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 Closed Tomorrow – That Levy Release Will Have to Wait as the Potluck has Begun

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The Potlucks have begun in the bowels of the Internal Revenue Service (IRS) today in celebration of what is essentially a four-day weekend.  The Tax Battalion notified you on April 22, 2013, of the news announced by the IRS on May 15, 2013, that they would be closed additional days due to federal budget woes.

The IRS closures are scheduled for May 24 (tomorrow), June 14, July 5, July 22 and Aug. 30, 2013. Each of these closure or furlough days are conveniently scheduled to coincide with a federal holiday, manufacturing a four-day weekend for those people who collect your taxes, but not for those who owe the taxes (this isn’t necessarily true, click to read more about IRS Employees Tax Debt).

Beginning (officially) tomorrow IRS operations will be closed. This means that all IRS offices, including all toll-free hotlines, the Taxpayer Advocate Service and the agency’s nearly 400 taxpayer assistance centers nationwide, will be closed. IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place.

The IRS while firing up the BBQ noted, of course, that taxpayers should continue to file their returns and pay any taxes due as usual. However, since none of the furlough days are considered federal holidays, the shutdown will have no impact on any tax-filing deadlines. The IRS will be unable to accept or acknowledge receipt of electronically-filed returns on any day the agency is shut down. However, where the last day for responding to an IRS request falls on a furlough day, the taxpayer will have until the next business day. The short of it is, if you haven’t obtained that bank levy release yet, it’s not going to happen until the IRS returns to work with a suntan and a full belly on Tuesday, May 28, 2013.

IRS Tax Relief Issued in Oklahoma Tornado Zone

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Are you going to miss an Internal Revenue Service (IRS) deadline? You better have a good excuse! The IRS with all its fails is usually pretty good about recognizing a legitimate excuse for missing tax deadlines, so long as it applies to the masses. The two-mile wide tornado that caused so much carnage throughout Oklahoma on Monday, has been officially recognized as worthy for tax relief by the IRS.

After being officially declared as a disaster zone by Federal Emergency Management Agency (FEMA), the IRS announced that affected taxpayers in Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties will receive special tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.

Unlike the tax relief issued after the Boston Marathon Bombing which occurred on Tax Day (the deadline to file personal federal tax returns) the IRS deadlines to be missed are less common; but common nonetheless. Beginning on May 18, 2013, affected individuals and businesses will have until Sept. 30, 2013 to file any returns and pay any taxes due. This includes the June 17 and Sept. 16 deadlines for making estimated tax payments. A variety of business tax deadlines are also affected including the July 31 deadline for second quarter payroll and excise tax returns and the Sept. 3 deadline for truckers filing Form 2290 highway use tax returns. The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can claim those losses on either last year’s tax return or this year’s return. Claiming these casualty loss deductions on either an original or amended 2012 return will get the taxpayer an earlier refund but waiting to claim them on a 2013 return could result in greater tax savings depending upon other income factors.

The Tornado Tax Relief will be automatically provided to any taxpayer located in the disaster area. However, taxpayers who live outside the disaster area but whose books, records or tax professional are located in the affected areas will need to contact the IRS at 866-562-5227 to obtain tax relief.

IRS Stat Interpretation

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I always find it interesting that when the IRS comes out with new statistics, they try to distort them ever so slightly to appear more in their favor.  Or the IRS will highlight one thing and downplay another.  Most of the time it’s hard to see what benefit they find in this.  Here is an example I found on the News & Events page of the IRS website that compares data from May 10, 2013 with data gathered at this time last year.

The article bears the title “More Taxpayers e-file from home in 2013,” which also happens to be the first distortion.  There are a number of statistics on this page, including the drop in number of refunds issued, the drop in refund dollar amounts, and the drop in total money refunded countrywide.  That’s a pretty important statistic, isn’t it?  And never mind the fact that the total number of tax returns received so far has dropped as well as the total number of tax returns that have been processed.  That kind of information could have made an equally relevant title, right?

