Certain Tax Liens will No Longer be Included on Credit Reports

Tax experts generally agree that the tax lien is one of the least useful of IRS collection tools for the amount of damage it can cause. It used to be that the IRS filed liens in just about every case where a taxpayer allowed his tax account to go unpaid. Over the years the IRS has pulled back somewhat on tax liens to soften their bite. Through the Fresh Start program the IRS has increased the minimum dollar amount that it uses as a marker for when liens are to be filed. This avoids those situations where a taxpayer owes a couple thousand dollars that he pays off quickly and then has to wait months before his credit score bounces back. The IRS also provides a means whereby a taxpayer can get liens released under specified conditions (or avoided in the first place) by entering into a direct debit installment agreement.
Now we are getting good news about tax liens from the credit reporting agencies who also play an important role, although from their perspective it is less about helping struggling taxpayers and more about ensuring that the information reported to them is accurate. Beginning July 1, 2017, the three credit reporting agencies will begin to exclude tax liens from credit reports unless they have certain minimum information. Furthermore, they have agreed to actually remove tax liens that don’t meet the criteria. The minimum information required is: (1) name, (2) address, and (3) social security number or date of birth. Just how big of a deal this is remains to be seen.
When I first saw this story, I immediately thought (based on the headlines alone) that this was going to be a major change for taxpayers with credit scores improving nationwide for everyone plagued by tax debts. I actually first heard about this on NPR, but I only caught part of the story. So I went to my computer thinking I would find all the major news outlets reporting on this huge story. But they didn’t…and I think I know why. I think what the credit reporting agencies have agreed to remove and exclude amounts to very little. As for the IRS, there has been a push to exclude complete social security numbers on routine notices, but they still put that minimum identifying information on almost everything. Certainly they wouldn’t leave those things off a Notice of Federal Tax Lien! According to the original source of this announcement, the Consumer Data Industry Association, about half of all tax liens may not meet the new criteria, but I wonder if those are mostly state tax liens.
The biggest complaints about credit reports is that they contain incorrect information and that certain credit “smudges” are too difficult to clear up. This change addresses those concerns, but I don’t think it represents a big win for Americans with delinquent federal tax accounts.

Business Email Spoofing

Google defines “spoof” as a “humorous imitation of something,” or a “trick played on someone as a joke.” But there is nothing funny about the type of spoofing I am about to describe. The tax industry is gathering forces to warn the public about a dangerous tax scheme that involves something called “business email spoofing.” I feel compelled to do my part in spreading the word about this one. As part of this scheme, cybercriminals send an email that appears to come from a high-level executive at the target company to somebody in HR or payroll, asking them for sensitive employee information (most often social security numbers or documents containing social security numbers). This particular scam first appeared last year and we are now seeing a second wave. Enough victims have reported these emails so that the IRS now has examples of the exact phrasing used in some of these spoof emails. It is worth your time to review these phrases, and certainly double check any similar requests coming from the head of your company.

Only a few days after their warning to the business world last month, the IRS released a follow-up alert stating that the spoofing scheme had spread to “other sectors, including school districts, tribal organizations and nonprofits.” The second wave appearing this tax season appears to be more dangerous and more pervasive than what was witnessed last year. First of all, the emails started surfacing earlier in the season this time around. The scheme has spread to new sectors of society; pretty much any organization that collects social security numbers is at risk. And the emails have gotten more bold this time around. Originally the criminals would ask for social security numbers under the guise of high-level management, which would potentially provide a means for illegally obtaining tax refunds (an indirect way of getting paid). Now they are boldly taking a more direct route to the cash by simply asking for a wire transfer. I am sure that most of the time these emails are recognized as spam/phishing, but with just the right wording and in just the right set of circumstances, the cybercriminals are successful.

We have seen variations of this scheme before. Tax scammers posing as representatives of the IRS typically called or emailed individuals asking for financial and identifying information as well as direct payments. But why contact taxpayers one by one when you can hit the jackpot exploiting the vulnerabilities of entire businesses and organizations? That has to be their rationale. I imagine crime rings where the more effective individual scammers are “promoted” to a position where they handle the corporate accounts where both the risks and the potential profits are much greater, but I really have no idea about the structure or sophistication of these criminal organizations. For all I know it could be one or two thugs sitting in their mom’s garage somewhere halfway around the world. It is very frustrating that this kind of thing can go on, but I’ll leave that to the FBI and Criminal Investigation. What goes on in the mind of the victim is also interesting, but I don’t know enough about human behavior to understand why people keep falling for this. We are increasingly comfortable making financial transactions online. Does that familiarity cause us to let our guard down? If it is mostly a matter of people being uninformed, I hope this article helps to spread the word.

