Publication 1966 (1-2000) TAX HELP 2000

The Internal Revenue Service begins the new century with a new organizational structure and a new commitment to its mission to provide world-class customer service to America's taxpayers.

On October 1, 1999, a major step in this modernization effort came to fruition with the dedication of the Submission Processing Center and the Customer Service Center functions under the organizational umbrella of the Philadelphia IRS Center. Internally, this significant change has meant new roles, new tasks, and new challenges for our employees.

For taxpayers and the tax practitioner community, however, the appearance may be that little or nothing has changed as they continue to deal directly with many of the same contacts at the same phone numbers as before. This continuity in service is essential for a successful modernization effort as our goal is to make the transition as seamless as possible for taxpayers and tax practitioners.

It is also our expectation, as partners in this new enterprise known as the Philadelphia IRS Center, that our customers will continue to see improvements in the way we do business. We want to ensure that all taxpayer contacts and activities are enhanced, from accurate and timely processing of tax returns and refunds to efficient handling and response for taxpayer and tax practitioner inquiries, through both telephonic contacts and correspondence.

As the Directors of these newly established organizations, we want to emphasize the collaborative aspects of our partnership, both within our respective organizations and the IRS Center as a whole, but most importantly with our customers. We remain one IRS Center with dedicated, streamlined internal organizations that work in tandem to provide consistent, equitable, and efficient service.

This edition of Tax Help 2000 provides an overview of our new organizational structure and a comprehensive list of contacts and phone numbers that can assist you in making the direct connection to that area that can best serve your needs. It also provides important information on IRS programs and initiatives for the Year 2000 filing season.

We look forward to working with the tax practitioner community in serving our mutual customers, America's taxpayers.

                                    Christopher J. Egger

                                      Deborah S. Reilly

A new kind of Internal Revenue Service Center went into operation on October 1, 1999 with the creation of the Submission Processing Centers and Customer Service Centers at all ten former IRS Centers nationwide.

This change is an interim step in the Service's larger Modernization effort that will, in 2002, culminate in the dedication of IRS Centers aligned to either Wage and Investment or Small Business/Self-Employed taxpayers.

Under this new operational configuration, the former Philadelphia Service Center is now identified as the Philadelphia IRS Center, which, in turn, is the omnibus location and organization for the Philadelphia Submission Processing Center and the Philadelphia Customer Service Center.

While this organizational restructuring has had a profound impact internally, for taxpayers and tax preparers, the transition is essentially seamless, and the benefits are substantial.

These benefits include:

The Philadelphia Submission Processing Center will, as its name implies, be responsible for all tax forms and remittance processing activities. These include oversight for Lockbox Processing and other tax deposit activities; tax payment reconciliation and tax payment tracer functions, tax document and processing-related Taxpayer Information Number (TIN) perfection, and internal Accounting functions.

The Philadelphia Customer Service Center has responsibility for all tax-related correspondence and adjustment activities and oversight for all telephonic activities, including both toll calls and toll- free lines. The Pittsburgh, PA and the Richmond, VA Customer Service Call Centers are also under the Philadelphia Customer Service Center operational umbrella. Additionally, the Customer Service Center is responsible for Examination and Compliance functions and all refund activities.

PHILADELPHIA SUBMISSION PROCESSING CENTER

PROCESSING DIVISION: The primary function of this division is to process returns and payments through the pipeline to good tape. It is comprised of the following branch operations:

This division provides support to Submission Processing operations for functions that occur after processing has been completed. Its oversight includes the following branches:

Under the direction of the Site Coordinator, this office provides support for shared services for both the Submission Processing and the Customer Service Directors. Its functions include the Controller's Staff and Budget Office, the Communications Office, Tax Systems Modernization Office, Quality Improvement Office and Omnibus Council and committee groups representing the entire IRS Center.

PHILADELPHIA CUSTOMER SERVICE CENTER

CUSTOMER SERVICE DIVISION I: This division has oversight to respond to taxpayers' correspondence and telephonic inquiries to the Customer Service Center. The following branches provide support for this division:

This division's primary function is the realm of Compliance activities and it is charged with assisting taxpayers in meeting their tax law responsibilities. It has the following branches within its span of operations:

These are the Customer Service Call-Site Divisions in Pittsburgh, PA and Richmond, VA that report to the Customer Service Director.

CUSTOMER SERVICE SUPPORT STAFF: This staff, under the Chief, Planning & Analysis, Customer Service, includes the International and Domestic Program Support Staff and Quality and Process Review staffs. It also provides cross-functional support by a team of program and management analysts.

PLANNING & ANALYSIS STAFF: Both the Submission Processing and the Customer Service Directors have Planning & Analysis staffs under their oversight. These staffs include the Management Support Analysts and for the Customer Service Center, they also encompass the Process Analysis, the Quality Review, and the User Support staffs.

Additionally, these functions are also located at the Philadelphia IRS Center:

TAXPAYER ADVOCATE SERVICE -- The Taxpayer Advocate Service is the successor to the former Problem Resolution Office, under the direction of the National Taxpayer Advocate. It provides an independent, effective complaint-handling system that will ensure that taxpayer problems, which have not been resolved through normal channels, are properly and promptly handled.

INFORMATION SYSTEMS DIVISION -- Under the operational oversight of the Assistant Commissioner, Service Center Operations, this division has responsibility for all computer and operations and network communications at the Center.

SHARED SERVICES DIVISION -- Formerly known as the Support Service Division, Shared Services provides cross-center support for facilities management, personnel, education, and training programs and services.

PHILADELPHIA IRS CENTER HIGHLIGHTS

The following are some processing statistics for the Philadelphia IRS Center for the 1999 filing season:

Tax Returns Filed - January 1 - September 30, 1999

 Total (Individual and Business):            20,633,564

 Individual

(Forms 1040/1040A/1040EZ/

  1040PC and 1040ES):

10,293,333

 Business

(Forms 1041/1041ES; Employment

  94X series; 1120/1065 and 706/709):

10,340,231

                              Paper Check            ELF

  Number of Refunds            

5,354,015           2,111,362

  Total Dollar Amt.            

$7,531,109,150      $5,138,205,625

  Average Refund Amt.          

$1,400              $1,942

  Total Refunds:

7,465,377

          Total Refund Amt.:

$12,699,314,775

 IRS Center Deposits:         $10,394,955,786

 Lockbox Deposits:            

$17,854,462,338

 Total Deposits:              

$28,249,418,124

Employer Identification Numbers (EINs) issued:

 TELE-TIN:            74,499

 FAX-TIN:            

27,272

 SS-4s (via mail):    

63,248

 Total EINs:          

155,019

issued -- January 1 - July 31, 1999: 411,660

IRS TAX FORMS AND PUBLICATIONS

All practitioners who participate in the IRS Tax Practitioner Program will be mailed a copy of Package X according to the following schedule (subject to changes based on late tax law changes):

      Package X, Volume 1 -- Mid to late November

Package X, Volume 2

 -- Mid-December

These are the only automatic free mailouts to practitioners. Participants in the Tax Practitioner Program must submit Form 3975 (from Publication 1045, Information Guide and Order Blanks) each year to remain on the Tax Practitioner mailing list. Publication 1045 can be obtained by calling

(request "practitioner gate").

Practitioners can purchase copies of the following products through the Government Printing Office (GPO), Superintendent of Documents, by submitting Form 6401 from Publication 1045.

(Note:

-- Tax Practitioner Reproducible Kit is obsolete).

Alternative methods for ordering forms through the Superintendent of Documents are:

      By telephone (202) 512-1800

      By FAX

(202) 512-2250

Through the GPO Federal Bulletin Board (CD-ROM orders and form downloads only) at

After sign-on, type:

through the GPO World Wide Web Home Page:

 http://www.access.gpo.gov.su_docs.

In addition to ordering through the Superintendent of Documents (SOD), general forms and publications are available through:

To access IRIS directly via modem, dial

On the Internet, telnet to iris.irs.ustreas.gov, or, for file transfer protocol services, connect to ftp.irs.ustreas.gov.

Using the World Wide Web, connect to the IRS Home Page:

http://www.irs.gov Technical questions can be directed to the FedWorld Help Desk at (703) 487-5608.

CD-ROM: You can now order the 1998 Tax Products CD-ROM, IRS Publication 1796, which is sold as a two-CD set, from NTIS at the discounted on-line price of $13, plus a $5 handling fee. The price to place an order via phone, fax or mail is $20, plus a $5 handling fee. To place a toll-free phone order, please call 1-877-CDFORMS (1-877- 233-6767). To place an order by fax, please call (703) 605-6900.

Fax Forms: Limited copies of general fax forms are available through the IRS Fax Forms service. Callers must dial directly from the handset of a fax machine; for a menu of items call (703) 368-9694 directly from a fax machine.

Limited copies (usually one per practitioner) of general tax forms/publications are also available by calling the IRS at 1-800-TAX-FORM or by visiting a local IRS office during its taxpayer service hours.

Key Philadelphia IRS Center Personnel

 Christopher J. Egger   Director, Submission               215-516-2221

                        Processing Center            

FAX: 215-516-2001

 Deborah S. Reilly      Director, Customer                

215-516-2222

                        Service Center                

FAX: 215-516-2001

 Sharon Blount          SP Chief, Planning &              

215-516-2349

                        Analysis Staff                

FAX: 215-516-1325

 Pat Betlejewski        C.S. Chief, Planning &            

215-516-2536

                        Analysis Staff                

FAX: 215-516-2680

 Harry L. Thurston      Chief, Processing Division        

215-516-2533

                                                      FAX: 215-516-1433

 Deborah A. Gascard     Chief, Post Processing            

215-516-2224

Division

                      FAX: 215-516-1199

 William Mesure         Chief, Customer Service            

215-516-2531

Division l

                    FAX: 215-516-2680

 Gerry Redlinger        Chief, Customer Service            

215-516-2567

Division II

                   FAX: 215-516-1433

 Larry Leard            Chief, Customer Service            

412-395-4390

                        Division III Pittsburgh, PA        

Ext.108

                                                      FAX: 412-395-4724

 Lee Giurlanda          Chief, Customer Service            

804-771-2181

                        Division IV Richmond, VA      

FAX: 804-916-8909

 Ed McPhillips          Site Coordinator                  

215-516-2690

                                                      FAX: 215-516-2680

 Wendy Rader            Taxpayer Advocate                  

215-516-2525

                                                      FAX: 215-516-2677

 Eileen Mesure          Communications Manager            

215-516-2483

                                                      FAX: 215-516-3589

For private carrier delivery, the Philadelphia IRS Center is located at:

 11601 Roosevelt Boulevard

Philadelphia, PA 19154

However, the specific P.O. Boxes supplied in our correspondence to you may be more efficient than delivery to the general address.

IRS Districts

Northeast Region

Pennsylvania District (located in Philadelphia and includes former Pittsburgh District)

      Director - Benjamin F. Rogers (Acting) - 215-861-1371

      Taxpayer Advocate - Terry Mapp - 215-861-1304

      Communications Manager William Cressman - 215-861-1698

(located in Newark and served by Brookhaven Service Center)

      Director - Frank P. Nixon - 973-921-4117

      Taxpayer Advocate - Lyle Lauterback - 973-921-4043

      Communications Manager - Greg Semanick - 973-921-4138

Delaware Maryland District (located in Baltimore and includes former Wilmington District and Washington, D .C.)

