Area 3 Committee Meeting Minutes

June 18 and 19, 2004
New Orleans, LA

Members in Attendance:

• Charlotte Cassady
• Gwen Handelman
• Edward Hanna
• Owen Oatley
• Buck Paolone
• George Sullivan
• Carolyn Lewis, DFO

Staff:

• Sallie Chavez, TAP Program Analyst, Plantation, FL
• Nancy Ferree, TAP Program Manager, Plantation, FL
• Martha Curry, TAP Senior Program Analyst, Washington, DC

Guests:

• Philip Harmelink, University of New Orleans
• Leslye Baronich, IRS, Area Director, Wage & Investment, SPEC, Area 3
• Nesbit Parker, IRS, Disclosure Officer
• Kimberly Edwards, IRS. Program Director, Large & Midsize Business, Territory 2
• Steve St. Cyr, IRS, Governmental Liaison for Louisiana
• Mark Moreau, New Orleans Legal Assistance
• Will Smith, IRS, Territory Manager, Field Assistance, New Orleans
• Phyllis Distefano, IRS, Territory Manager, Small Business/ Self Employed, TEC
• Jan Pretus, IRS, SPEC Territory Manager

WELCOME
Panel Chair George Sullivan welcomed everyone to New Orleans. He thanked Designated Federal Official (DFO) Carolyn Lewis, TAP Program Analyst Sallie Chavez, TAP Program Manager Nancy Ferree and DFO Carolyn Lewis’ staff for all the work they have done to prepare for this meeting in New Orleans.

INTRODUCTION OF PANEL
Each panel member introduced themselves to the visitors.

INTRODUCTION OF GUESTS
The guests introduced themselves.

NATIONAL OFFICE REPORT
TAP Director Bernie Coston could not attend the meeting. TAP Senior Program Analyst Martha Curry represented him. She advised the committee that they were in the middle of the recruitment process. The interviews should start within the next 3 week. They were originally to start next week but because of new travel regulations they will not be starting until mid July. There will be less travel involved during the interview process than was originally planned because more applicants want telephone interviews. The process should not take as long as originally planned to complete these interviews.

There was some discussion about whether the term for a TAP Member was 2 or 3 years. Some members were asked to remain for a 3rd term but the charter states the term is 2 years.

REVIEW OF May 21, 2004 MEETING MINUTES
Committee Member Gwen Handelman submitted changes to the minutes. These changes were discussed. The meeting minutes (with corrections) were accepted by consensus.

ASSIGNMENTS

TAP Program Analyst

1. 1. Contact #2672 (Dependency issue where a parent that is the non-custodian is claiming the deduction for the child) – TAP Program Analyst Sallie Chavez will get a subject matter expert (SME) to discuss this issue.
   
   TAP Program Analyst Sallie Chavez attempted to get a SME to attend the meeting in New Orleans but could not locate anyone who had enough knowledge about the subject to speak to the group. Leslye Baronich, Area Director, Wage & Investment, SPEC, Area 3 said she may be able to help in the area. TAP Program Analyst Chavez will contact her for additional information and to fill her in on the details of the issue. This will remain as an open assignment.
   
2. 2. Contact #822 (processing of Form 2553 Election by a Small Business Corporation) – TAP Program Analyst Sallie Chavez along with DFO Carolyn Lewis will work on this issue.
   
   TAP Program Analyst Sallie Chavez and DFO Carolyn Lewis have not had time to complete this. This will remain an open assignment.
   
3. 3. TAP Program Analyst Sallie Chavez will send out the referrals from taxpayer received from April, May and the first part of June.
   
   The referrals will be discussed at this meeting.
   


4. 4. TAP Program Analyst Sallie Chavez will contact Subject Matter Expert (SME) on trust extensions for Committee Member Owen Oatley.
   
   TAP Program Analyst Sallie Chavez has obtained the name of the SME for this but has not made contact. This will remain an open assignment.

WALK-IN OFFICE REVIEW
Committee Member Buck Paolone visited the Birmingham Taxpayer Assistance Center (TAC) on April 20, 2004. He gave a brief report. The report is attached to the minutes as Exhibit “A”.

There was a short discussion about Communication Strategy. This will be discussed in more detail later in this meeting.

ANNUAL REPORT
Committee Chair George Sullivan stated he will be retiring from the TAP after this year. He will be unable to attend the Annual Meeting to present the committee’s report. Vice-Chair Charlotte Cassady will present the report for him.

The Joint Committee has suggested that entire committee help the writing of the report. Committee Chair George Sullivan will assign a subcommittee to write this report from information received from the entire committee.

NASHVILLE FACE-TO-FACE MEETING
TAP Program Analyst Sallie Chavez reported that plans have been made for the face-to-face meeting September 16 – 18, 2004 in Nashville, TN. The meeting will be held at the Courtyard by Marriott – Downtown. There was some trouble trying to find space as there is a Home Show in Nashville during that time. Additional information will be sent out by the beginning of August as the hotel reservations must be made by August 26th.

COMMENTS FROM CITIZEN
Philip Harmelink from the University of New Orleans asked question about recruitment and what’s required to be a panel member. TAP Senior Program Analyst Martha Curry addressed these questions.

OTHER COMMENTS
Committee Member Buck Paolone wants a list of suggestions for improving TAP. Committee Members were asked to submit and he would like the entire list from all members not just Area 3. Committee Chair George Sullivan stated he would request it from Panel Chair Tom Seuntjens. Committee Member Gwen Handelman stated that the Joint Committee has a subcommittee working on a document for chairs to use. There are two (2) documents being created – Standard Operating Procedures for Staff and How to Run an Effective Committee. She suggested getting the information Committee Member Buck Paolone wants from TAP Joint Committee Analyst Barbara Toy.

SUBCOMMITTEE REPORT

Outsourcing
Committee Member Gwen Handelman suggested that since the Disclosure Officer was at the meeting and could not attend the meeting tomorrow that discussion of the Outsourcing be moved to today. There was no opposition to discussing the issue here.

Committee Member Gwen Handelman explained the issue to the visitors.

