1

abate interest for your taxpayer. Keep all those letters from

IRS – when the case is resolved and interest assessed on

your taxpayer, make your interest abatement request to

the INTEREST ABATEMENT COORDINATOR at your IRS

Campus. Attach all the letters from IRS requesting more time

to work your case. Interest is statutory and the only reason

the interest can be abated is if the delay was caused by IRS.

Those letters are proof for your claim – use them.

Beanna

Beanna@ncpefellowship.com or 775-787-7518

Remarks from Beanna

Continuing in our series of articles – Circular 230 – Federal

Code of Regulations - § 10.23 – Prompt disposition of pending

matters

“A practitioner may not unreasonably delay the prompt

disposition of any matter before the Internal Revenue Service.”

This provision has been a personal concern of mine as I

have active cases, both examination and collection, before

the Internal Revenue Service and during given times during

the year am out of my offi ce extensively instructing around the

country.

Does “unreasonable delay” mean that I don’t respond to

IRS within the hour that they call my offi ce? NO! It is not

unreasonable that a tax professional cannot immediately

respond to IRS requests, however “unreasonable delay” would

be weeks without responding.

Unreasonable delay also means using Collection Due

Process Requests, Form 911 and Offers in Compromise

simply to delay IRS actions when the fi lings were not legitimate

procedures to move the case to conclusion.

Compliant taxpayers are a precious commodity and all tax

professionals consider them an asset to their practice. When

on occasion we are called upon to assist taxpayers who are

having diffi culties with compliance we must be cognizant of our

responsibility to effective tax administration to work toward a

swift resolve of the issues.

And speaking of quick resolve, I am certain you are

experiencing great “unreasonable delay” by IRS these days in

handing your taxpayer issues. How many “we need additional

time” letters have you received from IRS? They are a blessing

in disguise.

“Unreasonable delay” by IRS is the one reason IRS must

Monthly Newsletter for ncpeFellowship Members Vol. 4 No. 7 July 2013

Your can alwaysrenew your ncpeFellowship

Membershiponline, website:

http://ncpeFellowship.com

click link tab“Renew Now”

If your embership due inJune, July or August

Renew Now.

2

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2013 Ethics and Conduct for Tax Professionals

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Remarks from Beanna (1)

Tax News (4)Tax Overhaul: Looking to IRS Scandal for Momentum - Congress Says Complexity of Tax Code is Root of Problem. (4)As Marriage Changes, Should Joint Filing Go The Way Of Ozzie And Harriet? (4)Crazy Eddie Fraudster Says SEC Can Not Keep Up (5)How Estate Planning is Changing (7)Social Security Solvent Until 2033 (8)Tax Breaks Cost $12T Over Decade (8)A Hidden Tax in Affordable Health Care (9)E-Services: Disclosure Authorization and Electronic Account Resolution Applications Retire in August (10) Richest 20 Percent Get Half the Overall Savings from U.S. Tax Breaks, CBO Says (11)Confused IRS Tax Rules Threaten Obamacare Rollout (11)Bar Codes to Replace Social Security Numbers on Some IRS Notices to Taxpayers (12)IRS: The Numbers People by the Numbers (13)Transparency in Small Business Assistance Act Increases Transparency, Responsiveness at the SBA (14)Tax Writers Max Baucus, Dave Camp Plan Summer Taxapalooza (14)

People in the Tax News (15)Vincent J. Fumo Fights IRS (15)Ex-IRS Leader Urges Joint Congressional Probe of Agency’s Targeting (16)At IRS, What Happens In Vegas Doesn’t Stay In Vegas (17)Dancing Employees Revealed In Recently Released IRS Video (17)US Tax Agency Suspends Two for Accepting Free Food, Gifts (18)H&R Block Points to Tough Tax Season as 4th-Qtr Results Fall Short; Shares Slip (19)

IRS News (19)IRS Higher-ups Requested Info on Conservative Groups, Letters Show (19)IRS Electronic Tax Administration Advisory Committee Delivers Report to Congress (21)IRS to Pay $70M in Employee Bonuses, Senator Says (21)IRS Names Financial Manager New Chief Risk Offi cer (22)30-Day Review of IRS Activities Launched (23)Lois Lerner Replaced as Commissioner of TE/GE (23)Internal Revenue Service Conferences Held During Fiscal Years 2010 Through 2012 Ranked by Highest Average Cost Per Event (23)GAO Recommends NRP for Examination of Individual Returns (23)Simplifi ed Option for Home Offi ce Deduction (24)Taxpayer Burden Reduction (TBR) (24)Management Veterans Selected to Assist New IRS Acting Commissioner Werfel; Maloy, Grams, Fisher Named to Senior Posts (25)New Publication 3112 – IRS e-fi le Application and Participation (25) IRS Continues to Research “Real Time” Tax Preparation (26)IRS Urges Preparation and Offers Tips on Disaster Preparedness (26)Spring 2013 Statistics of Income Bulletin (26)Congress Probes IRS Seizure of Medical Records (26)

Ragin Cagin (27)The Top Tax Myths (And What Happens When You Believe Them) (27)

Tax Pro in Trouble (29)Department of Justice and Court Issue Order Barring Michigan Tax Preparers from Preparing Federal Tax Returns for Others (29)Feds: Camden County Man Admits Tax Evasion (29)3 Tax Preparers Are Permanently Barred (30)U S Dept. of Justice Seeks to Shut Down Texas Tax Preparer (30)NJ Tax Preparer Uses Dead Guy’s ID To File False Returns (30)Tax Preparer Pleads Guilty (31)

Taxpayer Advocacy (31)IRS Waives 60-day Rule for Individual Whose Gambler/spouse Withdrew Funds (31)IRS OKs Late Recharacterization of “Mistaken” Roth IRA Conversions (32)Modifi ed First Time Abate Policy Provides Penalty Relief in Certain Situations (33)

Wayne’s World (34) The Patient Protection and The Affordable Health Care Act (34)Effect of Sequestration on Small Business Health Care Tax Credit (34)

Letter’s to the Editor (35)

Sponsor of the Month (35)

The American Academy of Tax Practice (35)

Tax Jokes and Quotes (36)

Contents (Page)

4

Tax News

Tax Overhaul: Looking to IRS Scandal for Momentum - Congress Says Complexity of Tax Code is Root of Problem.

The storm engulfi ng the Internal Revenue Service could provide a boost for lawmakers who want to simplify U.S. tax laws — a code that is so complicated most Americans buy commercial software to help them or simply hire someone else to do it all.

Members of Congress from both political parties say the current uproar — over the targeting of conservative political groups — underscores that overly complex tax provisions have given the IRS too much discretion in interpreting and enforcing the law.

“This is the perfect example of why we need tax reform,” said Rep. Tim Griffi n, R-Ark., a member of the tax-writing House Ways and Means Committee. “If you want to diminish and limit the power of the IRS, you have got to reduce the complexity of the tax code and take them out of it.”

There are still formidable obstacles to completing a major tax overhaul this year or next. Democrats and Republicans start off with opposite views on whether the government should levy more taxes and on who should pay what share. The two sides also don’t trust one another, making agreement o changes diffi cult.

Most taxpayers pay someone to do their taxes or they buy commercial software to help them fi le. In a report earlier this year, national taxpayer advocate Nina E. Olson ranked complexity as the most serious problem facing both taxpayers and the IRS. People simply trying to comply with the rules often make errors and overpay or underpay, she said, while others “often fi nd loopholes that enable them to reduce or eliminate their tax liabilities.”

The IRS scandal has little, if anything, to do with most everyday taxpayers, yet some lawmakers hope the attention will help galvanize support for the fi rst major tax overhaul since 1986.

A little over two weeks ago, the IRS revealed that agents assigned to a special team in Cincinnati had targeted tea party and other conservative groups for additional, often burdensome scrutiny when they applied for tax-exempt status. The targeting lasted more than 18 months during the 2010 and 2012 election campaigns, hindering the groups’ ability to raise money, according to a report by the agency’s inspector general.

The ensuing storm has cost two top IRS offi cials their jobs, and a third has been placed on paid administrative leave. Investigations by Congress and the Justice Department are under way.

The IRS was screening the groups’ applications because agents

were trying to determine their level of political activity. IRS regulations say that tax-exempt social welfare organizations can engage in some political activity but the activity cannot be their primary mission. It is a vague standard that agents struggled to apply, according to the inspector general’s report. Lawmakers in both parties have complained for years that overtly political groups on the left and right have taken advantage of the rules, allowing them to claim tax-exempt status and hide the identities of their donors.

“There are countless political organizations at both ends of the spectrum masquerading as social welfare groups in order to skirt the tax code,” said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. “Once the smoke of the current controversy clears, we need to examine the root of this issue and reform the nation’s vague tax laws pertaining to these groups.”

As Marriage Changes, Should Joint Filing Go The Way Of Ozzie And Harriet?

Plaintiff Edie Windso (R), an 83-year-old lesbian widow, gestures at same-sex marriage supporters as she leaves the Supreme Court on March 27, 2013 in Washington, DC, after the US v. Windsor case hearing challenging the constitutionality of Section 3 of the Defense of Marriage Act (DOMA).

Any day now, the Supreme Court will rule on whether same-sex married couples have the right to fi le joint federal tax returns. But Yale tax law professor Anne Alstott has me wondering whether the entire debate over the tax consequences of the Defense of Marriage Act is missing the point. In an upcoming paper for Yale’s Tax Law Review, she argues that it makes little sense to tie the Revenue Code so closely to formal marriage when so many people are in very different family relationships than they were even 40 years ago.

As Alstott notes, nearly half of American adults are now unmarried, 40 percent of children are born to unmarried parents, and labor force participation among married women is now very close to that of married men (thanks to the always-helpful Paul Caron at TaxProf blog for tipping me off to her paper). Ozzie and Harriet have been in reruns for half-a-century. So why even bother with the concept of joint tax

5

spousal benefi t in Social Security) tracks a social reality that ‘no longer exists.” After all, more than half of all adults are married and the trend line away from marriage has fl attened somewhat in recent years. And who knows, perhaps like martinis, marriage will make a comeback.

But her paper makes a provocative and important argument. As we consider tax reform, we should not ignore how the Revenue Code applies in an environment of rapidly changing social norms. Isn’t that, after all, what the DOMA controversy is all about?

Crazy Eddie Fraudster Says SEC Can Not Keep Up

Securities regulators are overwhelmed by the volume of fraud and insider-trading violations and don’t have the resources to pursue criminals effectively.

So says Sam Antar, a felon and former chief fi nancial offi cer of Crazy Eddie Inc., a well-known criminal enterprise from the 1980s that cost many people their life savings and was even featured on “Saturday Night Live.”

Antar, 56, now teaches FBI agents and Justice Department offi cials about white-collar crime and how to spot it. He spoke to MarketWatch about the economics of white-collar crime; why he thinks “audit” is a fraudulent term; and why short sellers, along with well-compensated whistleblowers, are best at ferreting out fraud.

Here’s what he had to say:

MarketWatch: You were the CFO of Crazy Eddie, a criminal enterprise passing itself off as a New York electronics retailer in the 1980s. Can you tell me about it?

Sam Antar: It was an 18-year fraud with two parts. As a private company we understated income by skimming money to steal the sales tax and evade income taxes. As a public company we did the opposite: We overstated our income to sell stock at infl ated prices.

The reason you do that is because as a public company you get a bigger bang for the buck by overstating income and overstating your taxes than understating income and understating taxes. That’s because as a private company you are not trading stock. As a public company your stock trades

fi ling?

Alstott borrows from Johns Hopkins University sociologist Andrew Cherlin, who calls the trend away from formal marriage “new individualism.” This, she says, “has rendered obsolete legal doctrines and policy analyses that treat formal marriage as a proxy for family life. Joint fi ling is no longer well-tailored to serve important social objectives.”

And, she adds, this argument applies whether one is a liberal who embraces the new individualism or a conservative who is offended by it.

Reframing the tax treatment of families in this way will help solve some problems and create some new ones. And Alstott isn’t so much arguing for a specifi c alternative to joint fi ling as urging tax wonks to consider the law in the context of social change.

While marriage may be sacred to many, there is nothing consecrated about joint fi ling. Only one-third of major developed countries use the mechanism. Besides, as my Tax Policy Center colleague Bob Williams has described, it doesn’t even necessarily reward marriage. For most households (typically where one spouse earns substantially more than the other) married couples enjoy a tax bonus. However, where the spouses earn roughly the same amount a couple could end up paying a penalty for tying the knot.

Congress created joint fi ling in 1948 in an attempt to solve a number of problems, including one where couples could game the law by artifi cially splitting reported income in a way that minimized their taxes.

Today’s system still struggles to resolve what lawyers and economists describe as a “trilemma”: The income tax cannot simultaneously maintain progressive rates, impose equal taxes on all couples earning the same amount, and be neutral between married and unmarried taxpayers. Something has to give.

But, Alstott argues, these concerns become less important if the tax code gets past the concept of marriage. In that environment, Congress could simply restore a system of individual fi ling for all combined with rules aimed at preventing gaming, such as sham transfers of assets from one spouse to another. With the right anti-abuse rules in place, the law need not bother distinguishing between couples who are formally married and those who are not.

Alternatively, Alstott says Congress could allow couples to fi le combined returns, whether they are married or not.

In response to those anxious to preserve traditional marriage, she even suggests a package of refundable tax credits to encourage early marriage, discourage divorce, or even help subsidized stay-at-home moms. But none of these require joint fi ling either.

Alstott goes a bit far when she says joint fi ling (as well as the

6

at a multiple of earnings. Let’s say I understate income by a million dollars, I may save $400,000 in taxes. But if I overstate my income by the same million dollars and overpay taxes by $400,000; that $600,000 in overstated net income, if the stock is trading at 30 times earnings, increases the value of the company by $18 million.

It is the economics of white-collar crime: Overpaying taxes and overstating income is better as a public company.

MW: As CFO of Crazy Eddie, you were involved in a lot of the accounting fraud. Do you think auditors are equipped to fi nd fraud?

S.A.: I do not believe that most auditors are adequately trainedto fi nd fraud and do battle with fraudsters of my former caliber.Documents don’t commit fraud; the people controlling thedocuments commit fraud. For example, most auditors are nottaught fraud psychology — the behavioral dynamics of fraud.Auditors are rarely taught about emotional manipulation andmisdirection used by fraudsters to manipulate their behaviorduring audits and successfully carry out their crimes. They areunprepared for the psychological games played by fraudsters.

MW: Do retail investors have a false sense of security when they invest in an audited company?

‘To do an effective audit, the auditors would have to be in every single place all of the time watching every single bean come in and out of the company, which is clearly impossible.’

S.A.: Yes, audits give retail investors a false sense of security.The term “audit,” as it is currently used, is a fraudulent term.It is meant to convey a sense of confi dence in the fi nancialreports. Audits are not designed to fi nd fraud. However, thefi eld work performed by what we call “auditors” is of a limitedscope. They take samples. In reality, what we call “audits” areactually limited compliance reviews of the books and records.Currently, audits are essentially designed to catch accidentalmaterial bookkeeping errors, not deliberate fraud. To do aneffective audit, the auditors would have to be in every singleplace all of the time watching every single bean come in andout of the company, which is clearly impossible. What they aredoing now is basically potluck. That’s why most frauds are notcaught by auditors.

MW: You’ve noted that the largest chunk of frauds is found by tipsters. The SEC has beefed up its whistleblower program and is offering greater rewards for tips. Is that positive?

S.A.: I agree with that. I can tell you that the last thing anycriminal wants is an adversary with a profi t motive. That’s whyshort sellers do a very good job, and a lot of times they do abetter job than the auditors.

MW: What do you think about short sellers in general?

S.A.: There are good ones, and there are bad ones. The goodshort sellers know what they are doing, and they do a verygood job at ferreting out fraud. That’s just the way it is. It just

seems that short sellers uncover more fraud than the auditors that have access to the books and records.

MW: What do you think of the situation with Carl Icahn battling with Bill Ackman over Herbalife?

S.A.: America’s capital markets need lively debate. That’swhat capitalism is about. So when Bill Ackman can get on theair with Carl Icahn, and they can both debate their positions,irrespective of which one is right and which one is wrong, Ithink that is great. We have debate in politics, [so] why can’twe have it with public companies?

MW: Are insider-trading laws effective?

