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

April 22, 2004

Opening of the Meeting
Nagel opened the meeting at 11:02 A.M. ET and asked if anyone had any change to the agenda. No one had any. Knispel announced that she would be Acting DFO as Ramirez was unable to attend. She will also take the minutes of the meeting.

Roll Call

Panel Members Attending

• Patrick Castleberry, Edmond, OK
• Richard Greenberg, Hinsdale, IL
• Edward Hanna, Tampa, FL
• Marisa Knispel, Brooklyn, NY, Acting DFO
• Paul Nagel, Glen Cove, NY, Chair
• Owen Oatley, Holly Hill, FL
• Teresa Smedley, Salem, IN
• Robert Taylor, Pittsburgh, PA

Absent

• Walter Fish, Bellmore , NY
• Chris Forzano, La Center, WA
• Karen Kerrigan, Oakton, VA, Vice Chair
• Manning H. Mosley III, Wayne, PA
• Sandra Ramirez, Brooklyn, NY, DFO
• Charles Taylor, Los Angeles, CA

Quorum was met

TAP Staff and IRS Staff Attending

• Rebecca Johnson, SBSE Program Manager
• Marisa Knispel, TAP Program Analyst

Review and Approval of Minutes
Knispel indicated that Program Owner Johnson had some last minute additions to the minutes. Due to lack of time to revise and distribute them, the revised February minutes will be approved at our next full committee meeting.

Knispel added that due to other commitments, Johnson could participate in today's meeting for only an hour and asked members to take advantage of referring any questions to her before 12:00 PM.

Program Owner Presentation
Johnson sent Nagel a letter on March 23, 2004 in response to the Committee's proposal containing four different recommendations: 1) W-9 “fyi” Box, 2) Benefits of Filing Brochure and /or Messages, 3) IRS Notice Response Study and 4) TAP Awareness of IRS Curriculum “Understanding Taxes”. Johnson explained that Filing and Campus Compliance Director Cheryl Gramalia recommended that the IRS implement two of these recommendations.

The first recommendation accepted for implementation is that of the “Benefits of Filing” that is currently being reviewed to become a component of the IRS's Nonfiler Communication Strategy. The Committee's recommendation is awaiting clearance from the IRS Counsel. The Taxpayer Education and Communication (TEC) is preparing a draft to deliver the message in various ways, such as through partnering organizations, website, etc with incorporated ideas on the benefits of filing. Johnson thanked the Committee for their work.

The second recommendation accepted is the Notice Response Study that the TEC will consider and incorporate as part of their notice study. Johnson indicated that TEC will request the Committee's input as they progress in their work. Again, she thanked the Committee.

Johnson explained that the Program Owners did not accept the recommendation of the ‘FYI' Box on Form W-9 because this is a multi-purpose form used by many businesses and individuals for different reasons. The Program Owners felt that implementing the Committee's recommendation might create confusion for taxpayers for whom the Form was not intended. Nagel asked Johnson what are the other purposes of the Form W-9. Johnson replied that the Form is used by any person or organization to request information from the IRS using a taxpayer identification number. Therefore, since it is a multi-purpose form, the other IRS organizations with whom the Program Owners discussed this recommendation agreed that the recommendation should not be implemented. Hanna disagreed with this decision and said that even though the Form W-9 might be a multi-purpose form, it is a great vehicle to deliver the message. Johnson suggested the Committee think of an alternate vehicle.

Johnson continued with the “Awareness of IRS” curriculum proposal, also not accepted. The reason is because the TEC and the Stakeholder, Partnership, Education and Communication (SPEC) are currently working together to develop curricula for their audiences. Greenberg stated that it is his opinion that the curriculum developed for the public school system is not adequate. Greenberg has personally developed a sample curriculum, not as a lesson plan, but as a way to deliver tax literacy to high school and trade school students. Greenberg finds that many of these young students are not involved in business development courses, but they do have jobs (part-time or summer) and are required to file a tax return at the end of the year. The outline he developed is a simple outline that could be used to educate this young people, many of whom are Schedule C filers. Greenberg would like to share his curriculum with the Committee at the next face-to-face meeting. Johnson suggested the Committee examine Greenberg's curriculum and compare it to SPEC's existing curriculum and any other in the process of development to provide a more informed approach to a recommendation. Greenberg agreed.

Johnson informed the members that the TEC organization will take ownership of the Committee's EZ-Proposal. She has scheduled a meeting for April 30th to discuss the proposal and layout plans with the TEC team. Johnson will report back on the decisions made at this meeting and also share the contact information at the next Committee meeting. She congratulated all the members for this proposal which she believes may have significant impact with small businesses.

