Friday, June 5, 2009

IRS News and Information & In The News

Practitioner Email Group,

Please share with your members and colleagues.  Select the blue links to see the full article

Latest News

IRS Clarifies Requirement for Filing FBAR Form Due This Month
IR-2009-58, June 5, 2009 — The IRS announced today that it would allow taxpayers to rely on a prior definition of a United States person in determining FBAR filing requirements for the June 30, 2009 deadline.

IRS Launches Tax Return Preparer Review; Recommendations to Improve Compliance Expected by Year End
IR-2009-57, June 4, 2009 — IRS Commissioner Doug Shulman announced he will propose a comprehensive set of recommendations to help the IRS better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring high ethical standards of tax preparers.

Commissioner Doug Shulman's Remarks to the OECD, June 2, 2009
Prepared Remarks of IRS Commissioner Doug Shulman Before the Organization For Economic Co-Operation And Development Washington, DC, June 2, 2009. The Commissioner discussed the challenges that exist in the global tax arena.

Spring 2009 Statistics of Income Bulletin Now Available
IR-2009-56, May 29, 2009 — Statistics about the tax returns filed by individuals with high incomes for 2006 are now available.

IRS Offers Tax Credit Guidance to Businesses Hiring Unemployed Veterans and Certain Youth
IR-2009-55, May 28, 2009 — Businesses that hired veterans and certain younger workers during the first part of 2009 should be aware of Aug. 17 certification date for the work opportunity tax credit (WOTC).

Recovery Rebate Credit Information Center
Information on the Recovery Rebate Credit.

Tax Relief in Disaster Situations
Tax relief provisions for disaster situations.

Alternative Motor Vehicle Credit
Feb. 2008 — Information on hybrid cars, including the certified car models and the amount of the tax credit or deduction for each. Frequently updated.

2008 Enforcement Statistics

IRS Reminds Small Tax-Exempt Organizations to File e-Postcards
IR-2009-49, May 6, 2009 — The IRS reminds many small tax-exempt organizations to file their annual electronic informational return.

IRS Strategic Plan, Fiscal Years 2009-2013
The plan outlines how the IRS will improve service to taxpayers and enforcement of the law over the next five years.

Compliance & Enforcement News
A collection of recent news releases, statements and other items related to IRS compliance and enforcement efforts.

Commissioner's Comments, Statements and Remarks
Various topics including tax administration, the IRS budget and tax shelters.

Voluntary Disclosure
Taxpayers with unreported income may apply for a voluntary disclosure agreement with the IRS.



Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS Says
IR-2009-51, May 20, 2009 — IRS urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

IRS Announces Withholding Adjustment Option for Pension Plans and Provides Taxpayer Education
IR-2009-50, May 14, 2009 — The IRS released new withholding adjustment procedures for pensions as part of outreach efforts to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act.

E-file Hits Record 90 Million; 30 Million Filed From Home Computers
IR-2009-46, April 29, 2009 — More than 90 million tax returns have been e-filed this year. [This release includes the tax filing season statistics for the week ending April 24, 2009.]

Tax Breaks Available for Taxpayers Who Purchase Qualified Plug-In Electric Vehicles
IR-2009-45, April 24, 2009 — Plug-in electric vehicles using certain types of batteries may qualify for a new tax credit if purchased this year, the IRS said today.

Business Provisions of the American Recovery and Reinvestment Act of 2009 (ARRA)
FS-2009-11, May 2009 — ARRA provides a number of tax incentives for businesses.

Federal Judge Permanently Bars Texas Tax Preparers
The Justice Department announced today that a federal court has permanently barred two additional former employees of Preston Tax Services, Inc., from preparing federal tax returns.

Issue Management Resolution System (IMRS) Hot Topics

Update on ARRA Recovery Tax Provisions for Individuals and Businesses

Find out about tax deductions, credits and other aspects of the economic recovery law.


Technical Guidance


Revenue Procedure 2009-29 provides the 2010 inflation adjusted amounts for health savings accounts under section 223 of the Code. It will be published in IRB 2009-22 dated June 1, 2009.

