Have you seen the comments from former IRS territory manager, Michael Gregory, in a recent “Ask Me Anything” session on Reddit? Many readers have felt dissatisfied with his answers because he seemed to be overly concerned with defending the IRS, defending Lois Lerner, and griping about underfunding. I talk with the IRS every day and I must say that this guy is definitely “one of them.” As a 28-year veteran, admittedly it would be difficult to remove oneself from that role and the IRS lingo, even after retirement. But this guy went a little too far. As one Reddit user pointed out, he almost sounded like an IRS lobbyist. I totally agree, but let’s move on to something more substantive in his comments.
At one point Gregory compared IRS specialists to medical specialists:
The IRS has 13,200 revenue agents and about 2,000 specialists. I managed 1/4 of the country’s specialists in engineering and valuation issues, with specialization comes an added degree of due diligence and accuracy. It’s like if you go to a doctor you get referred to a specialist – the same thing is true at the IRS.
I do not disagree with this comparison. But the problem should be obvious: there aren’t near enough specialists to go around. Think of the ratio of 2,000 specialists to how many million taxpayers?! Same with revenue agents (the tax doctors); 13,200 isn’t nearly enough. So what happens is a vast majority of taxpayer accounts are handled by (to complete the analogy) the nurses of the IRS — the customer service reps. There are too many inexperienced, undertrained, underqualified employees. It can be very frustrating for taxpayers who reach out for help, and they just want to be able to resolve their tax issues and move on. In many cases, if they could just get in touch with a doctor, the issue could be resolved the same day. But in reality they often get bounced around from nurse to nurse and nothing gets accomplished.
The IRS (IRS insiders) would have you believe that Congress can throw money at this problem and make it go away, but money alone will not change it if all they do is increase the number of nurses.
Nowadays almost everybody files their Federal Tax Returns electronically. The IRS has encouraged e-filing for many years now. It’s a win-win because the IRS can process electronic returns very rapidly and the filer is happy to avoid the delay and uncertainty of snail mail. Similarly, most people who are due a refund elect to have that refund directly deposited into their bank account rather than having a paper check mailed to them.
Beginning in January 2015, there will be new direct deposit limits that the tax refund folks should keep in mind. The IRS is limiting the number of electronic / direct deposit refunds that can be deposited into a single account. The magic number is three. The reason the IRS is limiting directly deposited refunds to three per account is to hopefully curtain fraudulent refunds which tend to come flooding into a thief’s account one after another.
Two refunds deposited into the same account is probably fairly common: I am imagining a married couple who file separately but share a bank account. A little odd maybe, but not suspicious either. Three refunds deposited into the same account is somewhat less common, I am sure. But some families with adult children may fall into this category. The IRS has drawn the line at three because it is hard to imagine a scenario where there would be too many more than three people who would chose to receive separate refunds in the same bank account.
The IRS says that the fourth refund in a scenario such as this would be sent as a paper check, and those wishing to avoid this result would need to use a different account.
I know I’ve said some harsh (maybe even disparaging) comments about the Taxpayer Advocate Service (TAS) in the past. My comments have usually been related to the “quasi independent” nature of this service and how they seem to be nothing more than an appendage of the IRS itself. I’d be lying if I said it didn’t bother me that their offices are in the same building as the IRS (at least they are in Sacramento), and that the URL for the Taxpayer Advocate ends in “irs.gov.”
On the other hand, the top lady at TAS, Nina Olson, has truly advocated for taxpayers during her tenure. And I am encouraged by a recent correspondence I received from TAS that stands in stark contrast to many letters I have received from the IRS.
First of all, the letter I received came about seven days after requesting TAS involvement, weeks faster than anything done at the IRS. The Case Advocate tried calling me, but when she didn’t reach me, she sent this letter. The only criticism I have (so far) is that I wish she would have left a message, but I understand that messages often result in phone tag and wasted time, and the IRS is very reluctant to leave detailed messages without prior permission.
The Case Advocate gave her direct telephone number and fax number. She outlined the issues very thoroughly and precisely, and obviously in her own words rather than using a template or form letter. She described what information and documents she needed and when she needed it, gave an estimated resolution date, and signed off with an original blue ink signature. Funny how those little details make a difference. I guess it just shows that she is giving individual attention to this case, which I think anyone can appreciate.
Oh yes, there is one other problem I had with this correspondence: the due date was too short. But I guess I can live with that if it means we can move things forward without any further delays from the IRS.
The Treasury Inspector General for Tax Administration (TIGTA) recently audited the IRS’ compliance with the Plain Writing Act of 2010. The Plain Writing Act is not what you think. It doesn’t restrict descriptive writing by novelists and it doesn’t proscribe writing guidelines at public elementary schools. The Plain Writing Act was enacted so as to ensure that documents, letters, and notices produced by the federal government are written clearly and in a manner that the average citizen can understand. Some government agencies, the IRS included, have a lot of room for improvement.
