November 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

Robin Clatworthy is now officially our representative on the Arkansas State Board of Public Accountancy. If you have anything that he needs to help you with you can reach him:

Email: robclat@hnb.com 
Phone: (870) 829-2842 Fax (870) 829-3162

P.O. Box 1307, Marvell, AR 72366

OFFICERS & GOVERNORS
2000 - 200I

• PRESIDENT..............................................SHELLY RUSSELL

• PRESIDENT ELECT............................................JIM HODGE

• 1ST VICE PRESIDENT..................................DONNY WOODS

• 2ND VICE PRESIDENT.............................BRIAN THOMPSON
  

• DISTRICT I GOVERNOR...........................SUZANNE BALTZ

• DISTRICT II GOVERNOR...........................DONNA GOWAN

• DISTRICT III GOVERNOR........................LONNIE TAYLOR

• DISTRICT IV GOVERNOR....................GEORGE SIMPSON

• DISTRICT V GOVERNOR..................CARL DALRYMPLE JR.

• DISTRICT VI GOVERNOR..........................TOM SIMMONS

FROM YOUR PRESIDENT’S PEN

Dear Members:

The most exciting thing I have to report this month is the development of the new ASPA website (www.arspa.org). This is something the Board has been tossing around for quite some time, and Brian Thompson has made it happen! I think you will be pleased with the appearance of the site, as well as the information available on it. We can’t thank Brian enough for getting this done. Be sure to check it out!

I have also been working on standing committee assignments. Article VII of our By-Laws outlines the duties of all the standing committees. A list of these for the 2000 - 2001 year is published elsewhere in the newsletter. If any of you have a burning desire to serve on one of these committees, please let me know. We are required to have at least three, but we can have more and we welcome your input.

LaVerne Long, our regular monitor the Arkansas State Board of Public Accountancy monthly meetings, was not able to attend the October meeting so I went in her place. Also attending from ASPA was Homer Holbrook, the outgoing ASPA board member, and Robin Clatworthy, the new ASPA board member. This board, along with the ASPA and ASCPA boards will have a Tri-Board meeting on November 17. As you can imagine, it is very important for these three boards to have a good working relationship.

Of course, our next big education event will be the Gear Up 1040 Seminar at the Robinson Center in Little Rock on December 18 & 19,2000. I hope all of you have sent in your registration for this important seminar.

With the coming of Thanksgiving, we reminisce about our fore- fathers and the struggles they went though establishing this country. We can be grateful for the blessings which evolved from their sacrifices, as well as the sacrifices of may who followed. I trust you will all enjoy a happy Thanksgiving with family and friends.

Sincerely,
Shelly Russell

REVAMPED IRS appeals division offers new options. To speed case resolution, the IRS has reorganized its Appeals Division into three operating units focusing on small businesses and self-employeds, wage earners, and larger businesses. It is introducing new dispute resolution methods, including mediation and arbitration. And it is now accepting “early referrals” that let taxpayers appeal disputed audit issues before an audit is finished. For details, see www.irs/prod/ind_info/appeals/.

Tax Information From the IRS
Distributed this month by theIRS Media Relations Officein Oklahoma City

New IRS Begins Work;Reorganized Agency Reaches Milestone to ImproveService

The Internal Revenue Service moves a step closer to modernizing the nation’s tax agency and improving taxpayer service with the Oct. 1 start of its new organizational structure.

The beginning of the new fiscal year marks the “stand up” of the reorganized IRS. The agency’s fold standard of dividing the nation’s taxpayers by geographic boundaries will be replaced with a new specialized system built around specific groups of taxpayers with common needs.

“This transformation is about improving service to taxpayers,” IRS Commissioner Charles O. Rossotti said.“ In the months and years ahead, the new organization will create an opportunity for revolutionizing how the IRS works.”

The new organization, centered around four customer-focused divisions, will be dedicated to providing top-quality service and looking for innovative ways to solve problems before they start.

The new IRS structure will significantly reduce the number of management layers and points of entry for taxpayers. Instead of 33 Districts and 10 Service Centers, there will now be four operating divisions. This new centralized focus will help ensure uniform and consistent practices regardless of where taxpayers live, Rossotti said.

