DEPARTME: OF THE TREASURY ENTERNAL REVENUE Lexington, 4-3511 TAX EXEMPT AND GOVERNMENT ENTITETES January 24-, 2017 tiniest: 01? Beiknee Hempe Seems Cemeiex if!" 40292?0801 Beer University ef Firet, iet eey' thet my with the Stet? arid the et the University was er: eitt.remei3ir and prefeesienei ene. The staff wee efficient end end etevidee requested deceit-tents in quick timeiy manner. The ediuetmente that have been made during this audit are nermeiiy whet we see in meet government entities, nemeiy fringe benefits. FSLG agents that gettemment entities ate not have trei?i?g en empie?yment tex as they may need. Get feremeet geei wee te educate and apply the tax laws in fair manner. i the tee adjustments far 2914 end 2615 en a separate iet?ermetien paper. The adjustments ere interest free and peneity free if paid in fuii at the time at the ease cieeing. i e?ee egein went to my gretiteefe te year tiee?eiei ete?if fer the end they eiepieyee during the audit. Sincereigi . State end Loeei ie?ereei ?erviee e? ree Tee: Exemp?i eerie {Severnment Ee?i?riee Federei, State and Gevemments January 24, em '7 Lexiegteri K?r? ?3511 Taxpayer Member: Ferme: 94': ?eivereitg ef Tex Perieci(e) 261403201512 Eeikeep Cempue Service Cemeiex Person is contact: PEPE v? eagee?uu Contact Teieehene Number: Ceniac?: Fax Number: Empieyee identificeiieri Numeer: Refer Remy te'. Last Date ?e Reepene te {this Letter: February Q, Tee er veer Emeieymeer ?iee Eeem?eer?ee Beer Ueivereiiy er Leuieviile ?fee fine res er year eempieia tee exemineiien Whe? ?t?ee Te ?e were review the exemineiien resuite arid if you agree or disagree with the reperr. if gee agree with repert; eigng (fete end return the farm or eenseni rerme cheeks-e eeiew be the cia?ae shavers above: Form ewe?we, re and Ceifecfiee Empieymem? Fex arse er in Werirer Cieesf?cefien Cases Farm esee, Agreemenz? 2?0 Assessment end Caller-?ee of Additional Tex end Aesepa?enee er 5 Form Eerie-S, Agreement fa Assessment ene? Celieerien er Additional Tex and Acceptance of Guereesessment (ineluaiing eecfien 539 statement) Te iimit interest and certain penei?riee, we recommend that yen include fuii payment of the tote! emeun? due, if Make your payment ie the United States Treasury. We have an enveiepe for your ceeveeienee. wear Te Be WVGEE 3e Nee Agree The 34%, ?me Eeemine?ee expieine whet actiees yeu can take when yen eieegree with the exeminetien?s resuiteend the examiner's proposed changes. if you disagree with the report, pteese contact the examiner before the last response date referenced in the heading section of this twee Haw to eenteet Us Pteese contact the person whose name and telephone number are shown. in the heading ef this letter with any questions you may have. Thank you for your cooperation. Sine-erety, Enclosures: Examination Report (2 copies) Pobtication 3498 Form 2504- Form Letter 21?5 (Rev. 5?29?9} Cataiog Number 5154GT Summary a? Eauiwi??e ?Fax Year 2am. 352.4% Seeim? Secg?fv f??fess ?t?em?ss Stated; Wade Amman? ?E?o?aE Pescen?age Tami my: ?t?letic clo?ih?ng 3 107,339.00 40.30% 3 {Hub dues .3 24,348.08 2?.93% 5.325%.25 Club dues? Medicare wages aver 24,940.09 0.90% ram? ?t?er ?djus?ments - Farm 2.5% far 292% 3 Sa?gaji EEK 2mg W. m?e? swam was M32355: swam! Ewe Wage Amcunt Tami Percentage Tam 'E'ax Athfei?ic clothing 45.30% 3 Club dues 19,116.33 27.9%% E?gg?g Ciub dues Medicare wages cuter {3.90% 3 32.35 I Fam?? awe? ??justmen?s Farm 5% f6? 2M5 web 3 ??3ng mher Adiustmerits - Emm 25% $5,655.85 .. .. 3 - fata? ?as?fustme?t A?ti?ai tax'azijustmeni' is $95?55?22 or: ihe firm! rem-rt. Difference is mun?ing in this spreadsheet. 1/131'2017 @sgmg Essm?ss??ss Tswana?is cmen?y 6371101166 in and "using EFTPS can make an pmposed exami?ai?ion adjustments and Civil Penalties through Following this guide will help to ensure that p?ments are credited to ?le correct tax mum and tax pe?ods. Each separate item listed is: she table below must be input separately in The EFTPS system 333: ccmbine amsun?ss and enter one total, car the payments wi? not post to the proper returns and pericds. Univa?siiy of usages amass 1 1,395.04 1 1,395.94 5 1,335.63; 11.3%.04 4.: 4a., u?m Em ?3 .?gsi?ss, ester as {he Tag; Ems?: Ses fe?mssi?g pages f0: sfep~by=sisp Page 1 of 5 i 2/2016 Page 2 of5 Eg??g ?619 @?mag??g Ea- Egig?gg Sales? the TAX ?am the semen iden??e? beicrw. a 394$ 31? W45 adj 113131131112, ?13 551m mmhar 03: Edam it ?rm: the (3er dawn mam; emi?ad; @Wyz Fa?gzg, 3331: CWLF (gang? far failure is ?116 and ?mlsh Enfema?cia? EMS) select E?g?zgw? Item the mm option {imp ?ewn mam: en??itiaci ?Q?gg??fwms Emme?c - ?Kai: DE 1 i?i in file Ema: af?a semen 2/2016 Eggy??g Em; E?mw?g? EEK This screen which WEE appear depanding an which form nmniaer was seiected; ?the: prim: screen 6 E3 the sxampie beiew, the screw is based {m the 3313mm eef far pmpose? CEVEL on the prim screen. Ef?z 0r was the swim ta make a Fedefal ta}; depcsit can be made: 0311 :?E?iis swam. 361th the ?i?ggai?g 9mm far payme?t 6f tag: on ema?m adjustments. .L ?t Click on - 7 . if: ihe iswa: ?gm Bf?ahe scram Page. 3 of 212016 Egg??g ?a?gm?mm?g E?maeg?g EESEHESS This safes-:1 appears the same for ail rem types. insert the f?iiawing informa?anp which shouiad Ea supplie? by ?g Specialist {see table 011 ?rst page). Faymem Amount Pe?a? 3:151 Yea?) Settlement 333% {336% cm I in the: Emmet? right screen 1113 33:33:": is a. ?Vei?? gage: 35-51113 A 2/20 :6 Paying Em? Minn A?insimenin The ?Van any? Pigment providns a smnmaIy 01 ?the previous choices and the opportunity to go back and make any necensanr corrections by 115mg Elie 1? 5:2 link. Once the information has been ven?ed, click on the . . . link which brings up the Ean?mmn? screen z: -5. in . a 4; .1- Page 5 of . - 2/2016 . Date Resolved by Form 255%. Department of the Treasury-internal Revenue Service internal Revenue . Service 20"? Agreement to ?aoessmont anti or odditionoi To?: and . of (Excise or Empioyment Taxi Tomayerts?; name 13er University of Louisville Addraso oi taxpayods) (number, shoot) City??mun Sinks: ZIP code Belknap Campus Service Complex Louisville Kentucky 40292-0001 Adjustment to Tax Credits and Penalties Tax Period Ended Return Form Kind of Tax and internal Amount of Tax Credit increase (Decrease) Penalty number Revenue Code Section 7 2914 941 ms 31m, 3111 3402 3 50,435-35 2015 941 RC 3101. 3111 3402 s, 45,220.15 Total 95,658.52 0.00 0.00 consent to the immediate (Increase in tax and panalties anol?or decrease in credits) and the collection of any such amounts. In addition, 1 accept any owrassessmont (decrease in tax and penalties andforinoroeso in audits) shown above. also agree to any interest as proximidod by law. Sign . Data: Here i Sign Date: Here i . I Sign By j" 5: Title: - ff . ?ate: ?are to} rowdy iu DH.) 2? (a 7 Note: 53' . i i if you consent to the assessment of the amounts shown in this agroornent, your signature will expedite our adjustment to your account. Your consont wit! not prevent you from ?ling a otalm for refund {altar you have paid the tax] if you later boiieve you are onti?ad to a ro?ind. it will not prevent us from later dotormining, if necessary, that you OWE additional tax; nor extend the time provided by iaw for either notion. Who Must: Sign if you are making this agreement for a partnership. all partners must Sign. However. one partner may Sign with evidence of authorization to act for the partnership. For a corporation. enter the o?oer or of?cers of the corporation foliowod by the signature and title of tho of?cor(s) authorized to Sign. For an agent or attorney acting under a Power of Attorney authorization must attach the authorization to this form unloes it is already ?led with us. Memo: Abatement amount under 3402(6) andior 3102(f)(3) See expiana?on on Form 4688 Tax Period Ended Fm? IRC Code Credit for Abaiomont Tax Period Ended Rem" [no Coda Credit for Abatomom Form 2504 (Rev. 2?2014) Catalog Number 21775K publlohmojrsgov Department of the treasury - internal Rovonuo Service Form 4688 (nu-2mm? Summary of Employment'l'ax Examlnatlon mum umber nus 03W University 05 Louisville Baum? Campus Service 60mph: madam Mile 7 Kentucky 40292-0001 mm: mem me ?mmikm ?1 0w Mum mm; hum umber mm mam Tom 0319! [mm wmm?mmumrmmede muf?wRavanmActa?s?IBasammdad hySec?on 11220fIhaSma? 31331::me meml?cm'rmm mam-Boo I. Catalog WHERE. mix-5.909 Farm 4888 (Rev. @4011) Page'ef Pages Form 4688 (April 3314) Department of the Treasury - Internal Revenue Service Employment Tax Examlnatien Report Remm Form nmnher University of Louisville Meme of Employer Bellman Camus Service Complex Leulsville Kentucky 4529mm Empleyer Iden??ou?en number Total tax plus penalty. or (deem) in tax 5 50,436.36 calender your 2014 Last quarter of this maimn Tole! War (ileum) In credits Decanber Emmlnetltm discussed with (Name and tale) Red-lo! Spurlock, Cm HomathRacheI 70mm it] Agreed (Subject to aooeptnme nflhe Director) in) matter 1111 2nd Q?a?er Tom] Social madly and Medicare lax as;me Una 1o) 45552.21 4,342.21 4.34221 2 . Social security and Met?eere wageadluslment under ERG 3121 (from Schedule af Line 11) 3 lmreese (decrease) lntaxemmp?on on encamptwagesi?ps (Fm Schedule of Line 13) ?