Employment Tax Noncompliance Reaching Historic Numbers

As political leaders in Washington consider dramatic cuts to federally funded programs and agencies, billions in employment taxes, interest, and penalties has gone unpaid due in some part to decreasing efforts from the IRS to pursue and collect from the growing number of delinquent employers.

That’s the assessment of experts at 20/20 Tax Resolution, a tax resolution firm that specializes in helping business owners manage and resolve tax obligations when they’ve fallen behind. According to IRS data, nearly $46 billion in unpaid employment taxes and penalties were left unaccounted for in fiscal year 2015. Yet, five consecutive years of IRS budget cuts have reduced the agency’s ability to manage enforcement caseloads.

“Employers are often under tremendous financial pressure to meet tax obligations,” said David Miles, vice president at 20/20 Tax Resolution. “When they fall behind, either through financial necessity or willfully, it’s important that the IRS possess the resources to work with employers to rectify any shortfalls.” IRS Building Sign

According to the federal budget proposed by the Trump Administration in early March, the IRS budget would be reduced to $9.65 billion, a 14.1 percent cut for the fiscal year that begins in October and would mark the agency’s sixth consecutive year of budget cuts. The proposed 2017 cut goes against the stated desires of Treasury Secretary Steven Mnuchin, who believes the IRS needs more money and staff to fulfill its mission and increase revenue. For taxpayers seeking to meet their tax obligations, the proposed IRS budget cuts would result in fewer personnel available to resolve issues, slower response times and ultimately more frustration.

“It has been shown that every dollar of IRS funding returns four dollars in revenue – and as much as $10 if invested in enforcement activities,” said Miles. “Yet additional cuts to IRS funding will further erode the agency’s capabilities to realize this revenue generation.”

“A properly funded IRS provides necessary resources to garner faster, more efficient and more accurate resolutions to employer tax issues,” Miles said. “To reiterate, when fewer resources are available, the result is a reduction in decision makers, longer wait times and slower resolutions, making employers focus longer on their tax troubles and potentially even dissuading some employers from complying voluntarily.”

“Egregious” employer tax noncompliance (defined as 20 or more consecutive quarters of non-payment) has tripled over a 17-year period, according to IRS records. When collection against an employer is unsuccessful, the IRS pursues the individuals responsible for the company by assessing the Trust Fund Recovery Penalty (TFRP). In FY 2015, the IRS assessed the TFRP against approximately 27,000 responsible persons – 38 percent fewer than just five years before as a result of diminished revenue officer resources.

“It becomes a challenge for employers to seek resolution when the resources required to remedy tax issues are not available or are exceedingly difficult to manage,” Miles said. “For the sake of taxpayers and the nation as a whole, a fully supported IRS offers the best way to help employers meet their obligations.”

IRS Collections Going Private this Month. Be Wary of Tax Scams.

After months of conversation, and criticism, taxpayers across the country will finally start hearing from private debt collectors starting this month. If you are unfamiliar with this initiative, please take a moment to read through our blog post “IRS Turning to Private Debt Collectors.” This piece provides a great overview of what the program entails.

Interestingly, the conversation about the IRS’ third go-around with private debt collection has really shifted from its past failures to how the IRS will separate itself from the many IRS scammers passing themselves off as a private collection firm.  To do its part to combat IRS scammers the IRS has, in the past, leaned heavily on the fact that it does not make outbound phone calls to collect taxes. That will change under private debt collection.

It has been announced that private debt collectors are only going to be assigned cases that are inactive. This means that these entities are going to be calling taxpayers that have not heard from the IRS in quite some time making the potential risk of confusion about who is calling much higher. The IRS recognizes the issue and has given advice to taxpayers to help distinguish the legitimate private debt collectors from others.

According to a recent IRS announcement, IRS Commissioner John Koskinen explains, “Here’s a simple rule to keep in mind. You won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times.” He continues with, “The people included in the private collection program typically already know they have a tax issue. If you get a call from someone saying they’re from one of these groups and you’ve paid your taxes, that’s a sure sign of a scam.” The concern is that the Commissioner’s explanation may not resonate with many taxpayers.  As a result, if scammers attempt to leverage private debt collection into a new tactic, taxpayers may not know who is who.

