Tax Seminar #3 – December 3 2012

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Save Thousands of Dollars By Running Examination Results Through <strong>Tax</strong> Software Continued from page 6 which the case was sent (usually Holtsville, NY for us). After the call, we evaluate the discussion and set a new tickler. Another example, would be securing an installment agreement. We monitor the case to ensure that the IRS is not placing levies or liens on the case while the request for an installment agreement is pending. Also, many clients wish to have some finality to their situation as quickly as possible. So, we will set ticklers and make contacts to keep the case moving along. After each conversation with the IRS we inquire on the best time to make contact again and use that information as one point of reference in setting the next tickler. 13. Confirm all examination computations through tax software. In the past year, I have saved two clients thousands of dollars by merely running the tax examination results through our tax software. I had a ‘hunch’ on each matter that there were some errors in the initial return preparation or in the computations by the IRS. So, I ran the original return and the adjustments (as a 1040-X) through my tax software. I found that there were computational errors as a result of passive loss computations, the AMT, depreciation and net operating loss carryovers. (It should be noted that the original returns were not prepared by our firm.) The results were so significant that I have made it a rule to check the computations on all examinations. We also check the more complicated interest and penalty computations using a program by TValue entitled <strong>Tax</strong>Interest. The first step is to make certain that we ensure that there were no errors in the original return. Through that process, you can discover and evaluate errors in the return, the correction of which will benefit your client. The complexity of the passive loss rules, the AMT and the combination of the two provide a significant opportunity for tax savings. Then we add the agreed-to changes in income to arrive at a revised tax liability. The IRS will usually not have a problem correcting errors such as those described above. The settlements we reach with them are usually related to under-reported income or disallowed deductions. The ultimate tax is merely a computation. The IRS software for examinations does not have the sophistication of the IRS tax processing computers or our software. Accordingly, it is not unusual for the IRS to fail to pick-up a passive loss carryover, for example, which gets freed up with the disallowance of current year deductions on rental real estate. More rules of engagement to come next issue. E. Martin Davidoff, CPA, Esq., is a sole proprietor in Dayton, N.J., with more than 30 years experience practicing as a CPA and tax attorney. He is a past president of the AAA-CPA. Contact him at emd@taxattorneycpa.com. Real education for real change UIU.edu CPA ad_ half pg (8.25 x 5.5 wbleed) color - 2010.indd 1 KNOWLEDGE IS POWER... At UIU you have the power to reach your goals, build a new future, recharge your dreams... TURN YOUR POWER ON! Master of Business Administration - Accounting - Corporate Financial Management 66 • Flexible delivery options • Regionally accredited • No on-campus residency required • Highly qualified and supportive faculty • Ranked in top 10 percent of nation’s online programs - Online Educational Database (OEDb) 2009 • Top online MBA ranking UPPER IOWA UNIVERSITY 800-603-3756 • www.uiu.edu/cpa - GetEducated.com 2010 Bachelor of Science - Accounting - Financial Management On Campus • Online • Independent Study • U.S. & International Centers 11/2/2010 12:34:34 PM By Practicing CPAs ... For Practicing CPAs TA X S E A S O N 2 0 11 I 13
Dealing with the IRS Regarding Collections, Penalty Abatements and Examinations In practicing before the IRS regarding collection matters, Ipenalty abatements and examinations, I have found certain rules Iof engagement helpful. This is the sixth and final in the series of Iarticles in this magazine on such rules of engagement. 14. Be Realistic With Your Client. Promise only what you know you can deliver, which will frequently result in your delivering more than anticipated. Throughout our communications with our client, we promise only what we know we can accomplish. Our goal is to establish trust with our clients and referral sources, while establishing reasonable expectations in the minds of our clients. Since much of our success depends upon our advocacy skills in working with a variety of individual decision-makers at the IRS, we are often able to deliver more than our clients anticipate. 15. Confirm all Oral Agreements with the IRS field employees in writing and request that they sign off. In collection matters, the IRS often wants information more quickly than you can provide it with reasonable accuracy. Accordingly, you often enter into a negotiation with the Revenue Officer (RO) and establish mutually-agreeable deadlines. For example, when will back tax returns be filed? When will the form 433-A be completed? How will interim payments, estimated taxes, and payroll tax deposits be handled? ROs are instructed to secure form 433-A information (client financial information) immediately. The assets/liabilities sections of the form 433-A are often straight-forward and can be completed in a relatively short timeframe. However, the budget section may take more time and finesse to present a complete and accurate picture of the taxpayer’s finances and monthly budget. Accordingly, you may agree on varying timelines for portions of the form 433- A in order to satisfy the RO’s need for securing at least some information quickly. In exchange for meeting the agreed-to timelines, you should negotiate with the RO to hold off in taking any collection actions and/or issuing notices that will accelerate the collection process. To avoid any possible misunderstandings, you should set forth the understandings with the RO in writing. You could do a memorandum to your client’s file. However, if you are dealing with a RO in the field, why not turn that memorandum into a letter and ask the RO to sign off on its contents? The worst that could happen is that the RO will not sign the letter. If the RO receives the letter and fails to object to its contents, I believe that such inaction would be considered a tacit agreement to the letter’s terms. If I am dealing with a RO whom I trust, I often 6 I AUGUST/SEPTEMBER 2011 www.cpamagazine.com 67 In exchange for meeting " the agreed-to timelines, you should negotiate with the RO to hold off in taking any collection actions. " IRS REPRESENTATION E. Martin Davidoff, CPA, Esq. send the confirming letter and ask the RO to call me if any of the contents are inaccurate. If I do not trust the RO or have no long-term relationship with the RO, I will often insist that the RO sign off on the letter or issue their own letter of confirmation back to me. On occasion, I will go to the manager to secure a written confirmation from the RO. In drafting the letter, I take great care to write the agreement precisely as discussed. I would not want to be accused of attempting to renegotiate the agreement by using wording more favorable to my client than our discussion had provided. Sometimes, in drafting the letter, I will think of something that had not been discussed that should be included in our agreement. In such circumstances, I make it very clear that we had not discussed that aspect and invite the RO to call me if he/ she does not agree with my proposed resolution of the issue. When dealing with IRS collections through the centralized telephone sites, securing written confirmation of oral agreements is nearly impossible. In such cases, I write detailed internal memoranda. If nothing else, each memorandum should clearly communicate to your client what has transpired. In lieu of a memorandum, I will often send a letter to my client summarizing the case’s status. Both the memorandum and the client letter serve the purpose of documenting what has transpired and communicating the status of the matter to your client. 16. When you win, say “thank you” and “good-bye.” ■ The Appeals Officer agrees to waive your client’s penalty; ■ The Criminal Investigation Division decides not to prosecute your client; ■ The IRS telephone assister agrees to accept a favorable installment agreement; or ■ The IRS finally agrees to that Offer in Compromise.
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• Payments of more than 24 months
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Unfiled Lien v. Filed Lien A filed
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Collection Appeal Rights Process
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IRS Tax Collections: Liens and Levi
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of section 404(a) (2)), 404 (relati
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software, taxation, or ethics); and
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the Secretary of the Treasury, or d
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to a conference and may be suspende
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Tax Seminar #3 – December 3 2012

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