Procedure for Reporting Tax Law Violations Needs Work

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Maybe it’s because of the recent unprecedented IRS whistleblower payout, but people seem to be eager to turn others in for tax law violations these days.  Nevermind their own tax problems.  Of course most of the inquiries I see come from the estranged spouse or the “friend” seeking revenge.

The best way to report IRS problems involving fraud and other tax law violations is by completing and filing IRS Whistleblower Form 3949-A.  But according to TIGTA, Form 3949-A is too complicated for most taxpayers to be able to complete thoroughly and accurately.  And many are also using the form for something other than its intended purpose.

TIGTA studied a sampling of 530 whistleblower forms 3949-A and identified some serious problems:

  • 27 percent could not be processed because they didn’t provide sufficient details (not surprising since the form asks for things like the social security number and birth date of the person you are reporting)
  • 21 percent were incorrectly used to report identity theft (some IRS service centers were actually instructing taxpayers to use this form for ID theft when, in fact, they should be filing Form14039, the ID Theft Affidavit)
  • Forms that reported “other issues” not covered by F3949-A were often shredded by IRS personnel instead of being forwarded to the appropriate IRS function

 

Can We Trust the IRS with Guns?

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"desk pop" from the movie The Other Guys

TIGTA recently audited and reported on the firearm policies of the Criminal Investigation (CI) division of the IRS and found them to be somewhat lacking.  Usually I like to focus on tax relief, but this has got to be the strangest TIGTA report I have ever seen.  I couldn’t pass it up.

CI special agents are a unique breed, to say the least.  They are like the offspring of two completely opposite carreers: one’s tools are a pocket protector and calculator, and the other’s are a bullet proof vest and concealed handgun.  These are probably guys who really wanted to be FBI or CIA but ended up at the IRS instead.  And, let’s face it, a tax attorney probably sees as much action as they do.  They aren’t chasing down drug dealers; they are apprehending people who cheated on their taxes or who are running from a massive tax debt.  They definitely aren’t firing their weapons on a regular basis, so it’s no huge surprise to me that the firearm policies are subpar.

Their firearms qualification passage rate is pretty high; that’s not the problem.  TIGTA’s report has more to do with CI putting in place consistent policies and consequences.  The scenario that really stood out to me was what to do when a CI special agent accidentally discharges his firearm!  The report states that this is not a common occurence, but according to the report, there are more accidental discharges than intentional discharges!

During fiscal years 2009-2011, there were a total of 19 reported discharge incidents in all of CI; 8 intentional and 11 accidental.  Is is just me or does this report make CI agents look like a bunch of clowns?

Right to Representation Threatened by IRS Carelessness

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Didn’t I just write about taxpayer rights?  Didn’t I say something about how the IRS is not interested in protecting taxpayer rights?  The Treasury Inspector General for Tax Administration (TIGTA) released a report today that exposes IRS’ disgregard for taxpayers’ right to representation.  I usually like being right, but not when it’s something like this that threatens access to tax relief.

There are procedures in place that are supposed to ensure that the tax attorney, or other representative, is kept in the loop with regard to certain key actions.  For example, an IRS Revenue Officer is not supposed to contact the taxpayer directly when there is a Power of Attorney on file, and a Revenue Officer is supposed to send copies of correspondence to the authorized representative.  However, the procedures are not being followed by some revenue officers and the procedures are not being enforced by some key management personnel.

I realize this is not a direct denial of the right to representation, but any action (or inaction) that would weaken the benefits associated with this right is troubling and should be viewed as a significant threat.  TIGTA’s report mentions that nobody complained about the infringements on their right to representation in any of the sample cases in it’s study, and I find this equally troubling.

IRS is Soft on Federal Agencies

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Private businesses that do not file and/or pay their employment taxes are subject to a variety of enforcement actions:

  • assessment of penalties and interest
  • filing of a federal tax lien
  • final notice of intent to levy
  • assessment of a Trust Fund Recovery Penalty (TFRP)
  • seizure of property

But what happens when a federal agency owes taxes?  According to the Treasury Inspector General for Tax Administration (TIGTA), not enough.  Back in 2007 TIGTA made some recommendations that might improve oversight of these special tax accounts and improve compliance.  TIGTA basically recommended that the IRS figure out why this is happening and how to make it stop.