The Joint Committee decided that consensus was the goal and everything from this committee has gone up by consensus. However the Joint Committee will allow non-consensus as long as a minority and majority report is submitted.

Committee Member Owen Oatley Outsourcing within the United States is regulated. Foreign doesn't have to follow the same regulations. He discussed a letter from Congressman Edward J. Markey to the IRS Commissioner and the Commissioners reply (see Exhibit “B” and “C”).

It was discussed that the basis of proposal is that tax return preparers disclose tax information if return preparation is outsourced out of the United States.

IRS Disclosure Officer Nesbit Parker discussed unauthorized disclosure.

Committee Member Charlotte Cassady discussed identity theft. DFO Carolyn Lewis gave an example of H & R Block sending information to Wyoming or sending it to India. They are responsible for that return preparation through the entire process.

IRS Disclosure Officer Nesbit Parker states there is a contract. Committee Member Gwen Handelman states the contract was not the problem. The taxpayer has not agreed to have the return prepared by anyone except the company where he took his information.

DFO Carolyn Lewis wanted to clarify the issue. The committee wants tax preparers to disclose outsourcing to taxpayer no matter where it is outsourced (within the United States or outside the United States).

Disclosure Officer Nesbit Parker said the IRS is aware of this issue. The Chief Counsel could provide assistance on this issue.

Committee Member Ed Hanna stated that a tax society in California has agreed to take up this issue as well as a tax group in Texas.

Committee Member Gwen Handelman wants to address both internal and external outsourcing and have outsourcing included in Circular 230.

Committee Member Owen Oatley wants to take smaller portions. He would like to address the largest potential problem and submit a narrow proposition rather than a broad proposition.

Committee Member Ed Hanna said outsourcing within the United States has been done for more than 30 years. There are laws. Foreign countries are not under the same control.

Committee Member Buck Paolone said a client should be aware that the return will be outsourced no matter where and client must give consent. He states outsourcing is outsourcing. The client should be made aware if it is outsourced within the United States or to a foreign country.

Committee Member Ed Hanna said he is not in agreement with putting the name and address of the company where the information is being sent in the contract. He said the client might then just go to the outsourcing company to have the returns prepared the next year. Preparers will lose clients.

Committee Chair George Sullivan asked for a vote on Committee Members Owen Oatley and Ed Hanna’s issue of outsourcing to foreign countries. He added that there will be a minority report issued on this proposal. This issue was accepted by consensus of those at the meeting.

Committee Chair George Sullivan asked for a vote on Committee Members Gwen Handelman and Agnes Tillerson’s issue of all outsourcing. There was one person who does not agree with this issue. There will be a minority report issued on this proposal as well.

TAXPAYER ASSISTANCE CENTER
DFO Carolyn Lewis introduced Will Smith, IRS, Territory Manager, Field Assistance from New Orleans. He made a presentation to the committee with a PowerPoint presentation on the duties of the Taxpayer Assistance Centers. Copies of this PowerPoint were provided to all committee members.

TAXPAYER EDUCATION AND COMMUNICATION
Phyllis Distefano, IRS, Territory Manager, Small Business/ Self Employed requested to speak to the committee. She wanted to thank and commend the group for taking the time to help improve the IRS.

She told the committee what her organization does. They work with small business organizations. About 88% use tax preparers so they work very closely with practitioners. At the present they are working with the construction industry, restaurant industry and cosmetics industry. They are involved with the general education of these businesses. They do that through Small Business Workshops and Seminars. At the present, this has been taken over by practitioners to teach these workshops and seminars. They teach on specific topics.

They are now promoting electronic filing. They are promoting a program of EFTPS (Electronic Federal Tax Payment System) where if a business signs up for EFTPS and maintains the EFTPS for at least four (4) quarters, the IRS will abated a prior penalty and refund the payment.

Committee Member Gwen Handelman asked Phyllis if she was familiar with the Area 3 Committee’s proposal for tax treatment of health benefits. She said she had not heard about it. Committee Member Handelman asked if TEC was familiar with any TAP issues. Phyllis has been working with Mike Chesman on some other issues. Committee Member Handelman requested to have a National initiative to get TAP into stakeholder groups within the IRS.

VITA
Jan Pretus, IRS, SPEC Territory Manager spoke about SPEC (Stakeholder Partnerships, Education & Communication) programs (see attached Exhibit “D”). The statistics for the VITA (Volunteer in Taxpayer Assistance)/TCE (Tax Counseling for the Elderly) has grown. This year they prepared 270,020 returns in comparison to 240,897 last year. She provided several publications to the committee members (Publication 4256, “Will you qualify for the EITC this year?”, Publication 4237, “E-file your Tax Return Using Free Online Filing!”, and Publication 4225, “Coming Together for Stronger Communities”).

REFERRALS FROM TAXPAYERS

Contact #2866
This individual states that he was not able to get information on his refund using either the 1040 toll-free number or the refund line about his 1040X refund. TAP Program Analyst Sallie Chavez states she called the two (2) refund numbers and they do not identify that they are only for current year refunds. The issue was discussed and the committee asked TAP Program Analyst Chavez to obtain more information on the refund telephone numbers.

Contact #2975
This individual receives income and is required to pay FICA and Medicare taxes on it. There is no line on the return to do this except under TIP Income (line 56). When he does that he gets notices asking for Form 4137 which he does not have to file. Committee Member Owen Oatley states that he thinks the instructions cover this issue. He said you just put the tax on line 60 and explain why you are putting the tax there. Committee Member Gwen Handelman states it would be better to just change the form and remove “tip income” from line 56. There was some discussion about this. It was decided to try and get a Subject Matter Expert to talk about this. DFO Carolyn Lewis states she may have someone to address this issue. Committee Chair George Sullivan asked to have the W-2 requested from the taxpayer.

Contact #3036
This individual states that a prior year overpayment that a taxpayer elects to have applied to the following year is not considered as tax already paid for the calculation of the ES penalty. This issue was discussed. It was pointed out that the over payment should be included with the April 15th payment. It is on page 3, top left hand side, item #2. TAP Program Analyst Sallie Chavez will send letter to taxpayer with this information and drop the issue.

