"Citizens United" Hopes to Abolish the IRS

Posted by Wetenkamp on July 15, 2013 with 0 Comment

There are many taxpaying citizens, and even a handful of lawmakers, who are fed up with the IRS’ mistakes and scandals and would like to see the 100-year-old agency simply disappear. One such lawmaker is Senator Rand Paul. He and the group Citizens United are hoping to completely and immediately abolish the IRS.

You can read their petition here.

They believe that a “streamlined and easy to understand tax code” would eliminate the need for the IRS. That sounds great. Who doesn’t want to simplify the tax laws these days? But I don’t know that there is too much substance to the position of Citizens United, at least none that I can find on their website. It just seems way too radical and hasty the way they propose to make this transition. The problem is that they don’t really propose any kind of transition at all; they just want to be done with the IRS immediately. In their words:

Be it now therefore resolved that we, the undersigned, demand the immediate abolishment of the Internal Revenue Service . . . [t]hat the Internal Revenue Service be abolished in its entirety by Congress without delay, excuses, or prevarication.

“Prevarication” basically means lies. But Senator Paul is lying to himself if he thinks we can really just abolish the IRS right away without a plan in place for the aftermath. Our nation has contemplated comprehensive tax reform for years now, but nothing has really been done about it. I’m not sure total abolishment of the IRS is a good idea, but even if it were, it would not be something we could realistically do overnight. This kind of change would be much like turning a giant ocean liner; it’s a slow, incremental change.

Lawmakers Seek to Punish IRS and Reward TIGTA

Posted by Wetenkamp on July 11, 2013 with 0 Comment

A House subcommittee led by Rep. Ander Crenshaw (R-Fla.) agreed on a spending measure that would cut the IRS’ budget by 24 percent in 2014. And on the other side of the coin, the bill would mean a $5.5 million budget increase for TIGTA (Treasury Inspector General for Tax Administration), the agency that has brought to light so many of the recent IRS missteps.

The bill is meant to “crack down,” “clean house,” and otherwise encourage the agency to be more careful and responsible in its administration of the tax laws. It would also specifically address most of the problems we have read about in the news these last several months:

political targeting
training videos
lavish conferences
employee bonuses

Basically it would withhold funding until the IRS implements TIGTA recommendations. TIGTA’s primary responsibility is to keep an eye on the activities and procedures at the Internal Revenue Service. They are continually conducting audits, reporting on their results, and offering “recommendations” to the IRS when it is shown that they have fallen short. Well, lawmakers are now hoping to make certain recommendations mandatory — mandatory in the sense that if they don’t make the changes then they won’t get full funding.

But the bill still has a long ways to go: first to the full Appropriations Committee, then to the House floor, then on to the Democrat-controlled Senate where it will face plenty of opposition.

Fixing the IRS: Where do we Start?

Posted by Wetenkamp on July 5, 2013 with 0 Comment

It’s no secret that the IRS makes mistakes, sometimes serious mistakes. It may have been secret before (at least for the average taxpaying citizen) regardless of the Treasury Inspector General for Tax Administration (TIGTA) reports that highlight the agency’s deficiencies. But in recent months the IRS has been under intense media scrutiny, bringing these reports out into the open in mainstream media outlets.

The problems at the IRS are the result of:

ineffective training
weak leadership
poor judgment
inexperienced employees
an overly-complex tax code
simple human error
insufficient funding

This is by no means a comprehensive list. And it’s easy to lump them all together and imagine one comprehensive solution. There are some who think all the problems can be fixed by increasing funding to the IRS. They see this as the root of all employee development, training, and managerial issues. This is perhaps the primary argument of IRS sympathizers; however, I’m not so sure there is an all-in-one solution for cleaning up at the IRS.

To use a recent example, why don’t IRS Revenue Officers (RO) always follow legal guidelines when seizing taxpayer property to cover unpaid taxes? This is probably the most serious collection action that the IRS can take. And besides going to prison, this is what taxpayers fear more than anything. So, why do they get it wrong sometimes? We can probably rule out “complex tax code” because the procedures for seizure of property are clearly laid out in the Internal Revenue Manual (IRM) so an RO has only to follow the steps. But any of the other listed reasons could realistically apply.

Although I think it is impossible to narrow it down to one root problem, it is clear that there is quite a bit of overlap. For example, an inexperienced employee is more likely to make simple human errors and use poor judgment in his work. And lack of/ineffective training is a symptom of poor leadership. This overlap is a good thing when contemplating solutions because it means that addressing one issue will automatically improve another. It also means that once we get started on the task of fixing the IRS, we’ll already be closer to our goal than we think.

Would you rob the IRS to fund your “before I die” fund?

Posted by Montgomery on July 3, 2013 with 0 Comment

Reading between the lines, it appears that Frank F. Frink of Washington lost his gamble that the government wouldn’t catch up with his tax crimes until after he left this world on a high note and a pocket full of cash.

