Thursday, June 28, 2007

IRS Launches Four New “Life Cycles” on IRS.gov to Help Tax-Exempt Organizations Comply with the Law

IRS Launches Four New “Life Cycles” on IRS.gov to Help Tax-Exempt Organizations Comply with the Law

IR-2007-124, June 28, 2007

WASHINGTON — The Internal Revenue Service today launched four new "Life Cycles" — Web-based information tools — to help guide tax-exempt organizations through the federal tax rules and requirements that pertain to them.

The new tools, patterned after existing life cycles for public charities and private foundations, provide easy navigation through the IRS Web site for:

  • Social welfare organizations — under Internal Revenue Code section 501(c)(4).

  • Labor organizations — 501(c)(5).

  • Agricultural and horticultural organizations, such as farm bureaus — 501(c)(5).

  • Trade associations and other business leagues — 501(c)(6).

Each life cycle provides a graphical snapshot of five stages organizations typically go through during their existence: starting the organization; applying for tax-exempt status; filing required returns and other documents; maintaining compliance; and terminating the organization.

“The exempt organizations community has enthusiastically embraced the life cycle concept for public charities and private foundations. We thought it made sense to develop similar helpful tools for other sectors of the exempt organizations community," said Lois G. Lerner, director of the IRS’s Exempt Organizations division. “These Web pages are designed to be an easy-to-use service for this community.”

The concept of these user-friendly, Web-based, compliance resources first originated with the Advisory Committee on Tax Exempt and Government Entities (ACT).

Like their predecessors, the new life cycles explain an array of issues, such as how to acquire an employer identification number; how to avoid jeopardizing an organization’s exemption; how political campaign involvement could affect the organization’s status and tax responsibilities; and how disclosure requirements must be met.

Related Item: Life Cycle of an Exempt Organization

Thursday, June 21, 2007

IRS Expands Project to Ensure Eligible Public School Employees Are Allowed to Participate in Retirement Annuities

IRS Expands Project to Ensure Eligible Public School Employees Are Allowed to Participate in Retirement Annuities

IR-2007-123, June 21, 2007

WASHINGTON — The Internal Revenue Service is expanding an outreach effort to ensure that public schools throughout the United States are complying with the universal availability requirement for retirement annuities they may offer. Some schools and school districts may be overlooking offering employees the opportunity to participate in these retirement plans.

To assess the level of compliance, the IRS’s Employee Plans Compliance Unit (EPCU), has started sending questionnaires to public school districts in all 50 states under the auspices of the 403(b) Universal Availability project.

This expansion builds upon a pilot project that began in June 2006 with questionnaires that were sent to public schools and districts in New Jersey, Missouri and Washington. In the initial phase of the expansion, the IRS has begun contacting school districts in Alaska, Florida, Hawaii, Illinois, Nevada, Pennsylvania, Tennessee and Virginia. School districts in the remaining states will be contacted as part of the project through 2008.

“Our pilot project in three states showed fairly widespread noncompliance by schools with the universal availability requirement for 403(b) plans,” said Joseph Grant, Director of the IRS Employee Plans division. “But we believe most of it was due to a lack of understanding about what the law requires, not a deliberate failure to comply.”

Typical noncompliance involves excluding participation by certain classes of employees, such as substitute teachers, janitors, cafeteria workers and nurses. The law requires that all public school employees normally expected to work 20 hours per week must be offered the opportunity to participate in a 403(b) plan if the school or district sponsors one.

Schools that receive the questionnaire should answer it completely and accurately. If a potential problem is identified, the IRS will correspond with the school or district to help it analyze its 403(b) plan to determine whether it is in noncompliance. If school officials find a problem, they should use one of the correction methods outlined in the IRS’s follow-up letter. If a school makes the necessary corrections timely, the IRS will not impose a sanction.

“We know from our pilot project and from talking to representatives from schools and districts across the country that most of the problems stem from either misunderstanding the law or from confusion because of differing rules in various states,” said Grant. “The project will give schools the chance to identify problems with their plans and to correct them on their own.”

