Monthly Archives: August 2020

In Memo wi-21-0720-0774, the IRS has updated its taxpayer and third party authentication procedures. 

The IRS may disclose returns and return information to third parties a taxpayer has authorized to receive that information. (IRC § 6103). Generally, the IRS may disclose return information to third parties if the taxpayer's consent to such disclosure is in writing and is signed and dated by the taxpayer. (Reg. § 301.6103(c)-1(b)(1)).

Taxpayers may use Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization to consent to the IRS's disclosure of their return information to a third party. (Form 2848, Instructions) 

The IRS issues a nine-digit number (CAF number) to third parties seeking to access a taxpayer's return information using Form 2848 or Form 8821. Once issued, a third party uses their CAF number as an identifier on all their future CAF authorizations. 

The IRS has updated its taxpayer and third party authentication procedures in two ways: 

1. In certain circumstances, when a taxpayer calls the IRS seeking return information, IRS employees will ask taxpayers to provide additional authentication of their identity. These circumstances include when a taxpayer does not have any open account issues or notices, and the taxpayer calls the IRS: 
• to request verbal account information (other than refund status); 
• to request transcript or tax account information to be sent to an address that is not the taxpayer’s address of record; or 
• about an Identity Protection Personal Identification Number (IP PIN) that is lost, misplaced, or was not received by the taxpayer. 
2. Before releasing any return information to a third party who calls the IRS seeking a taxpayer's return information using a Form 2848 or Form 8821, IRS employees will need to authenticate the identity of the third party.
• To authenticate the third party’s identity, the IRS employee will ask for the third party's Centralized Authorization File (CAF) number, Social Security number (SSN), date of birth and the address listed on the third party's tax return. The third party must correctly answer all the IRS employee's authentication questions to obtain the taxpayer's return information. 

An IP PIN is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. (IP PIN FAQs)

The guidance also supplies a limited exception to the third party authentication procedures when the taxpayer calls the IRS and the third party is either part of the phone conversation, or is present in the room with the taxpayer, and the CAF authorization is already on file with the IRS. In this case, an IRS employee can discuss the taxpayer's return information with the third party without performing the above third party authentication procedures. 

If there is no Form 2848 or Form 8821 on file with the IRS, the taxpayer can verify the identity of the third party, but the disclosure authority is limited to the duration of the call or meeting, and the taxpayer must remain part of the conversation throughout. If the taxpayer leaves the conversation, the employee must end the call or meeting.

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The IRS issued IR-2020-181 on August 17, 2020 advising that more than 1 million Individual Taxpayer Identification Numbers are set to expire at the end of 2020 as the Internal Revenue Service completes the expiration of ITINs assigned prior to 2013. The IRS continues to urge affected taxpayers to submit their renewal applications early to avoid refund delays next year. 

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years and those issued before 2013 will expire. This year ITINs with middle digits 88 will expire Dec. 31, 2020. Additionally, ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, that were assigned before 2013 and have not already been renewed, will also expire at the end of the year.

ITINs are used by people who have tax filing or payment obligations under U.S. law but who are not eligible for a Social Security number. ITIN holders who have questions should visit the ITIN information page on IRS.gov and take a few minutes to understand the guidelines.

The IRS continues a nationwide education effort to share information with ITIN holders. To help taxpayers, the IRS offers a variety of informational materials, including flyers and fact sheets, available in up to seven languages, including English, Spanish, Chinese, Russian, Vietnamese, Korean and Haitian/Creole on IRS.gov.

Who should renew an ITIN

• Taxpayers whose ITIN is expiring and who expect to have a filing requirement in 2021 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 88 (For example: 9NN-88-NNNN) or 90, 91, 92, 94, 95, 96, 97, 98 or 99 (that meet the criteria above) need to be renewed even if the taxpayer has used it in the last three years. The IRS will begin sending the CP-48 Notice, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, to affected taxpayers in late summer. The notice explains that taxpayers will need to take action to renew the ITIN if it will be included on a U.S. tax return filed in 2021. Taxpayers who receive the notice after acting to renew their ITIN do not need to take further action unless another family member is affected.
• As a reminder, ITINs with middle digits 83 through 87 expired last year. Middle digits 73 through 77, 81 and 82 expired in 2018. Middle digits 70, 71, 72, and 80 expired in 2017, and 78 and 79 expired in 2016. Taxpayers with these ITIN numbers who expect to have a filing requirement in 2021 can renew at any time.

