IRS Transcript Analysis UZ6CS T I

Transcription

1 IRS Transcript Analysis UZ6CS T I Bill Nemeth, EA [email protected] The Expert in Tax Education

2 2014 IRS Transcripts will change 2014 IRS Transcripts will be updated to include the Marketplace Form 1095-A. By January 31 of 2015, the Marketplace will send taxpayers who purchased insurance through the Marketplace Form 1095-A. The information statement includes the monthly premium for the applicable SLCSP used to compute the credit, the total monthly premium for the coverage of the taxpayer or family member, the amount of the advance credit payments, the SSN and names for all covered individuals, and all other required information. The Marketplace also reports this information to the IRS.

3 IRS Transcripts Account Transcripts are a chronological history of the taxpayer s tax records, year by year. This history often goes back into the 1980 s. Account transcripts contain a wealth of information about the taxpayer and his/her filing history with the IRS. The information contained in the account transcripts will likely be more comprehensive than the taxpayer s recollection of it.

4 IRS Transcript Analysis Info Tax Liens filed (and hopefully released) Collection issues Active IRS is sending demand letters Resolved Compliant and in installment agreement (or CNC Currently not Collectable - Code 530) CSED Collections timed out (10-year statute) - Code 608 Taxpayer is under audit or will be under audit in the near future - Code 420. How taxpayer responded to a completed audit Agreed to tax liability & signed audit report. Did NOT agree with audit and received Notice of Deficiency (90-day letter) Code 560. Qualify for First Time Abatement (of Penalties)

5 IRS Transcript Analysis Info Compliant returns filed for each year Did IRS file SFR (Substitute for Returns)? Type of return filed 1040 EZ 1040A 1040 Taxpayer (and spouse) name, SSN, and address Filing Status Extensions filed (payments sent with extensions) Estimated Tax Payments made in current year Refunds processed or applied to other debt (prior tax debt or non-tax items like student loans) Amended returns filed Bankruptcy or CDP or OIC proceedings filed

6 Presentation Overview Describe the different kinds of IRS transcripts Review what is & what is NOT on the transcripts WHEN does a Substitute for Return (SFR) starts the 10-Year Clock Show how to assist elderly taxpayers with their Required Minimum Distributions (RMD) Illustrate how to prepare prior-year tax returns from Transcripts (aimed at the serial non-filer) Learn how to import e-services Transcripts into Office for improved readability and subsequent analysis. Suggest strategy to eliminate or minimize CP 2000 Notices IRS uses Code shorthand in Transcripts 36 Page List of IRS Transcript Codes can be found at:

7 IRS Transcripts IMF (Individual Master File) NAEA: The Expert in Tax Education The IRS tracks every taxpayer through its IMF System. E-Services Applications are run against the IMF in Read-Only Batch Mode to access and extract taxpayer data. You can read more about the IMF at:

8 IRS Transcripts BMF (Business Master File) NAEA: The Expert in Tax Education The IRS tracks every For-Profit and every Not- For-Profit Business through its BMF System. E-Services Applications are run against the BMF in Read-Only Batch Mode to access and extract taxpayer data. There is a third file which contains information that is erroneous or incomplete: Name / SSN Mismatch; EIN Errors; Etc.

9 Some Definitions Open and Closed Tax Years NAEA: The Expert in Tax Education Rounding contrasted with Truncating

10 Open Tax Years Last 3 Years IRS Policy on OPEN Tax Years: 3 Years from due date of return (including Extensions) Can file an original return or amend a return that was filed and RECEIVE a refund. If an original or amended return was filed after the 3 year date, the refund is FORFEITED (Payments made in the last 2 years may be refunded). By definition, Closed Tax Years are tax years over 3 years old.

11 Rounding versus Truncating IRS permits rounding when using dollars and cents Rounding: 3.49 is rounded DOWN to is rounded UP to is rounded UP to is rounded UP to 4 IRS Transcripts - TRUNCATES Numbers 3.49 is truncated to is truncated to is truncated to is truncated to 3 Truncation requires fewer computations early computers were SLOW and expensive.

