IRS: Some Refunds Will be Delayed in 2017

It’s hard to make tax news interesting because it’s always the same story over and over again. People are getting scammed by criminals who impersonate the IRS, politicians want to replace the IRS Commissioner, the IRS hasn’t been funded properly and doesn’t have the resources to do their job, the IRS filed a federal tax lien against a celebrity who owes millions of dollars in back taxes, and the IRS warns taxpayers to brace themselves for a rocky tax season. Even the “scholarly” articles are completely predictable: How do we close the Tax Gap?, Who’s going to overhaul and simplify the tax code?, What can be done to make the IRS run more efficiently?, How do we promote voluntary compliance?  The details change a bit, but it’s basically an endless cycle of the same old unsolved problems.

Today the IRS announced that refunds will be delayed for certain early filers during the 2017 tax season. New laws require the IRS to hold entire refunds where the filer claims the EITC or the ACTC until at least February 15th. Taxpayers who expect a refund naturally tend to file in January or as early as they can, and many are accustomed to getting their refund somewhere near the end of January or early in February. Believe me, it is common for people to plan vacations and major purchases around their tax refund. Having to wait a week or two longer may not seem like a big deal, but some people have come to really rely on that check, and a couple weeks can feel like a couple months.

At least this time the reason for the delay is more valid than “we don’t have the resources to process the refunds quickly.” The IRS is reviewing certain returns with heightened scrutiny in an effort to identify and prevent refund fraud and identity theft.

The IRS Commissioner, John Koskinen, said, in explaining the need for today’s announcement, “We don’t want anyone caught by surprise if they get their refund a few weeks later than in previous years.” My question is, what, besides this press release, will the IRS do to get the word out? They’ll tweet it out a couple times, I have no doubt about that. But this kind of info needs to spread to all the news outlets, social media, tax preparers, and tax prep software so that even the least connected of America’s taxpayers will be aware.

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.

New IA Fee Schedule Proposed

The IRS is proposing a completely restructured fee schedule for installment agreements, which would take effect on January 1, 2017. This was announced via IRS newswire under the title: “IRS Proposes Revised Fees for Installment Agreements; New Lower Fee Available for Direct Debit Online Payment Agreements; Special Relief Provided to Low-Income Taxpayers.” Of course the title only tells half the story. It appears to have been intentionally spun to highlight only the favorable aspects of the fee schedule. If so, it was completely unnecessary; the only people who read these articles are savvy tax professionals who will probably read beyond the title and not the general taxpaying public who the IRS intended to trick. And if the title is intentionally misleading, it tells you a thing or two about the IRS’ low opinion of taxpayers.

Moving beyond the demeaning title, we can see that the fee for a Direct Debit Installment Agreement (DDIA), if done online, would be reduced ($31), the low-income taxpayer fee would remain the same ($43), and every other applicable IA fee would actually increase. The IRS is clearly trying to phase out the regular old installment agreement that is established by phone or mail and that is paid by sending in a check every month. Under the new fee schedule, the cost for that kind of agreement would be nearly twice as high as it is currently (from $120 to $225).

One of the big complaints we get from taxpayers is that they feel the IRS is constantly trying to “nickel and dime” them until they find themselves buried in a mountain of debt that they will never be able to repay. One of the ways the IRS does this is with interest and penalties. Of course if your tax debt is a big one, then we’re talking a difference of hundreds and thousands of dollars, not just nickels and dimes. Another way that taxpayers feel the vice tightening is when they get audited for tax periods they thought were already settled. It can be very disconcerting not knowing exactly what you owe and not knowing if that number could change. The new fee schedule proposal has that same feel for me, but I predict that very few taxpayers will ever notice they are being “nickel & dimed” this time. The reason I say that is most people do not set up payment plans on a regular basis or with enough frequency to notice a change in fees. Yet another reason why the misleading title was unnecessary.