      Director - Marie Medeck - 410-962-3084

      Taxpayer Advocate - Pamela Votta (Acting) - 410-962-3324

      Communications Manager - Dominic LaPonzina - 410-962-3330

(located in Richmond and includes former Parkersburg District)

      Director - Roger K. Burgess - 804-916-8700

      Taxpayer Advocate - Mark Campbell - 804-916-3501

      Communications Manager - Vacant - 804-916-8760

Customer Service Toll-Free Phones:

   TELE-TIN:

215-516-6999

     TELE-TIN FAX:

215-516-3990

 Adoption Taxpayer Identification Number (ATIN) -- Form W-7A

215-516-4846

  FAX: 215-516-3271 or 3272

215-516-4846

  FAX: 215-516-1127

215-516-7286

   FAX: 215-516-3414

215-516-4779

   FAX: 215-516-5994

215-516-7229

   FAX: 215-516-1035

(General information)

215-516-2499

   FAX: 215-516-2677

215-516-6935

   FAX: 215-516-1438

Practitioner Priority Cases -- For priority cases that do not meet Problem Resolution Program criteria, but require special handling, write to:

 Internal Revenue Service

 P.O. Box 6073,

 Philadelphia IRS Center Priority Case

 Philadelphia, PA 19114

National Taxpayer Advocate Hotline

                               877-777-4778

              Practitioner Hotline for District Offices

                Pittsburgh Office:

412-281-0281

        Delaware-Maryland District: Baltimore Office:

410-727-7965

                                   Wilmington Office:

302-573-6421

    Virginia-West Virginia District: Richmond Office:

804-916-5010

FAX: 804-916-8977

KEEPING UP WITH WHAT'S NEW

IRS RESTRUCTURING AND REFORM ACT OF 1998

This publication contains the latest updated information available at its compilation; therefore, in areas pertaining to tax forms and instruction changes, as well as Congressional revisions to the tax laws and code that result from legislative action since its original passage, tax practitioners should regularly review the Internal Revenue Information Service (IRIS) on the FedWorld Bulletin Board.

You may access this information resource:

IRS's Web Page provides instantaneous uploading of breaking tax news releases and announcements, as well as a specific Web Page "corner" geared to tax professionals which contains specific technical information for their use.

BD+>HIGHLIGHTS

The following are brief summaries and highlights of the continuing major tax law changes and provisions contained in the IRS Restructuring and Reform Act of 1998. These changes include provisions with special significance for families, students, homeowners, and investors.

CHILD TAX CREDIT

Under this provision, a credit can be claimed for each qualifying child under 17 years of age. Taxpayers may claim a maximum credit of $500 per qualifying child for 1999, and subsequent years.

This credit is phased out by $50 for each $1,000 of the taxpayer's modified adjusted gross income (AGI) in excess of $110,000 for taxpayers filing jointly, $75,000 for single taxpayers, and $55,000 for married taxpayers filing separately. Generally, the credit is limited to tax liability net of credits (other than EITC). However, families with three or more children may be entitled to a credit in excess of tax liability.

To claim Child Tax Credit, taxpayers are required to provide the name and identification number of the qualifying child on the return.

EDUCATION INCENTIVES

HOPE Scholarship Credit

The HOPE Scholarship Credit allows taxpayers to claim a maximum credit of $1,500 (100 percent of the first $1,000 of tuition and fees and 50 percent of the next $1,000 of tuition and fees) for expenses paid on behalf of the taxpayer, the taxpayer's spouse, or a dependent for the first two years of post-secondary education at an eligible institution. The student must be enrolled on at least a half-time basis for at least one academic period during the year for the expenses to be qualified. The HOPE Scholarship Credit applies to expenses paid after December 31, 1997, for education furnished in academic periods beginning after that date.

Lifetime Learning Credit

The Lifetime Learning Credit allows taxpayers to claim a maximum credit equal to 20 percent of up to $5,000 of expenses ($10,000 beginning in 2003) incurred during the taxable year for qualified tuition and fees for eligible students for post-secondary education, including any course of instruction to acquire or improve job skills. The Lifetime Learning Credit applies to expenses paid after June 30, 1998, for education furnished in academic periods beginning after that date.

Both credits limit qualified expenses to the expenses of the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer. Additionally, both credits are phased out for taxpayers with modified AGI between $40,000 and $50,000 (between $80,000 and $100,000 for joint filers).

For each qualifying student, taxpayers must choose to claim either the HOPE Scholarship Credit, the Lifetime Learning Credit, or the exclusion for certain distributions from an education IRA (described below) for the taxable year. They cannot claim more than one of these benefits for a student for any year.

Education IRA

A new educational funding vehicle called an Education Individual Retirement Account (Education IRA), has been created for the purpose of paying the qualified higher education expenses of a designated beneficiary. Qualified higher education expenses include tuition, fees, books, supplies and equipment, and room and board. Contributions are non-deductible, and earnings on the amount held in the IRA will be non-taxable until distributed. Annual contributions are limited to $500 per beneficiary under the age of 18. The contribution limit is phased out as a taxpayer's modified AGI increases from $95,000 to $110,000 ($150,000 to $160,000 for joint returns). This provision is effective for taxable years beginning after December 31, 1997. The IRS is modifying Forms 5498 and 1099R to reflect Education IRA contributions in a separate box.

Deduction for Interest on Education Loans

This provision allows an above-the-line maximum deduction for up to $2,500 of interest paid by taxpayers on qualified education loans. The $2,500 limit is phased in over four years: The maximum deduction is $1,500 in 1999, $2,000 in 2000, and $2,500 in 2001. Taxpayers may take a deduction on qualified education loans for the benefit of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer, as of the time the indebtedness was incurred. Deductions are allowed only for the first 60 months that interest payments are required. The deduction is phased out for taxpayers with modified AGI between $40,000 and $55,000 ($60,000 and $75,000 for joint filers). Married taxpayers must file jointly to take the deduction, and the credit may not be claimed on the return of anyone who is claimed as a dependent on another person's return. This provision is effective for interest due and paid after December 31, 1997.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAs)

Increased Phase-out Ranges for Deductible IRAs

The Adjusted Gross Income (AGI) phase-out ranges for deductible IRAs of active participants in employer-sponsored retirement plans have been increasing annually beginning in 1998 until they reach double the current phase-out ranges in 2007. The following chart provides a yearly schedule through 2007.

      Year     Married filing jointly      Single filers

       1999     $51,000 - $61,000         $31,000 - $41,000

       2000     $52,000 - $62,000         $32,000 - $42,000

       2001     $53,000 - $63,000         $33,000 - $43,000

       2002     $54,000 - $64,000         $34,000 - $44,000

       2003     $60,000 - $70,000         $40,000 - $50,000

       2004     $65,000 - $75,000         $45,000 - $55,000

       2005     $70,000 - $80,000         $50,000 - $60,000

       2006     $75,000 - $85,000         $50,000 - $60,000

       2007     $80,000 - $100,000        $50,000 - $60,000

An individual retirement account called a "Roth IRA" began in 1998. Key features are:

A "qualified distribution" is defined as a distribution when it is:

No payment can be a qualified distribution unless it is made after the five-taxable-year period beginning with the taxable year in which the taxpayer first contributed to a Roth IRA.

Annual contributions to the Roth IRAs are limited to $2,000 less the taxpayer's deductible IRA contributions. Unlike deductible IRAs, there is no prohibition on making contributions after attaining age 70.

The $2,000 limit is phased out as AGI increases from $150,000 to $160,000 in the case of a married couple filing jointly or $95,000 to $110,000 for a single filer.

Amounts in deductible IRAs may be transferred to Roth IRAs provided the taxpayer's AGI for the transfer year is $100,000 or less. Transferred amounts are included in income, but exempt from the early withdrawal tax. If the transfer occurred in 1998, income from the transfer is spread out over four years (i.e., 1/4th of the transferred amount is valid for inclusion in 1998, 1999, 2000, and 2001). No payments allocable to the transferred amounts can be qualified distributions unless they are made more than five years after the transfer.

Penalty-Free IRA Withdrawals

The 10 percent early withdrawal penalty (generally, for withdrawals before age 59 1/2) is not applicable to IRA distributions after 1997 used to pay qualified higher education expenses of the taxpayer, the taxpayer's spouse, or their children or grandchildren, or used to purchase a first home. The exception for a first-time home purchase is subject to a $10,000 lifetime limit.

CAPITAL GAINS

The 18-month holding period for long term capital assets eligible for the lower capital gain rates set by the Taxpayer Relief Act of 1997 has been eliminated. Now, an asset need only be held more than 12 months. This change is retroactive to January 1, 1998.

Gain from Sales of a Principal Residence

Taxpayers are allowed to exclude up to $250,000 of gain ($500,000 if married filing jointly) realized on the sale or exchange of a principal residence after May 6, 1997. The exclusion is allowable for each such sale or exchange, but generally no more frequently that once every two years. Eligibility requirements are that the property must be owned and used as the taxpayer's principal residence for a combined period of at least two years out of the five years prior to the sale or exchange. Taxpayers who fail to satisfy the full two-year ownership and use requirement due to certain circumstances may be entitled to a portion of the tax benefits. These homeowners can now exclude an amount equal to the fraction of the two years that the house ownership and use requirement is satisfied.

ESTATE TAXES

Beginning in 1998, the unified estate and gift tax credit increased annually from the $600,000 limit until the maximum value of estates exempt from tax reaches $1 million in 2006, as shown in the following chart:

      Year                Effective Estate Exemption Value

       1999                       $650,000

       2000 and 2001              $675,000

       2002 and 2003              $700,000

       2004                       $850,000

       2005                       $950,000

       2006 and thereafter        $1,000,000

Beginning in 1999, the $10,000 annual exclusion for gifts, the $750,000 ceiling on special use valuation, the $1 million generation- skipping transfer tax exemption, and the $1 million ceiling on the value of a closely-held business eligible for the special low interest rate will all be indexed annually to reflect inflation. The provisions apply to estates of taxpayers dying, and to gifts made after December 31, 1997.

SELF-EMPLOYED WORKERS BUSINESS PROVISIONS

Alternative Minimum Tax (AMT)

Small business corporations are exempt from the AMT for taxable years beginning after 1997. A corporation that has average gross receipts of less than $5 million for the three-year period beginning after December 31, 1994 will be a small business corporation for any taxable year beginning after 1997. A corporation that meets the $5 million gross receipts threshold will continue to be treated as a small business corporation exempt from the AMT as long as its average gross receipts for all post-1997 taxable years does not exceed $7.5 million.

Business Meal Expenses

A graduated increase in the deductible percentage of business meal expenses for individuals subject to the Department of Transportation's hours of service limitations provides for a 55 percent deduction in 1998 and 1999 for those individuals meeting those criteria. The percentage increases by five percent every two years until it reaches an 80 percent ceiling in 2008.

Net Operating Loss (NOL) Carryback and Carryforward Rules

The NOL carryback period is limited to two years, and the NOL carryforward period is extended to 20 years for NOLs arising in taxable years after the August 5, 1997 enactment of the Taxpayer Relief Act of 1997.

Foreign Earned Income Exclusion

This exclusion increases by $2,000 yearly, from the current $70,000 to $80,000, beginning in 1998.

Home Office Use

The Internal Revenue Code Section 280A has been amended to allow a deduction for a home office if:

This provision is effective in taxable years beginning after December 31, 1998.

Self-Employed Health Insurance Deduction

Starting in 2000, millions of consultants, free-lance writers, and other self-employed workers will be able to deduct more of the health-insurance premiums they apply for themselves, their spouses, and their dependents. Part of the recently enacted budget bill states that self-employed workers may deduct 60% of their premiums in 1999. The new law won't affect the 1998 limit of 45%.

Under the new law, the percentage will remain 60% in 2000 and 2001. Then it will rise to 70% in 2002 and 100% in 2003 and thereafter.

Farm Income Averaging

Individuals are allowed to compute their regular tax liability by averaging, over the prior three-year period, all or a portion of their taxable income from the trade or business of farming. This provision applies to taxable years beginning after December 1997 and before January 1, 2001.

