eGrove (Univ. of Mississippi)

Parker, Anthony W.

Special allocations in real estate partnerships in light of the ’76 Act

Hoeflich, Michael H.

Shedden, James

Financing strategies for residential rental real estate under the Economic Recovery Tax Act of 1981

American Institute of Certified Public Accountants

Tax Adviser 
Volume 13 Issue 7 Article 8 
1982 
Author index, 12 months ended June 1982 
American Institute of Certified Public Accountants 
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Tax Adviser: Vol. 13: Iss. 7, Article 8. 
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state law and that as a result thereof the trust estate
 
passed to the disclaimant’s children. The Court
 noted that "reasonable time,” as that term is used in
 the regulation, 
is
 not defined either in the Code or  
the regulation. The basic common-law require
­ments that the disclaimer must be made within a
 reasonable time and that it be effective under local
 law "are but a codification of common law principles
 applicable to the doctrine of disclaimers.” A central
 factor is the interpretation of the word “transfer” in
 the regulation. The remainderman "had really noth
­ing to accept or renounce by way of beneficial own
­ership or control of the property until he succeeded
 in outliving the life beneficiary.” The Court then held
 that, under the prevailing common law, the holder of
 a vested remainder interest subjected to divestiture
 has a reasonable time within which to disclaim after
 the death of the life beneficiary. It distinguished
 Fuller, 37 TC 147(1961), upon which the Tax Court
 had relied, and did so on the factual grounds men
­tioned below.
What the Eighth Circuit said by way of analysis,
 
and held, in Keinath and Cottrell, when applied to
 the facts before us, is persuasive and should control
 here. The Ninth Circuit majority, without any particu
­lar analysis, merely disagreed with the Keinath and
 Cottrell reasoning and held, in 
a
 conclusionary  
statement, that the " ‘transfer’ as used in the regu
­lation means the transfer to the disclaimant of the
 property interest disclaimed by him,” and that the
 transfer in question took place in 1939 when D died
 and T received a contingent remainder from her
 estate.
To be sure, the Tax Court has persisted in its
 
contrary rulings. Those rulings, I feel, rest on an
insecure base. The original case, from which all the
 other Tax Court decisions have flowed, was Fuller,
 supra, a reviewed case. \n Fuller, the 
life
 beneficiary  
of five-eighths of the income of her husband’s tes
­
tamentary trust received that income for many
 
years before she renounced a portion of her five-
 eighths share. Thus, she realized actual enjoyment
 for a long period before she disclaimed. This, for
 me, is a vital fact that distinguishes the case from
 Keinath, Cottrell, and Jewett, where each disclaim
­ant enjoyed no benefit whatsoever. 
Mrs.
 Fuller had  
accepted her gift before renouncing it.
The Court’s and the governments position also
 
seems to me to embrace a distinct element of un
­fairness. The IRS stresses repeatedly the number
 of years that elapsed between the death of the
 testatrix and the execution of the disclaimers. This
 same element has been stressed in others of these
 cases. But to require the disclaimer long before the
 interest could ripen into enjoyment means that the
 decision must be made at a time when the disclaim
­ant does not know what he is disclaiming or whether
 he ever would receive and enjoy any interest. This
 concern is compatible with the wording of the
 applicable regulation which speaks of "knowledge
 of the existence of the transfer.” The Eighth Circuit
 recognized this element of unfairness in Cottrell.
 (GEORGE F. JEWETT, JR., Sup. Ct., 2/23/82, aff’g
 638 F2d 93 (9th dr. 1980))
Reflections. Under Sec. 2518, effective for transfers
 
creating an interest in the person disclaiming made after
 1976, the issue in Jewett/s obviated. Under Sec. 2518(b), a
 disclaimer is not "qualified” unless, inter alia, it is received
 not later than nine months after the transfer creating the
 interest is made (or the date the disclaiming person
 reaches 21, if that is later). Thus, if Sec. 2518 had applied to
 the facts in Jewett, T’s disclaimer to be effective for gift tax
 purposes could have been made no later than April 10,
 1948, his 21st birthday.
Note that at best 
a
 disclaimer made in reliance on the  
Supreme Court’s decision in Jewett would occur over five
 years after the interest disclaimed was created. It is unlikely
 that the period would be considered "reasonable" under
 Regs. Sec. 25.2511-1 (c), if the disclaiming party was an
 adult at all times.
author index
---------------
12 months ended
 
