More Aggressive Collection Trend at IRS
In a report released publicly this week, the Treasury Inspector General for Tax Administration (TIGTA) stated that taxpayer satisfaction should be a factor in measuring the effectiveness of the IRS Collections Department. I like to think the IRS will also be concerned with the satisfaction levels of taxpayers’ representatives. In all my years of practice, I have never been asked about how satisfied I was with the interactions I had with a call center employee. I have never been asked to complete a satisfaction survey at the conclusion of a revenue officer case. But, maybe things are going to change.
Although they would have you believe otherwise, based on my experience, the IRS is primarily concerned with collecting revenue. Afterall, just how effective would Collections be if they focused mainly on customer satisfaction? The report doesn’t seek to conceal this fact. Here are some interesting statistics that caught my eye:
- The average dollars collected per revenue officer was 14 percent higher in Fiscal Year (FY) 2011 than in FY 2009.
- The dollars collected through installment agreements in FY 2011 were 32 percent higher than the amount collected in FY 2009.
- Overall, the total dollars collected in FY 2011 were 20 percent higher than the amount collected in FY 2009 even though there were fewer revenue officers on staff.
This is not the best news for those with unpaid taxes. When revenue officers go about collecting dollars, they do so through asset seizures, wage garnishments, bank levies, etc. So the fact that this statistic is on the rise, I think tells us something about the aggressiveness of IRS collections, especially because they’re doing it with fewer people these days.
Long Holiday Weekends for IRS This Year
Now that tax season is over for the on-time filers, many IRS employees can relax just a little. And for at least 5 additional days this year they actually can relax at home . . . without pay. Bloomberg apparently got its hands on an internal IRS memorandum informing IRS employees which days have been scheduled as furlough days this year.
The IRS furlough dates are:
- May 24
- June 14
- July 5
- July 22
- August 30
These furlough dates were chosen to coincide with the federal holidays already on the calendar, so we will be looking at several four and five-day IRS closures throughout the rest of 2012. I say five days because the IRS often shuts down early the day before a holiday, sometimes for computer maintenance, and sometimes so they aren’t disturbed during their potlucks. I’ve always thought that “computer maintenance” was code for holiday party or potluck, but that’s just my slightly jaded opinion.
The IRS, as well as many other federal government agencies, is resorting to furloughs in reaction to budget reductions that took effect earlier this year. Acting IRS Commissioner, Steven Miller, explained his reasoning for the agency-wide closures:
We came to a decision that balances our primary mission to serve the taxpayers and considers the effect on employees. We settled on having uniform furlough dates for everyone and closing down agency operations entirely. This way, the IRS can gain additional cost savings on utilities and other services in our work locations.
According to Miller, the closures will affect all local taxpayer assistance centers and call centers. IRS.gov should be up, but the availability of online services such as Transcript Delivery Service and other IRS practitioner tools is unknown. And, if necessary, there may be an additional two furlough days coming in August and September. Plan your vacations accordingly.
Is There a "Tax Cheat" Demographic?
A recent study by the National Taxpayer Advocate Service (TAS) might help you figure out your chances of getting audited. Or at least it could help you decide if you’re a high audit risk or low audit risk. The new TAS report attempts to define the “tax cheat” demographic.
The highest concentration of “tax cheats” (and, therefore, the highest concentration of IRS auditors) are found in the Los Angeles, San Francisco, Atlanta, Houston, and Washington D.C. metropolitan areas. And there are some communities in California that seem to be especially attractive to the IRS, namely, Beverly Hills and Newport Beach.
TAS also confirmed what we have known for a long time: self-employed taxpayers are more likely to be targeted in a tax audit than wage earners. There are even certain industries that tend to be audited more, like construction and real estate rental.
Finally, according to the TAS report, tax cheats tend to congregate in groups. Apparently they are a social animal. A tax cheat is often a member of one or more of the following groups:
- civic leagues
- fraternal societies & clubs
- trade associations
- labor unions
I guess if you are a self-employed Shriner with rental properties in Newport Beach, you’re pretty much screwed.
"irs.gov is not responding"
This is the error message I kept getting when I tried to navigate around the IRS website today. I don’t know enough about computers to say for sure what is going on, but I would guess the problem is too much internet traffic from last minute filers and refund seekers.
Happy Tax Day! – April 15, 2013
The most useful bit of advice I could give today is this: if you’re not 100% prepared to file your taxes, don’t throw your forms together at the last minute. File an extension! Enough said.
File an extension using Form 4868.
Birkenfeld Was an Anomaly
The IRS is still not doing enough to attract whistleblowers and to move whistleblower cases along towards a resolution.
After the IRS awarded Bradley Birkenfeld $104 million for blowing the whistle on UBS last September, I wondered if there would be an increase in whistleblower cases, and there was. But it was short-lived. 2012 actually saw a total of only 332 tips, down from 472 in 2009. I also wondered if the Birkenfeld case represented a new era for the IRS Whistleblower Office and if we would continue to see handsome, timely payouts. Well, if there have been payouts, the IRS isn’t making them public. A private whistleblower award is almost pointless because it doesn’t spark the desire in others to come forward and it does nothing to deter would-be tax cheats. So if we’re not hearing about awards, chances are they aren’t happening.
