New, and tougher, disclosure tests imposed by IRS to avoid penalties

Article Abstract:

New IRS rules make disclosure tests tougher: the simple disclosure of a position on returns will not necessarily be adequate to avoid negligence or disregard of rules penalties. As part of the restructuring of the penalty provisions required by the Improved Penalty Administration and Compliance Tax Act (IMPACT), the IRS has issued Notice 90-20, IRB 1990-10, 17. Notice 90-20 requires that returns must call attention to a disclosure on the return, redefines substantial authority, and levies new fines on tax preparers for understatement. IMPACT levies a 20% penalty on underpayments attributable to negligence, substantial misvaluation, and substantial understatement, a $250 penalty on preparers of statements understating liability due to taking an unrealistic or frivolous position, and a $1,000 fine per return for willful understatement of liabilities.

Income tax, Revenue

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Payment of tax with timely return voids extension

Article Abstract:

The IRS has ruled that the payment of tax with a timely return will void an extension in the case of a corporation that paid a tax with a timely filed return after it had made a request for an extension. The corporation lost an allowable deduction to a profit-sharing plan for this type of filing invalidated the extension request as the inability of the corporation to make a contribution to the plan by the due date did not warrant an extension. The Regulations impose a three tier test for taxpayers to file for an automatic extension on filing: timely filing, a proper estimate of the tax, and the remittance of estimated unpaid tax liabilities by the return's due date.

Taxation, Profit sharing

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Guidance provided for obtaining taxpayer assistance orders

Article Abstract:

The Taxpayer Bill of Rights in the Technical and Miscellaneous Revenue Act of 1988 allows taxpayer assistance orders (TAO) to be issued to taxpayers who are suffering undue hardship due to Internal Revenue Service actions. The TAO application process involves mailing a completed application Form 911 to a problem resolution officer who will review the request and issue a TAO. The issue of a TAO suspends any applicable statutes of limitations, but the issue does not allow the IRS to return sums credited against taxpayers accounts. Additionally, TAOs cannot be issued for criminal investigations.

Analysis, United States. Internal Revenue Service. Taxpayer Advocate Service

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