SB/SE Fair Compliance (Schedule C Non-filers) Committee Meeting Minutes

October 3, 2003
Grand Hyatt Hotel
Washington, D.C.

Attendees:

• Patrick Castleberry
• Walter Fish
• Chris Forzano
• Dick Greenberg
• Ed Hanna
• Karen Kerrigan, Vice-Chair
• Meredith Odom-Russell, Note Taker
• Paul Nagel, Chair
• Owen Oatley
• Sandra Ramirez, Designated Federal Official
• Teresa Smedley
• Barbara Toy, Note Taker

Program Owners

• Cheryl Gramalia, Director of Filing and Campus Compliance
• Susan Leatherman, Program Contact

Members Not Present:

• Manning H. Mosley, III
• Charles Taylor
• Robert Taylor

Welcome/Announcements/Review Agenda
Paul Nagel welcomed everyone. The decision on reconfirmation of the chair and vice chair was moved to the top of the agenda. Both Nagel and Karen Kerrigan were reconfirmed. The date of the minutes needing approval today needs correcting to 8/19/03.

Roll Call
Quorum is met; eight members present.

Nagel reviewed the agenda and said the schedule of meetings would include two face-to-face meetings. Because of the burden on practitioners during the filing season, Nagel suggested having one meeting by end of November and one after April. Teresa Smedley stated it was not productive for us to have meeting between now and the end of year.

Committee turned to reviewing the minutes. Chris Forzano suggested minutes be approved at end of meeting to give people time to review. This was agreed to and the agenda was amended. Nagel pointed out that the agenda included subcommittee break outs. Ed Hanna suggested that new subcommittees may have to be formed. Nagel replied that he had some ideas on subcommittees and Owen Oatley also has some ideas. He pointed out that Susan Leatherman also has to approve of the issues the subcommittees worked. Patrick Castleberry moved to have the members, guests and staff introduce themselves; Smedley seconded; and motion approved.

Members, guests, and staff introduced themselves .During the introduction, Cheryl Gramalia, told the panel that in addition to Schedule C Non Filers the focus of her office included high income non-filers, persons having unreported income over 100,000 dollars. Susan Leatherman added that the IRS is able to identify about 98% through reporting documents not just income reportable on the1099 Miscellaneous Income Form, but income reported through other forms such as mortgage interest, dividends, and interest.

Leatherman added that Gramalia attended this meeting to introduce herself to the committee because proposals elevated by this issue committee go to Gramalia who will discuss the issue with Mike Chesman and make the decision whether the proposal is accepted or not. Gramalia and Leatherman would like the subcommittees to focus on items that Small Business/Self Employed can change and direct committee away from proposals that involve technology IRS does not have and issues requiring legislative changes.

Nagel acknowledged the good support provided by Mary Peterson as Program Analyst and Judi Nicholas as Program Manager, as well the support from Michael Sollitto and thanked them.

DFO Report
This was first meeting the new DFO attended and she had nothing to report.

Program Owner Presentation
Leatherman envisions the committee as divided into two segments. Any u nfinished business (FY 2003) would carry over to one of two subcommittees. The program owner does not have the resources to have three or four subcommittees working different issues. The subcommittees Leatherman has in mind are; one that focuses on Payment issues that are exclusive to non filers that will work on how to turn them into filers, and the other, a Communication and Education committee focusing on improving forms, instructions, and publications to also turn non-filers into filers. Leatherman suggests that a Payment Subcommittee be formed since the inability to pay the tax liability is a major cause of non filing. As Schedule C filers do not have weekly tax deductions – they contribute to a large proportion of non compliant taxpayers. Research shows that for the most part 70 percent of 1040 Individual Income Tax returns filed with a balance due had Schedule C income. There are issues exclusive to Schedule C filers that can fit either on the payment side or on the communication and education side.

Nagel prefers three subcommittees since some subcommittees have not finished their work. Leatherman replied that she prefers the two because when you thin the members out too much, you lose input. Also, Leatherman and Gramalia believe any issue the committee should work would fall under the two subcommittees.

Gramalia also suggested adding a step before Offers in Compromise (OIC) (e.g. full pay or installment agreements) because we don't want people to file and then immediately ask for an OIC.

The existing subcommittee for Outreach and Communication can be rechristened Communication and Education. The EZ Pay proposal would fit under the Payment subcommittee. Leatherman also suggested including the E-file subcommittee where EZ Pay is going because the two committees are working similar issues and the e-file program contact, Karen Taylor, has the knowledge of the on line calculators for installment agreements and electronic payment methods.

