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Koskinen's YouTube Debut as Commissioner

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New Internal Revenue Service Commissioner, John Koskinen, delivered a special message to the nation via the IRS YouTube channel.  For many this is a video of first impressions.

On a side note, I’m not sure what the point of these videos is because regular taxpayers don’t watch them and those people that do watch (tax attorneys, CPAs, enrolled agents, and general tax professionals) don’t really benefit, as these videos normally consist of a series of ambiguous soundbites.

Koskinen’s message falls in line with other IRS videos: positive and hopeful, but lacking any kind of substance.  Here are the main points:

  • He got right to work after being appointed to his new position
  • He has been traveling around the nation taking the pulse of the IRS
  • The IRS is here to help taxpayers during 2014 tax season
  • Refunds will be issued quickly
  • The IRS will work to reduce tax fraud and ID theft
  • Over 120 million people filed their tax return electronically last year
  • Resources are limited & there will be long wait times if you try to call
  • Quicker way to get help: irs.gov, tax software, tax professionals, IRS YouTube channel, IRS2Go smartphone app

As the new Commissioner of the IRS, I want to be up front with you and call it like it is, just as I have been doing my entire career.

~ John Koskinen, IRS Commissioner

My mom always told me to be skeptical of phrases that are prefaced with “I’m gonna be honest with you,” but whatever.  On the other hand, Koskinen was sufficiently stiff, boring, and unhappy in this video to convince me that he’s the right guy for the job.  He’s going to fit in just fine at the IRS.

IRS To Go App Updated: IRS2Go 4.0

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I don’t know about you, but when I get things “to go” it is usually some kind of delicious food tucked away in a bag that I will be enjoying at home.  It is definitely not my taxes, or my tax account, or my tax problems!  I don’t want that “to go” with me anywhere!  As you probably know, I’m not a fan of the IRS mobile app (“IRS2Go”) which was originally released in January 2011.  My dislike, apparently, begins with the name.

Today the IRS announced the release of the latest version, IRS2Go 4.0.  Maybe I’ll just let the users explain how bad it is:

    • “Doesn’t work”
    • “Neat looking app, but worthless”
    • “Crap”
    • “Disappointing”
    • “Seriously?!?”
    • “Update doesn’t work”
    • “What do you expect? It is the IRS”

There are some positive reviews, so at least some people have gotten it to work, but the average rating for all version is 3.5 and the average rating for the current version is 2.5.  It definitely looks like there are some bugs to work out in version 4.0.

I’m guessing that the most popular feature of the IRS to Go App is the Refund Status tab. It is clear from reading several reviews that people who downloaded this app are mainly interested in checking the status of their refund.  It is probably also the IRS’ favorite feature since, if it works, fewer refund watchers will be tying up the phone lines.  And while this feature existed in prior versions, you could only ascertain whether or not (and when) your refund was processed.  In version 4.0 there is new functionality that allows you to track the status of your refund much like you would track a package coming to you via FedEx.  According to the IRS it “provid[es] taxpayers an easy-to-use feature to follow their tax return throughout the process.”

Two years ago 350,000 people had downloaded IRS2Go and now apparently that number has risen to 3.5 million.  Actually, the number of users can’t be tracked; it is the number of downloads.  So the 3.5 million likely includes every time somebody reinstalls for the new tax season, and also if somebody deletes it and reinstalls it 20 times because it isn’t working.

I’m sorry for the negative tone of this post.  Maybe I just love bashing IRS tech products. But at least I’m not the only one:

Don’t bother to download.  Since the update the app doesn’t work.  Not even worthy of a star, but I’m forced to give at least one.

~ IRS2Go 4.0 reviewer, Feb 5, 2014

Are Bitcoin Transactions Taxable?

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In an IRS audit today I was amused by all the preliminary questions about income sources.  The auditor asked about wage income, 1099 income, interest, dividends, royalties, alimony, child support, law suit settlements & awards, reimbursements, gifts, inheritances, grants, scholarships, life insurance proceeds, tips, etc., etc.  But the one thing she failed to ask about was digital currencies, like Bitcoin.  And I don’t mention this because I think the auditor missed something or that the client failed to report all his income.  He probably wouldn’t even know what Bitcoin is.  I mention this to illustrate the fact that the IRS has been slow to recognize digital currencies as income and/or supply guidance as to the specific reporting requirements.  But they’re going to have to act on this soon because it is becoming more prevalent:

In the four months between July and December 2013, bitcoin usage has increased by over 75 percent — from about 1,700 transactions per hour to over 3,000.  Over the same period, the market value of bitcoins in circulation increased more than ten-fold from about $1.1 billion to $12.6 billion.  Over 10,000 businesses reportedly accept payment in bitcoin.

