Small-business tips: IRS liaison meeting covers tipping, auditing and litigation

California CPA, Jan-Feb, 2003 by Bill Spaniel

The IRS has a major effort under way to educate new small businesses about tax laws. The program focuses on four areas:

* Avoidance of tax schemes, including not withholding income taxes from wages paid to employees;

* Increasing e-filing and decreasing the number of re-submissions-e-filing the same form more than once because of unfamiliarity with the proper process or accidentally hitting the "send' button;

* Taxpayer burden reduction; and

* Voluntary agreements.

This push by the IRS was just one of the topics discussed at the CaICPA Committee on Taxation's annual IRS liaison meeting in Los Angeles in November. The meeting included 12 IRS representatives, who reviewed policies and responded to questions.

Because Congress has requested 80 percent participation in e-filing by 2007, the IRS is encouraging CPAs and enrolled agents to file more returns electronically, said Art Hylton, an IRS area director for taxpayer education and communication.

Even if paper returns are filed, e-filing can be used to request the first extension, Hylton said.

However, the system only can receive paper requests for a second extension, but the IRS is upgrading its technology so all extension requests can be filed electronically.

As for taxpayer burden reduction, Hylton said, "We hope to make recommendations to headquarters about what needs to be changed."

If you have a comment or suggestion, contact Hylton at (213) 576-3032. The information will then be forwarded to the new Office of Taxpayer Burden Reduction.

Hylton noted that as part of the IRS tip rate determination and education program, the IRS is encouraging members of the food and beverage industry to comply with voluntary agreements for tip reporting.

Those agreements include educating employees to report all tips to their employers, establishing tip reporting procedures involving written statements and requiring employers to observe compliance requirements.

For more details, visit www.irs.gov/ businesses /small/article/id=98944,00. 00. html.

Auditing Priorities

Peggy Rule, an area compliance director for small business and self-employed (SB/SE), said the IRS's top auditing priority is abusive schemes and that the IRS "will ride those cases in which we started to litigate."

Among the schemes the IRS is targeting are those seeking to reduce liability by inflating expenses, slavery reparation claims and abusive shelters and trusts.

Other auditing areas the IRS will focus on include:

* Offshore credit cards. Such credit cards are legal, but some holders may be using them to avoid U.S. taxes.

* High-income and high-risk taxpayers-those who have more than $1 million in income who may be using trusts, partnerships and corporations to hide their income.

* High-income noncompliers--people with more than $100,000 in income who don't file a return.

* The National Research Program. This program determines how errors are distributed on tax returns so that the IRS can be more accurate in its examination and compliance efforts.

* Training future auditors. Because its auditing staff is growing older, Rule said the IRS is seeking to hire as many new auditors as possible.

Appeals and Litigation

Melinda Johnson, an area appeals chief, commented that her operation was undergoing a refinement so that both large cases and general appeals will be handled through one organization.

Jim Nelson, an IRS SB/SE area counsel, said IRS attorneys are focusing on internal client service as opposed to litigation. Consequently, they are encouraging voluntary binding arbitration or nonbinding mediation in more cases.

He noted that there are clinics providing low-cost assistance in disputes with the IRS for taxpayers with incomes less than 250 percent of federal poverty guidelines.

Questions & Answers

In response to a question from Marina del Rey CPA Geoff Bremer about contacting the area counsel concerning large offers, Nelson said the IRS is eager to work with clients and their representatives.

"For those cases that have been around a long time, we certainly are willing to talk about them with practitioners and get them back on track," he said.

CPA Don Levy, of Fineman West & Co. in Beverly Hills, explained his experience with an estate tax form. Levy correctly sent the form, on time, to the Kansas City Service Center, but personnel there thought the matter should be handled at the Ogden Center and forwarded the form there.

Because the Ogden Center received the form late, Levy's client was penalized. Rule and other IRS representatives agreed that if a form arrives on time at any service center-regardless of whether that particular center is the appropriate destination-the form should be accepted as having arrived by the due date.

Woodland Hills CPA Sandy Friedman urged the IRS to reschedule audits around tax season. Rule replied, "We try to provide as much flexibility during the filing season as possible. But we have to take it on a case-by-case basis."

Bill Spaniel is CalCPA's public relations manager. You can reach him at bill.spaniel@calcpa.org.