TAX ADMINISTRATION

Earned Income Tax Credit Enforcement

Provisions regulating the Earned Income Tax Credit (EITC) now provide that a taxpayer who fraudulently claims EITC is ineligible to claim the credit for a subsequent ten-year period. A taxpayer who erroneously claims EITC due to reckless or international disregard of rules or regulations is ineligible to claim the EITC for a subsequent two-year period. A taxpayer who has been denied the EITC as a result of deficiency procedures is ineligible to claim the EITC in subsequent years unless the taxpayer provides such information as may be required to demonstrate eligibility for the credit.

Failure to provide this information when claiming the EITC is treated as a mathematical, or clerical error. A due diligence requirement is effective for preparers that would result in a $100 penalty if negligent. This provision is applicable to taxable years beginning after December 31, 1996.

Changes to the definition of modified Adjusted Gross Income (AGI) became effective in 1998.

The modified AGI is used to phase out EITC for individuals who have income above certain thresholds. Taxpayers will be required to add to their modified AGI:

Under the provision, workfare payments are excluded from earned income.

Payment of Tax

The IRS is permitted to accept payment of taxes by commercially acceptable means as determined appropriate under Treasury regulations. Included in this category are electronic funds transfers, including credit card, debit card, and charge card payments. Under the provision, Treasury may not pay any fees or other considerations under a contract for credit card services.

Reasonable Cause Exceptions for Certain Penalties

Under the new tax law provisions, the following penalties may be waived for taxable years beginning after the August 5, 1997 enactment date, if the failure is shown to be due to reasonable cause, and not willful neglect:

A reporting requirement was enacted for gross proceeds reporting on all payments to attorneys made by a person or an entity in the course of that trade or business.

An exception to the requirement is any payment reported on either Form 1099-MISC under IRC Section 6041 (reports of payments of income) or Form W-2 under IRC Section 6051 (payments of wages). Attorneys are required to promptly provide their Taxpayer Identification Numbers (TINs) to persons required to file these information reports. This provision is effective for payments made after December 31, 1997.

EXTENDED PROVISIONS

Airline Ticket Taxes

The Airport and Airway Trust Fund taxes have been extended and modified for a ten-year period, from October 1, 1997 through September 30, 2007. Under the provisions, a gradual decrease in the rate in the domestic air passenger excise tax, with an additional fixed amount paid per flight segment, is as follows:

 Oct. 1, 1998 - Sept. 30, 1999: 8 percent of the fare, plus $2

Oct. 1, 1999 - Dec. 31, 1999:

 7.5 percent of the fare, plus $2.25

During 2000:

 7.5 percent of the fare, plus $2.50

During 2001:

 7.5 percent of the fare, plus $2.75

2002 and thereafter:

 7.5 percent of the fare, plus $3 (indexed

                      annually for inflation after 2002).

A domestic segment is defined as consisting of one takeoff and one landing on air transportation which begins and ends in the U.S., or within a 225-mile zone of Canada or Mexico.

The current $6 international air departure tax is increased to $12, with an identical tax imposed on international arrivals in the U.S. The current $6 departure tax applicable on flights between the 48 contiguous states, Hawaii, and Alaska is retained. These amounts are indexed to inflation after 1998.

Rural airports are exempt from the segment tax and the phase-in of the 7.5 percent rate; that rate is effective for tickets purchased at rural airports after September 30, 1997.

The 7.5 percent rate also applies to payments made for the right to provide mileage (frequent flyer) awards for air transportation, effective after September 30, 1997.

Orphan Drug Credit

The Orphan Drug Tax Credit, which had expired May 31, 1997, is retroactively and permanently extended.

Research Tax Credit

The research tax credit, which expired after May 31, 1997, has been retroactively extended for the period June 1, 1997 through June 30, 1999.

SECTION 2: TAX RETURNS FILING

IRS e-file (Electronic Filing)

Significant strides have been made to make paperless filing the most preferred and convenient means of filing tax returns.

Practitioners who wish to participate in the IRS e-file program will find guidelines, requirements and specific information in Publication 1345 (Rev. 1-98), Handbook for Electronic Return Originators of Individual Income Tax Returns, and Revenue Procedure 98-50.

Copies of these publications and assistance with the program are available through the offices at these IRS Districts ETA (Electronic Tax Administration) or through the IRS web site http://www.irs.gov

                        Pennsylvania District:

                       Pennsylvania:

(215) 861-1664

Delaware-Maryland District:

                        Baltimore:

(410) 962-1801

Virginia-West Virginia District:

                        Richmond:

(804) 771-8048

Practitioners who wish to participate in the program must file Form 8633, Application to Participate in IRS e-file program, and pass a Suitability Review Process. Past participation in the IRS e-file program does not automatically ensure admission for subsequent years. Advantages of e-file include:

Most forms and schedules can be filed electronically, including Form 4868, Request for Extension, and Form 9465, Installment Agreement.

TeleFile

Those taxpayers who are eligible for TeleFile--generally single filers with no dependents who have lived at the same address for more than a year--will automatically receive a special TeleFile package in the mail. Taxpayers can fill out the worksheet which requests basic information such as wages, salaries, and tips from Forms W-2, federal income tax withheld, total taxable interest and whether the taxpayer can be claimed as a dependent on someone else's return. The taxpayer then calls the toll-free number in the TeleFile package and, through the interactive computer program, is prompted to input the necessary information by keying the touch-tone phone buttons.

The TeleFile phone number is available 24-hours-a-day, 7-days-a-week, and the program automatically calculates the caller's refund or balance due, as well as eligibility and amount for earned income credit. Each TeleFiler receives a customer service number in his/her TeleFile package that, when entered into the phone, takes the place of a signature; therefore, the TeleFiler does not have to mail anything to the IRS. Those TeleFilers who owe a balance due must, however, mail their payment using the envelope provided in the package, and payments are due April 15.

On-Line Filing

Taxpayers and preparers who have a personal computer and use an on- line service company, such as America On-Line or CompuServe, can transmit their tax information via modem over the telephone lines to IRS computers.

Through this option, a completed return is transmitted to the user's on-line service which then converts the file from the tax preparation software's format to the format meeting IRS' specifications and then transmits it to IRS. Users need to check with their particular on- line service for availability of this option and should also check on required software and transmission fees.

IRS then notifies the filer through the on-line service whether the return has been accepted or requires additional information. Once IRS accepts the return, the filer signs and mails Form 8453-OL to IRS along with Copy B of any Forms W-2. Form 8453-OL is an electronic filing signature form that can be downloaded from the taxpayer's software package or on-line service.

Many on-line services and bulletin boards also have hundreds of tax forms, instructions and publications available on-line for subscribers to download and print.

1040 PC Programs

Using a personal computer, taxpayers and tax preparers can generate a tax return which resembles an "answer sheet," sign the document, and mail it to the Philadelphia IRS Center, where it is processed the same as a conventional return. The document format contains only those lines filled in by the taxpayer, cutting down on the amount of paper generated.

The 1040PC returns can be stored by taxpayers and preparers on storage disks, also reducing paper files. All that is required to use the 1040PC program is a personal computer, a printer, and accepted software, available commercially.

FILING FORMS VIA MAGNETIC MEDIA

ELF Processing Support

The ELF Processing Support Section processes returns received on magnetic tape, diskette, or electronically via modem. This process bypasses the traditional process utilizing an automated method. A magnetically filed return consists of data submitted to the Philadelphia IRS Center via the methods identified above and paper documents which contain information that cannot be submitted via magnetic media, such as signatures, etc. In total, a magnetic media return must contain the same information as a comparable return filed entirely on paper documents.

Data transmitted via Magnetic Media is limited to the following returns:

Some of the other programs offered by the ELF Processing Support Staff are:

Remittances

Previously, payment due on Form 1041 and 1040NR returns came in on paper registers. We now offer an option that provides a much quicker and more accurate posting of payments. Remittance registers can be transmitted via modem, creating a more accurate record. When the paper check is received in Magnetic Media, the amount is verified against the register and the check is forwarded for deposit and processing. The remittance register is then processed.

AUTO-ITIN - Automated Individual Taxpayer Identification Number

The AUTO-ITIN program automates the processing of Forms W-7 (Applications for IRS Individual Taxpayer Identification Numbers) that are transmitted electronically to the Philadelphia IRS Center. All AUTO-ITIN processes are provided via the Electronic Communication System (ECS) for Certifying Acceptance Agents that wish to participate in this electronic inquiry/response program.

AUTO-EIN - Automated Employer Identification Number

The AUTO-EIN program automates the allocation and establishment of Employer Identification Numbers (EINs) for Fiduciary Filers that file with the IDPS Office. Prior to AUTO-EIN, filers were required to submit a paper bank-list of all the entities and then each EIN was manually entered to establish the accounts on the Masterfile. AUTO- EIN was designed as a fully automated program, and all services are available on the ECS. Customers request an online block of EINs, transmit a data file (replacing the paper bank-list), and the entities are established on the Masterfile. Customers receive electronic acknowledgments on all files via the ECS.

Form 6166 - Foreign Certification Program

This program is used to furnish evidence that a domestic entity (citizen, corporation, partnership, exempt organization, etc.) is a United States resident. Residency is determined by evidence of having filed a tax return, not being liable to file a tax return or being tax exempt. The purpose of such evidence is to aid a foreign country which has an income tax treaty with the United States in determining an applicant's entitlement to benefits under such treaty.

Low Income Housing Credit (LIHC) Forms

The IDPS Office developed a system for nationwide processing, storing and retrieving information filed on various LIHC forms. The address and phone number for the IDPS Office is as follows:

 Philadelphia IRS Center

 11601 Roosevelt Blvd., DP: 5830

 Philadelphia, PA 19154

 (215) 516-7533 (Not a toll-free number) or

 1-800-829-6945 (Toll free)

Forms 940 and 941

Through the Forms 940/941 Magnetic Media electronic filing programs, payroll, accounting and business firms, as well as other tax preparers, can submit returns as Reporting Agents on behalf of their clients. After the application process (explained below), the ELF Processing Support Section can assist agents in creating successful transmissions through the Electronic Communication System (ECS).

Employers seeking Reporting Agents to file their returns should check their telephone directory under listings for "Payroll," "Data," and/or "Computer Services." Agents who wish to develop software based on IRS computer specifications and record layouts should check "Data," "Computer," and "Business Service" listings or businesses. The IRS can also supply the necessary information to any interested party that has applied for electronic access.

In order to file electronically for multiple businesses, one of the firms must be designated the "Reporting Agent." For example, a corporation filing for its subsidiaries would be considered a "Reporting Agent."

940/941 Modem Filing Program Requirements and Procedures

Application Process:

Before the IRS 940/941 software will be made available, Reporting Agents must submit the following:

You will receive an Electronic Transmitter Identification Number (ETIN) for ECS access. In addition, instructions will be included for downloading the programs from the Philadelphia IRS Center's ECS.

Operating System Requirements:

Reporting Agents must have a computer system that meets the following requirements: IBM-compatible 486 PC (Pentium preferred) and have at least Windows 3.1 or higher (Windows NT not supported)

In preparation for "live" filing, signed and dated Form 8655, Reporting Agent Authorization for Magnetic Tape/Electronic Filers, must be submitted to the Philadelphia IRS Center's ELF Processing Support Office. The Form 8655 will establish filing requirements with the IRS and authorize electronic submission for each client. The forms must be submitted to the Center at least one month before the end of the tax period for which filing will begin.

Each quarter, one copy of Form 4996, Electronic/Magnetic Media Filing Transmittal for Wage and Withholding Tax Returns, is required to support electronic filing of returns. The form will be used to verify total tax returns transmitted. It will also serve as an acknowledged receipt. The form is part of the Philadelphia IRS Center's software package and is generated by the programs upon completion of data entry. It should be sent via facsimile to (215) 516-2052 on the same day of modem filing.