A 403(b) plan is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

For more information on this and other EPCU projects, visit the EPCU Web page at www.irs.gov/ep.

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Wednesday, June 20, 2007

No Change in the Interest Rates for the Third Quarter of 2007

No Change in the Interest Rates for the Third Quarter of 2007

IR-2007-122, June 20, 2007

WASHINGTON — The Internal Revenue Service today announced there will be no change in the interest rates for the calendar quarter beginning July 1, 2007. The interest rates are as follows:

  • eight (8) percent for overpayments [seven (7) percent in the case of a corporation];

  • eight (8) percent for underpayments;

  • ten (10) percent for large corporate underpayments; and

  • five and one-half (5.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate based on daily compounding determined during April 2007.

Revenue Ruling 2007-39, announcing the new rates of interest, appears in Internal Revenue Bulletin No. 2007-26, dated June 25, 2007.

IRS Advises Employers, Payers, Agents to Use New Appointment Form 2678

IRS Advises Employers, Payers, Agents to Use New Appointment Form 2678

IR-2007-121, June 20, 2007

WASHINGTON — The Internal Revenue Service recommends that employers, payers and their agents begin using a new, improved version of the agent appointment form immediately, to avoid delays in having the IRS approve the agent appointments.

All versions prior to the May 2007 form are now obsolete.

Form 2678, Employer/Payer Appointment of Agent, authorizes an agent to file tax returns and deposit and pay employment or other withholding taxes on an employer or payer’s behalf. However, the employer retains responsibility for filing Form 940, Employer’s Annual Federal Unemployment [FUTA] Tax Return, and depositing and paying FUTA tax.

The IRS recently redesigned Form 2678 to make it clearer and more user-friendly. The redesign resulted from an initiative led by the IRS Office of Taxpayer Burden Reduction.

The IRS receives about 15,000 Forms 2678 annually, encompassing approximately 3,000 agents and 20,000 employers.

The new Form 2678 contains several enhancements that clarify the appointment form and simplify the authorization process, including:

  • Plain language instructions;

  • Signature lines for both the employer/payer and the agent to request the agent’s authority, eliminating the need for any additional authorization requests;
  • Easier revocation, with only one signature — either the employer’s/payer’s or the agent’s — required to revoke authority;

  • Check boxes that clearly establish which form(s) the agent is authorized to file on the employer’s/payer’s behalf;

  • A check box for the agent to indicate whether the employer is a disabled individual or other welfare recipient receiving home-care services through a state or local program; and

  • Disclosure language, authorizing the IRS to disclose information about the taxes and periods covered to the agent and any third party the agent may contract with, such as a reporting agent or CPA.

Employers, payers and agents should complete and send Forms 2678 to the address in the self-contained instructions 60 days before the date they want an appointment to become effective. Those with approved appointments already on file with the IRS do not need to take any action unless, using the new form, they wish to revoke an existing appointment.

IRS will return any obsolete versions of Forms 2678 that are filed and ask senders to submit the May 2007 revision instead.

When the IRS approves Form 2678, both the employer or payer and the agent are liable for the employer’s employment tax, under federal tax law.

The new Form 2678 may be downloaded from this Web site or ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676).

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Tuesday, June 19, 2007

IRS Chief Counsel Announces New Executive Appointments

IRS Chief Counsel Announces New Executive Appointments

IR-2007-120, June 19, 2007

WASHINGTON –– Internal Revenue Service Chief Counsel Donald L. Korb has announced the following Senior Executive Service moves:

  • Deputy Chief Counsel (Operations) Donald T. Rocen will retire effective July 27, 2007. Rocen joined the Office of Chief Counsel in May 2004 as Special Counsel to the Chief Counsel after serving in the Washington, D.C. office of PricewaterhouseCoopers, LLP. Rocen previously served as Assistant to IRS Commissioner Lawrence Gibbs from 1986 to 1989 and, before that, beginning in 1971, held a variety of positions in the Office of Chief Counsel over a span of 15 years.

