ASPA NEWSLETTER

December 2000

THE ARKANSAS PUBLIC ACCOUNTANT IS THE MONTHLYPUBLICATION OF THE ARKANSAS SOCIETY OF PUBLICACCOUNTANTS. WE WELCOME ARTICLES AND ADVERTISINGTHAT IS COMPATIBLE WITH THE GOALS AND INTEREST OF THEACCOUNTING PROFESSION. IF YOU HAVE MATERIALS TO BEPUBLISHED, PLEASE SEND THEM TO THE EDITOR AT THEADDRESS BELOW.

LaVERNE LONG, Editor
P.O. BOX 758
NEWPORT, AR 72112-0758
llonga@ipa.net

The Arkansas Public Accountant

FROM THE ASPA OFFICERS AND DISTRICT GOVERNORS
TO YOU

HERE'S OUR CHRISTMAS WISH FOR YOU AND YOURS

MAY
THE WARM,
GUIDING STAR
DRIVE FROM YOUR
LIFE EVERY SHADOW;
MAY THE GLAD SONG OF
ANGELS FIND AN ECHO IN
YOUR HEART; MAY THE SPIRIT
OF WORSHIP IN THE HEARTS OF
THE WISE MEN, AND THE SIMPLE
FAITH OF THE SHEPHERDS BY YOURS
AS, ONCE MORE, YOU CELEBRATE THE
BIRTH-
DAY OF
THE KING.

HAVE A WONDERFUL, HAPPY NEW YEAR!

We are really saddened to hear about the death on November 18 of Bob Johnston and of his wife, Melba, just 10 days earlier. Bob was President of ASPA 1986 - 1987 and has been a hard worker and faithful for many years. Our sympathy goes out to his son Bryan (also a member of ASPA), and his family.

Many of you also may remember Ralph Kidd, who was a member of ASPA for many years before his retirement. I read in the paper recently where he had also passed away.

Brian Thompson, LaVerne Long, Robin Clatworthy, Tom Simmons, Jim Hodge, Donny Woods, and I attended the Tri-Board meeting in Little Rock November 17, along with members of the State Board of Public Accountancy and ASCPA's. Although it was a short meeting, there was quite a bit of discussion about the problems with the Quality Review Survey requests being received so late. We were assured that this would not happen again, and that those of you who received these would not be penalized for sending them in a little late. There was also some discussion about the need for better regulation of CPE hours received by members. I'm sure you'll be hearing more about both of these topics in the near future.

Well, it's "countdown" time. By the time the next newsletter gets to you, we will probably be knee deep in end-of-the-year reports, W-2's, 1099's, etc., and getting ready for the onslaught of early filers who want their refund ASAP. Many of you are probably ready to face the new tax season. However, if you're a procrastinator like I am, you're going to have to spend some time this month checking supplies to see what you need to start the year, ordering W-2's and other tax forms, etc.

Because I am a Drake program user, I attended the Little Rock school on November 27 and, as always, I picked up a few tips that will help me this tax season. Their program is due to be mailed out the end of November, so I will be spending some time familiarizing myself with the new program, working on organizers/proformas, and using the new program to do some year-end tax planning for myself and some of my clients. Probably many of you will be doing the same.

Don't forget the Gear Up 1040 Seminar on December 18-19. Even though there haven't been a lot of changes this year, this is an excellent refresher course and hopefully a motivator! I am looking forward to seeing all of you there.

Even though we have a lot hanging over us this month, I hope you'll take timeout to remember the " Reason for the Season" and have a Very Merry Christmas.

Shelly Russell, ASPA President

TAX INFORMATION FROM THE IRS
IRS ADVISES SPOUSES TO CHECK NAME & NUMBER USED ON TAX RETURNS
The Internal Revenue Service is sending letters to 2.4 million taxpayers who filed a joint 1999 return on which the name and identification number for the second spouse listed did not match IRS records. The IRS advises these taxpayers to compare the name and number used on the return with the information on the identification car issued by the Social Security Administration (SSA) or the IRS. The mail out began in October and will continue through mid-November. (Ed. Note: I did not receive this in time to include in an earlier publication.)

Taxpayers must provide correct names and identification numbers in order to claim a personal exemption or the Earned Income Tax Credit. For several years, the IRS has been increasing efforts to verify compliance with this law.

In the past, the IRS has not accepted electronic returns with any name/number mismatch, whether for the taxpayer, the spouse, or a dependent. It has also reduced tax benefits claimed on paper returns when there was a name/number mismatch for the first spouse listed on a joint return or for any dependent. This coming year, the IRS will do the same for both spouses on a paper-filed return.

People who change their surnames for any reason - such as marriage should get updated identification cards, unless they intend to use the former name for legal purposes. Form SS-5, "Application for a Social Security Card," is available from the SSA Web site at www.ssa.gov, or by calling (toll-free) 1-800-772-1213.

