Multiple-filers and the Martinsburg Monster

Before the IRS went into full automation mode and before the IRS used computers in any meaningful way, there were the “multiple-filers.” This was the illegal practice of filing false returns (with phony names, wages, and social security numbers) claiming refunds — usually several returns claiming modest refunds so as to not draw too much attention. And it worked. Many refunds were paid out in error this way. But the multiple-filers would get caught sometimes too (the IRS would probably say “most of the time”).

The term “multiple-filing” doesn’t appear anywhere on the IRS website. Today it is more commonly referred to as “refund fraud.”

In the early 1960′s the IRS housed its computers in a single location in Martinsburg, West Virginia. That first IRS computer center began busting multiple-filers and other tax cheats with a computer system known as the “Martinsburg Monster.”

Check out the April 12, 1963 Life magazine story discussing several successful multiple-filer busts by IRS Intelligence Division head, H. Alan Long and his agents.

FTB Live Chat

Starting today the California Franchise Tax Board (FTB) is expanding its Live Chat program to business entity questions. Live Chat is a web-based communication application that was first launched about 6 months ago and is open to both taxpayers and practitioners. It is a quick way to get answers to general state tax questions — quicker, apparently, than waiting on the phone. However, account-specific questions will not be addressed in this manner. If you have questions or issues to address about a specific tax account, you must go through the normal channels.  Live Chat is available 8:00am to 5:00pm Monday – Friday. Check it out here.

Realignment of California Prison System

Beginning in October, some criminals who would have normally been placed in California state prisons will be redirected to their individual county facilities. This is being done in an effort to combat the severe overcrowding problem in state prisons without simply letting inmates go free. But in case you were picturing a mass caravan of inmates on October 1st, none of the inmates who are currently in state prisons will be moved to the counties. Only the new non-violent offenders will go to county jails where it is thought they will be able to rehabilitate more quickly and smoothly.

It’s the largest shift that we’ve ever seen in the state’s history.

~ Barry Krisberg, UC Berkeley

Those who oppose realignment in California doubt that there is sufficient funding and programs in place to handle this major change. Furthermore, many county jails will be hard-pressed to take any more prisoners since they are at capacity also. See full story here.

IRS Audit Issue Going to Supreme Court

If the IRS is thinking about auditing you, they currently have 3 years from the date your return is filed to decide. It’s called the Assessment Statute Expiration Date (ASED). There is an exception: in cases where the taxpayer omits 25% or more of his gross income, the IRS has 6 years to initiate an audit.

A number of lower courts have ruled one way or another on what constitutes a 25% income omission, and now the US Supreme Court has agreed to review the issue. Of course the IRS would like as much time as they can get, so they argue for a liberal interpretation. They argue that anything having the same effect as a 25% income omission (like an overstated tax basis) should result in a 3 year extension of the statute.

The case that the Supreme Court agreed to hear is Home Concrete & Supply v. U.S.We need to keep an eye on this one. Currently it is not very common to see tax liabilities going back more than 10 years. The Collection Statute Expiration Date (CSED) on federal tax liabilities is 10 years; after that, the liability drops off the books. But the clock starts to run when the liability is assessed, so if the IRS waits 3 years to conduct an audit and assess the tax on your 2005 return, it would expire (at the very soonest) 13 years later — in 2019. This is assuming the return was filed on time (April 2006) and no other clock-stopping events have occurred in the interim.

If the Supreme Court rules in favor of the IRS, then we could start seeing more 16-year-old liabilities here and there.

A Tax Even the Wealthy Can’t Pay

Greek parliament approved the new controversial property tax Tuesday evening. The hope is that this will increase the country’s chances of obtaining further bail-out money, precisely 8 billion euros, and keep the country solvent. However, the government has to be willing to exchange solvency for turmoil and unrest. Experts believe this is the wrong approach, and what the people of Greece really need is tax relief and drastic trimming of the public sector.

