California Underpayment Penalty: Obscure FTB Penalities

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If you’re familiar with the way the California Franchise Tax Board (FTB) operates in the process of collecting delinquent taxes, then you know that they impose a bunch of different penalties.  There are some common sense penalties, like the penalty for filing late, the penalty for paying late, and the California tax underpayment penalty. But there are some other more obscure FTB penalties that may surprise you:

1. Cost Recovery Fees

If the FTB has to do anything to collect the tax due (besides sending you a bill), then they are likely going to charge some sort of collection fee.  And when I say “anything,” I mean anything, such as filing a tax lien, seizing and selling property, intercepting a federal tax refund, filing enforcement, and even simply assigning your case to the collections department.  The fee is supposed to cover the theoretical costs of these revenue collection efforts and I’m sure are rarely commensurate with the actual collection costs.

2. Dishonored Payment Penalty

If your check bounces, or your FTB payment is otherwise rejected due to insufficient funds, then FTB will impose a $25 penalty.  If your payment is $1,250 or more, then the penalty is 2 percent of the payment amount.

3. Mandatory e-Pay Penalty

Certain large payments over $20,000, or payments made where the total tax liability exceeds $80,000, must be made electronically according to California law.  The California tax underpayment penalty imposed by the FTB is 1 percent penalty for failure to comply.

4. Demand to File Penalty

If you don’t file your tax return by the filing deadline, then FTB charges a 25 percent late filing penalty.  If you still do not file after FTB demands that you file, then they will impose a 25 percent penalty on top of the initial failure to file penalty.  This is particularly brutal because they can actually impose penalties and interest even if your tax return shows that a refund is due!

5. Estimated Tax Penalty

This is the penalty imposed  for failure to pay an estimated tax installment.  It also applies when you pay late or underpay.

6. Post-Amnesty Penalty

Taxpayers who have been granted amnesty for any particular tax year must not subsequently owe any new or additional tax, otherwise… you guessed it, another penalty.

Contact us today for more information or a free consultation!

Florida Man Charged with Violent Threats against IRS

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There are some pretty fierce-sounding gangster names in the history of American white-collar crime.  You’ve got your “Greasy Thumb,” your “Pistol Pete,” “The Butcher,” and “Big Tuna,” just to name a few.  I gotta believe that some of these guys imagined their thuggish names in print or reveled in the thought of becoming a household name.  But the latest tax criminal out of South Florida clearly didn’t give his nickname much thought.

“The Squirrel” borrowed an acquaintance’s phone to call the FBI and inform them that a nearby IRS building would “go up in smoke” in two hours.  The police traced the call to the phone’s owner who thought the perp’s name was “The Rabbit,” (obviously not a memorable enough name) but when he was found, he was quick to correct the authorities, telling them that his true moniker was actually The Squirrel (because that’s so much better, right?).  I can imagine him spelling it out for the FBI and making sure they got it right.  Maybe this is just me, but if I’m caught and I’m going to go through the trouble of correcting my thug name, I’m going to come up with something a little better than “Squirrel.”

And, although he did confess to placing that call to the FBI, the lawyer in me sees at least a couple harmless interpretations of the phrase “go up in smoke.”  Maybe he saw a vision of the place burning down and he called to warn them.  Maybe.  By the way, Florida seems to be a gathering place for not just anti-tax folks, but the serious IRS-haters and tax criminals.  I’m still not sure why.

If this article has inspired you to work on your own nickname, you might want to check out this gangsta name generator, although I personally have to question the results as mine came out “La Llorona,” which I think means “the crybaby” (feminine form).  Gangstaname.com generated a more accurate name, I think: “Machete Masta Crab Whacka.”

IRS Fails Taxpayers Again in 2015

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Based on the interim report published by the Treasury Inspector General for Tax Administration (TIGTA), the IRS achieved a 38.5 percent Level of Service and a 24.6 average hold time on IRS phone lines during the 2015 filing season.  I don’t really know what Level of Service entails, but I know that 38 percent is really only good if we’re talking batting average.  You may be wondering, “How do you get such a low score?  I could probably score higher than 38 percent on a test by guessing.”  Well, this is how: you get 45.6 million phone calls and you answer only 4.2 million of them.  BAM.  Done.

