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2006 IRPAC Report: the following report was submitted by Paul Heller of the New York chapter, who was nominated by TEI to served on the Internal Revenue Service's information reporting program advisory committee (IRPAC).

The IRS's Information Reporting Program Advisory Group is a committee of private sector representatives who meet to review and make recommendations to the IRS Commissioner about information reporting issues. During the 2006 year, there was a major effort begun to reshape the activities and goals of IRPAC. The past few years had seen a shift away from large and corporate taxpayers and issues and toward small taxpayers and practitioners. Now, the group has endeavored to refocus and discuss matters related to large corporate tax payers and integrate the effect of various proposals, legislation, etc., on corporate taxpayers. In particular, the LMSB subgroup (on which I serve) monitors the activities of the other groups to ensure that the burden on the corporate community is taken into account. For example, we have raised concerns about the basis reporting proposals offered by the practitioners and IRS because they place heavy burdens on brokers and banks to try to not only report but to validate and maintain basis information on securities all through any changes in ownership.

In addition, we worked with the IRS to create a better working environment and more contact related to information reporting concerns and issues of corporate taxpayers. We met with the LMSB Financial Services Commissioner (first Paul DeNard and then Barry Shott) to emphasize the need to have regular meetings and communication with IRPAC to discuss where there are problems and opportunities. Over the past year, we have worked and are reporting on:

* Certification of U.S. Resident status (Form 6166): Changes by the IRS have created significant delays in obtaining Form 6166. Filing this form is necessary for a US resident to obtain treaty benefits, including lower withholding tax rates on payments of interest, dividends, and royalties from foreign subsidiaries to the U.S. parent. The battle continues but the IRS has conceded that there are issues and are working with industry to change the process.

* Non-Resident Alien Withholding: We raised with the IRS concerns that they were going to commence audits of non-financial institutions related to documentation (Form W8 series), withholding, and reporting (Form 1042S) compliance related to items such as vendor payments and royalties without involving the community. This is an area identified during the recently concluded Voluntary Compliance Agreement Program, which was seemingly viewed as an unexpected source of revenue by the IRS. We met several times in order to explain that corporations want to comply but need to be educated. The IRS acknowledged that better communication and education are good things. In fact, the New York Chapter of TEI is planning a special meeting in January where the IRS and an outside firm will discuss the IRS's audit plans and stringent requirements.

* Non-Resident Alien Withholding: Now that these audits have concluded, we have asked the IRS whether it will be providing any written guidance. After several conversations which included Deputy Commissioner Bruce Unger, the IRS agreed to work with IRPAC to create two sets of FAQs to be published on the IRS website. The first set, which has been completed and is going through IRS review, will focus on the audits on non-traditional withholding agents. It will be a quick reference source for those new to this requirement. The second set will present the top ten errors the IRS identified during the recent audits and provide written guidance for compliance. IRPAC indicated that these FAQs need to be a living and breathing item.

* New Legislation: We continue to stress that the IRS needs to communicate early with the taxpayer community, particularly IRPAC, when there are proposed legislative or regulatory changes. For example, we engaged the IRS within a week of the enactment of new tax reporting rules related to tax-exempt interest to express concerns about the effective date. We vigorously opposed the user fee that was to be imposed by the government to obtain Forms 6166. The IRS indicated that since this was a service that was voluntary and not of use to all taxpayers, it was appropriate to impose a charge. We challenged that assessment, pointing out that any U.S. resident wanting to obtain tax treaty benefits had to obtain this form. In addition, the failure to claim treaty benefits could result in foreign taxes paid being non-creditable. The IRS delayed the implementation by one month but we are still working for a better resolution.

There are a number of other matters IRPAC is working on. The IRS seems to be moving toward working more closely with IRPAC. We have formally asked Debbie Nolan to take a more active role in this. I will be the IRPAC chair in 2007 and hope to shape IRPAC to help better serve all taxpayers including the corporate community.
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Publication:Tax Executive
Date:Nov 1, 2006
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