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.

How Much Help is your Tax Preparer?

Can your tax preparer help you if you run into trouble with the IRS? It depends on what kind of trouble, but generally your everyday, average tax preparer cannot do everything necessary to resolve your tax issues.

If your tax preparer is either an enrolled agent, certified public accountant, or tax attorney, then you will likely have all the authority you need in your corner to address whatever the problem might be. Although attorneys are often better suited for assisting with collection, litigation, and tax court matters. The IRS sees these three categories of tax professionals as having “unlimited representation rights.”

But if your tax preparer does not possess one of these three credentials, then the amount of help he can provide is very limited. Tax preparers who are not EAs, CPAs, or attorneys (also known as “unenrolled preparers”) may only represent taxpayers on issues having to do with returns that they personally prepared. And even then, if the issues escalate to the level of the IRS Collections Department, IRS Appeals, or beyond, they must turn it over to an EA, CPA, or attorney (or the taxpayer may try to handle it on his own). If the dispute cannot be resolved administratively and makes its way up to US Tax Court, then it should certainly be handled by an experienced tax attorney, but it can also be handled by an EA or CPA who has been admitted to practice before the Tax Court. And, of course, the taxpayer still has the option to go at it alone as a “pro se” litigant in Tax Court.

It is one thing to say that someone has the authority to help you, but it is quite another thing to say that they have the skills, experience, and desire to help you. I have met a number of Enrolled Agents that are qualified to represent their clients in audits and IRS disputes, but who simply do not choose to do that as part of their business.  And those who make the decision to pass on those types of cases, never gain the necessary experience and skills to represent a taxpayer competently in such matters. Unenrolled preparers are even less likely to include IRS representation as part of their repertoire.

Although nobody anticipates getting into trouble with the IRS, and it can’t really be predicted, these are a few things to keep in mind when selecting a tax preparer. And according to the IRS, November is a good time to make that decision.

IRS Impersonators Have New Tricks

Scam artists, posing as IRS agents, who contact innocent taxpayers out of the blue and demand payment on tax bills that don’t exist are getting more crafty and casting a bigger net these days. For at least the past few years now, the IRS has regularly published updated warnings each time they perceive a new wrinkle, or if enough time has passed since the prior warning.

This month, the IRS published a scam warning that identifies a couple trends that suggest these tax criminals are taking the time to do some homework rather than calling completely unscripted. For example, one tactic is to alter your caller ID so it appears the call is coming from a legitimate government agency.  Scammers have always posed as official government representatives by giving false names, titles, and badge numbers, but now they are more frequently adding this new layer of “authenticity” to the call.

The ultimate goal of IRS phone scam artists is to get the victim to make a payment over the phone and/or provide sensitive information like your name, address, and social security number. If they are successful in obtaining a payment over the phone, they are now asking victims to mail proof of payment to an actual IRS office nearby. Taxpayers choosing to verify the address can look it up in a Google search and see that it is the correct address to their local service center, which lends a sense of legitimacy to the whole interaction. Of course, anyone with half a brain would know that providing the address to an IRS office that is posted on the internet for anyone to see means absolutely nothing.

In this month’s published warning, the IRS states that these scam artists use angry voices to strike fear into their victims and pressure their victims into making rash decisions. Then the IRS lists a few things that they will “never” do, so it will be easy to distinguish between scammers and true IRS representatives:

  1. Angrily demand payment over the phone
  2. Call prior to sending a bill for overdue taxes
  3. Threaten arrest for non-payment of taxes
  4. Demand payment without the opportunity to appeal the amount owed
  5. Require a specific payment method
  6. Ask for credit or debit card numbers over the phone

#1 on this list is a little strange to me because anger, and the detecting of anger in someone’s voice, is a subjective thing. Isn’t it? I have heard demands for payment in voices that could reasonably be characterized as “angry.”  I have also had IRS representatives tell me that they require an “auto debit” payment arrangement in order to approve an installment agreement, hence somewhat of a violation of #5.  However, in my experience, IRS representatives usually do a pretty good job complying with this list.

Tax Day 2015 Has Arrived!