__Telal Ineoma tax mm (from Schedule :31 4_ Adjushnente, Line 20) . 8,268.83 8.26558 8,286.88 8,263.38 4 mlnuefplm Line 3) U1 Dellnquen?t {Lines 1,2 and 12,609.09 1 2.63939 12.60MB 12,809.09 Net increase (deer-wee) in credit; (tram Schedule of . Adlustnente. Line 26) Family node mum 6651(ax2) 6 . Penalty code section @163le 9 10. Penaltyeodemction 12. i9 8.256.113 5 8283.88 6,266.88 8283.83 13 . Minimum tax avallable for mm IRC 3102(m3) 58.03 56.035 56.03 No Penna or requiied {or audlt purposes FmWnun-mc?onumisems Examiner's elgnehlre 5 Camera Number 232752 Examiner?s ID - Group Number Area Scum Date January 24. 2017 mmlregov Farm was (Rev. 4.2014) . Schedule of Adjustments Name of Employer War Em number Gama: year Unxvanstyonomsvme - 2014 Win FMWages and Tm: Eb) App?cahh 1st 2nd am am Ins Raf. mam: mm aim-ear Soda! swim}! and Modlmro wags adjustnem wbiadm 1 . 523 3101 and 31 11 004 12.456 28,832.50 23,832.50 26,832.50 39,332.50 on 23w. 33.116150 33.0mm .50 $3,051.50 2. . . under ERG 3509(3) on 1.74% - .. - Sow security and Madman wage adimrt subjectto 33 3'taxmdartacaaoam} 079 3? 5" 2.03% - - - Sosa] 3mm: and Wm tip 4'mm?63101md3111 GUS 5.23% 013 1.45% 5 mm Madam wage humanist! maioubm) 074 8.90% 6.23.06 6,2254!) $25.00 ago!) 6 Mdi?um! Mme Mw?pad?mw?mhied 'mmxundan?c 079 0-1892 7 Addk?oml Medlcamwaga andfowp minimum whim and 35090:) B19 om 8 . Saan?yand Medicare ?993 9 O?uaWr?bSo?dSew?tyaMMwi-wm ?ages 10 Total soda} aewt?yand Meacara tax (lines 1 311-9th gyms) 112 4,342.21 5 4,342.21 3 4.3422! 5 4,342.21 1 1 Soda! Swnib} and Ludo: 312m) 114 12 . lama-ammo) qua??od employees'undermcaum) 115 Lina?lz momma) 116 Gaming Number 232752 Fotm 4988 M. 04-2014) Page a: 9395 Scheduie of Adjustments {Continued} Namedamplaynr number mm University of Louisvma 2014 and Tax ?or Income Tax Whammy - (C) 1st 2nd an! an: IR: Rd. Rate Gum mm hmmewiihimk?ng wage to tax under ?4 Man 3402 25.00% 33.98150 33,067.50 33,067.50 33,067.50 15? under 3509(3) - 9'39 1.31% - . . - 16 income mWhok?ng wage adjust-nan! aubimto ram 'ummcasoetb) 3% - - 11.0manmmemwi?1anwageadjmm 18 bu?lnoz 19 . 20 Total mm [Unas 14.15. 16.17xtatasplus Line 18 minus Una 19) 111 limes 8.26MB 3 8,288.88 3 8,268.88 MWE emu: Against tho Ta: 21 Imam (decimal In COBRA pmmlum guidance mm under 6432 229 22 [mm (elm) In Advance Eamod Inca-1m Credit 'tmaorlacaso'l . mas? Imam (W) In m?mgas?ips paid to 23. 1331.2o1nmmc 117 3111mm 24 (demo) in cream?: WWOS Una 23 (Una 23 am) 298 25 . harem (W) {ndhar cream Mathews (We) IncredIB(sum dUnaa 21. 22. ?wanna; - - . 5 0313109 Mum 232752 mil-saw Form 4888 (Rev. 04-2014) m: Page. Foamv4668 Depamnemmhe Tlaasuiy- Internal Remnue Service Return mennber Wm? Employment Tax Examination Changes Report Name of Employer [Em mm numb? Comm University of Louisville 291a AdamofEmpbyer mama Gm WW8): Lastquamr areas Loulsvi?e 45,220.16 mm Kentucky 188282-0001 Tum] me or (?ames) in gains timber 5 - (Namand??de) 35] Agreed (3mm Wane oftha Director) Rachai Spunook, mee WOW HomihRachei Un (if (9) 1st 2nd 3rd 4th Quartet 01mm mm mm: 1. TwSodaisecuraytmd Medicamtaxadiuatmem (from Of MW, Linn 3351 _w 351.? Soda! am?yand Medmume adjushnem under Inc 31213:) (from . - . . 3 (From Schedula of Lina 13) . - - Total imam (fmm Sctaduh a! 4. MW- 25?} 1353.99 7.35339 7.35339 1.35335 Dalinquu'ntml or increase (11.30am 11,305.04 11,305.04 11,305.04 Nat Increase (decrease) in audits (mom Suba?uia of - 5 AW, Line 26) 7 . Penalty coda aeolian a Pena?y code section 6851(a)(2) 9 . Pena?y coda aecllon 6656 10 . Penalty code section 5 . 5 .. 12 . Maximum tax walkable form under "26 34mm) 7.35339 7.3%.98 1,353.99 3. 7.353% 13 . tax available for under me 3102mm 5 43-01 43.01 5 43.01 43.01 No Fm w-z erW-Zc reqmred for aud? purposa Form 504 non-Mon 7436 issues . Emmtm?s signature Emmim?s ID Group Number Area Date 7250 Southeast January 24. 2917 Catalog Number 232752 mm.!m.gav Fm 4858 (Rev. 4-2014) 0" Fag Schedule of Adjustments - Name an! Ernpiczyer Identi?cation number Calendar year 113th oanulsviHa 2016 Adjushnentto FICA anasand Tax to} App?aam int 211:! 3nd 415: ms Rd. Rate cum Social secm?yand Madam wage Menswear!) 1 munderzac 3101 31163111 - a? 24.531133 24.33am 2433?? 241% 01: 2.90% 23.41595 29.412195 29,415.85 29.41595 2 - 1.44% 'taxundanac 35mm 019 - - 3 8.83% 2m: under IRO 35090:) 079 m% - - 4" taxundas?l?ca?lo?l mam-t1 one 3 . 1.48% 5 7 comm 3101mm 014 0.80% 4,779.08 4,779.08 4.778.118 3 Addi?oml Medicamwana Mcr?pa?umamiwt 3101mm and 3509(3) 079 18% 7 Mdi?om! Marmara wage Worth) subfewt to undermc among!) and 35090:} 079 0.35% a mm was 9 Otlzer Social Saw?yand Madlmm wages Tomamlmm?yam Medicarem i (?ms 1 3mm3.951.135 3,951.05 3,951.05 5 3.95105 Sonia! mm mm mm under 312101) 114 12 . [new (dome) In exemptwagea?ips paid In 311ml) 115 13' Increase U119 12 (Um 123mm) 116 mum (Rev. 04-2014) i Mme nfEmpMar at Winnie Schedule ofAdjus?nenu; {Continued} Wye: number Page of carenaar yew 24316 mm to Wages and Tax for [name Tax madam me as. Rate m?cahie . 15! (C) 2nd 3rd 4111 Gunter 14 lmumau?hhofding wage adjustment subjectto tax under "?ction 3492 255.63% 29,415.95 29,415.95 29315.95 15 under WW6) 079 1.511% 16. underch man} 079 3.00% 19 . My Tom! may?; 14.15.16.17xmtas plus-Um 18 pm Line 19) 111 5 7.38399 5 7.35339 7.35am 21 assistance Irma-ass momma-m mm hm Cmd? under fncmasa (W?n paldb 23- 3111(d)@ 117 24. Lmazsmnozaxrm) 296 5. 23 Net (decrease) in credits (sum of Lines 21. 22. 24.3mm Catalog Number 232752 mksgov chasa (Rev. 04-2014) Form Schedule No. Or Exhibit Jamal? 1994) Explanation of Items Name of Taxpayer Tax Identification Number Yearchriod Ended University - 2014,2015 . Issue: Whether Adidas clothing provided to coaches with the University is wages subject to all applicable payroll taxes? Factor University of Louisville (U of L) is a public university that was founded in 1798. of has a wide range of programs and awards associate, bachelor's, master's and doctoral degrees through its main campus and satellite locations. The Louisville Cardinals are the athletic teams representing the University of Louisville. Teams play in the Atlantic Coast Conference, beginning in the 2014 season. of currently ?elds 12 women?s teams and 10 men's teams. Every coach (head coach and assistant coach) has an employment agreement with of L. Through discussions and viewing athletic websites it was noted that the coaches were receiving athletic clothing from Adidas. of has the exclusive right to select footwear, uniform and/or equipment for the use of its student athletes and staff during of?cial practices and games. of entered into an agreement with Adidas for athletic apparel, footwear, uniforms and or equipment. Employees are also allocated clothing from the University allotment of clothing purchases. Apparel arrives for the teams and included in that shipment is clothing for staff. Law: The value of the fringe bene?t is taxable, unless there is a statute or regulation that excludes them. lntemal Revenue Code section (IRC) 61 provides that gross income means all income from whatever source derived, including compensation provided in the form of fringe benefits. There is no exclusion for athletic clothing provided to coaches or assistant coaches (this clothing would be adaptable to personal use). . Treasury Regulation (TR) 1.61-21 (5) states ?The provider of a fringe bene?t is that person for whom the services are performed, regardless of whether that person actually provides the fringe bene?t to the recipient. The provider of a fringe bene?t need not be the employer of the recipient of the fringe The value of the fringe bene?t to be included is the fair market value of the bene?t less any amount paid by the employee for the bene?t. Regulation states "An employee must include in gross income the amount by which the fair market value of the fringe bene?t exceeds the sum of? Department of the Treasury internal Revenue Service Form 886% Page 1 of 3 Form 886-A Schedule No. Or Exhibit mm 19.94) Explanation of Items Name of'llaxpaycr Tax Identi?cation Number YeariPeriod Ended - University ofLouisville - 2014,2015 The amount, if any, paid for the bene?t by or on behalf of the recipient, and (ii) The amount, if any, speci?cally excluded from gross income by some other section. section 262 states ?except as otherwise expressly provided In this chapter, no deduction shall be allowed for personal, living, or family expenses." section 132 provides for several exceptions to IRC section 61 and the inclusion of speci?c fringe bene?ts in income. IRC section 132(d) and Regulation de?ne the term working condition fringe to mean ?any property or service provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.? 