IRS Thinks Levy Power Needs More Teeth

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One of the methods the IRS uses to collect past-due taxes is the levy. It has the authority to work with third-party financial institutions to seize cash from your bank account (bank levy) or with employers to intercept your paycheck (wage garnishment or wage levy).

Not all levies work the same. The levy on wages is “continuous.” In other words, once the levy is issued, the employer is instructed to submit payments to the IRS each pay period until the tax liability is paid in full or until the IRS otherwise releases the levy.  But the bank levy doesn’t work this way.  A bank levy affects only the funds that are in a specified account when the levy is issued.  If the IRS wishes to levy the account at a later date, it must submit another bank levy.  A levy on self-employment income works much like a bank levy in the sense that it is not continuous.  The levy on self-employment income is submitted to the third-party payor, and that person or company has a one-time obligation to turn over everything that is owed to the delinquent taxpayer.

The non-continuous nature of some levies is seen as an impediment to collections.  However, the IRS is trying to get this changed legislatively.

The Small Business/Self-Employed Division recognized the barriers the ROs [Revenue Officers] face when taking levy action and has taken some corrective action.  The Small Business/Self-Employed Division is preparing a legislative change proposal to expand continuous levies on additional income sources.  I.R.C. § 6331(e)  and § 6331(h) permit the continuous levy of salary and wages and certain other payments from the time of issuance until the levy is released.  The IRS has identified four additional categories of non-wage income that could be levied in a manner similar to wages and salary: non-employee compensation, rental income, royalties, and fishing boat proceeds.  These income sources totaled approximately $1.4 trillion for Tax Year 2009.  The proposal would expand the continuous levy authority to these additional categories of income and may increase revenue and assist taxpayers in becoming compliant through the use of additional collection options.

~ TIGTA Report #2012-30-007

It is beyond me how this change would “assist taxpayers.”  Taxpayers don’t need any “additional collection options”!  If this becomes law, it would be a major victory for the IRS.

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Forget Packers Stock, Get US Savings Bonds

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I know some people are already looking forward to next year’s tax refund check. If it’s not going to be spent paying off Christmas credit card debt then you may want to consider purchasing some US Savings Bonds.

All you need to do is fill out a simple form — Form 8888 — and attach it to your tax return when you file. On Form 8888 you simply indicate who the bonds should be issued to and the amount you want to purchase (in increments of $50.00 and up to a maximum of $5,ooo.00). If you do not want your entire refund going to the purchase of savings bonds, simply indicate what you want to do with the balance: paper refund check, one or more bank accounts, my bank account perhaps.

Savings bonds may seem like an old-fashioned investment, but it’s a smart investment these days. The Treasury Department describes them as a “low-risk, liquid savings product” that earns interest and protects you from inflation. You must pay federal taxes on the interest earned from savings bonds. But no worries about volatility, and they’re worth considerably more than Green Bay Packers stock.

If you like the feel of actually holding a paper savings bond in your hand, then purchasing them with part of your tax refund may be your last shot at doing so. Beginning January 1, 2012 paper savings bonds will no longer be available for purchase at financial institutions. Electronic savings bonds are available for purchase at any time through www.treasurydirect.gov.

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Will IRS Continue to Ship Via USPS?

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As you may know, the United States Postal Service (USPS) will be scaling back its operations in a major way come next spring.  Over the years, the internet has caused most of us to go “paperless” in virtually every aspect of our lives, which in turn has damaged the paper industry and also those in the business of shipping paper. USPS does not receive funding from tax dollars; instead, it is dependent on the revenues it generates from postage income. Not surprisingly, the USPS is hurting financially. In fact, it plans on closingover half of its mail processing centers to remain viable, which will certainly affect speed of delivery.

If you have tax problems or if you work in the tax relief industry, you know first hand how much mail the IRS sends through the USPS. In case you’re wondering, the IRS doesn’t ship for free. “The United States Postal Service bills the IRS on monthly basis via the Intergovernmental Payment and Collection (IPAC) for one-twelfth of the yearly postage estimate” (IRM 1.22.4.2).

Internal Revenue Manual 1.22.4 contains detailed guidance on postage accountability and reporting requirements for IRS personnel. Although one of the aims of this guidance is to reduce waste,  it seems that much more could be done to reduce the IRS’ reliance on a mode of communication that is becoming more outdated and less reliable. It will be interesting to see how the changes at USPS will affect one of its largest customers, the IRS.

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Christie Brinkley Owes Taxes

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A wise person once told me that the best way to make this blog visually appealing is to post pictures of models.  I always liked the idea, but I couldn’t figure out how I would get away with it on a tax relief blog . . . until now.  Of course, now that I have an opportunity to follow through on that advice, it’s a 57-year-old model!

