Trump’s “I Win” Tax Form

Presidential hopeful and real estate mogul, Donald Trump, is known for his informal and crude style.  If you ask him, he just says it like it is and leaves out the fluff.  If elected to be the next president, he will apparently be leaving out the fluff on IRS tax forms as well.  In describing his tax plan, he suggested that there will be relaxed filing requirements for individual taxpayers who earn less than $25,000 and married taxpayers who earn less than $50,000. Those who fall into this group would not pay taxes under Trump’s tax plan. Not only would they be exempt from paying taxes, but it appears that they would enjoy some kind of exemption from filing taxes as well. Instead of the regular Form 1040 income tax return, these economically disadvantaged households would simply send in their one-page form to the IRS stating “I win.”

I realize that Trump was speaking figuratively in referring to this “I win” form, but part of me would love to see something like that.  Would it come with instructions like most other IRS forms? The instructions might read something like this: “If you earn less than $25,000 (individual) or $50,000 (couples) then you win.  If you win, sign and date the form.” How refreshing it would be to see something so simple and straightforward in the IRS’ document library. Would the font be huge in an attempt to fill the page? Or would they use a standard size font so as to allow room for some cute graphics or a head shot of the Donald? The new “I win” form would certainly pose some new kinds of challenges and questions for the IRS.

All joking aside, doesn’t this comment show that Trump is way out of touch with reality — at least on a subconscious level? To him the biggest win he can imagine is avoiding taxes and keeping a bigger share of his earnings. But ask some of those trying to survive on $25,000 per year if they think they are winning. I’m not sure they would agree.

Trump’s tax plan would also include capping the tax rate for businesses at 15 percent. And the highest effective tax rate would be reduced from nearly 40 percent to 25 percent for individuals. By limiting the number of exemptions wealthy taxpayers can claim, Trump says they (he) will pay higher taxes. But some experts believe that will not be the result given the tax rate reductions he is proposing.

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Coca-Cola’s $3.3 Billion Tax Bill

It’s official, nobody has any right to complain about the taxes they owe.  Oh you owe $10k? $20k?  You think you’re in dire straits with your $50k or $100k tax debt?  That’s small beans.  The Coca-Cola company owes $3.3 billion!  The additional assessments came after a 5-year long audit associated with tax years 2007-2009.

Many of the tax disputes between the IRS and multinational corporations have to do with these companies trying to shift reportable income away from the US to avoid high domestic tax rates.  I say “avoid” and not “evade” because they all do this and they all claim that it is completely legal. However, I can’t imagine there is much legal precedent due to the fact that the vast majority of these cases settle, never making it to trial.

There are good reasons for settling, and they are all the standard reasons why parties in a lawsuit often choose to settle. One reason is to avoid the “hazards of litigation.” You never know with 100% certainty which way the judge and/or jury will go.  You can weigh the relative strengths on both sides, you can compare the evidence, and you can apply the law to the facts as done in similar cases. But surprises are common in litigation, and you can never predict for sure what will happen. Another good reason for settling is to avoid the high costs of litigation. Hundreds of thousands of dollars can be saved when parties agree to settle complex litigation cases. Of course the key is to settle early enough, before too much has been spent and before huge investments of time and emotion. Coca-Cola will need to decide whether it can justify the legal fees and risk the hazards of litigation.

Coca-Cola insists that it has been doing its taxes the same way for 30 years without any problems from the IRS.

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IRS Discontinues Appeals Arbitration Program

The Appeals Arbitration program will no longer exist as of September 21, 2015. The availability of arbitration following an adverse decision at the appeals stage of a case has been around in one form or another since the year 2000. I say “in one form or another” because it began as a pilot program intended to last only two years. In 2002 the pilot program was extended for another year. Then on October 30, 2006, the IRS published Rev. Proc. 2006-44, 2006-2 C.B. 800, formally establishing the Appeals Arbitration Program. The program underwent further expansion in 2008 when it was opened up to collection cases in select cities, meaning that taxpayers were permitted to request arbitration for resolution of Trust Fund Recover Penalties and rejected Offers in Compromise.

So why is the IRS scrapping appeals arbitration? It might have something to do with the fact that only two cases were settled using arbitration during the 14 years it existed. It has everything to do with that, so good move IRS. But what options are left besides going to US Tax Court? MEDIATION. The main difference between arbitration and mediation is that an arbitrator hands down a decision (sometimes binding) which more closely resembles an actual trial, and a mediator basically just helps the parties look at the issues and talk it out. Per the IRS:

Given the general lack of demand for arbitration and the fact that its use as a tool to settle disputes without litigation has not proven successful, the IRS is eliminating the arbitration program. Although Appeals arbitration is being eliminated, taxpayers may be eligible to request mediation for unresolved issues that remain after completion of settlement discussions in Appeals.

