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Another IRS Mistake: Thousands of Social Security Numbers Exposed on Internet

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This time the IRS leaked thousands of social security numbers on its 527 “non-profit political groups” website.  The security lapse was brought to light by Public.Resource.org.

It is unclear how many SSNs were exposed and whether or not the SSNs were displayed alongside any other identifying information.  I think this would be an important detail.  I’m not sure what exactly is needed to perpetrate an identity theft or a financial crime using a SSN, but it seems to me that more would be needed than simply the SSN.  I would think that a criminal would need at least the name that goes with it too.

Furthermore, it looks like this information probably did not fall into the hands of any criminals.  The data remained up on the site for less than 24 hours, and during that time (if I understand the geek speak) there were only 8 total clicks on the page in question and no actual privacy complaints.

Still, as with all the other recent IRS blunders, what bothers most taxpayers is the fact that the mistake was made, not the end result or the damage that was done.  Think of how many visitors irs.gov gets each day.  Popularity-wise we don’t like it, but traffic-wise, it is one of the most visited websites in the country.  It just so happened that the SSNs were exposed in a little obscure corner of a massive, content-rich IRS website.  It is easy to see how this was a close call and could have been a much more serious mistake.  When it comes to our personal identifying information and our financial information, we don’t like close calls.  A close call just means that there could easily be a “next time” and next time we might not be so lucky.

Fixing the IRS: Where do we Start?

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It’s no secret that the IRS makes mistakes, sometimes serious mistakes.  It may have been secret before (at least for the average taxpaying citizen) regardless of the Treasury Inspector General for Tax Administration (TIGTA) reports that highlight the agency’s deficiencies.  But in recent months the IRS has been under intense media scrutiny, bringing these reports out into the open in mainstream media outlets.

The problems at the IRS are the result of:

  • ineffective training
  • weak leadership
  • poor judgment
  • inexperienced employees
  • an overly-complex tax code
  • simple human error
  • insufficient funding

This is by no means a comprehensive list.  And it’s easy to lump them all together and imagine one comprehensive solution.  There are some who think all the problems can be fixed by increasing funding to the IRS.  They see this as the root of all employee development, training, and managerial issues.  This is perhaps the primary argument of IRS sympathizers; however, I’m not so sure there is an all-in-one solution for cleaning up at the IRS.

To use a recent example, why don’t IRS Revenue Officers (RO) always follow legal guidelines when seizing taxpayer property to cover unpaid taxes?  This is probably the most serious collection action that the IRS can take.  And besides going to prison, this is what taxpayers fear more than anything.  So, why do they get it wrong sometimes?  We can probably rule out “complex tax code” because the procedures for seizure of property are clearly laid out in the Internal Revenue Manual (IRM) so an RO has only to follow the steps.  But any of the other listed reasons could realistically apply.

Although I think it is impossible to narrow it down to one root problem, it is clear that there is quite a bit of overlap.  For example, an inexperienced employee is more likely to make simple human errors and use poor judgment in his work.  And lack of/ineffective training is a symptom of poor leadership.  This overlap is a good thing when contemplating solutions because it means that addressing one issue will automatically improve another.  It also means that once we get started on the task of fixing the IRS, we’ll already be closer to our goal than we think.

IRS Funding: Seems Adequate to Me

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Some say the biggest problem at the IRS is that they are not allocated enough money to be able to administer the tax laws fairly and competently.  Even Nina Olson, the National Taxpayer Advocate, has bought into this theory:

Today, the IRS is an institution in crisis. In my view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS — and therefore taxpayers — is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.

~ Nina Olson, in her mid-year report to Congress

What’s ironic about this quote is it was released today along side juicy headlines about IRS employees using government credit cards to make some highly questionable purchases of alcohol, expensive meals, party supplies, and even porn.  Of course many of these purchases were made on cards that were reported stolen.  I’m sure that’s true because there is no way any IRS employee would abuse his card privileges.

I don’t know Nina, I usually agree with your opinions, but it seems to me that the crisis is fairly well summarized by the headlines.  Why downplay the high-profile mistakes that are so very telling of what’s going on at the IRS?  And how is it that the IRS’ mission has been “radically transformed”?  Regardless of any official mission statements, their mission has always been, and always will be, to collect as much revenue as possible without too much regard to fairness, tax relief, and taxpayer rights.

So if the “real crisis” is inadequate funding, then why should we turn a blind eye to outrageous spending abuse?  There is no way in this world we should increase funding to the IRS until they clean house.