As expected, the IRS is urging all taxpayers that owe back taxes to work through a resolution sooner rather than later.  And for those taxpayers unsure of where they stand with IRS the Commissioner suggests that they take the necessary steps to determine what taxes, if any, remain unpaid.

If you find yourself unsure about what you owe, contact us today.

*Want to read more? Click here to check out the latest IRS announcement.

[Infographic] 5 Common Business Owner Payroll Myths: Debunked

When it comes to running a business, ensuring that payroll obligations are met, both to employees and all applicable taxing authorities, doesn’t come without challenges. While there are a wide variety of resources available to help businesses of all sizes manage their payroll obligations, perhaps no other challenge can be as “taxing” (particularly for small- to medium-sized companies) as ensuring that these obligations are met.

If you own a company, take some time to familiarize yourself with some of the most common myths many business owners believe when addressing their payroll tax concerns.

 

Five Common Payroll Myths Debunked

Questions about your unique situation? Learn more about ways we can help or feel free to contact us at any time!

To download a high-resolution version of this infographic, please click here

Unpaid Taxes Will Impact Your Future Travel Plans

It was hard to miss the dramatic changes to tax collection introduced at the end of 2015 in the Fixing America’s Surface Transportation Act (FAST Act). At the time, journalists and tax professionals alike wrote about and discussed FAST’s re-implementation of the IRS’ use of private debt collection agencies and the IRS and Department of State teaming up to revoke or suspend passports over unresolved tax debt. While private debt collection agencies dominated the narrative come the end of 2016, recent talk of how the new passport rules in FAST will play out have taken center stage.

The IRS issued guidance in early 2017 providing insight on how the program will be run. According to Section 32101 of the FAST Act, the Secretary of Treasury upon receipt of a certified list of seriously delinquent taxpayers will provide such list to the Secretary of State for action with denial, revocation or limitation of the passports for those on the list. The law describes “seriously delinquent taxpayers” as those having an assessed liability of more than $50,000 for which a Notice of Federal Tax Lien has been filed (and appeal rights exhausted or lapsed) or a levy has been issued.

There are, however, exceptions. The law reads that liabilities that have been resolved by an installment agreement or Offer in Compromise, have exercised Collection Due Process Rights (CDP) in response to a levy, or cases in which collection has been suspended due to an innocent spouse claim will not qualify for certification from IRS. The good news is that if you find yourself on the list, you can get off of it. The law provides for reversal of such certification, generally within 30 days, of the liability being satisfied or in the event that the taxpayer meets one of the aforementioned exceptions.

Despite the IRS’ guidance there undoubtedly remains a degree of uncertainty with the continued development of the program and its inner workings. For example, will the initial IRS certification include every taxpayer that could qualify or is the IRS going to exercise some internal judgment on a smaller class of more “serious” delinquencies? How often will the IRS be providing a list its seriously delinquent taxpayers to the State Department? Will the IRS include taxpayers that have been placed into Currently Not Collectible status? How will the State Department develop its protocols and how strict will those be? Can the IRS abide by its requirement to decertify a taxpayer within a certain timeline and how quickly will State subsequently respond to the decertification by releasing a taxpayer’s passport? All valid questions and concerns that will eventually need to be addressed.

And there remains yet another concern for a taxpayer making it on to the IRS’ certification, domestic travel. According to a 2005 law, REAL ID Act only certain types of state ID will be recognized by federal agencies in the future. Think TSA. For taxpayers that have identification issued by states whose driver’s license do not yet meet the federal requirements of the 2005 ID law travel from state to state could also be impacted. To see where your state stands with complying with REAL ID Act, click here.

With such uncertainties on the horizon, the best way to combat these potential scenarios and unanswered questions surrounding the new passport law is to enter into an agreement to resolve your unpaid taxes as soon as possible. If you find yourself in a situation where you don’t know where to turn or have specific questions regarding your unique circumstances, please contact us now.

