Previous month:
November 2015
Next month:
January 2016

December 2015

IRS Not Properly Recording “Date Filed” on Some Returns, Extensions and Payments

By Rick Allen, CPA-East Texas

Many taxpayers across Texas timely filed federal tax returns and extensions or made tax payments via the U.S. mail on or before April 15, 2015, only to receive notices of late-filing and late-payment penalties. Due to IRS mail handling procedures, some campuses may be incorrectly recording taxpayers’ actual filing dates and payment dates. It is our understanding that this may be a national, systemic issue. Of course, it ties up valuable IRS resources in handling erroneous notices, costs taxpayers money due to preparers having to reply to erroneous notices, and creates unnecessary concern by taxpayers who think their hired professionals let them down in some way.

An IRS representative has shared the following informal responses: 

  • With regard to the extensions – The IRS has revised instructions for Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, for tax year 2015 to read: “Note: If you e-file Form 4868 and mail a check or money order to the IRS for payment, use a completed paper Form 4868 as a voucher. Please note with your payment that your extension request was originally filed electronically.”
  • With regard to the delays processing the certified mail – The IRS is aware of this issue and believes it has been resolved. For any outstanding accounts, the taxpayer or practitioner may write to the IRS to state that their payment was timely made and include a copy of the canceled check and a copy of the postal tracking record. This correspondence should be mailed, along with a copy of the IRS notice received, to the address on the notice.

Although the 4868 revision provides an interim measure to aid in date-filed errors, we have not seen similar changes to Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, particularly as it relates to making extension payments for trusts.

Revised Form 4868:

IRS Procedures for Certified Mail: IRM Registered and Certified Mail

IRS Continues to Reduce Interaction with Taxpayers

By Mike Williams, CPA-Amarillo

National Taxpayer Advocate Nina Olson, speaking last month at the AICPA National Tax Conference in Washington, D.C., told attendees that the IRS is moving toward being a self-service agency and is de-valuing face-to-face meetings. She said that the bar association has reported experiencing difficulty getting face-to-face meetings in conjunction with Appeals Judicial Approach and Culture (AJAC) proceedings. Olson also mentioned that she is aware of the “date filed” issue many practitioners have experienced and that it is an employee issue, not a programming error.

Limited Disaster Penalty Relief

By Rick Allen, CPA-Tyler

Preparers and taxpayers may be receiving notices from the IRS for late-filing and late-payment penalties related to tax returns filed during the recent September 15 and October 15 filing season. The IRS granted relief for taxpayers living or working in certain counties in Texas affected by the damaging storms that rolled through the state in May and June 2015. The relief provided that most tax returns and tax payments due during the period May 2 – November 2 were not late if filed or made by November 2. Many practitioners hoped that late-payment and late-filing penalties and related interest assessments related to the tax returns and payments due March 15 and April 15 would be suspended for the period May 2 – November 2. In informal guidance provided by the IRS, the penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including extended filing or payment due date, that falls within the postponement period. If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late-filing penalty or late-payment penalties that would otherwise apply.

Bond Premium Amortization Update

It is important that you advise your bond-holding clients to contact their brokers by the end of December to request that bond premiums be amortized on all taxable bonds for their 2015 information returns. A less advantageous compliance alternative would be to inform the broker that you do not wish to amortize premiums on any bonds. The 2014 Form 1099-INT instructions and temporary regulations under Section 1.6049-9T require brokers to make inconsistent assumptions for “noncovered” and “covered” bonds, which may result in inadvertent noncompliance. (In general, covered bonds are those that were acquired after 2013 and that are covered by the broker basis reporting rules as described in Reg. Section 1.6045-1(a)(15)(i)). In the past, few taxpayers elected to amortize taxable bond premiums under IRC Section 171 because the information for making the election was not readily available. New rules released in March generally require brokers to report taxable bond interest and the basis on covered taxable bonds as if the election had been made. Some brokers have implemented the rules earlier than required, which may cause some erroneous basis computations. Taxpayers and return preparers should carefully review the basis computations to ensure they reflect only amortization actually taken. While the amortization election is generally advantageous to taxpayers, it must apply to all taxable bonds, including any noncovered bonds in the taxpayer’s portfolio. This inconsistent 1099 treatment can cause a possible invalid election and mismatching of both interest income and basis reported on tax returns versus Forms 1099. TSCPA’s Federal Tax Policy Committee commented to the Treasury on this issue, but the comments were not heeded.