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.

Hot off the Press: New IRS Publication 17

Posted by Wetenkamp on with 0 Comment

IRS Publication 17 contains a whole host of information on filing your 2011 individual federal income taxes. It is the number one source for basic tax filing information, especially handy for those who plan on filing their taxes themselves (without hiring professional help). This publication has been around for over 60 years, but was recently updated for the 2012 filing season.  In a nutshell, Pub 17 covers the topics of Income, figuring you income, deductions, and credits.  But there is also information on taxpayer rights and how to obtain tax relief if you cannot pay what you owe.

But wait, before you click on the link and hit “Print,” you should be aware that this is a lengthy document.  The index alone is over 20 pages long.  The total page count is just over 300, so you’d be better off just saving the link. Besides, if you print it then you lose some of its functionality — Pub 17, in its electronic form, is full of links that (1) help you navigate those 300 pages quickly, (2) help you find additional information on key topics, and (3) take you to other forms and publications you may need when preparing your 2011 taxes.

Preparing your taxes yourself is not always the right choice for everyone. But if you do, you should definitely consider reading Pub 17 or at least keep it on hand as a reference tool.

www.mwattorneys.com

Does the IRS View Marion Barry as a “Special Circumstance”?

Posted by Wetenkamp on with 0 Comment

Former D.C. mayor, Marion Barry, is in the news today because of a lien that the IRS filed against him in connection with a measly $3,200 in unpaid 2010 taxes.

Remember back in February of this year when the IRS announced it was going to provide taxpayers with special tax relief during these trying financial times? The IRS dubbed it the “Fresh Start” initiative. Remember when I blogged in June about the uncertainties of the program and how the IRS still had not clarified some major points? Remember what I said about the new lien filing procedures; how the lien filing threshold was reduced from $10,000 to $5,000 in most cases? According to the IRS website:

The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. Liens may still be filed on amounts less than $10,000 when circumstances warrant. (emphasis added)

 

So, why did the IRS file a lien if the balance is under $5,000? Well, it appears that Barry’s 2010 liability is only the tip of the iceberg. He still owes for prior years, for which he is on an installment agreement in good standing, according to Barry’s official statement. It appears that the IRS will be looking at the overall balance in determining whether to file a lien, even under Fresh Start. At least that’s one possible explanation. The other possibility is that the IRS would have filed a lien on Barry even if $3,200 were all he owed . . . because circumstances warrant it. Let’s face it, he’s a public figure sitting on a Finance Committee in D.C, in charge of public funds, and he has a colorful history of corruption and tax delinquencies. If that isn’t a special circumstance, then I don’t know what is.

www.mwattorneys.com

Madoff’s Unnecessary Tax Payments

Posted by Wetenkamp on with 0 Comment

We often hear about people trying to get out of paying taxes that they are legally obligated to pay. I blog about tax crimes all the time. But seldom do we hear about somebody paying taxes that are not owed as part of their fraudulent scheme.

Bernie Madoff went to great lengths to ensure that his fraud would not be exposed. He and his firm paid some $326 million in taxes on behalf of foreign investors in connection with the sale of securities. The only problem is Madoff’s firm never purchased or sold any securities on behalf of foreign investors.

Legitimate firms pay taxes. This much Madoff understood. Perhaps Madoff was thinking that by paying as much as he did, it would eliminate any doubt about the legitimacy of his operations.

I believe that the payments made to the IRS falsely identified the funds as income tax withholding in order to give the investment advisory arm of Bernard L. Madoff Investment Securities LLC (BLMIS) an air of legitimacy and to avoid inquiries . . .

~ Irving Picard, trustee acting on behalf of Madoff’s victims

Picard struck a deal with the IRS today whereby the IRS would refund the $326 million. This will help offset some small fraction of the losses suffered by Madoff’s victims.

The IRS “Pendulum”

Posted by Wetenkamp on with 0 Comment

If we were to step back and take a look at the history of IRS collection efforts (wage garnishment, bank levy, seizure of assets, etc.), we would see that it has not been consistent in its use of all available collection tools.

Longtime observers of our federal tax system note sagely that there are recurrent pendulum swings.  For some years, the IRS will be encouraged to collect, collect, collect, and inevitably be admired for its toughness perhaps earning an accolade: ruthless.  Then, after a few too many citizens have rugs pulled from under them, Congress and the Executive Branch will rebuke the IRS.  Telling the IRS how mean and inappropriate it is, Congress will cut back on the agency’s authority and make it play nice.

~ Robert W. Wood, Forbes Contributor

Wood goes on to explain that the pendulum swung to the far “NICE” side in the late 1970s. Then it swung back to the “RUTHLESS” side by the 1990s. Then back to “NICE” in the late 1990s. So is there any question where we stand today?

