Tax Compliance & Appeals Guide 2016

1. 2016 IRS Issues Richard G. Furlong, Jr.Senior Stakeholder LiaisonSmall Business/Self-Employed Division December 14, 2016 CPA Continuing Education Society of PA

2. Learning Objectives • Compliance Programs for Foreign Assets • Form 2848 & Representation before IRS • Order different types of transcripts • Request change in audit location • File appeal with the Appeals Office • Explain how to detect and report ID Theft • Explain Future State & Early Interaction Initiatives

3. Issue 1: Compliance Program for Undisclosed Foreign Assets Two Reporting Regimes: • FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) • Title 31, § 5314 • Stand-alone report, must be electronically filed on or before April 15 (new for 2017) • Form 8938, Statement of Specified Foreign Financial Assets (FATCA) • Title 26, § 6038D • Attached to Income Tax Return

4. Commissioner Koskinen (July 2014) “For our system of voluntary tax compliance to work right, the average taxpayer who abides by the law has to be confident that everyone is being held to a similar standard. As part of that, people can no longer expect to hide their money in foreign countries and avoid paying their fair share.”

5. What Needs to be Reported? • FBAR: * Foreign financial accounts • F8938: * Foreign financial accounts, * Foreign financial investment assets not held in an account, including: √ Stock or securities √Interest in a foreign entity √ Instrument or contract held for investment by non-U.S. issuer or counterparty

6. Reporting Undisclosed Foreign Financial Assets Options available for Taxpayers that need to file delinquent or amended returns to report and pay additional tax: • Offshore Voluntary Disclosure Program • Streamlined Filing Compliance Procedures

7. Offshore Voluntary Disclosure Program • Counterpart to Criminal Investigations Voluntary Disclosure Practice • Enables noncompliant taxpayers to • resolve their tax liabilities • avoid substantial civil penalties, and • generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file FBARs

8. 2014 OVDP • Effective July 1, 2014 • Penalties Increased for certain taxpayers from 27.5% to 50% • SFCP participants (initiated after July 1, 2014) not eligible • Details on ‘How to Make an Offshore Voluntary Disclosure’ available on IRS.gov

9. Streamlined Filing Compliance Procedures (SFCP) Available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect to those assets did not result from willful conduct on their part; provides: • Streamlined procedure for filing amended or delinquent returns • Terms for resolving their tax and penalty obligations

10. Streamlined FOREIGN Offshore Procedures Eligibility: • Meet non-residency requirements • Failed to report income / pay tax on foreign financial assets • Failure resulted from non-willful conduct Penalties: • For eligible and qualifying U.S. taxpayers, all penalties will be waived

11. Streamlined DOMESTIC Offshore Procedures Eligibility: • U.S. resident taxpayers (and their estates) • Filed U.S. tax returns for most recent 3 years • Failed to report income / pay tax on foreign financial assets • Failure resulted from non-willful conduct Penalties: • Misc. offshore penalty of 5%, in lieu of all other penalties

12. OVDP or SFCP? Taxpayers whose failure to report income, pay tax and submit information returns was due to willful conduct should consider OVDP • An OVDP submission disqualifies a person from participating in SFCP • An SFCP submission disqualifies a person from participating in OVDP

13. Issue 2: Form 2848, POA & Declaration of Representation Form 2848 (Rev. December 2015) • Updated description and representation requirements for unenrolled return preparers • Removed registered tax return preparers (designation i) • Prior version forms remain in effect until • Revoked by taxpayer, or • Withdrawn by representative

14. Updated Preparer Groups Unenrolled Return Preparers must: • Possess valid and active PTIN • Eligible to sign return or claim • For returns prepared/signed after 12/31/15, must possess valid AFSP Record of Completion for calendar year in which • Tax return or claim prepared/signed • Representation occurs

15. Form 2848 – Line 6Retention/Revocation POAs received will revoke any earlier POA recorded for the same tax matter/tax period unless Line 6 is checked and copy of prior POA is attached

16. Withdrawal of Representation Missing Form 2848, request to withdraw representation must… • Be in writing • List all tax matters and periods • Contain current representative signature and date

17. Deceased Tax Professionals FAQ: When a tax practitioner dies, what actions should be taken to close out their IRS authorities? • RPO - No action needed • CAF - Written request to CAF shown in Form 2848 Inst., “Where to File” • EIN - ref. IRS.gov; ‘Cancelling an EIN Instructions’ • EFIN - e-Help

18. Specific Authority FAQ: Are there special considerations for completing a POA for purposes of the OVDP and FBAR? Yes. In addition to being authorized to represent the taxpayer for tax years within the voluntary disclosure period, the power of attorney must specifically authorize you to represent the taxpayer for income tax, civil penalties, and FBARs