Free food is great and all, but is that really what you want on Tax Day?  I suppose if you’ve already filed and you’re just waiting for a refund check, then you may have an appetite for a free Hard Rock Cafe burger, a Schlotzksky’s sandwich, or red velvet cake at Tony Roma’s.  But if you’re like many other taxpayers, you have had to work for every dime you earn and you maybe haven’t had time to get your taxes done yet.  Of course, it is also difficult to be motivated to file when you know you’re going to owe.  It you fit this description, then maybe you’re looking for a more valuable bit of Tax Day info, like how to file an extension.

Keep in mind that the automatic extension is “automatic” because it is granted to anyone who asks without the need to show reasonable cause, not because it happens automatically.  You have to so something.  You have to ask for it**.  The IRS website is extremely sluggish right now due to all the extra traffic it gets this time of year, but requesting an extension online using Form 4868 is still the fastest and most convenient way to do it.

You can file it with your electronic payment, through your tax filing software, or through your tax professional.  You’ll need your name, address, and social security number.  You will also be asked to estimate your 2014 tax liability, provide the amount you have paid towards that liability (if any), the amount you are sending in with the form (if any), and lastly, the total remaining liability.

So, what do you get when you file an extension?  How is six extra months?  Congratulations, you may take a deep breath and relax a little because you don’t have to file until October 15th now.  But, there is one big “BUT” associated with filing an automatic extension: an extension to file does not also give you an extension to pay.  If you don’t pay on time then you’ll be charged interest and late payment penalties.

**You don’t even have to request an extension if you are a US citizen living abroad, or if you are serving in the military outside the US.

Short Hold Times at IRS Today

Modesto, CA

I only spent about two minutes on the phone with the IRS today.  That’s a first.

I was on and off just like that, and then I went on with my day.  The reason why it was so quick is because THEY DIDN’T TAKE MY CALL.  You know things are bad when they won’t even allow you to wait on hold.  Last week we were experiencing two hour hold times.  Actually, it could have been longer, but the longest I waited (and still didn’t get help) was two hours.  But this week they don’t even want you to bother holding.  After selecting my topic (“discuss a client’s tax account”) the recording on the Practitioner Priority Line states something like “We’re sorry, but due to extremely high call volumes and the topic you requested, we are unable to take your call at this time.  Please try again later, or on the following business day.”

It has always bothered me when I am in a store asking for help or waiting to make a purchase (almost any type of store; they’re all basically the same) and then the phone rings, and the worker immediately picks up the phone and helps the caller despite the fact that I am present in the store.  I have noticed that they will normally give preference to the caller over the person who is there in person.  Not so with the IRS.

Well, to be fair, I don’t think they get foot traffic at the IRS call centers.  I’m pretty sure that the call centers are just for calls and the walk-in centers are just for walk-ins and appointments.  But realizing this only makes me madder that they can’t answer my call.  They don’t have to divide their attention between callers and walk-ins.  There’s no excuse!  HOWEVER, as much as I love to complain about the IRS and the pathetic state of their call centers, I like my chances on the phone even better than at our local office.

If anyone near Modesto wants to take their chances at the IRS local office, be my guest.  They are at 1700 Standiford Ave. and they are open Monday through Friday from 8:30 to 4:30.  And the Sacramento office is still at 4330 Watt Ave.  Same hours of operation.

The IRS is Confused Enough on their Own; Don't Make it Worse

Modesto, CA

Good thing I have this blog as a place to vent my frustrations with the IRS.  It has been like my therapist over the years.

I can really identify with Robert Wood’s article today about 1099 forms.  It was obviously written from the perspective of a seasoned (and perhaps a bit jaded) tax veteran who doesn’t really trust the IRS to get things right.  Basically Mr. Wood is of the opinion that if you do not receive a 1099 that you expect to receive, you might want to think twice before calling and asking for it.  Why?  Because you don’t need the actual form in order to file your taxes, as long as you were conscientious enough to track all of your income independently.  You just need the figures.  And if you happen to request a copy of something that was already issued, or is already queued up to be issued, there is a real chance that the 1099 could be sent out twice.  Of course if you get a duplicate 1099, you are smart enough to recognize it as a duplicate, but the same cannot necessarily be said for the IRS.  And if the IRS counts double the income, then there’s a problem.

Yes, it can be very frustrating dealing with the IRS.  All that hype about how difficult the 2015 tax season will be — I don’t think it’s hype.  When calling IRS service centers, I am witnessing hold times that are longer than I can ever remember.  I recently spent an hour and a half on hold with three different phone reps trying to get through to the Collections Department (ACS).  I dialed ACS directly, but each time I was told that I had not reached collections.  I think what happens is, if the phone lines are extra busy, callers are automatically re-routed to non-ACS service centers.  But the system doesn’t alert you when it is doing this, so you are forced to wait until somebody picks up.  In my experience, the Practitioner Priority Service line is not any better.

I’m done venting now, thanks for listening.   See you next week my therapist-blog.

Protect Yourself Against Identity Theft

Identity theft can be a huge headache, especially when it affects your federal tax record.  There are at least a couple ways how that might happen.  An identity thief may use your personal identifying information, including your social security number, to file a false tax return and obtain a fraudulent refund.  Or a thief may use your identity to obtain a job, claim the maximum number of exemptions, and basically collect tax-free income.  Then, these W-2 wages are reported to the IRS under your social security number.  When the information on your legitimate tax return does not match up with the W-2s the IRS has on file (i.e., when you fail to report the income earned by the identity thief) then the IRS sends you a letter asking you to explain the discrepancy.

The IRS provides a comprehensive list of tips for those whose identity has been stolen.  However, some of their most useful tips explain how to avoid identity theft in the first place. What it all comes down to is safeguarding your personal and financial information, including your credit cards, social security number, even address.

Some identity thieves steal wallets and purses.  Protect your personal effects when you carry them around and never leave them in open sight in your vehicle.  Never leave a bag or purse unattended in a store or airport.  It is human nature to misplace small items such as these, but we tend to be very habitual in the handling of our wallets and purses.  The more safe habits we can acquire, the better, so that it becomes second nature to protect our personal effects.

Some identity thieves try to obtain information from you through a phone call or electronic means (especially emails).  The IRS has issued extensive and repeated warnings regarding phony IRS emails and phone calls.  The IRS has made it abundantly clear that they do not contact taxpayers through email and they do not request credit card information over the phone.  It is actually really easy to identify a phony IRS contact if you know what to look for, but very easy to be deceived if you don’t.

Some identity thieves sift through your trash.  Once you take your trash out to the curb, it is easy to consider it “gone,” but that is usually the point at which the identity thief just begins his work.  The idea here is to take steps to destroy identifying information before you throw it in the trash can.  Invest in a good quality shredder and make a habit of shredding anything with your name on it.

Some identity thieves obtain your information through unsecured websites.  Do not share your personal and/or financial information on obscure, unknown websites that cannot be trusted.  If you’re making purchases online, stick with the big time, well known websites like Amazon, eBay, and nationwide retailers.  If you ever have a question as to whether a website can be trusted, do a quick Google search of the company or, better yet, just move along to something else.

I'm Becoming a TAS Fanboy

I know I’ve said some harsh (maybe even disparaging) comments about the Taxpayer Advocate Service (TAS) in the past.  My comments have usually been related to the “quasi independent” nature of this service and how they seem to be nothing more than an appendage of the IRS itself.  I’d be lying if I said it didn’t bother me that their offices are in the same building as the IRS (at least they are in Sacramento), and that the URL for the Taxpayer Advocate ends in “irs.gov.”

On the other hand, the top lady at TAS, Nina Olson, has truly advocated for taxpayers during her tenure.  And I am encouraged by a recent correspondence I received from TAS that stands in stark contrast to many letters I have received from the IRS.

First of all, the letter I received came about seven days after requesting TAS involvement, weeks faster than anything done at the IRS.  The Case Advocate tried calling me, but when she didn’t reach me, she sent this letter.  The only criticism I have (so far) is that I wish she would have left a message, but I understand that messages often result in phone tag and wasted time, and the IRS is very reluctant to leave detailed messages without prior permission.

