IRSAC 2012 Report

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The 24-member Internal Revenue Service Advisory Panel (IRSAC) published their 2012 public report, and their suggestions for improving the Practioner Priority Service (PPS) are spot on.  If the IRS follows these recommendations, there is no question it will improve access to tax relief.

The level of service and number of calls that can be handled by PPS is dropping due to budgetary constraints, so the IRS will need to figure out how to encourage practitioners to turn to E-Services more often and they will also need to be more efficient with the calls that they do take.

There were 14 suggestions in all, but my favorite has to do with the handling of Form 2848 (IRS Power of Attorney).  It currently takes about 10 days to process a F2848.  If the IRS would establish a priority CAF fax number that would be used through E-Services, processing times could be improved dramatically.  IRSAC also suggested that the IRS service center reps stop being so nitpicky with their POA verifications.  Currently if a practitioner calls before a F2848 has been processed by the CAF Unit, he/she must fax in the POA while on the line with the service center rep in order to obtain access to the account.  That’s fine; that makes sense.  However, if the practioner calls in a day or two later (before the CAF Unit has processed the POA), he/she is required to fax it over again.  IRSAC recommends making a simple notation showing that the F2848 has already been reviewed/approved.

The Nutella Tax

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image via www2.costco.com

If you’re like me, part of the appeal of traveling and visiting new places is the FOOD. And vacationing in Europe is expensive enough as it is, but by the time I get a chance to visit, all I’m going to be able to afford to eat is baguettes and water.

The latest food item on the chopping block in Europe is palm oil — a critical ingredient in France’s beloved Nutella. If you haven’t tried it, Nutella is a sweet, chocolatey hazelnut spread that is produced in Italy but consumed primarily in France. The so-called “Nutella Tax,” if approved, would result in a quadrupling of the tax on Nutella and other products containing palm oil. The Nutella company has vowed not to change the ingredients, so the increased cost of production would no doubt have to be passed on to consumers. What the world needs now is tax relief, not nitpicky sin taxes that do little to change behavior!

My tax attorney alter ego in France is blogging right now about how his next trip to the States won’t be the same if he can’t pick up a package of Twinkies while he’s here.

 

 

The Dangers of the Split Refund Option

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TIGTA has sniffed out another serious IRS problem.  The latest TIGTA report expresses Treasury’s concern with the administration of direct deposit refunds by the IRS.  More taxpayers than ever are taking advantage of this option because it is the most convenient and fast way to get your refund.  But this also happens to be the way many tax refund crimes are perpetrated:

Direct deposit is frequently the payment method used by individuals who attempt to commit filing fraud. Direct deposit provides the ability to quickly receive fraudulent tax refunds without the difficulty of having to negotiate a tax refund paper check. To cash a check, individuals usually have to provide picture identification matching the name on the tax refund check

~ TIGTA Report No. 2012-40-118

Specifically, the concern addressed in this report has to do with the splitting up of deposits into multiple accounts.  The IRS allows refund recipients to specify that the funds be deposited into one, two, or three accounts if they so indicate on Form 8888.  However, this option often invites foul play.  As a way of measuring the magnitude of the problem, TIGTA counted the number of times multiple refunds were deposited into the same accounts.  This method isn’t exactly perfect because there are harmless reasons for multiple deposits, such as in the case of joint bank accounts.   However, even ruling out these benign cases, TIGTA is finding that tax cheats are abusing the split refund deposit option.  For example, some tax preparers are illegally diverting funds to their own accounts to cover their tax help and return preparation expenses.

The Danes and the Swizz

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Denmark has officially repealed its so-called “fat tax” after being on the books for only one year.  Also, the Danish tax ministry has announced that it no longer plans to move forward with a sugar tax.  In the final analysis, butter, ice-cream, and pastries are just too good to allow some pesky tax to modify a whole country’s eating habits.  Some believe that Denmark would have had more success had it been more focused in its efforts to improve public health through taxation of targeted foods.  However, if the failed soda tax in some parts of the United States is any indication, a tax on specific foods might not be popular either.

In other news…

Kasseem Dean, a.k.a. Swizz Beatz, may or may not owe millions of dollars in back taxes.  Many media sources have him owing the state of New York $100,000 (an amount that Dean suggests is equivalent to the cost of a flight from Los Angeles to New York — I assume he’s not prone to flying coach). Those same sources report that he is also burdened with a $2.6 million IRS tax problem. But Dean, in a barrage of double negatives vehemently denies he owes any taxes.  Celebrity tax issues are usually publicized after the IRS files a tax lien and in that regard are, at least in part, based on fact.  Most likely what Dean means is he is disputing the assessment, which he has every right to do.

CSEDs – Part II

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I have written about CSEDs before.  These are the statute of limitation periods in tax cases; the “Collection Statute Expiration Dates.”  In a previous blog post, I listed what kinds of events can suspend the CSED.  Here I would like to address a couple additional details.

1. Waivers / Extensions (IRM 5.1.19.1)

If you are asked to sign a CSED waiver or extension, you are essentially agreeing to give the IRS additional time (beyond the standard 10 years) to collect the tax from you.  You are giving up the tax relief available to you at the end of the tunnel.  Before the 1998 tax reform, IRS revenue officers were essentially free to secure CSED waivers under any circumstances imaginable.  Also, there were no restrictions on how many waivers could be obtained from the same taxpayer or how far into the future the CSED could be extended.  Today CSED waivers have gone almost completely out of fashion, although some are still obtained in connection with installment agreements as required by law.

