Stakeholder Liaison Field – Area 3 (Ohio)LaTanya Bacon, Dennis Bell and John Linstead

Fall 2019

Land Grant University Tax Education Foundation

2019 National Income Tax Workbook

Chapter 10, IRS Issues

Learning Objectives

• Identify and avoid the 12 most common tax Scams

• Know how to alert clients to potential tax scams

• Understand who is responsible for the Trust Fund Recovery Penalty

• Explain when penalties may be abated

(Page 379)

Learning Objectives (cont’d)

• Assist a client to file a request for penalty abatement

• Understand when a tax debt may be discharged in Bankruptcy

• Advise a client about the need to check his or her withholding

(Page 379)

Issue 1: Cybersecurity

(Page 380)

• IRS Dirty Dozen

• Security Summit

• “Taxes-Security-Together” Checklist

IRS Dirty Dozen

5

The Security Summit

• Security Summit safeguards between 2015 and 2018 resulted in:–71 percent decrease in number of

taxpayers reporting they were IDT victims (Form 14039);

–54 percent decline in number of confirmed IDT returns stopped by IRS.

(Page 392)

Tax Security 2.0 –A “Taxes-Security-Together” Checklist

Taxes-Security-Together Checklist • Outline the “Security Six” basic

protections• Create a written data security plan• Educate yourself on phishing scams• Recognize the signs of client data theft• Create a data theft recovery plan

Resources

• Publication 4557, Safeguarding Taxpayer Data• Publication 5293, Data Security Resource Guide for

Tax Professionals• Small Business Information Security – The

Fundamentals at NIST.gov• IRS.gov websites:

–www.IRS.gov/securitysummit–www.IRS.gov/ProtectYourClients–www.IRS.gov/IdentityTheft

Issue 2: Trust Fund Recovery Penalty (TFRP)

• Responsible parties may be individually liable for the trust fund recovery penalty

• TFRP is an alternative way to collect unpaid trust fund taxes

• I.R.C. 7501 and I.R.C. 6672(a)

(Pages 392-393)

Multiple Responsible Persons

• All jointly and severally liable• Right of Contribution – IRC §6672(d)

–Can recover overaged of proportional share from other responsible persons

• IRC §6103(e)(9)–Can get names of others & amounts paid

(Pages 394-395)

Investigation Procedure

• Examine Records

• Form 4180 – Report of Interview

• Letter 1153 – Notice of Proposed TFRP

• Statute of limitation on Assessment3 years from date return filed (Pages 395 – 399)

Mitigating Liability for TFRP

In-Business Trust Fund Express IA• Owes < $25,000,• Fully paid w/in 24 months or < CSED• Direct debit IA if $10,000 - $25,000 &• In full compliance – filing & paying

If owe > $25,000, reduce liability with designated voluntary payment to qualify

(Page 401)

Issue 3: Taxpayer Advocate Service

• An independent organization withinthe IRS

• Provides free service to eligible taxpayers

• Offices in every state, the District of Columbia, and Puerto Rico

(Page 402)

TAS Criteria: Economic Burden

• Experiencing or about to suffer economic harm• Facing immediate threat of adverse IRS action• Will incur significant cost if relief is not granted• Will suffer irreparable injury or long-term adverse

impact

(Page 404-405)

TAS Criteria: Systemic Burden

• Delay of more than 30 days past normal processing time

• No response by promised date

• Systemic or procedural failure

(Page 405)

TAS Criteria

• Best interest of the TaxpayerThe manner in which the tax laws are being administered raises considerations of equity or has impaired or will impair the taxpayer’s rights.

• Public PolicyThe NTA determines compelling public policy warrants special assistance to an individual or group of taxpayers.

