Protecting Taxpayer Data in 2016

Because of improved protections in recent years, the Internal Revenue Service stops the vast majority of fraudulent tax returns using stolen identities. But identity thieves and criminal syndicates continue to persist and evolve.

The IRS and Identity Theft

As the threat has changed, so has the IRS. In a new era of cooperation, the IRS, the states and the entire tax industry came together to identify what additional steps could be taken to better fight identity theft and better protect the taxpayers.

Starting in January 2016, this renewed effort will make for a safer, more secure filing season for taxpayers.

 

Changes to Protect Tax Data

Many changes will be invisible, but they are critical to making sure the IRS can verify the taxpayer and the legitimacy of the tax return before it ever enters into the tax processing system. More than 20 shared data elements will help the software industry and the IRS stop fraudulent returns at the door.

For example, the IRS will receive information from software providers about the duration of time it took to create the return. This will help identify the computer-generated tax returns that are fraudulent and filed in bulk.

The IRS, states and tax industry will share details of any fraudulent schemes they see on a frequent basis so everyone will have the same information and adjust accordingly to provide increased protection to taxpayers.

 

Preventing Tax Fraud

The most publicly visible aspect of these partnership efforts will be for those taxpayers who prepare their own tax returns using tax software or online products. There will be new procedures that will help prevent fraudsters from taking over the accounts of taxpayers. These include:

  • New password standards to access tax software will require a minimum of 8 characters with upper case, lower case, alpha, numerical and special characters.
  • A new timed lockout feature and limited unsuccessful log-in attempts.
  • The addition of three security questions.
  • Out-of-band verification for email addresses, which is sending an email or text to the customer with a PIN – a common practice used throughout the financial sector.

 

State Tax Identity Theft

The IRS also has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

 

Taking Steps to Prevent ID Theft

It’s important that everyone take steps to protect their personal and financial data online and at home. Computer users should always use security software that includes firewall and anti-virus protections. Sensitive information such as tax records should be encrypted if stored on your computer or secured by lock and key if on paper.

Understanding IRS Guidance – A Brief Primer

For anyone not familiar with the inner workings of tax administration, the array of IRS guidance may seem, well, a little puzzling at first glance. To take a little of the mystery away, here’s a brief look at seven of the most common forms of guidance.

 

What is IRS Guidance?

In its role in administering the tax laws enacted by the Congress, the IRS must take the specifics of these laws and translate them into detailed regulations, rules and procedures. The Office of Chief Counsel fills this crucial role by producing several different kinds of documents and publications that provide guidance to taxpayers, firms and charitable groups.

What is an IRS Regulation?

A regulation is issued by the Internal Revenue Service and Treasury Department to provide guidance for new legislation or to address issues that arise with respect to existing Internal Revenue Code sections. Regulations interpret and give directions on complying with the law. Regulations are published in the Federal Register. Generally, regulations are first published in proposed form in a Notice of Proposed Rulemaking (NPRM). After public input is fully considered through written comments and even a public hearing, a final regulation or a temporary regulation is published as a Treasury Decision (TD), again, in the Federal Register.

 

What is an IRS Revenue Ruling?

A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, IRS personnel and tax professionals. For example, a revenue ruling may hold that taxpayers can deduct certain automobile expenses.

 

What is an IRS Revenue Procedure?

A revenue procedure is an official statement of a procedure that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code, related statutes, tax treaties and regulations and that should be a matter of public knowledge. It is also published in the Internal Revenue Bulletin. While a revenue ruling generally states an IRS position, a revenue procedure provides return filing or other instructions concerning an IRS position. For example, a revenue procedure might specify how those entitled to deduct certain automobile expenses should compute them by applying a certain mileage rate in lieu of calculating actual operating expenses.

 

What is an IRS Private Letter Ruling?

A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts. A PLR is issued to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed. A PLR is issued in response to a written request submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described. A PLR may not be relied on as precedent by other taxpayers or IRS personnel. PLRs are generally made public after all information has been removed that could identify the taxpayer to whom it was issued.

