IRS Holiday Fraud Warnings

For years now, the IRS has taken an active role in warning taxpayers, and the tax industry in general, of tax-related scams, but they seem to be as prevalent as ever. Once a year, right around tax season, the IRS increases the number and intensity of its warnings to try to match the number and intensity of scams. Criminals have found that tax season (January thru April) is the best time to practice their craft. But we have seen the Christmas season begin earlier and earlier each year in the world of retail sales — before Thanksgiving in most places, and the tax fraud people seem to be following suit. They don’t wait for tax season anymore, which often puts the beginning of “tax fraud season” smack dab in the middle of the holidays. Their schemes are almost always based on some type of IRS impersonation, sometimes targeting particular groups in an attempt to exploit their vulnerabilities. The IRS recently provided a list of several variations, including the following:

  1. Direct calls requesting immediate payment: This is perhaps the boldest and most common technique. Taxpayer will receive an automated message or a threatening cold call demanding payment over the phone. Often the caller will threaten prosecution or jail time based on some false claim of tax evasion.
  2. The Federal Student Tax scam: This scam is carried out in manner similar to the direct call, but targeted at students and parents of students. As you might know, there is no such thing as a federal student tax.
  3. Fake tax bill for Affordable Care Act liability: It is true that a taxpayer could owe penalties (aka, “shared responsibility payments”) and advanced premium tax credit overpayments under the Affordable Care Act. It is also true that the IRS is charged with the responsibility of collecting such payments. However, you must be careful that the letter or email is legitimate. An email claiming to be from the IRS is most likely a fake. And the IRS says that taxpayers should be skeptical of “CP2000” letters requesting that payment be send to the “Austin Processing Center.”
  4. Emails from the boss: Sometimes tax scammers have been known to contact human resources and others within a company asking for confidential employee records, including social security numbers.
  5. Gaining access through the tax preparation industry: Tax preparers should be aware of a scheme whereby the criminals contact them with fake software updates via an email that appears to be from a tax software firm. Somebody in the tax industry might be savvy enough to recognize this kind of thing as a fake, but since many taxpayers use tax filing software themselves, sometimes these emails go straight to the consumer who could more easily fall victim to this scheme.

It may be that the holidays are the perfect time for a variety of criminal schemes. I was recently made aware of a scheme targeting attorneys. An email with the subject line “The Office of The State Attorney Complaint,” if opened, could expose an unwary lawyer to a computer virus.  If this sounds like an agency with a clumsy name, it’s because no such agency exists. Stay vigilant my friends; apparently there are a lot of Scrooges out there this time of year.

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.

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 plans for IRS tax relief payment schedule on a regular basis or with enough frequency to notice a change in fees. Yet another reason why the misleading title was unnecessary.

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 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.

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.