The Misguided Appification Efforts of TurboTax and IRS

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For some reason I just can’t let it go.  Tax smartphone apps are not as amazing as some would have you believe!

I came across a press release issued on behalf of RoadFish.com this morning praising IRS2Go and TurboTax’s mobile tax software called SnapTax. IRS2Go is a free app that allows users to quickly access the IRS on Twitter and YouTube, check the status of a tax refund, order transcripts, and obtain IRS news and tax tips. SnapTax costs $9.99 and apparently makes it possible to do your taxes “on the go.”

Here’s what RoadFish.com says about SnapTax:

Look, apps are where it is at now. Pretty soon, many people won’t even be using browsers any more, and will be viewing a lot of their content through apps. I know Bill Harris, the guy who started Turbo Tax. He and his company he created ChipSoft, which were acquired way back from Intuit, have been THE leader in this field since Day 1. I am thrilled they are ahead of the curve on this as well.

Ok, maybe apps are where it’s at, but it’s not where taxes should be. I don’t know much about SnapTax, but I cannot imagine why anyone would prefer to do their taxes on their phone as opposed to sitting down at their computer. Most people have what they need to file by the end of January. Are we that busy that we can’t find a couple hours between Feb 1st and April 15th to plop down in front of our computer and knock it out? Are people really going to file their taxes “on the go” in between turns in Words With Friends? I’m not sure if TurboTax is ahead of the curve on this one or if they made a wrong turn.

Here’s what RoadFish.com says about IRS2Go:

With these helpful apps, taxpayers can now spend a ton less time and money filing their taxes and more time focusing on improving their finances, things like their monthly budget, credit score, and chipping away at debt

Really RoadFish?  Did you even look at the app? How does it save you tons of time and money?

Sign me up when there’s a tax relief app with a “Pay Less Taxes” button. When it comes to apps, only 1 in 10,000 is truly useful (or fun, or serves its intended purpose). Most apps are pointless because, even though everybody wants to push their goods or services with the newest technology, you really can’t appify EVERYTHING.

Mini / Pseudo / “Unreal” Audits

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IRS audits are among the most dreaded tax problems. Even though the IRS audited only 1% of returns in 2010 through traditional audit procedures, the IRS sends “unreal” audit letters (Nina Olson’s term) alerting taxpayers to underreported income and math errors at a much higher rate.  Full-blown audits are infamous for sapping taxpayers’ time, money, and sanity. But the “unreal” audit letters often have a similar effect.

[T]raditional audits are just one way the IRS enforces the tax laws. Increasingly, the IRS is relying on what IRS Taxpayer Advocate Nina Olson calls “unreal” audits. These typically come in the form of a letter alerting you to errors or omissions on your return. While these audits are less intrusive than full-scale audits, they can still cost you real money.

~ Sandra Block, USA Today

Read more here.

Should the IRS Take to the Phones?

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When the Taxpayer Advocate Service (TAS) submitted its 2011 annual report to Congress, it emphasized how “the IRS has changed from focusing on personal, local service to automated, centralized processes” and how this shift has hurt the taxpaying public. At least one author has taken this to mean that the IRS might be more effective in its collection efforts if it would pick up the phone and call taxpayers, particularly in the early stages of collections. See “Personal Finance: IRS Calls to Delinquent Taxpayers?” by Susan Tompor.

First, I’m not sure this was what the TAS had in mind.

Second, I’m not sure this is what we would want.

1. The problem with automated processes is that mistakes are common. Taxpayers are people and real people have real, sometimes unique tax problems that computers and automated letters/processes don’t always recognize. This results in delays and issues with fairness, which in turn results in distrust of the IRS. This is the concern that Nina Olson and the TAS has been harping on for years. While TAS is certainly pushing for an IRS with a more human element, I don’t think TAS is recommending they call everyone as soon as they incur a new tax debt.

