Dbriefs Deposits and Advance Pmts 08312011

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The Dbriefs Tax Controversy series presents:

Deposits and Advance

Payments: Rules andStrategies to Protect YourOptionsThomas Cryan, Deloitte Tax LLPJohn Keenan, Deloitte Tax LLP

Randy Bessinger, Deloitte Tax LLP

August 31, 2011


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Copyright 2011 Deloitte Development LLC. All rights reserved.

Agenda

Introduction

Deposits and advance payments

Options to reduce interest accrual

Question & answer


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Deposits and advance

payments


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Overview Deposits

IRC 6603

Rev. Proc. 2005-18 (superseded Rev. Proc. 84-58)

Implemented IRC 6603

Establishes procedures to make, withdraw, or identify deposits tosuspend the running of interest on potential underpayments

Provides for interest on the deposit returned to the taxpayer tothe extent the deposit is attributable to a disputable tax

Enables taxpayers to limit exposure to underpayment interest in atax dispute without surrendering access to funds for an indefinite

term in a non-interest bearing account

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Have you made a deposit under 6603?

Yes No

Not applicable

Poll question #1


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Interest on deposits

Interest will be paid on returned deposits at the short-term

Federal rate provided for in IRC 6621(b) but only on theportion of the deposit attributable to a disputable tax

Interest will be paid from the date of deposit to a date not

more than 30 days preceding the date of the check

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What is a Disputable Tax?

A disputable taxis the amount of tax specified by thetaxpayer at the time of the deposit as the reasonableestimate of the maximum amount of tax attributable todisputable items

A disputable itemis any item of income, gain, loss, deductionor credit if the taxpayer has a reasonable basis for itstreatment of the item and reasonably believes that the IRSalso has a reasonable basis for disallowing the taxpayers

treatment of the item

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8/31Copyright 2011 Deloitte Development LLC. All rights reserved.

Calculating the Disputable Tax

If the deposit is made prior to the issuance of a 30-day letter,any reasonable method may be used to calculate the amountof disputable tax

To the extent that a taxpayers calculation of a disputable tax

exceeds the amount proposed as a deficiency in a 30-dayletter issued to the taxpayer, or the taxpayer desired to remita deposit prior to receiving a 30-day letter, the taxpayer mustprovide a written statement to the Service identifying and

describing the amount of the disputable tax at the time thedeposit is remitted

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Deposit should be sent to the IRS Center where the taxpayerfiles its return orto the office where the taxpayers return isunder examination

A written statement designating the remittance as a depositmust accompany the depositThe statement must include:

The type(s) of tax; The tax year(s); and Statement identifying the amount of and basis for the disputable tax

Interest on an assessed tax liability will be suspended on thedate the deposit is received by the IRS

Designating a Deposit Under IRC 6603

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Statement Identifying the Amount of andBasis for the Disputable Tax

Taxpayers relying on the proposed deficiency in a 30-dayletter may provide a copy of that letter with the deposit in lieuof a written statement

However, if the taxpayers calculation exceeds the proposed

deficiency in the 30-day letter or the taxpayer wants to remita deposit prior to receiving a 30-day letter, additionalinformation must be included in the written statement

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Poll question #2

For those taxpayers who made 6603 deposits, which ofthe following did you deposit?

An amount equal to that shown on the 30-day letter

An amount less than that shown on the 30-day letter An amount greater than that shown on the 30-day letter

Not Applicable


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Statement Identifying the Amount of andBasis for the Disputable Tax

The statement must also include:The taxpayers calculation

A description of the item for which the taxpayer has a reasonablebasis for the treatment of the item on its return, and for which the

taxpayer reasonably believes that the IRS also has a reasonablebasisfor disallowing the taxpayers treatment of the item

The basis for the taxpayers belief that it has a reasonable basis

for the tax treatment and that the IRS also has a reasonablebasisfor disallowing the taxpayers treatment of the item

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Failure to Identify Amount and Nature of theDisputable Tax

IRS will not allow interest on a deposit that does not properlyidentify the amount and nature of the disputable tax

If the taxpayer subsequently provides a written statement

identifying and describing the disputable tax, interest willaccrue on the deposit from the date the additional informationis provided to the IRS

In lieu of a written statement, a taxpayer may rely on the amount of adeficiency proposed in a 30-day letter as the amount of thedisputable tax, but the taxpayer must provide a copy of the 30-dayletter to the Service

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Withdrawal of Deposits

Deposits may be withdrawn at any time before the IRS uses

the deposit as a payment of tax A written statement to withdraw the deposit should be sent to the

office where the deposit was remitted

The statement must include:

The date(s) and amount(s) of the original deposit(s); The type(s) of tax to which the deposit was intended to be applied;

The tax year(s) to which the deposit was intended to be applied

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IRS Ability to Credit/Offset IRC 6603Deposit

The Service cannot unilaterally credit an excess IRC 6603 deposit to an outstanding liability under IRC 6402(a)

The Service does not have the authority to offset

excess IRC 6603 deposits to pay other outstandingbalances

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Poll question #3

Has the Internal Revenue Service returned to you aSection 6603 deposit attributable to a disputable tax andpaid interest on the deposit?

