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.

Boston Marathon Tax Relief

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Did you file your tax return yesterday? If not, did you file an extension to file? While your typical tax extension is only an extension to file your actual tax return, but not an extension to pay the tax owed, the Internal Revenue Service announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s Boston Marathon explosions.

Smartly, the IRS is allowing geographic and disaster related tax relief. This tax relief applies to all individual taxpayers who live in Suffolk County, Massachusetts. Since the marathon was both a national and international event, the tax relief also applies to victims, families, first responders, others impacted by Monday’s Boston Marathon tragedy who live outside of Suffolk County and other taxpayers whose tax preparers were adversely affected by the tragic events.

“Our hearts go out to the people affected by this tragic event,” said IRS Acting Commissioner Steven T. Miller. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

Under this specific tax relief program, the IRS will allow eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. Normally, non-filing and non-payment IRS penalties are severe and crushing. Under this tax relief program, no filing and payment penalties will be due as long as the tax returns are filed and the payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

Unlike other IRS tax relief programs, generally, no specific action is necessary for this program. The IRS will automatically provide this extension to anyone living in Suffolk County. However, action is needed for impacted and qualified taxpayers who reside outside of Suffolk County. Eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 beginning Tuesday, April 23, and identifying themselves to the IRS before filing their tax return or making their tax payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

"irs.gov is not responding"

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This is the error message I kept getting when I tried to navigate around the IRS website today.  I don’t know enough about computers to say for sure what is going on, but I would guess the problem is too much internet traffic from last minute filers and refund seekers.

Happy Tax Day! – April 15, 2013

The most useful bit of advice I could give today is this: if you’re not 100% prepared to file your taxes, don’t throw your forms together at the last minute.  File an extension!  Enough said.

File an extension using Form 4868.

Birkenfeld Was an Anomaly

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The IRS is still not doing enough to attract whistleblowers and to move whistleblower cases along towards a resolution.

After the IRS awarded Bradley Birkenfeld $104 million for blowing the whistle on UBS last September, I wondered if there would be an increase in whistleblower cases, and there was.  But it was short-lived.  2012 actually saw a total of only 332 tips, down from 472 in 2009.  I also wondered if the Birkenfeld case represented a new era for the IRS Whistleblower Office and if we would continue to see handsome, timely payouts.  Well, if there have been payouts, the IRS isn’t making them public.  A private whistleblower award is almost pointless because it doesn’t spark the desire in others to come forward and it does nothing to deter would-be tax cheats.  So if we’re not hearing about awards, chances are they aren’t happening.

The IRS is a revenue collecting machine and the idea that “you have to spend money to make money” applies just as much to the IRS as it does in the business world.  The IRS understands this reality.  When the IRS pleads for more money for staffing they tend to cite the statistic about how the IRS is able to collect something like $194 for every dollar spent.  Why can’t they embrace this philosophy in other departments of the IRS?  They will collect more in the long term through voluntary compliance if they would just fix what is wrong with the Whistleblower Office.

IRS Getting Geekier

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As if the IRS weren’t geeky enough already, according to a US News Money story, they are really stepping up their game with regard to tracking taxpayers’ digital activities.  I sometimes lovingly refer to IRS employees as bean counters, and I similarly use the term geek here with all due respect.

The IRS has new advanced digital tracking technology similar to “cookies,” — but more powerful than cookies because the IRS also has access to social security numbers and other confidential information unavailable to the private sector.  It isn’t clear exactly how the IRS will use this new technology, but it appears they will have access to pretty much anything you do online whether it be posting on Facebook, making a purchase with your credit card, or anything in between.

Understandably so, the IRS isn’t rolling out this technology with much fanfare or noise.  The less the public knows about what triggers an IRS audit or what information is used to identify suspicious activity, the better, as far as the IRS is concerned.  But industry experts and scholars are very concerned about what all this could mean for individual privacy rights.  One thing that is clear is the IRS can’t continue to operate under procedures and safeguards that were designed when everything, including tax returns, was recorded on paper.

So, exactly how much can the IRS find out about you?  The answer to this question is quickly approaching “everything” if at one time it was somewhere in cyberspace.