Any questions can be directed to (215) 516-7533 or to our toll-free number 1-800-829-6945.

Consider the many benefits of electronic tax return filing:

Any accounting firm or tax preparer filing Form 1040NR may file via magnetic media. Filers interested in joining this program may contact the Philadelphia IRS Center at the address and phone numbers listed previously. Upon contact, the Philadelphia IRS Center will send the interested filer an application and a Revenue Procedure package which will help the potential magnetic filer's programmers in creating a test tape. When the test tape is received, it will be processed, and the filer will be notified of any needed corrections.

The Philadelphia IRS Center will work with the filer to create a good test tape, thus allowing the filer to be certified.

A magnetic media return consists of data transmitted to the Philadelphia IRS Center via Magnetic Media, as well as information that cannot be submitted magnetically. A magnetic media return must contain the same information as a return filed entirely on paper. Form 8453NR, Signature Form, may be produced in a consolidated format and must accompany the returns submitted via magnetic media.

The data submitted via magnetic media is limited to Form 1040NR and related forms and schedules. Data that cannot be submitted via magnetic media includes, but is not limited to, Form 8453NR, other documents containing required signatures, and documents not required by IRS or not required on IRS forms or schedules.

After testing and certification, live magnetic media returns will be processed and the filer will receive an Acknowledgment Listing. The Acknowledgment Listing will indicate all accepted and/or rejected returns. Rejected return information will include a listing of critical errors for each rejected return. In the case of rejected returns, the filer will be required to transmit a corrected return via magnetic media. Data transmitted via magnetic media is limited to the following forms and schedules:

Any accounting firm, tax preparer, bank, mortgage company, or transmitter filing Form 1041, Fiduciary Return, may file via magnetic media. Interested filers may contact the Philadelphia IRS Center at the address and phone number listed previously. The Philadelphia IRS Center will send the filer an application (Form 9041), along with a Revenue Procedure package that will help the potential electronic filer's programmers in creating the tape. Once an application is approved, the Philadelphia IRS Center will request a test file. Upon receipt of the file, it will be run and the filer will be told of any necessary corrections. The Philadelphia IRS Center will work directly with the filer until a good file is created, and the filer can be certified. An entity file will also be requested. This file will be used to verify the names and Taxpayer Identification Numbers for all returns the filer plans to submit.

A magnetic media return consists of data submitted to the Philadelphia IRS Center via magnetic media and also of paper documents containing information that cannot be submitted magnetically. A magnetic media return must contain the same information as a return filed entirely on paper documents.

Data transmitted on magnetic media is limited to the following forms and schedules:

The non-magnetic media portion of the return consists of Form 8453-F, U.S. Fiduciary Income Tax Declaration for Magnetic Media Filing, which is required for all returns submitted, and of any other documents that cannot be included via the magnetic media. The Form 8453-F may be produced in a consolidated format when the filer is empowered to sign multiple tax returns. Form 8453-F must accompany the returns and be signed no later than the date of transmission.

Previously, payments due on Form 1041 returns came in on paper registers. We now offer a "same medium" submission with the returns.

This option provides a much quicker and more accurate posting of payments, as it bypasses keypunch and several other possibilities of error. Such errors can generate unnecessary notices. The option, which is tested for accuracy along with the return data, requires little additional programming.

New York state, five New York banks, and the IRS participated in 1041 Federal/State filing for tax year 1997. The goal of the Fed/State project is to provide one-stop service to the taxpayer by allowing their fiduciary income tax returns (both federal and state) to be submitted electronically to the IRS in a single transmission.

After certification and testing, the magnetic media submission will be processed and the filer will receive an acknowledgment listing. The acknowledgment listing will indicate all accepted and/or rejected returns. Rejected return information will include a listing of critical errors for each rejected return. The filer will verify the acknowledgment listing against his transmission. In case of rejected returns, the filer will be required to submit corrected returns via magnetic media.

The benefits of magnetic media filing include:

Through the Form 5471 magnetic media program, a system was developed for processing both automated and paper Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The program was developed based on the revised Form 5471 released in June 1995. The automated system will allow taxpayers to file their returns via modem. In addition to the normal up-front validation done by other automated programs, the Form 5471 computer runs will also include validation of all math computations.

This processing system is a user-friendly interactive PC program that also incorporates all validation "up-front." This system is multi-purpose. In addition to using the PC program for data input, it functions as an error-resolution system, automatically generates a list of correspondence issues, controls returns in suspense, and serves as a retrieval system for viewing and printing the return. No special processing is needed since the program will run on most IBM-compatible PCs.

Previously, a manual system was used to assign a control number and to update the Foreign Corporation Control Number (FCCN) for every foreign corporation identified during Form 5471 processing. Under this system, the numbers are automatically assigned and controlled in a new database. In addition, once the automated process of assigning the DLN is completed, the FCCN database is automatically updated with the DLN. Also, both the paper system and the automated system have been expanded to capture twice as much data.

Application Procedures for Automated Filing:

The filer will receive a letter of certification when the test file runs error-free. After certification, the filer may submit live data for processing. Testing is done each year.

Acknowledgment List

All Forms 5471 submitted via modem are acknowledged. The acknowledgment list indicates each accepted and/or rejected return. Rejected returns will be resubmitted after correction via modem and will also be accepted on paper.

Note: The International and Domestic Support Staff at the Philadelphia IRS Center is the sole processor of electronic Forms 5471.

PAPER PROCESSING PIPELINE

While the growth of electronic filing alternatives is expected to steadily increase and supplant paper tax return filing, the processing pipeline at the Philadelphia IRS Center remains a primary conduit for millions of individual and business tax returns year round, as well as tax-related documents and correspondence.

The following describes the various stations a return visits during its journey through the pipeline.

SCAMPS

The Service Center Automated Mail Processing System (SCAMPS) utilizes two automated multi-functional machines that process both incoming and outgoing mail.

Incoming mail is processed at night, and the machines pre-sort the IRS bar-coded envelopes while cutting open the bottom without disturbing the contents inside.

A remittance detector also identifies those envelopes containing checks by "reading" the magnetic micro-encoding on the bottom of the checks.

The SCAMPS machine also sorts outgoing mail by zip codes, allowing the IRS to save on postal costs through bulk mail rates. This procedure is also performed by the JetStar in the South Building.

Over-sized, bulky, plain, or colored envelopes are not processed through the machines, but are sorted separately during handling at the next pipeline station, the Extraction area of the Receipt & Control Branch.

The Philadelphia IRS Center utilizes JetStar, a processing equipment that vastly improves check detection capability while also greatly upgrading the mail sort operation. This technology can also handle various sizes of mail, reducing manual operations and enhancing speed and accuracy of mail operations, while generating considerable cost savings.

Extraction

A "finer" type of sort is done in this area, and it is from Extraction that remittance and non-remittance returns will follow separate paths before being prepared for data entry.

During the extraction process, the contents of the envelopes are removed, date stamped, and then sorted into bins for routing to their proper destinations.

Sorting of the returns, correspondence, and documents, is done at Tingle Tables, named for an IRS employee who designed the multi- tiered desks.

Items containing remittances are sent to the Residual Remittance Processing System area, while non-remittance returns are sorted, date-stamped, and routed to the Batching & Numbering area.

Correspondence is handled through the Mail Analysis Unit. Correspondence is read, sorted, and coded for delivery to the appropriate area for action.

Integrated Submission and Remittance Processing System (ISRP)

Returns with remittances arrive at the RRPS Unit in batches of 100. Operators enter the Taxpayer Identification Number (TIN), the four- digit name control, tax period of the return, check money amounts, and the received date on a computer.

This original entry of data is then verified by a second operator who re-enters the data from the same batch of work and corrects any errors.

After each entry, the accompanying check is separated from the document.

The checks will go through the transporter system and the documents will go to Batching and Numbering to have their Document Locator Numbers (DLN) stamped on them.

Batches of checks, controlled by a Remittance Processing System Identification Number (RPSID), are run through a transporter for an initial pass. At this time, the front of the check is imaged, and the back of the check is printed with the RPSID number and deposit date. The system verifies the information captured from the check during the initial pass against the original entry and key verification input on ISRP and the Magnetic Ink Character Recognition (MICR) Reader. Anything that is not read or verified falls out to a correction process where an operator fixes the information.

Checks are then run through the transporter for a second pass. During this pass, checks are encoded, endorsed, and an audit trail is printed on the back of the check. Both the front and the back of the check are imaged at this time for archive retrieval and future research, when necessary. Pocket cuts are done on the checks with the totals for each pocket printing out.

Throughout this process, the work is being monitored on a terminal and four stagers by a User Support Specialist, who handles any problems that might occur.

At the end of the day, a Batch Summary Report, Deposit Summary, and the Deposit Ticket are printed and compared for accuracy. Remittance registers are printed, and checks are sent to the bank.

Batching and Numbering

All returns are assigned a unique 13-digit DLN which identifies the filing location of the return, the type of return (i.e., Form 1040, 941, 1041), Julian date of receipt, block number, and the year processed. In Batching and Numbering, employees use a special numbering machine to hand-stamp the returns at the rate of 1,000 per hour. (Specific DLN composition information is provided at the end of this section.)

After numbering, each batch of 100 returns is input into the Batch Block Tracking System (BBTS), a computer program which can identify the location of all returns as they move through processing until they are stored in the files area.

Code and Edit

Remittance and non-remittance returns are rejoined in the Code and Edit function where tax examiners check returns for completion and accuracy and are the first line for identifying problem areas. They look for missing signatures and line entries, the proper placement of entries, and the inclusion of the necessary forms and schedules.

Over the last several years, the Philadelphia IRS Center has tried to improve the timely processing of tax returns by telephoning taxpayers or preparers when returns are missing forms, schedules, line entries, and/or signatures. This program has proven successful, and taxpayers are appreciative for the chance to fax whatever is missing, instead of hearing from us by mail and having to mail the information back.

The only hindrance to the program is the inability to obtain taxpayers' telephone numbers. Last year, the IRS provided a space on the bottom right hand side of the Form 1040 and Form 1040A to add your telephone number. If you'd like to keep delays of your refund minimal, help us help you and add your phone number to the return.

Code and Edit tax examiners also "code" the returns, specifying those entries needed to be input by the data transcribers. They are alert for any returns which look questionable or fall into suspicious patterns, which they then pull and put into special "funny boxes" for inspection by the Criminal Investigation Branch.

Code and Edit employees receive refresher training each year to become updated on tax form changes and procedures.

Data Conversion

Returns are now input into the computer by data transcribers utilizing 410 Integrated Submission and Remittance Processing (ISRP) terminals (242 at the Philadelphia IRS Center and 168 terminals at an off-site data input facility near Allentown, PA and center city Philadelphia).

Each group of 22 ISRP terminals feeds into a mini-computer that functions as a Center Processing Unit (CPU).

The CPUs send and receive data from The Philadelphia IRS Center's mainframe computer which, in turn, transmits those returns which pass the validity checks to the IRS Master File at the Martinsburg Computing Center in Martinsburg, WV. These returns are referred to as "good tape."

As in the RRPS area, data is entered (OE) and then re-input (KV) as a validity check, with the second data transcriber correcting erroneous entries. Data transcribers, who can earn incentive pay for meeting and exceeding standards in quantity and quality, average an input rate of 30 Forms 1040 per hour.

Error Resolution

Returns which are rejected by the Philadelphia IRS Center mainframe computer for validity checks or math errors are resolved by tax examiners in the Document Perfection area.

These employees conduct research and contact taxpayers, as needed, to clarify and correct the information in question.

