Monday, December 20, 2010

ACTION: efile Mandate Waiver Procedures

Announcement 2010-96 was released today to provide guidance on requesting hardship waivers from the new preparer e-file requirement.  Form 8944 is the necessary form and may be submitted at any time; however, notifications of approval or denial will not be made after final regulations and a final revenue procedure are issued in early 2011.  See: and
On a related note, draft Form 8948 (Preparer Explanation for Not Filing Electronically) has also been released.  See:
This new information will be added shortly to the e-file mandate page on,,id=223832,00.html
Please cascade this information to all tax professional  members  and other interested parties.
James R. Kinsey
Sr Stakeholder Liaison Specialist
Communication, Liaison & Disclosure
SB/SE Division
Work 408-817-6842
Fax 408-817-4601

Friday, December 17, 2010

Internal Revenue Service Webinar for Tax Professionals & Payroll Tax Cut


Internal Revenue Service Webinar for Tax Professionals


Collection Bankruptcy Overview

Presented by the Internal Revenue Service

Date: January 25, 2011


This FREE webinar is for:

               Tax Professionals

               Tax Practitioners

               Enrolled Agents


               Bankruptcy Attorneys



Learn about:

·                how IRS’ insolvency function processes bankruptcy cases,

·                how to properly notify IRS of a bankruptcy filing

·                how to order transcripts of tax returns through IRS e-Services,

·                how the IRS can collect taxes from exempt, excluded and abandoned property and

·                non-dischargeable tax debts in chapter 7 and chapter 13 bankruptcy cases.


Earn Continuing Professional Education credit

               Enrolled agents receive one CPE credit for participating for a minimum of 50 minutes from the start of the webinar.

               Other tax professionals may receive credit if the webinar meets your organization’s or state’s CPE requirements.

               To receive credit, you must attend the presentation offered on January 25, 2011. Register for the webinar using your e-mail address, and use the same e-mail address to log in to attend. This will confirm your attendance and generate your Certificate of Completion.

               *Only January 25, 2011, participants will receive certificates. If you do not need a certificate to obtain CPE credit, you may choose to view the archived version of the webinar after January 25, 2011.

               Look for your Certificate of Completion by e-mail approximately one week after the webinar. If you have met all requirements, you will receive your certificate automatically.


Register & Attend

·                Click on the link to register for the session






2 p.m.

1 p.m.


11 a.m.

Note: Time zones shown are standard time.



               Visit and search Webinars for information about other events.

               If you require special accommodations (for example, a larger-print on presentation materials), contact Brian Finn at

               If you experience difficulty viewing the event, please use the e-mail option on the event page or call 866-956-4770.

               This event will be archived for later viewing, approximately two weeks after the date of the event, on


Sponsored by: IRS Small Business/Self Employed Division


New Withholding Details Now Available on, and Notice 1036, Early Release Copies of the 2011 Percentage Method Tables for Income Tax Withholding.


news release graphic


Media Relations Office                                    Washington, D.C.                    Media Contact: 202.622.4000                                                                                    Public Contact: 800.829.1040



Payroll Tax Cut to Boost Take-Home Pay for Most Workers;

New Withholding Details Now Available on



IR-2010-124, Dec. 17, 2010


WASHINGTON The Internal Revenue Service today released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011.


Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.


The new law also maintains the income-tax rates that have been in effect in recent years.


Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on in a few days.


The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2011.


Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.


As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms. Publication 919, How Do I Adjust My Tax Withholding?, provides more information to workers on making changes to their tax withholding.



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

Monday, December 13, 2010

FW: IRS News 121310Events from Stakeholder Liaison - 13 December 2010.doc

Practitioner Group: 


Good afternoon, please share with your members and colleagues.  Select the blue links to see the full article.


Newsroom                                                                    December 13, 2010


Prepared Remarks of IRS Commissioner Doug Shulman before the 23RD Annual Institute on Current Issues in International Taxation, Washington, DC
IR-2010-122, Dec. 9, 2010 — IRS Commissioner Shulman delivers prepared remarks to the 23rd Annual Institute on Current Issues in International Taxation in Washington, DC.

IRS Releases Proposed Regulations that Would Reduce Enrolled Agent Fees
IR-2010-121, Dec. 7, 2010 — The IRS released proposed regulations that would reduce fees related to application and renewal for enrolled agents and enrolled retirement plan agents.

IRS Announces 2011 Standard Mileage Rates
IR-2010-119, Dec. 3, 2010 — Driving for business? In 2011, you may be able to claim 51 cents per mile according to IRS guidance issued today.