Nagel requested that Johnson research if this would be the appropriate time for the Committee to present their recommendation on modifying the Schedule C-EZ. Johnson presented the idea to the Burden Reduction Office. However, because this office is short-staffed, they have not had a chance to review it. This Office will respond to Johnson by the first week in May and then she will share the information with all Committee members at the next meeting.

Nagel shared the issue that many businesses request that their accountants do not file Form 1099-MISC for various reasons. However, they take advantage of the deduction at the time of filing. The $100 intentional disregard penalty is not a deterrent to this practice. Nagel proposes that the IRS send out notices announcing “no 1099-MISC filed, no deduction”. Johnson explained that currently there is a TEC team developing a 1099 matching component to the tax returns for Schedule C, partnerships and corporations. Johnson suggested inviting the TEC's team lead to participate at the next Payment Issues Subcommittee meeting to share the ideas of this 1099 Matching Project and at the same time to receive feedback from this subcommittee. The members agreed. Hanna supported Nagel's idea of the IRS releasing this type of notice because it will alert the taxpayers that they may be examined if they do not comply. Nagel asked if any member of the Payment Issues Subcommittee had any objections about considering this issue. No objections presented.

Johnson asked if there were any questions about the direction the Committee should take on the issue of Form SS-4. The issue with this Form is that it asks the EIN applicants if they will have employees in the next twelve months. This is misleading and confuses the EIN applicant to say “yes”. What happens thereafter is that the IRS researches that all filing requirements such as the filing of Form 941 have been met for such applicant. In some cases, these applicants or new businesses file F 941 with $0. This causes a burden to the IRS. The Form SS-4 should be modified to assist the applicant to answer the question correctly and alert them that filing requirements are different if employees are involved. Johnson indicated that the Payment Issues Subcommittee was interested in following up this issue. Johnson asked if anyone had questions. Oatley asked Johnson if the IRS sends out a periodic notice to these new businesses to inquire if their situation has changed. Johnson said no, the IRS does not send notices and asked the Committee to provide their ideas on this issue, thus eliminating the unnecessary F 941s that are filed. The Payment Issues Subcommittee decided to work on this issue.

Nagel described his idea of creating a simpler Schedule C with fewer lines than the current Schedule. The new Form would have more lines than Sch C-EZ and would be easier to complete than the Sch C. Oatley suggested comparing the qualifications o by expanding its qualifications f both Schedules to work on the form. Knispel said that this would created more confusion and some members agreed. Greenberg suggested revising Sch C-EZ by expanding its qualifications and thus making it an alternative to more complicated Schedule C. Nagel agreed and indicated this was another idea: to expand the current Schedule C-EZ by increasing the expense limit from the current limit of $2,500. Again, the Payment Issue Subcommittee will work on this issue.

On education issues, Nagel asked if the IRS partners with the U.S. Department of Education to disseminate financial and tax literacy to schools nationwide. Johnson explained that the IRS uses national and local coalitions whose members disseminate the information. Since the IRS does not have adequate resources to distribute educational tax material and outreach to schools nationwide, the partnerships use their members and volunteers to do so.

Knispel spoke about a TAP website comment from a Texas taxpayer who recommends that F1099-MISC should have a withholding similar to that of IRAs. Smedley stated that doing this would shift the burden to the payer.

It could also add more burden to the IRS, Nagel said, because it then becomes an enforcement issue to have the payers send these withholding to the IRS. Johnson suggested working this issue in conjunction with that of Form W-9 to educate payers on their filing requirements. Nagel asked the Outreach & Education Subcommittee members if they would accept this as an issue of consideration. They agreed.

Joint Committee Report
Nagel informed the members that the Joint Committee agreed that it was within this Committee's scope to work on enforcement issues.

New Business
Nagel explained that due to a conflict with a face-to-face meeting, the next Schedule C Nonfiler teleconference would have to be rescheduled. The date of June 22nd was chosen.

DFO Report
Knispel explained the current stage of recruitment. She said the TAP received 968 applicants according to the National Office's last report. Two applications were from Puerto Rico .

Public Input
None.

Closing Assessment
Nagel thanked all the members for their participation.

Action Items
Johnson will invite 1099 Matching Project team lead to the next Payment Issues Subcommittee meeting.

NEXT MEETING
Teleconferences on May 11, 2004 for:

• Payment Issues Subcommittee at 11:00 AM ET
• Outreach and Filing Subcommittee at 2:00 PM ET.

Teleconference on Tuesday, June 22, 2004 at 11:00 AM ET for the Schedule C Non-Filer Committee.