Category Archives: Tax News

A Look Back: Top Tax Stories of 2018

What a year we just experienced! The nation enjoyed record-low unemployment nationwide, though skyrocketing housing costs impeded many people’s prosperity. Despite what some economists called ominous signs of impending recession, the economy continued to soar. We saw the return of “Roseanne” to TV in a stunning ratings success (and just as quickly witnessed her downfall and departure). Politics continued to dominate our attention as voters across the nation decided to switch parties in the U.S. House of Representatives, setting the stage for divided government in 2019. Through it all we enjoyed trying the dance phenomenon “The Floss” – though most adults failed miserably. And audiences flocked to theaters in droves to see “Black Panther,” making it one of the highest-grossing movies of the year.

As the world swirled about, 20/20 Tax Resolution remained focused on all things taxes. There was a lot of tax news over the past 12 months. Much of it was reported in our 20/20 blog, but it was nearly impossible to update readers on everything that occurred (and who’s interested in reading endless accounts of tax news, besides us?). To save you some time, we compiled the following Top Tax Stories of the year just past, which provide a preview of what tax news to watch for in 2019.

Deficit soars, tax cuts blamed

The tax bill signed into law by President Trump in December 2017 took effect in a variety of ways last year but one impact almost certainly resulted in soaring U.S. deficits, according to data from the Congressional Budget Office. Although the U.S. Treasury reported in October that revenues grew in 2018 by nearly $14 billion, that doesn’t tell the whole story. Under the previous tax policy replaced by the new GOP law, revenue was projected to be $3.5 trillion. Under the new law revenues were $202 billion less, which could not accommodate the $127 billion in new spending last year – increasing the deficit in the process.

And speaking of tax cuts, you likely took home more money

As a result of the GOP tax law, about 90 percent of wage earners saw an increase in their paycheck in 2018 upon the release of the years federal tax withholding tables in February. Tax tables determine how much money employers withhold from an employee’s paycheck under the Tax Cuts and Jobs Act, as well as reflecting other changes that impact the repealed personal exemption and an increase in the standard deduction. However, the extra cash may not be all rosy news for some taxpayers, as the reduction in withholding might impact tax refunds come tax season. 20/20 advises taxpayers to be aware of these changes to ensure they’re not caught off guard by a lower than anticipated refund or even the possibility of a tax liability due to the new provisions.

Funding cuts continue to impact IRS

The rates at which the IRS audits tax returns continued its multi-year decline, particularly among high-income individuals and large corporations. Primarily due to deep cuts in IRS funding and staffing that began in 2010, the lack of resources became even more critical as the agency began implementing and enforcing the new tax law, with no new enforcement resources allocated. At $4.9 billon, the IRS’s enforcement funding was 23 percent below its 2010 level in inflation-adjusted dollars.

Collection agencies bully taxpayers, IRS looks the other way

As reported in 20/20’s June 13th blog post, the National Taxpayer Advocate’s annual report to Congress strongly suggested that private debt collectors were bullying taxpayers into payment plans that might not suit their needs. Private agencies are prone to setting up payment terms that fall within the streamlined guidelines that don’t require taxpayers to submit financial information. However, these are not always the best option although they are among the easiest solutions to apply. The advocacy group said the IRS should do more to protect taxpayers from these practices.

Tax scams explode exponentially

We told you about the explosion of tax scams in a May blog post that detailed the two biggest types of tax scams proliferating across the country this year: one which preys on those owed refunds and the second aimed at those with delinquent tax obligations. More recently, the IRS warned taxpayers in early December to be on the watch for phishing scams following a surge of new sophisticated email scams seeking to steal tax data, allowing identity thieves to abscond with an individual’s tax refund. According to the IRS, there has been a recorded 60 percent increase in nefarious, fraudulent email schemes in 2018.

International travelers with tax debt face passport problems

We told you in January about new IRS procedures affecting international travelers with “seriously delinquent tax debts.” A new enforcement policy took effect this year that would put the passports at risk for travelers who owe $51,000 or more in unpaid back taxes for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired – or the IRS has issued a levy. So the message is clear: Pay up or stay home.

