MW Attorneys brings taxpayers the latest and most important tax news coming from the IRS. Stay up to date with all our IRS related posts.

IRS Violating Software License Terms

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The IRS is using some computer software that it hasn’t paid for, and is paying for other programs its employees aren’t even using, according to a new TIGTA audit released Tuesday that said the tax agency could be violating copyright laws.

The Treasury Inspector General for Tax Administration found serious problems with IRS software license management practices, many of which could be remedied if they would simply keep better records.  Read the full report here.

Software licenses are typically written in such a way that the software may be shared only on a certain number of computers.  The IRS appears to be doing what so many other private parties tend to do: sharing software on more systems than is allowed by a license.  And then they have also been doing what few people in their right mind would do: paying for licenses that they aren’t using.  This is a signature IRS move if I have ever seen one!

Online FATCA Registration Begins

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The Foreign Account Tax Compliance Act (FATCA) was enacted in the wake of the UBS scandal to crack down on tax evasion overseas.  “FATCA requires foreign financial firms to report to the IRS offshore accounts held by Americans that are worth more than $50,000.

Foreign financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.

FATCA does not take effect until July 2014, but there have been many steps leading up to it, including this latest step: the registration process.  Remember though, the registration process is not an individual tax requirement but, rather, is meant to secure the cooperation of financial institutions.  If you are a in charge of a foreign bank, investment firm, or insurance company and you need to know, the schedule of events appears to be as follows:

Registration may be done on paper, but the IRS highly encourages that it be done through their secure online web application.  Once a firm has registered, the IRS issues them a Global Intermediary Identification Number (GIIN).  Registration ensures that the IRS knows who to call when they have questions about suspected tax cheats.

 

IRS Launches New ACA Website

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The IRS’ new Affordable Care Act website is up and running.  Most of the new content is organized into three main parts: (1) Individuals & Families, (2) Employers, and (3) Other Organizations.

The Individuals & Families page is further broken down into two subtopics designed to educate the public on what they need to consider immediately (in 2013) and what they should look forward to in 2014.  Individuals should explore and begin planning for open enrollment in the Health Insurance Marketplace, which opens October 1, 2013.

The Employers page has a separate set of instructions for small employers (fewer than 50 full-time employees) and large employers (50 or more full-time employees).  It helps to educate employers on their specific coverage and reporting requirements and also explains what employer credits might be available.

Some organizations will be subject to special rules under the Affordable Care Act.  These “other organizations” include insurers, miscellaneous business types, non-profits, and government agencies.

The ACA website features a nifty news bar so we can always stay informed of new developments related to the Affordable Care Act.  It also very neatly lists all the various tax provisions, both in layman’s terms and in the form of news releases, notices, regulations, revenue procedures, revenue rulings, and Treasury decisions for the tax lawyer and studious type.  Lastly, the new ACA website includes links to related federal government websites like the Department of Health & Human Services, the Small Business Administration, and the Department of Labor.

Changes to Innocent Spouse Program may Become Permanent

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Married couples who file jointly have “joint and severable” liability for any resulting tax debts (i.e., the IRS can come after both, or either of them individually, for the entire tax liability).  But if one spouse is successful with his/her innocent spouse claim, then the IRS ceases collection of the tax debt as to that spouse. 

Historically the IRS innocent spouse program was not available to spouses who failed to file their claim for innocent spouse relief within two years from the date of the return.  However, the IRS has not enforced the two-year deadline at least since 2011.  And this week a proposal has been set in motion that would eliminate the two-year statute of limitation altogether.  Instead, an innocent spouse would have the full 10 years on the collection statute to file for tax relief.

Many of the taxpayers who are granted innocent spouse relief are victims of physical and/or emotional abuse.  These are people who probably did not do their due diligence in knowing what was on the return when they signed, but who were not in the best position to question what was on the return either.  They are people (usually women) who probably should have confirmed that the taxes were being paid, but who feared the repercussions of asking about it.  One thing that innocent spouses all have in common is that they were left in the dark about important financial information and decisions, including taxes.  So, later, when they get a bill or a collection notice, they are caught completely off guard.  The IRS recognizes that it isn’t fair to enforce the standard “joint & several” liability in these situations, and they appear to be moving in the direction of opening the innocent spouse program up to a lot more people.  Also, under the proposed rules, the IRS would not be permitted to take enforced collection actions while an innocent spouse application is pending.

