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 to Cooperate with Local Police in Fraud Probes

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The IRS’ criminal investigation division has kept itself very busy with refund fraud cases in recent years.  They would love to be able to enlist the cooperation of local law enforcement but have always been prohibited from sharing some of the information necessary to apprehend tax criminals.  Individual tax return information, for instance, has always been kept strictly confidential under long-standing IRS rules.  In fact, it is a crime for IRS workers to share this sensitive information outside the context of their work.  Believe me, they are very cautious with this data, even in standard tax resolution inquiries.

However, under a pilot program that will be initiated in Tampa, Florida, the IRS will begin sharing some tax return information to local police, so long as the victims of identity theft and tax refund fraud give their consent.  There is no start date yet.

Surprisingly, National Taxpayer Advocate, Nina Olson, is not opposed to this new legislation, as long as the information shared with police is used strictly for law enforcement purposes.

Paperwork is not IRS’ Forte

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What would you think of an English teacher who couldn’t spell?  How about a surgeon who couldn’t hold his hands steady?  It’s a problem, right?

Well I was dumbfounded to discover, by way of the latest TIGTA audit, that the IRS is not so good with paperwork.  In 2012 the IRS processed over 230 million tax returns, so it’s not a stretch to say that the IRS is in the business of doing paperwork.  The wage garnishment, bank levy, liens . . . all excuses to do more paperwork.

TIGTA (Treasury Inspector General for Tax Administration) issued a press release today outlining the results of an audit that found holes in the IRS job applicant prescreening process.  Ok, not the process itself, just the documentation (the part that the IRS should have nailed):

Our report does not indicate that the IRS hired applicants who were not suitable or that the steps were not completed; rather, we found that the documentation of some of the prescreening steps was unavailable.

~ J. Russell George, TIGTA

On the bright side, I am told that the IRS is meticulous in ensuring that each and every candidate for employment can write their name and count to 100.

“Fresh Start”: Installment Agreements

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Those with a tax debt are often reluctant to disclose their individual financial information to the IRS, and rightly so. The financial information that is normally required includes details about one’s income, expenses, assets, and accounts. The IRS often uses employment and bank information as levy sources; it’s the first place they go when taking enforced collection actions.

The IRS allows taxpayers to enter into installment agreements without disclosure of financial information as long as the balance due to the IRS is below a certain threshold. Previously that threshold was $25,000, excluding accrued interest and penalties. But the IRS announced yesterday that the threshold has been doubled — now $50,000. Also, instead of a 60-month payoff period, the IRS will now allow payments to be spread over a maximum of 72 months. The only catch is that the taxpayer must agree to a direct debit payment arrangement whereby the IRS is automatically wired payments each month from the taxpayer’s bank account. Those who owe $25,000 or less may still make payments by other methods, including manually writing a check and sending it in each month.

Yesterday’s announcement shouldn’t have been a huge surprise given the new Form 9465-FS that was released in December 2011, although with little fanfare.

For additional information, visit the IRS Newsroom.

“Fresh Start”: Penalty Relief

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Today the IRS announced it will be offering additional tax relief to struggling taxpayers under its Fresh Start initiative. One of the ways the IRS plans to help out taxpayers is by granting penalty relief for the unemployed.  Another way is by expanding the Streamlined Installment Agreement (SIA) program.  Today I will describe the penalty relief provisions and tomorrow I will discuss the changes to the SIA criteria.

Taxpayers who meet the criteria for Fresh Start penalty relief will be given a 6-month grace period on the failure-to-pay penalties for 2011 taxes.  So, what are the criteria?  There are several:

  • You must have been unemployed at least 30 consecutive days sometime during the period January 1, 2011 to April 17, 2012.
  • Self-employed taxpayers must have experienced a 25% or greater reduction in income compared to 2010 due to the economic downturn
  • Your adjusted gross income must be less than $100,000 (or less than $200,000 if married filing jointly)
  • The balance due on your 2011 tax return must be $50,000 or less.
  • You must pay the entire tax debt (including any tax, interest, and other applicable penalties) by the end of the grace period, which is October 15, 2012, otherwise a failure-to-pay penalty will be imposed and calculated from the original payment due date, April 15, 2012
  • You must complete a Form 1127A to request this type of penalty relief

See article in the IRS Newsroom for more details.

