Will IRS Lighten up on Structuring?

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By law, you must report to the IRS bank transactions of $10,000 or more.  It is one government tool for curbing white collar crimes.  Manipulating deposits so that they come just under the reporting requirement is called “structuring,” and it is illegal.  The IRS can seize bank accounts without notice to the account holder when structuring is suspected, and they have done so freely in the past, even if the money is obtained legally.

It is obvious to Commissioner Koskinen that this policy is way too harsh.  Today the commissioner apologized to taxpayers who have not been treated fairly “under the code.”  I don’t know how to take this apology.  It seems a little half-hearted to me.  It’s like saying, “we are sorry for seizing the accounts of law-abiding citizens, but we were only doing what we are permitted to do under the code.”  And it’s not necessarily a win for taxpayers until some changes are made to the code.  Semantics aside, it looks like a step in the right direction.

Short Hold Times at IRS Today

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Modesto, CA

I only spent about two minutes on the phone with the IRS today.  That’s a first.

I was on and off just like that, and then I went on with my day.  The reason why it was so quick is because THEY DIDN’T TAKE MY CALL.  You know things are bad when they won’t even allow you to wait on hold.  Last week we were experiencing two hour hold times.  Actually, it could have been longer, but the longest I waited (and still didn’t get help) was two hours.  But this week they don’t even want you to bother holding.  After selecting my topic (“discuss a client’s tax account”) the recording on the Practitioner Priority Line states something like “We’re sorry, but due to extremely high call volumes and the topic you requested, we are unable to take your call at this time.  Please try again later, or on the following business day.”

It has always bothered me when I am in a store asking for help or waiting to make a purchase (almost any type of store; they’re all basically the same) and then the phone rings, and the worker immediately picks up the phone and helps the caller despite the fact that I am present in the store.  I have noticed that they will normally give preference to the caller over the person who is there in person.  Not so with the IRS.

Well, to be fair, I don’t think they get foot traffic at the IRS call centers.  I’m pretty sure that the call centers are just for calls and the walk-in centers are just for walk-ins and appointments.  But realizing this only makes me madder that they can’t answer my call.  They don’t have to divide their attention between callers and walk-ins.  There’s no excuse!  HOWEVER, as much as I love to complain about the IRS and the pathetic state of their call centers, I like my chances on the phone even better than at our local office.

If anyone near Modesto wants to take their chances at the IRS local office, be my guest.  They are at 1700 Standiford Ave. and they are open Monday through Friday from 8:30 to 4:30.  And the Sacramento office is still at 4330 Watt Ave.  Same hours of operation.

The IRS is Confused Enough on their Own; Don't Make it Worse

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Modesto, CA

Good thing I have this blog as a place to vent my frustrations with the IRS.  It has been like my therapist over the years.

I can really identify with Robert Wood’s article today about 1099 forms.  It was obviously written from the perspective of a seasoned (and perhaps a bit jaded) tax veteran who doesn’t really trust the IRS to get things right.  Basically Mr. Wood is of the opinion that if you do not receive a 1099 that you expect to receive, you might want to think twice before calling and asking for it.  Why?  Because you don’t need the actual form in order to file your taxes, as long as you were conscientious enough to track all of your income independently.  You just need the figures.  And if you happen to request a copy of something that was already issued, or is already queued up to be issued, there is a real chance that the 1099 could be sent out twice.  Of course if you get a duplicate 1099, you are smart enough to recognize it as a duplicate, but the same cannot necessarily be said for the IRS.  And if the IRS counts double the income, then there’s a problem.

Yes, it can be very frustrating dealing with the IRS.  All that hype about how difficult the 2015 tax season will be — I don’t think it’s hype.  When calling IRS service centers, I am witnessing hold times that are longer than I can ever remember.  I recently spent an hour and a half on hold with three different phone reps trying to get through to the Collections Department (ACS).  I dialed ACS directly, but each time I was told that I had not reached collections.  I think what happens is, if the phone lines are extra busy, callers are automatically re-routed to non-ACS service centers.  But the system doesn’t alert you when it is doing this, so you are forced to wait until somebody picks up.  In my experience, the Practitioner Priority Service line is not any better.

I’m done venting now, thanks for listening.   See you next week my therapist-blog.

2014 National Taxpayer Advocate Report

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It’s a little bit (ok, a lot bit) frustrating reading the National Taxpayer Advocate’s annual report to congress that was released today.  Of course my frustration is with the IRS, not the Taxpayer Advocate.  It’s pretty much the same report year after year.  The IRS is severely understaffed and underfunded, and its employees are less than qualified.  The level of service is reaching abysmal levels and still dropping.

This year the Taxpayer Advocate applauded the IRS for adopting a Taxpayer Bill or Rights administratively, but is still pushing for it to be enacted legislatively so that it really has some “teeth” and so that it becomes a permanent fixture that encourages voluntary compliance.

