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2016 Tax Season Opens Smoothly

2016 Tax Season Opens Smoothly

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The IRS officially kicked off tax season this year on January 19th, one day after the Martin Luther King holiday. This marked the first day that the IRS would accept, and begin processing, 2015 federal income tax returns. The IRS said in an official statement that they had received several hundred thousand tax returns up through mid-day and that the 2016 tax season was off to a smooth start.

I don’t know how efficiently they will be processing returns this year (they say that most returns will be processed in 21 days or less), but I can personally vouch for the smoothness of the phone lines, at least on the first day of tax season. I made a few calls on the 19th, and got through surprisingly quickly on the Practitioner Priority Line (PPL), with a similar result when calling the Automated Collections System (ACS) for some of my collections cases. January has often been a terrible time to call the IRS (especially the first half of the month) because people have been away from their offices for the holidays and when they come back it seems like everybody wants to catch up on work at the same time. It is especially bad the day after a federal holiday, so I was surprised how prepared the IRS was on day one of tax season right after MLK.

The IRS expects more than 150 million individual tax returns this year. It may go without saying, but that figure does not include business returns, and it does not include any prior-year tax returns or amended returns that the IRS receives this tax season. The IRS also anticipates that around 80 percent of all returns will be filed electronically. It is always astounding to me that this figure is not up around 99 percent yet. I just can’t imagine filing a paper tax return and don’t understand why people still do it. I suppose the hold-outs are those who like the idea of saving a few bucks (when you paper file, all you pay is the cost of postage) and those who basically want to stick it to the man. This quote I found says it all:

Why should I pay through the nose to save the government money? What rational individual wants to pay $10 or more to save the government $4?

So the IRS received hundreds of thousands of returns within the first few hours of tax season, day one. I guess that means a couple hundred thousand more will be arriving tomorrow or Friday in the post. Queue the letter openers.

TAS Not Happy with IRS Future Plan

TAS Not Happy with IRS "Future Plan"

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The IRS is devising nefarious plans behind our backs. According to the National Taxpayer Advocate’s (TAS) annual report to Congress, for the past year and a half the IRS has been developing a “future state” plan whereby it will drastically cut back on the face-to-face and telephone assistance it provides to taxpayers. This isn’t really new; the IRS has for some time now been trying to redirect taxpayers and point them towards irs.gov to find answers to their questions because they don’t have sufficient funding and they don’t have sufficient personnel to provide one-on-one help to everyone who seeks it. The only difference now is that they appear to be doing something about it, albeit secretively.

Implicit in the plan — and explicit in internal discussion — is an intention on the part of the IRS to substantially reduce telephone and face-to-face interaction with taxpayers.

~ TAS 2016 Annual Report to Congress

Nina Olsen, head of TAS, stated that these plans should be made public so that taxpayers and tax professionals can have their voices heard and so they can be prepared for whatever changes come their way. Also, she says, the IRS needs to be specific about how much it will be cutting back on personal service. So far the IRS has done nothing to make their “future state” plan public or to solicit comments and input from stakeholders.

The IRS contends that TAS is misjudging their “future state” plan. According to the IRS, as they beef up alternative “self-service interactions,” it frees up phone lines for those who are not comfortable with online resources. The problem with this line of thinking is it assumes that those who call the IRS are not comfortable with researching their issue on the IRS website. I think the number of people who avoid the IRS website because they don’t have a computer or they don’t know how to research an issue online is relatively small. If people have specific questions and they think they can find the answer online, they’ll look online. But if they need a dialogue or if they have a series of question, or if they have a unique set of fact (which is very common), or if they need something more than a cookie cutter black & white answer, then they turn to the phone. I have been involved in the tax industry, and more specifically tax resolution, for about 10 years, and can confidently say that if there is any chance I can find the help I need on the IRS website, I will definitely go there before dedicating an entire afternoon to the IRS telephonic abyss.

IRS Puts Reins on Stingray Technology

IRS Puts Reins on Stingray Technology

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It will be Christmas time soon and thoughts often turn to gift giving and getting. For some, the gift they would like most is the latest high tech toy. This year one of the hottest tech gifts is the Hoverboard. Next year it could be a personal rocket ship. Boys will be boys, and they tend to enjoy imagining themselves starring in a James Bond flick with the latest technology at their fingertips.

