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.

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.

IRS Puts Reins on Stingray Technology

IRS Puts Reins on Stingray Technology

It will be Christmas time soon and thoughts often turn to gift giving and getting. For some, the gift they would like most is the latest high tech toy. This year one of the hottest tech gifts is the Hoverboard. Next year it could be a personal rocket ship. Boys will be boys, and they tend to enjoy imagining themselves starring in a James Bond flick with the latest technology at their fingertips.

The boys at the IRS are no different, although some of them are surely lamenting the potential limitations placed on their toy commonly knows as the Stingray. The Stingray is a cell phone surveillance device that can mimic a wireless cell tower, intercepting signals and giving the user private cell data of anyone in the area. Special agents with IRS Criminal Investigations have used this device since 2011 to track down some big time tax criminals.

Under pressure from the Justice Department, the IRS has begun drafting rules that would require their employees to obtain a warrant before using this controversial device. Of course a warrant requires a finding of probably cause by a judge, and if you’ve ever seen any crime shows on TV you know it’s a pain to have to get a warrant.

The IRS apparently has only one Stingray now, but they ordered a second one back in July. It hasn’t arrived yet, which I’m sure has the CI boys as anxious as 8-year-olds on Christmas Eve.

Congrats! You're a Partner with the IRS

Congrats! You're a Partner with the IRS

On March 19, 2015 IRS Commissioner, John Koskinen, brought together representatives from the IRS, the states, and the private sector tax industry in what he called the Security Summit Group to discuss ways to combat identity theft and, specifically, identity theft that results in tax fraud. Private sector representatives included the likes of CEOs of leading tax prep firms, software developers, and payroll processors. For the first two months, the SSG met “continuously” to collaborate and brainstorm. One of the ideas that has come out of these meetings is that there is no silver bullet for putting an end to identity theft and that we need to adopt a “multi-layered and coordinated approach.” Another big idea, announced by Koskinen in a statement yesterday, is that there is a key Security Summit partner that, until now, has been left out of the equation: YOU.

We’ve made a great deal of progress for the upcoming tax season, and it shows just how much we can accomplish working together. But to keep making progress, there is another partner we need to bring on board, and that’s the taxpaying public. In fact, that’s why we’re announcing this new effort, called “Taxes-Security-Together.” We all have a part to play in fighting identity theft.

Koskinen says that now is the best time to begin this new initiative. I’m paraphrasing here, but he basically says that there will be a bunch of new electronic devices bought over the next couple months (ok, Christmas time, I follow), and people will be doing their taxes and making other transactions on these devices (um, people do their taxes on phones? really?) and a significant number of these potential ID theft portals will fall into the hands of people who don’t know how to use them, and it behooves us to help them to use them safely. This seems like a really tenuous “slippery slope” kind of thought process here, but ok. Now I’m interested to know if identity theft typically spikes in December or something.

But, needless to say, it feels pretty awesome to be a member of the Security Summit Group. I’m waiting eagerly by the mailbox for my badge and lanyard. As a member in good standing of the SSG, I would like to commend the Commissioner on his Taxes-Security-Together initiative. It sounds like fun. However, I also would like him to tell me how he plans on getting these messages out to those who really need to hear them. I will prepare now for what promises to be a barrage of public service announcements via YouTube, Facebook, and wherever else the IRS has a presence. But if you’re not connected with the IRS online somehow, either by “liking” or “following” or subscribing to their emails, just how are you going to catch wind of these tips and announcements? And between a tax professional and the general public, who do you think would benefit most from hearing them? There is no one silver bullet, but at least some bullets should hit some targets for this initiative to be successful.