How to Expedite Non-profit Status

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One study related to the IRS scandal showed that non-profit groups with legal representation were subjected to fewer probing questions and experienced fewer obstacles during the non-profit application process than groups without legal representation.  Interestingly, many groups that began the application process without an attorney noticed that their applications were quickly approved right after hiring an attorney.

This is probably not all that surprising to attorneys.  We, of all people, believe that our services are valuable.  One can typically expect a better result and smoother legal process by hiring a lawyer, although not everyone is convinced of this.

In this day and age it is easy to obtain information about any legal topic.  Many people feel that as long as they are well informed and educated about their specific legal predicament then they can handle the issue on their own.  In a down economy it is even more common for individuals to try resolving legal problems on their own, thinking they can save a buck.

The answer to the question, “Do I really need an attorney for this?” is almost always “no.”  But knowing the law is only half the battle, and an attorney can bring so much more to the table than just information:

  • ability to strategize
  • ability to organize information
  • ability to present information (verbally and in writing) in a logical fashion
  • superior persuasion skills
  • ability to apply the law to a specific set of facts
  • real life experience

It’s one thing to know rules in the abstract, but it’s quite another to have seen how the rules play out in practice.  This is particularly true in the world of Federal Tax Resolution where the IRS is inconsistent and unpredictable in the application of the rules.  It is the difference between book smarts and street smarts, and tax lawyers typically have both.

Yes, of course you need to do your own research.  And, yes, you need to be careful and thorough in the process of hiring an attorney.  But you should also be well aware of what you may be giving up by representing yourself in an important legal dispute.

National Small Business Week 2013

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There are so many elements involved in operating a successful business, only some of which are controllable by the owner.  You need a good business plan, adequate capital investment, not to mention an excellent product or service.  You also need to figure out how you’re going to market that product or service.  Of course, it helps if you have a head for business; some people just seem to “get it.”  But even these measures do not ensure success because so much depends on timing and luck.

One element that people tend to overlook when they start a business is the tax consequences and requirements.  No luck involved here.  And, thankfully, you don’t really need to have a knack for numbers or a specialized knowledge of tax laws to make sure the tax aspects of your business are in order.  What you do need is a basic understanding of what tax requirements apply to your business and where to go for answers.

Some small business owners consult with a tax accountant or a tax attorney in the opening and operating of their business.  But if you’re not in a position to hire a tax professional, there are still excellent resources at the IRS, especially this week.

It is National Small Business Week 2013 and the IRS is offering two free webinars, one on June 18th and one on June 20th.  The June 18th webinar is entitled “Small Business Owners: Get All the Tax Benefits You Deserve” and the June 20th webinar will cover the topic of “common mistakes.”  If you don’t have a chance to register and watch live, the IRS will be archiving both webinars on the IRS Video Portal.

Interested in hearing President Obama’s self-congratulatory introduction to National Small Business Week?  In a minute and a half he lists everything his administration is doing to help small businesses succeed.  Me neither.  But here’s the link anyways:

http://www.whitehouse.gov/blog/2013/06/17/50-years-national-small-business-week

Miller and Lerner Received Credible Threats

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There are many reasons why you should never threaten an IRS worker besides the fact that it is just not nice.  You could be blacklisted by the IRS or placed on their Potentially Dangerous Taxpayer (PDT) list.  Or, if the threat is serious enough, you could be prosecuted for an “attempt” crime like the Alaskan, Lonnie Vernon, who was recently sentenced to over 25 years imprisonment for conspiracy to kill an IRS Revenue Officer.

The IRS is abundantly aware of the risk involved in collecting taxes, especially when enforced collection actions, such as bank levies and wage garnishments, are employed.  IRS personnel have protocol for handling potentially dangerous situations and there are procedures (many carried out by TIGTA) in place to help protect IRS employees who have to work in these conditions.  Most often, the IRS employees who are subject to threats and dangerous situations are the Revenue Officers who work on the front lines and have direct personal contact with taxpayers.  However, we are currently hearing about threats directed at high-level IRS officials based on their supposed responsibility for the shortcomings associated with the IRS scandal.

Both Steven Miller (former acting IRS Commissioner who was fired by President Obama on May 15th) and Lois Lerner (head of the IRS tax exempt unit who has placed the blame on folks in Cincinnati) have been intimidated by threats of physical violence according to their attorneys and others who are close to them.  This is not normal.  Even the person holding the top job at the IRS, the Commissioner, typically has required very little by way of security over the years.  Maybe this will have to change.

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.

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.