The IRS has a new misstep every day – what scandal is next?

During congressional hearings on the Internal Revenue Service (IRS) scandal, Congressman Hal Rogers (Republican – Kentucky) said, “It seems we have a new misstep every day at the IRS.” This is on the heels of news of lavish spending on conferences by the IRS. This of course was expected after new broke in March about the ridiculous Star Trek Parody Videos.

A report released Tuesday by the Treasury Inspector General for Tax Administration (TIGTA) details frivolous spending by the IRS which included $27,000 on an innovation expert, $10,000 on diversity and inclusion expert, $11,000 on a happiness expert, and $17,000 for something called leadership through art.  Given the overall demeanor of the IRS employees I’ve had the pleasure of dealing with as a tax attorney; I don’t necessarily disagree with the IRS trying to improve their happiness.

TIGTA conducted its audit to identify the IRS’s spending on conferences during fiscal years 2010 through 2012.  The audit’s primary focus was on the IRS Small Business and Self-Employed division’s 2010 conference in Anaheim where it spent $4.1 million for planning trips, outside speakers, video productions, and promotional items and gifts for IRS employees.

“Excessive spending by federal agencies on management conferences has been highlighted by recent Inspectors General reports and in congressional hearings,” said TIGTA Inspector General J. Russell George. “Effective cost management is especially important given the current economic environment and focus on Government efficiency. Certain of the IRS’s expenses associated with the Anaheim conference do not appear to be a good use of taxpayer funds.”

In watching the recent hearings, it seems like members of Congress are out of touch with their constituents and surprised as to the frustrations the public has to endure while dealing with the IRS every day. The surface is just being scratched as to inappropriateness at the IRS as the issues under scrutiny have not even (yet) dealt with IRS collection and audit issues. However, there may be pressure to not bring such issues to light as I suspect the IRS collection and audit practices may scare the public, and as Congressman Mike Kelly (Republican – Pennsylvania) repeatedly lectured during Tuesday’s hearings, “do not be afraid of this government.”

TIGTA Reports on Refund Fraud by Prisoners

One of the chronic problems at the IRS is they keep issuing refunds to criminals.  Refund fraud (a criminal form of tax relief) is a widespread issue reaching all the way into our country’s prisons.  Most people would probably be shocked to know how common refund fraud is in prison.

The Treasury Inspector General for Tax Administration (TIGTA) has carefully studied this problem over the past seven years and the data shows things are not getting better.

In calendar year 2004, there were 18,103 fraudulent tax returns filed by prisoners and the IRS handed out $13.4 million in refunds to them.  In 2007, there were 37,447 fraudulent tax returns filed by prisoners and the IRS paid out $29.2 million.  The most recent data is from 2010 and it shows that there were a staggering 91,434 fraudulent tax returns filed from prison.  The IRS paid $35.2 million that year.  But to be fair, they also prevented $757.6 million worth of refunds (identifying them as fraudulent before the damage was done).

In a new study, TIGTA explains how the “Prisoner File” which the IRS relies on to help them vet out bad refund claims is often innacurate and incomplete.  Furthermore, the rules allowing certain communications between the Treasury and the Federal Bureau of Prisons have expired.  Given the statistical trend of this tax problem, it obviously should be an area of focus for our government in coming years.

IRS Needs to Revamp Visitation Project

image via almasworld.wordpress.com

Sometimes I think IRS management has a vision of what it wants to accomplish, but no clear roadmap showing their employees how to get there.  I can certainly appreciate the desire to take the first step and get the ball rolling on a project; at some point the planning and preparing must give way to action.  But it seems the IRS was underprepared for what they call the Return Preparer Visitation Project (RPVP).  While the latest TIGTA report puts a positive spin on the RPVP, if you read between the lines, its was obviously a waste of time and money.

The IRS badly wants to partner with paid return preparers because they see how important their role is in voluntary compliance.  Or so they say.  But the fact of the matter is, paid return preparers just want to be left alone to do their job; they don’t want the IRS checking up on them.  As part of the RPVP, IRS revenue agents were sent out to make in-person visits to thousands of return preparers around the country (nearly 2,500 visits in 2011 alone), and enrolled agents, CPAs, and tax attorneys were not excluded.

