Is IRS Ready for Obamacare Amid Turmoil?

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The IRS was selected as one of the main agencies to implement President Obama’s new health care law.  Many of the provisions will go into effect next year.  But it is difficult to see how the IRS will be able to get all its ducks in a row amid the tax exempt applications scandal, congressional scrutiny of overspending, and various leadership changes.  All this turmoil seems to have come at a time when the IRS will be needed most.

There were more than 40 tax code changes associated with the Affordable Care Act, many of which are still being hammered out.  Here are some of the tasks that the IRS faces in the coming months:

  • collect tax penalties from individuals who fail to obtain insurance and employers who fail to provide it
  • define key terms in the law such as “minimum value,” and “minimum essential coverage”
  • issue guidance on new forms

Will the IRS be ready, or will they try to request an extension?

How Will Werfel Restore Trust at the IRS?

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Daniel Werfel was appointed by President Obama as acting Commissioner at the IRS.  He replaced Steven Miller a couple weeks ago and his honeymoon period lasted only a couple hours.  A lot is expected of Werfel, and Congress (and the American people) are not likely going to give him too much time to get it done.  We need to know what he’s going to do to clean things up at the IRS.

He has been at it for less than three weeks so far, but I think he’s on the right track.  He is focused on holding IRS employees accountable for their missteps.  He has ensured that the managers responsible for the tax exempt investigations fiasco no longer have jobs at the IRS, even if that means encouraging them to resign instead of firing them.  Either way they’re being removed, which is the main thing.  He appears to be committed to bringing all the dirt out into the open as a first step in restoring trust.

The newest example of IRS waste that has come to light is the $4.1 million conference that was held in Anaheim, CA in 2010.  At least two high-level IRS employees reportedly accepted lavish gifts in violation of IRS ethics rules and stayed in $1,500 per night rooms during this conference.  Werfel is taking the necessary steps to expeditiously terminate these individuals too.

I do feel like Werfel “gets it” when it comes to restoring trust.  He appears to be acting decisively and quickly.  He is not dodging questions during hearings.  He has also said that what the IRS needs is not more money; it needs better management, which I think is key.  Although that comment can be taken with a grain of salt because who would ask for more money 3 weeks into the job?  Maybe if we give him a few months he’ll be whining about underfunding too.

Better to be Employed when Filing OIC

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The Offer in Compromise (OIC) is an IRS program whereby some taxpayers are able to settle their tax debts for less than what they owe.  But the OIC option is not for everyone.  For instance, if the fair market value of taxpayer’s assets adds up to more than what is owed, then OIC is not an option.  Also, OIC is not a good option if a taxpayer’s income is too high.

So how does the IRS calculate income while reviewing an OIC filed by a taxpayer who is unemployed?  There are many different options:

  1. Unemployment Income – If the Offer Examiner is focused purely on what the taxpayer is earning at the present, then it would make sense to simply use the monthly unemployment benefit amount. However, it is unusual for the IRS to go this route because unemployment benefits tend to be temporary. If the IRS is going to wipe the slate clean then they want to be sure they are getting every last dime they can possibly get from the taxpayer. Unemployment income is normally an understatement of one’s true earning potential.
  2. Income history – Sometimes the IRS compares a taxpayer’s current income with income reported via tax returns going back 1, 2, 3, or even more years. If the present year income appears to be an anomaly, then the IRS may elect to calculate an average income using several years’ tax returns.
  3. Income potential – This is similar to using an income history because it seeks to determine what the taxpayer can theoretically make rather than taking the current income for face value. One example of using income potential would be to increase the income of a taxpayer who is close to finishing school and who will be moving into a high-paying field of work.
  4. Impute income – I have seen the IRS simply impute/assign minimum wage when a taxpayer is unemployed.  However, the IRS is not likely going to do this if the taxpayer has a history of high wages.
  5. Reject the Offer – I put rejection as a final option because, in reality, if the IRS is unable to determine what the taxpayer’s income is, they are more likely to reject the offer than struggle too long figuring it out.

