Protect Yourself Against Identity Theft

Identity theft can be a huge headache, especially when it affects your federal tax record.  There are at least a couple ways how that might happen.  An identity thief may use your personal identifying information, including your social security number, to file a false tax return and obtain a fraudulent refund.  Or a thief may use your identity to obtain a job, claim the maximum number of exemptions, and basically collect tax-free income.  Then, these W-2 wages are reported to the IRS under your social security number.  When the information on your legitimate tax return does not match up with the W-2s the IRS has on file (i.e., when you fail to report the income earned by the identity thief) then the IRS sends you a letter asking you to explain the discrepancy.

The IRS provides a comprehensive list of tips for those whose identity has been stolen.  However, some of their most useful tips explain how to avoid identity theft in the first place. What it all comes down to is safeguarding your personal and financial information, including your credit cards, social security number, even address.

Some identity thieves steal wallets and purses.  Protect your personal effects when you carry them around and never leave them in open sight in your vehicle.  Never leave a bag or purse unattended in a store or airport.  It is human nature to misplace small items such as these, but we tend to be very habitual in the handling of our wallets and purses.  The more safe habits we can acquire, the better, so that it becomes second nature to protect our personal effects.

Some identity thieves try to obtain information from you through a phone call or electronic means (especially emails).  The IRS has issued extensive and repeated warnings regarding phony IRS emails and phone calls.  The IRS has made it abundantly clear that they do not contact taxpayers through email and they do not request credit card information over the phone.  It is actually really easy to identify a phony IRS contact if you know what to look for, but very easy to be deceived if you don’t.

Some identity thieves sift through your trash.  Once you take your trash out to the curb, it is easy to consider it “gone,” but that is usually the point at which the identity thief just begins his work.  The idea here is to take steps to destroy identifying information before you throw it in the trash can.  Invest in a good quality shredder and make a habit of shredding anything with your name on it.

Some identity thieves obtain your information through unsecured websites.  Do not share your personal and/or financial information on obscure, unknown websites that cannot be trusted.  If you’re making purchases online, stick with the big time, well known websites like Amazon, eBay, and nationwide retailers.  If you ever have a question as to whether a website can be trusted, do a quick Google search of the company or, better yet, just move along to something else.

 
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Founder of Happy’s Pizza Chain Convicted of Tax Crimes

Happy Asker, the CEO and founder of a popular Michigan-based pizza chain has been convicted of conspiracy to defraud the United States government and 32 counts of tax crimes, including 28 counts of aiding and assisting the filing of false tax returns.  This pizza chain has over 100 locations and has been around for about 20 years.

Asker headed a “systematic and pervasive tax fraud scheme,” with employees and franchise owners, which involved underreporting gross sales and passing along the unreported income to key employees, franchisees, and Asker himself.  It also appears as though he was not very cooperative during the investigation, purposely misleading IRS Criminal Investigation agents in interviews.

Most of the Happy’s Pizza stores are located in Michigan and Ohio, although there is one store down in El Cajon, CA.  I had never heard of this chain before, so I tried to dig up what I could on the founder with the funny moniker.  There really isn’t much on the web about this guy.  Maybe he wanted it this way.

 

 
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Sharpton: Some are Concerned that He’s Not a Going Concern

The Reverend Al Sharpton has always been one of those controversial figures that people either love or hate.  If you’re in the “hate him” camp, then you probably list his sketchy personal finances as one of your reasons.  And if you’re in the “love him” camp, then you probably find a way to overlook it.  But even Sharpton supporters are having a hard time grappling with this as he gains national prominence.

You can say I’m not a great administrator, . . . you can’t say that I’m not committed.

~ Rev. Al Sharpton

Arguably his biggest problems are his tax debtsHe owes something like $4.5 million in federal and state income taxes.  Also included in that figure are payroll taxes owed by his non-profit organization, National Action Network, which, according to his accountant, would not be able to stay afloat if it were actually meeting its payroll tax obligations.  From the IRS perspective, a company in this financial shape is “not a going concern.”

Sharpton has stated publicly that he is paying down what is owed, but if the tax balances are not shrinking, it normally means that the payments are too small or the taxpayer is incurring new balances year after year.  Understandably, the IRS frowns upon the so-called pyramiding of tax liabilities.  And understandably, even Sharpton supporters frown upon first class flights, large salaries, and private school tuition which wouldn’t even be an issue if he were on the up-and-up with the IRS.

Granted it is impossible to find a public figure these days without some skeletons and baggage, but Sharpton’s message of equality would carry so much more strength if he would get his finances in order.  In his current financial state, he inadvertently sends the message that he is above the law and doesn’t need to pay taxes like everyone else.

 
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Lavish Spending is Not Tax Evasion

A recent court decision took up the question of whether lavish spending alone, in the face of a tax debt, should be considered willful tax evasion.  Trip Hawkins, founder of Electronic Arts, is one of those super wealthy, elite class Americans who fell on hard times — a different sort of “hard times” than most people are familiar with, but hard times nonetheless.  He has IRS and FTB (California Franchise Tax Board) tax debts up to his eyeballs, something like $25 million, which he sought to have discharged in bankruptcy.