 [T]he pendulum has again swung the other way.  The economy is hurting, revenues are declining and wells are drying up.  Facing budget cuts and revenue shortfalls everywhere, the IRS is on a mission to collect, collect, collect.

~ Robert W. Wood, Forbes Contributor

Wood sees the IRS getting tougher on criminal investigations and even regular collection cases. For example, primary residences and retirement accounts have always been “fair game” technically, but in reality the IRS usually doesn’t have the heart to take them. Not now, according to Wood. See full story here.

The 4809 “Informational” Letter Campaign

Posted by Wetenkamp on with 0 Comment

Throughout the month of November, tax preparers across the nation will be grumbling about having received IRS Notice 4809, some under their breath, and some publicly.

One of the gripes I am seeing is that people don’t appreciate feeling like the target of some IRS sting operation. The letters were meant to be informative, but the tone of the letter comes across a little accusatory and condescending.

Funny how 4809 is indicative of a broader problem with our nation’s tax system, one which the Commish touched on in his recent speech to an audience at Harvard’s Kennedy School of Government. Much of his speech focused on the need to simplify the tax code:

[M]aking the tax code less complex is the single most important thing that could be done to improve taxpayer service and boost compliance.

~ IRS Commissioner, Douglas Shulman

 

Changes to the tax code, even for the goal everyone agrees on – simplicity – are hard because inevitably it means more money for some and less for others.

~ IRS Commissioner, Douglas Shulman

The problem is that “to simplify” usually means “to generalize,” and when you generalize, some people get the shaft. I think that’s what the Commish is saying here. These 4809 letters are no different. The IRS could have made this campaign very complex: it could have conducted extensive research to determine which tax preparers are complying with the law and which are not. The Service could have spent a huge amount of time and money on this project. But instead the IRS decided to simplify and send them out in a “shot gun” strategy to all return preparers who may ever remotely encounter the issues that they wanted to emphasize. In the process, some top notch, extremely competent return preparers are going to be insulted and offended. And, unfortunately, many of those who should be paying attention to the contents of these letters will toss them aside without giving them a second thought.

What we have these days is a tax system that tries to be tailored to every individual and situation, but it’s way too complex. As policymakers consider making drastic changes to the tax code, hopefully they can achieve the desired simplicity without lumping everyone together unfairly.

IRS Advisory Committee Recommends Big Change to Installment Agreement Guidelines

Posted by Wetenkamp on with 0 Comment

The IRSAC (Internal Revenue Service Advisory Committee) released its annual report today. IRSAC is composed of 28 non-IRS members divided into four subgroups. Two of the subgroups (Wage & Investment and Small Business / Self-Employed) recommended changes to the Streamlined Installment Agreement Program.

An installment agreement is normally available to taxpayers who are unable to pay their tax debt in full. A Streamlined Installment Agreement (SIA) is available to taxpayers with aggregate unpaid balances of $25,000 or less, so long as the monthly installment will pay off the entire balance within 60 months. The SIA is granted without managerial approval, without the need to divulge financial information to the IRS, and in many cases, without the need to file a Federal Tax Lien. The $25,000 threshold has been in place since 1998.

The IRSAC Wage & Investment and Small Business / Self-Employed subgroups identified “repeater” balance due taxpayers as a major problem. To alleviate this problem, they recommended increasing the SIA dollar threshold to $50,000 and pushing more taxpayers to set up their installment payments through direct debit arrangements with their bank.

I think it is wise to increase the SIA dollar threshold because it will open up additional options to taxpayers who cannot pay their back taxes in full. However, I’m not sure this will have any meaningful impact on the “repeater” problem. Taxpayers unintentionally stack liabilities year after year when they do not have the means to pay their current-year taxes and their prior-year taxes simultaneously. According to IRS installment agreement guidelines, a $50,000 debt would require a payment of $1,000/month (for 60 months), taking into account the daily accruals of interest on the account. Increasing the SIA threshold to $50,000 would do more to alleviate this problem if the agency also agreed to increase the IRS installment agreement length beyond 60 months.

The Forgotten Tax Accounts

Posted by Wetenkamp on with 0 Comment

Last week I blogged about Private Debt Collection (PDC) firms hired by the IRS and FTB to collect overdue taxes. This is a new development at FTB, and something that was tried for a few years and then discontinued at IRS.