IRS Continues Efforts to Ensure Accurate Return Preparation; Reminds Tax Preparers to Sign Up for PTINs
IR-2010-118, Dec. 2, 2010 — The IRS started sending out more than 10,000 letters to return preparers to remind them of their obligation to prepare accurate tax returns.

IRS Helps Small Employers Claim New Health Care Tax Credit; Forms and Additional Guidance Now Available on Small Business Health Care Tax Credit
IR-2010-117, Dec. 2, 2010 — The IRS releases final guidance and a one-page form and instructions for small employers eligible to claim the new small business health care tax credit for the 2010 tax year.

Starting in 2011, Many Paid Preparers Must e-File Federal Income Tax Returns for Individuals, Estates and Trusts
IR-2010-116, Dec. 1, 2010 — The IRS details how paid tax return preparers can comply with a new law that requires them to electronically file certain tax returns.


IMRS Hot Topics, December 3, 2010

Continuing Education Requirements for Unenrolled Preparers Waived for First Year, IRS Begins Accepting Taxpayer Records in Electronic Format and more . . .


IRS Technical Guidance & Misc


Revenue Procedure 2010-47 sets out the cost limitations for expensing property under section 179 for taxable years beginning in 2010.  The aggregate cost of any section 179 property a taxpayer may elect to treat as an expense cannot exceed $500,000.  This amount is reduced by the amount by which the cost of the property placed in service during the year exceeds $2,000,000.  These amounts reflect statutory changes made by the Small Business Jobs Act.


Revenue Procedure 2010-51 updates Rev. Proc. 2009-54, 2009-51 I.R.B. 930, and provides rules for using optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. 


Notice 2010-88 provides the 2011 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes.  This notice also provides the amount taxpayers must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) plan.


Small Business Jobs Act of 2010 Tax Provisions

New Small Business Jobs Act provisions are designed to encourage investment and provide access to capital for businesses.


New 990 Filing Thresholds for 2010 Tax Year

Do you know which Form 990-series return you are required to file for the 2010 tax year?  The 990 filing thresholds for the year 2010 and later (filed in 2011 and later) will change.


Publication 4163 – 2010 TY/2011 PY publication just posted.

Modernized e-File Information for Authorized IRS e-file Providers of Forms 1120/1120S




National/Local Phone Forums and Webinars for Practitioners


  • No events scheduled


IRS Employee Plans

  • In-Plan Roth Rollover Phone Forum - December 20, 2010


IRS Exempt Organizations is offering one-day workshops

·         No events scheduled


I hope you find this information useful.  If you would like additional information, you can subscribe to an IRS e-Subscription by going to the Subscription page on


If you would like to discontinue receiving my local Stakeholder Liaison e-mails, please e-mail me at James.R.Kinsey and request removal of your name.




 James R. Kinsey

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


PTIN Registration Update

Practitioner Group:

IRS Communication Functions: 
As of 12/8, over 351,000 PTINs have been issued with another 115,000 in various stages of the application process.
In response to inquiries we have received about paper applications, we have prepared the attached communication and updated a related FAQ:
14. I sent in a paper W-12 and my check has not been cashed. What should I do? (updated 12/10/10)
Unlike tax returns, we will not process your payment until a PTIN has been issued. You will receive a letter in the mail when your application is processed. If you included an email address on your W-12, you will be notified via email when your application is processed.

If you have a paper Form W-12 pending, you may still opt to go ahead and register online at any time.  Your paper form and payment will be returned to you.  

Please cascade this information to your tax professional members.

Update on Processing of Paper Forms W-12


The inventory of paper PTIN applications (Forms W-12) is currently about 27,000.  The majority of applications are being processed within four to six weeks. 


Payments with paper PTIN applications are not cashed until processing is completed.  Any preparer who has a paper Form W-12 pending may still opt to register online at any time.  If a preparer does this, when his or her paper application is processed, the system will determine that a PTIN has already been issued online, and the paper form and voided payment will be returned.


Approximately 1,700 forms are over six weeks old.  Processing has been attempted but not completed on these forms because the information submitted does not match IRS records.  Before rejecting any applications, the IRS is making a careful comparison of the information to ensure rejection is valid. 


Applicants are encouraged to carefully check information when applying for PTINs online or on paper.  Our analysis indicates many of the applications we have been unable to process have included incorrect SSNs and dates of birth.  In addition, even after the IRS corrected a programming problem involving spouses on joint returns with different last names, the largest percentage of mismatches continues to be related to the last name.  Applicants should review their last income tax return and enter their name exactly as it appeared. 

Friday, October 22, 2010

IRS News Events and In The News



Good Afternoon, please share with your members and colleagues.  Select the blue links to see the full article.