And finally, some interesting geeky statistics:

  • An entire year of tax returns occupies 15 terabytes (only 1.5% of total IRS storage)
  • Total IRS storage is 1.2 petabytes (one quadrillion bits of information)
  • IRS has expanded its data capacity  by 1,000 percent in the past six years

IRS Expands ID Theft Program to All 50 States

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Around this time last year, the IRS began a pilot program in the state of Florida that allowed IRS personnel to share confidential taxpayer information with local law enforcement to simplify the finding and prosecuting of identity thieves. Then in October 2012, the IRS opened up the program to eight more states: California, Texas, Alabama, Oklahoma, Georgia, Pennsylvania, New Jersey, and New York. Now effective Friday, March 29, 2013, the “Law Enforcement Assistance Program” has been opened to all 50 states.

This is basically how the program works:

  • Local law enforcement identifies potential identity theft situation
  • With the help of IRS, local law enforcement reaches out to identity theft victim to request consent for disclosure of personal tax records
  • If victim agrees to disclose the information, the victim completes a special IRS disclosure form
  • Law enforcement submits paperwork to IRS Criminal Investigation
  • IRS Criminal Investigation processes the paperwork and disclosure forms, then forwards the relevant documents to the requesting local law enforcement officer(s)

This appears to be an important and successful program, with more than 1,560 waiver requests received over the last 12 months. However, it is also apparent that the goal of helping the victims of identity theft will be achieved with or without the cooperation of local law enforcement. The IRS says it has resolved a whopping 200,000 identity theft cases since the beginning of 2013!

The IRS follows a three-pronged approach to combating identity theft:

  1. Prevent it from ever happening in the first place
  2. Where it cannot be prevented, detect it as early as possible
  3. Assist those who have been victimized

IRS Regrets Star Trek Parody

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The Internal Revenue Service has now released the Star Trek parody training video it produced at the cost of $60,000.  The video’s release was soon followed by a formal apology.

The IRS recognizes and takes seriously our obligation to be good stewards of government resources and taxpayer dollars. There is no mistaking that this video did not reflect the best stewardship of resources.

In the past few years the IRS has struggled fulfilling its responsibilities on a tight budget.  This video raises some serious questions for IRS management.

I watched every painful second of this video and, frankly, I’m more offended by the quality of the acting and the production than I am by the cost of making the video.  With that kind of budget I would have expected something better.  William Shatner himself found it apalling.  See for yourself: IRS Star Trek parody.

As a tax attorney I have spent hundreds of hours on the phone with IRS personnel over the years, and I can count on one hand the number of folks who had any sense of humor.  I think this video was well-intentioned, but it just reinforces the public perception that most IRS employees are unhappy working stiffs who lack passion and creativity and only care about punching out at the end of their shift.

Controversial IRS Parody Videos

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There is plenty of controversy surrounding the IRS’ $4 million per year professional video production studio in New Carrollton, MD.  Most of the controversy has been stirred by a man named Charles Boustany, Jr., chairman of the House Ways and Means Oversight Subcommittee who sees the studio as the ultimate in government waste.

In an attempt to gather details to strengthen his case against the IRS and its television studio, Boustany became aware of a couple parody videos produced by the IRS at a combined cost of $6o,000, and he wrote a letter to the IRS demanding that the videos be made public.  The IRS has admitted the existence of the videos and confirmed that they are indeed parodies of the old TV shows Gilligan’s Island and Star Trek, but the IRS has so far refused to release them to Boustany.

I’d be interested in seeing the videos too, although I admit it would be more out of morbid curiosity than anything else.  I feel like I’ve been shown a teaser for a movie that I’ll never get to see.  It’s easy to see both sides of the issue:

PROS: The production studio is necessary because the IRS has been able to create a popular collection of YouTube videos that are valuable for educating the taxpaying public.  The studio also provides a means for training and educating IRS employees through visual media, which is often less expensive than flying employees here and there for meetings in different cities.  Humor is an effective tool in training meetings.

CONS: Besides a few key videos (for example, one showing how to check the status of a refund, and one showing how to get your tax return prepared for free) the IRS YouTube videos are really not all that popular, so how much they actually help educate the general public is highly questionable.  High quality videos are fine in the right economic climate, but we just don’t have the money for this kind of thing right now.  Training videos don’t have to be entertaining.

You know, if an IRS employee can’t stay tuned into a regular boring video, then maybe they’re not the right person for the job because bean counting can be pretty boring too.