S.A.: No. The problem with insider trading is it is very diffi cultto police. Most of it is basically invisible. Meanwhile, theSecurities and Exchange Commission basically abrogatedits obligation to prosecute sophisticated fi nancial fraud wherecompanies, fi nancial or nonfi nancial, have manipulated theirbooks and records.

MW: Is your point that the SEC is allocating its resources to big insider-trading cases involving hedge funds and missing accounting-fraud cases and smaller insider-trading incidents?

S.A.: The big [insider trading] cases, once the SEC gets thetips and information, are relatively easier to prosecute thanaccounting-fraud cases. I’m not saying that insider-tradingcases are easy to prosecute, but they are easier to prosecutethan fi nancial-fraud cases. The SEC is not doing enough onfi nancial cases involving accounting fraud. The SEC doesn’thave the resources: only 4,000 people at the SEC, [while]there are 35,000 cops in New York fi ghting blue-collar crime.

MW: You teach a class?

S.A.: l teach about white-collar crime. One thing that comeswith the turf of being an effective white-collar criminal is thatyou have to be a good bullshit artist. You have to be a goodcommunicator, which means I can be a good teacher, too. I’velectured at Stanford’s business and law schools, I taught atthe College of New Jersey, I taught the FBI at their economic-crimes division, and I’ve taught the U.S. Justice Departmentat their training campus. I’ve talked to dozens of governmentagencies.

MW: I’ve heard a lot of concern from consumer-advocate groups about regulation under consideration by the SEC that would permit “crowdfunding,” which allows people to go online and invest in small businesses with very little SEC oversight or disclosure.

S.A.: The JOBS Act makes me want to reconsider myretirement from crime — ha-ha. It is a license to steal. Anytime you take away a layer of oversight, a layer of checks andbalances, the criminals are going to take advantage of it.

MW: Does the Internet make fraud easier?

7

S.A.: Just like regular people adapt to technology, criminalsalso adapt to technology and take advantage of it to commitdifferent types of crimes or to help them commit even morecrimes.

Somebody put out fake Twitter accounts for noted short sellers. We have identity fraud, and phony Facebook emails. So crime evolves. It is never going to go away. We are not going to structure our economy in a way that will eliminate crime. It is as old as the Bible.

MW: Is jail time a deterrent?

S.A.: No. I’ll give you a perfect example: Bernie Madoff. Youthink he read the papers every day? Watched TV ? He hadto see other people being carted off to jail — did it stop him?No. Somebody else going to jail is not going to help me fi ndGod. It’s not going to help me fi nd morality. It is not going tostop any crimes in progress. Most white-collar criminals arenot going to be deterred because someone else got caught.White-collar criminals take precautions, so the possibility ofjail time is not going to deter them.

Editor’s Note: Article was provided by Marty Stein,

ncpeFellowship member. Thanks Marty!

How Estate Planning is Changing

A revolution is underway in estate planning. At this point, you know about the 2012 changes to the tax law. Many people don’t realize the extent to which these changes require fresh approaches and strategies.

Unfortunately, many people believe the new law means estate planning is unimportant or at least much less important. That’s a mistake. Estate planning still is required, but how we plan needs to change.

A result of the 2012 law is that for most people income taxes are a higher burden than estate taxes, and as income rises the income tax burden is higher. The top tax rate was increased to 39.6%. Long-term capital gains and qualifi ed dividends had their rates increased to 20%. The phase outs of itemized deductions and personal exemptions were restored. In addition a new 3.8% Medicare tax on investment income was imposed by Obamacare.

These changes mean there should be new emphasis and focus in your planning, and you should reconsider your view of some strategies.

The new regime means greater consideration of income taxes. Estate planning can be much more important in helping to reduce income taxes, and coordinating your estate plan with your income tax situation is more important. Estate planners need to understand that estate planning strategies can be a key way to reduce income taxes. Here are areas to review.

Life insurance. Traditionally the main reason to buy permanent life insurance was to help pay for estate taxes. The number of

people with that need is reduced, but other ways of using life insurance can be more profi table, and some strategies that weren’t wise under the old law now make more sense.

Permanent life insurance has an investment component. Earnings of the policy’s cash value compound tax deferred as long as they remain in the policy. In addition, after the earnings compound for years, loans can be taken from the cash value. The loans are tax free and don’t need to be repaid during life as long as the cash value is suffi cient to help pay premiums or you’re willing to make additional premium payments. The loans eventually are subtracted from the death benefi ts, reducing the amount available to heirs.

Higher income tax rates make life insurance more attractive as an investment vehicle. The estate tax exemption can make it even more attractive. Under the pre-2010 law, many people avoided owning policies directly, because the benefi ts would be included in their estates and potentially subject to estate taxes. The higher estate tax exemption means fewer people have to worry about the estate tax reducing the insurance benefi ts. Now, most people can own the policies directly, have full access to the cash value, and their heirs still will receive the full benefi ts, minus any loans, free of estate and income taxes.

Borrowing from insurance cash value isn’t risk free. Many people in recent years found that because of low interest rates their policy cash values didn’t generate enough income to keep the policies in force without signifi cant new premium payments. If you plan to use life insurance as an investment vehicle, you need to work with a knowledgeable broker or agent to select and manage the policy.

The new law also makes life insurance more attractive in employer retirement plans. (They aren’t allowed in IRAs and some other retirement plans.) Buying the insurance through a pension plan means tax deductible dollars are used to make the purchase, and the insurance benefi ts should be far more than the premiums paid.

Estate planners often advised against the strategy because the life insurance would be included in the estate. With the higher estate tax exemption, however, fewer people need to worry about the estate taxes and can focus on the benefi ts of owning life insurance through a retirement plan.

Another change: It used to be routine that substantial life insurance policies would be held in trusts to ensure the benefi ts weren’t included in the taxable estate. With the high estate tax exemption, there is less need for incurring the expense and inconvenience of a trust. Many people now can own the policies themselves and still be confi dent the full policy value will be available to pay estate taxes or debts or enhance the inheritances of their loved ones.

Trust taxes. Trusts are in many estate plans these days, because they provide substantial benefi ts other than estate tax reduction. The estate planning benefi ts, however, can be offset by higher income taxes. Under the new law, even

8

moderately well-off people need to consider the effect on trust income taxes.

A trust reaches the top income tax bracket and also faces the new 3.8% Medicare tax on investment income in 2013 when its undistributed income is only $11,950. Keeping income in a trust can provide creditor protection and other benefi ts, but perhaps at the cost of substantially higher income taxes.

The income taxes can be managed. The trustee can invest with taxes in mind by focusing on long-term capital gains, qualifi ed dividends, and tax-exempt bonds. Assets with paper losses can be sold so the losses are available to offset gains and other income. Ideally, the trustee has the discretion to distribute income to benefi ciaries and will consider income taxes as one of the factors in making those decisions. Trustees with that discretion should consult with benefi ciaries to determine their income tax situations before making distributions.

Many people should reconsider their decisions to create trusts in their plans. As I said, there are many potential benefi ts of trusts. These benefi ts need to be compared to the potential higher income taxes of a trust.

This new outlook applies whether trusts are created during your lifetime or in your will.

Charitable gifts. Planning for charitable gifts is affected in several ways. Higher income tax rates mean some people will reap more savings from making the gifts now, but at higher incomes the phase out of itemized expenses could offset some of the benefi ts. Also, the higher estate tax exemption removes some of the benefi ts of making charitable gifts in your will. Taken together, these two changes mean that for some people the tax benefi ts of charitable gifts are reduced.

That’s not the full story. Taxpayers who aren’t affected by the phase out of itemized expenses receive the same income tax benefi ts from their donations as before 2013. Because of that and the higher estate tax exemption, there’s more of an incentive to make donations during life instead of through the estate. You receive the income tax benefi ts now and also see how your gifts are used. But if you make the gifts through your estate there might be no tax savings, plus you won’t see the results of your gifts.

Charitable remainder trusts still are valuable. They shelter appreciated assets from capital gains taxes, provide immediate income tax deductions, and generate a lifetime stream of income for you and your spouse. Gift annuities also retain their benefi ts for most people. You make a gift to charity, take a partial tax deduction, and receive a lifetime stream of income.

Lifetime gifts. Many people need to reconsider their lifetime giving strategies. With the higher exemption, fewer people need to remove substantial assets from their estates. Instead, your main concerns should be providing loved ones with wealth that will benefi t them and do so in a tax wise way.

Income taxes should take a bigger role in selecting gifts. When someone receives a gift of property, they take the same tax basis the giver had. If the property has appreciated, when the recipient sells the property he’ll owe taxes on all the appreciation. That’s why you should try to give property that hasn’t yet appreciated much but that you expect will appreciate after the gift. An alternative is to consider giving appreciated property to someone who will be in the 0% long-term capital gains tax bracket when he or she sells.

State taxes. Many states don’t have estate or inheritance taxes. About 20 states, however, impose one or both of them and often at lower exemption levels than the federal law. Planning to avoid these taxes is more important for residents of those states than planning for federal taxes.

Social Security Solvent Until 2033

The Social Security retirement and disability programs, taken in combination, have dedicated resources suffi cient to cover benefi ts until 2033, the Social Security program trustees said in their annual review released. (The 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds)

Taken independently, the Old Age and Survivors Insurance Trust Fund is projected to be exhausted by 2035 and the Disability Insurance Trust Fund “is expected to reach exhaustion” by 2016. For the long-term through 2087, dedicated payroll tax for each trust fund will cover more than three quarters of scheduled retirement benefi ts and 80% of scheduled disability benefi ts, the trustees reported. However, the report contained an explicit warning.

“While legislation is needed to address all of Social Security’s fi nancial imbalances, the need has become most urgent with respect to the program’s disability insurance component,” the trustees said. The Medicare Hospital Insurance Trust Fund will have suffi cient funds to cover its obligations until 2026, the Medicare trustees said. (2013 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds) This is two years later than was projected in 2012, and nine years later than was projected in the last report issued prior to passage of the Patient Protection and Affordable Care Act.

Tax Breaks Cost $12T Over Decade

The top 10 tax deductions, credits and exclusions will keep $12 trillion out of federal government coffers over the next decade, and several of them mainly benefi t the wealthiest Americans, a new study from the Congressional Budget Offi ce shows.

The top 20% of income earners will reap more than half of the $900 billion in benefi ts from these tax breaks that will accrue in 2013, the non-partisan CBO said on Wednesday.

Further, 17% of the total benefi ts would go to the top 1% of income earners -- families earning roughly $450,000 or more. The same group that was hit with a tax rate hike in January.

9

The benefi ts of preferential tax rates on capital gains and dividends, a break worth $161 billion this year, go almost entirely to the wealthy, including 68% to the top one percent of earners.

House Democrats, who requested that Congress’ budget referee conduct the study, argued that it backs up President Barack Obama’s proposed approach to tax reform and defi cit reduction: raise revenues by limiting the amount tax preferences for the wealthy.

“This shows that we could achieve a signifi cant amount of defi cit reduction by limiting the preferences to the highest income earners,” said Representative Chris Van Hollen, the top Democrat on the House Budget Committee.

Although the study did not provide income thresholds, U.S. Census Bureau data for 2011 shows the top 20% of household income extends to down to $101,582, a level that is considered middle-class in many parts of the United States. The lowest quintile topped out at $20,262 in the Census data.

Middle-Class Aid

But the study also showed that benefi ts for the largest of the tax preferences, the exclusion for employer-paid health benefi ts, worth $3.4 trillion over 10 years, are more evenly distributed, with well over half of the benefi ts going to the middle 60% of earners.

The middle 20 percent of earners also got the biggest benefi t from excluding a portion of Social Security and Railroad Retirement benefi ts, a perk worth $414 billion over 10 years.

Three other big tax breaks, the $2 trillion exclusion of net pension contributions and earnings over 10 years, the $1 trillion deduction for mortgage interest and the $1.1 trillion deduction for state and local taxes, also benefi ted the top 20% disproportionately.

Representative Sander Levin, the highest ranking Democrat on the House Ways and Means Committee, the panel that is trying to advance tax reform this year, said the study shows that Republicans would have to greatly reduce tax breaks that benefi t the middle class in order to achieve their goals of reducing tax rates and balancing the budget.

“The CBO report underscores the need to go beyond the rhetoric of lowering tax rates without indication of how that would be achieved or the implications for economic growth and tax equity,” Levin said.

A spokesperson for Ways and Means Committee’s Republican Chairman, Dave Camp, could not immediately be reached for comment on the study.

Republicans want to reform the tax code by eliminating certain deductions, credits and exclusions, but they do not want to divert any resulting revenues toward defi cit reduction. Instead they want to use the savings to lower rates, which they say will accelerate economic growth and increase revenue collection.

Democrat Van Hollen said his favored approach would be to limit the total amount of deductions for the top 2% of income earners, or families earning $250,000 or more, while leaving intact much of the top 10 tax breaks, which also include deductions for charitable contributions and tax credits for earned income and children.

These latter two tax breaks, which are largely aimed at the working poor, provide two thirds of their $118 billion in 2013 benefi ts to the lowest 40% of wage earners, the CBO said in the study. Over 10 years, these two credits will cost $1.2 trillion.

A Hidden Tax in Affordable Health Care

The healthcare law’s $2,500 annual cap on fl exible spending accounts will amount to a tax on older and sicker Americans.

The central provisions of the Affordable Care Act require younger and healthier Americans to buy insurance policies that will, in essence, subsidize the healthcare of older and sicker Americans. But one of Obamacare’s hidden taxes — a new limit on contributions to health fl exible spending accounts, or FSAs — will hit older and chronically ill individuals hardest.

Starting this year, the healthcare law imposes a $2,500 annual cap on an individual’s contribution to an FSA that is part of an employer’s “cafeteria” benefi ts plan. Such contributions, diverted directly from one’s paycheck, are not subject to federal income and payroll taxes. The money in an FSA can then be used to pay for qualifi ed medical expenses such as deductibles, co-insurance and co-payments, as well as services not covered by insurance.

Before the Act, there were no FSA contribution limits for workers under federal tax law. Employers set their own annual limits, and many chose amounts well above $2,500. The federal government, as one example, allowed FSA contributions of up to $5,000 a year.

This implicit “tax” on wage income that now won’t be diverted pretax into FSAs is expected to raise $1.5 billion this year, and a total of $13 billion between 2013 and 2019, according to the Joint Committee on Taxation.

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So when many variations on the assertion that if you have insurance from your job, nothing will change — that’s not actually true. The FSA limit is just one of the ways the law extracts billions from already insured workers to pay for an expansion of Medicaid and subsidies for policies to be sold on health insurance exchanges.

The trick, of course, was to raise this tax revenue without aggravating more political backlash against the law when it passed in 2010. That meant making many such changes, and then rolling them out over multiple years to obscure the overall impact of higher taxes. Among them: an additional 0.9% payroll tax on individual salaries above $200,000, new taxes of 3.8% on investment income in similar higher-income households, and a 2.3% excise tax on the sale price of medical devices, all of which kicked in this year. The individual mandate to purchase federally approved health insurance arrives next year.

But this revenue enhancement strategy hit particularly vulnerable targets with this FSA cap.

In a 2012 study published in Forum for Health Economics & Policy James Cardon, Mark Showalter and Joel Moore examined patterns of FSA usage by income and health status from 1998 to 2008. They found that of the estimated 13.9 million households nationwide with an FSA, 35% will be affected by the new FSA cap, with an average tax increase of $101 in 2013. By 2020, an estimated 41% of FSA households will hit the FSA cap because medical costs will rise faster than the infl ation-indexed limit on contributions.

Further, this tax burden will be highly skewed. The study found that among FSA-eligible households from 2004 to 2008, those who rank among the top 10% of contributors would have paid 66% of the additional tax if the cap were in place. And which households are most likely to set aside thousands a year for out-of-pocket health expenses? The sick. In fact, nearly two-thirds of these households included individuals with three or more chronic health conditions.

FSAs tend to be used for large and predictable healthcare expenditures such as prescription drugs to keep a chronic condition in check. Employees carefully estimate how much they should set aside because they forfeit the funds they don’t use by the end of a health plan year. In other words, few individuals needlessly pad their FSAs.

Consider households that put more than $2,500 in an FSA three or more times in a fi ve-year period. They tended to be older (average age 48) than those that never or rarely surpassed that amount. Also, 65% of such households were “unhealthy” (with three or more chronic conditions), while 35% of households that never used an FSA were “unhealthy.”

