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Fall 2013

In this issue: Spring 2014

Reminder: Attorneys may obtain CLE credit for authoring published articles. To request CLE credit use Colorado Supreme Court Board of Continuing Legal and Judicial Education Form 6. Anyone interested in publishing an article in this newsletter can contact contact Justin Mills of Robinson, Diss & Clowdus, P.C. at 303-861-4154 or jlmills@lektax.com.

CBA Tax Section Topical Luncheons

Date

Speaker(s)

Topic

Location

04/09/2014

TBA

TBA

Davis Graham & Stubbs

05/14/2014

Robert Keatinge

What is a Limited Partner?

Davis Graham & Stubbs

6/11/2014
noon to 2 p.m.

Various

Legislative Update for Business, Tax, Real Estate, and Trust and Estate Sections

Warwick Hotel


Notice of Pro Bono Opportunity

Volunteer at the U.S. Tax Court Docket Call—April 28, 2014

The U.S. Tax Court will hold the next Denver sessions at 9:30 a.m. on Monday, April 28. Tax attorneys are invited to volunteer their assistance for a few hours on any of these dates. Attorneys interested in helping Pro Se taxpayers with docketed U.S. Tax Court cases should appear at 9:30 a.m. in Room C502 of the Byron G. Rogers U.S. Courthouse, 1929 Stout Street, Denver, CO 80294. Program guidelines are available online. Anyone wishing to volunteer should contact Tyler Murray of The Law Offices of Murray & Wright, P.C., 303-785-2875, for more information.


Tax Section Executive Council News

The Council of the Colorado Bar Association Tax Section is looking for established practitioners who are working on articles for The Colorado Lawyer, or are thinking about writing an article for The Colorado Lawyer, to pair up with current law and LL.M. students as part of their Tax Tips Solicitation Committee project. Practitioners would be matched with a current student who would help with researching and drafting the article. For more information contact Hank Vanderhage at hank@vanderhagelaw.com.

New House Bill 14-1285 Would Require Professional Tax Return Preparer Disclosures

The Executive Council of the CBA Tax Section will monitor the progress of House Bill 14-1285 as it works its way through the Colorado General Assembly. This bill requires that individuals who prepare income tax returns or refund claims for a fee, make certain disclosures to their clients concerning their qualifications, fees, contact information and their willingness to represent the client in a government audit. In its current state, the bill contains a fairly narrow definition of return preparer that does not appear to cover non-signing preparers within the meaning of Treas. Reg. § 301.7701-15. Nonetheless, the council intends to advocate for a blanket exception from the law for licensed attorneys.

2014 James E. Bye Lifetime Achievement Award Nominations

The Executive Council of the Colorado Bar Association Tax Section is accepting nominations for the 2014 James E. Bye Lifetime Achievement Award. The award is bestowed annually to a Colorado tax attorney who has adhered to the highest principals and traditions of the legal profession in the practice of tax law in the State of Colorado. Nominations are due April 18, 2014. You may request a nomination form from Jill Lafrenz of the Colorado Bar Association. Further questions about the award, past winners and the nomination process may be directed to Doug Becker at (303) 575-7576 or dbecker@ottenjohnson.com.


Featured Article: Finalized IRC §1411 Regulations Provide Practitioners with Timely Guidance on the Intricacies of the Net Investment Income Tax
By Justin L. Mills, Esq.,1 Robinson, Diss and Clowdus, P.C.

On December 2, 2013 the Treasury Department finalized the regulations it had proposed a year earlier under IRC §1411 regarding the 3.8% tax on net investment income (“NII”).2 It simultaneously issued additional proposed regulations addressing issues reserved in the final regulations. 3 As expected, the final regulations do not resolve all of the uncertainties surrounding this new tax. Nonetheless, they provide considerable additional guidance on the scope of the tax, the calculation of NII and certain industry specific issues. The overwhelming majority of these additions and changes favor taxpayers. In time these final regulations will become an important planning resource for reducing exposure to this tax. This article summarizes the key changes and additions to the prior proposed regulations and attempts to highlight important commentary from the regulations’ preamble. Read full article.


1 The author may be reached at jlmills@lektax.com or (303) 861-4154.
2 TD 9644, 2013-51 I.R.B. 676. (December 2, 2013). Prior proposed regulations were issued on December 5, 2012. See REG-130507-11, 77 Fed. Reg. 72,612. (December 5, 2012).
3 REG-130843-13, 78 Fed. Reg. 72,451-72,474 (December 2, 2013).


Featured Article: IRS Provides Guidance Regarding Estate Tax Portability Extensions

In response to numerous requests for extensions of time to elect estate tax portability under IRC §2010(c)(5)(A), the IRS recently issued Rev. Proc. 2014-18, 2014-7 I.R.B. 1. This administrative guidance establishes procedures for obtaining an automatic extension of time for certain estates seeking to elect portability of the estate tax exclusion.

IRC §2010(c) permits an estate to make a portability election which allows a surviving spouse to apply the decedent’s unused estate tax exclusion amount to the surviving spouse’s own gifts or testamentary transfers. To make this election, the estate of a decedent must file an estate tax return (IRS Form 706) even though no estate tax is due. The due date of a return filed for purposes of making the portability election is nine months after the decedent’s date of death or the last day of the period covered by an extension.1 Rev. Proc. 2014-18 provides that if an estate satisfies five requirements, relief will automatically be granted under Treas. Reg. §301.9100-3 to extend the time for filing an estate tax return for purposes of electing portability.

To qualify for an automatic extension under Rev. Proc. 2014-18:

  1. The taxpayer must be the executor of the estate of a decedent who: (a) has a surviving spouse, (b) died after December 31, 2010 but before December 31, 2013 and (c) was a citizen of the United States on his or her date of death.
  2. The taxpayer must not be otherwise required to file an estate tax return pursuant to IRC §6018(a) as a consequence of not having a taxable estate.
  3. The taxpayer did not file an estate tax return within the time prescribed by Treas. Reg. §20.2010-(2)T(a)(1).
  4. The person making the election on behalf of the decedent file a complete and properly prepared IRS Form 706 on or before December 31, 2014.
  5. The person filing the IRS Form 706 on behalf of the decedent’s estate indicate at the top of the return that it is being filed “Pursuant to Rev. Proc. 2014-18 to Elect Portability under Code §2010(c)(5)(A).”

Taxpayers who do not qualify for relief under Rev. Proc. 2014-18 may continue to request an extension of time for purposes of making the portability election by obtaining a private letter ruling in accordance with Treas. Reg. §301.9100-3.


1Treas. Reg. §20.2010-2T(a)(1). Note that the regulation and not the statute establishes this due date. This is significant because it allows taxpayers to seek administrative relief to make a late election under Treas. Reg. §301.9100.


Featured Article: Practitioner Liaison Meeting Notes: January 7, 2014

Colorado Department of Revenue Representatives

Bessie Castro-Zepeda, Disclosure Officer
Kurt Bloomer, Income Tax Manager

IRS Representatives/Title/IRS Function

Dena Figueroa, ACS Department Manager
Tammy Hobson, ACS Department Manager
Ken Cooper, Examination Territory Manager
Eric Jaeger, Local Taxpayer Advocate
Stephen Boyd, Special Agent In Charge
Cathy Schum, Acting Territory Manager
Matthew Houtsma, Associate Area Counsel
Michael Rogers, Governmental Liaison
Ann Burton, Stakeholder Liaison
Debbie Rodgers, Senior Stakeholder Liaison

Meeting Summary

Dena Figueroa & Tammy Hobson, ACS

To help better protect taxpayer information, beginning January 5, 2014, we will no longer process transcript requests through the Transcript Delivery System (TDS) if an Identity Theft Indicator is on the taxpayer’s account. The tax professional will receive a message letting them know the transcript cannot be processed and the taxpayer will receive a notice alerting him or her of the request for the transcript and instructing them to contact the Identity Protection Specialized Unit.

If an ID theft indicator is on an account that is requesting transcripts, the taxpayer will need to contact the ID theft office to obtain transcripts.

Question: We were recently advised by an Internal Revenue Service representative from the Practitioner Priority Hotline that requests for account transcripts would, in the near future, not be accepted telephonically. A different representative from the Practitioner Priority Hotline did not know about that (assuming it is true), but advised that account transcripts and other related information will soon be unavailable on IRS E-Services. What (if any) of this is true?

Response: IRM 21.3.10.3.4(12) (Transcript Requests) states the practitioner may order online if registered with e-services and having access to TDS (Transcript Delivery System). PPS (Practitioner Priority Service) may order transcripts for the practitioner even if the practitioner is registered for e-services. At this time, there is no information of removing e-services.

Question: At our last meeting, we were advised that all individual cases under $1,000,000 of accrued liability could be worked by ACS. Recently, while working with ACS on a collection case, we were advised that the cutoff is $250,000. What is the current dollar threshold for working an individual tax case with ACS? Is that set to change?

Response: ACS has the authority to resolve individual (i.e., Form 1040, Trust Fund Recovery Penalty) liabilities (i.e., initiating an Installment Agreement (IA), requesting a Currently Not Collectable (CNC)) up to $250.000. An ACS employee may initiate an In-Business Trust Fund (IBTF) IA on a business case involving trust fund liabilities up to $25,000; the IBTF must be on a Form 433D or 2159. The CR may initiate a 60-day extension of time to pay on business cases involving trust fund liabilities up to $999,999. See IRM 5.19.1.1.6. ACS has the authority to work cases (i.e., issuing a levy if appropriate to move the case towards resolution) to $999,999.

Question: Why does the ACS issue Final Notices of Intent to Levy (typically, Letters 1058) to taxpayers on cases that exceed the dollar threshold where the case can actually be worked by them? For example, in a recent matter, we attempted to resolve a case in excess of $1,000,000 with ACS, but were advised that they lacked jurisdiction to work on the case. They further advised that the case would be sent to the queue for assignment to a revenue officer, but they subsequently issued Letter 1058. By doing this, aren't they working on the very case that they purportedly lacked jurisdiction over? Moreover, by doing this, ACS accelerates the running of the late payment penalty with no immediate recourse at hand.

Response: It is not proper to issue an LT11 (Letter 1058) prior to sending the case to the queue for assignment to an RO per IRM 5.19.1.3.1(4)(b). Most likely the RO issued the LETER 1058C.

Question: Why is there such a disconnect between the phone numbers listed on centralized collection correspondence and the appropriate IRS office which the taxpayer/client needs to be talking to? For example, a client recently received a CP 504 Notice and we called the number on the notice. After being placed on hold for nearly one hour, and then discussing the case with the representative for an additional fifteen minutes, we were advised that we contacted the Taxpayer Information Service number. We were then transferred to the appropriate ACS phone number but were placed on hold for nearly one additional hour. Succinctly, why can'\’t a direct ACS phone number be placed on collection correspondence?

Response: The CP504 is tax period specific (i.e. Form 1040 for the period ending 12-31-2012) and does not reflect any other issues on the wider case. You may bypass Accounts Management by inputting your client’s TIN when prompted. The automated system should recognize one of your client’s tax periods is with ACS and transfer the call appropriately.

Question: We are noticing more cases where the fraudulent failure to file penalty (I.R.C. § 6651(f)) has been asserted, with facts which, historically, would have warranted only a standard late-filing penalty. Has there been a directive to utilize this penalty provision more frequently, and what factors does the Service look to these days when asserting this penalty?

Response: We are unaware of any directive to assert the Fraudulent Failure to File (FFTF) penalty under IRC 6651(f). IRM 20.1.2.2.7.5(3) lists the factors used to assert the FFTF penalty. These factors are: The taxpayer refuses to, or is unable to, explain the failure to file; the taxpayer’s statement does not agree with the facts of the case; there is a history of failing to file or late filing, but an apparent ability to pay; the taxpayer fails to reveal or tries to conceal assets; the taxpayer pays personal and business expenses in cash when cash payments are not usual, or cashes rather than deposits checks that are business receipts; and the taxpayer is aware of the filing requirement.

Question: Are there any plans for a “Fresh Start Initiative” payment plan hotline to minimize wait times when calling the general collection phone numbers?

Response: There are no plans for a Fresh Start Initiative hotline at this time.

Kenneth Cooper, Examination

Examination is focusing on several things this fiscal year.
Exam continues to place a strong emphasis on identifying and stopping tax schemes and abusive preparers through use our lead development center. Referrals are received from internal and external sources including tax professionals. Exam works closely with W & I and the return preparer’s office to identify questionable preparers. Exam also conducts parallel investigations were criminal investigation and examination conducts separate but contemporaneous investigations. In fiscal year 2012, Department of Justice obtained 54 injunctions. In the first five months of fiscal year 2013, 27 injunctions were obtained.

Another priority is the flow through entities. Tier structuring of flow through entities are challenging to SBSE. Using tier structures may obscure the economic reality or substance of transactions. Over the years, there has been an increase in the use of flow through entities. A partnership strategy is being initiated by SB/SE and LB & I focusing on work load and issue identification, as well as increasing the knowledge and expertise of our workforce in this area.

The offshore voluntary disclosure initiative has slowed down somewhat since the 2009 initiative. All cases from 2009 have closed. Tax year 2009 received 15,000 applications which resulted in 11,000 audits. There are still a few cases left for 2011. 2011 received 18,000 applications which resulted in 12,000 audits. 2011 still has a few cases in the pipeline that should be closed shortly. Tax year 2012 has some open cases but nothing near as high as 2009 and 2011.

The offshore voluntary disclosure program allowed Internal Revenue Service to collect more than $5.5 billion in back taxes interest and penalties from the approximate 38,000 voluntary disclosures made to date.

Question: How is the opt out situation working?

Response: Cases where taxpayers opt out of the ODVI program are sent to the Opt Out Committee located in the Midwest area to be worked. Exam has not been receiving Opt Out cases back from the Opt Out Committee at this time. The opt out program seems to be working well.

The national research programs are still around. There is currently a 1040 study that is a multi-year program. There is a corporate one year study involving 2500 corporate returns with assets under $250,000. These returns have been classified and have been sent to the field and there is an employment tax and fuel tax program.

High Income High Wealth taxpayers are another focus of examination. Rentals, flow through entities and cash transactions are related to these types of taxpayers. 12.5% of taxpayers who earn 1 million or more are being audited. Taxpayers who earn $200,000–$1 million have a 1% chance of being audited, which is pretty high.

Exam continues to make preparer visits in the field. In 2013, there were over 3000 E file, pre-filing season and due diligence visits. Exam also initiates Preparer Action Cases (PACS). A preparer action cases is an investigation where clients of questionable preparers are examined to determine whether preparer penalties and/or injunctive actions against the preparer are warranted. PACs are used to treat the most egregiously noncompliant preparers.

Another issue facing exam is the identity theft of taxpayers. Compliance employees provide assistance to identity theft victims, including placing identity theft tracking indicators on the victim’s accounts and coordinating with a specialized unit in the campus to correct their accounts and get them their correct refund.

Michael Rogers, Governmental Liaison

Internal Revenue Service has 6.5 million hits on YouTube. The videos on YouTube assist taxpayers in learning about Internal Revenue Service procedures, policies and practices. Several videos include information on tax law.

The identity theft telephone number is 1-800-908-4490.

Internal Revenue Service worked closely with FEMA to assist in staffing disaster recovery centers during the Colorado Flooding Disaster.

Eric Jaeger, Taxpayer Advocate Service

The delay in the start of the filing season will likely cause concern for taxpayers who have hardships and want to request an expedite refund for tax year 2013. TAS cannot, even in a hardship situation, get a return processed before the start of the filing season (return acceptance period).

The modification of the TAS Case Acceptance criteria that began about a year and a half ago has been extended for the next year. Specifically, TAS will not accept non-hardship cases involving: original return processing; unpostable/rejected tax returns; injured spouse claims; and amended returns (even if the case would otherwise meet TAS criteria). The reasoning behind this decision is to enable TAS to effectively assist those taxpayers who are experiencing an economic hardship. Economic hardship criteria includes the following:

  1. The taxpayer is experiencing economic harm or is about to suffer economic harm. This usually involves a privation of necessary living expenses such as housing, food, medical care, transportation, etc.
  2. The taxpayer is facing an immediate threat of adverse action. This includes a threat of enforcement action such as the filing of a levy or lien.
  3. The taxpayer will incur significant costs if relief is not granted (including fees for professional representation). The term “ significant” is meant to be relative to the individual circumstances of the taxpayer.
  4. The taxpayer will suffer irreparable injury or long term adverse impact if relief is not granted. This can include a loss of livelihood, ability to conduct business or other lasting effects caused by an IRS action.