The boys at the IRS are no different, although some of them are surely lamenting the potential limitations placed on their toy commonly knows as the Stingray. The Stingray is a cell phone surveillance device that can mimic a wireless cell tower, intercepting signals and giving the user private cell data of anyone in the area. Special agents with IRS Criminal Investigations have used this device since 2011 to track down some big time tax criminals.

Under pressure from the Justice Department, the IRS has begun drafting rules that would require their employees to obtain a warrant before using this controversial device. Of course a warrant requires a finding of probably cause by a judge, and if you’ve ever seen any crime shows on TV you know it’s a pain to have to get a warrant.

The IRS apparently has only one Stingray now, but they ordered a second one back in July. It hasn’t arrived yet, which I’m sure has the CI boys as anxious as 8-year-olds on Christmas Eve.

Congrats! You're a Partner with the IRS

Congrats! You're a Partner with the IRS

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On March 19, 2015 IRS Commissioner, John Koskinen, brought together representatives from the IRS, the states, and the private sector tax industry in what he called the Security Summit Group to discuss ways to combat identity theft and, specifically, identity theft that results in tax fraud. Private sector representatives included the likes of CEOs of leading tax prep firms, software developers, and payroll processors. For the first two months, the SSG met “continuously” to collaborate and brainstorm. One of the ideas that has come out of these meetings is that there is no silver bullet for putting an end to identity theft and that we need to adopt a “multi-layered and coordinated approach.” Another big idea, announced by Koskinen in a statement yesterday, is that there is a key Security Summit partner that, until now, has been left out of the equation: YOU.

We’ve made a great deal of progress for the upcoming tax season, and it shows just how much we can accomplish working together. But to keep making progress, there is another partner we need to bring on board, and that’s the taxpaying public. In fact, that’s why we’re announcing this new effort, called “Taxes-Security-Together.” We all have a part to play in fighting identity theft.

Koskinen says that now is the best time to begin this new initiative. I’m paraphrasing here, but he basically says that there will be a bunch of new electronic devices bought over the next couple months (ok, Christmas time, I follow), and people will be doing their taxes and making other transactions on these devices (um, people do their taxes on phones? really?) and a significant number of these potential ID theft portals will fall into the hands of people who don’t know how to use them, and it behooves us to help them to use them safely. This seems like a really tenuous “slippery slope” kind of thought process here, but ok. Now I’m interested to know if identity theft typically spikes in December or something.

But, needless to say, it feels pretty awesome to be a member of the Security Summit Group. I’m waiting eagerly by the mailbox for my badge and lanyard. As a member in good standing of the SSG, I would like to commend the Commissioner on his Taxes-Security-Together initiative. It sounds like fun. However, I also would like him to tell me how he plans on getting these messages out to those who really need to hear them. I will prepare now for what promises to be a barrage of public service announcements via YouTube, Facebook, and wherever else the IRS has a presence. But if you’re not connected with the IRS online somehow, either by “liking” or “following” or subscribing to their emails, just how are you going to catch wind of these tips and announcements? And between a tax professional and the general public, who do you think would benefit most from hearing them? There is no one silver bullet, but at least some bullets should hit some targets for this initiative to be successful.

The Taxonomy of IRS letters

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Science has documented and named something like 900,000 different insect species. Interestingly, most authorities agree that the number of insect species that have not been named far exceeds the number that have been named. We can only estimate what this number might be: anywhere between 2 million and 30 million.

And this is where I draw a strange comparison between insects and IRS correspondence. It won’t seem all that strange if you have ever received IRS mail over an extended period of time. The comparison certainly isn’t that tenuous from the perspective of a tax attorney who sees an endless stream of every type of IRS correspondence show up in the office. Based on a recent TIGTA audit report, the IRS sent out over 141 million notices and 37 million letters during fiscal year 2014. That’s a lot of mail, but knowing how many people that they have to reach, these numbers seem reasonable. However, the variety of IRS letters and notices (like the variety of bug species) is apparently too large for the IRS to wrap its brain around. There are 2,749 types of letters and 195 types of notices currently in circulation.