Of course, the third of taxpayers who itemize their deductions might still be able to deduct a portion of their medical expenses without FSAs. About 10.4 million fi lers did so in 2010. But those deductions do not reduce payroll taxes, and they only apply to very large out-of-pocket costs — expenses exceeding 10%

of a taxpayer’s adjusted gross income. That’s up from 7.5%, thanks to the healthcare law.

FSA caps refl ect the bias throughout the Act for more comprehensive (and therefore costly) insurance coverage. Yet it was the fl exibility of FSAs, which could fi ll certain gaps in coverage, that allowed employees to choose the more affordable plans that otherwise might appeal only to those with low health risks. This was good for employers too because they could get both “healthy” and “unhealthy” enrollees into one insurance pool, increasing the cost-sharing and risk-sharing across more people.

In March, the Senate approved an amendment to its budget to repeal the $2,500 FSA cap, but because a fi nal joint House-Senate budget resolution for the next fi scal year remains extremely unlikely, we’re probably stuck with this cap for now. Still, substantial support exists on Capitol Hill to remove this tax burden, which poses a danger to the health of chronically ill Americans.

E-Services: Disclosure Authorization andElectronic Account Resolution ApplicationsRetire in August

Due largely to low usage, the IRS will retire and remove the Disclosure Authorization (DA) and Electronic Account Resolution (EAR) applications from e-Services effective Aug. 11.

Last year, users submitted less than 10 percent of all disclosure authorizations through the DA application. Similarly, only three percent of all account-related issues came in through the EAR application.

In anticipation of this change, the IRS has increased the number of employees who process authorizations and has improved internal work processes to decrease the average processing time signifi cantly from the current 10-day processing period.

The IRS will continue to explore better ways to reduce processing time and improve overall service to the users. However, current budget cuts will impact their dedicated resources to this program and they are working to determine the impact on processing time.

Once IRS removes the two applications, former DA users will need to complete Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorizations, and mail or fax it to the appropriate IRS location listed on the form’s instructions. Please allow at least four days for the authorization to post to the IRS database before requesting a transcript through the Transcript Delivery System. Former EAR users should call the Practitioner Priority Service at 1-866-860-4259 for help resolving account-related issues.

The IRS continues to look for ways to improve its current processes and is exploring an improved electronic solution

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for DA and EAR in the future.

Richest 20 Percent Get Half the Overall Savings from U.S. Tax Breaks, CBO Says

The 10 largest breaks in the U.S. tax code will save taxpayers more than $900 billion this year, with a little more than half the benefi ts fl owing to the richest 20 percent of households, congressional budget analysts said Wednesday.

And the richest 1 percent of households, those with at least $327,000 in annual income, get an especially big haul — about 17 percent of the total savings, according to the report by the Congressional Budget Offi ce.

Democrats seized on the new analysis, saying it provides fresh support for President Obama’s claim that limiting tax breaks for the rich offers a more sensible path to defi cit reduction than sharp cuts to agency budgets, known as the sequester. The sequester, which took effect March 1, will cut U.S. agency spending by roughly $42 billion through Oct. 1.

Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee, noted the recent announcement that schoolteachers of children of active-duty military families at Fort Bragg, N.C., will be furloughed for fi ve days in the fall because of the cuts.

“We think it’s important to decide whether we want to prioritize education for the kids of our servicemen and women or tax expenditures for the top 1 percent,” Van Hollen said.

Republicans, too, welcomed the report, saying it sheds new light on potential policy choices as lawmakers in both parties consider a comprehensive overhaul of the tax code. While Democrats want to limit tax breaks to generate new revenue for the government, Republicans want to return the money to taxpayers in the form of a simpler code with lower rates for everyone.

“This CBO report will help the American people and their elected representatives in Congress fully understand who benefi ts from which tax expenditures as we move toward

a comprehensive tax overhaul,” said Antonia Ferrier, spokeswoman for Sen. Orrin G. Hatch (Utah), the senior Republican on the Senate Finance Committee.

The tax code is littered with a profusion of deductions, exclusions and credits that serve to reduce federal tax bills mainly for individuals, but also for corporations. The 10 largest breaks affect individual tax bills and taken together will cost the Treasury about $925 billion in the current fi scal year, the CBO said, making them more expensive than any of the biggest government spending programs — including Social Security, Medicare and the military.

According to the CBO, the biggest tax breaks by dollar value this fi scal year are the tax-free treatment of employer-provided health insurance (about $260 billion), preferential rates for dividends and capital gains ($160 billion) and tax-free contributions to retirement savings ($140 billion). Deductions for state and local taxes ($80 billion), mortgage interest ($70 billion) and contributions to charity ($40 billion) are also among the top 10, as is the tax-free treatment of capital gains on assets transferred at death ($50 billion).

All of those breaks primarily benefi t wealthy households, according to the CBO. Rounding out the top 10 are three breaks that primarily benefi t lower-income households: the tax-free treatment of most Social Security benefi ts ($35 billion), the child tax credit ($60 billion) and the earned-income tax credit ($60 billion).

Some argue that it might be reasonable for the rich to receive a large portion of the benefi t from federal tax breaks because they pay an outsize share of federal taxes. According to the independent Tax Policy Center, the richest 20 percent of households paid nearly 70 percent of federal taxes last year.

But the CBO noted that tax breaks are essentially equivalent to government spending, intended to encourage and subsidize various behaviors, such as buying a home, saving for retirement and giving to charities. The rich are likely to engage in those activities even without such “fi nancial assistance,” raising the question of whether that money could be better spent on other priorities.

Confused IRS Tax Rules Threaten Obamacare Rollout

Gallup conducted a survey to determine small business attitudes toward the Affordable Health Care Act, better known as Obamacare. The results were not encouraging for backers of the law.

The polling fi rm determined that as many as a quarter of small business employers were restricting job openings to part-time workers. Nearly half said Obamacare would be bad for their business, compared to only 9 percent who said it would be a good thing. More than half believed they would be forced to reduce the quality of the health care they provide.

But small businesses aren’t the only ones concerned about

Size and Distribution of Selected Major Tax Expenditures,by Income Group, 2013

Exclusions from Taxable Income

Net Pension Contributions and Earnings

A Portion of Social Security and Railroad Retirement Benefi ts

Capital Gains on Assets Transferred at Death

Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile

Source: Congressional Budget Offi ce

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Obamacare implementation. Dave Du Val, vice president of tax services at TaxAudit.com, said tax preparers are worried the IRS won’t be prepared.

“The expectation is that the forms will not be ready on time and our clients will have to wait until the middle of tax season to fi le,” Du Val said in an email to The Fiscal Times. “When this happens, there is a rush to get everything done at the last minute, and this leads to mistakes, which can then lead to problems that may come up one or two years later when the IRS questions the entries on the return.”

Chris Hesse, chair of the American Institute of Certifi ed Public Accountants’ S Corporation Technical Resource panel, added that regulations on how CPAs should report information to the IRS related to the law are not expected to be fi nalized until the end of 2014.

He said this could lead to confusion over how the law will be implemented – and a lack of guidance on best practices for CPAs could lead to chaos. These concerns prompted the AICPA to send a 34-page letter to the IRS on Monday outlining a list of concerns about Obamacare.

“There’s guidance there, but it’s not regulatory guidance. You can make up your own rules, but they still have to be within the code,” he said. “How are CPAs supposed to interpret those kinds of comments or apply rules where the regulations are issued but aren’t technically in force?”

This is just a snapshot of the turmoil the tax preparation industry expects come tax season. Accountants don’t trust the IRS to be prepared. Small businesses – many of which will be required to give health care insurance to work forces of 50 or more people – openly oppose it. And the public trust in the IRS continues to erode as more information emerges on the targeting of conservative groups.

In addition, there’s a growing concern among the accounting community that many tax preparers don’t fully understand what’s required under Obamacare.

Howard Rosen, an accountant at Conner Ashin St. Louis and a member of the BKR Association, said that many CPAs are beginning to work with small businesses with a workforce near the 50-person threshold, as well as with wealth individuals whose taxes will go up. But learning about how the IRS will enforce Obamacare’s provisions, along with determining

exactly how the IRS will determine income – AICPA’s letter was dominated by these questions – has not yet been etched in stone.

“We are truly learning as we go. We have the basics down,” he told The Fiscal Times, adding that he’s attending a class in Baltimore on the law next month. “There’s a decent understanding of the law. I wouldn’t call it a good understanding.”

Kenneth Laks, a CPA at AVZ & Company and also a member of the BKR Association, said accountants have been adjusting to changes since the law was passed. But many simply aren’t aware of just how much is going to change during next year’s tax season.

“My take on it is it’s certainly not going to be a smooth ride,” he said, noting the expected confusion in states that refuse to set up insurance exchanges. “There are a lot of people who are very unaware of what’s happening and what other things are coming. There are so many little nuances people aren’t aware of. The average preparer is not prepared.”

Attorney Paul M. Hamburger of Proskauer, a global law fi rm, said on Monday, “The degree of complexity and challenges facing companies is really unprecedented – particularly in the health plan area.”

“There’s tremendous confusion and uncertainty about, for example, the pay-or-play, shared responsibility mandate governing who your full time employees are and what strategies you can employ to minimize your exposure to various penalties,” he added. Hamburger is co-chair of his fi rm’s employee benefi ts section.

Even before Obama signed the law, Hamburger’s fi rm began assembling a 50-60 member task force to advise clients, conduct seminars and update a health care reform website.

Steven Friedman, co-chair of the employee benefi ts practice group at Littler Mendelson, the largest U.S.-based law fi rm representing management in employee benefi ts and labor law, said one unfortunate consequence of the law is that many small businesses are postponing hiring or putting off expansion, to avoid having to meet the health insurance requirements of the new law.

“If a business is close to having 50 full time employees, but is under that level, there’s a pretty good chance they don’t want to hire that 50th additional person who will put them over the limit,” Friedman said.

Bar Codes to Replace Social Security Numbers on Some IRS Notices to Taxpayers

The IRS is in the process of replacing Social Security numbers with two-dimensional bar codes on nearly all of its notices in an effort to address the growing identity theft problem, according to Rebecca Chiaramida, director of the Offi ce of Privacy.

13

Chiaramida, speaking during a Tax Talk Today webinar on identity theft, fraud, and taxes on June 11, also said that the IRS is reviewing its need to collect SSNs, and does not want to collect the numbers unless it is necessary to do so.

The IRS has already masked SSNs on several notices and has reviewed other forms, letters, processes, and systems to consider whether SSNs need to be displayed, Chiaramida said. She cautioned that the bar codes will not be used on documents that are statutorily required to include SSNs.

Chiaramida said that the bar code initiative and the use of partial SSN’s, Taxpayer Identifi cation Numbers, and other identifi cation numbers should, collectively, prevent tax-related fraud by making it more diffi cult for identity thieves to steal taxpayers’ SSNs.

IRS: The Numbers People by the Numbers

The percentage of Americans who like or love doing their taxes, according to a poll in April by the Pew Research Center. That includes 32 percent of Republicans and 40 percent of Democrats. More Republicans than Democrats (78 percent versus 68 percent) say it is morally wrong to underreport income to the IRS.

Your odds of trouble

1: The approximate percentage of individual tax returns that are audited. Returns with certain red fl ags are much more likely to earn IRS scrutiny. And the more you make, the more likely you’ll be audited.

12: The percentage of 2011 returns reporting income over $1 million that were audited.

A money-maker

48 cents: The average cost to the IRS of collecting $100, in 2012. Since 1980, that cost has hit a low of 39 cents in 2000 and a high of 60 cents in 1993.

Happy campers?

66: The IRS score, out of 100, in a measure of employee morale by the federal Offi ce of Personnel and Management. In a 2012 ranking of job satisfaction in 292 federal divisions, the IRS fi nished in 98th place.

76.6: The score in the Offi ce of the Inspector General for Tax Administration, making it the 13th best place to work in government. This is the offi ce that exposed special IRS audits of tea party and conservative groups.

85.7: The blissful score of the U.S. Army Audit Agency, which topped the survey.

34.7: The worst score in the survey went to the Homeland Security Department’s offi ce of the undersecretary for science and technology.

Gender bender

65.5: Percentage of the IRS workforce that is female. In contrast, women make up only 43.5 percent of the federal civilian labor force and 46.8 percent of the civilian workforce. IRS employees are less likely to be white, 57 percent, compared with 66 percent in the federal bureaucracy overall and 73 percent of the civilian workforce.

Who they are

97,717: The IRS workforce in 2012, down about 10,000 from 2010. Peak fulltime employment in modern times: 116,673 in 1992.

$27,568 to $41,771: Starting salaries for revenue agents. The IRS promises new hires “an outstanding work-life balance,” “substantive and rewarding work” and “satisfaction in knowing that you’re serving your nation.”

3,000: The number of IRS employees who work on identity theft and refund fraud – efforts that the IRS says saved more than 3 million fraudulent refunds worth more than $20 billion from being issued in 2012.

Oops!

2.7 million: The number of taxpayer math errors caught by the IRS in the 2011 tax year. Way up from 1.2 million the year before.

The stat blizzard

$2.5 trillion: Gross taxes collected in 2012 – $2.2 trillion after refunds.

54,000: The number of IRS audits that went swimmingly for the individual taxpayer last year, resulting in even higher refunds, altogether worth almost $1 billion. The odds of this happening are slim: In all, 1.5 million individual returns were examined.10,743: The number of returns from tax-exempt organizations audited by the IRS in the 2011 budget year. That’s roughly 1 in 8 returns. Although such groups don’t owe federal income tax, they may owe payroll, excise or other taxes.

2.2 billion: The number of third-party forms, from employers, banks and the like, fi led to the IRS in 2012. These forms are key to tracking down income that the taxpayer doesn’t report. The IRS found enough underreported income this way to issue an additional $7.1 billion in tax assessments. Using this information, it also assessed almost $6.8 billion from people who didn’t fi le any return and should have.

If someone who owes taxes doesn’t fi le a tax return and the IRS fi nds out, it can prepare its own return for that person, assessing the tax. This helping hand comes with the slap of interest and penalties.

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The enforcers

5,125: The number of criminal investigations started by the IRS in 2012 in cases involving legal income, illegal income generally and narcotics-related income specifi cally.

$27 billion: Civil penalties assessed by the IRS in 2012 for delinquent individual taxes, serious inaccuracies, negligence, fraud, bad checks and other misbegotten fi lings.

2,466: The number of people sentenced for tax crimes in 2012. Of them, 81.5 percent, or 2,009, were sentenced to prison, home confi nement, electronic monitoring or a combination.

The gentler IRS

31 million: The number of calls to the IRS toll-free assistance line that resulted in a conversation with an actual IRS person. In addition, the assistance center handled 59 million automated calls. Also, nearly 7 million face-to-face contacts in assistance centers.

98,978: The number of volunteers who helped taxpayers complete returns at 13,143 IRS assistance sites.

3.3 million: The number of returns prepared under an IRS program using volunteers to help the elderly with their taxes.

The tax-exempt pipeline

52,615: The number of organizations granted tax-exempt status in 2012, out of 60,795 applications processed by the IRS.

2,324: The number of “social welfare” groups granted tax-exempt status in 2012, out of 2,774 applications processed. Only 8 were rejected outright, but 442 did not get approved because they were withdrawn, contained incomplete information or had other problems.

Death and taxes

546: The number of cemetery companies granted tax-exempt status in 2012.

These fi gures are for a mix of calendar and budget years.

Transparency in Small Business Assistance Act Increases Transparency, Responsiveness at the SBA

U.S. Senator Dean Heller (R-NV) announced introduction of the Transparency in Small Business Assistance Act (S. 936). Heller’s bill will help the Small Business Administration (SBA) and Congress determine whether SBA assistance programs provide effective and consistent help to small businesses.

“My number one priority in Congress is getting Nevadans back to work. Over the last four years, many small businesses - the

lifeblood of our economy - have had to rely on SBA assistance programs in order to survive. It is important to track whether this assistance has been benefi cial to small businesses. If the assistance programs are not working properly, Congress must take necessary actions to improve these programs,” said Senator Dean Heller.

A recent GAO report revealed that the SBA typically does not collect information to track the success of its programs. Collecting information from businesses who have received SBA assistance will enable the SBA and Congress to measure program outcomes, ensure the federal government is not wasting taxpayers’ dollars, and provide effi cient and effective support to small businesses.

Bill Summary:

Heller’s SBA Effi ciency Act would require the SBA to collect information related to:

• Whether a small business is still operational six monthsand one year after receiving assistance through theSBA.

• The reasons for closure if a small business is no longerin operation.