As I read through the terms and conditions of the new Form 1127A, I couldn’t help but notice that struggling self-employeds are held to a slightly different standard than the unemployed. What’s worse, earning 25% less for an entire year, or being completely unemployed for 30 days or more?  Clearly if its only 30 or 60 days of unemployment, then its worse to earn 25% less; therefore, the self-employed standard would appear to be higher.  Furthermore, the 25% reduction must be due to the economic downturn, but there is no similar requirement that the 30+ day period of unemployment also be due to the economy.  It appears that it may be easier for the unemployed to obtain 1127A penalty relief than for the self-employed, even though a self-employed who experiences a 25% reduction in income might find himself in worse shape financially.

How Will the IRS Spend its $12.8 Billion Proposed Budget?

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The IRS is asking for $12.8 billion for 2013 — that’s over $944 million more than their 2012 budget.  And $404 million of that will be spent on enforcement.  There will be more audits and more aggressive collection efforts in the near future.  Tax relief will be harder to come by and I don’t imagine that stacking tax debts will not be tolerated.

The only way the government can justify spending so much on the IRS is if they can expect a healthy return on the investment, and the IRS believes it can deliver.  In fact, the IRS’s crystal ball shows it will collect $1.48 billion with the increased funding.

How else will the money be spent?  Here are the IRS’ priorities:

  • increased scrutiny of offshore accounts and foreign financial transactions
  • crack down on fraudulent returns and identity theft
  • enhancing compliance and professionalism of return preparers
  • improvement of IT programs

Things are going to be very difficult for taxpayers who have fallen on hard times and can’t pay.  And to make matters worse, according to Fox Business writer Bonnie Lee, there’s no funding left over for improving customer service.

Goodbye to Large Dollar Unit

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It used to be that cases with a total aggregate balance of $100,000 or more were worked by a special unit within the IRS called the Large Dollar Unit (LDU).  It has been exceedingly frustrating dealing with LDU over the years.  They tended to ask for every last shred of documentation to substantiate every claimed expense.  And because they required so much documentation, it was never practical to get it over to them by fax (in fact, they would not even allow it).  So the docs had to be mailed in, and they would inevitably get lost.  Or if they did get logged in, they would take forever to look at them.  And if it finally got to the point where a case was nearly ready to be finalized, they would tend to ship it off to a local Revenue Officer to close the deal.  It was like a bad joke: they would string you along for months, then at the last moment, when it looked like we were going to reach a resolution, the case would be transferred to the field.

Well, according to one IRS representative I spoke with today, LDU has been “disbanded.”  That was the word he used, and I kind of liked it.  Now, every $100,000 + case will be transferred directly to a local Revenue Officer.  This is great news for practitioners like myself.  Revenue Officers tend to have more experience and more discretion to be able to close a deal without adding any more red tape than necessary.  Now I guess we will have to see if this in fact a new procedure or just a “flavor of the month.”

The IRS Dirty Dozen List is Suspiciously Familiar

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Wouldn’t David Letterman’s credibility be questioned if he reused the same Top Ten List each night but changed the order of the list?  That’s what the IRS is doing with its “Dirty Dozen” list.  It’s basically the same thing year after year — a stern warning from the Commish about not looking for tax relief amid tax scams, followed by the same 12 scams rearranged in a different order.  Presumably the list is arranged in a logical order with the most common scams at the top.  But is the order of the list based on empirical data, or is it just anecdotal?  Who knows?

This year the obligatory stern warning went something like this:

Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen. Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.

