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As Congress struggles to complete its work and leave town, Ways and Means Committee Chairman Kevin Brady quietly dropped a provision into an otherwise uncontroversial IRS reform package. The provision bars IRS from regulating contingency fees "in connection with tax returns, claims for refund, or documents in connection with tax returns or claims for refund prepared on behalf of a taxpayer."
While Circular 230, at Section 10.27
, prohibits enrolled agents from charging a contingent fee, it does allow such a "fee for services rendered in connection with the Service's examination of, or challenge to, an original tax return or an amended return or claim for refund or credit…" It also allows a fee in connection with a claim for credit or refund filed solely in connection with determination of interest or penalties assessed by the IRS. Finally, practitioners may charge a contingent fee for services rendered in connection with any judicial proceeding. The Chairman’s Proposal Regarding Contingency Fees
As Congress struggles to complete its work and leave town, Ways and Means Committee Chairman Kevin Brady quietly dropped a provision into an otherwise uncontroversial IRS reform package. The provision bars IRS from regulating contingency fees “in connection with tax returns, claims for refund, or documents in connection with tax returns or claims for refund prepared on behalf of a taxpayer.”
While Circular 230, at Section 10.27, prohibits enrolled agents from charging a contingent fee, it does allow such a “fee for services rendered in connection with the Service’s examination of, or challenge to an original tax return or an amended return or claim for refund or credit…” It also allows a fee in connection with a claim for credit or refund filed solely in connection with determination of interest or penalties assessed by the IRS. Finally, practitioners may charge a contingent fee for services rendered in connection with any judicial proceeding (see Robert Wood in Forbes
for further analysis
The issue of contingent fees has been clouded by two relatively recent court rulings (Loving v. IRS, 742 F.3rd 1013 (D.C. Cir. 2014) and Ridgely v. Lew, 55 F. Supp. 3rd 89 (D.D.C. 2014)). The courts in these cases found IRS lacked the authority to regulate either tax return preparers (Loving) or fee arrangements entered into by practitioners (e.g., EAs, CPAs, attorneys) prior to the onset of adversarial proceedings before IRS (Ridgely, details here). IRS has failed to update Circular 230, however, to reflect the changes resulting from these judicial rulings.
Some commentators are concerned that the Brady language would allow unenrolled preparers to charge a fee contingent on a refund, further encouraging audit roulette beyond what is already a serious problem for many low- and moderate-income taxpayers.
What do you think? NAEA would like your input on what our position should be on this important issue.
Despite efforts of Congressman Kevin Brady, chairman of the powerful House Committee on Ways and Means, to extend over two dozen tax provisions that expired at the end of 2017, Congress seem no closer to a resolution. When NAEA's GR team has asked Members of Congress and their staffs what's the likely outcome, most have simply shrugged in frustration.
Over the years, NAEA has made the case that tax code complexity comes in many forms. One of the most insidious—and preventable—is uncertainty. Tax provisions that expire annually, and even worse allowed to lapse only to reinstate retroactively, confound any effort for tax planning and create needless complexity (they are also terrible policy, see this joint letter in opposition to extenders).
Once again, we find ourselves weeks from a new filing season with an uncertain tax code. Provisions like the deductibility of mortgage insurance premiums, the exclusion of discharge of qualified home indebtedness, and deductibility of qualified tuition expenses are decidedly middle-class tax benefits. Yet we are on January's doorstep and enrolled agents are still unable to advise clients. Quoting the Bard of Avon, we say to Congress, "A pox on both your houses!"
An explosive piece from ProPublica entitled "How the IRS Was Gutted" caught our eyes (and yes, we are aware that ProPublica is not known as a centrist organization). While the article is worth the read, we'll outline a few attention grabbing statements:
1) "The last time IRS had fewer than 10,000 revenue agents was in 1953, when the economy was a seventh of its current size."
2) IRS conducted 675,000 fewer audits in 2017 than in 2010.
3) Investigations of nonfilers dropped from 2.4 million in 2011 to 362,000 last year.
4) In 2010, the 10-year collection statute wiped out $482 million in tax debt; by 2017 "that figure had risen to $8.3 billion."
We need to keep in mind that if one tortures statistics enough, they'll tell you anything. For instance, is the definition of "audit" consistent (e.g., how are CP 2000 notices counted—and how should they be counted?), and how should one adjust collection dollar amounts for inflation—and did IRS assess taxes differently in 2000 than it did in 2007?
Still, the general arc is one with which enrolled agents are all too familiar—declining budgets, eroding customer service, and vilification of an agency essential to the functioning of our government.
As an aside, the observations from former Commissioner Koskinen themselves make the article a must-read.
In Notice 2018-97, IRS offers guidance on a recent tax law change that allows qualified employees of privately-held corporations to defer paying income tax, for up to five years, on the value of qualified stock options and restricted stock units (RSUs) granted to them by their employers.
In Notice 2018-99, IRS provides interim guidance for taxpayers to determine the amount of parking expenses for qualified transportation fringes (QTF) that is nondeductible under §274(a)(4). Richard Rubin and Laura Saunders provide context in The Wall Street Journal (outside of paywall). And in Notice 2018-100, IRS provides penalty relief to tax-exempt organizations that underpay estimated income tax due to changes in the tax treatment of QTF.