FTB’s Dreaded Top 500 List

Twice a year the California Franchise Tax Board (FTB) puts together a list that they call the “Top 500 Delinquent Taxpayers.” One list comes out in April during tax season, and it is updated in October near the extension deadline. It is a list of the 500 highest state tax liabilities along with the individuals and companies who owe them. The list was last updated on October 14th and can be accessed here. Right now these 500 liabilities add up to around $394 million.

I know I tend to get hung up on semantics (isn’t that what lawyers do?) but I think the title of this list is a bit harsh. The term “delinquent,” when used to describe an individual, almost always has a criminal connotation. The Oxford dictionary, for example, defines the term in this manner: “(typically of a young person) tending to commit crime, particularly minor crime.” Webster’s definition is similar: “doing things that are illegal or immoral.” I don’t know how many taxpayers on this list have been convicted (or even accused) of a crime; I would guess few of them have. As we know, failing to pay all your taxes when they become due, in and of itself, is not a crime.

In tax jargon the term “delinquent” usually means something different. Tax attorneys, accountants, and tax collection agencies typically use this word when referring to overdue payments or past due accounts. When “delinquent” is used to describe an account (rather than a person) then it carries a connotation of tardiness rather than criminality. Therefore, if the FTB must use the term “delinquent,” it really should be used to describe an account rather than a taxpayer. I would be in favor of changing the title of the list to “Top 500 Delinquent Tax Accounts.”

Having said that, these people have been given fair warning. Besides the various preliminary letters and notices, they are given one last chance to clear things up (or at least begin the process) before the top 500 list is published. According to the FTB website:

In August, FTB sent letters to taxpayers scheduled to appear on the list. Of these taxpayers, 96 made arrangements to pay their tax debt. Another 296 individuals and 108 businesses did not pay, resulting in their inclusion on the list.

The FTB states that they have collected more than $582 million through this program since it was started in 2007. I’m not sure how they can tell what part of the revenue they receive is a result of this program and what part would have been paid regardless of inclusion on the list. I would also be interested in studying the unintended consequences of the list, like how, and to what degree, this list has negatively impacted these peoples’ careers. Although, having done a quick Google search, I don’t think the list usually appears in mainstream news outlets. I also researched a few of the top names and I suspect that their reputations have already been tarnished by other financial problems, and their FTB tax debts are just one piece to the puzzle.

PCA Version 3.0

PCA Version 3.0

Are you ready for PCA version 3.0? For the third time in the history of the Internal Revenue Service, the government approved (and in certain instances mandated) the usage of private collection agencies (PCAs) for the purpose of assisting with the collection of federal taxes. The provision is part of some new highway funding legislation called the FAST Act (Fixing America’s Surface Transportation).

The use of PCAs in the collection of tax revenue is controversial. First, and perhaps foremost, the IRS has not been able to show that it actually works — that is, they have not shown that it is cost effective to hire these outside private collection firms. The last time the IRS integrated PCA firms into their collection processes was in 2006/2007. Some will argue that the IRS was able to collect billions of dollars that they otherwise would not have collected with their limited resources. Some contend that the fees charged by the PCA firms cancel out most of the revenue they collected. I don’t know who is right, but one fact cannot be ignored: the IRS discontinued the program after only a couple years. If it were such a wild success, I am certain the government would have found a way to make it last.

Another argument against PCAs is the risk that they will engage in abusive collection tactics. I think this is a legitimate concern, but I personally do not have this fear. I remember PCA version 2.0 back in 2007 and the private collectors that I dealt with were much more civil than the IRS ever was.

There are some tax professionals (and probably even more concerned taxpayers) who really dislike the idea of giving sensitive information to PCA firms. We have seen how the IRS has struggled with safeguarding sensitive taxpayer data, and they’ve had 100 years to try to get it right. So the thought of the IRS turning over social security numbers to a less-experienced private collection firm is rather disconcerting.

Besides these well-documented concerns, what I experienced first-hand in 2007 was that the PCA firms were not given authority to fully resolve certain tax accounts, which caused unnecessary delays and heightened taxpayer frustration. Imagine getting a letter from a PCA firm and then calling them only to find out that your case will have to be referred back to the IRS. The IRS is already notorious for red tape and delays, and if its anything like 2007, I fear this new legislation will only makes things worse.

Could the Latest IRS Data Breach have been Prevented?