Newsroom                                                                        October 22, 2010


2010 IRPAC Report Made Available
IR-2010-105, Oct. 20, 2010 — The Information Reporting Program Advisory Committee (IRPAC) released its 2010 Report.

IRS Issues Final Regulations on New Basis Reporting Requirement; For Investors, Reporting Gains and Losses Gets Easier Starting in 2011
IR-2010-104, Oct. 12, 2010 — The IRS issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years.

IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers
IR-2010-103, Oct. 12, 2010 — The draft Form W-2 for 2011 has been released. Additionally, the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan has been made optional for 2011.


Under the Law No Social Security COLA for 2011

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 58 million Americans will not automatically increase in 2011, the Social Security Administration announced.  Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax as well as the retirement earnings test exempt amounts.  These amounts will remain unchanged in 2011.


IRS Headliners & Technical Guidance


Headliner Volume 303, October 15, 2010 - IRS Begins Accepting Taxpayer Records in Electronic Format


Announcement 2010-81 delays until further notice the renewal period for enrolled agents whose tax identification numbers end in 4, 5, or 6.


Schedule M-3 updated for 2010 – 1120, 1120-L, 1120-PC, and 1120-S.



IRS Live


IRS Exempt Organizations is offering one-day workshops

·         Workshop for Small and Mid-sized 501(c)(3)s – Phoenix, Arizona - December 7, 8 & 9, 2010  



 In The News: If article interest you scroll down to read no links.


1.             Information Reporting: IRPAC Tackles New Information Reporting Requirements for Justification by Usefulness   *   BNA Daily Tax Report

2.             Larger Withdrawals from IRAs This Year May Help U.S. Savers with Taxes   *   Bloomberg

3.             Tax Practice: IRS Demonstrates Tax Preparer Registration Process under New Quality Control System   *   BNA Daily Tax Report

4.             Wait for Guidance on Roth Conversions, Treasury Official Says   *   Tax Notes Today

5.             Tax Legislation: Quick Carried Interest Guidance Due If Extenders Bill Passes, Official Says   *   BNA Daily Tax Report

6.             Retirement Plans: Official Says IRS to Follow Up With Plans That Failed to Answer 401(k) Questionnaire   *   BNA Daily Tax Report

7.             IRS: TIGTA Says IRS Slow to Respond To Investigators' Efforts to Audit   *   BNA Daily Tax Report

8.             FEDERAL DIARY:  At OPM, an Overhaul of Retirement Processing   *   Washington Post




BNA Daily Tax Report  October 21, 2010


Information Reporting: IRPAC Tackles New Information Reporting Requirements for Justification by Usefulness


Business system changes required by expanded information reporting requirements will be expensive and have long lead times, the chairman of the Information Reporting Program Advisory Committee told the Internal Revenue Service Oct. 20, and heavy burdens are only justifiable when the data required is expected to be useful to the IRS.


IRPAC Chair Lisa Chavez said IRPAC supports using information reporting to promote tax compliance and help IRS effectively use its audit resources, but said the burden placed on information return filers should be "reasonable." Chavez is senior attorney in the legal department with Northern Trust Company. She added that "distorted or confusing data will only lead to tax return errors and unnecessary audits."


In the last few years, four major tax withholding and information reporting initiatives have become law with effective dates in the very near future, Chavez said. Cost-basis reporting, expanded reporting of payments made to settle payment card and third-party network transactions, expanded information reporting under Form 1099-MISC, and expansive new withholding and tax information reporting rules impacting payments of U.S. source income to foreign financial institutions and nonfinancial foreign entities have all gone into effect since 2008, she said.


IRS Commissioner Douglas Shulman, who attended the IRPAC meeting, said IRS has indeed been given a new toolset to do its job, but he stressed that the service wants to be "savvy" about how the new information from third parties and taxpayers is used.


He gave as an example recommendations by IRPAC on delaying implementation of the requirement that employers report the cost of health care coverage under group health plans.


IRPAC recommended that IRS provide relief for 2011 so that employers will have time to implement the necessary systems, and IRS agreed. "Just last week we said W-2 reporting of the cost of health insurance--the cost to the employer-- will be optional for next year," Shulman said.


Shulman said he felt comfortable delaying implementation of the requirement "because there is no revenue impact to it," and the provision would not be used for tax compliance purposes. Otherwise, he said he is "reticent" to delay implementation of laws Congress has written.


Cost-Basis Reporting.


The IRS's final cost-basis reporting rules came out too late for recommendations on them to be included in IRPAC's 2010 report, released at the meeting, but the group has been working with the service on those rules.