June 1982
Abbin, Byrle M.
Significant recent developments concerning estate planning
—1982. Part 1—82:204. Part 11—82:268.
Auster, Rolf
Should the lessor’s investment be passed through to the  
lessee? 81:744.
Barnett, Bernard
Estate planning after death. Part 1—81:397. Part II—81:457.
Part III—81:525. Estate and gift taxation after the '81 Act:
 
estate planning is not dead. 81:718.
446 THE TAX ADVISER, JULY 1982
1
: Author index, 12 months ended June 1982
Published by eGrove, 1982
Berkowitz, Richard K.
McDonald’s of Zion: application of the step-transaction doc
­
trine to the continuity of interest test. 11:580.
Bernstein, Joseph E.
Trading in commodity futures contracts through tax haven
 
corporations. 81:516.
Boley,
 Richard
Martino revisited: when can 
a
 dependent file a joint return?  
81:592.
.Iravenec, Lorence L.
Subchap. S: 1980 developments. 81:463.
Brown, 
Earl
 C.
McDonald's of Zion: application of the step-transaction doc
­trine to the continuity of interest test. 81:580.
Burgren, David A.
The charitable gift of personal residence or farm with retained
 
life interest. 81:660.
Byars, Richard B.
Choosing the optimal flower bond. 81:586.
Carlson, David K.
Significant recent developments concerning estate planning
 
—1982. Part 1—82:204. Part 11—82:268.
Clayton, Robert E.
Tax Division urges repeal of generation-skipping transfer tax.
 
82:41. Tax Division comments on Taxpayer Compliance Im
­provement Act of 1982. 82:364.
Cohn, Ronald S.
The new leasing rules—get them while they’re hot. 82:68.
Cole, Gary E.
Construction period taxes and interest. 81:532.
Coustan, Harvey L.
Sec. 704(b): problems with the “substantial economic effect”
 
standard. 82:216.
Crawford, Charles T.
Tax havens—an endangered species? 81:728.
Dascher, Paul E.
Choosing the optimal flower bond 81:586.
Dorr, Patrick B.
Sale of 
a
 residence: a closer look. 81:680.
Dorries, Garland
New debt/equity proposed regs, adopt some Tax Division
 
suggestions. 82:168. Egger on the 
IRS
 reorganization.  
82:233.
Ellenbogen, Joan
Sec. 2039: keeping nonqualified deferred compensation out of
 
the estate. 82:77.
Englebrecht, Ted D.
Tax planning for income in respect of a decedent. 82:11.
Everett, John O.
ACRS recovery vs. recapture for commercial realty: evaluat
­
ing the costs and benefits. 82:324.
Faigen, Lynne E.
For the Thumbtax column, see “at a glance” page of each
 
issue.
Feinschreiber, Robert
Qualified research contributions under the '81 Act. 82:4.
Feldman, Ira S.
Planning for loans to participants from qualified plans after
 
ERISA. Part 1—82:87. Part 11—82:140.
Flinn, Ronald E.
Divisive and nondivisive “
D
” reorganizations vs. Sec. 355  
transactions. 81:388.
Green, David D.
Highlights of the Economic Recovery Tax Act of 1981.81:644.
Groebe, Keith Walter
The cash basis corporation and the income tax adjustment to
 
earnings and profits. 81:548.
Helmbright, August
Tax planning for income in respect of 
a
 decedent. 82:11.
Hoeflich, Michael H.
Financing strateg ies for residential rental real estate under the
Economic Recovery Tax Act of 1981. 82:282.
Holman, Vincent L.
Planning for Iosins to participants from qualified plans after
ERISA. Part 1—82:87. Part 11—82:140.
Johnson, Janice M.
Tax Division questions definition of “legal services.” 81:490.
Jones, Robert L
Construction period taxes and interest. 81:532.
Komlyn, Anthony M.
Economic Recovery Tax Act of 1981: U.S. citizens working
 
abroad. 81:708.
Kramer, Sandra 
S.
Coping with the Sec. 956 investment in U.S. property rules.
82:20.
The contents of TTA from the date of
 
inception (Jan. 1970) are indexed in
 the Accountants’ Index, a publi
­cation of the American Institute of
 Certified Public Accountants.
Key to page references
Pages Issue Pages Issue Pages issue
81:385-448 July 81 81:641-704 Nov. 81 82:129-192 March 
82
81:449-512 Aug. 81 81:705-768 Dec. 81 82:193-256 April 82
M:513-576 Sept. 81 82:1-64 Jan. 
82
82:257-320 May 82
81:577-640 Oct. 81 82:65-128 Feb. 82 82:321-384 June 
82
THE TAX ADVISER, JULY 
1982
447
2
Tax Adviser, Vol. 13 [1982], Iss. 7, Art. 8
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Levine, Howard J.
The new leasing rules—get them while they’re hot. 82:68.
Lovingston, Keith D.
Wrap-around mortgages revisited: Temp. Regs. 
Sec. 
15A.453-1 (b)(3)(ii). 81:452.
Linett, Eugene S.
For Tax Trends column, see “at a glance” page of each issue.
Lynch, James M.
McDonald’s of Zion: application of the step-transaction doc
­
trine to the continuity of interest test. 81:580.
Mabry, Ken
Partnership distributions after Otey, Barenholtz, and Park Re
­
alty. 82:332.
Marx, Kenneth
Limitation on investment interest expense. 82:160.
Metz, LeRoy L
Hershey Foods Corp.: diabetic shock for the IRS. 81:665.
MInges, Peter W.
Economic Recovery Tax Act of 1981: U.S. citizens working
 