~ IRS Commissioner Doug Shulman

And the top three scam were . . .

  1. Identity Theft
  2. Phishing
  3. Return Preparer Fraud

Illegal offshore bank accounts was a close 4th on this year’s list, which is not a surprise given how aggressively the IRS has worked shut them down. I don’t mean to make light of tax scams; they are real, and we should definitely stay vigilant. I am just amused by IRS gimmicks, and this looks like another one.

Veterans Tax Credit Expanded

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Today the IRS released new guidance on the tax relief available to employers who hire veterans.

The Work Opportunity Tax Credit was made available under the VOW to Hire Heroes Act of 2011. For-profit employers may qualify for a credit of up to $9,600 per veteran hired. The actual amount of the credit depends on how long the veteran was unemployed before being hired and a whole host of other factors. A veteran who is hired after being unemployed for 2 years is worth more than one who took a 6-week vacation between jobs.

So what’s new with the credit?

  1. Now certain tax-exempt organizations may qualify for the tax credit ($6,240 max).
  2. Form 8850 — the form used to collect pertinent details about the veteran job applicant — previously had to be filed within 28 days after the veteran hire date, but now the rule is the form must be filed by June 19, 2012 for veterans hired before May 22, 2012.
  3. Employers can submit Form 8850 electronically or by fax.

Business use Form 5884 to claim the credit and tax-exempt organizations use Form 5884-C. For more information, see the IRS website.

IRS Introduces Mobile App “IRS2Go 2.0″

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If you own a smartphone, chances are you probably use it throughout the day to post, tweet, like, and follow. Maybe your addicted to Words with Friends or Angry Birds. You’re probably NOT ordering tax transcripts or checking on the status of your refund. But according to the IRS, at least 350,000 of you have the app that allows you to engage in said geeky mobile activities. And who knows, that number may have shot up even further after today’s announcement that the IRS is rolling out the updated version of its mobile app “IRS2Go 2.0.”

I don’t know, there’s something about the IRS and technology that reminds me of the time I witnessed my mother trying to communicate with Siri. A little awkward.

~ John Wetenkamp, tax relief attorney

IRS2Go has 7 main features (#4, #5, and #6 are new in version 2.0):

  1. Get Your Refund Status
  2. Get Tax Updates
  3. Follow Us
  4. Watch Us
  5. Get the Latest News
  6. Get My Tax Record
  7. Contact Us

For whatever reason, I’m doubting that 350,000 downloads figure. How many times have you installed a free app only to uninstall it minutes later after discovering you don’t like it? Does the 350,000 include that scenario? It’s not that the IRS doesn’t know technology. It’s not that the app has completely unusable features either. I just can’t imagine very many people would want to be reminded of their tax obligations (or tax problems) 6,000 times a day — each time they glance at their phone. Most people only want to think about the IRS one time per year, and even then they don’t want to have to ponder the thought for too long.

IRS Sweeping the Nation for Identity Theives

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Yesterday the IRS announced a nation-wide crackdown on suspected identity theft perpetrators.  With the help of DOJ’s Tax Division and local US Attorneys, the IRS conducted a flurry of visits, inquiries, indictments, and arrests over the last week.  The IRS almost seems obsessed with their stats:

  • 939 criminal charges
  • 250 check-cashing operations under audit
  • 105 people targeted in 23 states
  • 69 indictments
  • visits to 150 money services businesses
  • 58 arrests
  • 19 search warrants
  • 10 guilty pleas
  • 4 sentencing
  • 1 lethal injection administered*

The IRS has also recently added new content to their website dedicated to curbing identity theft. The reason for all this focus on identity theft is to stop and prevent new cases of refund fraud ahead of the tax filing season.

This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season. We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.

~ IRS Commissioner Doug Shulman

I don’t know about you but I wouldn’t want to be one of Shulman’s statistics.  The Commish isn’t fooling around.