A new Internal Revenue Service initiative will allow taxpayers to check a box on their individual tax return to authorize a paid preparer to represent them in resolving problems processing returns.
The initiative will be a significant timesaver for taxpayers. Although it was announced last spring, this is the first tax year it will be in force.
Without first executing a power of attorney, a taxpayer may allow a preparer to address problems such as math errors, inquiries about missing information and questions regarding refunds or payments. The program applies to all Form 1040 returns.
The plan permits the designated preparer to speak directly to an IRS customer service representative over the phone, thus expediting a resolution of the issue.
The initiative does have limitations, however. For example, the authorized designee must be an individual, not a company. Furthermore, the paid preparer's authority expires when a return is processed, a refund is issued or payment is posted.
The preparer is not able to address issues related to an examination, appeals proceeding or collection notice, the IRS says, without having filed a Form 2848, "Power of Attorney and Declaration of Representative." Naturally, the check-box authority is superseded by a properly executed power of attorney.
The IRS calculates that in total, taxpayers will save 75,000 hours initially by not having to prepare a third-party-authorization disclosure form, Form 8821.
The IRS expects that more than 1 million taxpayers will use the check-box feature in lieu of filing Form 2848. As a result, it says, taxpayers will save 1.9 million hours initially by not having to prepare the form.
More than 9 million notices related to math errors and return preparation were issued in 1999. Some 27% were related to returns prepared by paid preparers, the IRS says.
The agency estimates that taxpayers will save about 779,000 hours by referring notices to their designees.
Similarly, the IRS estimates that taxpayers will save more than 1 million hours related to correspondence by allowing the IRS to resolve issues by contacting their designee.
Cite: IRS News Release IR-2000-23
IRS mounts drive against tax shelters
* The IRS, by its own account, is employing an aggressive but careful strategy in dealing with abusive corporate tax shelters.
"We are concretely moving against promoters," Larry R. Langdon, head of the IRS' large-and-midsize-business division, recently told the administrative practice committee of the American Bar Association's taxation section. The government considers promoters the "root" of the problem, he said.
He said the IRS is also working on a nationwide strategy of penalizing abusive transactions that would apply the law uniformly while properly balancing governmental and taxpayer interests.
Other IRS officials were quick to clarify that the agency will make sure it has the proper documentation on which to base any requests for investor lists.
The IRS office of tax shelter analysis is looking at transactions now on a case-by-case basis, said David Harris, manager of the office.
Postmark applies
to credit claims
* The IRS has issued final regulations, effective Jan. 11, stating that Section 7502 ("Timely Mailing Is Timely Filing") should apply to claims for credit or refund on late-filed original income tax returns.
The new regulations add that the date of an electronic postmark will be considered the filing date under certain circumstances.
The final regulations state that, in certain situations, a claim for credit or refund made on a late-filed original income tax return should be treated under Section 7502 as timely filed on the postmark date.
Claims for credit or refund made on late-filed original tax returns other than income tax returns should also be treated under Section 7502 as timely filed on the postmark date, according to the final rules.
Moreover, the rules state that the late-filed original tax return, as well as the claim for credit or refund, should also be treated as filed on the postmark date.
Those changes, according to the IRS, will assist taxpayers in filing timely claims for credit or refund, and they will be applied retroactively to certain previously disallowed claims for credit or refund.
In general, the changes are effective for any claim for credit or refund on a late-filed tax return except for those claims for credit or refund that were barred by the operation of Section 6532 ("Limitation Period On Suits") or any other law or rule of law as of Jan. 11.
The IRS explains that it will attempt to identify as many claims as possible that were filed on untimely original individual income tax returns and were previously disallowed.
In those cases, the IRS adds, it intends to issue a refund, or credit the overpayment against a liability as provided in the rules, without the need for the taxpayer to contact the IRS.
Such automatic reconsideration of the claim will generally occur if the claim was filed on an individual income tax return for 1995 or a subsequent calendar year, the IRS says.
Cite: T.D. 8932, 66 Fed. Reg. 2257
Regulations issued on euro conversion
* The IRS has announced final regulations on the income tax consequences for U.S. taxpayers upon conversion to the euro from various national currencies in Europe.
The regulations provide guidance on two issues: the circumstances under which the euro conversion causes realization of gain or loss, and the circumstances under which the conversion constitutes a change in the functional currency of a U.S. business.
According to the IRS, the regulations attempt to minimize the tax consequences that will arise from euro conversions. For example, generally there will be no current taxation in situations where the rights and obligations of a taxpayer are altered solely by reason of the euro conversion.
The regulations apply to tax years ending after July 29, 1998.
Cite: T.D. 8927, 65 Fed. Reg. 2215
New rules affect stock distributions
* The IRS has issued final regulations regarding the recognition of gain, under Section 355(d) ("Controlled Firm Stock"), on certain distributions of stock or other securities. The final regulations adopt, with some revision, regulations previously proposed by the IRS.
Section 355, according to the IRS, requires gain recognition on the distribution of a controlled corporation's stock or securities if, immediately after the distribution, any person holds disqualified stock of the distributing corporation or any distributed controlled-corporation stock that constitutes a 50% or greater interest.
However, as the IRS states, Section 355(d) should apply only to distributions designed to abuse the benefits of Section 355, and the regulations, therefore, adopt a "purpose exception."In formulating the so-called purpose exception, the IRS initially stated that Section 355(d) would not apply if the distribution and any related transaction neither increased a disqualified person's interest nor allowed the disqualified person to obtain a purchased basis in the stock.
In the final regulations, the IRS clarifies that a "disqualified person" is one who purchased the disqualified stock or received stock in the controlled corporation with respect to stock that the person purchased.
Cite: T.D. 8913