The Case Advocate gave her direct telephone number and fax number.  She outlined the issues very thoroughly and precisely, and obviously in her own words rather than using a template or form letter.  She described what information and documents she needed and when she needed it, gave an estimated resolution date, and signed off with an original blue ink signature.  Funny how those little details make a difference.  I guess it just shows that she is giving individual attention to this case, which I think anyone can appreciate.

Oh yes, there is one other problem I had with this correspondence: the due date was too short.  But I guess I can live with that if it means we can move things forward without any further delays from the IRS.

IA Eligibility Requirements

Who is eligible to pay back taxes to the California Franchise Tax Board via an installment agreement?  It can be a little complicated.

It’s difficult not to compare FTB and IRS collection tactics.  Both almost always first demand/request payment in full.  The collection notices are worded in a way that if you don’t read beyond the first sentence, it will appear that full payment is your only option.  And when you call them up, that’s the first thing out of their mouth.  IRS will usually say “Do you have the ability to pay your tax bill in full?” If you cannot write them a check, then the discussion typically shifts to what is required for an installment agreement.  However, the FTB will often (at least at first) demand full payment without regard for your ability to pay and then very reluctantly tiptoe around the option of paying back your taxes in installments.

The eligibility requirements for an FTB installment agreement are more stringent than the IRS requirements.  First and foremost, it is very difficult to obtain an installment agreement with FTB if you have an active earnings withholding order (EWO).  An EWO is just another word for “wage garnishment” or “wage levy.”  Once the FTB has brandished this collection tool, and they have a steady stream of payments coming in, it is very difficult to convince them that they should trade these “guaranteed” payments for a promise to pay from the taxpayer.

Like the IRS, the FTB does require that all back tax returns have been filed so there is no question as to how much is owed.  Also, like the IRS, FTB requires that the entire tax debt be paid off within a specified time frame.  They give as much as 60 months for some tax debts, but only 36 months for others.  The IRS will allow a full 72 months for tax debts under $50,000.

Both FTB and IRS recognize certain events that will cause an installment agreement to default.  Some of these events include (a) failure to make timely payments, (b) failure to timely file a future tax return, and (c) incurring a new tax debt.

Whether you owe FTB or IRS (or both) it would be a mistake to think that you can always just request an installment agreement to avoid enforced collection action.  It’s not always that simple.

What’s the Point of IRS Letter 2645C?

Are you wondering what does IRS letter 2645c mean? 2645C is my all-time favorite and most ambiguous IRS letter. The Internal Revenue Manual refers to them as “interim letters” (IRM 4.19.23), which is a nice label given to a letter that is simply saying the IRS has received something from the taxpayer but has not acted on it yet.  And when I say the IRS has received “something,” I literally mean anything — it is up to the taxpayer to figure out what that might be based on the receipt date in the letter that is often inaccurate.  The IRS inquiry letter does give a few options as if to jog one’s memory:

  • Correspondence
  • Telephone inquiry
  • Payment
  • Form
  • Response to our inquiry or notice
  • Penalty abatement request
  • Installment agreement
  • Other

Yes, it says “other.”  This list is taken directly from the form letter 2645C.  It goes on to say that the IRS hasn’t resolved the matter because they haven’t completed all the processing necessary for a complete response.  This letter is completely baffling to me, and I am always wary of those times I am told that the IRS hasn’t “finished processing” something.  What that usually means is they haven’t even looked at it.  If they had looked at it, then would it really be that difficult to specify if this something is a payment, a phone call, penalty abatement, or “other”?

Probably the most perplexing option in the list above is “payment” because what kind of processing is really necessary when a payment is received?  Yes, a determination needs to be made as to where to apply the payment (what tax year or period), but what else?  It seems to me that the processing of a payment is the one thing that the IRS would not put off for later.

Next this letter states that the IRS will contact the taxpayer within a specified time frame (usually 45 days).  The letter ends with a friendly reminder about how to make installment payments, including how to annotate your check.  In other words, we’re not sure what you sent us, and we won’t get to it for 45 days, but in the meantime be sure you don’t miss a payment.  Sincerely, IRS.