Articles and Tax Tips

By Steven D. Mercatante Esq.

 
The IRS demands quite a bit of you and it is only reasonable for you to seek to make your job easier. One such way is via the use and acceptance of electronically transmitted information collecting and reporting documentation. Just make sure you are aware of when such practices are allowable and when they are not. The following article provides a starting point for those of you who have chosen to collect payee information electronically.
 
In short, if you are receiving emailed Forms W-9 you will need to be careful. This is because IRS approval for such practices depends upon two key elements... 

By Steven D. Mercatante Esq.
 
Earlier this year I wrote an article explaining how you to handle reporting worker use of cell phones. At the time of printing, there was no indication of when changes would be forthcoming in the law. With Notice 2009-46 however, it appears the IRS has decided to act, but is seeking your input first. Do not miss out on this opportunity to shape changes in the law. Though compliance with IRS rules and regulations can seem never ending it is far better if you not only understand the issue but are able to move the IRS in a direction that makes for an easier and smoother compliance related process on your end. Having reviewed where the law stands today in our past article, this article will summarize where we stand today on the reporting issues surrounding using cell phones for work and then explore what is being proposed by Notice 2009-46.  

By Steven D. Mercatante Esq.
 
IRS Publication 78 is a wonderful tool capable of helping you to identify who truly is exempt from reporting. We all know of various categories of individuals and entities exempt from reporting; however, one of the trickier categories or exempt payees remains charities. This is where IRS Publication 78 offers significant help. The following article will briefly describe how IRS Publication 78 can help you document your payee’s charitable status and what you should do if your payee fails to show up in Publication 78 but still claims charitable status. 

By Steven D. Mercatante Esq.
 
Take note: the Social Security Administration (SSA) has discontinued Form SSA-7028, ostensibly because the SSA legal team determined SSA-7028 lacked the ability to qualify as proper third party notification. Such a huge change leaves many unanswered questions for those of you processing IRS B-Notices or looking forward to the Fall B-Notice season. The following article will first summarize Form SSA-7028’s role in the processing a B-Notice (a notice that the name/TIN combination submitted on an information return has failed to match either IRS or SSA records) and then explain what the IRS has done before finishing with a look at what guidance can be expected in the near future.
 
First, a summary of B-Notice processing basics.

IRS Form 972-CG (also known as “The Proposed Penalty Notice”) is one of the more serious communications you can receive from the IRS. It demands a response. What is more, a response indicating an ignorance of the law can cost you big time. That said, arguing your way out of a proposed penalty is entirely possible; provided you know what you are doing and can back up your words with significant documentation. Although the summer months are often regarded as a down time in the information-reporting world the reality is that the Proposed Penalty Notice lurks in the dog days of summer. If you do not know how to handle the Form 972-CG when your organization receives one it can bite you for years to come.
 
In this article we focus on the Proposed Penalty Notice – what it is, how to recognize one when you receive it and how you should respond. First, let’s clarify what the Form 972-CG is and what it is not.  

By Steven D. Mercatante Esq.
 
In the first two parts of this article series we have learned what the United States Treasury Department’s Office of Foreign Assets and Control (OFAC) is, what its goals are and how you can stay compliant. In this final article in our three-part series on OFAC we will provide some guidance in case, having set up your compliance program, you have discovered that your organization has accidently failed to comply with the OFAC rules and actually set up an account with a SDN.
 
What if I have accidently set up an account with an SDN?
 
Before you react to a discovery you may have set up an account with an SDN you need to confirm whether this is the case. Treasury refers to this process as taking the appropriate “due diligence” steps to ascertain whether you have a valid OFAC match. You should be familiar with the term due diligence already; it is what you do in any number of situations regarding obtaining and verifying the correct name and TIN of your non-OFAC related payees. The government expects you to act as a reasonably prudent person and then document what it is you have done to meet the specifications of the law. If you are still unsure as to how a reasonably prudent person acts from the perspective of the Treasury Department or IRS, we recommend you review the reasonable cause regulations under Internal Revenue Code §6724.
 
In an OFAC context, you will perform your due diligence and act reasonably by first... 

By Steven D. Mercatante Esq.
 