The head of the Treasury Inspector General for Tax Administration (TIGTA), J. Russell George, testified before Congress today concerning the latest data breach at the IRS involving the “Get Transcript” application.  At this point we have some preliminary estimates on the damage done by this cyberattack: $39 million in fraudulent refunds.  And while George stopped short of saying that it all could have been prevented, he clearly did place some blame on the IRS.  Every year for the past several years, TIGTA has identified weaknesses in IRS security systems and makes “recommendations” for improving them.  As of March 2015, there were around 50 problem areas that still required attention.

The problem is that most of the time these “recommendations” are simply acknowledged by the IRS and taken into consideration, and nothing further.  In other words, the IRS will agree with the recommendation but not take the additional steps necessary to correct the problems.  I have been frustrated by this pattern for years and wished TIGTA somehow had the authority to require action, rather than kindly make recommendations.

IRS Commissioner, John Koskinen, was also present during George’s Congressional testimony and you can probably guess his response: budget cuts have hampered the IRS’ ability to combat cyber criminals and has kept the IRS from upgrading their computers and cybersecurity technology.  But after realizing that he had painted himself into a corner, he quickly tempered his remarks:

Not every problem is a budget problem, so I don’t want to wander around town every time we have a challenge saying, “Ah, if we had more money, we’d fix it,” … [t]his is a technology issue, not a budget [issue]…

The other part of his response was that implementing TIGTA’s recommendations would not have prevented this particular cyberattack.  It’s apples and oranges.  There was apparently something different about this data breach; it was very sophisticated and was orchestrated by multiple groups located in foreign countries.  According to Koskinen, it was a “sophisticated international syndicate” that was responsible for this latest data breach.  In other words, this was a tricky group of criminals and nothing could have stopped them.

Don’t believe it.  We know the IRS’ track record and they make a lot of mistakes.  There is a reason why they immediately took that part of their website down following last week’s announcement.  I am also very skeptical of the statement I keep seeing that the main IRS computer systems were not compromised in this cyberattack.  Remember when top IRS officials were certain that Lois Lerner’s emails were not recoverable?  There are times (and I see this on a daily basis in my communications with IRS rank & file) when the IRS does not appear to be all that familiar with its own systems.  We’ll have to keep a close eye on this story.  I would not be surprised if more information is discovered in the coming weeks that calls into question this statement about IRS’s main computer system.  I hope I am wrong.

Best IRS phone scam – 844-271-8465

I recently received an email from a tax client with a very serious tax problem that my tax law firm has been handling. My tax client was very concerned that the Internal Revenue Service left him a threating message on his home telephone number. The telephone number that my client was to call back to speak with the IRS was 844-271-8465. Since my client actually has a serious tax problem, and since he was smart enough to hire a tax attorney to fight for IRS tax relief, he rightfully contacted me. Based on the stage of his tax problem, he wouldn’t be receiving any calls from IRS collections.

I told him that it was likely a scam. He was adamant that it was not. He said that he called the number and it was definitely IRS collections and he hung up immediately. Out of curiosity I called the number. When calling, the number did sound like the IRS collection line to the untrained ear. The call started with a “welcome to the IRS” prompt. “Push one for a business issue, two for a personal issue” or something of the like. The recording sounded like it was actually recorded from a phone calling the Internal Revenue Service. Then, the phone went immediately to a person without me needing to push a button. Because I didn’t have to wait an hour or two to speak with anyone, this was a huge red flag that this was not an IRS number.

The person who answered my call had a very thick accent, didn’t introduce themselves or provide me with a federal identification number. The person who answered the phone instantly raised his voice and told me that I owed the IRS and I had to pay him. I found this laughable because I was calling from a blocked telephone number and I didn’t tell him who I was. I asked him for his name, identification number and what Internal Revenue Service collection unit he was in. He fumbled a bit and said, “um … you can call me ‘Jack’”. He also told me that he didn’t have to provide me with his identification number and again demanded a payment.

Based on the absurdity of this joker, I’m surprised that anyone would be duped by this scam. But, apparently some people are indeed being scammed. According to the Treasury Inspector General for Tax Administration, they are aware of nearly 3,000 victims who have collectively paid over $14 million as a result of this type of IRS scam.

The IRS has been warning of such scams for the past couple years now. I think I have had a call or two myself, between other scams to update my computer, or lend money to a Nigerian prince. But this is the first scam that I’ve experienced where the voice prompts for the number imitates the actual Internal Revenue Service collection number voice prompt. I’m sure it’s been going on for a while as the IRS reports that the caller identification for these numbers also reveal that the number belongs to the Internal Revenue Service or other law enforcement.