The IRS is a revenue collecting machine and the idea that “you have to spend money to make money” applies just as much to the IRS as it does in the business world. The IRS understands this reality. When the IRS pleads for more money for staffing they tend to cite the statistic about how the IRS is able to collect something like $194 for every dollar spent. Why can’t they embrace this philosophy in other departments of the IRS? They will collect more in the long term through voluntary compliance if they would just fix what is wrong with the Whistleblower Office.
Wesley Snipes Released from Prison
Perhaps one of the most high-profile celebrity tax crime stories of our time is coming to a conclusion. Wesley Snipes was released from prison last week after serving about 28 months behid bars in Pennsylvania. He will now be on house arrest until July 19th under the careful watch of the New York Community Corrections Office.
It is no surprise that TMZ was the first to report the conclusion of Snipes’ prison term. TMZ follows celebrity tax problems like nobody’s business. Even the LA Times cited TMZ as its source for this bit of news.
Celebrity tax problems are common, but most of them surface once the IRS files a Notice of Federal Tax Lien (FTL). A tax lien is a public record that puts creditors on notice that the IRS has an interest in a taxpayer’s property as security against the past due tax debt. A FTL is considered a “passive collection tool,” and in no way does it implicate the taxpayer criminally. What made the Snipes case somewhat unique is that he was prosecuted criminally and he actually served time in prison.
IRS Getting Geekier
As if the IRS weren’t geeky enough already, according to a US News Money story, they are really stepping up their game with regard to tracking taxpayers’ digital activities. I sometimes lovingly refer to IRS employees as bean counters, and I similarly use the term geek here with all due respect.
The IRS has new advanced digital tracking technology similar to “cookies,” — but more powerful than cookies because the IRS also has access to social security numbers and other confidential information unavailable to the private sector. It isn’t clear exactly how the IRS will use this new technology, but it appears they will have access to pretty much anything you do online whether it be posting on Facebook, making a purchase with your credit card, or anything in between.
Understandably so, the IRS isn’t rolling out this technology with much fanfare or noise. The less the public knows about what triggers an IRS audit or what information is used to identify suspicious activity, the better, as far as the IRS is concerned. But industry experts and scholars are very concerned about what all this could mean for individual privacy rights. One thing that is clear is the IRS can’t continue to operate under procedures and safeguards that were designed when everything, including tax returns, was recorded on paper.
So, exactly how much can the IRS find out about you? The answer to this question is quickly approaching “everything” if at one time it was somewhere in cyberspace.
And finally, some interesting geeky statistics:
- An entire year of tax returns occupies 15 terabytes (only 1.5% of total IRS storage)
- Total IRS storage is 1.2 petabytes (one quadrillion bits of information)
- IRS has expanded its data capacity by 1,000 percent in the past six years
Offer in Compromise Fees
Sometimes taxpayers are not 100% clear about the role of the IRS. Some IRS employees can be very convincing and will lead people to believe that they only want to help and provide some kind of service to the taxpaying public. This is a nice concept (and one that is embraced by IRS mission statements as well), but it is not reality. The reality is that the IRS exists to collect revenue, and only to collect revenue. The more one delves into the “back office” of the IRS, the more obvious this becomes. This fact is emphasized over and over (both explicitly and implicitly) in official IRS policies and procedures.
One example of this is seen in the Offer in Compromise (OIC) process, specifically with respect to OIC fees. The IRS accepts offers from taxpayers who have very little to give in the first place, so it is interesting how the IRS places such a big emphasis on the accompanying OIC fees. An OIC must include a non-refundable $150 processing fee and a 20% deposit (20% of the offer amount). In fact, if either of these payments are missing then the offer is deemed “Not Processable,” and is returned to the taxpayer. Yes, there is a fee waiver process for taxpayers who fall below the poverty line, but it rarely works as it should.
Also, IRS employees are given specific instructions on how to categorize offers that are received in Centralized Offers in Compromise sites based on whether or not the OIC packages include money. IRM 5.8.2.2 lists the different categories, and I don’t believe it is any coincidence that the offers with fees are at the top of the list.
Indian Tax System Broken
Americans are pretty conscientious about paying their taxes compared to some other countries. How about the extreme tax-dodging that goes on in India?! Many farmers and impoverished Indians are exempt from paying taxes. But on the other end of the spectrum are the very wealthy (and there are many of them in India) who openly refuse to pay taxes. The millionairs don’t feel they should have to pay because they cannot trust their corrupt government officials to spend the money appropriately. They don’t want to bank roll their politicians and make them any richer. Basically, few people have bought into the idea of paying taxes in India, and there is no shame in the dramatic underreporting of income. Very interesting article here.