Yes No

Not Applicable


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Options to reduce interest

accrual


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Strategies for Making a Deposit Prior toIssuance of a 30-Day Letter

Make deposit when there is reasonable certainty IRS willexamine and challenge the taxpayers treatment of an item

Schedule M-3 permanent items

Schedule UTP items

Form 8275 or Form 8275-R

Form 5701

Identified in audit plan or LIFE MOU

Emphasize why taxpayer has reasonable basis for the tax

treatment of an item Use IRS published guidance or Form 5701 to explain why

IRS has reasonable basis for disallowing the taxpayers

treatment of the item

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Strategies for Making a Partial AdvancePayment after Issuance of 30-Day Letter

No requirement to identify items in dispute and basis fortaxpayers belief with regard to taxpayers treatment of an

item and IRS disallowance of an item

Stops hot interest on portion of proposed deficiency

Preserves the right to go to Tax Court

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Strategies for Making a Full AdvancePayment after Issuance of 30-Day Letter

Eliminates future accrual of any interest Eliminates ability to petition Tax Court

Accelerates ability to file refund claim and bring suit inDistrict Court or Court of Federal Claims

Prevents Appeals Officer from speculating on taxpayers

view of issues

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Strategies for Making a Full AdvancePayment after Issuance of 90-Day Letter

Eliminates future accrual of any interest

Hot interest accrues from 31st day after issuance of 30-dayletter to advance payment

Allows taxpayer to petition Tax Court Allows taxpayer to file refund claim and bring suit in District

Court or Court of Federal Claims

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Completion of Examination

If the taxpayer executes a waiver of restrictions on

assessment and collection or agrees to the full amount of thedeficiency, the deposit will be treated as a payment of tax asof the date of assessment. Interest on any underpayment will accrue from the due date of the

original return (without regard to an extension) to the date the depositwas made by the taxpayer.

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Completion of Examination

If the taxpayer does not execute a waiver of restrictions onassessment and collection and agree to the full amount ofthe proposed deficiency, a 90-day letter will be issued

Taxpayer may file a petition with the Tax Court and request,before the expiration of the 90 or 150-day period, that the deposit

continue to be treated as a deposit during the Tax Courtproceedings

Failure to make such a request will allow IRS to convert the deposit toan advance payment

Taxpayer may decide to not file a petition with the Tax Court but thedeposit will be treated as a payment of tax upon expiration of the90 or 150-day period during which assessment is stayed

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Poll question #4

A taxpayer who makes a 6603 deposit will be precludedfrom petitioning the Tax Court.

True

False Not Applicable


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Excess Deposits of Disputable Tax

Taxpayer may elect, in writing, to have excess depositsapplied against another assessed or unassessed liability

Request must be sent to same office where original deposit wasmade

If excess deposits are applied to another assessed orunassessed liability, interest will continue to accrue from the dateof the original deposit provided that the excess on the originaldeposit relates to a disputable tax

For example, a deposit of $200 is made on 5/1/2005 (thedisputable tax is $200) for a 2008 liability and the taxpayer has an

excess deposit of $100 which is then applied to the 2009 liability.The taxpayer will receive interest on the excess deposit from5/1/2005 to 3/15/2010 (due date of the 2009 liability)

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Question & answer


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CPE certificates are now available

for immediate download.

Click the Request CPE link in thelower right hand corner of thescreen.


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Contact info

Tom [email protected]

+1 202 378 5238

John Keenan

[email protected]

+1 202 879 5605

Randy Bessinger

[email protected]

+1 816 802 7219
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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This presentation contains general information only and Deloitte is not, by means of this

presentation, rendering accounting, business, financial, investment, legal, tax, or otherprofessional advice or services. This presentation is not a substitute for such professional adviceor services, nor should it be used as a basis for any decision or action that may affect yourbusiness. Before making any decision or taking any action that may affect your business, youshould consult a qualified professional advisor. Deloitte shall not be responsible for any losssustained by any person who relies on this presentation.


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About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited byguarantee, and its network of member firms, each of which is a legally separate and independent entity.Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte ToucheTohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed descriptionof the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attestclients under the rules and regulations of public accounting.


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Dbriefs Deposits and Advance Pmts 08312011

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