Revenue Ruling 2009-11 provides that differential pay paid to employees that go on active military duty is subject to income tax withholding, but is not subject to FICA or FUTA taxes.

Revenue Ruling 2009-15 offers several situations where an entity taxed as a partnership becomes a corporation for federal tax purposes and is eligible to make an S election effective for the corporation’s first taxable year



National Phone Forums (,,id=158856,00.html)



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.


If you would like to discontinue receiving local Stakeholder Liaison e-mails, please e-mail   and request removal of your name.


Thank you,

James R. Kinsey

Sr Stakeholder Liaison Specialist
Communication, Liaison & Disclosure
SB/SE Division
Work 408-817-6842
Fax 408-817-4601


    1.      IRS: TEI Urges Adequate Funding of IRS FY 2010 Budget Prior to House Hearing   * BNA Daily Tax Report

  1. GETTING PERSONAL: Stressing Over Offshore Tax Filing *   Dow Jones Newswire
  2. Kerry says $819,848 tax lien is clerical error *   Associated Press
  3. Tax Preparers: IRS Scouting Possible Tax Preparer Penalties In Estate and Gift Tax Exams, Memo Reveals *  BNA Daily Tax Report
  4. Abramoff, gov't disputing $500,000 tax refundAssociated Press
  5. Tax Legislation: Reid Offers Bill to Let Tax Refund Recipients Share Funds with National Guard, Reservists * BNA Daily Tax Report
  6. Tax Shelters: Former BDO Seidman Vice President Pleads Guilty to Tax Shelter Charges *   BNA Daily Tax Report
  7. IRS settlement returns $97M to International Speedway Corp. *   The Orlando Sentinel
  8. Personnel Central to IRS Electronic Defense Strategy, TIGTA says *   Tax Notes Today

BNA Daily Tax Report   June 4, 2009

IRS: TEI Urges Adequate Funding of IRS FY 2010 Budget Prior to House Hearing 

Tax Executives Institute Inc. called on Congress June 3 to ensure that the Internal Revenue Service receives adequate funding for its fiscal year 2010 operations.

TEI's June 3 letter was sent to the chairman and ranking member of the House Ways and Means Oversight Subcommittee a day before a scheduled subcommittee hearing on IRS operations and its budget proposal.

The letter stated TEI's support for appropriate funding of the service so that it can carry out its enforcement, training, and modernization programs. The president's IRS budget proposal, which TEI said totals $12.1 billion, proposed more funding for enforcement programs, as well as generally level funding for service initiatives.

"Adequate funding is necessary for the IRS to achieve its overarching goals of improving taxpayers' ability to comply voluntarily with the tax laws by providing top-notch service and ensuring that all are meeting their obligation to pay tax by implementing balanced enforcement measures," TEI International President Vincent Alicandri wrote in the letter.

Congress, the IRS Oversight Board, and the Treasury Department should all work to ensure that the increased resources IRS receives are being utilized properly, Alicandri wrote. Enforcement programs in particular should be focused in a way that takes all costs and burdens to the taxpayer into account, he wrote.


GETTING PERSONAL: Stressing Over Offshore Tax Filing

 NEW YORK (Dow Jones)--Let's call the whole thing off. A crackdown on secret offshore accounts has tax advisers at odds over a key form that reports them to the IRS.

When to file the FBAR, or Report of Foreign Bank and Financial Accounts, and who should do it are matters of debate as the official June 30 deadline nears.

Some experts say to file on time, others say to wait. Some say the same cast of characters must file, while others say a new group may be roped in.

Big penalties may be involved for those who get it wrong.

Controversy stems from changes to the form, along with booming use of an IRS program that lets owners or managers turn themselves in voluntarily.

Hedge funds and financial firms that have ignored the form in the past are taking a close look to make sure they are dealing with the FBAR properly. They are anxious now as IRS pressure mounts on tax evaders who fail to report income from U.S. securities in offshore accounts.

The agency has conducted a high-profile crackdown on tax evaders involving thousands of people with Swiss bank accounts managed by UBS AG (UBS). Many account owners and managers are coming forward under an IRS voluntary disclosure program to seek leniency. A worry for some is that filing an FBAR on June 30 before starting a voluntary disclosure could make the IRS reject the disclosure.