Read the report.  It will make you cringe.

Tax Day 2015 Has Arrived!

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Free food is great and all, but is that really what you want on Tax Day?  I suppose if you’ve already filed and you’re just waiting for a refund check, then you may have an appetite for a free Hard Rock Cafe burger, a Schlotzksky’s sandwich, or red velvet cake at Tony Roma’s.  But if you’re like many other taxpayers, you have had to work for every dime you earn and you maybe haven’t had time to get your taxes done yet.  Of course, it is also difficult to be motivated to file when you know you’re going to owe.  It you fit this description, then maybe you’re looking for a more valuable bit of Tax Day info, like how to file an extension.

Keep in mind that the automatic extension is “automatic” because it is granted to anyone who asks without the need to show reasonable cause, not because it happens automatically.  You have to so something.  You have to ask for it**.  The IRS website is extremely sluggish right now due to all the extra traffic it gets this time of year, but requesting an extension online using Form 4868 is still the fastest and most convenient way to do it.

You can file it with your electronic payment, through your tax filing software, or through your tax professional.  You’ll need your name, address, and social security number.  You will also be asked to estimate your 2014 tax liability, provide the amount you have paid towards that liability (if any), the amount you are sending in with the form (if any), and lastly, the total remaining liability.

So, what do you get when you file an extension?  How is six extra months?  Congratulations, you may take a deep breath and relax a little because you don’t have to file until October 15th now.  But, there is one big “BUT” associated with filing an automatic extension: an extension to file does not also give you an extension to pay.  If you don’t pay on time then you’ll be charged interest and late payment penalties.

**You don’t even have to request an extension if you are a US citizen living abroad, or if you are serving in the military outside the US.

How to Get Fired if you Work for the IRS

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As far as I know, an IRS employee can’t be fired just for leaving you on hold for 3 hours, or for giving you bad information that contradicts what the previous IRS employee told you, or for rejecting your Offer in Compromise (as long as procedures are followed). Of course, there could be additional actions and circumstances that might warrant termination, but generally speaking, these are not adequate grounds.

But according to rules established during the 1998 tax code reform, an IRS employee is supposed to be fired for the following actions unless the Commish determines that the employee should be given a second chance due to the presence of mitigating factors:

  • Purposely failing to obtain signatures required prior to certain asset seizures;
  • Lying under oath relevant to matters involving a taxpayer account;
  • destroying or falsifying evidence relevant to matters involving a taxpayer account;
  • Assault or battery of a taxpayer or fellow employee (that’s comforting, knowing that an IRS employee will likely get fired for cold-cocking a taxpayer) — but only if there is a conviction;
  • Purposely violating a provision in the IRC, Regs, IRM, or internal policies for the purpose of retaliating against or harassing a taxpayer or fellow employee;
  • Willful failure to file a tax return or underreporting income on a tax return…

There are others, but this list is getting tedious.  It’s funny to me that some of these prohibitions are related to actions against other IRS employees.  Don’t they get along over at the IRS, or what?

A House Committee has introduced a bill that would add another bullet point to this list above. H.R. 709, the Prevent Targeting at the IRS Act, would require the firing of IRS employees who act in their official capacity to target entities or individuals for personal or political reasons.  And presumably any offending employee would have to be fired regardless of how merciful the Commissioner wants to be.  Thank you Robert Wood for the info on H.R. 709.

In the meantime, I’ll keep an eye out for the Prevent Stupidity at the IRS Act.

IRS Impersonation Scams More Prevelant Than Ever

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TIGTA big shot, Timothy Camus, recently testified before the US Senate Finance Committee on the topic of “Tax Schemes and Scams.”  By TIGTA, I of course mean the Treasury Inspector General for Tax Administration.  And by “big shot,” I of course mean that he is the Deputy Inspector General for Investigations, and he wears a nice looking mustache, and he tells tax criminals that their day will come.

According to his testimony, IRS phone impersonation scams have quickly become one of TIGTA’s top concerns.  The agency had received only scattered reports of phone scams prior to the summer of 2013.  TIGTA started to track this crime in October 2013, and ever since then has kept statistics and concentrated efforts on eradicating this terrible, frustrating crime.