The tax examiners use a combination of on-line computer and paper correction functions to "perfect" the returns which are then re- entered by the data transcribers and transmitted to Martinsburg for posting to the Master File.

Document Locator Number

A Document Locator Number (DLN) is a controlled, 13-digit number assigned to every return or document that is input through the Center's automated data processing system.

DLNs are used to control, identify, and locate documents and appear on all notices sent to taxpayers, usually situated in the upper right-hand corner.

The following is an example of a DLN, and gives an explanation of how information is tracked by the specific digits contained in a DLN.

28210-105-60025

28 These first two digits identify the IRS Center; IRS Center codes are:

      07 - Atlanta

      17 - Cincinnati

      28 - Philadelphia

      08 - Andover

      18 - Austin

      29 - Ogden

      09 - Kansas City

      19 - Brookhaven

      49 - Memphis

      89 - Fresno

The third digit identifies the tax class code for the documents. Some sample codes are:

      1 - Withholding and FICA

      2 - Individual

      3 - Corporate and Partnership

      6 - Fiduciary and Non-Master File (NMF)

      8 - FUTA

The fourth and fifth digits are document codes. Sample document codes are:

      10 - Form 1040

      36 - Form 1041

      41 - Form 941

The sixth through eighth digits indicate the Julian date the return was numbered.

600 The ninth through eleventh digits indicate the block of 100 that contains the document.

25 The twelfth and thirteenth digits are the serial numbers -- from 00 through 99 -- of the document within the block of 100.

INDIVIDUAL TAX FILING EXTENSIONS

Form 4868 is used to request an automatic four-month extension for filing tax forms. The first extension is due by August 15 and does not extend the due date for tax payments. This form can be filed electronically through the IRS' e-file program, also through the Philadelphia IRS Center's ELF Processing Support Section. Form 2688 is used by filers requesting an additional two-month extension; it must be filed by August 15.

Automatic Extension for Forms 1065 and 1041

Filers of Form 1065 and Form 1041 returns may request an automatic three-month extension of time to file without stating reasonable cause of the delay. Form 8736 is used to request this extension. If these filers require still more time to file (up to three additional months), they are required to file a second request on Form 8800 with a statement of reasonable cause for the delay on Line 5.

A request for the automatic three-month extension will be approved if all the following conditions are met:

A request for the additional extension of up to three months will be approved if

conditions are met:

The Reduce Unnecessary Filing (RUF) initiative benefits both individual citizens and the IRS.

More than 1.8 million taxpayers were sent publications last year advising them that based on information on their 1997 U.S. Individual Income Tax Return, they did not meet the filing requirements; consequently, did not have to file a federal tax return for 1997.

The IRS is sending publications to selected taxpayers as part of our customer service and outreach efforts to reduce taxpayer burden.

The IRS has received numerous complimentary letters from taxpayers thanking us for the information.

Taxpayer burden is reduced by eliminating the concern that many taxpayers have regarding their requirements to file tax returns. The RUF initiative also saves taxpayers the expense of professional tax preparation and the time required for them to prepare returns. The IRS benefits from reduced operational costs, as the volume of returns received and processed "unnecessarily" decreases.

Publication 3136 (People 15 to 23 Years Old Filers) contains six questions taxpayers may use to determine if they are required to file a Federal Income Tax Return in the year 2000. The publication also contains Form W-4 Employee's Withholding Allowance Certificate if the taxpayer's withholding needs to be adjusted. Publication 3137 (People on a Pension) contains a worksheet to compute total gross income and a chart to determine filing requirements. It also contains Form W-4P Withholding Certificate for Pension or Annuity payments if needed. Publication 3195 (Elderly Filers) contains a worksheet to compute total gross income and chart to determine filing requirements, along with a business reply postcard located on the back cover for taxpayers to request a tax package, if needed.

SECTION 3: TAXPAYER INFORMATION NUMBERS

TAXPAYER IDENTIFICATION NUMBERS

The IRS recognizes four forms of Taxpayer Identification Numbers (TINs) for the filing of tax returns, payments, and documents: Social Security Numbers (SSNs), Employer Identification Numbers (EINs), Individual Taxpayer Identification Numbers (ITINs), and Adoption Taxpayer Identification Numbers (ATINs).

Additionally, in October 1999, the Philadelphia IRS Center inaugurated the issuance of Preparer Tax Identification Numbers (PTINs), which are issued specifically to tax preparers who must provide an ID number on tax returns they have prepared.

Social Security Numbers are obtained only from the Social Security Administration. The IRS assigns EINs for business entities required to file federal tax returns and ITINs for those individuals who do not qualify for a Social Security Number.

Form SS-4 is used to apply for an Employer Identification Number and may be mailed directly to the Philadelphia IRS Center which services the geographical area in which the applicant is located. Applicants in the states of Pennsylvania, Virginia, Delaware, Maryland, the District of Columbia, and Puerto Rico can mail their Forms SS-4 to the Philadelphia IRS Center at:

 Philadelphia IRS Center

 DP 8125

 Philadelphia, PA 19255

Other IRS centers and their geographical service areas are listed on the Form SS-4.

Practitioners should request EINs at least six weeks prior to the time that they are needed for tax identification or filing purposes.

New Fed/State EIN Initiative

As of November 16, 1998, under a joint initiative between the Philadelphia IRS Center and the Commonwealth of Pennsylvania, new business owners can now register to get their federal Employer Identification Number (EIN) at the same time they register with the state for tax account and licensing purposes.

This one-stop service provides taxpayers, registering their new business with the PA Departments of Revenue and Labor & Industry, with a Form SS-4 (Application for Employer Identification Number) to complete and sign at that time. The State will then electronically transmit all of the information on the Form SS-4 to the IRS via secured lines. Upon receipt of the transmission, the Philadelphia IRS Center will assign the EIN and notify the business owner within ten business days. Since the Philadelphia IRS Center will also notify the state of the business' EIN, no longer will the business have to inform the Department of Revenue of its permanent EIN. The Philadelphia IRS Center will also pass the SS-4 data on to the Social Security Administration.

This cooperative effort delivers improved customer service to the new business owner since it eliminates the need to phone, fax, or walk-in to the local IRS office for a federal tax ID number.

TELE-TIN/FAX-TIN

In addition to processing mailed SS-4s, the IRS offers two convenient methods for securing an Employee Identification Number (EIN):

By Telephone: Taxpayers can receive an immediate EIN over the phone by calling (215) 516-6999. Callers should have a completed SS-4 form in front of them. Only authorized individuals are eligible to receive the EIN over the phone. Authorized persons include:

Third party callers must have a valid Power of Attorney (POA) form on file with the IRS before a newly assigned EIN can be released to them. The POA form can be faxed to

Via Fax: Taxpayers can fax their completed SS-4 Forms to the IRS. An assigned EIN will be faxed back to them, usually within two working days. To ensure this service, the fax cover sheet must contain:

The fax number for SS-4 and accompanying documents is

If a faxed SS-4 Form does not have a complete cover sheet, it will be processed as a mailed submission. The assigned EIN will be mailed back to the requestor.

Note: Even after receiving an EIN by telephone or fax, taxpayers must still mail their completed SS-4 Form to the IRS within 48 hours.

AUTO-EIN

The Philadelphia IRS Center's ELF Processing Support (EPS) offers an option for its electronic fiduciary filers to receive Employer Identification Numbers through the EPS Electronic Communication System (ECS).

The AUTO-EIN Program automates the allocation, assignment, and processing of EINs for these filers. After submission of an application, the participant is assigned an Electronic Transmission Identification Number (ETIN) for system use. A test datafile is required to ensure proper formatting of submissions and, upon successful testing, the user is certified for the AUTO-EIN program.

Through AUTO-EIN, the user can request a block allocation of EINs on- line. An electronic acknowledgement is returned to the user within three days, advising the appropriate block of numbers allocated.

When the user submits the datafile containing the block EINs previously allocated and assigned by the user, the records are automated into the IDRS system.

A Philadelphia IRS Center application is also available for those customers who do not have datafile creation capability.

Additional information and application instructions are available from the EPS by calling (215) 516-7533, faxing the request to (215) 516-2052 between 7 A.M. and 4 P.M., or by writing to:

Philadelphia IRS Center ELF Processing Support 11601 Roosevelt Blvd., DP: 2721 Philadelphia, PA 19154

Individual Taxpayer Identification Numbers (ITINs)

Since the inception of the ITIN program in July 1996, the Philadelphia IRS Center has issued more than 2.4 million ITINs to domestic and international tax filers who cannot obtain and do not qualify for a Social Security Number.

As the sole processing center of ITIN applications, the Philadelphia IRS Center anticipates processing up to 2 million new applications during 1999 due to tax code regulatory changes.

ITINs are used for tax purposes only and do not supplant Social Security Numbers. ITIN recipients are not eligible for the Earned Income Tax Credit (EITC), nor is an ITIN a valid ID number for work purposes. ITINs are permanent tax identification numbers and replace the former temporary IRSNs; consequently, the IRS no longer accepts IRSNs or entries such as "applied for," "NRA," or "SSA205C" on tax documents and returns. As the ITIN must be applied for and assigned prior to tax form submission, "ITIN applied for" in the SSN field on a tax form is not considered a valid entry either.

Those taxpayers eligible for ITINs include resident and non-resident aliens who are:

Those not eligible for ITINs are U. S. citizens and U.S. resident aliens who are eligible to receive Social Security Numbers.

Applications for ITINs are made by filing Form W-7 with the supporting documentation described below. A revised version of the Form W-7, available since February 1998, reflects taxpayer feedback and is easier to understand and complete. A Spanish language version, Form W-7S, became available in April 1998.

Forms W-7 may be submitted through several methods:

Acceptable documentation is defined as documentation that proves both identity and foreign status. When a single document satisfies both requirements (such as a passport), one proof will suffice; otherwise, two types of documentation are required. Types of acceptable documentation include passports, visas, national identity cards, and drivers' licenses.

Original documentation received by the Philadelphia IRS Center ITIN Unit is reviewed for acceptance or rejection within 14 days of receipt and returned to the applicant through the U.S. Postal Service (documents returned to foreign addresses are sent by registered mail). In lieu of original documents, applicants may also submit quality copies of documents which have either been certified by the issuing agency or notarized by a U.S. notary.

Note: If the documentation is in a foreign language, a certified translation must accompany it

Applications and/or supporting documentation that are rejected will be returned to the applicant with a detailed explanation for the rejection as to what information is needed.

Additional information about ITINs can be obtained from Publication 1915, "Understanding Your Individual Taxpayer Identification Number."

For more information on the Acceptance Agent Program and how to apply for Acceptance Agent status, tax practitioners can contact the IRS Assistant Commissioner/International at (202) 874-1638.

Forms W-7 and documentation can be mailed to:

 Philadelphia IRS Center

 ITIN Unit, DP 2840

 P.O. Box 447

 Bensalem, PA 19020

The ITIN Unit Customer Service phone number is

The ITIN Unit fax number is

Note: Processing for Forms W-7 and issuance of the assigned ITINs may take four to six weeks from receipt. Applicants should allow for that time period in making their applications and before inquiring about the status of their applications.

Adoption Taxpayer Identification Numbers (ATINs)

Since January 1998, the Philadelphia IRS Center has been the sole processing site for Adoption Taxpayer Identification Number (ATIN) applications, assigning more than 2,000 ATINs during the first six months of the program. Qualifying applicants for ATINs are taxpayers who are in the process of adopting a child and who meet the criteria for claiming dependent status for the adoptive child, but are unable to apply for a Social Security Number (SSN) for the child, pending final adoption.

Note: ATINs are issued for domestic adoptions only. Taxpayers involved in adopting a foreign child must apply for an ITIN for the child.