Advocate to IRS: Focus on Taxpayer Services

 

Each year the National Taxpayer Advocate authors an annual report to Congress. The report typically focuses on Ms. Olson’s evaluation of how she views the IRS performance when it comes to addressing its mission as well as recommendations for improvement. This year is no different.

“This is arguably the most important piece I have written about the IRS in my fifteen years as the National Taxpayer Advocate.” Nina Olson, National Taxpayer Advocate; 2016 Annual Report to Congress

In the most recent report (which can be found here), Ms. Olson takes aim at the culture of the IRS. She reiterates a message that she has sent to Congress in the past, “To create an environment that encourages taxpayer trust and confidence, the IRS must change its culture from one that is enforcement-oriented to one that service-oriented.” The message is not a surprising one given Ms. Olson’s role as our nation’s taxpayer advocate.

And yet, it is reasonable to assume the IRS may not agree with her vision for the future. Certainly, the IRS has shown signs of a commitment to improving a taxpayers experience with the agency through various initiatives such as the ‘Get Transcript’ portal. But the agency has a long history of viewing enforcement as a critical component of its mission and ensuring taxpayer compliance. In Ms. Olson’s report, it is noted that the IRS allocates 43% of its budget to enforcement and has proposed an increase of that spending by over 7% in the upcoming fiscal year.

Another point made by Olson in highlighting the IRS’ mindset is the IRS’ quiet rewriting of its mission statement. In the Restructuring and Reform Act of 1998, Congress directed the IRS to, “restate its mission to place a greater emphasis on serving the public and meeting taxpayers’ needs. In response, the IRS adopted the following mission statement: Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. In 2009, the IRS changed it to read: Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the tax law with integrity and fairness to all.

In addition to her emphasis on changing IRS culture, Ms. Olson also makes a strong case for the simplification of the tax code. Olson remarks that it has been 30 years since the Tax Reform Act of 1986, the last major effort at significantly simplifying the tax code. And that in each year since the Tax Reform Act the code has grown more complex. The complexity burdens taxpayers and the Service alike and as a result, must be simplified. In this sentiment Olson is not alone. Even among tax practitioners, whose work often centers on assisting taxpayers comply with the tax code, there are calls for consistency and simplification through organizations such as the NAEA and AICPA.

With the political climate seemingly focused on substantive change to government, tax reform may have real potential. A significant shift in the allocation of the IRS’ budget or a change to its mission, however, is less likely.  After all, in past statements Ms. Olson has even stated that 98% of compliance with the IRS is voluntary. Compare that with the fact that the IRS has unpaid assessments of over $137B and a tax gap that stands at well over $400B. Keeping those metrics in mind, one may see the IRS become even more committed to collecting what is legally due.

Keep These Resolutions for a Happy New (Tax) Year

New Year’s resolutions focused on financial goals can be the most rewarding to achieve but are often the most difficult to maintain, according to tax resolution experts at 20/20 Tax Resolution.

“Making financial changes can feel daunting,” said Brian Biffle, president of 20/20 Tax Resolution. “However, they can be the most critical resolutions to establish and keep, particularly if you own your own business.”

A lack of financial planning (leading to challenges meeting tax obligations) is the overwhelming reason business owners seek tax resolution services, Biffle said. Therefore, developing goal-oriented financial practices is the most effective way to avoid facing action from taxing authorities.

Here are 20/20’s top 2017 New Year’s tax resolutions:

  • Make those changes you talked about in April: Remember when you noticed you weren’t maintaining business receipts properly? Review your 2015 tax return to recall what changes you wished you made last year.
  • Resolve to keep better records: It seems like a no-brainer, but maintaining organized, accurate records throughout the year is the quickest way to reduce future tax headaches.
  • Make projections: Many business owners fail to project taxes they’ll owe throughout the year, creating financial uncertainty around tax deadlines. Projecting for these costs helps eliminate surprises.
  • Start a tax-specific bank account: A specific tax-focused bank account to set aside for that expense and serve as a constant reminder to save for tax obligations.
  • Review business and personal expenses: It’s usually easier than one thinks to identify items that can be eliminated, saving hundreds of dollars.

