IRS Not Fully Up to Speed Following Shutdown

Even though the government shutdown has ended and IRS employees have returned to work, it could be a while before we can say that things are “back to normal.” We are seeing continued delays in both Exams and Collections cases as IRS personnel catch up on their backlog. If you’ve ever returned to work after an unusually long break, you understand how the first several days back are spent putting out fires and giving attention to the most urgent tasks first. If you had been working with a revenue officer prior to the shutdown, and you have not heard from him/her yet, then it is probably because they have put a higher priority on some other cases besides your own. Don’t be offended; we really have no way of knowing what is happening with assignments and caseload on their end. Instead, it would be wise to take inventory and re-evaluate where you are on your end of things.

Every revenue officer I have worked with has given the taxpayer a specific set of tasks or requests, usually having to do with filing missing tax returns and/or providing financial information. This lull in activity from revenue officers is the perfect time to get everything in order. Maybe your due date has long passed and you haven’t heard from your revenue officer in a couple of months. Now is the best time to prepare your case because you can do so without the pressure applied by an overbearing revenue officer. Once the fires have been put out and they pick up your file, you can bet there will be short deadlines and the ever-present threat of levies and other active collection measures. Ideally, the IRS will attempt to reestablish contact with taxpayers first, and possibly set new deadlines. I’ve been doing this long enough to know that there will be some revenue officers who will not do the right thing; they will come back at you with all guns blazing, and their first post-shutdown contact with you will be a levy notice.

It is human nature to procrastinate when faced with a task that we don’t enjoy. And it is human nature to defensively wait for the IRS to come back into contact and put our tax matters aside while things are quiet. But for all we know, this is the calm before the storm. Now is the time to file missing returns, change your withholdings, make an estimated tax payment, gather bank statements, or whatever it is you know you have to do. If you owe back taxes and haven’t heard from the IRS in a couple of months, try to fight off the notion that maybe it will just go away; this kind of thing does not magically go away.

Contact us today with any and all questions you may have. MW Attorneys is happy to offer advice and guidance when it comes to dealing with the IRS.

2018-2019 US Government Shutdown

US Government Shutdown & the IRS – 2018 into 2019

We are now in week three of the government shutdown.

During a federal government shutdown, many agencies close their doors and workers are furloughed, meaning that they are off work and without pay. Government employees who perform “essential services” (military, law enforcement, etc.) continue to work, but without pay until the budget is passed. The last major government shutdown occurred in 2013 during the Obama administration when lawmakers could not agree on the terms of the Affordable Care Act. That one lasted 16 days and impacted the personal finances of thousands of government employees, not to mention the effect it had on the US economy.

Not surprisingly, the IRS does not fit into any category of emergency/essential services that would keep it open. There are pros and cons to the IRS closure, depending on your individual situation. If you owe back taxes and you’re working with a revenue officer, maybe you would like more time to arrange your affairs and this little break may be just what you need right after a busy holiday season. However, if you need to get into contact with the IRS for whatever reason, then this has certainly been a frustrating couple of weeks.

Don’t even bother calling the IRS right now. If you try one of the IRS 800 numbers, you’ll get a very generic message saying “all circuits are busy, please try your call again later.” If you call a local office (I called Fresno, CA for example) you’ll get a slightly more informative greeting: “live telephone assistance is not available at this time.”  And if you have a revenue officer’s direct line, you may get something like “I will be out of the office for the duration of the government shutdown,” and then a referral to the US Treasury website for more details on the shutdown. I suspect that the IRS may have their fax services turned off as well because a couple numbers that I use frequently are not currently working. The IRS does not typically use outside email to communicate with taxpayers or their representatives. The IRS website appears to be working normally; in other words, they’re still accepting payments.

I anticipate that the government shutdown is going to have some lasting effects on IRS operations and workflow. Once IRS employees go back to work, they will be faced with weeks of backlog that has been piling up. I think we can expect things to just move more slowly for a month or two while they catch up after their return.

If you have any further questions or concerns, please don’t hesitate to get into contact with us.