I’m an attorney so, arguably, I am no expert on plain writing myself. But I know it when I see it, and I haven’t seen much of it in all my dealings with the IRS. TIGTA agrees with me, identifying the following issues in its report:
- IRS unable to compile a comprehensive list of all its letters
- technical writers not sufficiently trained on plain writing standards
- managers’ quality review process is insufficient
- IRS letter review process does not always result in plainly written letters
It may seem odd to you that the IRS could not provide TIGTA with a master list of its letters. However, tax attorneys, tax accountants, and almost any tax professional would not be surprised by this admission. We’re talking about form letters — templates — and each one has multiple variations that can be used to try to fit the particular circumstances that the IRS wants to address. Anyone who has had dealings with the IRS has seen their fair share of IRS notices. In its report TIGTA does not refer to them as a body, or series, or collection of letters, but rather a “universe” of letters. What a perfect description! How could one even begin to catalog a collection of letters that can be described as a UNIVERSE?
In my experience, it is not so much the content of individual letters that is confusing, but the letter process as a whole. Yes, individual letters can be confusing, but what about when the IRS sends three copies in the same envelope, forcing you to compare them side by side to ensure there are no differences? What about when they are chock-full of publications you’ve already seen? Or when they seem so say nothing more than “we have heard from you in some manner and we will get back to you when we can”? My complaint is that the IRS tends to be overly communicative when it comes to information you don’t need, and uncommunicative when it comes to addressing your real concerns.
Usually when people are dressed in black surrounding a hole in a solemn ceremony, its a funeral. But Tony Sparano, the interim head coach of the 0-4 Oakland Raiders, gathered the team for a special symbolic football burial this week. He said that the football represented the first four games of the season. The hope is that this little exercise will help the team to put it all behind them and move forward with a clean slate.
Maybe the IRS Commissioner, John Koskinen, should do something like this with his team. I’m not sure what item(s) could be used to represent the past few years of missteps at the IRS, but to really drive the point home he would need to dig a hole the size of the Grand Canyon. Actually, come to think of it, maybe they already did this exercise using Lois Lerner’s hard drive. Nobody would ever consider that the IRS actually physically buried her emails in the ground.
Oakland Raiders vs. Internal Revenue Service. Obviously the comparisons are unlimited given the fact that a Raider is actually a pirate, and a pirate is known for forcefully taking one’s hard-earned booty. But I’ll leave this to your own imagination.
We know there is at least some rhyme or reason to who gets selected for an IRS audit. If we knew all the criteria, we could position ourselves to avoid audits 100% of the time, but, for obvious reasons, the IRS hasn’t been so generous when it comes to publishing their audit selection criteria or algorithms. One thing that we can be sure of is the IRS flags tax returns that possess certain risk factors because, if they’re going to spend resources auditing a certain number of returns each year, it might as well be those that are more likely to contain errors or “problems.”
So far, so good. That much makes sense. The IRS flags cases that it considers to be good audit material. But, based on a news story that broke today, maybe the IRS should also be flagging cases that should not be audited.
Of all the “do not audit” entities out there, shouldn’t Logan Clements, the producer of “Sick and Sicker: ObamaCare Canadian Style,” be near the top of the list? I haven’t seen this film, but I’m gonna guess that Clements is not a big fan of Obama, and not a big fan of the Affordable Care Act. And I have absolutely no idea about the integrity of his taxes, but it just doesn’t look right for the IRS to audit somebody like this. Meanwhile, Clements is using the media attention from the audit to catapult his film into the spotlight quite nicely. I understand the IRS faces a catch 22 here: if they audit this guy, it looks very fishy, but if they let him go, it sets a weird precedent and makes a whole segment of society (notable conservatives) exempt from audits. In fact, I think a strong case can be made that public perception should not even enter the equation. But the IRS better hope they find something seriously wrong with this guys taxes. Or if it turns out to be a “no changes” kind of audit, they had better close it quickly and hope this story fades away quietly.
Everybody thought that the IRS would be incapable of collecting as much tax revenue as years past with a reduced work force. The loudest voices crying for a bigger tax collection budget came from within the IRS and from the Taxpayer Advocate. The prevailing thought was that the IRS was just going to have to do more with less. And apparently that’s just what they did.
According to a report released today by the Treasury Inspector General for Tax Administration (TIGTA), in 2013 the IRS increased total gross collections by 13 percent compared to 2012. The IRS collected an unfathomable $2.9 trillion in fiscal year 2013, including $50.2 billion from enforced collections such as wage garnishments, bank levies, and seizures. Interestingly these numbers were achieved with fewer examinations, fewer tax liens, and fewer levies & seizures. It is difficult to tell what all this means. Maybe the IRS is less likely to nail people for making mistakes on their taxes, filing late, and paying late. But I think it is also safe to say that when they do catch you, they really sink their teeth in. Maybe you think you’re safe because the IRS has bigger fish to fry, but if this report is any indication, I think the IRS is casting smaller nets and throwing fewer back.
