The Taxonomy of IRS letters

Science has documented and named something like 900,000 different insect species. Interestingly, most authorities agree that the number of insect species that have not been named far exceeds the number that have been named. We can only estimate what this number might be: anywhere between 2 million and 30 million.

And this is where I draw a strange comparison between insects and IRS correspondence. It won’t seem all that strange if you have ever received IRS mail over an extended period of time. The comparison certainly isn’t that tenuous from the perspective of a tax attorney who sees an endless stream of every type of IRS correspondence show up in the office. Based on a recent TIGTA audit report, the IRS sent out over 141 million notices and 37 million letters during fiscal year 2014. That’s a lot of mail, but knowing how many people that they have to reach, these numbers seem reasonable. However, the variety of IRS letters and notices (like the variety of bug species) is apparently too large for the IRS to wrap its brain around. There are 2,749 types of letters and 195 types of notices currently in circulation.

TIGTA conducted this audit in order to follow up on a project that was initiated years ago wherein the IRS was supposed to remove social security numbers from forms, letters, and notices (due to identity theft concerns) except in cases where the SSN is absolutely necessary. The project was supposed to be completed in 2009, but the IRS put it off due to budget cuts and the need to focus efforts elsewhere. TIGTA found that the IRS has fixed only 2 percent of its letters and 48 percent of notices. Not only does the IRS not have a plan for completing this project and removing social security numbers, it does not even have a process or procedure for identifying correspondence with unnecessary SSNs. IRS management is apparently overwhelmed by the variety of correspondence; they are on record saying that compiling a list of all correspondence is more costly an endeavor than it appears. So what is the best way to describe the relationship between IRS correspondence and the world’s insect population? They’re everywhere and we don’t even know what most of them are.

TIGTA Reviews IRS Asset Seizure Procedures

Asset seizure is that one thing many of my clients worry about, but few have had to experience first hand, thankfully. In my work as a tax attorney, I have noticed that the IRS does not like to use asset seizure as their “go to” collection tool. They will typically try everything else first, including letters, phone calls, field visits, liens, wage garnishments, and bank levies. However, after other efforts have been exhausted, if they are still unable to get the taxpayer to address their tax balance, the IRS has authority to seize any variety of assets, including vehicles, real property, and valuable personal property. These days property seizures are orchestrated by specially trained “PALS” employees (Property Appraisal and Liquidation Specialists) who coordinate with the revenue officer throughout each phase of the seizure and sale.

According to a recent report from the Treasury Inspector General for Tax Administration (TIGTA), the IRS needs to work out a few kinks in their asset seizure procedures. One of the problems that TIGTA identified occurs when a taxpayers’ personal property subsequently turns up inside or attached to the seized property. The IRS is supposed to use form 668-E to document these found items and they are to be released back to the taxpayer.  But the form is not consistently used and the items are not consistently returned, according to TIGTA. Although, to be fair, the IRS audited 44 seizure cases around the country and the only item that TIGTA identified as being unreturned to the taxpayer was the license plate in six of the eight vehicle seizures (because in those six states the license is issued to the owner of the vehicle, not the vehicle itself). Kind of a non-issue if you ask me. Yes, its important to follow procedures, but I can’t imagine anyone wanting their license plate back to forever remind them of the car that the IRS took from them.

Another procedural problem is that there is no IRM guidance for how to handle removal of taxpayer data from installed equipment in vehicles. Two examples of this would be factory installed garage door openers and GPS units. If taxpayer is not permitted to retrieve the personal data or ensure that the device has been scrubbed, this poses potential privacy concerns where a third party purchaser would have access to the taxpayer’s home address and maybe even access to the garage.

Very few taxpayers would ever even consider these seemingly minor concerns, until you find yourself at the mercy of PALS and an overzealous revenue officer. Still, I think it is useful to ponder some of the minute details of what goes on inside the IRS, even if only to give us some perspective and understanding. I like to imagine my revenue officer tied up in a complex asset seizure when I don’t get a call back for a couple weeks. It makes me feel like they’re not just ignoring me, and it makes me feel better knowing that my client’s situation could be much worse.

