Information  on

Your  Tax  Return

Federal Government Gives Taxpayers Greater Control The Treasury Department and the IRS released final regulations and a related revenue procedure that give taxpayers greater protection and control over their tax return information held by tax preparers. According to the IRS, "the final rules update disclosure and privacy laws related to tax preparers for the first time in more than 30 years and bring taxpayer consent requirements into the electronic age." Preparers have until January 1, 2009 to implement the new requirements, giving them a year to make necessary changes so this year's filing season will not be affected. The final rules apply to two tax code sections (7216 and 6713) that provide penalties against tax preparers who make unauthorized use or disclosure of tax return information. Regulations published in 1974 provide certain exceptions to the penalties in cases of taxpayer consent. However, those regulations did not address electronic preparation and filing of tax returns, which is currently done on behalf of 57 percent of individual taxpayers. The regulations affirm a general rule in place for more than three decades that taxpayers, not the IRS, control their tax return information. And within appropriate limits and safeguards, taxpayers are able to direct preparers to disclose tax return information as they see fit. More than 60 percent of individual taxpayers use preparers. Federal law already strictly prohibits the IRS from making disclosures of taxpayer return information within its control to third parties except with taxpayer consent or in circumstances set by Congress. The new rules have no effect on return information in the hands of the IRS. They apply only to tax return information held by preparers. Among the new rules: Generally, preparers must obtain taxpayer consent, either by paper or electronically depending on how the return is being filed, before tax return information can be disclosed to any third party or used for any purpose other than filing the return. If the taxpayer consents to the disclosure and use of his information, the consent must identify the intended purpose of the disclosure, identify the recipients and describe the particular authorized disclosure or use of the information. Mandatory language informs individual taxpayers that they are not required to sign the consent and that if they sign, federal law may not protect their information from further disclosure. They can also set a time period for the duration of a consent, but otherwise, the consent is valid for a maximum of one year. To prevent consent requests from being buried in fine print, the rules require paper consent documents to be in 12-point type on 8 1/2 by 11 inch paper. Electronic consent requests must be in the same type as the Web site's standard text -- to prevent consent requests from being too difficult to read for individual taxpayers. If a taxpayer declines to provide consent for an unrelated tax preparation disclosure or use request, the preparer cannot make a similar consent request. The intent is to protect taxpayers from being pressured with repeated consent requests regarding the same issue. Mandatory consent from taxpayers also is required if the tax information is going to be disclosed to an "offshore" tax preparer located outside the United States. The individual taxpayer's Social Security number also must be redacted. In addition to the new rules, the IRS also announced it was considering limits on marketing Refund Anticipation Loans, which provide taxpayers instant refunds but generally involve high interest rates.

IRS and States Team Up on Employment Taxes IRS officials and various state tax collection agencies agree that "there is strength in numbers." That's why they are banding together to share vital information about employment taxes. The objective? To chase down tax scofflaws, avoid worker misclassifications and ensure greater compliance. In November 2007, the IRS and more than two dozen state agencies announced that they entered into agreements to share the results of their employment tax examinations. The agreements, part of the "Questionable Employment Tax Practice" initiative, are intended to provide a centralized, uniform means of exchanging data (described below). The information-sharing agreements present a united front for the IRS and these states to improve compliance in the employment tax arena. The states that have signed partnership agreements with the IRS include: Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin. Others are expected to follow. As the first state to sign a memorandum of understanding, Michigan has already begun to forge a close working relationship with the IRS. Officials from California, New Jersey, New York and North Carolina also were instrumental in ensuring that the agreements meet the needs of the participating states, as well as IRS requirements. In addition to coordinating compliance activities, the information-sharing agreements call for collaborative outreach and education activities designed to help businesses understand their employment and unemployment tax responsibilities. The state agencies, the U.S. Department of Labor, the National Association of State Workforce Agencies, the Federation of Tax Administrators and the IRS worked together on various facets of the exchange agreements. What can you expect from these collaborative efforts? Most definitely, a heightened focus on compliance of employment tax issues. In particular, improved guidelines will be developed to distinguish workers who should be classified as employees rather than independent contractors. New legislation may be the result. What Is the QTEP Initiative? Questionable employment tax practices (QETP) are those with no objective other than to avoid federal and/or state employment taxes. Here are the basics on the QETP initiative. It is a collaborative, national program seeking to identify employment tax schemes and increase voluntary compliance with tax rules and regulations. States have endorsed the memorandum of understanding as a tool for increasing employment tax compliance at the federal and state levels. The memorandum of understanding allows the IRS and the state workforce agencies to exchange audit reports and audit plans and to participate in side-by-side examinations (when appropriate). For the first time, the QETP initiative provides a centralized and uniform mechanism for the IRS and states to exchange employment tax data.

Save Article

Email Firm

Email to a Friend

Get Trade Pubs