And finally, we would be remiss if we didn’t reflect once again on the occasion of 20/20’s 20th Anniversary, which we commemorated all year long with a series of blog posts and internal celebrations. As we move forward into our 21st year, we remain grateful for the opportunity to serve the thousands of clients we’ve helped throughout the years and we continue to vow to provide the most effective, most professional and most compassionate assistance to taxpayers everywhere who need help resolving their tax issues. Together, let’s make it a fantastic 2019!

Happy New Year!

New Year. New IRS Interest Rates.

Interest is the nasty little way your tax liability grows and grows.  The IRS is not in the business of lending taxpayers money and has determined that interest rates will increase on unpaid tax balances come 2019.

Beginning January 1, 2019, the IRS will begin charging 6% for underpayments and 8% for large corporate underpayments.  On a more pleasant note, if you find yourself expecting a refund from the IRS due to overpaying your taxes, the IRS will also be applying 6% interest (5% for corporations and 3.5% for corporations overpaying more than $10,000) to any refund not issued within 45 days of accepting your tax return or the April tax deadline, whichever is sooner.

If you’re not sure if this will impact you, interest is charged on any unpaid tax from the original payment due date until you have fully paid your tax obligation.  Don’t let your liability weigh you down any longer.  Contact 20/20 today to discuss putting an end to your tax liability so you’re not paying for the right to owe the IRS any longer.

Taxes 2018: How The New Tax Law Will Impact Your Return

The biggest tax story in recent memory was the passage of the Tax Cuts and Jobs Act, which President Trump signed into law on Dec. 22, 2017. The new law creates several notable changes to withholding policies, the standard deduction, personal exemptions, the child tax credit and more. As we head toward the end of the year (and the beginning of tax season), we thought a tax reform primer is in order. Here’s what you need to know to prepare for next year’s filing.

Withholding

Many taxpayers’ withholding requirements were reduced in early 2018, enabling folks to keep more money from their paychecks throughout the year. However, this may mean a smaller refund than normal, or even an unanticipated tax bill next April. If you did not adjust your withholding after the requirements changed, you may be impacted and will want to keep this in mind when preparing your tax return next year.

To find out where you stand with these changes, you can use the IRS Withholding Calculator to perform a Paycheck Checkup, which will help you determine if you should adjust your withholding or make estimated or additional tax payments now. Use the results from the calculator to submit a new Form W-4 (Employee’s Withholding Allowance Certificate) to your employer.

Refunds

In addition, there are changes to the standard deduction, a suspension of some personal exemptions, an increase in the child tax credit, new credits for other dependents and new limits to (or the complete elimination of) certain other deductions. Be certain to research these changes if they impact your taxes to ensure you are complying with all new regulations. And keep in mind that your refund may be different (or you may even owe the IRS) as a result of these changes. If you anticipate getting a refund, remember that some refunds cannot be issued before mid-February 2019 (particularly those refunds that claim the Earned Income Tax Credit or the Additional Child Tax Credit).

A shorter tax form

The Form 1040 for tax year 2018 is shorter and replaces the current Form 1040, Form 1040A and the Form 1040EZ. The new Form 1040 can be supplemented with up to six additional schedules if needed. If you prepare and file your own taxes electronically, you must sign and validate your electronic tax return by entering your prior-year Adjusted Gross Income or your prior-year Self-Select PIN.

Get the whole story

Since the Tax Cuts and Jobs Act became law, the IRS has been working with tax return professionals and tax software developers to implement the new law and ensure taxpayers can rely upon these services for accurate information. To uncover how the law might impact you and your family, the IRS has created a new publication, Tax Reform Basics for Individuals and Families, which provides a complete overview of everything you need to know.

Pay Your Taxes, Protect Your Passport

If you’re planning on taking an international trip anytime soon, you may want to make certain your taxes are paid in full – or that you have entered into a payment agreement with the Internal Revenue Service for any back taxes owed. If not, your passport could be at risk.