IRS Fails Taxpayers Again in 2015

Based on the interim report published by the Treasury Inspector General for Tax Administration (TIGTA), the IRS achieved a 38.5 percent Level of Service and a 24.6 average hold time on IRS phone lines during the 2015 filing season.  I don’t really know what Level of Service entails, but I know that 38 percent is really only good if we’re talking batting average.  You may be wondering, “How do you get such a low score?  I could probably score higher than 38 percent on a test by guessing.”  Well, this is how: you get 45.6 million phone calls and you answer only 4.2 million of them.  BAM.  Done.

Read the report.  It will make you cringe.

IRS Impersonation Scams More Prevelant Than Ever

TIGTA big shot, Timothy Camus, recently testified before the US Senate Finance Committee on the topic of “Tax Schemes and Scams.”  By TIGTA, I of course mean the Treasury Inspector General for Tax Administration.  And by “big shot,” I of course mean that he is the Deputy Inspector General for Investigations, and he wears a nice looking mustache, and he tells tax criminals that their day will come.

According to his testimony, IRS phone impersonation scams have quickly become one of TIGTA’s top concerns.  The agency had received only scattered reports of phone scams prior to the summer of 2013.  TIGTA started to track this crime in October 2013, and ever since then has kept statistics and concentrated efforts on eradicating this terrible, frustrating crime.

The way it works is the scammers call and threaten you with criminal penalties if you don’t pay a certain sum to address a tax problem that usually doesn’t even exist.  The victim is asked to load money onto a prepaid debit card and then call back with the card number.  These criminals used to target primarily the elderly or recent immigrants; the most vulnerable people who do not have sufficient command of the English language and/or those who do not have an understanding of the US tax system.  But Camus says that they have not been discriminating much lately.  He describes having received a call himself, at home, the weekend before his speech, and he told the guy, “your day will come.”  I have received phone scam calls too, most recently a very generic sounding recording using robo-call technology.

Here are some of the key phone scam statistics from Camus’ Senate testimony:

  • TIGTA has received over 366,000 complaints of phone scam calls (9,000 – 12,000 per week)
  • 3,052 victims paid out about $15.5 million
  • one poor fool paid over $500,000
  • 296 of these victims gave more than just money (i.e., social security number or other sensitive identifying information)

Camus says that this scam is the subject of an “ongoing multi-agency investigation.”  Let’s hope they figure out how to catch these guys because the IRS public service messages about how to avoid phone scams aren’t working as effectively as they should.

2015 Filing Season Won't be Pretty

Those who would know best are saying that we need to be prepared for one of the worst filing seasons on record during the first quarter of 2015. What makes one filing season worse than another?  It has to do with the level of service that the IRS can provide to taxpayers.  How fast can they answer the phone when taxpayers call?  How fast and accurately can the IRS respond to taxpayer correspondence?  How efficiently will the IRS be able to process tax returns and refunds?

The IRS had a goal of answering 80% of incoming calls last season, but only managed to answer 72%.  This filing season it is predicted that the IRS may only be able to pick up 53% of the time with a 34 minute average hold time.

The IRS Commissioner, John Koskinen has identified a few main reasons why things look so bleak:

  1. The IRS doesn’t have enough money to operate the way it should.  Funding levels are lower than they have been in years.
  2. The IRS has been tasked with administering new programs such as the Affordable Care Act and the Foreign Account Tax Compliance Act with no additional funding from Congress.
  3. Implementation of a new voluntary return preparer oversight program will also increase work load for IRS employees.
  4. There are 50 or so “tax extenders” — laws that Congress needs to vote on and determine if they will be extended or not.  The uncertainty could delay the start of the 2014 tax season.

National Taxpayer Advocate, Nina Olson, has a way of stating things in the plainest terms.  She has generated some great sound bites over the years.  Here’s her take on the upcoming tax season:

The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.

I think these viewpoints have been colored by a recent TIGTA report that highlights “unfavorable trends” with the Automated Collection System (ACS).  Because the IRS does not have the resources to work cases properly, they have been “punting” many of them into Currently Not Collectible status or into the “queue” where cases can sit idle for months or years.  Consider yourself fortunate if you don’t have to interact with the IRS this tax season other than to file your return and wait for a refund check.

