The Nonfiler Initiative: making a better system.
The success of the program to date can be attributed to its blend of stepped-up enforcement programs with a concerted outreach effort aimed at getting nonfilers to come forward voluntarily. While the Service continues to focus on enforcement, the program will not reach its full potential until practitioner organizations such as NSPA join in to promote the outreach efforts. IRS ENFORCEMENT
Some people say that the nonfiler initiative is merely an attempt by the Internal Revenue Service to get tax practitioners to do the Service's dirty work in ferreting out delinquent taxpayers. The truth is that the Service has allocated 2,000 revenue agents and auditors to the task of securing delinquent returns, as well as over 500 service center staffers designated for matching current W-2s with delinquent returns. In cases of willful intent to evade taxes, the IRS will actively pursue criminal prosecutions unless the taxpayer comes forward voluntarily. The Service is committed to bringing delinquent filers back into the system and enforcement is one of the most effective tools at its disposal.
Outreach activities from the IRS provide another important method by which nonfilers can be brought back into the system. The Service has simplified the offers in compromise process and made available an installment payment option in order to keep current taxpayers in the system and to facilitate the return of those who have become delinquent. The Service has created these tools in order to help taxpayers who do not currently have cash on hand file their returns and work out some sort of payment arrangement for the liability.
The Service also publicizes the nonfiler initiative at every opportunity. When major nonfilers are exposed as a result of IRS enforcement efforts, the Public Affairs office highlights this information in numerous press releases. In addition, new outreach programs are emphasized both at the national and district levels.
The final ingredient that will allow this program to reach its full potential
is practitioner involvement. The Internal Revenue Service needs tax practitioners to work with current clients to keep them from falling out of the system and to help those who have become delinquent return to regular filing. Practitioners have insight into their clients' financial situations that allows them to brace a client for a potential cash squeeze at April 15. In addition, the Service's nonfiler profile shows that often there is a major, sometimes traumatic event that triggers nonfiling, such as the creation of a new business, a divorce or a bankruptcy. Practitioners with clients going through these stressful events need to be aware of the potential problems that can arise and prepare their clients for their tax responsibilities. When a client is unable to pay the tax liability, be sure to inform them that working out an installment payment agreement or an offer in compromise is far favorable to falling out of the system.
Finally, NSPA members can staff IRS-sponsored nonfiler sites. These are programs set up by the IRS at the district level to provide tax services to individuals who have not filed and who otherwise may not be able to afford professional tax advice. The Service has called upon practitioner groups to provide advice at these sites and NSPA encourages its members to participate.
Generally, the sites are staffed by IRS personnel, volunteer attorneys and tax preparers. A nonfiler will come in and speak to an attorney about the legal ramifications of returning to the system and the advantages of returning voluntarily. The attorney will then direct the person to an IRS staffer or practitioner who will prepare the returns from the information the individual has brought to the site.
Because preparers are not paid for their services, they do not sign off on the returns. In addition, whatever is not finished by the end of the day is no longer the preparer's responsibility. As far as reporting information that the taxpayer may not have at the site, taxpayers are urged to find the relevant information report or make a reasonable estimate of the amount in question.
Over the next few months, NSPA will be working with its affiliated state organizations and the IRS to get the word out about nonfiler service locations around the country. I hope those of you who have the opportunity will participate, as it provides an excellent opportunity to make the system work better and to work with Service personnel from your area on a nonadversarial basis.
Proposed regulations expected near the close of this year concerning the controversial mark-to-market provisions will define who is and who is not a dealer. In addition, these forthcoming regulations will have obvious and expressed exemptions to the definition.
Questions on the definition of securities dealer began almost immediately after the enactment of the Revenue Reconciliation Act of 1993, which requires "dealers in securities" to report for tax purposes the fair market value of their securities inventory. In addition to the distinct problem with the broad definition, financial institutions are unhappy at the identification requirements which require the "dealer" to identify which securities are to be held for resale or for investment by the close of the day of purchase. Most institutions feel the short time frame is unduly burdensome.
Individuals and businesses that might find themselves at risk at being defined as a securities dealer should consider an alternative to waiting for distribution of the regulations. Create or identify separate trading and investment accounts.
STOCK OPTIONS AND ORDINARY INCOME
Investors in nonqualified stock options, including controlled corporations, will be denied long-term capital gain treatment with respect to proceeds realized from the sale of nonqualified stock options. The Tax Court determined that the nonqualified options contained restrictions on vesting and transfer and lacked readily ascertainable values at the time of their issuance. As such, the options fall outside the scope of Code Section 83. The proceeds are taxable as ordinary income at the time of disposition.
To qualify as capital gain property, the stock option must be held at least one year, have an ascertainable value at the time of purchase and be exercisable at any time.
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|Title Annotation:||Practitioner Communique; IRS program|
|Author:||Lear, Jeffrey A.|
|Publication:||The National Public Accountant|
|Date:||Mar 1, 1994|
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