SB/SE Burden Reduction Issue Committee Meeting Minutes

August 1, 2006
Teleconference

Program Owner Present

• Bayder, Helene — Analyst — Washington, D.C

Designated Federal Official Present

• Ramirez, Sandra — Supervisory Analyst — Brooklyn, NY

Committee Members Present

• Behnkendorf, Larry — Member — Waterford, MI
• Bly, Bill — Member — Wayne, PA
• Cordeiro, Daryll — Member — Mobile, AL
• Gursey, Gregory — Member — Anchorage, AK
• Guthman, Howard — Vice Chair — St. Paul, MN
• Hafer, Donna — Member — Burlington, KY
• Kasturi, Sonny — Chair — West Orange, NJ
• Landauer, Steven — Member — Davenport, IA
• O’Donnell, Marie — Member — Riverwoods, IL
• Reading, Sheri — Member — Albuquerque, NM

Committee Members Absent

• Barry, Shaun — Member — Franklin Square, NY
• Bland, Sandra — Member — Bemidji, MN

TAP Staff

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

Other Attendees Present

• Meglan Knights — Analyst — Washington, D.C.
• Schampers, Rick — Revenue Agent — Austin, TX
• Davis, Judy — Revenue Agent — Flint, MI
• Tiberio, Joe — Revenue Agent — Boston, MA

Welcome
Kasturi opened the meeting and welcomed all.

Roll Call Taken (quorum has been met)

Review Agenda & June Action Items
Although it was not on the agenda, Kasturi briefed the committee on the June face-to-face Joint Committee (JC) meeting. The JC reviewed recommendations from several committees. The JC also discussed the topics raised at the meeting with the Commissioner earlier in the year such as taxpayer privacy, free-file, and the VITA/TCE Programs. The committee also discussed items related to new members and appointments of alternates.

Knispel informed the committee that its Innocent Spouse proposal had been sent to the Small Business/Self Employed (SB/SE) Taxpayer Burden Reduction Issue Committee program owner Beth Tucker.

Guthmann asked about the status of the Office in Home Deduction proposal the committee submitted in May 2006. Bayder explained that because the recommendations involved legislative changes, the proposal was shared with Treasury. At this time she has no further news. Footnote: The June 15th 2006 minutes state that: In a letter to Kasturi dated June 9, 2006, Tucker thanks the TAP and the SBSE Burden Reduction Issue Committee for their recommendation on the issue of the Office in the Home (OIH) and the Form 8829, Expenses for the Business Use of Your Home. In the letter, Tucker reiterates what Welsh told the Committee in a previous meeting that the TBR will seek IRS Counsel’s guidance to legislative key issues regarding the OIH initiative. The administrative changes that our Committee suggests have already been considered by the TBR team working on the project.

S-Election Project - Update
While awaiting Davis’ arrival, Knights proceeded to brief the committee on the status of the S-Election (Form 2553) Project (the committee submitted a proposal on this topic earlier this year). The problem is that a significant number of 1120S tax returns can not be processed by IRS because there is no record of a correctly filed S election form. Some research was done and last year’s number of unpostable Forms1120S was 95,000. Since addressing the committee’s recommendations, Knights met with Chief Counsel which has become an ally in the SB/SE division’s efforts and supportive of the committees concerns. Treasury, however, had some concerns and would like to continue having the Form 2553 since it requires the signatures of all the shareholders. If the taxpayer can make the election at the time of filing an 1120S return (one option the committee advocated) Treasury fears that filing the Form 1120S and making the election at that time will result in missing signatures and the shareholders not being aware that the election has been made. The S- Election team is working with three proposals that will impact paper and electronic filing.

Guthmann would like the IRS to continue updating the committee so that they may provide further suggestions as the process continues.

Landauer did not understand why the signatures are required for corporations but not for limited liability corporations or limited liability partnerships. Knights replied that this is one reason the team will continue to advocate legislative changes.

Program Owner Presentation – Form 94X
Davis updated the committee on the status of this project. She explained that the recommendations the committee submitted earlier were incorporated into the mockup of the Form 94X. The mockup has not been shared with the 94X team yet and therefore won’t be shared with the committee until after an upcoming team meeting. Davis will then send Knispel an updated mockup to be shared to with the committee.

Outreach Activities
Guthmann was contacted by the Local Stakeholder Liaison in the Twin Cities, and he was invited to meet with them in December, Guthmann will be able to talk to them about TAP. Guthmann contacted the American Institute of CPA’s of Washington about discussing TAP with them as well.

Program Owner Presentation – Alternative Treatment for Worker Misclassification
Tiberio informed the committee that SBSE is looking into the issue of worker misclassification (this is when workers who are by law really “employees” are misclassified by the employer who treats them, for tax purposes, as independent contractors) A problem is that there is not a good way to track this issue in the field, therefore the statistics are going to be limited to those types of cases that IRS becomes aware of and so there are numerous cases that can’t be tracked.

Schampers indicated that IRS has instituted a tracking code that all field examiners are asked to use every time they have an open case where worker classification becomes an issue. This will help to better track this in the future. There are GAO and TIGTA reports out on this issue, as well. The IRS has worked with state agencies such as the Department of Labor on this issue. However, state agencies have different standards.

Tiberio explained that the IRS views the issue from the angle of employment tax compliance. When the issue of Worker Classification is looked at, the determination of the worker being an employee or not is based on the facts of each case. If during an audit, a misclassification is determined, the IRS will attempt to reclassify them. There is a Classification Settlement Program where the taxpayer has the option to agree with the IRS and only a portion of the tax assessed will be collected.

Tiberio is looking for the committee to give some possible avenues that may help IRS close the gap on misclassification as opposed to viewing the problem from the compliance (i.e., enforcement) standpoint.

Davis indicated that she feels this is a burden reduction issue for companies that do classify their workers properly yet have to compete with other companies that misclassify their workers. The latter can have a real competitive edge over companies that are doing it correctly. Individuals that are misclassified as non-employees when they are really employees don’t have a voice for themselves. They have to accept how they are classified by their employer just so they will have money to put food of the table. The income reporting form 1099 issued to misclassified workers is also a source of abuse allowing for the deduction of expenses inappropriately.

Kasturi asked a subcommittee be formed on the issue. Cordeiro wondered whether this was an appropriate issue for the committee noting he sees the misclassification as a “social” problem. Kasturi asked that everyone e-mail him about their views as to whether or not they think this is a Taxpayer Burden Reduction issue. Subsequent to this meeting, members and the designated federal official shared their views and it was agreed that the issue does burden taxpayers. Reading volunteered to chair this subcommittee and a subcommittee meeting was called.

TAP Office Report
Ramirez informed the committee about the importance of meeting surveys. She would appreciate it if the members could complete and address their surveys to the staff after the full committee meetings.

Public Input
N/A

Closing/Assessment

• Meeting adjourned @ 4:45 PM
• Next full committee meeting: October 3, 2006 @ 3:30 PM EST

*These minutes were approved by the TAP Issue Committee on
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