abroad. 81:708.
Mirsky, Burton M.
The debt/equity regulations: round 3. 82:196.
Norton, Curtis L.
ACRS recovery vs. recapture for commercial realty: evaluat
­
ing the costs and benefits. 82:324.
Outslay, Edmund
Martino revisited: when can a dependent file 
a
 joint return?  
81:592.
Padwe, Gerald W.
H ighlights of the Economic Recovery Tax Act of 1981.81:644.
Parker, Anthony W.
Special allocations in real estate partnerships in light of the 76
 
Act. 81:404.
Phillips, Lawrence C.
The taxation of executive perquisites in light of recent devel
­
opments. 81:607.
Reed, David A.
Partnership distributions after Otey, Barenholtz, and Park Re
­
alty. 82:332.
Rhine, David S.
Estate and gift taxation after the ’81 Act: estate planning is not
 
dead. 81:718.
Rosenberg, Menachem
Tax consequences of exchanging 
a
 partnership interest for  
services. 82:132.
Schnee, Edward J.
Sec. 312(e)—the current interpretation. 81:483. Acquiring 
as­
sets by purchasing corporate stock. Part I—82:260. Part II—
 82:354.
Shedden, James
Financing strategies for residential rental real estate under the
 
Economic Recovery Tax Act of 1981. 82:282.
Stromsem, William R.
Tax Division interviews Egger. 81:554. AICPA seeks repeal of
 
imminent LIFO recapture provision. 81:747. Congress nears
 enactment of bill for reimbursement of tax litigation costs.
 82:105. AICPA opposes elimination of completed-contract
 method of accounting. 82:304.
Thomas, Kenneth F.
Tax Division backs indexing. 81:428. Tax Division questions
 
definition of “legal services.” 81:490. Tax Division interviews
 Egger. 81:554. Tax Division comments on Sec. 385 regs.
 81:689. AICPA seeks repeal of imminent LIFO recapture pro
­vision. 81:747. Tax Division urges repeal of generation
­skipping transfer tax. 82:41. Congress nears enactment of bill
 for reimbursement of tax litigation costs. 82:105. New debt/
 equity proposed regs, adopt some Tax Division suggestions.
 82:168. Egger on the 
IRS
 reorganization. 82:233. AICPA op ­
poses elimination of completed-contract method of account
­ing. 82:304. Tax Division comments on Taxpayer Compliance
 Improvement Act of 1982. 82:364.
Thompson, Richard A.
ACRS recovery vs. recapture for commercial realty: evaluat
­
ing the costs 
and
 benefits. 82:324.
Wedick, John L., Jr.
TPI individual examination classes. 81:617.
Widens, Robert
The debt/equity regulations: round 3. 82:196.
Yang, Wesley
Hershey Foods Corp.: diabetic shock for the IRS. 81:665.
Zimmermann, Peter F.
Tax Division backs indexing. 81:428. Tax Division comments
 
on Sec. 385 regs. 81:689.
Tax clinic editors
Broenen, Darwin Kennedy, Michael A.
Nov. 81:671. June 82:338.
Diss, William T. Nad, Leon M.
Jan. 82:33. July 81:415.
Elder, Peter O’Connell, Frank J., Jr.
Apr. 82:223. Sept. 81:538.
Ellentuck, Albert B. Padwe, Gerald W.
Oct. 81:598. March 82:148.
Ferrero, Henry J., Jr. Rosen, Robert M.
Dec. 81:735.
Aug.
 81:472.
Josephs, Stuart R. Vollman, Stanton H.
May 82:290. Feb. 82:98.
448 THE TAX ADVISER, JULY 1982
3
: Author index, 12 months ended June 1982
Published by eGrove, 1982


Author index, 12 months ended June 1982

Faigen, Lynne E.

Tax Adviser 
Volume 13 Issue 8 Article 6 
1982 
thumbtax 
Lynne E. Faigen 
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 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Faigen, Lynne E. (1982) "thumbtax," Tax Adviser: Vol. 13: Iss. 8, Article 6. 
Available at: https://egrove.olemiss.edu/tax_adviser/vol13/iss8/6 
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thumbtax
Editor: LYNNE E. FAIGEN, Esq.
Legislation
•
 
Completed contract accounting. Sen. John  
Danforth (R.-Mo.) has introduced a bill (S. 
2622) that would allow the continued use of the completed
 contract accounting method, but would attempt to
 eliminate potential abuses. The legislation is de
­signed as an alternative to the administration’s pro
­posal to disallow the completed contract method for
 long-term contracts. To curb abuses cited by the
 administration, such as the aggregation of contracts
 to delay tax payments, the bill establishes stan
­dards and authorizes the Treasury Department to
 promulgate regulations. The standards allow 
the severing of a single agreement that lacks an ade
­
qua
te business purpose, and the aggregation of  
several agreements, when no business purpose
 exists for treating the subjects as more than one
 contract. The bill also specifies when a contract
 should be considered complete, and codifies exist
­ing rules on which costs can be allocated to a long
­term contract.
•
 