Back-to-School Tax Scam

Its back to school this week for many kids across the country. As great as summer vacation can be, many parents look forward to getting back into a regular routine come mid August. If you don’t have children, then you probably have no idea what kind of costs are associated with this annual tradition. Many parents like to update their kids’ wardrobes before school starts, and this is often the biggest expense. But there are a whole host of other expenses like school supplies, PE clothes, yearbooks**, school pictures, and sports equipment. But it has been four months since anyone had to think about their taxes, so at least that is not a concern. Not until you get a call from the scammer posing as an IRS agent demanding that you pay a bogus school tax. I wish I were making this up. Today the IRS warned taxpayers about this new twist on an old theme. Tax scam artists tend to prey on categories of people who may be more vulnerable, and I guess one of those categories is the taxpaying parent who will do anything to avoid jeopardizing their child’s education.

People, I have said this 1,000 times, but I’ll say it once more: the IRS does not call you out of the blue and demand that you make a payment over the phone. They do not call you out of the blue and threaten to send you to prison. And when I say “out of the blue,” I mean if you haven’t received any notices or letters from the IRS about tax problems (like taxes owed or missing returns), then chances are you don’t have any tax issues that would land you in prison. It really is that simple.

While it seems ridiculous to me that anyone would fall for this scam and think they actually have to pay a “Federal Student Tax,” there is at least one scenario in which I can imagine this scam being successful. Many 17/18-year-old kids go off to college and they’re on their own for the first time in their lives. If you can remember what it’s like to be this age, they tend to be fairly naïve about certain financial matters (like taxes). This financial innocence mixed with the new-found confidence (recklessness for some) of adulthood is a recipe for disaster. I could definitely see the back-to-school scammer finding success with this demographic. Be careful out there college kids!

** I know yearbooks don’t get printed until the end of the school year, but at my kids’ school they suggest reserving your copy before school even starts because they print only a limited number of them and once they’re gone, they’re gone, so of course we have to get one.

IRS Tech Issues

I have a memory from my first job as a lawyer that reminds me how slow the legal profession can be embracing new technology. Or maybe it just reminds me of how old I am.

It was 2003 and we were using these lined, carbon copy half-sheets we called “quick notes” to send informal hand-written messages to opposing attorneys, doctors, etc. I don’t remember sending them to clients because they didn’t really make the best impression, so we would dictate actual printed letters on official letterhead when writing to clients. We mailed the top white sheet to the recipient and saved the yellow carbon copy for the file. This form of communication seemed a little dated to me, even then, but it worked, and it was efficient. Even though it had been in the mainstream for about 10 years, I do not remember using email at that job.

Some people, or groups of people, just don’t latch onto technology very quickly. Because the taxpaying public includes every category of person imaginable, it is easy to see how a large percentage of taxpayers would have a hard time with the IRS’ suite of web-based services. The National Taxpayer Advocate, Nina Olson, is concerned about those who may get left behind as the IRS moves more and more of its services online. These are some of the concerns outlined in her annual report to Congress that was published a few days ago.

Somewhat of a contradiction has been developing over the years as the IRS formulates its “future plan” that heavily emphasizes technology and, specifically, online taxpayer accounts. Online tools are supposed to make things easier and more accessible for taxpayers (in fact, that is always their stated purpose), but it is obvious that the main purpose is to save the IRS money. Can you have both? Sure you can, but the key is that you don’t completely phase out the low-tech alternatives so that there are still options for the “quick note” users. For example, the IRS plans to phase out face-to-face taxpayer assistance. First they changed the name of walk-in sites to “Taxpayer Assistance Centers.” Then they plan to eliminate walk-ins and require appointments. Is it only a matter of time before these assistance centers are completely off limits to the public? It’s true, the IRS has a tricky balancing act when it comes to implementing new technology, and frugal administration of the tax system is certainly a worthy goal. But forcing everyone to embrace online accounts and tools will only cause more frustration, distrust, and inefficiency — things the IRS has been trying to avoid for decades.

IRS Could Help Identify Uninsured

IRS Could Help Identify Uninsured

The Affordable Care Act is intended to make affordable health insurance available to all. But we have seen that simply making it available does not result in 100% enrollment…not even close. It seems odd that you would have to push and prod people to take advantage of something that is free, but that’s the reality of Obamacare. Millions of low to moderate income families in the United States would qualify for free health care through Medicaid or highly subsidized policies through the insurance exchange if they would just apply.

