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Washington Alert – IRS appeals loss in Altera Corp.; IRS Whistleblower Awards on the rise; Reminder for Health Coverage Tax Credit; IRS’s Collection function was responsible for generating $35.7 billion in revenue during FY 2015

IRS has appealed its loss in Altera Corp, (2015) 145 TC No. 3, to the Ninth Circuit. In the earlier case, the Tax Court invalidated the requirement in 2003 final regs that related parties entering into qualified cost sharing arrangements are required to share stock-based compensation costs under Code Sec. 482. The Tax Court held that the requirement under the Chevron decision (Chevron U.S.A. Inc. v. Natural Resources Defense Counsel, Inc., (Sup Ct 1984) 467 U.S. 837) that a reg not be “arbitrary and capricious in substance, or manifestly contrary to the statute” requires that IRS must engage in the reasoned decision making required under the State Farm decision (Motor Vehicle Mfrs. Ass’n of United States, Inc. v. State Farm Mut. Auto. Ins. Co., (1983) 463 U.S. 29) by examining the relevant data and articulating a satisfactory explanation for its action including a rational connection between the facts found and the choice made.

IRS in a recent report stated that the past fiscal year was “a big year” for granting awards under the agency’s Whistleblower Program. (IRS Whistleblower Program – Fiscal Year 2015 Report to the Congress, Publication 5241) During the course of FY 2015, 99 awards were made to whistleblowers totaling more than $103 million before sequestration, which reduced the total payouts. The number of claims received in FY 2015 was 12,078, which was a decline of 17% from the previous year. Total claims closed numbered 10,615, which was an increase of 27% compared to FY 2014. According to the report, since 2007, information received from whistleblowers has assisted IRS in collecting more than $3 billion in tax revenue, and the agency has awarded more than $403 million to whistleblowers. The report, which was signed by Lee Martin, director of the Whistleblower Office, urged lawmakers to enact two legislative proposals. First, provide legal protections to whistleblowers from retaliation by employers, protections similar to those accorded under other whistleblower award programs. Second and of equal importance, Congress should “provide stronger protections for taxpayers by imposing a sanction on whistleblowers who improperly disclose taxpayer information obtained from the IRS in connection with their whistleblower claim,” the report said. The report is available at irs.gov/pub/whistleblower/WB_Annual_Report_FY_15_Final%20Ready%20for%20Commissioner%20Feb%208.pdf

IRS has issued a reminder to tax professionals about key steps taxpayers must take to claim the health coverage tax credit. (e-News for Tax Professionals 2016-7) Taxpayers are required to file Form 8885, Health Coverage Tax Credit, and attach three documents to their income tax return to verify proof of eligibility, proof of coverage and that the insurance premiums were paid. According to IRS, this is required even if a return is filed electronically and the supporting software does not give a prompt to attach the documents. If this occurs and the tax software allows, a copy of the documents should be added as a PDF. Otherwise, the documents must be attached to Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, and then mailed to IRS pursuant to the instructions for that form. Failure to take these steps will likely lead to processing delays, the agency said. Additional information can be found at irs.gov/Credits-&-Deductions/Individuals/HCTC

IRS’s Collection function was responsible for generating $35.7 billion in revenue during FY 2015, according to newly published information. (IRS Fiscal Year 2015 Enforcement and Service Results) This was an increase of $2.5 billion over the previous year. Revenue collected by the Examination function dropped by $5.2 billion to $7.3 billion. Appeals collected $6 billion, which was a decline of $500 million, while document matching results basically held steady at $5.1 billion in venue collection. Enforcement revenue collected in a fiscal year includes tax, interest, and penalties from multiple tax years. IRS staffing for key enforcement occupations – such as revenue officers, revenue agents and special agents – declined by more than 1,300 employees over the course of the fiscal year. Since FY 2010, which was a high water mark for such staffing, the number of key enforcement personnel in the agency dropped by 5,500. With regard to taxpayer service, the e-file rate was 85%, the toll-free assistance level of service was 38% (compared to 64% in FY 2014), toll-free tax law accuracy was 95%, and the toll-free customer satisfaction rating was 87%. There were 490.5 million visits to the IRS website and 234.7 million online refund status checks through “Where’s My Refund?” The statistics can be accessed at irs.gov/PUP/newsroom/FY-2015%20Enforcement%20and%20Service%20Results%20–%20web%20version%20Jan.%202016%20-%208%20by%2011.pdf

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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Member CA Bar Member Orange County Bar US Tax Court Attorney