Extension of targeted jobs tax credit. Legis ­
lation (H.R. 6700) to extend the targeted jobs tax
 credit (TJTC) has been introduced by Rep. Harold
 Ford (D.-Tenn.). A similar bill has been introduced
 in the Senate (S. 2455). The TJTC program expires
 at the end of this year. The proposed legislation
 would extend the 
tax
 credit for five years, and would  
also add a new target group, unemployed workers
 who 
have
 exhausted their unemployment compen ­
sation benefits. The legislation is apparently sup ­
ported by the administration.
IRS rulings, etc.
•
 
Imputed interest. P1 purchased a house from 
A, a seller who is a dealer in the trade or business of
 selling houses. P2 purchased a house from B, a
 seller who is not a dealer in that trade or business,
 and who owned the house for more than a year. In
 both transactions, neither the contracts of sale, nor
 
the
 notes given by P1 and P2 to A and B specified  
any interest payable. In Rev. Rul. 82-124, the Ser
­vice clarified 
the
 application of Sec. 483 to these two  
situations. Under Sec. 483, certain deferred pay
­ments are deemed to include interest at a rate 
fixed by the regs., if no interest is specified in the contract.
 Sec. 483(f)(3) provides an exception for the seller, if
 any of the 
gain
 from a sale would be ordinary in ­
come. In the ruling, the Service held that in both
 situations, Sec. 483 applied to the purchasers; thus,
 P1 and P2 could deduct a portion of 
each
 payment  
to A and 
B
 as an itemized deduction for interest  
under Sec. 163, provided that their itemized deduc
­tions exceeded the zero bracket amount. Both P1
 and P2 would then reduce their basis for the house
 by the amount allocated to interest. The treatment
 of the sellers would differ under Sec. 
483,
 however.  
In the first situation, the exception of Sec. 483(f)(3)
 would prevent A, who is a dealer, 
from
 treating part  
of his gain on the sale as interest, because the gain
 would be ordinary income. In the second situation,
 
B
 would receive capital gain from the sale, and Sec.  
483 would therefore allow a portion of 
each
 pay ­
ment by P2 to be treated as interest.
•
 
Business purpose requirement. Sec. 355  
provides that under certain circumstances, a cor-
THE TAX ADVISER, AUGUST 1982 493
1
Faigen: thumbtax
Published by eGrove, 1982
poration may distribute the stock or securities of a
 
corporation 
it
 controls to its shareholders, in a  
transaction that is nontaxable to the shareholders.
 Regs. Sec. 1.355-2(c) states that a distribution will
 not qualify under Sec. 355 if it is “carried out for
 purposes not germane to the business of the cor
­porations.” Two recent rulings illustrate factual situ
­ations that satisfy this business purpose require
­ment. In Rev. Rul. 82-130, a closely held corpora
­tion engaged in developing and marketing com
­puter software controlled a corporation engaged in
 the real estate business. The parent corporation
 needed to raise additional working capital, and on
 the recommendation of its securities underwriters,
 decided to distribute the stock of the real estate
 subsidiary to its shareholders. The Service held that
 the distribution was supported by a valid business
 purpose because it was reasonable to expect that
 the distribution would enable the parent company to
 secure additional capital. Rev. Rul. 82-131 involved
 a regulated public utility corporation that controlled
 a profitable unregulated subsidiary. The parent
 company had failed to obtain a rate increase for the
 past three years because the public utilities com
­mission included 
a
 portion of the subsidiary’s profits  
in calculating the utility company’s income and re
­turn on investment. The parent company intended
 to seek another rate increase. Acting on the advice
 of an independent public utility counsel, the parent
 corporation distributed the subsidiary stock to its
 shareholders. The Service again concluded that the
 distribution was supported by 
a
 valid business pur ­
pose, because 
it
 was reasonable to expect that the  
distribution would remove a state-imposed impedi
­ment that had prevented the utility company from
 realizing additional income in the form of rate in
­creases.
•
 
No-rulings list. The IRS has amplified Rev.  
Proc. 82-22, adding another area in which advance
 rulings will not be issued. The Service will no longer
 rule on whether proceeds of “self-insured” 
life and survivor benefit plans, established through a
 trust qualified under Sec. 501(c)(9), are excludible
 from the beneficiary’s gross income. (Rev. Proc.
 82-35.)
Regulations
•
 
