Anything in GREEN written on the pages in this website are notes diretly from the editor or "Coach" and may be located with the search engine by searching for the term "Coach Note".

8/10/09

Washington - IR-2009-071 - The Internal Revenue Service reminds consumers to avoid identity theft scams that use the IRS name, logo or website in an attempt to convince taxpayers that the scam is a genuine communication for the IRS. Scammers may use other federal agency names, such as the U.S. Department of the Treasury.

In an identity theft scam, a fraudster, often posing as a trusted government, financial or business institution or official, tries to trick a victim into revealing personal and financial information, such as credit card numbers and passwords, bank account numbers and passwords, Social Security numbers and more. Generally, identity thieves use someone's personal data to steal his or her financial accounts, run up charges on the victim's existing credit cards, apply for new loans, credit cards, services or benefits in the victim's name and even file fraudulent tax returns.

The scams may take place through e-mail, fax or phone. When they take place via e-mail, they are called "phishing" scams.

The IRS does not discuss tax account matters with taxpayers by e-mail.

The IRS urges consumers to avoid falling for the following recent schemes:

Making Work Pay Refund

This phishing e-mail, which claims to come from the IRS, references the president and the Making Work Pay provision of the 2009 Economic Recovery Law. It says that there is a refundable credit available to workers, consumers and retirees that can be paid into the recipient's bank account if the recipient registers their account information with the IRS. The e-mail contains links to register the account and to claim the tax refund.

In reality, most taxpayers receive their Making Work pay tax credit, which was designed for wage earners, in their paychecks as a result of decreased tax withholding, not a lump sum distribution from a federal fund. Additionally, consumers and retirees who are not wage earners are not eligible for this tax credit.

Inherited Funds/Lottery Winnings/Cash Consignment

In this phishing scheme, recipients receive an e-mail claiming to come from the U S Department of the Treasury notifying them that they will receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it by pay 10% in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department will get the taxes or fees.

Form W-8BEN

In this scam, fraudsters modify a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to request detailed personal and financial information. This could include nationality, passport number, bank account and PIN numbers spouse's name and mother's maiden name, or other personal or financial information or security measures for financial accounts. The scammers may use the genuine form number and name or may make up a new for number, such as W-4100B2.

They either e-mail or fax the form or letter. If only a letter, the letter itself contains the request for the personal and financial information. The letter, which claims to come from the IRS, states that the recipient will face additional taxes unless he or she quickly faxes the required information to the number provided by the scammer.

In reality, taxpayers file the genuine Form W-8BEN with their financial institutions, not with the IRS. Additionally, the genuine W-8BEN does not request the taxpayer's passport number, bank account number, security or similar information.

Refund Scam

The bogus e-mail, which claims to come from the IRS, tells the recipient that he or she is eligible to receive a tax refund for a given amount. It instructs the recipient to click on a link contained in the e-mail to access and complete a form for the tax refund. The form requires the entry of personal and financial information. The refund scam is the most common one seen by the IRS. Several recent variations on this scam have claimed to come from the Exempt Organizations area of the IRS. Some others have included the name and purported signature of a genuine or a made-up IRS executive.

Taxpayers do not have to complete a special form to obtain a refund. Taxpayer refunds are based on the tax return they submit to the IRS.

How to Spot a Scam

Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

• Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information such as mother's maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.


• Dangles bait to get the recipient to respond to the e-mail such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.


• Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient's funds.


• Gets the Internal Revenue Service or other federal agency names wrong.


• Uses incorrect grammar or odd phrasing (many of the mail scams originate overseas and are written by non-native English speakers).


• * Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS website address (www.irs.gov). To see the actual link address, or url, move the mouse over the link included in the test of the e-mail.

What to Do

The IRS does not initiate taxpayer contact via unsolicited e-mail or ask for personal identifying or financial information via e-mail. If you receive a suspicious e-mail claiming to come from the IRS, take the following steps:

1. Do not open any attachments to the e-mail, in case they contain malicious code that will infect your computer,


2. Do not click on any links, for the same reason. Also, be aware that the links often connect to a phone IRS website that appears authentic and then prompts the victim for personal identifiers, bank or credit card account numbers or PINs. The phony websites appear legitimate because the appearance and much of the content are directly copied from an actual page on the IRS website and then modified by the scammers for their own purposes.


3. Contact the IRS at 1-800-829-1040 to determine whether the IRS it trying to contact you.


4. 4. Forward the suspicious e-mail or url address to the IRS mailbox phishing@irs.gov , then delete the email from your inbox.

Genuine ITS Website

The only genuine IRS website is irs.gov. All irs.gov web page addresses begin with http://www.irs.gov/. Anyone wishing to access the IRS website should initiate contact by typing the irs.gov address into their internet address window, rather than clicking on a link in an e-mail.

8/3/09

Washington - IR-2009-070 - The Internal Revenue Service is encouraging business taxpayers, associations and other interested parties to submit to the Industry Issue Resolution (IIR) Program tax issues for resolution that involve a controversy, dispute or an unnecessary burden on business taxpayers.

The objective of the IIR program is to resolve through issuance of new and improved guidance business tax issues common to significant numbers of taxpayers. In the past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that has affected thousands of taxpayers.

Submissions received are reviewed semi-annually with selections next being made from issues submitted by August 31, 2009.

The IIR program recently accepted for review the topic of technical terminations of publicly traded partnerships.

Guidance issued as a result of the IIR program includes:

• Auto Last In First Out (LIFO) for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO Inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars. (Revenue Procedure 2008-23)


• Valuation of Parts Inventory by Heavy Equipment Distributors. (Revenue Procedure 2006-14).


• Clarification regarding circumstances when facsimile signatures may be used to sign employment tax forms. (Revenue Procedure 2005-39).


• An explanation of the circumstances under which insurance companies that make incentive payments to health care providers will be permitted to include those payments in unpaid losses and how a taxpayer may obtain permission to change their accounting method for such payments. ( Revenue Procedure 2004-41).

For each issue selected, an IIR team, consisting of IRS and Treasury personnel, gathers relevant facts from taxpayers or other interested parties affected by the issue. Their goal is to recommend guidance to resolve the issue. This benefits both taxpayers and the IRS by saving time and expense that would otherwise be expended on resolving the issue through examinations.

IIR project selections are based on the criteria set forth in Revenue Procedure 2003-36. For each issue selected, a multi-functional team of IRS, Chief Counsel, and Treasure personnel will be assembled. The teams will gather and analyze the relevant facts from industry groups and taxpayers for each issue and recommend guidance.

Requests for guidance on tax issues under the IIR program can be submitted at any time at IIR@irs.gov.

7/29/09

Washington - IR-2009-069 - The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client's federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, The IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to identify quickly returns that may contain fraudulent claims for the first-time homebuyer credit.

"We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction." said Eileen Mayer, Chief, IRS Criminal Investigation. "The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund."

Whether a taxpayers prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. (Coach note: That is three years prior to the signing of the closing papers.) If the taxpayer is married, this requirement also applies to the taxpayer's spouse. The home purchase must close before December 1, 2009 in order to qualify, and the credit may not be claimed on the purchaser's tax return until after the taxpayer closes and has purchased the home.

Different rules apply to homes bought in 2008.

7/24/09

Washington - IR-2009-068 - The Internal Revenue Service is inviting the public to contribute ideas as part of an effort to ensure high performance standards, for all tax preparers.