Refund News: Some Good, Some Bad

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The Good

The IRS is sitting on $917 million in refunds for people who haven’t yet filed their 2009 tax return.  They made the announcement today via IRS Newswire.  See IRS Newswire Issue Number IR-2013-29.  If you’re wondering why they waited until 3 years later to get the word out, well it is with good reason.  As you know, if you are due a refund, the only way to claim it is to file a return; the IRS won’t just write you a check on its own initiative.  But even if you are due a refund, you can only delay so long before the money becomes property of the US Treasury.  By law, taxpayers have 3 years from the date that the return is due to file and claim a refund.  2009 taxes would have been due on April 15, 2010, so the three year mark is coming up in about 30 days.  Over 984,000 people didn’t file their 2009 return, so many of the refunds are fairly small.  But the IRS estimates that over half of the unclaimed refunds are over $500.  Therefore, it is well worth the time and expense to file it, particularly if you can claim the Earned Income Tax Credit (EITC) for that year.

The Bad

The IRS swore that delaying the start of tax season would not result in delayed refunds, but this may have been a promise that was impossible to keep.  On March 12, the IRS released the following statement:

The IRS is aware of a problem with a limited number of software company products that affected some taxpayers filing Form 8863, Education Credits, between Feb. 14 and Feb. 22. The problem resulted in those tax returns requiring additional review by the IRS.

What this means for taxpayers who expect a refund is they may have to wait 4-6 weeks longer than previously expected as the IRS looks more closely at their Form 8863.  90% of those who claimed the education credits will get their refund right on time.  The software glitch was with H&R Block, so it is only the 8863s filed by that company that are subject to further IRS review.  I guess the silver lining here is with respect to balance due returns. Tax assessments will presumably be delayed as well, which could give people some extra time to figure out how to resolve their tax debt.

The IRS and Public Perception

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In the United States, payment of taxes is based on “voluntary compliance.”  We figure out what we owe on our own (or we pay somebody else to do it), and then we pay what we owe based on the honor system that we all learned in Kindergarden.  Of course, when you pay less than your legal share, the IRS will bare its teeth and audit you to make sure you don’t get away without paying your tax debt.  The IRS can impose severe penalties and criminal sanctions as well.

The IRS doesn’t have the resources to find and punish each and every tax cheat, so they must do what they can to control public perception.  They do this by publicizing and leveraging stories, events, and statistics that motivate taxpayers to play by the rules.  The IRS is very strategic about the timing of these stories.  Unless you live under a rock, you have probably noticed that they can be found at every turn right around tax time.

Sometimes the message is “Look, U.S. taxpayers are honest with their taxes, and you should be too” (see IRS Tax Cheat Poll).  But, by far the more common message is “Look what this guy did, and how much trouble he got into; you should avoid this.”  Sometimes the intended audience is the taxpayer and sometimes the intended audience is the tax professional.

Here is a current example of the latter.  The IRS recently went public with the disbarment of an Enrolled Agent named Lorna Walker.  An Enrolled Agent is neither an accountant nor a tax attorney, but may represent taxpayers before the IRS.  Their conduct is governed by Circular 230.  Walker will be taking a mandatory 5-year vacation from her EA work because she stole money from her client that was intended for the IRS.  She also prepared tax returns with phony Schedule C deductions.

And finally, if you still don’t think the IRS is concerned about PR and public perception, try explaining why they would consider spending $15 million on a PR contract.

Just Over One Month to Go In Tax Season and You Can Finally File Your Tax Return

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Over the weekend, the Internal Revenue Service (IRS) finally completed reprogramming and testing its systems for tax-year 2012. This includes the lingering updates mandated by the American Taxpayer Relief Act (ATRA) enacted by Congress back in January. This final update finally allows all taxpayers to prepare their tax returns. The final updates apply to taxpayers claiming residential energy credits on IRS Form 5695 and taxpayers claiming various business tax credits and deductions on their federal tax returns.

The IRS began accepting tax year 2012 returns in phases as it worked over the past several months to update various forms and make adjustments to processing systems to apply the current tax laws. Finally, with just six weeks to go before this year’s April 15, 2013 deadline, all IRS tax returns can now be filed. And, if you quickly find out that you’re in tax trouble, now that you can actually file your tax return, the tax relief attorneys at Montgomery & Wetenkamp will be able to resolve your IRS tax debt problems, call us toll free at (800) 454-7043.