~ TAS 2013 Annual Report to Congress

The only guidance (if you can call it that) from the IRS is found on a single web page on irs.gov entitled “Tax Consequences of Virtual World Transactions.”  The IRS essentially likens virtual currency to bartering, gambling, and hobby income:

The IRS has provided guidance on the tax treatment of bartering, gambling, business and hobby income – issues that are similar to activities in online gaming worlds.

It’s clearly not the same thing.  Legitimate law abiding geeky businesses (and individual geeks) deserve some more guidance from the IRS on this issue.

Testing My Theory

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Apparently it wasn’t only me who thought the new Practitioner Priority Service (PPS) guidelines were ambiguous.  I don’t think the PPS customer service reps understand them either.  The best I could tell, I thought that they would be checking qualifications more closely, maybe even refusing to speak with anybody lacking a duly executed power of attorney.

It wasn’t long before I was able to test my theory.  Here’s how my first post-Jan. 6th PPS call went:

IRS: “How can I help you today, Mr. Wetenkamp?”

ME: “It’s my first call on this case; can you just give me an account overview such as balances due, missing returns, collection status, etc.?”

IRS: “Oh no, we can’t help you with that sort of thing anymore.  As of January 6, 2014 we are only allowed to assist you with active tax issues.”

ME: “WELL THEY DO OWE TAXES, DON’T THEY?!”

IRS: “Uh, . . . well, . . . yes.”

When the IRS makes informal procedure adjustments it is usually impossible to tell how they will materialize at the individual call centers.  For one thing, call center managers do not always interpret internal memoranda uniformly, so it is common to have slight variations from one city to the next.  But even if all IRS managers agreed, something inevitably gets lost between the team meeting where the memo is thoroughly explained and the cubicles of IRS rank and file.  You’ve probably heard anecdotally that the IRS doesn’t follow its own rules.  Well, this is precisely where it comes from and it happens every single day.

 

Changes Announced for PPS Phone Line

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Now I know why the hold times are so long when I call the IRS.

Some people think tax attorneys have a special dedicated phone line at the IRS and we can simply pick up and talk to whomever we want whenever we please.  This couldn’t be further from the truth.  Yes, we do have a special practitioner phone line, but during peak call times I don’t think it makes much of a difference, at least not lately.  The IRS Practitioner Priority Service (PPS) phone line has, in my opinion, never been the same since the government shutdown in October 2013.

The IRS recently announced some changes to PPS.  The IRS says that effective January 6, 2014, they will only be able to help tax professionals with tax questions through the PPS phone lines.  You have to be kidding me!  Isn’t this the whole point?!  What this means to me is that I have consistently been waiting on hold for an hour each time I call because the IRS Practitioner Priority Service number phone reps have been taking calls from non-practitioners with irrelevant questions!  This is beyond annoying.

This is all a little tongue-in-cheek because I think what the IRS really means is that PPS reps are going to be checking to see if the practitioner has a valid Power of Attorney on file for the account they want to discuss before answering long-winded questions that have nothing to do with specific taxpayer issues.

Also, the service is no longer going to honor live telephone transcript requests.  This makes sense because there are so many other ways to obtain transcripts such as through the automated phone service, irs.gov website, and by mail.  There is no sense in clogging up the practitioner phone lines with unnecessary requests.  I wonder if the hold times will get any shorter after January 6th.  One can only hope.

IRS Updates Pub 17 Tax Guide

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The IRS has made its annual updates to the Tax Guide (Publication 17).  Pub 17 is a virtual tax bible which has been available to taxpayers since the 1940s.  It contains just about everything you would need to successfully file your own taxes if not ensure your eternal salvation.  It is also somewhat biblical in length at 292 pages.  If you’re a do-it-yourself type person then you may be able to file your taxes without paying a tax professional this year, but you’ll have to start reading now.  Here is a brief outline of what you can expect to find in the new 2013 version*.

1. The Income Tax Return

Part one contains information about who needs to file, how to file (filing status selection), what forms to use, who can be claimed as dependents, etc. It also covers tax withholding and estimated tax requirements.

2. Income

The general rule is that you have to report and pay taxes on all income.  Part two delves into what is and what is not considered income.

3. Gains and Losses

Part three discusses investment gains and losses, including how to figure your basis in property.

4. Adjustments to Income

5. Standard Deductions and Itemized Deductions

6. Figuring Your Taxes and Credits

I always thought the Tax Guide was an odd (maybe archaic) sort of publication.  If you think about it, tax attorneys, accountants, and tax preparers have most of this stuff down pat, and the do-it-yourselfers are using tax software to prepare their returns.  However, it is a good reference tool.

Continue reading “IRS Updates Pub 17 Tax Guide” →

New Commish, 2014 Tax Season, EITC

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A few noteworthy events caught my eye in the world of tax relief today.

