Informal IRS Advice Grab Bag: Abatements and Powers of Attorney

In this brief post I discuss informal advice relating to abatement requests and powers of attorney, and also flag the IRS’s release earlier this month of a new Form 2848 that reflects developments in light of Loving.

ABATEMENT REQUESTS

A recent IRS email advice discusses requests for abatement, a procedure that I found confusing when I first began working in a tax clinic many years ago. The confusion is because Section 6404(b)  states no claim for abatement shall be filed by a taxpayer for any income, estate, or gift tax assessment.  Despite that statutory limitation, the Internal Revenue Manual states that taxpayers can submit a request for an abatement for income, estate and gift tax assessments, and that the Service will consider those requests. To that end, see for example IRM 25.6.1.10.1(2) Requests for Abatement. One can use an amended return for these purposes.

What happens if the statute of limitations on assessment for the year has closed? There is no sol when it comes to abatement requests, (contrasted with the refund sol). In the email advice, the IRS states, however, that sol on assessment is not irrelevant, as the IRS is supposed to take “special care” on those abatement requests because if the IRS abates an assessment (or part thereof) and the sol on assessment has expired, then the IRS is out of luck because the tax cannot be reassessed.

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POA-CAN A REP HOLD ON TO A SIGNED POA?

A recent IRS memo considered another issue worthy of note, namely whether a representative can submit electronically a POA Form 2848 without a client’s signature. We recently discussed POAs in a post Who Can/Must Sign the POA Form by Keith regarding the ability of one rep to sign on behalf of another, where IRS said the reps must sign individually. Similarly, in this PMTA, the IRS said it must receive the POA that is signed by both the client and the rep in order for it to be effective. The rep had stated that it had the client’s signature on file, but wanted to submit the POA electronically and keep the signed POA in its records and submit to IRS upon request.  IRS’s Procedural Rule 601.504(c)(4) allows for IRS to receive a copy or a fax of the signed POA, but as per the PMTA the IRS will not allow the unsigned 2848, stating that such a procedure could facilitate identity theft and lead to unauthorized disclosures.

IRS RELEASES NEW POA

Earlier this month, IRS released a new version of the Power of Attorney, as well as instructions that highlight the differences between the new 2848 and the prior version. The main difference relates to the limited representation rights for unenrolled preparers and other post-Loving developments such as removing the designation “registered tax return preparer.”

Here is a bit more on the limited representation rights, as this I believe is a major change and reflects the IRS approach of offering a big carrot to those preparers who opt in to the voluntary testing and education program (IRS description of the Annual Filing Season Program is here). Prior to this filing season, all unenrolled preparers had limited representation rights before the IRS relating to an examination of the taxable period covered by the tax return they prepared and signed. As I discussed earlier this year in Some More Updates on IRS Annual Filing Season Program, effective for returns filed as of January 1, 2016, in order for an unenrolled preparer to have those limited representation rights, the PTIN-wielding unenrolled return preparer must also have (1) a valid Annual Filing Season Program Record of Completion for the calendar year in which the tax return or claim for refund was prepared and signed; and (2) a valid Annual Filing Season Program Record of Completion for the year or years in which the representation occurs. Absent the record of completions, the preparer wishing to get information (but not actually represent in an exam) will have to use a Form 8821 which will allow inspection and retrieval of information only.

I am not familiar with data on how often unenrolled preparers in the past had used these rights, but I suspect the ability to communicate and represent in the examination process would be a powerful benefit that an informed consumer would want in a preparer.

Summary Opinions for November

1973_GMC_MotorhomeHere is a summary of some of the other tax procedure items we didn’t otherwise cover in November.  This is heavy on tax procedure intersecting with doctors (including one using his RV to assist his practice).  Also, important updates on the AICPA case, US v. Rozbruch, and the DOJ focusing on employment withholding issues.

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I’ve got a bunch of Jack Townsend love to start SumOp.  He covered a bunch of great tax procedure items last month.  No reason for me to do an inferior write up, when I can just link him.  First is his coverage of the Dr. Bradner conviction for wire fraud and tax evasion found on Jack’s Federal Tax Crime’s blog.  Why is this case interesting?  Because it seems like this Doc turned his divorce into some serious tax crimes, hiding millions offshore.  He then tried to bring the money back to the US, but someone in the offshore jurisdiction had flipped on him, and Homeland Security seized the funds ($4.6MM – I should have become a plastic surgeon!).  His ex is probably ecstatic that the Feds were able to track down some marital assets.   I am sure that will help keep her in the standard of living she has become accustom to.