That’s the message the IRS delivered in January when it announced implementation of new procedures affecting individuals with “seriously delinquent tax debts.” According to an IRS press release, the new enforcement policy impacts primarily those owing $51,000 or more in unpaid back taxes for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired – or the IRS has issued a levy.

“This enforcement action has been in the works for a number of years and is the result of legislation passed in 2015 that requires the IRS to notify the State Department of taxpayers owing a seriously delinquent tax debt,” said Brian Biffle, president of 20/20 Tax Resolution. “However, many taxpayers impacted by this legislation may not be aware of it or may not understand the serious implications of it.”

US PassportFailure to pay unpaid taxes or create a payment plan could lead to denial of a passport application or even denial to renew a passport, according to the IRS. In some extreme cases, the FAST Act – which was signed into law under the Obama Administration in December 2015 – requires the State Department to revoke a passport for unpaid taxes.

“This is very serious for those who travel internationally, especially for a person whose business depends upon international travel,” Biffle said. “To be absolutely certain you are safeguarded from these enforcement actions, taxpayers that owe unpaid taxes should be certain to come forward and deal with any debt they might owe.”

This same legislation, known as the “FAST Act” (for “Fixing America’s Surface Transportation” Act), details the ways travelers can avoid the new passport constraints:

  • Pay any unpaid tax debt in full
  • Pay the tax debt under an approved installment agreement
  • Pay the tax debt under an accepted offer in compromise
  • Pay the tax debt under the terms of a settlement agreement with the Department of Justice
  • Having requested or have a pending collection due process appeal with a levy
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief

According to the IRS press release on the matter, the following taxpayers won’t be at risk of this new enforcement program:

  • Any taxpayer who is in bankruptcy
  • Any taxpayer identified by the IRS as a victim of tax-related identity theft
  • Any taxpayer whose account the IRS has determined is currently not collectible due to hardship
  • Any taxpayer located within a federally declared disaster area
  • Any taxpayer who has a request pending with the IRS for an installment agreement
  • Any taxpayer who has a pending offer in compromise with the IRS
  • Any taxpayer who has an IRS accepted adjustment that will satisfy the debt in full

To review the full IRS press release, visit the IRS website.

2017 Year in Review: Top Tax News

No matter your perspective on the recent passage of tax reform, there’s no question it is the biggest tax story of the year – and perhaps of the decade. The estimated $1.5 trillion bill is being touted as the savior of the middle class and simultaneously denounced as just another exercise in trickle-down economics. Time will tell how the expansive bill shakes up the economy, but with provisions impacting everything from health care to the standard deduction, the reform is sure to impact just about every American in some way.

Business man holding TAX on blurred abstract background

The rest of 2017’s tax stories are not quite as dramatic, but important nonetheless. Here’s a rundown of the top tax news of the year:

  • Employment taxes: The IRS stepped up efforts to combat delinquent employment taxes in the wake of a scathing report in May from the Treasury Inspector General for Tax Administration. The IRS watchdogs reported that the number and size of payroll tax violations is going up, and IRS penalties alone have not been enough to stop the trend. Although the willful failure to remit employment taxes is a felony, there have historically been fewer than 100 criminal convictions per year.
  • Use of private debt collectors: In June it was announced that the IRS began using private debt collectors to try and recoup overdue money owed the government. The IRS program engages four private-sector collection agencies to pursue the toughest debt. Generally these are cases where money has been owed for multiple years and the case is not currently being worked by federal employees.
  • Tax reform impact on delinquent taxes: A change in pass-through taxation, which impacts taxpayers who have some or all of their business income taxed on their individual return, could aid S corporations, LLCs, partnerships and sole proprieterships. As a result, these entities might have fewer challenges meeting their tax obligations. However, tax reform is not expected to have a major impact on tax resolution needs. As always, “life happens” so some people will owe – and some of those people will inevitably need tax resolution services.

The biggest story of the year may be that nothing really changes. The need to have a solid tax plan in place for individuals and businesses is still essential. Be certain to plan ahead for tax obligations, monitor your business throughout the year to guard against revenue ebbs and flows – and make certain you always have a plan to pay.

Happy New Year to you and yours, and best wishes for a profitable 2018!

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.

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.