IRS URGES AFRICAN-AMERICANS TO BEWARE OF TAX REFUND SCAMS
The Internal Revenue Service cautioned African-Americans not to be misled by anyone offering to help them file for tax credits or refunds related to reparations for slavery. There is no such provision
in the tax law. Those who pay to have reparations-related tax claims prepared are being deceived. IRS centers nationwide have received a growing number of such slavery reparations claims this year, repeating similar experiences in 1994 and 1996.

"We regret that people may be circulating misleading information in the African-American community," said IRS Commissioner Charles O. Rossotti. "It's despicable that some are stealing from innocent people by charging fees to prepare what they know to be baseless claims."

For example, the Florida Attorney General obtained an injunction late last month against a Miami-based promoter who charged victims $100 to handle their "claims." This promoter even warned consumers not to contact the IRS on the pretext that the IRS did not want the general public to know about the tax credit.

"Promoters do no want potential victims to learn the truth about this hoax," Rossotti said.

The IRS has seen two principal reparations schemes. In one, the person claims a credit for "black investment taxes" or "reparations for African-Americans." In the other, the person attaches a form listing thousands of dollars in tax withholding that, in fact, never occurred.

Because there is no law providing for such reparations, the IRS rejects these claims. Taxpayers who repeatedly file them after receiving a denial notice may be subject to a $500 penalty for filing a frivolous tax return.

Promoters of reparations tax schemes have been convicted or imprisoned, and the IRS continues to investigate new promoters for possible prosecution.

People hearing about tax benefits that sound "too good to be true" should check them out with a trusted tax professional or the IRS before getting involved with claims that may not be legitimate. The IRS toll-free help line is 1-800-829-1040.

APPEALS FINALIZES EX PARTE RULES
The Internal Revenue Service finalized rules to implement provisions of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) that protect the independence of the Appeals organization by issuing Revenue Procedure 2000-43.

RRA 98 required the Commissioner of Internal Revenue to implement a plan of reorganization that would ensure an independent Appeals function within the IRS and prohibit ex parte communications between appeals officials and other IRS employees to the extent that such communications appear to compromise Appeals' independence. An ex parte communication would take place December 2000

Appeals and another IRS function talk to each other about a case, without the participation of the taxpayer or the taxpayer's representative. Last year, Appeals published Notice 99-50, containing proposed rules concerning the ex parte communication prohibition and requested comments from the pubic. Following careful consideration of all the comments received, IRS modified the proposed procedures to address some of the concerns raised.

Some of the highlights of the new ex parte procedure:

"With the publication of these ex parte rules, Appeals has completed one of its most important operational priorities for this year," said Dan Black, National Chief of Appeals. "We listened to our customers concerns, and have adopted rules that ensure open lines of communication between Appeals and taxpayers. Those open lines of communication can make appeals an even more effective administrative dispute resolution service."

As part of the IRS reorganization, the redesigned Appeals Division began work last month. Appeals plays a vital role in the tax system by providing taxpayers with an administrative opportunity to resolve tax disputes without going to court.

For additional information, visit the Appeals Web site at: www.irs.gov/prod/ind_info/appeals.

EXPOSURE DRAFT FROM SSARS
SSARS has come out with a new exposure draft on reporting requirements for compilations. Under the old SSARS I, an accountant who prepares or submits financial statements for any purpose to any person, including management, would include an accountants report. The new version doesn't require the accountant to issue a report if:

MEMORIAL

BOB & MELBA JOHNSTON

I AM SORRY TO REPORT TO YOU THAT BOB & MELBA HAVE BOTH PASSED AWAY SINCE OUR LAST NEWSLETTER.

MELBA PASSED AWAY ON THE 8TH OF NOVEMBER AND BOB ON THE 18TH.

BOB WAS A PAST PRESIDENT OF ASPA AND HAS ALWAYS BEEN A LOYAL AND FAITHFUL MEMBER.

I AM SURE THAT MOST OF YOU ARE FAMILIAR WITH HE AND MELBA WHO WAS MOST ALWAYS WITH HIM UNTIL THE LAST FEW YEARS WHEN HER HEALTH HAD FAILED.

CONDOLENCES: BRYAN JOHNSTON, 1217 STONE, JONESBORO, AR 72401.

TRI-BOARD MEETING REPORT

On November 17, 2000 the ASPA Board, State Board of Accountancy and the ASCPA Board held their annual meeting. At this meeting it was decided to investigate the possibility of making our CPE requirements more uniform with what is occurring across the country.

The State Board now accepts most anything that is submitted as being CPE.

They are going to look at changing this to a degree. The number of hours required each year would remain the same (40). But there could be a breakdown of what is acceptable and what is not. One of the things to be considered is not allowing all 40 hours to come from self-study. In other words it could not all come from correspondence or in-house. Another thing they will be looking at is getting the proper type of hours for what you do in your practice. For instance, if you do audit, you could be required to earn a certain number of hours in that field.

As I stated in the beginning this is just to keep you informed of what is going on at the state level. Even if this is implemented there is no way that it could go into effect before 2002 or 2003. I just wanted those of you who hold permits to practice to know what is going on at the State Board level.