ATINs are temporary numbers issued by the IRS and are valid only for a two-year time period, or until the applicant receives a SSN for the adoptive child. Many adopting parents often have custody of the child for a period of time, pending the adoption, and provide sufficient financial support during the year to claim the dependency exemption or child care credit on their returns; however, because of privacy issues, they do not have access to the child's existing SSN. Additionally, because the Social Security Administration (SSA) will only issue an SSN when the adoption is final, the parents are unable to provide a SSN when filing the return.

Form W-7A is used by taxpayers to apply for ATINs. As with ITINs, applicants will be required to provide supporting documentation with the application. Applicants may file Form W-7A at all IRS district offices and posts of duty where field personnel will verify the information and "pre-screen" the Form W-7A for accuracy and completeness.

Applicants may also mail the Form W-7A and supporting documentation to the Philadelphia IRS Center ITIN Unit. Information about tax benefits for adoption is available in Publication 968.

Preparer Tax Identification Number (PTIN)

The IRS Restructuring and Reform Act of 1998 authorized the use of alternatives to Social Security Numbers (SSNs) to identify tax return preparers. The change responds to concerns that a preparer's SSN could be used inappropriately by clientele and others having access to a prepared return.

Preparers may download Form W-7P, "Application for Preparer Tax Identification Number," the "Tax Professional's Corner" on the IRS Web site at or call the IRS's toll-free tax forms line 1-800-829- 3676. To ensure that the person assigned to and identified by a specific Preparer Tax Identification Number (PTIN) is the person applying for it, the application form asks for the preparer's name, home address, date of birth, and SSN.

The PTIN is solely the identifying number of the individual requesting it and has no relation to firms employing tax return preparers.

Applications received by November 1999 should receive PTINs by the start of the 2000 filing season. Return preparers may continue to use their PTINs year after year without re-applying. Preparers must use either their Social Security number or a PTIN. They cannot write "PTIN applied for" in the Paid Preparer's Use Only section of the return.

Preparers are advised to consult with their respective states regarding the use of a PTIN on state tax returns.

Forms W-7P can be mailed or faxed to:

 Philadelphia IRS Center

 PTIN Unit, DP 2840

 P.O. Box 447

 Bensalem, PA 19020

The PTIN Customer Service phone number is

The PTIN FAX number is 215-516-1127.

SECTION 4: PAYMENTS

PAYMENT VOUCHERS

To facilitate remittance processing, the IRS has included a payment voucher on the following:

      Forms 940, 940EZ, 941 and 943

Form 2290

 - Heavy Vehicle Use Tax Return

Form 4868

 - Application for Automatic Extension of Time To File

                   U.S. Individual Income Tax Return

Form 1040PC, 1040ELF, 1040TEL

Form 1040

 - 5, 6, and 10 tax packages

CP 521

 and

523

 - Installment agreement notices

LOCKBOX

The IRS Lockbox network consists of banks which have contracted with the government to process paper federal tax payments to optimize mail receipts and accelerate bank deposits. Each of the ten IRS Centers has a Lockbox site which processes these payments.

Utilizing machine-scannable payment vouchers included with various tax packages, the IRS benefits both the government and the taxpayers by reducing errors caused by manual input, increasing the efficiency of crediting payments, and lowering the processing cost to the government. By collecting and processing payments directly at the financial institutions, the IRS decreases the time for deposit of money and speeds the flow of funds to the U.S. Treasury.

The Lockbox processing vendor for the Philadelphia IRS Center is Bank One located in Valley Forge, PA.

Lockbox began in 1989 and expanded to handle various forms and payment vouchers including business filers who receive Form 940 and 941 vouchers. Business filers are issued two color-coded pre- addressed labels. Filers who owe tax use a white label on their envelopes and send their payment, return, and voucher to the designated Lockbox processing bank site. The bank then processes the voucher depositing the payment into the U.S. Treasury's account and forwards the processed documents to the appropriate IRS Center. Those filers who are expecting a refund use the yellow label on their envelopes and send their returns directly to their IRS Centers.

Since 1995, certain individual Form 1040 filers receive Form 1040-V packages for sending their tax returns and payments through Lockbox which processes the payments and transships the returns to the IRS Center for processing. These vouchers were sent to Form 1040 filers who are sole proprietors, self-employed taxpayers who file Schedule C, or taxpayers who file Schedule F for farm income. Others who receive the packages include taxpayers who use electronic filing options such as Forms 1040-PC and Tele-File.

Helpful Hints:

The following specific addresses should be used when mailing vouchers and payments to Lockbox to facilitate processing:

      Tax Form             P.O. Box/Zip Code

        940                 P.O. Box 8726

                            Philadelphia, PA 19162-8726

       940-EZ               P.O. Box 8738

                            Philadelphia, PA 19162-8738

       941                  P.O. Box 8766

                            Philadelphia, PA 19162-8786

       943                  P.O. Box 8526

                            Philadelphia, PA 19162-8526

       945                  P.O. Box 8589

                            Philadelphia, PA 19162-8589

1040-Individual       P.O. Box 8530

                            Philadelphia, PA 19162-8530

       1040-ES              P.O. Box 8318

                            Philadelphia, PA 19162-8318

       CP 521/CP 523        P.O. Box 8669

                            Philadelphia, PA 19162-8669

       2290                 P.O. Box 8789

                            Philadelphia, PA 19162-8789

       4868                 P.O. Box 7990

                            Philadelphia, PA 19162-7990

The Electronic Federal Tax Payment System (EFTPS) is the next step in converting paper coupon tax payments to an electronic fund transfer system. Beyond TAXLINK, which EFTPS replaces, and which was the prototype system that allowed electronic payments only for Federal Tax Deposits (FTDs), EFTPS will accept ALL tax payments electronically.

Congress enacted Section 6302(h) of the Internal Revenue Code (IRC) to require IRS implementation of an electronic funds transfer system to replace the paper coupon system. EFTPS was created to meet this mandate to provide a simple, paperless FTD system.

Payments made through EFTPS use the Automated Clearing House (ACH) financial network which transfers funds and passes the tax payment information to the IRS.

Taxpayers will use the ACH debit or ACH credit methods to make payments, and they must enroll with one of two contracted Treasury Financial Agents--Bank One or NationsBank. They provide customer service in the enrollment and payment processes, direct payments timely to the government account, and provide tax payment information to the IRS to update taxpayers' accounts.

Through the ACH debit option, taxpayers initiate payments by instructing their financial agent to institute an ACH debit by which the financial agent actually withdraws funds from taxpayers' bank accounts for payments to the government's account. Taxpayers can initiate this action by telephone, either talking with a customer service representative, or using the automated touch-tone phone system. Taxpayers can also initiate payments via their personal computers, utilizing Windows-based software provided by the financial agent.

Taxpayers who elect the ACH credit option for payment must first contact their banks to determine the bank's required procedure. Taxpayers making a federal tax deposit via ACH credit instruct their own banks to withdraw funds from their accounts for payment to the government's account.

The financial agents will never receive a taxpayer's tax deposits, nor are taxpayers required to open an account with the financial agent banks. Tax deposits will flow directly from the taxpayer's bank account to the federal government's account. Neither the IRS nor the financial agents charge fees for EFTPS; depending upon the individual taxpayer's banking arrangement, a taxpayer's bank may charge a fee for ACH transactions.

In addition to receiving direct assistance from the financial agents, the taxpayer may also receive enrollment forms (Form 9779) by calling toll-free

or

The enrollment process takes approximately two to ten weeks from when the financial agent bank receives the enrollment form from the taxpayer and sends the taxpayer a Personal Identification Number (PIN) and payment instructions.

Financial agents will institute a transaction with a taxpayer's bank only after receiving instructions from the taxpayer. They will not initiate an ACH debit without the taxpayer's TIN and PIN numbers.

Taxpayers will be able to establish that a federal tax deposit was timely initiated by using the records of either their banks or the financial agent and/or the taxpayers' books and records. The records must show that the taxpayers had sufficient funds to pay the applicable tax.

For ACH debits, the IRS will honor as proof of payment the acknowledgment number received from the financial agent and a copy of the taxpayer's bank statement (or other bank records) that shows sufficient funds to cover the withdrawal and identifies the U.S. government as the payee.

Taxpayers currently using TAXLINK will gradually be transferred to the EFTPS system, and the IRS will provide assistance during the transition.

Taxpayers who are required to use EFTPS, but do not transmit their funds electronically, will be subject to a ten percent penalty based on the deposit amount. Taxpayers who voluntarily participate in EFTPS may use paper coupons at any time.

The toll-free phone numbers for the financial agents are:

      Bank One: 1-800-945-8400

      NationsBank:

1-800-555-4477

Electronic Form 1040 filers with balance due payments have two new electronic payment options available:

After a successful test of accepting credit card payments in 1999, the Internal Revenue Service has expanded its availability to include individuals seeking automatic extensions of time to file returns and those making estimated tax payments for tax year 2000. There will also be new opportunities to file and pay taxes electronically.

The IRS offers these electronic payment options through partnerships with private industry, including credit card processors and tax preparation software developers.

More than 129,000 people paid their federal taxes by credit card, or direct debit transactions during the 1999 pilot.

All individuals will again be able to use the pay-by-phone system to charge tax payments to American Express, Discover, or MasterCard accounts. This system will accept three types of payments:

Taxpayers charging an automatic extension or estimated tax payment will not have to file the associated paper Forms 4868 or 1040-ES. The phone system, operated by Official Payments Corporation (formerly U.S. Audiotex) will open January 14, 2000. The estimated tax payment option will become available March 1, 2000.

Three tax software developers will offer e-file and pay combinations for individuals. In these programs, the credit card payment information is part of the electronic return filed:

The IRS does not set or collect any fees for credit card payments, but the private sector partners may impose convenience fees, based on the tax amounts charged.

All individuals who file electronically--including those using TeleFile, the file-by-phone system--will be able to have the balance due debited directly from their bank accounts. Many people already use such direct debits for their mortgages, auto loans, or utility bills. Last year, the IRS limited direct debits to computer-filed returns.

Check Data/Identification

A client's bank may need only the date, amount, and a signature to cash a check, but that's just part of the picture when the check is used to pay federal taxes.

A practitioner can help clients by pointing out the benefits of putting the following on the check: SSN or EIN, telephone number, tax period covered by the payment, correct name of the tax account if different from the signature, current mailing address, and type of tax form associated with each payment (Forms 941, 1040, 1120, etc).

If the check is separated from the tax return or letter before the payment is properly recorded, the identification and account data on the check can help us track the payment. Also, ensuring that the SSN of the primary taxpayer is on the check will facilitate the IRS matching of the tax payment and the tax return. But the biggest benefit to the client will be that the payment will be applied to the proper account.

Some common reasons for check processing delays are:

REFUNDS AND CREDITS

Earned Income Tax Credit (EITC)

The earned income tax credit is a special credit allowable for persons who work and meet certain criteria established by law. The credit reduces the amount of tax owed and may qualify taxpayers for a refund even if they do not owe any tax, or earned enough money to file a return. The credit is intended to offset some of the increases in living expenses and social security taxes for taxpayers with limited incomes. To receive this credit, the taxpayer must file a tax return and meet the following criteria:

Additionally, to claim the Earned Income Credit (EIC), you must have a Social Security Number (SSN) for you, your spouse (if filing a joint return), and your qualifying child. You cannot get the credit if, instead of an SSN, you, your spouse, or your qualifying child has:

EIC will be denied if the taxpayer receives investment income of more than a certain amount. In addition, income from the sale of certain business assets should be excluded from investment income when computing EITC. Investment income includes taxable interest, tax- exempt interest, dividends income, capital gain net income, royalty income, and income from passive activities.