2. Substitute for Return (IRM 5.1.19.3.15)

A Substitute for Return (SFR) is an IRS-filed return that leaves out important exemptions or expenses you may be entitled to and may overstate your real tax liability.  Some believe that if a taxpayer goes back and files his own original return, this action automatically resets the CSED for that particular tax year.  This is not necessarily the case.  If the original taxpayer-filed return results in a lower liability, the original CSED remains intact.  And if the original return results in a higher liability, the CSED is updated (extended) only on the additional assessment.  A fine distinction, but an important one nonetheless.

Happy Veterans Day

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image via wunderground.com

Technically Sunday was Veterans Day, but most of us have today off, including the IRS. I paid my first visit to the Department of Veterans Affairs website today and here are some of the things I found:

  • VA has guanteed 20 million home loans for veterans since 1944, including 540,000 in 2012 alone
  • VA recognizes award-winning and influential veterans around the country on its website
  • VA supports health care and health education for our nation’s military heroes through some top-rated medical facilities
  • There are 152 VA hospitals and 817 outpatient clinics located throughout the country
  • Every possible type of VA application or form is available with the click of a mouse
  • The “projected veteran population” is over 22 million, most having served in Vietnam
  • The IRS offers free basic tax help for veterans

I like the way we take care of our country’s veterans. Although I have not had ocassion to test the theory, I would venture to guess that the IRS would give some due consideration to veteran status in their collection / tax relief cases as well.

Colorado Can't Tax Pot Sales Without Voter Approval

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image via dailycamera.com

On November 6th, Colorado voters approved a constitutional amendment (Amendment 64) legalizing recreational marijuana.  Over 54 percent of voters were in favor of the constitutional amendment, but it would be interesting to know how many of those people are “non-smokers.”  I would guess that a majority of those who voted in favor of legalization were more interested in the “fringe benefits” than they were in getting high with their friends.  For example, now the state’s law enforcement personnel will be able to spend more time on violent crimes rather than small-time drug possession.  Also, now the state will be able to collect an estimated $40 million per year from a 15% tax on marijuana sales.  Or will it?

The Taxpayer Bill of Rights in Colorado prohibits any kind of new tax burden without voter approval.  According to Colorado Attorney General John Suthers, the tax must first be approved by the state legislature and then the voting public.  Perhaps the best way to avoid this tax problem would have been to include precise tax language directly in the pot legalization bill, but for whatever reason, that didn’t happen.

Voters Have Spoken: They Like Their Pot and Soda

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image via aolnews.com

Medical marijuana has been legal in California and other states for some time now, but Washington and Colorado are the first states to legalize recreational pot.  Do they realize the tax problems that they will face in the future?  The problems that medical marijuana dispensaries in California have faced time and time again are likely the same problems in store for Washington and Colorado, only on a larger scale.  At the root of the controversy is the fact that the federal government still classifies marijuana as a controlled substance and they will not always turn their head the other way just because the people have passed a state ballot measure.  One of the ways this emerges in the tax world is the “pot shops” are not allowed the same business expenses that other businesses would be allowed, so their tax bills are higher.  At least in California, the IRS has made it clear that there will be no tax relief for pot shops as long as the federal government still sees the drug as a controlled substance.

The Soda

Would a soda tax help reduce obesity?  We won’t know now — soda tax measures were shot down in the California cities of El Monte and Richmond.  Of course soda companies are filthy rich, and they spent an estimated $3.5 million to dissuade voters from passing tax increases on sugary beverages in these two towns.  As with any controversy, there are often attractive arguments to be made on both sides, and the groups with the most money and power are normally better able to get their message out.  At least that’s how the proponents of the soda tax see it.  The opposition (“Big Soda”) sees a soda tax as harmful to small businesses and not the right way to fight obesity.

Shulman Looks Back on His Accomplishments

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photo via npr.org

Doug Shulman will be completing his term as IRS Commissioner on November 11, 2012. He spoke to the AICPA in Washington D.C. today. Shulman said that he likes to focus on priorities and not get distracted by crises that tend to crop up. His principal achievements:

  1. Shutting down international tax evasion through voluntary disclosure programs
  2. Softening the “adversarial relationship” between the IRS and corporate taxpayers
  3. Transforming the IRS’ account processing from a weekly cycle to a daily cycle to achieve more real-time processing and analytics
  4. ensuring basic competency for paid tax return preparers by getting them registered and keeping them educated
  5. leveraging data analytics to, for example, vet out tax return preparers who make a habit of preparing inaccurate returns or avoid paying out fraudulent returns
  6. improving the customer service experience when taxpayers phone the IRS seeking tax relief and account-related questions
  7. performing all the other tasks that the IRS is called upon to do (such as the enforcement function of the Affordable Care Act)

 [P]roviding quality customer service is a key priority of mine…and every bit as important as enforcement.

~ Doug Shulman, Commissioner of the IRS

Sandy: Extended Tax Relief

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The IRS has expanded the tax relief granted to individuals affected by hurricane Sandy.  This comes as no big surprise given the fact that the IRS had initially given a meager 7 additional days to file employment tax returns that were due on October 31st.  The IRS is now expanding relief categories and extending the deadline to February 1, 2013.  Also, the IRS has now identified specific counties that automatically qualify for relief.

Here is a new breakdown of the types of tax requirements with an extended February 1, 2013 deadline:

  1. Fourth Quarter estimated tax payments for individuals
  2. Third Quarter payroll and excise tax returns
  3. Fourth Quarter payroll and excise tax returns
  4. Form 990 series returns required of tax-exempt organizations

Tax relief is automatic for residents of 4 specified counties in Connecticut, 10 counties in New Jersey, and 9 counties in New York.  The IRS is also demonstrating compassion for people who were indirectly affected by Sandy.  So, if your tax records or your CPA were located in any of the listed counties during the storm, or if you were helping with rescue and relief efforts, you may also qualify for tax relief, but you will need to call the IRS and request it.