IRS and the Plain Writing Act

The Treasury Inspector General for Tax Administration (TIGTA) recently audited the IRS’ compliance with the Plain Writing Act of 2010.  The Plain Writing Act is not what you think.  It doesn’t restrict descriptive writing by novelists and it doesn’t proscribe writing guidelines at public elementary schools.  The Plain Writing Act was enacted so as to ensure that documents, letters, and notices produced by the federal government are written clearly and in a manner that the average citizen can understand.  Some government agencies, the IRS included, have a lot of room for improvement.

I’m an attorney so, arguably, I am no expert on plain writing myself.  But I know it when I see it, and I haven’t seen much of it in all my dealings with the IRS.  TIGTA agrees with me, identifying the following issues in its report:

  • IRS unable to compile a comprehensive list of all its letters
  • technical writers not sufficiently trained on plain writing standards
  • managers’ quality review process is insufficient
  • IRS letter review process does not always result in plainly written letters

It may seem odd to you that the IRS could not provide TIGTA with a master list of its letters.  However, tax attorneys, tax accountants, and almost any tax professional would not be surprised by this admission.  We’re talking about form letters — templates — and each one has multiple variations that can be used to try to fit the particular circumstances that the IRS wants to address.  Anyone who has had dealings with the IRS has seen their fair share of IRS notices.  In its report TIGTA does not refer to them as a body, or series, or collection of letters, but rather a “universe” of letters.  What a perfect description!  How could one even begin to catalog a collection of letters that can be described as a UNIVERSE?

In my experience, it is not so much the content of individual letters that is confusing, but the letter process as a whole.  Yes, individual letters can be confusing, but what about when the IRS sends three copies in the same envelope, forcing you to compare them side by side to ensure there are no differences?  What about when they are chock-full of publications you’ve already seen?  Or when they seem so say nothing more than “we have heard from you in some manner and we will get back to you when we can”?  My complaint is that the IRS tends to be overly communicative when it comes to information you don’t need, and uncommunicative when it comes to addressing your real concerns.

IRS Achieved Record Collections Despite Reduced Staff

Everybody thought that the IRS would be incapable of collecting as much tax revenue as years past with a reduced work force.  The loudest voices crying for a bigger tax collection budget came from within the IRS and from the Taxpayer Advocate.  The prevailing thought was that the IRS was just going to have to do more with less.  And apparently that’s just what they did.

According to a report released today by the Treasury Inspector General for Tax Administration (TIGTA), in 2013 the IRS increased total gross collections by 13 percent compared to 2012.  The IRS collected an unfathomable $2.9 trillion in fiscal year 2013, including $50.2 billion from enforced collections such as wage garnishments, bank levies, and seizures.  Interestingly these numbers were achieved with fewer examinations, fewer tax liens, and fewer levies & seizures.  It is difficult to tell what all this means.  Maybe the IRS is less likely to nail people for making mistakes on their taxes, filing late, and paying late.  But I think it is also safe to say that when they do catch you, they really sink their teeth in.  Maybe you think you’re safe because the IRS has bigger fish to fry, but if this report is any indication, I think the IRS is casting smaller nets and throwing fewer back.

IRS Voluntary Classification Settlement Program is Broken

Sometimes employers misclassify their workers as independent contractors (self-employed) when, in fact, they are employees.  And when I say “sometimes” I mean millions of times.  It is very common.  I’m sure some of them do it unknowingly, but I am also certain that some employers do it because they don’t want the responsibility and costs associated with having actual employees.  The difference is that employers must withhold and/or pay a number of taxes when a worker is also an employee, including income taxes, Social Security, Medicare, and unemployment.

The IRS would love it if taxpayers (including employers) would fall in line with the IRS’ dreams of “voluntary compliance,” but one of the things they do when this doesn’t happen is they set up programs to entice them to come clean on their own.  The IRS doesn’t call it an amnesty program; I don’t think they particularly like that word.  In fact, I put the word “amnesty” in the search box of the IRS website and exactly two results came up, and both of them were in the context of a state amnesty program.  The word tends to have the connotation of getting out of paying taxes or making use of a legal loophole, and the IRS really doesn’t want to suggest that.

