Author: David Miles

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.

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.

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.

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.

Congress Not Too Keen on IRS Funding Request

Additional funding? Thanks, but no thanks. That’s the sentiment seemingly coming from Congress in response to a tax season reflecting improvements in IRS customer service. The IRS attributed much of its success to the additional $290 million it received from Congress this year. And while a similar provision exists in the House’s 2017 budget, the IRS is not likely to see any other budget increases.

As reported by Nicole Ogrysko, during a July 28th press conference, IRS Commissioner John Koskinen stated, “Our hope is that as we’ve demonstrated to the Congress the great utility of the additional funding we got this year, that that will serve as a basis for an additional increase next year, which would be devoted to cybersecurity, identity theft and taxpayer service.” 

The National Taxpayer Advocate’s mid-year report highlighted taxpayer telephone wait times that were cut from 23 minutes to 11 minutes on average and an increase of the number of taxpayer calls answered from 37 percent to 73 percent. Those are big successes for the IRS after consecutive years of very poor customer service performance. Yet despite those accomplishments, Taxpayer Advocate Nina Olsen indicated that several other problems in the agency can be attributed to the lack of funding.

Congress’ refusal to consider greater funding increases despite signs that such funding could improve the taxpayer’s experience will continue to be a contentious topic as the rest of this year unfolds.

 

Ambiguity around IRS Funds for New Enforcement Hires

Yes. You read the headlines right. Up to 700 new IRS enforcement hires are expected to begin work in the near future. And while some may believe that the government creating this volume of jobs within one agency without Congressional funding would be cause for celebration, others couldn’t disagree more. Take the instance of Rep. Jason Chafftez, chairman of the House Oversight and Government Reform panel’s opinion about Commissioner Koskinen’s recent announcement of the IRS’ plan to hire additional enforcement personnel.  A few weeks back Fox News reported that on May 6, 2016, Rep. Chaffetz wrote a letter to the Commissioner demanding to know the specifics of how the IRS is going to find the money to fund the hiring initiative less than three months after the Commissioner wrote a letter to Congress stating an “urgently needed” $1 billion budget increase to hire enforcement personnel.

Rep. Chaffetz’s reaction to the IRS announcement should not come as much of a surprise to those that have followed the IRS’ back and forth with Congressional Republicans. This is merely the latest in partisan bickering between the nation’s revenue collector and lawmakers following a number of IRS missteps, most notably the report on lavish IRS spending on agency parties and the targeting of conservative groups pursuing tax-exempt status. As a result, Congress reacted by slashing the IRS’ budget by about $1 billion over the past five years which has had a dramatic impact on IRS customer service and enforcement.

Admittedly, the Commissioner’s explanation of where exactly the IRS is acquiring the funding for the new hires is vague at best.  In his statement, Koskinen cites attrition and “certain efficiencies” as the source of the revenue but goes no further in outlining details.  Interestingly, however, Koskinen does go so far as to explain the rationale behind the funding allocation to enforcement by saying that money is specifically earmarked for certain expenses and cannot be allocated to different departments, i.e., the $290 million Congress recently gave the IRS for cyber-security and other technology improvements.

Despite any ambiguity around the allocation of funds to enforcement hires, there is no debate this function of the IRS has been hit hard by budget cuts. Referred to as one of the core competencies of the IRS Revenue Officer Staffing has fallen over 30% the last five years. The IRS’ inability to have an effective field presence threatens not only to diminish collection revenue but also to undermine voluntary compliance.

How does this affect you or your company? While the impact may not be too dramatic, an uptick in activity as a result of the new hires could mean that the IRS is likely to open more cases or work inactive cases as it has more hands to do so. Ultimately, being proactive when it comes to dealing with your tax issues is best practice as you don’t want to be caught by surprise while simultaneously racking up penalties and interest.

More IRS Enforcement on the Horizon

It’s not a secret that the Internal Revenue Service has been understaffed for quite some time. However, the IRS has announced that for the first time in five years there will be significant enforcement hires (between 600 and 700 new employees). Although the IRS is still suffering from years of successive budget cuts totaling almost $1 billion the IRS has, over the course of the last year, received funds that allow it to address its most dire staffing needs.

In announcing the new hires, IRS Commissioner, John Koskinen, provided an overview of how these decisions are made. According to Koskinen, earlier this year Congress provided $290 million specifically earmarked for taxpayer service, identity theft and cybersecurity. The more recent availability of funds necessary to fund the enforcement staffing was recognized through certain work efficiencies and the rate of attrition in enforcement.  

A cursory review of fiscal years 2014 and 2015 staffing illustrates that collection personnel such as Revenue Agents and Revenue Offices, have been two of hardest hit functions of the IRS. In fact, from 2014 to 2015 each role lost 10% of its workforce at a time when many other functions had almost no losses and some even added positions. Interestingly, Commissioner Koskinen, in his announcement, highlighted the fact that each enforcement position typically returns almost $10 for every dollar spent – and many times, much more. 

The enforcement hiring will be introduced in two waves, one in the next few weeks and the second wave later this year. The initial hiring will focus on entry-level positions in SB/SE (small business/self-employed) while the hires in the latter part of the year will assist with more high-profile enforcement areas.

It’s difficult to know the practical impacts on taxpayers, collection inventory and practitioners prior to implementation, yet it’s safe to say that there probably hasn’t been this much reason to be proactive in respect to resolving a collection case in six years. I think it’s reasonable to speculate that the hiring initiative together with the IRS’ Early Action Initiative and the private debt collection authorized by the FAST Act are going to shake things up. 

For the full Koskinen article, click here. 