No IRS Furlough in August

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The IRS had originally planned on five furlough days (unpaid days off) this year.  The first three went on as scheduled, the July 22nd furlough day was canceled somewhat at the last minute and turned into an optional work day, and now the final furlough day of the year (August 30th) is going to be postponed.  According to IRS Acting Commissioner, Danny Werfel, the IRS recently found ways to save money and was able to cancel the July 22nd agency-wide furlough day.  And the IRS hopes to be able to cancel the August 30th furlough too, but cannot make that determination at this time:

We have made substantial progress in cutting costs. … Our progress is such that we have decided to postpone the furlough day scheduled for Aug. 30. We still have more work to do on the budget and cost-savings, so we will reevaluate in early September and make a final determination as to whether we will need another furlough day in September.

Hopefully the IRS will continue to find ways to cut costs.  Furloughs are not good for taxpayers because they make it very difficult for taxpayers to obtain the information they seek.  Even if they are not calling on the exact date of the furlough, the backlog it creates  on the other days is somewhat of a burden.  Furloughs are obviously not good for IRS employees either.  Even if they are ultimately canceled or postponed, the mere announcement of a furlough day tends to disturb the morale and confidence of employees.

Obama Nominates John Koskinen as New IRS Commissioner

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The IRS has been without a permanent leader for some time now.  Acting Commissioner, Steven Miller, had replaced Douglas Shulman when his term came to an end in November 2012.  Then, when President Obama fired Miller in May of this year, the agency was being led by Danny Werfel, a White House budged official.

Today the White House announced the nomination of John Koskinen as the new IRS Commissioner.  Obama’s nomination is likely going to be approved by the Senate following their standard and very thorough hearings.  Obama likes Koskinen because he has vast experience helping large companies on the verge of collapse and fixing bad management and bad morale.

With decades of experience, in both the private and public sectors, John knows how to lead in difficult times, whether that means ensuring new management or implementing new checks and balances. Every part of our government must operate with absolute integrity and that is especially true for the IRS. I am confident that John will do whatever it takes to restore the public’s trust in the agency.

~ President Obama

74-year-old Koskinen has quite the resume and has often been called on to rescue organizations in crisis.  Here is some of his work experience:

  • Freddie Mac
  • Mutual Benefit Life
  • Penn Central Transportation Company
  • city administrator for District of Columbia
  •  president of the United States Soccer Foundation
  • US Office of Management and Budget
  • chair of the President’s Council on Year 2000 Conversion
  • executive board-member of AES Corp. and American Capital, Ltd
  • National Advisory Commission on Civil Disorders

So, Koskinen is certainly an old guy, but maybe the IRS needs more maturity in its leadership.  It is probably safe to say that he wouldn’t approve of Star Trek videos.

It will be interesting to see how Koskinen handles the task of cleaning up the IRS.  Will he fire a bunch of executives?  Will he try to clone himself by hiring like-minded replacements?  Or will it be enough to simply put the fear of God in the existing leadership?  I’m sure we will eventually get to know his leadership style, but for now we should be content knowing that the man gets results.

IRS and the DOMA Decision

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On June 26th the Supreme Court overturned a portion of the Defense of Marriage Act (DOMA) in Windsor v. United States.  This opinion held that section 3 of DOMA is unconstitutional because it deprives same-sex married couples of equal treatment under the Fifth Amendment.  So what kind of tax consequences does this have for same-sex couples?  The IRS hasn’t officially weighed in on this yet other than providing this curt statement on their website:

We are reviewing the important June 26 Supreme Court decision on the Defense of Marriage Act. We will be working with the Department of Treasury and Department of Justice, and we will move swiftly to provide revised guidance in the near future.

In simplest terms, the federal government, including the IRS, must now treat same-sex  couples who are legally married the same as their heterosexual counterparts.  Therefore, married same-sex couples should now be allowed to file a joint tax return and take advantage of various estate planning provisions that have traditionally been available only to heterosexual couples.

It is impossible to determine how many same-sex married couples will file amended tax returns in hopes of getting a refund.  Not all people benefit from filing jointly, and not everybody wants to file jointly, even if there is some financial benefit.  According to IRS rules, those that do see a benefit may go back only three years seeking refunds.

There are still several unanswered questions:

  • What happens when couples marry in a state that recognizes same-sex marriage, but then move to a state that does not recognize it?
  • Will same-sex marriages be considered valid for federal tax purposes retroactively?
  • Will civil unions be treated as marriages for federal tax purposes?

