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Monthly Newsletter for ncpe Fellowship Members

TaxingTimesVol. 2 No. 1 January 2011

Remarks from Beanna

2011 is here and tax season with all itschallenges and difficulties gives tax professionalsthe opportunity to use their knowledge andexperience to assist America’s taxpayers to filecomplete and accurate tax returns.

Adjacent to your desk is the NCPE fall updatebook, ready to assist you with your client’s difficulttax problems. Your email address will help me tobroadcast IRS notices, revenue rulings and otherissues during the filing season. If your emailaddress has recently changed, please let me knowat Beanna@ncpefellowship.com.

The January Fellowship Newsletter is chockedfull of information for the tax pro in the know! Besure and read both Jerry and Wayne’s column forgreat information to help you in your practice andto answer your client’s questions.

Before the season gets too busy, allow me tothank you for what you do and the way you conductyour business – professionally and with purpose.It has been a trying year for most tax professionalsand I am proud of the way we have acceptedregistration and licensing. It is what taxprofessionals do and this profession will be betterfor requiring education on an annual basis for thepractitioners of tax.

You are ready, get set and go get thosetaxpayers, giving them the best a tax professionalcan offer with the pride in the job we do for affectivetax administration.

I salute each and every one of you.

Beanna

Beanna@ncpefellowship.com

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Remarks from BeannaTax News

Payroll Tax Cut to Boost Take-Home Pay for MostWorkers; New Withholding Details Now Availableon IRS.govIRS Announces 2011 Standard Mileage RatesPresidential Fiscal Commission Fails to Get VotesNeeded to Send its Recommendations to CongressTax Fraud by Prisoners Rising, Report FindsSSA Redesigns Its Website4,700 More Jobless Accountants36% of Clients Are Dissatisfied and AlreadyShopping for Another Accounting FirmSurvey Results OverviewKey findings of the CCH SurveyEmployers Likely to Pay More UnemploymentTaxes in 2011

People in the Tax NewsWesley Snipes ordered to surrender in tax caseBefore They Were Famous, and Sometimes After,Too… These Celebrities Were Accountants.Increase my taxes, says Warren Buffett

IRS NewsIRS Agent Charged With Stealing $160k of TaxRefundsStarting in 2011, Many Paid Preparers Must e-FileFederal Income Tax Returns for Individuals,Estates and TrustsTIGTA Audit Uncovers Excessive Claims forEducation Credits Intended for Students AttendingMidwestern Disaster Area SchoolsIRS Looks to Distribute Owed Refund ChecksInterest Rates Decrease for the First Qtr of 2011IRS Ratchets Up Its Campaign to Ensure Accurate TaxReturn PreparationTIGTA Calls for Expanding IRS's Access to Wageand Withholding Data to Combat Fraudulent Activities

Contents Page

Contents

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Tax News

Payroll T ax Cut to Boost T ake-Home Pay forMost W orkers; New W ithholding Det ailsNow Available on IRS.gov

The Internal Revenue Service has releasedinstructions to help employers implement the 2011 cutin payroll taxes, along with new income-tax withholdingtables that employers will use during 2011.

Millions of workers will see their take-home pay riseduring 2011 because the Tax Relief, UnemploymentInsurance Reauthorization, and Job Creation Act of2010 provides a two percentage point payroll tax cutfor employees, reducing their Social Security taxwithholding rate from 6.2 percent to 4.2 percent ofwages paid. This reduced Social Security withholdingwill have no effect on the employee’s future SocialSecurity benefits.

The new law also maintains the income-tax rates thathave been in effect in recent years.

Employers should start using the new withholdingtables and reducing the amount of Social Security taxwithheld as soon as possible in 2011 but not later thanJan. 31, 2011. Notice 1036, contains the percentagemethod income tax withholding tables, the lower SocialSecurity withholding rate, and related information thatmost employers need to implement these changes.Publication 15, (Circular E), Employer’s Tax Guide,containing the extensive wage bracket tables thatsome employers use, will be available on IRS.gov ina few days.

The IRS recognizes that the late enactment of thesechanges makes it difficult for many employers toquickly update their withholding systems. For thatreason, the agency asks employers to adjust theirpayroll systems as soon as possible, but not later thanJan. 31, 2011.

For any Social Security tax over withheld duringJanuary, employers should make an offsettingadjustment in workers’ pay as soon as possible butnot later than March 31, 2011.

PageNew IRS Audit Guide Focuses on Capitalization-to-Repair Accounting Method ChangesCost segregation and asset reclassification.Unit of property and dispositions.Finding the UOP for buildings under current law.How to Report Direct Rollovers From 401(k)and 403(b) Plans to Designated Roth Accounts onForm 1099-RIRS Issues Guidance on Reporting QualifiedPlan to Roth IRA ConversionsIRS Provides Instructions for AddressingEconomic Hardship in Levy CasesChief Counsel Notice 2011-005TIGTA Says Security is Now the Top ChallengeE-Verify System Can Now Determine EmploymentEligibility Through Passport Photo MatchingIRS Releases Proposed Regulations that WouldReduce Enrolled Agent FeesDelay of Renewal Period for Certain Enrolled AgentsReminder of New Registration Requirement for AllReturn PreparersIRS Can Allow Refund Claim After Two-Year Periodfor Filing a Refund Suit has ExpiredChief Counsel Advice 201048030

The Ragin’ Cajun’You Can No Longer Make Required Deposits UsingForms 8109 and 8109-B

Tax Professional’s in TroubleJustice Department acts to stop local tax preparerBellefontaine Neighbors Contractor Pleads Guilty inTax CaseFormer Flagstaff Tax Preparer IndictedBeloit Tax Preparer Sentenced to PrisonSouth River Tax Preparer Sentenced for FakingDeductions on Clients' ReturnsTax Preparer Facing ID Theft, Fraud ChargesLocal Tax Return Preparer SentencedDellwood Tax Preparer Admits Phony Tax Figures$2M Tax-Fraud SchemeMan Admits Tax Scam Using Stolen Patient DataSeattle Man Faces Prison Time for Tax FraudUp to $50 Million Case Could be Largest by TaxPreparer in Mississippi

Wayne’s WorldIRS Data Shows Decline in Estates Owing Tax OverLast Decade

Sponsor of the MonthRedgeartech.com, TaxWorks, 1040 Works, ArkWorks,Red Gear Technologies

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Employers and payroll companies will handle thewithholding changes, so workers typically won’t needto take any additional action, such as filling out a newW-4 withholding form.

As always, however, the IRS urges workers to reviewtheir withholding every year and, if necessary, fill outa new W-4 and give it to their employer. For example,individuals and couples with multiple jobs, people whoare having children, getting married, getting divorcedor buying a home, and those who typically wind upwith a balance due or large refund at the end of theyear may want to consider submitting revised W-4forms. Publication 919, How Do I Adjust My TaxWithholding?, provides more information to workerson making changes to their tax withholding.

IRS Announces 201 1 Standard MileageRates

The Internal Revenue Service has issued the 2011optional standard mileage rates used to calculate thedeductible costs of operating an automobile forbusiness, charitable, medical or moving purposes.Beginning on Jan. 1, 2011, the standard mileage ratesfor the use of a car (also vans, pickups or panel trucks)will be:

• 51 cents per mile for business miles driven• 19 cents per mile driven for medical or movingpurposes• 14 cents per mile driven in service of charitableorganizations

The standard mileage rate for business is based onan annual study of the fixed and variable costs ofoperating an automobile. The rate for medical andmoving purposes is based on the variable costs asdetermined by the same study. Independent contractorRunzheimer International conducted the study.

A taxpayer may not use the business standard mileagerate for a vehicle after using any depreciation methodunder the Modified Accelerated Cost Recovery System(MACRS) or after claiming a Section 179 deductionfor that vehicle. In addition, the business standardmileage rate cannot be used for any vehicle used forhire or for more than four vehicles used simultaneously.

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Taxpayers always have the option of calculating theactual costs of using their vehicle rather than usingthe standard mileage rates.

Revenue Procedure 2010-51 contains additionaldetails regarding the standard mileage rates.

Presidential Fiscal Commission Fails toGet Votes Needed to Send it sRecommendations to Congress

The National Commission on Fiscal Responsibility andReform failed to get the necessary 14 votes from its18 members to send its final report to Congress forconsideration. Elements of the report, dramaticallyentitled “The Moment of Truth,” may reappear in futurebudget debates but for now the austerityrecommendations are on hold.

Tax Fraud by Prisoners Rising, Report Finds

More than 48,800 of the nation's prisoners claimed$130 million in fraudulent tax refunds by March of thisyear, and the numbers are probably much higher,according to a new watchdog report. The IRS paid$112 million of the claims, a small fraction of the $326billion in refunds this year.

The number of fraudulent payments to inmates hasclimbed 37 percent since 2004, said the report, whichacknowledged that the rise is partly a result ofincreased detection and enforcement by the IRS.

The IRS doesn't screen most prisoners' tax returns,according to the report by the Treasury InspectorGeneral for Tax Administration (TIGTA). A review of

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tax records found that 88 percent of the 287,918returns filed by prisoners by late March were notscreened for potential fraud. Of those, about 48,800returns lacked wage information reported to the IRSby employers, the report said.

"There is a major problem with returns being filedfraudulently by people who are incarcerated," TIGTAInspector General J. Russell George said in aninterview. "What makes this even more problematic isthat we identified this as a problem more than fiveyears ago. The problem not only persists, it's gotteneven worse."

