Category Archives: Tax News

Taxes 2016: Collection Cases, Unpaid Balances Increase

More people owe more money in unpaid taxes than at any other time in U.S. history, according to recently published figures from the Internal Revenue Service. According to the numbers for fiscal year 2015, unpaid tax balances increased by $7 billion and the number of active collection cases grew to 13.5 million.

All this data, coupled with the recent IRS announcement that the agency is planning to hire up to 700 enforcement agents to pursue collection efforts, points to an increasing need for tax resolution services, said David Miles, vice president of 20/20 Tax Resolution in Broomfield, Colo.

“With a growing emphasis on collection and the addition of 700 new enforcement hires, businesses and individuals facing unpaid tax burdens would be wise to take action first before the IRS takes it for them,” Miles said.

According to news reports, IRS hiring will first be focused on the department that monitors small businesses and self-employed individuals. This only increases the urgency for these audiences to address any lingering tax concerns, according to Miles.

“Most of our clients are an adaptable cross-section of American business,” he said. “They have a general sense of business, but the nuances of tax policy are not usually top of mind. Particularly with this new IRS development, our advice is always to err on the side ofover preparation.” 

Primarily, that means planning ahead for tax burdens, closely monitoring financial concerns throughout the year and keeping ahead of any potential IRS action.

“Undercapitalization seems to be the universal issue with companies facing tax problems.” Miles said. “Whether due to poor planning or unforeseen circumstances, undercapitalization often leads to a company’s collection problems. However, many companies compound the problem by ignoring the issue or just hoping it will go away. Being proactive before the IRS takes action is the best way to resolve tax challenges.”

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. 

 

 

 

 

Experts: Plan Now To Improve Tax Outcomes Next Year

According to Internal Revenue Service data, nearly one third of all Americans wait until the last minute to file their federal income taxes. And that delay can come at a hefty price, say tax consultants at 20/20 Tax Resolution. Therefore, taking the time right now to plan for next year’s tax deadline is the surest way to ensure you and your business feel less pain and don’t run into trouble down the road.

“Business filers can take an average of 24 hours to prepare their annual tax returns,” said Brian Biffle, president of 20/20 Tax Resolution in Broomfield, Colo. “But for complex returns, that figure is typically much higher and poor planning comes with huge opportunity costs, including the risk of missing deductions, making errors and increasing stress due to the hurried rush to finish by the deadline.”

Instead of incurring these costs and risking another stressful tax season, Biffle and his consultants advise clients to take action immediately.

“Our clients come to us when their situation seems so dire they have no option but to seek professional assistance,” said Biffle, whose agents provide tax resolution services to clients facing action by the IRS or state taxing authorities. “But with a little proactive planning throughout the year, businesses and individuals can vastly decrease the pain of tax preparation and even save themselves the possibility of needing 20/20’s services in the future.”

Here are 20/20’s top tax planning tips for 2016:

  • Start maintaining better records: It seems like a no brainer, but maintaining organized, accurate records throughout the year is the quickest way to reduce tax headaches come next April. Rather than throwing receipts in a box and waiting till next year to review them, start documenting them now. You’d be surprised at how many businesses fall short in this area.
  • Get organized: If your accounting system is a hodgepodge of spreadsheets and documents in a folder called “Taxes” on your hard drive, now is the time to research and identify a manageable system for 2016. There are a lot of products available for nearly every need (no matter the size of your business) and using one of these will save immeasurable time and money next spring.
  • Get educated: You probably asked your accountant about a half dozen questions in the last week about your taxes (and they were the same six questions you asked last year). Take the time now to educate yourself on all things tax related, and give yourself an occasional refresher throughout the year. This education will make you a much more savvy taxpayer.
  • Plan for estimated taxes: If you were unprepared for your tax bill this year – just as you were last year and the year before that – start planning now for your quarterly and annual estimated taxes. Accurate planning takes the bite out of tax season. In addition, it helps you make smarter business decisions throughout the year.

“Obviously, we specialize in helping people resolve their tax issues when problems arise,” said Biffle. “But following these tips can help businesses start off on the right foot, and keep them from running into the problems that bring so many distressed taxpayers to our door.”

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.

 

Glitch in IRS Direct Debit Installment Agreements

Direct debit installment agreements (DDIAs) allow taxpayers to make payments through a monthly direct debit from their bank or other shared draft account. From 2011 to 2015 the overall installment agreement default rate was often twice as high as the default rate of DDIAs. Yet, despite the apparent overall success of the DDIA program, we have found a recent pattern of issues with these agreements.