12 IRS uses Truncation NAEA: The Expert in Tax Education Truncation is most evident in the following: Wage and Income Transcripts Income, Federal Withholding, Social Security Tax, Medicare Tax, etc. Tax Return Transcripts (paper returns where the taxpayer carried out calculations to the penny)

13 E-Services E-Services Online Tools for Tax Professionals e-services is a suite of web-based products that allows tax professionals to conduct business with the IRS electronically 24 / 7 via the Internet. e-services is NOT available to the general public. (See NEW IRS Get Transcript on next page) Only approved IRS Business Partners are eligible to participate in e-services.

14 GET Transcripts - Jan 16, 2014 MOST taxpayer can view, print, or download their own transcripts on-line in Real-Time using a computer or Smart Phone. Taxpayer has access to same info as e-services but limited to how far back info can be accessed. Can print or download encrypted PDF (No HTML)

15 GET Transcripts Screen Shot

16 IRS Transcripts NAEA: The Expert in Tax Education The IRS Transcript Delivery System (TDS) was introduced in 2004 to allow authorized tax professionals to quickly extract data from the IMF in the form of Transcripts. The IRS TDS is the crown jewel of e-services. TDS is an exceptionally powerful tool in the hands of the skilled tax professional. TDS is a Work in Progress It changes over time.

17 IRS Transcripts CSED NAEA: The Expert in Tax Education Be aware that the IRS assister has access to more data than the TDS system extracts through e-services. Some examples are: Collection Statute Expiration Date (CSED) Refund Statute Expiration Date (RSED) Assessment Statute Expiration Date (ASED) IRS recently changed its policy to allow practitioners (under POA) to call and request CSED

18 IRS Transcripts Payoff Amount Payoff Amount PPS can give you the payoff amount for the taxpayer useful to determine the overall collection status of the taxpayer.

19 IRS Transcripts Debt Indicator The Debt Indicator (DI) is still part of the IMF You can call PPS and get the Taxpayer s DI which sets the stage quickly for you: DI Codes: N = None GREAT!!! I = IRS Debt - taxpayer owes the IRS Money F = FMS Debt - taxpayer owes student loans, child support, state tax liability, etc., etc. B = Both taxpayer owes both the IRS and FMS.

20 Access to IRS Transcripts Form 8821 or 2848??? Either Form will produce transcript information. Form 8821 is information only. Circular 230 Practitioner cannot represent the taxpayer. Form 2848 is Disclosure Authorization and Power of Attorney. Circular 230 Practitioner can represent the taxpayer at all levels of the IRS. I ALWAYS file 2848 on ALL my clients.

21 Access to IRS Transcripts Call the IRS (Problematic) Taxpayer present with you or Executed Form 2848 POA There is a Risk of talking to the IRS You may get transferred to Collections. No Time to Strategize IRS will demand returns in 4 weeks. Stealth Approach (Don t Call) Plan A Complete Form 2848 POA & FAX it to the CAF Unit Wait 3-5 days Check for Authorization via e-services (e-services TDS Will work when the POA is active in the System). Plan B Discontinued If taxpayer has filed in the last 4 years, enter POA via e-services. Coming back in 2015!!

22 Access to IRS Transcripts Stealth Approach NEVER talk to the IRS Allows the Tax Professional to access the Taxpayer s information without the IRS being aware of the inquiry. Allows the tax professional to pull the tax history, review and analyze it, and create an action plan to present to the taxpayer.

23 Delivery of IRS Transcripts FAX 5 minutes to 24 hours to never US Mail within 1-2 weeks (requested by call or Phone App) E-Services available in almost real time as: 1. Info to be viewed and printed. 2. Placed into your mailbox (secure repository) as HTML Files (Can be viewed, printed, or downloaded) 3. Downloaded HTML Files can be imported into Word or EXCEL. Download stores the info and saves paper. Create USEFUL Information out of data.

24 Delivery of IRS Transcripts Take Away Downloaded HTML Files can be imported into Word or EXCEL. Download stores the info and saves paper. Create USEFUL Information out of data. Great for the active stock trader with lots of 1099-Bs Very Powerful Tool to analyze and improve the readability of the IRS Transcripts. Can also download the HTML files for subsequent computer analysis.

25 New Client has his Transcripts Wage Levy Action: Sometimes a NEW client will show up clutching his IRS Transcripts and muttering something about filing returns. This is one case where you do not have to be concerned with talking to the IRS. IRS Collections has issued an ultimatum to the taxpayer and the taxpayer is responding. Typically, the tax pro can call the IRS and get a 30 day hold on collection action while returns are prepared for submission.