162 addresses trade or business expenses while 16? covers depreciation of trade or business property. 162 states that There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or Regulation 1.162-1 states Business expenses deductible from gross income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer?s trade or IRC section 132(e) and Regulation 1.132-6 de?ne de minimis fringe bene?ts as ?any property or service the value of which is (after taking into account the frequency with which simiiar fringes are provided by the employer to the employer?s employees) so small as to make accounting for it unreasonable or administratively impracticable.? Regulation 1.132-6 states Employer measured it would be administratively dif?cult to determine frequency with respect to individual employees, the frequency with which similar fringes are provided by the employer to is determined by reference to the frequency with which the employer provides the fringes to the workforce as a under this rule, the frequency with which any individual employee receives such a fringe bene?t is not relevant. Clothing is deductible as a business expense only where it is required by the employer or essential to the taxpayer's employment; it is not suitable for general wear or use away from work; and was not, in fact, worn while away from work. Drill v. Commissioner, 8 T.C. 902 (1947); Yeomans v. Commissioner, 30 T.C. 757, 767 (1958); Rev. Rul 70-474, 1970-2 CB. 34. section 3401 de?nes ?wages? as all remuneration for services performed by an employee for his employer, with certain exceptions. Section 3401(d) de?nes ?employer? as the person for whom an individual performs any service, of whatever nature, as the employee. section 3402 provides for income tax. lntemal Revenue Code section 3101 imposes taxes on employees for wages they receiVe with respect to employment. IRC 3111 imposes taxes on employers for wages paid to employees with respect to employment. Department of the Treasury - Internal Revenue Service Form Page 2 of 3 Form 886-13. Schedule No. Or Exhibit (Rev. January 1994) Explan ation of Items Name of Taxpayer Tax Identi?cation Number YearlPeriod Ended University of Louisville 2014, 2015 Conclusion: The value of the fringe bene?t is taxable, unless there is a statute or regulation that excludes them. Internal Revenue Code section (RC) 61 provides that gross income means all income from whatever source derived, including compensation provided in the form of fringe bene?ts. There is no exclusion for athletic clothing provided to coaches or assistant coaches (this clothing would beadaptable to personal use). The clothing provided to athletic coaches is a direct result of their employment with the University. The clothing allotted to the athletic coaches is suitable for general wear and would not qualify as a section 162 expense. The items are taxable to the employee. An adjustment is warranted per NRC 3101, 3111 and 3402. of is covered by a Section 218 Agreement for Social Security and Medicare. The clothing is taxable as wages and subject to Social Security, Medicare and Federal Income Tax. Income withholding wage adjustment is subject to tax at 25% under Internal Revenue Code 3402. Under lntemal Revenue Code 3403 the employer is liable for the tax not withheld under internal Revenue Code 3402. The University will not have to issue Forms or one Form W-3c for the fringe bene?t because: 1) it reduces the University?s burden for multiple entries on Forms W-2c and reduces the burden on the individual to prepare an amended return that will not affect any bene?t. 2) The individuals social security would not have any bene?t increase or decrease by ?ling an amended return (which would be an expense to the individual). 3) And Medicare bene?ts are unaffected. Department of the Treasury Internal Revenue Service Form 886-A Page 3 of 3 Form 886- A - Schedule No. 0: Exhibit (Rev. 3mm i994) Explanation of Items Name of Taxpayer Tax identi?cation Number Year/Period Ended University ofLouisviile 2014. 2015 issue: Are all the club memberships and/or dues taxable to employees who had memberships to country clubs as provided by employment contract with the University? Facts Law: - The University of Louisville (U of L) provides various memberships to golf clubs in the local area for some of its employees. of applied the cost of the membership to wages in payroll for many of the memberships. However, there were 4 instances where the memberships were not includedin payroll. In 2014 the amounts for the 4 individuals were $7,292, $4378, $5,696, and $7,574 $24,940. In 2015 the total was $24,586 for 5 individuals. The individuals were provided these memberships as directed by the University within their employment contracts. However, no business record keeping or substantiation of business purpose was provided. . Club dues and memberships are not allowed as business deductions. If an employer provides these bene?ts to an employee, they are taxable to the employee and subject to withholding for income tax, social security and Medicare. The value of the fringe bene?t is taxable, unless there is a statute or regulation that speci?cally excludes it. internal Revenue Code section (IRC) 61 provides that gross income means all income from whatever source derived, including compensation provided in the form of fringe bene?ts. Treasury Regulation (TR) 1.61-21 (5) states ?The provider of a fringe bene?t is that person for whom the services are performed, regardless of whether that person actually provides the fringe bene?t to the recipient The provider of a fringe bene?t need not be the employer of the recipient of the fringe IRC section 3401(a) de?nes Wages" as all remuneration for services performed by an employee for his employer, with certain exceptions. Section 3401 defines ?employer" as the person for whom an individual performs any service, of whatever nature, as the employee. IRC section 3402 provides for income tax. Internal Revenue Code section 3101 imposes taxes on employees for wages they receive with respect to employment. IRC 3111 imposes taxes on employers for wages paid to employees with respect to employment. Internal Revenue Code Section 274(a)(3) disallows, in general, any deduction for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose. effective for amounts paid after Dec. 31, 1993. Specific expenses meals) incurred at a club are deductible only to the extent they otherwise satisfy the standards for deductibility. Department of the Treasury Internal Revenue Service Form 886-A Page 1 of 2 Form 886- A Schedule No. Or Exhibit January 1994) Explanation of Items Name of'l?axpaycr Tax Identi?cation Number Yearchriod Ended University oflcuisvilic 2014, 2015 The Section 274 deduction disallcwance does not preciude an employer from excluding from gross income any payment which quali?es as a working condition fringe (internal Revenue Code Section 132). Working condition fringe bene?ts are de?ned (?132) as: ?any property or services provided to an employee of the employer to the extent that, if the employee paid .for such property or services, such payment would be allowable as a deduction under section 162 or 167.? In order for an employer to exclude the ?working condition fringe bene?ts", they must meet strict record keeping and substantiation requirements, with regard to the details and the time period within which the expenses are incurred, reported and validated. These speci?c requirements can be found in Reg. Reg. Reg. Reg. Reg. Conclusion: No documentation has been provided which shows that the amounts would be deductible under 162(a) or that the employees substantiated the expenses within the meaning of section 274(d). The University did include many club dues in payroll and reported on a/Form W-2 as a taxable fringe bene?t. There were just 4 instances where it was missed. Income withholding wage adjustment is subject to tax at 25% under Internal Revenue Code 3402. Under Internal Revenue Code 3403 the employer is liable for the tax not withheld under Internal Revenue Code 3402. An adjustment is made for the wages for club does not included in payroil for tax years 2014. in 2014 the amounts for the 4 individuals were $7,292, $4378, $5,696, and $7,574 $24,940. In 2015 the total was $24,586 for 5 individuals. Each of the employees who received the paid club dues on their behalf all made over the $117,000 'social security maximum. Therefore the wage adjustment is only subject to FIT and Medicare. Each employee made over $200,000 in wages and therefore the