And the most drastic percentage change (in this news release) from 2012 to 2013 was regarding irs.gov visits.  As of May last year, 255,269,615 people had accessed the IRS website looking for information about their individual tax questions.  This year that number climbed to 318,408,842.  That’s a 24.7 percent increase!  This was also a stat that the IRS liked because they flagged it and noted that “More people are using IRS.gov to get answers, file their returns and resolve issues.”  But are they really obtaining a positive result on the website?  This is the way I interpret the stat: the IRS can’t take many taxpayer calls because there is not enough money to hire the right number of personnel, so people have resorted to finding things on their own on irs.gov.

IRS Scandal: Damage is Done

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As we learn more about the recent IRS scandal, it appears that it was not limited to low-level employees in Cincinnati.  Top IRS officials in Washington may have known what was going on as far back 2011.  Although the president has promised a full investigation into the matter, much of the damage has already been done.  An alleged criminal who successfully defends himself in court is still sullied by the criminal trial itself.  Likewise, even if the IRS is successful in explaining away some of the accusations of political bias, there are many individual taxpayers who will have already lost faith in the IRS.

When people ask me about interacting with the IRS, I tend to speak very bluntly about the adversarial relationship; that the IRS is not on their side in looking for tax relief and that their one goal is to collect as much money from them as legally possible.  However, I stop short of saying that the IRS will cheat people out of the money they have earned or that they will treat some groups or people differently, even though I know for sure that it’s not out of the question.  No doubt this scandal raises some serious questions for the average taxpayer:

“If high-level IRS administrators will not deal fairly and neutrally with all taxpayers, or will turn a blind eye to bias, then why couldn’t it just as easily (or even more easily) happen with regard to my own individual taxes?” 

“If the IRS will not administer the tax laws fairly and neutrally, then why am I even paying?”

You’re not paranoid if you think you’re being targeted by the IRS for tax purposes.

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According to CBS and Reuters, the Treasury Inspector General for Tax Administration (TIGTA) is expected to publish an investigative report this week detailing that Internal Revenue Service (IRS) agents specifically targeted conservative groups for review and consideration of their tax exempt status.

According to Reuters, director of exempt organizations for the IRS, Lois Lerner apologized Friday for what she called the “inappropriate” targeting of conservative groups for closer scrutiny, something the agency had long denied. She said the screening practice was confined to an IRS office in Cincinnati; that it was “absolutely not” influenced by the Obama administration; and that none of the targeted groups were denied tax-free status.

The TIGTA findings detail that the names and purposes of groups were used to scrutinize applications. Name scrutiny included organizations such as Tea Party, Patriot, and 9/12. Scrutiny was also being improperly given to references to government spending, government debt, taxes, education of the public via advocacy/lobbying to make America a better place to live; and statements that criticize how the country is being run.

IRS employees are presently prohibited from targeting anyone for their political or religious beliefs. However, under current law such conduct would only be grounds for termination. Wasting no time to ride the coattails of a juicy scandal, Congressman Mike Turner of Ohio already unveiled a bill to make such actions a felony. Considering that nobody seems to know anything in these types of cases, and that the portions of the report available so far appears to be no different, it will be interesting if anyone is ever prosecuted criminally if the bill were to pass.

Is Your Online Imprint Going to Trigger an IRS Audit?

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In mid-April I noticed a rather innocuous news release on the IRS website in regards to some type of email policy. If it wasn’t so cryptic and fraught with legal positioning, I would probably have considered it with the same drab spun by the IRS press cycle on a daily basis. However, the statement was so obtuse, it required at least a Google search or two to decipher the precipitous for the need to publically proclaim their position on email surveillance.

Here’s the IRS statement from April 18, 2013:

“Where the IRS already has an active criminal investigation and seeks to obtain the content of emails from an Internet Service Provider, we obtain a court ordered search warrant. It is not the IRS policy to seek the content of emails from ISPs in civil cases. Respecting taxpayer rights and taxpayer privacy are cornerstone principles for the IRS. Our job is to administer the nation’s tax laws, and we do so in a way that follows the law and treats taxpayers with respect. However, to resolve any remaining confusion surrounding this issue, the IRS is reviewing its policy and guidance and will make appropriate updates.”