26 Types of Transcripts NAEA: The Expert in Tax Education Account Transcript Wage & Income Tax Return Record of Account Account Transcript History of each tax year (back to the 80s) Contains a wealth of useful information.

27 Types of Transcripts 1. Account Transcript (History by Tax Year back to 80 s) 2. Wage & Income Reported to the IRS - last 10 years. (W-2, 1099, K-1, etc.) Coming soon ACA Form 1095 Series 3. Return Transcripts of Tax Returns Filed for the past 4 years Very terse with little detail. 4. Record of Account (Meld of Account Transcript and Return Transcript)

28 Account Transcript Chronological History of each tax year Lots of Great Information Extensions filed Estimated Tax Payments But it is not the complete story!! My Recommended range of years is from 1990 to 2017 (Calendar Years into the future) If your client doesn t come back to you, you can pull his transcripts and see if he is filing and with whom he is filing his taxes.

29 IRS Transcript Analysis Info Tax Liens filed (and hopefully released) Collection issues Active IRS is sending demand letters Resolved Compliant and in installment agreement (or CNC Currently not Collectable - Code 530) CSED Collections timed out (10-year statute) - Code 608 Taxpayer is under audit or will be under audit in the near future - Code 420. How taxpayer responded to a completed audit Agreed to tax liability & signed audit report. Did NOT agree with audit and received Notice of Deficiency (90-day letter) Code 560. Qualify for First Time Abatement (of Penalties)

30 IRS Transcript Analysis Info Compliant returns filed for each year Did IRS file SFR (Substitute for Returns)? Type of return filed 1040 EZ 1040A 1040 Taxpayer (and spouse) name, SSN, and address Filing Status Extensions filed (payments sent with extensions) Estimated Tax Payments made in current year Refunds processed or applied to other debt (prior tax debt or non-tax items like student loans) Amended returns filed Bankruptcy or CDP or OIC proceedings filed

31 Refund Applied to Another Year Assume that Taxpayer has outstanding balances for SFRs prepared for: IRS policy is to apply payment to the oldest tax year. However, if SFRs have been prepared for the troubled years, it is likely that the refund will be applied to the first year in which a tax liability was created In many cases, it is NOT the oldest year. Account Transcript will show if a refund from an open year has been applied to an outstanding debt for another tax year. Refund for an Open Year: 826 Credit transferred out to Refund for a Closed Year: (Applied to NO year - Blank Line) 826 Credit transferred out

32 Redacted Account Transcript The Account Transcript on the following page has been redacted. The color is part of the IRS HTML file structure. Account Transcript was generated using e- Services and placed in my secure mailbox (secure repository). I downloaded the HTML file to my computer and opened the HTML Account Transcript File in Word to change the Taxpayer s Name, Address and other identifying attributes.

33 Redacted Account Transcript Tax Year 2010 Taxpayer Name, Address, SSN Power of Attorney On File This is NEW Account Balance (ZERO is GOOD) Accrued Interest & Penalty Account Balance Plus Accruals Exemptions 01 Filing Status Single AGI 43, Taxable Income 34, Tax Per Return 5, SE Tax (implies 1099-MISC Box 7)

34 Account Transcript (Cont.) Return Due Date Apr 15, 2011 Processing Date Feb 28, 2011 Total Tax $5, Line 61 on Fed W/H $5, Credit Sch M $ AOC Refundable Credit Of $1,000 Document Locator

35 Account Transcript The Rest of the Story Lots of Information but it is usually incomplete. This return had the following items: W-2 Wages and Federal W/H 1099-R Code 1 Retirement Income with penalty for early withdrawal 1099-G Unemployment Compensation $2,500 of AOC Education Credit Only refundable AOC Credit of $1,000 showed up on account transcript. Necessary to look at actual tax return or Return Transcript to get all the details. The redacted Tax Return Transcript is included for reference.

