| Home · Online Publications · Online Issues · TTA Home · Table of Contents · Tax Practice & Procedures |
|
Fast Track Settlement Program Extended •
Conflicts of Interest in Tax Compliance Services
• Do Editor: Mr. Miller is a member of the AICPA Tax Division’s IRS Practice and Procedures Committee. Mr. Yuskewich, Ms. Hodes and Mr. Carlton are members of that committee. For further information about this column, contact Mr. Miller at jmiller@mccneb.edu .
Fast Track Settlement Program Extended to Small Businesses In Ann. 2006-61, the IRS provided guidelines to extend the Fast Track Settlement (FTS) program to small business and self-employed taxpayers. Beginning Sept. 5, 2006, the Service initiated a six-month test program for certain of these taxpayers, within its Small Business/Self Employed (SB/SE) organization, in Chicago, Houston and St. Paul. After the six-month period, the IRS will evaluate the program, consider necessary adjustments and decide whether to continue testing FTS for SB/SE taxpayers for an additional 18 months. If the program is continued, it will be available to qualifying taxpayers nationwide. When the two-year test ends, the program will again be evaluated and a decision made as to whether to make the program permanent. The procedures for using FTS for SB/SE taxpayers will generally follow those published for the Large and Mid-Size Business (LMSB) FTS Dispute Resolution Program in Rev. Proc. 2003-40. Since FTS began for LMSB in 2001, many taxpayers have successfully used it to resolve cases at the examination level and avoid an otherwise lengthy appeals process or litigation.
Eligible Cases/Application FTS is generally available for SB/SE cases if (1) the issues are fully developed, (2) the taxpayer has stated a position in writing or filed a small-case request and (3) there are a limited number of unagreed issues. Generally, the program is not available for Collection Appeals Program, Collection Due Process, Offer-In-Compromise, Trust Fund Recovery and others cases outlined in Ann. 2006-61. If any issue is determined to be ineligible for the FTS program, none of the issues in the case will be eligible. The SB/SE Group Manager and the taxpayer will evaluate the circumstances to determine if this process is appropriate. To apply for the FTS program, the taxpayer and SB/SE Group Manager submit an SB/SE-Appeals FTS Application (application) to the local Appeals Team Manager. The process may be initiated by the taxpayer, Examining Agent or Group Manager at any time after an issue has been fully developed, but preferably before a 30-day letter has been issued. (Ann. 2006-61 contains a sample application.) A summary of issues prepared by the SB/SE Compliance Team and a written response by the taxpayer should be included with the application. If the case is not accepted, the taxpayer will be informed of the basis for the decision and alternative dispute resolution opportunities will be discussed. The decision not to accept a case into FTS is not subject to administrative appeal or judicial review.
Settlement Process During the FTS process, the taxpayer and SB/SE representatives hold a conference with the FTS Appeals Official (AO). Before the FTS conference, the AO will instruct the participants as to the procedures and ground rules. FTS conferences may include separate meetings with each party, at the AO’s discretion. Both parties to the FTS process will receive a copy of any meeting agenda and Session Report the AO has prepared. If the taxpayer accepts the AO’s settlement proposal, but the SB/SE Group Manager rejects it, the SB/SE Territory Manager must review the rejection and either concur in writing or accept the settlement proposal. If the SB/SE Territory Manager concurs with the Group Manager’s rejection and no alternative settlement can be reached, the issue will be closed out of FTS as unagreed. If the parties resolve any of the disputed issues, a FTS Session Report should be signed by both parties, acknowledging acceptance of the settlement terms, to allow for computations. If the parties fail to resolve any issue in FTS, the taxpayer can request the issue be heard through the traditional appeals process. Both parties also retain the right to withdraw throughout the entire process.
Conclusion The SB/SE FTS process is designed to take only 60 days from acceptance of the application to completion. An agreement reached by the parties through FTS will not bind them for tax years or issues not covered by the FTS agreement, unless specifically addressed. The FTS process is confidential; the IRS employees involved are subject to the Code’s confidentiality and disclosure provisions, including Sec. 6103. The taxpayer, by signing the application, consents to disclosure of the returns and return information to the persons named in the agreement. Taxpayers should be aware that the prohibition against ex parte communication between AOs and other IRS employees does not apply to communications arising in the FTS process. The Service should be congratulated on making the FTS process available to additional taxpayers (albeit on a test basis). The program can be a viable alternative for taxpayers, to resolve issues in less time and at less expense than traditional methods. From J. Matthew Yuskewich, CPA, Winterset CPA Group, Inc., Columbus, OH
Identifying Conflicts of Interest When Providing Tax Compliance Services During a typically hectic filing season, practitioners must keep in mind the practical effect of professional standards on the performance of tax compliance services. In many cases, checklists and office procedures help tax advisers meet their professional obligations. However, some obligations—such as those involving conflicts of interest—are not easily addressed by these standardized measures.
