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E-file, e-file, e-file: requirements dominate IRS Liaison Meeting.

E-filing issues made up the bulk of the discussion at the CalCPA Taxation Committee's annual IRS Liaison Meeting, held Nov. 12. Attendees discussed a range of issues, including possible regulation and certification of federal tax return preparers--other than CPAs, enrolled agents and attorneys--who prepare more than five tax returns a year, and abusive tax avoidance transactions.

IRS officials also said they would like to improve the efficiency of the agency's audits, targeting turnover rate improvement at all levels.


Gerry Kelly-Brenner, a senior tax specialist with the IRS Small Business/Self-Employed (SBSE)-Taxpayer Education and Communication Division, fielded many e-filing questions, but it was the first, "Why are those who e-file treated differently than those who paper file?" that opened a Pandora's Box of comments.

This issue includes the IRS practice of suspending a practitioner for two years from the e-file program for past infractions. Audience members felt that the eligibility requirements governing e-filing are onerous, outdated and lacked materiality.

Some members of the audience took exception to the fact that the IRS can suspend a practitioner from the e-file program for owing less than $100 to the IRS (on a Form 940, for example). Some said there needs to be some sort of materiality governing the e-filing eligibility requirements; that a $22 infraction, for example, should not be equated with larger, more serious infractions.

"All the facts are looked at in determining eligibility," said Kelly-Brenner. "There are actually three levels of infractions with applicable sanctions for each, and practitioners that have been denied participation in the IRS e-file program have the right to an administrative review and may submit further consideration to the Office of Appeals, as appropriate."

Joe Benton, area director, Taxpayer Advocate Service, said if being rejected or suspended from e-filing and working through normal channels is causing significant delays, or the administrative review system is not working and is affecting a practitioner's livelihood, then these events would meet the criteria for bringing the situation to the Taxpayer Advocate for consideration.

Although the IRS Electronic Tax Administration (ETA) governs and sets e-filing eligibility requirements, the IRS Office of Professional Responsibility has jurisdiction over Circular 230. "There are discussions of bringing the e-file suitability requirements and Circular 230 into consistency," Kelly-Brenner said.

More Regulation Coming?

Although there is talk of changing who would be considered a "principal" for e-file purposes--with the focus on those who are responsible for the e-file oversight instead of using titles within the company--other regulations may get more stringent.

The Treasury Inspector General for Tax Administration's November 2003 Final Audit Report said improvements are needed in the screening and monitoring of e-file providers to protect against fraud.

Kelly-Brenner said that Mark W. Everson, the new IRS commissioner, "is extremely focused on compliance. I wouldn't be surprised if screening and monitoring requirements increased for the e-file program."

A Call to Arms

The e-filing message of the day was that if practitioners have suggestions for improvements to the e-file program, they should write to the IRS commissioner, ETA, ETA Advisory Committee and national AICPA e-file task force.

After the discussion, Stu Josephs, chair of the Federal Subcommittee of CalCPA's Committee on Taxation, announced plans to request CalCPA to continue to seek relief from the current onerous situation.

Capital Gains Transactions

Kelly-Brenner also discussed the difficulty of e-filing many capital gains transactions on a Schedule D. A Short-Term and Long-Term Capital Gain/Loss Record has been implemented for reporting up to 5,000 transactions each for short- and long-term transactions. The IRS says to list each transaction separately on that record. Kelly-Brenner is involved in a burden reduction issue relating to this requirement.

The ETA is aware that many practitioners summarize capital gain and loss transactions, reporting total gross proceeds and net short-term and long-term gains and losses. When paper filing, they attach broker's statements and spread-sheets to the back of the return, and when e-filing, they staple these same attachments to the signature Form 8453.

Although the ETA cannot specifically support this practice, the Submission Processing Centers will not reject returns that are prepared this way. Since these statements and spreadsheets are not required documents, they may be disposed of during the processing of Forms 8453.

It is recommended that practitioners keep these supporting documents should they be requested by an authorized IRS employee or official. The ETA is working on a remedy for this issue, but it will not be ready for the coming filing season.

Auditing Priorities

Peggy Rule, SBSE Area 13 director of compliance, said the top IRS auditing priority this year is abusive tax shelters. The IRS also will look at the National Research Program; offshore credit cards; high-income, high-risk taxpayers; and high-income non-filers.

Priorities for collections include tax-payers from whom collecting would be most probable; educating collection staff on transferee/transferor liability related to estate and gift taxes; and increasing efficiency.

Jerry Ascierto is CalCPA's associate editor. You can reach him at
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Title Annotation:FederalTax; Internal Revenue Service
Author:Ascierto, Jerry
Publication:California CPA
Geographic Code:1USA
Date:Jan 1, 2004
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