Last month, IRS Commissioner Doug Shulman announced plans to develop by year-end a comprehensive set of proposals to ensure consistent standards for tax preparer qualifications, ethics and service. Subsequently, the IRS announced a series of public forums, beginning in Washington D.C., on July 30, to gather input from various stakeholder groups and organizations.

Two panel discussions involving representatives of consumer groups and tax professional organizations will take place at the Ronald Regan Building amphitheater in Washington starting at 9 am on July 31. Anyone interested in attending should confirm attendance by sending an e-mail message to: CL.NPL.Communications@irs.gov.

Notice 2009-60 issued today is an additional call for public comments and helps guarantee that all interested individuals and entities have the opportunity to contribute ideas.

"We are casting the widest net possible by seeking comment from not only tax preparers and the industry but also from the general public." Shulman said. "All ideas are welcome at the table."

More than 80% of taxpayers use either a paid-preparer or third-party software to prepare their annual tax returns. Professionals who represent clients before the IRS, including attorneys, accountants and enrolled agents are already subject to IRS oversight. But under current law, a much larger group of return preparers are not.

Written comments must be received by August 31, 2009. They should be submitted to CCPA;LPD;PR (Notice 2009-60) Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044. Comments may also be e-mailed to:Notice.Comments@irscoundel.treas.gov.

7/20/09

Washington - IR-2009-67 - With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recover and Reinvestment Act (ARRA).

The recover law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.

First-Time Homebuyer Credit. The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009. Taxpayers who didn't own a principal residence during the past three years and purchase a home this year before December 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before December 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.

New Vehicle Purchase Incentive. ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after February 16, 2009 and before January 1, 2010. Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on schedule A or not.

Energy-Efficient Home improvements. The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for non-business energy property is increased for homeowners who make a qualified energy-efficient improvements to existing homes. The law increases the rate to 30% of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation,. Energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

Tax Credit for First Four Years of College. The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Certain Computer Technology Purchases Allowed for 529 Plans. ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Making Work Pay and Withholding. The making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79% of all returns received a refund.

6/30/09

Washington - IR-2009-63 - National Taxpayer Advocate Nina E. Olson today delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year. Among the key areas of focus will be working with the IRS to improve taxpayers services, enhancing IRS oversight of federal tax return preparers, improving the accessibility of the offer in compromise program, and working with the IRS to improve its ability to administer refundable tax credits effectively.

The report notes that FY2010 will mark the ten-year anniversary of the Taxpayer Advocate Service, which began operations in March of 2000. "As TAS enters its tenth year, both TAS and the IRS face a difficult environment for achieving what is, in essence, the same mission-ensuring that the IRS treats taxpayers fairly and identifying ways to increase voluntary compliance while addressing noncompliance, " Olson said, She identified the collection of tax revenue at a time when "increasing numbers of taxpayers have difficulty paying their daily living expenses" as a principal challenge.

The Advocate's report, which is required by law, sets out the objectives of the Office of the Taxpayer for the upcoming fiscal year and provides substantive analysis of issues and statistical information. Among the areas the report identifies for particular emphasis in FY 2010 are the following:

1. Taxpayer Services. The report notes that the IRS created a five-year strategic plan for taxpayer service (known as the Taxpayer Assistance Blueprint, or "TAB") in response to a directive from the House and Senate Appropriations Committees in FY 2006. The directive was originally motivated by concern that IRS taxpayer services were often ad hoc and not sufficiently coordinated or research-driven. The Advocate's report expresses concern that the momentum to implement and refine the TAB recommendations has abated. It recommends that the IRS reinvigorate its efforts to pursue cross-functional, research-driven service improvements.

   The report also expresses concern about the impact on taxpayers of the IRS's sharp decline in telephone service. The "Level of Service" on IRS toll-free assistor lines (which reflects the percentage of taxpayers who speak with a telephone assister among all callers seeking to do so), peaked at 87% in FY 2004 and remained at a relatively high level of 82% as recently as FY 2007. But it plummeted to 53% in FY 2008, and the IRS has now reduced its target goal for FY 2010 to 71.2%. While the IRS fairly attributes much of the decline in service last year to a sharp increase in calls about Economic Stimulus payments, Olson said, "that is small comfort to taxpayers who need assistance and it does not bode well for taxpayer compliance." TAS will continue to examine taxpayer service issues in the coming year.

2. Oversight of Tax Return Preparers. Tax return preparers complete about 62% of all individual income tax returns and therefore play a critical role in facilitating tax compliance. However, "shopping visits" conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others suggest that a high percentage of preparers prepare inaccurate returns, fail to perform sufficient due diligence, and even take positions that they know are not supportable. This conduct usually results in understatements of tax (reducing federal tax revenue and potentially subjecting taxpayers to enforcement actions) and sometimes results in overstatements of tax (causing taxpayers to pay more than they owe).

   The Advocate reiterates her longstanding recommendation that the government do more to protect taxpayers by regulating unenrolled federal tax return preparers, including by requiring initial testing and continuing professional education, and recommends that the IRS step up enforcement actions against preparers who fail to perform due diligence or consciously facilitate noncompliance. She further recommends that the IRS require preparers to use a unique Preparer Tax identification number (PTIN) on all returns. The use of PTINs would provide data concerning the number of return preparers, shield the Social Security numbers of return preparers from identity theft, and make it easier for the IRS to identify return preparers who submit unreasonably high numbers of inaccurate returns. TAS looks forward to working with the IRS on an initiative it announced earlier this month to develop a revised return preparer strategy by year-end.

3. Offers in Compromise. For the past none year, the Advocate has expressed concern about the effectiveness of the IRS's offer in compromise (OIC) program, a program designed to enable financially struggling taxpayers to pay what they can afford and make a ;fresh start. The Advocate believes the IRS requires taxpayers to provide too much information with the initial application, thereby deterring taxpayers who legitimately qualify for the program from applying for it. IRS data show that the number of accepted offers has declined by 72% over the past seven years, from 38,643 in FY 2001 to 10,677 in FY 2008.

   In response to these concerns, the IRS recently announced the formation of an OIC Project Team, which includes TAS representation. As part of this project, the IRS has retained two contractors to take a closer look at the characteristics of applicants who submit acceptable offers and to increase the number of qualifying applicants within the existing process. During the coming year, TAS will continue to devote priority attention to improving the accessibility of the offer program for appropriate taxpayers.

4. Refundable Tax Credits. The American Recovery and Reinvestment Act of 2009 temporarily increased the refundable portions of the Earned Income Tax Credit (EITC) and the child tax credit and authorized several new refundable credits, including the "Making Work Pay" credit, the "American Opportunity" education tax credit (40% is refundable), the first-time home buyer credit (up to $8,000), and a credit for certain federal and state pensioners. While the decision to expand refundable credits is entirely reasonable from a policy standpoint, refundable credits present significant administrative challenges for the IRS.

   For example, the report notes that refundable credits may present an increased risk of fraud and that the IRS therefore will need to balance fraud prevention with the timely delivery of refunds. "Refundable credits require the IRS to perform a delicate balancing act," Olson said. "On the one hand, if the IRS does not do enough to detect and prevent fraud, it may pay out billions of dollars as a result of false and fraudulent claims. On the other hand, if the IRS clamps down too tightly, hundreds of thousands and potentially millions of predominantly low income taxpayers will not receive timely refunds."

   During FY 2010, TAS intends to study this and other issues the IRS will have to address in order to administer refundable tax credits effectively and without undermining its ability to perform its core tax-collection function.