• A business’s average employment six months and oneyear after it received assistance through the SBA.

• Number of referrals an SBA program makes to otherSBA programs or agencies if they are unable to providethe proper small business assistance.

Tax Writers Max Baucus, Dave Camp Plan Summer Taxapalooza

The chairmen of the two tax-writing committees of Congress will hit the road together over the summer to promote a proposed revamp of the tax code, the two announced Friday.Rep. Dave Camp, R-Mich., and Sen. Max Baucus, D-Mont., didn’t say what will be in the sweeping proposal to change the nation’s tax laws. “Stay tuned, it’s coming,” said Baucus, the chairman of the Senate Finance Committee and its longest-serving member.

To prepare for what they hope will be the fi rst major overhaul of the tax code since the 1980s, the two said they’d travel together to several cities to listen and make the case for

15

change.

“We’re going to talk to people, families, consumers, business groups . . . to get a better idea of what people are thinking,” Baucus said. The two men spoke at a breakfast sponsored by The Christian Science Monitor.

When they’re not out in the country together, said Camp, who’s the chairman of the House Ways and Means Committee, they’ll hold bipartisan luncheons to address the concerns of lawmakers ahead of a proposal later this year.

The last time the Congress undertook a comprehensive rewrite of the tax code was 1986, and it was the culmination of a three-year process. That’s why many skeptics in Washington doubt there’s suffi cient momentum for tax restructuring, much less for a hurried effort.

Despite representing parties with great philosophical differences, Baucus and Camp said they genuinely liked each other and were working to fi nd middle ground. Both think the looming battle over raising the federal debt ceiling later this year, roughly mid-October, might be the vehicle for moving tax legislation.

The debt ceiling battle was expected to happen over the summer, but a stronger infl ow of revenue has pushed that projected date into the fall.

If a tax overhaul doesn’t happen this year, Baucus said, it might not happen until after the 2016 presidential election. That’s because President Barack Obama won’t be on the ticket, so candidates within each major party will be jockeying for the presidency, leaving congressional action in limbo.

“I think it’s going to be very diffi cult to pass tax reform in that context,” Baucus said.

Both chairmen refused to say what they supported or what tax loopholes they’d propose closing. Camp focused instead on areas of agreement.

“There are so many good (tax) simplifi cation policies that we agree on,” he said.

Asked whether they’ll propose limiting the mortgage-interest deduction that homeowners now enjoy, Camp acknowledged that two-thirds of Americans don’t itemize their federal taxes and said that perhaps a complete rethink was in order.

The only tax the two commented on directly was a carbon tax, which would be levied on carbon-emitting energy products.

“My mantra is – and I mean it – everything is on the table,” said Baucus adding that several senators have expressed interest to him in some form of a carbon tax. “It’s creeping up a little bit.”

Camp disagreed. “I don’t support the carbon tax,” he said.

The two chairmen also have jurisdiction over the Internal Revenue Service, and they repeated promises to get to the bottom of a blossoming scandal over the agency’s targeting of conservatives for extra scrutiny.

Camp said his staff had had preliminary interviews with IRS staffers and that his committee, which held high-profi le hearings, would get important documents from the IRS soon.

“This is going to take time,” he said, likening it to a white-collar prosecution in which government documents are essential to making the case.

The two chairmen sidestepped commenting on a controversial proposal to be raised next week at the Group of Eight summit of leading industrialized nations. Concerned about global tax evasion, British Prime Minister David Cameron wants to force multinational companies to report their taxes on a country-by-country basis and shell companies to declare their benefi cial owners.

“The G-8 summit should take advantage of the emerging international consensus that we can no longer allow profi table multinational corporations to play one country off another, ducking corporate taxes and leaving other taxpayers to pick up the slack,” Sen. Carl Levin, D-Mich., said in a statement Friday.

Levin heads the Senate Permanent Subcommittee on Investigations, and hearings he’s held have alleged that big corporations such as Apple have skirted their tax obligations.

People in the Tax News

Vincent J. Fumo Fights IRS

Imprisoned former Pennsylvania State Sen. Vincent J. Fumo has challenged the $3 million tax bill the IRS has newly levied against him, asking the federal courts to overturn the levy as unwarranted and unfair.

In the fi ling by lawyer Mark E. Cedrone, Fumo, 70, says he expects to be released from federal prison in Kentucky in August.

Fumo is fi ghting the IRS’s claim that he owes about $2.1 million in back income taxes for the value of service he obtained in his crimes, $354,000 in penalties for abusing a nonprofi t, and $503,000 in unpaid gift taxes on a big cash transfer to his son.

His fi ling objects to liens the IRS placed in March against a number of Fumo properties, including his Victorian mansion in Philadelphia’s Spring Garden section and a farm near Harrisburg that Fumo sold for $10 to his fi ancée, Carolyn Zinni.

In a series of property transfers in recent years, all for $10

16

or less, Fumo added his son, Vincent E., to the deed of the mansion, sold the farm outright to Zinni, and added her to the deed of his beach-block home in Margate, N.J.

The IRS has said Fumo seemed to be trying to put some of his assets out of its reach. Fumo says he made the transfers for reasons “completely unrelated to any prospective tax liabilities.”

Fumo says he made the deals when he did for fear that Congress might be on the verge of increasing taxes on such transfers.

Once the most powerful Philadelphia Democrat in the legislature, Fumo was convicted of defrauding the Senate and two nonprofi t organizations, and of trying to orchestrate a cover-up.

A federal jury found that Fumo ripped off the Senate by using taxpayer-paid staff as servants and campaign operatives.

It found Fumo had similarly abused a South Philadelphia neighborhood-improvement organization, using its money for political polls, for equipment for his farm, and to buy tens of thousands of dollars’ worth of personal items.

In the fi ling, Fumo says the IRS needlessly took action to “freeze” his access to six bank accounts. The bulk of the frozen money was in Fumo’s $2.5 million tax-deferred retirement account, it says.

Fumo says the new income-tax levies and penalties unfairly place a liability on him for the losses of the groups victimized in his scams.

The IRS is also demanding that Fumo pay $502,000 in gift taxes, saying that is due on $920,000 in cash he transferred to his son in 2009 after his conviction.

But Fumo’s fi ling says the IRS misunderstood the transaction. Fumo “made no gift to his son,” it says. Rather, the fi ling says, he granted him power of attorney and transferred money to him so the younger Fumo could take care of fi nancial issues while his father was behind bars.

Shortly after his release in August, Fumo will face a resentencing hearing focused only on how much he must pay in restitution. He has already paid almost $4 million in restitution and fi nes, but a federal appeals court recommended he be ordered to pay almost $800,000 more.

Ex-IRS Leader Urges Joint Congressional Probe of Agency’s Targeting

A former IRS commissioner urged Congress to set up a joint congressional committee to investigate the Internal Revenue Service’s targeting of Tea Party and other conservative groups, which he called “very troubling.”

While defending the overall integrity of IRS employees, Mark

Everson told NBC NEWS exclusively that an “independent, strong congressional investigation to establish the facts and reassure the American people” is needed and that it can best be done thru a joint, bipartisan select committee of members from the Senate and House – a mechanism used to investigate the Iran-Contra scandal of the 1980s.

Former IRS Commissioner Mark Everson

“We don’t know everything by far at this point, but what we know is bad enough,” Everson said in an interview. “Because the IRS is so central to our government—it touches on so many people—I think it’s important Congress speak with one voice.”

Everson, who was appointed by President George W. Bush and headed the IRS from 2003 to 2007, says he always believed that IRS employees at all levels did their best to be impartial.

In assessing the agency’s current diffi culties, Everson said mistakes clearly were made by front-line workers in the tax-exempt unit in Cincinnati, who “lost their minds” in using criteria that targeted Tea Party and other conservative groups for extra scrutiny. He said there also was inadequate supervision by managers, because after problems occurred it took two years to work out neutral criteria for dealing with applications for tax-exempt status by these groups.

Everson saved his strongest words for top IRS offi cials, whose failure to immediately inform Congress of the targeting he called “absolutely unforgivable.”

In March 2012, then IRS Commissioner Doug Shulman rejected complaints that conservative groups had been targeted, telling a congressional committee, “There’s absolutely no targeting.” Within two months, senior IRS offi cials were informed that both an internal IRS investigation and a probe by the Inspector General had found conservative groups were singled out for extra scrutiny. But over the next year, that information was never shared with Congress, agency offi cials now acknowledge.

“It was just tragically wrong to say that there was no targeting and then not to correct the record,” Everson said, adding it “was also sort of shocking.”

17

Everson says he favors a special joint congressional committee to investigate this matter to ensure Congress gets to the bottom of what happened and in hopes of reducing political partisanship. He also wants to free tax-writing committees to focus on much-needed tax reform. Everson says he does not favor appointment of a special prosecutor at this time.

“I’m very concerned about the damage to the IRS and frankly to the country,” he said. “People trust the IRS to do a tough job but to do it fairly and that’s what’s been undermined here.”He expressed concern that this scandal could have the same corrosive effect on the IRS as the Vietnam War did on the U.S. military if not handled properly.

Editor’s Note: This article is a complete departure

from the Former Commissioner’s remarks in a recent

professional organizations magazine where he endorsed

Steven T. Miller, then Acting IRS Commissioner, to be

named Commissioner of IRS. What a difference a day

makes, not to mention an arrogant testimony before the

United States Congress.

At IRS, What Happens In Vegas Doesn’t Stay In Vegas

Here’s some press the IRS could use. An IRS Revenue Agent in Sin City is reportedly too soft on collections. In fact, the IRS and prosecutors are claiming that he is so easy on taxpayers, he’s closing out cases and leaving money on the table. Wait, there’s more.

The Las Vegas IRS Agent is so lenient the government claims it’s a crime. . Maybe this fellow needs to transfer to Cincinnati to work on some Tea Party exemption applications. Hey, it sounds at least as good as a Star Trek video.

The IRS employee in the middle of the Vegas Strip is Revenue Offi cer Anthony M. Zecchino. He has fi led a lawsuit claiming that the IRS targeted him in a criminal investigation. It’s bogus, he claims, and was done in retaliation for employment discrimination claims he fi led earlier this year.

The suit says Mr. Zecchino received a target letter from Assistant U.S. Attorney Kathryn Newman after his lawyers fi led a discrimination complaint. See Target Letter. A target

letter would be upsetting to anyone. This one did not accuse Agent Zecchino of personally benefi ting from his kinder and gentler collecting, though it does suggest some taxpayers got way too good a deal.

In fact, it claims Agent Zecchino might have violated two federal criminal statutes. Let’s see, there’s unlawful acts by revenue offi cers and theft of government funds. The feds suggest he ran afoul of these rules by “improperly and fraudulently” closing collection cases despite identifi able assets that were there for the taking.

With all the current scandals, doesn’t that sound pretty tame? Still, Zecchino’s lawyers said the target letter is an attempt to intimidate him into abandoning his discrimination claims against the IRS. Here’s the back-story. Agent Zecchino claims his supervisors made derogatory remarks about his Italian heritage, including “all Italians dress like pimps.”

One superior allegedly remarked that Agent Zecchino collected taxes “like the Godfather and the Sopranos.” When Zecchino complained, the supervisor’s boss ignored the allegations. Zecchino says that’s when things got ugly, triggering a “deranged and retaliatory” campaign against him. It led to a demotion, the denial of 240 hours of sick leave and being targeted in the criminal investigation.

Of course, Zecchino still works for the IRS, though it’s likely a tense offi ce. Zecchino’s suit says he has been relegated to manning a reception kiosk at the IRS and denied an opportunity to transfer outside Nevada. (Are there really IRS kiosks in Las Vegas?)

What do taxpayers think of all this? Agent Zecchino states in his suit that he has been “recognized by taxpayers for his sense of compassion, fairness and pleasant personality.” If that’s true, it probably means the public would rather have him out there cutting deals than sitting in an IRS kiosk.

Dancing Employees Revealed In Recently Released IRS Video

In the latest black eye for the Internal Revenue Service, the agency provided Congress with another video featuring its employees, this one showing about a dozen of them line dancing on a stage.

The video of the IRS workers practicing their dance moves, which lasts just under three minutes, comes weeks after it was revealed that agency workers produced two other videos

18

parodying the “Star Trek” and “Gilligan’s Island” TV shows.

The latest recording cost about $1,600 and was produced to be shown at the end of a 2010 training and leadership conference held in Anaheim, Calif., said IRS spokeswoman Michelle Eldridge. At a time when most government agencies are coping with across-the-board spending cuts by furloughing workers and fi nding other savings, that conference has become the target of a report a Treasury inspector general plans to release next week.

The report, called “Collected and Wasted: The IRS Spending Culture and Conference Abuses,” will be the subject of a hearing Thursday by the House Oversight and Government Reform Committee, that panel said Friday.

The IRS is also under fi re by lawmakers and the Obama administration for targeting conservative groups applying for tax-exempt status for tough scrutiny between 2010 and 2012. That screening, revealed May 10, has led President Barack Obama to replace the agency’s acting chief, and two other top offi cials have also stepped aside.

All three videos were provided in response to a request by a senior member of the House Ways and Means Committee, Rep. Charles Boustany, R-La.

“The outrage toward the IRS is only growing stronger,” said Boustany, who chairs the Ways and Means oversight subcommittee. “Clearly this is an agency where abuse and waste is the norm and not the exception.”

In a written statement, the IRS said the video was “unacceptable and an inappropriate use of government funds.” It said the agency has new policies in place “to ensure that taxpayer funds are being used appropriately.”

Eldridge said the dance video was recorded at IRS offi ces in New Carrollton, Md., outside Washington, D.C.

In the video, various workers comment as colleagues practice their dancing in the background to music that sounds like “Cupid Shuffl e,” a 2007 hit by the performer Cupid. In the version obtained by The Associated Press, IRS employees’ names have been erased.

At one point, one woman says, “And I thought doing the `Star Trek’ video was humiliating.”

That “Star Trek” video was produced for the same 2010 conference. The agency called the “Star Trek” video, which lasted six minutes and featured employees dressed as characters from the popular show, a mistake.

The “Star Trek” and “Gilligan’s Island” videos cost about $60,000 combined to make, the IRS said in March.

The “Gilligan’s Island” parody was used at the beginning of a 12-hour video the IRS used in 2011 to train its workers on various tax issues, Eldridge said. The entire video was used

to train 1,900 workers who assist taxpayers over the phone and in offi ces around the country, she said.

In a separate statement, Danny Werfel, the IRS’ new acting commissioner, called the 2010 conference “an unfortunate vestige from a prior era.”

He added, “While there were legitimate reasons for holding the meeting, many of the expenses associated with it were inappropriate and should not have occurred.”

Werfel said the IRS has since instituted spending restrictions that include scaling back travel and training expenses by more than 80 percent since 2010.

“Taxpayers should take comfort that a conference like this would not take place today,” Werfel said.

In a statement, the Treasury Department – of which the IRS is part – said it puts “the highest priority on protecting taxpayer dollars.” It said it would work with Werfel as he reviews his agency’s operations and tries to “restore public confi dence in the IRS.”

The 2010 conference was attended by 2,600 IRS workers from 350 offi ces around the country that handle tax returns for small businesses and self-employed individuals, Eldridge said.

US Tax Agency Suspends Two for Accepting Free Food, Gifts

The scandal-plagued IRS suspended two offi cials accused of inappropriately accepting free food and gifts at a conference under investigation for lavish spending by the US tax agency. Acting Internal Revenue Service Commissioner Danny Werfel said he placed the staffers on administrative leave for receiving the food and gifts at a private party in Anaheim, California, where IRS managers were attending a 2010 conference.

“When I came to IRS, part of my job was to hold people accountable,” Werfel said in a statement. “There was clearly inappropriate behavior involved in this situation, and immediate action is needed.” The IRS said it has begun the process of removing the employees “pending further review.” A congressional aide confi rmed that one of those suspended was Fred Schindler, a deputy to Sarah Hall Ingram, who oversees the IRS aspects of implementation of President Barack Obama’s health care law.

A report by Buzzfeed said Schindler and a second staffer were put on leave for accepting $1,162 in free food and gifts provided by an event planner during an “after hours” party in Anaheim.

Other media outlets identifi ed the second staffer as Donald Koda, who also works on implementing the health care law.

The Treasury’s inspector general for tax administration released a report on the 2010 conference attended by 2,600

19

people, for which it said the IRS spent at least $4.1 million.