Debt-equity regs. The Treasury Department  
has agreed to a further delay of the effective date for
 the debt/equity regs, under Sec. 385. In T.D. 7822,
the Service amended the final regs., delaying the
 
effective date until Jan. 1,1983. An additional delay,
 until April 1, 1983, was later announced by 
Sen. John Chafee (R.-R.l.) in a statement before the
 Senate Finance Committee. Chafee announced
 that he agreed to withdraw proposed legislation
 (S. 2610) that would have prevented implementa
­tion of the regs., in exchange for the delay until
 April 1.
•
 
Withholding rules. The IRS has issued tem ­
porary regs. (T.D. 7823) that govern the withhold
­ing, depositing, and paying of social security or
 railroad retirement taxes on payments made due to
 sickness or disability. The proposed regs, reflect
 amendments to Secs. 3121 and 3231 made by P. L.
 97-123. The regs, require an employer making a
 sickness or disability payment on or after Jan. 1,
 1982, to withhold, deposit, and pay the applicable
 social security taxes based on the amount of the
 payment, and to provide the employee with a re
­ceipt. Third parties may transfer to the employer
 liability for paying the employer portion of the tax by
 withholding the tax, depositing it in accordance with
 Sec. 6302, and notifying the employer of the
 amount of the payment. The employer would 
then be responsible for providing the employee’s receipt.
People
•
 
IRS appointments. Gerald G. Portney has  
been named associate chief counsel (technical), a
 new position created in the reorganization of the
 IRS National Office.
Three new district directors were also appointed.
 
Glenn Cagle has been named director of the Dallas
 district, James R. Starkey has been appointed di
­rector of the Chicago district, and Michael J. Quinn
 has been promoted to director of the Seattle district.
Meetings
•
 
Heart of America Tax Institute. The annual  
Heart of America Tax Institute will be 
held
 on Sept.  
30-Oct. 1 at the Alameda Plaza Hotel, Kansas City,
 Mo. The conference will focus on recent tax devel
­opments, and will feature Rep. Rostenkowski and
 Judge Tannenwald as speakers. For further infor
­mation, contact Mr. Michael J. Baker, 
UMKC
 Law  
Center, 5100 Rockhill 
Rd.,
 Kansas City, Mo. 64110;  
(816) 276-1648. OS
494 THE TAX ADVISER, AUGUST 1982
2
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thumbtax

the tax adviser, Volume 13, Number 10, October 1982

Tracy, Thomas G.

Moore, Kim

New pension provisions under TEFRA

Thomas, Kenneth F.

Clayton, Robert E.

American Institute of Certified Public Accountants. Federal Tax Division. Tax Administration Subcommittee

Tax Adviser 
Volume 13 Issue 12 Article 6 
1982 
Washington Report: Meeting with IRS Associate Commissioner 
(Operations) 
Kenneth F. Thomas 
Robert E. Clayton 
American Institute of Certified Public Accountants. Federal Tax Division. Tax Administration 
Subcommittee 
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 Part of the Accounting Commons, and the Taxation Commons 
Recommended Citation 
Thomas, Kenneth F.; Clayton, Robert E.; and American Institute of Certified Public Accountants. Federal 
Tax Division. Tax Administration Subcommittee (1982) "Washington Report: Meeting with IRS Associate 
Commissioner (Operations)," Tax Adviser: Vol. 13: Iss. 12, Article 6. 
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Washington report
by KENNETH F. THOMAS, CPA
ROBERT E. CLAYTON, CPA .
Meeting with IRS Associate Commissioner (Operations)
The Tax Administration Subcommittee of the
 
AICPA’s Federal Tax Division met recently with
 Donald E. Bergherm, IRS Associate Commissioner
 (Operations). The minutes of that meeting follow.
 Other representatives of the Service attending were
 Harold M. Browning; Frederic F. Perdue; Frederic
 P. Williams. The AICPA representatives present
 were Steven A. Braun; Frank H. Bauerschmidt;
 Walter T. Coppinger; Rufus L. Hardy; Steven F.
 Holub; Ronald L. Kellett.
Responsibilities of Associate Commissioner
 
(Operations)
The meeting began with a discussion of the first
 
item on the agenda responsibilities of the office of
 Associate Commissioner (Operations). This dis
­cussion touched upon several topics not included
 on the agenda, such as
—IRS reorganization, in general;
—appeals process;
—increased attention to criminal investigation;
—IRS budget and staffing considerations;
—access of examinations office to technical sup
­
port.
Increased attention and responsibility are being
 
given to criminal investigation. In addition, Mr.
 Bergherm feels that the combination of Associate
 Commissioner positions and Assistant Commis
­sioner positions gives the IRS a better opportunity
 to meet with and talk to taxpayers and professional
 groups such as the AICPA. This is consistent with
 an effort to improve the image of the IRS, a major
 goal of Commissioner Egger.
Regarding staffing and budgeting concerns, two
 