For years, our firm has been establishing resolutions for taxpayers around the country. We have found that monitoring the agreement after it has been established to ensure that both the IRS and the taxpayer abide by the terms set forth in agreement is crucial to the long-term success of these resolutions. Recently, in the course of our monthly monitoring of an agreement set up in May of 2015, we discovered that the plan was being defaulted. This was curious because the taxpayer had not missed any monthly payments or missed or made any other tax payments late.

In February, the IRS US Mailboxissued its formal default letter, Notice CP523 “Notice of Intent to Levy – Intent to Terminate your Installment Agreement” to the taxpayer. The notice stated that the taxpayer’s installment agreement payment was overdue and that the agreement would be terminated due to missed payments.  The explanation for the default raised even more questions because research illustrated that the IRS had not even attempted its most recent draft of the taxpayer account.

The events prompted extensive research with IRS Customer Service. Eventually, it was determined that due to an IRS error there was, in fact, no attempt made to debit many taxpayer accounts on DDIAs. The IRS then compounded its error by erroneously issuing default notices to the taxpayers whose payments were not drafted as though the taxpayers themselves had missed the payments.

In an ironic twist, at almost the exact same time that we discovered the IRS error in our case, the Treasury Inspector General for Tax Administration (TIGTA) released a report titled Direct Debit Installment Agreement Procedures Addressing Taxpayer Defaults Can Be Improved. In short, the report found that, “As a result, systemic DDIA defaults increased taxpayer burden because taxpayers incurred additional interest on their unpaid balances. In addition, revenue collection was suspended until the DDIAs were restructured, and some were not reestablished.” 

Thankfully, we learned through the IRS that letters outlining the erroneously issued default notices would be mailed to all taxpayers affected by the glitch. All installment agreements erroneously defaulted would be reinstated with payments continuing as usual moving forward. Despite the recent hiccup and the concern of TIGTA with DDIA defaults, the program still offers the most reliable way for taxpayers and the IRS to enter into lasting agreements.

Spending Bill Increases IRS Funding

In a rare success story relating to the IRS budget, President Obama signed into law on Friday a spending bill that provides an increase in funding to the Internal Revenue Service.  According to an article written for The Hill, Naomi Jagoda explains how the $1.1 trillion omnibus provides an additional $290 million for the IRS, an increase of 3 percent over the last fiscal year.

The IRS budget has been in a free fall ever since the controversy erupted over the agency’s heightened scrutiny of Tea Party groups.  In fiscal year 2015, Republican law makers continued the trend by slashing another $346 million – a budget at its lowest level since 2008.

The Center on Budget and Policy Priorities conducted an analysis of IRS numbers back in September.  The analysis notes that since 2010, the IRS’ budget has been cut 18% after adjusting foMoneyr inflation.  The result is over 13,000 fewer employees, lowest individual and business audits in more than a decade and fewer than half of customer service calls being answered.

In granting the boost to the budget, lawmakers specified that the funding is to be used for “taxpayer services to ensure that the agency responds to taxpayer questions in a timely manner, and to improve fraud detection and prevention and cybersecurity,” according to a summary from Republicans on the House Appropriations Committee.  Despite the compromise that lead to the additional funding, tensions are still running high between Republicans and the IRS with four articles of impeachment introduced in October still looming over the Commissioner of the beleaguered agency.

While the funding increase seems to signal a sign that some recognize the difficulties that the political infighting has created for taxpayers and practitioners, there is still quite a bit left to be done before the IRS can operate in a more proactive capacity.  What’s more, new laws will inevitably stretch the IRS even further than before. For example, the Affordable Care Act, private debt collector provision of the transportation bill as well as initiatives like the passport revocation program and return preparer licensing.  To address meaningful reform within the IRS, lawmakers have to restore the IRS’ budget to a level that allows it to realistically address its mission.

 

New Law Broadens IRS Enforcement

Fun in the sun in Mexico?  Maybe not if you owe the IRS back taxes.  On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, also known as the FAST Act.  What does that have to do with taxes and your ability to travel?  Everything…

The FAST Act includes a new provision in the Internal Revenue Code (IRC), Section 7345, titled Revocation or Denial of Passport in Case of Certain Tax Delinquencies.  In short, the law says that the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt. 

So, what is a “seriously delinquent” tax debt?  The bill defines a seriously delinquent tax debt as one that is unpaid and legally enforceable, in excess of $50,000 (including penalty and interest) and has been assessed along with a Notice of Federal Tax Lien or Notice of Levy.  The $50,000 limit with be adjusted each year for inflation but still is a relatively low number especially considering the inclusion of penalty and interest.  After all, penalty alone can accumulate up to 47.5% and interest compounds daily.