Although the IRS is usually slow to pick up on tax evasion and other tax crimes, they do eventually usually catch up to criminal and civil tax shenanigans … it’s just a matter of time. Mr. Frink doesn’t have to report to prison until September for his tax crimes, allowing him time to seek treatment for undisclosed medical issues. If he’s still around in September, he will have to serve a one year prison term for his tax crimes.

My assumption that he wanted to leave this world with a pocket full of cash is based on the referenced medical problems and absurdly bold manner in which he robbed the IRS. Frink plead guilty to filing a false, fictitious and fraudulent tax claim on his 2008 tax return and was sentenced earlier this week. According to the U.S. Attorney’s Office, Frink hired a tax preparer to prepare his 2008 return and calculated he was owed a refund of $7,413. This is a pretty substantial refund for most households these days. However, for Frink, it was not enough. So he sought the help of a witless tax preparer to fund his final days; he went to H&R Block.

After his first tax preparer determine that he was owed a federal tax refund of $7,413, Frink went to an H & R Block branch with bogus tax forms showing that more than $1 million had been withheld in taxes. H & R Block then calculated he was therefore owed a tax refund of $827,117. The IRS issued Frink this windfall and didn’t catch the fraud for some time as he wasn’t criminally charged until September 2012, approximately three years later. Even when the IRS began to investigate Frink’s tax crimes, he continued to spend his generous tax refund.

While Frink may be living on borrowed time and took advantage of the IRS, most taxpayers want to resolve their tax headache without the specter of prison time. If you’re fighting the IRS, and don’t have Frink’s exit strategy, our tax law firm offers a free consultation so you may determine if we’re the right tax attorneys to fight the IRS for you.

The Taxpayers' Rights Advocate's Big Announcement

Posted by Wetenkamp on June 28, 2013 with 0 Comment

You’ve probably heard of the National Taxpayer Advocate Service (TAS) — this is the quasi-independent agency charged with looking out for the rights of taxpayers across the nation. They like to say that they’re “your voice at the IRS.” The head of TAS is Nina Olson and she has made her way into this blog on several occasions. And if you live in California, you may know that we have a state counterpart to TAS called the Taxpayers’ Rights Advocate’s Office, the top advocate being Steve Sims.

These advocate groups, on both the national and the state level, love to point out what they have done to fight for the average taxpayer in the name of tax relief. So I wasn’t surprised to see a self-congratulatory statement from Sims in the July 2013 edition of the FTB Tax News newsletter. And I wasn’t surprised that the statement had to do with increasing the lien filing threshold for Californians with state tax debts. The IRS did this too some time back as a way to help those who struggle with heavy tax burdens in a down economy.

A tax lien is a collection tool used by both the IRS and FTB to protect their interest when taxes are owed. When a notice of tax lien is filed, it puts other creditors on notice and acts as a smudge on that person’s credit. Increasing the threshold for lien filings is a good thing for both taxpayers and the taxing entity; it has been shown that they are one of the least effective tax collection tools anyway.

So, what was surprising then? Well, Steve Sims announced that FTB “increased the general guideline amount for filing a lien from $1,000 to $2,000 beginning in July 2013.” What a miserable little success that was for him and his staff! Hardly worth bragging about in my humble opinion.

IRS Funding: Seems Adequate to Me

Posted by Wetenkamp on June 26, 2013 with 0 Comment

Some say the biggest problem at the IRS is that they are not allocated enough money to be able to administer the tax laws fairly and competently. Even Nina Olson, the National Taxpayer Advocate, has bought into this theory:

Today, the IRS is an institution in crisis. In my view, however, the real crisis is not the one generating headlines. The real crisis facing the IRS — and therefore taxpayers — is a radically transformed mission coupled with inadequate funding to accomplish that mission. As a consequence of this crisis, the IRS gives limited consideration to taxpayer rights or fundamental tax administration principles as it struggles to get its job done.

~ Nina Olson, in her mid-year report to Congress

What’s ironic about this quote is it was released today along side juicy headlines about IRS employees using government credit cards to make some highly questionable purchases of alcohol, expensive meals, party supplies, and even porn. Of course many of these purchases were made on cards that were reported stolen. I’m sure that’s true because there is no way any IRS employee would abuse his card privileges.

I don’t know Nina, I usually agree with your opinions, but it seems to me that the crisis is fairly well summarized by the headlines. Why downplay the high-profile mistakes that are so very telling of what’s going on at the IRS? And how is it that the IRS’ mission has been “radically transformed”? Regardless of any official mission statements, their mission has always been, and always will be, to collect as much revenue as possible without too much regard to fairness, tax relief, and taxpayer rights.

So if the “real crisis” is inadequate funding, then why should we turn a blind eye to outrageous spending abuse? There is no way in this world we should increase funding to the IRS until they clean house.

How to Expedite Non-profit Status

Posted by Wetenkamp on June 25, 2013 with 0 Comment

One study related to the IRS scandal showed that non-profit groups with legal representation were subjected to fewer probing questions and experienced fewer obstacles during the non-profit application process than groups without legal representation. Interestingly, many groups that began the application process without an attorney noticed that their applications were quickly approved right after hiring an attorney.