“Most important, get on it,” Biffle said. “If you are currently experiencing a tax debt problem, be proactive and stop running from the issue. It’s really not as frightening as it seems and there are experienced professionals that can help.”

Holiday Hiring: Don’t Forget About Tax Regulations

Retailers and seasonal companies currently on a hurried hiring spree for the holiday season would be wise to slow down enough to ensure they are complying with all required tax regulations, according to experts in the tax resolution business.

“Because seasonal hiring often occurs in a hurry, it’s important that businesses adhere to their usual hiring policies and processes so they don’t overlook critical tax documentation and considerations,” said Brian Biffle, president of 20/20 Tax Resolution in Broomfield, Colo. “First and foremost, it’s important to remember that part-time and seasonal employees are subject to the same tax withholding rules that apply to any other employees.”  

To ensure against unexpected tax issues, it’s important that businesses have the resources and the record-keeping systems in place to manage an influx of temporary employees during the busy season, according to Biffle. Maintaining accurate records is not only critical with respect to payroll issues, but also down the road should problems arise. In addition, there are a number of other considerations that must be addressed, Biffle said. For example:

  • Correctly identifying employment status (1099 or W2)
  • Incorporating additional administrative costs (payroll management, for example) into hiring plans
  • Ensuring any potential health care coverage costs (if required for seasonal employees working 30 hours or more per week) are factored into hiring decisions – a rare requirement based on a variety of criteria but worth verifying when making hiring decisions
  • Anticipating the unexpected and planning accordingly

“The retail business especially can be unpredictable, particularly if a ‘hot’ item captures consumer attention creating additional hiring needs. So it’s smart for employers to examine all variables that may impact the bottom line – including hiring costs,” Biffle said. “It can be very easy to neglect costs like these during the rush of the season when business is plentiful, but doing so can put a business in a serious financial bind.”

Conversely, Biffle said that seasonal workers should pay attention to any tax implications created by accepting a holiday job. Workers should ensure they factor in tax withholding to cover any tax liability (whether done through the employer or as a self-employed individual), including federal income tax, state income taxes, Social Security and Medicare (FICA) taxes, as well as any local taxes that may be required.

IRS Turning to Private Tax Debt Collectors

Beginning in the spring of 2017, the IRS is going to take yet another run at using private debt collectors to go after its inactive tax liabilities. This is the third go around for the IRS using private debt collectors—the first two efforts, one in 1996 and the other from 2006-2009, were abandoned due to concerns over their cost-effectiveness and how the private collectors conducted themselves. Despite those failures, in December of 2015 Congress passed the Fixing America’s Surface Transportation Act (FAST Act), which included a provision that the IRS is required to use private collection agencies for the collection of outstanding inactive tax receivables.

Most recently, the IRS announced the four contractors that will be charged with the task of implementing the program across the country. They are as follows:

  • Conserve Fairport, New York
  • Pioneer Horseheads, New York
  • Performant Livermore, California
  • CBE Group Cedar Falls, Iowa

In this announcement, the IRS has offered clarity on the accounts being assigned to these collection agencies. The agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts including older, overdue tax accounts or lack of resources preventing the IRS from working the cases. The IRS has also clarified that it will not assign accounts to private collection agencies involving taxpayers who are:

  • Deceased
  • Under the age of 18
  • In designated combat zones
  • Victims of tax-related identity theft
  • Currently under examination, litigation, criminal investigation or levy
  • Subject to pending or active offers in compromise
  • Subject to an installment agreement
  • Subject to a right of appeal
  • Classified as innocent spouse cases
  • In presidentially declared disaster areas and requesting relief from collection

In disclosing the selection of its collection contractors, the IRS offered only a few more details on the ways in which these companies will interact with taxpayers and their representatives. According to the release, the IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming the transfer. The IRS also offered an assurance that as a condition of the contract the agencies must respect taxpayer rights, including abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.

