IRS Stresses Improvements and New Forms at Annual Liaison Meeting

By Anthony Sarmiento

Representatives of the Internal Revenue Service met with New York State Society of CPAs members to discuss recent developments in examinations, collection efforts and new forms.

The long-standing Annual Liaison meeting reunited the NYSSCPA’s Relations with the IRS Committee and regional IRS officials at the service’s New York City offices on Jan. 26.

The program, developed jointly by Gerard Borod and IRS Manhattan Taxpayer Education and Communication (TEC) Territory Manager Kittie Hill, focused on the new Schedule K-1 and Schedule M-3 forms, in addition to examinations and collections.

The liaison meetings have become important features in the Society members’ relationship with the IRS, along with campus visits, IRS TEC Area Director Ellen Murphy said in opening the meeting. Committee members most recently made a campus visit to the IRS Philadelphia center last December, to talk about foreign reporting and filing issues.

Murphy went on to discuss the IRS’s consolidation of tax return processing, noting that by the end of 2006 returns will not be submitted to campuses in Memphis or Andover, Mass.

She also noted the contribution of professionals in encouraging more preparers to e-file, expressing hope that the NYSSCPA would sponsor e-filing workshops. She added that the current eligibility threshold for practitioners wanting to use e-services would be reexamined after the 2005 filing season.

Collections Options, Examination Improvements

The first speaker, Stephen Levy, acting area director for collections, discussed changes to case processing and partial-pay installment agreements. Recent changes in the law allow the IRS to use partial-pay installment agreements in cases where it could not before. Levy also noted that the IRS has more flexibility in choosing how to address collections cases, noting that it will employ offers-in-compromise if they improve the chances of collecting back taxes.

According to J.R. Smith, the SB/SE Manhattan territory manager, implementation of the reengineered examination process over the past year has been successful, although committee members gave mixed reviews. Smith admitted that the report generation system has weaknesses and is being improved.

Robert Erickson, a tax law specialist, spoke about the goals behind the redesign of Schedule K-1 and the reasoning behind certain changes. The new Schedule K-1 is intended to bring uniformity to filings, not to require less information. Focus groups found the new form to be more user-friendly. Committee members asked about hedge funds and K-1 matching. Erickson said that the form was not designed to improve matching; it is aimed at the majority of simpler returns that do not present matching problems.

Senior Advisor Robert Adams spoke on corporate tax issues, including the new Schedule M-3, which replaces Schedule M-1 for corporations with assets in excess of $10 million. The schedule is intended to mirror the process a corporate tax department would follow, enhancing disclosure while making the form easy to use. The data gathered by the form is fed into a risk-assessment program to identify potential compliance problems more efficiently.

Barry Shott, director of field operations for the financial services industry, gave an overview of current issues in corporate taxation. Shott said that one of the division’s priorities is to focus on tax shelters and abusive transactions, using Schedule M-3 to help agents focus more closely on issues in specific cases. The goal is to reduce the cycle time on large corporate cases. Shott also discussed the Closing Agreement Program (CAP), in which the IRS looks at all of a corporation’s transactions in real time. The advantages of CAP are that there is no disclosure of the transactions in question and that following the IRS’s guidance will lead to a “no change” letter at the end of the year. Shott said that only a few companies were using CAP at present, but the response has been favorable and the program will be expanded.