An IRS update for practitioners.

In recent years, practitioners have heard many presentations from IRS officials about the Service's reorganization. Under the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98), the IRS made large-scale, functional changes. These changes were intended to be invisible to taxpayers and practitioners.

Now that the reorganization is substantially in place, practitioners are beginning to learn about the details of changes that will affect them directly. The October 2001 AICPA-sponsored IRS National Issues Meeting, attended by approximately 100 representatives of the state CPA societies, provided a wealth of information. The gathering was small enough to facilitate active and informative question-and-answer periods.

Speakers for the different sessions included Larry Langdon and Evelyn Petschek, Commissioners of the Large and Mid-Size Business (LMSB) and the Tax Exempt/Government Entities (TE/GE) Divisions; and Jerry Songy, Small Business/Self Employed (SB/SE) Division and James Grimes, Wage and Investment (W&I) Division, both directors in their respective Education and Communication areas. Daniel Black, Jr., National Chief of Appeals, was the luncheon speaker. Practitioners also heard from Nina Olson, National Taxpayer Advocate; David Williams, Chief of Communications and Liaison; Richard Skillman, Acting Chief Counsel; and Judith Dunn, Deputy Chief Counsel.

The meeting covered a wide range of topics. In some cases, more than one speaker addressed several topics, because the subject related to more than one division.

Overview

The IRS is working with taxpayers affected by the terrorist actions of Sept. 11, 2001, including taxpayers whose records were destroyed in New York, even though they live in other parts of the country. For these taxpayers, practitioners should contact the Service. IRS Pub. 3921, Help from the IRS for Those Affected by the Terrorist Attacks on America (September 11, 2001), includes information and phone numbers (see also Notices 2001-61 and 2001-68).

On another note, taxpayers who did not receive a $300, $500 or $600 advance-payment check due to an address change can claim the advance as a credit on their 2001 tax return.

Taxpayers should file 2001 business returns with either the Ogden or the Cincinnati Service Center. However, the IRS will process returns sent to the wrong service center this year without penalty.

OICs

The Service receives approximately 120,000 offers in compromise (OICs) annually. Currently, it has a huge backlog of unprocessed OICs. Since August 2001, all new OICs are being processed through the Brookhaven and Memphis Service Centers, with the IRS sending complex cases to local revenue officers for investigation. The Service has decided not to use a FIFO system for its existing backlog. Instead, it is processing post-August 2001 cases as it receives them, while catching up on the older OICs. Thus, there may be disparity in OIC processing times.

The IRS will return an OIC to a taxpayer if the OIC is (1) not materially different from a prior OIC that the Service rejected, (2) submitted within one year of a defaulted OIC, (3) intended to delay collection when the taxpayer clearly can pay a larger amount or (4) submitted for taxpayers not in compliance with estimated tax requirements.

Applications for EINs

The Service is working to streamline the application process for employer identification numbers (EINs). Beginning in June 2002, practitioners will no longer need a completed Form SS-4 to call for an EIN. Third parties can call on behalf of the taxpayer. The IRS will fax the EIN back to the tax-payer at the address of record. Practitioners still need a power of attorney (POA) to get EINs for their clients.

Beginning in 2002, only the Brookhaven Service Center (fax number: 631-447-4991) and the Cincinnati Service Center (fax number: 859-669-5760) will handle EINs. The Philadelphia Service Center (fax number: 215-516-3990) will handle only international taxpayers.

The Service is setting up a single toll-free number, available 7:30 am to 5:30 pm, local time, to handle EINs. Fax lines will be available 24 hours a day, seven days a week.

The December 2001 revision of Form SS-4 includes a third-party authorization, which practitioners should find helpful.

K-1 Matching

The IRS has begun to keypunch information into its computer system from non-electronically filed Schedules K-1. It expects to begin test-matching for certain entries on the Schedules K-1 in 2002, probably for the 2000 tax year. The Service will mail mismatched notices to taxpayers. Anticipating possible problems with the matching program, however, it will have a Tax Examiner screen each notice before it is mailed. According to the IRS, 6-15% of Schedules K-1 were entirely omitted from 2000 returns.

There were approximately 8.5 million passthrough entities in 2001.