wage adjustment is subject to the over $200,000 additions! Medicare wage of .9 The University will not have to issue Forms or one Form W~3c for the fringe bene?t. Department of the Treasury Intemal Revenue Service Form 886-A Page 2 cf 2 gg?m? Schedule No. Or Exhibit {Rer- teases was} Easieaatiee oi? iteres Name of Taxpayer University afteeiseae so roasts ?Fire sotiossiag eo?oeariort is erosieeo: y?d athletic tickets There are two instances where athletic tickets are provided to employees and not accounted for in alcome. The ?rst is athletic tickets provided to athletic coaches as part of their contract and the second are away tickets. The away tickets generally are provirled by the opposiog team of a conference or stipulated within the contract with another school such as a home and home series. As part of the conaactj the Uoiyersity also provides tickets is exchaage with the opposing school so they also may have tickets-to preside when their team plays at your school. EC section states that gross income includes compensatioo for services, including ?ioge bene?ts. Under Treasury Regulations section 13132-683, the value of soy triage herie?t that tactile not be eme?ooaole or arimicistratiyely impractical to account for is inclaoable in an empioyeels gross income, aciess that bene?t is excludes as a do mieimis bene?t. Treasury Regulatioas section presides that if a speci?c ERG section allows for the exclusion of a ?ioge bene?t from gross income, that section governs the tax treatment. internal Reyeaee Code section 132{a) process that gross income does not iaclude the followi?g: services is defaced as say service presided by as; employer to as employee for use by the employee if the service is o?'ered for sale to costoaiers is she ordinary course ofelie line of busiaess of the employer to which the employee is perforrniag services, and the employer incurs-co substantial additional cost (including forgone revenue) in providing the service to the employee section 132{b}1. 6* Qualified employee discounts: a ?lament for employees on property or services o??erecl for sale to the general public is the liee of business is which the employee works. Limitations apoly as set forth in section 132(c). 9 Be minimis ?ioges: property or services provicled to employees of such a small value as to make accounting for it hepractical [section Treasury Regulations section de?nes an employee as any individual who is currently employed by the employer; any partner who performs services for the partnership; any director of the employer; as. indepeorieot cootractor providing services to the employer. 1R8 Letter Ruling 199929043 established that bene?ts provided to an employee?s family members or dependents may not be exclacled from an employee?s income as working?condition fringe beoe?ts. Department of the Treasury Internal Revenue Service Form see-a Page i of 5 Eons 3%ng Schedule No. or ems: {Rat lenses ?it} Espiseation at iteres Name of Taxpayer University Ofl?ttisvillc summers The fair market value {Flt/[W of a fringe bene?t is the amount as employee would have to pay a third party in an arm?s?length transaction to buy or lease the bene?t. This amount is determined based on the facts and circumstances. Neither the away tickets nor the stipulated contract tickets would qualify as a no additional cost hinge bene?t. The tickets are provided in contract prior to the season and not on a game by game basis where there could be unused tickets. The tickets would not qualify as a de minimis as the value is not small and the tracking of tickets can be administratively done. Internal Revenue Code section 274 does not preclude an employer from excluding from gross income any payment which quali?es as a working condition fringe (Internal Revenue Code Section 132). Working condition fringe bene?ts are de?ned @132) as: ?any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or sendces, such payment would he allowable as a deduction under section 162 or 167.? in order for an employer to enciude the ?working condition fringe bene?ts?, they must meet strict record keeping and substantiation requirements, with regard to the details and the time period vidthin which the expenses are incurred, reported and validated. These speci?c requirements can be found in Reg. ?l 62-26:} Reg. Reg. Reg. ?l Reg. ?l.62~ For Treasury Regulations section for an entertainment or recreational activity to be associated with the active conduct of a trade or business, it must directly precede or follow a substantial and bona ?de business discussion. The expenditure must have a clear business purpose, such as to obtain new business or to encourage the continuation of an existing business relationship. IRS Revenue Ruling 63?144 states that business goodwill entertainment can qualify under the ?associated wit test if the taxpayer can show that the entertainment took place directly before or after a substantial and bona ?de business discussion. While it is not necessary that more time be devoted to business than to entertainment, the taXpayer must actively engage in a business meeting, negotiation or discussion that is substantial in relation to the entertainment. For example, in Auto Zapper 8: Towing, Inc. (TC Memo 1992-662), a taxpayer in the business of repossessing cars, boats, and motor homes for ?nancial institutions paid for a weekend trip to Las Vegas. Although the taxpayer?s business increased signi?cantly as a result of the trip, he could not deduct the expenses for the trip, because it did not satisfy the ?associated with? test. The taxpayer did not actually conduct business or any substantial business discussions immediately before or after the entertainment. Department ofthe Treasin'y?Internal Revenue Service Form 886-A Page 2 of 5 Form gg?m?? Sche?uie No. Or E?bfbit (Rev sew Eggs} Ese?eesrree er steers Name of Taxpayer UmversitvofLoeisvi?e 2914/2015 Te be deductible, an cotertsierrlent expense must meet the requiremerlts of both Internal Revenue Corie Section l6?2 seat 274. First, the expense must be err ordinary necessary beslrress especse urrder sectierr 162. the expense must be either ?clirectly related re? er ?associated saith? she active contract of the taxpayer?s business. is cenclusion, unless the University can document a. clear busisess consection, the value of tickets prose?e? to employees woelo be a taxable fringe bene?t see reported es a. Form with sppliceble empleymeet taxes withhel? soc/er matches. - . Family travel The Univerer allows and is some cases encourages family travel {speci?cally spouse trevel among some executives). Although there was very little travel of family cf employees (lurirrg the 2014 trer year, the University will want te (ll?ereetiste between no additional cest see expenses rbet ere sdrlitloesl fer travel of family members seal which mey seed re be repertee is an ereol gree?s wages as merge bees t. Examples of so sediticeel cest would be mile reimbursemest when spouse accompanies empleyee re vehicle, staying in same betel room, etc. Examples of edclitienel expenses that week? be tc be reported: es taxable fringe bene?ts would be meal per slicers While treveli?g with speese start extra hotel rooms fer family members. EEC sectloe states that gross income irreledes compensation fer services, includieg fringe bene?ts. Uncler Treasury Regulations sectiorr 1332?683), the value of any fringe bene?t that woulrt not be unreasonable or administretively beer-ecticel to account for is irreleclable in an employee?s gross ieceme, unless that bene?t is exclude? es tie mieimis bene?t. Treasury Regulations section presides that if as speci?c EEC section allows for the exclusion of a, fringe bene?t from gross income, that sectiorr gcveres the tax treatment. Revenue Code secticn 132(3) provides that gross income does not reduce the ?5 No?sd?itionalucost sewices is de?eed as my service presided by an employer to an employee for use by the empleyee if the service is offered for sale to customers is the culinary course cftbe line of business of the employer in which the employee is performing services, and the employer recurs no substantial additieesl cost (including forgone revenue) in presiding the service to the employee section 13263)]. Quali?ed employee discounts: at discount for employees on property or services o?ered for sale to the general public in the line of business is which the employee works. Limitations apply as set forth in section 132(0). 6 De minimis ?nges: property or services provided to employees of such a small value es tc make accounting for it impractical [section . Deparenent of the Treemry Internal Revenue Sender: Form 886-A Page 3 of 5 Farm 386%; Schedule No. OrExhihit 7 (Res issuer? 1994} Ereisrrerierr ei? iterus Name of Taxpayer University ofLe-uisvilie . 