Income is one of the most important factors that the IRS looks at when determining whether to accept or reject an Offer in Compromise. Based on my experience, the IRS simply does not believe it when someone claims their income is $0.  Since the IRS is going to resort to one of the above analyses or simply reject the offer when unemployed, then it is safe to say that an OIC is a more successful form of tax relief for those who have a steady job.

Tax Reform: Is this the Year?

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Lawmakers have, for years now, talked about simplifying the tax code — an enormous project that nobody seems to be committed to tackling.  It would be a difficult task even if lawmakers could agree on the changes, but partisan differences further complicate the task.  Maybe it takes some kind of tragic event to kick them into gear and make it a priority.  Maybe the recent IRS scandal is just the thing.

Two lawmakers hope that’s the case.  David Camp, a Michigan Republican, and Max Baucus, a Democrat from Montana, believe that the IRS scandal puts the complexity of the tax code on center stage once again.  Here’s how:

The complexity of the law didn’t require the IRS to target people for their political beliefs [but] I think giving the IRS less discretion is going to be important, and that’s what a simplified code would do.

~ David Camp, Chairman of the House Ways and Means Committee

Well, first I’m not sure a simplified code would really give the IRS less discretion.  And second, I’m not sure less discretion is always best.  I suppose if we take enough out of the tax code to effectively reduce and minimize the role of the IRS, then that could result in less discretion.  But if a simplification results in less detail where detail is needed, then it may have the opposite effect.  Generally speaking, I think the wordier the law, the less opportunity for discretion.

In my experience with IRS collections and tax relief cases, I would prefer more discretion as long as it is coupled with better training and more highly qualified personnel.  It is that inability to think outside the box and make common sense decisions that gives the IRS a bad name and creates so much frustration on the part of taxpayers and their representatives.

 

 

IRS Scandal Heats up as Lerner Refuses to Testify

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It is normal for the IRS to be all over the news in April, but this year, heading into the last week of May, they remain the talk of the nation.  As you probably know, at the heart of the controversy is the IRS’ unfair targeting of conservative groups applying for tax-exempt status.  Many top-level Internal Revenue Service officials are coming under fire for either failing to detect the practice earlier or for failing to timely report it to Congress.  Former IRS Commissioner, Doug Shulman, has said he didn’t know for sure what was going on.  Steven Miller, the man that replaced him, has also denied any wrongdoing, before being fired by President Obama last week.

Today Lois Lerner was called to testify before Congress but, following the advice of her attorney, plead the 5th and refused to testify.  Lerner is the individual considered to be directly in charge of the branch in Cincinnati that was running afoul of IRS procedures.

I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any congressional committee.

Because I am asserting my right not to testify, I know that some people will assume that I have done something wrong. I have not.

~ Lois Lerner, speaking before the House Oversight and Government Reform Committee

J. Russell George, the head of TIGTA (Treasury Inspector General for Tax Administration) is also a target, and I think rightly so.  It has always bothered me that TIGTA’s audits, probes, and reports seem to be rather pointless, leaving it up to the IRS to agree or disagree with TIGTA recommendations.  If there was some kind of cover up, people are going to wonder about TIGTA’s involvement.

The next step appears to be appointment of a special prosecutor, which, in the eye of the public, may elevate things to the level of the Bill Clinton scandal and Watergate.  I don’t recall the last time the IRS was in the spotlight like this, much less involving something that could be called a “scandal.”  From the looks of it, it will be a while before they can go back to the processing of amended tax returns, and the bean counting, and whatever else they usually do this time of year.

IRS Stat Interpretation

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I always find it interesting that when the IRS comes out with new statistics, they try to distort them ever so slightly to appear more in their favor.  Or the IRS will highlight one thing and downplay another.  Most of the time it’s hard to see what benefit they find in this.  Here is an example I found on the News & Events page of the IRS website that compares data from May 10, 2013 with data gathered at this time last year.