The IRS has a nifty online tool to help you decide if mediation is right for you.

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TIGTA Reviews IRS Asset Seizure Procedures

Asset seizure is that one thing many of my clients worry about, but few have had to experience first hand, thankfully. In my work as a tax attorney, I have noticed that the IRS does not like to use asset seizure as their “go to” collection tool. They will typically try everything else first, including letters, phone calls, field visits, liens, wage garnishments, and bank levies. However, after other efforts have been exhausted, if they are still unable to get the taxpayer to address their tax balance, the IRS has authority to seize any variety of assets, including vehicles, real property, and valuable personal property. These days property seizures are orchestrated by specially trained “PALS” employees (Property Appraisal and Liquidation Specialists) who coordinate with the revenue officer throughout each phase of the seizure and sale.

According to a recent report from the Treasury Inspector General for Tax Administration (TIGTA), the IRS needs to work out a few kinks in their asset seizure procedures. One of the problems that TIGTA identified occurs when a taxpayers’ personal property subsequently turns up inside or attached to the seized property. The IRS is supposed to use form 668-E to document these found items and they are to be released back to the taxpayer.  But the form is not consistently used and the items are not consistently returned, according to TIGTA. Although, to be fair, the IRS audited 44 seizure cases around the country and the only item that TIGTA identified as being unreturned to the taxpayer was the license plate in six of the eight vehicle seizures (because in those six states the license is issued to the owner of the vehicle, not the vehicle itself). Kind of a non-issue if you ask me. Yes, its important to follow procedures, but I can’t imagine anyone wanting their license plate back to forever remind them of the car that the IRS took from them.

Another procedural problem is that there is no IRM guidance for how to handle removal of taxpayer data from installed equipment in vehicles. Two examples of this would be factory installed garage door openers and GPS units. If taxpayer is not permitted to retrieve the personal data or ensure that the device has been scrubbed, this poses potential privacy concerns where a third party purchaser would have access to the taxpayer’s home address and maybe even access to the garage.

Very few taxpayers would ever even consider these seemingly minor concerns, until you find yourself at the mercy of PALS and an overzealous revenue officer. Still, I think it is useful to ponder some of the minute details of what goes on inside the IRS, even if only to give us some perspective and understanding. I like to imagine my revenue officer tied up in a complex asset seizure when I don’t get a call back for a couple weeks. It makes me feel like they’re not just ignoring me, and it makes me feel better knowing that my client’s situation could be much worse.

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Initial Estimates from May Data Breach were Low

It seems there was good reason for downplaying May’s security breach in the IRS “Get Transcript” application.  It really was quite a bit worse than they had described it back in May.  The breach was first described as unauthorized access into 100,000 tax accounts, and that number has recently been amended to 334,000.  We were also told that international thieves started tampering with the site in February 2015, but now the IRS says it was actually November 2014.

The IRS can’t get anything right.  When are they going to learn to be more cautious and conservative in their official statements?  I have to believe that IRS press releases are reviewed by their tax attorneys, or somebody with good judgment and a strong command of the English language.  How difficult would it have been to state that the preliminary figures suggest there were 100,000 but this number could increase (or even is likely to increase) pending further investigation.  I, for one, would not consider that to be wishy washy in any way.  It may be frustrating to some; we want to know all the facts the moment the story breaks.  But it is more honest and credible to state only as much as can be confirmed and it is rarely a bad thing to admit when things are not yet known. Maybe that’s the IRS’ biggest problem.  As an agency, they have suffered so much by way of public scorn, and their competence has been called into question so many times that they feel the pressure to have all the answers at times when having all the answers would be impossible.

Sometimes the problem with the IRS has less to do with the way they actually handle issues and more to do with the way they inform the public.

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IRS Impersonators Have New Tricks

Scam artists, posing as IRS agents, who contact innocent taxpayers out of the blue and demand payment on tax bills that don’t exist are getting more crafty and casting a bigger net these days. For at least the past few years now, the IRS has regularly published updated warnings each time they perceive a new wrinkle, or if enough time has passed since the prior warning.

This month, the IRS published a scam warning that identifies a couple trends that suggest these tax criminals are taking the time to do some homework rather than calling completely unscripted. For example, one tactic is to alter your caller ID so it appears the call is coming from a legitimate government agency.  Scammers have always posed as official government representatives by giving false names, titles, and badge numbers, but now they are more frequently adding this new layer of “authenticity” to the call.

