September 7-8, 2003
Embassy Suites Indianapolis - North
Indianapolis, IN

Present:

• David Cain
• Frank Claudman
• Dan Drumel
• Delford Jones
• Larry Lexow
• Leslie Malcolmson
• Joe Meissner
• Bob Meldman, Chair
• Dick Murphy
• Richard Morris, DFO
• Teresa Smedley

Absent:

• James Abraham
• Robin Gausebeck
• Dick Greenberg
• Nancy Quarles

Staff Present:

• Mary Ann Delzer, Analyst
• Nancy Sitzberger, Manager
• Patti Robb, Note-taker

Guests:

• Karen Sheely, Local Taxpayer Advocate, Indianapolis, IN
• Tracy Green, TAS Analyst, Indianapolis, IN

Sunday, September 7, 2003

Confirmation of Chair / Vice Chair
Morris welcomed everyone. He looked at the draft report for inclusion in the TAP annual report and was astounded at the amount of work accomplished to date. Said he was humbled at the time spent and the passion. Thank you for all your efforts.

Meldman was voted as chair and has been in that position for one year. It is time to elect a new chair or reconfirm Meldman. There were no volunteers for chair so there was a motion to keep Meldman as chair for the second year. Motion was seconded and the vote was unanimous.

Welcome / Announcements / Review Agenda
Meldman thanked everyone for all their work. They made being the chair easy.

Morris introduced Nancy Sitzberger, Acting TAP Manager for the Milwaukee office. Sandy McQuin is on a detail as acting TAP Director until a permanent director is selected. Deryle Temple accepted a position in Systemic Advocacy. Meldman said that McQuin attended the Joint Committee meeting in Denver and did a fabulous job.

Meldman reported out on the JC meeting:

• The Area and Issue committees are to complete self-assessments. The draft report is due October 1, 2003 and the final report is due October 15, 2003.
• National office is looking to replace the members who have resigned. The goal is to have the new panel members at the Annual TAP Meeting in October, 2003.
• Karen Kraushaar in National Office will work with the TAP to improve media/marketing. She discussed how to handle the media and looks forward to helping TAP develop marketing strategies.
• Via conference call, the two liaisons to TAP from the Operating Divisions, Sue Sottile (W&I) and Michael Chesman (SBSE) discussed the TAP elevated issues sent to date. Mike and Sue see as part of their role with TAP to be liaison with IRS as a whole and offered to help if TAP has trouble with IRS management at all levels.
• The question was asked as to what Issue Committees will be working for the next fiscal year. This decision is for IRS to make and no input will come from the members.
• Another question came up about TAP members participating in IRS task forces. Under FACA, TAP participation would not be allowed. Could be possible for TAP to testify, give opinion to the task forces before final recommendations made.
• Area 4 presented two recommendations-
  • IRS “Just in Time” policy
    Was accepted by the JC with amendment. On page two, the words “eliminate it in paper format” were deleted. JC members stated they still wanted the option of a paper Package X to archive for old forms.
  • Form 990
    Was accepted by the JC with amendment. On page three, replace the word “compliment” with the word “complement.” The other suggestion was to change recommendation #8 to an appendix.
• JC is requesting feedback on the issues elevated thus far and requesting a tracking system be put in place for the elevated issues.

Review / Approve Minutes
Minutes were approved as submitted.

Sub-committee Final Reports

• Form 990 (See Attachment One)
• “Just in Time” Notification (See Attachment Two)

Brainstorming: Annual Report Presentation
Meldman prepared the first draft of the report. (See Attachment Three) The format was prescribed by the JC. The committee was asked to review the draft copy for discussion on Monday. The two recommendations that have passed the JC need to be added. Committee also needs to look at the issue list for accuracy. Meldman shared that he graded the Area 4 committee at 8 ½. Is that too conservative?

ACTION: Members to send outreach reports to Delzer for inclusion in the report by Wednesday, September 17, 2003.

Meldman shared the comments made at the JC meeting about outreach. Discussed what outreach TAP should be doing. TAP is not to promote particular programs like EITC or E-File or explain eligibility in IRS programs. Are to bring messages back about these programs to the TAP. Looking for improvements in the programs and the TAP should be a sounding board. For example, instead of doing outreach on EITC, advise IRS how to improve IRS outreach for EITC.

Morris reiterated that TAP is an advisory board to advise the IRS.

Sitzberger explained that TAP will work in tandem with Karen Kraushaar to draft talking points and some guidance for using the media. Karen or your local communication specialist would be happy to give you training in how to speak to the media.

Cain asked if there a list of elevated issues out there that we can tell people that TAP is working on?