One point that evokes an abundance of frustration for me is the “absence of studies to determine whether existing penalties promote voluntary compliance.”  What this means in plain English is that the IRS has been punishing Americans with penalties as long as anyone now alive can remember, but the IRS has done relatively little to determine if these penalties actually work.  This is the functional equivalent of building a castle on sand or on an active volcano.  And if you think this is a minor problem, you’ve probably never had a tax debt that has tripled in size due to penalties and interest.  Furthermore, you’re probably unaware of this little factoid:

The number of provisions in the Internal Revenue Code that either authorize or require the IRS to impose penalties has ballooned from 14 in 1955 to over 170 today.

A penalty is considered effective if it promotes voluntary compliance.  In other words, a penalty (or all the tax penalties combined) should cause taxpayers who are on the fence about paying to decide that they will pay voluntarily rather than expose themselves to IRS enforced collections.  And the IRS needs to strike the right balance: not too severe and not too light.  That’s not an easy task, but the IRS does not appear to be taking it very seriously, according to the Taxpayer Advocate.  Ever heard of the IRS Office of Service-wide Penalties?  Of course you haven’t because it’s a 6-man operation tucked neatly out of sight that hasn’t answered to Congress in over 20 years.

On a positive note, I am very happy with my own direct experiences with the Taxpayer Advocate Service (TAS) recently.  I had previously been told that the TAS would not provide assistance to taxpayers without the presence of an IRS levy or threat of levy (or other adverse action).  And even then, I was under the impression that TAS may not take a case without the presence of some sort of delay.  However, I have noticed that the TAS intake department has become quite a bit more liberal.  In fact, I have a couple cases that the TAS gladly accepted where there was no financial hardship whatsoever, only delay.

Protect Yourself Against Identity Theft

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Identity theft can be a huge headache, especially when it affects your federal tax record.  There are at least a couple ways how that might happen.  An identity thief may use your personal identifying information, including your social security number, to file a false tax return and obtain a fraudulent refund.  Or a thief may use your identity to obtain a job, claim the maximum number of exemptions, and basically collect tax-free income.  Then, these W-2 wages are reported to the IRS under your social security number.  When the information on your legitimate tax return does not match up with the W-2s the IRS has on file (i.e., when you fail to report the income earned by the identity thief) then the IRS sends you a letter asking you to explain the discrepancy.

The IRS provides a comprehensive list of tips for those whose identity has been stolen.  However, some of their most useful tips explain how to avoid identity theft in the first place. What it all comes down to is safeguarding your personal and financial information, including your credit cards, social security number, even address.

Some identity thieves steal wallets and purses.  Protect your personal effects when you carry them around and never leave them in open sight in your vehicle.  Never leave a bag or purse unattended in a store or airport.  It is human nature to misplace small items such as these, but we tend to be very habitual in the handling of our wallets and purses.  The more safe habits we can acquire, the better, so that it becomes second nature to protect our personal effects.

Some identity thieves try to obtain information from you through a phone call or electronic means (especially emails).  The IRS has issued extensive and repeated warnings regarding phony IRS emails and phone calls.  The IRS has made it abundantly clear that they do not contact taxpayers through email and they do not request credit card information over the phone.  It is actually really easy to identify a phony IRS contact if you know what to look for, but very easy to be deceived if you don’t.

Some identity thieves sift through your trash.  Once you take your trash out to the curb, it is easy to consider it “gone,” but that is usually the point at which the identity thief just begins his work.  The idea here is to take steps to destroy identifying information before you throw it in the trash can.  Invest in a good quality shredder and make a habit of shredding anything with your name on it.

Some identity thieves obtain your information through unsecured websites.  Do not share your personal and/or financial information on obscure, unknown websites that cannot be trusted.  If you’re making purchases online, stick with the big time, well known websites like Amazon, eBay, and nationwide retailers.  If you ever have a question as to whether a website can be trusted, do a quick Google search of the company or, better yet, just move along to something else.

Founder of Happy's Pizza Chain Convicted of Tax Crimes

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Happy Asker, the CEO and founder of a popular Michigan-based pizza chain has been convicted of conspiracy to defraud the United States government and 32 counts of tax crimes, including 28 counts of aiding and assisting the filing of false tax returns.  This pizza chain has over 100 locations and has been around for about 20 years.

Asker headed a “systematic and pervasive tax fraud scheme,” with employees and franchise owners, which involved underreporting gross sales and passing along the unreported income to key employees, franchisees, and Asker himself.  It also appears as though he was not very cooperative during the investigation, purposely misleading IRS Criminal Investigation agents in interviews.

Most of the Happy’s Pizza stores are located in Michigan and Ohio, although there is one store down in El Cajon, CA.  I had never heard of this chain before, so I tried to dig up what I could on the founder with the funny moniker.  There really isn’t much on the web about this guy.  Maybe he wanted it this way.

