FILING REQUIREMENTS

[thompson]

WHEN LOOKING AT THE DEFINITION OF GROSS INCOME FOR FILING REQUIREMENTS, HAS IT CHANGED SINCE COVERED STOCKS ARE BEING REPORTED? IT USED TO BE GROSS SALES OF STOCK WOULD TRIGGER FILING REQUIREMENT, BUT I HAVE A CLIENT NEW TO ME THAT DIDN'T FILE LAST YEAR ..LARGE GROSS SALES $.  BUT A NET LOSS.THEY HAVE RECEIVED NO DEFICIENCY LETTER TO DATE

[BobKamman]

Gross proceeds were never part of the definition.  Code Section 61 states:

(3) Gains derived from dealings in property;

IRS would just hassle people with higher proceeds because they hoped to shake some with profits out of the tree.  As I recall, they did this with even greater vigor in years the market went down.  Now, it's easier for them to spot those with gains, so the number of AUR notices has diminished.  

[thompson]

Would you suggest going back and filing if no letter has been sent. I'm just surprised, she had a property sale with gross over 700,000. although it was a residence and 1099s was issued.

[Just-Lisa-Now-]

Ive seen transcripts that show gross proceeds and "basis reports to IRS", but it doesnt show the basis on the transcript, so IRS would still be looking for the gross proceeds being reported on a return.

If you only filed last year, you may not see the CP2000 until this summer or maybe even fall

[BobKamman]

Are you doing this for free?  Or will you give the client a letter to sign, acknowledging that there is no requirement to file and that in the unlikely event an IRS notice is received, it can be answered with a letter and not a return?

[thompson]

thank you very much, that was my feeling.

Stay safe

[thompson]

no, this is  a paying client. I have the inclination to file to save the pain..client passed away and the kids don't need more headache down the road when no documents are available to answer.

[rbynaker]

---

@BobKamman wrote:

Gross proceeds were never part of the definition.  Code Section 61 states:

(3) Gains derived from dealings in property;

IRS would just hassle people with higher proceeds because they hoped to shake some with profits out of the tree.  As I recall, they did this with even greater vigor in years the market went down.  Now, it's easier for them to spot those with gains, so the number of AUR notices has diminished.  

---

Ah those were the good ol' days.  I lost count of the number of new clients I got because the IRS sent them a CP2000 wanting to tax them on 100% of their gross proceeds.  Many of them had losses so we could respond with "thank you for bringing this to my attention, please see the attached Schedule D and send my refund check to the following address . . ."

[BobKamman]

And you really think IRS goes after deceased nonfilers?

This is an example of the “it used to be, so it still is” fallacy. Here is an excerpt from a study of the IRS non-filer program:

“Each year, the IRS return delinquency process identifies individual taxpayers who may have a filing requirement but have not filed a tax return by the required due date. A portion of these identified individual taxpayers are contacted about an unfiled return. For various reasons, the number of contacts has decreased over time. Over the last five tax years (2010 through 2014), the IRS went from contacting over three million individual taxpayers for unfiled 2010 tax returns to just over one million for the 2014 tax return.”

OK, so those are old figures. What happened after 2014? This is from an official IRS Advisory Council report:

“From FY 2011 to FY 2014, the IRS collected $11 billion from the Automated Substitute for Return Program (ASFR) (a component of the IRS’s overall nonfiler strategy); however, during TIGTA’s 2017 audit, it was determined the program had been suspended due to resource issues. In an audit of the IRS’s
overall nonfiler strategy, TIGTA learned that, due to resource issues, the IRS decided not to pursue high-income taxpayers who had submitted applications for extension of time to file tax returns for Tax Year (TY) 2012 but did not file a tax return...”

The IRS has few secrets. They put online most of their instructions to employees. These are generally written so a GS-4 clerk can follow them. So why don’t tax practitioners read the same instructions so they know what IRS is doing? I really don’t know. But here is an example of what IRS clerks are told to do if someone says they don’t have to file because they had losses on that stock that was sold:

Internal Revenue Manual
5.19.2.6.4.6 (10-20-2016)
IMF - Determining Liability

Taxpayer states they had expenses (i.e. against business income) or a cost basis (i.e. against stock sales) that lowers their total income.

You can accept this information via the telephone or in correspondence (without a return) "ONLY" to compute the potential total tax liability and determine if there is a Refund Due or the tolerance amount was met for "Minimal" or "No" tax due per Policy Statement P-5-133.