Taxpayers who meet certain criteria may elect to receive part of their earned income credit as part of their paychecks throughout the year, instead of waiting until they file their 1999 tax returns. Eligibility for AEITC requires meeting all three of the following items:

In order to get the AEITC, a Form W-5 must be filed with your employer each year. If taxpayers no longer want to get advance payments, or if their situation changes and they are no longer qualified for the EIC, they must give their employer a new Form W-5. If taxpayers received advance payments and later find out they do not qualify for the credit, they are required to repay any payments they are not entitled to when filing their 1999 returns.

If a taxpayer files a tax return and then moves without notifying the IRS of the change of address, the expected refund check will be returned to the IRS Center. For the refund check to be re-issued, the IRS Center must be notified, either in writing or via telephone contact, of the new address. You may call Customer Service toll-free on 1-800-829-1040.

If the refund check was issued and not received by the taxpayer, and has not been returned to the IRS Center, it is presumed stolen or lost. A Form 3911, Taxpayer Statement Regarding Refund, must be completed and sent to the IRS Center. If a check was issued for a joint return, both signatures must be on the Form 3911 to re-issue the check.

Missing refund tracing is done by the IRS in conjunction with the Financial Management Service (FMS) to determine if the check has been cashed. If it has not been cashed, a replacement check will be issued. If the check has been cashed, a package, consisting of FMS's Form TFS 1133, Claims Against the United States for the Proceeds of a Government Check, TFS 3858, Claims Document, and a photocopy of the refund check, is mailed to the taxpayer. Form 1133 should be completed and returned to FMS for determination of re-issuance of the refund check.

Automated Refund Inquiry

"Where is my refund?" That question frequently asked of IRS customer service representatives during past filing periods is now handled by a "talking" computer called TeleTax. Voice-activated computer equipment allows tax refund status to be checked by taxpayers with tone-signaling push button phones.

During peak processing season, February through July, refund status is available 7-days-a-week and nearly 24-hours-a-day.

Off seasons, the lines are in operation Monday through Friday from 7:00 A.M. to 11:30 P.M. Rotary dial or pulse dial phone users can only reach the refund system during normal business hours (8:00A.M. to 4:30 P.M.).

You will need to have identifying information available when making the call. The information needed includes your Social Security Number, exact amount of refund expected, and filing status indicated on the tax return. To keep returns confidential, the computer system will provide you with refund status only if you respond correctly to requests for the identifying information.

The refund inquiry computer is programmed to search the IRS Center computer records to tell you the status of the expected refund check. If the refund status changes because of an error on the return, the taxpayer will receive a notice explaining the error and the correct amount of the return.

The refund inquiry system can be reached by dialing the TeleTax phone numbers listed in the individual tax packages and other general tax assistance publication. A caller living outside the local dialing area of any TeleTax number may use the toll-free 1-800-820-4477 number.

Refund Anticipation Loans

Some tax preparers and tax professionals may offer refund anticipation loans, particularly in conjunction with electronic tax filing. These loans are made to tax filers based on expected refunds, which may not agree with the amount determined when the IRS processes the tax return. Refund anticipation loans are strictly an agreement between the taxpayer and the tax preparer. IRS has no involvement whatsoever with refund anticipation loans.

Erroneous Refunds

Taxpayers occasionally receive refunds in error. Should this occur, the following action(s) should be taken to correct the taxpayer's account-standing. Erroneous checks that are being returned should be sent to the IRS Center where the taxpayer filed their return. Include a brief explanation of why the check is being returned to assist in the resolution of the situation.

If they prefer, taxpayers may take the erroneous refund check or their repayment to the local Internal Revenue Office listed in the local telephone directory.

SECTION 6: AT YOUR SERVICE

CUSTOMER SERVICE

The Customer Service Representative (CSR) plays a key role in the "one-stop service" concept essential to the Customer Service operations.

CSRs use sophisticated telephone and computer systems at their workstations that allow them to access taxpayer accounts while on the phone and address taxpayer and practitioner concerns immediately during the initial phone contact.

CSRs were selected from diverse backgrounds to provide a solid base of IRS Center knowledge and have received extensive cross-training to enhance their abilities to deal with multiple issues simultaneously. CSRs have the knowledge and technology to access case histories, consult Internal Revenue Manuals and technical reference materials, make adjustments and generate notices, all from their workstations. A computerized Decision Support System aids the CSR in providing assistance to taxpayers' inquiries and provides guidance in resolving questions and concerns.

The Customer Service goal is to resolve 95 percent of all taxpayer contacts on the first phone call.

ASPECT

An integral piece of equipment called ASPECT is the backbone of the telephone portion of Customer Service. ASPECT is the name for a computerized telephone system that utilizes a Voice Response Unit (VRU) to guide callers through menus and selections or prompts to reach an assistor who will help resolve their problems based on the selections the taxpayer chooses from the prompts.

The ASPECT equipment consists of a teleset and a headset for CSRs and replaces the phones previously used. The ASPECT system is used for incoming taxpayer calls either via an 800 number or a local telephone number, whether in response to an IRS-initiated notice, or a taxpayer problem or question. When taxpayers call a designated telephone number, they are asked to press certain digits if they have a touch- tone phone or asked to remain on the line if they are using a rotary phone. Through this screening method, taxpayers are routed to an employee who can best help them based on their selections. However, depending upon the availability of CSRs, the system may direct calls to a CSR in another part of the country in order to minimize the taxpayer's waiting time; regardless of the CSR's actual location, the taxpayer inquiry can be resolved.

This new way of doing business will help to resolve inquiries and issues more quickly, consistently, and efficiently, both for the taxpayers and the IRS.

The following Customer Service toll-free phone lines have been established for specific types of inquiries and requests:

Customer Account Services On-Line (CASOL) is an integral part of the ELF Processing Support's Electronic Communication System (ECS) at the Philadelphia IRS Center. The ECS allows for information sharing under a controlled environment from personal computers. Simply dial (215) 516-7625 to connect to the ELF Processing Support bulletin board system.

CASOL is a more efficient way to resolve tax questions as a result of receiving a notice or letter from the Philadelphia IRS Center.

It is an automated program that allows practitioners the ability to correspond directly with the IRS via their own personal computer and modem. Thousands of tax practitioners throughout the country have been introduced to this different way to communicate with the Philadelphia IRS Center and many are taking advantage of the services CASOL offers.

CASOL is neither the Internet nor e-mail. Correspondence is strictly confidential and encrypted for security. Tax practitioners are protected through the use of an Electronic Transmitter Identification Number (ETIN) and their own individualized password.

Benefits to the Taxpayer:

Request an application by calling the "help desk" phone number listed below. Complete the application, fax it to us on (215) 516-2052, and you will receive a letter with your ETIN. You will also receive step- by-step instructions and information about the system. The ETIN is your key to CASOL.

Important Phone/Fax Numbers:

Taxpayers can pick up copies of forms, make payments, and receive informational assistance on technical and procedural matters, including notices, at the Philadelphia IRS Center's taxpayer walk-in service area, located in the IRS Center's South Building at 11511 Roosevelt Boulevard (7:30 A.M. to 4:00 P.M.). Taxpayers arriving in person will be directed by the security guard to the proper entrance where they can receive personal assistance.

The walk-in area office hours are 7:30 A.M. to 4:30 P.M. during the year, with an expanded office hour schedule (7:30 A.M. to 8 P.M.) during the filing season.

Although a wide variety of forms and schedules are available, those wishing to obtain bulk quantities are encouraged to use the 1-800-TAX-FORM number to do so. Also, tax assistance is always available by dialing 1-800-829-1040.

COMMUNICATIONS OFFICE

The Philadelphia IRS Center's Communications Office can arrange Philadelphia IRS Center tour programs for tax practitioner organization groups.

The program, for groups of between 15 and 40 people, generally includes a welcome/overview with a management official, a Philadelphia IRS Center-produced video highlighting center operations and a walk-through tour of the pipeline processing areas. Customized agendas, developed according to the group's needs, may include briefings on specialized areas and a panel discussion with Philadelphia IRS Center executives. Upon request, visiting practitioners may also bring problem cases to the Center for resolution (Power of Attorney is required).

Appointments for Philadelphia IRS Center tours require a minimum of 30 days advance notice and are subject to availability on requested dates.

You may contact the Philadelphia IRS Center Communications Office on (215) 516-2482 or by mail:

 Philadelphia IRS Center

 DP 1420

 Attn: Communications Office

 P.O. Box 245

 Bensalem, PA 19020

SECTION 7: CUSTOMER ASSISTANCE

Installment Agreements

Form 9465

Form 9465, Installment Agreement request, can be filed either as a paper document or through the Electronic Filing System. A paper installment may be filed as either an attachment to Form 1040 or as a stand-alone request. Forms 9465 that are sent without a Form 1040 are sent to one of the IRS Center Customer Service Branches. Those that are sent with Form 1040 are detached from the return and forwarded to the Customer Service Branch. The majority of installment agreements are currently requested by the taxpayer in response to balance-due notices.

The Installment Agreement user fee will be assessed by Customer Service once the Installment Agreement is established. There is a fee of $43 for a newly established agreement, and a fee of $24 for reinstating or restructuring an agreement.

On the Web

A new collection application on the IRS Web Site Digital Daily, http://www.irs.gov, allows taxpayers to assess for themselves whether they might qualify for an installment agreement and help them in calculating the payments.

Offer-In-Compromise

An Offer-in-Compromise (OIC) is a contract between a taxpayer and the IRS to settle unpaid accounts for less than the total balance due.

A Form 656, Offer-in-Compromise and Form 433 A or B, Collection Information Statement,must be completed and sent to the appropriate district office Collection function. The basis for the OIC has been expanded. Under new regulations filed with the Federal Register on July 19, 1999, the IRS for the first time will be allowed to consider economic hardship factors in cases where taxpayers try to settle unpaid tax debts through the OIC program, and where settlement would promote effective tax administration.

This change expands the OIC program, which allows the IRS to negotiate a settlement with people unable to pay their entire tax bill. Prior to the new regulations, the IRS could accept the taxpayer's OIC only when there was doubt about whether the tax debt could ever be collected, or whether it was owed.

The provision outlined in the temporary regulations (TD 8299) creates a new category of OIC to resolve cases where acceptance of the offer would promote effective tax administration.

Generally, the IRS will not accept an Offer-in-Compromise unless the taxpayer complies with all current filing requirements. The terms of the offer require future compliance for a period of five years. The IRS may reinstate the entire tax liability if the taxpayer does not abide by all the terms of the offer.

Practitioner Hotline Numbers For District Offices

 Pennsylvania District

 Pittsburgh Office: (412) 281-0281

Delaware-Maryland District

 Baltimore Office: (410) 727-7965

 Wilmington Office: (302) 573-6421

Virginia-West Virginia District

 Richmond Office: (804) 698-5010

The IRS Center has priority case procedures for handling practitioner inquiries about problems that do not meet Taxpayer Advocate (TA) criteria, but that the practitioner believes need special handling. Priority cases are:

Such inquiries should be mailed to:

 Philadelphia IRS Center

 P.O. Box 6073 - Priority Case

 Philadelphia, PA 19114

Final responses on priority cases will be made within 14 days of the date the IRS receives the inquiry. If this is not possible, an acknowledgment will be mailed within seven days of receipt advising the practitioner when to expect the final response.

All supporting documents should accompany the initial inquiry, including copies of: tax return of the account in question, applicable letters or notices, front and back of pertinent checks, documents where IRS took no action or incorrect action (i.e., claims, amended returns, extension, Form SS-4, and penalty abatement requests), and letters that were received concerning the matter.