I don’t have a crystal ball or a microphone in the IRS headquarters, but I believe the precipitous for the statement was damage control based on numerous news stories circulating recently that the IRS was beginning to use more than the standard tax disclosures to catch you in a tax lie. It was reported that the IRS was acquiring personal information on taxpayers’ online activities, from eBay auctions, Facebook posts, credit card transaction records, and e-payment transaction records, to verify the information reported (or not reported) on your tax return.

It was reported that the new online surveillance policy was precipitated because the IRS is under heavy pressure to help the federal government out of its budget crisis by chasing down revenue lost to evasions and errors each year. According to Edward Zelinsky, a professor at Benjamin N. Cardozo School of Law and Yale Law School. “I am sure people will be concerned about the use of personal information on databases in government, and those concerns are well-taken. It’s appropriate to watch it carefully. There should be safeguards.” He adds that taxpayers should know that whatever people do and say electronically can and will be used against them in IRS enforcement. Be warned.

It is alleged that the IRS is going a step beyond law enforcement agencies that use openly displayed social media information such as twitter, facebook, and instagram to prove illegal activity by asserting there is no right to privacy in personal correspondence via email, facebook chats, twitters direct messages, and similar non-public online communications.

According to a blog post by Nathan Wessler on the ACLU’s blog, even though judges are holding that people’s emails are private communications (most notably in United States v. Warshak, a 2010 decision from the Sixth Circuit Court of Appeals), the IRS is going its own way on the matter, claiming that Americans have no privacy rights in any correspondence sent via the internet, so that the IRS has no obligation to get search warrants. It was the policy of the IRS to read people’s email without getting a warrant. Not only that, but the IRS believed that the Fourth Amendment did not apply to email at all. A 2009 “Search Warrant Handbook” from the IRS Criminal Tax Division’s Office of Chief Counsel baldly asserts that “the Fourth Amendment does not protect communications held in electronic storage, such as email messages stored on a server, because internet users do not have a reasonable expectation of privacy in such communications.” Again in 2010, a presentation by the IRS Office of Chief Counsel asserts that the “4th Amendment Does Not Protect Emails Stored on Server” and there is “No Privacy Expectation” in those emails.

I suppose the end result for me on this issue is the portion of the statement that reads: “It is not the IRS policy to seek the content of emails from ISPs in civil cases.” In my dealings with the IRS in non-criminal cases, policy has no president or consideration in a collection case. Therefore, you should consider your online footprint a fishbowl for IRS audit fodder.

IRS Employees Protest Planned Furloughs

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Why is it so amusing to imagine IRS employees picketing?  I almost wish I could be in Manhatten next week to see how it goes for them — it’s sure to be pretty rowdy, right?

The rally was organized by the National Treasury Employees Union (NTEU) Chapter 47 which represents IRS employees in Manhatten.  They will be protesting the upcoming unpaid furlough days, hopefully not using signs made with government materials on government time.

This is only one of many demonstrations that have taken place outside of IRS offices around the nation this year, including NTEU Chapter 20 in San Francisco on February 28th, Chapter 92 in San Diego on March 7th, Chapter 97 in Fresno on March 22nd, Chapter 143 in El Paso on March 23rd, Chapter 61 in Albany on March 26th, and Chapter 34 in Pittsburgh on April 15th.  Yes, that’s right, April 15th!  Here is Chapter 34 posing for a picture on the IRS’ busiest day of the year with one employee holding a sign that says (ironically, I think) “Let Me Do My Job”:

photo via www.nteu.org

I really don’t have a problem with IRS employees protesting the sequester and furloughs.  I realize that they’re doing it on their lunch breaks.  I just think it’s funny that they are so opposed to a few days off this year.  Although they wouldn’t openly admit it, I suspect that more than a few IRS employees would be upset if the government reneged on the furloughs.

Foreign Accounts & Quiet Disclosures

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There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.

This principle holds true with respect to the reporting of foreign bank accounts.  Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time.  But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.

There are some who want to get back on the grid without having to pay hefty penalties.  They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years.  This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.

According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify.  The IRS is taking tips from GAO on how to detect more of these quiet disclosures.

Long Holiday Weekends for IRS This Year

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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?

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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.