IRS Oct. 12 issued final rules (T.D. 9504) and a notice (Notice 2010-67)(196 DTR GG-1, 10/13/10) that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. This information will be reported to investors and the IRS.


Chavez said it is critical that IRS issue a revised Form W-9, Request for Taxpayer Identification Number and Certification, quickly; and if not, IRPAC asked that penalty relief be provided to payers who are unable to obtain revised W-9s in time to meet the new deadlines.


Tax code Section 6045 currently permits a broker to treat a customer as a corporation if the broker has actual knowledge that the customer is a corporation, as long as the customer files a Form W-9, claiming an exemption as a corporation.


IRS took into account concerns expressed by IRPAC in comment letters, Chavez said. The final rules include a one-year extension for the provision of transfer statements, she said. Transfer statements are no longer required for exempt payments, and the "eyeball test" for per se foreign corporations and insurance companies was preserved, she said. The final rules also limit the types of basis adjustments that are required to be made by reporting parties. "The final regulations clarify that adjustments are not required to be made for straddles, conditional sales, and the more esoteric short sale adjustments," she said.


Section 6050W Reporting.


On another recent law change, Chavez said IRPAC was disappointed with IRS final rules for payments made in settlement of payment card and third-party network transactions because they require reporting on a transaction basis rather than a payment basis.


IRPAC recommended that the gross amount subject to reporting be defined based on payments made, but the final rules kept the proposed definition of gross amount, which takes a transaction approach, Chavez said.


Michael Danilack, IRS deputy commissioner for international in the new Large Business & International Division, had high praise for the advisory committee's work, saying the current level of discussion far exceeds what was done in the past.


Danilack said the formation of an IRPAC international subgroup will be important in bringing a focus to those issues, just as IRS is trying to do with a targeted focus on international issues.


On the Foreign Account Tax Compliance Act provisions of the HIRE Act, known as FATCA, he said there is "a keen need not to lose ourselves on FATCA focus, but to also focus on the Chapter 3 withholding challenges ahead of us." While there is some coming together of those two things, he noted that there are also "two separate realms."


IRPAC discussed with IRS officials coordination of the documentation and reporting rules with other rules that apply under Chapters 3 and 61 of the tax code. This includes the desirability of integrating FATCA compliance with the existing qualified intermediary program when it is appropriate, and the need to avoid duplicative reporting obligations.


The report included discussion of many other topics, such as fair-market-value reporting for deceased beneficiaries and successor beneficiaries, nonresident alien taxation, the tax gap, the need for written guidance on the users and providers of transportation services, and identification of taxpayers that are beneficial owners of tax-exempt private activity bond issues.


BLOOMBERG  October 21, 2010


Larger Withdrawals from IRAs This Year May Help U.S. Savers with Taxes

By Danielle Kucera 


For U.S. taxpayers making mandatory withdrawals from an individual retirement account, 2010 may be a good year to take out more than necessary because tax rates may rise.


Required minimum distributions from the accounts, which are taxed as ordinary income, generally apply to people with a tax- deferred traditional IRA who are age 70 1/2 and older or inherited one from a parent or spouse.


Savers who may be in a higher tax bracket next year should consider withdrawing more than the minimum in 2010, said Mark Nash, a partner in the Dallas office of New York-based accounting and advisory firm PwC Private Company Services. Required withdrawals are based on a formula of the account balance and the individual’s age.


“Pulling out a large sum in 2010 would lessen the 2011 amount, and make that year’s distribution lower,” said Nash, who advises high net-worth investors.


Account holders took out an estimated $162 billion in taxable distributions from IRAs in 2008, the Internal Revenue Service said, based on data from its website. Sixty-four percent of people who took money out of their IRAs in 2008 did so because of the required distribution, according to a 2010 study by the Investment Company Institute, a Washington-based mutual- fund trade group. IRAs held $4.2 trillion at the end of the second quarter of 2010, up about 11 percent from the second quarter of 2009, according to ICI.


The U.S. government suspended required minimum distributions for tax year 2009 in response to plummeting account balances after the Standard & Poor’s 500 Index dropped 38 percent in 2008. Mandatory distributions returned in 2010 as the economy strengthened and the S&P 500 rose 23 percent in 2009. Roth IRAs, which are funded with post-tax dollars, are exempt from minimum withdrawal rules while the owner is alive.


Rising Rates


President Barack Obama has proposed allowing the top two marginal income tax rates to rise to 39.6 percent and 36 percent from 35 percent and 33 percent for individuals earning more than $200,000 and couples making more than $250,000. Congress is scheduled to take up taxes when it returns from recess in November.


“This uncertainty doesn’t mean that people shouldn’t be sitting down and doing their planning now,” said Greg Rosica, a tax partner at consulting firm Ernst & Young LLP in Tampa, Florida, and contributing author to the Ernst & Young Tax Guide.


Someone who may be in a lower tax bracket in 2010 because of large deductions or less income should also consider taking a bigger distribution this year to take advantage of lower rates, said Rebecca Pavese, an accountant at Palisades Hudson Financial Group’s national tax practice in Atlanta.


Combine Withdrawals


Taxpayers who aren’t already taxed at top rates should make sure taking a bigger distribution won’t tip them into a higher bracket, said Bill Fleming, a managing director in the Hartford, Connecticut, office of PwC.


Holders of multiple IRAs can take the required withdrawals in aggregate from one account, said PwC’s Nash. That means they can take the distribution from an IRA with the worst-performing investments, leaving more money in accounts that are doing well, Nash said.


Those who pay estimated taxes during the year can request the account administrator to withhold money from their RMDs and pay income tax just once at the year’s end, said Rosica of Ernst & Young. That way they can hold onto their money longer and invest it without paying a penalty for underpayment, Pavese said.


The law assumes that payments are made equally throughout the year unless the taxpayer states otherwise, according to the IRS.


Charity Deduction


Taxpayers can withhold funds from required distributions to cover tax that’s expected on the distribution or, if they have other sources of income, withhold more to cover quarterly estimated payments, Nash said.


“The IRS doesn’t care as long as you get your tax liability to them either through quarterly estimated payments or through withholding,” he said.


Any IRA account holder can give all or part of a distribution to charity and take a deduction for the donation, said Debbie Cox, a Dallas, Texas-based wealth adviser for J.P. Morgan Private Bank, which is based in New York. A provision that allowed taxpayers to roll over a distribution directly to a charity and avoid income tax expired at the end of 2009, she said.


IRA holders should also try to take their required withdrawals at roughly the same time every year to avoid mistakes or forgetting about it, Fleming, of PwC, said.


BNA Daily Tax Report  October 21, 2010


Tax Practice: IRS Demonstrates Tax Preparer Registration Process under New Quality Control System


The Internal Revenue Service Oct. 19 offered an online demonstration on how to apply for a preparer tax identification number under the service's new plan to regulate preparers.


The registration process consists of creating an account, completing the application to get a PTIN, paying the $64.25 fee, and finally getting the PTIN, David Williams, IRS electronic tax administration director, said on an IRS Webinar.


The PTIN is the first step in improving the quality of tax preparation, Williams said. However, unlicensed tax preparers--who have never before had to register with IRS and be tested--complained bitterly about the new requirements, saying their experience should exempt them.


Williams stressed that, even practitioners who already have a PTIN must reapply for a new one or they will not be allowed to prepare returns after Jan. 1, 2011. Although they must reapply, practitioners who already have a PTIN will most likely be able to keep their old one, he said.


Almost everyone will be affected by the new rules, William said, noting IRS's definition of tax preparer includes anyone who prepares "all or substantially all" of a tax return for a fee.


Some preparers must pass a basic competency test and some will have to undergo continuing education under the new program, he said.


Certified public accountants, attorneys, and enrolled agents are expected to be exempted from the competency testing and continuing education requirements, because they already meet requirements at the state level or with the IRS. Guidance will be forthcoming to address that, he said.


Information about the online registration process can be found on the web at,,id=210909,00.html.



Tax Notes Today  October 21, 2010




Retirement plan sponsors should not act on the in-service Roth conversions authorized by the Small Business Jobs Act of 2010 (P.L. 111-240) until guidance is released, a Treasury official said October 20.


William Bortz, Treasury's associate benefits tax counsel, acknowledged that officials "need to act quickly on this" to permit rollovers for 2010 in remarks made at the annual conference of the American Society of Pension Professionals and Actuaries at National Harbor in suburban Maryland.


Bortz said the guidance will likely be released in tranches and that the first tranche will probably address administrative issues. Because the IRS's systems are "less nimble" than the private sector's, they need to be a priority, he said. (For prior coverage, see Doc 2010-22630 or 2010 TNT 201-5.)


Earlier at the conference, S. Derrin Watson of SunGard Relius also encouraged plan sponsors not to act too quickly. "The IRS is aware of the need for guidance on the five-year recapture tax and the remedial plan amendment period," he said.


But Bortz said that waiting to act assumes that guidance will be prompt and acknowledged that the clearance process has been slower than anticipated over the past year. He did not elaborate on what actions to take if the guidance is slow to come.