201412015 E38 Lesser Ruling $993943 establishes that bene?ts presided to an employee?s. family members or dependents rriey uet he eselurieri from err employee?s income es weririeg?eeurii?siee fringe To he deductihie, sir enterrsiemeut espeese must meet the requirements of both internal Revenue Corie Sectieri i632; end 274. First, the expense must he an ordinary and necessary husirtess espeuse under section 162. Secerlri, the expense must be either ?directly related to? er ?associated: with? 16 series courieet ef the taxpayer business. Treasury regulations provide that when a texesyer's wife sceempauies him are e. husmess trip, her expenses are not deductible unless the terrpeyer oer: adequately show that her presence has hens ?es business purpose. The wife?s performance of se irrcicieutel service does set meet this requirement TR is Weetheri?erri v. United States, 413 F.2d 895, 89?? (9th (3.35.1969), the courts feund that spouse?s expenses were set deductible because her ?business function? was to be a socially wife, not professiorrel hesirresswemeri. hissing the University will west to trash espeeses ef family trsvel end report any taxable fringe bene?ts err the employee?s wages and err a. Form; EELZ with application of employment taxes. - Sectiou Zi?s Ln) You correctly participate in seeisi security and Medicare sitheugh you may not have understeed the laws surroonriiog the government entity participatieu in social security anti/or Medicare. A government employer {when serving as the ?Common Lew? empioyer), is responsible for the sppreprisre sociei security serif or hieriieere eorerege. Such eeversge of the Toeei? cmrerrt sari/or future empleyees, under the Ferierai insurance Contributieris Act (BECK), seciel security sari/or Medieere, is ?eteresiueri irr the rehearing three ways: l) Full FICA coverage, social seciu?ity sud Meriiesre, is extended through a: voluntary else see agreement through your State Scciel Security Administrator. These agreements are ceeimoriiy referred to es ?Section 218? agreements. [Section 218 of the Social Security Act (5cm. 2) For services performed after July 1, 1991, full FECA coverage, social security aerl hieriiesre, is requireci for employees whose services are not oovereri under a Section 218 agreement nor by 3 quali?ed, employer?s retirement system. This coverage is commonly referred to as ?msncistory [Section of the Act and Section 3121(b)(7)(F) of the Internal Revenue Code (Cocie?. 3) Medicare enly coverage is required for political subdivision employees Whose services me net covered for social security under a Section 213 agreement or under mandatory FICA, but who were hired after March 31, 1986. This coverage constitutes Medicare quali?ed government employment. [Section 210(p) of the Act and Section 2131(11) of the Code]. 13611311121th of the Treasury Internal Revenue Service Form see-A Page 4 of 5 Farm Scheduie we. OrExhiin't ?35? mm 39%} ef E?ee?ae Heme: 6? Taxpayer Univeesity Gfmuisvilie 7 7 7 7 7 20 1442915 The University is cevere? by a See?e? 21% Agreement. Yau can thai? cepy efyeur Sectien 238 Agreement farm the Kentucky State Seeial Security Manager, Tammy Taylor. FAX: 502564-2124 Form 8864; 0f the Treasury Internet Revenue Service Page 5 of The Mission Provide America?s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. WIRS Department of the Treasury Internal Revenue Service witsgov Publication 3498 (Rev. 11?2004} Catalog Number 730748 The Examination Process Introduction The Internal Revenue Service (IRS) accepts most federal returns as ?led. Some returns. however, are examined, or audited, to determine if income, eXpenses, and credits are reported accurately. This publication discusses general rules and procedures we follow in examinations. It explains what happens before, during, and after an examination. it also explains appeal and payment procedures. As a taxpayer, you have the right to fair, professional. prompt, and courteous service from IRS employees, as outlined in the Declaration of Taxpayer Rights found on page 3. We must follow the tax rules set forth by Congress in the internal Revenue Code. We also follow Treasury Regulations. court decisions, and other rules and procedures written to administer the tax laws. if the examination results in a change to your tax liabliity, you may ask us to reconsider your case. Some reasons why we may reconsider your case include: . You are submitting additional information that could result in a change to the additional amount we have determined that you owe; . You are ?ling an original delinquent return after we have determined that you owe an additional amount, or; a You are identifying a mathematical or processing error we made.? You must request reconsideration in writing and submit it to your local office. What?s Inside . . . Introduction Declaration of Taxpayer Rights Your Return is Going To Be Examined Before the Examination . . During the Examination . Examinations by Mail Examinations in Person How to Stop Interest from Accumulating. . . . Consents to Extend the Statute of Limitations . . . Results of the Examination . . . What to Do When You Receive a from the What To Do if You Agree or Disagree with the Examination Results if You Agree If You Do Not Agree . . . Fast Track Mediation Services How Do You Appeal a Decision? The Appeal System . Appeal Within the IRS Making a Small Case Request Filing a Formal Protest After the Examination Payment Options Temporarily Delay the Collection Process Innocent Spouse Relief You Must Contact Us I I What If You Believe Your Bill Is Wrong Privacy Act StatementWOJQJUJ \Zl Do you have questions or need help I 9 right away? Cali us. We are here to help you. For General Information: For information about a speci?c examination please contact the person named on the appointment letter. For tax information and help: Call the number on the bill you received or call us toll free at: 1-800-829?1040 (for i 040 ?iers) 1-800?829-4933 (for business ?lers) 1-800-829?4059 DD For tax forms and publications: 1-809-829-3676 LBW-8294059 l-703-368-9694-Fonns by Fax intemet: ftp.fedworld.govlpuhl You?ll ?nd answers to frequently asked tax questions, tax fonns err-line, searchable publications, hot tax issues, news, and help through e?mail. a if you prefer to write to us . . Enclose a copy of your tax bill. Print your name, social security number or taxpayer identi?cation number, and the tax form and period shown on your biil. Write to us at the address shown on your tax bill. You may also visit your nearest Of?ce. You?ll ?nd the exact address in your local phone book under US. Government Declaration of Taxpayer Rights i. Protection of Your Rights IRS employees will explain and protect your rights as ?a taxpayer throughout your contact with as. Ii. Privacy and Con?dentiality The IRS will not disclose to anyone the information you give us. except as authorized bylaw. You have the right to lately why we are asking you ?sr information, how we will use it. and what happens if you do not provide requested infomatton. ill. Professional and Courteous Service .[l?yau believe that an IRS employee has not treated you in a professional, fair; and courteous manner; you should tell that employees supervise: If the supervisor Is response is not satisfactory you should write to the IRS Director for yourArea or the Center where you?le your realm. IV. Representation You may either represent yourself or. with proper mitten authoriza- tion. have someone else represent you. Your representative must be aperson allowed to practice bejbre the IRS. such as. an attorney, certi?ed public accountant. or enrolled agent {aperson enrolled to practice before the HES). you are in an intendew and ask to consult such a person. then we must stop and reschedule the interview in most cases. You can have someone accompany you at an interview. You may malts sound recordings of any meetings with our examination, appeal, or collection personnel. provided you tell us in writing 10 days be?n?e the meeting. V. Payment of Only the Correct Amount of Tax You are responsible for paying only the correct amount of tax due under the law?no more. no less. lfyoa cannot pay all of your tax when it is due. you may be able to make VI. Help with Unresolved Tax Problems The Taxpayer Advocate Service can help you if?you have tried ansaccesgitlb: to resolve a problem with the IRS. Your local thpayerAa'vocate can o?'er you special help tfyou have a signi?cant hardship as a result ofa tax problem. For more call toll-?es. 1-8 7 7-77 7-4 778 (1-800-829-4059 for WHDD) or write to the Taxpayer Advocate at the IRS o?lce that last contacted you. Vii. Appeals and Judicial Review If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals O?ice to review your case. You may also aska court to review your case. Relief from Certain Penalties and Interest The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good jhith or relied on the incorrect advice ofan IRS employee. We will waive interest that is the result of certain errors or delays caused by an IRS employee. 