The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committee without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, of the Office of management and Budget. The first report is submitted mid-year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the 10 tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.

6/24/09

Washington - IR-2009-062 - The Electronic Tax Administration Advisory Committee (ETAAC) presented its 2009 Annual Report to Congress. The ETAAC provides feedback on the development and implementation of the Internal Revenue Service's electronic tax administration strategy.

The report includes 10 recommendations to advance the use of electronic filing. For example, the report recommends the IRS require all tax preparers who file at least 200 returns a year to use e-file. The report also calls for continued modernization of IRS systems as well as collaboration between the IRS and industry regarding software standards.

"ETAAC plays a significant role in IRS efforts to improve the taxpayer's experience via e-file and the internet." said David Williams, director of Electronic Tax Administration. "ETAAC feedback helps the IRS shift more returns from paper to e-file, which is a top priority."

The 14-member panel provides an organized public forum for discussion of electronic tax administration issues and the overriding goal that paperless filing should be the preferred and most-convenient method of filing tax and information returns.

"The IRS is making great progress on its strategic planning efforts toward reaching not only the 80% e-file goal established by Congress but also toward providing the next generation of electronic services for taxpayers, tax preparers and other stakeholders, " said Chris Beach, ETAAC Chairman. "ETAAC looks forward to working with the IRS on helping to advance these important electronic tax administration opportunities."

ETAAC submits an annual progress report to Congress each June. The IRS Electronic Tax Administration created the ETAAC in 1998 as required by the IRS Restructuring and Reform Act of 1998. The report is the result of research and analysis as well as meetings with senior administration opportunities."

Public comments on the report will be solicited via the Federal Register in the fall. The full report is available at IRS.gov.

6/22/09

Washington - IR-2009-061 - With the 2009 hurricane season now underway, the Internal Revenue Service encourages individuals and businesses to safeguard themselves by taking a few simple steps.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records I a safe place. The backup should be stored away from the original set.

Keeping a backup set of records - including, for example, bank statements, tax returns, insurance policies home, etc. - is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area. Coach Note: A bank vault is also an excellent place to keep these ant the price of the locked box is tax deductible.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Back copies of tax returns and all attachments, including Forms W-2 can be requested by filing Form 4506, Request for Copy of Tax Return, Likewise, transcripts can be ordered using Form 4506-T, Request for Transcript of Tax Return. Returns or transcripts can also be ordered by calling 1-800-829-1040.

There is no fee for a transcript or tax return copy for a taxpayer located in a federal disaster area qualifying for individual assistance. Taxpayers should put the assigned Disaster Designation in red ink at the top of the request form.

6/10/09

Washington - IR-2009-060 - The Internal Revenue Service and Treasury Department today announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

The IRS and Treasury have determined that purchases made in states without a sales tax - such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon - can also qualify for the deduction.

The IRS said today that taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or tax that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

His special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax," said IRS Commissioner Doug Shulman. "This means that more people can take advantage of this deduction when they file their tax returns next year."

To qualify for this deduction, the vehicle, the vehicle must be purchased after February 16, 2009, and before January 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The IRS reminded taxpayers the deduction may not be taken on 2008 returns.

6/5/09

Washington - IR-2009-058 - Internal Revenue Service officials announced today that they would allow taxpayers to rely on the definition of a United States person as set forth in the prior instructions to the FBAR form (Foreign Bank and Financial Accounts) when determining their filing requirement.

This announcement affects those preparing for the coming June 30, 2009 deadline.

The IRS took this action to reduce burden after concerns and questions were raised regarding the new instructions issued last year on who must file the revised Form TD F 90-22.1(Report of Foreign Bank and Financial Accounts, of FBAR).

For this year, taxpayers and others can rely on the definition of a United States person included in the prior instruction: "United States Person. The term "United States person " means (1) a citizen or resident of the United states, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust."

All other requirements of the current version of the FBAR form and instructions (revised in October 2008) are still in effect. The current version of the form must be used when filing an FBAR. This substitution affecting who must file the FBAR applies only to FBARs due on June 30, 2009. The IRS will be following up with additional guidance on the requirement to file for future years.

6/4/09

Washington - IR-2009-057 - IRS Commissioner Doug Shulman announced today that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.

Some of the potential recommendations could focus on a new model for the regulation of tax return preparers; service and outreach for return preparers; education and training of return preparers; and enforcement related to return preparer misconduct. The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.

"Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified," Shulman said. "At the end of the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system."

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities - such as enrolled agents, lawyers and accountants - as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

"We plan to have a transparent and open dialogue about the issues," Shulman said. "At this early and critical stage of the process, we need to hear from the broadest possible range of stakeholders."

Later this year, the IRS plans to hold a number of open meetings in Washington and around the country with constituent groups.

More information, including schedules and agendas for public meetings, will be posted on the "Tax Professional" page on IRS.gov.

5/28/09

Washington - IR-2009-55 - Businesses planning to claim the newly-expanded Work Opportunity Tax Credit (WOTC) for eligible unemployed veterans and unskilled younger workers hired during the first part of 2009 have until August 17 to request the certification required for these workers, according to the Internal Revenue Service.

Newly-revised Form 8850, now available on IRS.gov, is used by employers to request certification from their state workforce agency. The American Recovery and Reinvestment Act, enacted in February, added unemployed veterans returning to civilian life and "disconnected youth" to the list of groups covered by the credit. Though eligible unemployed veterans and disconnected youth who begin work anytime during 2009 or 2010 may qualify a business for the credit, certification by the state workforce agency is required.

In general, an unemployed veteran is a person discharged or released from the military during the five years preceding the hiring date who received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A "disconnected youth" is a person age 16 to 24 on the hiring date who has not been regularly employed or attending school and who meets other requirements.

The WOTC offers tax savings to businesses that hire workers belonging to any of 12 targeted groups, including unemployed veterans and disconnected youth. The other 10 include people ages 18 to 39 living in designated communities in 43 states and the district of Columbia, Hurricane Katrina employees, recipients of various types of public assistance, and certain veterans, summer youth workers and ex-felons. The instructions for Form 8850 detail the requirements for each of these groups.

The certification requirement applies to all groups of workers except employees who were Hurricane Katrina victims. Normally, a business must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. But under a special rule, businesses have until August 17, 2009, to file this form for unemployed veterans and disconnected youth who begin work on or after January 1, 2009 and before July 17, 2009.

5/14/09

Washington - IR-2009-050 - As part of a wider outreach effort to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act, the Internal Revenue Service today released new withholding adjustment procedures for pension plans.

In, February, the IRS issued revised withholding tables incorporating the Making Work Pay Tax Credit, one of the key provisions of the American Recovery and Reinvestment Act. That change resulted in more take home pay for more than 120 million American households and provided an immediate economic stimulus. The new procedure for pensions will make withholding more accurate for pension recipients. Coach note: however, please notice that they did not reduce the tax burden on the pension so more may be required at filing time.

While the newly announced procedures apply only to pension payments, the IRS is gearing up for a wider outreach campaign to educate pensioners and other taxpayers about the withholding tables and Recovery payments. The IRS will work with partner groups to provide taxpayers information to make sure they have the appropriate withholding for their situation. The IRS will also work on developing a variety of information products, including brochures, video and audio material to help educate taxpayers.