New IRS Commissioner, Charles Rettig

Earlier this month the Senate confirmed Charles P. Rettig as the 49th Commissioner of the IRS. Rettig was managing principal of the Beverly Hills law firm, Hochman, Salkin, Rettig, Toscher & Perez, a firm specializing in high profile tax controversy cases. The biggest challenges he’ll face as commissioner are the same ones that have existed for years, namely improving the effectiveness of an agency that doesn’t get the funding it really wants or needs, improving public perception & confidence, and now implementing a whole host of new tax laws. Rettig has spent basically his entire career with the same law firm and his peers definitely think highly of him.

With each new commissioner, the question that always comes to mind for me is, will he be sympathetic to the common taxpayer? I am definitely encouraged by the fact that he has real hands-on experience representing taxpayers seeking tax relief and going up against the agency that he now runs. Also, he’s a California attorney, so he is intimately familiar with the unique struggles of local people like our own clients. I’m sure many of his clients are from the Los Angeles area, but there’s no reason to think he has not also assisted taxpayers in Northern California towns like Sacramento, Modesto, or Fresno. The commissioner is usually someone with vast amounts of experience in administration, but limited knowledge of taxes. However, Rettig is well versed in all aspects of tax controversy, including (according to the practice areas listed on his firm’s website) audits, appeals, offshore accounts, penalty abatement – surely almost anything related to IRS collections. We don’t know if Rettig will be that champion of taxpayer rights that we always hope for; he actually seems middle-of-the-road politically. But he at least knows the point of view of the taxpayer and knows from experience what it means to go face-to-face with the IRS. In my book, that’s a fantastic start.

Any comments or questions? Please, contact us today. We’d love to hear from you!

IRS Credit Report: Certain Tax Liens Removed

Wondering how to remove tax liens from your credit report? Tax experts generally agree that the tax lien is one of the least useful of IRS collection tools for the amount of damage it can cause. It used to be that the IRS filed liens in just about every case where a taxpayer allowed his tax account to go unpaid. Over the years the IRS has pulled back somewhat on tax liens to soften their bite. Through the Fresh Start program the IRS has increased the minimum dollar amount that it uses as a marker for when liens are to be filed. This avoids those situations where a taxpayer owes a couple thousand dollars that he pays off quickly and then has to wait months before his credit score bounces back. The IRS also provides a means whereby a taxpayer can get liens released under specified conditions (or avoided in the first place) by entering into a direct debit installment agreement.
Now we are getting good news about tax liens from the credit reporting agencies who also play an important role, although from their perspective it is less about helping struggling taxpayers and more about ensuring that the information reported to them is accurate. What does this have to do with removing IRS tax liens from your credit report? Beginning July 1, 2017, the three credit reporting agencies will begin to exclude tax liens from credit reports unless they have certain minimum information. Furthermore, they have agreed to actually remove tax liens that don’t meet the criteria. The minimum information required is: (1) name, (2) address, and (3) social security number or date of birth. Just how big of a deal this is remains to be seen.
When I first saw this story, I immediately thought (based on the headlines alone) that this was going to be a major change for taxpayers with credit scores improving nationwide for everyone plagued by tax debts. I actually first heard about this on NPR, but I only caught part of the story. So I went to my computer thinking I would find all the major news outlets reporting on this huge story. But they didn’t…and I think I know why. I think the credit reporting agencies have agreed to the IRS tax lien removal from the credit report and exclude amounts to very little. As for the IRS, there has been a push to exclude complete social security numbers on routine notices, but they still put that minimum identifying information on almost everything. Certainly they wouldn’t leave those things off a Notice of Federal Tax Lien! According to the original source of this announcement, the Consumer Data Industry Association, about half of all tax liens may not meet the new criteria, but I wonder if those are mostly state tax liens.
The biggest complaints about credit reports is that they contain incorrect information and that certain credit “smudges” are too difficult to clear up. This change addresses those concerns, but I don’t think it represents a big win for Americans with delinquent federal tax accounts.
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Business Email Spoofing

Google defines “spoof” as a “humorous imitation of something,” or a “trick played on someone as a joke.” But there is nothing funny about the type of spoofing I am about to describe. The tax industry is gathering forces to warn the public about a dangerous tax scheme that involves something called “business email spoofing.” I feel compelled to do my part in spreading the word about this one. As part of this scheme, cybercriminals send an email that appears to come from a high-level executive at the target company to somebody in HR or payroll, asking them for sensitive employee information (most often social security numbers or documents containing social security numbers). This particular scam first appeared last year and we are now seeing a second wave. Enough victims have reported these emails so that the IRS now has examples of the exact phrasing used in some of these spoof emails. It is worth your time to review these phrases, and certainly double check any similar requests coming from the head of your company.