Douglas Stransky, an attorney at Sullivan & Worcester LLP, says that while it's generally best to err on the side of over-disclosure, some people may want to hold off on filing the June 30, 2009, FBAR if they are going through a voluntary disclosure. In these cases, taxpayers would explain as part of their disclosures that they are awaiting IRS feedback on their cases.

But some attorneys say there's no advantage to waiting, and others say it's not legal to wait.

Bryan Skarlatos, a partner at New York law firm Kostelanetz & Fink, for example, says it's best to start a formal voluntary disclosure and file the FBAR by June 30.

A client who comes in on June 29 should file the form on time, as required by law, and then start a voluntary disclosure as soon as possible, according to Skarlatos. If the person comes in after the June 30 deadline, he or she should start a voluntary disclosure immediately and include the 2008 FBAR as part of it. (The 2008 FBAR is due on June 30, 2009).

Teig Lawrence, a tax attorney in Miami, says that skipping the June 30 deadline is violating the law.

 "Some taxpayers are clearly in a Catch-22 situation if they haven't yet filed their voluntary disclosure," says Lawrence.

Another big question for hedge funds and others now is who has to file. The U.S. Treasury revised the FBAR last year to make it clearer that hedge fund managers and other investment managers with control over offshore accounts must file. Many managers overlooked the requirement in the past.

Scott D. Michel, an attorney in the Washington D.C. office of law firm Caplin & Drysdale, says financial firms "now have to go back and reexamine this more extensive form."

One concern is making sure that everyone at a hedge fund or investment management firm who is required to file does in fact comply. Language on the IRS form and instructions is broad and can lead to ambiguities.

It's possible, according to Stransky of Sullivan & Worcester LLP, that hedge funds that didn't have to file in the past could be required to file now.

Generally, it's "better to err on the side of over-disclosure, even though that can be administratively burdensome," he adds.

The IRS declined to comment beyond several discussions of the FBAR it has published on its Web site.

Associated Press   June 4, 2009

 Kerry says $819,848 tax lien is clerical error

 WASHINGTON (AP) — The Internal Revenue Service has filed a $819,848 tax lien against Sen. John Kerry's 2004 presidential campaign, but Kerry on Wednesday blamed IRS clerical error for the claim and said his campaign owes no tax penalties.

The Massachusetts Democrat said the IRS mishandled payroll tax forms that he said were correctly filed by his campaign in 2005.

 "This is a clerical matter, nothing more, nothing less," said Kerry spokeswoman Whitney Smith.

IRS spokesman Anthony Burke declined comment Wednesday, adding that IRS employees are precluded by law from commenting on tax cases.

The IRS notified the Kerry campaign in January 2008 that it had failed to file certain payroll tax forms for the 2004 tax year.

Smith said the IRS must have lost the payroll forms since the Kerry campaign had previously filed them in 2005. But the Kerry campaign filed them again in 2008 in response to the IRS request, she said.

 "The IRS contacted us last year about data they lost from the 2004 campaign," Smith said. "We gladly resubmitted all the forms needed to fill in the gaps, end of story."

 Smith said the Kerry camp was surprised to learn the IRS had filed a tax lien based on the disputed W-2 payroll forms.

 The IRS filed the lien earlier this year in the District of Columbia, saying it had tried to collect the money previously from the Kerry campaign.

 "We have made a demand for payment of this liability, but it remains unpaid," according to the IRS tax lien.

 Smith said the Kerry camp has been willing to provide the IRS additional documentation to resolve the matter. Kerry officials have been checking monthly with the IRS asking why the matter has yet to be resolved, but have not gotten an answer, she said.

The Washington Times first reported the tax lien against Kerry's campaign on Wednesday.

Kerry lost to former President George W. Bush in the 2004 race. Paperwork was filed last year with the Federal Election Commission closing down Kerry's 2004 campaign account.

 BNA Daily Tax Report  June 4, 2009

Tax Preparers: IRS Scouting Possible Tax Preparer Penalties In Estate and Gift Tax Exams, Memo Reveals

 Internal Revenue Service examination agents should be looking for the possibility of tax preparer penalties for the understatement of tax liabilities in the preparation of every estate or gift tax return examination they undertake, according to an IRS Small Business/Self-Employed Division memorandum, released June 3.