Republicans immediately seized on the report, which said the IRS paid $50,187 for production of two videos, including a short parody of the science fi ction TV show “Star Trek,” and US$133,000 in commission to two event planners.

Some $64,000 was also spent on gifts and souvenirs for participants, according to the report.

“The wasteful Anaheim conference is one example of a culture of excess that plagues the IRS and many federal agencies,” said House Oversight and Government Reform Committee Chairman Darrell Issa, a persistent critic of the Obama administration.

The revelation is the latest black eye for an agency that last month admitted its agents inappropriately targeted conservative groups applying for non-profi t status.

Werfel was appointed to run the agency after Obama forced the previous head to resign over the wrongdoing, which burst into a full-blown scandal last month when the Treasury inspector reported the abuse that had gone on between 2010 and 2012.

The head of the IRS tax-exempt organizations division, Lois Lerner, came under intense criticism for failing to alert Congress about the inappropriate scrutiny.

Irate lawmakers have held several hearings in recent weeks on IRS abuse.

They called on Lerner to testify before a House panel on May 22 but she refused, and was placed on paid leave the next day.

Issa has scheduled a hearing on the excessive spending at IRS conferences.

H&R Block Points to Tough Tax Season as 4th-Qtr Results Fall Short; Shares Slip

H&R Block Inc.’s fi scal fourth-quarter net income jumped 13 percent as cost cutting helped offset a diffi cult tax season, but the results missed market expectations.

The tax preparation company says it faced new hurdles with last-minute tax law changes, a delayed start to the fi ling season and new fraud controls.

H&R Block says its net income rose to $664.3 million, or $2.42 per share, for the quarter ended April 30. That’s up from $586.1 million, or $1.99 per share, last year.

It earned $2.54 per share on an adjusted basis versus $2.05 per share last year.

Revenue increased to $2.2 billion from $2 billion.

Analysts, on average, anticipated earnings of $2.61 per share, on revenue $2.28 billion, according to FactSet.

Shares fell 1 percent aftermarket after the results were released.

IRS News

IRS Higher-ups Requested Info on Conservative Groups, Letters Show

Lois Lerner, director of Exempt Organizations for the IRS, is surrounded by Capitol police as she boards an elevator after being excused from a House Oversight and Government Reform Committee hearing in Washington.

Additional scrutiny of conservative organizations’ activities by the IRS did not solely originate in the agency’s Cincinnati offi ce, with requests for information coming from other offi ces and often bearing the signatures of higher-ups at the agency, according to attorneys representing some of the targeted groups. At least one letter requesting information about one of the groups bears the signature of Lois Lerner, the suspended director of the IRS Exempt Organizations department in Washington.

Jay Sekulow, an attorney representing 27 conservative political advocacy organizations that applied to the Internal Revenue Service for tax-exempt status, provided some of the letters to NBC News. He said the groups’ contacts with the IRS prove that the practices went beyond a few “front line” employees in the Cincinnati offi ce, as the IRS has maintained.“We’ve dealt with 15 agents, including tax law specialists -- that’s lawyers -- from four different offi ces, including (the) Treasury (Department) in Washington, D.C.,” Sekulow said. “So the idea that this is a couple of rogue agents in Cincinnati is not correct.”

Among the letters were several that bore return IRS addresses other than Cincinnati, including IRS headquarters in Washington, and the signatures of IRS offi cials higher up

20

the chain. Lerner’s signature, which appeared to be a stamp rather than an actual signature, appeared on a letter requesting additional information from the Ohio Liberty Council Corp.

Lerner has become one of the public faces of the controversy after refusing to testify before the House Oversight and Government Reform Committee last Wednesday, citing her Constitutional Fifth Amendment rights after reading a brief statement: “I have not done anything wrong. I have not broken any laws, violated IRS regulations or provided false information to this or any other committee.”

She was put on administrative leave at the end of last week after reportedly refusing to resign at Obama administration’s request. She is continuing to collect federal paychecks on her almost $180,000 annual salary, though at least one Republican senator, Sen. Charles Grassley of Iowa, a member of the Senate Finance Committee, is urging the agency to speed up the process and fi re her.

In the two weeks since the IRS acknowledged it targeted conservative organizations seeking status as tax-exempt “social welfare” organizations for additional scrutiny, many Republicans have sought to link the agency’s actions to the White House. In an Op-Ed piece in the Washington Post on May 22, Senate Minority Leader Mitch McConnell, R-Ky., wrote that “the administration has been extremely creative in employing throughout the federal government the sorts of intimidation tactics that were used at the IRS.”

The White House has dismissed suggestions it was aware of the targeting, saying President Barack Obama only learned of the issue when it broke in the news on May 10. White House spokesman Jay Carney has since defl ected most questions about the scandal, saying it would be inappropriate to comment until an FBI inquiry into the agency’s actions – one of fi ve separate government investigations -- is concluded.

For its part, the IRS has declined additional comment beyond its congressional testimony -- including former IRS Commissioner Steven Miller’s testimony that IRS employees didn’t have partisan motives and only made “foolish mistakes ... trying to be more effi cient” -- and other previously released public statements, including its response to a Treasury inspector general and a Q&A on 501 (c) groups it published on its website.

But attorneys for some of the targeted groups’ provided documentation and two IRS employees in the Cincinnati offi ce made statements to NBC News that call into question parts of the offi cial explanation Americans have heard from the IRS so far.

Sekulow, who worked with the offi ce of the chief counsel of the IRS in the early 1980s as a trial lawyer representing the IRS on tax-exempt cases, said the number of groups he’s heard from, and the scope of the requests for information the IRS sent them, persuaded him “that this was not something that was just created at an agent level, that this was certainly higher up.”

After reviewing all the IRS communications his clients received, Sekulow said he believes the IRS was engaged in a coordinated and deliberate attempt to silence, or at least stifl e conservative organizations, he told NBC News.

Sekulow also said the practices continued well after May 2012, when the IRS has claimed they had stopped. Sekulow said 10 of the organizations he represents still have not received determinations from the IRS on their applications for tax-exempt status as 501 C (1)(4) organizations. He provided NBC News with a letter the IRS sent to one of his clients on May 6 requesting more information.

Cleta Mitchell, another attorney representing conservative groups that allege they were targeted, said an IRS agent in Cincinnati told her a “task force” IRS offi ce in Washington, D.C., was making the decisions about the processing ofapplications, and that she subsequently dealt with IRSrepresentatives there.

“(The IRS agent in Cincinnati) told me that in fact the case would be transferred to a special task force out of Washington, and that he was told – he was the originally assigned agent – that he wasn’t allowed to make decisions, the decisions were all going to be made in Washington,” Mitchell said. “I know that this process was going on in Washington because I’ve dealt with those people.”

One of Mitchell’s clients, Catherine Engelbrecht, founder of True the Vote, a conservative elections monitoring organization, applied for tax-exempt status for the group in July 2010. She said that when she asked the IRS two years later why it was taking so long to get a decision, agents told her Washington was to blame.

“We’ve dealt with four separate analysts and their explanation for the way our case has been handled runs the gamut from their not having another organization like True the Vote to compare to – so they had to develop new questions and new criteria -- all the way through to the fact that they were taking their orders from Washington and were waiting for Washington’s direction as to what steps to take next,” she said. “They were caught up in a process that seemed to be much bigger than Cincinnati and bigger than any single individual.”

Mitchell, Engelbrecht’s attorney, said Engelbrecht’s case also raised questions about whether the IRS had subjected some applicants to other federal government scrutiny and action, beyond their IRS application.

Engelbrecht told NBC News that soon after she fi led for tax-exempt status for True the Vote, the IRS audited her personal and business taxes for the fi rst time, and her manufacturing business was visited by two other federal agencies, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and The Occupational Safety and Health Administration (OSHA).

Her tax-exempt application still hasn’t been approved after three years. She’s now suing the IRS.

21

Sekulow said he also is preparing to sue the IRS in federal court this week, on behalf of the 16 groups he represents.

“The only way to get this resolved is to go to federal court,” Sekulow said, “because that’s the only thing that’s going to compel the IRS to comply with the law.”

Two IRS Cincinnati employees who have talked to NBC News dispute one part of the IRS’ explanation, saying that application of inappropriate selection criteria and the extra scrutiny for Tea Party and other conservative political advocacy organizations was not the work of a few low-level “rogue” employees.

But they also have told NBC News that they believe there was no political or partisan motivation for the targeting or scrutiny. “We’re outstanding public servants, dedicated to our craft and to the public we serve,” said one current IRS Cincinnati employee contacted at home over the weekend, who agreed to speak to NBC News on the condition of anonymity. “To suggest that we’re ‘rogue’ should be considered slander.”

Asked about the motivations for the targeting, the employee said, “I trust my management team.”

Bonnie Esrig, a 38-year IRS veteran and a manager in the Cincinnati offi ce until she retired from the IRS in January, also has told NBC News that decisions about how to handle cases came from management, and that all employees were subjected to considerable oversight. She also said that she believes there was no political or partisan motivation for the added scrutiny.

IRS Electronic Tax Administration Advisory Committee Delivers Report to Congress

The Electronic Tax Administration Advisory Committee (ETAAC) presented its 2013 Annual Report to Congress during a public meeting. The report discusses fi ve groups of recommendations on issues in electronic tax administration.Highlights of the report include recommendations on the following key outcomes:

• Approve standards for security, privacy and fraudprevention

• Provide incentives for e-fi ling employment tax returns• Expand access to data and online tools• Leverage relationships in the electronic fi ling community• Fund CADE 2 and the 1040 Modernized e-fi le (MeF)

programs

“The IRS appreciates the committee’s hard work and efforts to help the agency improve electronic tax administration for all taxpayers,” said Carol A. Campbell, Director of the Return Preparer Offi ce. “We look forward to reviewing the recommendations that ETAAC members have carefully crafted.”

The 15-member committee provides an organized public forum for discussion of electronic tax administration issues and the overriding goal that paperless fi ling should be the

preferred and most-convenient method of fi ling tax and information returns.

“With extraordinary challenges facing all sectors of the federal government along with unprecedented budgetary constraints intensifi ed by the 2013 sequester, ETAAC commends the IRS in effectively and effi ciently addressing its strategic priorities and, in particular, the signifi cant progress the agency has made toward achieving its 80 percent electronic fi ling goal,” said Alice Burnett, ETAAC Chair. “The committee further recommends the IRS continue its steadfast focus on fraud and identify theft prevention, as well as the development of additional online tools to better serve the taxpayer and tax preparation community.”

ETAAC submits an annual progress report to Congress each June. The IRS 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 IRS executives.

IRS to Pay $70M in Employee Bonuses, Senator Says

The Internal Revenue Service is about to pay $70 million in employee bonuses despite an Obama administration directive to cancel discretionary bonuses because of automatic spending cuts enacted this year, according to a GOP senator. Sen. Chuck Grassley of Iowa says his offi ce has learned that the IRS is executing an agreement with the employees’ union on Wednesday to pay the bonuses. Grassley says the bonuses should be canceled under an April directive from the White House budget offi ce.

The directive was written by Danny Werfel, a former budget offi cial who has since been appointed acting IRS commissioner. “The IRS always claims to be short on resources,” Grassley said. “But it appears to have $70 million for union bonuses. And it appears to be making an extra effort to give the bonuses despite opportunities to renegotiate with the union and federal instruction to cease discretionary bonuses during sequestration.”

The IRS said it is negotiating with the union over the matter but did not dispute Grassley’s claim that the bonuses are

22

imminent.

Offi ce of Management and Budget “guidance directs that agencies should not pay discretionary monetary awards at this time, unless legally required,” IRS spokeswoman Michelle Eldridge said in a statement. “IRS is under a legal obligation to comply with its collective bargaining agreement, which specifi es the terms by which awards are paid to bargaining-unit employees.”

Eldridge, however, would not say whether the IRS believes it is contractually obligated to pay the bonuses.

“In accordance with OMB guidance, the IRS is actively engaged with NTEU on these matters in recognition of our current budgetary constraints,” Eldridge said.

The National Treasury Employees Union did not respond to requests for comment.

The IRS has been under fi re since last month, when IRS offi cials acknowledged that agents had improperly targeted conservative groups for additional scrutiny when they applied for tax-exempt status during the 2010 and 2012 elections. A few weeks later, the agency’s inspector general issued a report documenting lavish employee conferences during the same time period.

Three congressional committees and the Justice Department are investigating the targeting of conservative groups. And key Republicans in Congress are promising more scrutiny of the agency’s budget, especially as it ramps up to play a major role in implementing the new health care law.

Much of the agency’s top leadership has been replaced since the scandals broke. President Barack Obama forced the acting commissioner to resign and replaced him with Werfel, who used to work in the White House budget offi ce.

In a letter to Werfel Grassley said the IRS notifi ed the employee union March 25 that it intended to reclaim about $75 million that had been set aside for discretionary employee bonuses. However, Grassley said, his offi ce has learned that the IRS never followed up on the notice. Instead, Grassley said, the IRS negotiated a new agreement with the bargaining unit to pay about $70 million in employee bonuses.

Grassley’s offi ce said the information came from a “person

with knowledge of IRS budgetary procedures.”

“While the IRS may claim that these bonuses are legally required under the original bargaining unit agreement, that claim would allegedly be inaccurate,” Grassley wrote. “In fact, the original agreement allows for the re-appropriation of such award funding in the event of budgetary shortfall.”

Werfel wrote the directive on discretionary employee bonuses while he was still working in the White House budget offi ce. The directive was part of the Obama administration’s efforts to impose across-the-board spending cuts enacted by Congress.

The spending cuts, known as “sequestration,” are resulting in at least fi ve unpaid furlough days this year for the IRS’ 90,000 employees. On these days, the agency is closed and taxpayers cannot access many of the agency’s assistance programs.

Werfel’s April 4 memorandum “directs that discretionary monetary awards should not be issued while sequestration is in place, unless issuance of such awards is legally required. Discretionary monetary awards include annual performance awards, group awards, and special act cash awards, which comprise a sizeable majority of awards and incentives provided by the federal government to employees.”

“Until further notice, agencies should not issue such monetary awards from sequestered accounts unless agency counsel determines the awards are legally required. Legal requirements include compliance with provisions in collective bargaining agreements governing awards.”

IRS Names Financial Manager New Chief Risk Offi cer

The Internal Revenue Service named a new chief risk offi cer on Tuesday, appointing an experienced fi nancial manager who acting commissioner Danny Werfel says will take steps to restore the integrity of the battered agency’s operations.

David Fisher will also serve as a senior advisor to Werfel.

Fisher was chief administrative offi cer at the Government Accountability Offi ce, the investigative arm of Congress that audits government programs. Fisher was in charge of all of the offi ce’s internal operations, including its budget and fi nancial management.

Before that, Fisher led a Defense Department effort beginning in 2005 to overhaul that agency’s business operations.

Werfel said in a written statement that Fisher will evaluate the agency’s operations “to mitigate risks and improve internal controls necessary for restoring the integrity of IRS operations.” He said Fisher will recommend any policy changes he feels are needed.

Werfel’s announcement, in a memo to agency workers, came with the IRS embroiled in controversy over its improper

23

targeting of tea party groups seeking tax exempt status.

Fisher is also the author of a 2003 book “Optimize Now (or else!): How to Leverage Processes and Information to Achieve Enterprise Optimization and Avoid Enterprise Extinction.”

The book is still on sale on Amazon.com, where a description says he presents a framework “to ensure decisions are no longer based on `gut feel’ but rather on quantitative expected outcomes.”

30-Day Review of IRS Activities Launched

Daniel Werfel, the new IRS acting commissioner, has launched a 30-day thorough review of agency activities related to the targeting of conservative groups seeking tax-exempt status. Werfel assumed his post on May 22, and presumably that is the fi rst date of a 30-day countdown. The order for the 30-day review came from Treasury Secretary Jacob Lew and, upon completion, may be handed directly to President Barack Obama. The report is expected to update the president on at least two matters: holding culpable IRS staff members accountable for any improper actions, and correcting systemic failures that may have been at the root of the problem.

Lois Lerner Replaced as Commissioner of TE/GE

Lois Lerner, the director of IRS’s Exempt Organizations, was placed on administrative leave on May 23. She is at the center of the controversy surrounding the agency’s actions in handling the applications of conservative groups seeking tax-exempt status. Ken Corbin has been named to fi ll the position in an “acting” capacity. The IRS administrative action came on the heels of Lerner invoking her Fifth Amendment rights during a hearing of the House Committee on Oversight and Government Reform. Just prior to the IRS announcement, Sen. Carl Levin (D-MI), chairman of the Senate Permanent Subcommittee on Investigations, and Sen. John McCain (R-AZ), the ranking member of the panel, sent a letter to Daniel Werfel, acting IRS commissioner, demanding the immediate suspension of Lerner. Their letter read, in part: “Ms. Lerner failed to disclose the internal controversy over the search terms used by the Cincinnati offi ce to identify 501(c)(4) groups for further review, the actions taken by that offi ce in reviewing the identifi ed groups, the investigation and imminent fi ndings by the Treasury Department Inspector General for Tax Administration (TIGTA); and TIGTA’s conclusion that the IRS had used inappropriate criteria to target Tea Party and other conservative groups. Ms. Lerner also failed to disclose that she was fully aware of these issues as early as June 2011, and, according to TIGTA, had been personally involved in reviewing questionable actions taken by the Cincinnati offi ce.”

Internal Revenue Service Conferences Held During Fiscal Years 2010 Through 2012 Ranked by Highest Average Cost Per Event

GAO Recommends NRP for Examination of Individual Returns

IRS should build on the precedent it has already established in using its National Research Program (NRP) to help test or develop practices that have been used in operational examinations of individual tax returns, the Government Accountability Offi ce (GAO) said in a report released on May 24. (GAO-13-480) As described in the report, the NRP conducts audits or examinations of individual tax returns in a research sample. In the recent past, the NRP has helped IRS adopt new examination support software, GAO noted. The report highlighted four additional ways NRP practices could improve operational examinations. The fi rst two relate to the use of additional data during IRS’s initial review of tax returns to select issues for examination. Currently, during this process, which is known as classifi cation, operational classifi ers do not have access to the same amount of tax return data as NRP classifi ers. Therefore, to raise operational classifi cation to the level of the NRP, GAO suggested transcribing more data from paper returns and using all data from electronically fi led returns. While additional transcription will impose signifi cant costs, enough of the added expenses could be recouped by the agency to justify the expenditures, the report said. For example, it would cost an estimated $8 million annually to transcribe more expense data from individual business tax returns. “The magnitude of this type of item (for example, an estimated $103 billion was claimed in 2010 for “other expenses” alone) and the high rate of non-compliance (55% in the most recent data) make it likely that better targeted examinations could bring in enough added revenue to justify the cost,” GAO

Use Resources and Toolsfor Tax Professionals

On Our WebsitencpeFellowship.com

24

Additional Information

• You may choose to use either the simplifi ed method orthe regular method for any taxable year.

• You choose a method by using that method on yourtimely fi led, original federal income tax return for thetaxable year.

• Once you have chosen a method for a taxable year, youcannot later change to the other method for that sameyear.

• If you use the simplifi ed method for one year and usethe regular method for any subsequent year, you mustcalculate the depreciation deduction for the subsequentyear using the appropriate optional depreciation table.This is true regardless of whether you used an optionaldepreciation table for the fi rst year the property wasused in business.

Taxpayer Burden Reduction (TBR)

The mission of TBR is to achieve a signifi cant reduction in unnecessary burden for all taxpayers.

Here are a few examples of how we are reducing taxpayer burden. Find out more about these new initiatives at the links below.

• Simplifi ed Option for Claiming Home Offi ce DeductionMany home-based business owners and some home-based workers will fi nd the new option much easier tocompute and take the deduction.

• Streamlined Criteria for Installment AgreementsWe combined two forms and ask for less information onthe resulting new form, making it easier for taxpayers torequest an installment agreement.

• Better Service on the IRS Toll-Free LineTaxpayers can now choose to use a temporary PIN whenthey call the toll free line and avoid repeating their identifyinginformation if they get transferred to another customerservice representative during the call.

• Income Verifi cation and Express Services ElectronicSignature

This e-signature process is used to provide account transcripts to verify income for consumer loans and various entitlement programs. It allows Income Verifi cation Express Service (IVES) participants the option for taxpayers (borrowers) to electronically sign Form 4506-T, Request for Transcript of Tax Return, or Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. The establishment of the ability to use electronic signatures will provide lending institutions the opportunity to fully automate the loan process instead of requiring a signed, printed form.

said. The third GAO suggestion deals with clarifying how to save examination case fi les electronically. “Clarifying the key fi les to be saved electronically would be a way to minimize costs and could help make case sharing and other examiner duties more effi cient,” the report said. Finally, GAO suggests that IRS seek to leverage the NRP for examination staff development. “Compared to operational examinations, NRP examinations require more detailed documentation and are broader in scope,” the report noted.

Simplifi ed Option for Home Offi ce Deduction

Beginning in tax year 2013 (returns fi led in 2014), taxpayers may use a simplifi ed option when fi guring the deduction for business use of their home.

Note: This simplifi ed option does not change the criteria for who may claim a home offi ce deduction. It merely simplifi es the calculation and recordkeeping requirements of the allowable deduction.

Highlights of the simplifi ed option:

• Standard deduction of $5 per square foot of home usedfor business (maximum 300 square feet).

• Allowable home-related itemized deductions claimedin full on Schedule A. (For example: Mortgage interest,real estate taxes).

• No home depreciation deduction or later recapture ofdepreciation for the years the simplifi ed option is used.

Full details on the new option can be found in Revenue Procedure 2013-13.

Comparison of methods

25

Management Veterans Selected to Assist New IRS Acting Commissioner Werfel; Maloy, Grams, Fisher Named to Senior Posts

The Internal Revenue Service announced the selection of several senior leaders to assist new Acting Commissioner Danny Werfel. Heather Maloy will handle the responsibilities of Deputy Commissioner for Services and Enforcement, W. Todd Grams will be Chief of Staff and David Fisher will serve as Senior Advisor to the Acting Commissioner and Chief Risk Offi cer.

The three senior members will assist Werfel in his work to conduct a comprehensive review of IRS operations and make improvements to the nation’s tax agency.

“This group brings a strong set of management skills and government experience that will be an immediate help as we conduct our review of operations, processes and practices at the IRS,” Werfel said. “Their extensive expertise in management inside and outside the IRS will help us make improvements now and in the future. These are essential steps to restore the public’s trust and ensure the fair and effective administration of the nation’s tax system.”

Maloy will handle the responsibilities for the Services and Enforcement portion of the IRS following more than three years as Commissioner of the IRS Large Business and International (LB&I) Division.

Grams currently serves as Executive-in-Charge of the Offi ce of Management, Performance Improvement Offi cer and Chief Financial Offi cer (CFO) for the Department of Veterans Affairs (VA). He is a seasoned leader and has served in diverse executive roles across multiple federal agencies, including a previous tour at the IRS as Chief Financial Offi cer and Chief Information Offi cer.

Fisher joined the IRS after serving as Chief Administrative Offi cer/Chief Financial Offi cer for the Government Accountability Offi ce (GAO), where he was responsible for a full range of functions – including budget, fi nancial management, information technology, security, facilities and human capital. Fisher also was the Co-Performance Improvement Offi cer at the GAO, responsible for standing up a new Continuous Process Improvement Offi ce and overseeing numerous projects that yielded both short- and long-term effi ciency gains for the organization.

Werfel also announced that Washington attorney Jennifer O’Connor will join the Chief Counsel’s offi ce. She will serve as a counselor to both Werfel and IRS Chief Counsel William Wilkins. O’Connor most recently was a partner with Washington’s WilmerHale law fi rm, where she has been since 2002, and where her duties included managing complex investigations and litigation and providing public policy and strategic advice to a broad range of clients. At the IRS, her work will include assisting Werfel and Wilkins with the current IRS review effort.

Heather MaloyHeather C. Maloy will take over handling the Deputy Commissioner for Services and Enforcement position, where she will oversee the four IRS operating divisions and Criminal Investigation. Maloy has served as commissioner of LBI, one of the four divisions, since November 2009. In LB&I, she oversaw tax administration activities for domestic and foreign businesses and partnerships that have assets of $10 million or more and a United States tax fi ling requirement.

From 2006 until 2009, Maloy served in private practice with Skadden, Arps, Slate, Meagher & Flom in its Washington, D.C. offi ce, where she advised clients on tax accounting andpartnership tax issues, tax compliance and tax policy.

Maloy previously held a wide variety of positions at the IRS from 1994 to 2006, including associate chief counsel for both the Income Tax & Accounting division and the Passthroughs & Special Industries division. She also served as assistant to the commissioner, deputy associate chief counsel and acting deputy chief counsel.

W. Todd GramsW. Todd Grams rejoins the IRS after serving at VA sinceNovember 2009. Grams was responsible for VA’s $130 billionbudget as well as performance management, enterprise riskmanagement, business oversight, fi nancial management andasset enterprise management.

He also served at the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) from July 2006 to November 2009where he was responsible for all administrative support functions.

At the IRS, Grams served as the CIO from 2003 through 2006 and CFO from 2001 through 2003. Prior to joining the IRS, he served at VA from 1994 to 2000 as the fi rst CFO of the Veterans Health Administration (VHA). He served in a variety of positions at the Offi ce of Management and Budget from 1983 to 1994.

David FisherDavid Fisher formerly served as the fi rst permanent Director of the Business Transformation Agency within the Department of Defense (DOD). While at DOD, Fisher also held other leadership positions, including Defense Enterprise Integration Executive and Special Assistant to the Deputy Under Secretary of Defense (Financial Management). Prior to joining DOD, Fisher was Managing Director with BearingPoint, a business and IT consulting fi rm.

Fisher holds a Master’s of Business Administration from Santa Clara University’s Leavey School of Business and a Bachelor’s Degree in Communication from Stanford University.

New Publication 3112 – IRS e-fi le Application and Participation

IRS has posted online a revised edition of Publication 3112, IRS e-File Application and Participation (Rev. 05-2013).

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Spring 2013 Statistics of Income Bulletin

The Internal Revenue Service announced the availability of the spring 2013 issue of the Statistics of Income Bulletin, which features information on high-income individual income tax returns fi led for tax year 2010.

Taxpayers fi led almost 4.3 million returns with adjusted gross income of $200,000 or more for 2010. These high-income returns represent about 3.0 percent of all returns fi led for the tax year.

The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis. Articles included in the publication provide the most recent data available from various tax and information returns fi led by U.S. taxpayers. This issue of the SOI Bulletin also includes articles on the following topics:

• Sales of capital assets. For tax years 2007 - 2009, datafrom individual income tax returns show that taxpayersrealized the highest net capital gains of $914 billion in2007, while only $37 billion were reported for 2009.

• Municipal bonds. The municipal bonds market was stilldominated by almost 22,000 tax-exempt governmentalbonds issued in 2010, raising $293.6 billion in proceedsfor public projects, such as schools, transportationinfrastructure and utilities.

• Nonresident alien estate tax. Executors for estates ofnonresident aliens fi led 1,887 tax returns in fi ling years2009-2011. Returns fi led were predominantly for estatesof decedents who died between 2007 and 2010, anddata from these returns showed an overall decline inthe total gross estate and net estate tax owed.

• International boycott reports. For tax year 2010, about132 U.S. entities received 3,200 requests to participatein unsanctioned international boycotts, down from 160U.S. entities and 3,500 requests in 2009.

Congress Probes IRS Seizure of Medical Records

Leaders of the House Energy and Commerce Committee have sent a letter to Internal Revenue Service acting chief Daniel Werfel requesting information about a March 2011 IRS search and seizure of as many as 60 million medical records from a California health care provider.

Daniel Werfel

The publication, which was last revised in 2009, provides important information for tax professionals and authorized IRS e-File providers. “All participants should read this publicationto become familiar with the requirements for continuedparticipation,” IRS said. It can be found at http://www.irs.gov/pub/irs-pdf/p3112.pdf.

IRS Continues to Research “Real Time” Tax Preparation

IRS’s exploratory effort to develop a “Real Time Tax” system, a strategy to match third party information returns to income tax returns before refunds are issued, has been hampered by various administrative defi ciencies, according to a Government Accountability Offi ce (GAO) report released on June 4. (GAO-13-515)

In early 2011, former IRS Commissioner Douglas Shulman offered his vision for such system and since that time the agency has been exploring options for a Real Time Tax, GAO said. By the time IRS issues the bulk of tax refunds, information returns are only trickling in, the report noted.

For example, in 2012, the agency issued 50% of tax year 2011 refunds to individuals by the end of February, but had only received 3% of the information returns. Most information returns arrive after mid-April. IRS undertakes the fi rst match of tax and information returns in July, with follow-up matches in February and May of the following year, the report said. “For tax year 2010, over a year passed on average before IRS notifi ed taxpayers of matching discrepancies, and IRS recognizes that this long time lag burdens taxpayers,” GAO said.

While IRS is following leading practices in its Real Time Tax exploratory effort, the agency has not developed “an overall timeline because management views Real Time Tax as a broad goal, and offi cials wanted to avoid causing concern that IRS had already decided on a path,” the report said. “Without a timeline for the overall exploratory effort, IRS cannot know if its efforts will be completed in even the broad time frames IRS is considering, and Congress may not be able to determine what legislative action might be required,” GAO added.

IRS Urges Preparation and Offers Tips on Disaster Preparedness

IRS is urging individuals and businesses to safeguard themselves against hurricanes, tornados and other natural disasters. (IR 2013-56)

The agency recommends taking the following simple disaster-related steps: creating a backup set of documents electronically; documenting valuables; updating emergency plans on an annual basis; and checking with payroll service providers regarding fi duciary bonds. “If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues,” IRS said.

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The letter comes after a recent lawsuit was fi led over the IRS’s alleged seizure of over 10 million American patients’ medical information in the course of executing a warrant related to a former employee’s fi nancial records.

As the IRS will be tasked with implementing much of President Obama’s signature health care reform law, committee leaders said they are concerned about what restrictions and safeguards are in place to ensure that Americans’ medical information remains protected.

The letter to Werfel was signed by House Oversight and Investigations Subcommittee chairman Tim Murphy, R-Pa., Oversight and Investigations and Health Subcommittees vice chairman Michael C. Burgess, M.D., R-Texas, committee chairman emeritus Joe Barton, R-Texas, and committee vice chairman Marsha Blackburn, R-Tenn.

They wrote, “(T)he Committee on Energy and Commerce is investigating allegations that the Internal Revenue Service (IRS), in the course of executing a search warrant at a California health care provider’s corporate headquarters in March 2011, improperly seized the personal medical records of millions of American citizens in possible violation of the Fourth Amendment to the United States Constitution.”

The letter continued, “According to a March 14, 2013, report by courthousenews.com, the unnamed health care provider is now suing the IRS and 15 unnamed agents in California Superior Court alleging that the agents stole more than 60 million medical records from more than 10 million American patients during a search conducted March 11, 2011. The warrant authorizing that search was apparently limited to the fi nancial records of a former employee of the company and in no way authorized the sweeping confi scation of the personal medical records of millions of Americans who had no connection to the initial IRS investigation.

In light of these allegations and in anticipation of the IRS’s increased role in implementing health care under the Patient Protection and Affordable Care Act, we are writing to request information regarding your agency’s ability to both protect the confi dential medical information of millions of Americans and respect the safeguards imposed by HIPAA [Health Insurance Portability and Accountability Act].”

The lawsuit cites a Forbes article in alleging that the medical records included “information on psychological counseling, gynecological counseling, sexual and drug treatment, and other sensitive medical treatment data.”

The committee leaders asked Werfel to respond the letter by Tuesday, June 25.

Ragin Cagin

I was recently reading an article published by Turbo Tax and fi nding it of interest wanted to share it with the members of the Fellowship.

The Top Tax Myths (And What Happens When You Believe Them)

It’s getting to be that time of the year again. The time when Tax Day is fast approaching and you start hearing confl icting things from friends and family about what is—and what isn’t—okay when fi ling your taxes. There’s a lot of misinformation out there about various deductions, loopholes, and write-offs that can get you into hot water if you blindly follow someone else’s bad advice. So, in an effort to save you from pulling a Wesley Snipes and ending up on the IRS’ radar, we’re sharing some of the most common tax myths—and what you can do to protect yourself.

Myth Number One: Filing taxes is voluntary

Although this might easily be the most blatant falsehood on the list, there is a surprisingly large number of people who contend that because the Form 1040 instruction book describes the tax system as “voluntary,” that means they have no legal obligation to actually fi le. This is not the case. The term voluntary refers to the fact that each individual is responsible for determining the correct amount of tax they owe, and has absolutely no relation to whether or not fi ling taxes is actually an option. It’s not. Unless you have a legitimate dispute, trying

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Myth Number Four: Illegal activity is not taxable

As counterintuitive as it seems, breaking one law doesn’t have any impact on your ability to break others. Income acquired through illicit activity is still taxable income. From a tax compliance perspective, the IRS doesn’t care if you’re selling drugs, robbing banks, or defrauding investors of millions. As long as you’re making money, the government is still entitled to their piece of the pie. Remember, no matter how well you cover you tracks when it comes to illegal activities, cheating on your taxes can come back to bite you -- just ask Al Capone.

Myth Number Five: Home offi ce deductions = instant audit

There was a time when this myth was actually pretty close to truth. However, with home offi ces becoming increasingly prevalent, this one-time fact has become predominantly fi ction. Although claiming a home offi ce does increase scrutiny, they’ve become common enough that there’s no need to be afraid of claiming a legit deduction. The one thing to be wary of is making sure your claim actually falls within the IRS defi nition of a home offi ce.

Myth Number Six: Students don’t have to pay taxes

This myth is actually partially true. A student is not required to pay taxes if they earned less than $9,000 during that tax year. However, it’s typically in the student’s best interest to fi le taxes anyway, because if they had an employer who withheld money for tax purposes, they are probably due a refund.

Myth Number Seven: Money made over the Internet is tax free

This myth is just plain false. It’s not hard to see how a rumor like this might have gotten started, since most people doing business online aren’t fi lling out a W-9 and having their

to get cute with the IRS and contesting the payment or fi ling of taxes is always a bad idea.

Myth Number Two: You can claim pets as dependents

No matter how much you love your pets, you can’t claim them as dependents. This hasn’t stopped hundreds of people each year from attempting to count Rex, Rover, and Skitters the cat as actual dependents. While there’s no denying that pets do meet the requirement of getting more than half their fi nancial support from their owners, there’s still one small technicality…they’re not humans! Falsely claiming a dependent is considered fraud and should be avoided at all costs.

Myth Number Three: The IRS is legally obligated to fi le a return for you

The IRS does have the right to verify your return, but sitting on your couch waiting for them to fi le a return for you is likely to leave you sorely disappointed. LIke the initial myth that taxes are voluntary, this myth stems from language alluding to the fact that the IRS can compile a return on your behalf if they suspect fraud. Unfortunately, this in no way means you are off the hook from having to fi le your own tax return.

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Tax Pros in Trouble

Department of Justice and Court Issue Order Barring Michigan Tax Preparers from Preparing Federal Tax Returns for Others

The United States District Court for the Eastern District of Michigan has issued an order permanently barring Nataki Davis, (formerly known as Nataki Barnes), a Southfi eld, Mich ., tax preparer, from preparing federal tax returns for others for a period of fi ve years, the Justice Department announced today. The court also ordered Davis to mail copies of the court order to all persons or entities for whom she has prepared federal tax returns, amended returns or other federal tax documents or forms since January 1, 2011. Davis consented to the civil injunction order.

Davis operated a business that provided tax return preparation services under the names NKB Tax Services, NKB Tax Services, Etc. and Ready Trans. The complaint states that Davis prepared approximately 1,597 tax returns for tax processing years 2010 through 2012. The Internal Revenue Service (IRS) closed examinations on 52 of those 1,597 tax returns prepared by Davis and 48, or 92%, of those examined returns resulted in additional tax assessments. Many of the returns that Davis prepared for customers contained false deductions and credits, including infl ation of deductions for charitable contributions, mortgage interest, real estate and personal property taxes paid and false education credits. Returns also included manipulation of taxpayer data for the purposes of claiming the Earned Income Tax Credit for which the taxpayers would otherwise be ineligible.

The court also issued an order permanently barring Davis’s brother Clarence Barnes Jr from applying for an electronic fi ling identifi cation number (EFIN) or assisting any other individual or entity in the application for or procurement or use of an EFIN to fi le a federal income tax return. Barnes consented to this civil injunction order.

The IRS lists return-preparer fraud as one of the Dirty Dozen Tax Scams for 2013. In the past decade, the Justice Department’s Tax Division has obtained injunctions against hundreds of tax fraud promoters and unscrupulous tax preparers..

Feds: Camden County Man Admits Tax Evasion

The owner of a window installation company located in Mt.Laurel admitted he converted to cash millions of dollars in the company’s gross receipts and used the money to pay his workers without withholding employment taxes, U.S. Attorney Paul J. Fishman, District of New Jersey, and Assistant Attorney General Kathryn Keneally of the U.S. Department of Justice, Tax Division, announced today.

Fred Marcus, 39, of Camden County, the owner and operator of Vortex Installations Inc., pleaded guilty before U.S. District Judge Mary L. Cooper in Trenton federal court charging him

income reported to the IRS. However, in the eyes of the IRS, money made online is no different than income earned offl ine. Regardless of the medium, if you sell a product or service and end up making more than $400, you’re required to declare that income on your tax returns.

Myth Number Eight: I don’t make enough money to get audited.

Income actually has less to do with being audited than you might think. There are considerably more factors involved and plenty of other things that can send up red fl ags. Although individuals with income exceeding $100k tend to get audited almost twice as often, there is still a one-percent chance of getting audited if you fall beneath that threshold. The best thing you can do is make sure you maintain detailed records of anything that could be considered a questionable deduction. Saving any relevant receipts for a three year period can help eliminate any headaches should you fi nd yourself facing an audit.

Myth Number Nine: My accountant is liable for any mistakes

Whether or not you hire an accountant, you are still ultimately responsible for any mistakes. Because of this, it’s always best to not simply assume your accountant has everything taken care of, but instead to take a few minutes and double check your return before it is fi led. In many cases your accountant will help you through the process if you’re unfortunate enough to be audited, but the bottom line is that you’re the one the IRS is going to be coming after.

Myth Number Ten: I don’t have time to do my own taxes

Seriously? Having already covered the fact that taxes aren’t voluntary (it was the fi rst myth, for crying out loud), there shouldn’t be any question about whether or not you’re going to fi le. With the numerous options, including online, available to make fi ling your taxes easier than ever, “I don’t have time” shouldn’t enter into the equation. No one enjoys fi lling out their taxes. Okay, no one normal. But that still doesn’t mean you can’t fi gure out a way to get them done.

Each of us as tax professionals encounters these issues and questions. Tax preparation will not become magically easier in the future. It will call upon each of us in the business of tax to work harder to help taxpayers who struggle with their reporting requirements.

Jerry

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permanently barred from preparing tax returns for others by two federal judges.

Marvin Binion Sr., his son Marvin Binion II, and Binion Sr.’s ex-wife Tonya Hubbard and her fi rm Universal Tax Service were allegedly preparing fraudulent tax returns and creating false deductions for miscellaneous expenses, including charitable contributions and unreimbursed employee business expenses.The lawsuits fi led by the government also accused the individuals and Universal Tax Service of not signing or placing IRS preparer identifi cation numbers on the returns they prepared.

According to the government, the preparers charged $300 per return, using commercial tax software, and possibly earned $30,000 a day. They hid their role in preparing the returns by instructing customers to sign and mail the returns to the IRS on their own, the government alleged.

The injunctions are among hundreds that have been obtained against tax-preparer fraud in the past decade, the Department of Justice said.

U S Dept. of Justice Seeks to Shut Down Texas Tax Preparer

The United States sued a Southlake, Texas woman, seeking to bar her from preparing federal tax returns for others, the Justice Department announced. The civil injunction suit was fi led against Karena Mondrianh in United States District Court for the Northern District of Texas.

The government complaint alleges that Mondrianh prepares fraudulent tax returns that understate customers’ taxable income by inventing – sometimes without the customer’s knowledge – false business expenses and by falsely claiming that a customer’s income is exempt from tax. The suit alleges that most of Mondrianh’s customers work overseas for defense contractors.

The complaint further alleges that Mondrianh has provided false information to the Internal Revenue Service (IRS) in improper attempts to delay IRS audits of customers. She allegedly urged one customer to lie to an IRS agent in order to prevent an IRS audit.

NJ Tax Preparer Uses Dead Guy’s ID To File False Returns

A New Jersey tax return preparer admitted today to fi ling false claims with the IRS using a dead tax return preparer’s identifi cation and preparing false documents for fraudulent loans. U.S. Attorney Paul Fishman says Todd Halpern pleaded guilty to fi ling false claims and wire fraud.

In 2008, Halpern bought A & V Financial (A & V), a tax return preparation business from the wife of the prior owner, who is identifi ed in court documents as “V.R.”, who had died in

with one count of tax evasion.

According to documents fi led in this case and statements made in court:

From early 2006 through the end of 2009, Marcus cashed approximately $2.8 million in Vortex Installations’ gross receipts at a check casher. Marcus used $1,025,868 of that money to pay cash wages to his workers, which he did not report to the IRS and from which he did not withhold employment taxes.From 2006 through 2008, offi cials allege Marcus failed to fi le IRS Forms 941, Employer’s Quarterly Federal Tax Returns, in which he was required to report the wages paid to his employees. In 2009, Marcus fi led false Forms 941, in that he failed to report the cash wages that he paid to Vortex employees.

On the count of tax evasion, Marcus faces a maximum potential penalty of fi ve years in prison and a fi ne of $250,000, along with restitution to the IRS. Sentencing is scheduled for Sept. 19.

Hayward Tax Preparer Sentenced to Two Years in Prison for Filing False Returns

A Hayward man who worked as a tax preparer for two decades was sentenced to two years in prison for preparing and fi ling false tax returns for several years, according to the offi ce of U.S. Attorney Melinda Haag.

Naushad Buksh, 57, was arrested in May 2012 and charged by a federal grand jury with 45 counts of aiding and assisting the preparation of false tax returns and fi ling a false federal income tax return.

Between 2007 and 2010, he ran a tax return preparation business in Hayward, and was responsible for all income and expenses of the business. His taxable income earned was between about $116,000 and $210,000 for those years, Haag said in a statement.

Buksh intentionally omitted this income from his tax returns, which resulted in a tax loss of $160, 528, federal offi cials said.

Buksh admitted in his plea that, in addition to fi ling false returns for himself, he also prepared tax returns on behalf of his clients. He created false deductions and credits for home mortgage interest and points, non-reimbursed employee expenses, infl ated education credits, student loan interest and/or tuition fee deductions, false personal property tax deductions, and false or infl ated tax preparation fees.

By adding these false claims to his clients’ tax returns he caused a tax loss to the government of roughly $109,000. Buksh pleaded guilty in January.

3 Tax Preparers Are Permanently Barred

Three tax preparers in Prince George’s County have been

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Benjamin Johnson, 48, of Philadelphia.

Williams and Johnson operated Marshall Street Financial Services, a tax preparation business located at 974 N. Marshall Street in Philadelphia. Johnson will be arraigned Friday and has not offered a plea in the case.

The indictment alleges that between December 2008 and April 2009, Johnson and Williams conspired to obtain identifi cation and dependent information from customers so they could obtain government refunds or faux stimulus payments. Prosecutors said the two allegedly solicited customers who were typically unemployed or low-income earners, sometimes supported primarily by public assistance, to provide their personal identifi cation information, including their dates of birth and Social Security numbers.

After obtaining the customer’s personal identifi cation and income information, prosecutors said Williams allegedly sought tax refunds by preparing false federal income tax returns and schedules which contained infl ated and false income and Earned Income Tax Credit information.

After early February 2009, prosecutors said Johnson allegedly arranged for the IRS tax refunds to be electronically transferred into his and Williams’ own bank accounts instead of the accounts of his customers, who only received a portion of the remittance.

Prosecutors further alleged that Johnson caused the fi ling of tax returns for himself and in the name of an individual, known to the grand jury, unlawfully identifying children who were the dependents of an employee and of customers.

Williams is scheduled to be sentenced on Sept. 11.

Taxpayer Advocacy

IRS Waives 60-day Rule for Individual Whose Gambler/spouse Withdrew Funds

PLR 201324022

In a private letter ruling, IRS has waived the 60-day rollover requirement for an individual whose husband withdrew funds from her IRA under a power of attorney that was intended to be limited to incapacity. The husband then gambled the funds away and the wife didn’t learn of the withdrawal until after the 60-day period had expired.

There is no immediate tax if distributions from an IRA are rolled over to an IRA or other eligible retirement plan (i.e., qualifi ed trust, governmental Code Sec. 457 plan, Code Sec. 403(a) annuity and Code Sec. 403(b) tax-shelter annuity). For the rollover to be tax-free, the amount distributed from the IRA generally must be re-contributed to the IRA or other eligible retirement plan no later than 60 days after the date that the

March 2008. Halpern got the company’s computers and all of its client records. As part of the agreement to purchase A & V, Halpern was to obtain a new Electronic Filing Identifi cation Number (EFIN) in his own name. Instead, he continued to fi le tax returns using V.R.’s EFIN number because his criminal record prevented him from getting an EFIN.

According to court statements, from 2009 through 2010, Halpern prepared and fi led 657 fraudulent federal income tax returns with the IRS using V.R.’s EFIN. He prepared and fi led some of these fraudulent tax returns without the knowledge and authorization of the taxpayers identifi ed on the returns. Some of these tax returns contained fraudulent income and deduction amounts, which generated fraudulent refunds that were directly deposited into Halpern’s bank account.

Refunds Fueled Lavish Lifestyle

In total, Halpern received $373,938 in fraudulent tax refunds. He used these funds to support his lavish lifestyle, including purchases at Prada, Chanel, Saks Fifth Avenue, and Bloomingdales, to acquire season tickets to the New York Giants, to purchase thousands of dollars in jewelry, gold coins, and silver certifi cates, to make car payments on multiple luxury vehicles, including a 2007 Cadillac Escalade and a 2008 Lexus GX-470, and to buy car parts for his classic 1957 Chevy Bel Air.

Possible Prison Sentence

The wire fraud count is punishable by a maximum potential penalty of 30 years in prison and a fi ne of up to $1 million, or twice the gross amount of pecuniary gain or loss resulting from Halpern’s offense. The tax fraud count carries a maximum penalty of fi ve years in prison, and a maximum fi ne of $250,000. Sentencing is scheduled for Sept. 10, 2013.

Tax Preparer Pleads Guilty

Colin Williams, 32, of Philadelphia, has pled guilty to his role in an alleged tax fraud scheme that prosecutors said fraudulently sought and pocketed $868,907 in refunds. Williams was charged in April with conspiracy and fraud in connection with the same tax refund scheme alleged in an indictment against

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taxpayer received the withdrawal from the IRA. ( Code Sec. 408(d)(3) ) A distribution rolled over after the 60-day period generally will be taxed (and also may be subject to a 10% premature withdrawal penalty tax). ( Code Sec. 72(t) ) Only one tax-free IRA-to-IRA rollover per IRA account can be made within a one-year period. ( Code Sec. 408(d)(3)(B) )

IRS may waive the 60-day rule if an individual suffers a casualty, disaster, or other event beyond his reasonable control, and not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver). ( Code Sec. 408(d)(3)(I) )IRS will consider several factors in determining whether to waive the 60-day rollover requirement, including time elapsed since the distribution, inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, postal error, errors committed by a fi nancial institution, etc. ( Rev Proc 2003-16, 2003-1 CB 359 )

An individual we’ll call Andrea represented that her husband, Bill, took a distribution from her IRA without her knowledge or consent in early 2009. She said that her failure to complete a rollover within 60 days was due to this fraudulent withdrawal by her husband.

The couple wed in 2001. Bill was an attorney who worked as a business consultant for and was a partner at a certifi ed public accounting fi rm. In 2004, Andrea and Bill completed power of attorney documents as part of their estate planning. Andrea is not an attorney and was not represented by independent counsel when they executed the documents. She understood that the power of attorney was to be used in situations in which she became incapacitated, disabled, or otherwise unable to make her own fi nancial decisions. She did not intend that her husband use the power to make all fi nancial decisions on her behalf in the absence of her incapacitation or disability.

When Bill took the distribution, he told the fi nancial institution both orally and in writing that he was acting pursuant to the power he held for his wife. He said that he needed the distribution for Andrea’s medical expenses. Andrea informed IRS that she did not need a distribution for medical expenses. Bill gambled and lost the amount withdrawn from Andrea’s IRA.

In February 2010, Bill admitted to Andrea and her family that he had a gambling addiction. Shortly thereafter, Andrea revoked the power of attorney. Subsequently, she discovered that Bill took the money from her IRA.