BNA Daily Tax Report  October 21, 2010


Tax Legislation: Quick Carried Interest Guidance Due If Extenders Bill Passes, Official Says


NEW YORK--Tax officials are geared up to respond quickly with guidance in the event that Congress passes carried interest legislation in a post-election session, a Treasury official said Oct. 20.


Speaking at a Practising Law Institute tax strategies seminar, Robert Crnkovich, senior counsel in the Treasury Office of Tax Policy, said that the government would devote the necessary resources to address the issues raised by the bill as quickly as possible in the event of passage.


"It's premature to say what we would do, but we are geared up to respond quickly if legislation is passed in the lame-duck session," he said, adding that officials are ready to work with tax bar groups and would welcome their input.


In the PLI session, Crnkovich fielded a series of questions from practitioners Kathleen Ferrell of Davis Polk &Wardwell and Robert Rizzi of O'Melveny & Myers based on examples they said showed the proposed legislation's potential for overinclusiveness.


In general, Crnkovich said, although it remains to be seen what form any final bill would take, Congress "wanted to make sure that nothing fell through the cracks" and to guard against "end-runs."


The latest version of congressional extenders legislation (S. 3793), which includes the carried interest treatment, was introduced by Senate Finance Committee Chairman Max Baucus (D-Mont.)in September (179 DTR G-7, 9/17/10). It would generally tax carried interest as ordinary income.


Broad Authority Anticipated.


The proposed new code Section 710 to address the treatment of investment services partnership interests (ISPIs) would grant "fairly broad authority to us to write rules," Crnkovich said.


He urged comments from practitioners on "what to put in or leave out" with regard to the coverage examples.


The legislation, for example, could sweep all multitiered structures into the carried interest rules as ISPIs, Rizzi cautioned.


Tiered structures with partnerships and joint venture arrangements could be covered, added Ferrell, who warned that "there may be a lot of scurrying" to take them apart if the legislation passes.


"The guidance will be the main event," Rizzi said, adding that it would be hard to avoid falling under ISPI coverage. The emphasis, he said, would be which part of an investment satisfies the qualified capital interest (QCI) exception. Practical steps will be needed to meet the conditions for a QCI carve-out, he suggested.


On the QCI exception, Crnkovich said that guidance would seek to "strike the right balance between what ought to be qualified capital and what ought to be not."


Although the carried interest legislation is usually discussed in the context of hedge fund profits, people in mergers and acquisitions need to be aware of the potential need to structure their transactions to meet the QCI exception, Ferrell said.


Partnerships and LLCs.


The proposed law could be applied broadly in many contexts, the two practitioners said. The use of partnerships and limited liability companies for joint ventures, for instance, would have to be reviewed if the bill passes, Rizzi said.


"They'd be disfavored," Ferrell said.


Lobbying is under way in Washington, D.C., for a narrowing of the bill's provisions to avoid the inadvertent inclusion of certain corporate structures, Ferrell said.


"The carried interest legislation is not limited to carried interest," Rizzi said. "It could extend into transactions that have nothing to do with carried interest."


In their presentation, Ferrell and Rizzi warned that the bill would apply beyond the investment management industry to any industry, including joint ventures in manufacturing. It also would apply to more than "profits" interests, they said, citing the "narrow" QCI exception and warning that not every interest acquired for cash would qualify.


The bill also would do more than just change the character of a partner's distributive share from capital to ordinary income, but could require loss deferral and could override nonrecognition rules, they continued.


It could apply to structures that do not even include partnerships, they said.


Disqualified Income Penalty.


Finally, the practitioners warned of the 40 percent penalty provision of the bill for disqualified income. That provision sends the message of "don't mess with the commissioner," Rizzi said.


"There is a real effort here to make sure people don't try to game these rules," he added.


The PLI seminar covered corporate acquisitions, dispositions, spin-offs, joint ventures, financings, reorganizations, and restructuring.


BNA Daily Tax Report  October 21, 2010


Retirement Plans: Official Says IRS to Follow Up With Plans That Failed to Answer 401(k) Questionnaire


The Internal Revenue Service will be following up with tax code Section 401(k) plans that did not respond to the 401(k) Compliance Check Questionnaire, Monika Templeman, director of employee plans examinations at IRS, said Oct. 20 at the annual conference of the American Society of Pension Professionals and Actuaries.


Templeman said IRS was liberal about granting extensions for the questionnaire, which was due 90 days after receipt in May. However, for the few plans that did not return to the questionnaire, "we are preparing visits," Templeman said.


The questionnaire, which went out to 1,200 Section 401(k) plans, made a "wonderful internal audit tool," Templeman said. Plan sponsors that completed the questionnaire and found problems could use the self-correction and voluntary compliance components of the Employee Plans Compliance Resolution System to correct their plans, she said.