36 Types of TDS Transcripts 1. Account Transcript (History by Tax Year) 2. Wage & Income Reported to the IRS (W-2, 1099, K-1, etc.) 3. Return Transcripts of Tax Returns Filed for the past 4 years Very terse with little detail. 4. Record of Account (Meld of Account Transcript and Return Transcript)

37 Tax Return Transcript - Example The 2010 Tax Return Transcript was directed into my e- Services secure repository (Mailbox) and downloaded as an HTML File. This file was then opened in both Word and EXCEL, redacted, and printed to a PDF for subsequent inclusion in this presentation. EXCEL has the benefit of being a more terse format and, as an added benefit, horizontal lines were added to improve the readability. The next 5 pages show the Tax Return Transcript line for line with a significant amount of detail.

38 2010 Redacted Tax Return Transcript Taxpayer Name & SSN Preparer PTIN & EIN

39 Total Income AGI

40 Total Credits non- Refundable 10% Penalty on 1099-R Code 1

41 Total Tax Liability Total Payments Balance Due shown as a NEGATIVE Number (Refund) 3 rd Party Designee

42 AOC 1098-T Detail 1 st 4 Characters of last name & SSN

43 Tax Return Transcript - Terse Dependent info is shown as follows: First 4 Characters of Dependent s last name Social Security Number Year of Birth (NOT Shown) Tommy Taxpayer s dependent son: Timmy Taxpayer with SSN Transcript for dependent Timmy Taxpayer would show: TAXP

44 Tax Return Transcript - Terse Sch C info NOT transcribed to the return transcript: Page 1 10 fields (See Next Slide) Page 2 (Other Expenses) Only the total of Other Expenses is shown. No detail on vehicle miles. No Real Detail on Sch E (Depreciation Basis)

45 1040 SCHEDULE C NON-TRANSCRIBED EXPENSES When an examination notice is issued on a 1040 tax return containing a Schedule C, there can be a notation under the heading: Issues to be Reviewed During the Examination Sch C-1 Non-Transcribed Expenses Non-Transcribed Expenses are those entries on Sch C which are NOT captured by the IRS on the Tax Return Transcript. They include: 8. Advertising 19. Pension and Profit-Sharing 10. Commissions and fees 20a. Rent or Lease - Vehicles 11. Contract labor 20b. Rent Other business prop. 12. Depletion 22. Supplies 14. Employee Benefit Pgm 23. Taxes and licenses Sch C Part V Other Expenses (Page 2 of Sch C) are NOT shown on the Tax Return Transcript. Only the total is captured as line 27 on P. 1 of Sch C

46 Sch C Non-Transcribed Expenses See Expenses with XXXXXXXX

47 Tax Return Transcript - Terse You may notice that during an audit, the Information Document Request (IDR) will request a full copy of the tax return for the year under exam and a full copy of the bracketing years. This assists the auditor to get a more complete picture of the taxpayer s circumstances Tax Year under exam IDR will request copy of 2012 along with 2011 and 2013 There is precedent that you can refuse to furnish the tax returns (ruling says IRS does not have the right to request information already in its possession). However, you have to evaluate if you want to antagonize the auditor right off the bat.

48 Tax Return Transcript NEW for 2011 Forward Identity Theft 6 digit IP PIN is presented just above Preparer SSN and EIN. Normally, this 6-digit number is all zeros. However, if the taxpayer has identity theft issues & their return is flagged for Identity Theft, the IRS will mail the taxpayer: 6-digit IP PIN (Identity Protection PIN) WE can tell if the taxpayer may have been a victim of identity theft in the past.

49 Taxpayer Account Flagged for Identity Theft IRS is blocking e-services access to Flagged Transcripts. If you have valid POA on file and attempt to access transcript info for last 15 years, you will get an message that your inquiry is blocked. Taxpayer will received 15 identical letters stating that someone tried to access their IRS data. ============================================ How do you get access to Wage and Income Transcripts for a taxpayer with Identity Theft?? POA - Call IRS Identity Theft Unit at Transcripts will be FAXed to you.

50 Account Transcript Story of each Tax Year Return filed May see refund or payment history. Return NOT filed Notices Where is your return Notices lead to the IRS creating a return for the taxpayer called a Substitute For Return (SFR) IRS sends the SFR to the taxpayer for review and signature. Taxpayer can ACCEPT the SFR. Typically, taxpayer ignores IRS Letters and about 6 months later, the IRS establishes a tax liability.