 

 

 

 

Justice Department Gets More Aggressive

Employment tax fraud has for many years been an issue of vital importance to both the Department of Justice and the Internal Revenue Service (IRS). Employers have the obligation to withhold and turn over taxes belonging to individuals—if they fail to comply with this responsibility, our system of relying on voluntary compliance can erode. Additionally, because the IRS does not pursue individuals for the non-payment of their withheld taxes, the loss to the government is exacerbated. Not only are the funds not collected from the employer, but the employee is actually given credit for taxes paid.

How exactly does this play out? While each situation may differ due to various circumstances, for the purposes of this discussion let’s think of it this way:

Imagine a company has in employee who is paid every two weeks. However, when pay day comes the employee doesn’t receive the full amount.  Instead, he/she is paid less, sometimes much less, because the employer is charged with making certain necessary deductions such as income tax (federal and state), social security and Medicare.

On top of that, the employer has the obligation to ensure that the withheld funds get to the IRS by making what is called a federal tax deposit. However, let’s pretend that in this particular situation, the employer does not send the funds to the IRS. At this point, a tax liability is created in the employer’s name and penalties and interest begin to accrue. The employee, however, still receives credit for the taxes that were withheld from his/her paycheck.

Fast forward to the end of the year. Now, the employee has a tax due based on income earned and deductions as we all do. The amount due is usually paid in advance by the withheld taxes even though in this particular example the funds aren’t actually paid in by the employer.

Recently, this issue has started to receive even more attention. In fact, the Wall Street Journal published an article discussing the Department of Justice’s intent to get tougher on employment tax fraud—which can include withholding by not paying over employment taxes (article link). This piece provides insight from the head of the Justice Department’s tax division, Caroline Ciaolo, “Employers across the country need a loud and clear message that this is not just a civil violation—that the willful failure to comply with the employment-tax laws is a crime and that we’re going to hold folks accountable.” 

Despite the aggressive tone of Ms. Ciarolo’s statement and the Department of Justice string of victories against companies accused of employment tax fraud nothing has seemingly changed from a funding perspective to allow a new initiative. The question looms: has the Department of Justice realigned priorities and resources to target employment tax cases over other cases or is the publicity surrounding the recent verdicts an opportunity for the Department to send a larger message?

While no one has a crystal ball, at this point rather than focusing on the answer to this particular question, it is probably better to focus on resolving an employment tax issue before it gets the Department of Justice’s attention.  For those of you facing this type of tax problem, we strongly urge to you contact us today.  There is no reason for you to wait around to see what could happen given the current landscape.

 

IRS Collection Cases: Top 5 Myths

It’s that time of year.  Taxpayers across the country are preparing returns only to learn that they owe taxes they cannot pay.  What’s the consequence of owing the Internal Revenue Service (IRS) unpaid taxes?  That’s a question that is difficult to answer since every case depends on the facts and circumstances of the specific situation.  However, what owing taxes does mean is that the taxpayer is likely to encounter the IRS Collection Division.

The Collection Division is responsible for collecting taxes that have not already been paid or placed on a voluntary resolution program.  Unfortunately, there is quite a bit of misinformation regarding cases assigned for collection by the IRS.  Regardless of your circumstances here are a few of the most common myths of IRS collection cases:

  1. You’re not responsible for mail you never get: Many taxpayers believe, mistakenly, that if they don’t let the IRS know their most current address they are not responsible for collection letters the IRS is sending.  Nothing could be further from the truth.  Generally, the IRS’ requirement for service by mail is the taxpayer’s last known address.  Therefore, if the taxpayer has not notified the IRS of an address change the taxpayer will actually be the one to suffer by being in the dark.  This issue can end up costing a taxpayer valuable collection appeal rights.
  2. The IRS will settle for “pennies on the dollar”: The IRS does have a settlement program called the Offer in Compromise (OIC). Interestingly, offers happen probably more often than many tax professionals think, but a lot less than taxpayers have come to believe. The IRS’ own numbers over the past two years show an Offer in Compromise acceptance rate of roughly 40%.  Still, the key to a successful offer is the pre-qualification process.  There are many nuances to an Offer in Compromise case and as a result, there is no substitute for experience when it comes to presenting a viable, realistic offer. 
  3. The IRS can collect against you for a lifetime: Sometimes dealing with IRS Collections for more than a day can feel like a lifetime.  Especially, if you’re on hold.  In fact, the rules concerning how long the IRS can pursue unpaid taxes are quite clear.  Generally speaking the IRS’ statute of limitations for collection is ten years from the date a liability is assessed.
  4. The IRS will take your home: In actuality, the IRS is not going to take your home.  That’s not to say that the IRS can’t take it… only that the IRS doesn’t do it.  Seizures (which can include home, car, boat, etc.) themselves are fairly rare for the IRS.  In the past two fiscal years, the IRS has reported fewer than 500 total seizures.  And because policy statement and stricter rules make seizing a primary residence more difficult it becomes increasingly difficult to face that proposition.
  5. At least the IRS can’t get to your retirement accounts: Unfortunately, the IRS can get to retirement accounts.  There are very few assets exempt from the reach of an IRS levy.  They are outlined specifically in the Internal Revenue Code and include (here), but are not limited to, Workmen’s Compensation, Unemployment Benefits and minimum exemptions for salaries and wages.  What one won’t find exempted by rule are 401k accounts, stock accounts or Social Security benefits.

Of course, dealing with IRS Collections is a nuanced process that should not be taken for granted.  But, dispelling the myths above should help bring more clarity to what one may face when dealing with IRS Collections.