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.

The National Debt Ceiling: The "Other Cliff"

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By now you probably know that the dreaded fiscal cliff has been averted, at least for a month or two.

The term fiscal cliff refers to the potential for a deeper recession that would have been triggered by the terms of the Budget Control Act of 2011 which was scheduled to go into effect on January 1, 2013. It was thought that if the Bush-era tax cuts were allowed to expire, thereby raising taxes for virtually everybody, at the same time that mandatory governmental spending cuts were scheduled to be implemented, there would be a devastating impact on the U.S. economy such that the economy would be in a free-fall … over the cliff.

The government narrowly avoided the fiscal cliff by passing the American Taxpayer Relief Act in these first days of 2013. The compromise that was reached focused primarily on tax relief and not spending cuts. The main impact will be on those taxpayers who are considered wealthy. However, if you were paying attention during the presidential campaigns, you will notice that the income threshold for those who are considered “wealthy” increased significantly from the time of campaigning to the thresholds established through this deal.

The next political hurdles are the negotiations on the spending cuts and the debt ceiling. Very simply, the debt ceiling is the maximum amount that the federal government can borrow at any given time and in-turn, pay its obligations that have already been incurred. If a compromise cannot be reached, the economy may go off the fiscal cliff despite the recent deal. Congress has about two months before it must raise the debt ceiling or risk causing the government to default on its bills and financial obligations. If a deal is not made, a federal government shutdown is possible. This may include suspension of the payment of federal benefits and payroll, in addition to the shutdown of government departments such as the Internal Revenue Service, during the height of tax season… of course.

IRS to Announce Official Start Date of Tax Season

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image via imisioluwa.blogspot.com

So, what is the official start date of the 2013 tax filing season? In other words, what is the first day that the IRS will begin accepting 2012 tax returns? This is still an open question.

Without congressional action, the IRS had said that they would not be able to accept a majority of tax returns until March. But Congress has acted and now it is just up to the IRS to make a decision about the “start date.” Once the IRS has finished reviewing the new legislation, they will announce the official start date of the 2013 tax season. The IRS will also have information about paycheck withholding based on the new tax rates.

Until then, there are typically plenty of things to do in preparation for filing your tax return, especially for the self employed. Now is the time to organize your records and identify a qualified tax preparer. If you anticipate tax problems this year — if you are going to owe the IRS more than you can pay — then it will also behoove you to identify an experienced tax attorney who can represent your interests before the IRS.

What is "Routine Maintenance" at the IRS?

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photo via longtimecomingg.blogspot.com

Maybe I’m not tech savvy enough to understand, but when the IRS announces that their Centralized Authorization File system (CAF) will be down for “routine maintenance,” I tend to imagine them dusting, mopping and shredding. Actually, this planned outage is something that happens every year at the end of December.

CAF is responsible for processing Power of Attorney forms.  A tax attorney or other tax professional is not permitted access to a taxpayer account without an active POA. CAF will be down from December 26, 2012 through January 2, 2013 so no new POA forms will be received or processed in that office until after January 2nd.  However, a taxpayer account can still be accessed by faxing a POA form directly to the service center of the IRS representative you are working with.

Of course, “routine maintenance” is just a code word; we all know what is really going on this time of year.  IRS personnel are decorating their cubicles, playing Secret Santa, and throwing office parties.

Three Projects for the New Commish

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Forbes contributor Stephen Dunn recently blogged about the challenges facing the presently-unnamed IRS Commissioner.  He identified three problems that he feels should be given serious attention once the new commissioner takes office.

1. IRS practioners need a more efficient way to get their hands on taxpayer transcripts.  It is inconceivable that Dunn, as a 27-year tax attorney, would be unable to gain access to his clients’ transcripts through IRS’ E-services.  However, I can personally attest to the complications involved in registering for E-services.  There is no reason why a tax attorney should have to call the IRS simply to order transcripts.  The procedure needs to be simplified.

2. The IRS should change its federal tax lien (FTL) filing procedure.  Dunn believes that the current practice of public lien filing opens the door for abuse by shady tax resolution firms who use lien lists to mass mail thousands of fliers encouraging recipients to call for tax help.  I can see his point here too, even though the abusive tax lien mailers are pretty easy to spot.  Instead, Dunn proposes a solution whereby firms or individuals would have to affirmatively request FTL information from the IRS instead of having that information available to the public.

3. The IRS must stop sending out refunds based on fraudulent 1099 forms.  This popular scam has truly gotten out of control, with millions of dollars being paid to criminals each year.  And it really needs to be prevented on the front end because after the refund has been paid, it costs way too much to try to get the money back.

The new commissioner is certainly going to inherit a large “to do” list.  This is only the start.

IRSAC 2012 Report, Part II

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Identity theft is another prevalent issue for the IRS and another topic that the IRSAC has attempted to address in its report.  But I don’t think their recommendation for curbing identity theft would be popular with most taxpayers who (mistakenly) see their April refund check as the ultimate form of tax relief:

The IRS should strongly consider delaying refunds until after verification of the taxpayer’s identity. For taxpayers that rely on an early refund in January, the IRS should consider a process under which 25 percent of the refund is issued prior to verification, and the remaining 75 percent issued after verification.

Everything the IRS has done up until now has been aimed at speeding up the refund process and shifting over to a “real-time” tax system.  See IRS Real Time Tax Initiative.  But with the onslaught of fraudulent refunds obtained by using stolen identities, the IRS may have to backpedal somewhat.  The thought of having to wait a little longer will be very frustrating to the average taxpayer.  I imagine it would be somewhat like having to go back to a dial-up internet connection after being accustomed to DSL.  Of course, from a tax attorney perspective, the solution is to adjust your withholdings so you don’t end up with a huge refund in the first place.

IRSAC 2012 Report

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The 24-member Internal Revenue Service Advisory Panel (IRSAC) published their 2012 public report, and their suggestions for improving the Practioner Priority Service (PPS) are spot on.  If the IRS follows these recommendations, there is no question it will improve access to tax relief.

The level of service and number of calls that can be handled by PPS is dropping due to budgetary constraints, so the IRS will need to figure out how to encourage practitioners to turn to E-Services more often and they will also need to be more efficient with the calls that they do take.

There were 14 suggestions in all, but my favorite has to do with the handling of Form 2848 (IRS Power of Attorney).  It currently takes about 10 days to process a F2848.  If the IRS would establish a priority CAF fax number that would be used through E-Services, processing times could be improved dramatically.  IRSAC also suggested that the IRS service center reps stop being so nitpicky with their POA verifications.  Currently if a practitioner calls before a F2848 has been processed by the CAF Unit, he/she must fax in the POA while on the line with the service center rep in order to obtain access to the account.  That’s fine; that makes sense.  However, if the practioner calls in a day or two later (before the CAF Unit has processed the POA), he/she is required to fax it over again.  IRSAC recommends making a simple notation showing that the F2848 has already been reviewed/approved.

CSEDs – Part II

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I have written about CSEDs before.  These are the statute of limitation periods in tax cases; the “Collection Statute Expiration Dates.”  In a previous blog post, I listed what kinds of events can suspend the CSED.  Here I would like to address a couple additional details.

1. Waivers / Extensions (IRM 5.1.19.1)

If you are asked to sign a CSED waiver or extension, you are essentially agreeing to give the IRS additional time (beyond the standard 10 years) to collect the tax from you.  You are giving up the tax relief available to you at the end of the tunnel.  Before the 1998 tax reform, IRS revenue officers were essentially free to secure CSED waivers under any circumstances imaginable.  Also, there were no restrictions on how many waivers could be obtained from the same taxpayer or how far into the future the CSED could be extended.  Today CSED waivers have gone almost completely out of fashion, although some are still obtained in connection with installment agreements as required by law.

2. Substitute for Return (IRM 5.1.19.3.15)

A Substitute for Return (SFR) is an IRS-filed return that leaves out important exemptions or expenses you may be entitled to and may overstate your real tax liability.  Some believe that if a taxpayer goes back and files his own original return, this action automatically resets the CSED for that particular tax year.  This is not necessarily the case.  If the original taxpayer-filed return results in a lower liability, the original CSED remains intact.  And if the original return results in a higher liability, the CSED is updated (extended) only on the additional assessment.  A fine distinction, but an important one nonetheless.