(Page 405)

Case Advocacy Process

• Taxpayer or Representative can file Form 911, Request for Taxpayer Advocate Service Assistance or call the NTA Case Intake Line: 1-877-777-4778

• The case is assigned to a case advocate

• The case advocate contacts the Taxpayer or the Representative and issues an Operations Assistance Request to the Operating Division to resolve the issue

(Pages 406-408)

Other TAS Programs

Low Income Taxpayer Clinics (LITCs):

• LITCs represent low income taxpayers who have a controversy with the IRS, including taxpayers who speak English as a second language

• LITCs provide services for free or no more than a nominal fee

(Pages 408-409)

Issue 4:Penalty Abatement

• Penalty relief1. Correction of an IRS error2. Statutory and regulatory exceptions3. Administrative waivers4. Reasonable cause

• IRM Part 20.1 – all things penalty-related

(page 411)

Penalty Abatement

• Correction of an IRS error– If an IRS processing or posting error corrected,

penalties automatically adjusted

• Statutory and Regulatory Exceptions– Figure 10.6

(Page 412)

Penalty Abatement

Erroneous Advice from the IRS - §6404(f)• Must abate penalty attributable to erroneous IRS written

advice if TP– Reasonably relied on the advice and– Provided adequate/accurate info

• Form 843 w/copies of request, IRS written advice, report showing penalty

• Administratively extended to oral advice(Page 412)

Penalty Abatement

Waiver of Estimated Tax Pen. - §6654(e)(3)(A)• Due to casualty, disaster, unusual event & penalty

against equity and good conscience– Includes serious illness or injury

• Reasonable cause, not willful neglect– Retired at age 62 or older during year or– Became disabled during year

(Page 413)

Administrative Waivers

First-Time Penalty Abatement (FTA)1. Filing compliance,2. Payment compliance, AND3. No penalty history (3-year lookback)

• No unreversed penalty (except est. tax)• No reversed penalty for FTA

FTA applies before reasonable cause

(Page 414)

Reasonable Cause

• N/A – fraud, fraudulent FTF, estimated tax or any portion due to lack of economic sub.

• Reasonable Cause Assistant– 1040: FTF/FTP 941, 940, 943, 944, 945: FTD– Automated system for consistency

• FTF, FTP, FTD: TP exercised ordinary business care and prudence

• §6662: + good faith §6724: no willful neglect• Fig. 10.7 – reasonable cause citations (Page 415)

Requesting Relief – Reasonable Cause

• Written request• Signed by TP under penalty of perjury• Preemptive request w/late-filed return or abatement after

assessment• Form 843 – one for each tax type or period • File within CSED for abatement• File within 3/2-year rule for refund

(Pages 417-418)

• Chapter 7 – Liquidation

• Chapter 11 – Reorganization

• Chapter 13 – Individuals

Issue 5: Bankruptcy and Tax Debt

(Pages 418 -419)

• A Discharge releases the debtor from liability for certain Debts

• Some Taxes may be dischargeable

Dischargeable Tax Debt

(Pages 419 -421)

Non Dischargeable Tax Debt

–Trust fund taxes–Taxes based on fraudulent returns–Taxes due on unfiled returns–Taxes due on returns filed late and after the date

that is two years before the petition dateNote: Penalties may be dischargeable while tax is non-dischargeable

(Pages 421 -422)

Issue 6: Paycheck Checkup

Those most likely to owe tax because they’ve had too little tax withheld include:• Those who itemized in the past but now take the increased

standard deduction• Two-wage-earner households• Employees with nonwage sources of income• Those with complex tax situations

(Page 422)

Tax Withholding Estimator

IRS.gov/withholding

Tax Withholding Estimator

• Plain language used within the tool• Ability to effectively target tax due or refund• Progress tracker• Enhanced navigation within the tool• Tips and links to more information • Determines self-employment tax• Automatically calculates taxable portion of Social Security

benefits• Mobile-friendly design

Draft 2020 Form W-4

• IRS.gov/draftforms • IRS.gov/W4

(Page 423-424)

Issue 7: Dispute Resolution

• Early Referral to Appeals

• Fast Track

• Post Appeals Mediation

• Rapid Appeals Process – (ADR)

(Pages 425- 435)

E-News for Tax Professionals

• www.IRS.gov/subscribe–E-news for tax professionals–E-news for small businesses

Questions?

Contact Information

LaTanya.J.Bacon@irs.govDennis.C.Bell@irs.gov

John.H.Linstead@irs.gov