But I can use it.  I like the word.  The IRS has an amnesty program for reporting offshore accounts called the Offshore Voluntary Disclosure Program.  And the IRS has an amnesty program for coming clean on worker classification issues called the Voluntary Classification Settlement Program.  But the VCSP has been very poorly administered over the years.  It appears that just about every aspect of the program has some kind of flaw.  Even the most basic things are not working, like correctly determining eligibility for the program, monitoring compliance with the program, and analyzing program performance.  If you want to read about how screwed up VCSP is, be my guest.  Full report here.

The Internal Structure of TIGTA

Most of the time the Treasury Inspector General for Tax Administration (TIGTA) is described as a government watchdog; an entity charged with keeping tabs on the Internal Revenue Service.  The Honorable J. Russell George, the guy in charge at TIGTA, describes TIGTA’s role as follows:

[W]e provide the American taxpayer with assurance that the approximately 95,000 IRS employees who collected over $2.9 trillion in tax revenue, processed over 241 million tax returns, and issued $364 billion in tax refunds during FY 2013, do so in an effective and efficient manner while minimizing the risks of waste, fraud, or abuse.

~ J. Russell George’s testimony before the Senate Appropriations Committee on April 30, 2014

Besides providing a neat little collection of IRS statistics, this description very succinctly describes TIGTA’s role in U.S. tax administration.  But the organizational structure of this “watchdog” is more complex than would appear in this description.  There are three offices within TIGTA, each with different, but overlapping, responsibilities.

TIGTA Office of Audit (OA)

OA recommends improvements to IRS systems and operations, with an emphasis on detection and prevention of waste, abuse, and fraud.  OA is also charged with ensuring that the IRS strikes a balance between aggressive tax collection on the one hand, and the fair & equitable treatment of taxpayers on the other.

TIGTA Office of Investigations (OI)

OI has two primary responsibilities.  One is to investigate allegations of IRS employee misconduct (including extortion, theft, taxpayer abuses, false statements, financial fraud, and identity theft), which poses a significant threat to the idea of voluntary compliance and trust in the US government.  The other is to investigate and (in cooperation with the Department of Justice) put a stop to harassment and threats levied against IRS personnel by disgruntled taxpayers and tax protestors.

TIGTA Office of Inspections and Evaluations (I&E)

There is definitely some overlap in the functions of I&E  compared to the functions of the two primary offices (Audits & Investigations) described above.  However, I&E can be seen as a “lower-level”  investigative arm of TIGTA that provides in-depth reviews and assessments so both TIGTA and the IRS have a better idea of how specific programs and functions are progressing.

You may not think TIGTA has much to do with you as an individual taxpayer, but I’m not sure how much the IRS would care about customer service and average hold times if TIGTA wasn’t monitoring and auditing that and a thousand other daily functions.

New Commish, 2014 Tax Season, EITC

A few noteworthy events caught my eye in the world of tax relief today.

First, the Senate approved Obama’s nomination of John Koskinen in a 59-36 vote, confirming him to fill the top position at the IRS; a position that has been vacant for over a year.  Commissioner Koskinen will take his post beginning next week and we’ll definitely keep a close eye on him to see if he will fulfill his promise of restoring public trust to the agency that has been fighting a dismal public perception for years.  Obviously, this is not something that he’ll be able to do overnight.

Second, the IRS announced that the opening of the 2014 tax season will be on January 31st.  This is when the IRS will begin accepting 2013 tax returns.  The IRS encourages taxpayers to file electronically.  If you are due a refund, this is definitely the quickest way to get it.  Also, the IRS reminds us that we always have the option of requesting an automatic six-month extension using Form 4868.  The IRS tends to encourage extensions because it spreads out the influx of tax returns so that things don’t get too bottlenecked.

And finally, TIGTA, the IRS watchdog, reported on increasing abuse of the Earned Income Tax Credit (EITC) by tax preparers.  The IRS has always had a problem with EITC abuse and fraud because it is a refundable tax credit that can mean money in the pocket of whoever claims it and qualifies (or appears to qualify).  TIGTA noted that too many tax preparers fail to do their due diligence by completing and attaching Form 8867, the Paid Preparer’s Earned Income Credit Checklist.