3 Your Return is Going To Be Examined. Before the Examination We accept most taxpayers returns as: 1' led if we inquire about your relum or salsa it for examination, it does not suggest that you are dishonest. The Inquiry or examination may or may no! result in more tax. We may close your was without change oryou may receive a refund. The process of selecting a team for examination usually news in one of two ways One way is to use computer programs to identify returns that may have incorrect amounts. The programs may be based on infonnalion realms, such as Forms 1099 or on studies of past examinations.or on certain issues Identi?ed by other special pmlects. Another way is to use information from ocmp?ance projects thal' inmates a ram may have Incorrect amounts. These sources may Include newspapers. public records. and individuals. ll?we determine the is accurate and reliable, we may use it to select a retum for examination. Publication 556, Elimination (3me Appeal Rights, and Claim for Refund, explains the mice and procedures tl'latwo follow in emn?na?ons The following sections give an overview of how we conduct enamina?ons. During the Examination Examinations by Mail Some examinations are conducted entirely by mail. If the examination is conducted by mail. you'll receive a letter from us asking for additional information about certain Items shown on your return. such as income. expenses. and itemized deductions. if the examination is conducted by mail. you can: 1. Act on your own behalf. {in the case of a jointly ?led retain. either spouse can respond or both spouses can send a joint response.) 2. Have someone represent you in correspondence with us. This person must be an attorney. accountant. enrolled agent, an enrolled actuary. or the person Who prepared the return and signed it as the preparer. if you choose to have someone represent you. you must furnish us with written authorization. Make this authorization on Form 2848, Power of Attorney and Declaration of Representative. Note: You may obtain any. otlhe loans and publications referenced in this publication by calling 1-800-829?3676. Examinations in Person An examination conducted beginswhenwenclifyyou?iat your realm has been selected. We will tell you millet irlfonnalion you need to prance at that time. lfycu gather the information before the exan?nation. we may be able to complete it more easily and in a shorter time. If the examination is conducted in person. it can take place in your home. your place of business. an of?ce, or the of?ce of your attorney. accountant or enrolled agent (a person enrolled to practice before the If the time or piece is ?not convenient for you. the examiner will try to work out something more suitable. Your Return is Going To Be Examined. (cont) if the examination is conducted in person. you can: 1. Act on your own behalf. (in the case of a jointly riled return. either spouse or both can attend the intendew.) If you are acting on your own behalf. you may leave to consult with your representative. We will suspend the interview and reschedule the examination. We cannot suspend the interview ifwe are conducting it as a result of your receiving an administrative summons. 2. Have someone accompany you. either to support your position or to witness to the proceedings. 3. Accompany someone who wilt represent you. This person must be an attorney. accountant. enrolled agent. an enrolled actuary, or the person who prepared the return and signed it as the preparer. 4. Have your representative act for you and not be present at the audit yourself. If you choose to have someone represent you in your absence, you must furnish us with written authorization. Make this authorization on Form 2848. Power of Attorney and Declaration of Representative. How to Stop Interest from Accumulating During your examination. if you think you will owe additional tax at the end of the examination. you can stop interest from accumulating by paying alt or part of the amount you think you will owe. Interest will stop acwmulating on the part you pay when the receives your money. interest will only be charged on the tax, penalties, and interest that are unpaid on the date they are assessed. Consents to Extend the Statute of Limitations We try to examine tax returns as soon as possible a?er they are ?led. but occasionally we may request that you attend the statute of limitations of your tax return. A return's statute of ilmitatlon generally limits the time we have to examine it and assess tax. Assessments of tax must he made within 3 years after a return is due or tiled. whichever is later. We can?t assess additional tax or make a refund or credit (unless you filed a timely claim) after the statute of limitations has expired. Also. if you disagree with the results of the examination. you can't appeal the items you disagree with unless suf?cient time remains on the statute. Because of these restrictions. if there isn't much time remaining to examine your retum. assess additional taxes. andior exercise your appeal rights. you have the opportunity to extend the statute of limitations. This will ailow you additional time to provide further documentation to support your position. request an appeal if you do not agree with our ?ndings. or to claim a tax refund or credit. it also allows the Service time to complete the examination. make any additional assessment. it necessary. and provide suf?cient tin-re for processing. A written agreement between you and the Service to extend the statutory period of a tax return is called a 'consent.? Consents can be used for all types of tax except estate tax. There are two basic kinds of consent forms. One sets a specl?o expiration date for the extension. and the other for an inde?nite period- ot time. Either type of consent may be limited by restrictive conditions. The use of a restricted consent is to allow the statute to expire with regard to all items on the return except those covered by the restrictive language. If the statute of limitations for your tax return is approaching. you may be asked to sign a consent. You may: 1. Refuse to extend the statute of limitations; 2. Limit or restrict the consent to particular issues. or 3. Limit the extension to a particuiar period of ?me. The consent will be sent or presented to you with a letter explaining this process and Publication 1035. Extending the Tax Assessment Period. For further information. refer to this pubiication. . Results of the Examination it we accept your return as tiled. you wilt receive a letter stating that the examiner proposed no changes to your return. You should keep this letter with your tax records. if we don't accept your return as ?led. we will explain any proposed changes to you and your authorized representative. it is important that you understand the reasons for any proposed changes; don?t hesitate to ask about anything that is unclear to you. ?What to Do When You Receive a Bill from the Youreoeivoetsx I . billion-lemon. Contact us right away . . . I ll Ito at 800 829 Write no 1400329123,? gm? the address on You have severe! payment options . . . What To Do lf You Agree or Disagree with the Examination Results if You Agree if you agree with a proposed increase to tax. you can sign an agreement form and pay any additional tax you may owe. You must pay interest and applicable penalties on any additional balance due. If you pay when you sign the agreement. interest is generally ?gured from the due date of your return to the date of your payment. if you do not pay the additional tax and interest, you will receive a bill (See What To do When You Receive a Bill from the on page 4.) lithe amount due (including interest and applicable penalties) is less than $100,000 and you pay it within 21 business days. we will not charge more interest or penalties. it the amount is $100,000 or more. the period is reduced to 10 calendar days. if you canthe examination. you may pay whatever amount you can and request an installment agreement for the balance. (See ?Setting up an installment Agreement" on page 7.) if you are entitled to a refund. you will receive it sooner if you sign the agreement term at the end of the examination. You will also be paid Interest on the refund. If You Do Not Agree If you do not agree with the proposed changes. the examiner will explain your appeal rights. if your examination takes place in an IRS of?ce. you may request an immediate meeting with the examiner?s supervisor to explain your