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.

EIN Tax Return Fraud

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Tax Refund Fraud.  We’ve seen this happening across the nation in a variety of communities.  The fraudster demographic is also quite diverse: some perpetrators are operating from within experienced fraud rings, some are regular street criminals (or inmates), some are even IRS insiders.

Most people are probably aware of individual refund fraud, which involves the filing of a false tax return using a stolen Social Security Number in hopes of obtaining a refund.  Many of these schemes are built upon the idea that the IRS doesn’t bat an eye if the requested refund is small enough.  And fraudsters can get pretty rich if they file in bulk.

But did you know that the same thing is happening with EIN numbers?  An Employer Identification Number is used to identify business accounts.  People steal them and obtain them fraudulently just like they do with social security numbers.  The statistics are staggering: “277,624 stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion” (2011 numbers).  The Treasury Inspector General for Tax Administration (TIGTA) released a report this week asking the IRS to do more to prevent EIN refund fraud.

Vengeful Audit Paranoia

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People who get audited often feel like they have been unfairly targeted by the IRS.  Many of our clients have felt this way.  When the tax audit notice comes, they immediately review their past dealings with the IRS, trying to figure out why they have been audited and what they did to upset the IRS.  Some of the more paranoid audit victims will go back and mentally review all their dealings with any branch of the government, assuming that they were selected in an act of revenge.  I suppose it is human nature that causes them to wonder and question why they, of all people, were selected for audit.

Bill Elliot is a high-profile example of this “vengeful audit paranoia.”  He was audited after appearing on FOX News earlier this month where he criticized ObamaCare and told the nation about his health insurance policy being cancelled.  He couldn’t afford the new premiums offered in the federal health insurance marketplace and needs insurance probably more than the average person given that he is battling cancer.

We can’t know for sure whether Mr. Elliot was targeted by the IRS.  We know some of their audit selection criteria, and there are probably others that we don’t know.  People are also audited at least in part based on chance.  I don’t know of any confirmed “vengeful audits,” but maybe that’s the next IRS scandal…

IRS Offers Disaster Relief in Illinois

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Today the IRS announced that it will be offering tax relief to victims of severe storms in parts of Illinois.  The destructive weather that began on November 17, 2013 has resulted in the government making disaster declarations in the following counties: Champaign, Douglas, Fayette, Grundy, Jasper, La Salle, Massac, Pope, Tazewell, Vermilion, Wabash, Washington, Wayne, Will and Woodford.

If you live in any of these counties then you will automatically be given extra time to file and pay certain taxes.  Deadlines falling anytime between November 17, 2013 and February 28, 2014 will be extended to February 28, 2014.  If you have been affected by these storms (either personally or indirectly, such as by having a tax preparer in one of these counties) but you do not reside or do business in the affected area, then you may still obtain tax relief by calling the IRS and explaining your individual circumstances.  The IRS disaster hotline is (866) 562-5227.

Maybe this Thanksgiving we should remember to be thankful for great weather, especially here in California.

2013 IRSAC Report

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The Internal Revenue Service Advisory Council (IRSAC) released its annual report today, which included recommendations for improving efficiency at the IRS.  Here are some of the points that stood out to me:

1. Expand awareness of OPA

Online Payment Agreement (OPA) is a tool that some taxpayers may use to enter into installment agreements if they meet certain criteria.  IRSAC says that the IRS should be doing more to encourage taxpayers to use OPA rather than call and waste their time on the phone.

 Of the more than 3.1 million total installment agreements created in FY 2012, less than 3 percent (92,519) used the OPA to enter into an installment agreement.

The reason I don’t use OPA is I have found that getting a live body on the phone normally results in a better deal.   Plus, the other day I was playing around with it and it wasn’t even working.

2. Reduce processing time for Form 2848, Power of Attorney

3.4 million Power of Attorney forms were filed in fiscal year 2012, but less than 10 percent were filed electronically.  The IRS subsequently discontinued electronic filing a few months ago.  IRSAC recommends going back to electronic filing and making changes to the form in order to reduce errors that cause them to be returned.  I use e-fax to file my Power of Attorney forms.  It is quick, inexpensive, and paperless — as close to electronic filing as you can get.  In my experience, the processing time has been relatively quick: around 5-7 days usually.

One of the other problems that IRSAC addressed is duplicate filing, which happens when a practitioner files a 2848 and then doesn’t have the patience to wait a week.  If that practitioner then calls the IRS and tries to gain access to the account before the POA has been processed, the IRS representative will have him/her fax the POA while waiting on the phone.  Sometimes the IRS rep will forward that POA on to the CAF Unit without first checking with the practitioner to see if it has already been filed.

3. Update the transcript request policy on the PPS Line

The Practitioner Priority Service (PPS) phone line is for tax attorneys, accountants, enrolled agents, and such.  If you have ever dealt with the IRS by phone then you know how ridiculous the hold times can get.  The IRS call center employees should be answering unique questions, taking financial information, and resolving tax accounts; they shouldn’t have to do something that a practitioner can easily do him/herself.  Some firms have a habit of calling in and tying up phone lines for simple transcript requests when transcripts can more efficiently be ordered electronically via the IRS website or through the automated phone system.

Cindy Thomas Defends "Low-Level" IRS Employees in Sharp Email to Lois Lerner

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At the height of the IRS Tea Party targeting scandal, high-level IRS employee Lois Lerner blamed low-level IRS employees in a Cincinnati office for flagging tax-exempt applications that contained words such as “tea party” or “patriot.”  Lerner had said that “line people . . . didn’t have the appropriate level of sensitivity about how this might appear to others.”

But one of these underlings in Cincinnati showed plenty of sensitivity in a May 10th email to Lerner that was made public this week by investigators on the House Ways and Means Committee.  Her name is Cindy Thomas, then-director of that office.  She took offense to Lerner’s labeling of her and others as “low level employees,” noticing right away that the Cincinnati tax-exempt division was being blamed in order to protect high-level IRS management.  Tax law and IRS news can be dull at times, but Thomas’ email reads like a juicy piece of gossip:

As you can imagine, employees and managers [in the Cincinnati tax-exempt division] are furious…How am I supposed to keep the low-level workers motivated when the public believes they are nothing more than low-level and now will have no respect for how they are working cases?  The attitude/morale of employees is at the lowest it has ever been…the previous 1½ years inside the determinations unit has been miserable enough because of the division’s workload and lack of help with strategic planning from Washington…Now our leader is publicly referring to employees who are the ones producing all of this work with fewer resources than ever as low-level workers!

This is obviously more than a defensive response from a manager with a bruised ego.  I respect the way she stood up for her employees.  And because I know first-hand the condition the IRS is in (and the condition it has been in for several months now), I don’t doubt anything she said.  This email, though emotionally-charged as it is, goes to the heart of the scandal in a way that is more raw and sincere than anything we have seen to date.

IRS Quietly Rolls out FTS Program Nationwide

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Part of the problem with the IRS’ terrible reputation is that their scandals and mishaps get publicized in every way imaginable, and often for a few days longer than necessary.  But the good things the IRS is doing tend to go unnoticed.  I guess it’s just not as much fun to read about.

I found an example of this today.  The IRS is expanding a pilot program that it began in select locations in 2006 that allowed small businesses to opt for alternative dispute resolution rather than the standard formal appeals process (and then potential litigation) when disputing an audit.  The program is called Fast Track Settlement (FTS).  It is a smart and attractive option, since the IRS claims that disputes can be resolved in 60 days when they go through FTS, and taxpayers maintain their appeals rights through the process.  The only problem I see is that the mediator in a FTS proceeding is an IRS appeals officer rather than a neutral third party.  Yes, appeals is a separate arm of the IRS, but it’s still the IRS as far as I’m concerned.

I’m not sure why it took seven years for the IRS to make FTS available nationwide, but besides that, it seems like another opportunity lost for those in charge of the IRS’ public perception.  The IRS is at least partly to blame for this phenomenon.  In times like these, the IRS needs to be doing everything it can to leverage their good PR, and that means making sure the public knows about every single time-saving and money-saving measure, otherwise we will only remember the Star Trek parody video and similar headlines.

"This is George Miller with the IRS…"

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It sure was nice of the IRS to warn taxpayers of a “pervasive telephone scam” last week.  The scam artists apparently target recent immigrants, threaten jail time, and run credit card payments over the phone.  The IRS described a number of things to look out for, presumably so we all can  independently determine if the call we received is from a scammer or from an actual IRS representative.  The only problem is sometimes the thieves and the IRS agents share some of the same characteristics.  Let me show you what I mean.

  • Scammers use phony names and IRS badge numbers: Great, but how would we know if the name or badge number is fake?!  The IRS says that they often use common names.  But I know there are plenty of real IRS reps who have common names.  Plus, recent immigrants may not be fully aware what is or is not a common American name.  It might have been helpful if the IRS had given a sample ID number so that taxpayers could at least know if it was the correct number of digits.  Many of the representatives I speak with use 7-digit ID numbers (assuming I have been talking with the IRS for the past 8 years and not phone scammers).
  • Scammers may be able to recite the last 4 digits of the victim’s SSN: So can a real IRS rep.
  • Scammers spoof the IRS toll-free phone number on caller ID: When I have received calls from revenue officers, offer in compromise examiners, and appeals agents, it usually shows “Unknown” on caller ID, so this is good to know.
  • Scammers sometimes follow up the call with a bogus email: Real IRS agents never send emails, so this is actually a dead giveaway.
  • Scammers produce phony call center background noise: I have often heard phones ringing and low chatter that is characteristic of a call center when talking with the IRS, so I’m not sure how helpful this tip is.

I think this IRS warning is useful, but only by becoming familiar with the entire list of characteristics.  If you receive a call fitting one of the above descriptions, there may not be cause for concern (unless you are asked to provide credit card info).  But if you receive a call with many of the above characteristics, it is probably a phony IRS call and a scam.