The property tax will be devastating to normal citizens; many will not be able to pay. However, even more telling is the effect it may have on wealthy government officials. If they can’t pay it, then it’s difficult to tell who can.

I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time. . . . The property I own was purely obtained through inheritance. Personally, I have never bought anything. . . .  I will be obliged to sell some of these properties. There is nothing else I can do.

~ Theodoros Pangalos, Deputy Prime Minister of Greece

See full story here.

The Postage Stamp Controversy

The United States Postal Service has always honored great men and women by putting their faces on postage stamps. But nobody ever really aspired for that honor because it has also always signified that you were, well . . . dead. In fact, 5 years dead — that was the rule. But not now. The USPS recently announced that it will begin to honor living souls starting in 2012.

And you can vote for your top 5 living candidates on Facebook, Twitter, or through the mail. Then the Postmaster General’s Citizens’ Stamp Advisory Committee (CSAC) will convene to pour over all the nominees and make their selections.

I wonder if this is a good idea. The USPS, in an effort to appear “relevant and contemporary” has definitely stirred up a little controversy.

The 5-year rule just makes sense.The thing about a dead guy is he can’t do anything further to tarnish his reputation and cause anyone to regret honoring him on a stamp. And the 5-year buffer even gives a little more time to uncover any skeletons. Of all the living people who deserve to be recognized on a stamp, how many people are going to vote for their favorite author or philanthropist? They won’t. There are going to be 50,000 votes for Lady Gaga and Brian Wilson. I’m certain that celebrity stamps would be hugely popular, but what happens when these living celebrities do something distasteful or illegal after the stamp has been put into circulation? I don’t know, maybe it wouldn’t matter. The government may not approve, but I doubt the popularity of the stamp would suffer.

Read the entire USPS Press Release here.

IRS is no Help with Avoiding Fees

Usually the 16-year-old behind the counter at your favorite fast food establishment isn’t trying to up-sell you and get you to order the more expensive burger on the menu. They don’t care; they’re getting paid by the hour. In fact, they will often go out of their way to help you if there is a cheaper way to order what you want. Well, according to the latest TIGTA report, the 16-year-old at the burger joint may be better with customer service, in some respects, than the IRS.

The latest TIGTA report delves into the Streamlined Installment Agreement (SIA) program. The IRS is not being consistent in their approach to SIAs and are failing in three key areas. One of the failures that TIGTA identified was that IRS representatives are not apprising taxpayers of a less expensive alternative: the “extension to pay.”

It costs $150 to set up an installment agreement — this is a non-refundable user fee. But if the balance is low enough to be paid off in 120 days or less, then an installment agreement is not necessary.  If the balance can be paid in 120 days, the IRS will normally agree to an “extension to pay” and the taxpayer can avoid the $150 fee. If an IRS representative knows that the balance can be paid off in 120 days, then the representative should steer the taxpayer towards the extension to pay rather than the SIA, or at least notify them of the option. As part of their audit, TIGTA found over $1 million in fees that could have been avoided by the extension to pay alternative.

Unfortunately the old adage, “They don’t care; they’re getting paid by the hour” correctly describes some IRS reps too.

IRS Fresh Start Webinar

The IRS webinar detailing their Fresh Start Initiative, which originally aired on August 31, 2011,  has been posted to the IRS video portal for all to see.  The Fresh Start Initiative is a tax reliefprogram designed to help taxpayers who are struggling to meet their tax obligations in this down economy.

As part of the initiative, the IRS has adjusted its lien filing procedures, opened up the installment agreement option to more businesses, and  instituted a “streamlined” Offer in Compromise program. I was hoping the IRS would, through this webinar, elaborate on the Fresh Start program and provide more details on exactly how these changes will impact taxpayers with balances that they cannot immediately pay. But they didn’t. Instead the speakers rehash what has already been explained on the IRS website and then go into a fairly detailed discussion of liens.

This is a good video for someone who wants a basic understanding of liens, how & why the IRS files them, and how to get them released. The IRS representatives even go into an explanation of lien “release” vs. lien “withdrawal,” complete with an analogy comparing it to a “divorce” vs. an “annulment.”

Unfortunately, very little was said about the changes that have been made to the Offer in Compromise program either. Click here to see the entire video.

IRS Customer Service Audit

The two things you can be sure of in life are, as the saying goes, death and taxes.  As for the taxes, they are apparently unavoidable on many different levels.  If it’s not the payment of taxes, it’s the waiting on hold with the IRS to get answers to your tax questions.  It has become a fact of life and, as a tax relief attorney, I think I have accepted it.

Wanna see what I’m talking about?  Click here for IRS phone numbers.  Enjoy!

The average wait time has increased every year since 2007.  According to a recent TIGTA audit, IRS average telephone hold times were up to 10 minutes during the 2011 filing season.

During that same timeframe, the IRS achieved a 74.6 percent level of service. Doesn’t sound too impressive until you realize that their goal was 71 percent. So, yes, the IRS surpassed its goal, but you’re probably wondering why they are not setting their sights a little higher.  Well, the answer given by TIGTA is the same tired old problem of limited resources and increased demand. And what exactly is the “level of service” measurement anyway? It’s actually a comparison of the total number of taxpayers who attempt to call the toll-free telephone lines (a whopping 80 million during the 2011 filing season) and the number of taxpayers who actually gain access to the system and are placed in the IRS queue. Certainly a big percentage of the callers hang up before connecting, I know I have more than once.

One bright spot, in my opinion, is the “Estimated Wait Time Message” feature that was implemented for the first time a few years ago. What this does is it helps me to decide if I want to hang up and try again when the call volume is lower. It is actually very helpful, and I have noticed that the estimates are usually pretty accurate.

Nobody likes waiting on hold, but if you consider the massive volume of calls that come in to the IRS each day, I don’t think it’s unreasonable to have to “take a number.”  I think the hold times would be even easier to swallow if, when you finally did connect with a representative, you were greeted by a somebody with solid customer service skills.  It’s the whole quality vs. quantity issue.  But I guess that’s for another day and outside the scope of this particular audit.

Free Tax Prep: You Get What You Pay For

A total of 3.1 million individual income tax returns were prepared for elderly, disabled, and low-income taxpayers at Volunteer Program sites in FY 2010. IRS Volunteer Programs include  the Volunteer Income Tax Assistance and Tax Counseling for the Elderly Programs. These programs scored extremely low marks from TIGTA (Treasury Inspector General for Tax Administration)  in arecent audit.

The findings of this review are very troubling. ~ J. Russell George, TIGTA

TIGTA found that volunteers are not following guidelines, using intake forms incorrectly, and even knowingly falsifying the facts. This resulted in a sharp increase in inaccuracies during the 2010 filing season. An abysmal 39 percent of the returns picked up by TIGTA auditors were prepared correctly. However, the sample size of the audit was very small: 14 out of 36 returns were error-free.

TIGTA is also concerned that the volunteers are not being properly screened. This is especially troubling given the amount of sensitive personal information that is entrusted to the volunteers by taxpayers who are perhaps more vulnerable to identity theft and fraud than the average citizen.

So, what does TIGTA recommend the IRS do to turn things around? There were many recommendations, and the IRS agreed to implement all of them. Here are just a few:

  • Evaluate the quality review process
  • Include “secret shopper” component in audit process
  • Improve volunteer standards of conduct
  • Develop a process for keeping a closer eye on volunteers
  • Revise intake procedures

These recommendations obviously lack the specifics needed to immediately put them into practice. It will be up to the IRS to fill in the blanks and decide how it will implement these changes. It really is unfortunate that the government cannot provide competent tax prep services to those who are willing to participate in the tax system, but do not have the resources or ability to file on their own. I wonder how many of these people realize that when they sign their name on the return, the error made by the preparer becomes their own error. I also wonder how many of the mistakes made by volunteers have resulted in a tax debt when a refund was expected.