ACTION: Delzer to send out the TAP elevated issues list to date.

Discussion was held around next year’s calendar.

Meldman proposed the following:

Three face-to-face meetings in addition to the annual TAP meeting.

Louisville, KY January 12-13-14, 2004
Detroit, MI April 19-20-21, 2004
Chicago, IL July 26-27-28, 2004

(First day to be a travel day, meet all day second day, meet until noon third day and then travel home)

Schedule for conference calls is the third Wednesday of each month at 8 a.m. Central Time:

November 19, 2003
December 17, 2003
February 18, 2004
March 17, 2004
May 19, 2004
June 16, 2004
August 18, 2004
September 15, 2004

Meldman also shared the proposed agenda for the October annual meeting.

Meldman shared the TAP matrix. Members are asked to look at the matrix to familiarize themselves with issues currently being worked.

A – Active issues
P – Issues put in the parking lot.

Lexow shared two issues brought to his attention at the St. Louis Tax Forum.

1. IRS Amnesty Program – has the IRS implemented an amnesty program? Would they consider doing one? Morris – No, they have the OIC program and voluntary disclosure program. If you come forward, they will consider dropping the negligence penalty and criminal prosecution.
2. Taxpayer received an erroneous refund, cashed the check then was penalized with interest.

A letter was read regarding services for disability. This is not a TAP issue. The letter will be forwarded to the IRS. Meldman will send an acknowledgement letter.

Drumel – There was an article in the newspaper two years ago that the IRS was looking into doing automated returns. What ever happened to this?

ACTION: Delzer will look into this. What did the IRS decide?

Monday, September 8, 2003

Welcome / Announcements / Review Agenda
Morris introduced Karen Sheely, Local Taxpayer Advocate (LTA) for Indiana and Tracy Green, TAS Analyst. Murphy asked if she knew of any issues the committee should look at. Sheely suggested the $150 fee for filing an Offer In Compromise.

Meldman shared that this issue is already being worked.

Meissner asked about EITC and whether the complexity of EITC makes this a problem? Sheely stated that EITC law is very complex and this is complicated by the fact that most EITC audits are correspondence audits. IRS knows 70% of correspondence assessments are reversed. Need to have a change in definition of a child. The code currently used is from 1954 when family life was two married adults living with their children. IRS spends resources to assess and then abate tax. Meissner stated for EITC taxpayers, education level is low and so reading ability limited along with language barriers. Sheely stated IRS needs to look at alternatives to the traditional paperwork requested, i.e. school records, babysitters, employer’s insurance. Dependency should not be so difficult to prove.

Annual Report / Presentation
Drumel – Would like to see a list of all issues worked on but not elevated.

• 1099-S, Real Estate Reporting – realtors had problems getting a paper copy of the 1099S. Most are electronic.
• Installment Sales – HUD Section 8, subsidized housing provisions.

Murphy believes that the grading of the committee was even handed. We acknowledge what we did. We had to learn to work with the staff, the IRS, how to do reports, set up meetings, write reports, write letters, etc. Several committee members made a connection with their LTA to learn their roles. They also had to learn how to be a sounding board.

Smedley – Need to add category for resolved but not elevated. Outreach efforts added to report will show the other types of accomplishments. Need to recognize fact came in with no guidelines/rules, and how to apply them. First year is really a learning process.

Meldman – Will add under accomplishments:

• Internal development
• Elevated issues
• Local issues resolved not requiring elevation
• Panel outreach

Malcolmson – Question about memo comment under actions.

Meldman – Area 4 sent a memo to National Taxpayer Advocate regarding legislative issues Abraham had worked on.

Malcolmson – Need to change the “I” in the report to “we.” We did not always have good cooperation/responses from the IRS. I tried to contact my LTA and the local media specialist.

Cain – We had a steep learning curve. IRS didn’t give support regarding outreaches. Need specific message for the outreaches. Need to address this problem with IRS for next year.

Meldman – Will add a new heading; LTA Response

Malcolmson – Asked for contact, office tour, media person, outreach suggestions– all went through Delzer.

Drumel – Our LTA has been fantastic

Murphy – Met with his LTA and was able to have a conversation.

Meldman – Will add another new heading; Media

Lexow – Did have an article out in November. Not much follow-up. Would like more interplay.

Morris – TAP needs to come out with a national media program.

Meldman – We should be contacting the media person through Delzer.

Lexow – Our message is our mission statement.

Smedley– The analysts are so overwhelmed. It takes a long time to get the needed information.