There are many reasons why some qualifying families do not take advantage of these health care benefits. Some find the process confusing and don’t know where to go for help. Some people just procrastinate and don’t give it much thought until there is a health emergency. Others simply fail to get the message in the first place. Failure to get the message is perhaps the biggest tragedy of all in this, the Information Age.

The IRS, for example, obtains information from tax returns that could help identify people who would be eligible for government subsidized health care, but who don’t take the steps to make it happen. The key indicator is the earned income tax credit. NPR reports that about half the taxpayers who receive this credit would be eligible for “significant financial assistance.” There are some states that do a much better job than the IRS of informing these low income families of the potential health benefits available to them. The IRS certainly could do more in this area since they are currently doing nothing (besides providing a link to the government health insurance website). Of course, sending them a notice from the IRS might not have the same effect as putting them in touch with a “navigator” who would contact them directly with assistance.

IRS Warns of Spoof Emails from CEO Posers

IRS Warns of Spoof Emails from CEO Posers

As an employee, when the CEO or other executive asks you to jump, the typical response is “how high?” So if you were to get an email from the CEO asking for a list of employee data, you probably wouldn’t question it. You’d probably send the info as soon as possible and without too much thought.

Cybercriminals who understand the position of power that company executives possess are using these relationships to obtain sensitive employee data. The practice is called “spoofing” because the thieves pose as the CEO or other high level executive, using the real executive’s name in an email to those within the company who have access to W-2s and social security numbers (typically those within payroll or human resource departments). Then these criminals obviously use the data to file false refund returns or sell the data to 3rd parties.

The IRS made a statement yesterday alerting the public of this new kind of phishing scheme:

If your CEO appears to be emailing you for a list of company employees, check it out before you respond. Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.

~ IRS Commissioner, John Koskinen

I guess the question some payroll people will have is “what should I do to check it out“? Every company and every office is different. Your response may depend on the formality of your office and the relationship you have with the executive who requested the info. In some circumstances it may not be appropriate to knock on the CEO’s door asking if he/she emailed you. It might be a little awkward emailing back asking the CEO what he plans on doing with the info, or asking if he can authenticate by giving you the name of his favorite childhood pet or his mother’s maiden name.

I suspect that in most cases the email address of the sender will be a dead giveaway. If you don’t recognize the email address, then you can ask the follow up questions or pay the CEO a visit. Having said that, I don’t know for sure that these cybercriminals cannot send emails that appear to be sent from a company email system, in which case it might be wise to ask about the childhood pet anyways. Better safe than sorry, even if the price is a little embarrassment.

The Human Element

The Human Element

Sometimes I complain (mostly to myself, and sometimes to other people who don’t care) that the IRS customer service employees are like robots. They tend to go by the book even when there presents itself a more common sense and just solution. There is very little emotion or sensitivity for the struggling taxpayer who is burdened by a bank levy or wage garnishment. However, sometimes I am reminded that the flip side can be just as bad: the human response can at times be ugly too. The employees who make up the IRS are actually human beings with all the same passions and foibles as regular folks, and there’s no better reminder than when we hear of IRS agents accepting bribes.

After IRS Agent, Paul Hurley, allegedly saved a medical marijuana dispensary owner a million dollars in an audit, he suggested that, in exchange for the good deed, the owner give him $20,000. As if he thought he was being wire tapped, or as if it is somehow less obviously bribery when no words are used, the IRS agent rubbed his thumb over the top of his index and middle finger in the universal sign for “cash money.” He should have gone with his gut on this one because later, when payment day arrived, the FBI would be watching the whole thing. These kinds of deals almost always end badly for the IRS employee because as much as the IRS doesn’t trust taxpayers with delinquent tax accounts (especially when tied to a medical pot store), taxpayers trust IRS agents even less. As you can imagine, our guy in this story didn’t take long to decide before he was on the phone with the authorities tipping them off. Hurley’s trial begins this week.