The ultimate goal of IRS phone scam artists is to get the victim to make a payment over the phone and/or provide sensitive information like your name, address, and social security number. If they are successful in obtaining a payment over the phone, they are now asking victims to mail proof of payment to an actual IRS office nearby. Taxpayers choosing to verify the address can look it up in a Google search and see that it is the correct address to their local service center, which lends a sense of legitimacy to the whole interaction. Of course, anyone with half a brain would know that providing the address to an IRS office that is posted on the internet for anyone to see means absolutely nothing.

In this month’s published warning, the IRS states that these scam artists use angry voices to strike fear into their victims and pressure their victims into making rash decisions. Then the IRS lists a few things that they will “never” do, so it will be easy to distinguish between scammers and true IRS representatives:

  1. Angrily demand payment over the phone
  2. Call prior to sending a bill for overdue taxes
  3. Threaten arrest for non-payment of taxes
  4. Demand payment without the opportunity to appeal the amount owed
  5. Require a specific payment method
  6. Ask for credit or debit card numbers over the phone

#1 on this list is a little strange to me because anger, and the detecting of anger in someone’s voice, is a subjective thing. Isn’t it? I have heard demands for payment in voices that could reasonably be characterized as “angry.”  I have also had IRS representatives tell me that they require an “auto debit” payment arrangement in order to approve an installment agreement, hence somewhat of a violation of #5.  However, in my experience, IRS representatives usually do a pretty good job complying with this list.

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Commissioner Koskinen Asked to Resign

IRS Commissioner, John Koskinen, has been on the job for only a couple years, but he was brought in at a very difficult time for the agency. He was appointed by Pres. Obama and given the task of cleaning things up at the IRS, particularly in regard to the scandal involving targeting of Tea Party groups. Now he has lawmakers calling for his resignation because of the way he has handled the debacle. I bet there are days he regrets accepting the assignment.

The most outspoken republicans insist that Koskinen lied about the missing emails. Jason Chaffetz (R-Utah) is on record saying that Koskinen was in possession of the emails, and then after they were subpoenaed, his agency destroyed them. Many now want him to resign, and if he doesn’t, they are threatening worse. They are throwing around words like “contempt,” “obstruction of justice,” and “impeachment.”

President Obama claims that there was “not even a smidgen of corruption” within the IRS, but everybody knows this isn’t true. He needs to be a little more careful with his words. The IRS is huge and people are imperfect, arrogant, and greedy. How can he say there isn’t a smidgen of corruption? He doesn’t know that. All that really means is he has had meetings with those that run the agency who say there’s no corruption, who have had meetings with high level management who say there’s no corruption, who have had meetings with lower level management, etc. There is no way any clear-thinking adult could swallow such a broad statement as that.

According to Chaffetz, there are still at least 5 open investigations into the targeting scandal, including that of TIGTA and the Department of Justice. I, for one, must admit that I am a little surprised that the news of this scandal hasn’t fizzled yet. I think it speaks to how passionate we are, as US citizens, about allegations of corruption within our government.

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Taxpayer Advocate Says IRS Needs to Shift Focus Away from Collections

National Taxpayer Advocate, Nina Olson, recently submitted her mid-year report to Congress.  It is nothing incredibly new, I suppose, except that IRS’ 2015 tax season numbers are completely off the charts (and not in a good way).  Here are some key points:

  • 8.8 million dropped calls due to switchboard overload
  • only 37% of customer service calls were actually answered
  • average hold time was 23 minutes
  • less than 10% of customer service calls answered during peak of tax season

Olson’s preface is a pleasure to read.  Its brilliant, and yet so simple.  She acknowledges the lack of funding that the IRS has had to deal with over the past few years, and she astutely points out that, while difficult, periods of famine (so to speak) can be healthy if they cause you (or an organization such as the IRS) to rethink its priorities and to rethink the way funds are allocated.  The operative phrase here is that it can be healthy.  In her own words:

But from a taxpayer perspective, I am concerned its long-term approach is headed in the wrong direction. First, the IRS continues to view itself as an enforcement agency first and a service agency second. Enforcement is important, of course, but it is a question of emphasis and self-definition. Second, the IRS’s vision of the future rests on a mistaken assumption that it can save dollars and maintain voluntary compliance by automating taxpayer service and issue resolution and getting out of the business of dealing with taxpayers directly in person or by phone.

What the IRS should do during this period of congressional distrust and resulting inadequate funding is examine every one of its underlying principles. In my view, it should transform itself as a tax agency from one that is designed around nabbing the small percentage of the population that actively evades tax to one that aims first and foremost to meet the needs of the overwhelming majority of taxpayers who are trying to comply with the tax laws.

The truth is, most people pay their taxes voluntarily, but the IRS has always been laser focused on collection and enforcement.  Olson is right.  As the IRS continues to put taxpayer service on the back burner, the whole idea of voluntary compliance becomes more tenuous.  And I don’t think Olson is saying that enforcement has no place in our tax system.  There will always be a need for enforcement.  But the focus needs to shift so that it is not the top priority.