19. Issue 3: Levels of Representation Effective Jan. 1, 2016 • Unlimited Representation Rights: Credentialed Tax Professionals…EA, CPA and Attorneys • Limited Representation Rights: Annual Filing Season Program (AFSP) Participants • No Authority to Represent Clients before IRS: PTIN holders without professional credentials and do not participate in AFSP

20. Issue 4: IRS Transcripts Transcript Types: • Tax Return Transcript • Tax Account Transcript • Record of Account Transcript • Wage and Income Transcript • Verification of Non-Filing Letter

21. Requesting Transcripts • Get Transcript • By Mail • Online • Form 4506-T • Practitioner Priority Service • Transcript Delivery Service

22. Get Transcript Secure Access Authentication • Email confirmation code • Same as before; code sent to email address; taxpayer re-enters in order to continue to next step • Identity proofing • Similar as before • Two new steps: • Financial Verification • Activation code text sent to mobile phone

23. Issue 5: Transferring the Place of an Audit Requests by taxpayers to change place of examination, factors considered: • Current Residence • Current Principal place of Business • Location of Books, Records, and Source Doc. • Location for Efficient Examination • Resources at Location • Undue Inconvenience to Taxpayer

24. Issue 6: IRS Office of Appeals When to Request an Appeals Conference? • IRS letter received explaining appeal rights • Do not agree with decision • Did not sign agreement form

25. Requesting Appeals Conference How to Request an Appeals Conference? • Formal Written Protest • Small Case Request

26. The Appeals Process First Notice from Appeals • Contact (normally) within 90 days after request filed The Appeals Conference • Appeals will not raise new issues • If taxpayer raises a new issue, Appeals may return case to examiner

27. Mediation Alternatives When the taxpayer and Appeals are unable to agree on all or some of the issues, two mediation services are available as an alternative to litigating the case through the courts: • Fast Track Settlement (FTS) • Fast Track Mediation (FTM)

28. Issue 7: Identity Theft Warning Signs: • More than one return filed using clients SSN • Client has a balance due, refund offset or a collection action taken for year return not filed • IRS records indicate client received wages from unknown employer • Business client receives IRS letter about an amended tax return, fictitious employees or about a defunct, closed or dormant business

29. Beware IRS Impersonation Scams Avoid IRS impersonators; IRS will not: • Call demanding tax payment without mailing a notice • Threaten to call police • Demand payment without opportunity to question or appeal • Require a specific payment method • Ask for credit or debit card numbers over phone

30. Steps for Tax-Related IDT Victims • Respond immediately to IRS notices • File IRS Form 14039, Identity Theft Affidavit • Continue to pay and file return, even if by paper • Place “fraud alert” on credit records by contacting one of three major bureaus • File complaint with FTC

31. Tax-Related Identity Theft Taxpayer Protection Program generates: • Letter 4883C for prior-year suspicious returns • Letter 5071C for current-year suspicious returns • Most common correspondence • Taxpayer self-verifies at Idverify.IRS.gov • Letter 5447C for suspicious returns with foreign addresses

32. Security Summit Actions for 2016 • Agreed on new “trusted customer” standards for use of tax software • New password standards • Lockout features • Out-of-band features • Identified more than 20 new data elements for submission • Improved information sharing

33. About the Identity Protection PIN (IP PIN) • Six-digit number that adds an additional layer of protection along with the SSN or ITIN • Victims notified once tax-related IDT case resolved • Taxpayer will receive a CP01A notice containing a new IP PIN each year • Some taxpayers have the option of getting an IP PIN from IRS.gov • Enter numbers for all IP PIN holders

34. W-2 Verification Code Pilot • Taxpayers enter verification codes on their e-filed federal tax returns • When processing returns, IRS recalculates codes • Matching codes = genuine W-2s • Verification codes not included in W-2 data submitted to SSA, states or local departments of revenue • Won’t affect state or local tax returns

35. Issue 8: IRS Future State Initiative • Taxpayer Component • A more complete online experience • Freeing up resources for those who need 1-on-1 assistance • More up-front issue identification when the return is filed • Improved authentication to prevent fraudulent returns using stolen identities

36. Future State Initiative • Ongoing Activities Component • TE/GE Lean Six Sigma review • Taxpayer Assistance Centers Appointment-Based System • Improved Online Services • Compliance Realignment • Identity Theft Victim Assistance • Enterprise Records Management

37. Early Intervention Initiative for Employers What is Early Interaction? • An effort to: • Proactively address payroll tax compliance • Raise awareness • Provide better service

38. Early Interaction Initiative Early Interaction Results • FTD Alert cases quadrupled • Compliance results improved What’s Next • IRS compliance efforts have an impact • IRS outreach efforts have an impact • But we need more

39. Contact Information Richard Furlong, Jr. Senior Stakeholder Liaison 267-941-6343 richard.g.furlong@irs.gov