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 is Closed, but Still Accepting Your Payments

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The IRS has provided a detailed explanation regarding what services are available during the lapse in appropriations — and it’s not much.

  • no live telephone assistance
  • no walk-in availability at local IRS offices
  • no refunds to be issued
  • no correspondence will be opened/reviewed
  • no tax return processing
  • no third party transcript requests
  • no installment agreement requests will be reviewed
  • no hardship status requests will be reviewed
  • no offers in compromise will be reviewed
  • no audit, exam, or appeal conferences
  • no levy releases (presumably)

The IRS clearly stated that they will not be issuing any new levies during the lapse in appropriations.  This applies to automated levies that are generated by ACS (Automated Collection System) as well as those issued by live field agents.  However, the caveat there is that some levy notices appear to have gone out after the government shutdown because they were post-dated.  If a particular levy notice was actually issued prior to the IRS closing its doors, then it will be impossible to get it released for the time being.  Also, “intent to levy” notices (those that warn taxpayers of future levy risks) will continue to be mailed out by the automated system.

But we know that at least some IRS personnel continue to work through the shutdown.  What are they doing?

  • cashing your checks
  • conducting criminal investigations
  • issuing emergency levies & seizures

Emergency collection actions usually involve situations where collection of the tax is in jeopardy: for instance, where the CSED (Collection Statute Expiration Date) is approaching and the IRS is on the verge of forever losing an opportunity to collect a substantial tax debt.  Even during normal operations, the IRS is quite selective in what it deems a “jeopardy” situation.  So during the IRS closure, this scenario would be “extremely limited” according to the IRS.

Government Shutdown: Residual Effects on IRS

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The effects of the “government shutdown” have been far-reaching and I’m certain we will feel the effects for months to come, even if everything is switched back on soon.

In IRS world, even one day off tends to cause residual delays and bottle-necks.  For example, when the IRS observes a national holiday and shuts down on a Friday or a Monday, the work tends to pile up, making it more difficult for taxpayers to get help for the following couple business days.  This is especially true in the IRS call centers where they have little control over work flow.  A salaried employee, such as an IRS revenue officer, can put in extra time before a day off so that work doesn’t pile up too much.  But the work flow of an hourly call center employee is more dependent on the volume of inbound taxpayer phone calls.

The IRS always experiences high call volumes on Mondays and days following holidays because IRS problems don’t just go away on their own.  If you can’t get through to the IRS on one day, you’ll probably try again as soon as possible.  And I don’t feel like the IRS hold times have ever really recovered to what they once were before the IRS began furloughing employees earlier this year.  But now we are talking about an unprecedented closure of several days in a row (and how many more, we do not know).  I would not be surprised if the residual effects of the IRS shutdown are felt well into 2014.

IRS closed – technical difficulties or government shutdown?

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Because our elected representatives can’t do their job, the government has shutdown. The Internal Revenue Service (IRS) is not immune from the shutdown … but you are still responsible to make payments and meet IRS deadlines.

Curious as to how the government shutdown would impact the IRS collection officers I face off against on a daily basis; I started to make my normal phone calls to the IRS today. The IRS practitioner’s line has a pre-recorded message acknowledging that it is closed due to the government shutdown. The standard collections phone number used by the public at large has a pre-recorded message that it is having technical difficulties. I called a small sample of Revenue Officers that I know and got their voice messages (no surprise there). I also called a couple of the duty lines at my local IRS office. The duty lines were not staffed. One had a rather funny message recorded either yesterday or today, acknowledging the government shutdown and then the person recording the message was either yanked off the phone or spat a profanity into the message.

According to the IRS website, they softly acknowledge the government shutdown as follows:

“Due to the current lapse in appropriations, IRS operations are limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.”

Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.

If you have an upcoming appointment scheduled with the IRS, you should assume that the appointment is cancelled and will be rescheduled. The IRS will also continue to send its scary collection notices; however, correspondences received will not be reviewed (again, not a real surprise announcement).

I suppose what I’m really waiting for is for a prospective client to contact me with a stack of IRS levy notices that were issued at the eleventh hour on September 30, 2013 by an IRS official knowing they were going on a forced holiday for an undetermined amount of time.

Further Attempts to Regulate Return Preparers

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The government is trying to impose regulations on tax return preparers again.  This time they are relying on rather questionable authority.  It is a post-Civil War statute called the “Horse Act of 1884.”

After the Civil War, individuals often filed loss claims against the US government, primarily for horses that were lost in battle.  A cottage industry sprung up that provided representation in the filing of such claims.  Not surprisingly, once agents started filing loss claims for a fee, there was a spike in fraudulent claims, so the government began regulating them, giving only the ethical ones the title of “enrolled agent.”

That title still exists today.  Enrolled agents are tax preparers that also have authority to represent taxpayers before the IRS.  They often prepare tax returns, but they are also permitted to negotiate for tax relief as a representative of the taxpayer.  In the hierarchy of tax professionals, they fit somewhere between a regular tax preparer and a tax accountant.  The legal team opposing regulation points out that the key difference is that a tax preparer may not actually represent a taxpayer.  The IRS would have the court ignore this distinction and expand a 140-year-old statute.

I don’t know if it is fair to require that every tax preparer take tests, pay fees and maintain a license.  With so many people using tax software to file on their own, the mom-and-pop tax prep firms already struggle quite a bit these days.  Regulation of the entire tax preparation industry would hit some firms pretty hard.

Introducing the tax evasion beanie baby

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This week, the creator of the Beanie Baby toy phenomenon, Ty Warner, was charged with tax evasion. The charges allege that Warner committed tax crimes on his 2002 tax return by failing to report $3.2 million in income on a secret Swiss bank account that held as much as $93.6 million in assets. The federal government alleges that Warner falsely reported his 2002 income as $49.1 million, omitting money he made on his UBS account. He amended his 2002 return in 2007, yet it is alleged that he again understated his tax by $885,300.  In 2009, Warner tried to avoid prosecution by taking advantage of the Internal Revenue Service (IRS) amnesty program known as the Offshore Voluntary Disclosure Program. According to Warner’s tax attorney, the IRS denied amnesty to Warner.

Warner is expected to plead guilty as part of a plea agreement and will pay a civil penalty of $53.6 million for failing to file a required Report of Foreign Bank and Financial Accounts (FBAR). Warner is not the first UBS client to be prosecuted for tax crimes. Since 2009, the United States has prosecuted approximately 70 taxpayers, 30 bankers, lawyers and advisers in a crackdown on offshore tax evasion. I wonder if this is the time to sell those Beanie Babies I have in the attic.

The $10,000 IRS "The Apprentice" Parody

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Apparently it’s that time again.  That time when we poke fun at the IRS for idiotic mistakes, bad judgment, unfair rules, . . . horrendous training videos.  It has already become a regular topic for many writers and bloggers, but just how regular and how idiotic is up to the IRS.

Well, to be fair, the latest IRS training video, a spoof on Donald Trump’s reality show “The Apprentice,” was produced in 2011, around the same time as the now famous Gilligan’s Island and Star Trek videos.  So to say that the IRS is in total control of the negative press isn’t completely true; they’re still dealing with repercussions from the mistakes of a prior era, as they put it.  They claim to have a shorter chain on management and those that would have approved the ridiculous videos now.  Hopefully by now they have learned their lesson and are going to stick to things they are good at like bank levies and wage garnishment.

The Apprentice parody ranks right up there with the worst ever made.  I cannot for life of me imagine how it cost the IRS $10,000 to produce such utter garbage.  It was obviously filmed in one take, so even if they had to rent out the conference room to get just the right lighting and feel, it could not have been for more than a few hours.  They saved money on props by making some of them by hand and bringing others from home.  They saved money on wardrobe by wearing their own suits.  They even scrimped on the wig worn by the guy playing the part of “The Donald” — it was completely wrong.  Way too thick and way too dark.  And if they paid more than $100 to whoever was responsible for writing that train wreck of a script, then they got hustled.  One thing is for sure: these are 100% legitimate IRS amateurs, not paid actors, because they are horrible.

It’s pretty obvious that I derive a certain amount of selfish joy from critiquing IRS videos, but my primary reason for doing it is to help expose the underlying problem of waste.  This exposure has been difficult for the IRS.  Public relations are not the best right now.  I hope they have learned their lesson.

 

More on the Individual Mandate

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With the individual mandate element of ObamaCare going into effect in 2014, some people who are currently without health insurance may be wondering if they should begin looking into joining the ranks of the insured. We now know what the penalty will be for failure to secure insurance, so there will certainly be those who do a little cost/benefit analysis. As the deadline creeps up on us, perhaps some are also wondering why. Why is there a penalty at all?

I found a succinct and informative article on the PBS website that answers many of the common questions that pop up in relation to the individual mandate: http://www.pbs.org/newshour/rundown/2013/09/how-will-the-obamacare-mandate-impact-you.html

If you aren’t already aware, Americans will be required to obtain health insurance beginning in 2014 or else pay a tax penalty of up to $95 per adult and half that for each child, or 1 percent of the household income, whichever is greater. And if you still don’t have coverage by 2016, you’ll pay as much as $695 per adult and $347 per child pursuant to the individual mandate.

What I really like about the PBS article is the plain-language explanation of the “why.”  For the health care overhaul to work, there has to be a broad base of participants. If everybody participates, including the young and the healthy, then the rates will (ideally) remain low. If coverage were not mandatory, then there would be an inordinate number of sick, high-cost participants which would drive the price of insurance through the roof.