2.  As Ms. Tompor correctly points out, with identity theft so rampant these days, few people would be comfortable speaking with a caller who purports to be from the IRS and who wants them to provide information such as their social security number, for verification purposes. I think this would be a waste of IRS resources. And while a phone call can be cheaper than the cost of postage, the phone calls would not replace the letters. Knowing the IRS, a confirming letter would have to be mailed after each call confirming the contact and the content of the conversation.

I am definitely in Nina Olson’s corner when it comes to making IRS interaction more helpful and individualized. But there is a time and place for everything, and I don’t think phone calls on standard collection cases are necessary or desirable.

The Tax Collection Pendulum

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They say that clothing fashions tend to repeat themselves over time.  My 20-year-old Metallica T-shirt?  Retro.  Grandma’s 70-year-old dress? Vintage.

Much like the inner-workings of the IRS, right?  Yeah, sort of.  Anyone who has worked in the tax relief industry long enough has seen IRS collection efforts intensify and diminish in repeating cycles over the years.  Well, some believe that the IRS audit pendulum is tipped one way or another depending on the political party of the president.  And I think it’s safe to say that more audits means more revenue collected.

According to the 2005 dissertation by Valentin Estévez at the University of Chicago:

  • Under Democratic presidencies the audit rate of income tax returns is higher than under Republican presidencies even after the inclusion of various political and economic controls.
  • But, during Democratic presidencies the I.R.S. tends to audit fewer individual returns and more corporate returns than during Republican presidencies.

Casey Mulligan, New York Times blogger, agrees.  In fact, he claims that IRS statistics released since 2005 have further supported Estévez’ position.  See full story here.

The Dreaded IRS Audit

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If there were a way to guarantee avoidance of an Internal Revenue Service (IRS) audit, there isn’t a person in the country that wouldn’t want to get his hands on that secret sauce.  But there isn’t.  You never know if your return is going to be one of the approximately 1.11% of returns that are selected for audit each year.  However, there are several factors that are known to increase your chance of audit:

  1. High income (particularly income exceeding $200,000)
  2. Large charitable donations
  3. Claiming the home office deduction
  4. Claiming rental losses
  5. Deducting business meals, travel, and entertainment
  6. Claiming 100% business use of vehicle
  7. Running a cash business
  8. Engaging in currency transactions
  9. Taking higher-than-average deductions

Of course if you try to pull shenanigans on your tax return then you open yourself up to greater scrutiny too.  For instance, don’t try any of the following:

  1. Failing to report all taxable income
  2. Writing off hobby losses
  3. Failing to report a foreign bank account

An audit can be a simple, single-issue question, or it can be a complicated, tedious process that results in an assessment of additional taxes.  If the assessment causes a tax debt that cannot be paid, a tax relief attorney may need to be retained.

Are Frequent-Flier Miles Taxable?

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Frequent-flier miles definitely provide a financial benefit, but are they taxable? Don’t even bother reading this post if you are hoping to find an answer to this tax problem.  There is no answer here.

Today the LA Times reported that a number of folks were offered frequent-flier miles as an incentive for opening up checking and savings accounts with Citibank last year. What they weren’t told is that Citibank would be reporting the miles to the IRS as income — 2.5 cents per mile, to be precise. Getting a 1099-MISC (miscellaneous income) in the mail was a shocker for these Citibank customers, but tax professionals found it odd as well.

It is not clear where the IRS stands on this issue. The 2012 instructions for Form 1099-MISC, state that income tax must be paid if at least $600 in “prizes and awards” is received. However, a 2002 policy statement suggests otherwise:

[The IRS] has not pursued a tax enforcement program with respect to promotional benefits such as frequent-flier miles. Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent-flier miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.

Citibank is clearly just protecting itself due to the lack of clarity in the law.

Cat Lady is Better with Taxes than with Cats

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Oakland’s “Cat Lady” may have found tax relief by beating the IRS, but now the Alameda County District Attorney is pursuing felony animal cruelty charges against her.

You may remember the story of Jan Van Dusen and all her cats. She, at one time, was keeping nearly 100 cats in a 1,500 square foot home in West Oakland. Her tax case was focused on the $10,000/year expenses for cat food, shots, cleaning, etc. that she claimed to be tax exempt. The IRS refused to allow her deductions at the  administrative level. But a Tax Court overturned the IRS in finding that Van Dusen did in fact qualify for her claimed charitable contribution deductions.

Allegedly her foster pets were not being cared for properly, which is no surprise — how could one person take care of so many cats? Local animal control officers confiscated her pets in October and the district attorney’s office is now pursuing the uncommonly severe felony animal abuse charge. More details here.

The Cat Lady faces up to 3 years in prison and a $20,000 fine if convicted. She has pleaded not guilty.

Our Next President Shouldn’t Be a Tax Schmuck

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When Mitt Romney announced that he would probably follow tradition by disclosing his tax return sometime in April, he also confirmed that his effective tax rate is around 15%.  Yes, it is low.  Yes, Romney takes full advantage of every opportunity available to him within the Tax Code to pay less taxes.  Isn’t that what anyone would do?  Here is the Tax Girl’s view:

“The thing is, I want my President – no matter who it is – to either know enough about fiscal and tax policy to make smart decisions or to surround himself (or herself) with people who can make those smart decisions. Having someone who consistently makes poor decisions about their own taxes directing tax policy seems like, I don’t know, asking Newt Gingrich for relationship advice.

~ Kelly Phillips Erb, Forbes writer / blogger

I guess the Gingrich comment was added for a little extra spice.  Ouch.

Romney Will “Probably” Release Tax Returns in April

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I’m not sure what people are hoping to see on Romney’s tax return. Everyone already knows he is very wealthy. Are they hoping to find that he owes the IRS or has other tax problems? He’s probably just waiting for the last possible minute to file (that would be 11:59pm on April 17th this year) like any other tax-loathing American would do. If it’s prior year tax returns that they are hoping to see then he still has some time before he could be criticized for going against history and tradition.

Romney’s running mates are pushing him to release his tax records sooner than later because they think that whatever is revealed  in his taxes may have an influence on how people vote. Presidential candidates are not required to make their tax returns public, but they have traditionally done so . . . usually around tax time.

I looked at what has been done in campaigns in the past . . . They have tended to release tax records in April or tax season . . . And if I become our nominee, and what’s happened in history is people have released them in about April of the coming year, and that’s probably what I would do.

~ Massachusetts Gov. Mitt Romney, speaking at a Republican presidential debate on January 16, 2012

See CNN story for a list of party nominees in the last few elections and when they released their tax records.

The Taxpayer Advocate Has Spoken – Is Anybody Listening?

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Today the Taxpayer Advocate Service (TAS) released its annual report to Congress and, once again, the tone of the report is one of alarm.

Nina Olson, head of TAS, is particularly concerned about the lack of funding at the IRS. Fewer employees are being asked to do more and more work, and services that should be handled by live bodies are often done by IRS automated systems. The result is that individuals can’t get their tax problems resolved. It’s a tax administration that may be on the brink of failure.

“We’ve had a number of years where the trending of taxpayer service funding has gone down and down in contrast to the increase of enforcement funding.  And then when you layer on the budget constraints, what you see is that taxpayer service is going to decline even more . . . I’m trying to give a warning to everybody, if we continue down this road, bad things are going to happen to taxpayers and it will be very difficult to reverse.

~ Nina Olson, National Taxpayer Advocate

The relationship between the TAS and the IRS is a strange one. The IRS posts the annual report on its website consistently every year and notifies interested parties by way of the IRS Newswire. But it seems obvious from the official IRS statements that the IRS is not happy with the strong comments from the TAS.

“While today’s report includes a number of helpful suggestions, the link described in the report between a challenging budget environment and alleged erosions in taxpayer rights is inaccurate and without basis in fact.

~ Michelle Eldridge, IRS spokesperson

The adversarial/independent nature of the IRS and the TAS perhaps should not be questioned these days. These certainly do not sound like unified voices.