These scammers may be scary and persuasive if you, like my tax client, actually have a legitimate IRS tax matter you are trying to resolve. However, if you know that you don’t have tax issues you should not be swayed by these scammer’s tactics. If you’re not sure if you have tax problems, this may be the time to confirm whether you have any lingering tax issues. Our tax attorneys are located in Modesto, California and Sacramento, California. We can help you determine if you have a real tax issue or help you get the tax relief appropriate for your situation. Please call us at (800) 454-7043 for your free consultation.

IRS closed – technical difficulties or government shutdown?

Because our elected representatives can’t do their job, the government has shutdown. The Internal Revenue Service (IRS) is not immune from the shutdown … but you are still responsible to make payments and meet IRS deadlines.

Curious as to how the government shutdown would impact the IRS collection officers I face off against on a daily basis; I started to make my normal phone calls to the IRS today. The IRS practitioner’s line has a pre-recorded message acknowledging that it is closed due to the government shutdown. The standard collections phone number used by the public at large has a pre-recorded message that it is having technical difficulties. I called a small sample of Revenue Officers that I know and got their voice messages (no surprise there). I also called a couple of the duty lines at my local IRS office. The duty lines were not staffed. One had a rather funny message recorded either yesterday or today, acknowledging the government shutdown and then the person recording the message was either yanked off the phone or spat a profanity into the message.

According to the IRS website, they softly acknowledge the government shutdown as follows:

“Due to the current lapse in appropriations, IRS operations are limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.”

Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.

If you have an upcoming appointment scheduled with the IRS, you should assume that the appointment is cancelled and will be rescheduled. The IRS will also continue to send its scary collection notices; however, correspondences received will not be reviewed (again, not a real surprise announcement).

I suppose what I’m really waiting for is for a prospective client to contact me with a stack of IRS levy notices that were issued at the eleventh hour on September 30, 2013 by an IRS official knowing they were going on a forced holiday for an undetermined amount of time.

Be Charitable Today … Tax Relief in April

Get your check in the mail today! Charitable contributions are deductible in the year made, make you feel good immediately, and may give you some IRS Tax Relief in April. Therefore, donations paid by check still count for tax 2012 as long as they are mailed by today, the last day of 2012. Donations charged to a credit card before the end of 2012 count for 2012, even if the credit card bill isn’t paid until year 2013.

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

To be deductible, clothing and household items donated to a charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

But remember, only donations to qualified organizations are tax-deductible. A searchable online database listing most organizations that are qualified to receive deductible contributions is available here on IRS.gov. Additionally, churches, synagogues, temples, mosques and government agencies are usually eligible to receive deductible donations, even if they are not listed in the database.

Happy Veterans Day

image via wunderground.com

Technically Sunday was Veterans Day, but most of us have today off, including the IRS. I paid my first visit to the Department of Veterans Affairs website today and here are some of the things I found:

  • VA has guanteed 20 million home loans for veterans since 1944, including 540,000 in 2012 alone
  • VA recognizes award-winning and influential veterans around the country on its website
  • VA supports health care and health education for our nation’s military heroes through some top-rated medical facilities
  • There are 152 VA hospitals and 817 outpatient clinics located throughout the country
  • Every possible type of VA application or form is available with the click of a mouse
  • The “projected veteran population” is over 22 million, most having served in Vietnam
  • The IRS offers free basic tax help for veterans

I like the way we take care of our country’s veterans. Although I have not had ocassion to test the theory, I would venture to guess that the IRS would give some due consideration to veteran status in their collection / tax relief cases as well.

Colorado Can't Tax Pot Sales Without Voter Approval

image via dailycamera.com

On November 6th, Colorado voters approved a constitutional amendment (Amendment 64) legalizing recreational marijuana.  Over 54 percent of voters were in favor of the constitutional amendment, but it would be interesting to know how many of those people are “non-smokers.”  I would guess that a majority of those who voted in favor of legalization were more interested in the “fringe benefits” than they were in getting high with their friends.  For example, now the state’s law enforcement personnel will be able to spend more time on violent crimes rather than small-time drug possession.  Also, now the state will be able to collect an estimated $40 million per year from a 15% tax on marijuana sales.  Or will it?

The Taxpayer Bill of Rights in Colorado prohibits any kind of new tax burden without voter approval.  According to Colorado Attorney General John Suthers, the tax must first be approved by the state legislature and then the voting public.  Perhaps the best way to avoid this tax problem would have been to include precise tax language directly in the pot legalization bill, but for whatever reason, that didn’t happen.