IRS Symposium 98
The following questions were asked by the attendees of Symposium '98 held
November 4-6, 1998, in Ogden, Utah.
Question: If a married couple has been denied EIC (Earned Income Credit)
a prior year do both have to file Form 8862?
Answer: The taxpayer claiming the disallowed child will have to file
8862 when they file a return claiming EIC again.
Question: If the EIC is disallowed in the Underreporter Program
taxpayer have to file Form 8862 with the next tax return?
Answer: No, if the EIC is adjusted only as a result of the
Program, Form 8862 will not be required.
Question: Is EIC ever denied after a refund has been sent to a
Answer: Returns may be examined and have credits denied after a refund
been issued. Refunds may have been released for various reasons, however,
this does not mean the return will be accepted as filed. EIC or any other
item on a tax return may be questioned by the IRS.
Question: Is there any point that we have to file an amended return when
the IRS has assessed a substitute return?
Answer: An amended return is not required. However, if the
changes to the figures shown on the substitute return, such as additional
exemptions, a spouse, itemized deductions etc., then it would be in their
best interest to file a return. An amended return would only be filed to
correct an original filed taxpayer return.
Question: What is the purpose of the FOIA (Freedom of Information
request? Why should a practitioner need of copy of this file? Won't the
examiner have it, and can't that person give copies of pertinent
information from it to the practitioner?
Answer: An auditor will gladly give copies of files they have
most cases are located in the "Files" area, and not in the auditors
possession. Audits are sensitive issues with most taxpayers, and the FOIA
procedures insure that the Service is using the utmost diligence in
protecting the taxpayer's privacy. This is safeguarded by having the
Disclosure Officer check the right of the requesting person to have the
information, and that the correct information is being requested and
provided. A tax professional may need the information to prepare an audit
Question: Where should requests for an audit reconsideration be
this an appeals issue? What is the typical time frame for a response from
Answer: Audit reconsideration requests should be sent to the Service
Center that made the assessment. The 1-800-829-1040 number can be used to
request addresses of Centers. An audit reconsideration is not an Appeals
issue until it is completed and then if the result is not agreed, Appeals
becomes an option. Due to the research needed to obtain the previous
return and/or assessment 90 to 180 days may be required to complete this
type of case.
Question: What is the distinction between the Audit Reconsideration
Process and the SFR (Substitute for Return) Reconsideration Process? Why
make a FOIA be filed?
Answer: The Audit Reconsideration Process is based on an audit
by the Examination Branch on a taxpayer's original return. The SFR
Reconsideration Process is based on an assessment made from information the
IRS received from payers such as; W2 wages, interest and dividends, rental
income, etc. The taxpayer has not filed a return. When a taxpayer return
is filed, the SFR reconsideration process starts. FOIA procedures insure
that the Service is using the utmost diligence in protecting the taxpayer's
privacy. This is safeguarded by having the Disclosure Officer check the
right of the requesting person to have the information, and that the
correct information is being requested and provided.
Question: Why is ACS (Automated Collection System) actively
cases not yet assessed? ACS is very difficult to work with.
Answer: ACS would be involved on unassessed cases only if there was
another tax year or years that have a balance due being collected by ACS.
These may include individual, business, or both type of returns. In this
situation the account, including cases not yet assessed, will be assigned
Question: How is the filing status, married, single, etc. determined on
Substitute for Returns?
Answer: The filing status is based on the last return filed.
status is used if the last filed return was either single, head of
household or surviving widow(er). Separate status is used if the last
return filed was joint, or married filing separate.
Question: When requesting FOIA Work papers what identifiers are
with a signature?
Answer: Examples of identifiers would include a photocopy of a drivers
license, a notarized statement with a signature or a photocopy of a state
identification card. If you have questions on other items that may
qualify, the local Disclosure Officer can assist you.
Question: Is there a time frame in which you can request a penalty
abatement for refund of a penalty that has already been paid?
Answer: Requests must be made within the 3 year statute period from
due date of the return, for refund of withholding, or two years from the
date a payment is made. For example, if requesting an abatement of a
penalty and the money was sent as a payment to IRS August 15, 1997, the
request for refund must be received before the statute date of August 15,
1999. NOTE: Postmarks are not considered on this type of case. If the
request was postmarked August 15 1999, but the IRS received date was August
18, 1999 the refund would not be allowed.