The change announced today will help some pensioners avoid a smaller refund next spring or even a balance due in limited situations. A wide variety of factors, such as outside jobs and other earned income, can affect how much, if any, withholding is needed by people receiving a pension to satisfy their annual tax liability. The optional adjustment procedure which may be used by those paying pensions is available in Notice 10.36-P, Additional Withholding for Pensions for 2009.

Pension payors are not required to use this new procedure and may continue to use only the February 2009 withholding tables. For plans that adopt the new procedure, withholding on pension payments will be automatically adjusted with no action needed by pensioners. The IRS is also encouraging pension payors who choose to implement the new withholding adjustment procedures to contact retirees who previously submitted a Form W-4P, Withholding Certificate for Pension or Annuity Payments, requesting additional withholding after the February withholding tables were issued.

Those who should pay particular attention to their withholding include married couples with two incomes, individuals with multiple jobs, dependents, some Social Security recipients who work and workers who do not have valid Social Security Numbers. Depending on their personal situation, some people could have less withheld from their paychecks than they need or want. People who believe their current withholding is not appropriate for their personal situation can perform a quick check by using the IRS withholding calculator on IRS.gov. Any necessary adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate, with their employer.

4/13/09

Washington - IR-2009-041 - The Internal Revenue Service today issued its 2009 "dirty dozen" list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds.

"Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times, "IRS Commissioner Doug Shulman said. "There is no secret trick that can eliminate a person's tax obligations. People should be wary of anyone peddling any of these scams."

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

Phishing

Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim's identity, access bank accounts, run up credit card charges or apply for loans in the victim's name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to phishing@irs.gov. Further instructions are available at IRS.gov. To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at IRS.gov. Coach note: If you forward an e-mail to the IRS, they will act on it but due to the volume of e-mails forwarded, they cannot send you a response.

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily com forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-OID (Original Issue Discount), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a "strawman" bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their "strawman" account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to shield improperly income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others which are pending in court.

Frivolous Arguments

Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000.00 penalty.

False Claims for Refund and Requests for Abatement

This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer used Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business of financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 is used as a way to reduce taxable income to zero improperly. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000.00 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS website at IRS.gov. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

4/7/09

Washington - IR-2009-037 - Credit or debit card convenience fees charged for paying federal individual income taxes electronically are deductible for some taxpayers who itemize, the Internal Revenue Service announced today.

Federal law bars the IRS from paying any fees associated with these credit or debit transactions. Card processors normally charge taxpayers for convenience fees when they use their credit or debit card to pay taxes. Fess vary but average about 2.5% of the tax payment.

In reassessing a previous position, the IRS decided that the convenience fees associated with the payment of federal tax, including payment of estimated tax, can be included as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceeded 2% of the taxpayer's adjusted gross income can be deducted.

Not everyone who pays the fees will be able to deduct them. Taxpayers first must be eligible to file a Form 1040 Schedule A to itemize their expenses. And, taxpayers must have enough miscellaneous expenses to exceed the 2% threshold. These expenses include items such as tax preparation costs, job search expenses and nonreimbursed employee expenses.

4/7/09

Washington - IR-2009-035 - An enrolled agent was suspended from practice before the Internal Revenue Service by the Office of Professional Responsibility on April 6 for not performing services related to offers in compromise (OIC) paid for by taxpayers.

Enrolled Agent Richard Hargus worked in California for two separate, now defunct companies that specialized in tax resolution services, which included submitting OICs to the IRS.

Multiple taxpayers paid the companies for Hargus to resolve their income tax liabilities through the OIC program. In many instances, the taxpayers either did not receive the services for which they paid or received very little assistance with resolving their tax issues.

An offer in compromise is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Absent special circumstances, if a taxpayer has the ability to pay fully the tax liability in a lump sum or through installment agreement payments, an offer in compromise generally will not be accepted.

Tax practitioners are subject to the regulations issued under Treasury Department Circular 230. Specifically Circular 230 provides that a practitioner must exercise due diligence in preparing or assisting in the preparation of , approving, and filing of tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters.

Following an investigation by the IRS, Hargus admitted a lack of due diligence in these taxpayers' situations. The IRS suspended Hargus from practice for a period of time lasting at least 18 months.

The IRS is taking a closer look at tax resolution companies, and is also litigating known OIC abuses to ensure that tax professionals fulfill their legal and ethical obligations to their clients in dealing with IRS tax matter.

4/2/09

Washington - IR-2009-033 - The Internal Revenue Service issued guidance today on the new Build America Bond program. This program allows state and local governments to issue taxable bonds for capital projects and to receive anew direct federal subsidy payment from the Treasury Department for a portion of their borrowing costs.

The American Recovery and Reinvestment Act of 2009 creates the new Build America Bond program, which authorizes state and local governments to issue Build America Bonds as taxable bonds in 2009 and 2010 to finance any capital expenditures for which they otherwise could issue tax-exempt government bonds. State and local governments receive a direct federal subside payment for a portion of their borrowing costs on Build America Bonds equal to 35% of the total coupon interest paid to investors.

This new program is intended to assist state and local governments in financing capital projects at lower borrowing costs and to stimulate the economy and create jobs. "These innovative bonds give state and local governments an important new tool to help finance public capital projects that will benefit communities in challenging times," said IRS Commissioner Doug Shulman.

The IRS issued Notice 2009-26, which provides guidance on Build America Bonds to enable state and local governments to begin using this program. This notice includes guidance on eligible types of projects and financings, initial implementation of the direct federal subsidy payment procedures, elections to use this program, and information reporting for this program. Certain guidance in this notice also applies to another type of Build America Bond in which a federal subsidy is delivered in the form of tax credits to investors instead of direct federal subsidy payments to state and local governments.

In addition, the IRS released a new form to claim the federal subsidy payment. Issuers can expect to receive requested payments within 45 days after the IRS receives new FORM 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds.

Build America Bonds can be issued in 2009 and 2010. There is no volume limitation on the amount of eligible Build America Bonds that can be issued during this period.

Notice 2009-26 also solicits public comment on all aspects of the direct payment procedures for Build America Bonds. The notice will appear in Internal Revenue Bulletin 2009-16 dated April 20, 2009.

3/30/09

Washington - IR-2009-030 - The Internal Revenue service announced today that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

"For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year," said IRS Commissioner Doug Shulman. "This deduction enables taxpayers to buy now and get cash back later on their tax returns."

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after February 16, 2009 and before January 1, 2010 to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deduction on their return. The IRS reminded taxpayers the deduction may not be taken on the 2008 tax returns.

3/26/09

Washington - IR-2009-029 - All or part of unemployment benefits received in 2009 will be tax free for many unemployed workers, according to the Internal Revenue Service.

"This morning we learned that a record 5.6 million people were receiving unemployment benefits in the middle of March. This underscores the need for the relief provided by the American Recovery and Reinvestment Act (ARR) which includes making the first $2,400 of unemployment insurance exempt from tax," said IRS Commissioner Doug Shulman. "I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet."

Under the ARR, enacted last month, every person who receives unemployment benefits during 2009 is eligible to exclude the first $2,400 of these benefits when they file their tax return next year. For a married couple, the exclusion applies to each spouse, separately. Thus, if both spouses receive unemployment benefits during 2009, each may exclude from income the first $3,400 of benefits they receive.

The new law doesn't affect the return taxpayers are filing out now. Unemployment benefits received in 2008 and prior years remain fully taxable.

Unemployed workers can choose to have income tax withheld from their unemployment benefit payments. Withholding on these payments is voluntary. However, choosing this option may help avoid a surprise year-end tax bill or a possible penalty for having paid too little tax during the year. Those who choose this option will have a flat 10% tax withheld from their benefits.

