Signup To Receive CCH Tax News Headlines Via Email

December 31, 2009

Federal Headlines

Return Preparers Permitted Certain Disclosures to Solicit New Business and to Professional Liability Insurance Carriers (IR-2009-121; Rev. Rul. 2010-4; Rev. Rul. 2010-5)

 

The IRS has issued further guidance on issues related to Code Sec. 7216. The IRS had previously issued final, temporary and proposed regulations that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216 (T.D. 9478, NPRM REG-131028-09; TAXDAY, 2009/12/30, I.2).

Notice 2010-4

 

In Notice 2010-4, the IRS addressed three issues with respect to the use of taxpayer information to solicit new business from previous or existing clients.

 

Changes in law that could result in amended returns. A tax return preparer may use tax return information to contact taxpayers to inform them of changes in tax law that could affect the income tax liability on the taxpayers' returns that were previously prepared or processed by this tax preparer. Code Sec. 7216 does not prohibit the use of tax return information to prepare a "tax return," and, under Reg. §301.7216-1(b)(1), a tax return includes an amended return. Accordingly, the preparer could use client tax return information to identify affected taxpayers, inform them regarding the change in tax law, advise whether it would be appropriate for them to file amended income tax returns, and assist in the preparation and filing of any amended returns.

 

Accountant or lawyer seeking to give compliance advice. A tax return preparer who is also an accountant may use tax return information to determine who might be affected by a prospective tax rule change in order to contact potentially affected taxpayers for whom the accountant/preparer reasonably expected to provide accounting services in the next year. The contact would notify these taxpayers of the change, explain how the change may affect them, and advise them with regard to actions they may take in response to the change. Reg. §301.7216-2(h)(1)(i) allows a preparer who is lawfully engaged in the practice of law or accountancy to use tax return information to provide other legal or accounting services to the taxpayer, and such services could include advice related to current and future income tax compliance.

 

Disclosure of taxpayer list to auxiliary service provider. Finally, tax return preparers may disclose their taxpayer lists kept under Reg. §301.7216-2(n) to a third party service provider holding itself out as providing services that include creation, publication, and distribution of newsletters, bulletins, or similar communications to taxpayers whose tax returns the tax return preparers have prepared or processed containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer. Although restrictions apply to transfers of taxpayer lists under Reg. §301.7216-2(n), a preparer is allowed under Reg. §301.7216-2(d)(1) to disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers. The service provider, is prohibited from the further use or disclosure of the tax return information for purposes other than those related to the provision of the auxiliary services or as otherwise expressly permitted under Code Secs. 6713 and Code Sec. 7216.

Rev. Rul. 2010-5

 

In Notice 2010-5, the IRS discussed disclosure of information to tax return preparer insurance carriers. The IRS held that tax return preparers will not be liable for criminal penalties under Code Sec. 7216 and civil penalties under Code Sec. 6713 with respect to certain disclosures of tax return information made to the preparer's professional liability insurance carrier. Under Reg. §301.7216-2(a)(1), a tax return preparer may disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States in order to obtain auxillary services, not involving substantive determinations or tax advice. Disclosures, without taxpayer consent, may also be made to an attorney for the purpose of obtaining legal advice under Reg. §301.7216-2(g).

 

A professional liability insurance policy purchased by a return preparer is an auxiliary service provided in connection with the preparation of tax returns; thus, the insurance carrier is a tax return preparer. Accordingly, disclosures necessary for price quotes or to otherwise obtain or maintain professional liability insurance coverage will not result in penalties. This could include a list of client names and description of the services provided, Similarly, disclosures made to the insurance carrier as required for purposes of reporting and investigating claims or for the carrier's selection of an attorney to represent the return preparer will not result in penalties. This could include client names, a description of the services provided, a description of the claim or potential claim, and if necessary, copies of returns relevant to the claims. In both cases, disclosures beyond those that are necessary for the provision of the auxiliary services are prohibited. Finally, a return preparer may make disclosures to the selected attorney related to the claim or potential claim or in seeking legal advice from an attorney who is not a representative of the carrier, without taxpayer consent.