In Rev. Proc. 2018-58, IRS provides an updated list of time-sensitive acts that may be postponed under either §7508 or §7508A.The former section postpones specified acts for individuals serving in the Armed Forces of the United States and the latter postpones specified acts for taxpayers affected by a federally declared disaster or terroristic or military action.
U.S. Tax Court
This week's U.S. Tax Court case is Estate of Clyde W. Turner, Sr., W. Barclay Rushton v. Commissioner (151 T.C. No. 10). Judge Marvel presides over the case (more on her here). Petitioner, since he died testate in early 2004, has been a frequent flyer at Tax Court; this case is the third the court has considered since 2011. The count doesn't include a separate case related to Jewell Turner, his widow, who died in mid-2007.
The heart of the matter is a controversy regarding the computation of the marital deduction under Section 2056—and a family limited partnership (FLP). Get out the popcorn, this is going to be messy and take awhile.
In April of 2002, Mr. and Mrs. Turner established an FLP, each contributing assets valued at some $4.3M each (FLP aren't funded with sofa change after all). In exchange, each received a 0.5 percent general partnership interest and a 49.5 percent limited partnership interest. By the beginning of January 2003, Mr. Turner had transferred to family members as gifts limited partnership interests totaling roughly 22 percent.
In his estate’s prior two runs at the Tax Court, the court held that under Section §2036 the value of the property Mr. Turner had transferred to the FLP must be included in the value of his gross estate. Further, the court held the estate is not entitled to a marital deduction for the value of the property brought back into the estate as a Section §2036 inclusion (ouch).
What we found interesting in this case was the lengthy review of federal estate and state death taxes. Judge Marvel walks us through a primer on the estate tax, pulls elements of Mr. Turner's will, addresses the marital deduction, and concludes, among other things, the recipients of the Section §2036 assets during Mr. Turner's lifetime bear the burden of any taxes attributable to the Section §2036 inclusion.
Oh and don’t miss the lengthy footnote on page 15 referencing Estate of Wycoff...
| || GOVERNMENT RELATIONS NEWS|
• This just in: IRS today issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Business use rates are up 3.5 cents per mile, to 58 cents/mile. IRS helpfully reminds taxpayers that the miscellaneous itemized deduction for unreimbursed employee expenses is no more.
We're getting close to GO time for gift giving, and because NAEA wants to be part of your problem-solving team, E@lert offers these ideas for the gents in your life and these ideas for the ladies in your life—not that rocks glasses (particularly these) and iPhone cases don't transcend gender. Oh, and we cannot help but be distracted by any list of must-read books (btw, a shelf full of not-yet-read books should not prevent the addition of one more), plus this gem (click, you won't be disappointed). And finally, and perhaps we should have started with this, PBR (no, not a tax acronym but a beer acronym) is off of life support.
Otherwise, aside from the widely leaked Wednesday evening meeting between Sens. Warren and Sanders at Warren's DC condo, we offer a slew of tax-related items, pulled especially for America's Tax Experts®:
• OMG! The San Jose Mercury News (and others) are reporting California state regulators are "ginning up a scheme to charge a fee for text messaging on mobile phones to help support programs that make phone service available to the poor."
• CMS is extending its Affordable Care Act deadline for Marketplace Call Center customers.
• Accounting Today writes FASB revises leasing standard for lessors (registration required).
• Senate Finance Committee Chairman Orrin Hatch presided over his last hearing, to consider the Tax Court nomination of Courtney Dunbar Jones. Ms. Jones currently serves as a senior attorney in IRS' Office of Chief Counsel.
• Leslie Book, in Procedurally Taxing, writes about the digital divide—which is a thing (for instance, in New Jersey)—and tax administration.
• This just in from the department of redundancy department: don't forget your RMD requirement! IRS' reminder is useful, even if we're already reminded readers.
• National Taxpayer Advocate Nina Olson has blogged twice recently on IRS' revenue protection efforts. In part 1, she asserts the agency's refund fraud false positive rate is too high and the Service takes too long to process returns it should not have selected for review. In part 2, she rolls up her sleeves and does more math. There's much to unpack in the pieces, which are both interesting and worth reading (if for this general tidbit: "in the government and private sectors, a false positive rate of around 50 percent is generally accepted").
• Grant Thornton offers 10 year-end tax-planning tips for individual clients.
• The Tax Policy Center doesn't generally ask what summer means—but in this case the question may be as good as any when unraveling what middle class really means.
• Looking into 2019:
o Incoming Ways and Means Chairman Richard Neal (D-MA) appears to be interested in immediately revisiting extenders, which are unlikely to make it out of Congress in 2018 (though this joint letter opposing extenders warmed E@lert's heart).
o Incoming Senate Finance Committee Chairman Charles Grassley (R-IA) in a Wednesday floor speech expressed his interest in bringing IRS into the 21st century (an interest NAEA shares) and providing nonprofit oversight, among other things.
• Speaking of Congress, Minority Leader Chuck Schumer announced that for the 116th Congress, Senators Maggie Hassan (D-NH) and Catherine Cortez Masto (D-NV) will be joining the Senate Committee on Finance.
• With apologies to Irving Berlin, you'd be surprised: NAEA is offering a webinar entitled "You'd be Surprised: What is Fraud?"
"Do the best you can until you know better. Then when you know better, do better."
—Maya Angelou (1928-2014), American writer, poet, and civil rights activist
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NAEA E@lert | Volume 1: Issue 5
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