Unemployed workers who expect to receive more than $2,400 in benefits this year should consider having tax withheld from their benefit payments in excess of that amount. Those unemployed workers who have already chosen to have tax taken out of their benefits, should consider the $2,400 exclusion in determining whether to continue to have tax withheld.

Use Form W-4V, Voluntary Withholding Request, or the equivalent, form provided by the payer to request withholding to begin or end.

3/16/09

Washington - IR-2009-026 - The Internal Revenue Service announced today that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.

Today, in order to accommodate the change in tax law, the IRS updated the instructions for two key forms - Forms 1045 and 1139 - that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.

The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating lose (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, a NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.

"The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash," said IRS Commissioner Doug Shulman. "We want to make it as easy as possible for small businesses to take advantage of these key tax benefits."

With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.

Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.

The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.

For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.

To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.

There are several methods that a small business can use to elect the new provision as detailed in the Revenue Procedure.

If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.

Generally small businesses that are not corporation (including sole proprietorships filing Schedule C with their Form 1040 may accelerate a refund by using Form 1045, Application for Tentative Refund.

Corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund.

The IRS will be monitoring closely these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.

Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year's tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer's return is filed, as listed on the return instructions.

2/25/09

Washington - IR-2009-014 - The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before December 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before December 1 can get up to $8,000, or $4,000 for married filing separately.

"For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. " This important change gives qualifying homebuyers cash they do not have to pay back."

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before December 1, 2009, can claim the credit o either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for at least 36 months after the purchase date. They can claim 10% of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before December 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10% of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

1/30/09

Washington - IR-2009-011 - many investors will receive their year-end tax statements later than in past years, but these forms are likely to be more accurate, according to the Internal Revenue Service.

A new law, enacted last fall, changed the deadline from January 31 to February 15, when brokers, including brokerage firms, mutual fund companies and barter exchanges, must finish year-end Forms 1099-B to their customers. Where a broker furnishes these forms by mail, this means that the forms must be mailed, not received by that date.

When any deadline date falls on a weekend or on a national holiday, the due date is automatically moved to the next business day. So, for example, the above deadline in 2009 would fall on February 17.

This change is designed to make it easier for brokers to provide investors with accurate year-end statements on stock sales and other transactions. Inaccurate year-end statements that have to be corrected later often force investors to file amended individual returns.

In its 2006 annual report, the Information Returns Program Advisory Committee (IRPAC) recommended changing this deadline from January 31 to February 15. The report noted that, "Form 1099 reporting has become very complex over recent years. As a result, many broker dealers are currently experiencing 20% amended Forms 1099. There is insufficient time to make the necessary changes in January, verify the data, print the forms and mail them by January 31." IRPAC is a federal advisory committee that advises the IRS on issues related to information returns, such as Forms 1099.

The long standing January 31 deadline for providing other year-end forms remains unchanged. However, because January 31, 2009 falls on Saturday, employers, banks and other business have until Monday, February 2 to mail or otherwise make available various 2008 year-end tax statements. This includes forms in the W-2, 1098 and 1099 series.

Taxpayers can make the tax-filing process faster and easier and often avoid follow-up correspondence with the IRS by reviewing carefully all year-end statements. Be certain all social security numbers are correct, check income and withholding amounts and contact the issuer promptly, if any mistakes are found.

1/30/09

Washington - IR-2009-010 - In response to errors showing up on early tax filings, the IRS today urged taxpayers and tax preparers to make certain they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.

Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.

An early sampling of tax returns shows about 15% have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.

To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit in 2008.

The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.

How to Get the Recovery Rebate Credit Right

The IRS sent taxpayers nearly 119 million stimulus payments last year. There are three ways individuals can find out how much they received:

• Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.


• Go to the "How Much Was My Stimulus Payment?" tool that is available on the IRS website, IRS.gov. Coach Note: Be certain it is .gov since the .com will give you a fraudulent site. This can provide the correct amount in a matter of a few seconds. Coach Note: This will be the amount the IRS has recorded that it sent you. If indeed it is an incorrect amount you would need proof and call the 866 number to discuss it with an IRS consultant.


• Individuals can call the IRS at 1-866-234-2942. After a brief recorded announcement they can select option "1" for find out the amount of their economic stimulus payment. They will need to provide their filing status, Social Security Number and number of exemptions.

With the amount of last year's economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.

If the taxpayer or preparer is using tax software, the amount of the rebate recovery credit will be calculated automatically and reported properly. If the taxpayer is using the paper method, the rebate recovery credit, as determined through the worksheet should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ.

For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.

If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and if so, how much. Coach Note: the coach has been informed by many IRS employees that this is not necessarily accurate. Therefore, it is best to calculate your own credit or have a tax preparer do so.

Some of the major factors that could qualify you for the recovery rebate credit include:

• Your Financial situation changed dramatically from 2007 to 2008.


• You did not file a 2007 tax return or file it by October 15, 2008.


• Your family gained an additional qualifying child in 2008.


• Your were claimed as a dependent on someone else's tax return in 2007 but cannot be claimed as such in 2008.

Stimulus Payments Not taxable; Reports of Extensive Refund Delays False

The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:

• Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.


• Refund Delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds far as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.


• One Payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recover rebate credit payments.


• Refund Amount. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.


• Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit eve if errors are detected.

1/7/09

WASHINGTON - IR-2009-003 - National Taxpayer Advocate Nina E. Olson today released her annual report, urging Congress to simplify greatly the tax code and recommending measures to reduce the burden on taxpayers who are struggling to pay their tax bills.

The report takes note of the serious financial difficulties facing many Americans in light of the ongoing economic downturn. "It is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions," Olson wrote.

When the IRS contemplates taking an enforced collection action such as a levy, a lien or an asset seizure, both the tax code and IRS procedures require that IRS personnel consider whether the collection action will impose an economic hardship on the taxpayer. Despite these requirements," current IRS guidance provides little direction to help IRS employees identify taxpayers who are experiencing economic hardship and prevent undue economic burden," Olson wrote.

Call for Tax Simplification

The report designates the complexity of the tax code as the most serious problem facing taxpayers. According to data compiled by Olson's office, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with tax-filing requirements. "If tax compliance were an industry, it would be one of the largest in the United States," the report says. "To consume 7.6 billion hours, the ‘tax industry' requires the equivalent of 3.8 million full-time workers."

The report estimates that U.S. taxpayers spend $193 billion a year complying with income tax requirements, an amount that equals 14% of the total amount of income taxes collected. One count shows the number of words in the tax code has reached 3.7 million, and over the past eight years, changes to the tax code have been made at a rate of more than one a day - including more than 500 changes in 2008 alone. Individual taxpayers now find the tax rules so overwhelming that more than 80% pay transaction fees to help them file their returns - about 60% pay a preparer to do the job and another 22% purchase tax software.

Two examples of tax law complexity:

• The Alternative Minimum Tax(AMT) effectively requires taxpayers to compute their taxes twice—once under the regular rules and again under the AMT regime - and then to pay the higher of the two amounts. Absent repeal or continuing AMT patches, the AMT will affect 33 million taxpayers in 2010. Although the AMT was originally conceived to prevent wealthy taxpayers from escaping tax liability through the use of tax-avoidance transactions, 77% of the additional income subject to tax under the AMT today is attributable to the disallowance of deductions otherwise allowed for state and local taxes and personal and dependency exemptions. "Few people think of having children or living in a high-tax state as a tax-avoidance maneuver, but under the unique logic of the AMT, that is essentially how those actions are treated," the report notes.