Thankfully, there are exceptions to the rule.  A taxpayer that is subject to an Offer in Compromise, an installment agreement, due process rights or innocent spouse relief will not be affected.  But how the IRS will ensure those that are exempt raises the practical question of how exactly this information will be communicated to the State Department.  The law indicates that the State Department must rely on Treasury for a list of those taxpayers that may be affected by this law.  How often will the IRS send a list?  Will the list include every taxpayer owing over $50,000 or will the IRS set a higher bar, at least initially?  And what about a taxpayer listed by mistake or one that pays the tax debt? The concern then becomes: how quickly can they be removed.

Only time will tell how the IRS chooses to employ this new power.  And there is some question about whether a taxpayer that lands on the list will challenge it in court.  In the meantime, it behooves every taxpayer that could fall into this category to reach an understanding on repayment with the IRS as soon as possible.

 

Should Your Business E-File its Returns?

The most common way for a business to accrue a new liability is, you guessed it, for failing to file a return on time or failing to pay a required Federal Tax Deposit. There are certainly numerous factors that contribute to a business remaining current and compliant, but the easiest one to overcome is to make sure your business is e-filing its tax returns.

Early last month, the IRS reported that e-filings for businesses had increased nearly 9% from the previous year. This increase continued a pattern of growth for e-filings which have steadily risen over the past 10-15 years. While a large percentage of this increase was due to corporations and partnerships electing to e-file their returns, there are benefits to any business, large or small, in filing and submitting its returns electronically.

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Filing returns online is the most efficient way for a business to submit it returns. E-filed returns are processed more quickly than paper filed returns and allow the filer to receive a proof of receipt immediately upon filing. This service is available 24 hours a day, 7 days, and also has the option to set up a direct debit for returns which require a payment – such as 941 Withholding Tax Returns. It is also safer than mailing in returns as there is not the possibility of a return being lost in the mail. Lastly, e-filing lead to fewer errors on returns as the software for the website has a feature designed specifically to catch any mistakes or miscalculations.*Corporations and partnerships can get more information about IRS e-file at IRS.gov

Accessible tools such as these ultimately aid businesses in staying current and compliant with their filing obligations with the IRS. Being current and compliant means that all returns must be filed on time and all Federal tax deposits must be made on time and in full. In turn, this can save businesses money by avoiding the costly penalties for filing a return late or incorrectly. Staying current and compliant is a necessity when negotiating a resolution for any outstanding tax liability. Before the IRS will consider your proposal for resolution, you much show that your business is current and compliant with its filing obligations. This is also extremely important after a resolution has been reached. If, for example, a business has entered into an Installment Agreement, it must not accrue any new tax liability otherwise it risk defaulting that agreement.

Need some expert advice? Give us a call today or simply fill out our contact form and we will be in touch with your shortly.

 

Appeals on Penalty Abatement Requests

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If at first you don’t succeed… A taxpayer that is seeking an abatement on penalties will initially have to make the request through the Collections Division or other functions within the IRS.  When unsuccessful at this level, it would be wise to escalate the request to the IRS Appeals Division. Appeals is independent from the Collections Division and is tasked with resolving disputes on a fair and impartial basis without litigation.

The Treasury Inspector General for Tax Administration (TIGTA) recently conducted an audit to evaluate whether penalties assessed against taxpayers were fully or partially abated in accordance with Appeals criteria.  On July 30, 2015 TIGTA issued a statement on its findings, noting that Appeals has the authority to abate certain penalties when the abatement request has been denied by another function within the IRS.  Furthermore, the statement pointed out that in Fiscal Year 2013, Appeals abated approximately $127 million in penalties.

Generally, the audit found that in most cases, Appeals properly accepted cases in which the IRS operating division had previously denied the taxpayer’s request for abatement.  There were, however, a number of penalty appeals cases that were not abated in accordance with Appeals criteria.  TIGTA noted that in some cases, they could not determine the justification that Appeals personnel used in granting the penalty abatement. Additionally, the Treasury also determined that a small number of processing errors and control weaknesses might have affected the outcome of penalty abatement decisions at the Appeals level.

While the audit went on to conclude that additional training was necessary for Appeals Technical Employees on the requirements for justifying, documenting and granting abatement on penalties, it nonetheless illustrated the point that Appeals is an effective venue for a second chance at abatement of penalties.

We understand that appeals can play an important role in obtaining a desirable resolution. Click here to learn more about how we assist you with your unique situation.