Examining the 1997 examination program.The Internal Revenue Service, like most other government agencies, has to tighten its budget while trying to achieve more goals and objectives. CPAs and their taxpayer clients can get an idea of the areas on which the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. will concentrate its assets this year by reviewing the priorities, areas of emphasis and underlying philosophy of its 1997 examination program. IRS GOALS The service's main goal is to improve productivity on examinations by increasing the average amount assessed from and paring the time spent on each examination and reducing the number of corporate examinations in which no changes are recommended. "Large business" examinations. The IRS will continue to examine taxpayers with assets over $10 million that do not fit into its Coordinated Examination Program (CEP CEP congenital erythropoietic porphyria. CEP abbr. congenital erythropoietic porphyria ). Audit techniques currently used exclusively in CEP cases, such as the increased use of audit specialists (computer, employment, excise A tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. A tax on the manufacture, sale, or use of goods or on the carrying on of an occupation or activity, or a tax on the transfer of property. , employee plans), will be implemented for non-CEP taxpayers. The IRS still will emphasize the use of alternative dispute resolution Procedures for settling disputes by means other than litigation; e.g., by Arbitration, mediation, or minitrials. Such procedures, which are usually less costly and more expeditious than litigation, are increasingly being used in commercial and labor disputes, Divorce techniques to resolve issues at lower levels of examination. In addition, some practices that officially are available only to CEP taxpayers--such as opening conferences, periodic updates and briefings with the case manager--may be extended to non-CEP taxpayers. Partnership returns. The IRS will increase its audits of partnership returns by (1) looking at a narrower range of issues on a larger number of returns, (2) encouraging the examination of returns associated with large corporate and CEP examinations, (3) focusing on real estate partnerships and (4) completing a project on the use of the low-income housing credit, which is claimed by many partnerships. Excise taxes excise taxes, governmental levies on specific goods produced and consumed inside a country. They differ from tariffs, which usually apply only to foreign-made goods, and from sales taxes, which typically apply to all commodities other than those specifically exempted. . The IRS will examine motor fuel excise taxes more closely, with additional emphasis and training directed toward motor fuel and petroleum by-products, telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. and manufacturing excise taxes. Employment taxes. The IRS will continue to focus on the following worker classification issues, primarily among midsize companies: * Reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of entire classes of workers. * Cash payment schemes set up to avoid employment taxes. * Failure to file forms 1099 and W-2. * Fringe benefits fringe benefits, n.pl the benefits, other than wages or salary, provided by an employer for employees (e.g., health insurance, vacation time, disability income). and deferred compensation. * Reporting and taxation of tip income. COMPLIANCE RESEARCH The IRS also launched several research projects designed to measure compliance and test corrective actions A corrective action is a change implemented to address a weakness identified in a management system. Normally corrective actions are instigated in response to a customer complaint, abnormal levels if internal nonconformity, nonconformities identified during an internal audit or in six specific areas: Automotive market segment. The service will examine the accuracy of reporting for new and used car dealers and for service stations. Tipped restaurant employees. Reporting income and taxes on tips (both the employer and the employee portions) has been the source of continuous controversy and conflict. The IRS will try to increase the number of filings of Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, as well as the percentage of tips reported by both employers and employees and the tax collections from tip income. Individual nonfilers. The IRS will focus on approximately 10,000 high-income repeat nonfilers that can be identified through profiles and criminal investigation referrals. Return preparers' strategy. The IRS will study the characteristics of individual returns produced by paid preparers to identify any trends and differences. EDAS EDAS Enlisted Distribution & Assignment System EDAS Encephaloduroarteriosynangiosis (neurosurgical procedure used to treat moyamoya disease in children) EDAS Enhanced Data Acquisition System EDAS Effective Drug & Alcohol Solutions . An electronic disclosure authorization system (EDAS) will help verify return information provided by taxpayers on applications for mortgages and business loans to prospective lenders. The IRS will examine some returns to determine the accuracy of the information provided on such applications. Multiple use of SSNs. The service will focus on the duplicate use of Social Security numbers (SSNs) currently encountered on filed returns, initially when an SSN SSN abbr. Social Security Number is used as the primary taxpayer on one return and claimed as a dependent on another. For a discussion of these and other developments, see the Tax Practice & Procedures department, edited by Mark Ely, in the April 1997 issue of The Tax Adviser. |
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