Only a few days after their warning to the business world last month, the IRS released a follow-up alert stating that the spoofing scheme had spread to “other sectors, including school districts, tribal organizations and nonprofits.” The second wave appearing this tax season appears to be more dangerous and more pervasive than what was witnessed last year. First of all, the emails started surfacing earlier in the season this time around. The scheme has spread to new sectors of society; pretty much any organization that collects social security numbers is at risk. And the emails have gotten more bold this time around. Originally the criminals would ask for social security numbers under the guise of high-level management, which would potentially provide a means for illegally obtaining tax refunds (an indirect way of getting paid). Now they are boldly taking a more direct route to the cash by simply asking for a wire transfer. I am sure that most of the time these emails are recognized as spam/phishing, but with just the right wording and in just the right set of circumstances, the cybercriminals are successful.

We have seen variations of this scheme before. Tax scammers posing as representatives of the IRS typically called or emailed individuals asking for financial and identifying information as well as direct payments. But why contact taxpayers one by one when you can hit the jackpot exploiting the vulnerabilities of entire businesses and organizations? That has to be their rationale. I imagine crime rings where the more effective individual scammers are “promoted” to a position where they handle the corporate accounts where both the risks and the potential profits are much greater, but I really have no idea about the structure or sophistication of these criminal organizations. For all I know it could be one or two thugs sitting in their mom’s garage somewhere halfway around the world. It is very frustrating that this kind of thing can go on, but I’ll leave that to the FBI and Criminal Investigation. What goes on in the mind of the victim is also interesting, but I don’t know enough about human behavior to understand why people keep falling for this. We are increasingly comfortable making financial transactions online. Does that familiarity cause us to let our guard down? If it is mostly a matter of people being uninformed, I hope this article helps to spread the word.

Contact us today for more information or a free consultation!

IRS Holiday Fraud Warnings

For years now, the IRS has taken an active role in warning taxpayers, and the tax industry in general, of tax-related scams, but they seem to be as prevalent as ever. Once a year, right around tax season, the IRS increases the number and intensity of its warnings to try to match the number and intensity of scams. Criminals have found that tax season (January thru April) is the best time to practice their craft. But we have seen the Christmas season begin earlier and earlier each year in the world of retail sales — before Thanksgiving in most places, and the tax fraud people seem to be following suit. They don’t wait for tax season anymore, which often puts the beginning of “tax fraud season” smack dab in the middle of the holidays. Their schemes are almost always based on some type of IRS impersonation, sometimes targeting particular groups in an attempt to exploit their vulnerabilities. The IRS recently provided a list of several variations, including the following:

  1. Direct calls requesting immediate payment: This is perhaps the boldest and most common technique. Taxpayer will receive an automated message or a threatening cold call demanding payment over the phone. Often the caller will threaten prosecution or jail time based on some false claim of tax evasion.
  2. The Federal Student Tax scam: This scam is carried out in manner similar to the direct call, but targeted at students and parents of students. As you might know, there is no such thing as a federal student tax.
  3. Fake tax bill for Affordable Care Act liability: It is true that a taxpayer could owe penalties (aka, “shared responsibility payments”) and advanced premium tax credit overpayments under the Affordable Care Act. It is also true that the IRS is charged with the responsibility of collecting such payments. However, you must be careful that the letter or email is legitimate. An email claiming to be from the IRS is most likely a fake. And the IRS says that taxpayers should be skeptical of “CP2000” letters requesting that payment be send to the “Austin Processing Center.”
  4. Emails from the boss: Sometimes tax scammers have been known to contact human resources and others within a company asking for confidential employee records, including social security numbers.
  5. Gaining access through the tax preparation industry: Tax preparers should be aware of a scheme whereby the criminals contact them with fake software updates via an email that appears to be from a tax software firm. Somebody in the tax industry might be savvy enough to recognize this kind of thing as a fake, but since many taxpayers use tax filing software themselves, sometimes these emails go straight to the consumer who could more easily fall victim to this scheme.

