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 May be Levying you in their Underwear

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The IRS has expanded its use of a wireless and remote access technology over the past several years, allowing employees to access the IRS Network from airports, hotels, their homes . . . anywhere. While it’s interesting to think of the IRS revenue officer sitting at home in his boxers in front of the TV sending out wage garnishment notices and lien letters, the more noteworthy issues here are (1) the efficiency of wireless technology and (2) the security issues it poses for the American taxpayer. The IRS really has to balance these competing values and TIGTA has stepped in recently to help do some balancing.

Today TIGTA released an audit report giving mostly positive marks to the IRS wireless activities. The IRS has adequate controls in place that monitor whether or not the secure network has been breached, and these controls are functioning properly. However, some IRS employees have been accessing the wireless network from unauthorized wireless devices (personally owned USB wireless adapters).

World Series of Tax Reform

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On October 22, 1986, President Ronald Reagan signed into law the most sweeping tax reform in United States history.  At the conclusion of his speech he said:

I feel like we’ve just played the World Series of tax reform, and the American people won.

Its been 25 years, so maybe we’re due for another win.  The consensus these days is that the tax code is a mess and we need to start over again.  But there are nearly as many opinions as there are pages to the code.  Here are just a few.

IRS May have to Make Do with Less in 2012

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In difficult financial times, individuals are forced to take a good hard look at every single expense to make sure it is necessary.  And in the federal government, it’s no different.  Lawmakers are looking across the board at every service, program, committee, and agency.  Expenses that cannot be eliminated will be reduced as much as possible, . . . and rightly so.  Right?

What about expenses that generate revenue?  Should there be an exception?  IRS Commissioner Douglas Shulman believes that not all government expenses are created equal.  He believes that his agency should be treated differently.

The House Appropriations Committee has recently approved proposed legislation that would cut funding to the Internal Revenue Service by $600 million for fiscal year 2012 and Shulman is up in arms about it.  He has some bold words:

[T]hese budget cuts will result in a direct increase to the nation’s deficit.

~ Douglas Shulman, Commissioner of the IRS

Nice soundbite at least.  Here’s what he thinks will happen if we cut funding to the IRS.

  1. reduction in service
  2. reduction in revenue collected
  3. negative impact on voluntary compliance for years to come

As for a potential “reduction in service,” Shulman says that, in some instances (if the budget cuts are approved), it would take 5 months for the IRS to respond to taxpayers’ written inquiries and only half of those telephoning the agency would get through.  Resolution of back taxes would be slowed significantly.  I don’t know, maybe Shulman should welcome these cuts — it would allow his agency to continue providing low quality service, except now they would have a good excuse.  Read Shulman’s full letter here.

The Fake n’ Bake Tax

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I spent more than a few minutes searching for an appropriate visual aid to go along with this post. I wanted to make sure it was just right.  Okay, maybe I got a little sidetracked.

If you’re not familiar with the new tanning tax that went into effect last summer, maybe you’re the type that likes to soak up the natural sunlight which, by the way, probably causes cancer just the same, but it’s harder to regulate.  The legislation that went into effect on July 1, 2010 imposes a 10% excise tax on ultraviolet tanning services — paid by the burn victims and collected (and reported) by the burners.

TIGTA (IRS’s big brother) released a report today showing that the new tax is not generating near the amount of revenue it was expected to generate.  It was supposed to raise as much as $50 million in the 4th quarter of 2010 and $200 million this year. Instead it raised only $17.8 million in the 4th quarter of 2010 and $36.6 million during the first 6 months of 2011.  So why the poor results?  These are some possible reasons that TIGTA identified:

  • The tax was pushed through quickly and the tanning industry wasn’t prepared
  • Businesses aren’t paying and the IRS isn’t enforcing compliance like it should
  • IRS has incomplete / outdated records of applicable businesses

Read about a recent public hearing on the tanning tax here.

Read about California’s recent ban on indoor tanning for minors here.

Read about the metal umlaut here.

IRS Selects New ETAAC Members

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The Electronic Tax Administration Advisory Committee (ETAAC) is a 13-member panel that consults with and reports to the IRS on electronic tax administration issues. Their goal: increasing electronic interactions between tax professionals and the IRS. Past panels have consisted of professionals in the banking, technology, tax law, accounting, and tax preparation industries.

Introducing the new members:

  1. Timothy Blevins: big shot at CGI, a global business process services firm
  2. Cyrus Daftary: attorney at Burt, Staples & Maner, a Washington D.C. taxation law firm
  3. Yasmine Nolan: big shot at H&R Block
  4. Timur Taluy: CEO of FileYourTaxes.com
  5. Mark Steber: big shot at Jackson-Hewitt (selected as ETAAC Chairman for 2011-2012)

If you’re a big shot and feel you were overlooked, maybe you deserve a spot on this committee. It is too late this time around, but feel free to review the membership application for future reference. Applications are accepted each February. This is a volunteer 3-year position with a 150-hour time commitment. And they’re just looking for experience in a few key areas:

  • public policy development
  • formulating, developing, and presenting proposals for ETAAC consideration
  • e-file security experience
  • tax software experience
  • accuracy-related experience

IRS Spends $80 Million with Credit Cards: Legitimacy of Purchases Cannot be Verified

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Yet another TIGTA audit has brought to light deficiencies in the Internal Revenue Service. This time the problems relate to the use of IRS-issued credit cards that are made available to certain IRS employees. Purchases on these cards are supposed to be tightly regulated. But TIGTA found that many of the restrictions on these cards have been ignored, and management has failed to take corrective action when violations have been found.