  • Small Business/Self-Employed Area Counsel H. Stephen Kesselman will replace Rocen as Deputy Chief Counsel (Operations). Kesselman has over 35 years of experience as a litigator, manager and executive with the Office of Chief Counsel in several field offices. He earned a B.A. from Lafayette College in 1968 and J.D. from Rutgers University in 1971. Kesselman is also an adjunct faculty member at Villanova University Law School’s Graduate Tax Division.

  • Associate Chief Counsel (Financial Institutions and Products) Lon B. Smith will undertake a new assignment as the National Counsel to the Chief Counsel for Special Projects. Smith will serve as the principal focal point for some of the most critical projects and initiatives of the Office of Chief Counsel. Smith has served as an attorney in positions of progressive responsibility with the Office of Chief Counsel for nearly 30 years. He received his B.A. from the University of Rochester in 1974, J.D. from the University of Pittsburgh Law School in 1977 and LL.M in taxation from Georgetown University in 1986.

“Don Rocen has been a close friend for over three decades and his tax expertise, consummate professionalism and wonderful sense of humor will be sorely missed in our office,” said Korb. “Don’s three years of service as my Deputy Chief Counsel (Operations) was another major milestone in an enormously successful career in tax law in both the public and the private sectors.”

After Rocen leaves the Office of Chief Counsel, he will continue his career with the Washington law firm of Miller & Chevalier.

“I am delighted that Steve Kesselman, one of our top senior attorneys with a wealth of field experience, will join the front office in Washington as Deputy Chief Counsel following Don’s departure,” said Korb. “I am particularly pleased that I am able to fill the Deputy Chief Counsel’s position from within our current executive ranks. Steve is a great example of why the Office of Chief Counsel is not only a great place to start a tax career, but also a great place to spend a career in tax as well.”

“I am also pleased that Lon Smith has agreed to join the front office as the National Counsel to the Chief Counsel for Special Projects," said Korb. “His leadership skills will enable him to fulfill a vitally important role in coordinating a number of cross-office activities, helping us to institutionalize the changes we have been making to the Office of Chief Counsel over the past three years, and helping with the oversight of our major initiatives during the remainder of my term as Chief Counsel and beyond. Lon’s outstanding experience and seasoned judgment as both a tax lawyer and executive will be extraordinarily helpful as we continue to shape the Office of Chief Counsel to meet our client’s current and future legal needs.”

Smith will continue as the Associate Chief Counsel (Financial Institutions and Products) until a replacement is named.

Within the next week or two, an announcement will be published on USAjobs.

“We are looking for someone who will be able to build on the changes Lon has made in redirecting the efforts of FIP. As I announced previously, FIP not only reacquired the branch responsible for tax-exempt bonds, but it also realigned its other branches to create one branch that would focus on transactions in the field and one that would identify and address new financial products as soon as they enter the marketplace. The goal of the realignment is to provide faster and more informed legal support to the Commissioner, to become more current with new developments in the financial markets, and to resolve the most current legal issues, while maintaining a commitment to our more traditional work arising in the published guidance and letter ruling programs,” said Korb.

Monday, June 18, 2007

IRS Issues Spring 2007 Statistics of Income Bulletin

IRS Issues Spring 2007 Statistics of Income Bulletin

IR-2007-119, June 18, 2007

WASHINGTON — The Internal Revenue Service today announced the release of the spring 2007 issue of the Statistics of Income Bulletin. Highlights include articles on high-income individual income tax returns, taxpayers reporting noncash contributions, farm proprietorship returns, qualified zone academy bonds, international boycott reports and S corporations.

The article on farm proprietorship returns is the first published by IRS in more than 20 years. In addition, this issue of the Bulletin presents selected tax year 1990-2004 individual income tax return data that have been indexed for inflation and tax year 2005 individual income tax return statistics classified by state and size of adjusted gross income.

For tax year 2004, there were 3,021,435 individual income tax returns filed with adjusted gross income (AGI) of $200,000 or more and 3,067,602 returns with expanded income of $200,000 or more.