51 SFR Transcript NAEA: The Expert in Tax Education If taxpayer has a filing requirement, the IRS has the authority under IRC 6020(b) to prepare a substitute return with worst case filing status, no itemized deductions, no dependents, zero stock basis, and zero Roth distribution basis (has the effect of making Roth distributions fully taxable). Account Transcript of a tax year 2000 SFR is included on the following pages. This particular SFR timed out after 10 years and the balance was subsequently zeroed out. SFRs do time out after 10 years.

52 SFR Transcript Timed Out Form Number: 1040A Tax Period: December 31, 2000 Taxpayer Name and address Account Balance: 0.00 Accrued Interest: 0.00 Accrued Penalty: 0.00 Account Balance plus Accruals: 0.00 ** INFORMATION FROM THE RETURN OR AS ADJUSTED * * Exemptions: 01 Filing Status: Single Adjusted Gross Income: 40, Taxable Income: 33,666 Tax per return: 0.00 SE Taxable Income Taxpayer: 0.00 Total SE Tax: 0.00

53 SFR Transcript Timed Out Return due date or return received date (whichever is later) Aug. 22, 2002 Processing Date Sep. 09, 2002 CODE Explanation of Transaction Date Amount 150 Substitute Tax Return Prepared by IRS $ Extension of time to file ext. Date $ Payment (Sent in $1,000 with extension) $1, Inquiry for non-filing of tax return $ Additional account action pending $ Final notice before tax is determined for you $0.00 IRS (Statutory Notice of Deficiency) Start 170 Penalty for Not pre-paying tax $ W-2 or 1099 Withholding $ Additional Tax Assessed $9, Tax Determination Closed $ Tax Return Filed $ Penalty for filing return after the due date $1, Interest charged for late payment $1,311.92

54 SFR Transcript Timed Out Continued CODE Explanation of Transaction Date Amount 276 Penalty of late payment of tax $1, Notice issued $0.00 CP 071 A (Annual statement of balance due) 971 Notice issued $0.00 CP 071 A (Annual statement of balance due) 971 Notice issued $ CP 071 A (Annual statement of balance due) 608 Write-off of balance due $13, CSED Collection Statute Expiration Date of 10 years passed Code 608 Zeroed out SFR Tax Liability and associated Penalties and Interest

55 Refund Applied to Another Year Assume that Taxpayer has outstanding balances for SFRs prepared for: IRS policy is to apply payment to the oldest tax year. However, if SFRs have been prepared for the troubled years, it is likely that the refund will be applied to the first year in which a tax liability was created In many cases, it is NOT the oldest year. Account Transcript will show if a refund from an open year has been applied to an outstanding debt for another tax year. Refund for an Open Year: 826 Credit transferred out to Refund for a Closed Year: (Applied to NO year - Blank Line) 826 Credit transferred out

56 Bankrupt against SFR? Absolutely NOT!!! NAEA: The Expert in Tax Education Tax Debt can be part of a bankruptcy but SFR Returns are NOT included in any bankruptcy action (Taxpayer NEVER Filed a return). Return has to be filed timely and the tax liability established 3 years prior to Bankruptcy Filing. Return filed late 2 years prior to bankruptcy filing. 240 days after tax liability established (think audit)

57 Substitute for Return - SFR The IRS will USUALLY prepare a Substitute for Return (SFR) if the taxpayer s Wage and Income reported to the IRS creates a requirement to file: W-2 Income greater than $9,500 (2011 Threshold) or 1099-B Stock Sales greater than $9,500 or 1099-MISC - $400 or more 1099-MISC Box 7 NEC (NEC = Non-Employee Compensation)

58 Substitute for Return - SFR How it really works (based on studying a lot of transcripts of troubled taxpayers) IRS will prepare SFR if: W-2 earnings greater than $ 20K 1099-MISC greater than $ 7K It appears they have developed guidelines to make sure they cover their processing costs when going after non-compliant taxpayers.

59 IRS SFR Guidelines IRS policy uses the following SFR guidelines: Filing Status Single or Married Filing Separately No Dependents 1040-A - No Itemized Deductions 1099-B Stock Sales IRS assumes $0 cost basis and SHORT TERM GAIN. Ignore Capital Loss Carry-forward Roth IRAs are treated as if the basis is $ 0 which makes them fully taxable. State Tax Refund will ALWAYS be taxable if the taxpayer itemized the prior year. IRS uses these SFR Guidelines to give the taxpayer a good reason to file a complete and accurate return.

