March 5, 2003

Present:

• James Abraham
• Bob Burke
• David Cain
• Frank Claudman
• Dan Drumel
• Robin Gausebeck
• Dick Greenberg
• Delford Jones
• Larry Lexow
• Leslie Malcolmson
• Joe Meissner
• Bob Meldman, Chair
• Dick Murphy
• Richard Morris, DFO

Absent:

• Ivan Cotman
• Thad Davis
• Glenn Hall
• Nancy Quarles
• Teresa Smedley

Welcome/Announcements/Review Agenda
Meldman said that panel members can set up their own subcommittee conference calls using their Sprint calling card.
ACTION: Delzer will send out instructions on how to set conference calls up.

Meldman requested volunteers to write the "On TAP" article that is printed in the newsletter for Wisconsin Association of Accountants. It comes out three times a year.
ACTION: Anyone interested in writing the article should contact Delzer.

Roll Call

Review/Approve Minutes
Minutes were approved.

Public Input

Meissner - Addressed Refund Anticipation Loans (RAL) for Susan Morgenstern.
(See the attachments for the letter and report)

Cain - As a Preparer, he always recommends direct deposit. But 10% want the RAL no matter what he advises.

Abraham - As a VITA coordinator, he encourages efiling. Many taxpayers want paper returns so they can take them to another Preparer who can file them electronically, then they take the RAL.

Burke - Agrees with Abraham. But said it is not realistic to train VITA volunteers to do all returns e-file.

Meldman - Are we being asked to endorse the reforms on page 17

Meissner - A warning needs to be given to these taxpayers regarding their options and how taking the RAL may affect their refund. They are losing money.

Claudman - The check cashing places also charge 2-3% of the amount of the check just to cash refund checks. Can we include a recommendation about a change to that procedure?

Meldman - Can only recommend procedural changes pertaining to the IRS.
ACTION: Meissner to put together the top 5 to 6 major recommendations for the committees consideration. Please review and be ready to discuss recommendation letter at the next meeting.

Jones - Couldn't the Government issue a "smart card?"

Drumel - We need more information.

Agenda Items

• Form 990 - Meissner is going to meet with the program owner on March 12. Will report at the next meeting.
• SIMPLE IRA - Lexow reported on the response received from Roger S. Kuehnle:

"Paul Shultz, Director, Rulings & Agreements (T:EP), asked me to respond to your recent inquiry concerning a change to the rules relating to the starting date for SIMPLE IRA plans of sole proprietors. I am the drafter of the model forms, Form 5304-SIMPLE and 5305-SIMPLE, and was involved in most of the SIMPLE-related guidance issued by the Service.

SIMPLE plans were created by the Small Business Job Protection Act of 1996 to help alleviate the lack of retirement plan coverage for employees of small businesses. However, the statutory scheme for SIMPLE plans indicates that they must be maintained on a whole-calendar-year basis. But, after much internal struggle, the Service issued guidance permitting employers to start SIMPLE plans as late in the year as October 1. This liberalization was intended to help the Congressional goal of increased plan coverage of employees of small businesses.

In response to your suggestion that the Service consider issuing guidance that would permit sole proprietors with no common-law employees to start a SIMPLE plan as late as the tax-filing deadline for a calendar year, this issue was raised with representatives of Treasury's Tax Benefits Counsel, the IRS's Office of Chief Counsel, and TEGE's Employee Plans. After considering (1) the language of the statute; (2) the increased administrative burden on the Service if multiple start-up dates were permitted; and (3) that under current rules, there is only a 3-month period, for the life of any business, during which a SIMPLE plan may not be maintained, it was concluded that further deviation from the statute to give sole proprietors without common-law employees greater flexibility than businesses with common-law employees is not justified."

• "Just in Time" Notification - Smedley will prepare a final report for the Cincinnati meeting.
• Excise Tax Paid by Private Foundations - Malcolmson still working on.
• Taxpayer Correspondence - Drumel will work with panel member from Area 7 on this issue. ACTION: Delzer will identify this panel member and forward information to Drumel.
• Increase Capital Loss - Area 6 owns this issue. Abraham will get in contact with panel member Banks from Area 6.
• Elimination of Supporting Forms 1040A - Delzer has identified the form owner and will share the TAP issue with the owner. Conference call will be scheduled.
• Back-up Withholding - Delzer sent out research including Publication 1335 and Notices CP 541, CP 542, CP 543. Parking lot.

New Issues
Meldman reiterated that TAP is to consider systemic IRS issues.

• Income Averaging - Legislative issue.
• Flat Tax - Legislative issue.
• 1098 Multiple Names - Parking lot.
• E-File Secondary SSN - Was an issue at one time, IRS checks secondary SSN now.
• E-File Third Party Sick Pay - This is a Turbo Tax software problem.

Outreach Reports
Greenberg - met with IRS employees in Downers Grove, IL. (See attachment)
Gausebeck - met with Congressional staff in Chicago and Springfield, IL.

Miscellaneous
Meldman announced that Nina Olson, National Taxpayer Advocate, will be coming to Milwaukee next week. She will be attending a luncheon sponsored by The Milwaukee Bar Association, The State Bar of Wisconsin, Professional Institute of Tax Study, Tax Executive Institute, The Tax Club, the Wisconsin Association of Accountants, Inc., and WICPA. If any panel members are interested in attending, let him know. TAP will NOT reimburse expenses.

Morris announced that Local Taxpayer Advocates will be contacting all panel members in their areas to establish a dialog. The LTAs are a good source for Outreach opportunities.