 

July 22nd: Optional Work Day for IRS Employees

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Tax attorneys and other tax professionals plan their work days around their interactions with the IRS.  So, when the IRS is closed on a weekday, they take note.

Earlier this year the IRS had announced a series of planned nationwide furlough days to help with its “bottom line,” one of them to take place on Monday, July 22nd.  Then a couple days ago the acting IRS Commissioner, Daniel Werfel, announced by way of internal memorandum that the agency would no longer be forcing its employees to take that day off.  The furlough scheduled for July 22nd was lifted.  However, realizing that many IRS personnel have already made plans for a three-day weekend, Werfel is allowing anyone to still take the day off if they want.

So what does this mean for tax professionals who need to contact the IRS on July 22nd?  What can we expect?

In my years of working in the field of tax controversy, I have come to realize the impossibility of trying to predict too much when it comes to the IRS.  But my guess is that Monday is not going to be the best day to call them.  Given the opportunity to take a 3-day weekend with pay, what IRS employee would come in and work (besides may the overzealous brown noser or somebody too dim to realize he doesn’t have to be there)?!  I think the IRS is going to be severely understaffed, probably to the point that it would be no different than a furlough day from taxpayers’ point of view.  And those that do go in to work on the 22nd are going to be stressed and unhelpful.  It’s probably best to wait until Wednesday or Thursday if you need to call the IRS next week.

I have noticed that one of the consequences of the furlough days thus far has been a sharp increase in hold times when trying to call into the IRS.  People that don’t get through on a furlough Monday tend to call back on Tuesday, and then Wednesday, etc.  The calls pile up just like all their other work.  These days it is not unusual to wait 45-60 minutes before the IRS picks up you call.

"Citizens United" Hopes to Abolish the IRS

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There are many taxpaying citizens, and even a handful of lawmakers, who are fed up with the IRS’ mistakes and scandals and would like to see the 100-year-old agency simply disappear.  One such lawmaker is Senator Rand Paul.  He and the group Citizens United are hoping to completely and immediately abolish the IRS.

You can read their petition here.

They believe that a “streamlined and easy to understand tax code” would eliminate the need for the IRS.  That sounds great.  Who doesn’t want to simplify the tax laws these days?  But I don’t know that there is too much substance to the position of Citizens United, at least none that I can find on their website.  It just seems way too radical and hasty the way they propose to make this transition.  The problem is that they don’t really propose any kind of transition at all; they just want to be done with the IRS immediately.  In their words:

Be it now therefore resolved that we, the undersigned, demand the immediate abolishment of the Internal Revenue Service . . . [t]hat the Internal Revenue Service be abolished in its entirety by Congress without delay, excuses, or prevarication.

“Prevarication” basically means lies.  But Senator Paul is lying to himself if he thinks we can really just abolish the IRS right away without a plan in place for the aftermath.  Our nation has contemplated comprehensive tax reform for years now, but nothing has really been done about it.  I’m not sure total abolishment of the IRS is a good idea, but even if it were, it would not be something we could realistically do overnight.  This kind of change would be much like turning a giant ocean liner; it’s a slow, incremental change.

Lawmakers Seek to Punish IRS and Reward TIGTA

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A House subcommittee led by Rep. Ander Crenshaw (R-Fla.) agreed on a spending measure that would cut the IRS’ budget by 24 percent in 2014.  And on the other side of the coin, the bill would mean a $5.5 million budget increase for TIGTA (Treasury Inspector General for Tax Administration), the agency that has brought to light so many of the recent IRS missteps.

The bill is meant to “crack down,” “clean house,” and otherwise encourage the agency to be more careful and responsible in its administration of the tax laws.  It would also specifically address most of the problems we have read about in the news these last several months:

  • political targeting
  • training videos
  • lavish conferences
  • employee bonuses

Basically it would withhold funding until the IRS implements TIGTA recommendations.  TIGTA’s primary responsibility is to keep an eye on the activities and procedures at the Internal Revenue Service.  They are continually conducting audits, reporting on their results, and offering “recommendations” to the IRS when it is shown that they have fallen short.  Well, lawmakers are now hoping to make certain recommendations mandatory — mandatory in the sense that if they don’t make the changes then they won’t get full funding.

But the bill still has a long ways to go: first to the full Appropriations Committee, then to the House floor, then on to the Democrat-controlled Senate where it will face plenty of opposition.