situation. You may also enter into an Agreement to Mediate to help resolve disputes through Fast Traci: Mediation services. (See next column.) Mediation can take place at this meeting or alterwards. if an agreement is reached. your case will be closed. If you cannot reach an agreement with the supervisor at this meeting. or if the examination took place outside an ms of?ce or was conducted through conespondence with an IRS Campus employee. the examiner will prepare a report explaining your position and ours. The examiner will forward your case to the Area office for processing . You will receive: - A letter (known as a 30-day letter) notifying you of your rights to appeal the proposed changes within 30 days. - A copy of the examiner?s report explaining the proposed changes.and - An agreement or a waiver form. You generally have 30 days from the date of the 30-day letter to tell us whether you will accept the proposed changes or appeal them. The letter will explain what steps you should take. depending on wlrat action you choose. Be sure to toilow the instructions carefully. Appeal rights are explained following this section. if you do not respond to the 30-day letter. or if you respond but do not reach an agreement with an appeals of?cer. we will send you a 90-day letter. also known as a Notice of Deficiency. This is a legal Caution document that explains the proposed changes and the amount of the proposed tax increase. You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to ?le a petition with the Tax Court. lfyou do not petition theb?l?ax Court you will receive a bill for the amount due. Fast Track Mediation Services if you do not agree with any or all of the ?ndings. you may request Fast Track Mediation services to help you resolve disputes resulting from the examination (audits). Fast Track Mediation otters an expedited process with a trained mediator, who will help facilitate communication. in a neutral setting. The mediator will work with you and the to understand the nature of the dispute. The purpose is to help the two at you reach a mutually satisfactory resolution that is consistent with the applicable law. The mediator has no authority to require ?either party to accept any resolution. You may withdraw from the mediation process anytime. if any issues remain unresolved you will retain all of your usual appeal rights. Most cases quality for Fast Track Mediation. To begin the process. you may request the examiner or representative to arrange a mediation meeting. Eloth you and the IRS representative must sign a simple Agreement to Mediate form. Amediator will then be assigned. Generally. within a week. the mediator will contact you and the representative to schedule a meeting. Alter a brief explanation of the process. the mediator will discuss with you when and where to hold the mediation session. For additional information. refer to Publication 3605. Fast Track Mediation-A Process for Prompt Resolution of Tax issues. The Appeal System Because people sometimes disagree on tax matters. the Sendce has an appeal system. Most differences can be within this system without going to court. Your reasons for disagreeing must come within the scope of tax laws. however. For example. you cannot appeal your case based only on moral. religious. political. constitutional, conscientious. or similar grounds. if you do not want to appeal your case within the you may take your case directly to tax court. Appeal Within the You may appeal our tax decision to a local appeals of?ce. which is separate and independent of the Office taking the action you disagree with. An appeals office is the only level of appeal within the IRS. Conferences with Appeals Office porsonnet may be conducted in person. through correspondence. or by telephone with you or your authorized representative if you want to have a conference with an appeals officer. foilow the instructions in the letter you received. We will send your conference request letter to the appeals of?ce to arrange for a conference at a convenient time and place. You or your quali?ed representative should be prepared to discuss all disputed issues at the conference. Most differences are settled at this leviei. Only attorneys. certi?ed public accountants or enrolled agents are allowed to represent a taxpayer before Appeals. An unenroiied preparer may be a witness at the conference. but note representative. if you want to have a conference with an appeals of?cer. you may also need to file either a small case request or a formal written protest with the contact person named in the letter you receive. Whether you ?le a small case request or a funnel written protest depends on several factors. Making a Small Case Request You may make a small case request if the total amount of tax. penalties. and interest for each tax period involved is $25,000 or less. and you do not meet one of the exceptions below for which a formal protest is required. if more than one tax period is involved and anytax period exceeds the $25,000 threshold. you must tile a formal written protest for all periods involved. The total amount includes the proposed increase or decrease in tax and penalties or claimed refund. For an Morin-Compromise. include total unpaid tax. penalty and interest due. To make a small case request. follow the instructions in our ietterto you by sending a brief written statement requesting an appeals conference. Indicate the changes you do not agree with and the reasons you do not agree with them. How Do You Appeal a Decision? Be sure to send the protest within the time limit speci?ed in the letter you received. Caution You must tile a formal written protest - If the total amount of tax. penalties. and interest for any tax period is more than $25,000: - In all partnership and corporation cases. regardless of the doitar amount; - in all employee plan and exempt organization cases. regardless of the dollar amount; - in all other cases. unless you qualify for other special appeal procedures. such as requesting appeals consideration of liens. levies. seizures. or installment agreements. (See Publicaan 1660. Collection Appeal Rights. for more information on special collection appeals procedures.) Filing a Formal Protest When a fennel protest is required. send it within the time limit speci?ed in the letter you received. include in your protest: - Your name and address. and a daytime telephone number. - A statement that you want to appeal the IRS ?ndings to the Appeals Of?ce. A copy of the letter showing the proposed changes and ?ndings you do not agree with {or the date and symbols from the letter.) The tax periods or years invoived. - A list of the charges that you do not agree with. and why you do not agree. a The facts supporting your position on any issue that you do not agree with. - The law or authority. if any. on which you are relying. - You must sign the written protest. stating that it is two, under the penalties of perjury as follows: "Under the penalties of perjury, declare that I examined the facts stated in this protest. including any accompanying documents. and. to the best army knowledge and belief; they are true. correct. and complete.? if your representative prepares and signs the protest for you. he or she must substitute a declaration stating: - That he or she submitted the protest and accompanying documents and; Whether he or she knows personally that the facts stated in the protest and accompanying documents are true and correct. We urge you to provide as much information as you can. as this will help us speed up your appeal. This will save you both time and money. Additional information about the Appeals process may be found in Publication 5. YourAppeais Rights and How to Prepare a Protest if you Don?t Agree. Payment Options You cannot pay all that you owe now if you cannot pay all your taxes now. pay as much as you can. By paying now. you reduce the amount of interest and penalty you owe. Then immediately call. write. or visit the nearest cities to explain your situation. Alter you explain your situation. we may ask you to fill out a Collection information Statement If you are contacting us by mail or by telephone. we will mail the statement to you to complete and return to us. This will help us compare your income with your expenses so we can ?gure the amount you can pay. We can then help you work out a payment plan that ?ts your situation. This is known as an installment agreement. Payment by credit card individual taxpayers may make credit {and debit) card payments on tax liabilities {including installment agreement payments) by phone or internal. Payments may be made to the United States Treasury through authorized credit card service providers. The service providers charge a convenience fee based on the payment amount. You will be informed of the convenience foe amount before the credit card payment is authorized. This fee is in addition to any charges. such as interest. that may be assessed by the credit card issuer. 