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TAX MATTERS

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JUNE 2011

AICPA CALLS FOR ACCOUNTING SOFTWARE SAFEGUARDS IN IRS AUDITS

The AICPA called on the IRS to start a dialogue on how small business taxpayers may provide accounting software files requested by the IRS in an audit examination without also turning over confidential information, data for tax years not under examination or other material not relevant to the request.

 

The IRS says that electronic data reviews will lead to quicker audit resolution than paper-based ones, with fewer requests for follow-up information, and will reduce taxpayer burden.

 

In a letter to the commissioner of the IRS’ Small Business/Self-Employed Division (tinyurl.com/625vwjt), Patricia Thompson, chair of the AICPA’s Tax Executive Committee, said separating data on records prepared with software programs such as QuickBooks or Peachtree can be difficult for owners of smaller businesses, and therefore the IRS should provide them appropriate safeguards.

 

“[B]ecause the small business taxpayer often maintains his own accounting software file and is not a trained bookkeeper or accountant, the data in the software file is not necessarily directly relevant to the IRS examination,” she said.

 

 

NEW PTIN FAQs

Among answers to questions on the new preparer tax identification number requirements the IRS has recently posted on its PTIN FAQ Web page (tinyurl.com/ykpt2qm) are:

  • A CPA or attorney is not required to obtain a PTIN if the CPA or attorney only advises a client regarding a claim for refund that neither the CPA or attorney nor any other person in the CPA’s or attorney’s firm is required to sign (“Scenarios,” no. 10). However, the CPA or attorney in this instance still is a nonsigning preparer potentially subject to penalty under IRC § 6694 if the CPA or attorney has prepared all or a significant portion of the claim for refund.
  • Forms 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, and 5558, Application for Extension of Time to File Certain Employee Plan Returns, are considered part of the “Form 5500 series” of tax returns whose preparation Notice 2011-6 exempts from the PTIN requirement, when prepared in conjunction with a Form 5500, Annual Return/Report of Employee Benefit Plan, or application for an extension of time to file one (“Scenarios,” no. 9).

 

 

100% BONUS DEPRECIATION GETS GUIDANCE

The IRS issued guidance (Revenue Procedure 2011-26) on how taxpayers can deduct 100% of the cost of qualified business property placed in service in 2011 under rules enacted last year.

 

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111-312) allows taxpayers to deduct 100% of the cost of certain business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). In addition, the act extended the placed-in-service date for property to qualify for a 50% additional first-year depreciation deduction to before Jan. 1, 2013 (or before Jan. 1, 2014, for certain property).

 

The revenue procedure spells out the requirements property must meet to be eligible for 100% bonus depreciation. Special requirements apply to self-constructed property. It also specifies how the 100% bonus depreciation rules coordinate with other Code sections, including various tax credits and the IRC § 280F limitations on passenger automobiles.

 

 

WHISTLEBLOWER REGS AMENDED; CPA GETS $4.5 MILLION AWARD

The IRS issued final regulations (TD 9516) regarding disclosure of return information in connection with written contracts between the IRS and whistleblowers or their legal representatives.

 

During an investigation, the IRS Whistleblower Office may need to disclose returns or return information to a whistleblower or the whistleblower’s legal representative to enable the whistleblower to aid the investigation. Such disclosures are authorized for tax administration purposes by IRC § 6103(n). The final regulations state such information may be disclosed only to the extent the IRS deems it necessary under its contract with the whistleblower. The regulations subject whistleblowers to civil and criminal penalties if they further divulge or use the information.

 

Earlier, the IRS issued proposed regulations (REG-131151-10) providing that when a whistleblower’s tip prevents a claim for refund from being paid, that amount can count toward the basis of an award.

 

The 2006 changes to IRC § 7623 were designed to provide clearer guidelines for granting larger awards and targeted larger unpaid tax liabilities (see “The IRS Whistleblower Program: What CPAs Should Know,” JofA, Aug. 2009, page 50). Although the IRS had received award claims under the new program, it had not yet paid any as of Sept. 30, 2009, the end of the fiscal year for which the

Whistleblower Office issued its latest annual report to Congress.

 

In early April this year, however, a Blue Bell, Pa., attorney, Eric L. Young, said his client, a CPA accountant and auditor working in-house at a large national financial services firm, had received the first such award, of $4.5 million for blowing the whistle on a tax underpayment of more than $20 million by the employer. Neither the CPA nor the business was identified, other than that the company is a Fortune 500 corporation.

 

More high-dollar awards under the new program appear likely; the Whistleblower Office’s annual report said that during fiscal 2009 the office received 460 claims relating to 1,941 taxpayers that allegedly met the enhanced award program’s threshold of at least $2 million in taxes and interest owed.

 

 

WHAT’S IT ALL ABOUT, ALGAE?

Sen. Bill Nelson, D-Fla., reintroduced legislation that would expand the definition of fuels qualifying for the $1.01 per gallon cellulosic biofuel producer tax credit of IRC § 40(b)(6) to include those made from “cultivated algae, cyanobacteria, or lemna.” The Algae-Based Renewable Fuel Promotion Act of 2011 (S. 748) is identical to a bill that passed the House in 2010 (HR 4168).

 

Cyanobacteria is also known as blue-green algae; lemna is a floating aquatic plant commonly known as duckweed. Current law recognizes as qualifying cellulosic biofuel for purposes of the credit only liquid fuels made from “lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis.” Examples of these sources include wood, plants, grasses, crop wastes, fibers, animal wastes and municipal solid waste.

 

The bill also would add production facilities for algae-based fuels to those for cellulosic biofuels under existing law that are eligible for a special depreciation allowance under IRC § 168(l)(4)(B).

 

The 2010 bill’s sponsor, former Rep. Harry Teague, D-N.M., has touted the potential benefits of algae power, which, besides reducing the nation’s reliance on fossil fuels, include algae’s ability to absorb carbon dioxide from the atmosphere. Moreover, growing algae doesn’t have to divert land and resources from agricultural uses, as growing corn for ethanol does, and they can be raised in waste or even brackish water, he said last year. And obtaining oil from algae is “pretty simple,” Teague said. “When the algae are good and fat, you squeeze the oil out of the organisms.”

 

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