2012 National Taxpayer Advocate Delivers Annual Report to Congress

On January 11, 2012 National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the combination of the IRS’s expanding workload and declining resources as the most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance. The Advocate expressed her continuing concern that the IRS’s expanding use of automated processes to adjust tax liabilities is causing harm to taxpayers and recommended that Congress enact a comprehensive Taxpayer Bill of Rights.

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Tax Obligations Before and During Bankruptcy

For bankruptcy cases filed after October 16, 2005, the Bankruptcy Code requires Chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor’s bankruptcy filing. All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). After notice and hearing, the bankruptcy court may extend the period for another 30 days. Failure to timely file the returns can prevent confirmation of a Chapter 13 plan and result in either dismissal of the Chapter 13 case or conversion of the case to a Chapter 7 case.

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Indian/Americans are Targeted by IRS for Offshore Accounts

In April the Justice Department filed a lawsuit that sought to force HSBC India to reveal the names of U.S. customers with secret accounts, and a U. S. District subsequently granted the IRS authority to issue John Doe Summons for the names of U. S. residents of Indian descent who have had NRE accounts (Non-resident External Rupee Accounts) at the bank.

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IRS Correspondence Audits

The Compliance Center computers are programmed to select those returns with high DIF scores which reflect issues that could be easily resolved by mail. The computers select those returns which are appropriate for correspondence audits and each respective return is reviewed by either a Tax examiner or clerk. The returns are DIF screened and quality reviewed using technically proficient examination personnel who are experienced in DIF screening operations. Returns which have apparent examination issues other than those appropriate for correspondence audit are referred to the local Area Office. Some examples of the kinds of items which can be verified by correspondence are itemized deductions, such as interest, taxes, contributions, medical expenses, and simple miscellaneous deductions such as union dues and small tools. Issues other than itemized deductions may be examined if they are single matters which would not be appropriate for office audit or field examination.

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Cancellation of Debt

If a debt is canceled or forgiven, other than as a gift or bequest, the debtor generally must include the canceled amount in gross income for tax purposes. A debt includes any indebtedness for which the debtor is liable or which attaches to property the debtor holds.

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