• The tax code provides tax breaks to encourage taxpayers to save for education and retirement. However, the number of such tax incentives has grown to at least 27 and the eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary among the provisions. This complexity undermines the intent of the incentives, as taxpayers can only respond to incentives if they know they exist and understand them.

Olson recommends that Congress substantially simplify the tax code. The report includes a series of recommendations, including recommendations to repeal the Alternative Minimum Tax; streamline education and retirement savings tax incentives; simplify the family status provisions of the tax code; simplify the rules under which workers are classified as employees or independent contractors; reduce sunset and phase-out provisions and revise the overall penalty structure. More broadly, Olson recommends six core principles on which fundamental tax reform should be based.

Working with Taxpayers Who Are Experiencing Financial Difficulties

The report makes three principal recommendations to reduce burden on financially struggling taxpayers:

1. 1.Make greater use of collection alternatives when economic hardship is present. While enforced collection actions like levy and seizure authority are important collection tools that allow the IRS to address serious incidents of noncompliance, a review of IRS historical enforcement data show that more enforcement actions do not translate into commensurate increases in revenue collection. One example: The number of levies issued by the IRS increased by 1,608% from FY2000 to FY3007 - from 220,000 levies to about 3.76 million levies - yet the increase in the total collection yield during the period was slightly less than 45%. By contrast, historical enforcement data indicate that collection alternatives, such as offers in compromise and partial-payment installment agreements, may be more effective at collecting liabilities from taxpayers having difficulty paying their tax debts.


2. 1.Simplify the "cancellation of debt" minefield that many taxpayers who default on debts must navigate. Most financially distressed individuals who lose their homes to foreclosure or cannot pay off their car loans, credit card balances, student loans, or medical bills probably do not realize that their delinquency may increase their tax liabilities, but it often does. If a creditor writes off a debt, the tax code generally treats the amount of the canceled debt as taxable income to the debtor. Congress has carved out a number of exclusions including an exclusion for "insolvency" and a recently enacted exclusion to help some (but not all) homeowners whose mortgage debts are canceled when their houses are foreclosed and sod or whose loan balances are reduced as part of a mortgage loan modification. However, taxpayers do not receive the benefit of these exclusions automatically. A taxpayer must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to claim an exclusion. Form 982 is extremely complex, and very few taxpayers or preparers are familiar with it. IRS data show that approximately two million Forms 1099-C, Cancellation of Debt, are issued to taxpayers and the IRS each year reporting canceled debts. In an economic downturn, the number of taxpayers defaulting on credit card bills, car loans, home mortgages and other debts can be expected to rise. Olson estimates that tens of thousands and possibly hundreds of thousands of taxpayers who qualify to exclude canceled debts from gross income do not file Form 982 to claim allowable exclusions. Instead, some of these taxpayers unnecessarily include the amount of the canceled debt in gross income, and other taxpayers who fail to include it unnecessarily face IRS examinations and tax assessments. Olson recommends that Congress change the law to remove taxpayers with modest amounts of debt cancellation from the cancellation of debt income regime,, and she recommends that the IRS develop and insolvency worksheet that taxpayers can file with their returns and create a centralized unit dedicated to handling cancellation of debt issues.


3. 1.Implement a "screen" to protect low income Social Security recipients from continuous automated tax levies. Under the Federal Payment Levy Program, the IRS is authorized to "levy" (or withhold) 15% of any federal payment made to a delinquent taxpayer. Using this authority, the IRS levied against 1.8 million payments to Social Security recipients in 2008. TAS estimates that more than 25% of these taxpayers had incomes below the poverty level and more than one-third would likely be classified by the IRS as unable to pay if their cases were subject to human review. However, the automated levy system does not use built-in screens to identify and shield these taxpayers. The report contains a research study recommending the implementation of such a screen.

Finally, taxpayers who are unable to make their tax payments and face enforced collection action will generally qualify for assistance from the TAS, which Olson heads.

Other Issues

Olson reiterates her longstanding recommendation that Congress regulate unenrolled tax preparers to protect taxpayers from preparer errors and exploitation. She notes that 62% of taxpayers use preparers, yet anyone can now be a "preparer" -with no training, no licensing and on oversight required.

The report also proposes a comprehensive framework for reforming the penalty provisions in the tax code, which have increased from about 14 in 1954 to more than 130 today. More specifically, the report recommends quick congressional action to remedy particularly harsh consequences of a penalty enacted in 2004 to combat tax shelters. Section 6707A of the tax code imposes a penalty of $100,000 per individual per year and $200,000 per entity for failure to make special disclosures of a "listed transaction." The penalty creates what Olson calls "unconscionable" results and may have the effect of bankrupting middle class families who had no intention of entering into a tax shelter. Under the law, the IRS must impose the penalty where a taxpayer fails to make the special disclosures - even if the taxpayer had no knowledge that the transaction was listed or even questionable, even if the taxpayer derived no tax savings from the transaction, and even if the transaction is not "listed" until years after the taxpayer entered into it and file a return reflecting the transaction. A taxpayer who does business through a wholly owned S corporation is subject to a penalty of $300,000 ($200,000 at the entity level and $100,000 at the individual level) for each year in which the transaction is reflected on a return. The IRS is currently considering this penalty in hundreds of cases.

Overall, the report discusses 21 problems facing taxpayers, makes dozens of recommendations for administrative change, proposes 17 recommendations for legislative change and analyzes the 10 tax issues most frequently litigated in the federal courts during the past fiscal year. It also contains a second volume that presents in-depth studies on three subjects - the penalty regime in the tax code, the development of a "filter" to protect low income Social Security recipients from automated levies and strategies to improve tax compliance by tax preparers and their clients.

About the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels or who believe that an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can reach TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.

12/17/08

Washington - IR-2008-142 - The IRS has placed its comprehensive tax guide for individuals on IRS.gov, updating it for tax year 2008. The updated on-line version of IRS Publication 17,"Your Federal Income Tax," contains more than 900 interactive links.

Publication 17 has been updated with important changes for 2008, including information on the new recovery rebate credit, new first-time-homebuyer credit, and an additional standard deduction for real estate taxes. It has been published annually by the IRS for more than 65 years and has been available on the IRS website since 1996.

As in prior years, the publication provides information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, and how to figure taxes and credits.

Coach Note: a reminder that the IRS says in an audit the IRS Publications are NOT good reference to substantiate figures used on your return. Only the Federal Income Tax Code and Regulations can be used as "good authority". (Hmm!)

12/16/08

Washington - IR-2008-141 - The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less that the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

"We don't want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes," said Doug Shulman, IRS commissioner.

"We realize these are difficult times for many Americans," Shulman said. "We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions."

Filing a NOTICE OF FEDERAL TAX LIEN is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution's, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. Publication 4235 Collection Advisory Group Addresses is available on line for the list of addresses.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.

The IRS urges people to contact the agency's Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

Currently there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

12/11/08

Washington - IR-2008-140 - The IRS issued a notice today announcing relief for certain retirement plans that do not have a written plan in place by January 1, 2009. The new guidance if for retirement plans covering employees at public schools, colleges and universities, and other tax exempt organizations. These retirement plans are often referred to as 403(b) plans after the relevant section in the tax code.