  • I know I’ve said this before, but you should really follow Jack Townsend’s blogs.  From his Federal Tax Procedure Blog, a write up of the Second Circuit affirming the district court in United States v. Rozbruch.  Frank Agostino previously wrote up the district court case for us with his associates Brian Burton and Lawrence Sannicandro.  That post, entitled, Procedural Challenges to Penalties: Section 6751(b)(1)’s Signed Supervisory Approval Requirement can be found here.  Those gents are pretty knowledgeable about this topic, as they are the lawyers for the taxpayer. As Jack explains, the Second Circuit introduces a new phrase, “functional satisfaction” (sort of like substantial compliance) as a way to find for the IRS in a case considering the application of Section 6751(b) to the trust fund recovery penalty.
  • The Tax Court in Trumbly v. Comm’r  has held that sanctions could not be imposed against the Service under Section 6673(a)(2) where the settlement officer incorrectly declared the administrative record consisted of 88 exhibits that were supposed to be attached to the declaration but were not actually attached.  The Chief Counsel lawyer failed to realize the issue, and forwarded other documents, claiming it was the record.  The Court held that the Chief Counsel lawyer failed to review the documents closely, and did not intentionally forward incorrect documents.  The Court did not believe the actions raised to the level of bad faith (majority position), recklessness or another lesser degree of culpability (minority position).  Not a bad result from failing to review your file!
  • This isn’t that procedure related, but I found the case interesting, and I’ve renamed the Tax Court case Cartwright v. Comm’r as “Breaking Bones”.  Dr. Cartwright, a surgeon, used a mobile home as his “mobile office” parked in the hospital parking lot.  He didn’t treat people in his mobile home (which is good, because that could seem somewhat creepy), but he did paperwork and research while in the RV.  Cartwright attempted to deduct expenses related to the RV, including depreciation.  The Court found that the deductions were allowable, but only up to the percentages calculated by the Service for business use verse personal use.  I’m definitely buying an Airstream and taking Procedurally Taxing on the road (after we find a way to monetize this).
  • The IRS thinks you should pick your tax return preparer carefully (because it and Congress have created a monstrosity of Code and Regs, and it is pretty easy for preparers to steal from you).
  • Les wrote about AICPA defending CPA turf in September.  In the post, he discussed the actions the AICPA has been taking, including the oral argument in its case challenging the voluntary education and testing regime.  As Les stated:

The issue on appeal revolves whether the AICPA has standing to challenge the plan in court rather than the merits of the suit. The panel and AICPA’s focus was on so-called competitive standing, which essentially gives a hook for litigants to challenge an action in court if the litigant can show an imminent or actual increase in competition as a result of the regulation.

On October 30th, the Court of Appeals for the District of Columbia reversed the lower court, and held that the AICPA had standing to challenge the IRS’s Annual Filing Season Program, where the IRS created a voluntary program to somewhat regulate unenrolled return preparers.  The Court found the AICPA had “competitive standing”, which Les highlighted in his post as the argument the Court seemed to latch on to.   For more info on this topic, those of you with Tax Notes subscriptions can look to the November 2nd article, “AICPA Has Standing to Challenge IRS Return Preparer Program”.  Les was quoted in the post, discussing the underlying reasons for the challenge.

  • Service issued CCA 201545017 which deals with a fairly technical timely (e)mailing is timely (e)filing issue with an amended return for a corporation that was rejected from electronic filing and the corporation subsequently paper filed.  The corporation was required to efile the amended return pursuant to Treas. Reg. 301.6011-5(d)(4). Notice 2010-13 outlines the procedure for what should occur if a return is rejected for efiling to ensure timely mailing/timely filing, and requires contacting the Service, obtaining assistance, and then eventually obtaining a waiver from efiling.  There is a ten day window for this to occur.  The corporation may have skipped some of the required steps and just paper filed.  The Service found this was timely filing, and skipping the steps in the notice was not fatal.  The Service did note, however, that efiling for the year in question was no longer available, so the intermediate steps were futile.  A paper return would have been required.  It isn’t clear if the Service would have come to the same conclusion if efiling was possible.
  • Sticking with CCAs, in November the IRS also released CCA 201545016 dealing with when the IRS could reassess abated assessment on a valid return where the taxpayer later pled guilty to filing false claims.   The CCA is long, and has a fairly in depth tax pattern discussed, covering whether various returns were valid (some were not because the jurat was crossed out), and whether income was excessive when potentially overstated, and therefore abatable.  For the valid returns, where income was overstated, the Service could abate under Section 6404, but the CCA warned that the Service could not reassess unless the limitations period was still open, so abatement should be carefully considered.