E-filing Issues

The Service wants taxpayers to file all Forms 1120 and 1120S electronically by the 2003 filing season (for 2002 returns).

Taxpayers can expect to see expanded electronic options in the future, such as filing POAs, making refund inquiries and getting transcripts online. As a test, the IRS anticipates offering options to practitioners with a strong history of filing electronically. It plans to offer online e-file provider applications (by June 2002) and transcript requests (by September 2002).

Direct debit payments can be authorized on electronically filed tax returns.

The Electronic Federal Tax Payment System (EFTPS) online-payment capability has been available since September 2001. At www.eftps.gov, practitioners can schedule payments, view a payment history (e.g., individuals for 365 days and businesses for 120 days) and confirm payments made through certain banks.

POAs and PPAs

Since July 2001, the Service has been using a single POA Centralized Authorization file (CAF) database instead of 10, meaning that taxpayers no longer have to file a different POA with each service center. Practitioners must send POAs only to the Memphis Service Center (fax number: 901-546-4115) or Ogden Service Center (fax number: 801-620-8249). The IRS will release new information on POAs in January 2002.

Checking the paid preparer authorization (PPA) box on a return is effective for the entire life of a module (i.e., while there is activity on the return). The IRS recognizes only the person (paid preparer) signing the return as the PPA contact (not any unnamed staff members). However, it is exploring the possibility of allowing more than one contact on future returns.

By January 2003, the Service anticipates having just one type of third-party identification number. This number will replace CAF numbers, Treasury numbers, Enrolled Agent Card numbers, Preparer Tax Identification numbers and every other existing type of practitioner number. IRS representatives have confirmed that the new number will not be a Social Security number.

Telephone Information

The Practitioner Hotline hours will be 7:30 am-5:30 pm, local time, beginning in January 2002. A toll-free number (to be announced) will be staffed in five of the 10 service centers. Calls will be routed according to a caller's area code, which will always connect practitioners to the same group of service representatives. The local Practitioner Hotlines are expected to remain in existence for approximately a four-month changeover period.

Hours for the Customer Focused Phone Service will be:

Monday-Friday     7 am-10 pm
Saturday          9 am-5 pm
                    (1/2/02-4/15/02)
President's Day   7 am-10 pm
Sunday            To be announced
                    (4/7/02 and 4/14/02)

LMSB Division

The LMSB Division is planning to offer more published guidance. It plans to modernize its examination function, to improve efficiency and lessen the burden on taxpayers. The Examinations section will concentrate on material issues and permanent differences (instead of timing differences).

SBSE Division

The Service is moving taxpayers with assets of $5-10 million from the LMSB Division to the SBSE Division. This may increase these taxpayers' audit risk; they are now the largest cases in the SBSE Division (instead of the smallest ones in the LMSB Division). The IRS made this change as a result of the staffing demands of the two divisions.

The SBSE Division recently hired 1,000 Revenue Agents, Revenue Officers and Compliance Agents. It anticipates hiring an additional 500 such employees in June 2002. As a result, practitioners should expect more audit and collection activity.

The SBSE Division is reengineering its examination function. Beginning in May 2002, the Service intends to discuss audit issues (e.g., examination time frames) early in the audit process. Its collection-function reengineering process is still open-ended. The SBSE Division is aware that case inventories are aging, which means it is less likely to collect on them. The SBSE Division is also asking Counsel if the division can resolve installment-agreement cases for amounts less than the total owed.

W&I Division

Eighty percent of W&I Division taxpayers have incomes under $51,000 per year.

The W&I Division may consider an alimony-matching program.

Appeals

The IRS has introduced different types of appeals programs, including Fast Track Mediation and Alternative Dispute Resolution. To date, most of these programs apply only to LMSB Division taxpayers. Over time, many programs should become available to SBSE Division taxpayers and others.

More information on Appeals programs is available at www.irs.gov/appeals.

FROM HARRIET JACOBS, CPA, EA, MST, MICHAEL SILVER & CO., SKOKIE, IL

Editor's note: Mr. Ely is former chair of the AICPA Relations with the IRS Committee. James Dougherty is the current chair. Ms. Pflieger, Ms. Jacobs and Ms. Gervie are members of the committee. Ms Pflieger is also the immediate past chair.