NEW ISSUES
Committee Member Charlotte Cassady brought up a new issue concerning custodial parents. She would like to see some type of “flag” on anyone who owes any type of Federal or State debt such as child support. She knows there is misuse of EITC. There is a child support database that indicates proof that a child is living with the individual. This would indicate if an individual is eligible for EITC.

There was much discussion abut this. Maybe this should be worked by EITC. Committee Member Charlotte Cassady will present this to the EITC Issue Committee at their next meeting on July 20th.

Another new issue Committee Member Charlotte Cassady brought up last month concerned Social Security Administration having a new option of filing W-2s electronically and it automatically calculates W-3s. Form 1099 goes to the IRS. She would like to propose that business owners be able to input and print out copies and e-file to IRS. She would like this to be made operational at the point where the IRS confirms the taxpayer’s social security number. She feels it will save time and money for business owners. TAP Program Manager Nancy Ferree stated that maybe this would fit into one of the issue committees. Committee Member Cassady stated she agreed and will present it to her Payroll Issue Committee.

JOINT COMMITTEE SUGGESTIONS FOR OPERATIONAL PROCEDURES FOR TAP PANELS
Committee Chair George Sullivan discussed procedures that the Joint Committee is preparing to be used to help the committee operate better. Committee Member Gwen Handelman said that the Joint Committee has a subcommittee to prepare a final document to be used by the chairs.

OUTREACH
Committee Chair George Sullivan stated committee does not do enough outreach to promote TAP. The outreach that is done by the committee is found by the staff. The Joint Committee is setting up several things such as the TAP Communication Strategy. There is going to be training during the Annual Meeting. He would like to create a sub-committee to develop a strategy for the next fiscal year.

TAP Program Manager Nancy Ferree and TAP Program Analyst Sallie Chavez made some comments about possible outreach activities.

Committee Chair George Sullivan asked TAP Program Analyst Sallie Chavez to distribute the Speaker Request Form to all committee members.

Committee Member Gwen Handelman raised the issue of chairs not having access to budget. She agrees that there should be a subcommittee.

Committee discussed the issue and all agree that outreach is important. Committee Chair George Sullivan stated the subcommittee will work on the following:

1. Come up with suggestions on outreach opportunities.
2. Keep outreach on the agenda as an open item. Put it before committee monthly so it won’t be forgotten.

Committee Chair George Sullivan asked for volunteers to be on the committee. Committee Members Charlotte Cassady, Gwen Handelman and Buck Paolone volunteered for this subcommittee.

Committee Chair George Sullivan asked them to work up ideas, put them on paper, provide them to TAP Program Analyst Sallie Chavez and they will be discussed at each meeting.

Committee Member Charlotte Cassady suggested newspaper articles. TAP Program Analyst Sallie Chavez stated there are press releases prepared that can be specially designed to each individual. These press releases can be sent to media relations for release or can be done by the individual if they want to take to the local newspaper.

ANNUAL REPORT COMMITTEE
Committee Chair George Sullivan said this subcommittee will receive information from all committee members for the annual report. He asked the following committee members to be on the subcommittee:

• Committee Member Owen Oatley (he will think about it)
• Committee Member Helen Curol (Committee Chair George Sullivan will call her and ask if she will accept)
• Committee Member Charlotte Cassady (because she will have to deliver the report at the annual meeting)

Committee Chair George Sullivan asked that suggestions be sent to himself or TAP Program Analyst Sallie Chavez for the meeting in July. Committee Member Gwen Handelman said that the Joint Committee is preparing an outline so it shouldn’t be too difficult to put together.

Meeting was adjourned for the day.

June 19, 2004

WELCOME
Committee Chair George Sullivan welcomed everyone to day two of the meeting. He stated some of the issues for today have already been covered. He thanked DFO Carolyn Lewis for the dinner arrangements at Copeland last night.

INTRODUCTION OF GUESTS
There were no guests present.

MATRIX/ISSUE REPORT
Committee Chair George Sullivan explained the purpose of the matrix. The committee discussed the elevated issues.

TAP Program Manager Nancy Ferree discussed the Refund Check Envelope issue. A response was received on this issue. The IRS does not prepare envelopes. The committee needs to make a decision about this issue.

TAP Program Manager explained timeframe on responses on elevated issues.

Committee Chair George Sullivan asked TAP Program Analyst Sallie Chavez to send out “Summary of TAP Recommendations” to all committee members.

Committee Member Buck Paolone asked about what happens to recommendations after they are forwarded to the Joint Committee. Committee Chair George Sullivan advised that they were sent to Sue Sottile for Wage and Investment recommendations and Mike Chesman for Small Business/Self Employed recommendations. They get the information and field it out to the responsible area. The Joint Committee keeps control of the elevated issues.

Committee Member Buck Paolone would like information on how follow-ups are done on issues that are submitted. Committee Chair George Sullivan will get this information.

The committee discussed the “Area 3 Issues” list and the Matrix. It was decided to rename the “Area 3 Issues” list “Subcommittee List”. Compared Area list and Matrix. There were several items that were not on the Matrix. TAP Program Analyst Sallie Chavez will assure that all items are on the Matrix. The checkbox issue is not on the Matrix. TAP Program Analyst Sallie Chavez stated it maybe that it was not changed from elevated to active when the Joint Committee asked for it to be rewritten. Also we will add the new Form 1099 issue to the issue list.

SUBCOMMITTEE REPORTS

Offer In Compromise/Installment Agreements/Penalty-interest Assessments
Committee Member Owen Oatley stated that many issues overlap with his Schedule C non-filer issue committee. Committee Member Gwen Handelman said that’s Small Business/Self-Employed. Wage and Investment should still be involved.

Committee Member Owen Oatley said that living expenses is not being dealt with properly. Committee Member Ed Hanna asked who determined these standards. The committee discussed the standards. This information was provided to the old CAP. It was decided that this information need to be provide to this committee. TAP Program Analyst Sallie Chavez will provide this information to the subcommittee.