In Part One of this series on the Treasury Department’s Office of Foreign Assets and Control, OFAC, you learned what OFAC is and what it’s focus is upon. In this second part of our series we will examine how you can comply with the rules promulgated by OFAC and avoid any painful sanctions for noncompliance. Finally, in the third article in this series, we will provide some guidance in case you discover you may have been inadvertently working with a prohibited entity or individual.
 
How to comply with OFAC
 
There are a number of possible steps to help bring your organization into compliance with the OFAC regulations. First... 

By Steven D. Mercatante Esq.
 
The United States Treasury Department’s Office of Foreign Assets and Control (OFAC) is used to oversee transactions between U.S. entities and foreign persons or entities, administer embargoes, and promulgate regulations and restrictions applicable to many different payees. The Treasury Department uses OFAC to inform you as to whom you can and cannot do business with and whom to avoid making payments. Accordingly, you need to research the OFAC list – if for no other reason than avoiding the negative consequences that can follow from a failure to know the law.
 
OFAC penalties are among the most severe an organization can incur; violators of the OFAC rules are exposed to both criminal and civil penalties. Regardless, many payers do not even know what OFAC is no less how to comply with the OFAC rules. Thus, it is not only necessary for information reporting payers to educate themselves but also establish whom to avoid in terms of doing business. Only then can you ready yourself to act appropriately if you find out the payee is on the OFAC list.
 
This article series will provide some common sense guidance to help you avoid running afoul of the OFAC rules. In our first article, we will describe exactly what OFAC is and what it is seeking to accomplish. In the second part of our series on OFAC, we will walk you through some recommended steps you will need to follow in order to avoid sanctions under the OFAC rules. In our third and final article in this series, we will provide some guidance in case you discover you may have been inadvertently working with a prohibited entity or individual. 

By Steven D. Mercatante, Esq.
 
 
In past articles we have examined a variety of mistakes often made in processing IRS Form 972-CG; otherwise known as the “Proposed Penalty Notice”. In this final part of our introductory Proposed Penalty Notice processing basics series we will explore the most important weapon in your arsenal if you receive a Form 972-CG - the waiver request letter. If you receive a Form 972-CG in the mail the proper response is to write a waiver request letter and request that any Form 1099 penalties be abated to zero. Before you start writing your letter however, please note when you received your proposed penalty notice. The date of receipt is important because you MUST make sure you send your waiver request letter, with supporting documentation, to the IRS within 45 calendar days.
 
Ok, now that you know your deadline, it is time to begin collecting supporting documents and writing your letter. The waiver request letter’s purpose is to prove to the IRS that you know the law and follow the law; thus, your proposed penalty should be abated. The best means for you to prove your knowledge and compliance with the law is...

By Steven D. Mercatante, Esq.
 
Once you know what to look for in regards to identifying the Form 972-CG “Proposed Penalty Notice” its time to zero in on what you need to know to process a response to the IRS. In addition, for your future compliance needs you will also want to get started on putting in place the policies and procedures necessary to help you efficiently process and respond to this particularly dreaded form of communication from the IRS. Both goals can be met through understanding why you may receive a Form 972-CG and how you should initially respond to any potential penalty notice no matter how inconsequential it may seem.
 
There are three simple reasons the IRS may send you a Proposed Penalty Notice:
 
•        You did not file on time
•        You did not file electronically if you needed to because you submitted over 249 of the same type of 1099
•        You filed, but with incorrect information:
 
                         Name/TIN mismatch
 
                             or
 
                          No TIN
 
Ok, that was simple; now let’s look at a real world situation and one tremendous mistake recipients of the Form 972-CG often make – this example will go a long way toward helping you set up your Proposed Penalty Notice processing procedures. Assume it is the end of August or perhaps some time shortly thereafter and your organization has received a Proposed Penalty Notice. You carefully open the envelope, expecting to see some horrific fine; instead, you are confronted with a relatively inconsequential amount of money. No problem you think, why go through the trouble of fighting this amount, after all, by the time you and your team put together an effective waiver request letter (we will get to what this is shortly) the cost in time and money would be greater than just paying the stupid fine. After consulting with management, you get the green light and pay the penalty. Although this scenario happens thousands of times each year all across the country, you must not make the same mistake…