The Bulletin also contains articles with the following information:

  • For tax year 2004, there were 25.3 million individual taxpayers who itemized deductions and reported a deduction for noncash charitable contributions. Those taxpayers reported $43.4 billion in deductions for these noncash contributions. Individuals whose total noncash charitable deductions on Schedule A, Itemized Deductions, exceed $500 are required to report these donations in detail on Form 8283, Noncash Charitable Contributions. For 2004, a total of 6.6 million individuals, representing a little more than a quarter of those who reported noncash charitable contributions, filed Form 8283. These individuals reported noncash contributions valued at almost $37.2 billion, or nearly 86 percent of all noncash contributions.
  • The number of farm proprietorship returns declined between tax years 1998 and 2004, with the majority of farm proprietorship returns showing a farm net loss. For tax year 2004, some 1.4 million farm proprietorship returns, or 70 percent of the total, had a farm net loss. Gross farm income reported on sole proprietorship returns totaled $93.3 billion for tax year 1998 and increased 8.3 percent to $101.0 billion in 2004. Total farm expenses grew even more during this period, by 12.9 percent, from $101.2 billion in 1998 to $114.3 billion in 2004.
  • The Qualified Zone Academy Bond (QZAB) program has authorized the issuance of $400 million in principal amount of tax credit bonds by the United States and its territories in each year from 1998 through 2007. QZAB credits claimed by qualified financial institutions in tax year 2004 totaled $117.5 million, based on total reported QZAB principal holdings of $1.6 billion. Total authorized issuance between 1998 and 2003 was $2.4 billion. No state issued its full allocation of QZAB credits during this period, although Vermont and Michigan issued more than 90 percent of their allocations. By year of issuance, the reported principal of QZAB issuance rose from $90.7 million in 1998-1999 to a peak of $766.3 million in 2001, after which it fell again to $91.0 million in 2003-2004.
  • For tax year 2003, some 1,268 taxpayers filed Form 5713, International Boycott Report; of these, 124 reported receiving boycott requests, and 36 agreed to participate in a boycott. There were 41 taxpayers who lost a portion of their tax benefits as a result of their participation in a boycott or because they had operations in a boycotting country and claimed the extraterritorial income exclusion. Similarly, 1,343 Forms 5713 were filed for tax year 2004; of these, 131 taxpayers reported boycott requests, 45 agreed to participate, and 46 taxpayers reported tax consequences. For both years, the percentage of filers who lost tax benefits was approximately 3 percent.
  • The final Bulletin article takes a look at the dominance of the wholesale and retail trade division among S corporations since 1959. For tax year 2004, some 45 years after the creation of S corporations, wholesale and retail represented the largest portion of total receipts, total deductions, portfolio income, total net income (less deficit) and total assets

The Bulletin includes historical data on income, deductions and tax reported on returns filed by individuals, corporations and unincorporated businesses, with selected data presented for estates. Statistics are also presented on tax collections, including excise taxes by type and refunds for recent years.

The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign). For more information about these data, write the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608; call SOI's Statistical Information Services at (202) 874-0410; or fax, (202) 874-0964. To access the spring 2007 issue of the Statistics of Income Bulletin, visit the IRS Web site www.irs.gov and click on “Tax Stats” in the upper left-hand corner. From the Tax Stats page, select “SOI Bulletins” under “Products, Publications, & Papers.”

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Friday, June 15, 2007

IRS Reminds Tax Professionals to Register Early for Tax Forum

IRS Reminds Tax Professionals to Register Early for Tax Forum

IR-2007-118, June 15, 2007

WASHINGTON — As the Nationwide Tax Forums begin, tax professionals are being reminded to make reservations now for one of six forums being held throughout the country.

The Nationwide Tax Forums are three-day events that provide tax professionals with the most up-to-date tax information through training seminars presented by IRS experts and partnering organizations. Forums offer an opportunity to receive up to 18 continuing professional education (CPE) credits through a variety of training seminars.