TIGTA conducted this audit in order to follow up on a project that was initiated years ago wherein the IRS was supposed to remove social security numbers from forms, letters, and notices (due to identity theft concerns) except in cases where the SSN is absolutely necessary. The project was supposed to be completed in 2009, but the IRS put it off due to budget cuts and the need to focus efforts elsewhere. TIGTA found that the IRS has fixed only 2 percent of its letters and 48 percent of notices. Not only does the IRS not have a plan for completing this project and removing social security numbers, it does not even have a process or procedure for identifying correspondence with unnecessary SSNs. IRS management is apparently overwhelmed by the variety of correspondence; they are on record saying that compiling a list of all correspondence is more costly an endeavor than it appears. So what is the best way to describe the relationship between IRS correspondence and the world’s insect population? They’re everywhere and we don’t even know what most of them are.

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Coca-Cola's $3.3 Billion Tax Bill

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It’s official, nobody has any right to complain about the taxes they owe.  Oh you owe $10k? $20k?  You think you’re in dire straits with your $50k or $100k tax debt?  That’s small beans.  The Coca-Cola company owes $3.3 billion!  The additional assessments came after a 5-year long audit associated with tax years 2007-2009.

Many of the tax disputes between the IRS and multinational corporations have to do with these companies trying to shift reportable income away from the US to avoid high domestic tax rates.  I say “avoid” and not “evade” because they all do this and they all claim that it is completely legal. However, I can’t imagine there is much legal precedent due to the fact that the vast majority of these cases settle, never making it to trial.

There are good reasons for settling, and they are all the standard reasons why parties in a lawsuit often choose to settle. One reason is to avoid the “hazards of litigation.” You never know with 100% certainty which way the judge and/or jury will go.  You can weigh the relative strengths on both sides, you can compare the evidence, and you can apply the law to the facts as done in similar cases. But surprises are common in litigation, and you can never predict for sure what will happen. Another good reason for settling is to avoid the high costs of litigation. Hundreds of thousands of dollars can be saved when parties agree to settle complex litigation cases. Of course the key is to settle early enough, before too much has been spent and before huge investments of time and emotion. Coca-Cola will need to decide whether it can justify the legal fees and risk the hazards of litigation.

Coca-Cola insists that it has been doing its taxes the same way for 30 years without any problems from the IRS.

IRS Discontinues Appeals Arbitration Program

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The Appeals Arbitration program will no longer exist as of September 21, 2015. The availability of arbitration following an adverse decision at the appeals stage of a case has been around in one form or another since the year 2000. I say “in one form or another” because it began as a pilot program intended to last only two years. In 2002 the pilot program was extended for another year. Then on October 30, 2006, the IRS published Rev. Proc. 2006-44, 2006-2 C.B. 800, formally establishing the Appeals Arbitration Program. The program underwent further expansion in 2008 when it was opened up to collection cases in select cities, meaning that taxpayers were permitted to request arbitration for resolution of Trust Fund Recover Penalties and rejected Offers in Compromise.

So why is the IRS scrapping appeals arbitration? It might have something to do with the fact that only two cases were settled using arbitration during the 14 years it existed. It has everything to do with that, so good move IRS. But what options are left besides going to US Tax Court? MEDIATION. The main difference between arbitration and mediation is that an arbitrator hands down a decision (sometimes binding) which more closely resembles an actual trial, and a mediator basically just helps the parties look at the issues and talk it out. Per the IRS:

Given the general lack of demand for arbitration and the fact that its use as a tool to settle disputes without litigation has not proven successful, the IRS is eliminating the arbitration program. Although Appeals arbitration is being eliminated, taxpayers may be eligible to request mediation for unresolved issues that remain after completion of settlement discussions in Appeals.

The IRS has a nifty online tool to help you decide if mediation is right for you.

Initial Estimates from May Data Breach were Low

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It seems there was good reason for downplaying May’s security breach in the IRS “Get Transcript” application.  It really was quite a bit worse than they had described it back in May.  The breach was first described as unauthorized access into 100,000 tax accounts, and that number has recently been amended to 334,000.  We were also told that international thieves started tampering with the site in February 2015, but now the IRS says it was actually November 2014.

The IRS can’t get anything right.  When are they going to learn to be more cautious and conservative in their official statements?  I have to believe that IRS press releases are reviewed by their tax attorneys, or somebody with good judgment and a strong command of the English language.  How difficult would it have been to state that the preliminary figures suggest there were 100,000 but this number could increase (or even is likely to increase) pending further investigation.  I, for one, would not consider that to be wishy washy in any way.  It may be frustrating to some; we want to know all the facts the moment the story breaks.  But it is more honest and credible to state only as much as can be confirmed and it is rarely a bad thing to admit when things are not yet known. Maybe that’s the IRS’ biggest problem.  As an agency, they have suffered so much by way of public scorn, and their competence has been called into question so many times that they feel the pressure to have all the answers at times when having all the answers would be impossible.

Sometimes the problem with the IRS has less to do with the way they actually handle issues and more to do with the way they inform the public.

IRS Impersonators Have New Tricks

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Scam artists, posing as IRS agents, who contact innocent taxpayers out of the blue and demand payment on tax bills that don’t exist are getting more crafty and casting a bigger net these days. For at least the past few years now, the IRS has regularly published updated warnings each time they perceive a new wrinkle, or if enough time has passed since the prior warning.

This month, the IRS published a scam warning that identifies a couple trends that suggest these tax criminals are taking the time to do some homework rather than calling completely unscripted. For example, one tactic is to alter your caller ID so it appears the call is coming from a legitimate government agency.  Scammers have always posed as official government representatives by giving false names, titles, and badge numbers, but now they are more frequently adding this new layer of “authenticity” to the call.

The ultimate goal of IRS phone scam artists is to get the victim to make a payment over the phone and/or provide sensitive information like your name, address, and social security number. If they are successful in obtaining a payment over the phone, they are now asking victims to mail proof of payment to an actual IRS office nearby. Taxpayers choosing to verify the address can look it up in a Google search and see that it is the correct address to their local service center, which lends a sense of legitimacy to the whole interaction. Of course, anyone with half a brain would know that providing the address to an IRS office that is posted on the internet for anyone to see means absolutely nothing.

In this month’s published warning, the IRS states that these scam artists use angry voices to strike fear into their victims and pressure their victims into making rash decisions. Then the IRS lists a few things that they will “never” do, so it will be easy to distinguish between scammers and true IRS representatives:

  1. Angrily demand payment over the phone
  2. Call prior to sending a bill for overdue taxes
  3. Threaten arrest for non-payment of taxes
  4. Demand payment without the opportunity to appeal the amount owed
  5. Require a specific payment method
  6. Ask for credit or debit card numbers over the phone

#1 on this list is a little strange to me because anger, and the detecting of anger in someone’s voice, is a subjective thing. Isn’t it? I have heard demands for payment invoices that could reasonably be characterized as “angry.”  I have also had IRS representatives tell me that they require an “auto debit” payment arrangement in order to approve an installment agreement, hence somewhat of a violation of #5.  However, in my experience, IRS representatives usually do a pretty good job complying with this list.

Commissioner Koskinen Asked to Resign

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IRS Commissioner, John Koskinen, has been on the job for only a couple years, but he was brought in at a very difficult time for the agency. He was appointed by Pres. Obama and given the task of cleaning things up at the IRS, particularly in regard to the scandal involving targeting of Tea Party groups. Now he has lawmakers calling for his resignation because of the way he has handled the debacle. I bet there are days he regrets accepting the assignment.

The most outspoken republicans insist that Koskinen lied about the missing emails. Jason Chaffetz (R-Utah) is on record saying that Koskinen was in possession of the emails, and then after they were subpoenaed, his agency destroyed them. Many now want him to resign, and if he doesn’t, they are threatening worse. They are throwing around words like “contempt,” “obstruction of justice,” and “impeachment.”

President Obama claims that there was “not even a smidgen of corruption” within the IRS, but everybody knows this isn’t true. He needs to be a little more careful with his words. The IRS is huge and people are imperfect, arrogant, and greedy. How can he say there isn’t a smidgen of corruption? He doesn’t know that. All that really means is he has had meetings with those that run the agency who say there’s no corruption, who have had meetings with high level management who say there’s no corruption, who have had meetings with lower level management, etc. There is no way any clear-thinking adult could swallow such a broad statement as that.

According to Chaffetz, there are still at least 5 open investigations into the targeting scandal, including that of TIGTA and the Department of Justice. I, for one, must admit that I am a little surprised that the news of this scandal hasn’t fizzled yet. I think it speaks to how passionate we are, as US citizens, about allegations of corruption within our government.