The IRS is extending the deadline for plan sponsors to adopt new written plans or amend existing plans to satisfy the requirement of the final 403(b) regulations because of difficulties expressed by numerous plan administrators in meeting the current deadline of January 1, 2009. This extension will give plan sponsors additional time to put their plan documents in place.

The IRS will treat these plans as meeting the requirements of 403(b) and the regulations during the 2009 calendar year if:

• By December 31, 2009, the plan sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) and the regulations.


• During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the related regulations.


• By the end of 2009, the plan sponsor makes its best effort to correct retroactively any operational failure during the 2009 calendar year to conform to the written plan.

The IRS plans to issue further guidance on 403(b) plans, including a revenue procedure establishing programs for 403(b) plans to obtain IRS approval of the plan document and allowing these plans to make remedial amendments to fix retroactively plan provisions under rules that are similar to those that apply for 401(a) qualified plans.

12/8/08

Washington - IR-2008-137 - Thank you for that kind introduction and warm welcome.

It's a pleasure and an honor to be in the company of so many experts as we discuss some of the emerging trends in international tax administration and what we are doing both domestically and globally to respond to them.

Let me begin by saying that the dialog that will take place today is very different from one that would have occurred a year ago.

Although there were some ominous clouds on the economic horizon in August 2007, few could have predicted the battered and bruised financial landscape we see today.

As the great English statesman and philosopher Edmund Burke said, "An event has happened, upon which it is difficult to speak and impossible to be silent."

Tax administrators and tax professionals find themselves with a new, heightened and highly visible global role.

It's fair to say that U.S. taxpayers' attitudes and perceptions about the taxes they pay reflect the changing world around them.

We must recognize that many taxpayers are now looking at the world through a new economic prism - one that draws sharp lines in the taxpayer spectrum, such as global corporations versus the typical family filing a 1040 return with a W-2 attached to it.

Call it Wall Street versus Main Street.

We must recognize that U.S. multinational corporations shopping for the best tax deals across the globe will come under increased public scrutiny back home.

Let me be clear. Some of these tax strategies can be legal, and many corporations and their legal and tax advisors are genuinely trying to comply with the myriad of international tax laws they face and to avoid double taxation.

Legitimate practices to minimize tax exposure are also essential for U.S. corporations to operate and remain competitive in the global marketplace where foreign-based corporations have such tools at their disposal.

However, we have also seen some corporations constructing transactions to avoid tax entirely on certain income, or trying to go beyond the avoidance of double taxation and engage in "double-dip" transactions whereby they get a deduction or credit for the same amount in two countries.

To borrow a line from Hamlet, "There's the rub."

U. S.-based corporations mare than tripled their foreign profits between 1994 and 2004, rising from $89 billion to $298 billion - with 58% of that profit earned in low tax or no tax jurisdictions.

And this gives pause to some U.S. taxpayers and policymakers who want to be sure that these corporations are paying their fair share at home.

Even before the current economic crisis, this concern was evident. A 2007 Taxpayer Attitude Survey found that 80% of respondents believe that it is very important that IRS "ensure that large corporations are reporting and paying their taxes honestly." Compare this to 68% for small businesses.

Fast forward to today. The average American taxpayer who is being buffeted daily by fierce economic winds also feels they have been asked to shoulder most of the risk associated with rescuing the economy.

Call it what you will - fallout or consequences - but I believe that the events of the past year will create increased public pressure on corporate taxpayers to adhere not only to the letter of the law, but the spirit of their home country law.

Global corporations based in the U.S. pay taxes in countries throughout the world, but recent events have shown that when it comes to tax jurisdictions, not all are created equal. In our current economic environment, when major multinationals need a helping hand from government, they don't seek a pro-rata portion from each of the dozens of jurisdictions around the world where they claim to do business.

Now, I don't want to give the impression that it's just corporate taxpayers who are increasingly under the microscope. Given the ease with which capital moves around the world, the IRS must and will remain vigilant to ensure that wealthy individuals don't use offshore accounts to avoid paying their U.S. taxes. But that's just the beginning.

We must constantly adapt to this evolving, dynamic and sometimes dizzying global environment in which multinational enterprises increases from 3,000 in 1990 to more than 63,000 in 2007 and the value of foreign tax credits being claimed increased by more than 25% in just two years from 2005 to 2007.

It's clear that no one - not the IRS or any tax administration system in the world - can afford to fall behind this fast pace. Nor can we afford a go-it-alone strategy.

To this end, I am committed to engaging with my counterparts across the globe and pushing forward what I see as the collective and shared enterprise of fair and effective tax administration.

In the corporate arena, we're starting to make progress in our international efforts by focusing on three specific areas which are most on our minds these days and which I believe will best assist our efforts to reign in those corporations who are pushing the envelope and also to help those corporations who play by the rules.

First is Transfer Pricing. This is one of the most difficult areas for both tax authorities and taxpayers. I recognize that transfer pricing is not east to manage - even for those taxpayers that aim to steer clear of any gray area.

Although there are many transfer pricing topics, I want to mention three that may be of current interest to the audience. Specifically, cost sharing, contract manufacturing, and global dealing.

Cost sharing involves those taxpayers aggressively pursuing transfer pricing schemes to shift income out of the U.S. to low or no tax jurisdictions. One of the most common is to transfer a valuable intangible for less than arms-length compensation. The IRS has been vigorously attacking many of these transactions where we see corporate taxpayers crossing the line. In addition to pursuing cases in the audit and exam cycle, we are also working on temporary regulations related to cost sharing.

Contract manufacturing is about taxpayers trying to avoid subpart F income in foreign locations that do not have sufficient manufacturing activity. The IRS and Treasury are also working on regulations in this area that will make it more difficult for taxpayers to use this abusive tax planning.

Global dealing is somewhat analogous to the transfer of intangibles such as research and development related to a new drug, but it is applicable to financial institutions. Specifically, financial institutions will attempt to book transactions such as loans and swaps in low-or-no tax jurisdictions and then argue that a disproportionate amount of the profit should be allocated to the low-or-no tax jurisdiction.

The second big area is hybrid structures. These can include hybrid entities or hybrid instruments. Regardless of the form, their underlying purpose is to either exclude income from taxation or obtain double deductions/credits in various jurisdictions.

One of the most problematic of these structures are Foreign Tax Credit generators. In my opinion, FTC generator transactions are examples of situations where certain taxpayers may be trending toward the "bad actor" end of the spectrum. Without venturing into the legal nuances, I view this issue very simply. Foreign tax credits were designed by Congress to help U.S. taxpayers avoid double taxation. Common sense would indicate that, where a single payment of foreign tax generates credits for two taxpayers, these transactions deserve closer scrutiny. As many of you know, one case has been docketed and there are a few other ;cases in the process of being designated for litigation.

Third and lastly are withholding taxes. Today, the IRS will add withholding taxes to the Tier I list of issues. The tier issue process will provide the needed organizational priority and coordination to ensure taxpayer compliance with the U.S. withholding tax provisions. Our compliance efforts will span efforts to ensure individual, business and corporate taxpayers understand and fulfill their withholding tax filing obligations to addressing transactions that attempt to circumvent withholding taxes or claiming improper tax treaty withholding rates.

Let me also point out that this past September, the Senate Permanent Subcommittee on Investigations held a hearing looking into how the IRS has been investigating certain investment banks who have been trying to help their clients - mostly hedge funds - avoid dividend withholding tax. During the hearing, there was also extensive discussion about securities lending transactions and Notice 97-66. Let me bring you up to date on the issue.