“With this stand up, we’re taking our first steps as a new organization,” Rossotti said. “This will not solve problems overnight, but it will lead to the IRS becoming a better, more responsive organization focused on the needs of taxpayers.”

The reorganization, the agency’s most sweeping overhaul since 1952, followed the approval by Congress and President Clinton of the IRS Restructuring and Reform Act of 1998.

The IRS reaches the Oct. 1 milestone following months of work. The IRS relied on more than 1600 employees to redesign and realign the nation’s tax agency. In addition, the IRS worked closely with the National Treasury Employees Union, tax practitioners, other external stakeholders and outside groups to build the new organization.

“This reorganization has been a little like putting together a giant jigsaw puzzle. There are literally thousands of pieces to assemble,” Rossotti said.

In the short term, the reorganization should be transparent to taxpayers. For instance, taxpayer walk-in assistance will remain available, toll-free numbers will stay in place and the IRS web site will continue. The IRS is also working with tax practitioners to ensure a smooth transition.

Some changes will show up during the 2001 filing season. Individual taxpayers in 12 states will send their tax returns to a new address next year. The new addresses will be printed on envelopes in tax packages, listing the instructions for tax returns and contained in software used to prepare electronic returns.

In the long term, taxpayers will see more changes. The new organization will emphasize working quickly to solve problems and specializing to meet the needs of specific taxpayer groups.

“The new Organization will place more emphasis on pre-filling services and early resolution of complex issues,” Rossotti said.

“More IRS resources will be devoted to pre-filing activities, such as education and outreach to help taxpayers comply with tax law. Post-filing activities will be geared to problem prevention with targeted enforcement activities for non-compliance.”

Throughout this process, the IRS will work to make sure everyone pays their fair share while also ensuring that taxpayer rights are respected and safeguarded.

A key component of the new organization’s success will hinge on computer modernization. The IRS is in the early stages of overhauling its 1960s era, tape based computer system with a state-of-the-art system. When completed, the project will allow the IRS to deliver tax refunds in days, provide taxpayers up to date information on their accounts and improve service in numerous ways.

Other service improvements will come from the four new divisions, which form the backbone of the new IRS.

WAGE AND INVESTMENT

Wage and Investment (W&I) serves individual taxpayers. The division, headquartered in Atlanta, will serve about 90 million filers with income from wage and investments. In all , this represents 116 million taxpayers.

Members of W&I will focus on educating and assisting taxpayers during all interactions with the IRS.

W&I is led by Commissioner John Dalrymple and Deputy Commissioner John Duder.

SMALL BUSINESS/SELF-EMPLOYED.

Small Business / Self Employed (SB/SE) is headquartered in New Carrollton, Md. This diverse group includes more than 40 million taxpayers that are full or partially self-employed or are small businesses with assets of less than $5 million.

Taxpayers in this group face some of the most complex tax law requirements and file twice as many forms and schedules as W&I taxpayers. To help address that, SB/SE will focus on increased education and communication efforts with taxpayers and external stakeholder organizations, such as tax practitioners.

Leading SB/SE are Commissioner Joseph Kehoe and Deputy Commissioner Dale Hart.

LARGE AND MID-SIZE BUSINESS

Large and Mid-Size Businesses (LMSB) serves 210,000 corporations and partnerships with at lease $5 million in assets.

LMSB, headquartered in Washington, D.C., will feature an emphasis on helping taxpayers avoid problems before they start and streamlining the tax dispute process to ease burdens on businesses.

Commissioner Larry Langdon and Deputy Commissioner Deborah Nolan lead the LMSB team.

TAX-EXEMPT / GOVERNMENT ENTITIES

Tax-Exempt / Government Entities (TE/GE) is headquartered in Washington, D.C. The division serves three distinct customer segments - Employee Plans, Exempt Organizations and Government Entities - representing 3 million customers. TE/GE is designed to serve the needs of these three diverse customer segments. These groups control $6.7 trillion in assets.

TE/GE is led by Commissioner Evelyn Petschek and Deputy Commissioner Darlene Berthod.