 The interim guidance in memorandum SBSE-04-0509-009 deals with the responsibilities of IRS agents in reviewing gift and estate tax returns to make sure tax code Sections 6694 and 6695 are followed.

"During every examination, estate tax attorneys should determine if further consideration of return preparer penalties is necessary," John Imhoff, director of specialty programs with IRS, said.

 However, he stressed, estate and gift tax examinations will be settled "separate and distinct from the return preparer penalty case," and estate tax attorneys "must not propose or discuss preparer conduct penalties in the presence of the taxpayer."

 While there is a three-year statute of limitations on assessment of penalties under Section 6694, the penalty for understatement of tax liability; Section 6700, the penalty for promoting abusive tax shelters; and Section 6701, the penalty for aiding and abetting understatement of tax liability; there is no statute of limitation on actions to enjoin tax preparers under tax code Section 7407, and Section 7408, which enjoins specific conduct related to tax shelter and reportable transactions, he said.

 How Penalty Cases Originate

 Most of the penalty cases will derive from a Form 706, the United States Estate (and Generation Skipping Transfer) Tax form, or Form 709, the United States Gift (and Generation Skipping Transfer) Tax return, which have been selected for audit, Imhoff said. However, some cases may come from the IRS Cincinnati campus because the case involves a questionable tax practitioner.

Group managers will review the return preparer penalty case files and document that they agree there is a problem, and preparers will be given an opportunity to meet with the group manager to resolve the issues, he said.

Meanwhile, referrals to the IRS director of the Office of Professional Responsibility should be based on a pattern of failing to meet the required penalty standards under Section 6694, Imhoff said. Under 6694(b), the referrals to OPR are mandatory if the penalties involve willfull neglect or reckless conduct.

 For Section 6695(a)-(e) and Section 6695(g), examiners should exercise discretion in making referrals to OPR, unless they involve willfull neglect, he said

  ASSOCIATED PRESS   June 3, 2009

 Abramoff, gov't disputing $500,000 tax refund

WASHINGTON (AP) — Former lobbyist Jack Abramoff and the Justice Department are disputing a tax refund he recently received worth more than $500,000 and whether it should be used to pay court-ordered restitution or his family's massive debts.

Abramoff's attorneys say his family, which once lived on Abramoff's lucrative salary, is now just above the poverty line on his wife's income of less than $38,000 and needs the money for living expenses. The lawyers say his wife was trying to dig them out of debt by paying legal and accounting fees, personal loans, credit card bills and their children's Hebrew school tuition from the $520,189 refund.

But the government argues that Abramoff is required to apply the refund to a $23 million restitution order that was handed down with his four-year prison sentence in September on public corruption charges.

 The dispute was outlined in court documents and first reported Wednesday by the Washington Post.

The Justice Department filed a motion with the court on May 21 asking it to modify Abramoff's restitution order. "Yesterday, the government learned that Mr. Abramoff received a substantial refund from the Internal Revenue Service, a large portion of which he and his spouse spent before informing the government of its receipt," the motion said.

 The prosecutors asked the court to order the Abramoff family to stop spending the refund and provide an accounting of the payments already made, which they did. They also wanted a requirement that Abramoff tell the court whenever his family received any more debts or assets worth more than $2,500 and get court permission whenever his family spends more than $2,500.

Abramoff's attorneys said in a response filed Tuesday that they were surprised at the government's reaction since the refund was negotiated with the help of Justice Department officials. "The Abramoffs proceeded under the perfectly reasonable belief that the government was aware of the tax refund that the government itself provided them," the attorneys wrote.

 They said the refund was for money that Abramoff mistakenly paid to the IRS before he was sent to prison and it took years of work from lawyers and accounts to recover.

Abramoff has been out of work for five years and has incurred a large debt from two criminal trials and numerous civil and criminal tax issues, his lawyers wrote. The family has a $2,500 mortgage but can't sell the house because of the depressed market and a leaking roof that they have not been able to afford to repair.