 

Sharpton: Some are Concerned that He's Not a Going Concern

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The Reverend Al Sharpton has always been one of those controversial figures that people either love or hate.  If you’re in the “hate him” camp, then you probably list his sketchy personal finances as one of your reasons.  And if you’re in the “love him” camp, then you probably find a way to overlook it.  But even Sharpton supporters are having a hard time grappling with this as he gains national prominence.

You can say I’m not a great administrator, . . . you can’t say that I’m not committed.

~ Rev. Al Sharpton

Arguably his biggest problems are his tax debts.  He owes something like $4.5 million in federal and state income taxes.  Also included in that figure are payroll taxes owed by his non-profit organization, National Action Network, which, according to his accountant, would not be able to stay afloat if it were actually meeting its payroll tax obligations.  From the IRS perspective, a company in this financial shape is “not a going concern.”

Sharpton has stated publicly that he is paying down what is owed, but if the tax balances are not shrinking, it normally means that the payments are too small or the taxpayer is incurring new balances year after year.  Understandably, the IRS frowns upon the so-called pyramiding of tax liabilities.  And understandably, even Sharpton supporters frown upon first class flights, large salaries, and private school tuition which wouldn’t even be an issue if he were on the up-and-up with the IRS.

Granted it is impossible to find a public figure these days without some skeletons and baggage, but Sharpton’s message of equality would carry so much more strength if he would get his finances in order.  In his current financial state, he inadvertently sends the message that he is above the law and doesn’t need to pay taxes like everyone else.

Lavish Spending is Not Tax Evasion

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A recent court decision took up the question of whether lavish spending alone, in the face of a tax debt, should be considered willful tax evasion.  Trip Hawkins, founder of Electronic Arts, is one of those super wealthy, elite class Americans who fell on hard times — a different sort of “hard times” than most people are familiar with, but hard times nonetheless.  He has IRS and FTB (California Franchise Tax Board) tax debts up to his eyeballs, something like $25 million, which he sought to have discharged in bankruptcy.

The government asked the bankruptcy court to exempt his tax debts from being discharged because he acted in a willful, tax evasive manner.  After acknowledging the tax debt, it was shown that he was spending up to $78,000 more each month than he was earning.  He was maintaining a $3.5 million home and a $2.6 million ocean-view condo.  He was buying $70,000 cars and cruising around in a private jet.  However, the court concluded that this sort of spending behavior, extravagant as it seems to regular folks, was not enough to prove willfulness.

I don’t imagine there are too many people living this lifestyle in valley towns like Modesto, Tracy, Turlock, or Oakdale, and its not simply for lack of ocean-view condos.  However, this issue does tend to crop up here in other contexts and on a much smaller scale.  For example, I have seen the California Board of Equalization (BOE) and FTB draw adverse conclusions on the grounds that a taxpayer was living too lavishly.  In the process of resolving a tax debt, these taxing entities look closely at bank statements to see how taxpayers are spending their money.  I have seen them raise an eyebrow at things like going out to much on weekends, eating out too much, taking too many trips, etc.  While this lifestyle is not going to land somebody in prison for tax evasion, it can sometimes make it more difficult to obtain an accepted installment agreement, or offer in compromise.

I’m not sure I really have to spell it out, but their thinking is “why should this taxpayer be allowed to live like this when he owes taxes; he needs to curb his spending so he can pay off his tax debt.”  This is just something to keep in mind when dealing with California taxing entities.  In my experience, the IRS is concerned with this kind of thing too, but to a lesser degree.

IRS Guy Fits Right in at Football Game

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I have the perfect kind of Friday story that zeros in on the bad behavior of one single IRS employee and, by implication, expects you to assume that he was somehow acting in his official capacity or that he is a fair representation of the IRS as a whole.  I realize that by discussing this story I am perpetuating these same stereotypes or outright falsehoods, but I do it tongue in cheek.  I know there are some good people at the IRS, and every walk of life is represented among its 89,000 employees.

On to the story.  29-year-old furloughed IRS employee, Stephen Sapp, was caught misbehaving at a Pittsburgh Steelers game this past Sunday.  I’ll stop right there for a second because I know some people don’t realize that you don’t have to be a boring, bean-counting stiff to work at the IRS (although I think it helps).  Newsflash: IRS employees like to have fun on the weekend just like everybody else.

Admittedly, it was a little hard for me to imagine an IRS-type at a Steelers game.  And if that was a surprise to you, then the rest of the details are going to blow your mind:

  1. at Steelers game
  2. drunk
  3. screaming and cursing
  4. throwing steel crowd dividers
  5. knocked a woman unconscious
  6. promptly arrested by authorities

You’re probably thinking, “they got the story wrong; there’s no way this was an IRS employee!”  But wait until you find out what he did after being arrested; it might change your mind.  Sapp told the police officers, “Listen, I know how this works. How much money will it take to make this go away and to let me go home today?”  THERE’S the IRS we all know and love!!  The irony of that statement is just too much!

2015 Filing Season Won't be Pretty

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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.