For more information on the reorganization, visit the IRS web site at www.irs.gov.

IRS PROVIDES GUIDANCE ON MUTUAL FUND EXPENSES

The Internal Revenue Service has provided guidance to mutual fund distributors on ways they can account for commissions paid on the sales of mutual fund B shares. Revenue Procedure 2000-38, effective October 2, describes three accounting methods that mutual fund distributors may use to account for commissions paid on the sales of mutual fund B shares.

“This is an example of how the IRS can work together with its stakeholders to develop a process that resolves long-standing issues,” said Larry Langdon, Commissioner of the IRS Large and Mid-Size Business (LMSB) Division.

Langdon said the revenue procedure reflects the priority of LMSB to work with taxpayers to resolve issues more quickly and fairly. “We are considering a number of initiatives that will help us resolve disputes with taxpayers earlier in the process. One of the initiatives under consideration would develop a process where we can resolve long-standing issues for a large number of taxpayers, establish consistent positions that eliminate uncertainly of tax treatment, and reduce costs and burden for both taxpayers and the IRS.”

The three methods outlined in the revenue procedure are the distribution fee method, the five-year method, and the useful life method. Under all three methods the distributor capitalizes the commissions paid. Distributors that wish to change to one of these accounting methods must obtain consent from the Commissioner of IRS. The revenue procedure provides procedures for obtaining this consent.

“This is a cleaner way to handle transactions as both parties have a clear understanding of how fees will be handled within the mutual fund industry,” said David Robison, Director of LMSB’s Financial Services and Healthcare Industry.

NEW TOLL-FREE NUMBER FOR IRS APPEALS HELP LINE

The Internal Revenue Service now has a toll-free help line for questions related to the Appeals process. The number is 1-877-457-5055.

The system will automatically route callers to the appropriate Appeals Office site. Previously, each of the 33 Appeals offices nationwide used a local number that was not toll-free. The toll-free service will make it easier and more convenient for taxpayers to obtain assistance.

Taxpayers may call for help in preparing their appeal of an IRS collection or examination matter. They may also use this service after their tax matter has been transferred to Appeals. Appeals Officers will assist taxpayers during their administrative appeal as well as handle complaints regarding the Appeals process.

IRS ANNOUNCES QUARTERLY INTEREST RATES

The Internal Revenue Service announced that interest rates for the calendar quarter beginning October 1, 2000, will remain at nine (9) percent for overpayments (eight (8) percent in the case of a corporation), nine (9) percent for under payments, and eleven (11) percent for large corporate under payments. The overpayment rate for the portion of a corporate overpayment exceeding $10,000 will remain at six and one-half (6.5) percent.

Under the Internal Revenue Code, the rate of interest in determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term plus 2 percentage points. The rate for large corporate under payments is the federal short term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate based on daily compounding determined during July 2000.

ARKANSAS SOCIETY OF PUBLIC ACCOUNTANTS
2000-2001 STANDING COMMITTEES

IRA HOTLINE - PENALTY FREE EARLY DISTRIBUTION

Funds can be withdrawn from an IRA before age 59½ without penalty if taken in the form of “substantially equal” payments calculated to last over the IRA owner’s lifetime.

The payments do not actually have to be made for life, but must last at least five years or until age 59½, whichever is later.

Danger: Any change in the size of the payments before the “5 year or age 59½” termination date will retroactively subject all payments received before age 59½ to penalty. This rule is strictly enforced. 

Example: A person sold his business and retired at age 55, then took five annual payments of $44,000 from his IRA. After taking the 5th payment, he took an extra $6,000 from the IRA to meet a financial emergency.

Conflict: The IRS said he’d changed the withdrawal schedule by taking $50,000 in the 5th year. He said he had completed the five equal payments first, and only afterward taken the extra payment.  And since he was over age 59½, he was free to take as much from the IRA as he wished.

Tax Court: The individual took his first payment in December, and the next four payments in January of each of the following years. Then he took the $6,000 in November of the 5th year.That was within 5 years of the first payment, so he had changed the distribution schedule before five years ended. Therefore, he owed penalties on all the earlier payments he’d received.