This is probably not all that surprising to attorneys. We, of all people, believe that our services are valuable. One can typically expect a better result and smoother legal process by hiring a lawyer, although not everyone is convinced of this.

In this day and age it is easy to obtain information about any legal topic. Many people feel that as long as they are well informed and educated about their specific legal predicament then they can handle the issue on their own. In a down economy it is even more common for individuals to try resolving legal problems on their own, thinking they can save a buck.

The answer to the question, “Do I really need an attorney for this?” is almost always “no.” But knowing the law is only half the battle, and an attorney can bring so much more to the table than just information:

ability to strategize
ability to organize information
ability to present information (verbally and in writing) in a logical fashion
superior persuasion skills
ability to apply the law to a specific set of facts
real life experience

It’s one thing to know rules in the abstract, but it’s quite another to have seen how the rules play out in practice. This is particularly true in the world of Federal Tax Resolution where the IRS is inconsistent and unpredictable in the application of the rules. It is the difference between book smarts and street smarts, and tax lawyers typically have both.

Yes, of course you need to do your own research. And, yes, you need to be careful and thorough in the process of hiring an attorney. But you should also be well aware of what you may be giving up by representing yourself in an important legal dispute.

How long should you keep your tax records?

Posted by Montgomery on June 24, 2013 with 0 Comment

It’s now summertime, officially, and you still haven’t finished your spring cleaning. So, what tax records do you need to keep while catching up on your spring cleaning this summer? You need to give some thought before throwing out those old tax records.

What tax records should I keep?

This question requires an analysis of why you would need any of your tax records, other than shoe box filler of course. If you’re “lucky” enough to have your tax returns audited by the government, the burden of proof will be yours to substantiate the entries, deductions, and statements on your tax return. This is the primary reason for keeping your tax records. Therefore, the records you need to hang on to are the documents that you used, or should have used, to prepare your tax returns. This often includes, among other things, receipts, cancelled checks, bank statements, income statements, repair statements, mileage logs, withdrawal statements, and property transfer closing paperwork.

How long do I need to keep my tax records?

This is really a question of, how long is the government allowed to pester you for verification of the representations on your tax returns. If you file a federal income tax return, you will you need to keep your tax records for three years from the date the tax return was due, or the date the tax return was filed, whichever is later. However some states, such as California for example, may audit your records longer than the IRS can; so you will need to check your state’s rules to verify how much longer you need to keep your records depending on which state tax return(s) you file.

There are exceptions to the IRS’ three year rule that require you to keep records for longer than the three year period. These exceptions include when you don’t file a tax return, when you understate your income, or when you file a fraudulent return. Ironically, if you fall into one of these categories, you likely don’t have accurate records to begin with; so the government truly has you on the hook for a serious tax problem longer than taxpayers who keep accurate records. It’s also generally a good idea to keep tax returns and supporting documentation for the tax years when you acquire or transfer property that may be used to calculate gains or losses on a future tax return. And of course, there may be non-tax reasons to keep documentation accessible longer than the government’s need for evidence.

These days, converting files to an electronic format is pretty accessible to anyone with a scanner or near a print shop. So, if you’re not sure whether to dispose the document after the appropriate time has elapsed, at least scan and save the documentation to give you peace of mind. Lastly, when disposing of old tax records and supporting documents, be smart, securely shred the documents … your trash may be a thief’s treasure.

Contacting the IRS: Third Party Contacts

Posted by Wetenkamp on June 18, 2013 with 0 Comment

The IRS has the right to contact third parties in an attempt to collect your taxes, penalties, and/or missing tax returns. A third party is someone other than yourself (besides your tax relief attorney or duly authorized representative) who may have information that would assist the IRS in their investigation. But it is important to know that there are certain restrictions on this right so that we don’t allow the IRS to take advantage.

Notice Requirements

The IRS must first give you notice that they are going to be contacting third parties. Notice typically comes in the form of a very simple letter (Letter 3164). There are three versions of this letter:

3164-A: for Trust Fund Recovery Penalty investigations
3164-B: for balance due investigations
3164-C: for delinquent return investigations

The IRS revenue officer must wait 10 days after mailing the letter before initiating any third party contact. In cases where the taxpayer was provided with a Publication 1 Your Rights as a Taxpayer, which is a majority of cases, the 3164 letter is usually not required because the third party contact language is included in Pub 1. There are also some blanket exceptions to the notice requirement, such as where there are pending criminal investigations, where a third party contact may jeopardize collection of the tax, and where the taxpayer authorizes third party contact.

Providing Third Party Lists

The IRS is required to provide the taxpayer with a list of all third party contacts periodically, and whenever requested by the taxpayer. Revenue officers must carefully maintain a list of all third party contacts, which should be updated after each contact in order to keep it current. As you can see, the language (“periodically”) is just vague enough to allow the IRS to only send the list a couple times a year unless the taxpayer requests to see it more frequently.

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