major pieces of tax legislation in two years (i.e.,
ERTA and TEFRA) have made it increasingly dif
­
ficult to staff the IRS with “rollover budgets.” How
­ever, TEFRA contains a “sense of Congress”
 resolution that calls for additional funds for the IRS.
 The IRS has acted on that sense of Congress and
 has hired the additional staff (primarily in collec
­tions), which will be funded by the increased ap
­propriation.
With the percentage of returns selected for audit
 
diminishing each year, Mr. Bergherm believes that
 increased IRS contact in other areas will help im
­prove tax compliance. For example, the expanded
 use of computer matching generates an increasing
 number of notices regarding mathematical and
 technical errors. In this way, taxpayers continue to
 “feel” the presence of the IRS.
Mr. Coppinger asked if the reorganization, by
 
moving the technical division under the Chief Coun
­sel, would decrease the technical resources availa
­ble to examination. Mr. Bergherm felt that technical
 
will
 continue to be accessible to examination, but  
whether technical will be as responsive, only time
 will tell. Any problems of coordination under the
 reorganization will be resolved by the Policy and
 Strategic Planning Council consisting of the Deputy
 Commissioner, Chief Counsel, and Associate
 Commissioners.
Mr. Holub asked 
if
 any steps were being taken to  
prevent “lawyerizing” the appeals process. Mr.
 Bergherm reiterated the administrative conveni
­ence inherent in the location of appeals in the or
­ganization chart. He suggested that Howard T. Mar
­tin, Director of the Appeals Division, be notified of
 any specific concerns. Mr. Clayton recounted Mr.
 Martin’s phone call of the prior week. Mr. Martin, a
 member of the AICPA, offered to meet with and
THE TAX ADVISER, DECEMBER 1982 753
1
Thomas et al.: Washington Report
Published by eGrove, 1982
discuss any concerns that CPAs may have about
 
the appeals division. (Mr. Braun and Mr. Clayton
 met with Mr. Martin on November 12.)
Payroll deposit requirements
Fred Goldberg, Acting Director of Legislation and
 
Regulations Division, responded in writing to the
 subcommittee’s letter regarding the problems with
 the change in payroll deposit requirements. An ex
­cerpt of that letter follows:
During the course of developing the present requirements,
 
proposed amendments to the Employment Tax Regulations
 under section 6302 . . . were published in the Federal
 Register of February 8,1980. The amendments were pro
­posed to balance the administrative burden to taxpayers of
 the deposit requirements for social security and withheld
 income taxes against the benefits to the government of
 more rapid deposits of those taxes. In addition, the amend
­ments were proposed to reduce the administrative burdens
 for small- and medium-sized employers. After consideration
 of all comments received in response to the Notice of
 Proposed Rulemaking and at the public hearing on the
 proposed amendments which was held on April 16, 1980,
 the current rules were adopted by Treasury Decision 7701
 which was published in the Federal Register for June 11,
 1980 (45 FR 39499). These rules became effective 
on January 1, 1981.
Beginning before the effective date, the Service's effort to
 
notify taxpayers of these regulations changes included 
a news release, the returns instructions, Circular E, Notice
 
109
 and several special notices included with mailings of  
taxpayers’ FTO cards and Form 941 in the fall and winter of
 1980, and a reminder in the fall of 1981.
Despite the above efforts, Mr. Bergherm admitted
 
that 
it
 was obvious to him that taxpayers were, in  
many cases, caught by surprise when the change
 became effective. He assured the subcommittee
 that the IRS will use this experience in an effort to
 avoid similar problems in the future. For example,
 once the proposed regulations regarding the
 change in deposit requirements for individuals be
­come effective, the IRS will emphasize and pub
­licize the change (i.e., beyond its efforts in the
 employer payroll tax deposit change). Mr. Berg
­herm also noted that the emphasis in Treasury on
 cash management makes 
it
 unlikely that these regu ­
lations will be changed.
Mr. Perdue noted some background to the policy
 
decision. Treasury did not anticipate 
a
 problem with  
requiring employers to deposit payroll taxes by the
 
1
5th day after the third month of a quarter, since  
employers were already making deposits by the
 15th day after the first and second months of a
 quarter.
Restricted consents
Mr. Bergherm recognized a problem in the uni
­
form application of IRS administration guidelines
 regarding restricted consents. Mr. Braun asserted
that even when an agent was reminded of specific
 
guidelines in the IRS Manual, the rules were not
 followed. Mr. Bergherm noted that in an organiza
­tion with 88,000 employees, 
it
 would be extremely  
difficult to achieve complete uniformity of applica
­tion of IRS Manual rules, but promised to try to
 improve the communication of guidelines to IRS
 employees.
Power of attorney problems
Mr. Bergherm referred to the Statement of Pro
­
cedure Rules, filed on Sept. 8, 1982, designed to
 provide for a Centralized Authorization File (CAF).
 He hopes that the CAF will eliminate many of the
 problems CPAs have had with their filing of powers
 of attorney. Mr. Browning expressed his optimism
 and felt that the CAF will allow the IRS to efficiently
 administer powers of attorney.
The CAF will allow the IRS to automate its system
 