AICPA and Treasury Rules Both the AICPA Code of Professional Conduct (Interpretation 102-2 of Rule 102) and Treasury Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service (Circular 230), Section 10.29, provide guidance on conflicts of interest, including how one may be waived. Generally, both sets of rules permit a practitioner to provide services, even if a conflict of interest exists, provided:
Certain conflicts cannot be waived, either because the potentially competing interests are too adverse or for other reasons. For instance, if a client interest is directly adverse to the practitioner’s own interest, it is unlikely that the latter could act objectively. If a tax adviser cannot resolve a conflict of interest (e.g., by waiver or disengagement from one or more clients), he or she is barred from performing services for that matter. The AICPA rules do not require written evidence of a client’s consent to waive a conflict; however, Circular 230 requires written consent to waive a conflict. Such consent must be maintained by the practitioner for at least 36 months after conclusion of representation of the client. (On Feb. 3, 2006, the IRS proposed amendments to Circular 230 that would require the written waiver to (1) be acknowledged by the client and (2) occur at the time the conflict’s existence is known to the practitioner. These changes would not recognize a client’s oral consent to waive a conflict, even if such consent is documented in writing by the practitioner, unless the documentation occurs at the time the tax adviser identifies the conflict and the client acknowledges the documentation. The proposed changes generated significant discussion about whether this approach is warranted; see, e.g., AICPA Letter to IRS Commissioner Mark W. Everson (5/9/06).)
Conflicts in Tax Compliance Many practitioners can readily identify a conflict of interest in tax planning (e.g., providing tax advice to both the purchaser and the target on the purchaser’s acquisition of the target). However, a conflict of interest may arise in the context of providing tax compliance services.
These are just a few situations in which a conflict of interest may arise in the course of providing tax compliance services. Practitioners should be aware of these situations and take appropriate steps to resolve any conflict of interest that arises. For assistance, AICPA members can call the Ethics Hotline, at (888) 777-7077, or e-mail ethics@aicpa.org. From Rochelle Hodes, PricewaterhouseCoopers LLP, Washington, DC
Federal and state governments have found that receiving tax re-turns electronically is far less expensive than processing paper ones. With budgets being strained, governmental agencies have been strongly encouraging electronic filing (e-filing). The states have encouraged it by requiring it in certain circumstances. For example, Massachusetts requires e-filing and e-payment of all taxes of existing corporations, partnerships and fiduciaries that meet certain income thresholds; see MA Taxpayer Information Release (TIR) 05-22. Practitioners who prepare 100 or more individual tax returns must e-file; see MA TIR 04-30. Other states are not as comprehensive in their requirements, but are definitely moving in that direction. While the states have been taking a “stick” approach with their mandates, the Federal government has taken the “carrot” approach, by offering e-services for practitioners. Tax advisers who file five or more electronic individual returns over two years may apply for e-services, making resolving issues with the Service much easier; see “IRS e-file Application Updates,” at www.irs.gov/efile/article/0,,id=98246,00.html. Practitioners who do not yet use e-services should consider e-filing Form 2848, Power of Attorney and Declaration of Representative; resolution of account disputes; and account access.
POAs The power of attorney (POA) process has proven to be extremely frustrating, both for clients and practitioners. When dealing with paper filings, tax advisers will complete a POA for a client and fax or mail it. The Revenue Agent or Officer may not be aware of it, so it is often necessary to fax him or her another copy. (It is not uncommon to need three or more POAs before an issue gets resolved.) With e-filing, the completed form (once accepted) is posted directly to the Central Authorization File (CAF) within 45 minutes. Any agent or officer can access the CAF and become aware of the POA on file, saving an enormous amount of time and frustration. The first few filings using the e-services POA application may require some extra time; for security reasons, the Service requires some extra information before the application is accepted. To save time, the client’s most recent tax return, along with his or her date of birth, should be available, as it is needed to ensure that the proper taxpayer is identified. One way to accomplish this easily is to fill out the POA by hand, fax it to the client for signature and have it faxed directly back; from start to finish (i.e., from the first phone call to the client to having the POA on file), the process can usually be completed in less than an hour. Another issue arises when representing divorced spouses. When a taxpayer has previously been associated with another taxpayer, the identical information needs to be provided as to both the taxpayer and the spouse. If the information is included in both areas, the POA will be accepted on the first try. Once the POA is posted on the CAF, it is advisable to obtain a printout of the appropriate account statement, to avoid going through the time-consuming process of getting the same information through the Practitioner Hotline. The same client identification information as for the POA is needed, and so should be kept close at hand. If all that is needed is a few account statements (such as the charges and credits for a particular year, to see what happened to a particular payment), the account statement can be printed out immediately. Similarly, the process is expedited if all one needs are several quarters’ worth of Forms 941, Employer’s Quarterly Federal Tax Return.
Account Resolution When a problem is easily explainable, the account resolution section is very useful. If the issue is a misapplied payment (such as a Form 941 issue), an e-mail will trigger notification of a fix within two days. If done by mail, it may easily take eight to 10 weeks to resolve the same problem. When the issue requires substantial explanation or copies of documents to resolve, the Practitioner Hotline is still the best bet, as it allows the opportunity to explain a position and fax the needed substantiation. While this probably means that it will take six weeks before a paper copy of a resolution is received, it is still the best way to deal with more involved problems.
Conclusion The bottom line is that e-services work. They can expedite a lot of functions that previously took weeks to accomplish. If not yet registered, tax advisers should sign up and give them a try. With just a little practice, they provide an alternative that may save a lot of time. From Lawrence H. Carlton, CPA, Carlton & Duran, CPAs, P.C., Bedford, MA |
