SB/SE Burden Reduction Issue Committee Meeting Minutes

May 2, 2006
3:30 PM ET
Teleconference

Program Owner and Other Program Staff

• Bayder, Helene
• Cleveland, Tammy
• Davis, Judith
• McLane, Lisa
• Welsh, Kathy

Designated Federal Official

• Ramirez, Sandra — Brooklyn, NY, Manager

Committee Members Present (These attendees count for quorum)

• Barry, Shaun — Franklin Square, NY
• Behnkendorf, Larry — Waterford, MI
• Bland, Sandra — Washington, DC
• Bly, Bill — Wayne, PA
• Gursey, Gregory — Anchorage, AK
• Guthman, Howard — St. Paul, MN
• Hafer, Donna — Burlington, KY
• Kasturi, Srinivasan — West Orange, NJ, Chair
• Landauer, Steven — Davenport, IA
• O’Donnell, Marie — Riverwoods, IL
• Rue, Thomas — Mechanicsville, VA, Vice Chair

Committee Members Absent

• Reading, Sheri — Albuquerque, NM

TAP Staff

• Knispel, Marisa — Brooklyn, NY
• Odom, Meredith — Brooklyn, NY, Secretary

Roll Call (quorum met)

Welcome
Kasturi welcomed the members and IRS staff. He indicated that the next Joint Committee meeting would be next day, May 3rd, and briefed the participants on the recently held meeting of a few TAP members, including himself, with the IRS Commissioner on April 20th. Kasturi indicated that at the meeting there were three specific items discussed in some detail. These were: 1) the issue of privacy of taxpayer data, 2) the relationship between the National Taxpayer Advocate and the Taxpayer Advocacy Panel (TAP) and 3) expanding the VITA/TCE Programs. Kasturi has recently written a paper addressing the first issue to the Joint Committee and he expects it to be used as input in responding to the Commissioner who expressed an interest hearing from TAP on this issue. The paper focuses on the potential for identity theft with the outsourcing of tax return preparation to foreign countries and the fact that these foreign preparers are not expected to follow US laws. He proposes the creation of a Taxpayer ID Number to be used in lieu of a Social Security Number to protect identity. Kasturi requested that this discussion paper be shared with the Committee and invited the members to send their comments directly to him.

Program Owner Presentation
Davis presented the issue of Amended Employment Tax Returns and Form 941C. To begin, she explained to the Committee, the purpose of the different tax returns involved in her team’s project such as Form 941, Quarterly Employment Tax Return; Form 943, Employment Annual Tax Return for Agricultural Employees; Form 945, Annual Return of Withheld Federal Income Tax and Form 944, Employer’s Annual Tax Return for employers with $1,000 or less of tax liability. Davis explained that Form 941C, the form used to amend all the aforementioned forms, is not a stand alone form but must be filed with Form 843, Claim for Refund and Request for Abatement, or with a current period employment tax form in the case when additional tax is owed or an overpayment is to be credited with no interest. The current problems with Form 941C are processing problems, she said. The fact that there are no standard procedures to process a stand alone form like this one causes inconsistencies in processing. Current periods are being adjusted for tax liability rather than the actual period in which the adjustment occurred, while the wage adjustments are corrected in the period in which the error occurred. The new Form 941 C should help prevent this and provide for an easier and consistent stand alone form without having to wait until a tax return is due. It should also reduce staffing needed to process this form.

Davis continued by providing background on the project. The team is cross-functional composed of a variety of IRS subject matter experts that was created in November, 2005. It is governed by the Office of Taxpayer Burden Reduction and has received much input from internal as well as external stakeholders. Its objectives are to reduce taxpayer burden while increasing voluntary tax compliance. The redesign of the Form 941C, Davis said, will also allow for streamlining the processing of adjustments to one department. The option of the redesign will avoid having to design separate forms to correct errors in the Forms 943, 944 and 945. The new Form 941C will be used for corrections to any of these forms thereby establishing a means by which taxpayers (both employers and payers) can timely and easily correct previously filed employment tax returns.

The next steps the team will take include reviewing alternative options as to how to use Form 941C such as: using one Form to correct each type of employment tax return, a different Form for each annual return vs. each quarterly return, etc. Also, the team will ensure that the processing of the Form is efficient by partnering with Submission Processing and Accounts Management and that any new development will not hinder but improve the process.