Committee Member Owen Oatley discussed several issues on OIC. Committee Chair George Sullivan asked Committee Member Oatley to prepare a short description for TAP Program Analyst Sallie Chavez so it can be put in the database for inclusion on the Matrix.

Expand Checkbox Authority to Succeeding Years for Estimated Payments
Committee Member Ed Hanna stated he is working on it and will have it in about another week.

Telephone Listing/Answering Quality
Committee Member Buck Paolone said that they had already proposed one recommendation with Area 6 which will be re-elevated. He stated he has contacted the California tax office about wait time and found they have an announcement on their line telling callers how much time until they are helped. He doesn’t understand why IRS can’t do this.

Committee Chair George Sullivan asked him if there is going to be additional issues. Committee Member Buck Paolone discussed the problems he had in getting answers to his questions about telephone listing. TAP Program Analyst Sallie Chavez stated that the previous Subject Matter Expert (SME) the subcommittee spoke to was not in that position any more. We have a new SME and she will try and get answers to these questions for the subcommittee.

Committee Member Gwen Handelman stated this issue is not on the Matrix. It needs to be added to the database.

Also, there are three (3) issues on the Matrix for Telephone Quality that are not being worked. Committee Member Buck Paolone says quality is being addressed by IRS. He is not really actively pursuing this issue.

Committee Chair George Sullivan said that the subcommittee needs to have a conference call to discuss this issue.

TAP Program Analyst Sallie Chavez asked if this issue should be separated into several different issues. Committee Member Charlotte Cassady suggested that Contact #1989 may be able to be closed because he could contact the Practitioner Hotline. There was some discussion about duplicate issues. TAP Program Manager Nancy Ferree and TAP Program Analyst Sallie Chavez will work on this.

Walk-in Office Review (Taxpayer Assistance Centers)
Committee Chair George Sullivan said Committee Member Buck Paolone has given his report. He has visited the Ft. Myers Office but not on a formal basis. He had difficulty getting information from the office. This is one very good reason for going through the TAP staff to make an appointment to visit.

Committee Member Ed Hanna said he would like to make a deadline of July to have these visits completed. Committee Member Gwen Handelman said she cannot make visit until the fall. Committee Member Owen Oatley said he is working on making visit in July.

The issue of TAP Signs was brought up. The committee needs to decide if and how they want to elevate this issue based on Will Smith’s presentation yesterday. Committee Member Ed Hanna handle this issue.

Committee Member Charlotte Cassady asked about putting signs up in post offices.

Committee requested TAP Program Analyst Sallie Chavez to change the status on the TAP Sign to issue “Active”.

Schedule K-1
Committee Member Owen Oatley is still re-writing this proposal with Committee Member Ed Hanna and Area 1 Committee Member Paul Nagel.

Military Special Information
Committee Member Owen Oatley stated that with the information received yesterday about the military VITA this can be dropped.

Suggestions for Extension for filing return
Committee Member Owen Oatley said several of the suggestions are common sense. We may want to see what changes IRS has made since the filing season. TAP Program Analyst Sallie Chavez will check on this and report back at the next meeting.

Outsourcing (revisited from yesterday)
Committee Chair George Sullivan said Committee Member Sharon Lassar had faxed a report to TAP Program Analyst Sallie Chavez. He read the report (see attached Exhibit “E”). This is her position. Her report should be in the same format as the proposition. He will contact her to submit at the July meeting.

TAP Program Manager Nancy Ferree stated she agrees with Committee Member Sharon Lassar. She feels this is not in the scope of this panel and would like her position to be reflected in the minutes. The Ad Hoc Issue Committee is working on licensing of preparers.

There was a discussion on the licensing of preparers.

Committee Chair George Sullivan said that if there were no objections TAP Program Analyst Sallie Chavez will add Committee Member Sharon Lassar’s comments into the minutes. He will ask Committee Member Sharon Lassar to prepare a minority report to be presented to the Joint Committee at the July 20th meeting.

DFO Carolyn Lewis questions the final written proposal because there was no proposal presented at the meeting. Committee Chair George Sullivan stated he will send out the final proposals and will ask committee members for any corrections before it goes to the Joint Committee. He will ask Committee Member Sharon Lassar for her minority report by July 6th.

Form 1099
Committee Member Charlotte Cassady has decided to take this issue to the SBSE Payroll Issue Committee.

CITIZEN INPUT
There were no citizens in attendance today.

CLOSING REMARKS/SURVEY/ADJOURNMENT
Committee Chair George Sullivan asked that everyone please complete the meeting survey that is in the folder. He thanked everyone for attending the meeting. He said he thinks the committee accomplished a lot. He was very pleased about the attendance at yesterday’s meeting by IRS representatives. He also wanted to again thank DFO Carolyn Lewis, TAP Program Manager Nancy Ferree and TAP Program Analyst Sallie Chavez for all the work done to make the meeting a success.

He reminded everyone the next meeting was July 16, 2004.

Meeting was adjourned.

ASSIGNMENTS

TAP Program Analyst

1. Contact #2672 (Dependency issue where a parent that is the non-custodian is claiming the deduction for the child) – TAP Program Analyst Sallie Chavez will get a subject matter expert to discuss this issue.
   
2. Contact #822 (Processing of Form 2553 Election by a Small Business Corporation) – TAP Program Analyst Sallie Chavez along with DFO Carolyn Lewis will work on this issue.
   
3. TAP Program Analyst Sallie Chavez will contact SME on trust extensions for Committee Member Owen Oatley.
   
4. Contact #2866 (Individual states that he was not able to get information on his refund using either the 1040 toll-free number or the refund line about his 1040X refund) – TAP Program Analyst Sallie Chavez will obtain more information on the refund telephone numbers.
   
5. Contact #2975 (Individual receives income and is required to pay FICA and Medicare taxes on it – no specific line on 1040 for this information) – TAP Program Analyst will get a SME for this issue.
   