Family option remains available

Taxpayers with an expiring ITIN have the option to renew ITINs for their entire family at the same time. Those who have received a renewal letter from the IRS can choose to renew the family’s ITINs together, even if family members have an ITIN with middle digits that have not been identified for expiration. Family members include the tax filer, spouse and any dependents claimed on the tax return.

How to renew an ITIN

To renew an ITIN, a taxpayer must complete a Form W-7 and submit all required documentation. Taxpayers submitting a Form W-7 to renew their ITIN are not required to attach a federal tax return. However, taxpayers must still note a reason for needing an ITIN on the Form W-7. See the Form W-7 instructions for detailed information.

Spouses and dependents residing outside of the U.S. only need to renew their ITIN if filing an individual tax return, or if they qualify for an allowable tax benefit (e.g., a dependent parent who qualifies the primary taxpayer to claim head of household filing status.) In these instances, a federal return must be attached to the Form W-7 renewal application.

There are three ways to submit the Form W-7 application package. Taxpayers can:

• Mail the form, along with original identification documents or copies certified by the agency that issued them, to the IRS address listed on the Form W-7 instructions. The IRS will review the identification documents and return them within 60 days.
• Work with Certified Acceptance Agents (CAAs) authorized by the IRS to help taxpayers apply for an ITIN. CAAs can authenticate all identification documents for primary and secondary taxpayers, verify that an ITIN application is correct before submitting it to the IRS for processing and authenticate the passports and birth certificates for dependents. This saves taxpayers from mailing original documents to the IRS.
• In advance, call and make an appointment at a designated IRS Taxpayer Assistance Center to have each applicant’s identity authenticated in person instead of mailing original identification documents to the IRS. Each family member applying for an ITIN or renewal must be present at the appointment and must have a completed Form W-7 and required identification documents. See the TAC ITIN authentication page for more details.

Avoid common errors now and prevent delays next year

Federal tax returns that are submitted in 2021 with an expired ITIN will be processed. However, certain tax credits and any exemptions will be disallowed. Taxpayers will receive a notice in the mail advising them of the change to their tax return and their need to renew their ITIN. Once the ITIN is renewed, applicable credits and exemptions will be restored, and any refunds will be issued.

Additionally, several common errors can slow down some ITIN renewal applications. These mistakes generally center on:

• mailing identification documentation without a Form W-7,
• missing information on the Form W-7, or
• insufficient supporting documentation, such as U.S. residency documentation or official documentation to support name changes.

The IRS urges any applicant to check over their form carefully before sending it to the IRS. As a reminder, the IRS no longer accepts passports that do not have a date of entry into the U.S. as a stand-alone identification document for dependents other than U.S. military personnel overseas. The dependent’s passport must have a date of entry stamp, otherwise the following additional documents to prove U.S. residency are required:

• U.S. medical records for dependents under age 6,
• U.S. school records for dependents under age 18, and
• U.S. school records (if a student), rental statements, bank statements or utility bills listing the applicant’s name and U.S. address, if over age 18.

To expand ITIN services, the IRS encourages individuals to apply for the Acceptance Agent Program

To increase the availability of ITIN services nationwide, particularly in communities with high ITIN usage, the IRS continues to actively recruit Certifying Acceptance Agents and accepting applications year-round. Interested individuals are encouraged to review all CAA program changes and requirements and submit an application to become a CAA.

Have IRS Tax Problem?

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In Legal Advice issued by the Chief Counsel's office in 2020-009 ("Memo"), the IRS has determined that an organization operating daily fantasy sports (DFS) games is liable for the excise tax on wagers and the occupation excise tax on wagering businesses and is required to register as a wagering business with the IRS. 

IRC §4401(a) generally imposes a tax on "wagers." A wager is (A) any wager with respect to a sports event or a contest placed with a person engaged in the business of accepting such wagers, (B) any wager placed in a “wagering pool” with respect to a sports event or a contest, if such pool is conducted for profit, and (C) any wager placed in a lottery conducted for profit. The tax on wagers is imposed on the person engaged in the business of accepting wagers ("wagering business"). (IRC §4401(C)).

