Daily Tax Update - January 6, 2010

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RECONVENES ON JANUARY 19TH.

NATIONAL TAXPAYER ADVOCATE RELEASES ANNUAL REPORT TO CONGRESS: Today, National Taxpayer Advocate Nina Olson released her annual report to Congress. In the preface to the report, Olson noted that she is required by statute to identify taxpayer problems, but wrote that “the IRS in many respects has had an extremely successful year.” She cited, in particular, the IRS’s success in implementing significant legislative changes designed to stimulate the economy in the midst of the filing season.

  • The most serious issue identified in the report is the declining telephone service by the IRS. Olson said, “In other words, the IRS is planning to be unable to answer about three of every 10 calls it receives.” Olson added that the IRS expects those who get through will have to wait an average of 12 minutes. Olson added, “This level of service is unacceptable.”
  • The report also stated that the IRS “lacks an effective overarching strategy to maximize voluntary compliance” for its examination and collection practices. Olson said, “Any taxpayer with these debts will tell you that these creditors don’t go away. Taxpayers are placed in the intolerable position of agreeing to pay the IRS more than they can actually afford (given their other debts) and then defaulting on the IRS payment arrangements when they channel payments to unsecured creditors in order to get some peace. Thus, the IRS itself fosters noncompliance by its failure to take a holistic approach to the taxpayer’s debt situation.” The National Taxpayer Advocate recommends that Congress require the IRS, before imposing a lien, to make a determination that the benefits of filing the lien outweigh the harm to the taxpayer and will not jeopardize the taxpayer’s ability to comply with future tax obligations.
  • Other issues identified in the report include preparer regulation and running social programs through the tax system.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Revenue Procedure 2010-13 requires taxpayers to report to the Internal Revenue Service their groupings and regroupings of activities and the addition of specific activities within their existing groupings of activities for purposes of section 469. Internal Revenue Code Section 469 generally provides that income, losses, and credits from an activity will be passive unless the taxpayer materially participates in the activity. Treasury Regulation Section 1.469-4 allows taxpayers to group activities provided they make up an appropriate economic unit to enable taxpayers to meet the material participation standards.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.