Taxpayer Advocate Service

The Taxpayer Advocate Service has three major goals:

If you have a problem you have been unable to resolve through normal channels, call the new National Taxpayer Advocate Hotline on

The Taxpayer Advocate Organization has identified circumstances that qualify taxpayers for special assistance, including an independent review by a Taxpayer Advocate of actions that have been taken, or need to be taken, to resolve the problems they are experiencing. Situations meeting the following criteria should be forwarded to the local Taxpayer Advocate for special handling:

Send subsequent inquiries to the following address:

 Philadelphia IRS Center

 Taxpayer Advocate Office, DP 1300

 P.O. Box 16053

 Philadelphia, PA 19114

The following type of cases should

be referred to Taxpayer Advocate Service:

Practitioners should include authorization or Form 2848,Power of Attorney, from the taxpayer, copies of notices, and any prior correspondence.

Inquiries which should be forwarded to the IRS Center for resolution include:

As a result of Taxpayer Advocate inquiries, many systemic or procedural problems are identified, and corrective action is taken to avoid further problems.

The practitioner community can provide valuable information to the IRS in identifying these problems. If you suspect a recurring problem, contact the Taxpayer Advocate Service, at the address on the previous page, with examples of cases.

Form 911, Application for Taxpayer Assistance Order

Due to the Restructuring and Reform Act of 1998, circumstances that traditionally had been considered significant hardships have been expanded. The following situations are also reviewed using the hardship criteria:

When a Form 911 is received in the IRS Center, it is forwarded to the Taxpayer Advocate (TA) for action. The TA can expedite action, such as the issuance of a refund, or suspend action, including wage levies or seizure of property.

There is no relief available if the statute itself produces the hardship and enforcement action, in and of itself, is not a hardship with additional factors.

Form 911 concerning a notice of lien/levy or a district office examination case should be filed with the appropriate district office. The Taxpayer Advocate notifies the taxpayers or representative of a decision and, if the request is denied, the action will be carried out as usual.

Form 911 can be ordered by calling 1-800-TAX-FORM and is also available at local IRS district offices.

Photocopy Requests

The fee to request a photocopy of a tax return or other related documents is $23. Form 4506, Request for Copy or Transcript of Tax Form, has been revised so the taxpayer may opt for a RTFTP (Return Transcript for Taxpayer) of the return at no cost , or a photocopy of the return at the $23 charge. If no return has been filed, verification of that fact will be sent to the requestor at no charge.

Power of Attorney (POA)

The Internal Revenue Code (IRC) Section 6103 permits taxpayers to appoint individuals as their representatives to perform certain functions concerning tax matters. These representatives may also be granted the power to receive and inspect copies of all notices and other correspondence between the taxpayer and the IRS. The appointment documents used are called Power of Attorney, Form 2848, or Tax Information Authorization, Form 8821.

Form 2848, Power of Attorney, may be used by a taxpayer who wishes to appoint an individual to represent that taxpayer before the IRS. Form 8821, Tax Information Authorization (TIA), allows taxpayers to authorize the disclosure of confidential information to any individual, corporation, firm, organization or partnership.

POAs are only processed at IRS Centers. The following special post office box will expedite Power of Attorney requests:

 Philadelphia IRS Center

 DP 6816

 Philadelphia, PA 19255

The Philadelphia IRS Center has a fax system to receive Power of Attorney requests, which automatically records the receipt of the form. Taxpayer representatives may use telephone number

for faxing.

The IRS is permitted to receive written or verbal information concerning taxpayers from third parties without Power of Attorney, Form 2848, or Tax Information Authorization, Form 8821.

However, the IRS can disclose information to third parties only if authorized Form 2848 or Form 8821 was previously submitted.

Purpose

Powers of Attorney allow practitioners access to specific tax returns and client account information. Tax returns are confidential and may be provided to third parties only in accordance with regulations based on Public Law 94-455 which became effective January 1, 1977. The Privacy Act requires all persons, private and government, to keep tax returns and return information confidential. Congress considers the privacy of tax information so important that violators may be charged with a felony. The maximum penalty is a $5,000 fine and/or five years in prison.

Additional Information

A Philadelphia IRS Center publication entitled "What You Need To Know About...IRS Power of Attorney" is available upon request. You may order the 11-page brochure by contacting the Communications Office (215) 516-2482 or write to:

 Philadelphia IRS Center

 P.O. Box 245, DP 1420

 Bensalem, PA 19020

For further information on Power of Attorney, Form 2848, and Tax Information Authorization, Form 8821, please refer to IRS

, Practice Before the IRS and Power of Attorney.

SECTION 8: HELPING US HELP YOU

HELPING US HELP YOU

Taxpayers and tax practitioners can assist the IRS in the timely and correct processing of tax returns, payments, and correspondence by following a few simple procedures and through careful checking of submitted items to ensure that all required entries and information, including the appropriate forms, schedules,and attachments, are enclosed.

The following reminders and tips take just a moment, but can save many hours spent by both IRS and the taxpayer in tracking down information and correcting unintentional or overlooked items.

The Philadelphia IRS Center provides statistics on all documents processed through the Computer Assisted Pipeline Review (CAPR). The following information was taken from returns processed during the first seven months of the 1999 filing season.

The Error Analysis Report for the Philadelphia IRS Center reveals the following percentages of taxpayer/tax preparer error rates for individual tax returns:

Following are the most common errors by type of Forms 1040, 1040A, and 1040EZ. Under each form heading, there is a description of each error and the impact on taxpayers, as well as on IRS Center processing.

Child Tax Credit

Child Tax Credit errors account for 13.8% of all errors on Form 1040 returns (over 74,000 returns); for Form 1040A returns, the rate was equal to 7.2% (over 16,000 returns).

This error was caused by the taxpayer/tax preparer not indicating the dependents qualifying for the Child Tax Credit by checking the boxes in the Exemption area of the return.

Earned Income Tax Credit

Earned Income Tax Credit errors account for 4.5% of all errors on Form 1040 returns (more than 24,000); for Form 1040A returns, the rate was equal to 12.9% (more than 30,000 returns). For Form 1040EZ returns, the rate was equal to 7.6% (over 5,300 returns).

The most common errors on the EITC schedule were math errors, or incorrect entries. Many errors were due to the incorrect amount of earned income tax credit being entered on the tax return. This error will be corrected by the IRS. The taxpayer will receive a notice, and there will be a one or two-day delay in processing the return.

Amount of Refund/Balance Due

Amount of refund/balance due line errors made by taxpayers/tax preparers account for 4.9% of all errors on Form 1040 returns, which equates to more than 26,000 returns. For Form 1040A returns, the rate was over 7.8% which equates to over 18,000 returns. For Form 1040EZ returns, the rate was 14.7% which equates to over 10,000 returns.

This error was most likely due to incorrectly subtracting the total tax from the total payments that include income tax withheld, estimated tax payments, and earned income tax credit. Also, many refund/balance due errors were due to taxpayers/tax preparers not entering the required amount on the refund/balance due line.

Since the Internal Revenue Service has to compute this, a refund delay could result. The amount of refund/balance due errors will be corrected by the IRS. The taxpayer will receive a notice, and there will be a one or two day delay in processing the return. Taxpayers/tax preparers are urged to carefully check their math and enter the correct amount on the "amount of refund/balance due" lines.

Exemptions Disallowed

Taxpayer/tax preparer failure to provide a Social Security Number for a dependent resulted in a 2.2% error rate (over 12,000 returns) for Form 1040. For Form 1040A, the rate was 2.6% (over 6,000 returns).

Social Security Numbers provided did not match records provided by the Social Security Administration and resulted in a 10.9% error rate (over 58,000 returns) for Form 1040. For Form 1040A, the error rate was 6.0% (over 10,000 returns).

Amount of Tax

Of all the taxpayer/tax preparer errors on Form 1040 returns, 2.7% (over 14,000 returns) were related to the incorrect tax amount entered on the return. For Form 1040A returns, the error rate was 12.0% (over 8,000 returns).

This error was caused by the taxpayer/tax preparer when the tax amount entered on the return was not the correct amount from the tax table. This error will be corrected by the IRS. The taxpayer will receive a notice, and there will be a one or two-day delay in processing the return.

Entity Business Accounts

The complete name that was submitted by the taxpayer when the Employer Identification Number (EIN) was assigned should be shown on all federal tax returns, payments, and related correspondence. If any variation in the name or EIN is used, it may cause a delay in processing incorrect information of the taxpayer's account or cause the taxpayer to be assigned more than one EIN.

SECTION 9: TAXPAYER PROTECTION

REVENUE PROTECTION STRATEGY

During 1999, validation of Social Security Numbers (SSNs) and other Tax Identification Numbers (TINs) became a very noticeable portion of our prevention efforts. The IRS is expanding the validation of SSNs and TINs on all forms and schedules requiring identification numbers.

The IRS can identify dependent SSNs claimed on more than one return and improper claiming of dependency exemptions and/or Earned Income Tax Credit (EITC). Taxpayers with incomplete returns, invalid, or duplicate SSNs, can expect their refunds to be delayed and/or disallowed.

The Earned Income Tax Credit Recertification process will be the most visible enhancement in 2000. This new process is designed to prevent taxpayers from receiving EITC if they did not, or could not, provide proof that they met all eligibility requirements.

A notice will be issued to inform taxpayers of recertification requirements. Before receiving EITC, taxpayers must provide additional information on Form 8862, Information to Claim Earned Income Tax Credit After Disallowance. The entire refund, or in some cases, only the EITC portion of the refund, is held until the recertification form is reviewed. This process provides an opportunity for taxpayers to furnish the necessary information or documents to prove EITC eligibility.

For detailed information on the specific tests and eligibility criteria, refer to instructions included in the 1040, 1040A, or 1040EZ tax package, Publication 17, Your Federal Income Tax, or Publication 596, Earned Income Credit.

STATUTE OF LIMITATIONS

The Internal Revenue Code states that the IRS will assess tax, refund credit, and collect taxes within a specific time limit. This limit is known as the statute of limitations. When it expires for a tax return, the IRS can no longer assess additional tax for the period of that return, nor can it allow a claim for refund by the taxpayer. The determination of statute expiration varies:

The Disclosure Office is responsible for establishing and administering the disclosure program in the IRS Center.

The purpose of the program is:

The Disclosure Officer is responsible for developing local procedures to ensure compliance. Ensuring a high level of disclosure awareness throughout the IRS Center is a significant program responsibility.

Freedom of Information, Privacy Act, and testimony issues (subpoena, court order, etc.) are processed in the Disclosure Office.

Reasonable Cause

If you are asking for relief from paying penalties, you must follow specific guidelines.

Internal Revenue Code Section 6651 authorizes the abatement of penalties for failure to file tax returns and for failure to pay tax if the failure is due to reasonable cause, and not willful neglect.

Individuals requesting reasonable cause consideration for a penalty may be requested to submit a written supporting statement signed by either the taxpayer or a representative having Power of Attorney. It should be filed with the District Director or the Director of the IRS Center where the return is required to be filed. The declaration must be made under penalties of perjury and must fully explain the facts related to the reasonable cause.

Forgiveness of penalties is decided on a case-by-case basis. Generally, if the taxpayer exercised ordinary business care and prudence and was, nevertheless, unable to file the return on time, the delay is considered due to reasonable cause. Also, a failure to pay may be due to reasonable cause if the taxpayer exercised ordinary business care and prudence, yet could not pay the tax liability.

If the IRS determines that failure to pay or failure to file was due to reasonable cause and not willful neglect, the penalty will not be assessed. The taxpayer would still be responsible, however, for the tax owed plus interest due.

TAXPAYER BILL OF RIGHTS

The second Taxpayer Bill of Rights (TBOR2) was signed into law on July 30, 1996, amplifying and extending certain provisions and protections contained within the original Taxpayer Bill of Rights in 1988. The 1998 Act clarifies and expands several taxpayer rights.

Following are some key taxpayer protection provisions of the 1998 Act: