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.

International IRS Offices

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US citizens and resident aliens must report their worldwide income, meaning income from all sources within or outside of the United States.  The IRS receives tax filings and payments all year round and from all over the world.  If you derive income from sources in either Frankfurt, London, Paris, or Beijing and happen to be working there too, you have the fortune (or misfortune if you have an unpaid tax debt) to have an international IRS office nearby.

I would normally not recommend dropping in at a local IRS office.  You can usually get what you need more quickly, and with less hassle, by using the IRS’ website or by calling and speaking with a customer service representative if you don’t have a tax attorney.  However, if I worked in one of these four cities, I might give the international office a try.  They are located inside the United States embassies (or consulate in Frankfurt) and I would bet they do not get a lot of foot traffic.  Be sure to check the hours of operation here because they vary office to office, or visit the individual offices for more information:

image via lib.utexas.edu

Frankfurt

London

Paris

Beijing

IRS Gives Payroll Tax Extension for Business in Sandy’s Path

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photo via ibtimes.com

Filing and paying your taxes is a serious obligation that cannot easily be avoided or postponed.  If you fail to file and/or pay on time, you will be responsible for penalties and interest that can make your tax debt add up quickly.  Penalties and interest can sometimes be avoided by showing you had reasonable cause for filing and/or paying late.  For example, if you were incapacitated by serious injury or illness, or if there was some act of God occuring in your locality that prevented you from filing or paying on time, the IRS would likely abate the penalties and interest that would have accrued during that time.

Sometimes the IRS automatically grants penalty relief when there are major storms and disasters.  Reasonable cause is presumed in these situations and the taxpayer need not provide any individual proof.  FEMA has designated certain areas affected by Hurricane Sandy and related storms as official disaster areas and the IRS followed suit by granting limited tax relief.  The IRS is giving businesses an extra seven days to make their quarterly tax deposits — 3rd Quarter deposits that are normally due on October 31st, will not be late as long as they are made by November 7th.

Perseverance Pays Off

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It’s difficult to write about tax relief today after witnessing our beloved San Francisco Giants defeat the Detroit Tigers in a four-game World Series sweeeeeep!  What a dramatic series, and what an amazing season!  One of my favorite stories is that of Barry Zito, who didn’t even make the roster in the club’s 2010 World Series appearance.  He never gave up and battled back to become one of the KEY players in the Giants’ postseason.

Anyone who files a whistleblower claim must have similar tenacity and perseverance.  First it was Bradley Birkenfeld — who for his efforts and patience was awarded an unprecedented $104 million.  And now we hear of another whistleblower getting a cool $38 million from the IRS Whistleblower Office.  Only this time we don’t know the guy’s name and we don’t know the name of the firm with the illegal (or overly-aggressive) tax relief plots.  It is IRS policy to keep these details private so the individual may continue to work and maintain a somewhat normal life.  We only know about Birkenfeld because he agreed to allow the details to be publicized.

We have, however, heard from the whistleblower’s attorney who has expressed how pleased he is that the IRS has been able to keep things on the down low.  He gives the Whistleblower Office brownie points (1) for actually following through on a whistleblower payout, and (2) for doing so in a professional manner.

At the End of Shulman's Term

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photo via topnews.net.nz

With Doug Shulman concluding his service as Commissioner of the Internal Revenue Service early next month, I thought it might be nice to look at some of the details of the office itself and look back at some prior Commissioners.

The Office of Commissioner was created by Congress on July 1, 1862 even though the modern history of the IRS really began in 1913, ten years after the income tax was abolished.  IRS Commissioners are appointed by the President of the United States with the approval of Congress.  There was no set term prior to 1998.  For example, Guy T. Helvering was “sentenced” to over 10 years of service (from 1933 to 1943).  He holds the record for the longest term as Commissioner.  The shortest term was just over 3 months by Robert E. Hannegan which, coincidentally, was immediately following Helvering’s term in 1943.

Shulman came very close to serving a full 5-year term as he got his start back in March 2008.  Shulman took over after Mark W. Everson, who also served a 4-year term.  IRS has a complete list of all past Commissioners, in case you’re curious.

According to Shulman’s bio, his emphasis has been to strike a balance between providing excellent service to taxpayers (hopefully offering tax relief where appropriate) and enforcement of tax laws (i.e., collection back tax debt).  Has Shulman succeeded?

Steven Miller to Serve as Acting IRS Commissioner After November 9th

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We had heard this was coming: the Commish is officially stepping down on November 9th.

Doug Shulman, Commissioner of the Internal Revenue Service, the grand overseer and bestower of tax relief, tax policy, and tax programs good and bad, has served in this post ever since March 2008 when he was appointed by President George W. Bush.  He will be replaced by a “acting commissioner,” Steven Miller until a permanent replacement is named.

Since the position of commissioner is a presidential appointment, we won’t know who the permanent replacement is until after we know the outcome of the presidential election.  Experts agree that whoever it is that fills this position will be coming in at a critical and difficult time.  But there is also agreement among those that know him, that Mr. Miller will do a fine job in the interim.  In fact, one writer believes that Steven Miller will do a much better job with the Whistleblower Program than Shulman ever did.