The locations are:

  • Atlanta — July 17-19
  • Chicago — July 31-Aug. 2
  • Las Vegas — Aug. 21-23
  • New York — Aug. 28-30
  • Anaheim — Sept. 11-13
  • Orlando — Sept. 18-20

This year 41 separate seminars are being offered, each of which qualifies for CPE credit for Enrolled Agents and Certified Public Accountants. Additionally, 28 of the 41 qualify for continuing education credit for Certified Financial Planners.

Members of the participating associations below qualify for discounted enrollment costs:

  • American Association of Attorney-Certified Public Accountants
  • American Bar Association
  • American Institute of Certified Public Accountants
  • National Association of Enrolled Agents
  • National Association of Tax Professionals
  • National Society of Accountants
  • National Society of Tax Professionals

In addition to the seminars, the forums also feature a two-day expo with representatives from the IRS, tax, financial and business communities offering their products, services and expertise.

The cost of enrollment is $165 per person, per city for pre-registration and $299 for late or on-site registration. The pre-registration period ends two weeks prior to the start of each forum.

In a survey of 2006 attendees the forums received a 94 percent satisfaction rate and a 99 percent overall quality rating. Attendees stated that their participation enabled them to offer greater technical expertise to meet their clients’ needs. 2007 marks the 17th year that the IRS has used this successful format to help educate and interact with the tax professional community.

Related Item: IRS Nationwide Tax Forums

Thursday, June 14, 2007

IRS Releases Discussion Draft of Redesigned Form 990 for Tax-Exempt Organizations

IRS Releases Discussion Draft of Redesigned Form 990 for Tax-Exempt Organizations

IR-2007-117, June 14, 2007

WASHINGTON — The Internal Revenue Service today released for comment and discussion a draft Form 990, the annual return required to be filed by tax-exempt organizations to report information about their operations. The IRS hopes to have the form ready for use for the 2008 filing year (returns filed in 2009).

“The tax-exempt sector has changed markedly since the Form 990 was last overhauled more than a quarter of a century ago," said Kevin Brown, Acting Commissioner of the IRS. “We need a Form 990 that reflects the way this growing sector operates in the 21st century. The new 990 aims to give both the IRS and the public an improved window into the way tax-exempt organizations go about their vital mission.”

The redesign of Form 990 is based on three guiding principles:

  • Enhancing transparency to provide the IRS and the public with a realistic picture of the organization;

  • Promoting compliance by accurately reflecting the organization’s operations so the IRS may efficiently assess the risk of noncompliance; and

  • Minimizing the burden on filing organizations.

The draft released today consists of a core form to be completed by each Form 990 filer and a series of schedules designed to require reporting of information only from those organizations that conduct particular activities.

“Most organizations should not experience a change in burden,” said Lois G. Lerner, director of the IRS’s Exempt Organizations division. “However, those with complicated compensation arrangements, related entity structures and activities that raise compliance concerns may have to spend more time providing meaningful information to the public.”

In releasing this redesigned form, the IRS said it is soliciting comments, especially in connection with the goals of increased transparency of information and use as a compliance tool. The comment period lasts until Sept. 14, 2007.

The form, instructions and background material explaining the principles underlying the redesign of the form are available on the exempt organizations portion of this Web site.

Questions and comments should be e-mailed to the IRS at Form990Revision@irs.gov or mailed to:

IRS
Form 990 Redesign, SE:T:EO
1111 Constitution Avenue, NW
Washington, DC 20224

Related Item: More information on the draft redesigned Form 990, schedules and instructions

Wednesday, June 13, 2007

Deadline Extended until July 2 for Reporting on Foreign Bank and Financial Accounts

Deadline Extended until July 2 for Reporting on Foreign Bank and Financial Accounts

IR-2007-116, June 13, 2007

WASHINGTON — Taxpayers have an additional two days this year, until July 2, 2007, to file the Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1, the Internal Revenue Service announced today.

The deadline for FBAR forms is June 30, 2007. But because June 30 falls on a Saturday, the IRS is allowing taxpayers to file by July 2.

FBAR information returns for the 2006 calendar year must be filed with the U.S. Department of Treasury, P.O. Box 32621, Detroit, Mich., 48232-0621. The address for commercial delivery is: U.S. Department of Treasury, Currency Transaction Reporting, 985 Michigan Avenue, Detroit, Mich., 48226.