Meeting Adjourned.

Attachments:

1. Morgenstern Letter
2. Report from Consumer Federation of America can be found at http://www.consumerlaw.org/initiatives/refund_anticipation/content/2003_RAL_report.pdf
3. Greenberg Outreach report

Attachment 1
We support the National Taxpayer Advocate's recommendations regarding Return Anticipations Loans (RALs) and the problems associated therewith. The majority of RAL recipients are low to moderate income taxpayers, more than 40% of whom receive an earned income tax credit (EITC) as part of their refund. As the EITC has become one of the most effective tools for fighting poverty and benefiting working families, it is essential that every dollar of this credit goes to the taxpayer. However, low-income taxpayers are losing excessive amounts of their refund as a result of the high loan fees, interest rates, bank fees, preparation fees, and electronic filing fees associated with the RAL. Many of these loans, when annualized, have interest rates over 200 percent. In FY 2000, consumers paid an estimated $810 million in RAL fees. Tax preparation, electronic filing fees and check cashing fees siphoned off $670 million from the EITC. Worse yet, many taxpayers get caught with outstanding loans that they can't pay off because a mistake was made on their tax return resulting in a smaller than anticipated refund.

Low to moderate income taxpayers are drawn to these loans because they offer a fast cash remedy to family financial crises. The complexities of the EITC and the allure of a significant amount of immediate money drive taxpayers to pay for tax preparation services they could obtain for free at a VITA sponsored site. The recommendations made by the National Taxpayer Advocate to promote greater access to free tax preparation and the regulation of tax preparers are crucial to the resolution of the RAL problem. We endorse them.

References

1. National Taxpayer Advocate FY2002 Annual Report. [specifically: Problem Topic 13, "Free U.S. Individual Income Tax Return Preparation"; Problem Topic 9, "IRS Oversight of EITC Return Preparation Can Be Improved"; and Legislative Recommendation #5, "Regulation of Federal Tax Return Preparers."]
2. Consumer Federation of America & the National Consumer Law Center, Refund Anticipation Loan Report: "Tax Preparers Peddle High Priced Tax Refund Loans; Millions Skimmed From the Working Poor & the U.S. Treasury", 1/31/02, pg. 4.
3. Senator Jeff Bingaman, D-NM, Statement on S. 802, Low Income Taxpayer Protection Act of 2001 (Senate - 4/30/2001), http://thomas.loc.gov/cgi-bin/quer/F?r107:2:../temp/~r107RqpqbE:e31233:, visited 1/15/03.
4. Consumer Federation of America, RAL Report, 1/31/02, pg. 4.
5. Jayson Blair, "City Sues H&R Block Over Its Ads for Loans, NYT 3/31/02

Attachment 3
Thanks to Mary Delzer's initiative, Kathy Welsh arranged a meeting for me at the Downers Grove, Illinois IRS office. Besides Kathy, twelve managers and employees of the SB/SE Compliance Dept., Large and Mid-Size Business, Taxpayer Advocate. Field Assistance, and Taxpayer Education and Communication participated.

I opened the meeting with a short personal history and a background on the TAP program and its aims. I then opened discussion on the 990, non-compliance of small business operators, and issues that they, as IRS employees thought might be addressed by TAP

Form 990:
While the group agreed that consideration for raising the $25,000 threshold is warranted, they pointed out that it could introduce problems by bringing fraudulent and even terrorist organizations under the non-reporting umbrella

Schedule C non-filers
There was little doubt in the minds of the group that the vast majority of small business non-filers have never filed and have never wanted to file. SB/SE employees have tried various carrot and stick strategies to encourage compliance. The carrot works better than the stick, primarily because there is not enough muscle in the current SB/SE staffing to make the stick approach practical. One approach might be to send Pub.334 to all small business proprietors known to IRS.This is not a threat to the taxpayer, but at least lets them know that the IRS knows they exist.

Programs offering the possibility of partial amnesty to delinquent businesses who come forth voluntarily and accept probation for 3-5 years have had some success' (One of the attendees made the point of NEVER referring to "amnesty" as such because this is extremely irritating to the honest taxpayer). Volunteer revelation of previous non-filing could carry a promise of waiving criminal charges and dropping some penalties pending setting and adhering to some years of probation.

By far the most agreement about solving the non-filer problem centered on outreach programs, particularly the idea of setting up High School education programs on dealing with the IRS and taxation. If necessary, classes on taxation responsibility could be linked to consumer education classes. I came away from the meeting that the group had the most faith in outreach as the most viable long-range answer.

OTHER ISSUES;

1. The addition of an additional line to show the tax on taxable income on Form 1040 as well as the final tax taken from Schedule D would be useful to IRS as well as to the taxpayer
2. Imposition of a flat taxation rate for filers over the minimum deduction levels on social security (say 50%) would take away the present confusion that the 85% computation introduced
3. Using 1040 schedules in lieu of separate 1040A attachments when filing 1040A would work, but separate Schedules A and B should be provided to ensure that persons electing to take standard deductions wouldn't think that they should or could itemize.
4. Current regulations practically guarantee that illegal aliens have to go underground to get work. After a year of no tax refunds, they aren't going to bother to file at all. IRS and Immigration need to figure out immediately how to handle the problem to their mutual benefit before we wind up with an insolvable situation.

Kathy Welsh did a great job in bringing the group together. I also appreciate the fact that these people took time out of their schedules to participate in the discussions.

Dick Greenberg