The government asked the bankruptcy court to exempt his tax debts from being discharged because he acted in a willful, tax evasive manner.  After acknowledging the tax debt, it was shown that he was spending up to $78,000 more each month than he was earning.  He was maintaining a $3.5 million home and a $2.6 million ocean-view condo.  He was buying $70,000 cars and cruising around in a private jet.  However, the court concluded that this sort of spending behavior, extravagant as it seems to regular folks, was not enough to prove willfulness.

I don’t imagine there are too many people living this lifestyle in valley towns like Modesto, Tracy, Turlock, or Oakdale, and its not simply for lack of ocean-view condos.  However, this issue does tend to crop up here in other contexts and on a much smaller scale.  For example, I have seen the California Board of Equalization (BOE) and FTB draw adverse conclusions on the grounds that a taxpayer was living too lavishly.  In the process of resolving a tax debt, these taxing entities look closely at bank statements to see how taxpayers are spending their money.  I have seen them raise an eyebrow at things like going out to much on weekends, eating out too much, taking too many trips, etc.  While this lifestyle is not going to land somebody in prison for tax evasion, it can sometimes make it more difficult to obtain an accepted installment agreement, or offer in compromise.

I’m not sure I really have to spell it out, but their thinking is “why should this taxpayer be allowed to live like this when he owes taxes; he needs to curb his spending so he can pay off his tax debt.”  This is just something to keep in mind when dealing with California taxing entities.  In my experience, the IRS is concerned with this kind of thing too, but to a lesser degree.

 
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IRS Guy Fits Right in at Football Game

I have the perfect kind of Friday story that zeros in on the bad behavior of one single IRS employee and, by implication, expects you to assume that he was somehow acting in his official capacity or that he is a fair representation of the IRS as a whole.  I realize that by discussing this story I am perpetuating these same stereotypes or outright falsehoods, but I do it tongue in cheek.  I know there are some good people at the IRS, and every walk of life is represented among its 89,000 employees.

On to the story.  29-year-old furloughed IRS employee, Stephen Sapp, was caught misbehaving at a Pittsburgh Steelers game this past Sunday.  I’ll stop right there for a second because I know some people don’t realize that you don’t have to be a boring, bean-counting stiff to work at the IRS (although I think it helps).  Newsflash: IRS employees like to have fun on the weekend just like everybody else.

Admittedly, it was a little hard for me to imagine an IRS-type at a Steelers game.  And if that was a surprise to you, then the rest of the details are going to blow your mind:

  1. at Steelers game
  2. drunk
  3. screaming and cursing
  4. throwing steel crowd dividers
  5. knocked a woman unconscious
  6. promptly arrested by authorities

You’re probably thinking, “they got the story wrong; there’s no way this was an IRS employee!”  But wait until you find out what he did after being arrested; it might change your mind.  Sapp told the police officers, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”  THERE’S the IRS we all know and love!!  The irony of that statement is just too much!

 
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2015 Filing Season Won’t be Pretty

Those who would know best are saying that we need to be prepared for one of the worst filing seasons on record during the first quarter of 2015. What makes one filing season worse than another?  It has to do with the level of service that the IRS can provide to taxpayers.  How fast can they answer the phone when taxpayers call?  How fast and accurately can the IRS respond to taxpayer correspondence?  How efficiently will the IRS be able to process tax returns and refunds?

The IRS had a goal of answering 80% of incoming calls last season, but only managed to answer 72%.  This filing season it is predicted that the IRS may only be able to pick up 53% of the time with a 34 minute average hold time.

The IRS Commissioner, John Koskinen has identified a few main reasons why things look so bleak:

  1. The IRS doesn’t have enough money to operate the way it should.  Funding levels are lower than they have been in years.
  2. The IRS has been tasked with administering new programs such as the Affordable Care Act and the Foreign Account Tax Compliance Act with no additional funding from Congress.
  3. Implementation of a new voluntary return preparer oversight program will also increase work load for IRS employees.
  4. There are 50 or so “tax extenders” — laws that Congress needs to vote on and determine if they will be extended or not.  The uncertainty could delay the start of the 2014 tax season.

National Taxpayer Advocate, Nina Olson, has a way of stating things in the plainest terms.  She has generated some great sound bites over the years.  Here’s her take on the upcoming tax season:

The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.

I think these viewpoints have been colored by a recent TIGTA report that highlights “unfavorable trends” with the Automated Collection System (ACS).  Because the IRS does not have the resources to work cases properly, they have been “punting” many of them into Currently Not Collectible status or into the “queue” where cases can sit idle for months or years.  Consider yourself fortunate if you don’t have to interact with the IRS this tax season other than to file your return and wait for a refund check.

 
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IRS Doctors & Nurses

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.

 
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Direct Deposit Refund Rule: New for 2015

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.

 
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I’m Becoming a TAS Fanboy

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.

 
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IRS and the Plain Writing Act

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.

 
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