"The Abramoffs have been in distress for some time," Abramoff's attorneys wrote. With the mortgage and taxes, "the annual cost of the home, without even considering utilities or the cost of repairs, is $52,000 per year — a cost well above Mrs. Abramoff's annual income. ... With each passing month, the family slides further and further into debt."

The attorneys also said Abramoff was never instructed to pay his creditors in any certain order.

BNA Daily Tax Report   June 4, 2009

Tax Legislation: Reid Offers Bill to Let Tax Refund Recipients Share Funds with National Guard, Reservists

 Recipients of income tax refunds could designate part or all of the funds to National Guard and Reserve troops under legislation (S. 1166) Senate Majority Leader Harry Reid (D-Nev.) introduced June 3.

 Such taxpayers would have the option to put any amount toward the Reserve Income Replacement Program, an entitlement used to pay eligible service members who incur a monthly loss between their regular income and their active-duty income, Reid said in prepared introductory remarks posted on his Web site. The program provides payments to National Guard and Reserve members, involuntarily serving on active-duty, who incur a monthly income loss of more than $50, he said.

Reid noted that, in 2007, the Internal Revenue Service issued 106 million refunds totaling $246 billion, with an average refund of $2,342.

"Even a small percentage of this amount could make a significant difference in the lives of these reservist and National Guard families," Reid said.

 He added, "The financial stress of deployments during a recession has placed enormous pressures on our National Guard and Reserve Service Members and their families...This bill would not only assist the Guard with monetary resources, but it would also rightfully focus more attention on the financial struggles that our brave and dedicated citizen Soldiers and Airmen undertake in defense of our country. With this legislation, we can show them that their service is not taken for granted."

 BNA Daily Tax Report   June 4, 2009

 Tax Shelters: Former BDO Seidman Vice President Pleads Guilty to Tax Shelter Charges

A former vice-chairman and board member of the accounting firm BDO Seidman pleaded guilty June 3 to a three-count felony information charging him with conspiracy to defraud the United States in connection with tax shelter transactions involving the clients of his firm and the law firm Jenkens & Gilchrist, the Justice Department announced(United States v. Bee, S.D. N.Y., No. 09CRIM. 545, plea entered 6/3/09).

According to the information filed against him in the U.S. District Court for the Southern District of New York, Charles W. Bee Jr. was also charged with tax evasion in connection with a multimillion-dollar tax shelter he helped sell to a client of his firm and to giving material false deposition testimony regarding his firm's tax shelter practice in a case before the U.S. Court of Federal Claims. Bee resides in Fredericksburg, Va., and Boca Raton, Fla., DOJ said.

From 1998 through October 2000, Bee was one of the leaders of BDO Seidman's Tax Solutions Group. The information said the group's activities were devoted to designing, marketing, and implementing high-fee tax strategies, including tax shelters, for wealthy clients. Michael Kerekes and Adrian Dicker were also leaders of the group and previously pleaded guilty to similar fraud charges (50 DTR K-3, 3/18/09).

 DOJ said Bee specifically admitted criminal responsibility based on the sale by BDO Seidman of a tax shelter known as the "short option" transaction to one client, who was charged fees of $133,000 by his firm and $201,000 by Jenkens & Gilchrist. The shelter purportedly generated losses sufficient to offset the taxes due on $6.7 million the client had received from a stock sale, it said.

In fact, the short option transaction had the reasonable possibility of only earning a profit of $67,000, thus resulting in no potential profit to the client, DOJ said. The client nonetheless filed tax returns reporting false and fraudulent losses purportedly generated from the short options shelter, thereby evading a substantial amount of taxes, it said.

Finally, Bee admitted that in February 2005 he knowingly made false material statements under oath in the Court of Federal Claims Jade Trading v. United States case involving a tax shelter sold by BDO Seidman and another promoter, DOJ said (247 DTR K-1, 12/27/07).

As part of his plea agreement, Bee agreed to forfeit $20 million, representing the money his firm paid him from tax shelter fees. He also agreed, in partial satisfaction of the forfeiture, to forfeit four residences and a recreational vehicle.

 The Orlando Sentinel   June 4, 2009

IRS settlement returns $97M to International Speedway Corp.