The cards are meant for purchases under $3,000 — purchases over this amount are governed by a separate set of internal controls. Furthermore, card purchases must not be made without prior managerial approval. TIGTA found significant violations in both areas. The $3,000 limit rule is regularly circumvented by splitting up purchases into two transactions. Improper credit card purchases are not always detected because the IRS lacks sufficient management controls. Instead of asking for more funding and more staff for collections, the IRS really needs to keep a better eye on how they are spending the money they do have.

TIGTA’s review covered the period of September 2007 – March 2009. Here are the key stats:

  • 4,270 credit card holders within IRS
  • 1,024 approving IRS officials
  • 16 different IRS business units
  • 174,000 purchases
  • purchases totaling $80 million

IRS Will be Watching EITC Claims More Closely in 2012

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The Earned Income Tax Credit (EITC) is a refundable credit for low to moderate income households. It is a very desirable form of tax relief because it actually puts money back in their pockets . . . if they qualify.  The problem is that over the years the IRS has also paid out in circumstances where the taxpayer doesn’t really qualify. In fact, in 2009 over 26 million people received nearly $59 billion through the EITC.

In an effort to promote more accuracy (and less fraud) in connection with EITC, the IRS is likely going to make it a requirement that all paid tax preparers include Form 8867 with all returns that include the credit. Right now it is a proposed regulation still awaiting public comment and final approval. In years past, tax preparers were required to complete this form (to prove their due diligence) and retain it in case of audit. But under the proposed regulation, paid tax preparers would be required — beginning January 1, 2012 — to actually file the form along with the return.

IRS is no Help with Avoiding Fees

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Usually the 16-year-old behind the counter at your favorite fast food establishment isn’t trying to up-sell you and get you to order the more expensive burger on the menu. They don’t care; they’re getting paid by the hour. In fact, they will often go out of their way to help you if there is a cheaper way to order what you want. Well, according to the latest TIGTA report, the 16-year-old at the burger joint may be better with customer service, in some respects, than the IRS.

The latest TIGTA report delves into the Streamlined Installment Agreement (SIA) program. The IRS is not being consistent in their approach to SIAs and are failing in three key areas. One of the failures that TIGTA identified was that IRS representatives are not apprising taxpayers of a less expensive alternative: the “extension to pay.”

It costs $150 to set up an installment agreement — this is a non-refundable user fee. But if the balance is low enough to be paid off in 120 days or less, then an installment agreement is not necessary.  If the balance can be paid in 120 days, the IRS will normally agree to an “extension to pay” and the taxpayer can avoid the $150 fee. If an IRS representative knows that the balance can be paid off in 120 days, then the representative should steer the taxpayer towards the extension to pay rather than the SIA, or at least notify them of the option. As part of their audit, TIGTA found over $1 million in fees that could have been avoided by the extension to pay alternative.

Unfortunately the old adage, “They don’t care; they’re getting paid by the hour” correctly describes some IRS reps too.

IRS Fresh Start Webinar

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The IRS webinar detailing their Fresh Start Initiative, which originally aired on August 31, 2011,  has been posted to the IRS video portal for all to see.  The Fresh Start Initiative is a tax reliefprogram designed to help taxpayers who are struggling to meet their tax obligations in this down economy.

As part of the initiative, the IRS has adjusted its lien filing procedures, opened up the installment agreement option to more businesses, and  instituted a “streamlined” Offer in Compromise program. I was hoping the IRS would, through this webinar, elaborate on the Fresh Start program and provide more details on exactly how these changes will impact taxpayers with balances that they cannot immediately pay. But they didn’t. Instead the speakers rehash what has already been explained on the IRS website and then go into a fairly detailed discussion of liens.

This is a good video for someone who wants a basic understanding of liens, how & why the IRS files them, and how to get them released. The IRS representatives even go into an explanation of lien “release” vs. lien “withdrawal,” complete with an analogy comparing it to a “divorce” vs. an “annulment.”

Unfortunately, very little was said about the changes that have been made to the Offer in Compromise program either. Click here to see the entire video.

IRS Customer Service Audit

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The two things you can be sure of in life are, as the saying goes, death and taxes.  As for the taxes, they are apparently unavoidable on many different levels.  If it’s not the payment of taxes, it’s the waiting on hold with the IRS to get answers to your tax questions.  It has become a fact of life and, as a tax relief attorney, I think I have accepted it.

Wanna see what I’m talking about?  Click here for IRS phone numbers.  Enjoy!

The average wait time has increased every year since 2007.  According to a recent TIGTA audit, IRS average telephone hold times were up to 10 minutes during the 2011 filing season.

During that same timeframe, the IRS achieved a 74.6 percent level of service. Doesn’t sound too impressive until you realize that their goal was 71 percent. So, yes, the IRS surpassed its goal, but you’re probably wondering why they are not setting their sights a little higher.  Well, the answer given by TIGTA is the same tired old problem of limited resources and increased demand. And what exactly is the “level of service” measurement anyway? It’s actually a comparison of the total number of taxpayers who attempt to call the toll-free telephone lines (a whopping 80 million during the 2011 filing season) and the number of taxpayers who actually gain access to the system and are placed in the IRS queue. Certainly a big percentage of the callers hang up before connecting, I know I have more than once.

One bright spot, in my opinion, is the “Estimated Wait Time Message” feature that was implemented for the first time a few years ago. What this does is it helps me to decide if I want to hang up and try again when the call volume is lower. It is actually very helpful, and I have noticed that the estimates are usually pretty accurate.

Nobody likes waiting on hold, but if you consider the massive volume of calls that come in to the IRS each day, I don’t think it’s unreasonable to have to “take a number.”  I think the hold times would be even easier to swallow if, when you finally did connect with a representative, you were greeted by a somebody with solid customer service skills.  It’s the whole quality vs. quantity issue.  But I guess that’s for another day and outside the scope of this particular audit.