Yearly Archives: 2019

The Internal Revenue Service issued IR-2019-102 on June 5, 2019 and reminded taxpayers living and working outside of the United States that they must file their 2018 federal income tax return by Monday, June 17, 209

Separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2018, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.      

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2018 must file a dual-status alien tax return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85 (PDF), Guidance for Expatriates Under Section 877A, for further details.

 

As part of its ongoing efforts to protect taxpayers from identity thieves, the Internal Revenue Service today announced in IR-2019-101 on June 4, 2019 that it will stop its tax transcript faxing service in June and will amend the Form 4506 series to end third-party mailing of tax returns and transcripts in July.

Tax transcripts are summaries of tax return information. Transcripts have become increasingly vulnerable as criminals impersonate taxpayers or authorized third parties. Identity thieves use tax transcripts to file fraudulent returns for refunds that are difficult to detect because they mirror a legitimate tax return.

The halt to the faxing and third-party service this summer are two more steps the IRS is taking to protect taxpayer data. In September 2018, the IRS began to mask personally identifiable information for every individual and entity listed on the transcript. See New Tax Transcript and Customer File Number. At that time, the IRS announced it intended to stop its faxing and third-party mailing service, and has since worked with tax professionals to assure they have what they need for tax preparation and representation.

Faxing service ends June 28

Starting June 28, 2019, the IRS will stop faxing tax transcripts to both taxpayers and third parties, including tax professionals. This action affects individual and business transcripts.
Individual taxpayers have several options to obtain a tax transcript. They may:

• Use IRS.gov or the IRS2Go app to access Get Transcript Online; after verifying their identities, taxpayers may immediately download or print their transcript, or
• Use IRS.gov or the IRS2Go app to access Get Transcript by Mail; transcript will be delivered within 10 days to the address of record, or
• Call 800-908-9946 for an automated Get Transcript by Mail feature, or
• Submit Form 4506-T or 4506T-EZ to have a transcript mailed to the address of record.

Tax professionals also have several options to obtain tax transcripts necessary for tax preparation or representation as follows:

• Request that the IRS mail a transcript to the taxpayer’s address of record, or
• Use e-Services’ Transcript Delivery System online to obtain masked individual transcripts and business transcripts, or
• Obtain a masked individual transcript or a business transcript by calling the IRS, faxing authorization to the IRS assistor and the IRS assistor will place the document in the tax practitioner’s e-Services secure mailbox.
• When needed for tax preparation purposes, tax practitioners may:
  • Obtain an unmasked wage and income transcript by calling the IRS, faxing authorization to the IRS assistor and the IRS assistor will place the document in the tax practitioner’s e-Services secure mailbox, or
  • Obtain an unmasked wage and income transcript if authorization is already on file by using e-Service’s Transcript Delivery System.

Certain third-party mailings stop July 1

Effective July 1, 2019, the IRS will no longer provide transcripts requested on Form 4506, Form 4506-T and Form 4506T-EZ to third parties, and the forms will be amended to remove the option for mailing to a third-party. These forms are often used by lenders and others to verify income for non-tax purposes. Among the largest users are colleges and universities verifying income for financial aid purposes. Tax professionals also are large volume users.

Taxpayers may continue to use these forms to obtain a copy of their tax return or obtain a copy of their tax transcripts. This change will NOT affect use of the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process.

Third parties who use these forms for income verification have other alternatives. The IRS offers an Income Verification Express Service (IVES) which has several hundred participants, who, with proper authorization, order transcripts. Lenders or higher education institutions can either contract with existing IVES participants or become IVES participants themselves. The tax transcript is an official IRS record. Taxpayers may choose to provide transcripts to requestors instead of authorizing the third party to request these transcripts from the IRS on their behalf.

Tax professionals who are attorneys, Certified Public Accountants or Enrolled Agents (i.e., Circular 230 practitioners) and do not have an e-Services account may create one and, with proper authorization from clients, can access the e-Services’ Transcript Delivery System. Unenrolled tax practitioners must have an e-File application on file and be listed as delegated users to access TDS.

Customer File Number helps match transcripts

Because the taxpayer’s name and Social Security number are now partially masked, the IRS also created a Customer File Number space that can be used to help third parties match transcripts to taxpayers. Third parties can assign a Customer File Number, such as a loan application number or a student identification number. The number will populate on the transcript and help match it to the client/student.

In Hale v. United States, 2019 U.S. Claims LEXIS 502 (May 14, 2019), the Court of Federal Claims has held that various items of correspondence from IRS to a taxpayer were not notices of disallowance and, thus, did not start the two-year period for initiating a refund lawsuit.

IRC § 6532 establishes jurisdictional time limitations on tax refund suits. A tax refund suit may not be brought until six months after the filing of a tax refund claim with IRS, unless IRS renders a decision before the 6-month period expires. A tax refund suit must be brought within two years from the date IRS mails the first notice of disallowance for a refund claim. (Code Sec. 6532(a)(1))

The taxpayer, Ms. Hale, received the following correspondence from IRS with respect to tax returns she had filed:

1. A letter explaining a mathematical error she had made in calculating her earned income credit on her 2012 return.
2. A letter restating IRS's position that the earned income credit was calculated incorrectly and had been reduced from $3169 to $3069.
3. Letters requesting more information with respect to other tax returns she had filed.

The court held that none of the correspondence that the taxpayer received were notices of disallowance that started the Code Sec. 6532(a)(1) two-year period for filing a refund suit.

The court said, citing Smith v. US, 478 F.2d 398 (1973), that, although a notice of disallowance need not take any particular form, it must adequately notify the taxpayer "of the Commissioner's adverse action" in order to trigger the two-year statute of limitations set forth in Code Sec. 6532.

It also said that internal guidance from IRS suggests that, among other criteria, a notice of disallowance must inform the taxpayer of her "right to file suit" and of the "period in which suit may be filed."

Notices informing taxpayers that IRS needs more information to process a claim, along with math error notices or similar correspondence, typically fail to adequately notify taxpayers of a final adverse action or of their right to file suit within two years. (Chief Counsel Advice 200203002)

Here, none of the correspondence in the record met these criteria for effective notices of disallowance. They did not inform Ms. Hale of her right to sue or of the applicable two-year limitations period.

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