 DAYTONA BEACH — International Speedway Corp., the France family corporation that owns Daytona International Speedway and other racetracks, will receive $97 million of its own money back as part of a settlement with the Internal Revenue Service.

The company had originally deposited $118 million with federal officials while the IRS audited the company's method of depreciating its racetracks. Chief Financial Officer Dan Houser said speedway officials had depreciated the tracks under the IRS asset code for theme and amusement parks and other entertainment attractions. There was a question about the timing of those deductions, not whether the deductions were legitimate, he said. Houser said the company's ultimate payment of $21million was a "fair settlement" of the matter.

Speedway officials plan to use some of those funds to gradually restart a plan to buy back stock. The $250 million stock-purchase plan started in 2006 but was put on hold in September. About $42 million of stock can be repurchased under that plan.

Tax Notes Today   June 4, 2009

Personnel Central to IRS Electronic Defense Strategy, TIGTA says

 The Treasury Inspector General for Tax Administration's Office of Investigations (OI) plans to counter increasingly sophisticated electronic threats to IRS information primarily with advanced employee training, TIGTA said in its most recent semiannual report to Congress.

TIGTA's OI division is tasked with defending the IRS against internal and external intrusions, including hackers, phishing schemes, and browsing and fraud perpetrated by IRS employees. The report, released June 3, detailed TIGTA's activities from October 1, 2008, to March 31, 2009. (For the report, see Doc 2009-12577.)

 "Those who work in the trenches each day are best able to identify issues and problems quickly," the report said, describing TIGTA OI's "bottom-up approach" to enforcement. To that end, the division is striving to train its workforce "with the knowledge, skills, and abilities to operate in the ever-changing electronic/automated/technological environment," the report said.

 TIGTA has expanded computer skills training for employees, created a series of analyst positions to identify trends in investigative data, and added a performance measure to its employee evaluation rubric to assess how much initiative each OI agent takes to develop cases. The OI division also sends more than 300 employees to specially developed continuing professional education programs each year, the report said.

 By 2013, OI plans to be "fully positioned" to conduct "proactive and reactive investigations" into the IRS's electronic environment. To accomplish its goals, the report said, "the IRS plans to install 261 new records systems and make other process changes to replace the older familiar systems."

"Experienced employees can overcome even the best internal controls and avoid detection through audits," the report said. "A decentralization of authority" adds risk to the integrity of IRS systems. "People at lower levels can now make financial decisions about taxpayer accounts, and 70 percent of IRS employees have access to some part of agency revenue or budgetary accounting systems," the report said.

Steve Jones, TIGTA deputy inspector general for investigations, told Tax Analysts that OI investigates leads generated by the IRS's internal security audit systems as well as its own information security measures within IRS.

"If someone accesses an account they're not supposed to, that's supposed to kick out on an internal security report, that's what IRS does," Jones said. "I'm looking for more nefarious things not necessarily triggered by that first line of safety check."

 The IRS is also increasingly vulnerable to external threats, TIGTA said. The TIGTA budget request included in President Obama's fiscal 2010 budget plan said, "Heightened enforcement is likely to cause a rise in external threats to IRS employees and infrastructure." The budget request also predicted a rise in bribery attempts, phishing schemes, and other external assaults.

"Knowing how to analyze data, and knowing how the processes work," Jones said, are instrumental in detecting and investigating both internal and external electronic threats.

OI invests in technology to perform detection and analytical processes. Special agents, however, are an integral resource, Jones said.

Both TIGTA's technology and its staff need to be specialized to meet threats, Jones said. "You can't just go to Best Buy and buy software matching programs," he said, "You have to actually be conversant with patterns of activity."

 Jones said that to conduct threat analysis, which he likened to forensic analysis, it is necessary to see trends and ask questions about the relationships between the employee and the inappropriately accessed data.

 The interplay between technological and human investigative resources is central to TIGTA's electronic investigation strategy, Jones said.

"Once you've figured out what a certain pattern of suspected activity might look like, then you build a program for it to monitor it so you get automatic triggers that something else has occurred. That frees your person up to start looking at the next anomaly," he said.