 

What is an IRS Technical Advice Memorandum?

A technical advice memorandum, or TAM, is guidance furnished by the Office of Chief Counsel upon the request of an IRS director or an area director, appeals, in response to technical or procedural questions that develop during a proceeding. A request for a TAM generally stems from an examination of a taxpayer’s return, a consideration of a taxpayer’s claim for a refund or credit, or any other matter involving a specific taxpayer under the jurisdiction of the territory manager or the area director, appeals. Technical Advice Memoranda are issued only on closed transactions and provide the interpretation of proper application of tax laws, tax treaties, regulations, revenue rulings or other precedents. The advice rendered represents a final determination of the position of the IRS, but only with respect to the specific issue in the specific case in which the advice is issued. Technical Advice Memoranda are generally made public after all information has been removed that could identify the taxpayer whose circumstances triggered a specific memorandum.

 

What is an IRS Notice?

A notice is a public pronouncement that may contain guidance that involves substantive interpretations of the Internal Revenue Code or other provisions of the law. For example, notices can be used to relate what regulations will say in situations where the regulations may not be published in the immediate future.

 

What is an IRS Announcement?

An announcement is a public pronouncement that has only immediate or short-term value. For example, announcements can be used to summarize the law or regulations without making any substantive interpretation; to state what regulations will say when they are certain to be published in the immediate future; or to notify taxpayers of the existence of an approaching deadline.

Mississippi Storm Victims; Tax Deadline Extended to May 16

Mississippi storm victims will have until May 16, 2016, to file their returns and pay any taxes due, the Internal Revenue Service announced today. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

 

Disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA)

Following this week’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS said that affected taxpayers in Benton, Coahoma, Marshall, Quitman and Tippah counties will receive this and other special tax relief. Other locations in Mississippi and other states may be added in coming days, based on damage assessments by FEMA.

Tax Relief in Disaster Areas

The tax relief postpones various tax filing and payment deadlines that occurred starting on Dec. 23, 2015. As a result, affected individuals and businesses will have until May 16, 2016, to file their returns and pay any taxes due. This includes 2015 income tax returns normally due on April 18. It also includes the Jan. 15 and April 18 deadlines for making quarterly estimated tax payments. A variety of business tax deadlines are also affected including the Feb. 1 and May 2 deadlines for quarterly payroll and excise tax returns and the special March 1 deadline for farmers and fishermen who choose to forgo making estimated tax payments.

 

Payroll Tax Extensions

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Dec. 23 and before Jan. 7 if the deposits are made by Jan. 7, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

 

Contact IRS with Questions on Mississippi Storms

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227 FREE.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred, or the return for the prior year. See Publication 547 for details. The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

IRS Interest Rates Remain the Same for the First Quarter of 2016

The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2016, as they were in the previous quarter.  The rates will be:

  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • three (3) percent for underpayments;
  • five (5) percent for large corporate underpayments; and
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

 

Corporate Tax Underpayments

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

What are 2016 IRS Interest Rates?

The interest rates announced today are computed from the federal short-term rate determined during Oct. 2015 to take effect Nov. 1, 2015, based on daily compounding.

Revenue Ruling 2015-23 announcing the rates of interest will be published in Internal Revenue Bulletin 2015-52, dated Dec. 28, 2015.

Correspondence Exam or Corr Exam IRS Audit

Correspondence Exam or Corr Exam is the most common type of IRS audit procedure. Corr Exam asks for verification of credits and deductions claimed on the tax return.  A major compliance program, Correspondence Examination asks for verifications of credits and deductions claimed on a tax return to determine if they are being reported correctly. The major areas covered by this program are Earned Income Tax Credit, non-filers, and Schedule A deductions.

 

Major Areas Covered Correspondence Exams

The major areas covered by Correspondence Exam are Earned Income Tax Credit (or EITC), non-filers, and Schedule A deductions. The Schedule A deductions include items such as charitable contributions and employee business expenses. Correspondence Examinations are conducted on Wage and Investment and Small Business/Self-Employed taxpayers out of 10 campuses. Although the cases initiated in each campus are site-specific, the cases can be accessed universally allowing any Corr Exam tax examiner to assist the taxpayers (or you) during telephone calls.

Correspondence Exam and Automated Underreporter

There are two major correspondence compliance programs that operate out of IRS campuses. The campuses were formerly called service centers, and they are Correspondence Exam and Automated Underreporter. These two programs look at the items that are reported on the return and resolve issues primarily through the mail and telephone. As I mentioned earlier, Corr Exam and AUR share some basic similarities, but there are also some differences as well, and we are going to cover those today.

 

How do IRS Correspondence Exam or Corr Exams work?

Correspondence Exam will attempt to stagger how they start the cases and the types of issues to be examined in order to balance compliance risk, level the incoming mail as well as the telephone traffic, and minimize burden on practitioners and taxpayers alike. For examinations where collectability and timing are a factor – for example, on the Earned Income Tax Credit cases – we will initiate examination before releasing the refund.

 

What are IRS Correspondence Exam Issues?

We generally will immediately release any money not related to the examination issue. Under a realignment that occurred in 2014, all Earned Income Tax Credit and other pre-refund audits are now worked in the Wage and Investment division within IRS. And the department that works these issues is Refund Integrity and Compliance Services, or the RICS organization.

 

The focus of the IRS Correspondence examination is on recordation.

The focus of the examination is on recordation. We are seeking to get the substantiation to support that line item. A Correspondence Examination essentially will ask for documents and/or records to support the entry on the tax return or the schedule in question. If the requisite documents or records are not provided, we will disallow that item. There are times we will partially allow an item where the substantiation has been provided.

 

What information is looked at during IRS Correspondence exams?

Examples of recordation include the following: receipts to support the deductions, such as the car and truck expenses on Schedule C; we could request cancelled checks to support the charitable contributions deduction that is shown on Schedule A; we also could request birth certificates and school records to support an exemption or an Earned Income Tax Credit change.

 

Most Common IRS Correspondence Exams

We try to focus on issues where a face-to-face interview or discussion with the taxpayer or the representative is not necessary. Now, we have heard that oftentimes a face-to-face is preferred. While at times these issues seem like it would be best to resolve in a face-to-face meeting, the majority of the Correspondence Exam issues can be and are resolved through correspondence very successfully. The most common issues include:

 

The Earned Income Tax Credit

The Earned Income Tax Credit. A Correspondence Examination is the best venue to quickly conclude an audit involving Earned Income Tax Credit. Basically, we will ask for documentation, such as a birth certificate or school records, to support the claim for the credit. As mentioned earlier, we will generally release any refund up to the amount that is under examination, and we will work quickly to resolve examinations where the refund is impacted.

 

Certain non-filing conditions

Certain non-filing conditions. As mentioned previously, we receive information from various third parties, such as employers and payers, which we then will correlate against a tax return. If we find that there has been no tax return filed after attempts to secure one through the Correspondence Exam process, we will prepare a return using that thirdparty information.

 

Schedule A Issues on Audit

We also will look at Schedule A issues. The Schedule A is a significant part of our inventory and is also an area with a high level of incorrect deductions. Two major issues we cover on the Schedule A are:  employee business expenses. Now, while we hear at times concerns about these types of examinations, the results show that this issue overall is conducive for a Correspondence Examination. We have a high percentage of examinations where the individual comes in agreeing that the amount reported on the original return was actually incorrect.  Another item that we look at on the Schedule A is charitable contributions. We continue to see misreporting with charitable contributions, so please ensure that accurate records and receipts of both cash and non-cash deductions are kept.

 

Tax Compliance and Correspondence Examinations

Correspondence Examinations are an important part of the Service’s compliance strategy for legislation enacted over the last several years. Compliance is a major concern when there is any kind of refundable credit that is involved. The campus operations are the best-poised compliance treatment for quickly resolving pre-refund examinations. Over the last few years, we have been very involved in examinations on the adoption tax credit as well as the first time home buyer’s credit.

 

IRS Correspondence Exam and Premium Tax Credit

This year, the premium tax credit is also an area of focus. Similar to the employee business expense examinations, we may also work entries that are generally supported with receipts regarding deductions shown on Schedule C, such as the car and truck expenses mentioned earlier. We also may work a broad number of other issues that are on the tax return and supporting schedules, such as self-employment tax or adjustments to income (such as alimony).

IRS Data Breach Information 2015

A leak of information is the intentional or unintentional insider theft or release. It may be improperly disposed personally identifiable information in the trash or as a result of a refined cyber criminals to attack by computer corporations. It may affect large or small companies.

The common link is the victim, the person whose identity, financial or personal information is at risk.

 

IRS Information Leak Resources

This is what you should know about information leaks:

Not all information leaks resulting in identity theft, and not every identity theft is related to taxes.

Identity theft related to tax occurs when someone uses your Social Security number to file a false tax return to claim a fraudulent refund. Your tax bill is at risk if the leak of information involves both your Social Security number and financial information such as salaries. Information leaks involving only credit card numbers, health records without Social Security number or driver’s license numbers, while certainly serious, will not affect your tax bill.

The Internal Revenue Service ( IRS , for its acronym in English), is committed to working with taxpayers to ensure that all tax accounts remain safe.

The IRS takes the vast majority of fraudulent tax returns. If fraud is suspected, the IRS will contact you by email with instructions. Or you can try your return filed electronically and is rejected as a duplicate.

If you are a victim of IRS information leakage, follow these steps:

  1. If possible, determine what kind of personally identifiable information ( PII ) has been stolen or lost. It is important to know what information has been lost or stolen so that you can take appropriate action. For example, a number of stolen credit card will not affect your tax bill the IRS .
  2. Stay informed of the steps carried out the company that lost their information. Some may offer special services, such as credit monitoring services to assist victims.
  3. Follow the steps recommended by the Federal Trade Commission ( FTA ), including:
    • Notify one of the three major credit bureaus to place a fraud alert on your file free credit.
    • Consider a freeze or lock your credit , which for a fee, in some states, will prevent access to their credit records.
    • Close all accounts that were opened without your permission.
    • Visit www.identity.theft.gov for additional guidance.
  4. If you have received correspondence from the IRS that you may be a victim of identity theft or your tax e-file was rejected as a duplicate,  take these additional steps with the IRS:
    • File Form 14039 (SP) Affidavit of Identity Theft to the IRS .
    • Continue to submit your tax return, even if he has to paper and attach Form 14039 (SP).
    • Watch for any follow-up correspondence from the IRS and answer it quickly.

     

Who must file IRS Form 14039 ?

This form should be used if your Social Security number is at risk and the IRS has told you that you may be a victim of identity theft or declaration was rejected as a duplicate. The electronic form is available at IRS .gov. Follow the instructions exactly. You can fax or mail your tax return if you submit prevented because someone has already filed a return using your Social Security number. Simply present once.

 

IRS Data Breach Information

The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

Understanding Your IRS 5071C Letter

IRS 5071C  letter tells you that the IRS needs more information to verify your identity in order to process your tax return accurately. Receiving a 5071C is not the end of the world and can usually be quickly resolved. The contact information below is only for taxpayers who received Letter 5071C. If you’ve received a 5071C letter, the IRS needs more information to verify your identity in order to process your tax return accurately. The IRS will continue processing your tax return once your identity is verified. Follow the identity verification steps below in order to provide the IRS with necessary information.

In 2012, the EFDS detected 7.8 million potentially fraudulent returns. When the system flags a tax return, the IRS does not process the return and freezes any refunds until the taxpayer verifies his or her identity. You can respond with the correct information for your 5071C letter and often get your tax refund processed very quickly.

 

Why is the IRS contacting you with a 5071C Letter?

The IRS received your federal income tax return; however, in order to process it, they need more information to verify your identity. The letter you received provides two options for responding. Both options enable you to verify your identity with us so we can continue processing your tax return.

This contact information is only for taxpayers who received Letter 5071C. The toll-free number and website are for identity verification only. No other tax-related information, including refund status, is available.

 

What is involved in this process?

The IRS will continue processing your tax return once they verify your identity. Follow the identity verification described under “What should you do?” below to provide us with the necessary information.

Use the IRS secure Identity Verification Service website idverify.irs.gov. It’s quick and secure. To complete the entries, you will need to have a copy of your prior year tax return and your most recently filed tax return.

 

How to Verify 5071C Letter?

If you cannot use the Idverify website, you can call us using the toll-free Identity Verification telephone number provided in your letter. Again, you will need to have a copy of your prior year tax return and your most recently filed tax return.

When a return is flagged, the IRS sends Letter 5071C or Letter 4883C to affected taxpayers to request additional information to continue processing the tax return. The taxpayer is instructed to:

  1. Obtain a copy of the past two years’ tax returns to provide specific information to the IRS.
  2. Call the Taxpayer Protection Line (TPL) at (800) 834-5084 or visit idverify.irs.gov.

Automated Underreporter program IRS AUR Cases

The Automated Underreporter program. AUR cases are created from two primary sources: the Individual Master File, or IMF, that contains the individual tax return information filed; and the Information Returns Master File, or IRMF, that contains the payer information filed. After all current-year returns are processed, they are computer-matched to the corresponding IRMF file.

 

IRS Information Matching and Audits

IRS matches information from 140 million 1040 returns to over two billion information returns each year. It is important to note that AUR is not a real-time process. When systemically identified mismatches are encountered, cases are selected into the AUR program as potential inventory for analysis. This begins within seven months of the filing due date. Not all mismatches result in a notice being generated.

How does the IRS Get Information for Tax Audit?

Tax examiners screen the data to verify whether the mismatch is located elsewhere on the return before creating a case. Tax years generally end on December 31, but the IRS does not receive information from employers, banks, businesses, and other payers until later. Once the IRS receives all the payer information, our computer system compares the information the payers provided.

 

Automated Underreporter Program Notices

This IRS is working hard to shorten the time it takes to contact the taxpayer. Generally, the earliest you’ll be contacted will be within 12 months from the date you filed the return. The IRS selects inventory throughout the year. The amount of time it takes to contact the taxpayer is a recurring concern received in customer satisfaction surveys related to AUR. The IRS understands the challenge and frustration this is for both you and your client. It is important to inform your clients that contact cannot be made any sooner due to the time necessary to ensure all information returns have been received and the matching process is complete.

 

IRS AUR Case Review

AUR cases are reviewed by IRS tax examiners before a notice is generated. If income reported by payers cannot be identified on the tax return, AUR will issue a Notice CP2501 or CP2000. When certain conditions are present, a CP2501 notice will be issued. This notice is a preliminary inquiry letter and does not propose a change to tax liability. It supplies payer information and explanation paragraphs concerning the income discrepancy.

 

What are AUR Notices?

I would like to take a moment to cover a few items regarding the AUR notices. It is important to read the notice and understand the issues that are being questioned. You can identify the notice type, the tax year in question, the taxpayer’s Social Security number, the AUR control number, and the AUR toll-free telephone number by reviewing the top right of the notice. Now, this area will also include the last day to file a petition with tax court if it is the Statutory Notice of Deficiency.

What is an AUR Control Number?

The AUR control number is used internally and cannot be used to research or look at that taxpayer account. The taxpayer’s SSN is what is needed. At this time – we understand because of identity theft and the issues surrounding that – we are working on implementing the use of barcodes in lieu of showing the full SSNs on these notices. But right now, due to some systemic and budgetary constraints, this is not going to be feasible until FY17. Each notice under the additional information section on page two contains a Web landing page link, and this link will direct you to notice-specific items, such as various FAQs, helpful hints, how to avoid the same mistakes next year, direct links to the publications that you may find helpful, as well as links and information on various payment options that could be available, and also how to order a transcript.

 

What do AUR Notices contain?

All AUR notices will contain Publication 1, Your Rights as a Taxpayer, as an enclosure, which addresses taxpayer rights and includes information on the examination process, the collection process, appeal, and taxpayer advocacy rights. Now, if you still have questions after reading the notice and reviewing this Web landing page, you may call the tollfree number that is shown on the notice.

 

Summary of IRS Letter Codes

CP 2000 – This notice shows proposed changes to your income tax return. This proposal is based on a comparison of the income, payments, credits, and deductions reported on your tax return with information on these items reported to us by employers, banks, businesses, and other payers. The CP 2000 also reflects any corrections we made to your original return when we processed it.

CP 2501 – This notice is a preliminary inquiry letter and does not propose a change to tax liability. It supplies payer information and explanation paragraphs concerning the income discrepancy.

Letter 525 – This is a follow-up letter which includes the examination report. The examination report is the Form 4549 and will show the proposed tax liability.

Statutory Notice of Deficiency (Letter 3219) – This is frequently called the “90 day” letter. The certified letter is sent when the taxpayer does not respond to a notice.

Most Common IRS Tax Audit Compliance Programs

The two major compliance programs that involve reporting compliance issues are programs that look at the items that are reported or should have been reported on the tax return. They are Correspondence Examination, also referred to as “Corr Exam” throughout this presentation, and Automated Underreporter, or AUR. These programs share some similarities, but there are also some differences. While most returns are accepted as filed, some are selected for examination, and the IRS will cover those briefly today.

 

 

What is a Corr Exam?

Corr Exam asks for verifications of credits and deductions claimed on a tax return to determine if they are being reported correctly. The major areas covered by Corr Exam are Earned Income Tax Credit, or EITC, nonfilers and Schedule A deductions. Schedule A deductions include items such as charitable contributions and employee business expenses, or EBE. Correspondence Examinations are conducted on Wage and Investment and Small Business/Self-Employed taxpayers out of 10 campus operations located around the country.

 

How are IRS Audits Selected?

Cases can be selected using various methods, including computerized screening and comparison of information received from third parties, such as Forms W-2 and 1099. Although the cases initiated in each campus are site-specific, they can be viewed universally, allowing any examiner to assist taxpayers during telephone calls. The IRS will attempt to stagger how they start cases and the type of issues to be examined in order to balance compliance risk, level incoming mail and telephone traffic and minimize burden on practitioners and taxpayers.

 

Correspondence Corr Exams

Corr Examinations fall under two major categories: pre-refund and post-refund. For examinations where collectability and timing are a factor – for example, returns claiming the EITC – the IRS initiates the examination before releasing the current-year refund. The IRS generally immediately refund any money not related to the examination, and the IRS treats these as a priority to minimize impact to the taxpayer. Post-refund examinations address other issues and are initiated after the IRS analyzes filing trends and return entries.

 

Automated Underreporter, or AUR Exams

All casework in the AUR program is conducted post-refund. The AUR program initiates inquiries about discrepancies identified between information reported on tax returns and information reported to us from third parties. This includes employers, financial institutions, and banks, as examples. The forms the IRS looks at could include the W-2 and a variety of Forms 1099. Issues the IRS match vary and could include interest, dividends, rent and medical payments. AUR inquiries are conducted on Wage and Investment and Small Business/Self-Employed taxpayers out of seven campus operations located around the country. And as with Corr Exam, although the cases initiated in each campus are site-specific, the AUR system allows for universal access, which allows the AUR cases to be viewed and worked at any AUR campus. In addition, telephone assisters can view the two primary AUR notices. They are the CP2501 and CP2000. And as mentioned earlier, if practitioners have urgent issues, they can also call the Practitioner Priority Services line.

 

Information About IRS Exam Process

While there are some fundamental differences between these two campus programs, the realizes they seem very similar from the taxpayer’s perspective. Each program starts with a notice asking about a tax return. Some of these letters propose a liability or a balance due. If the taxpayer does not respond, a certified letter, the Statutory Notice of Deficiency, or 90-day letter, will be sent.