Meldman-Will add IRS Cooperation divided in three sub sections:

1. TAS
2. Media (Lexow will write something)
3. Owners

Lexow – Under issues for current consideration, add issues we are going to be working on. Also add that TAP was able to refer three taxpayers to their LTA and subsequently heard that two of them were satisfied with the results. Need to expand current items under consideration. Lexow will write.

Smedley-Look at items tabled for consideration/or responded to taxpayer and closed the issue. Smedley will write.

Meissner-Think should expand on the four elevated issues to give a better explanation of what was done. Meldman will write.

Morris – Glad to see local issues were mentioned in the report. That is our mission as TAP.

Sitzberger – As far as the issues on the matrix, it’s good to have many issues but it is better to choose a couple to really work and bring to the table.

Meldman – What did you think about our overall grade? Consensus was 8 ½ was good. Had to consider the members who did not participate fully. The effort expended by the remaining panel members has been outstanding. Hope the new panel members will have as much enthusiasm.

Sheely – When dealing with the IRS, never suffer silently! Contact Morris or Sitzberger if needed. Don’t be shy.

ACTION: All written information for the annual report due to Delzer September 17, 2003.

ACTION: Delzer to send Area 4 TAP annual report to Area 4 LTAs.

Sub-committee Reports

• Refund Anticipation Loans (RALs) – Meissner

Developed a very in depth report of research materials. Not recommending anything at this time. Problem is many taxpayers need refund as quick as possible. Low income people have vulnerable budgets and need money as soon as possible. They use tax professionals who open January 1 and close April 30. Want refund as soon as possible so want loan in anticipation of the refund. Offered a loan for a few weeks, but annually the rate is very high. Wrap all the preparation/RAL/other fees/interest and taken off the expected refund. Taxpayers are not paying money out of pocket so are willing to use the RAL.

Research shows 10 million people used the RAL and with 40% EITC returns. Of the $30 billion paid out in the EITC program, $1 billion goes to loan charges and fees. IRS under pressure to increase E-file and so practitioners earn more using RALs. They see as part of their compensation. Growth business every year. Use dummy bank accounts and charge the taxpayer for the two weeks the account is open. “Check cashers” charge $35 to cash refund checks, and this is a further loss of the money to the taxpayers.

Other businesses that sell products such as cars/furniture stores offer RALs. Slogan, “file here and drive home today.” Major problem is low income taxpayers not banked, as banks have moved out of their neighborhoods.

IRS Free File is another imitative to look at. Taxpayers get confused about options and purchase RALs that way. Computers not affordable for many low income people or do not have the education level to use the computers. Cases have been filed, but the resolution has been coupons to be used by taxpayer in the next year.

Variety of reforms have been offered:

• Ban the loans or make subject to state usury laws
• Alert people to the RAL. Make people better informed with education and a simple language explanation sheet
• Allow RALs but make the fee a set amount of money you can charge

Brookings institute report states the RALs erode the effects of the EITC. Report more than 10% of refund dollars pays for the tax preparation/fee /RALs. EITC the largest program assisting working poor families. Note the high cost of tax preparation, as $1.7 billion goes to tax professionals.

Reforms they suggest:

• Simplify EITC and the refundable child credit
• Expand affordable tax preparation assistance
• Free electronic filing for low income taxpayers and expedite the refund process
• Couple tax preparation and banking to promote savings
• Promote consumer awareness

NYC Study
Tax professionals take advantage of people by no disclosure of cost. Report fees not fully disclosed, for instance no menu of what taxpayer is actually paying for and what each service actually costs. Little information provided in any language other than English.

Possible reform: Taxpayer bill of rights to require full disclosure with time and cost of each option, with a bottom line figure.

What could TAP recommend?

• Do nothing and let the market place work
• Outlaw RALs
• Establish ceilings on the state level
• Require better disclosure
• Require a standard disclosure form
• Mandate disclose
• Speed up refunds delivered by IRS

ACTION: Meldman to prepare memo to the NTA, with copy to Sentjens, to request opinion as to whether the RAL issue is appropriate for TAP to work.

• Outreach Strategy – Lexow

Goals is to focus or create public awareness of TAP. Need members to make contacts with professional organizations that touch taxpayers/local newspapers. We need to create the list of who we can contact. Want to produce twelve articles/once a month.

ACTION: Members to send contacts for their states to Delzer.

Need members to pick a month in which to write an article. Can write about TAP mission, issue working on, own experience or a success story. Articles due to Delzer the 5th of the month you are assigned.