It may be that the holidays are the perfect time for a variety of criminal schemes. I was recently made aware of a scheme targeting attorneys. An email with the subject line “The Office of The State Attorney Complaint,” if opened, could expose an unwary lawyer to a computer virus.  If this sounds like an agency with a clumsy name, it’s because no such agency exists. Stay vigilant my friends; apparently there are a lot of Scrooges out there this time of year.

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IRS: Some Refunds Will be Delayed in 2017

It’s hard to make tax news interesting because it’s always the same story over and over again. People are getting scammed by criminals who impersonate the IRS, politicians want to replace the IRS Commissioner, the IRS hasn’t been funded properly and doesn’t have the resources to do their job, the IRS filed a federal tax lien against a celebrity who owes millions of dollars in back taxes, and the IRS warns taxpayers to brace themselves for a rocky tax season. Even the “scholarly” articles are completely predictable: How do we close the Tax Gap?, Who’s going to overhaul and simplify the tax code?, What can be done to make the IRS run more efficiently?, How do we promote voluntary compliance?  The details change a bit, but it’s basically an endless cycle of the same old unsolved problems.

Today the IRS announced that refunds will be delayed for certain early filers during the 2017 tax season. New laws require the IRS to hold entire refunds where the filer claims the EITC or the ACTC until at least February 15th. Taxpayers who expect a refund naturally tend to file in January or as early as they can, and many are accustomed to getting their refund somewhere near the end of January or early in February. Believe me, it is common for people to plan vacations and major purchases around their tax refund. Having to wait a week or two longer may not seem like a big deal, but some people have come to really rely on that check, and a couple weeks can feel like a couple months.

At least this time the reason for the delay is more valid than “we don’t have the resources to process the refunds quickly.” The IRS is reviewing certain returns with heightened scrutiny in an effort to identify and prevent refund fraud and identity theft.

The IRS Commissioner, John Koskinen, said, in explaining the need for today’s announcement, “We don’t want anyone caught by surprise if they get their refund a few weeks later than in previous years.” My question is, what, besides this press release, will the IRS do to get the word out? They’ll tweet it out a couple times, I have no doubt about that. But this kind of info needs to spread to all the news outlets, social media, tax preparers, and tax prep software so that even the least connected of America’s taxpayers will be aware.

Contact us today for more information or a free consultation!

FTB’s Dreaded Top 500 List

Twice a year the California Franchise Tax Board (FTB) puts together a list that they call the “Top 500 Delinquent Taxpayers.” One list comes out in April during tax season, and it is updated in October near the extension deadline. It is a list of the 500 highest state tax liabilities along with the individuals and companies who owe them. The list was last updated on October 14th and can be accessed here. Right now these 500 liabilities add up to around $394 million.

I know I tend to get hung up on semantics (isn’t that what lawyers do?) but I think the title of this list is a bit harsh. The term “delinquent,” when used to describe an individual, almost always has a criminal connotation. The Oxford dictionary, for example, defines the term in this manner: “(typically of a young person) tending to commit crime, particularly minor crime.” Webster’s definition is similar: “doing things that are illegal or immoral.” I don’t know how many taxpayers on this list have been convicted (or even accused) of a crime; I would guess few of them have. As we know, failing to pay all your taxes when they become due, in and of itself, is not a crime.

In tax jargon the term “delinquent” usually means something different. Tax attorneys, accountants, and tax collection agencies typically use this word when referring to overdue payments or past due accounts. When “delinquent” is used to describe an account (rather than a person) then it carries a connotation of tardiness rather than criminality. Therefore, if the FTB must use the term “delinquent,” it really should be used to describe an account rather than a taxpayer. I would be in favor of changing the title of the list to “Top 500 Delinquent Tax Accounts.”

Having said that, these people have been given fair warning. Besides the various preliminary letters and notices, they are given one last chance to clear things up (or at least begin the process) before the top 500 list is published. According to the FTB website:

In August, FTB sent letters to taxpayers scheduled to appear on the list. Of these taxpayers, 96 made arrangements to pay their tax debt. Another 296 individuals and 108 businesses did not pay, resulting in their inclusion on the list.

The FTB states that they have collected more than $582 million through this program since it was started in 2007. I’m not sure how they can tell what part of the revenue they receive is a result of this program and what part would have been paid regardless of inclusion on the list. I would also be interested in studying the unintended consequences of the list, like how, and to what degree, this list has negatively impacted these peoples’ careers. Although, having done a quick Google search, I don’t think the list usually appears in mainstream news outlets. I also researched a few of the top names and I suspect that their reputations have already been tarnished by other financial problems, and their FTB tax debts are just one piece to the puzzle.

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New IA Fee Schedule Proposed

The IRS is proposing a completely restructured fee schedule for installment agreements, which would take effect on January 1, 2017. This was announced via IRS newswire under the title: “IRS Proposes Revised Fees for Installment Agreements; New Lower Fee Available for Direct Debit Online Payment Agreements; Special Relief Provided to Low-Income Taxpayers.” Of course the title only tells half the story. It appears to have been intentionally spun to highlight only the favorable aspects of the fee schedule. If so, it was completely unnecessary; the only people who read these articles are savvy tax professionals who will probably read beyond the title and not the general taxpaying public who the IRS intended to trick. And if the title is intentionally misleading, it tells you a thing or two about the IRS’ low opinion of taxpayers.

Moving beyond the demeaning title, we can see that the fee for a Direct Debit Installment Agreement (DDIA), if done online, would be reduced ($31), the low-income taxpayer fee would remain the same ($43), and every other applicable IA fee would actually increase. The IRS is clearly trying to phase out the regular old installment agreement that is established by phone or mail and that is paid by sending in a check every month. Under the new fee schedule, the cost for that kind of agreement would be nearly twice as high as it is currently (from $120 to $225).

One of the big complaints we get from taxpayers is that they feel the IRS is constantly trying to “nickel and dime” them until they find themselves buried in a mountain of debt that they will never be able to repay. One of the ways the IRS does this is with interest and penalties. Of course if your tax debt is a big one, then we’re talking a difference of hundreds and thousands of dollars, not just nickels and dimes. Another way that taxpayers feel the vice tightening is when they get audited for tax periods they thought were already settled. It can be very disconcerting not knowing exactly what you owe and not knowing if that number could change. The new fee schedule proposal has that same feel for me, but I predict that very few taxpayers will ever notice they are being “nickel & dimed” this time. The reason I say that is most people do not set up plans for IRS tax relief payment schedule on a regular basis or with enough frequency to notice a change in fees. Yet another reason why the misleading title was unnecessary.

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Back-to-School Tax Scam

Its back to school this week for many kids across the country. As great as summer vacation can be, many parents look forward to getting back into a regular routine come mid August. If you don’t have children, then you probably have no idea what kind of costs are associated with this annual tradition. Many parents like to update their kids’ wardrobes before school starts, and this is often the biggest expense. But there are a whole host of other expenses like school supplies, PE clothes, yearbooks**, school pictures, and sports equipment. But it has been four months since anyone had to think about their taxes, so at least that is not a concern. Not until you get a call from the scammer posing as an IRS agent demanding that you pay a bogus school tax. I wish I were making this up. Today the IRS warned taxpayers about this new twist on an old theme. Tax scam artists tend to prey on categories of people who may be more vulnerable, and I guess one of those categories is the taxpaying parent who will do anything to avoid jeopardizing their child’s education.

People, I have said this 1,000 times, but I’ll say it once more: the IRS does not call you out of the blue and demand that you make a payment over the phone. They do not call you out of the blue and threaten to send you to prison. And when I say “out of the blue,” I mean if you haven’t received any notices or letters from the IRS about tax problems (like taxes owed or missing returns), then chances are you don’t have any tax issues that would land you in prison. It really is that simple.

While it seems ridiculous to me that anyone would fall for this scam and think they actually have to pay a “Federal Student Tax,” there is at least one scenario in which I can imagine this scam being successful. Many 17/18-year-old kids go off to college and they’re on their own for the first time in their lives. If you can remember what it’s like to be this age, they tend to be fairly naïve about certain financial matters (like taxes). This financial innocence mixed with the new-found confidence (recklessness for some) of adulthood is a recipe for disaster. I could definitely see the back-to-school scammer finding success with this demographic. Be careful out there college kids!

** I know yearbooks don’t get printed until the end of the school year, but at my kids’ school they suggest reserving your copy before school even starts because they print only a limited number of them and once they’re gone, they’re gone, so of course we have to get one.