IR-2009-121,

2010FED ¶46,224

Rev. Rul 2010-4, 2010FED ¶46,225

Rev. Rul 2010-5, 2010FED ¶46,226

Other References:

 

Code Sec. 6713

 

CCH Reference - 2009FED ¶40,160.021

 

Code Sec. 7216

 

CCH Reference - 2009FED ¶40,370.027

 

CCH Reference - 2009FED ¶41,370.30

 

CCH Reference - 2009FED ¶41,370.60

 

Tax Research Consultant

 

CCH Reference - TRC IRS: 66,360.10

CCH Reference - TRC IRS: 66,360.15

 

Tax Court Lacked Jurisdiction Where Deficiency Notice Not Mailed to Estate's Last Known Address (Rule Est., TCM)

 

The Tax Court did not have jurisdiction over a deficiency redetermination because the deficiency notice was not sent to the estate's last known address; consequently, it was invalid under Code Sec. 6212. At the time the estate tax return was filed, the estate's executor listed one office address; however, several years later, a revenue agent who was investigating the decedent's income tax return notified the estate tax examiner that the IRS's computer records indicated that the executor had a new residential address. The examiner was deemed to be aware of the estate's new address at the time the deficiency notice was issued because information available through the use of the IRS's computer system is attributable to the IRS's agents, and the examiner was specifically told that the executor had a new address. Furthermore, the examiner failed to use reasonable care and diligence to ascertain the estate's last known address and mail the deficiency notice to that address.

P. Rule Est., TC Memo. 2009-309, Dec. 58,047(M)

Other References:

 

Code Sec. 6212

 

CCH Reference - 2009FED ¶37,544.28

 

CCH Reference - FINH ¶20,755.10

 

CCH Reference - FINH ¶20,755.40

 

Code Sec. 6213

 

CCH Reference - 2009FED ¶37,549.5083

 

Code Sec. 7701

 

CCH Reference - FINH ¶22,815.01

 

Tax Research Consultant

 

CCH Reference - TRC IRS: 27,150

CCH Reference -

TRC IRS: 27,156

 
 

State Headlines

District of Columbia --Corporate and Personal Income, Sales and Use Taxes: Second FY 2010 Budget Support Approved

 

Recently approved District of Columbia permanent legislation provides for several changes affecting the corporate and personal income and sales and use tax provisions. Specifically, the legislation approves combined reporting, decoupling, the disallowance of certain related party transactions, tax amnesty, a reduction of the threshold for electronic payments, and a freeze on the standard deduction and personal exemption amounts until 2013. Additionally, the legislation increases the general sales and use tax rate to 6% (previously, 5.75%), for the period beginning October 1, 2009, and ending September 30, 2012, amends the taxation of premium cigars, and repeals the District's sales tax holiday.

 

Details regarding the corporate and personal income tax changes were previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.4 ; TAXDAY, 2009/10/30, S.3) Details regarding the sales and use tax changes were also previously reported on an emergency basis. (TAXDAY, 2009/08/28, S.6; TAXDAY, 2009/10/29, S.5)

Act 18-255 (D.C.B. 18-255), Laws 2009, approved December 18, 2009, effective after a 30-day congressional review period

 

North Carolina --Sales and Use Tax: Taxation of Digital Property Discussed

 

The North Carolina Department of Revenue has issued guidance on the sales and use tax applied to digital property that goes into effect on January 1, 2010. (TAXDAY, 2009/08/10, S.15; TAXDAY 2009/08/06, S.26) The tax, which is equal to the general 5.75% state and applicable local rates, is imposed on the purchase or use of the following items: (1) an audio work; (2) an audiovisual work; (3) a book, a magazine, a newspaper, a newsletter, a report, or another publication; and (4) a photograph or a greeting card. The notice provides detailed definitions concerning these terms and clarifies that the general sales and use tax rate applies to digital property that is delivered or accessed electronically, is not considered tangible personal property, and would be subject to sales and use tax if sold in a tangible medium. The tax applies regardless of whether the purchaser has the right to use it permanently or to use it without making continued payments but does not apply to an information service or to a service that is taxed under the general state privilege tax applied to retailers. For example, receipts from pay-per-view movies in conjunction with cable service or direct-to-home satellite service continue to be taxed as video programming at the combined general rate and would not be subject to the tax as digital property.

 

The notice also specifies that the general sourcing rules apply to purchases of digital property and outlines the applicable reporting and payment requirements.

 

Important Notice: Certain Digital Property Subject to Sales and Use Tax, North Carolina Department of Revenue, December 9, 2009

 

North Dakota --Corporate, Personal Income Taxes: Military Spouses Residency Relief Act Addressed

 

In response to the signing of the federal Military Spouses Residency Relief Act, for North Dakota personal income tax purposes, taxpayers should continue to withhold North Dakota income tax from wages paid to all employees, including servicemember spouses, until further instruction is provided. The tax commissioner's office is working on the development of the necessary procedures and forms to allow eligible servicemember spouses to stop the withholding of North Dakota income tax from their wages and to relieve employers of the obligation to withhold. Additional information will be provided soon.

Income Tax Withholding News and Developments, North Dakota Office of State Tax Commissioner, December 2009, ¶200-743

 

Other References:

 

Explanations at ¶15-175

 
Copyright © 2009, CCH INCORPORATED. All rights reserved.