1Visit to obtain a list of autho~ rized service providers and to obtain updated information on credit card payment options. Note: You can use debit cards issued by VISA and MasterCard when making tax payments through the participating service providers. However, the sunrise providers and card issuers treat debit cards and credit cards equally for the purpose of processing electronic tax payments. Therefore, debit card users are charged the same fee traditionally associated with credit card transactions Payment by Electronic Federal Tax Payment System (EFTPS) EFT P8 is an Electronic Federal Tax Payment System developed by the lntemal Revenue Service and Financial Management Service (FMS). The system allows federal taxes to be paid electronically. The system allows the use of the intemet at or telephone to initiate tax payments directly. EFFPS payments may also be made through your local ?nancial institution. The service is convenient. secure and saves time. You may enroll in EFTPS through the website at or by completing a form available from EFTPS customer service at (800) 555-4477 or (800) 945-8400. Setting up an installment agreement installment agreements allow you to pay your full debt in smaller. more manageable amounts. installment agreements generally require equal payments. The amount and number of your installment payments will be based on the amount you own and your ability to pay that amount within the time we can legally collect payment from you. You should be aware. however. that an installment agreement is more costly than paying all the taxes you owe now. Like revolving credit arrangements. we charge interest on the unpaid portion of the debt. Penalties also continue to accumulate on installment agreements. if you want to pay all your tax debt through an installment agreement, call the number shown on your bill. if you cure: $25.000 or less in tax. we will tell you what you need to do to setup the agreement: - More than 325.000. we may still be able to set up an installment agreement for you. but we may also ask for financial information to help us determine your ability to Path Even if you sat up an installment agreement. we may still file a Notice of Federal Tax Lien to secure the government's interest until you moire your ?nal payment. Note: We cannot take any collection actions a?ecting your property while we consider your request for an installment agreement, while your agreement is in client, for 30 days alter we reject your request for an agreement, or for any period while you appeal the rejection. if you arrange for an installment agreement. you may pay with: - Personal or business checks. money orders, or certi?ed funds (all made payable to the U.S. Treasury). - Credit and debit cards, . Payroll deductions your employer takes from your salary and regularly sends to IRS. or - Electronic transfers from your bank account or other similar means. - Apply for an Offer-in?Compromise in some cases. we may accept an O?er?in?Compromise to settle an unpaid tax account. including any penalties and interest. With this kind of arrangement. we can accept less than the full amount you owe when it is doubtful we will be able to collect the entire amount due. Offers in compromise are also possible if collection action would create an economic hardship. You may want to discuss these options with your examiner. Temporarily Delay the Collection Process it we determine that you can?t pay any of your tax debt. we may temporarily delay collection until your ?nancial condition improves. You should know that ifwe delay collecting from you. your debt will increase because penalties and interest are. charged until you pay the full amount. During a temporary delay. we will again review your ability to pay. We may also ?le a Notice of Federal Tax Lien. to protect the government?s interest in your assets. See Publication 594, The ma Collection Process. After the Examination (cont. Innocent Spouse Relief it you ?led a joint tax return. you are jointly and individually responsible for the tax and any interest or penalty due on iheloint return. even it you later divorce. In some cases. a spouse may be relieved of the tax, interest. and penalties on a joint returnmatter how small the liability. Three types of relief are avartabie. - innocent spouse relief - may apply to all joint filers; - Separation of liability - may apply to joint ?lers who are divorced. widowed, legally separated, or have not lived together for the past 12 months; . Equitable relief - applies to all joint ?lers. innocent spouse relief and separation of liability apply only to items incorrectly reported on the return. it a spouse does not qualify for innocent spouse relief or separation of liability. the may grant equitable relief. Each type of relief is different and each has different requirements. You must ?le Form 685?, Request for innocent Spouse Relief, to request any of these methods of relief. Publication 971, innocent Spduse Relief, explains each type of relief. who may qualify. and how to request relief. You Must Contact Us [t is important that you contact us regarding any correspon- dence you receive from us. If you do not pay your bill or work out a payment plan, we are required by law to take further collection actions. What If You Believe Your Bill is Wrong ityou believe your bill is wrong, let us town as soon as possible. Call the numberon your bill, write tottre of?ce that sent you the bill. cell 1300-8291040 (for 1040 were). . 1-800-829-4933 our business ?lers). Caution rammsenoo. orvisitycurlomilRS o?ice. To help us correct the problem, gamete copy of the bill along with copies of any records, tax realms, and mutated chads, etc, ?rst will help us understand whyyou believe your bill is wrong. if you write to us, tell us why you believe your bill is wrong. With yourletter, include copies of all the documents you gathered to explain your case. Please do not send original documents. if we ?nd you are correct. we will adjust your account and, if necessary, send you a corrected bill. Privacy Act Statement The Privacy Act ofl974 says that when we oskyau?ar information. we must?rst tell you our legal right to ask for the infomorion, why we are asking for it. and how it will he used. We must also roll you who! could happen if you do not provide ll and whether or not you must respond under the law. This notice applies to tax returns and any papers ?led with them. It also applies to any questions we need to oslryou so we can complete, correct, or process your return; ?gure your tax,? and collect lax, interest, or penalties. Our legal right to ask for information is found in Internal Revenue Code sections 6001, 601' l. and 6012121), and their regulations. lhey say that you musl?le a return or slolemenl will: us for any lax you are llablcfor: Your response is mando- rory under these sections. Code section 6M9 and its regulations say that you must show your social security number or individual taxpayer identifica- tion number on what you ?le. You must alsafill in all ports of the laxform that apply to you. This is so we know who you are, and can process your return and papers. You do not have lo check the boxes for the Presidential Election Campaign Fund. We ask?rr tax return information to carry out the U.S. lax laws. We need it lo?gure and collect the right amount oftcx. We may give the in?rmallon to the Department of Justice and to other Federal agencies, as provided by law. We may also give lilo cities, slates, the District of Columbia. and US. Commonweallhc or possessions to carry our rheir tax laws. And we may give it to certain foreign governments under tax treaties they have with the United Slates. We may also disclose this information to Federal, slate, or local agencies that investigate or respond to acts or threats of terrorism or participate in intelligence or counter-intelligence activities concerning terrorism. Hyatt do uot?le retum,- do not give us the infomotion we or provide ?audulenl infoman?on. the law says that we may have to charge you penalties and, in certain cases, subject you to criminal prosecution. We may also have to disallow the exemptions. exclusions, credits, deductions, or ochre-lineups shown on your lax return. This could make your tax higher or delay any refund. Interest may also be charged. Please keep this notice with your records. You may want to refer to it if we ask you for other injonncrion. lfycu have questions about the rules ?ar- filing and giving infomolr'on. please call or visit any Internal Revenue Service o?ce.