Bill has since been treated for gambling addiction. Andrea provided IRS with documentation of Bill’s problem, including a statement from a treating physician.

Waiver granted. IRS found that the information presented and documentation submitted by Andrea was consistent with her assertion that her failure to accomplish a timely rollover was caused by Bill’s fraudulent withdrawal from her IRA without her knowledge or consent. Therefore, IRS waived the 60-day rollover requirement.

IRS OKs Late Recharacterization of “Mistaken” Roth IRA Conversions

PLR 201320022

In a private letter ruling (PLR), IRS has allowed a taxpayer to recharacterize his traditional-IRA-to-Roth-IRA conversions even though the deadline for doing so had expired. The PLR involved a case of mistaken basis—the taxpayer’s attorney confused the cost basis of securities held by the traditional IRAs with the taxpayer’s adjusted basis in the traditional IRAs, and the mistake wasn’t discovered until after the recharacterization deadline had passed. The taxpayer wouldn’t have made the conversions had he known his adjusted basis in the traditional IRAs was actually zero.

Taxpayers, including married persons fi ling separately, may convert amounts in a traditional IRA to amounts in a Roth IRA without regard to their modifi ed adjusted gross income (AGI) or fi ling status. Before 2010, only taxpayers with modifi ed AGI of $100,000 or less could make such conversions, and married persons fi ling separately were not eligible regardless of modifi ed AGI.

The conversion may be done in one of three ways:

1. Rollover to a Roth IRA of a distribution from a traditionalIRA within 60 days of the distribution.

2. Trustee-to-trustee transfer from the trustee of thetraditional IRA to the trustee of the Roth IRA.

3. Transfer of an amount in a traditional IRA to a Roth IRAmaintained by the same trustee. (Code Sec. 408A(d)(3)(C); Reg. § 1.408A-4)

The conversion is subject to tax as if it were distributed from the traditional IRA and not re-contributed to another IRA (Code Sec. 408A(d)(3)(A)(i)), but isn’t subject to the 10% premature distribution tax. (Code Sec. 408A(d)(3)(A)(ii); Reg. § 1.408A-4)

A taxpayer may elect to recharacterize an IRA contribution, that is, treat a contribution to one type of IRA (Roth IRA or traditional IRA) as made to a different type of IRA. (Code Sec. 408A(d)(6); Reg. § 1.408A-5)

An IRA contribution for a tax year may be recharacterized as late as six months after the unextended due date for fi ling the return for that year. (Reg. § 301.9100-2(b)) Thus, for a calendar year taxpayer who made a traditional-IRA-to-Roth-IRA conversion in Year 1, the transaction can be undone by way of a recharacterization made as late as Oct. 15 (as adjusted for Saturdays, Sundays and legal holidays) of Year 2.

Under Reg. § 301.9100-3, requests for extensions of time for regulatory elections will be granted when the taxpayer provides evidence (including affi davits described in the regs) to establish to IRS’s satisfaction that the taxpayer acted reasonably and in good faith and granting relief will not prejudice the interests of the government.

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Reg. § 301.9100-3(b)(1) provides that a taxpayer will be deemed to have acted reasonably and in good faith if he:

• requests relief before the failure to make the regulatoryelection is discovered by IRS;

• inadvertently failed to make the election because ofintervening events beyond the taxpayer’s control;

• failed to make the election because, after exercising duediligence, the taxpayer was unaware of the necessityfor the election;

• reasonably relied on IRS’s written advice; or• Reasonably relied on a qualifi ed tax professional,

and the tax professional failed to make, or advise thetaxpayer to make, the election.

In Year 1, a taxpayer we’ll call Mr. Jones consulted with his attorney about whether he was eligible to convert his traditional IRAs (IRA X and IRA X) to Roth IRAs (IRA Y and IRA Y). The attorney advised Jones that he was eligible to make these conversions, but that more information would be needed to determine the actual tax consequences of the conversions. The attorney further advised Jones that Roth IRA conversions made in Year 1 could, if necessary, be recharacterized on or before Oct. 17, Year 2. Jones proceeded with the conversions.

After the conversions, on May 26 of Year 1, Jones and his attorney held a teleconference to discuss the tax consequences of the Roth IRA conversions. Specifi cally, they discussed how the calculation of Jones’s basis in his traditional IRAs ultimately would determine the tax consequences of the Roth IRA conversions. As a result of the teleconference, Jones believed that only Amount C of the total amount converted would be taxed.

In Year 2, while preparing Jones’s Year 1 income tax return, the attorney got Jones’s basis in IRA X and IRA X from Custodian, which showed the total cost basis as Amount D. Jones’s attorney included this amount in the Year 1 tax return as the adjusted basis for the traditional IRAs.

On June 1, Year 3, Jones’s attorney reviewed his Year 1 income tax return in preparation for the fi ling of the Year 2 income tax return and noticed that the adjusted basis reported on Jones’s Form 8606 (Nondeductible IRAs) appeared to be unusually high. The attorney immediately contacted Jones about his concerns, and also contacted Custodian to discuss the irregularity in the basis amounts. When the dust settled, it was found that the cost basis information received by Custodian was the cost basis of the securities held by the traditional IRAs, and not the adjusted tax basis of the IRAs. Jones’s adjusted basis in the IRAs was actually $0. Jones’s attorney represented that he did not realize this and “mistakenly understood” that the unusually high fi gure received from Custodian was not Jones’s adjusted basis until after the deadline for recharacterizing Jones’s Roth IRA conversions.

Jones represented to IRS that he would not have elected to make the conversions if he had known that his basis in the traditional IRAs was $0 rather than Amount D before making the Roth IRA conversions. He further represented that he

would have timely recharacterized his Roth IRAs if he was advised of the error before the deadline for recharacterizing his Roth IRA conversions.

Jones asked IRS to rule that he could recharacterize his traditional-IRA-to-Roth-IRA conversions even though the deadline for doing so had passed. The statute of limitations on Jones’s Year 1 return remained open when he made his request.

IRS agreed that Jones’s failure to elect to timely recharacterize the Roth IRAs was caused by his lack of awareness of the necessity of making an election as a result of relying upon incorrect information provided to him by his attorney. Based on the facts, it ruled that Jones met the requirements of Reg. § 301.9100-3(b)(1), for Year 1. In addition, since the statuteof limitations was still open, granting relief wouldn’t prejudicethe interests of the Government. As a result, IRS gave Jonesan extension of 60 days, as measured from the date of theissuance of the PLR, to recharacterize Amount A and AmountB contributions to traditional IRAs.

Modifi ed First Time Abate Policy Provides Penalty Relief in Certain Situations

The Internal Revenue Service recently changed its policy on First Time Abate penalty relief. This penalty waiver for taxpayers is a one-time consideration available only for a fi rst-time penalty charge based on the taxpayers’ compliance history.

According to the policy change, the FTA penalty relief option for failure to fi le, failure to pay and failure to deposit penalties, under certain conditions, does not apply if the taxpayer has not fi led all returns and paid, or arranged to pay, all tax currently due. However, the taxpayer is considered to have arranged payment if they have an open installment agreement and are current with their installment payments.

The FTA relief only applies to a single tax period for a taxpayer. For example, if a request for penalty relief is being considered for two or more periods of a taxpayer, and the earliest period meets the FTA criteria, FTA would apply only to the earliest period, and not for all periods.

Penalty relief under the fi rst time abatement provision does not apply to returns with an event-based fi ling requirement, such as:

• Form 706, U.S. Estate Tax Return;• Form 709, United States Gift (and Generation - Skipping

Transfer) Tax Return;• Form 1120, U.S. Corporation Income Tax Return; and• Form 1120S, U.S. Income Tax Return for an S

Corporation if, in the prior three years, at least one Form1120S was fi led late but not penalized.

This list is not all-inclusive.

IRS will base decisions on removing any future failure to fi le,

34

failure to pay or failure to deposit penalties on any information taxpayers provide that meets reasonable cause criteria.

Taxpayers billed for penalty charges who believe they are entitled to First Time Abate relief or who feel they are entitled to reasonable cause relief, should send an explanations with their bill to their service center or call the IRS at 800-829-1040 for assistance. Taxpayers may also use Form 843, Claim for Refund and Request for Abatement.

Editor’s Note: First Time Penalty Abatement is

underutilized by tax professionals – report of the

Treasury Inspector General for Tax Administration. All

tax professionals must consider the importance of

quality education and tools to provide excellent taxpayer

representation services to their clients. This months

Sponsor of the Month – The American Academy of Tax

Practice – Bryan and Jean Gates, EAs offer such tools

and at a discount to Fellowship Members.

Wayne’s World

The Patient Protection and The Affordable Health Care Act

Reviewing the IRS web site for current information on the implementation of this legislation I found:

The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that are in effect and more that will be implemented during the next several years.

Effect of Sequestration on Small Business Health Care Tax Credit

Pursuant to the requirements of the Balanced Budget and Emergency Defi cit Control Act of 1985, as amended, certain automatic cuts took place as of March 1, 2013. These required cuts include a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers under Internal Revenue Code section 45R. As a result, the refundable portion of your claim will be reduced by 8.7 percent. The sequestration reduction rate will be applied

until the end of the fi scal year (Sept. 30, 2013) or intervening Congressional action, at which time the sequestration rate is subject to change.

Update:

The Health Care Law generally has no new impacts to the Form 1040 series for the 2012 returns that individuals may be currently fi ling. However, if you received a health insurance premium rebate during 2012, check irs.gov/aca under Medical Loss Ratio to see if you are one of the few people who needs to include it on your 2012 return. If you do not have a tax fi ling requirement, you do not need to fi le a 2012 federal tax return to establish future eligibility or qualify for future fi nancial assistance to purchase health care coverage through an exchange

If you are seeking information about how to obtain health care coverage or fi nancial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website, HealthCare.gov.

This is followed by several provisions of the Act as they will be administered by the Internal Revenue Service.

“Administered by the IRS” seems to be the question of the day. Congress is grappling with recent actions of the IRS and there is currently a proposal to remove the administration of the Health Care Act away from IRS.

The IRS web site does not mention the important changes in 2013 that have been instituted by the Act, including:

• .09% additional medicare tax on high income earners,• 3.8% medicare tax on investment income of high

income earners,• Impending (2014) changes for individuals and business

taxpayers

With the Health Care Exchanges ready to launch on October 1, 2013, we should be discussing the ramifi cations of the Act with our clients NOW.

ncpe will be leading the way by presenting what you must know about the Patient Protection and Health Care Act in order that you are prepared to assist your clients to understand this major change in taxes for them and for us.

Wayne

National Center for Professional Education Fellowship

35

Letter’s to the Editor

Beanna, if you were a member of Congress and an IRS employee was asked to testify about her knowledge and involvement in IRS activities and she refused to testify, what would you do?

ncpeFellowship Member

As a government employee, she was my employee for 32

years. Congress, as my representative, has the right to ask

what she has been doing while being paid by me. When she

refused, I can only assume she has been at the least derelict in

her duties and perhaps even criminal therefore I will withhold

her pension. She should have not been paid for 32 years if

she cannot justify her employment.

Bonuses are paid to IRS employees when they are rated

“outstanding” on their annual evaluations. Besides being paid

very well and receiving outstanding benefi ts, she was paid a

BONUS!

Lois Lerner was given that bonus by her boss, Steven T. Miller,

who also refused to be forthcoming with Congress. His pension

should be withheld as well. His pension will be calculated on

his highest pay grade – that of Acting Commissioner when he

retired.

Although Congress is not over the Internal Revenue Service

as it is a division of the U. S. Department of the Treasury,

Congress does write the tax laws that IRS has the responsibility

to administer. Congress not only has the right to ask who

those laws have been administered it has the obligation to

make the IRS accountable.

The American Taxpayer is required by law to be accountable for

the information they report on the federal income tax returns.

Is it not then reasonable to believe the agency administering

those laws should be accountable to the American Taxpayer

who pays their wages?

Beanna

Sponsor of the Month

The American Academy of Tax Practice

“I hate to write letters!”

The Ultimate IRS Communicator includes over 100 hard hitting letters to the IRS helpful to you when you are taking care of business. With a working knowledge of IRS procedures and these letters, you are able to lend valuable assistance to clients of every stripe.

Jean and Bryan Gates, EAs have compiled great, hard hitting pattern letters to the IRS which carefully express the merits of your client’s position through all aspects of IRS dealing. Jean & Bryan save you hours of drudgery with their snappy pattern letters to the IRS concerning every dealing a client might have with the Service. They provide you with the effortless communication capability to deal with the IRS including letters to clients and letters to various offi ces of the IRS: Customer Account Services, Collection, ACS, Exam, Appeals, Revenue Offi cers and Revenue Agents and their supervisors. Jean & Bryan have done the writing work for you. This is a completely necessary practice tool!

The letters are divided into fi ve categories or fi le folders:

1 - IntroductionA - Administrative SolutionsB - Client Management TechniquesC - Accuracy and Examination ConcernsD - Payment Problems and ArrangementsE - Penalty Resolutions

Transmitting your power of attorney to the IRS or withdrawing your power of attorney are both covered. Requesting a friendly summons when you need one is there and letters to slow the IRS down are there.

Your clients need you and the Client Management Techniques folder letters are going to help you meet those needs. Thirteen pattern letters are included to help you respond to accuracy inquiries that seem to never end. You will fi nd a really great

36

Business Solicitation letter (B14) and three pattern letters to help you with the increased client notifi cation requirements in Circular 230. You will use the engagement letters and transmittal letters in this folder over and over again. One of our favorites is the Explanation of Professional Fees (B22).

Dealing with the IRS examination function will be a snap when you adapt the pattern letters in the Accuracy and Examination Concerns folder. These pattern letters proceed from service center Math Error Unit and Automatic Adjustment Unit responses all the way to requests for Appeals consideration and settlement proposal transmittals with statute extension request denials and examiner confl ict of interest notice in between.

Post fi ling payment arrangement opportunities will be quicker and easier with the pattern letters in the Payment Problems and Arrangements folder. These letters run the entire spectrum: short extension of time to pay, installment payment proposals of every stripe, offer in compromise transmittal, non-fi ler correspondence, collection due process hearing requests, and managerial review requests when things go askew.

Avoiding and recovering penalties is straight forward. You do not need a lot of letters but you do need the pattern letters in the Penalty Resolutions folder. They do the job.

So, here you have over one hundred professional letters critical to your practice. Get to know these letters. Copy and paste all or part of the text of the letter you have selected into your word processing fi les. Adapt the letters to your client’s facts and circumstances. Use them time and time again.

Notice: The newly revised version is now available

We are offering you, members of the NCPE Fellowship; a price of $80.00 is over 10% off the list price of $89.95. This offer is available starting July 1st and is good until July 31st so it is “decision-making time”!

Use Pay Pal for online/payment card purchases: no PayPal account required.

or send a check to:Jean Gates1926 San Pablo DriveSan Marcos, CA 92078

Tax Jokes and Quotes

Do you realize that some tax forms ask you to check a box if you are BLIND?

Quote: “Two years ago it was impossible to get through on the phone to the IRS. Now it’s just hard to get through. That’s progress.” -Charles Rossotti, former IRS Commissioner

Disappointed that you never had time to write the great American novel? Don’t fret, just go dig out your past tax returns.

Quote: “The Eiffel Tower is the Empire State Building after taxes.”

Under the Freedom of Information Act, a man with a small business sent a request to the IRS asking if they had a fi le on him. The IRS wrote back, “There is now.”

Quote: “It would be nice if we could all pay our taxes with a smile, but normally cash is required.”

Q: Who audits IRS agents?

Quote: “Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.”

Q: How do you drive a CPA insane? A: Fill out Form 1040EZ.

Quote: “The government defi cit is the difference between the amount of money the government spends and the amount it has the nerve to collect.”

Why is it that when the IRS loses a tax return, it is considered a mistake, but when you lose a receipt, it is considered tax evasion?

Quote: “The wages of sin are death, but by the time taxes are taken out, it’s just sort of a tired feeling.”

Q: How do you humble a person that fl aunts their wealth?

A: Have them fi ll out a tax return.

Quote: “Even when you make a tax form out on the level, you don’t know when it’s through if you are a crook or a martyr.”

Q: Why is a tax audit like a tornado?

A: There’s a lot of screaming and you end up losing your house.

Quote: “When are we going to be allowed to list the government as a dependent?”

People often say death and taxes are the same, but this is wrong. Death is a taxable event, but taxes never die.

Next Edition of Taxing Times: August 1st, 2013