Sometimes employers misclassify their workers as independent contractors (self-employed) when, in fact, they are employees. And when I say “sometimes” I mean millions of times. It is very common. I’m sure some of them do it unknowingly, but I am also certain that some employers do it because they don’t want the responsibility and costs associated with having actual employees. The difference is that employers must withhold and/or pay a number of taxes when a worker is also an employee, including income taxes, Social Security, Medicare, and unemployment.
The IRS would love it if taxpayers (including employers) would fall in line with the IRS’ dreams of “voluntary compliance,” but one of the things they do when this doesn’t happen is they set up programs to entice them to come clean on their own. The IRS doesn’t call it an amnesty program; I don’t think they particularly like that word. In fact, I put the word “amnesty” in the search box of the IRS website and exactly two results came up, and both of them were in the context of a state amnesty program. The word tends to have the connotation of getting out of paying taxes or making use of a legal loophole, and the IRS really doesn’t want to suggest that.
But I can use it. I like the word. The IRS has an amnesty program for reporting offshore accounts called the Offshore Voluntary Disclosure Program. And the IRS has an amnesty program for coming clean on worker classification issues called the Voluntary Classification Settlement Program. But the VCSP has been very poorly administered over the years. It appears that just about every aspect of the program has some kind of flaw. Even the most basic things are not working, like correctly determining eligibility for the program, monitoring compliance with the program, and analyzing program performance. If you want to read about how screwed up VCSP is, be my guest. Full report here.
The IRS generally can include returns filed within the last three years in a tax audit. There are exceptions, but the IRS normally does not go back further than three years. What you may not know is that the IRS has the same amount of time to audit large partnerships. According to a recent report from the Government Accountability Office (GAO), it takes the IRS about 18 months of preparation and fact finding before they can even begin this type of audit. GAO considers a partnership large if it has more than 100 partners and $100 million or more in assets.
The GAO report underscores the necessity of tax reform. There are some 20-year old provisions, such as this one, that don’t make sense anymore. Large partnerships can be very complex, with multiple tiers of partners, making it very difficult to determine where to start. Many of today’s large partnerships are finance and insurance firms, and it’s great for them, but the IRS really hasn’t been able to effectively audit them.
This problem has become more acute in the past 10 years or so since the number of pass-through entities such as partnerships has been on the rise and the number of corporations has been declining. Very interesting statistics from GAO:
The number of large partnerships has more than tripled to 10,099 from tax year 2002 to 2011. Almost two-thirds of large partnerships had more than 1,000 direct and indirect partners, had six or more tiers and/or self reported being in the finance and insurance sector, with many being investment funds.
Who is eligible to pay back taxes to the California Franchise Tax Board via an installment agreement? It can be a little complicated.
It’s difficult not to compare FTB and IRS collection tactics. Both almost always first demand/request payment in full. The collection notices are worded in a way that if you don’t read beyond the first sentence, it will appear that full payment is your only option. And when you call them up, that’s the first thing out of their mouth. IRS will usually say “Do you have the ability to pay your tax bill in full?” If you cannot write them a check, then the discussion typically shifts to what is required for an installment agreement. However, the FTB will often (at least at first) demand full payment without regard for your ability to pay and then very reluctantly tiptoe around the option of paying back your taxes in installments.
The eligibility requirements for an FTB installment agreement are more stringent than the IRS requirements. First and foremost, it is very difficult to obtain an installment agreement with FTB if you have an active earnings withholding order (EWO). An EWO is just another word for “wage garnishment” or “wage levy.” Once the FTB has brandished this collection tool, and they have a steady stream of payments coming in, it is very difficult to convince them that they should trade these “guaranteed” payments for a promise to pay from the taxpayer.
Like the IRS, the FTB does require that all back tax returns have been filed so there is no question as to how much is owed. Also, like the IRS, FTB requires that the entire tax debt be paid off within a specified time frame. They give as much as 60 months for some tax debts, but only 36 months for others. The IRS will allow a full 72 months for tax debts under $50,000.
Both FTB and IRS recognize certain events that will cause an installment agreement to default. Some of these events include (a) failure to make timely payments, (b) failure to timely file a future tax return, and (c) incurring a new tax debt.
Whether you owe FTB or IRS (or both) it would be a mistake to think that you can always just request an installment agreement to avoid enforced collection action. It’s not always that simple.
Posted in IRS News & Info, State Taxes, Tax Tips
Tagged earnings withholding order, Franchise Tax Board, FTB, IA, installment, levy, state taxes, wage garnishment, withholding order