In 2005, TIGTA found that 18,000 prisoners had filedfraudulent returns in 2004. The report prompted a 2008law that requires George to file regular updates onprison-based tax fraud. The number of bad claims hasclimbed because the IRS has stepped up detectionand enforcement, and because more prisoners aremaking fraudulent claims.

The IRS "is making very good progress" in identifyingcases of fraud, George said. Overall, in the generalpopulation, the agency stopped almost 250,000fraudulent returns totaling $1.48 billion through March,double the number from the 2009 filing season.

"The IRS takes refund fraud seriously and hasprograms in place to aggressively combat it," agencyspokesman Terry Lemons said in a statement.

Tracking prison fraud "is not a simple process,particularly considering the fact that some inmates andtheir families are legally entitled to tax refunds andthat the prisoner population is constantly changing,"he said.

The agency is working with state and federal officialsto ensure timely updates and last summer met withfederal prison officials to improve detection andprevention of prisoner fraud, he said.

SSA Redesigns It s Website

The Social Security Administration (SSA) has unveileda totally redesigned home page that was revamped tohelp users find the information and services they needmore quickly. One of the key features of the redesignedhome page is a service channeling guide, whichappears in the left-hand column of the page. The guide

links users directly to the most popular pages on theSSA's website — the services visitors are most likelyto want to use.

Other features of the new home page include a rotating“showcase” that provides high visibility for significantagency initiatives. For example, while this article wasbeing written, there was a rotating “showcase” thatincluded information on the 2011 Social Security cost-of-living adjustment. Each page on the websiteincludes a link back to the home page.

There is a horizontal blue button on the upper right-hand corner of the home page, called “BusinessServices,” that provides links to Business ServicesOnline (BSO), forms and publications, information forsoftware developers, and W-2 news. There are alsolinks to frequently asked questions and informationon specific employment tax topics (e.g., “EmployersFiling Forms W-2,” and “Employment of ForeignWorkers”). Users who click on the “Employers FilingForms W-2” link will be taken directly to the SSA's“Employer W-2 Filing Instructions & Information” page,which includes information for both electronic andpaper W-2 filers, as well as information on the SocialSecurity Number Verification Service (SSNVS). The“Employer W-2 Filing Instructions & Information” pagecan be bookmarked so users can access the pagedirectly, rather than having to first go to the SSA's homepage.

SSA Commissioner Michael Astrue noted that the “newlook reflects the useful feedback we received from thepublic during testing.” The new home page may befound at http://www.socialsecurity.gov/.

4,700 More Jobless Account ants

Accounting and bookkeeping services, allemployees in thousands

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The number of jobs in the accounting and bookkeepingsector sank again last month to a seasonally-adjusted878,600, down 4,700 from the month before and91,500 off the peak of 970,100 in February 2008.

At the same time, the nation added 151,000 privatesector jobs, the 10th straight months of albeit anemicgains, according to the latest data from the U.S.Bureau of Labor Statistics. The nation’s unemploymentrate remained unchanged at 9.6%.

The BLS reported:

Within the service-providing sector, temporary helpservices added 35,000 jobs over the month, bringingtotal job gains since September 2009 to 451,000.Employment in computer systems design and relatedservices rose by 8,000 in October; this industry hasadded 53,000 jobs since June 2009. Health careemployment continued to increase (+24,000) inOctober, with gains throughout the industry.

Within leisure and hospitality, job losses in arts,entertainment, and recreation (-26,000) offset gainsin food services and drinking places (+24,000). Sofar this year, employment in food services has risenby 143,000. Retail trade employment rose in October(+28,000), with gains occurring among automobiledealers (+6,000) and electronics and appliance stores(+5,000).

Within the goods-producing sector, employment inmining continued to expand (+8,000), reflectingongoing gains in support activities for mining. Mininghas added 88,000 jobs over the last 12 months.Employment in most other major private-sectorindustries was little changed in October

36% of Client s Are Dissatisfied and AlreadyShopping for Another Accounting Firm

Few concerns weigh more on the minds of accountantsthan the desire to satisfy, and retain, clients. As CPAfirms look to build client loyalty and grow profitability,a new CCH nationwide survey – the 2010 CCHAccounting Firm Client Survey – pinpoints what’s mostimportant to keeping accounting firm clients, and whythey leave. The independent survey commissionedby CCH, a Wolters Kluwer business, was issued to

accounting firm clients including individuals and small,mid-size and large businesses.

In a keynote address to over 1,000 tax and accountingprofessionals attending the CCH User Conference inGrande Lakes, Orlando, CCH President and CEOMike Sabbatis shared findings and insights from thesurvey.

He noted that while the need for accounting firmservices surged in the past decade and firms’ biggestconcern was keeping up with growth, the surveyreveals new pressures on the profession in terms ofclient expectations, demand for services, competitionand service value.

“It’s clear that client needs are changing rapidly, andyour competitors are seeking to take advantage,”Sabbatis said. “The firms that will overcome obstaclesand realize the opportunities before them will be thosethat challenge themselves to break down the barriersthat may be constraining their success.”

Survey Result s Overview

The good news is that most clients view their CPAfirm as a strategic advisor, are generally satisfied withtheir firm, and are willing to refer their firm to others.

However, that does not guarantee client loyalty. In fact,36 percent of business clients report they are likely toswitch CPA firms in the next year. In the currenteconomy, few firms can afford the risk of this clientturnover level.

“Ensuring the accounting firm client connectionremains strong requires a continuous commitment,”said Sabbatis. “Firms need to have the right staff, theright processes and the right technology to ensurethere are no boundaries to their ability to understandand meet clients’ current and evolving needs.”

Key findings of the CCH Survey :

n Clients almost universally recognize their CPA firmas a strategic advisor, with 94 percent of businessclients and 81 percent of individual clients surveyedviewing their firm as such.

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n Firms have a significant opportunity to betterleverage this relationship by providing existing clientswith extended services. Significant gaps exist betweenthe volume of tax, accounting, auditing andmanagement advisory services clients need and thetypes of service in each of these areas they seek fromtheir CPA firm. For example, while 99 percent ofindividual clients surveyed used their accounting firmfor tax preparation services, only 48 percent said theyturned to their CPA for tax planning.

n The top concern for both business and individualclients is minimizing taxes.

n Client needs are growing. Forty-five percent ofbusiness and 24 percent of individual clients saysupport needs will increase in 2011, while just 5percent of business and 7 percent of individual clientssay needs would decrease.

n Fifty-five percent of business and 29 percent ofindividual clients report the number of specializedservices they need from their CPA firm is growing.

n Retention risks are real. Thirty-six percent ofbusiness clients are considering switching firms, and55 percent report they are being prospected by otherCPA firms.

n While 79 percent of business clients say they aregenerally satisfied with their CPA firm, of that group,only 17 percent are completely satisfied.

n The top reason clients would consider leaving theirfirm is if the firm does not regularly check with themon their changing needs.

n Firms’ overall expertise is a top driver in firmselection for business clients. For individuals, referralsmost often drive selection.

n Business clients are leveraging technology andthey expect their firms to do the same, whether it’sworking in the cloud or digitizing more of theirenvironment

Employers Likely to Pay MoreUnemployment T axes in 201 1

As of late November, thirty-one states and the VirginIslands have borrowed money from the federalgovernment to help keep their unemploymentinsurance (UI) trust funds solvent. The federalgovernment is going to begin charging interest onthese loans in 2011, unless a provision in the AmericanRecovery and Reinvestment Act of 2009 that waivedinterest charges on the loans through Dec. 31, 2010is extended. In addition, states are paying out largeamounts in unemployment benefits due to the pooreconomy in recent years. States are increasinglypassing on more of their costs to employers in theform of higher UI taxable wage bases, higher UI taxrates, and new tax surcharges. Listed below is a briefsummary of the states that have already enactedlegislation to pass on some of their costs to employersin 2011.

Colorado. The new employer rate will increase forconstruction employers in 2011. Unemployment taxrates will also increase for some experiencedemployers.

Florida. Unemployment tax rates will increase formany employers in 2011.

Hawaii. Unemployment tax rates will increase formany employers in 2011. However, the taxable wagebase will decrease from $34,900 to $34,200 in 2011.

Indiana. The taxable wage base will increase from$7,000 to $9,500 in 2011. Unemployment tax rateswill also increase for some experienced employers in2011 (see RIA Payroll Guide ¶ 12,604). In addition,the 2010 federal unemployment tax (FUTA) rate forIndiana employers will be higher than the rate for mostother employers because of the State's failure to repayits outstanding federal loans for two consecutive years.

Iowa . The taxable wage base will increase from$24,500 to $24,700 in 2011. Unemployment tax ratesare also increasing.

Maryland . The new employer rate is increasing in2011.

Michigan . The 2010 federal unemployment tax(FUTA) rate for Michigan employers will be higher thanthe rate for most other employers because of theState's failure to repay its outstanding federal loansfor three consecutive years (see RIA Payroll GuideNewsletter 11/12/2010). Negative balance employerswill pay a 0.75% solvency tax in 2011 to help the Statepay interest charges on outstanding federal loans,unless federal legislation is enacted that waives theinterest charges on these loans beyond Dec. 31, 2010.

Minnesot a. The new employer rate is increasing in2011 (see RIA Payroll Guide ¶ 13,504). Minnesotaexperienced employers will be subject to a newsurcharge called the “federal loan interest assessment”in 2011.

Mississippi . The taxable wage base will increase from$7,000 to $14,000 in 2011.

Missouri . The new employer rate will increase forconstruction employers in 2011.

Montana. The taxable wage base will increase from$26,000 to $26,300 in 2011.

New Hampshire . The taxable wage base will increasefrom $10,000 to $12,000 in 2011. Unemployment taxrates also recently increased for some experiencedemployers.

New Jersey . Unemployment tax rates recentlyincreased for some experienced employers.

New Mexico. The taxable wage base will increasefrom $20,800 to $21,900 in 2011. In addition,unemployment tax rates will increase for manyemployers in 2011.

New York . Governor Paterson recently proposedlegislation (S08423) that would increase the taxablewage base from $8,500 to $9,500 in 2011. Thelegislation would also eliminate the lowest tax ratebrackets for employers with positive experienceratings.

North Dakot a. The taxable wage base will increasefrom $24,700 to $25,500 in 2011.

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Ohio . The new employer rate will increase in 2011.Unemployment tax rates will also increase for manyexperienced employers.

Oklahoma . The taxable wage base will increase from$14,900 to $18,600 in 2011. Unemployment tax rateswill also increase for many experienced employers.

Oregon . The taxable wage base will increase from$32,100 to $32,300 in 2011. The new employer ratewill increase in 2011. Unemployment tax rates will alsoincrease for many experienced employers.

Pennsylvania . Experienced employers must pay aninterest factor tax in 2011.

South Carolina . The taxable wage base will increasefrom $7,000 to $10,000 in 2011. Unemployment taxrates will also increase for some experiencedemployers in 2011. The State is imposing a newinterest surcharge in 2011. In addition, the 2010 federalunemployment tax (FUTA) rate for South Carolinaemployers will be higher than the rate for most otheremployers because of the State's failure to repay itsoutstanding federal loans for two consecutive years.

South Dakot a. The taxable wage base will increasefrom $10,000 to $11,000 in 2011.

Tennessee . Some new employer rates recentlyincreased.

Texas . The Texas Workforce Commission expectsemployers to pay an interest obligation assessmentin 2011 due to the State's outstanding loan with thefederal government.

Utah . The taxable wage base will increase from$28,300 to $28,600 in 2011. In addition, unemploymenttax rates will increase for many employers in 2011.

Vermont. The taxable wage base will increase from$10,000 to $13,000 in 2011.

Washington . The taxable wage base will increasefrom $36,800 to $37,300 in 2011.

Wisconsin . The taxable wage base will increase from$12,000 to $13,000 in 2011.

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People in the T ax News

Wesley Snipes ordered to surrender in t axcase

A judge says it's time for the actor to start serving athree-year prison sentence.

A federal judge has ordered actor Wesley Snipes tosurrender to authorities so he can begin serving athree-year prison sentence for tax-related crimes.

U.S. District Judge William Terrell Hodges in Floridarejected a request from the actor's attorneys to reviewSnipes' sentence and grant a new trial. Snipes hasbeen free on bond for more than two years whileappealing.

"The defendant Snipes had a fair trial; he has had afull, fair and thorough review of his conviction andsentence. … The time has come for the judgment tobe enforced," the judge wrote in his 16-page decision.

The 48-year-old star of the "Blade" trilogy and SpikeLee's "Jungle Fever" was convicted in 2008 on threemisdemeanor counts of willful failure to file his incometax returns. He was acquitted of two more seriousfelony charges.

Snipes' defense attorney, Daniel Meachum, said inan e-mail to the Associated Press that he planned toappeal to the U.S. Supreme Court.

Meachum said later in an interview that he didn't expectthe Bureau of Prisons to take custody of the actor for

another five to seven days. Snipes is in Atlanta,preparing to film the movie "Master Daddy."

"Wesley is incredibly calm and positive," Meachumsaid in the interview in his Atlanta office. "He wasn'tangered. He wasn't bitter."

Before They W ere Famous, and SometimesAf ter , Too… These Celebrities W ereAccount ants.

1. John Grisham, author of A Time to Kill, The Firmand many other exciting novels, received hisundergraduate degree in accounting from MississippiState University.

2 Mick Jagger: Can't Get No Bank Reconciliation!?Before he was lead singer in the Rolling Stones, MickJagger studied to be an accountant at the LondonSchool of Economics.

3. Singer Janet Jackson studied to be an accountant.

4. J Walter Diemer, an accountant for the FleerCorporation in the 1920's, tinkered with gum recipesin his spare time and created a chewy, rubberysubstance better known as bubble gum.

5. Funny man Bob Newhart started out in accounting.

6. Former Texas Rangers Manager Kevin Kennedy,a CPA, did his players’ tax returns to make extramoney when he managed in the minor leagues.

7. Track sensation Marcus O’Sullivan passed theCPA exam.

8. Tim DuBois, known as “The Singing Accountant,”wrote the Alabama hit “Love in the First Degree,” theJerry Reed hit, “She Got the Goldmine, I Got the Shaft,”and the Vince Gill hit, “When I Call Your Name.” He iscurrently the President of Arista Records in Nashville.

9. Luca Paciolo wrote the first book on double-entryaccounting in 1494. He is frequently referred to asthe father of accounting. He’s still a hot commoditytoday.

10. When Hernando Cortes landed in the New World,he brought horses, soldiers – and his accountant,

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Alonso de Avila. As a reward for excellent service, deAvila was made the first mayor of Veracruz, in what isnow Mexico.

11. J. P. Morgan got his first Wall Street job as a junioraccountant. Five years later he founded his owncompany.

12. Ray Wersching, the ex San Francisco 49er fieldgoal kicker, was a CPA during the off-season.

Increase my t axes, says W arren Buffet t

Warren Buffett has called for America's very wealthiestto pay substantially more tax in the veteran investor's

most strident contribution yet to a debate exposingdeep divisions on how to fire the country's recovery.Warren Buffett: 'We have it better than we've ever hadit.'

"I think people at the high end, people like myself,should be paying a lot more in taxes," the billionaireinvestor and founder of Berkshire Hathaway said. "Wehave it better than we've ever had it."

With America's economic recovery still fragile,politicians on Capitol Hill need to decide before theend of the year whether to extend tax cuts firstintroduced by President George W. Bush in 2001 andthen deepened in 2003. President Obama and mostof the Democrats favor extending them for all familiesearning under $250,000 (£156,000) a year, or roughly98pc of US taxpayers. Many republicans and someDemocrats argue they should be extended to eventhe very richest, claiming that it is this group who aremore likely to invest and create jobs.

Mr. Buffett, ranked America's second-richest man withan estimated fortune of $45bn (£28bn), told ABC Newsthat "the rich are always going to say, just give us moremoney and we'll go out and spend more then it will alltrickle down to the rest of you. But that has not workedthe last 10 years and I hope the American public iscatching on."

IRS News

IRS Agent Charged W ith S tealing $160k ofTax Refunds

Fern Stephens, a revenue officer at the IRS, is beingcharged by the U.S. Attorney's office for stealing morethan $160,000 in unclaimed tax funds from 12taxpayers, according to federal court documents. Ifconvicted of all counts of mail fraud, theft ofgovernment funds, and unlawful access of agovernment computer, Stephens faces a maximumsentence of 35 years in prison.

Starting in 201 1, Many Paid Prep arers Muste-File Federal Income T ax Returns forIndividuals, Est ates and T rust s

The Internal Revenue Service has detailed how,starting Jan. 1, 2011, paid tax return preparers cancomply with a new law that requires paid tax returnpreparers who meet the definition of “specified taxreturn preparer” under the new law to electronicallyfile (e-file) federal income tax returns that they prepareand file for individuals, trusts and estates.

The e-file requirement will be phased in over two years.Starting Jan. 1, 2011, paid preparers who prepareincome tax returns for individuals, trusts and estates,such as Forms 1040, 1040A, 1040EZ, and Forms1041, and who reasonably expect to file 100 or moreof these income tax returns in 2011 are specified taxreturn preparers required to file these returnselectronically.

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Tax return preparers who are members of a firm arespecified tax return preparers and must electronicallyfile the income tax returns they prepare and file if thefirm’s preparers, in the aggregate, expect to file 100or more of these income tax returns in 2011.

Starting Jan. 1, 2012, the 100-return threshold will bereduced to 11 or more income tax returns that thepreparer, or the preparer’s firm in the aggregate, expectto file in 2012 for individuals, trusts and estates.

"Electronic filing is the safest, fastest and easiest wayfor taxpayers to file their tax returns. E-filing is goodfor the tax system, good for taxpayers and good forthe tax preparation industry," said IRS CommissionerDoug Shulman. "This requirement reflects the realitiesof the modern world where technology has evolved tothe point that everyone should be filing their tax returnselectronically."

To comply with the new law, a tax return preparer whois subject to the electronic filing requirement and doesnot already provide e-file for clients must become anauthorized IRS e-file provider, which means he, she,or the firm, if the preparer is a member of a firm, mustobtain an electronic filing identification number (EFIN).It takes up to 45 days to obtain an EFIN so returnpreparers who have not started the process shouldstart immediately.

Proposed regulations issued today detail the two-yearphase-in plan and provide exclusions from the e-filerequirement for undue hardship waivers approved bythe IRS and for certain administrative exemptions. Inaddition, under the proposed regulations, the e-filerequirement does not apply to an individual incometax return when a tax return preparer’s taxpayer-clientchooses to have the return completed in paper formatand the taxpayer-client, and not the preparer, will filethe paper return with the IRS. A notice issued with theproposed regulations contains a proposed revenueprocedure on undue hardship waivers and taxpayerchoice statements to file in paper format.

Tax professionals and other interested parties haveuntil Jan. 3, 2011 to submit comments regarding theproposed regulations and the notice of proposedrevenue procedure. Final regulations will be publishedin early 2011, but will be retroactively effective as ofJan. 1, 2011, as described in the proposed regulations.

TIGTA Audit Uncovers Excessive Claims forEducation Credit s Intended for S tudent sAttending Midwestern Disaster AreaSchools

A new audit by the Treasury Inspector General for TaxAdministration (TIGTA) has found that a significantnumber of taxpayers abused the expanded tax creditintended for students attending schools in designatedMidwestern Disaster Areas. As described by TIGTA,the tax credit under review was provided for in theHeartland Disaster Tax Relief Act of 2008 and allowedtaxpayers with eligible students attending eligibleeducational institutions to claim twice the amount ofotherwise available education credits. The credit,known as the Hope Credit, is limited to eligible studentsenrolled in their first two years of post-secondaryeducation. For tax year 2008, the expanded creditincreased the maximum amount of Hope Credit from$1,800 to $3,600 for each qualifying student. TIGTAauditors reviewed a sample of 383 tax returns withclaims for more than the standard maximum amountof the Hope Credit and found that 197 of the claimswere for students who did not qualify for the credit,did not attend schools in the Midwestern DisasterAreas, or may not have even attended school.Taxpayers making these claims received $224,500more than they were entitled to receive. This data ledTIGTA to estimate that taxpayers filing 48,940 taxreturns with similar claims erroneously received $55.8million in excessive Hope Credits for tax year 2008.TIGTA recommended that IRS take additional stepsto ensure that only qualifying taxpayers receive morethan the normal amount of the Hope Credit and torecover any excessive amounts claimed.

IRS Looks to Distribute Owed RefundChecks

The Internal Revenue Service is taking steps to makesure local residents receive their 2009 federal taxrefund. The agency is looking to give 9,662 NewYorkers, including 37 residents of Saratoga Countyand 12 in Saratoga Springs, a combined $23.9 millionin refund checks that were returned to the U.S. PostalService due to mailing address errors.

In a Thursday release, the IRS released the names ofthese residents while recommending all taxpayers file

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their returns electronically or request their refund bedeposited directly.

Undeliverable refund checks for New Yorkersaveraged $2,471 in 2010, compared to $1,581 lastyear, an increase the agency attributed to recent taxlaw changes that include new credits or the expansionof existing credits.

“We want New Yorkers to get this money as soon aspossible,” said IRS New York spokeswoman DianneBesunder, urging those who think they are missing arefund to check by logging on to IRS.gov or callingtheir toll free refund hotline.

Taxpayers missing a refund can update their addressusing the “Where's My Refund?” tool accessiblethrough IRS.gov. The toll free refund hotline can bereached at (800) 829-1954.

The agency also noted that they do not contactresidents via email to alert them of pending refunds,and any messages to this effect are typically identitytheft scams.

Interest Rates Decrease for the FirstQuarter of 201 1

WASHINGTON – The Internal Revenue Service todayannounced that interest rates for the calendar quarterbeginning January 1, 2011, will decrease by onepercentage point. The rates will be:

n three (3) percent for overpayments [two (2) percentin the case of a corporation];

n three (3) percent for underpayments;

n five (5) percent for large corporate underpayments;and

n zero and one-half (0.5) percent for the portion of acorporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interestis determined on a quarterly basis. For taxpayers otherthan corporations, the overpayment andunderpayment rate is the federal short-term rate plus3 percentage points. Generally, in the case of acorporation, the underpayment rate is the federal short-

term rate plus 3 percentage points and theoverpayment rate is the federal short-term rate plus 2percentage points. The rate for large corporateunderpayments is the federal short-term rate plus 5percentage points. The rate on the portion of acorporate overpayment of tax exceeding $10,000 fora taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computedfrom the federal short-term rate during October 2010to take effect November 1, 2010, based on dailycompounding.

IRS Ratchet s Up It s Camp aign to EnsureAccurate T ax Return Prep aration

IRS is now in the midst of sending more than 10,000letters to tax return preparers “to remind them of theirobligation to prepare accurate tax returns on behalf oftheir clients.” According to IRS, the letters are targetedat paid preparers who completed tax returns in whichthe agency has identified common errors. During the2011 filing season, IRS representatives will visit some2,500 preparers who receive the letter to discuss theresponsibilities incumbent upon paid preparers andto verify compliance with existing requirements. “Whilemost return preparers are professionals who providehonest and excellent service to their clients, somemake basic errors or engage in fraud and other illegalactivities,” IRS said.

TIGTA Calls for Exp anding IRS's Access toWage and W ithholding Dat a to CombatFraudulent Activity

IRS's efforts to improve its identification of fraudulenttax returns can be aided by giving the agencyexpanded access to wage and withholding information,the Treasury Inspector General for Tax Administration(TIGTA) said in an audit released on Dec. 2. The audit“was initiated because unscrupulous individualscontinue to submit tax returns with false incomedocuments to the IRS for the sole purpose of receivinga fraudulent refund,” TIGTA said. According to theaudit, IRS identified 249,185 fraudulent tax returnsduring the 2010 filing season and prevented theissuance of $1.48 billion in fraudulent refunds. Thisreflected a 50% increase over the number of fraudulenttax returns identified during the prior filing season.

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However, the audit revealed that the returns of thosemost likely to commit fraud are rarely screened by IRS.TIGTA found that the bulk of tax returns IRS identifiesas being filed by prisoners are not being screened toassess their fraud potential. The audit found that253,929 (or 88%) of the 287,918 returns filed byprisoners as of March 24, 2010, were not selected forscreening. Of those, 48,887 prisoners who claimedrefunds totaling more than $130 million had no wageinformation reported to the agency by employers.TIGTA noted that although some potential fraud hasbeen uncovered by various IRS programs, “giving theIRS expanded and expedited access to wage andwithholding information during the filing season wouldsignificantly increase the IRS's ability to more efficientlyand effectively verify wage and withholding informationreported on a tax return at the time a tax return isprocessed.”

New IRS Audit Guide Focuses onCapitalization-to-Rep air Accounting MethodChanges

IRS has issued a new Audit Technique Guide (ATG)focusing on the issue of whether an expense shouldbe capitalized or deducted under current law. It focuseson how examiners should scrutinize a taxpayer'schange in accounting method (CAM) request dealingwith the recharacterization of previously capitalizedexpenses as currently deductible.

Costs are currently deductible as a repair expenseunder Code Sec. 162 if they are incidental in nature,and neither materially add to the value of the propertynor appreciably prolong its useful life. Costs also arecurrently deductible if they are for materials andsupplies consumed during the year. Expenses mustbe capitalized under Code Sec. 263 if they are forpermanent improvements or betterments that increasethe value of the property, restore its value or use,substantially prolong its useful life, or adapt it to a newor different use.

A taxpayer that wishes to change from capitalizing acost to treating it as a repair must file for a CAM usingForm 3115 (Application for Change in AccountingMethod). In Rev Proc 2009-39, 2009-38 IRB 371,amending Rev Proc 2008-52, 2008-36 IRB 587, IRSclarified, modified, and amplified the procedures underwhich a taxpayer may obtain automatic consent for a

change in an accounting method. Appendix Section3.06 of Rev Proc 2009-39 provides automatic consentfor a taxpayer that changes its method of accountingfrom capitalizing under Code Sec. 263(a) to deductingthe repair and maintenance costs as ordinary andnecessary business expenses under Code Sec. 162and Reg. § 1.162-4 (see Federal Taxes Weekly Alert09/03/2009). Before Aug. 27, 2009, under Rev Proc97-27, and Appendix Section 3.06 of revised Rev Proc2008-52, an advance consent procedure was in placefor the capitalization v repairs CAM, under which theconsent letters were subject to significant caveats.Under both the advance consent procedure and theautomatic consent procedure, there is one-yearreporting of a negative Code Sec. 481(a) adjustment(i.e., a decrease in taxable income) and four-yearreporting of a positive Code Sec. 481(a) adjustment(i.e., an increase in taxable income).

A key issue in the capitalization v repairs determinationis the unit of property (UOP). The smaller the UOP,the more likely it is that costs incurred in connectionwith that UOP will have to be capitalized. For example,the overhaul of an engine of a vehicle or vessel islikely to be classified as an expense that must becapitalized if the engine is classified a separate UOP.By contrast, if the UOP is the vehicle or vessel, theengine overhaul is more likely to pass muster as arepair. Recently, taxpayers have taken an expansiveview of what the UOP is.

In recent years, taxpayers have hired firms to conductwhat are called cost segregation studies. Thesestudies make detailed inventories of individual assetsin order to distinguish items of short-recovery-periodCode Sec. 1245 property from long-recovery-periodCode Sec. 1250 property. Capitalizing on sometaxpayer-favorable court decisions, these studies havebeen aggressive in designating property as Code Sec.1245 property. For example, the proper depreciationof such items as electrical wiring and junction boxesused to power equipment and plumbing for specializedequipment appears to be ambiguous. Arguments canbe advanced that such items are Code Sec. 1245property and are therefore not considered to be acomponent of the building. In addition, some courtshave maintained that a portion of the general purposewiring in a building may be allocated to the specializedequipment, making it Code Sec. 1245 property.

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In the new ATG, IRS presents detailed guidance tofield agents examining a taxpayer's capitalization vrepairs CAM. It covers which taxpayer documents torequest, summarizes the entire capitalization v repairsissue as it currently stands, and instructs examinerson how to review a taxpayer's books and records todetermine in the CAM is appropriate.

Cost segregation and asset reclassification. Examinersare advised to review the assets identified in any costsegregation or asset reclassification study anddetermine whether the taxpayer is being consistent inits classification of Code Sec. 1245 property (generally,personal property) and Code Sec. 1250 property(generally, real property) for purposes of both: (1) assetidentification/classification; and (2) determiningwhether an expense relating to that asset should becapitalized or treated as a repair expense deduction.If an item is identified as a tangible asset and treatedas Code Sec. 1245 property for purposes of assetclassification and/or depreciation, it cannot be treatedas a structural component of a building and areplacement of a component of Code Sec. 1250property in order to obtain repair expense treatment.

Unit of property and dispositions. The ATG advisesexaminers to determine if the taxpayer is using thesame definition for a UOP for purposes of both (1)asset depreciation/disposition and (2) determinationof whether an expenditure should be capitalized ortreated as a repair expense deduction. If the taxpayeris using different definitions for (1) and (2), then theexaminer should verify whether the taxpayer's newmethod of determining repairs, expenses, and claimedCode Sec. 481(a) adjustment is consistent with itsclaimed dispositions in previous years. Using thesmaller separate asset as the UOP, the taxpayerpreviously may have treated the costs of replacing thatasset as a capital expenditure and treated the adjustedbasis of the original asset as a disposition. Havingnow changed the definition of the UOP to a largerasset, the taxpayer may want to treat the replacementof what is now a “component” as a qualifying repairexpense. However, if the smaller asset was originallytreated as a disposition, the problem for the taxpayeris there is no “component” to be repaired or replacedand therefore any expenditure to install a new“component” is a betterment that must be capitalized.

Finding the UOP for buildings under current law. Thenew ATG reveals that many taxpayers currently are

claiming that: (1) no permanent improvement resultedfrom work performed on buildings because the workonly affected a small part of the entire building; and(2) the entire building is the UOP. For example, sometaxpayers claim deductions for installing new roofs,replacing heating and air conditioning systems, andmaking major structural changes to building interiors,because when compared to the building and itsstructural components as a whole, these projects couldbe portrayed as immaterial.

The ATG essentially admits there's no clear-cutguidance on the issue. In cases addressing whetherthe costs of replacing structural components ofbuildings must be capitalized, it says the courts haveutilized inconsistent approaches. It concludes thateach taxpayer's facts and circumstances must beanalyzed closely to determine the appropriate UOPfor a building or its structural components.

The Audit Technique Guide can be viewed on the IRSwebsite at http://www.irs.gov/businesses/article/0,,id=231440,00.html.

How to Report Direct Rollovers From 401(k)and 403(b) Plans to Designated RothAccount s on Form 1099-R

Section 2112 of the Small Business Jobs Act ( P.L.111-240) allows participants to make rollovers fromtheir §§401(k) and 403(b) plans to their designatedRoth accounts (“in-plan Roth rollover”) after Sept. 27,2010. The taxable amount rolled over is includedequally in the participant's taxable income in 2011 and2012, unless the taxpayer elects to include it in 2010.The IRS has now issued a notice that explains how toreport this transaction on Form 1099-R, DistributionsFrom Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. TheIRS advises payers that the amount rolled over shouldbe reported in box 1 of Form 1099-R (Grossdistribution), the taxable amount in box 2a, and anybasis in the rollover in box 5 (Employee contributions).Payers should enter Code G in box 7 on Form 1099-R. The IRS notes that mandatory 20% withholdingdoes not apply to in-plan Roth direct rollovers.

Payers should report distributions made to planparticipants from designated Roth accounts in 2010on a separate Form 1099-R. The portion of a

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distribution from a designated Roth account that isallocable to an in-plan Roth rollover is reported onForm 1099-R in the same way as any other distributionfrom a designated Roth account; however, the portionof the distribution that is allocable to the in-plan Rothrollover should be entered in the blank box to the leftof box 10.

IRS Issues Guidance on Reporting QualifiedPlan to Roth IRA Conversion s

The IRS has issued guidance on how plan sponsorsshould report direct rollovers from 401(k) or 403(b)plans to designated Roth accounts in the same planand subsequent distributions allocable to suchrollovers. Most significantly, the guidance spells outthat mandatory withholding doesn't apply to therollovers. This is a more in depth article on the topic.

For distributions made after Sept. 27, 2010, § 2112(a)of the “Small Business Jobs Act of 2010” (P.L. 111-240) provides that participants in qualified 401(k) plansand 403(b) annuity plans that maintain a qualified Rothcontribution program may roll over distributions fromtheir 401(k) and 403(b) plans to designated Rothaccounts maintained for the benefit of the individualto whom the distribution was made. (Code Sec.402A(c)(4)(B))

However, the rollover is not tax-free. Rather, theamount that an individual receives in a distribution froman applicable retirement plan that would be includiblein gross income if it were not part of a qualified rolloverdistribution must be included in his gross income.(Code Sec. 402A(c)(4)(A)(i))

Any amount that is includible in a taxpayer's grossincome for any tax year beginning in 2010 is includedin gross income ratably over 2011-2012. However, thetaxpayer may elect to not have this 2-year deferralapply and to include the taxable portion in grossincome in the 2010 tax year. Any such election for anydistributions made during a tax year may not bechanged after the “due date” for such tax year. (CodeSec. 402A(c)(4)(A)(iii)) Presumably, this refers to thedue date for 2010, i.e., for most individuals, Apr. 18,2011.

The Code Sec. 72(t) 10% tax on early withdrawals(which generally applies to the taxable portion of a

plan or IRA distribution made before the participanthas reached age 59 1/2, unless an exception applies)doesn't apply to such distributions. (Code Sec.402A(c)(4)(A)(ii)) However, the recapture rule underCode Sec. 408A(d)(3)(F) applies to distributions withina specified five-tax-year holding period. (Code Sec.402A(c)(4)(D))

IRS advises payers on how the amount rolled overfrom a 401(k) or 403(b) plan to a designated Rothaccount should be reported on Form 1099-R(Distributions From Pensions, Annuities, Retirementor Profit-Sharing Plans, IRAs, Insurance Contracts,etc.) The amount rolled over is reported in box 1 ofForm 1099-R (Gross distribution), the taxable amountin box 2a, and any basis in the rollover in box 5(Employee contributions). Payers should enter CodeG in box 7 on Form 1099-R. IRS says that mandatory20% withholding does not apply to in-plan Rothrollovers.

The IRS guidance also says that payers should reportdistributions made to plan participants from designatedRoth accounts in 2010 on a separate Form 1099-R.The portion of a distribution from a designated Rothaccount that is allocable to an in-plan Roth rollover isreported on Form 1099-R similar to any otherdistribution from a designated Roth account, but theportion of the distribution that is allocable to the in-plan Roth rollover should be entered in the blank boxto the left of box 10.

IRS Provides Instructions for AddressingEconomic Hardship in Levy Cases

Chief Counsel Notice 201 1-005

In light of a 2009 Tax Court decision that Appealsabused its discretion by sustaining a proposed levyafter the settlement officer concluded that the levywould create an economic hardship for the taxpayer,IRS has issued a Chief Counsel Notice (CCN) withinstructions for when a taxpayer alleges in a collectiondue process (CDP) case that the levy should not besustained because it would cause an economichardship.

Under Code Sec. 6330, IRS must provide writtennotice to a taxpayer of its intent to levy on any of thetaxpayer's property or rights to property at least 30

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days before the levy and inform the taxpayer of hisright to a CDP hearing with the Office of Appeals(Appeals). At the CDP hearing, the settlement orappeals officer verifies that all legal and administrativerequirements have been met, considers issues raisedby the taxpayer (including whether the proposedcollection action would cause an economic hardship),and determines whether the proposed collectionactivity is appropriate. The taxpayer then has 30 daysto appeal this determination to the Tax Court.

Under Code Sec. 6343(a)(1)(D) and regs, IRS mustrelease a levy if it creates an economic hardship forthe taxpayer.

In Vinatieri, (2009) 133 TC No. 16, the Tax Court heldthat Appeals abused its discretion by sustaining aproposed levy that would render the taxpayer unableto meet her necessary living expenses. Although thesettlement officer determined that the taxpayer metthe hardship requirements for “Currently NotCollectible” status, Appeals nonetheless upheld thelevy based on the fact that she wasn't currentlycompliant with her return filing obligations. Contraryto Appeals' decision, Code Sec. 6343(a)(1)(D) andReg. § 301.6343-1(b)(4) require release of a levy ifthe taxpayer provides adequate financial informationfrom which it can be determined that the levy will createan economic hardship, which the taxpayer in Vinatiericlearly did, even if the taxpayer isn't compliant withreturn filing requirements. Accordingly, the Tax Courtdenied IRS's motion for summary judgment becauseIRS's determination to proceed with the levy was wrongas a matter of law and therefore an abuse of discretion.

In light of the holding in Vinatieri, the CCN provided aseries of steps to be taken when a taxpayer is alleging,in an appeal to the Tax Court from a notice ofdetermination sustaining a levy, that the levy shouldn'tproceed because it would cause economic hardship.In that situation, the appropriate steps are to:

(1) review the administrative record to determine if thetaxpayer raised economic hardship and, if so, whetherthe facts support the taxpayer's claim that the levywould prevent him from meeting necessary livingexpenses; and

(2) file a motion requesting that the case be remandedback to Appeals if the taxpayer raised, and the

settlement or appeals officer failed to address, acredible economic hardship argument.

TIGTA Says Security is Now the T opChallenge

Security has jumped to the head of the list of the top10 challenges facing IRS in fiscal year 2011, accordingto the Treasury Inspector General for TaxAdministration (TIGTA). The document was posted onthe TIGTA Website on Dec. 9. Modernization slippedfrom the top spot to second position in a list that isupdated annually. The remaining eight challenges, indescending order, are the following: tax complianceinitiatives; implementing health care and other tax lawchanges; providing quality taxpayer service operations;human capital; erroneous and improper payments andcredits; globalization; taxpayer protection and rights;and leveraging data to improve program effectivenessand reduce costs. “Due to recent events at IRS facilitiesand the potentially expanding role of the IRS, securityhas replaced modernization as the top challengefacing the IRS,” said J. Russell George, the inspectorgeneral. “Animosity towards the tax collection processis nothing new, but the Austin incident and other recentevents point to a surge of hostility towards the federalgovernment. The ongoing public debate regarding therecently enacted health care legislation may also leadto increased threats against IRS employees andfacilities, underscoring the need for continuingvigilance in the area of physical security.”

E-Verify System Can Now DetermineEmployment Eligibility Through PassportPhoto Matching

The Department of Homeland Security (DHS) hasadded passport photo matching to the list of toolsavailable in the E-Verify system to confirm employmenteligibility for new hires. E-Verify is a free, Internet-based system that compares information from a newhire's Form I-9, Employment Eligibility Verification, toDHS and Social Security Administration (SSA) recordsto confirm employment eligibility.

Since November 10th, employers have been able toverify the identity of new employees who present aU.S passport or passport card as documentation oftheir eligibility to work in the U.S. by comparing thedata on the passport with State Department passport

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photo records. The DHS estimates that approximately10% of all E-Verify queries involve reviewing a U.S.passport to establish both identity and employmentauthorization.

“E-Verify is a smart, simple and effective tool that helpsemployers and businesses throughout the nationmaintain a legal workforce,” said DHS SecretaryNapolitano. “Including U.S. passport photo matchingin E-Verify will enhance our ability to detect counterfeitdocuments and combat fraud.” According to DHS, E-Verify is now used by more than 230,000 employersat more than 800,000 worksites.

IRS Releases Proposed Regulations thatWould Reduce Enrolled Agent Fees

The Internal Revenue Service has released proposedregulations that would reduce fees related toapplication and renewal for enrolled agents andenrolled retirement plan agents. The reduction isrelated to the preparer tax identification numberrequirements implemented last month which establisha new registration process and fee for all returnpreparers.

The proposed regulations (REG-124018-10) wouldreduce the fee for application and renewal for enrolledagents and enrolled retirement plan agents from $125to $30. The reduction reflects the fact that theprocesses used to review enrollment and renewal ofenrollment applications are partially duplicative of thenew process for reviewing a PTIN application, whichcosts $64.25. Individuals granted status as an enrolledagent or enrolled retirement plan agent must renewenrollment every three years. The renewal scheduleis based on the last digit of the individual’s socialsecurity number or tax identification number.Tax professionals and other interested parties haveuntil Jan. 10 to submit comments regarding theproposed regulations.

Delay of Renewal Period for Cert ainEnrolled Agent s

In anticipation of these proposed regulations, the IRSrecently announced in Announcement 2010-81 a delayof the renewal period for enrolled agents whose taxidentification numbers end in 4, 5, or 6. The IRS is

not accepting or processing applications for renewalof enrollment until further guidance is issued.

Individuals who have successfully completed thespecial enrollment examination may submit anapplication for enrollment, but the current user fee of$125 must be paid with the application until finalregulations reducing the user fee are published in theFederal Register. These individuals also may chooseto delay filing an application for enrollment until theuser fee is reduced. Individuals who delay filing anapplication for enrollment may not practice before theIRS until the application is submitted and the Office ofProfessional Responsibility has granted enrollment.

Reminder of New Registration Requirement for AllReturn Prep arers

The IRS recently launched a new online applicationsystem to obtain a PTIN. All paid tax return preparerswho prepare all or substantially all of a tax return arerequired to use the new registration system to obtaina PTIN. Individuals who obtained a PTIN prior to Sept.28, 2010, need to reapply under the new system butgenerally will be reassigned the same number.Applicants must pay $64.25 to obtain or renew a PTIN.Access to the online system is available through theTax Professionals page on this website. Receipt of aPTIN will be immediate after successful onlineregistration. Or a paper application may be submittedon Form W-12, IRS Paid Preparer Tax IdentificationNumber Application, with a response time of four tosix weeks.

IRS Can Allow Refund Claim After Two-YearPeriod for Filing a Refund Suit has Expired

Chief Counsel Advice 201048030

In Chief Counsel Advice (CCA), IRS has concludedthat it may allow a refund claim after Code Sec. 6532's two-year filing period for refund suit has expired.But, if IRS's Appeals Office affirms any part of the IRSexaminer's disallowance of the refund claim, the two-year filing period for filing refund suit in District Courtor U.S. Court of Federal Claims isn't extended.

Under Code Sec. 6511(a), a taxpayer must file a claimfor credit or refund of an overpayment of any tax withinthree years from the time the relevant return is filed,

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or two years from the time the tax is paid, whicheverperiod expires later. (Code Sec. 6511(a)) No credit orrefund is allowed if a claim is not filed within thesetime limits. (Code Sec. 6511(b))

Under Code Sec. 6532(a)(1), a taxpayer must file arefund suit within two years from the date that IRSmails the taxpayer a notice of the disallowance of thetaxpayer's claim for refund. Nothing in the Code orregulations prevents IRS from allowing a refund claimafter the expiration of the two-year period for bringinga refund suit as long as the taxpayer timely filed theclaim with IRS under Code Sec. 6511(a). However,the Internal Revenue Manual (IRM), instructs thatAppeals should not consider a taxpayer's request toreconsider a refund claim that was disallowed if therequest for reconsideration was made after the periodfor bringing suit expired. (IRM §8.7.7.12(1). Further,Appeals may refuse to reconsider a refund claim ifless than 120 days remains in the two-year period forfiling suit when the taxpayer makes the request forreconsideration. (IRM §8.7.7.12(2)) Under Code Sec.6532(a)(1), any consideration, reconsideration, oraction by IRS with respect to a refund claim followingthe mailing of a notice of disallowance will not operateto extend the period within which a suit may be begun.IRS and the taxpayer can execute Form 907,Agreement to Extend the Time to Bring Suit, and agreeto extend the limitations period before the expirationof the two-year period for bringing suit. (Code Sec.6532(a)(2), IRM §8.7.7.2.3(2))

The Ragin’ Cajun’

You Can No Longer Make RequiredDeposit s Using Forms 8109 and 8109-B

The Internal RevenueService hasannounced thatbeginning January 1,2011, due toregulatory changes,they will no longeraccept Federal TaxDeposit coupons.

You will be required tomake Federal Tax

Deposits electronically. Otherwise, you may becharged a 10% penalty for each non-electronicdeposit.

What you need to do:

n Check with your financial institution to find out itscut-off date for accepting Federal Tax Depositcoupons.n For a convenient and quick way to make timelyelectronic deposits, you are encouraged to use EFTPS(Electronic Federal Tax Payment System). Thissystem is a free, secure service available from the U.S. Department of the Treasury.

Next steps:

n If you are already making your depositselectronically, please continue to do so.n For more information about electronic paymentmethods, visit www.irs.gov/epay or call 1-800-830-5215.

Important reminder:

n Be sure to make your Federal Tax Depositelectronically to avoid a 10% penalty for each non-electronic deposit.

Additional information:

n Visit www.eftps.gov or call EFTPS CustomerService at 1-888-434-7338.n For information about Federal Tax Deposits, visitwww.irs.gov and search “Tax Topic 757”. You can alsofind the following online:Employer’s Tax Guide – Publication 15, Circular EAgricultural Employer’s Tax Guide – Publication 51,Circular ADeposit requirements for Employment Taxes – Notice931

Jerry

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Tax Professional’ s in Trouble

Justice Dep artment act s to stop local t axpreparer

The U.S. Department of Justice has filed a civilinjunction in U.S. Dis¬trict Court in Montgom¬ery,Alabama to stop Aurelia Sanderson Johnson frompreparing tax re¬turns for others because thegovernment con¬tends that the Mont¬gomery womanhas continually filed false returns, according to aJustice Department release.

The complaint contends that Johnson, operating underthe trade names Johnson Tax Service and On-TimeTax Service, employed at least two schemes on returnsshe prepared for customers in order to obtain false orover¬stated refunds.

The complaint contends that Johnson has preparedat least 1,000 returns since 2006 and has preparedmany us¬ing fictitious information to inflate or generatefalse earned income tax credits and prepared returnswith fabricated business expense deductions on hercustomers' returns leading to underre¬ported incomeand bo¬gus refunds.

The injunction is part of an Internal Revenue Serviceeffort to crack¬down on tax scams in 2010.

Bellefont aine Neighbors Contractor PleadsGuilty in T ax Case

A former construction contractor pleaded guiltyWednesday of a scheme with a tax preparer to claimphony employees and split the refunds.

Mack Edwards, 34, of Bellefontaine Neighbors,admitted to conspiring to defraud the federalgovernment of about $25,000.

His co-conspirator, Hestine I. Mason, 31, of Jennings,pleaded guilty in April and was sentenced to a year inprison.

Edwards admitted to U.S. District Judge Catherine D.Perry that he provided Mason with false W-2 formsfor phony employees for 2007 and split the refundswith her.

Edwards faces 10 years in prison and a fine of$250,000. Perry set sentencing for Feb. 3.

Former Flagst aff Tax Preparer Indicted

A federal grand jury has indicted a former Flagstaffpayroll service and tax preparer on 11 counts of aidingin the preparation of false tax returns.

According to information from the U.S. Attorney'sOffice, the indictment alleges that Devon M. Scott, alsoknown as Roland J. Rojas, 39, had filed tax returnsthat fraudulently and falsely stated the amount ofpayroll taxes that he had deposited with the InternalRevenue Service on behalf of his clients.

The indictment mentions 11 specific instancesbetween January 2005 to July 2005. At the time, Scottowned and operated the now-defunct Devero PremierServices Group, a payroll tax service in Flagstaff.

A conviction for preparation and presentation of afraudulent tax return carries up to a maximum penaltyof three years in prison, a $100,000 fine or both, plusthe costs of prosecution.

Scott could not be immediately reached for comment.

Beloit T ax Prep arer Sentenced to Prison

Dawn Shick of South Beloit, was sentenced today infederal court in Madison to six months in prison andfined five thousand dollars.

MADISON (WIFR) -- Dawn Shick of South Beloit, wassentenced today in federal court in Madison to sixmonths in prison and fined five thousand dollars.

Shick pleaded guilty on September 15 to filing falsetax returns for tax payers for the year 2007.

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Shick, 49, operated "DMS Tax Service, LLC" in Beloit,Wis. For tax year 2007, Shick prepared and filed 36false income tax returns for individuals andbusinesses. These false returns resulted in a total lossto the government (lower taxes paid and inflatedrefunds) of $76,057. The government's proof at theguilty plea hearing established that the taxpayers wereunaware that Shick was changing their tax returns.

In sentencing Shick, Judge Crabb stated that acustodial sentence was warranted because, by filingfalse tax returns, Shick benefitted and gained an unfaircompetitive business advantage with those clients overhonest tax preparers. The Court further stated thatShick was stealing from the government to make herlook better with her clients and the Court couldn’t evenimagine how a tax preparer would decide not to followthe law and would simply play with the numbers.

United States Attorney Vaudreuil stated today’ssentencing was the result of an investigationconducted by the Madison office of the InternalRevenue Service-Criminal Investigation. Theprosecution of the case has been handled by UnitedStates Attorney John W. Vaudreuil

South River T ax Prep arer Sentenced forFaking Deductions on Client s' Returns

A South River tax preparer was sentenced to fivemonths in federal prison and another five months ofhome confinement for inflating and fabricating clients'tax deductions.

Regina Santos was also fined $20,000 by JudgeDickinson Debevoise in U.S. District Court, Newark.Santos, the owner and operator of One Stop Agencyin South River, pleaded guilty in August to knowinglypreparing fraudulent tax returns. From April 2007through April 2008, Santos prepared returns for 40clients for tax years 2004 through 2007. Those returnsincluded false deductions for medical expenses, giftsto charity and miscellaneous expenses, sheacknowledged.

The fraudulent returns allowed her customers to getrefunds they did not deserve and led to a loss of about$195,000 in tax receipts, authorities said.

Her attorney, Joseph Benedict of New Brunswick, saidhe will work to have Santos, a mother of three school-aged children, serve her sentence in a halfway house.

Benedict said Santos' crime was a "misguided effortto help fellow Portuguese" who didn't speak Englishwell. She admitted to Debevoise that she knew whatshe was doing was illegal.

Tax Prep arer Facing ID Thef t, FraudCharges

An Elmore County tax return preparer could face upto 94 years in jail and up to a $4 million fine if convictedon multiple counts of tax fraud and identity theft.

Sharon D. Thurman, who owned and operatedSharon’s Tax Services, was indicted in the MiddleDistrict of Alabama in late October with 14 counts ofmaking false claims for tax refunds, two counts ofaggravated identity theft and two counts of theft ofgovernment money.

The indictment alleges that Thurman sought at least$53,548 in fraudulent tax refunds from the IRS duringthe 2007 tax year.

Thurman was arrested on Oct. 26 and arraigned thesame day. Her trial date in U.S. District Court inMontgomery before Judge William Keith Watkins isset for Feb. 7, 2011.

Thurman’s list of victims has since increased to 20people, according to one of her victims, Caleb Hannahof Los Angeles.

In an interview with The Herald this week, Hannahsaid he is still awaiting his IRS refunds from returnsdating back to 2007.

“After filing a freedom of information request throughthe IRS, I?have found out that returns in 2007, ’08and ’09 were fraudulently filed,” he said. “I?looked atthe name of the preparer and was stunned to learn ofthis woman’s indictment.”

Hannah said he has contacted the U.S. Attorney’sOffice, the Criminal Investigations Department of theIRS and the Department of Justice about his case.Hannah said he in no way had any of those returnsfiled by Thurman. In fact his only connection toAlabama is that he was raised in Gordo.

According to records from a 2007 Elmore CountyCommission meeting, Thurman also requested alounge liquor license for a club called Rock-a-Way inthe Crenshaw community. But that application wasdenied.

Local T ax Return Prep arer Sentenced

The United States Attorney’s Office announced thatKamiko Monroe was sentenced to one year and oneday in prison on multiple charges of tax fraud.

According to court documents, Kamiko Monroeprepared and filed electronic U.S. Individual IncomeTax Returns for the years 2004 through 2007 in whichfalse income tax refunds were claimed based on theimproper application of the Earned Income Credit andfalse income amounts. Some of the returns claimedfalse dependency exemptions. Nearly 200 Forms1040A claiming refunds totaling some $850,000 wereelectronically presented to the Internal RevenueService from computers controlled by Monroe basedon this pattern of false entries. Many of the returnswere presented through Kay's Tax Service, a businessoperated by the defendant in Bridgeton. The IRS paidout $652,000 in refunds before the scheme wasstopped up by IRS special agents who executed asearch warrant at Monroe’s business in the 3100 blockof Fee Road.

Monroe and her associates solicited persons to assistin falsely claiming refunds by allowing the returnscontaining the pattern of false entries to be filedelectronically under the solicited person's name.

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Monroe actually inflated the wage figures shown onthe tax returns in order to get the full benefit of theearned income credit. In many instances, the refundswere paid into bank accounts controlled by Monroe orone of her associates. She and her associates andthe solicited persons shared in the proceeds of thefalsely claimed refunds.

Kamiko Monroe, 36, Dellwood, MO, pled guilty inAugust to three felony counts of filing false claims forrefund, and appeared today for sentencing beforeUnited States District Judge Jean C. Hamilton, whoalso ordered Monroe to make full restitution to theUnited States.

This case was investigated by Internal RevenueService Criminal Investigation. Assistant United StatesAttorney James E. Crowe, Jr., handled the case forthe U.S. Attorney’s Office.

Dellwood T ax Preparer Admit s Phony T axFigures

Kamiko Monroe, a tax preparer, has been sentencedto a year in prison for claiming phony credits on falseincome-tax returns for individuals.

Monroe, 36, of Dellwood, had admitted she claimedfalse dependents and earned income credits in taxforms she filed electronically through her business,Katy's Tax Service.

U.S. District Judge Jean C. Hamilton sentencedMonroe and ordered her to repay the government$652,000 in improper refunds, which she split withclients. She pleaded guilty in August.

$2M Tax-Fraud Scheme

A $2-million tax-fraud scheme at an Aurora financialservices company has landed another person inprison, federal prosecutors said last week.

Manikhone Saignaphone, 42, was sentenced Nov.22 to 26 months in prison and 36 months supervisedrelease for her role in the scam at Olympia Financialand Tax Services, said a spokesman for the IRS’criminal investigations division in Denver.

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Judge David Ebel also ordered Saignaphone to paythe IRS $172,806 and the Colorado Department ofRevenue $51,481.Saignaphone is scheduled to surrender to the prisonby Feb. 14.

In 2008, a Denver grand jury indicted a total of eightpeople, including Saignaphone and her older sister,Manivone Saignaphone, 44, both of Aurora, inconnection with the company and charged them withmultiple crimes related to preparing and filing falsetax returns.

Some of the indicted defendants filed, or helped file,more than 700 amended returns with the IRS,containing falsified information. The claims asked forrefunds in excess of $2 million to taxpayers for taxyears 2001 through 2004. Another 400 amendedreturns with the Colorado Department of Revenuecontaining falsified information asked for refunds inexcess of $300,000 to taxpayers for tax years 2001through 2004. Some of those claims were paid,authorities said.

Others filed or helped file more than 50 amendedreturns with the IRS containing falsified information.Those claims asked for refunds in excess of $200,000to taxpayers for tax years 2002 through 2005.

The businesses sought tax refunds for taxpayers bypreparing and filing amended tax returns with the IRSand CDR on behalf of their customers.

Last fall Manivone Saignaphone was sentenced toeight months in federal prison and ordered to pay$52,000 in restitution, prosecutors said.Catherine Senninger, 65, of Ogden, Utah, wassentenced to 36 months in federal prison and orderedto pay $128,000 in restitution.

Both were required to report to prison Oct. 25.Jeffrey Harris, 60, was sentenced last spring to 108months in federal prison, according to federalprosecutors.

Another co-defendant, Louann Savala, was sentencedApril 30 to two and a half years in prison, followed bythree years of probation. Savala pleaded guilty toconspiracy to defraud the federal government last year.

Another, Annalisa Whitaker, was sentenced May 3 totwo year’s home detention followed by five years ofprobation

Man Admit s Tax Scam Using S tolen PatientData

A city man pleaded guilty Monday to participating in ascheme to file false tax returns, using informationstolen from adult and pediatric cancer patients, amongother victims.

Jason Eaton, 28, told U.S. District Court Judge DennisM. Cavanaugh in Newark that he participated in thescheme from 2007 to 2009 with a Bronx man andothers, using personal information that authorities saidwas stolen from hospitals, health clinics, nursinghomes and doctor's offices in New York City.

Eaton pleaded guilty of conspiracy to file false claimsagainst the United States and to commit credit cardfraud.

He admitted to using personal information from minors,including birth dates and Social Security numbers, toclaim earned income credits and child tax creditsthrough false tax returns filed without permission orknowledge of the children's parents.

Eaton's co-conspirator, Steven Nelson, 29, of theBronx, entered a guilty plea last week in connectionwith his role in the scheme.

Nelson admitted he arranged for refund checks to besent to his house, his neighbors' houses and the homeof his child's mother, authorities said.Nelson, Eaton and at least two others used counterfeitdriver's licenses and other stolen identificationdocuments to cash the U.S. Treasury checks,prosecutors said.

The scheme included the filing of 163 false tax returnswith the Internal Revenue Service over three years,claiming about $507,000 from the government. TheIRS paid at least $200,000 in tax refunds based onthe fraudulent returns.

Englewood police officers arrested both men on Feb.11 and found them in possession of tax documents,victim information, counterfeit credit cards and driver's

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licenses, and a tax refund check in the name of avictim, authorities said.

Nelson and Eaton are scheduled to be sentenced onFeb. 28.

Seattle Man Faces Prison T ime for T axFraud

A Seattle man faces up to five years in prison forcheating the federal government of $7,509 on a falsetax return, according to court documents.

Amen M. Ahmed, 55, pleaded guilty Nov. 19 in U.S.District Court to one count of filing a false claim withthe U.S. Treasury Department, according to courtrecords. His sentencing is scheduled for February 11before Judge Robert Lasik.

Ahmed originally faced three additional chargesstemming from three more false returns filed for 2003and 2004. Court papers say he claimed $20,420 infraudulent refunds, with two of the false returns filedfor 2003 under fake identities named in courtdocuments only by the initials "H.M.T" and "H.V.T."As part of the plea agreement, the three remainingcharges are to be dismissed.

"On or about January 29, 2004, defendant caused a2003 U.S. Individual Tax Return to be prepared in hisname. The tax return claimed a refund due of $7,509,even though Defendant knew he was not entitled tothe refund because information in the return was false,including fictitious wages and withholding that falselyshowed he was entitled to a refund of $7,509,"according to a plea agreement filed in U.S. DistrictCourt.

Ahmed also could face a $250,000 fine, as well ascivil penalties.

Federal authorities have prosecuted425 peoplenationwide in the last three years for filing false claimsfor tax refunds. Federal prosecutors averaged about140 cases per year during that time frame, said SpecialAgent Dan Ward law, a spokesman for the InternalRevenue Service Criminal Division.

Federal authorities have prosecuted 3,183 people inthe same time frame for tax fraud, which includespeople who filed false claims for refunds, he said.

Up to $50 Million Case Could be Largest byTax Preparer in Mississippi

A Carriere tax preparer could have helped cheat thefederal government out of up to $50 million throughfraudulent tax returns since the 1990s, a federalprosecutor said.

"I believe it is the largest tax preparer fraud case inMississippi involving a single individual," Assistant U.S.Attorney Mike Hurst said Friday.

Carolyn T. Lilly, 47, was sentenced in U.S. District Courtin Gulfport for aiding and assisting in the filing of afalse 2005 tax return for two individuals.

In a plea agreement earlier this year, Lilly pleadedguilty to one count, admitting that the taxpayers werenot entitled to claim a $323,449 casualty lossdeduction on their tax returns.

Lilly was sentenced to the maximum three years byU.S. District Judge Sul Ozerden and ordered to pay a$250,000 fine. She has been allowed to remain free,however, until February to complete a medicalprocedure.

Although Lilly pleaded guilty in April to the one count,authorities say her fraudulent tax preparation schemehas existed for a number of years and involves anestimated 5,000 taxpayers, primarily in Mississippi andLouisiana.Federal prosecutors and the IRS say the total intendedloss to the federal government amounted to between$20 million and $50 million.

Hurst said the figure is derived from a calculation ofwhat the taxpayers would have owed, the fraudulentdeductions and the amount of refunds received.

But Tim Holleman of Gulfport, one of Lilly's attorneys,said he had never heard the figures.

"This lady only got a few hundred dollars on eachreturn," Holleman said. "But what she did was wrongand she knows it."

Holleman said at one point there was talk in court of$7.7 million in restitution. However, court records don'tshow a restitution amount ordered for Lilly.

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Those who received fraudulent tax refunds throughLilly's efforts will be asked to repay the government,federal officials say.

The investigation of Lilly began around 1999 whenshe was living in Louisiana, Hurst said.

After Hurricane Katrina hit, Lilly moved to Mississippiand continued to do tax preparations, according toHurst.

"The Justice Department and the IRS are making it apriority to go after anyone who violates tax laws," Hurstsaid.

James Lee, special agent in charge of the IRS CriminalInvestigation New Orleans Field Office, said in astatement that the tax system is built on the premisethat taxpayers file accurate and timely returns.Hurst said he didn't have an estimate of the numberof pending cases, but he said officials are seeing plentyof cases involving fraudulent tax returns.

In one of the recent cases, Jackson tax preparerPatricia Sullivan was convicted in October on eight of14 counts of aiding and abetting in the filing of falsetax returns. Her sentencing is scheduled this month.

Wayne’s World

IRS Data Shows Decline in Est ates OwingTax Over Last Decade

Only 0.6% of those dying in the United States in 2008owed any estate tax, according to new data releasedby the Internal Revenue Service. This means that99.4^ of estates were too small to pay an estate tax.

The data also shows that the number of estates filingtaxes decreased from more than 108,000 in 2001 tofewer than 34,000 in 2009. It is due to an increase inthe filing threshold called for in the tax law PresidentBush signed in 2001, which increased the thresholdfrom $675,000 in 2001 to $3.5 million in 2009. Thenumber of estates that ended up paying any tax afterfiling a return dropped from 51,700 in 2001 to 14,700in 2009.

The estate tax was temporarily repealed for 2010 andwas scheduled to revert to a $1 million exemption in2011.

The Tax Relief, Unemployment InsuranceReauthorization, and Job Creation Act of 2010 (2010Tax Act):

n Lowers estate and GST taxes for 2011 and 2012by increasing the exemption amount (technically, theapplicable exclusion amount) from $1 million to $5million (as indexed after 2011) and reducing the toprate from 55% to 35%.

Allows estates of decedents dying in 2010 to choosebetween (1) estate tax (based on a $5 millionexemption and 35% top rate) and a step-up in basisor (2) no estate tax and modified carryover basis. Intechnical terms, the Act achieves this choice by makingthe estate tax and basis changes effective retroactivelyfor estates of decedents dying after 2009 but allowingthe opt-out choice for estates of decedents dying in2010.

n For gifts made after Dec. 31, 2010, reunifies thegift tax with the estate tax, with an applicable exclusionamount of $5 million and a top estate and gift tax rateof 35%.

n Provides that the GST tax exemption for decedentsdying or gifts made after Dec. 31, 2009, is equal tothe applicable exclusion amount for estate taxpurposes (e.g., $5 million for 2010). Therefore, up to$5 million in GST tax exemption may be allocated to atrust created or funded during 2010. Although the GSTtax is applicable in 2010, the GST tax rate for transfers

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made during 2010 is 0%. The GST tax rate for transfersmade in 2011 and 2012 will be 35%.

n For a decedent dying after Dec. 31, 2009, andbefore the enactment date, provides that the due datefor actions (e.g., filing an estate tax return) is not to beearlier than the date that's nine months after theenactment date.

n Effective for estates of decedents dying after Dec.31, 2010, allows the executor of a deceased spouse'sestate to transfer any unused exemption to thesurviving spouse.

The federal government took in about $20.6 billion intax payments in 2009 from the estates of those dyingin 2008. Of the millionaires who died in 2008 and hadan estate tax liability, an average of 20.4% of theirestates went to the federal government, 2.5% went tothe state, 8.6% went to charity and more than 68%went to heirs, according to calculations based on theIRS data by the advocacy group Citizens for TaxJustice.

NCPE is looking forward to bringing the latest to ourattendees next summer in our Estate and TrustSeminar.

Wayne

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Taxing T imes next edition –February 1st, 201 1