One of my mentors taught me how to operate a well-balanced law practice.  He taught me to see it as both a service and a business, and to never lose sight of both.  If you focus too much on the business, then you do your clients a disservice.  And if you fail to give attention to the business aspects, then you won’t earn a decent living.

The IRS is really no different.  As Nina Olson said, they are too focused on the “business” of enforcement and the service side is suffering.  But the great thing about both a law practice and the IRS is, when you give enough attention to the service aspect so that the clients/taxpayers are satisfied, the revenue will come.

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Mastermind of IRS Phone Scam Gets 14 Year Prison Sentence

You would have to be living under a rock if you’re not aware of the pervasive IRS impersonation phone scams going around.  These scammers prey on the least-informed, most vulnerable people in society, convincing them that the IRS is on the brink of throwing them into prison for unpaid taxes when, in many cases, no taxes are owed.  Now at least one of the masterminds behind this, Sahil Patel (36), is going to be put away for 14 years.  Patel was sentenced a couple days ago in a U.S. District Court in New York for conspiring to extort, to impersonate government officials, and to commit wire fraud.

The government considers Patel one of the ringleaders in a scam that duped nearly 4,000 people out of a combined $20 million over the past two years.  However, this criminal group is obviously run by more than just Patel as the phone calls have not stopped since his conviction.

Maybe 14 years seems like a long time to you for a crime that doesn’t involve taking a life, but this is what the district judge had to say about it:

The nature of this crime robbed people of their identities and their money in a way that causes people to fee that they have been almost destroyed.

He definitely wanted to “ensure adequate deterrence.”  Plus I don’t think it helped that Patel came across as an “unfriendly” witness.  He reportedly made some sexist comments about the women he hired to do the dirty work and how they were ignorant and gullible.  I know that 14 years seems like a heavy penalty, and you can’t really expect a higher level of severity, but I wonder if this will really deter the co-conspirators who appear to be keeping the scheme operational.  The rewards are so incredibly high for them and, at this point at least, the risks seem to be just low enough.

We can increase the risk by finding more of these guys, and I think the IRS, in cooperation with law enforcement, is doing the best they can.  We can reduce the reward by informing the public — and this is where I think they can improve.  I started this article by saying that one would have to be living under a rock to not be aware of these phone scams, but I don’t know if that is true.  As a tax attorney, I hear about this kind of thing all the time because I am dialed into tax news and events.  But is the average taxpayer getting the message?  I think IRS public service messages are focused on tax professionals.  Maybe there should be a broader kind of outreach through TV and radio.  I suppose there is a reason why they haven’t gone there; maybe they don’t want to freak everyone out.

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The first step in taxing space starts tomorrow in Sacramento

Have you ever thought about space travel? Or even being one of the first human colonists to Mars? If you have, you should also be prepared to pay a tax. Seriously. That’s right, with the developments in space exploration, the Franchise Tax Board (FTB) is preparing to develop a tax strategy for space travel and commerce.

Taxation strategy of the final frontier begins tomorrow in Sacramento during an interested parties meeting at the FTB’s mother ship. If you didn’t book your tax space voyage in time, you can still attend by phone by calling (877) 923-3149 at 10:00 a.m. Enter the participant pass code 2233420, followed by the # sign.

The official captain’s log for the meeting is to discuss possible regulatory efforts for the apportionment and allocation of income derived from space transportation activities, including the transportation of people or cargo into and from Space. I didn’t think it would be possible, but even the FTB can make this meeting sound boring.

According the news release issued by the FTB, during the upcoming initial meeting, FTB staff members will solicit input from industry and practitioners on issues that may arise in the application of a regulation on such space activities, including, but not limited to:

- How should space transportation activities be defined in a regulation?

- At what point should aircraft or space vehicles be considered as traveling into space?

- How should unsuccessful missions be treated?

- What apportionment factors should be used to apportion and allocate income from space transportation activities? How many apportionment factors should there be, and how should they be weighted? Launch factor, recovery factor, mileage factor, or some other factor?

- Should a regulatory effort address the potential for “nowhere income,” and if so, how should it be addressed?

- What issues might be encountered with combining space transportation activities with a taxpayer’s other trade or business activities?

- Should a regulatory effort distinguish between transporting cargo and people?

- Any other issues that industry believes FTB staff should consider.

Isn’t this exciting!? I do wonder however if a Foreign Bank and Financial Account Report (FBAR) will be required if life is found on Mars, and a human opens a bank account there? I suppose that’s a federal question and the July meeting, I further suppose, is limited California state tax matters.

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