60 How To Address a 1040 SFR SFR Actual 1040 return has NEVER been filed. Taxpayer can file an original 1040 return and change the tax liability using Wage & Income Transcript (usually reduces Liability). Never file a 1040-X Return is sent to Audit Reconsideration for processing (typically 8-16 weeks). Filing a complete and accurate return does NOT RESET the 10 year Collection Clock.

61 How To Address an OLD 1040 SFR IRS filed SFR for a prior year - Wage and Income Transcripts are NOT available (2000 thru 2003) & taxpayer cannot locate his income docs. Request copy of IRS SFR via FOIA works GREAT! FOIA Freedom of Information Act Takes about 6 weeks to receive info FREE if you request info on a CD or DVD

62 Types of TDS Transcripts 1. Account Transcript (History by Tax Year) 2. Wage & Income Reported to the IRS (W-2, 1099, K-1, etc.) 3. Return Transcripts of Tax Returns Filed for the past 3 years 4. Record of Account (Meld of Account Transcript and Return Transcript)

63 Wage & Income Transcripts Info Reported to the IRS 2012 & 2013 Wage & Income Transcripts were NOT available until APRIL Due to the delayed start of the filing season. Estimated Tax Payments are immediately available as processed. The database continues to develop until early the next year. On-Line Wage & Income Transcripts can be accessed via TDS for current year and past 9 tax years. Some of these Wage & Income Transcripts can run well over 100 pages. (great reason to direct to mailbox and download) In January 2012 IRS introduced a One Page Wage and Income Summary as part of the TDS.

64 Screen Shot of TDS SUMMARY Request NAEA: The Expert in Tax Education New TDS Feature added in January 2012 Summary of Wage & Income. Quick way to check for CP 2000 possibility. Select Wage & Income with Federal Tax Selected Select SUMMARY

65 NEW 1 Page Wage & Income Summary Great tool for verifying that all income reported to the IRS is included on the tax return. Observation Taxpayer s Name is NOT Shown on this Summary. Omitted from 2010 Return Roth IRA Contributions will be shown as last entry on this Summary!

66 Complete 2010 Redacted Wage & Income Transcript corresponding to the Account Transcript and Return Transcript is presented on the following 4 pages. Notice that the taxpayer will get a CP 2000 notice 1099-MISC for $1,603 was omitted from return!!!

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70 This 1099-MISC was not reported on the tax return CP 2000 possible

71 Wage & Income Transcript Income Docs in the following Order W-2 Earning Federal Info only NO STATE INFO 5498 Retirement Account Balances and activities 1099 B Stock Sales 1098 Information (Mortgage & Student Loan Interest) SSA 1099 SSA and / or RRB (Railroad Retirement Board) K-1 K-1s from Partnerships, Sub-S, Trusts, MLP, Etc C Cancellation of Debt 1099 G Unemployment, State Tax Refunds, Agriculture Payments, Taxable Grants, ATAA / RTAA Payments 1099 DIV Dividends 1099 INT Interest 1099 MISC Prizes, Awards, Rent, SE Income, etc R Retirement Plan or Annuity Distributions

72 Business Wage & Income Single Member LLC (Disregarded Entity) with EIN number choses to receive 1099s in the EIN of the LLC. E-Services cannot access these income documents. To get the 1099-MISC & 1099-K issued in the name and EIN of the LLC, fill out and get signatures on a Form 2848 and specify the tax matters as: 1040, 1099, 940, 941 Call PPS ( ) and select the Business Option to talk to an assister. POA can be on file or POA can FAX during the call. Assister will FAX (or mail) the Wage and Income docs reported in the EIN of the LLC. Comments on AUR CP2000 Program AUR doesn t pursue these.

73 Assist Taxpayers with RMD Elderly Taxpayers are required to take Required Minimum Distributions from their Traditional IRA accounts as well as their various retirement accounts. It is not uncommon for some of these taxpayers to miss one or more of their retirement accounts or to mischaracterize them. IRS allows all traditional IRAs to be lumped together to calculate the RMD. The RMD can be taken from each traditional IRA account or the RMD can be taken from one or more accounts this gives the taxpayer the opportunity to cash out poor performing IRAs and let good performing IRAs continue to get good returns. Strategy to assist Taxpayers with their RMD: Tax Professional can file an extension Form 4868 for the taxpayer. In September the Tax Pro can pull the Wage & Income Transcripts and review the 5498 forms for each retirement account. The RMD can then be developed based on the taxpayer s instructions & investment strategy.