The article bears the title “More Taxpayers e-file from home in 2013,” which also happens to be the first distortion.  There are a number of statistics on this page, including the drop in number of refunds issued, the drop in refund dollar amounts, and the drop in total money refunded countrywide.  That’s a pretty important statistic, isn’t it?  And never mind the fact that the total number of tax returns received so far has dropped as well as the total number of tax returns that have been processed.  That kind of information could have made an equally relevant title, right?

And the most drastic percentage change (in this news release) from 2012 to 2013 was regarding irs.gov visits.  As of May last year, 255,269,615 people had accessed the IRS website looking for information about their individual tax questions.  This year that number climbed to 318,408,842.  That’s a 24.7 percent increase!  This was also a stat that the IRS liked because they flagged it and noted that “More people are using IRS.gov to get answers, file their returns and resolve issues.”  But are they really obtaining a positive result on the website?  This is the way I interpret the stat: the IRS can’t take many taxpayer calls because there is not enough money to hire the right number of personnel, so people have resorted to finding things on their own on irs.gov.

IRS Scandal: Damage is Done

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As we learn more about the recent IRS scandal, it appears that it was not limited to low-level employees in Cincinnati.  Top IRS officials in Washington may have known what was going on as far back 2011.  Although the president has promised a full investigation into the matter, much of the damage has already been done.  An alleged criminal who successfully defends himself in court is still sullied by the criminal trial itself.  Likewise, even if the IRS is successful in explaining away some of the accusations of political bias, there are many individual taxpayers who will have already lost faith in the IRS.

When people ask me about interacting with the IRS, I tend to speak very bluntly about the adversarial relationship; that the IRS is not on their side in looking for tax relief and that their one goal is to collect as much money from them as legally possible.  However, I stop short of saying that the IRS will cheat people out of the money they have earned or that they will treat some groups or people differently, even though I know for sure that it’s not out of the question.  No doubt this scandal raises some serious questions for the average taxpayer:

“If high-level IRS administrators will not deal fairly and neutrally with all taxpayers, or will turn a blind eye to bias, then why couldn’t it just as easily (or even more easily) happen with regard to my own individual taxes?” 

“If the IRS will not administer the tax laws fairly and neutrally, then why am I even paying?”

Singer Lauryn Hill is Going to Prison for Tax Crimes

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Looks like our girl Lauryn Hill is going to spend some time in prison for her tax crimes.  She pleaded guilty last year to failing to pay taxes on about $2.3 million during a 5-year period.

Here’s a breakdown of what tax fraud got her.  She’ll have to:

  1. Pay what she owes to the IRS ($1,006,517)
  2. Pay a $60,000 fine
  3. Three months in federal prison
  4. Three month house arrest with electronic monitoring
  5. One year of supervised release

Hill says she recently cut a deal with Sony, but I wonder how the creative juices are going to flow staring at the inside of a prison cell for 3 months and then being stuck inside for another 3 months.  She will probably be allowed to work while serving her home confinement term, but may be given a curfew and restriction on travel.

I hope Hill does release new music and I hope she makes a lot of money so she can pay her tax debt.  Based on the public comments I have seen, she does not appear to harbor any bitterness or anger against the government.  But with any luck, maybe we’ll hear tax themes and undertones in her new music.  That would be nice.

Still Waiting on Your Tax Refund?

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By the time you read this article, you should have that interest free loan that you gave to Uncle Sam returned to you via your federal tax refund. This assumes that you filed your tax return on time, and that you exercised savvy tax planning so that you didn’t incur a tax debt. So have you already spent your refund, or are you still waiting for the money you’ve already earmarked for that desired frill?

According to the IRS, they generally issue refunds within 21 calendar days of receiving your tax return. This is, of course, if you E-File your tax return and disclose your banking information for purposes of direct deposit. If you snail mail a paper return and want a check or savings bond snail mailed back to you, your refund should arrive in about six to eight weeks.