Templeman said IRS was not planning on sending out a second round of questionnaires to more plan sponsors, but it was not outside the realm of possibility. She said IRS will analyze the data in this fiscal year, look at what the issues are, and see where there are areas for outreach, and for soft and hard guidance.


IRS International Focus.


"There is a huge interest at the highest levels of government in the tax gap and compliance issues that deal with international issues, where we are seeing noncompliance and confusion," Templeman said. The issues range from those affecting high-wealth taxpayers, to expatriates with individual retirement accounts, to individuals sending money overseas, she said.


Templeman said IRS will be expanding its work in the U.S. territories. She said in the past year IRS has trained tax agents in Puerto Rico, and 50 audits have been performed on dual plans, which are plans that operate both under Puerto Rican and U.S. law.


In addition, Puerto Rico has asked IRS to help set up an Employee Plans Team Audit program for large plans with more than 2,500 participants.


IRS has also started some audit work in the Virgin Islands, she said.


Templeman said IRS is also looking at governmental plans, which it considers underserved, and is talking with representatives of those plans to discover their needs. But at this time, "there is no audit initiative aimed at governmental plans," she said.


Abusive Transactions.


Regarding abusive transactions, Employee Plans is actively working with the Small Business/Self-Employed Division on promoter schemes and is trying to stop abuse at its source by going after the promoters and addressing the schemes, Templeman said. Some of the schemes include sham collectively bargained plans and using defined benefit plans as a means for highly compensated operating company officers to minimize their taxable income.


On other enforcement issues, the moderator Michael Coyne, project leader with Waldheger-Coyne in Westlake, Ohio, said practitioners sometimes use the voluntary compliance program to fix mistakes caused by bad advice provided by other practitioners. He asked Templeman if IRS is looking at VCP submissions to identify these bad actors.


Templeman responded that IRS looks at trends but not specific cases. IRS does not want to discourage people from using the voluntary correction program, she said.


EPTA Growing.


Templeman said the Employee Plans Team Audit (EPTA) program is growing. There is one EPTA group in every IRS area, with two in the Pacific Coast area, she said. EPTA is very proactive in looking at internal control audits, and has expanded to review international plans, she said.


Templeman said some of the issues that EPTA sees apply to all plans, not just the large ones, including:


. using the wrong calculations for deferral percentage tests--often the fault of third parties that are not properly overseen by the employer;


. using multiple definitions of compensation under tax code Section 401(a)(17); and


. plan document failures, such as form defects, failure to timely amend, or having the document amended and not signed.


BNA Daily Tax Report  October 21, 2010


IRS: TIGTA Says IRS Slow to Respond To Investigators' Efforts to Audit


The Internal Revenue Service is not directly resisting or objecting to oversight from the Treasury Inspector General for Tax Administration but it has been slow to respond to investigators'requests, keeping some audits from being completed on a timely basis, the inspector general said in a letter to Sens. Charles Grassley (R-Iowa) and Tom Coburn (R-Okla.).


The June 25 letter, released by the senators to the press Oct. 20 as part of their efforts to monitor the activities and problems faced by the administration's inspectors general, detailed four instances in which TIGTA's Office of Audit received information from IRS "only after a substantial delay."


Some of the delays were attributed to IRS internal rules that prohibit employees from speaking with TIGTA inspectors without a supervisor and/or liaison present and IRS practices that require documents be screened by senior IRS managers before they are provided to TIGTA.


"TIGTA should not be experiencing such lengthy delays in obtaining requested information .... It is unacceptable that TIGTA is not allowed unfettered access to documents and employees. Management pre-screening of documents is not consistent with the Inspector General Act," Grassley and Coburn wrote in their own Oct. 6 letter to IRS Commissioner Douglas Shulman.


Examples of Delays Cited.


TIGTA Inspector General J. Russell George said his office, from Feb. 18 to Feb. 24, had requested all e-mails from 167 IRS employees over a six-month period as part of its efforts to evaluate whether employees are complying with secure e-mail policies and procedures. IRS struggled to respond to the request and TIGTA reduced the scope to a three-month period, but as of May 21 TIGTA received e-mail messages for only 65 percent of the e-mail accounts requested, George said.


In January, TIGTA requested the coordination of scanning activities on a sample of 20 databases within IRS's nonmainframe architecture, but it took 116 days for the scans to be completed.


"The scans required coordination among several parties; however, TIGTA believes the IRS did not place enough emphasis on this task to ensure its completion sooner," George wrote. He said TIGTA also asked that the scan results be shared with database administrators so the results could be discussed with managers. The sharing took an additional 42 days to complete, George said.


