These issues have more than on program owner (Sottile/Tavenner). One problem is that legislation happens so late. The early version is available and the final version is on the Web after it is approved. Putting together a report with recommendations and elevate to the Joint Committee by Thursday, August 21, 2003.

ACTION: Smedley to send report to Delzer to share with the full committee. Delzer to have response from members by Tuesday, August 26, 2003, COB. If no comments received, assumption will be members concur. Delzer to forward report to the Joint Committee.

• Elimination of Supporting Forms 1040A - Gausebeck

Committee still waiting for information, but this may be a dead issue with the growth of E-file.

ACTION: Gausebeck to write a final report for the Annual Report.

• Increase Acceptance of E-File Returns - Cain

Looking at delayed filing to May 1st. Congress is looking at this. Will continue to actively pursue this issue.

• Outreach Strategy - Lexow

Committee couldn't get many people to return calls.

Drumel - Would like more detail on the strategy to approach these people so we all approach everyone the same way.

Lexow - At the Tax Forum in St. Louis and made many good contacts there. Many organizations would be happy to publish our articles. Lexow to contact committee members for their articles that are due.

ACTION: Lexow to write a final report for the Annual Report.

• Simplify Installment Sales of Real Property - Claudman

See Attachment One for the report.
Report to be included in Annual Report for Area 4

New Issues

• Abolish Penalties/Flat Rate-Caller thought penalties are exorbitant on top of interest.

Penalties just more interest. Usury affects business, why no the government? Small businessman has enough trouble without tax penalties.

• Caller called toll-free line and was told to call TAS but assistor never provided the number. Customer service issue.

• Lien deck procedure-Caller called lien desk in Michigan and was told they would be contacted within 15 days. This is not customer service. Cannot wait that long.

Meldman - This is a matter of changing their recording. Instruct taxpayer to go to their local (county) register of deeds. Someone needs to contact Collection and suggest they change their recording to tell people what to do. The IRS does send a letter to the register of deeds to release the lien.

ACTION: Delzer will work with Cain and Abraham to contact Collection regarding their message.

• Drumel - Financial literacy partnership with WHEDA. Ad Hoc Committee already elevated this issue to the Joint Committee.

ACTION: Robb to send copy of this letter to Drumel.

• Abraham - was contacted by a taxpayer - supposedly a non-filer. The taxpayer sent his return certified and has a copy of receipt. The IRS is taking this taxpayer to task.

Outreach Activities
ACTION: Each panel member to complete a self-assessment all activities for their Issue and Area committees. Bring to the Indianapolis meeting: Outreaches, reports, speeches, etc.

ACTION: Each panel member to forward to Delzer state contacts for the "What's on TAP?" articles.

Office Report
The next meeting will be in Indianapolis, IN, on September 7-8, 2003. There will be a dinner meeting on Sunday, September 7, from 7 to 10 pm. The cost will be $23 per person. This will be added to your hotel bill.

Thad Davis and Bob Burke resigned. Ivan Cotman has not responded to emails or messages. It looks like he has missed too many meetings to continue.

Public Comments
Holland - thank you for letting us listen. I keep seeing things about TAP and this gave me a chance to see how you work. It is fair to say the topic matter is not relevant to the University. Some of the issues will probably impact some students and employees though. I am interested in the interest the IRS is taking in the communities.

Closing/Assessment Meldman - Thanked Holland for participating. Area 4 just one committee of many committees. Encouraged Holland to look at the activities of the other committees - Issues and Areas.

Meeting adjourned.

Attachment One

TO: Area 4 Committee

CC: Mary A. Delzer @ IRS.Gov

ISSUE: To Simplify Installment Sales of Real Property Taxation.

SOURCE: Participants in Housing Choice Vouchers for the Installment Sales of Real Property.

REASON: After the Installment sale, The taxpayer's tax preparation becomes complicated to the point of needing professional help.

DATE: June 5, 2003

PROBLEM:

Low income families and individuals with children who qualify for subsidized housing (HUD's Section 8) may be entitled to Housing Choice Vouchers which allow them to purchase their rented home. Most of them can only muster a very small downpayment and don't qualify for a bank loan. If the landlord agrees to hold the mortgage, his record keeping and tax return becomes very complicated. Their tax returns usually consist of a Form 1040, Schedules A and E. After an Installment Sales, the taxpayer's tax return consist of Form 1040, Schedules A, B, D. and E, Forms 4797, 6251 (in most cases),and 6252. They also want to know the complete tax obligation when these properties are repossessed. In most cases, these taxpayers have to seek professional help with their annual tax returns.

DISCUSSION:

This group, about 20 in the Greater Cleveland area, feel that their return can be simplified if they could report the small downpayment as other income. The Form 4797 should only be required upon the final deed changing hands. The Form 6252 should be only required in the first and final year of the installment sale (Usually 3 to 5 years). The interest received could be reported on schedule 'B'. They stated that appropriately 50% of these sales end in repossession proceedings. Accordingly, that create new problems such as:

1. How to treat interest and principle already received?
2. How do they determine the basis in the repossessed property.

They collectively stated that this process should be reviewed with the idea of simplifying the whole process.

Attorney David Karademas stated in a letter to TAP Dan Drumel stated that the proposal of the group was not feasible. He stated that if you treat the down payment as "other income" it would become ordinary income. The capital gains rate is 15%, so re-classifying the money as "other income" would not be advantageous unless your tax bracket is 15% or less. He further stated that the tax forms would not be any less complicated. For an installment sale, each monthly payments had to be pro-rated between interest and principal. No matter how you treat the down payment, you will have principal payments in each year.

RECOMMENDATIONS:

Attorney David Karademas in his letter to TAP Dan Drumel recommends a Turbo Tax program. He states that the cost of the software is small. H&R Block's Tax Cut software representative was asked through e-mail about their program on Installment sales. H&R Block TaxCut recommends their "Platinum Business" program which is in the process of being updated for tax year 2003.

For a better understanding of installment sales and repossessions, it is recommended that you acquire a copy of IRS Publications 537. This publication shows how the gain from repossessions must be treated. It also shows how to determine the basis of repossessed real property.

With the above recommendations, it is felt that this proposal to simplify installment sales of real properties has been accurately and fairly presented.

Respectfully submitted,

Frank Claudman
Member, Area 4 TAP Committee