newsnote

NewsNotes

Lesli S. Laffie, J.D., LL.M.

E-Filing Employment Taxes IRS Mailing Addresses 2002 Data Book Partners Basis
Unlawful Collection Actions

From the IRS

IR 2003-25 discusses the IRSs new employment tax e-filing system, which is intended to reduce the paperwork burden on small businesses. The enhanced system is part of a continuing effort to reduce e-filing barriers for small businesses.

The IRS worked with small business taxpayers, software developers and tax professionals to determine users needs and increase the volume of e-filed payroll returns. Based on feedback, it devised a system to promote the development of integrated software products. The result is e-file capability for the software product that a business or tax adviser already uses to manage payroll.

Key benefits of the new system are:

More flexible filing. Small businesses can file Forms 941, Employers Quarterly Federal Tax Return, and 940, Employers Annual Federal Unemployment (FUTA) Tax Return, in a single transmission.
More specific error conditions. New error conditions pinpoint an errors location and provide complete information for each one identified.
Faster acknowledgments. The system processes transmissions on receipt and returns an acknowledgment in near real-time.
Integrated payment options. Eligible filers may submit a required payment along with their return, subject to limits imposed by the Federal Tax Deposit Rules.

The employment tax program is the IRSs first extensible markup language (XML) product. The use of this standard allows the IRS to expand easily the suite of tax returns that can be e-filed. The program also translates into cost savings and processing benefits for both businesses and the IRS, through its use of commercial standards and best practices for information exchange.

Tax advisers prepare the vast majority of business returns, yet could not e-file employment tax forms. Now, they can assist businesses in filing these tax forms. More information about the new system is available at www.irs.gov.

IRS Mailing Addresses

Notice 2003-19 provides taxpayers with the address for filing certain elections, statements and other documents as a result of the IRSs reorganization pursuant to the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA 98). Under the reorganization, the IRS replaced the national, regional and district structure with organizational units serving particular industries and taxpayer groups.

The notice lists the affected sections of the regulations and provides the proper IRS office for filing each election, statement and other document required or permitted by the regulations. It does not affect any filing prior to its issuance. Moreover, although the notice does not modify the regulations identified therein, taxpayers should follow the filing instructions contained in the notice to ensure the timely receipt and processing of filings. However, if a taxpayer files an election, statement or document as directed in existing regulations, the IRS will forward such election, statement or document to its proper filing location.

The notice is effective for elections, statements and other documents filed after April 6, 2003.

2002 Data Book

IR 2003-38 discusses the IRSs 2002 Data Book, which includes a variety of numbers on tax administration, ranging from figures of returns filed to examination and collection numbers. Among the highlights:

For fiscal-year 2002, gross collections totaled $2 trillion from 227 million returns filed. The total refunds issued were $284 billion, of which $210 billion were for individual returns.
The Data Book details the increasing success of IRS e-filing. Of the 131 million individual income tax returns filed, 47 million were e-filed during 2002, up from 40 million reported in the 2001 IRS Data Book.

To access the 2002 IRS Data Book from the IRS Website (www.irs.gov), click on Tax Stats in the upper left-hand corner and select IRS Data Book under Statistical Publications. The complete report appears in .pdf format (Adobe Acrobat required); the 32 tables and related footnotes appear separately in Excel 4 format.

Published copies of the 2002 Data Book (Pub. 55B) are available from the U.S. Government Printing Office; write to the Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954, or call (202) 512-1800 (voicemail) or (202) 512-2250 (fax).

Regulations

Partners Basis

The IRS has adopted final regulations (TD 9049) discussing special rules for determining the basis of a partners interest under Sec. 705. The final rules address issues the IRS and Treasury considered during the development of final regulations (TD 8986) issued to prevent inappropriate increases or decreases in the adjusted basis of a corporate partners interest in a partnership resulting from the partnerships disposition of the corporate partners stock.

The rules, which are used to coordinate Secs. 705 and 1032, were effective on March 18, 2003, and generally apply to sales or exchanges of stock occurring after that date. However, Regs. Sec. 1.705-2(d), dealing with positions in stock, applies to sales or exchanges of stock occurring after March 28, 2002.

The proposed regulations were to apply when a corporation owned a direct or indirect interest in a partnership that owned stock in the corporation, the partnership distributed money or other property to another partner who recognized gain on the distribution during a year in which the partnership had no Sec. 754 election in effect and the partnership subsequently sold or exchanged the stock. According to the proposed regulations preamble, it might be inconsistent with Secs. 705s and 1032s intent to increase the basis of the corporations partnership interest by the total gain resulting from the partnerships sale or exchange of the stock that was not recognized by the corporation under Sec. 1032.

The final regulations follow the proposed rules, but extend them to situations in which (1) a corporation owns a direct or indirect interest in a partnership that owns stock in the corporation; (2) the partnership distributes money or other property to another partner who recognizes a loss on the distribution, or the basis of the property distributed to that partner is adjusted during a year in which the partnership does not have a Sec. 754 election in effect; and (3) the partnership subsequently sells or exchanges the stock.

According to the IRS, the revisions provide a more consistent approach and better conform the new regulations to the Sec. 705 final regulations issued on March 29, 2002 (TD 8986).

Unlawful Collection Actions

Final regulations (TD 9050) discuss civil causes of action for damages caused by IRS officers and employees unlawful collection actions and the awarding of costs and certain fees.

The final regulations reflect amendments made by the Taxpayer Bill of Rights 2 (TBOR2) and the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA 98).

The TBOR2 amended Sec. 7433 by increasing the maximum damage award from $100,000 to $1 million in the case of reckless or intentional disregard of the Code or regulations. It also eliminated the jurisdictional requirement that administrative remedies be exhausted before a court could award damages.

The IRSRRA 98 amended Sec. 7433 by providing that a taxpayer could file actions for damages caused by negligent disregard of the Code or regulations. It also added that an action for damages could be brought for the IRSs willful violation of Bankruptcy Code Section 362 (relating to the automatic stay) or Section 524 (relating to the effect of discharge). The actions for damages caused by the violations of the bankruptcy sections were limited to willful violations.

The final regulations were effective on March 24, 2003.