In reference to other meeting comments and concerns about the ongoing difficulties encountered due to identity theft, it was noted that recent case receipts in TAS for identity theft issues are down nearly 40% in comparison to a year ago. This may be attributable to the IRS doing a better job of working these cases, since TAS would normally become involved only when the IRS is unable to resolve the issue, or when a taxpayer is encountering an economic hardship.

The initial contact, once a TAS case is established, is three business days for economic hardship cases and five business days for systemic hardship cases.

Stephen Boyd, Criminal Investigation

Criminal Investigation’s priorities are high impact cases and our mission is to investigate these cases, people in jail, publicize the outcome as a deterrent. Identity theft cases have tripled and are still on the rise. Criminals have determined that ITIN’s have been easy to obtain, and are using fraudulent ITINS for tax. Some practitioners go through a certification training program that allows them to certify documents for taxpayers to obtain an ITIN number.

There are special agents throughout the world, working with foreign banks that are cooperating with the United States.
As one of our priorities Criminal investigation has an on-going effort to combat sovereign citizens.
We are working with the State to assist with compliance within the marijuana industry in compliance. Compliance includes not selling to minors, trafficking across State lines and following the regulations for grow houses.

Cathy Schum, Collection

Implemented January 1, installment agreement and offer in compromise fees have increased. Installment agreement fees have increased to $120 and offer in compromise fees have increased to $186. The fee to reinstate a defaulted installment agreement has increased to $50. The user fee for a direct debit installment agreement remains unchanged at $52. Health and Human services reduction is at $43.

All revenue officers have an E- fax number, which makes faxing documents more efficient.

Disaster relief for the 11 counties affected by the flooding has ended.

When collection receives cases identified as an identity theft case, the revenue officer will work the case according to specific guidelines in the IRM. A taxpayer that self identifies, are instructed to contact the identity theft unit.

Marijuana cases are handled on case-by-case basis. It is a difficult situation due to banking issues.

Matthew Houstma, Area Counsel

Counsel had two recent retirements, attorney Randy Preheim and paralegal Robert Boyer both retired within the last month.

Counsel had a December calendar, and currently have a January calendar with 2 to 3 trials per calendar.

Counsel has some medical marijuana cases that may be docketed this fall. The issues revolve around 280E issues, business expenses. 1099K-credit card reporting notices are going out to taxpayers, allowing them to explain the differences in what the credit card company reported and what was claimed on the return. If the initial notice is ignored, then that stat notice will be sent out to the taxpayer.

There are still some easement cases out there to be resolved.

Counsel will stop accepting bankruptcy cases, due to staffing shortage.

Counsel is interested in feedback from any pro se petitioners who received the letter Counsel is sending with their Answer explaining the Appeals and Tax Court process. Please send Debbie your feedback to pass along to Matthew.

Matthew will pass along the feedback on the new notices being sent to taxpayers that seem to bury the intent of the notice.

Bessie Castro-Zepeda, Department of Revenue

Most answers to your questions can be found at taxColorado.com.

Read the complete Practioner’s Liaison Meeting Minutes.


Officers and Committee Members of the CBA Tax Section

Council Officers

Chair: Hank Vanderhage

Vice Chair: Peter Rose

Secretary: Jeremy Wysocki

Treasurer: Tyler Murray

Section Committees and Chairs

Education Committee

CLE: Gary Abrams

Topical Lunches: Andrea Welter/Doug Becker

Pro Bono: Jeremy Wysocki/Tyler Murray

Legislative Committee

Federal: Greg Berger

State: Michael Valdez

LPC Liaison: Andrew Elliot

Publications Committee

Newsletter: Tyler Murray/Justin Mills

Tax Tips: Adam Cohen/ Steven Weiser

Website: Trevor Crow

Agency Positions

CO Dept. of Revenue: Klaralee Charlton

Internal Revenue Service: TBA

Interprofessional Committee

IRS Liaison: Tyler Murray

ABA Report Liaison: Jennifer Benda

Business Section Liaison: Trevor Crow

Trusts & Estate Section Liaison: Leia Ursery/Georgine Kryda

Real Estate Section Liaison: Andrew Elliot

CBA Staff Liaison: Jill Lafrenz


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