On June 16 Sen. Chuck Grassley (R-IA) and Sen. John Thune (R-SD) introduced the Taxpayer Bill of Rights Enhancement Act of 2015. The goals of the bill are to improve IRS service and strengthen taxpayer protections. Sen. Thune stated, “This bill is intended to enact a much-needed culture change at the IRS.” He continued, “This takes an important step towards restoring this agency to one that the American people both expect and deserve.”

Sen. Grassley suggested that IRS customer service needs to improve. He hoped that the bill will lead the IRS “back to taxpayer service.”

The bill includes five specific sections that are designed to encourage the IRS to be more responsive to taxpayer needs and desires.

1. IRS Accountability – There will be no audits for personal gain of the IRS representative or for political purposes. The IRS will maintain all email records for 15 years.
2. Privacy and Confidentiality – There are increased fines for improper IRS disclosure of taxpayer information. If data is disclosed, there are greater potential damages payable to taxpayers. In addition, IRS representatives may not use personal email accounts for official business.
3. Right to Appeal – If the IRS collection efforts are negligent or willful, the taxpayer has the potential to recover increased damage amounts.
4. Fair and Just Tax System – If a taxpayer is making installment payments of back taxes through a bank or other automated system, there would be no user fees on those payments. There also is greater IRS flexibility to accept offers-in-compromise. Finally, estimated tax thresholds for both individuals and corporations are increased to reduce the number of individuals who must pay penalty taxes for incorrectly estimating the taxes due.
5. Information from the IRS – There is new authorization for IRS representatives to disclose collection activity to spouses of delinquent taxpayers. If a taxpayer claims IRS abuse, the Treasury Secretary is permitted to give updates on the status of investigations. For nonprofit organizations, the IRS Form 990 will in all cases be filed electronically.
6. Quality Service – The IRS Free File Program will be continued for low-income and elderly taxpayers. An IRS appeals officer will be available in all states to discuss potential issues on tax returns.

Editor’s Note: Sen. Grassley acknowledges that this bill has been introduced to encourage discussion. His goal is to improve the quality of IRS service and also increase various types of taxpayer protections. Many of the concepts in the bill may eventually be adopted internally by the IRS or included in future tax reform legislation.

Tax Practitioners Bill of Rights

Each year over 60% of all tax returns are filed by tax practitioners. With the IRS budget reductions, many CPAs are unhappy with the level of IRS service provided to them and their clients. To encourage changes at the IRS, the National Society of Accountants (NSA) recently published a “Tax Practitioners Bill of Rights.”

NSA President Marilyn Niwao was pleased with the publication and stated, “IRS customer service is at an all-time low, and tax practitioners cannot get timely responses from the IRS for questions we pose on behalf of our clients because the IRS cannot afford the staff it needs to answer the phones.”

Executive Vice President of the NSA John Ams also expressed concern. He noted, “The IRS also needs to change its procedures and respect the needs of taxpayers and tax practitioners. For example, the IRS has scheduled computer maintenance and down time in the few days before returns are due.”

The Tax Practitioner Bill of Rights includes three major sections.

1. Timely Tax Laws and Forms – Congress should pass laws by September 1 each year and the IRS should publish the applicable forms by October 1. This would permit adequate time for tax practitioners to be prepared to start the filing process by the end of the year.
2. IRS Quality Service for Practitioners – Tax practitioners should have their own phone support and calls should be answered within fifteen minutes. Letters from CPAs to the IRS should produce a response within 20 days. If there is a collection action under way, the IRS should stop that action following response from the CPA until the response is evaluated. Each tax matter should be handled from start to finish by one IRS representative. The CPAs with Practitioner Tax Identification Numbers (PTINs) should have a secure communications system with the IRS.
3. No IRS Demands During Filing Season – During the three weeks before filing deadlines, there should be no IRS audits or collection actions. In addition, during the days before filing deadlines, there should not be IRS scheduled maintenance or down time on the agency servers.

Final Regulations on DSUEA

In T.D. 9725 (12 Jun 2015), the IRS published final regulations on deceased spouse unused exclusion amounts (DSUEA).

Sec. 2010(c) permits marital portability if IRS Form 706 Estate Tax Return is properly filed. See Sec. 2010(c)(5)(A). In 2012, the IRS published proposed regulations (REG-141832-11). The final regulations generally follow the provisions previously issued.

1. Tax Filing Extension – While tax returns are due within nine months from date of death, most estates elect a six month extension to file the return. The regulations still require estates subject to Sec. 6018(a)(1) to file and elect portability within nine months. If the estate value is below the Sec. 6018 limit, the IRS may grant a Reg. 301.9100-3 extension to elect portability.
2. Uncertain DSUEA – If the first spouse passes away and his or her basic exclusion amount is fully utilized, there will not be a deceased spouse unused exclusion amount (DSUEA). However, due to a subsequent revaluation of estate deductions, there subsequently may be a DSUEA. In that circumstance, the recalculated DSUEA will be permitted. Therefore, there is no need for a protective election.
3. Multiple Estate Tax Returns Filed – If a surviving spouse and court-appointed executor both file estate tax returns and make differing elections with respect to marital portability, the IRS will recognize the election of the court-appointed executor.
4. Complete and Properly Prepared Return – If the estate is not subject to tax, Reg. 20.2010-2T(a)(7)(ii)(A) eliminates the need to value property that qualifies for the marital or charitable deduction. While commentators had asked the IRS to develop a simplified estate tax return for estates below the Sec. 6018 limit, the Service rejected that proposal. Executors must file the “complete and properly prepared estate tax return” to elect marital portability.
5. Qualified Domestic Trust (QDOT) – A marital deduction is permitted for a non-citizen spouse who is beneficiary of a QDOT. However, if that person becomes a citizen, he or she may then benefit from the DSUEA, provided the executor of the deceased spouse made the appropriate election.

Applicable Federal Rate of 2.2% for July—Rev. Rul. 2015-15; 2015-27 IRB 1 (19 June 2015)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2015. The AFR under Section 7520 for the month of July will be 2.2%. The rates for June of 2.0% or May of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.