First, the Senate approved Obama’s nomination of John Koskinen in a 59-36 vote, confirming him to fill the top position at the IRS; a position that has been vacant for over a year.  Commissioner Koskinen will take his post beginning next week and we’ll definitely keep a close eye on him to see if he will fulfill his promise of restoring public trust to the agency that has been fighting a dismal public perception for years.  Obviously, this is not something that he’ll be able to do overnight.

Second, the IRS announced that the opening of the 2014 tax season will be on January 31st.  This is when the IRS will begin accepting 2013 tax returns.  The IRS encourages taxpayers to file electronically.  If you are due a refund, this is definitely the quickest way to get it.  Also, the IRS reminds us that we always have the option of requesting an automatic six-month extension using Form 4868.  The IRS tends to encourage extensions because it spreads out the influx of tax returns so that things don’t get too bottlenecked.

And finally, TIGTA, the IRS watchdog, reported on increasing abuse of the Earned Income Tax Credit (EITC) by tax preparers.  The IRS has always had a problem with EITC abuse and fraud because it is a refundable tax credit that can mean money in the pocket of whoever claims it and qualifies (or appears to qualify).  TIGTA noted that too many tax preparers fail to do their due diligence by completing and attaching Form 8867, the Paid Preparer’s Earned Income Credit Checklist.

Criteria for an IRS Audit

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If you’ve ever been audited by the IRS then you would probably agree that it is one of the most stressful ordeals of your life.  Some people worry themselves sick about their potential for audit before they even hear from the IRS.  It is useful to understand some of the IRS audit selection criteria so you can deal with the things that are within your control and not worry about the things that aren’t.

The IRS tends to use the terms “exam,” “examination,” and “audit” interchangeably.  These are all terms they use for the process of examining, clarifying, and correcting errors on one or more tax returns.  As you can imagine, the IRS does not have the resources to carefully pick through each line of each return.  Instead, the IRS picks out certain returns with a high likelihood of containing errors, and these are some of the selection methods:

  • Computer Scoring:  The IRS’ Discriminant Function System (DIF) is a computer program that flags returns based on a numeric score.  A return that has a higher likelihood of problems (such as unreported income) gets a higher score.  Then the high-scoring returns are reviewed by human eyeballs and some of them are selected for audit.
  • Information Matching:  The IRS compares payer reports (1099s, W-2s, etc.) and public records to what is claimed on the tax return and may select returns for audit based on discrepancies.
  • Related Examinations:  If you are affiliated with people or entities that were selected for audit, your chances of being audited may be higher because when the IRS finds problems with one return, they have found that others may be lurking near.
  • Informants:  Some returns are selected for audit based on anonymous tips or are the result of extensive investigation into tax evasion schemes.
  • Large Corporations:  And finally, some large corporations must submit to routine examinations (often yearly) simply because they generate huge profits and the stakes are too high for the IRS to miss anything.

If you do get selected, you should know that the vast majority of audits are completed without ever meeting face-to-face with the IRS.  Here are the different types of audits:

  1. Service Center Examinations (very simple, few issues, math error or something of that nature)
  2. Office & Correspondence Exams
  3. Field Examinations (Revenue Agent goes to your home or place of business to physically inspect your books)

http://www.irs.gov/uac/The-Examination-(Audit)-Process

 

Nominee for IRS Commissioner Vows to Restore Public Trust

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President Obama’s choice for IRS Commissioner is John Koskinen, a man known for his talent in turning around large corporations on the brink of collapse.  He is known for his skills in “restoring public trust” after major disasters.  Isn’t it a little funny that Koskinen is coming highly recommended for the post without any significant tax knowledge?  I don’t know if it is funny or just a sign of the times.

The nomination of John Koskinen shows where our priorities are with the IRS.  The IRS is in survival mode and they need a strong leader who will right the ship.  Sure, they are fine-tuning and making needed adjustments to their processes along the way (according to the near weekly TIGTA audit reports), and this makes it seem like they are focused on the important details of tax administration.  But don’t be fooled.  The nomination of Koskinen speaks volumes about how the president views this agency in crisis.  And the Senate too, since it looks like Mr. Koskinen has received bipartisan support at his confirmation hearing earlier today.

50 years ago it may have seemed odd to put somebody like Koskinen at the head of the IRS, but it was a different agency back then.  I do think they have the right guy for the job.  The IRS needs a proven leader and game-changer, not just another bean counter.  Koskinen went on the record saying, “public trust is the IRS’ most important and valuable asset,” and I think this is spot on.  If taxpayers can’t be certain the IRS will safeguard their private information and administer the tax laws fairly, then the concept of “voluntary compliance” will not work because people literally won’t pay.