that the Service decided to discontinue Tax Talk Today in favor of "new and more efficient tools."

The IRS plans to end the contract for the periodic tax information show on September 30. The final Tax Talk Today show is scheduled for May 12, though archived programs will be available until December 31.

The decision is being opposed by the National Association of Enrolled Agents (NAEA), which sent a letter to the IRS asking it to reconsider. "NAEA thinks killing the program is a real loss both to the practitioner community and to the agency," Robert Kerr, NAEA's senior director of government relations, told Tax Analysts. "In throwing over Tax Talk Today, the IRS is losing one of the very few venues in which it engages the broad practitioner and preparer communities."

 "Tax Talk Today is continuing education led by insiders," he added. "Senior IRS executives are brought in to discuss their operations, and the tax [return] preparer/practitioner community is given an opportunity both to provide context as program panelists and to ask questions en masse in real time." Such opportunities are rare for the return preparer community, Kerr said.

Benson Goldstein, senior manager of taxation at the American Institute of Certified Public Accountants, praised Tax Talk Today as a great resource for tax practitioners. But he added that while "it's unfortunate that Tax Talk Today has ended, the IRS is still doing constructive programming that can fill the void."

 Mathis said the IRS will continue to offer original video and audio programming. To that end, it has partnered with a private-sector company,, to provide tax information programming targeted at small businesses. Prerecorded, public service announcement-style video clips will be added weekly to a dedicated information page on the SBTV Web site.

Like Tax Talk Today, the clips on feature high-level IRS executives speaking on various tax topics. The clips on the Web site, however, are short; typically less than eight minutes -- too short to enable preparers to earn CPE credit, said Lisbeth Bagnold, president and CEO of L&M Production Design Group, the company that produces Tax Talk Today.

What's more, Kerr said, does not offer the same interaction between the preparer community and the IRS that the discussion format of Tax Talk Today provides.

"What is the agency's strategic plan for education, and how does it intend to replace this program?" Kerr asked. "News releases and 'Headliners' dropped onto are not true replacements; nor is SBTV. None of them has the sense of ownership of Tax Talk Today," Kerr said, "and none of them has the give-and-take that characterizes the program."

Goldstein disagreed. "I'm hearing positive things about these national phone forums," he said, referring to one of the IRS's alternatives to Tax Talk Today, the nationwide topical conference calls the Service offers several times a year.

 "If the topics are properly chosen and properly targeted, these forums may in fact fill the void," Goldstein said.

 According to Mathis, the IRS chooses topics for the calls based on practitioners' feedback through its Issue Management Resolution System.

 Practitioners concerned about losing an opportunity to earn CPE credit can earn the credits through participating in the phone forums, as well as attending one of the IRS's six summer "tax forums," a series of three-day-long conferences held throughout the country on a variety of topics, Mathis said.

 Also, Goldstein said, the tax forums that are most popular might be recorded by the IRS and made available online. "They are doing a lot of positive alternative programming," he added. "I think phone forums may work just as well [as Tax Talk Today] and be more cost efficient."

Many Tax Talk Today viewers have speculated that cost may have been a major factor in the IRS's decision to end the program, said Bagnold, the show's producer. "There's been no dissatisfaction with the program, or with the content. I think it's a budget issue," she said.

 Neither the IRS nor L&M Production Design Group provided figures on the cost to produce the Tax Talk Today programs. An online search of contracts listed in the Federal Procurement Data System showed that in fiscal 2008, the IRS paid L&M nearly $ 1.2 million.

Bagnold said that L&M was pursuing private sponsorship to enable the company to continue the program without IRS support. When asked whether an independent program would continue to include participation by top IRS executives, Bagnold said it was her belief that if invited, the IRS would continue to participate at a high level.

 Small-business owners and practitioners seeking informational resources can take advantage of several specialized newsletters and Web pages on An example is the Small Business Resource Guide, a tax advice publication for new business owners that formerly was available only as a CD-ROM.

Rome Sentinel March 21, 2009   IRS Tax Tip: Nine reasons to visit an IRS Taxpayer Assistance Center

 IRS Taxpayer Assistance Centers are your source for personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance.

The IRS will open 12 of its New York Taxpayer Assistance Centers from 9 a.m. to 2 p.m., Saturday. That includes the one at 100 S. Clinton St., Syracuse. Multilingual assistance in 150 languages will be available.

Here are reasons to visit an IRS TAC.

1. Face-to-Face Assistance No appointment is necessary — just walk in.

2. Multilingual Assistance Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need. Multilingual services are offered to taxpayers in over 150 languages. These services are provided through bilingual employees and an Over-the-Phone Interpreter.

 3. Free Federal Tax Return Preparation Your local TAC will prepare basic tax returns for those who qualify for EITC or those whose income is less than $42,000. Visit your TAC for an appointment.

4. Form 2290, Heavy Highway Vehicle Use Tax Return Your local TAC can help you prepare Form 2290, accept your payment and provide the needed receipts for you to take when registering your vehicle.

 5. Individual Taxpayer Identification Number If you are not eligible for a Social Security Number but need to file a tax return, bring the completed tax return, Form W7 and certified identification documents to your local TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.

6. Alien Clearances Before leaving the United States, most aliens must obtain a certificate of tax compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You can get the permit from your local TAC. For more information, see Publication 513, Tax Information for Visitors to the United States.

7. Payments You can make payments at your local IRS TAC. Be sure you know the tax period and type of tax the payment is for. If you received a notice from the IRS, be sure to bring it with you.

8. Tax Forms Do you need tax forms? If so, most forms are available at your local TAC.

9. Tax Return and Tax Account Transcripts Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript will generally meet the requirements of these lending institutions. Visit your local TAC for free transcripts, which are generally available for the current and past three years.

 TAC locations, business hours and an overview of services are available at Go to the "Individuals" tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.

Detroit Free Press ,  March 22, 2009 , Fatter Paychecks May Have a Catch   By Susan Tompor   

Millions of workers will see extra money in their paychecks beginning next month, as part of the latest stimulus package. Employers, on the other hand, could be looking at extra confusion.

The Internal Revenue Service said workers do not need to fill out a new W-4 form to get the credit reflected in take-home pay.

 Even so, employers may need to explain to their employees that some taxpayers should fill out a new W-4 form to avoid one snag that could cause pain, not gain. The glitch: Married couples who both receive regular paychecks might get too much extra money now and owe money for taxes next year.

New withholding tables reflect what's called the Making Work Pay credit.

The credit was meant to be given to workers during the year to help spur spending. Employers are being encouraged to start using the new withholding tables as soon as possible, but no later than April 1.

 Problem: 2 wage-earners   For 2009 and 2010, the stimulus package provides a refundable tax credit of up to $400 for singles and $800 for married couples filing jointly. However, taxpayers must still claim the credit on their income tax return. So a problem can occur if each spouse declares "married" on his or her W-4 form. The couple would then receive too much money in their checks.

The American Recovery and Reinvestment Act of 2009 provides many married couples filing jointly with a maximum $800 credit, not a $1,600 credit for two workers.

Multiple jobs, alimony, pension

Bob D. Scharin, senior tax analyst from Thomson Reuters, said the same problem could crop up if someone is holding down two jobs. Or a similar problem could arise if the taxpayer had a job -- and outside income such as a pension or alimony.

The Making Work Pay credit is cut for higher incomes. The credit is phased out for a married couple filing a joint return whose modified adjusted gross income is between $150,000 and $190,000, and other taxpayers whose modified adjusted gross income is between $75,000 and $95,000.

Eligible taxpayers are going to need to claim the credit next year when they file 2009 federal income tax returns.

If, in their paychecks, some people see extra money now that they aren't qualified to get, Scharin noted that those taxpayers might end up with a smaller refund in 2010. Or they could have to send in more money at tax time next year.

 For many, the easiest thing to do would be to file a new W-4 form and make an adjustment on Line 6 to have more money withheld from each check, according to Mark Luscombe, principal analyst for CCH in Riverwoods, Ill.

See IRS Publication 919 for information on how to adjust tax withholding. Or go to and use a withholding calculator.

I hope you find this information useful in your tax practice.  If you know someone who might want to subscribe to an IRS e-Subscription, please forward this message to them and they may go to the Subscription page on the IRS Web site to subscribe.


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