The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on this Web site or FinCEN Web site and from the IRS via telephone at 1-800-829-3676.

The FBAR form is required for each U.S. person who has a financial interest in, or signature authority, or other authority, over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.

Taxpayers who need assistance completing Form TD F 90-22.1 can contact the IRS by telephone at 1-800-800-2877, option 2, or via email at FBARquestions@irs.gov.

Monday, June 11, 2007

Transitional Penalty Relief Provided to Tax Return Preparers

Transitional Penalty Relief Provided to Tax Return Preparers

IR-2007-115, June 11, 2007

WASHINGTON — The Internal Revenue Service and Treasury Department today released Notice 2007-54, providing guidance and transitional relief for the return preparer penalty provisions amended by the Small Business and Work Opportunity Act of 2007. The new amendments are effective for returns prepared after May 25, 2007.

The new law amended several provisions of the Internal Revenue Code to extend the return preparer penalties under section 6694 to preparers of all tax returns, including estate and gift tax returns, employment tax returns, and excise tax returns. Prior to the new law, these penalties applied only to the preparers of income tax returns. The new law also increased the amount of the penalties and changed the standards of conduct that must be met by return preparers in order to avoid penalties under section 6694.

The transitional relief provided by Notice 2007-54 will apply to all returns, amended returns and refund claims due on or before December 31, 2007, including those returns, amended returns and refund claims filed pursuant to extensions to file due on or before December 31, 2007; to 2007 estimated tax returns due on or before January 15, 2008; and to 2007 employment and excise tax returns due on or before January 31, 2008.

Friday, June 8, 2007

Government Moves to Curb Telephone Tax Refund Fraud; Tax Preparers Indicted in Four States, One Enters Guilty Plea

Government Moves to Curb Telephone Tax Refund Fraud; Tax Preparers Indicted in Four States, One Enters Guilty Plea

IR-2007-114, June 8, 2007

WASHINGTON — Moving to curb abuse of this year’s one-time telephone excise tax refund program, the Justice Department and the Internal Revenue Service obtained federal indictments this spring against tax preparers who allegedly filed thousands of dollars in fraudulent refund claims.

In recent weeks, the alleged refund schemes involving preparers in Miami, Fla., Norcross, Ga., Dallas, Texas, and Riverside, Calif., led to federal indictments. This week, the defendant in the Miami case pled guilty to one count of making and presenting fraudulent federal income tax refund claims to the IRS. The indictments stemmed from search warrants carried out this winter by special agents from IRS Criminal Investigation

“We saw limited but serious instances of abuse,” said IRS Acting Commissioner Kevin M. Brown. “We used our enforcement resources to move swiftly and decisively to protect this valuable refund for the vast majority of taxpayers and tax preparers who are requesting it properly. We want everyone who is eligible for the telephone tax refund to get it but not to inflate the amount requested.”

The IRS has been monitoring telephone excise tax refund requests for potential problems. Shortly after the tax-filing season opened in early January, the agency observed problems with returns from some tax preparers that indicated possible criminal intent. Along with the search warrants carried out by the IRS, other tax preparers across the nation who prepared questionable telephone tax refund requests received visits from IRS revenue agents (auditors) and special agents. The IRS has advised taxpayers to stay away from unscrupulous promoters and tax preparers who make false claims about the telephone tax refund and suggest that many, if not most, phone customers can get hundreds of dollars or more back under this program.

At the same time, the IRS this year urged taxpayers filling out their 2006 returns not to overlook the telephone tax refund. About 30 percent of taxpayers did not request this special refund so far this year, and although some of them may not be eligible, others may qualify and not know it. The IRS urges eligible taxpayers who already filed, but overlooked the refund, to request it by filing an amended return on Form 1040X.

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Officials also authorized a one-time refund of the federal excise tax paid on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

To make the refund easier to figure, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only need to fill out one line on their return, and they don’t need to present proof to the IRS.