IRS is reviewing the notice. However, in the interim, we're examining very carefully those transactions whose primary purpose is to avoid dividend withholding tax and will propose adjustments as needed.

Turning now to the individual area, our current focus is on unreported off-shore accounts. Here too, we have a combination of tools at our disposal - all of which we're using simultaneously.

Think of a detective working a case who may employ everything from eyewitness accounts, physical evidence, paper trails and the cooperation of law enforcement officials in other states. That's similar to what we're doing with the following tools.

One of our best is the Qualified Intermediary Program. QI gives the IRS an important line of sight into the activities of foreign banks and other financial institutions. It also provides detailed information reporting that the IRS did not receive before this program was implemented.

Indeed, the QI program is critical to facilitating sound tax administration in a global economy. By bringing foreign financial institutions more directly into the U.S. tax information reporting system, we can better ensure that U.S. persons are properly paying tax on foreign account activity, and that foreign persons are subject to the proper withholding tax rates.

Admittedly, the QI program is a maturing, and complex program and there are flaws that must be addressed. I became convinced early in my tenure that we need to shore up the QI program and continuously enhance, improve and strengthen it. AND WE ARE.

In mid-October, we issued a set of proposed QI amendments for comment which I believe will make QI audits more useful and help give us that clear line of vision and transparency we need in tax administration.

Under the proposed changes, financial institutions that are QIs must provide early notification of material failure of internal controls. They must also improve evaluation of risk of circumvention of U.S. taxation by U.S. persons. And they must include audit oversight by a U.S. auditor. I certainly look forward to your comments and suggestions after you review this important proposal.

Under informants is another part of our toolkit. Since the inception of the Whistleblower Office in 2007, the IRS has received hundreds of tips on financial institutions and individuals with foreign accounts and international compliance issues. Some of these have become big money cases.

Dozens of these tips involve the names of individuals with offshore accounts; others involve the names and practices of financial institutions in those countries that typically have strict bank secrecy laws.

And keep in mind the value here is far greater than just the names of specific individuals. With work, these tips provide the information the IRS needs to pursue John Doe summonses - our next important tool.

The IRS generally uses the John Doe summons authority to identify individuals, groups or classes of U.S. taxpayers whose member identities are unknown, who are involved in specific areas of tax noncompliance and who cannot be identified through other means.

For example, we would use this type of summons when we know that taxpayers use offshore bank accounts to avoid paying taxes, but we do not know their identities. A John Doe summons served on a domestic processor of Offshore bank records would give us their names, addresses and other identifying information.

The IRS requested and received court approval to serve over 150 John Doe summonses in connection with its Offshore Credit Card Project. And we received court approval from multiple U.S. District Courts on every John Doe summons request made.

These leads are part of another important tool at our disposal - our criminal investigation function. The Irs is increasing our resources devoted to investigation function. The IRS is increasing our resources devoted to investigating the misuse of foreign entities and the use of foreign bank accounts to hide taxable income and is currently pursuing hundreds of criminal investigations of U.S. taxpayers for offshore tax evasion. The numbers speak for themselves.

In fiscal Year 2008, the IRS initiated 49 investigations that involve foreign and offshore issues. We also had 55 indictments information filed in foreign/offshore cases. There were 61 convictions, and the average term for those going to jail was 32 months.

I want to repeat that undisclosed foreign bank accounts are, and will remain, a top priority for the IRS. Those taxpayers who are hiding assets overseas should be concerned, and would do well to come in and voluntarily disclose their offshore accounts. According to long-standing IRS policy, taxpayers who voluntarily disclose in most cases avoid criminal prosecution.

Now, as I mentioned earlier, we cannot afford a go-it alone strategy. The IRS knows all too well that we have to be at the top of our game when playing in the international business arena. And we currently have cooperative agreements for information exchanges with over 70 jurisdictions and have expanded the program in recent years to include even some famous offshore ones, such as the Cayman Islands and the Bahamas.

The Joint International Tax Shelter Information Center - JITSIC - has also proved to be another important arrow in our quiver to combat abusive international tax shelter activity on a real-time basis.

JITSIC's primary focus has been on the bilateral exchange of specific abusive transactions and their promoters and investors. The results, to date, have been promising. The U.S. has received information regarding some transactions of which it had not been previously aware.

Indeed, in light of the complexity of the transactions, and considering the inherent difficulty normally associated with obtaining taxpayer-specific shelter information from foreign countries, it is unlikely that these transactions would have been uncovered and understood, but for JITSIC.

We need to redouble our commitment to international cooperation, and explore new and different ways to work with our counterparts overseas. That's why I've asked our international team to develop a multi—year proposal for expansion of JITSIC beyond its roots in combating tax shelters. I intend to engage my colleagues around the world in this discussion in the coming months.

I will continue to build stronger relationships with our tax treaty partners to improve our mutual agreement process to relieve double taxation and to improve tax compliance. It is important that the IRS provide leadership to enhance capabilities for increased joint examination activities with our treaty partners, improve our compliance risk assessment capabilities and improve our capacity to identify and share information on potential aggressive international tax transactions. Also, we will continue to support the important work of the OECD, Forum on Administration and CIAT.

So what else lies ahead for the IRS when it comes to international tax administration?

First, we know that we must match resources to the challenge. That means hiring more financial product specialists, valuation experts, actuaries, economists, revenue agents, special agents and attorneys.

And, I'd like to make an appeal to all of you. If you know of someone who wants to make a real difference during a difficult economic time for this country, please encourage them to consider a career with the IRS. I can promise you, it's a decision they will not regret.

Second is the international tax gap. So how big is it? $10 billion? $100 billion? It's hard to say as I haven't seen any solid research to arrive at conclusive numbers.

Difficulties arriving at one include the complexity of cross-border audits, and the inherent complexity of the tax code in this area.

But in some ways, whatever the size of the international tax gap, our commitment to this issue would be unchanged. That is because our international compliance efforts are much more about protecting the $2.7 trillion base of revenue that we collect today rather than just the incremental enforcement revenue that we collect from these efforts. Nevertheless, we are committed to pursuing aggressively the international tax gap - whatever amount it may ultimately be.

What I'm speaking about is blunting the broader effect of this race to the bottom by those who deliberately seek to avoid their legal tax obligations.

We cannot allow an environment to develop where wealthy individuals can go offshore and avoid tax without consequence.

We cannot allow an environment where large corporations can pay hefty fees and salaries for top talent to engage in overly aggressive shifting of taxable activities to low tax jurisdictions.

We cannot allow this corrosive behavior to undermine the fundamental confidence in the fairness of the tax system which could prompt more and more taxpayers to cross over that dangerous line into non-compliance.

In this arena we will devote whatever resources are at our disposal to ensure that our citizens are confident that we're all playing by the same set of rules.

Next month I will be attending the next Leeds Castle meeting of 10 Commissioners. As I touched upon earlier, the Leeds Castle group of countries came together in 2006 to deal with the burgeoning problem of tax shelters and increased globalization. And to a large degree we have been successful. Now is the time to use the same model of international cooperation and apply it to some of the emerging issues, such as transfer pricing.

In conclusion, I believe that we're up to tackling these unprecedented global challenges. It will require unprecedented cooperation between tax administration systems across the globe. And it will require professionals like you standing up for the integrity of these systems. I know we can and must succeed.

Thank you again for allowing me to share some thought with you today and I wish you the very best for the holidays and a happy new year.