Leatherman talked about the research information from the year 2000 prepared by the Dallas office. Forzano asked Leatherman if she had any idea of the amount owed or the average amount owed by non-filers. Leatherman did not, but research has identified nine million non-filers with income through information returns filed with the IRS (miscellaneous, dividend, and interest income). Of the nine million, two million had 1099 Miscellaneous Income reported.

Based on the research from 1996, Kerrigan said her subcommittee focused on the instructions. The instructions list if your income is below $7,500 you are not required to file. Most people stop there and don't read the part about self-employment income.

Forzano asked for Leatherman's thoughts on the number of people not filing because they want to avoid taxes compared to those not filing because they lack sufficient education. Leatherman replied about 15% and that the IRS has a pretty good idea of who they are because of the reporting forms; chances are they have mortgage interest, interest income, etc. Gramalia added that the committee can impact only those who fall into this category. Leatherman said if we can eliminate the lower income level of non filers it would free the IRS' resources to find those who owe $200,000 or more and the hard-core people who choose not to file because they can't pay. One of the most cost effective ways for the IRS to collect money is the collection notices. IRS can collect a lot of money for not much cost.

Smedley began by saying that EZ Pay is not actually the name of the subcommittee but Estimated Tax Payments became known as EZ Pay. The intent is to encourage people to file because they will make payments throughout the year. Castleberry moved that the subcommittee name be kept as EZ pay; Forzano seconded. Leatherman suggested this issue be placed under the Payment Subcommittee and the old business finished before the next issue is tackled. Castleberry amended motion to change name to Payment Issues; Smedley seconded. Leatherman stated any issue that concerns the payment side of compliance would fit into this subcommittee. Gramalia suggested looking at current issues and seeing how they fit into either of these topics. She added that their purpose in focusing the committee on these two broad issues is to try to focus the committees efforts where we can best facilitate and help support you and also affect change. Forzano agreed that we all need a sense of accomplishment. Motion to have Payment Issue Subcommittee of Schedule C Non-filers passed.

Nagel suggested having another subcommittee called Filing Issues. Discussion ensued. Some members preferred Outreach and Education, others Outreach and Communication. Leatherman suggested Prefiling Issues. Dick Greenberg moved to call the subcommittee outreach and communication; Smedley seconded; motion passed . Leatherman was concerned because the program owners wanted committee members to make suggestions on improving forms, instructions, and publications and her concern is that it did not easily fit under Outreach and Education. Smedley amended the motion to change the name of the subcommittee to Outreach and Filing; Kerrigan seconded; motion passed.

Nagel opened floor to Owen Oatley's suggestion for a subcommittee. In addition to paying through installment agreements, he felt another way of paying is through Offers in Compromise (OICs). A benefit of OICs is that it stipulates that the taxpayer must remain in compliance for the following five consecutive years for the OIC to remain in effect.

Gamalia's concern on promoting an OIC to prevent non-filing is that it can create unrealistic expectations for non filers. There is so much publicity on the “pennies on the dollar” schemes and the reality is the process takes a look at reasonable collection standards, a look at assets, and the prediction of future income. Unscrupulous practitioners get their fees up front and very few people qualify for the OIC program. Oatley replied that one reason very few people qualify is that the Form 656, Offer in Compromise doesn't explain that IRS will look at reasonable collection and might look at a 10 year period for the prediction of future income to determine the reasonable collection amount. The form and instructions do not contain enough detail about the process. Gamalia stated that easier offer cases are worked at the Brookhaven and Memphis campuses and should be completed within 6 months and IRS is moving toward that goal. Smedley thinks anything to do with OIC is outside the scope of this committee because an offer is not available unless a person has filed. Oatley replied that the knowledge of the availability is within the scope and the OIC is an incentive to staying in compliance because it becomes void if filer is not complaint for five years. Gamalia stated the goal of IRS is to get rid of the offer mills and suggested focusing on the awareness of the pre-filing installment agreement. Nagel stated that filers can request the installment agreement if they owe less than 25,000 and can pay within 60 months.

Subcommittee Membership
Members of Outreach and Filing: Dick Greenberg, Kerrigan, Oatley, and Nagel

Members of Payment Issues: Fish, Smedley, Forzano, Hanna, and Castleberry

Review of Operating Procedures
Quorum stayed at half of committee membership plus one.

Materials should be emailed and/or faxed to members. Oatley and Greenberg prefer fax. Documents over 12 pages must be hard copy, all else will be email.