Should you have received your refund already? Still waiting? You may want to use the IRS’ where’s my refund tool available online at www.irs.gov or as a smartphone application. If you are still left wondering where your money is, like many have been this tax season, a systematic approach may help you alleviate your anxiety if you think you should have already received your refund.

Step 1: Were there basic errors on your tax return?

The first question you need to answer is whether you made an error on the face of your tax return. This includes, for example, using the wrong social security number, making computation mistakes, checking wrong or multiple boxes, failing to sign your return, or pay for postage. Any of these seemingly simple tasks results in common errors which will likely cause an error in the initial processing of your tax return and a delay in issuing your refund. So double check your tax return before sending it, and if you’re still waiting for your refund, maybe check the copy of your tax return (you did save a copy your return, right?) and see if there is some basic error that needs to be corrected.

Step 2: Do you owe the government?

So you reviewed your tax return and confirmed that you made no errors on the face of the tax return. Then, the delay in receiving your refund may be more problematic. I receive calls every year from people who owe the government taxes or some other type of debt and are wondering why they didn’t receive their refund that they had already earmarked for some necessary expense. Unfortunately, the federal government, like any other creditor, isn’t going to give your money back when a debt is owed. If you owe the government, it’s almost certain that your refund was applied to your debt in the best interest of the government.

Step 3: Was your tax return more complex?

So you’re certain that you don’t owe the federal government any money and that you made no errors on your tax return; then what are the other reasons that your refund may be delayed? A refund may also be delayed if you use an Individual Taxpayer Identification Number, amend a tax return, or claim specific tax credits that need to be manually reviewed like the adoption tax credit, for example. Or, maybe the IRS is examining/auditing or disputing some item(s) on your tax return. The latter is usually not the normal operating procedure for delaying a refund as the refund is normally issued, and then months later an audit notification is sent, then informing you that your tax return is being audited. However, it is always a possibility especially if you are using novel accounting practices or extreme red flag expenditures.

Step 4: Have you moved recently?

The IRS will mail to you notifications regarding delays, examinations, or other problems in issuing your refund. If you recently moved, you may not be receiving notification from the IRS explaining what actions are being taken on your account causing your refund to not be timely issued. Therefore, you or your authorized representative may need to contact the IRS to determine why your tax refund has been delayed. This is the case even if you did not move and you have not received an explanation for the delay.

Lastly, the government is back-logged and does make mistakes; this is always a consideration when waiting for a refund check that doesn’t come. This basic approach will hopefully help you determine when it’s time to contact the IRS for clarification or seek professional assistance in obtaining that tax refund that you’ve already counted on to get through the month.

IRS Employees Protest Planned Furloughs

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Why is it so amusing to imagine IRS employees picketing?  I almost wish I could be in Manhatten next week to see how it goes for them — it’s sure to be pretty rowdy, right?

The rally was organized by the National Treasury Employees Union (NTEU) Chapter 47 which represents IRS employees in Manhatten.  They will be protesting the upcoming unpaid furlough days, hopefully not using signs made with government materials on government time.

This is only one of many demonstrations that have taken place outside of IRS offices around the nation this year, including NTEU Chapter 20 in San Francisco on February 28th, Chapter 92 in San Diego on March 7th, Chapter 97 in Fresno on March 22nd, Chapter 143 in El Paso on March 23rd, Chapter 61 in Albany on March 26th, and Chapter 34 in Pittsburgh on April 15th.  Yes, that’s right, April 15th!  Here is Chapter 34 posing for a picture on the IRS’ busiest day of the year with one employee holding a sign that says (ironically, I think) “Let Me Do My Job”:

photo via www.nteu.org

I really don’t have a problem with IRS employees protesting the sequester and furloughs.  I realize that they’re doing it on their lunch breaks.  I just think it’s funny that they are so opposed to a few days off this year.  Although they wouldn’t openly admit it, I suspect that more than a few IRS employees would be upset if the government reneged on the furloughs.