Fresh Start Tax Relief Deadline Looms

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The Tax Penalty Relief provisions of the Internal Revenue Service’s (IRS) Fresh Start Tax Relief programs announced earlier this year, have a crucial deadline of October 15, 2012, next Monday. The IRS announced earlier in the year new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest penalties a financially distressed taxpayer faces on an IRS tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties was made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by October 15, 2012.

The penalty relief is available to two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return earlier this year.
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This specific penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until next Monday, October 15, 2012. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Interesting IRS Stats

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image via grabstats.com

Let’s look back on some of the statistics compiled by the IRS for Fiscal Year 2011 and try to determine what will be reported for FY 2012.  Will we see any new tax relief trends?  My source is the Statistics of Income tax stats found in the “IRS Data Book.”

  • Number of new deliquent tax accounts in FY 2011: 8,011,000 (17,000 more than 2010)
  • Number of untimely filed returns by end of FY 2011: 3,862,000 (162,000 more than 2010)
  • Number of Offers in Compromise filed: 59,000 (2,000 more than 2010)
  • Number of Offers in Compromise accepted: 20,000 (6,000 more than 2010)
  • Number of Federal Tax Liens filed: 1,042,230 (54,146 less than 2010)
  • Number of levy notices served on 3rd parties: 3,748,884 (142,066 more than 2010)
  • Number of seizures: 776 (171 more than 2010)

The only stat that appears to be on a downward trend is the filing of Federal Tax Liens.  This is good news for taxpayers.  For several years now advocacy groups have been questioning the efficacy of tax liens as a collections tool; maybe the IRS is finally listening.

More and more taxpayers continue to file and pay late, and incur tax debt.  And the IRS tries to keep pace by increasing active collection activities.

What about the Offer in Compromise acceptance rate?  You see a lot of percentages thrown around by tax attorneys and tax resolution firms.  But according to IRS’ figures, they accepted 25% in 2010 and 34% in 2011.  This is probably the most encouraging data of all. Let’s hope this trend continues and the IRS accepts event more offers in compromise when the statistics are available for FY 2012.

Letter Audit Process Nicer Now . . . But Not Faster

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photo via work.chron.com

The number of IRS “correspondence audits” has risen sharply in recent years.  A correspondence audit is a type of tax audit that is handled in the following manner:

  • The IRS sends taxpayer a letter questioning something on his/her tax return
  • taxpayer responds by providing documentation that substantiates the figures on the original return
  • the IRS then closes the case without making changes to the return, OR
  • the IRS sends another letter asking for additional supporting documentation, OR
  • the IRS proposes a tax change based on the information received

If the taxpayer disagrees with a tax change, he/she may appeal the decision.  It is called a correspondence audit because it does not involve an IRS auditor banging on your front door.

Taxpayers naturally want to know what is going on with their case; whether or not their documents have been received, whether or not the documents they submitted are sufficient, ultimately whether or not their tax problem has been resolved.  And in the past, the IRS has been slow to answer these questions.

But recently the IRS has made efforts to improve the correspondence audit process by something called the “Intelligent Contact Management System.”  See TIGTA report.  ICMS allows taxpayers to speak directly with IRS audit representatives rather than leave messages (under the old system) that were not being returned.  However, even though taxpayers may be getting through to live operators and getting answers these days, the answer is still “not yet.”  The audit process is still as slow as ever.  TIGTA confirms in their report that ICMS will not do anything to actually shorten the correspondence audit process.

On a side note, it’s slightly presumptuous for the IRS to use the word “intelligent” in the name of one of its systems, dontcha think?

SEC Whistleblower Standards are Higher than IRS

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Like the IRS, the SEC also has a whistleblower program.  However, the SEC whistleblower program, initiated just over a year ago, would not have paid out an award to the likes of Mr. Birkenfeld.  Birkenfeld withheld important information from federal prosecutors in the case, which led to a felony conviction and two and a half years in prison.

What do you think?  Should the IRS have paid Birkenfeld even though he had “dirty hands”?

$104 Million Award: Big Win for Whistleblower, Bigger Win for IRS

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image via nydailynews.com

The IRS Whistleblower Office, in its June 20th memorandum, promised to make some long-overdue changes to the whistleblower program, one of which would be to follow through on paying out awards to those who come forward with valuable intel.  When I saw this memo back in June, I wondered how long it would take for the Whistleblower Office to make good on its promise.  Well, the time has come.

The tax attorneys for former Swiss banker, Bradley Birkenfeld, announced yesterday that the IRS paid their client an award of $104 million for revealing information that resulted in the highly publicized exposure of UBS.  Why would the IRS pay out such a huge award in these miserable financial times?  Because the benefits far outweigh the cost.  Here’s what the IRS got out of the deal:

  • $780 million fine against UBS
  • strong message sent to tax cheats and financial institutions around the world that the IRS is serious about enforcement and collection of tax debts
  • strong message sent to potential whistleblowers around the world that the IRS is serious about compensating those who take risks and come forward
  • billions of dollars in taxes that otherwise would not have been collected

In the words of the IRS:

[T]he information provided by the whistleblower formed the basis for unprecedented  actions against UBS AG, with collateral impact on other enforcement activities and a continuing impact on future compliance by UBS AG.

This was a huge case for Mr. Birkenfeld and his tax attorney.  But for the IRS, the magnitude and value of this case really cannot even be measured at this point.  Full story here.