Forzano moved to accept; Fish preferred making corrections first. Castleberry agreed to draft the language for the change to distributing minutes and read back to committee later in the meeting.

Schedule of Meetings
Nagel stated the committee had to schedule both the teleconferences and face to face meetings and asked how much time was needed to meet Federal Advisory Committee Act (FACA) regulations for issuing notice of the meetings. Ramirez replied staff needed at least 30 days. Smedley reminded committee of the agreement to have full committee meetings one month and the next month hold subcommittee meetings.

The committee decided to choose locations that were convenient for travel. Staff will research flight availability and cost and report back to committee for final decision on location of meetings. Sites chosen for further consideration are: Chicago, Denver, St. Louis, and Dallas.

ACTION: Staff will cost out and research flight availability to Chicago, Denver, St. Louis, and Dallas for all committee members and report back to committee at next full committee meeting, December 9, 2003.

Committee agreed to dates for the face-to-face meetings: May 13, 2004 for travel and May 14 and 15, 2004 for meeting dates and August 19, 2004 for travel and August 20 and 21, 2004 for meeting.

It was agreed to continue with the second Tuesday of each month for teleconferences at 11:00 a.m. Eastern Time. The first subcommittee teleconference falls on November 11 which is Veteran's day, a federal holiday so conference will be held on November 12. It was decided to stagger the subcommittee's teleconferences—Payment Issues will be at 11:00 a.m. EST and Outreach and Filing at 2:00 p.m. EST.

The schedule:

• November 12, 2003, 11:00 a.m. EST-- Payment Issues
  2:00 p.m. EST--Outreach and Filing

• December 9, 2003, 11:00 a.m. EST-- Full committee meeting

• January 13, 2004, 11:00 a.m. EST-- Payment Issues
  2:00 p.m. EST--Outreach and Filing

• February 10, 2004, 11:00 a.m. EST-- Full committee meeting

• March 9, 2004, 11:00 a.m. EST-- Payment Issues
  2:00 p.m. EST--Outreach and Filing

Committee noted possible conflict in April of 2004 and decided to address remainder of schedule at a later meeting.

Self Assessment for the Annual Report
Ramirez proposed completing the report offline. Comments on annual report are due to Ramirez by October 9, 2003.

ACTION: Committee members will review the draft self assessment for the annual report and send comments to Ramirez by October 9, 2003.

Approve Draft Minutes and Operating Procedures
After discussion, the committee adopted the following language to revise the Operating Procedure rules regarding the keeping and approving of meeting minutes. Page 6, “Minutes”, of the Operating Procedures should now read:

Minutes
Resources from the TAP Office will be provided for recording minutes. Staff will distribute to Committee Members, the IRS Program Owner, TAP Staff, and any other named IRS stakeholder ("Recipients") draft minutes by email or telefax, as Recipients shall choose, within 5 work days after each meeting. Recipients shall review and submit to TAP Staff any comments regarding such draft minutes within 10 work days following receipt of draft minutes. TAP Staff will distribute revised draft minutes reflecting comments no later than 5 work days prior to the next scheduled Committee meeting; and, at such next scheduled meeting, the Committee shall approve a final version of such minutes. (Revised language in italics.)

Meeting minutes will contain the agenda and summarize the key decisions reached, action items agreed upon, assignments of responsibility and timelines for completion of the action items. Minutes will be available to the public as provided by FACA requirements. Minutes will be posted on the TAP web-site at www.improveirs.org.

The draft minutes for the August 19, 2003 meeting contained both grammatical and content errors. Castleberry agreed to work with Kerrigan to correct the minutes and return to Ramirez for distribution.

ACTION: Toy will forward draft copy of August 20, 2003 minutes to Castleberry electronically.

ACTION: Castleberry and Kerrigan will correct the grammatical and content errors in the August 20, 2003 minutes and return to Ramirez.

ACTION: Ramirez will distribute minutes to all committee members and program owners for approval at the November 9, 2003 full committee teleconference.

Meeting Adjourned.

Assignments:

All Committee Members:

• Review the draft self assessment for the annual report and send comments to Ramirez by October 9, 2003

Castleberry and Kerrigan:

• Correct the grammatical and content errors in the August 19, 2003 minutes and return to Ramirez

Ramirez:

• Distribute minutes to all committee members and program owners for approval at the November 9, 2003 full committee teleconference

Staff:

• Cost out and research flight availability to Chicago, Denver, St. Louis, and Dallas for all committee members and report back to committee at next full committee meeting, December 9, 2003

Toy:

• Forward draft copy of August 20, 2003 minutes to Castleberry electronically.