74 Strategy to Eliminate or Minimize CP 2000 Notices Many tax professionals routinely execute a Form 2848 with their tax clients for several reasons: 1. Tax Pro gets copies of all IRS Letters and can be proactive in interpreting the IRS letters for the tax client. 2. As an added service, the tax pro can pull the IRS TDS Wage & Income transcript (or summary) and verify that all the income was properly reported. 3. The taxpayer may agree to file a Form 4868 extension so that the Tax Pro can pull down the IRS Wage & Income Transcripts to ensure that all income is properly reported on the return when it is filed in late Summer.

75 Prepare Prior-Year Returns from IRS Wage & Income Transcripts This discussion is oriented toward Serial non-filers. Taxpayer may not have filed returns in this century for a variety of reasons. When the IRS finally decides to address the missing returns, the task falls to the Tax Pro to prepare the missing returns from taxpayer documents (usually unavailable) and IRS Wage & Income Transcripts. The shortcomings of the Wage & Income Transcripts then become obvious.

76 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 1. The IRS Wage & Income Transcripts have NO state withholding information State Tax Withholding may have to be estimated from pay stubs or other suitable methods. 2. If the Tax Pro wants to have his returns match the IRS Letters, always force the 2210 penalty calculation to ZERO on PRIOR Year Returns. IRS Calculations for Prior Years NEVER take the underpayment penalty into account.

77 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 3. The Box 14 W-2 information is NOT included. 4. K-1 transcripts have NO detail beyond the first several lines of the K R retirement documents may have the box marked Taxable Amount NOT Determined but show Box 1 Distribution and Box 2 Taxable Amount to be the same!! 6. Transcripts do not include stock carryover losses.

78 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 7. Prior year 1099-B Stock sales frequently do not list the details on a stock sale the sale date and sale price (after commissions are subtracted) may be the only information on the transcripts. Frequently, the number of shares is all zeros; the 9-digit CUSIP (Committee on Uniform Security Identification Procedures ) is the only clue as to the stock or mutual fund.

79 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 8. Google the CUSIP to determine the stock or mutual fund. Use the web to determine the price per share of that stock on the sale date and back into the number of shares sold on that day. 9. Calculate the basis of the stock by getting the approximate purchase date or acquisition date from the taxpayer (usually it is something like the spring of the year when Uncle Joe passed). This information then yields a purchase date and basis.

80 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 10.Railroad Retirement Statements RRB-1099-R Tier 1 and Tier 2 payments are not spelled out but can be derived by studying a known RRB-1099-R and viewing the Transcript to figure out how to calculate the Tier 1 and Tier 2 payments. To get more information, GOOGLE Railroad Retirement Statements

81 Shortcomings of the Wage & Income Transcripts when Preparing Prior-Year Returns 11. Roth Basis is not included in the Wage and Income or Return Transcript. Taxpayer was supposed to be carrying Roth Basis in the Form 8606 on Page 2. It is frequently necessary to develop the Roth Basis using the 5498 from Wage & Income Transcripts. Good news is that Roth IRA first began in 1998 It is possible to develop the Roth Basis by analyzing the 5498 on the Wage & Income Transcripts.

82 Calculate Roth IRA Basis 11. Roth Basis (Continued). Maximum Roth Contribution by year: Under 50 Age 50 & Above $ 2,000 $ 2, $ 3,000 $ 3, $ 4,000 $ 4, $ 4,000 $ 5, $ 5,000 $ 6, $ 5,500 $ 6,500

83 Recommendation To gain familiarity with reading transcripts, plan to request your own transcripts and analyze them. You know what happened and so you can learn from your own transcripts. You can FAX your own Form 2848 to the CAF Unit and pull your transcripts down in 4-5 days via e-services.

84 TDS is a Work In Progress IRS TDS is continually being updated and changed. Be prepared to see changes to the requesting protocol as well as the resulting output. Transcript Analysis is much more efficiently performed with computer analysis.

85 Questions??? Contact Info: Bill Nemeth, EA