 

Extending Response Time for IRS Exam

While we cannot extend the period of time to file a petition with the Tax Court, it is important to note that in both programs, we encourage you to work with us prior to and during the 90-day statutory period. If at any time prior to the Statutory Notice of Deficiency being issued you need an extension of time to respond, please call and let us know. We typically grant an extension of time in both programs. If there is no response received to the statutory notice, the IRS will assess the proposed liability by default. Collection activity will begin if there is a balance due.

 

IRS Installment Payment Options for Nonfilers

It is very important to rectify tax problems immediately if you are a non-filer or missed filing a tax return for a year.  Many nonfilers missed a year for one reason or another, and now are afraid to re-enter the tax system. But in fact, taxpayers who file overdue returns on their own are often treated reasonably well, much better than those who are caught. It is almost always in the taxpayers best interest to work with the IRS on a payment plan or an offer in compromise. Doing this as soon as possible is almost always the best option.

 

Installment Payment Options with IRS

For taxpayers who can’t pay their entire tax bill at once, there’s an installment payment option This is a flexible way to pay taxes that are owed and spread the payments out over a longer period. Although the taxpayer will pay interest and penalties on the amount owed, they will not have to secure outside financing to pay the taxes owed with an installment plan. The IRS will also consider an offer-in-compromise on any of the following grounds:

  1. where a taxpayer is unable to pay the tax,
  2. where there is doubt as to the taxpayer’s liability for the tax,
  3. where collection of the full amount would cause economic hardship for the taxpayer, or
  4. where compelling public policy or equity considerations exist that provide a sufficient basis for compromise.

 

Rejection of Offer to Compromise

An offer to compromise hasn’t been rejected until IRS issues a written notice to the taxpayer or his representative, advising of the rejection, the reason(s) for the rejection, and the taxpayer’s right to an appeal of the rejection. The IRS cannot notify a taxpayer or taxpayer’s representative of the rejection of an offer to compromise until an independent administrative review of the proposed rejection is completed. This could take some time and a taxpayer will not here from the IRS for several weeks in common circumstances.

 

Appealing Rejection of Offer to Compromise

After the decision is made, the taxpayer may administratively appeal a rejection of an offer to compromise to the IRS Office of Appeals if, within the 30-day period commencing the day after the date on the letter of rejection, the taxpayer requests such an administrative review in the manner provided by IRS.

 

Streamlined offer-in-compromise program

A streamlined offer-in-compromise program is available for certain taxpayers with annual incomes up to $100,000. In addition, participants must have tax liability of less than $50,000. This is an easier to do offer-in-compromise program that will make sense for many people with smaller tax debts. The IRS has an independent procedure to review its own proposed rejection of requests for an installment agreement. This internal IRS review must occur before IRS notifies the taxpayer of actual rejection of the installment agreement request. IRS also has a procedure to allow taxpayers to appeal-to the IRS Office of Appeals-IRS’s rejection of any request for an installment agreement.

 

Streamlined offer-in-compromise program penalties

A $5,000 penalty applies to any person who submits an application for a compromise or an installment agreement if any portion of the submission is either based on a position which IRS has identified as frivolous, or reflects a desire to delay or impede the administration of federal tax laws. However, this penalty is clearly aimed at those who abuse the process and should not deter taxpayers with legitimate applications from using the compromise or installment agreement processes. Most taxpayers will not have to worry about facing this penalty if the submit an application to the streamlined offer-in-compromise program in good faith.

 

What is the IRS Audit Period?

Once a return is filed, IRS has three years in which to audit it. After that, the return is final. If no return is filed, there’s no statute of limitations. IRS can come after the taxpayer at any time, even many years later. This is the biggest reason why it is always better to file a tax return.

Some nonfilers are actually entitled to refunds. A return claiming a refund can be filed at any time, but only the tax paid within the three years before the return was filed can be recovered. Tax withheld during a calendar year is considered paid on Apr. 15 of the next year. Estimated tax is considered paid on the return due date, which is generally also Apr. 15. Thus, a return filed more than three years late will likely be fruitless as a refund claim.