The IRS is Confused Enough on their Own; Don't Make it Worse

Modesto, CA

Good thing I have this blog as a place to vent my frustrations with the IRS.  It has been like my therapist over the years.

I can really identify with Robert Wood’s article today about 1099 forms.  It was obviously written from the perspective of a seasoned (and perhaps a bit jaded) tax veteran who doesn’t really trust the IRS to get things right.  Basically Mr. Wood is of the opinion that if you do not receive a 1099 that you expect to receive, you might want to think twice before calling and asking for it.  Why?  Because you don’t need the actual form in order to file your taxes, as long as you were conscientious enough to track all of your income independently.  You just need the figures.  And if you happen to request a copy of something that was already issued, or is already queued up to be issued, there is a real chance that the 1099 could be sent out twice.  Of course if you get a duplicate 1099, you are smart enough to recognize it as a duplicate, but the same cannot necessarily be said for the IRS.  And if the IRS counts double the income, then there’s a problem.

Yes, it can be very frustrating dealing with the IRS.  All that hype about how difficult the 2015 tax season will be — I don’t think it’s hype.  When calling IRS service centers, I am witnessing hold times that are longer than I can ever remember.  I recently spent an hour and a half on hold with three different phone reps trying to get through to the Collections Department (ACS).  I dialed ACS directly, but each time I was told that I had not reached collections.  I think what happens is, if the phone lines are extra busy, callers are automatically re-routed to non-ACS service centers.  But the system doesn’t alert you when it is doing this, so you are forced to wait until somebody picks up.  In my experience, the Practitioner Priority Service line is not any better.

I’m done venting now, thanks for listening.   See you next week my therapist-blog.

Are Frequent-Flier Miles Taxable?

Frequent-flier miles definitely provide a financial benefit, but are they taxable? Don’t even bother reading this post if you are hoping to find an answer to this tax problem.  There is no answer here.

Today the LA Times reported that a number of folks were offered frequent-flier miles as an incentive for opening up checking and savings accounts with Citibank last year. What they weren’t told is that Citibank would be reporting the miles to the IRS as income — 2.5 cents per mile, to be precise. Getting a 1099-MISC (miscellaneous income) in the mail was a shocker for these Citibank customers, but tax professionals found it odd as well.

It is not clear where the IRS stands on this issue. The 2012 instructions for Form 1099-MISC, state that income tax must be paid if at least $600 in “prizes and awards” is received. However, a 2002 policy statement suggests otherwise:

[The IRS] has not pursued a tax enforcement program with respect to promotional benefits such as frequent-flier miles. Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent-flier miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.

Citibank is clearly just protecting itself due to the lack of clarity in the law.

Heightened Enforcement of 1099 Compliance

Politicians are desperately trying to increase revenue without raising taxes.  One way to do this is to beef up enforcement of the tax laws already on the books.  According to the IRS, the best place to focus these efforts is on small businesses and their tax obligations, specifically their 1099 reporting requirements.  The IRS has always had a more difficult time getting money out of the self-employed.

IRS Commissioner, Doug Shulman, recently told a Congressional committee: “the thing you have to remember about the [tax] gap is it’s like a deep shale oil reserve, it’s not money sitting there that’s easily tapped, in many ways we have tapped the easy money… the real answer, the place where we have leverage, is information reporting.”

What this means for the regular taxpayer is that the IRS is going to be furiously ramping up its collection efforts in the coming months.  The government seems eager to pour more money into the IRS.  According to Commissioner Shulman, each 1 percent improvement in compliance will produce an added $20 billion in revenues.  For more details, click here.