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Learning how to use the IRS’s e‑Services tools can greatly improve practitioners efficiency. Looking back on the busy tax season that just ended, some practitioners are spending too much time on the phone with the IRS. They’re needlessly navigating the phone lines to find the right person to help with what is often a small matter. Fortunately, learning how to maximize the full range of the IRS’s e‑Services tools can greatly improve efficiency. The rate of e‑Services usage among practitioners is increasing as tax professionals learn more about the system. From 2011 to 2012, practitioners filed 17% more authorization forms and requested 33% more transcripts via e‑Services. The IRS has continually expanded e‑Services to enable practitioners to use three e‑Services products:

1. Disclosure Authorization (DA), which allows practitioners to file Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization.

2. Transcript Delivery System (TDS), which allows practitioners to obtain any of the five types of IRS transcripts.

3. Electronic Account Resolution (EAR), which allows practitioners to make inquiries and resolve client account‑related issues. EAR inquiries are answered by the same IRS customer service representatives who handle Practitioner Priority Service (PPS) calls, but without the wait times. EAR also offers the ability to work with one PPS representative to resolve a client account issue. However, you can’t use EAR to resolve compliance issues, such as audits, appeals, and collection matters.

Written by Harold Goedde | Posted in TaxConnections

IRS CP2000 notices are annoying for a wide variety of reasons but mostly because the IRS assumes that most all items reported on line 21 of IRS From 1040 are subject to self-employment (SE) tax.

Much of what goes on line 21 (trustee fees for executors, prizes and awards, gambling winnings, cancellation of debt income, foreign pensions) is NOT subject to SE tax. What is driving this CP 2000 project inside the IRS causing all these no-change audit determinations?

First I learned the notices are reviewed inside the IRS prior to issuance, but it appears that the old e-file system did not provide the “dotted line” between the explanation provided on the return and the amount reported on line 21. Second and more importantly even though most of what goes on line 21 is not subject to Self Employment tax, the IRS finds that many taxpayers (and preparers) routinely include items subject to SE tax on line 21. Or in the opinion of the IRS many preparers and taxpayers prepare the form incorrectly without fully recognizing the implications of their entries on line 21. The result is that in many cases IRS’ proposed assessments are correct. The bottom line is to really understand the items being reported on line 21 of IRS Form 1040 and do not report any items here that may be subject to SE tax.

Written by John Dundon | Posted in Federal • TaxConnections