However, according to TIGTA, the criteria used to determine which return preparers would get a visit were found to be lacking.  In other words, the competent and ethical return preparers had to stay after school and clean erasers for something the naughty returns preparers did.  Because the visitations were not properly targeted, there is resentment stewing among some preparers who feel they didn’t need an IRS agent popping in to tell them something they already knew.

I’m sure the revenue agents didn’t mind leaving their cubicles for these little field trips, but next time the IRS needs to have a better plan to ensure they are productive.

If you have to call TAS, at least dial the right number

 

photo via gretachristina.typepad.com

The Taxpayer Advocate Service (TAS) has two main phone numbers. 

  1. 877-ASK-TAS1 (established in 2004)
  2. 877-777-4778 (NTA toll-free line, established in 1998)

The NTA toll-free line is the more prominent number on the TAS website.  It is the number found under the “contact us” link.  And this is the same number listed on the IRS website.  However, the primary difference between these two numbers may surprise you.  ASK-TAS1 is staffed by TAS personnel, but the NTA toll-free line is actually staffed by IRS customer service personnel!  See the latest TIGTA report for more information.  These representatives are charged with vetting out the cases that they believe will “qualify” for TAS help.

TAS describes itself as an “independent organization within the IRS” — really an oxymoron, don’t you think?  Tax professionals have long questioned their independence.  When you call TAS, you are literally talking with the IRS (unless you dial the right number).  I do not recommend calling TAS for help with your tax problems.  For high-quality tax relief, it is important to select an experienced tax attorney that can give objective, unbiased attention to your tax matter.

TIGTA Recommendations Need More Teeth

It would seem that TIGTA’s “recommendations” to the IRS have fallen on deaf ears at times.  Perhaps TIGTA needs to be given greater authority so it can lay down some consequences for non-compliance.  Taxpayers face stinging consequences like the bank levy and wage garnishment for failing to abide by our tax laws, but all the IRS has to fear is yet another unfavorable audit report — no more than a slap on the hand.

The Whistleblower program, as we know it, was established in 2007; the same year a separate Whistleblower Office was created.  Two years later TIGTA identified some problems with the program and made its recommendations.  In an audit report made public today, TIGTA states that the IRS still hasn’t complied with the changes that were suggested in 2009.

These are some of the recommendations that the IRS ignored:

  • establish timeliness standards for processing of whistleblower claims
  • establish a quality review process
  • correction of inaccurate data revealed in the 2009 audit

By far my favorite snippet from the audit summary:

“In the prior report [2009], TIGTA found that information captured on three inventory systems was inaccurate. In this review [2012], auditors determined that employees manually transferred claim information from the three systems into a single inventory control system, Entellitrak.  However, IRS officials did not ensure steps were taken to reconcile and correct the inaccurate information that was reported in our Fiscal Year 2009 review.”

This is too good!  The way I read this it’s like the IRS swept the problem under the proverbial rug.  Instead of fixing the problem, they just moved it to a different spot.  This is a familiar approach to problem-solving that trickles down to the IRS call center employees.  They’re punching in and punching out with no real sense of accountability for the quality of their work.

Some Refunds Delayed This Tax Season

According to the latest TIGTA audit report, there were some serious delays with the issuing of refunds this tax season, but things have already improved.  TIGTA cites “programming problems” as the source of the delays.

Our report found that the IRS is catching and preventing more fraudulent refunds and screening more prisoner tax returns; however, programming problems associated with Modernized e-File delayed some refunds, which may have contributed to a doubling of visits to the  “Where’s My Refund” feature at IRS.gov over the previous year.

~ J. Russell George, Treasury Inspector General for Tax Administration

If you tried to use the tool early in the tax filing season, you may have suspected it was broken.  I used the “Where’s My Refund” tool and found that it worked just fine (both on the IRS website and using the mobile app IRS2Go) as long as you wait the requisite 72 hours after filing your return.  Of course this was after the kinks were worked out of  the refund process.  TIGTA says that the source of the delays was found and fixed by February 18th.  So I guess it paid to delay just a little this year…

Paperwork is not IRS’ Forte

What would you think of an English teacher who couldn’t spell?  How about a surgeon who couldn’t hold his hands steady?  It’s a problem, right?

