IRS’s People First Initiative, amending partnership returns, and procedures to fax NOL carryback forms

Examinations

The IRS’s People First Initiative, currently scheduled to run through July 15, 2020, includes changes to the IRS’s tax return examination conduct:

• The IRS will generally not initiate new examinations unless deemed necessary to protect the government’s interest to preserve the applicable statute of limitations.
• Current examinations will continue remotely where possible. Field examinations appear more likely to continue than correspondence examinations.
• The IRS has indicated that it will continue to work refund claims. Taxpayers unable to contact the IRS on the status of an open refund claim and facing economic hardship may consider contacting their Local Taxpayer Advocate for assistance.

The IRS’s temporary procedures to fax carryback forms provide an alternative to paper filing Forms 1139 and 1045 (quick refund claims). While quick refund claims may result in clients receiving refund checks more quickly, clients should be cognizant of how quick refund claims impact the assessment statute of limitations (SOL):

• For quick refund claims, the SOL for the carryback year remains open for items related and unrelated to the carryback as long as the SOL is open for the loss year.
• If a refund claim is filed using Forms 1120-X or 1040-X, the SOL for the carryback year remains open only for items related to the carryback. However, the IRS can deny a refund claim for a carryback year based upon an item unrelated to the carryback. 
• For both quick refund claims and Forms 1120-X and 1040-X, the total amount that can be assessed is limited to the amount of tax refunded.

Rev. Proc. 2020-23 provides some welcome relief for partnerships subject to the centralized partnership audit regime (CPAR). In short, CPAR partnerships can file Forms 1065-X instead of an administrative adjustment request through Sept. 30, 2020. CPAR partnerships that are currently under IRS examination should know the following:

• If the CPAR partnership desires to file an amended return, written notification must be provided to the IRS agent indicating that the partnership will use the procedures in the revenue procedure. The partnership must also send a copy of the amended return to the revenue agent.
• Why would a CPAR partnership use Rev. Proc. 2020-23 during an IRS examination? Without the revenue procedure, the CPAR partnership is either directly liable for any adjustments (via an imputed underpayment) or must issue push-out statements to partners. Imputed underpayments and push out statements are administratively cumbersome and create inequities. A Form 1065-X and revised Schedules K-1 likely offer a better solution for any known adjustments. 

Notices/Collections

The IRS’s People First Initiative also includes a significant easing of collection activities including:

• Liens and levies initiated by field revenue officers will be suspended.
• New automatic, systemic liens and levies will be suspended.
• IRS will suspend new certifications of passports to the Department of State.
• IRS will not forward new delinquent accounts to private collection agencies.

At the same time, some notable IRS collection activities that will continue include:

• Assigning cases to revenue officers.
• Establishing new Installment Agreements.
• Requesting financial documentation via telephone contact from revenue officers
• Determining whether a case may be deemed Currently Not Collectible.

Several IRS telephone assistance lines, including the Automated Collection System (ACS), are not currently providing live telephone assistance at this time. Taxpayers do not need to contact the IRS to confirm a hold on collection on an account, while the People First Initiative is in effect. If a lien or levy is issued during this period, the taxpayer may contact the revenue officer, if assigned to the account, to request a levy release; if a revenue officer is not assigned, then taxpayers may consider contacting their Local Taxpayer Advocate for assistance.

Taxpayers who have not filed their returns before 2019 should strongly consider contacting a tax professional to discuss available options to file their delinquent returns. Taxpayers may still be able to claim available refunds, if any, for at least the last three years of tax returns.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.