Christie Brinkley owes $531,000 in back taxes.  She says it was an innocent oversight and she is going to pay it right away.  There.  End of story.

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Cain Out

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The tax code is due for an overhaul. Even though some kind of tax reform is probably inevitable, it looks like we’re never going to be able to see one called 9-9-9. And I guess we’re never going to see the National Free Pizza Day that I was hoping for either.

This morning Republican presidential candidate, Herman Cain, decided to drop out of the race.

Technically he is “suspending” his campaign (as opposed to formally ending his bid) because that will allow him to use the money he has raised to travel around and promote his “Plan B.”

There has not been much time to digest the announcement yet; there are still so many open questions. For instance, now what happens to the “Women for Cain” website that everyone loves to hate?

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The Payroll Tax Cut Extension

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There are always two sides to the tax relief coin. Heads: slash taxes. Tails: find a way to pay for it.

Both Republicans and Democrats agree that the payroll tax cut needs to be extended, but can’t agree on how to fund it, and unless they start making concessions soon, it will expire.

Republicans want to pay for the tax cut by cutting spending elsewhere. Specifically, they want to freeze federal workers’ pay through 2015 and reduce the government bureaucracy to the tune of 200,000 jobs.

Democrats want to tax the rich. Specifically, they want to make deeper cuts to the payroll tax and pay for it by imposing a 3.25 percent surtax on income exceeding $1 million.

Both of these measures have been put to votes and both have been killed. Still we are being told that the payroll tax cut will likely be extended in one form or another before Congress breaks for Christmas.

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Governors Seek Marijuana Reclassification

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In October the federal government took California medical marijuana dispensaries by storm, intent on shutting them down permanently. You may recall that even the IRS was involved in this operation, hitting them with audits and seemingly creating tax problems out of thin air.

The problem in California is not unlike the problems encountered in other states that have legalized medical marijuana. The state laws clash with the federal governments classification of the drug. The US Drug Enforcement Administration (DEA) still classifies marijuana as a controlled substance with no accepted medical use (Schedule I). But two governors are trying to get that changed.

Gov. Christine Gregoire of Washington and Gov. Lincoln Chafee of Rhode Island have filed a petition asking the DEA to reclassify marijuana as a Schedule II drug (one with some legitimate medicinal properties). The DEA has not yet responded to this petition, but has rejected prior petitions to reclassify the drug.

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The Last of the Airline Industry Bankruptcies?

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AMR Corp., the parent company of American Airlines, filed for Chapter 11 bankruptcy on Tuesday. With the exception of Southwest, all major US airlines have filed for bankruptcy protection following the September 11, 2001 terrorist attacks. American was the only holdout, until now.

Although no single factor is to blame for the company’s failure, American cited high fuel prices and expensive labor contracts as contributing factors. Most of the day-to-day operations (at least from the consumer’s point of view) will remain the same. The company will continue to honor tickets and even frequent flyer credits. The flight schedule may be trimmed during the reorganization process, but not in any dramatic way according to the airline.

With the other airlines already out of their bankruptcies and making money I’m sure some are wondering what took American Airlines so long. However, maybe this is a testament that the bankruptcy laws are working properly; allowing a company to languish just long enough so as to be sure that bankruptcy is truly the last resort.

FTB vs. BOE

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Franchise Tax Board vs. California State Board of Equalization

Navigating your way around the IRS can be a formidable task, one that many prefer to leave in the hands of their tax attorney or other tax practitioners. However, practitioners agree that the California equivalent — the Franchise Tax Board (FTB) — is even worse. In general, the California rules tend to be tougher than the federal rules and the FTB personnel tends to be more difficult and steadfast in enforcing their rules.

One specific complexity in California has to do with the procedure for appealing a tax case. Some states have a state tax court serving as the proper venue after a case has been appealed to the limits at the administrative level, which mirrors the federal process and Federal Tax Court. But, of course, California does things differently. Once you have exhausted your options administratively, there is nowhere to go except the California State Board of Equalization (BOE). The state of California Board of Equalization consists of five elected members that function like a court but is not a court. This article from Robert W. Wood further describes the “quirkiness” of the California BOE.

IRS E-File

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Since a growing number of Americans are filing their returns electronically, there is no room for error in IRS computer systems. The IRS must be relentless in its pursuit of excellence with regard to all aspects of the Modernized e-file system. Attention to system security, capacity, and performance accuracy are paramount.

 

~ J. Russell George, Treasury Inspector General for Tax Administration