6. Contact #3036 (Individual states that a prior year overpayment that a taxpayer elects to have applied to the following year is not considered as tax already paid for the calculation of the ES penalty) – TAP Program Analyst Sallie Chavez will send letter to taxpayer with the instruction on how to prepare the Form 2210 and drop the issue.
   
7. TAP Program Analyst Sallie Chavez will provide copies of the Speaker Request Form to all committee members.
   
8. TAP Program Analyst Sallie Chavez will provide copies of the “Summary of TAP Recommendations” to all committee members.
   
9. TAP Program Analyst Sallie Chavez will check on the status of the Checkbox Issue and change it to “Active”.
   
10. TAP Program Analyst Sallie Chavez will change status of TAP Signs in TAC Office from Parking Lot to Active.
    
11. TAP Program Analyst Sallie Chavez will follow up with specialists to see what changes are being made to the extensions to file for next filing season.
    
12. TAP Program Analyst Sallie Chavez will add Committee Member Sharon Lassar’s comments into the meeting minutes.

Chairperson

1. Committee Chair George Sullivan will request a copy of the suggestions for improving TAP from either TAP Chair Tom Seuntjens or TAP Program Analyst Barbara Toy.
   
2. Committee Chair George Sullivan will request information on implementation of follow-ups.
   
3. Committee Chair George Sullivan will request minority report on the Outsourcing issue from Committee Member Sharon Lassar.

Committee Members

1. All committee members are to prepare suggestions to be included in the annual report.
   
2. Committee Member Owen Oatley will provide a short description of the OIC issue to be input into the TAP database.
   
3. Committee Member Ed Hanna will complete proposal on Expand Checkbox Authority to Succeeding Years for Estimated Payments.
   
4. Owen Oatley will complete proposal on the Schedule K-1 issue.

CERTIFIED BY DFO CAROLYN LEWIS ON 10/7/2004

Exhibit "A"

Date: 22 April 2004

From: Francis J. "Buck" Paolone, Member, Area 3, Taxpayer Advocacy Panel

To: George Sullivan, Chair, Area 3, Taxpayer Advocacy Panel

Re: Walk-in Office Review, Taxpayer Assistance Campus in Birmingham, Alabama

Upon affirmation of designated date, arranged by Nancy Ferree (Program Manager for Area 3), I visited this Center on Tuesday 20 April at 9:00am and stayed until 9:30am the same day. Although this visit was/seemed to be rather short, it was nonetheless informative and enlightening as well as brief. My host and guide was Regina Slayton, Manager of this TAC.

As she led me through the various compartments, I utilized the outline of questions/concerns (as developed by Ed Hanna, Member and past Chair of Area 3, and approved by the Area 3 Committee) in order to establish my points of reference:

1. Security was very evident and dutifully managed by a uniformed guard who requested my ID and required me to sign in vis-a-vis reason for visit, person to see if appropriate, and who I represented.
2. I noted that the area was clean; that days and hours of operation were posted; and that there was one small poster informing taxpayers about TAP and TAS.
3. Manager Regina Slayton telephone messages are in English; that there is a recorded message requesting the calling taxpayer to leave message which would be answered within 48 hours; and that there is available multilingual service through the toll-free IRS number.
4. There were 10 cubicles for assisting individual taxpayers and a private room is available for any taxpayer to request or be informed of for use.
5. There is also a private room with a special assistant to handle e-filing, although I did not notice any signs indicating availability of such.
6. I was introduced to two IRS agents, who were indeed friendly and helpful ...But I would have gotten a "better feel" or perhaps a more poignant observation if my visit had occurred during the tax season.

Regina and I talked for about five minutes at the conclusion of my visit and she acknowledged that there was insufficient information/posters/signs/materials available for either the taxpayers or for the IRS agents/office to become informed of the Taxpayer Advocacy Panel, its function, or even its reason for existence. I had some materials with me which I gave to her and she said that she would order more from the appropriate source. I ended with comments about what the TAP organization is attempting to do.

Exhibit "B"

Congress of the United States
House of Representatives
Washington, DC 20515-2107

February 23, 2004

The Honorable Mark W. Everson
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

The Honorable William J. McDonough
Chairman
Public Company Accounting Oversight Board
1666 K Street, NW
Washington, DC 20006-2803

Dear Commissioner Everson and Chairman Donaldson:

I am writing to express my concern over a recent press report indicating that a grounding number of accountants and professional tax preparers across the nation are outsourcing tax preparation to offshore workers located in foreign countries (see Lynnley Browning, "Outsourcing Abroad Applied to Tax Returns, Too," The New York Times, February 15, 2004, Section 3, page 12).

This report indicates that "this year, at least 100,000 tax returns, both federal and state, will be prepared by Indian citizens in places like Bombay and Bangalore." That number is reportedly four times larger than last year. Employing foreign workers to prepare United States tax returns risks compromising the security and confidentiality of tax returns, creates potential threats to individual privacy, and may result in less accurate returns being filed with the IRS. As you know, a tax return many contain information about an individual or corporation that may be very sensitive. In the case of an individual, the tax return includes essential personal data, such as name, address, Social Security number, and information about the individual's income, finances, and debts. In the case of a corporation, the return my contain important information about the companies' finances and business operations. The phenomenon of such tax return information be processed or analyzed by offshore entities raised a number of important legal and regulatory issues, and in order to better understand how each of your respective agencies is addressing these issues, I respectively request your assistance and cooperation in responding to the following questions:

1. Is there any requirement in the federal tax laws and regulations, or in the rules governing the business conduct of accountants employed by public companies, which require such accountants or other professional tax preparers to disclose to their clients that the preparation or analysis of their tax return is being outsourced to an offshore person or entity? If not, do you believe that such explicit notice should be required?
2. Is there any requirement in the federal tax laws or regulations, or in the rules governing the business conduct of accountants serving public companies, that would require an accountant or other professional tax preparer to obtain the express written consent of the taxpayer before a tax return or related personal information could be outsourced to an overseas entity or person? Do you believe such explicit notice should be required?
3. The aforementioned press report indicates that some firms have established security procedures to help ensure that any foreign workers employed in the processing or analysis of a tax return. It is also reported that other firms have no such procedures in place and instead may merely email a taxpayer's information to an offshore entity or person for processing. Have either of your agencies reviewed the security policies and procedures used by accounting firms or other tax preparers to assure their adequacy? Is there any penalty for not having such procedures, or for failing to implement them properly?
4. If a person or company engages, an accounting firm to prepare their taxes or provides them with tax advice, and then that accounting firm outsources this work to an offshore person or entity, isn't there a risk that the person doing the work may not be knowledgeable about the U.S. tax laws and regulations, or may not have the skills and training of a U.S. CPA? Are you concerned that individuals or companies may be misled into believing that their tax returns are being prepared or analyzed by a CPA, when in fact they are not? Is there any penalty for making such a misrepresentation? If no, should there be?
5. [For the PCAOB] It is my understanding that the PCAOB's has oversight and enforcement authority over accounting firms serving as auditors of public companies. I further understand that the Sarbanes-Oxley Act allows such auditors to perform certain tax services for public companies (if approved by the companies' audit committee). If an PCAOB-regulated auditor outsourced the preparation of tax returns for or the provision of tax advice or tax counseling for a public company, what authority would the PCAOB have over the offshore entity? In your response, please address the case of an offshore affiliate of a registered auditor and the case of an unaffiliated third party acting as a subcontractor of an auditing firm.
6. [For the PCAOB] It is my understanding that the PCAOB has authority under Section 201 of the Sarbanes-Oxley Act to declare, by regulation, certain other non-audit services to be impermissible to be conducted by a registered auditor of a public company. Has the PCAOB considered whether offshoring of tax or certain other non-audit services by an auditor should be subject to further regulation or even prohibition in order to ensure privacy, confidentiality, data security, and facilitate effective law enforcement over such auditors? If so, what action have you taken? If not, why not?
7. [For the IRS] It is my understanding that the U.S. tax laws provide for penalties to be imposed against a tax preparer who aids and abets in the submission of a tax return that understates the tax liability of another person or which engages in certain other fraudulent activities. If the tax preparer who engaged in such activities was an outsourced offshore person or entity, how would the IRS enforce the law and impose penalties upon such a person?
8. [For the IRS] It is my understanding that the U.S. tax law (Sec.7216) bars a tax preparer from "knowingly or recklessly" 1) discloses "any information furnished to him for, or in connection with, the preparation of any such return," or 2) "uses any such information for any purpose other than to prepare, or assist in preparing, any such return." How would the IRS enforce this restriction in the case of a tax return which was outsourced to an offshore firm? How would violations of these provisions of the law be enforced against an offshore entity who had subcontracted with a U.S. ac counting or tax preparation firm? What recourse would the taxpayer have against the offshore entity that violated their privacy in this fashion?

Thank you for your assistance and cooperation in this matter. Should you have any questions about this request, please have your staff contact Mr. Jeff Duncan or Dr. Michael Bailey of my staff at 202-225-2836.

Sincerely,
Edward J. Markey
Member of Congress

Exhibit "C"

Department of the Treasury
Internal Revenue Service
Washington, DC 20224

April 6, 2004

The Honorable Edward J. Markey
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Markey:

Thank you for your letter dated February 23, 2004, about press reports that some tax return preparers are using people located in other countries to assist in preparing federal and state tax returns. I share your concerns about these practices. At the same time, I believe we must clearly understand these practices before we respond to them, and we are working diligently to gain that understanding. Taxpayers rightfully expect that paid return preparers will keep their private information confidential and prepare accurate and complete returns. I assure you the IRS and the Treasury Department are committed to preserving taxpayer expectations and ensuring return preparers also honor these expectations.

Our voluntary, "self-assessment" tax system depends on taxpayers filing accurate returns. I believe a taxpayer's willingness to do so decreases if the individual does not trust that his private information will remain confidential. The Internal Revenue Code (Code) contains a number of provisions that protect the confidentiality of taxpayer information. Section 6103, for example, prohibits us from disclosing tax returns and tax return information. Civil and criminal penalties apply to violations of section 6103. Similarly, sections 6712 and 7216 impose civil and criminal penalties, respectively, on federal income tax return preparers who disclose information a taxpayer provides for the preparation of a return or who use that information for any purpose other than preparing the return (e.g. to market non-return preparation services to the taxpayer). Section 7216 authorizes the Treasury Department to permit, by regulation, disclosures and non-return preparation uses of tax information; these rules also apply to section 6713. Treasury regulations provide standards for obtaining taxpayer consent to disclose or use return information and rules for when taxpayer consent is not required to disclose return information.

Code provisions and related Treasury regulations that protect the confidentiality of taxpayer information do not distinguish between U.S. and foreign tax preparers. In other words, the law does not prohibit foreign individuals from receiving taxpayer information or assisting return preparers located in the U.S. Nevertheless, I recognize that taxpayers may have legitimate concerns about their ability to hold foreign individuals accountable for violations of privacy and confidentiality protections provided by U.S. law. I also recognize that taxpayers may believe that foreign individuals may not be as familiar with U.S. tax law as return preparers located in the U.S. We will examine these concerns as part of our review of the reported practices. My responses to your questions are below. You addressed Questions 5 and 6 to the Public Company Accounting Oversight Board, so I will not address them here.

Question 1:Is there any requirement in the federal tax laws and regulations, or in the rules governing the business conduct of accountants employed by public companies, which require such accountants or other professional tax preparers to disclose to their clients that the preparation or analysis of their tax return is being outsourced to an offshore person or entity? If not, do you believe that such explicit notice should be required?