However, opponents of the individual mandate believe that the penalty isn’t severe enough to ensure anything near 100% participation. Some people will certainly weigh their options and risk a penalty that will be lower than a health insurance premium, especially if the IRS is not going to do too much to enforce the individual mandate.

Veterans Groups Resist IRS Audits

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The IRS does a fairly good job taking care of American military families, but what about our veterans?

Some think the IRS is picking on the American Legion and other non-profit veteran organizations.  The American Legion is a veterans organization that was incorporated by Congress in 1919.  They are “the nation’s largest wartime veterans service organization, committed to mentoring youth and sponsorship of wholesome programs in our communities, advocating patriotism and honor, promoting strong national security, and continued devotion to our fellow servicemembers and veterans.”  They are also highly enthusiastic about baseball and that’s good enough for me.

Jerry Moran, a Senator from Kansas, is unhappy about audits that the IRS has undertaken of certain American Legion posts.  Apparently the IRS requires that they maintain dates of service and character of service records for all its members or face $1,000 per day penalties.  American Legion officials are claiming that they have never heard of this requirement.

Really this requirement is not unreasonable, given the fact that it is the IRS’ job to make sure all tax-exempt organizations are meeting the requirements for tax-exempt status.  But veteran groups are claiming that they have never been informed of the record-keeping obligations.  Moran wants to know when this requirement came about, under whose watch, and by what authority.  These are valid questions since the audits are being conducted pursuant to mere IRS “guidelines” found in the Internal Revenue Manual.  Moran is asking the IRS to point to the actual legal authority that grants them the right to conduct these audits and levy tax penalties for non-compliance.

Accounting Today asked about these audits.  The IRS’ response:

  • There is no special enforcement effort underway; just routine compliance activity
  • Authority for these audits is granted by Internal Revenue Code Section 501(c)(19)
  • The IRS HAS made efforts to inform veteran organizations of their obligations by way of outreach programs and special publications, so if they didn’t know, they should have known

Gay Married Couples Must File Federal Returns Jointly

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These are some of the questions that remained after the landmark Supreme Court decision (US v. Windsor) in June that struck down the Defense of Marriage Act.

  • What happens when couples marry in a state that recognizes same-sex marriage, but then move to a state that does not recognize it?
  • Will same-sex marriages be considered valid for federal tax purposes retroactively?
  • Will civil unions be treated as marriages for federal tax purposes?

Many questions were answered today in  Revenue Ruling 2013-17.  It states that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes” regardless of their current state of residence and regardless of what other state(s) they move to subsequent to that legal marriage.  It isn’t just about filing status, although that appears to be the focus.  There are over 200 code provisions having to do with “marriage” or “spouses” and now we can be sure those also apply to same-sex married couples.  Gay married couples may apply for refunds unless they are barred by the statute of limitations.  Civil unions will not be treated the same as marriages under the revenue ruling.

But just like marriage itself, it isn’t all rainbows and butterflies.  Same-sex couples who are legally married must file jointly; they no longer have the option of filing as single people.  They may, however, elect to file “married filing separately” as married couples have always had that option.  Also, as was pointed out by some tax professionals, many same-sex married couples are going to find that there is no tax advantage at all when they file jointly.  In fact, some couples with similar incomes will get hit with the “marriage penalty,” which is not an actual penalty, but is a common description of the situation in which their tax liability as a couple is much higher than it would be if they were single.

Blocking IRS Collections

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If you do not develop a plan for dealing with your tax debt, the IRS will find a way to collect what you owe one way or another.  One way the IRS does it is through enforced collection actions such as wage garnishment, interception of federal and state refunds, levy on federal benefits like Social Security, bank levy, and seizure of property.  The IRS also encourages and persuades folks to voluntarily comply with tax laws through public outreach campaigns, phone calls, and letters.  Of course, those “nice guy” techniques only get them so far.  There are several different ways to block IRS collection efforts, but some I cannot recommend because they are illegal.

Recommended

  • pay what you owe
  • set up an installment agreement
  • prove hardship
  • file an Offer in Compromise

Not Recommended

  • hide assets
  • bribe an IRS revenue officer
  • give false information
  • dump a pile of dirt in front of an IRS revenue officer to prevent them from getting near your assets

Let me be perfectly clear.  I include the “not recommended” list only to give you a keen understanding of what you should not do.  And the dirt dumping sounds like a ridiculous example, but it really happened.  The guy that did it was sentenced to three years of probation just last week.  In an attempt to collect unpaid taxes from 45-year-old Walter M. Trizila, IRS revenue officers visited his property to see if there were any assets worth seizing.  The IRS set its sights on a certain dump truck, but Trizila didn’t want to part with it.  He entered a front-end loader, charged at the revenue officers, and then dumped a mound of dirt between them and his truck.

Trizila is apparently a very literal kind of guy.  He knew he had to “block” IRS collections and he did it the only way he knew how.  Unfortunately for him, it resulted in a misdemeanor conviction for assault, resisting or impeding a federal officer.