The way it works is the scammers call and threaten you with criminal penalties if you don’t pay a certain sum to address a tax problem that usually doesn’t even exist.  The victim is asked to load money onto a prepaid debit card and then call back with the card number.  These criminals used to target primarily the elderly or recent immigrants; the most vulnerable people who do not have sufficient command of the English language and/or those who do not have an understanding of the US tax system.  But Camus says that they have not been discriminating much lately.  He describes having received a call himself, at home, the weekend before his speech, and he told the guy, “your day will come.”  I have received phone scam calls too, most recently a very generic sounding recording using robo-call technology.

Here are some of the key phone scam statistics from Camus’ Senate testimony:

  • TIGTA has received over 366,000 complaints of phone scam calls (9,000 – 12,000 per week)
  • 3,052 victims paid out about $15.5 million
  • one poor fool paid over $500,000
  • 296 of these victims gave more than just money (i.e., social security number or other sensitive identifying information)

Camus says that this scam is the subject of an “ongoing multi-agency investigation.”  Let’s hope they figure out how to catch these guys because the IRS public service messages about how to avoid phone scams aren’t working as effectively as they should.

The IRS and Social Media

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Discover the IRS’s Social Media Presence, Minus Instagram

The IRS’ use of social media has always seemed sort of awkward to me.  There’s the IRS Facebook account, for example.  Completely bare bones.  A couple pictures of IRS national headquarters, a blurb about this not being an official source of information about the IRS, and links to the official IRS homepage.   Zzzzzzzzzz.

Yes, I know it has 38,000 likes.  But you have to wonder if these people really “like” the IRS, or if they are acknowledging the IRS in the only way that Facebook allows, there being no “unlike” button.

The IRS doesn’t have an Instagram account.  Their complete social media portfolio includes Facebook, Twitter, YouTube, Tumblr, and IRS2Go, their mobile app (which I’m not sure really counts as social media).  But thank goodness they don’t; there is nothing really visual about what they do.  One look at an tax law firm Facebook page will confirm that.  What kinds of pictures would they post? Suits and cubicles, Friday potlucks, maybe some of the stuff they have seized and sold at auction?

Just for fun, I looked at some of the 46,738 photos with an IRS hashtag and they are nothing special.  Most of the #IRS posts are advertisements.  The second most common, as far as I can tell, are pictures that have nothing to do with the Internal Revenue Service.  Maybe IRS means something else in another country, that’s what I’m thinking.  Lots of Ford Mustangs – maybe a special edition or some fancy tuning.  By far the best ones are the memes.  There is one meme of a guy sitting in his car with a tethered cheetah sitting shotgun that says “When you get your tax return and start buying unnecessary sh*t.”  There are a few memes of skeletons “waiting for their tax refund” or “waiting at the IRS office.”  There is a cartoon in the style of Far Side (accredited to “Reynolds”) that shows a couple sitting at the IRS office.  The sign says “THE IRS” and the guy turns to his wife and says, “Like the sign says . . . it’s all THEIRS.”  My favorite, probably because I can identify with it best, is a screenshot of a cell phone displaying the IRS toll free phone number and the call timer at 50 minutes.  The caption: “This is why no one likes the #IRS…”  Thank you for that @caitlinmaguffee.  It helps to have a good sense of humor this time of year.

Franchise Tax Board (FTB) Contact and Customer Service: Request a Call-Back

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There are many things that the California Franchise Tax Board (FTB) does that I would hope the IRS never adopts.  But some might appreciate it if the IRS would follow the example of the FTB when it comes to their customer service phone lines.

Clearly, the IRS could never deliver the same level of customer service as a state taxing entity, due to the insanely large number of calls that IRS gets each day.  I don’t think anybody really expects them to compete on that level.  Likewise, it is naive to think that the state should be able to answer every call as it comes in without leaving taxpayers on hold.  However, FTB has figured out a way to make it much more convenient for the caller.  The FTB phone system has a feature that allows the taxpayer to request a call-back during times of heavy call volume.  The system estimates about how long you’ll have to wait on hold if you choose to hold, and then gives you the option of leaving your name and number and having an FTB customer service rep call you back during that same time frame.