Several laws govern the disclosure and use of information taxpayers provide to return preparers. The Gramm-Leach-Bliley Act of 1999 (GLBA) and the Federal Trade Commission regulations under the GLBA apply to people who provide tax planning and tax preparation services. The GLBA is limited to financial services, including tax planning and tax preparation services, for personal, family, or household purposes and therefore does not apply to financial services offered to businesses. The GLBA requires individuals and businesses offering financial services to provide annual notices to clients detailing their information-sharing policies and practices. The GLBA prohibits, in some situations, the disclosure of nonpublic personal information to nonaffiliated third parties. I believe and agree that the GLBA would require a return preparer to disclose to a client that a foreign person may help prepare a client's return; however, the interpretation and enforcement of those rules (including the form of any required disclosure of returns and return information) lie with the Federal Trade Commission.

Question 2: Is there any requirement in the federal tax laws or regulations, or in the rules governing the business conduct of accountants serving public companies, that would require an accountant or other professional tax preparer to obtain the express written consent of the taxpayer before a tax return or related personal information could be outsourced to an overseas entity or person? Do you believe such explicit notice should be required?

In addition to the law noted in the response to question 1, sections 6713 and 7216 of the Code govern the use and disclosure of taxpayer information by federal income tax return preparers. Under those sections, income tax return preparers may not disclose information their clients furnish them except as provided under the Code, by court order or under Treasury regulations. Likewise, return preparers may not use that information for any purpose other than return preparation except as provided in Treasury regulations. Civil and criminal penalties apply to the improper disclosure or use of taxpayer information.

The regulations under section 7216 permit a tax return preparer to disclose, without a client's consent, information received from the client to a second tax return preparer that provides auxiliary services in preparing the client's return. Although the IRS generally has interpreted these provisions to permit a return preparer to disclose taxpayer information to a third party who assists in the preparation of a return, the Treasury Department and IRS’ current Guidance Priority List includes a project to revise the section 7216 regulations.

Question 3: Has the IRS reviewed the security policies and procedures used by accounting firms or other tax preparers to assure their adequacy? Is there any penalty for not having security procedures, or for failing to implement security procedures properly?

The IRS does not routinely review the security policies and procedures return preparers use to protect taxpayers’ personal information. If, in the course of performing our tax administration duties, we become aware of an unauthorized disclosure or use of information obtained for the preparation of a return, we will impose the appropriate civil penalties against the return preparer. Further, if we believe criminal penalties for the unauthorized disclosure or use of taxpayer information may apply, we will refer the case to the Office of the Treasury Inspector General for Tax Administration, which has responsibility for enforcing section 7216 under a memorandum of understanding between our offices.

Question 4: Isn’t there a risk that the foreign person to whom work is outsourced may not be knowledgeable about the U.S. tax laws and regulations or may not have the skills and training of a U.S. CPA? Are you concerned that individuals or companies may be misled into believing that their tax returns are being prepared or analyzed by a CPA, when in fact they are not? Is there any penalty for making such a misrepresentation? If no, should there be?

As the agency responsible for tax administration, we are always concerned about any practice that may adversely affect the accuracy of tax returns. We have no information suggesting that federal tax returns foreign individuals prepare are less accurate than tax returns prepared by commercial tax return preparers in this country. Further, no law requires a federal income tax return preparer located in the U.S. to be a certified public accountant licensed in the U.S. or to be licensed or certified by the IRS. Based on available information, a significant number of the known tax return preparers (regardless of where they are located) are not lawyers, certified public accountants, or enrolled agents. Nevertheless, we recognize that taxpayers who seek assistance from a return preparer located in the U.S. may expect that people located in the U.S. will prepare the return.

Anyone who charges a fee to prepare a federal income tax return must comply with certain requirements. (A person who does not sign a return, but who helps prepare it, can be a return preparer under the Code and, therefore, is subject to the penalties that apply to return preparers.) If a return preparer, including a foreign person who assists a U.S, return preparer, fails to meet these requirements, we may impose penalties against the return preparer and possibly file suit to enjoin the preparer from engaging in the misconduct. In addition, a U.S, return preparer who signs an income tax return regardless of whether a foreign person helped prepare that return, is responsible for the content and accuracy of that tax return.

The failure to comply with the requirements of the Code may result in one or more sanctions against the preparer. For example, return preparers are subject to penalties if they willfully understate their client’s liability on the return. If the understatement of the liability on the return is due to the return preparer’s reckless or intentional disregard of the rules and regulations, or if the understatement is based on a position that could not realistically stand on its own merits. Additionally, if the return preparer also represents taxpayers before the IRS, we may discipline the return preparer under Treasury’s rules for willfully or recklessly advising clients to take frivolous positions or failing to exercise due diligence in supervising those who assist the preparer, including individuals located in a foreign country.

Question 7: If the tax preparer who engaged in such activities was an outsourced offshore person or entity, how would the IRS enforce the law and impose penalties upon such a person?

As stated above, return preparer penalties may apply both to a U.S. return preparer who signs a federal income tax return and to a foreign person who helped prepare the return. The IRS, therefore, may access and collect penalties from the return preparer who engaged the foreign person and from the foreign person. If the foreign person does not pay the penalty we imposed, we will try to collect the penalty from any assets that person may have in the United States or through available international legal mechanisms. We recognize that taxpayers may not view these mechanisms as comparable to the actions we can take against return preparers located in the U.S.

Question 8: How would the IRS enforce this restriction in the case of a tax return which was outsourced to an offshore firm? How would violations of these provisions of the law be enforced against an offshore entity who had subcontracted with a U.S. ac counting or tax preparation firm? What recourse would the taxpayer have against the offshore entity that violated their privacy in this fashion?

The restrictions against unauthorized disclosure or use of information the return preparer obtains for the purpose of preparing a return under sections 6713 and 7216 would apply both to a U.S. return preparer who engages a foreign person to help prepare a return and to the foreign person. As to those Code provisions, neither the return preparer nor the foreign person is responsible for the unauthorized actions of the other. Thus, if the foreign person violates the provisions of sectio9ns 6713 and 7216, the return preparer who engaged the foreign person is not liable under those Code sections for the foreign person’s actions. (A taxpayer may have other grounds for holding the U.S. return preparer responsible for the actions of the foreign persons, such as state contract law. However, I have not addressed those issues in this letter.) We would need to assess the penalty under section 6713 against the foreign person. If the foreign person does not pay the penalty voluntarily, we could attempt to collect using the procedures described in the answer to Question 7. The Treasury Inspector General for Tax Administration would decide whether to pursue criminal liability under section 7216 after a review of the appropriate treaties.

