IRS Expands Streamlined Installment Agreements

The IRS has expanded streamline installment agreements until September 30, 2017. Instead of the needing less than $50,000 of taxes due, the IRS increased the amount to $100,000 of tax, interest, and penalties due.


In addition, the IRS will accept the installment agreement if the payments is the greater of the amount due divided by 84 (instead of 72) or the amount necessary to collect the tax in full before the collection statute runs.


Remember, taxpayers with the ability to pay their taxes in full can still qualify for these streamlined installment agreements.


Relevant Citations: IRS: Streamlined Processing of Installment Agreements

New Debt Collection Program Starts in the Spring

The IRS announced in IR 2016-125, that starting in the spring, the IRS will start using private debt collectors to collect on some tax debts. The tax debts that will be assigned to the collection agency are inactive tax debts that they do not have time to work.


The private contractors are supposed to follow all the same rules as the IRS while respecting taxpayers' rights. These contractors must also identify themselves as contractors and that they are not part of the IRS.


We will see how this plays out, but it seems that this is ripe for fraud and abuse of taxpayer rights.


Relevant Cites: IR 2016-125

Installment Agreements When Client Has Ability To Pay

I have seen this issue come up a couple of times now where the client wants to enter into an installment agreement but has the ability to pay. Working with Revenue Officers, the Revenue Officers are requesting full payment on the taxes due.


For streamlined installment agreements, practitioners should point out IRM 5.14.5.2(12), which states, "Taxpayer may be granted streamlined agreements based on the criteria provided in IRM 5.14.5.2.(1)-(11), even if they are able to fully pay their accounts."


For guaranteed installment agreements, practitioners should point out IRM 5.14.5.3(2), which states, "As a matter of policy, the Service grants guaranteed agreements even if taxpayers are able to fully pay their accounts."


So, there is no basis for Revenue Officers saying the IRS will not accept a streamlined or guaranteed installment agreement if the taxpayers have the full ability to pay.


Relevant Citations: IRM 5.14.5

Importance of TARS Regulations

Last tax season, tax practitioners got to experience TARS and its impact on the tax world. One of its best aspects is the de minimus safe harbor election. Under the de minimus safe harbor election, if a taxpayer has a business that does not have audited financial statements, they can expense $2,500 ($5,000 if they have audited financials) of items that were previously capitalized.


In order to do so, the taxpayer need only to consistently apply the a fixed asset expensing procedure throughout the year. For example, if the taxpayer has two new fixed assets worth $500 and $1,000, both must be expensed under their fixed asset procedures. If only one is expensed, the IRS can say that the safe harbor does not apply.


The safe harbor is great because the IRS will not challenge whether or not an asset needs to be expensed or capitalized.


The importance came up a little bit in Kilpatrick v. IRS. It should be noted, the tax years involved are 2009 and 2010, so the safe harbor would not have been available.


Kilpatrick (a CPA) had bought 2 oak armchairs, a desk, paintings, bowls, and a chandelier. Before even considering the business use of the assets, the court was able to deny Kilpatrick's deduction for these expenses because he just expensed the item without claiming IRC 179.


In the current tax would, if Kilpatrick would have included the safe harbor election, these expenses would not require the 179 election and would not be challenged by the IRS on whether or not they should be capitalized.


It is good practice now, to have all taxpayers make the election and for their accountants to properly use a fixed asset accounting procedure that complies with the safe harbor election.


Relevant Citations: Reg. 1.263A-1, TC Memo 2016-166

TIGTA: OIC Public Inspections

Under the Internal Revenue Code, the IRS must make accepted offer-in-compromises available for public inspection.


Currently, to view the files, a taxpayer needs to call the IRS and request an appointment to view the files. The process can be a pain for taxpayers to get the information they are entitled under law.


TIGTA has proposed the IRS create an electronic format database for public inspection of these offers. This would allow taxpayers to quickly access the information online. The IRS has agreed with these recommendations.


Sometime in the future, expect to access approved OICs online. This will help practitioners better prepare clients on whether or not their offer will be accepted.


Relevant Citations: TIGTA Report

S Corp: Repayment of Loan vs. Wages

One frequent S Corporation exam issue is whether payments to an owner should be classified as a loan or classified as wages to the owner. Most Revenue Agents look for loan documents to prove a loan existed. However, that is not the correct application of the law. When this issue comes up, practitioners can point to the recently released Scott Singer Installations, Inc. v. Commissioner, TC Memo 2016-161.


In the case, loan documents did not exist, but the court still found there was a loan. Instead the court looks at several factors.

"Such factors include: (1) the names given to the documents that would be evidence of the purported loans; (2) the presence or absence of a fixed maturity date; (3) the likely source of repayment; (4) the right to enforce payments; (5) participation in management as a result of the advances; (6) subordination of the purported loans to the loans of the corporation’s creditors; (7) the intent of the parties; (8) identity of interest between creditor and stockholder; (9) the ability of the corporation to obtain financing from outside sources; (10) thinness of capital structure in relation to debt; (11) use to which the funds were put; (12) the failure of the corporation to repay; and (13) the risk involved in making the transfers. Calumet Indus., Inc. v. Commissioner, 95 T.C. 257, 285 (1990); see also In re Lane, 742 F.2d 1311, 1314-1315 (11th Cir. 1984)."

Here, no factor is controlling. In Scott Singer Installations, Inc., the taxpayer was able to show he contributed money to the company in its early stages and these contributions were actually loans. The court looked to see if he consistently treated these payments as a loan (which most taxpayers do), and if the repayments were consistent and did not vary based on the amount of work done.

This is a great case to point at when you are having troubles with debt vs. wages on S Corporations and partnerships.


Relevant Citations: TC Memo 2016-161

IRS Warns Practitioners of Attacks on Tax Professional Computers

The IRS released IR 2016-119 which details approximately two dozen cases where a tax practitioner had their computer taken over remotely by criminals in order to file fraudulent returns.


The IRS recommends all tax practitioners do the following:

• "Run a security “deep scan” to search for viruses and malware;
• Strengthen passwords for both computer access and software access; make sure your password is a minimum of eight digits (more is better) with a mix of numbers, letters and special characters and change them often;
• Be alert for phishing scams: do not click on links or open attachments from unknown senders;
• Educate all staff members about the dangers of phishing scams in the form of emails, texts and calls;
• Review any software that your employees use to remotely access your network and/or your IT support vendor uses to remotely troubleshoot technical problems and support your systems. Remote access software is a potential target for bad actors to gain entry and take control of a machine."

Relevant Citations: IR 2016-119

IRC 162 - Ordinary and Necessary

Armando Adames Rivas v. Commissioner, TC Memo 2016-158, really brings the concept of ordinary and necessary under IRC 162 to the forefront. Often tax practitioners may deduct expenses without much verification as to what the expenses are for.


Under IRC 162, any business expense must be 1) ordinary in the course of the business and 2) necessary for the business. For example, a real estate broker deducting depreciation on four Corvettes may not be necessary for the business.


In Rivas, the taxpayer owned a financial consulting business. In 2011, he reported $24,630 of advertising expenses and in 2013, he reported $28,652 of advertising expenses. According to the taxpayer, these expenses "related to 'horses purchased for business use and the losses.'"


This is where the concept of ordinary and necessary really comes in play. Most, if not all, financial consulting businesses do not own horses. Further, if any do, most do not buy them as an advertising expense. The court shutdown any arguments with, "This unsubstantiated assertion does not suffice to create a triable issue of fact concerning his ability to claim horse-related costs as advertising expenses of a financial consulting business."


When working with taxpayers, its good that they have an understanding of what could possibly fall outside of the ordinary and necessary expense requirements for their business.


Relevant Citations: TC Memo 2016-158