The PDC firms hired by the IRS were given mostly low-yield, low-priority cases from which they were able to squeeze out $98 million in revenue between 2006 and 2009.  The IRS, however, discontinued its PDC program in 2009. And according to a TIGTA audit report, when the unresolved cases were handed back to the IRS, many of them just sat stagnant. Collection actions were not taken on 47% of the cases selected for the TIGTA audit. TIGTA recommended that the IRS develop policies and procedures for working the kinds of cases that were previously transferred to PDC firms. If the IRS does not have the resources to handle these cases, TIGTA even suggested the possibility of reinstating the PDC Program.

Before you get too upset about the statistics cited in this report (particularly the 47% figure), you should know that the sample of cases selected for audit was only 62. For whatever its worth, I have noticed that it is common for TIGTA to work with very small sample sizes in its audits, even though the agency claims it uses “generally accepted government auditing standards.”

IRS Return Preparer Program

Posted by Wetenkamp on with 0 Comment

After yesterday’s comments from the Commish (that’s IRS Commissioner Douglas Shulman) at the AICPA fall meeting, there is reason for some tax preparers to be concerned. They have to be careful that their desire to offer taxpayers maximum tax relief and maximum refunds does not override their desire to perform their duties ethically.

Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers.

~ Douglas Shulman, IRS Commissioner

The enforcement segment of the IRS Return Preparer Program will include:

  1. Letters to preparers who have been identified as “high risk,” making sure they are doing their due diligence.
  2. In-person visits with preparers who have been identified as “egregious.”
  3. Letters and in-person visits to return preparers who are not using the Earned Income Tax Credit correctly.
  4. Special crackdown on “ghost preparers” (those who don’t sign or identify themselves with their PTIN)
  5. Undercover shopping visits to preparers who are suspected of engaging in fraud.
  6. Civil and/or criminal prosecution where appropriate.
  7. Coordinated effort with the Office of Professional Responsibility and the Department of Justice.
While there are many undefined terms being thrown around, there appears to be a spectrum of poor conduct and discipline emerging. At one end is the return preparer who has exhibited a pattern of honest-appearing errors who will receive a letter from the IRS (this is something new). At the other end is the preparer who is suspected of something more “egregious” who very well could be tracked down and thrown in jail (this is not new).

Nina Olson: "Capable and Dogged"

Posted by Wetenkamp on with 0 Comment

I feel like my opinion of the Taxpayer Advocate Service is . . . evolving. Not that I ever had anything against Nina Olson personally, I have just always questioned the independence and effectiveness of the organization that sometimes seems like little more than a mini IRS within the IRS. If TIGTA is IRS’ big brother, then TAS is their only child — a chip off the ol’ block. However, the more I see Olson stating an opposing view (opposing the IRS), the more I grow to trust her and recognize the value of TAS in assisting with real tax relief.

In an interview with Bernie Becker of The Hill Nina Olson recently made the following statements describing the natural tension between her agency and the IRS:

You have to get used to the idea that you’re going to walk into a room, no one is going to want to see you there, they are not going to want you to open your mouth. And when you do open your mouth, they’re all going to will you to shut it as soon as possible. Because what you are going to be saying is, basically, pointing out that they didn’t think of something.

Speaking about the IRS’ failure to recognize when their policies are overly burdensome on the average taxpayer, she added:

When they get their mind on something, they just get hell-bent on something — and you could be talking to a tree and it might be more conversational.

I love that quote!  Very spunky. Rep. Pete Stark (D-Calif.), someone who knows her better than I do, said she is “capable and dogged” and the driving force behind the IRS’ actions. Read full storyhere.

So am I going to stop taking jabs when I see an opportunity? Probably not. Besides, I still think TAS has a long way to go as far as the ideals and advocacy of Olson herself trickling down to the rank and file.

www.mwattorneys.com

IRS Accelerates Detection of Fraudulent Refund Returns

Posted by Wetenkamp on with 0 Comment

Pursuant to its 2011 audit plan, TIGTA conducted its annual audit of IRS activities during the 2011 filing season. The purpose of the audit was to evaluate whether the IRS timely and accurately processed individual paper and electronically filed tax returns. The final report is dated September 28th, but was just released to the public on November 1st.

One of the highlights of this report was the dramatic increase in fraudulent refund returns. As of April 30, 2011 the IRS had identified 775,723 fraudulent refund returns — $4.6 billion worth — compared to 286,670 identified by the same time last year (a 171% increase). Perhaps even more amazing is the fact that the IRS, through its screening efforts, detected 96% of them, therefore, no refund was issued.

The IRS is clearly increasing its efforts in this area. It is even beefing up its screening of prisoner tax returns, which are often fraudulent. As of April 30, 2011, the IRS reported that it had selected 199,854 tax returns filed by prisoners for screening (a 256% increased compared with the 2010 filing season).

Read full report here.

www.mwattorneys.com