The most reliable information on this unique refund can be found in the Telephone Excise Tax Refund section on this Web site. There, taxpayers can download forms, find answers to frequently-asked questions and link to participating private-sector Free File partners offering free electronic-filing services.

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Wednesday, June 6, 2007

IRS Updates National Research Program for Individuals

IRS Updates National Research Program for Individuals

IR-2007-113, June 6, 2007

WASHINGTON — Internal Revenue Service officials today announced plans to launch a new National Research Program (NRP) reporting compliance study for individual taxpayers that will provide updated and more accurate audit selection tools and support efforts to reduce the nation’s tax gap.

The latest NRP study will be the first of an ongoing series of annual individual studies using an innovative multi-year rolling methodology. The study will start in October 2007 and examine about 13,000 randomly selected tax year 2006 individual returns. Similar sample sizes will be used in subsequent tax years.

An advantage of using this method, which combines results over rolling three-year periods, is the IRS will be able to make annual updates to compliance estimates and develop more efficient workload plans on an annual basis, after the initial three annual studies. Previous studies started from scratch, drew tax returns from a single tax year and involved examinations of more than 45,000 taxpayers.

“The new program will be a big step forward for tax research,” said Acting IRS Commissioner Kevin M. Brown. “Our approach will reduce burden on taxpayers, improve our audit selection techniques and give us more timely information to help reduce the tax gap.”

The tax gap is the difference between what taxpayers should have paid and what they actually paid on a timely basis. Based in part on the prior NRP reporting compliance study of individual income tax returns, IRS officials estimate that the net tax gap for tax year 2001 was $290 billion.

Using research from the prior NRP study, the IRS updated its audit selection system. Updated statistics enable the IRS to audit more efficiently and improve the detection of underreported income and overstated deductions and credits. The data also enables the IRS to audit fewer taxpayers with accurate tax returns, which lessens the burden on compliant taxpayers.

The research on individuals needs updating because as time passes, patterns of noncompliance change. The sample for the latest individual NRP is constructed to ensure that it contains sub-samples of individuals at different income levels as well as those engaged in farm and sole proprietor business activities.

The initial group of taxpayers whose returns are selected for audit under the new NRP study will start receiving official letters in October informing them that they are part of the research study. The majority of individuals will have specific lines of their returns confirmed through in-person audits with an IRS examiner. Some of the individuals whose returns are selected for inclusion will not be contacted if the IRS can obtain matching and third-party data that confirms the accuracy of their return. The targeted research design of the new individual NRP avoids the need for IRS agents to routinely check all the lines of a taxpayer’s return.

In addition to the NRP for individuals, the IRS is in the final stages of a compliance research project examining reporting compliance of S corporations. This research encompasses approximately 5,000 returns filed for tax years 2003 and 2004. Since the income and expense items for S corporations flow through to individual shareholders, this study will also help refine the tax gap estimates for individual income tax.

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Tuesday, June 5, 2007

Application Available for Reduced Installment Agreement User Fee

Application Available for Reduced Installment Agreement User Fee

IR-2007-112, June 5, 2007

WASHINGTON — The application for requesting a reduced fee for entering into an installment agreement for the payment of federal taxes owed is available, the Internal Revenue Service announced today. Form 13844, Application for Reduced User Fee for Installment Agreements, is used to request the reduction. The IRS is working to automate the application process to calculate the appropriate user fees up front, eventually phasing out Form 13844.

Effective January 1, 2007, user fees rose to $105 for non-direct debit agreements, $52 for direct debit agreements and $45 for reinstatements.

Individuals entering into an installment agreement with income at or below certain established levels, based on the Department of Health and Human Services poverty guidelines, can apply to pay a reduced user fee of $43 for new agreements. This also includes agreements where payments are deducted directly from a bank account.

Form 13844 contains steps an individual can use to determine if they qualify for a reduced fee. Qualified applicants should submit the form to the IRS within 30 days from the date of their installment agreement acceptance letter.

Form 13844 does not prevent an applicant’s current year refunds, if any, from being applied to prior taxes being paid in installments or to prior taxes the IRS has deemed currently not collectible.