Again, we are committed to reviewing the reported practices of the tax preparation community to determine whether we need to take further action. I hope my response has been helpful. If you have further questions, please contact me at (202) 622-9511 or Richard S. Goldstein, Special Counsel to the Associate Chief Counsel (Procedure and Administration), at (202) 622-7025.

Sincerely,

Mark W. Everson

Exhibit "D"

SPEC PROGRAMS

Volunteer Income Tax Assistance (VITA)
The IRS trains volunteers to help people prepare basic tax returns for those with a low to limited income, individuals with disabilities, non-English speaking persons, and elderly taxpayers. The volunteers serve in the community at neighborhood centers, libraries, churches, shopping malls and other convenient locations. Volunteers also provide assistance in determining eligibility for, and claiming the earned income and advanced earned income tax credits. Many VITA sites also offer free electronic filing. Volunteers also serve as instructors, site managers, publicity coordinators, and receptionists.

Tax Counseling for the Elderly (TCE)
TCE is another volunteer program where tax skills and a helping hand are offered. TCE offers free tax help to people who are 60 years or older. Many of the volunteers are retired themselves and are affiliated with non-profit groups that have received grants to run a local TCE program. Grant funds are used to reimburse volunteers for travel and other program related expenses so they can go wherever they are needed - retirement homes, neighborhood sites or private houses of the homebound. Some TCE sites offer electronic filing at no charge to the taxpayer. There are many volunteer opportunities available as instructors, tax assistors, site coordinators, receptionists, and other important positions.

Community Outreach Tax Education
In the Community Outreach Tax Education program, individuals conduct lectures or seminars on some aspect of tax law. The presentations are targeted at groups of taxpayers who have a common occupation or tax concern. Outreach is offered year- round at convenient community locations and at convenient hours, including evenings and weekends. Tax education seminars are tailored to the interest of each group attending. Tax return preparation sessions cover federal tax forms line-by-line so that taxpayers can prepare their returns correctly.

Understanding Taxes Program
Since nearly everyone will have to pay taxes eventually, what better time to learn the basics than while in school? Besides, many students already have part-time jobs or other sources of income requiring them to file a tax return. That's why the IRS has three Understanding Taxes Programs; for eighth grade, high school and post-secondary learners, which provide basic tax education to students.

Visit Tax Interactive "TAXI" at www.irs.gov/taxi. This entertaining and educational website is a great way to teach today's youth about their tax rights and responsibilities.

Student Tax Clinics
Students in the field of taxation get some "hands-on" experience providing counsel to taxpayers whose returns are being examined. Law and graduate accounting school students are given special permission to practice before the IRS on behalf of taxpayers who can't afford professional help. Volunteers help with clinic operations or even serve as a Student Tax Clinic Director.

Bank, Post Office and Library (BPOL) Program
This program offers a chance to give back a little to the community. The IRS supplies over 47,000 libraries, banks, post offices, technical schools, state and local governments, and similar facilities with free tax forms and instructions. Tax Forms on CD-ROM and reference materials are available at many participating locations. Once the tax materials are placed at these facilities, volunteers direct patrons to the proper form, or booklet to suit their needs.

IRS e-file
Individual Marketing Services (IMS) supports SPEC field offices by recruiting, certifying, supporting, and monitoring participants in the IRS e-file Program. IMS publishes the electronic filing handbooks, which are the primary source of guidance for individual electronic filers, and produces the ERO Marketing Took Kit, which contains promotional products designed to help e-filers provide better service and build client loyalty. The IMS staff also encourages new partnerships with the practitioner business community to expand electronic filing through a variety of electronic filing services.

Exhibit “D”

Please deliver this single page to your guest, Sallie Chavez of the IRS Taxpayer Advocacy Panel

To: Sallie Chavez
From: Sharon Lassar
Date: June 18, 2004
Re: Position on Outsourcing

I regret that I cannot deliver these comments in person. Please relay my apologies. Thank you for submitting my comments in my absence.

I wish to address the issue of Outsourcing by tax preparers. Some members of the Area 3 Taxpayer Advocacy Panel believe that the TAP should make a recommendation to the IRS on this issue. I do not, for the following reasons.

1) The issue is outside the scope of our responsibility. The mission of the TAP is to improve taxpayer service at the IRS, not to oversee the practice of preparers. A proposal to recommend changes to Circular 230 that would require preparers to inform their clients if they use outsourcing services in the preparation of tax returns would not change one interaction of a taxpayer with the IRS. Not one form, instruction, phone tree, or script at the IRS would be changed as a result of such a proposal.

2) Even if such a proposal were within our scope, it would not have the outcome desired by its supporters. It would simply add a meaningless regulatory requirement because tax preparers already disclose the use of outsourced services to their clients. The sample "new client welcome letter" distributed by the AICPA and adopted by many of its members includes a paragraph titled "Parties to whom we disclose information" which reads:

For current and former clients, we do not disclose any nonpublic personal information obtained in the course of our practice except as required or permitted by law. Permitted disclosures include, for instance, providing information to our employees and, in limited situations, to unrelated third parties who need to know that information to assist us in providing services to you. In all such situations, we stress the confidential nature of information being shared.” [emphasis added]

Tax preparation engagement letters contain similar wording. Clients have been either signing or accepting by default such engagement letters for decades. The "accept by default" practice is one that many service providers have adopted in response to clients not reading, signing & returning engagement letters. Many practitioners now include the engagement letter on the inside cover of the "organizer" they supply to clients for the submission of tax preparation documents like W-2s and 1099s. The organizer states that by return of the organizer the client accepts the terms of the engagement as printed therein. A requirement for disclosure by Circular 230 would simply result in the mandatory inclusion of a phrase or sentence to the few engagement letters that do not already contain an Outsourcing disclosure. And, such disclosures are already generally ignored by clients.