It’s 5 years later and the IRS still does not have an adequate process for resolving aged federal agency tax cases.  As of December 31, 2011 there were 70 federal agencies with delinquent tax accounts totalling $14 million in unpaid taxes.  What’s worse is that 34 of these accounts were placed in Currently Not Collectible status because they could not pay.  But the IRS has been known to actually shut down private businesses that demonstrate an inability to pay employment taxes.  TIGTA admits to this double standard in its latest audit report.

Letter Audit Process Nicer Now . . . But Not Faster

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photo via work.chron.com

The number of IRS “correspondence audits” has risen sharply in recent years.  A correspondence audit is a type of tax audit that is handled in the following manner:

  • The IRS sends taxpayer a letter questioning something on his/her tax return
  • taxpayer responds by providing documentation that substantiates the figures on the original return
  • the IRS then closes the case without making changes to the return, OR
  • the IRS sends another letter asking for additional supporting documentation, OR
  • the IRS proposes a tax change based on the information received

If the taxpayer disagrees with a tax change, he/she may appeal the decision.  It is called a correspondence audit because it does not involve an IRS auditor banging on your front door.

Taxpayers naturally want to know what is going on with their case; whether or not their documents have been received, whether or not the documents they submitted are sufficient, ultimately whether or not their tax problem has been resolved.  And in the past, the IRS has been slow to answer these questions.

But recently the IRS has made efforts to improve the correspondence audit process by something called the “Intelligent Contact Management System.”  See TIGTA report.  ICMS allows taxpayers to speak directly with IRS audit representatives rather than leave messages (under the old system) that were not being returned.  However, even though taxpayers may be getting through to live operators and getting answers these days, the answer is still “not yet.”  The audit process is still as slow as ever.  TIGTA confirms in their report that ICMS will not do anything to actually shorten the correspondence audit process.

On a side note, it’s slightly presumptuous for the IRS to use the word “intelligent” in the name of one of its systems, dontcha think?

TIGTA Detects Unauthorized Disclosure at IRS

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The Treasury Inspector General for Tax Administration (TIGTA) recently published a report expressing concern over the submission of tax account transcripts to tax professionals through E-services.  The concern is that confidential tax records are being sent without proper authorization.

Proper authorization normally means the signing of a Form 2848 Power of Attorney (POA).  When this form is submitted to the IRS by mail or by fax, the “CAF Unit” reviews the form for accuracy and completeness and updates IRS computers accordingly.  Then, when the tax professional (tax attorney, CPA, enrolled agent) contacts the IRS, they may obtain access to the taxpayer’s tax account and they may request tax account records either by phone, by fax, or online through E-services.

However, some tax professionals are authorized to submit Form 2848 electronically through IRS’ E-services.  Electronic POA processing works differently, in that the tax professional is able to gain immediate access to sensitive tax records without human verification that the Form 2848 has been completed correctly.  TIGTA’s concern in this audit was that some tax professionals may be submitting a “preliminary” or incomplete Form 2848 as a way to handle their most pressing tax problems immediately and then getting the required signatures afterwards.  Or worse, some may be failing to secure a fully-executed POA at any point during the representation.

Of course, TIGTA did test this hypothesis using its customary small sample size, so we don’t really know how big of a problem this really is.  Also, we don’t know if the problem extends to the tax relief community or if it is limited to tax preparation.  But any breach in the process that could result in unauthorized disclosure of tax information should be taken seriously.

IRS Onboarding Process Under Fire

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image via toiletpaperentrepreneur.com

When I saw today that TIGTA had audited the IRS new-hire integration process (something the IRS calls “onboarding”) and concluded that the IRS is not always making new employees feel welcome and not always making it a positive experience, I immediately imagined that there is some kind of mild hazing going on at the Service.  Maybe the stapler set in a jello mold trick, or the cell phone in the A/C duct trick, or the gift-wrapped work station prank, or any other form of office shenanigans.

I guess I was slightly disappointed to learn that the onboarding deficiencies that TIGTA identified were far less interesting; things like not being assigned a mentor or not being helped to reach their full potential.  Maybe they need to lighten up a little at the IRS, cut the taxpayer a little slack, think twice before issuing a wage garnishment or a bank levy just before Christmas.  Office pranks at least show some creativity.  But IRS personnel are trained to work like robots; they aren’t allowed to be creative.

To be fair, there are some IRS employees who think outside the box but its almost always those who have several years of experience.  The IRS needs to improve its onboarding if only to reduce turnover.

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The IRS' Daily Routine

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What are some of the things you do on a daily basis?  Brush your teeth, check your email, read a favorite book?  Even though it may not be apparent to most of us, the IRS actually has a daily routine too: processing tax returns.

But this wasn’t always so.  Before 2005 the IRS operated on a weekly processing schedule.  In other words, what showed up in IRS computer systems could be out of synch with what was sitting on somebody’s desk for up to a week at a time.

TIGTA recently audited the IRS’ daily return processing performance with favorable results.  However, it is still a work in progress; there are certain tax returns with “qualifiers” (or codes) that prevent daily processing.  Some of the qualifiers include:

  •  identity theft
  • bankruptcy
  • pending litigation
  • Offer in Compromise pending
  • Currently Not Collectible status
  • underreporter issues
  • tax return adjustments

Coincidentally, the presence of some of these same disqualifying factors are also what tend to hold things up on the collections side of things when seeking tax relief.

ITIN Procedure Seriously Flawed; IRS has Known for 10 Years

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Individuals who are working in the United States but are not eligible to obtain a Social Security Number may apply for an Individual Taxpayer Identification Number (ITIN) for IRS / tax purposes.  According to an audit report by the Treasury Inspector General for Tax Administration (TIGTA), a substantial number of “questionable” ITIN applications are not being detected, resulting in ITINs being assigned improperly.  This results in fraudulent tax returns and billions of dollars thrown away in fraudulent refunds.  The ripple effect often results in the IRS having less resources for helping people with innocent tax problems who are seeking some kind of modest tax relief.

Some IRS employees complained to Congress that their supervisors have not been concerned with questionable ITIN applications, only with the volume of applications processed.  Congress asked TIGTA to look into it, and now TIGTA’s report substantiates the employee complaints.  Here is what TIGTA found:

  1. IRS management has created an environment that discourages ITIN application reviewers from identifying questionable/fraudulent applications
  2. Current fraud detection procedures are inadequate
  3. There were processes in place that would have disclosed fraud patterns in ITIN applications, but IRS management eliminated them

It appears that some of the problems with the ITIN application process have gone unfixed for at least 10 years:

Some of the deficiencies we raise in our report have been brought to management’s attention long ago. Some were raised in a September 2002 report issued by an IRS-initiated Task Force. However, management has failed to take sufficient action to address those deficiencies.

Treasury Inspector General, Report #2012-42-081

In response to this report, Rep. Sam Johnson (R-Texas) has asked Doug Shulman to admit he has not been fulfilling his responsibilities and to resign from his position as IRS Commissioner.  The IRS has not responded to Rep. Johnson.

Is TIGTA's Audit Process Missing a Step?

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image via katilda.com

The Treasury Inspector General for Tax Administration (TIGTA) is the government watchdog agency that makes sure the IRS does its job.  At least that’s what they’re supposed to do.  From where I sit, it looks like they do a great job identifying IRS problems, and describing the problems in audit reports, and even in recommending solutions to the problems.  But, what seems to be lacking is follow-up.

Case in point: according to the most recent TIGTA audit report, the IRS let about 1.5 million fraudulent refund returns slip by them in 2011 — a potential loss of $5.2 billion.  As usual, at the conclusion of the report, TIGTA made its recommendations to reduce these illegal tax relief schemes — seven of them this time.  But then what?  This is not a new audit topic, and I wouldn’t be surprised to find out that TIGTA has made similar (if not the same) recommendations before.  When does TIGTA follow up on this to see if the IRS made the recommended changes?

This is TIGTA’s detailed audit process (as shown on their website):

  1. Engagement letter
  2. Opening conference
  3. Fieldwork
  4. Discussion draft report
  5. Exit conference
  6. Formal draft report
  7. Agency response
  8. Final report

Shouldn’t there be a 9th item on this list for “follow-up”?