Landauer asked Davis how was the redesign of Form 941C tested. Davis replied that it has not been tested; the team has just been examining different options for the project. Hafer asked if the IRS will suspend the requested adjustment before contacting the taxpayer requesting it. To this, Davis explained that the IRS will not contact the taxpayer unless the examiner making the adjustment determines there is a need to contact the taxpayer. When asked, Davis indicated that there are no statistics available on past years’ adjustments/corrections. She added that using a “checkbox” indicating an adjustment is to be made on a particular tax return was rejected by the team because the checkbox does not allow the taxpayer to indicate what the adjustment is.

Davis would appreciate this TAP Committee’s input on the project. The members should review the two options to the design of the Form 941C that Davis will provide to the committee as well as offer any additional options and suggestions. She send the two samples next week for forwarding to the Committee and emphasized that the team would appreciate feedback within 60 days to attain their implementation deadline of the 2008 tax calendar. Members should note that the information provided by Davis is to be used only for the committee’s work and must not be shared outside the committee.

Barry volunteered to lead the new subcommittee that will work on this assignment. Landauer and Hafer joined as members. Chair urged more members to join the subcommittee and requested that those interested should contact Shaun. Ramirez suggested to Barry that he e-mail the entire committee when setting up the subcommittee call/work. Davis indicated she will try to be available at the committee’s face to face meeting in June, as well to address further questions/issues.

Subcommittees Report-Out

Subcommittee on Office-in-Home
Guthmann reported in Bly’s absence and indicated that a recent memorandum summarized the subcommittee’s recommendations. The subcommittee members agreed that any simplified method adopted by the IRS should always include the option for the taxpayer to calculate the home office deduction using the current available method. Nevertheless, they all agreed that taxpayers that do qualify for the deduction should be able to opt for a flat dollar amount. Those who have a home office for less than twelve months would be allowed a percentage of this flat amount which will be calculated by dividing the whole number of months they had an office by twelve. Multiple businesses in the same home can each claim its own flat dollar deduction. The flat dollar is to be established by the IRS and should be recalculated each year.

Those using flat dollar deduction will not get any depreciation deduction and thus there will be no recapture upon the sale of the home. The calculation of the standard rate should also exclude real estate taxes and home mortgage interest which will continue to be claimed in Schedule A as is currently done. The items that should be included are utilities, insurance, repairs and other fees. The deduction allowed would be the lower of the flat dollar amount or the net income from the business, excluding the deduction. This will result in simplifying the process to take the in-home office deduction and could be applied in the case of the Married Filing Joint status when both spouses have a home-office.

Also, Guthmann added, there is no need for a Form 8829EZ since the Form 8829 should suffice for those electing to use the current method.

Welsh stated that many of the subcommittee’s recommendations support the IRS team’s suggestions. Recently, she has referred some questions to IRS Counsel on the issue of depreciation as the proposed changes might have an impact on legislation. Overall, she agrees with the subcommittee’s recommendations and appreciates their work. The Chair requested Marisa to distribute Bly’s memo to the entire committee for their review and comments. The committee’s recommendations are expected to be formally transmitted to the IRS within the next two weeks in the usual manner.

Subcommittee on Innocent Spouse
Behnkendorf indicated that the subcommittee finalized their suggestions on Form 8857, “Innocent Spouse Relief, Separation of Liability and Equitable Relief” and Form 12510, a follow-up questionnaire to this Form. He will present a written draft of the subcommittee’s proposal to the IRS by May 3rd. The draft will contain comments he received from members who are not part of this subcommittee. Any member of the committee with comments on this should get back to Larry within the next two business days. The finalized comments will be formally transmitted to IRS within one week to ten days.

McLane thanked the subcommittee members for their work and indicated that their comments and suggestions and those of other stakeholders will be incorporated into the team’s final draft.

Office Report
Ramirez requested that all members reply to Odom’s email requesting information on travel arrangements for the face-to-face meeting in St. Paul, MN as soon as possible. She indicated that the meeting will take place on June 15th and 16th with the previous day and the one after to be used to travel.

Guthmann, a resident of St. Paul and the host of the meeting, volunteered to provide advice in making dining and sightseeing arrangements.

Public Input
No public participation.

Action Items
Behnkendorf will finalize a written draft proposal to the IRS on the issue of Innocent Spouse.

Marisa: Send copy of Bly’s memo on OIH to all committee members for comments with a week turn around time. Ensure TAPSpeak e-mails contain some text about why the e-mail is being sent.

Meredith: Send Bayder hotel information for June face-to-face meeting and confirm from her if any more lodging rooms are needed.

• Meeting adjourned 4:35 P.M. EST
• Next meeting will be a face-to-face meeting in St. Paul, MN on June 15th and 16th.