Despite well founded concerns with taxpayer rights and privacy as well as the ongoing flood of IRS-related phone scams, implementation of the law probably couldn’t come at a tougher time. The IRS indicates that it, “will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities.” Seemingly, in direct response to a ploy of the scams, the IRS has said that the private collection agencies will not ask for payment on a prepaid debit card and that all payments should be payable to the U.S. Treasury and sent directly to IRS.

The hope is that prior to implementation, the IRS will offer even more details about how these companies plan to conduct themselves. Any complaints or issues with the private debt collectors should be reported by calling the Treasury Inspector General for Tax Administration (TIGTA) hotline at 800-366-4484 or by visiting www.tigta.gov.

Business Basics: Resources for Managing Your Business

Ask any business owner and they’re likely to tell you the same thing: They love doing their work but occasionally (and in some cases, regularly) struggle with managing business operations. After all, the work is what beckons and inspires business owners – not the bookkeeping. Many people start their businesses to pursue their passions. But if you’re like many, you could use an occasional business primer to ensure you’re managing the business as effectively as possible (as well as to keep taxing authorities satisfied). While not an exhaustive list of business knowledge, the following links can help provide critical information on a variety of basic business operations.

20/20 Tax Resolution offers the following resources to help businesses manage their tax liabilities and obligations:

The Internal Revenue Service provides a thorough overview of basic tax knowledge that is valuable to any business owner:

The U.S. Small Business Administration offers a variety of resources for business owners. Click on the links below to drill down deeper into each of these topics:

Credit Bureaus to Lessen Impact of Federal Tax Liens

For many years, there has been one thing that taxpayers can count on when taxes are owed to the Internal Revenue Service (IRS): A Notice of Federal Tax Lien (NFTL) being filed. While the NFTL is primarily used by the IRS to secure its liability against a taxpayer’s right, title and interest in property it has also become a rather harsh reflection of one’s credit worthiness, something many consumer advocates have strong opposition to.

With that said, big changes may be on the horizon for taxpayers that owe the IRS unpaid taxes. Recent reports indicate that the credit industry is on the verge of adopting new rules that could minimize—or do away with altogether—the negative impact tax liens have on credit scores. This is a noteworthy departure from current procedure in which tax liens cost taxpayers significant credit points.

On July 12, 2016, according to a post on Credit.com, as part of its National Consumer Assistance Plan (the result of a settlement brokered with 31 state attorneys general back in 2015), Equifax, Experian and TransUnion are planning to significantly reduce the amount of tax-lien and civil-judgment information found in consumer credit files. Details have yet to be finalized, but “there will be less of that type of data in credit reports moving forward,” according to Stuart K. Pratt, president and CEO of the Consumer Data Industry Association, a trade association that represents the credit bureaus, confirmed to Credit.com. Testing is currently underway and a final plan regarding the information is expected to be implemented in July 2017.

 

If we rewind back to 2011, the IRS announced its own attempt at mitigating some of the negative impacts of NFTLs through the Fresh Start Initiative. According to an IRS press release at the time, “The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.” The changes to lien protocol did not, of course, change the way that a lien would be scored in by the credit reporting process. Instead, the Fresh Start Initiative was a collection of procedural changes that provided more alternatives to the traditional lien process.

Interestingly, studies show that the filing of an NFTL by the IRS actually assists in the collection of tax dollars. And yet despite this factual evidence, the IRS has chosen a course of action that yields far fewer notices of liens than any time in the past decade. Still, the proposed changes by the credit bureaus must give the IRS pause for additional thought into the subject. At this point, only time will tell exactly how the rules are changed within the credit industry and we should get a better idea towards the end of this year and in to 2017—observers will want to continue to pay attention to the IRS’ response. It’s only been five years since the IRS’ Fresh Strat Initiative lien changes and there are no significant IRS budget increases on the horizon. It seems unlikely that any major shifts will occur within the IRS as a result of the credit bureaus changing their rules.