Shulman Looks Back on His Accomplishments

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Doug Shulman will be completing his term as IRS Commissioner on November 11, 2012. He spoke to the AICPA in Washington D.C. today. Shulman said that he likes to focus on priorities and not get distracted by crises that tend to crop up. His principal achievements:

  1. Shutting down international tax evasion through voluntary disclosure programs
  2. Softening the “adversarial relationship” between the IRS and corporate taxpayers
  3. Transforming the IRS’ account processing from a weekly cycle to a daily cycle to achieve more real-time processing and analytics
  4. ensuring basic competency for paid tax return preparers by getting them registered and keeping them educated
  5. leveraging data analytics to, for example, vet out tax return preparers who make a habit of preparing inaccurate returns or avoid paying out fraudulent returns
  6. improving the customer service experience when taxpayers phone the IRS seeking tax relief and account-related questions
  7. performing all the other tasks that the IRS is called upon to do (such as the enforcement function of the Affordable Care Act)

 [P]roviding quality customer service is a key priority of mine…and every bit as important as enforcement.

~ Doug Shulman, Commissioner of the IRS

Sandy: Extended Tax Relief

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The IRS has expanded the tax relief granted to individuals affected by hurricane Sandy.  This comes as no big surprise given the fact that the IRS had initially given a meager 7 additional days to file employment tax returns that were due on October 31st.  The IRS is now expanding relief categories and extending the deadline to February 1, 2013.  Also, the IRS has now identified specific counties that automatically qualify for relief.

Here is a new breakdown of the types of tax requirements with an extended February 1, 2013 deadline:

  1. Fourth Quarter estimated tax payments for individuals
  2. Third Quarter payroll and excise tax returns
  3. Fourth Quarter payroll and excise tax returns
  4. Form 990 series returns required of tax-exempt organizations

Tax relief is automatic for residents of 4 specified counties in Connecticut, 10 counties in New Jersey, and 9 counties in New York.  The IRS is also demonstrating compassion for people who were indirectly affected by Sandy.  So, if your tax records or your CPA were located in any of the listed counties during the storm, or if you were helping with rescue and relief efforts, you may also qualify for tax relief, but you will need to call the IRS and request it.

When E-Filing Isn't Fast Enough

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The IRS always prefers that you file your tax return electronically.  The number of electronically filed returns continues to increase each year, and there is no question about the benefits of E-filing in terms of both accuracy and efficiency.  However, from the perspective of a tax attorney, there are definitely situations when it is better for the taxpayer to drop off a paper return at the local Taxpayer Assistance Center (TAC).

Here is just one example.  Suppose taxpayer has a delinquent 2010 tax return, and now that it is well overdue, the IRS has given him an arbitrary new filing deadline.  If taxpayer misses this deadline, the IRS has promised there will be enforced collection activity, including the possibility of a wage garnishment or bank levy.  If taxpayer finds himself right up against his new filing deadline and he files electronically, the return is not going to show up in the IRS computer system immediately and there could be trouble.  Even if the return is filed before the deadline, the IRS won’t know it, and it could quickly shut down negotiations for tax relief.  However, if taxpayer walks his return down to the local TAC, he can get the return date stamped as “received” and, providing a copy of that date-stamped return as proof, can more expeditiously get the IRS to back down on the levy threats.

At the core of this problem is the fact that the customer service people at your local TAC are ordinarily not the same people who process the returns.  The TAC people will normally have to ship returns they receive off to processing centers.  Practitioners who drop off stacks of returns at local TACs tend to overburden these walk-in offices, which can diminish the level of service given in truly urgent situations like the one described above.  The IRS is trying to eliminate this practice.  Beginning this year, the IRS will no longer accept bulk return filing at its Assistance Centers.  This will be the general rule; exceptions will be considered on a case-by-case basis.