TIGTA said its requests for funding, approval, and management oversight documents for the modernized e-File program were delayed or initially denied, keeping it from reviewing the information for up to three months.


Finally, George said IRS's GovTrip Document Management and Records Control Plan states: "GovTrip shall provide a capability for IRS to limit access by TIGTA auditors to specific vouchers or authorizations."


Managerial Reviews Also Noted.


"In general, TIGTA has experienced several instances where documents requested were required to be reviewed and cleared by various levels of managers prior to releasing information to TIGTA representatives," George said.


Despite the delays, George said he had no instances to report in which IRS directly resisted or objected to information requests and he did not report any IRS efforts to threaten TIGTA workers or block their ability to communicate with Congress.


The senators' letter asked Shulman if he was aware of the examples of interference cited by TIGTA and, if so, when he became aware of the problems. The senators also asked Shulman what steps he intends to take to correct the problems and aid information sharing with TIGTA.


An IRS spokesman did not immediately respond to a request for comment.


Text of the letter from Grassley and Coburn to Shulman and the letter from TIGTA to Grassley and Coburn is in TaxCore.


Washington Post  October 21, 2010


FEDERAL DIARY:  At OPM, an Overhaul of Retirement Processing

By Joe Davidson


In the latest attempt to fix a dysfunctional federal retiree program, Office of Personnel Management Director John Berry announced Wednesday yet another overhaul of a system that leaves retirees waiting months for their checks.


Berry said he is adding 80 people to a retirement-processing staff of 130 in hopes of making a significant cut in the 138 days, almost five months, it takes on average to process claims.


"We want to do everything we can to put as much of their money - at the end of the day we have to remember this is their money - in their pockets as quickly as we can," he said.


Staffing cutbacks at OPM, similar to those other agencies experienced during the Bush administration, are among the reasons for the long waits. The 130 employees handled 98,000 claims in fiscal 2010, a load just slightly lower than 178 workers were responsible for in 2006, according to OPM.


Berry said 40 new staff members would be hired and another 40 would be transferred from other OPM offices for six months to help deal with the backlog. That office will focus only on retirement claims and not on health and insurance issues, as was done in the past. The retirement-processing staff has a new leader, Bill Zielinski, a former Social Security Administration official, who is OPM's associate director for retirement services.


"We are hiring those people as we speak, and we will be training them and getting them on the front lines as quickly as we can," Berry said. "That being said, our timeline continues to worsen. . . . I recognize the hardship this poses to our retirees."


While they wait for OPM to determine what they are due, the agency provides retirees with partial checks. Berry said he has told agency officials "to maximize that partial payment, especially over the next 12 months, until we can resolve this backlog and get this behind us."


Berry said previous reports by OPM put the backlog at 40 or 45 days. That was bogus. "I do not know how those numbers were figured out," Berry said. "It has no bearing in reality that we can find. . . . This is far worse than what has been recorded."


He added, "We need to get this down to a much more reasonable level."


Berry did not set a goal for what that reasonable level might be but said "it's got to be a lot better" than what is now.


The system is so slow because OPM needs complete records to process retirement claims, and that's not as simple as it sounds. Federal workers often work for various agencies during their careers. Some have military service, which must be counted. Divorce settlements can complicate matters.


The system is not automated, so all of this generates lots of paper. Details must be checked. If information is missing, it slows the process. It's labor intensive.


"It's time consuming," said David B. Snell, benefits director for the National Active and Retired Federal Employees Association.


Snell wants to see an automated system that captures employees' retirement related information from the time they begin working for the government, sends it to OPM for processing and quickly determines the correct payment amount at the time workers leave federal service.


That certainly is not what happens now, nor will that be the case any time soon.


There is "minimal IT hope on the horizon," Berry said.


Berry made no attempt to sugarcoat the situation.


"There is no question that we face a lot of problems and that there has been an ugly history in our retirement processing area," he told reporters.


That history includes $200 million in largely failed attempts, over more than 20 years, to computerize a federal retirement system that largely relies on pieces of paper, said Matthew Perry, OPM chief information officer.


OPM began an automated processing program in 1987. "Despite 8 years of work, the program was at high risk of failure," said a Government Accountability Office report.


The second effort, from 1997 to 2001, also failed, though like the other attempts, some elements of that program were useful, Perry said.


The latest debacle was a 10-year contract OPM canceled two years ago for a program it called RetireEZ. Uncle Sam paid out $21 million before he pulled the plug.


Berry said OPM will continue attempts to automate the system, but will do so incrementally, rather than attempting to remake the entire system at once.


"I don't want to repeat the mistakes of the past," he said.  


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