Well I was dumbfounded to discover, by way of the latest TIGTA audit, that the IRS is not so good with paperwork.  In 2012 the IRS processed over 230 million tax returns, so it’s not a stretch to say that the IRS is in the business of doing paperwork.  The wage garnishment, bank levy, liens . . . all excuses to do more paperwork.

TIGTA (Treasury Inspector General for Tax Administration) issued a press release today outlining the results of an audit that found holes in the IRS job applicant prescreening process.  Ok, not the process itself, just the documentation (the part that the IRS should have nailed):

Our report does not indicate that the IRS hired applicants who were not suitable or that the steps were not completed; rather, we found that the documentation of some of the prescreening steps was unavailable.

~ J. Russell George, TIGTA

On the bright side, I am told that the IRS is meticulous in ensuring that each and every candidate for employment can write their name and count to 100.

TIGTA – Office of Investigations

If you are familiar with this blog then you know that one of the roles of the Treasury Inspector General for Tax Administration (TIGTA) is to audit IRS programs and operations to ensure they are functioning properly.  And while it is certainly not their objective to extend tax relief to the masses, they must administer taxes fairly and competently.

Most of my TIGTA blog posts have to do with the TIGTA Office of Audit and their dreadfully boring reports.  But did you know that there is a separate Office within TIGTA — the Office of Investigations — that investigates and reports on much juicier topics?

According to the Office of Investigations (OI), their role is to address “threats arising from (1) lapses in IRS employee integrity, (2) violence directed against the IRS, and (3) external attempts to corruptly interfere with federal tax administration.”  In other words, the OI is responsible for nailing obstinate or potentially dangerous taxpayers and corrupt IRS employees.

Every week the OI highlights a couple new investigations complete with names, dates, dollar amounts, and all the gory details.  They keep an archive of investigation highlights going back to 2004, and updates are available by email so you can be the first to know.

Your Tax Preparer Might be an Inmate

It’s 10:00pm; do you know where your children are right now?  What about your tax preparer?

According to a recent TIGTA audit, the IRS approved 331 tax preparer identification numbers to individuals serving prison terms.

  • How did they do it?  In most cases the prisoners lied on their applications by not disclosing their convictions.
  • Why do they do it?  To try to defraud the IRS.  They use false or fraudulent tax returns in hopes of obtaining refunds.  Prisoners have a history of trying to defraud the government, particularly the IRS.  They have enough time on their hands and not much to lose if their scheme is unproductive.
  • What is the IRS doing about it?  The IRS has vowed to suspend tax preparer identification numbers already issued to prisoners and deny any future applications from inmates.

Chances are that these inmate preparers are not actually preparing returns for the average American consumer.  Maybe they’re doing returns for their fellow inmates.  Maybe their laying the groundwork for after their prison terms are over.  Or, even more likely, they are just seeing where this new credential will take them.  Whatever the case may be, it is usually a good idea to actually meet your tax preparer in a face-to-face meeting . . . even if just to confirm they’re working out of an office and not a prison cell.

The Forgotten Tax Accounts

Last week I blogged about Private Debt Collection (PDC) firms hired by the IRS and FTB to collect overdue taxes. This is a new development at FTB, and something that was tried for a few years and then discontinued at IRS.

The PDC firms hired by the IRS were given mostly low-yield, low-priority cases from which they were able to squeeze out $98 million in revenue between 2006 and 2009.  The IRS, however, discontinued its PDC program in 2009. And according to a TIGTA audit report, when the unresolved cases were handed back to the IRS, many of them just sat stagnant. Collection actions were not taken on 47% of the cases selected for the TIGTA audit. TIGTA recommended that the IRS develop policies and procedures for working the kinds of cases that were previously transferred to PDC firms. If the IRS does not have the resources to handle these cases, TIGTA even suggested the possibility of reinstating the PDC Program.

Before you get too upset about the statistics cited in this report (particularly the 47% figure), you should know that the sample of cases selected for audit was only 62. For whatever its worth, I have noticed that it is common for TIGTA to work with very small sample sizes in its audits, even though the agency claims it uses “generally accepted government auditing standards.”