of maintaining current information concerning au
­thorized representatives of taxpayers. By assigning
 identification numbers to each representative, the
 CAF will allow Service personnel to identify quickly
 representatives and the extent of the authorization.
Mr. Braun expressed the concern of some CPAs
 
that the CAF will also allow the IRS to monitor
 preparers by grouping returns by preparer identifi
­cation number. Mr. Bergherm reiterated that the
 CAF 
is
 intended to eliminate problems with the ad ­
ministration of powers of attorney, rather than
 monitor preparers.
Document matching program
Mr. Bauerschmidt expressed the subcommittee’s
 
appreciation for the value of the Information Re
­trieval Program (IRP), but noted concern regarding
 the number of inaccurate notices received by tax
­payers. The subcommittee suggested that notices
 should be double-checked before mailing.
Mr. Williams stated that once a discrepancy is
 
identified by the computer matching process,
 the notice (in all cases) is reviewed by an examiner.
 Examiners sign-off and agree with between 
57% and 58% of the computer generated notices. The
 IRS does recognize that discrepancies exist,
 caused primarily by input problems. One problem
 stems from incorrect information from payors (e.g.,
 incorrect social security numbers). Another prob
­lem is created by the existence of duplicate social
 security numbers.
Mr. Bauerschmidt related his experience with a
 
matching notice regarding a partnership K-1. The
 notice simply reported partnership income per the
 tax return, partnership income per the IRS and
 stated the difference between these amounts. No
 other details were provided. In this case, the 
tax
754 THE TAX ADVISER, DECEMBER 1982
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return contained numerous K-1s with distributive  
shares of various types of income and loss. Mr.
 Coppinger observed that the matching of K-1s is
 where his firm experiences most IRP problems.
Mr. Williams noted that the IRP handles over
 
594 million information documents. He also rec
­ognizes that the IRS 
will
 need to continue improving  
the IRP.
Mr. Hardy suggested that 
a
 name and/or phone  
number on the notices would be helpful to tax
­payers. Mr. Williams explained that experience has
 shown the IRS that phone numbers, once disclosed
 to the public in this manner, continue to be used for
 reasons other than in resolving the notice. 
With
 134  
million taxpayers, the IRS hesitates to give out  
phone numbers to the number of people who re
­ceive IRP notices.
Delay in processing of returns due to
 
overlooked information
During the preparation of returns for input to the
 
computer systems, the IRS tries to ensure that all
 information with the return is properly processed.
 The IRS realizes that from time to time, items will
 pass through the system undetected. This can
 occur due to tremendous volumes of data, efforts to
 meet production standards, inability to recognize
 taxpayer intent, and nonstandard forms. In some
 instances, items can become detached during the
 extraction process. When this occurs, the data
 necessary (taxpayer name and identifying number)
 to reassociate the loose document may be missing,
 making the association impossible.
To combat this problem the IRS has built into the
 
system various quality and computer checks. How
­ever, some items do go undetected. When this oc
­curs the IRS ceases processing of the document
 and requests the necessary data.
Appeals process
Mr. Bergherm noted that he chaired the “im
­
plementation committee” responsible for over
­seeing the reorganization. Administratively, he
 reiterated, the appeals process 
is
 now “definitely  
more efficient.” He also suggested that Howard
 Martin would be in a better position to respond to
 specific concerns about the speed or efficiency of
 appeals.
Regarding the elimination of the district appeals
 
conference, Mr. Bergherm felt that appeals “moved
 with 
little
 commotion to a single level.” The discus ­
sion then digressed from the agenda item onto the
 subject of tax shelters.
The IRS hopes to become involved at the “front
­
end” of abusive tax shelters (i.e., when shelters are
 announced and syndicated). If a tax shelter offering
appears questionable, Mr. Bergherm suggested
 
that notifying taxpayers (identities obtained from
 John Doe summonses) may effectively put them on
 notice that the IRS 
is
 looking at the shelter. Identify ­
ing abusive shelters at this stage will, however, be a
 problem.
Mr. Coppinger noted that the IRS will not com
­
ment on a tax shelter, even in a situation where a
 CPA shows the IRS a problem and asks the IRS to
 confirm that problem. In many situations, CPAs 
are viewed as adversaries when problems in a tax shel
­ter are communicated to a client. In this situation, it
 would be helpful if the CPA could indicate that the
 IRS also had a problem with the tax shelter. The
 application of such a procedure would be analog
­ous to a determination letter in the exempt organiza
­tion area. Mr. Coppinger suggested that the IRS
 only comment on tax shelters that appear abusive
 and not opine on the tax merits. Such a procedure
 would help the IRS become aware of tax shelters at
 the front-end. Subsequent to the meeting, IRS
 adopted an AICPA proposal to publicize information
 about schemes being marketed that the IRS deter
­mines to be questionable. The publicity will be cen
­tered 
in
 the local area where the specific scheme is  
being marketed. The purpose of this publicity 
is
 to  
inform the public of schemes that the IRS feels are
 not allowable for tax purposes.
Rescission of erroneous 90-day letters
The IRS stated there is no statutory or regulatory
 
provision to withdraw 
a
 statutory notice, but the  
case can be conceded.
Form 2210
Mr. Perdue recognized that taxpayers were being
 
requested to complete Form 2210 and being as
­sessed underpayment penalties after enclosing a
 completed Form 2210 with their tax return. He indi
­cated that the IRS 
is
 reviewing Service Center pro ­
cedures in this regard. The IRS has also estab
­lished 
a
 task force to simplify Form 2210.
Inadequate time to respond to correspondence
 
audits
Mr. Williams noted that this time period is an IRS
 
Manual requirement, and as such, could be
 changed. The IRS agreed to increase the period
 given to taxpayers to respond from 15 to 30 days, as
 the AICPA suggested. Some time will be necessary
 to effect implementation.
Service Center penalty notices
Mr. Perdue indicated that programming time has
 
been committed to other areas. It will, therefore, not
THE TAX ADVISER. DECEMBER 1982 755
3
Thomas et al.: Washington Report
Published by eGrove, 1982
be possible for the IRS to attach a copy of a com
­
pleted Form 2210 to a notice of underpayment. The
 IRS is looking for other ways to demonstrate how a
 penalty is computed.
Processing of amended returns
Mr. Perdue noted that the speed with which an
 
amended return is processed depends on whether
 the return is given to an examiner for a judgmental
 evaluation. If this procedure 
is
 bypassed, the return  
is processed much more quickly. Mr. Perdue prom ­
ised to reevaluate the criteria used in deciding
 whether an amended return is given to an examiner.
Telephone contacts with the Service
Mr. Bergherm stated that individual district offices
 
decide whether to publish telephone directories. He
 feels that practitioners appreciate such a gesture
 and do not abuse the “privilege.” Mr. Bergherm
 acknowledged the usefulness of such 
a
 directory  
and promised to pursue the matter with district of
­fices.
Injunction under Sec. 7407
Mr. Bergherm confirmed that the IRS will typically
 
pursue a “letter of agreement” with 
a
 practitioner  
before invoking 
Sec.
 7407. He does not anticipate a  
change in this policy. Unless the IRS feels that
 nothing will be gained by pursuing a letter of agree
­ment, this stage will not be bypassed. Also, in situa
­tions involving legitimate differences of opinion on
 the interpretation of tax law, an injunction should not
 be the first course of action. Mr. Bergherm em
­phasized that very serious consideration precedes
 any injunctive action under 
Sec.
 7407.
Mr. Coppinger asked if the letter of agreement
 approach would typically be pursued before invok
­
ing
 Sec. 7407 with reputable practitioners (i.e.,
those who are not “store-front preparers”).
 
Hypothetically, Mr. Coppinger continued, if his firm
 advocated an assertive tax planning position that
 the IRS disagreed with, would the IRS first try a
 letter of agreement? Mr. Williams indicated that the
 IRS would normally first pursue a letter of agree
­ment unless the IRS concludes that this approach
 would exacerbate the problem (i.e., allow more
 people to “get into the act”).
Tax return documentation
According to Mr. Williams, several questions
 
would be considered by the IRS in evaluating the
 adequacy of third-party reports and statements:
•
 
Is the third party independent?
•
 
Does the third party have anything to gain by  
making allocations in the taxpayer’s favor?
•
 
Has the practitioner questioned or tested the  
third-party breakdown?
Mr. Braun asked if the IRS felt that practitioners
 
should be testing allocations by examining original
invoices. Mr. Bergherm indicated that there is no
 “universal” answer to that question; facts and cir
­cumstances in each separate case 
are
 crucial.
Taxpayer right-to-privacy provisions
Mr. Perdue and Mr. Browning did not agree that a
 
power of attorney should be granted a preparer
 effective with the filing of 
a
 return. They felt that a  
separate power of attorney effectively safeguards a
 taxpayer’s rights.
Mr. Coppinger asked why the IRS Manual was
 
changed to require “pre-contact analysis” of tax
 returns that have a power of attorney attached. The
 IRS explained that the requirement for pre-contact
 analysis 
is
 only to ensure that the initial letter is sent  
to the person identified in the power of attorney. If
 the issues warrant, 
a
 pre-contact analysis of the  
issues will follow.
$$$$$$$$$$
756 THE TAX ADVISER, DECEMBER 1982
4
Tax Adviser, Vol. 13 [1982], Iss. 12, Art. 6
https://egrove.olemiss.edu/tax_adviser/vol13/iss12/6


Washington Report: Meeting with IRS Associate Commissioner (Operations)

the tax adviser, Volume 11, Number 2, February 1980

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