Robert C. Arnold, 111 TC 250.

JOINT RETURN LOOPHOLE: The IRS recently ruled that even though there is generally “joint and several” liability when a husband and wife file a joint income tax return, the rule does not apply to unpaid employee FICA tax on unreported tip income of one spouse.

NEW RED FLAG FOR IRS AUDITORS: Claiming a deduction for the fair market value of a used automobile donated to charity is now more likely than ever to give rise to a tax audit. District IRS directors throughout the country have been put on notice by the National Office that there is a perceived area of abuse by many taxpayers who claim overvalued charitable deductions for worthless vehicles. Advertisements placed by dealers in the used car market suggest that even if your car doesn’t run it still has a value- at least for purposes of a charitable contribution deduction to reduce your tax liability. Suggestion: Have your appraisal supported by detailed factual information showing the value of the car you’re deducting. Important: The appraiser you use should be properly accredited.

New IRA Appeals Arbitration Program: If you and the appeals officer are unable to resolve factual issues, you can request binding arbitration. The IRS must jointly request the arbitration hearing. OUTLOOK: Probably not a good deal for most taxpayers because of the binding nature of the determination and the complete lack of any precedent of the arbitration panel. BEST Bet: Let other taxpayers experience this program and evaluate the results before jumping in as a participant.

READ MY LIPS

I don’t believe the capital gains tax is a useful means for raising revenue - or anything else of a constructive nature.

- Alan Greenspan

The tax bill dies many deaths along the way....I’m not sure it shouldn’t have died all the way.

- Lloyd Bentsen

Tax laws are constantly changing....as our elected representatives seek new ways to ensure that whatever tax advice we receive is incorrect.

- Dave Barry

Lost document loses case. The IRS tried to assess tax on Jeffrey Steingold’s return, but he objected that the three-year deadline for making an assessment had passed. The IRS answered that Steingold had filed an extension of the assessment deadline - but also admitted it had lost the extension. The IRS then submitted an undated copy of the extension that it said Steingold had signed. COURT: Steingold credibly denied signing any extension, and the IRS’s witnesses were not convincing. So the deadline stands and Steingold is safe from tax.

Jeffery Michael Steinfold, TC Memo 2000-225.

NEW WAYS TO WRITE OFF COMMUTING EXPENSES

It’s a well known tax rule that ordinary commuting costs are non-deductible personal expenses. This rule applies to both employees and self-employed individuals.

Employees who are reimbursed by their employer for non deductible commuting costs are taxed on this benefit. 

But IRS has recognized that some situations are out of the ordinary. In such cases commuting costs may be deductible.

Self-employed individuals can deduct these costs in full on Schedule C.

Employees can write off deductible commuting costs as unreimbursed employee business expenses. They are deductible only to the extent that they exceed 2% of Adjusted Gross Income (AGI)

Accountable Plans

Alternatively, employees who are reimbursed under an accountable plan for otherwise deductible commuting costs are not taxed on such reimbursements.

• Benefit: From the employer’s view, deductible commuting costs paid under an accountable plan are not subject to payroll taxes - Social Security, Medicare, unemployment.

If you’re away from home on business, local transportation costs for travel between your hotel and all business calls throughout the day are deductible. So if you work in Atlanta and fly to San Francisco on business, taxi fares or BART tickets to see clients in that city are deductible business expenses.

If you have a regular place of business within the metropolitan area in which you live and work, travel costs to and from assignments outside the area are deductible. It doesn’t matter how short or long these assignments last. (The IRS hasn’t provided guidance on what constitutes a “metropolitan area.”)

Traveling to and from the office or other regular work location isn’t deductible. But travel costs to and from temporary work assignments within the metropolitan area in which you work and live are deductible.

“Temporary” means assignments that are not expected to last more than one year and do in fact end within that time.

What happens if you have a temporary assignment, but you are reassigned to the same location? According to the IRS a break of three weeks or less between assignments is not considered significant. The separate assignments are considered together for purposes of the one-year rule.

If you claim a home-office deduction, establishing that your home is the principal place of business for you, all travel costs to and from other work locations are deductible.

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