Some IRS News & Some FTB News

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Internal Revenue Service

The IRS expects the 2014 tax season to be delayed by one to two weeks.  That would mean the new tax season would begin somewhere between January 28th and February 4th.  The reason for the delay?  None other than the historic Fall 2013 government shutdown.

The IRS normally begins tuning and tweaking their complicated tax return processing systems in the fall, even before the start of the 4th quarter.  This year’s system testing period was delayed when the IRS closed its doors during the first half of October.  You should also be aware that the February 4th start date is only an estimate.  The IRS will re-evaluate and confirm the 2014 Tax Season start date in December.

California Franchise Tax Board

We often hear about federal tax scams, but the FTB recently sent out a warning to California residents to keep their eyes and ears open for phishing schemes and identity theft.  There is apparently a scheme which targets elderly taxpayers in Beverly Hills.  The caller, posing as a FTB employee, tells the victim that they were ticketed for a red light violation and their case has been forwarded to the FTB for collection purposes.  As ridiculous as this may sound, the IRS has been given so many additional responsibilities over the years that it’s hard to say what they may have a hand in.  So, why not the FTB too?

The moral of the story is the same as it always is for the IRS: they won’t contact you by email, and they will rarely call you without sending a series of notices first.  You need to be suspicious if either of these things happen to you.

IRS Asks for Patience

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The IRS issued an “Operations Resumption Statement” last week on its website after opening its doors back up on October 17th.  The IRS wants taxpayers and tax professionals to know that that they are aware of the backlog that has resulted from the 16-day shutdown:

At this point, we know we received a large amount of correspondence during the closure. We know there will be a substantial increase in demand for our phone services and many other operations

In other words, “stop reminding us about the delays and long hold times; we know we have problems right now.”

The IRS also acknowledged that it will take time for the call centers and walk-in assistance centers to ramp up to normal levels of operation.  Since they are still assessing the damage caused by the government shutdown, there is no way to estimate how long the ramping up process will take.  I would guess that things will be slow for several weeks, perhaps even a couple months.  This is based on my experience as a tax attorney over the years.  Even one day off at the call centers often has residual effects on hold times and mail processing times.  A 16-day shutdown is unprecedented and we have no way of knowing when the IRS will be back to “normal” at this point.

In light of the enormous backlog that the IRS has committed to focus on over the next several weeks, the IRS has asked that taxpayers and tax professionals delay or limit their contacts with the IRS except in urgent situations.  Of course, after 16 days many of the issues that could have been considered non-urgent have now been upgraded to higher levels of urgency.  And I think the IRS realizes that too.  They just ask for our patience right now.  Ask anyone who deals with the IRS on a regular basis — if there is anything we know, it’s patience.

Tax Deadline Tomorrow! Are You Prepared?

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There’s a tax deadline tomorrow causing many people to work on their taxes into the wee hours tonight. Even though the federal government is closed, the second tax day is tomorrow, October 15, 2013. This second tax day is the deadline to file your personal federal tax return with the Internal Revenue Service (IRS) if you filed an extension to file your taxes by April 15, 2013, the first tax day.

On September 26, 2013, the IRS announced that “many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file.” These are likely the people that are going to be up late tonight enjoying tax returns instead of playoff baseball and Monday night football. Individuals and their tax preparers alike are guilty of procrastinating until this upcoming second tax day to prepare and file their tax returns.

Many people file a tax extension in April once they prepare their tax return and determine that they’re going to owe a tax liability. Others just need additional time to review their finances and prepare their tax returns. In either case, filing a timely tax extension in April only allows taxpayers extra time to get their tax returns filed. However, an extension to file does not extend the time that taxpayers have to pay any tax due on their tax return. This is often overlooked or simply ignored by taxpayers when requesting a tax filing extension.

If you filed an extension to file but owe a balance due, you will owe interest on any amount not paid by the April 15 tax filing deadline, plus you may owe penalties. The late payment penalty is generally ½ of 1% of any tax not paid by the original filing deadline of April 15, 2013. It is charged when reasonable cause for non-payment is not established, for each month or part of a month the tax is unpaid maxing out at 25%. Fear of not being able to pay the tax due often causes individuals to not file their tax returns, even if they have an extension to file. They’re often delaying the inevitable.

The IRS promotes payment plans to the public to entice the public to file their tax returns even if they cannot immediately pay the entire tax liability. Beware however, as the IRS is a collection machine, their job is to collect the debt owed; assuming of course that they return to work.

There are different types of payments plans allowed by law that may better fit your budget than the IRS may share with you, unless you know the rules. The IRS has a hardship program called currently non collectible status for taxpayers that are unable to pay the tax debt owed. Additionally, the IRS has a debt settlement program for tax payers that can prove that it is in the government’s best interest to collect less money than what is owed, this is called an offer in compromise. The point is that there are options available for taxpayers that cannot pay their taxes owed. The first step is to file your tax return, preferably before tomorrow’s second tax day deadline.