The puzzling thing about this story is that Hurley demonstrates a significant amount of remorse in his resignation letter but his attorneys state that he denies soliciting a bribe. In fact, his attorneys say that Hurley was actually being offered a job to assist with the company’s books and the $20k was just up-front payment for this little side job! Even though I am one, I find it incredible what attorneys will say sometimes.

2016 Tax Season Opens Smoothly

2016 Tax Season Opens Smoothly

The IRS officially kicked off tax season this year on January 19th, one day after the Martin Luther King holiday. This marked the first day that the IRS would accept, and begin processing, 2015 federal income tax returns. The IRS said in an official statement that they had received several hundred thousand tax returns up through mid-day and that the 2016 tax season was off to a smooth start.

I don’t know how efficiently they will be processing returns this year (they say that most returns will be processed in 21 days or less), but I can personally vouch for the smoothness of the phone lines, at least on the first day of tax season. I made a few calls on the 19th, and got through surprisingly quickly on the Practitioner Priority Line (PPL), with a similar result when calling the Automated Collections System (ACS) for some of my collections cases. January has often been a terrible time to call the IRS (especially the first half of the month) because people have been away from their offices for the holidays and when they come back it seems like everybody wants to catch up on work at the same time. It is especially bad the day after a federal holiday, so I was surprised how prepared the IRS was on day one of tax season right after MLK.

The IRS expects more than 150 million individual tax returns this year. It may go without saying, but that figure does not include business returns, and it does not include any prior-year tax returns or amended returns that the IRS receives this tax season. The IRS also anticipates that around 80 percent of all returns will be filed electronically. It is always astounding to me that this figure is not up around 99 percent yet. I just can’t imagine filing a paper tax return and don’t understand why people still do it. I suppose the hold-outs are those who like the idea of saving a few bucks (when you paper file, all you pay is the cost of postage) and those who basically want to stick it to the man. This quote I found says it all:

Why should I pay through the nose to save the government money? What rational individual wants to pay $10 or more to save the government $4?

So the IRS received hundreds of thousands of returns within the first few hours of tax season, day one. I guess that means a couple hundred thousand more will be arriving tomorrow or Friday in the post. Queue the letter openers.

TAS Not Happy with IRS Future Plan

TAS Not Happy with IRS "Future Plan"

The IRS is devising nefarious plans behind our backs. According to the National Taxpayer Advocate’s (TAS) annual report to Congress, for the past year and a half the IRS has been developing a “future state” plan whereby it will drastically cut back on the face-to-face and telephone assistance it provides to taxpayers. This isn’t really new; the IRS has for some time now been trying to redirect taxpayers and point them towards irs.gov to find answers to their questions because they don’t have sufficient funding and they don’t have sufficient personnel to provide one-on-one help to everyone who seeks it. The only difference now is that they appear to be doing something about it, albeit secretively.

Implicit in the plan — and explicit in internal discussion — is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers.

~ TAS 2016 Annual Report to Congress

Nina Olsen, head of TAS, stated that these plans should be made public so that taxpayers and tax professionals can have their voices heard and so they can be prepared for whatever changes come their way. Also, she says, the IRS needs to be specific about how much it will be cutting back on personal service. So far the IRS has done nothing to make their “future state” plan public or to solicit comments and input from stakeholders.

The IRS contends that TAS is misjudging their “future state” plan. According to the IRS, as they beef up alternative “self-service interactions,” it frees up phone lines for those who are not comfortable with online resources. The problem with this line of thinking is it assumes that those who call the IRS are not comfortable with researching their issue on the IRS website. I think the number of people who avoid the IRS website because they don’t have a computer or they don’t know how to research an issue online is relatively small. If people have specific questions and they think they can find the answer online, they’ll look online. But if they need a dialogue or if they have a series of question, or if they have a unique set of fact (which is very common), or if they need something more than a cookie cutter black & white answer, then they turn to the phone. I have been involved in the tax industry, and more specifically tax resolution, for about 10 years, and can confidently say that if there is any chance I can find the help I need on the IRS website, I will definitely go there before dedicating an entire afternoon to the IRS telephonic abyss.