To be eligible for an installment agreement, a taxpayer must first file all tax returns they are required to file and be current with estimated tax payments, if applicable.

The reduced user fee for individuals with incomes at or below the established levels does not apply to corporations or partnerships. And there are no user fees for continuous wage levies initiated by IRS collection personnel. Form 13844 should not be filed for these situations.

Form 13844 is available in the Forms and Publications section of the IRS Web site at IRS.gov or may be ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676).

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IRS Chief Counsel Selects Gregg D. Polsky as 2007-2008 Professor in Residence

IRS Chief Counsel Selects Gregg D. Polsky as 2007-2008 Professor in Residence

IR-2007-111, June 5, 2007

WASHINGTON –– Internal Revenue Service Chief Counsel Donald L. Korb has selected Gregg D. Polsky as the 2007-2008 Professor in Residence. He succeeds Calvin Johnson, whose term as Professor in Residence concluded on May 31, 2007.

Polsky is a nationally known scholar who recently joined the faculty at Florida State University’s College of Law as the Sheila M. McDevitt Professor of Law after serving for six years on the faculty at the University of Minnesota Law School. Before entering academia, Polsky practiced with the law firm of White & Case, LLP, in its Miami office. Polsky received his J.D. and LL.M. in taxation from the University of Florida’s Levin College of Law.

Polsky is one of four authors of the forthcoming casebook, Federal Income Taxation of Individuals, 6th Edition. He has authored numerous law review articles on tax law and policy and is a frequent contributor to such leading tax publications as Tax Notes and the Journal of Taxation.

The Internal Revenue Service Office of Chief Counsel revived its Professor in Residence program earlier this year. Dormant since the late 1980s, the program provides some of the nation’s top legal academicians the opportunity to contribute to the development of legal tax policy and administration. Reporting directly to the Chief Counsel, the Professor in Residence provides advice and assistance on a wide array of legal issues within the scope of his or her expertise.

Polsky will begin his nine month term as Professor in Residence in September.

Friday, June 1, 2007

IRS Encourages Taxpayers to Safeguard Tax, Financial Records In Preparation for Hurricane Season

IRS Encourages Taxpayers to Safeguard Tax, Financial Records In Preparation for Hurricane Season


IR-2007-110, June 1, 2007

WASHINGTON — As the hurricane season begins today, the Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers and businesses protect financial and tax records in case of hurricanes and other disasters.

“With forecasts calling for an active Atlantic hurricane season, the IRS encourages taxpayers to protect tax and financial documents that can be hard to replace,” IRS Acting Commissioner Kevin M. Brown said. “A little planning can help safeguard valuable information in case a hurricane or other disaster strikes.”

Listed below are tips for individuals and businesses on maintaining financial and tax records.

Paperless Recordkeeping

Many people now receive bank statements and documents by e-mail or over the Web. Paper records such as W-2s, tax returns and other documents can be scanned into an electronic format.

With documents in electronic form, taxpayers can copy them onto a USB drive as a backup, which can be sent to a relative in another city for safe-keeping in case the taxpayer’s computer and paper files are destroyed.

Other options include copying files onto a CD or DVD. Many retail stores also sell computer software packages that can be used for recordkeeping.

Documenting Valuables

Another way a taxpayer can prepare for disaster is to photograph or videotape the contents of his or her home, especially items of greater value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

This can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if they have a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

IRS Is Ready to Help

When disaster strikes, the IRS is ready to help with valuable information that can be requested if tax records are destroyed.

Immediately after a casualty, a taxpayer can request a copy of a return and all attachments (including Form W-2) by using Form 4506, Request for Copy of Tax Return.

An information return or transcript can be ordered by calling 1-800-829-1040 or using Form 4506-T, Request for Transcript of Tax Return. There is no fee for a transcript. Transcripts are available for the current year and returns processed in the three prior years.

This Web site, IRS.gov, is also an indispensable resource. The following pages and publications contain information regarding disaster preparedness and what to do when a disaster strikes: