U. S. Department of the Treasury s1

September 19, 2006

U. S. Department of the Treasury Internal Revenue Service Don Korb, Chief Counsel 1111 Constitution Avenue, NW Washington, DC 20224

Dear Mr. Korb:

The National Society of Tax Professionals is appreciative of your request to, identify 10 critical issues which the Chief Counsel should consider and to provide comments on the reasons/problems within each issue. Over the last several weeks, NSTP has surveyed its membership consisting of Enrolled Agents, Certified Public Accountants, Attorneys and Tax Professionals. Being a true representation of the Tax Professional community, NSTP members offer a complete and unique perspective of these issues and are happy to act as a resource for you.

Without priority, NSTP submits the following critical issues:

1. Schedule D – reporting of brokerage sales has become a compliance nightmare for taxpayers, particularly in this era of multiple sales of securities to “balance the portfolio”.

Brokerage firms should be required to report the following information on 1099-B forms: Date of Purchase Date of Sale Purchase Price or Basis (Brokerage firms acquiring accounts should have basis information transferred from prior brokerage company.) Sale Price

Information should be reported on the 1099-B as required by Schedule D. Page 2.

The problem has resulted due to lack of IRS oversight on reporting requirements by Brokerage firms.

2. Mortgage companies, reporting mortgage interest and oftentimes real estate taxes do not report the address of the mortgaged property on the 1098. Owners of multiple properties, personal residence and rental properties oftentimes have the same lender. Taxpayers find it difficult to determine which 1098 belongs to which property when it is a simple procedure to identify the property which is collateral on the mortgage. This lack of identification leads to potential incorrect reporting on the taxpayer’s tax return.

Mortgage companies should be required to disclose the mortgaged property address on the 1098.

The problem is a result of lack of IRS oversight on reporting requirements of the Form 1098.

3. The underreporting of income on Schedule C is problematic as acknowledged by IRS. Related to this issue is the unrealistic cost of medical insurance for the self- employed and their families. If they report all of their income the taxpayer will not qualify for the “free care” paid by Medicaid in such states as Massachusetts, where the average cost of a family medical plan is approximately $16,000 per year with deductibles as additional cost. If the taxpayer underreports their income they will not have to purchase health insurance as it will be provided by Medicaid. The savings on their taxes is secondary. This is a particular problem for the small sole proprietors across the country.

Greater effort in the area of educating the nation’s taxpayers on the results of such underreporting such as loss of social security benefits in the future as well as social security disability should be implemented.

The problem stems from the self-employed taxpayer being unable to expense his and his family’s health insurance against income on Schedule C, reducing the FICA and Medicare as well as federal income tax. Page 3.

4. Becoming an increasing problem is the diversity of languages in our country. While it is relatively easy to access an assistor at the IRS who can speak and understand either English or Spanish, the increasing number of non-English, non- Spanish taxpayers is staggering. The IRS has an inability to provide telephone assistance because they say they will not interpret and they cannot verify that the taxpayer is really the taxpayer. The only way taxpayers who do not speak English or Spanish can get any assistance from the IRS is via correspondence which usually takes approximately 3 to 6 months for the IRS to respond and only after making the request for assistance multiple times.

Compliance with complex tax laws and requirements is difficult for English speaking taxpayers but to not have the clarity of an explanation in the language you understand is simply counter compliance.

The IRS should provide multi-language avenues at Service Centers designed to assist these taxpayers. To provide only English and Spanish is discriminatory.

5. Lack of consistency as to how the IRS responds to taxpayer issues is problematic not only for Taxpayers but for the Tax Professionals who serve them. Calling the IRS for assistance, if we don’t like what the first assistor says, we just keep calling until we find someone who will work with us. While our persistence pays off but this is not good for the reputation of the IRS.

The problem is lack of training of IRS personnel and the assignment of “high-dollar” cases to Customer Service Centers.

IRS should immediately, particularly with the large number of seasoned IRS employees retiring, set about an aggressive training initiative for all employees.

6. It is becoming much more difficult to work with the IRS on reducing penalties assessed on taxpayers. Cases that have defendable “reasonable cause” abatement potential have to go to supervisory levels to get relief.

Again, the problem is lack of training of IRS personnel. Penalty abatement requests should be reviewed by higher level employees reducing the number of cases sent to the Appeals Office. Page 4.

IRS should immediately set about an aggressive training initiative for all employees.

7. IRS employees have forgotten the Service portion of their mission. More and more taxpayers are reporting incidents of rudeness and condescending attitudes. Many times the IRS is incorrect or has erred in processing. Most taxpayers do not seek contact with the IRS unless there is a problem. It appears that the emphasis shifting to compliance that the Service has been omitted from Internal Revenue.

IRS employees should be training in the provisions of RRA 98 and the provisions concerning 1203 violations and the implications of such. This should be part of the aggressive training initiative.

8. The practitioner priority service, once the salvation of the Tax Professional attempting to assist their taxpayer has been reduced in effectiveness by loss of trained personnel who understood “Service with a Purpose”. The first 15 minutes of any conversation is to explain to the practitioner hotline personnel what needs to take place. Many do not have the basic knowledge to assist the taxpayer. This line is for tax professionals only and tax professionals understand they are responsible for acting professionally and having information readily available. This is oftentimes met with an ill-trained, ill-tempered IRS employee who has a lack of understanding about Service.

Training, Training, Training and supervisory assistance is the only answer to this situation.

Practitioner Priority Service Personnel are instrumental to compliance and working together, the Tax Professional and PPS can often times rapidly and efficiently address the issue for the taxpayer and come to resolve.

9. The due date of partnership tax returns, Form 1065 is problematic to the timely filing of U. S. Individual Federal Income Tax Returns. While the Form 1120 and 1120S for a calendar year corporation are due on March 15th, 30 days before the Individual Tax Return deadline date, the Form 1065, Partnership Return of Income is due on 4/15, the same date as the individual return. While most 1120’s Page 5.

do not affect an individual’s tax return, the 1120S return most frequently does and the additional 30 days to file the individuals tax return is sufficient, however the same deadline date for the Partnership return and the Individual return is disaster waiting to happen. When multiple preparers are involved, it becomes an even greater problem. Conceivably, the partnership can extend the filing of their return until October 15, the same extended filing deadline for the individual leaving no insufficient time for a timely filing of the Individual return.

The deadline for filing partnership tax returns should be moved to March 15, consistent with corporate tax returns. The final extended due date for partnerships and corporations should be a minimum of one month prior to the final extended due date for individual tax returns.

10. Unrealistic local and national standards for installment agreements and offers in compromise prohibit compliance. With the increase in gasoline prices and, in many areas of the country where housing is a premium, the cost of housing, the IRS hard-line stand on local and national standards leave taxpayers with impossible living arrangements in order to pay their taxes.

In such rapidly changing economic times, the IRS should be required to, at a minimum, adjust the local and national standards used for such collection potential on a quarterly basis. Employees should be instructed to routinely review expenses out of the standard for reasonableness based on the circumstances of the taxpayer.

Additionally, our members brought forth these issues for your consideration:

A. The Earned Income Credit guidelines should be reviewed as to who qualifies and what household income should be considered in calculating the credit.

Example: Two working parents have earned income of $35,000, with four children. They do not qualify for the earned income credit.

Conversely, a two parent family with four children has only one working within the home and the other is on disability social security and they also receive disability benefits for the four children. The one working has gross earned income of $28,000 and with the Page 6. combined household income including the disability benefits, this family has gross income of well over $35,000, yet they still qualify for the earned income credit and child tax credit as well. The two parent working family lost, the other won.

This perceived unfair calculation results in otherwise honest taxpayers misunderstanding the applicability of the law.

The earned income credit is a continuing problem. Much of the fraud that is in this area, as well as some others, could be avoided by requiring that all W-2’s be electronically transmitted to IRS and IRS could then send them to Social Security, a reverse of the current process. Tax returns should not be processed for refunds until the W-2’s have been matched, particularly for the EIC.

B. More visible audit/enforcement against “cash” type small businesses that do not get 1099’s. Taxpayers want to feel that everyone is paying their share and when they perceive others cheating and getting away with it, erosion of the tax system takes place.

Most critical issue for IRS is the under-reporting of income by not reporting cash receipts. Many taxpayers do not accept credit cards and/or checks thereby eliminating a paper trail for cash receipts. IRS should forget travel logs, depreciation checks and do nothing but net worth audits.

C. 1099’s should be required for payments for services paid to Corporations and LLC’s. Non compliance in this area is astounding.

D. The Office of Professional Responsibility has no direction in the Internal Revenue Manual for process and procedure. Regulations appear to be kept intentionally grey. The Tax Professional community is supportive of an effective and fair Office of Professional Responsibility but for the office to take action upon a Tax Professional without giving specific guidance and without the benefit of the direction of the IRM does not speak well for the office or the agency responsible for its actions. Page 7.

The members of the National Society of Tax Professionals are keenly aware of the difficulties of tax law compliance and are appreciative of the efforts of influential IRS and Treasury executives who can articulate the need for policy and procedural change. It is with the spirit of cooperation and determination to serve the American Taxpayer that we bring to your attention these issues, their cause and potential solutions.

Sincerely,

Laurie Conner Jarrett NSTP Board President