Jones – October 2003 (already done)
Cain – November 2003
Meissner – December 2003
Lexow – January 2004
Greenberg – February 2004 (already done)
Claudman – March 2004
Malcolmson – April 2004
Smedley – May 2004
Murphy – June 2004
Drumel – July 2004
Gausebeck – August 2004
Quarles – September 2004
Abraham – October 2004

Keep the article to about one page maximum or about 250 words. Members should include the web address and toll-free telephone number to each article.

Public Comments
Conference call held from 1:30-2:30 p.m. Those joining the meeting via phone were Dick Greenberg, TAP member, Shelby Kupczyk, Team Manager LMSB, Gary Peterson, Territory Manager LMSB.

Kupczyk-Problems experienced in post closure options of the large Examination cases. Work is now going to Ogden and other campuses. New procedures are in now in place. Employees looking to the future to see how these processing changing will go forward.

Peterson—Have been finding biggest problem is that interest rate netting computations are inaccurate. Computations sent to the taxpayer are different than the calculation at the campus. Currently is a lack of training on the employees’ part.

Kupczyk--Service computations of the interest needs to be included in the billing notices for the benefit of the taxpayers. IRS needs to look at standard interest programs to run and whether IRS can include in the billing notices.

ACTION: Smedley and Drumel will work the issue. Meldman will research the tax law change and report back.

Greenberg—How did the Area 4 committee stack up at the JC meeting?

Sitzberger– Quite a few issues were forwarded to the JC. The two issues submitted by Area 4 were very well researched and supported the recommendations made. The JC accepted both with only minor changes.

Delzer--Total of elevated issues are available on TAPSpeak in the JC meeting minutes

Discussed the vice chair position. Committee will request Gausebeck serve as vice chair for another year.

New and Current Issues

1. RAL – Meissner/Malcolmson
2. Outreach – Lexow
3. Increase E-Filed Returns – Claudman
4. Lien Desk Recordings – Cain/Abraham
5. Acceptance of Amended Returns Electronically – Meissner/ Malcolmson
6. 1099S – Meldman will do research. Cain/Drumel will work
7. Improvements to Taxpayer Notification of Backup Withholding – on hold
8. Use of Outside Mediators in the Appeals Process – on hold
9. Interest Netting/Computation – Meldman will do initial research.
10. Refund of FICA/Medicare on 843 Claims-Frank
11. W-4/improvements to withholding tables--Meldman will call Doucette, Area 6 Chair, to see if they are still working. Smedley would like to work if issue comes back to Area 4.

Morris stated that the bulk of the work in his TAS office is related to the lack of response by IRS to the correspondence. The committee may want to look at that area again. Morris stated a need to look at correspond audits and all the problems associated with no acknowledgment of what has been sent to IRS by the taxpayer. IRS system is inefficient and not able to handle the kind of paperwork that these audits require.

Closing / Assessment
Meeting assessment form will be emailed to the members. Meeting adjourned.

Taxpayer Advocacy Panel Memorandum

Date: 08/20/2003
To: Taxpayer Advocacy Panel - Joint Committee
From: Robert Meldman, Chair – Area 4
RE: Recommendations related to the Form 990, Return of Organization Exempt From Income Tax _________________________________________________________________________

The Area 4 Committee of the TAP would like to acknowledge and thank the members of this subcommittee for all their work on this issue: Joe Meissner (Chair), David Cain, Dick Greenberg, Leslie Malcolmson, and Dick Murphy.

BACKGROUND:
Various individuals and groups have discussed with us their concerns about the burdens that the Form 990, Return of Organization Exempt From Income Tax, filing requirements can cause for non-profit organizations, especially newer groups and smaller groups. Their general proposals were that the filing requirements for charitable groups should be decreased and that the filing thresholds should be increased. Currently, tax-exempt organizations with gross receipts greater than $25,000 but less than $100,000 and total assets less than $250,000 can file the Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, which is 8 pages long. Organizations exceeding these amounts must file the Form 990 which requires more information and has 12 pages to be completed. Organizations with less than $25,000 in gross receipts have no annual filing requirement. One suggestion presented to us by community groups stated that tax-exempt groups would only have to file the full Form 990 if their gross receipts were over $100,000.

After much research, including extensive discussions with IRS personnel, representatives of non-profit groups, and State government personnel active in the area of nonprofits, we have reached some conclusions, both general and specific.

GENERAL CONCLUSIONS:
First, the concerns raised about the burdens that the 990 filing requirements impose upon nonprofit organizations, especially the newer and smaller ones, are very legitimate. It does take considerable time and effort to complete the Form 990, including the Form 990EZ. This is especially true for the first time that a group must file a Form 990.