Each person engaged in the wagering business must pay a $500 annual “occupation tax.” Generally, every person required to pay the tax on wagers is required to register with the IRS. 

Generally, traditional fantasy sports are games where participants assemble simulated, “fantasy” teams with rosters of actual players from the real teams in a sports league (such as the National Football League (NFL) or the National Basketball Association (NBA)). The participants accumulate points based on the actual game performances of the selected players. Scoring is based on the selected players’ performance statistics or measures that are converted into points. Each participant then receives a “total fantasy score” that is determined by compiling the individual fantasy scores of each player in the participant’s roster or lineup. The participants compete against one another based on their total fantasy score. (Humphrey v. Viacom, Inc., (DC NJ 2007) 2007 WL 1797648)

A version of fantasy sports, daily fantasy sports (DFS), takes place on a DFS operator’s website and is accessed via computer or mobile software applications. DFS operators’ offerings cover several actual professional sports leagues, as well as college sports, and some e-sports. 

DFS has many key differences from traditional fantasy sports games. For example, unlike traditional fantasy sports games, DFS contests are not tied to a specific sporting event, but typically occur daily, and the participants tend to be a much larger group of strangers.

Also, rather than drafting players as they do in traditional fantasy sports games, each DFS participant is given an equal amount of fictitious money known as a “salary cap.” The DFS operator sets each player’s “salary” or “price” commensurate with the player’s perceived value, not unlike how bookmakers set wagering odds in traditional sports gambling. A participant may select the same players for their fantasy team as other participants so long as those selections do not exceed that participant’s salary cap.

Another important distinction between traditional fantasy sports and DFS is the treatment of the entry fee associated with each. Although participants in both types of fantasy sports typically pay a fee to participate, the pool of money generated by entry fees is generally given entirely to the winner or winners of the traditional fantasy league. In contrast, in DFS a portion of the fees collected is not paid out to the winner or winners but is retained by the DFS operator. 

The office of Chief Counsel has determined that a DFS operator is liable for (1) the excise tax on wagers; and (2) the wagering occupation excise tax and, therefore, is required to register as a wagering business with the IRS. 

Have IRS Gambling Tax Problem?

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Rep. Richard Neal, D-Massachusetts, who chairs the tax-writing House Ways and Means Committee, asked the Internal Revenue Service to quit mailing notices for unpaid taxes to taxpayers who may have been affected by the mail backlog at the agency due to the COVID-19 pandemic.

Many taxpayers have been receiving balance-due notices from the IRS even though they sent in their tax payments to the IRS months ago, because trailers full of mail have remained unopened since the start of the pandemic. 

This Spring, as Many IRS Offices Were Shuttered,
a Backlog of Millions of Pieces of
Unopened Mail Accumulated 
in Trailers Set Up Outside Agency Facilities.

As more IRS employees returned to work to deal with tax season, they began to sort through and process the mail, but that hasn’t stopped more correspondence from coming in every day.

“IRS officials reported that, due to office closures, the IRS has accumulated a staggering backlog of unopened mail,” Neal wrote in a letter Wednesday to IRS Commissioner Charles Rettig. 

At One Point This Summer,
The IRS Had Approximately 12 Million Pieces
of Unopened Correspondence in its Inventory.

Despite this unprocessed mail, the IRS reportedly has been sending notices to taxpayers whose correspondence and payments remain unopened. Therefore, many of the taxpayers receiving these notices already have made the payments that the IRS seeks.

On August 21, 2020, the IRS announced that it has suspended the mailing of three notices – the CP501, the CP503 and the CP504 – that go to taxpayers who have a balance due on their taxes. Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers.

These automatic follow-up notices will be temporarily stopped until the backlog of mail is reduced. The IRS will continue to assess the mail inventory to determine the appropriate time to resume the follow-up notices. 

In addition, the IRS has previously announced that these payments in the unopened mail will be posted and credited on the date the IRS received them – rather than the date the agency opened and processed them. The IRS reminds taxpayers in this situation they should not cancel their checks and should ensure funds continue to be available so the IRS can process them to avoid potential penalties and interest. To provide fair and equitable treatment, the IRS is also providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing.

As the IRS works to stop these mailings at our processing centers, some taxpayers and tax professionals may still receive these notices during the next few weeks due to delivery of existing mailings.

Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending.

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