This call-back feature is handy for tax attorneys and tax practitioners, but it is especially useful for unrepresented taxpayers.  I have used the call-back feature a few times, but I typically do not mind holding either.  I often have a handful of cases that are queued up and ready to go once they pick up, and while I wait there’s always Instagram and TIGTA reports, but mostly Instagram.  But taxpayers calling in on their own case can be really discouraged by a 30+ minute wait, and it is nice to have the option of saving your place in line without actually waiting on the line.

I understand the administrative burden this feature would cause though.  It’s not a huge amount of extra work, but even a little extra work on such a large scale can be reason enough to just maintain the status quo.  IRS customer service has really gone down the toilet in the last few years, so really status quo wouldn’t seem too awful right about now compared to any additional slippage in service.

IRS Audit Percentages Still Dropping

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I have written before about the federal budget cuts and reduction of IRS personnel and what sorts of implications this has on the typical taxpayer.  One of the most noticeable consequences is that when you pick up the phone with a tax question or an inquiry into your tax account, you have about a 50/50 chance of getting through and speaking with someone.  Customer service is at an all-time low.

But something else has hit a record low, at least in the last ten years.  And that something is Audits.  Less than 1 percent of tax returns were selected for audit in 2014, and even fewer will be audited this year.

Obviously this is very good news for the taxpayer, but very frustrating for IRS executives, including Commissioner Koskinen, who stated that this trend “carries serious implications for our tax system and the nation.”  I can’t say for sure, but I’d assume that at least one implication is less revenue.  That’s my attempt at a joke.  Of course that’s one of the implications.  They are the Internal Revenue Service.  What’s the point if they’re not bringing in revenue?  Which leads me to an interesting question: Assuming it is true that your chances of being audited are the lowest they have been in 10 years because there are only about 11,600 revenue agents (and dropping) conducting audits, if you are selected, what are the chances of walking away unscathed?

The fact is some tax return audits result in zero liability.  But I could see that becoming a thing of the past.  First, I could see the IRS becoming more selective in the returns it picks for audit.  They will pick the returns with more obvious issues; ones that will more likely result in additional revenue for the government.  Second, I could see the IRS becoming more rigorous in their audit techniques.  If the overall number of audits is low, then the IRS has to be more “effective” in their audits to keep the revenue flowing.  I apologize in advance for this obnoxious analogy, but a boa constrictor often goes months in between meals, so when it does capture its prey, it is not going to let go before it squeezes the life out of them.  We’ll keep an eye on the IRS and see if these snaky predictions come true.

800,000 Obamacare Enrollees Received Incorrect Tax Forms

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Here’s a suggestion for the IRS’ next Tax Tips article: “What you should know about the incompetence of the IRS.” Or maybe this one: “10 reasons why you should not renounce your citizenship and move to Brazil.”  Their latest screw up came on Friday — or at least it was announced on Friday — that 800,000 Obamacare enrollees were sent the wrong tax forms and will need to wait until sometime in March to file their taxes.  Yet another reason to not be so eager about filing early.  And what about those conscientious tax return filers who already pulled the trigger?  Well, the Obama administration hasn’t quite figured out what to do with them yet.

Just keep checking in with the IRS on their website.  That’s where the IRS likes to funnel all inquiries these days.  They don’t have enough employees in their call centers to answer the phones usually; I would definitely not recommend you try calling.  I’m sure there will be some sort of extension for those who already filed using the wrong forms.  The Obama administration is great about accommodating people with extensions.  It will be all over the internet, just be sure you are looking to reputable news sources for you info.

There are always ways to describe Obamacare (or IRS) blunders so that it highlights the administration’s incompetence:

The White House tells us in a classic Friday news dump that nearly one million Americans could see their tax refunds delayed because of this president’s inability to implement his own law.

~ Diane Black, Rep Tenn

Not a full-blown “spin” though, in my opinion, because they very well could see their tax refunds delayed.  Years from now we will be able to look back, with experience and time giving us a better perspective, and determine if this is one of several innocent mistakes or if the government really did fail in the administration of Obamacare.  I know a lot of people believe we can make that call now, and would say that it has been a complete flop, not only the administration of the new law, but the whole idea of it in the first place.