Second, for a number of reasons, we do not recommend that the Form 990 filing requirements should be decreased. We also do not recommend that the filing thresholds should be changed. The filed Form 990’s are now widely available to the public, including through Guidestar.org on the internet. Many institutions and individuals use the filed Form 990’s as one means for learning about an organization and for making their charitable donation decisions. Furthermore, many States allow for the filing of the Form 990 with the State as a way of satisfying state laws designed to protect and inform their citizenry about charitable groups. Finally, through filing an annual Form 990, newer and smaller tax-exempt groups can establish a sound financial structure and system of record keeping that can assist their later growth.

Third, the IRS has an obligation to assist tax-exempt organizations, especially the newer and smaller ones, so these can satisfy any filing requirement, including the annual Form 990 and Form 990-EZ.

SPECIFIC RECOMMENDATIONS:

1. The IRS should develop a plain language pamphlet to assist smaller and newer nonprofits in completing the Form 990, including advice on what kind of records to keep; what penalties can be assessed against nonprofits who fail to comply; and what recognized exceptions may exist.
2. IRS provides assistance and information for charities and other non-profits through various sources. These include toll free assistance at 877-829-5500, on the IRS website at Tax Information for Charities & Other Non-Profits and through workshops given by field agents in local communities. To better serve the 990 customer, we recommend that the availability of these resources be marketed more boldly. We recommend an “eye-catching” box be predominantly included on all Form 990 related items. For example, this information should be included:
   
   At the first point of contact, for instance on the Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code or Form 1024, Application for Recognition of Exemption Under Section 501(a) or for Determination Under Section 120.
   
   At the time that tax-exempt status is approved and included on the IRS determination letter that is sent.
   
   At the time the IRS annually mails out the Form 990 and instructions.
   
   We also recommend that the field workshops IRS hosts throughout the year on how to complete the Form 990, be more energetically advertised to nonprofits with the theme: “If you are a nonprofit group with limited resources and time, here is some help on meeting your tax requirements.....”
3. Tax-exempt organizations, especially the newer and smaller ones, do need substantial assistance in order to file a proper Form 990. We recommend the IRS develop a web-based tutorial about completing the Form 990. Until this is available, the IRS should provide links to websites that already have such self-tutorial materials. (See Specific Recommendations 8 below) In order to protect itself, the IRS could add disclaimers stating “You are leaving an IRS site for a non-IRS Site. IRS does not endorse nor necessarily approve of the content of these websites.”
4. To compliment the web-based tutorial, the IRS should develop a training video tape or CD which could be made available to non-profits to assist them in completing the Form 990.
5. We recommend the IRS communication strategy include key messages for the Form 990 customer. Targeting the peak filing periods, IRS should issue press releases via print, e-news and the Digital Daily three times a year. Information to be shared should include filing requirements and obligations, recording keeping and tips for penalty avoidance.
6. The IRS should market the Form 990EZ more prominently to smaller nonprofits. The web-based tutorial could include a decision tree that could lead smaller organizations to complete the Form 990EZ. Secondly, in the Determination Letter sent to new tax-exempt organizations, there should be a notice alerting them that they may be able to file a Form 990EZ. The IRS should, as with the regular Form 990, develop a web-based tutorial for completing the Form 990EZ.
7. The failure of an organization to file a Form 990 or the failure to file a complete Form 990 can trigger enforcement and penalty assessment actions against such an organization by the IRS compliance. We are quite concerned about such actions for a number of reasons. First, such actions can undermine the charitable efforts of well-intentioned and generous people who are donating their time, resources, and efforts for a good cause. It is not an overstatement that much of our society depends upon these unselfish and dedicated group efforts carrying out various charitable goals. In terms of a Daily Penalty, to some officials, a $1,000 penalty may not seem like much. To a small group dependent upon volunteers and upon Ten Dollar Donations who function on a month-to-month basis, such penalties can be devastating. We strongly urge that the IRS especially where no revenues have been lost to the IRS because of the failure to file or the failure to file a complete return, adopt a standard of “good faith” compliance. We are also convinced that this “good faith” criterion can be incorporated into the present standard of “reasonable cause.” So long as a tax-exempt organization has made a good faith effort to comply and the organization moves reasonably to correct any oversights or failures, IRS should not impose daily penalties. Instead, the IRS compliance activities should stress educating the group on its filing requirements and directing the organization to where help is available.
8. During our research, we have found a number of very helpful websites.

www.irs.gov/charities/article/0,,id=96103,00.html (IRS site)

• Lists filing requirements for tax-exempt organizations.
• Using Adobe Reader, there are links to download Publication 557, Tax-Exempt Status for Your Organization, Form 990, and Form 990 EZ.