LaVerne Long
ASPA Executive Secretary

I hope you have a rewarding filing season!

Family first, always!

MEMPHIS SERVICE CENTER
PRACTITIONER FORUM
NOVEMBER 17, 2000

Submitted by: Lonnie Taylor - ASPA Representative on Forum

In our third meeting with the IRS we received updates from the chiefs and directors of the different areas of the Memphis Service Center. Most of the changes being made by the IRS are already effective, or will be effective for the 2001 filing season.

The MSC will add Kentucky and Nebraska to the list of individual returns while losing Arkansas, Louisiana, Mississippi, and North Carolina business returns to Ogden, Utah. Over the next two years, the workload will migrate to the appropriate center based on taxpayer type and operating division alignment. The ten service centers will be broken down to eight sites for individual returns and two sites for business returns.

Following are some statistics from the 2000 filing season at MSC:

· Ninety three percent (93%) of the time, paper returns filed were processed in 32 days and electronically filed returns were processed in 13 days.

· The MSC will process approximately eight million paper individual returns, eight million electronic returns and eight million paper business returns.

· Practitioner error for 1040A returns was 7.97%; for 1040EZ returns 1.98%; and for 1040 returns 4.34%.

You will be able to self select a PIN Number for EF returns this year to avoid sending in the 8453 and the W2's. This should be very helpful. Additional information on this subject will be in my next article.

There will be a box to check on this years tax return, that will give you limited Power of Attorney for about a year. Be sure to give the IRS feed back on this new feature to see if it is working as it should. If you find your Offers in Compromise are running slow it is because the MSC is about 70,000 behind. For this filing season, large partnerships will be required to file electronically. There are about 60,000 that will have more than eight million K1's. For the year 2000 the electronically filed returns can include 20 new forms and 2 new schedules.

If you wish to discuss any of this information, please call.

Lonnie Taylor
Phone: 870-735-2187

As always, the difference between failure and success is a matter of attitude. How's your attitude?

PERSONAL WINNERS HOTLINE

IRS LOSES. Gifts under power of attorney are valid. Suzanne Pruitt followed her lawyer's advice by making annual gifts to younger family members to reduce her taxable estate. And when she fell ill she gave a power of attorney over her assets to her daughter, who continued making the gifts. But when Ms. Pruitt died, the IRS said the terms of the power of attorney didn't authorize gifts, declared the gifts to be invalid, and taxed them back into her estate. Tax Court: The power of attorney granted "general" power over Ms. Pruitt's assets. Given her intention and record of making gifts, gift-making power should be deemed included. So the gifts were valid and escape estate tax. Estate of Suzanne C. Pruitt, TC Memo, 2000-287.

IRS concedes. Taxpayer's compromise offer to be considered in spite of his corporation's behavior. After an individual made an offer in compromise to the IRS regarding his personal tax bill, the IRS discovered that a corporation the individual owned was failing to pay its taxes. An IRS agent asked if the individual's compromise offer should be automatically rejected due to the actions of his corporation. IRS legal opinion: The individual and the corporation are two separate legal persons. The individual's compromise offer should be processed regardless of the status of the corporation. IRS legal memorandum 200040006.

IRS concedes. Interest on "hidden" mortgage is deductible. A woman bought a home using a mortgage with a "due on sale" clause that required it to be paid off if the house was sold. Her brother later bought the house from her, paying with a promissory note that was secured by a deed to the house. But neither of them wanted the "due on sale" clause to be enforced. So they didn't record the deed at he county courthouse, to keep the lender from learning about it. An IRS auditor asked if interest on the "hidden" mortgage was deductible. IRS ruling: Under state law, the brother's debt was secured by the home even if the deed was not recorded, so interest on it does qualify as home mortgage interest. IRS Field Service Advice 1995-13.

IRS loses. Filing late returns doesn't bar discharge of taxes. Donna Ralph didn't file returns for several years until after the IRS assessed against her for them. Then she filed late Form 1040EZ's and declared bankruptcy. The IRS objected that her tax bills weren't dischargeable in bankruptcy because she hadn't filed returns until after the taxes were assessed. Court: For Ms. Ralph. Taxes are not dischargeable if an individual has committed tax fraud, and non-filing can be evidence of fraud. But Ms. Ralph's numbers on her 1040EZs were almost the same as those used by the IRS to compute her tax bill. Since she hadn't committed fraud, her taxes can be discharged. Max Ralph, et ux, BC DC Fla., 2000-2 USTC p.50,730.

New toll-free number of IRS appeals: The newly reorganized IRS Appeals office now has a customer service/outreach officer in each of it's 33 regional offices. The Officer's duties include helping taxpayers with the appeals process and assuring that the taxpayer rights are not violated. To contact the Outreach Officer nearest you, dial 877-457-5055 and your call will be automatically routed. For more about appeals, check www.irs.gov/prod/ind_info/appeals.

IRS announcement 2000-80.