Question: Who administers "non-filer" programs? How do
we get non-filer
status advantages for clients that come into our office?
Answer: Special tax programs are administered by National Office.
Currently non-filer programs are worked in both the Examination and
Collection Branches at the Service Centers. There are no special
advantages for taxpayers in the non-filer program.
Question: Can I file an offer in compromise when the tax has been
through an SFR and the taxpayer has never filed an original return?
Answer: Yes, as long as an assessment has been made an offer can be
Question: Does the new extension policy allow for the declaration of the
balance due rather than payment? Will the declaration and payment by the
due date of the extension avoid a default on an installment agreement or an
offer in compromise?
Answer: Yes, as long as the taxpayer files and pays by acceptance date for
an offer in compromise.
Question: The allowable expense guide for Pacific Northwest has not been
updated in about 18 months, when will it be updated to include increased
cost of living?
Answer: The new standards have been issued to the field in the last few
months. They should currently be available to you.
Question: Will the child credit reduce EIC? Do the two credits effect
each other at all?
Answer: Effective for tax years beginning after December 31, 1997,
taxpayers who have qualifying children are entitled to the child tax credit
under Internal Revenue Code (IRC) Sec. 24. Generally, the credit is
limited to net tax liability after credits other than EIC. For families
with one or two children it is non-refundable, but may be refundable for
families with three or more children. The non-refundable credit is further
limited to the amount of the taxpayer's regular tax liability minus the
tentative minimum tax liability. For the refundable credit the limit is
the greater of:
1. the non-refundable credit, or
2. the taxpayer's regular tax liability minus
the tentative minimum
tax liability, plus social security taxes and one-half of the self-
employment taxes minus EIC.
A portion of the child tax credit allowed a taxpayer who is also entitled
the EIC may be treated as a supplemental child credit under the EIC. The
supplemental child tax credit is treated as a component of the EIC. The
supplemental child credit equals the lesser of:
1. the amount by which the taxpayer's total
credits (as limited by the tax liability limitation of Code Sec. 26(a)) are
increased by reason of the child credit, or
2. the "negative" tax liability of
the taxpayer, defined as the
excess of taxpayer's total tax credits, including the EIC, over the sum of
the taxpayer's regular income tax liability plus the employee share of FICA
and one-half of any SECA tax liability.
Treatment of a portion of the child credit as a supplemental child credit
with the corresponding reduction of the otherwise allowable child credit
does not affect the total amount of tax credits available to the taxpayer
or any other tax credit available to the taxpayer. A technical correction
also clarifies that the phaseout of the EIC and other EIC rules do not
apply to the computation of the supplemental child credit. It should be
noted that, in general, a supplemental credit will result only when the
taxpayer's EIC exceeds the taxpayer's employee share of FICA (and one half
of any SECA tax liability.
Although the total amount of the child credit is often the same whether or
not part of it is treated as the supplemental credit, it is advantageous
for lower income taxpayers to claim the supplemental credit as part of the
refundable EIC rather than as a non-refundable child credit.
Question: If you provide E-filing service for individuals who prepare
their own returns, do you need to be concerned with the due diligence
Answer: Under Reg. Sec. 301.7701-15, Electronic Return Collectors, Service
Bureaus, Transmitters, and Software Developers are not income tax return
preparers for the purpose of assessing most preparer penalties as long as
their services are limited to "typing, reproduction, or other mechanical
assistance in the preparation of a return or claim for refund." If an
Electronic Return Collector, Service Bureau, or Transmitter, or the product
of a Software Developer goes beyond mechanical assistance, any of these
parties may be held liable for income tax return preparer penalties. More
specifics may be found in revenue Procedure 98-50, Revenue Code Sec.
7701(a)(36) and Reg. Sec. 301.7701-15.
Question: Notice to elderly and students not to file if only to receive
withholding back but to adjust their withholding instead, what specifically
are the rules on this issue? Instructor stated "Reasonable cause would
apply and penalties would be abated." what was meant by this statement?
Answer: The Reduce Unnecessary Filings (RUF) Project is a burden reduction
effort that communicates with taxpayers who historically file returns that
do not meet the filing requirements. There are three groups that meet this
1. Regular RUF filers who had no requirement to
file and no federal
2. Pensioner RUF filers who filed with no tax
credits, and only filed to get federal withholding from pension income.
3. Young RUF filers, no federal tax liability,
no credits, and only
filed to get refund of federal tax withholding from wages
Regular RUF taxpayers get a mailer with a postcard and work sheet. Once
the work sheet is completed and the determination is made that filing is
not required, the work sheet is NOT to be sent to the IRS but kept for the
taxpayers records. If there is a filing required, the postcard should be
detached and returned to the IRS to receive a tax package.
Pension RUF filers will get a mailer with a work sheet and a Form W-4P
attached. The work sheet is used to determine if the Form W-4P should be
completed to stop federal withholding. If withholding should be stopped
the Form W-4P should be submitted to the pension company early in December
to ensure the withholding is stopped for the upcoming year. Forms W-4P
should NOT be sent to the IRS. A federal return will need to be filed for
the current year to claim federal tax withheld.
Young RUF filers will have to file a Form W-4 each year they claim "exempt"
from withholding. State filing requirements may be different and taxpayers
should be encouraged to contact the state-taxing agency with specific
questions. A federal return will need to be filed for the current year to
claim federal tax withheld.
As tax circumstances change, there may be requirements for filing. Work
sheets and Forms W-4/W-4P should never be sent to the IRS.
For additional information refer to Publications 3195, 3137, 3136, or visit
the Webb site "Tax Information for You."
Because penalties and interest are computed on balances due, when filing
only to receive a refund of federal tax withheld, penalties and interest
would not apply.
Question: Postcards are being sent to taxpayers who submit self-generated
computerized tax returns, are paid preparers also being sent these
Answer: The post cards are only being sent to self-generated computerized
returns submitted by taxpayers.
Question: Will the Debtor Masterfile Offset Notice have the Financial
Management Service (FMS) telephone number on the IRS notice sent to
Answer: Beginning January 11, 1999 FMS will assume responsibility for the
offset of tax overpayment to non-tax debt. Before the refund is deposited
or issued, IRS will certify the refund for payment by FMS. Notification of
offset will be sent from FMS and will include the agency or agencies name
and telephone number where the offset was applied. Taxpayers must call the
agency of the non-tax debt for information and resolution.
The FMS 1-800-304-3107 telephone number will be included in the closing of
the FMS notice. At this time, IRS Power of Attorney does not carry over to
FMS files. Any contact with FMS must be done directly by the taxpayer and
should only be needed if the notice showing the offset agency name or
telephone number has not been received.
Accounts also containing math errors or other discrepancies, affecting the
overpayment amount, will be issued a separate notice of explanation from
the IRS. The IRS notice will not include the FMS telephone number.
Question: If congress has mandated the CP2000 process be speeded up, why
can't employers be required to report directly to IRS and duplicate to
Social Security instead of IRS having to wait for Social Security to get
done with Forms W-2?
Answer: The Underreporter Program has been accelerated to the earliest
possible date. Processing time involves matching large volumes of payer
documents to individual tax returns. This process would not be improved by
requiring payers to report directly to the IRS. Due to the large volume of
Underreporter cases worked each year, caseworkers have accounts in varying
stages, i.e., initial contact, waiting for response, and closing,
throughout the year.
Question: Why are there time frame inconsistencies between Examination and
Collection? Examination will hold refunds pending very old returns,
Collections states 7 years is all they are interested in, indicating
information prior to that point is not necessary.
Answer: Ogden Service Center Examination and Collection Branches follow
Internal Revenue Service Policy Statement P-5-133 which addresses
delinquent returns. The statement states that "Taxpayers failing to file
tax returns due will be requested to prepare and file all such returns.
Where it is determined that required returns have not been filed, to the
extent to which compliance for prior years will be enforced will be
determined by reference to factors ensuring evenhanded administration of
staffing and other Service resources." Also included is the statement
that, "Normally, application of enforcement criteria will result in
enforcement of delinquency procedures for not more than 6 years." However,
there may be exceptions based on the level of non-compliance, when
additional years are required for resolution.
Question: How do I get registered on the Centralized Authorization File
(CAF)? How do I become an enrolled agent?
Answer: When a power of attorney is filed identifying the taxpayer's
representative, the CAF is researched to determine if the representative is
registered on the file. If not, the IRS will enter the information and
assign you a representative number. You will be notified of this number,
for future reference and use. NOTE: Unenrolled return preparers may only
represent the taxpayer before Revenue Agents and Examining Officers of the
Attorneys and Certified Public Accountants, in good standing, may represent
their clients before the IRS. An applicant must demonstrate competency in
tax matters either by written examination or by qualifying experience as a
former IRS employee. Application for Special Enrollment Examination, Form
2587, provides specific guidelines. This form may be ordered by telephone
1-800-829-3676 or FAX 703-368-9694. The application provides detailed
instructions relating to mail address, fees, study material, test dates and
filing instructions. Application must be received and fees paid prior to
July 31st for the year in which you wish to apply for enrolled agent
Question: Older taxpayers may have Alzheimer's etc. and have authorized
through a court of law for someone to handle their affairs. Can the
authorized person sign Form 2848?
Answer: Yes, the legal guardian or legal representative can sign a Form
2848 for the taxpayer. A copy of the court order which designates you as
the representative must be attached.
Question: On Form 1040, line 21, Schedule C and F other income, when
submitting a statement to summarize where the income came from, does IRS
receive the description and dollar amount when filing electronically or is
it received as one lump sum as it is on Form 1040PC?
Answer: On electronic filed returns we receive the description and dollar
amount for each of the incomes you are reporting.
Question: Could the representation before Examination Branch be clarified?
Does it mean non-Enrolled Agents (EAs) can represent taxpayers?
Answer: Revenue Procedure 81-38 and Publication 947 define practice before
the IRS and power of attorney requirements states "an unenrolled return
preparer may represent the taxpayer only concerning the return that he or
she prepared. Also, an unenrolled return preparer is permitted to
represent taxpayers only before the Examination Division of the IRS and is
NOT permitted to represent anyone before the Appeals, Collection, or any
other division of the IRS." Rev. Proc. 81-38 also states that, "the
following acts on behalf of the taxpayers are beyond the scope of authority
permitted an unenrolled preparer:
claims for refund;
checks in payment of any refund of Internal
Revenue taxes, penalties, or interest;
consents to extend the statutory period for
assessment or collection of a tax;
closing agreements with respect to a tax
liability or specific matter; and
waivers of restriction on assessment or
collection of a deficiency in tax."
Question: When a child is disallowed on an Electronic return why can't we
send proof and then re-input electronically?
Answer: Returns rejected due to a social security number must be corrected
through Social Security Administration (SSA). When contacting SSA for the
correction, you may also ask them to update their files with the IRS. This
process takes approximately 10 days. Once this is complete, the return can
be retransmitted electronically.
Question: Can the IRS get HUD to notify people with a Form 1099 that have
had a debt forgiven?
Answer: Form 1040 instructions and publications inform the taxpayer they
will receive a Form 1099C if a federal agency, financial institution or
credit union cancels or forgives a debt owed. The tax law changed in 1994
regarding canceled debts, and many institutions were unfamiliar with the
requirements for issuing a Form 1099C. The institutions are becoming more
knowledgeable and familiar with the requirements and more and more Forms
1099C are being issued. IRS continues to research and verify that the
institutions, such as HUD, are properly notifying and issuing the correct
forms to taxpayer who have canceled debts.
Question: The large brokerage houses have indicated they will be reporting
retirement contributions in the year they receive them, not the year they
apply to on Form 5498 is this correct?
Answer: The large brokerage houses may report the contribution in the year
they receive them. However, Form 5498 should designate the year for which
the contributions are made.
Questions: Many banks do not return checks to the client, how can we read
the codes on a canceled check?
Answer: Most banks will furnish a copy of a canceled check upon request
even though they do not return them with the normal bank statement.
Question: Often I fax my POA to the IRS, yet when I call a representative
there is no POA on file. Is there anything I can do to correct this
Answer: IRS receives thousands of POAs weekly and they are processed on a
first in first out basis. Ogden Service Center processes the information
to our file and then the data is sent for national processing. The
national processing takes an additional 2 weeks to complete. However, the
representative does have the capability to research local files and locate
POA information. Ensuring that the POA is complete and legible, before
filing, assists the IRS in getting items processed in the shortest amount
of time possible.
Single issue POA documents are not processed to the file. Items such as
requests for information to loan companies or educational institutions,
requests to release information to federal or state agency investigators
for background checks, requests for private rulings, changes to accounting
periods/methods, offer in compromise, return signatures, civil penalty
situations or trust fund recovery penalty situations, should be sent
directly to the representative working the case. Question: Define rental
income as it relates to disqualified investment income for the EIC. I
believe the code is not denying rental income. It is denying a group that
is not rental income. What is net rents not derived in the ordinary course
of a trade or business? I take this to mean a taxpayer who had net rental
income that is not recurring, that is occasional. A taxpayer that owns a
rental house and intends to profit from renting that house is in the
business of renting and the income should be excluded. On the other hand,
the taxpayer who temporarily rents his house while trying to sell it or who
may be on a sabbatical would be exempt. The regulations do not define this
well enough to provide a means to handle this problem on the tax return
Answer: The EIC is based on "earned" income, whether it is taxable or
nontaxable. This is generally taken to be income earned as an employee, or
in the course of a trade or business. However, a taxpayer cannot claim the
earned income credit if their investment income exceeds a certain amount,
indexed for inflation, each year. For 1998, a taxpayer does not qualify
for the earned income credit if their investment income exceeds $2,300.
This is know as "disqualifying" income. Nonbusiness rental income is
included as disqualifying income. Rental income earned in the course of a
trade or business would still quality for the earned income credit.
The term "trade or business" as it is used here refers to income that would
be subject to social security and employment taxes, either FICA or self-
employment tax. For rental income to be considered trade or business
income, the taxpayer would have to be actively engaged in the business of
rentals, such as in a real estate business, or hourly rentals of machinery
or equipment. In a situation such as this, the income and expenses would
be reported on Schedule C and would be subject to self-employment tax and
therefore allowed in computing the earned income credit. If the income and
expenses are reported on Schedule E, it would be considered nonbusiness
rental income and would not be subject to self-employment tax. Rental
income reported on Schedule E would be disqualifying income for purposes of
the EIC and the credit would not be allowed if the rental income exceeds
the limitations for the applicable year. The code section does not
differentiate between rental income that is continuous or rental income
that is temporary, occasional or intermittent.
Question: Is innocent spouse relief in a community property state limited
to 50 percent? How does this law affect taxpayers in a community property
Answer: The information received at this time does not indicate taxpayers
in a community property state are treated any differently than any other
taxpayers for purposes of applying the guidelines for Innocent Spouse
Relief. Innocent Spouse Claims are controlled at the Cincinnati Service
Center and are worked by them or their applicable district offices.
Treatment under this provision should be consistent for all taxpayers.
Question: For a full or part time student to be exempt from Social
Security and Medicare Tax, do they have to be employed by a school? what
years does this affect?
Answer: Revenue Procedure 98-16 sets forth generally applicable standards
for determining whether service in the employ of certain public or
privatenonprofit schools, colleges, universities or affiliated
organizations performed by a student qualifies for the exception from FICA
tax. The Revenue Procedure gives standards applicable to career employees
as well as undergraduate and graduate students.
An individual who is a half-time undergraduate student or a half-time
graduate or professional student and who is not a career employee will
qualify for the Student FICA exception with respect to services performed
at or for institutions of higher education in which they are enrolled or at
affiliated organizations. Services performed by a student for any other
employer do not qualify for this exception.
The revenue procedures defines which students qualify for the exception.
The exception applies to services performed during all payroll periods for
which the student qualifies.
Question: What is Form 4790 used for? What do I do with a taxpayer
receiving money from parents in a foreign country to be used to buy a home,
invest in stocks, or start a business?
Answer: From 4790 is a United States Customs form filed when an individual
physically transports or mails currency in excess of $10,000 to the United
States. Normal bank transfers are exempt from this reporting requirement.
If a nonresident alien gives more than $100,000 in a year to a U. S.
person, the U. S. person must file Form 3520.
Question: Can a taxpayer live in a residence for two year, a rented house,
then purchase the house, move out, go overseas, but still own the house for
3 out of 5 years, and live in house 2 out of five years and qualify for the
personal residence exclusion?
Answer: Under the old law, a taxpayer could meet the use and ownership
tests even if use and ownership occurred at different times. There is
nothing in the new law that states the use and ownership tests for the
exclusion of gain on the sale of a personal residence must be met
simultaneously. Therefore, absent a ruling to the contrary, it appears
that the taxpayer can exclude gain even if the use and ownership tests are
not met simultaneously.
Question: Combat zone taxpayer, is the time extended to contribute to Roth
IRA? Will a child under 16 with an ITIN qualify taxpayers for the child
Answer: Yes, the extension to file returns granted to qualified individual
in the combat zone or a qualified hazardous duty area also applies to the
time to make contributions to a Roth IRA.
An ITIN will not, of itself, disqualify a child from being a qualifying
child for purposes of the child credit. However, the child must be a
dependent of the taxpayer claiming the credit, be a United States citizen
or resident, and meet the relationship test.
Question: Concerning a Green Card:
What criteria is needed to get a card?
How does owning a card effect taxes?
If you have a card and do not file a return for
one year do you
lose the card? Do you lose the right to pay taxes and be considered a
Does a green card owner have to live in the
U.S. to pay taxes?
Does a person who lives out of the U.S., has a green card, and pay taxes
have the right to live in the U.S.?
Are green cards still green?
Answer: IRS cannot define what criteria an individual must meet to obtain
a green card. Please contact the Immigration and Naturalization Service
for advice. Green cardholders are considered to be resident aliens and are
taxed on their worldwide income no matter where they live. Such
individuals are subject to U.S. tax until they give up or have their green
Question: Is rental income considered connected or not connected to a
trade or business in the U.S. for non-resident aliens?
Answer: Income from U.S. sited real property that is paid to a non-
resident alien is non-effectively connected income, taxed at 30 percent on
the gross income, unless the taxpayer elects to treat the income as
effectively connected. In that case the net income would be taxed at the
taxpayer's graduated rate. Please see IRS Publication 519, "Aliens" page
18 for details.
Question: A resident alien who now resides in Japan sold personal
residence in U.S. while working, prior to new law. Taxpayer quit job moved
to Japan and purchased a condominium, only has income rentals in the U.S.
Can she defer gain to condominium in Japan? Does the taxpayer have 4 years
to move back to U.S. and defer to U.S. home? Taxpayer doesn't plan to work
in Japan but will work when returning to U.S.
Answer: Taxpayers who sell their personal residence (main home) prior to
May 6, 1997 will come under prior law. That law states that in order to
defer gain, the property sold must be a main home. However, the property
may be temporarily rented, one year or less, and still be considered as a
main home. Rental property is not a main home. Taxpayers who have a tax
home overseas have a maximum of 4 years from the date of sale of their old
home to buy and live in a new residence if they want to defer gain on the
sale of the old home. See IRS Publication 523 for specific details.
Question: Concerning BAS added back for EIC purposes, your material says
add back in-kind BAS for military who reside on base. What about those who
do not reside on base, but receive in-kind BAS while either, out to sea on
Navy ship, or in port but not living on base and are receiving BAS due to
special circumstance such as, can't leave secured area.
Answer: The value of meals and lodging provided by the employer for the
convenience of the employer is includable income for the purpose of EIC.
Question: U.S. citizen with no U.S. income, unaware of requirement to
U.S. return, has never filed. What is the legal minimum number of years
required to file?
Answer: Taxpayers who are non-filers are required to file for the
6 years. (1992 through 1997)
Question: When ITIN was initiated what substitute social security
(SSNs) are now being used in lieu of the XXX-XX-XXXX* which was formerly
used on transcripts when the actual SSN was unknown? What was the date the
XXX-XX-XXXX numbers were no longer used?
Answer: ITIN numbers are always constructed with the numbers 78,79,
in the middle. They are valid numbers and do not have an asterisk
indicator at the end. Ogden and other Service Centers are still issuing
temporary SSNs with the respective Service Center number in the middle
digits, (i.e. 29 for Ogden). Temporary SSNs are still identified with an
asterisk at the end.
Question: The FBM deduction (Boomer), when will we be given
how to compute accurate deductions for the Trident subs? There are 2 crews
(blue/gold). One crew is on ship, second crew off ship, their "tax home"
leaves them. How should this be handled?
Answer: Complex and technical assistance on this very specific issue is
available by contacting:
L'Enfant Plaza SW