Category Archives: Tax News

Could the IRS pass Tax Debt to Collection Agencies?

Only a few years after the IRS made a decision to stop using private collection companies for collection of outstanding federal taxes, this topic  was raised again by the Chairman of Senate Finance Committee Ron Wyden in his Expiring Provisions Improvement Reform Act. This extenders bill, if approved, will force the IRS to delegate some of the tax collection actions to the private debt collectors, a practice that, according to the IRS, already failed twice since 1996.

The requested modification obligates the IRS to involve private companies in collection of taxes from those taxpayers whose accounts have been placed into inactive status for one of the following reasons: the IRS failed to find the taxpayer, did not have enough resources to proceed with collection, or simply did not contact the taxpayer for a year after a delinquent account was assigned to the IRS collections.

Although this measure seems to be an attempt to help the IRS to retrieve the debt and to free up a large number of the IRS employees who can then become available for other tasks, the IRS officials believe that implementing this strategy will be more harmful than beneficial. The president of the National Treasury Employees Union, Colleen M. Kelly, stated that Congress should not force the IRS to use this option because it already cost the US government millions of dollars in a past. Nina Olson, National Taxpayer Advocate, agreed with Kelly, in her 2013 Report to Congress, and emphasized the fact that the IRS agents collect 62 percent more in taxes than private collection agencies.

Obamacare – The New Tax Penalty

The IRS has plenty of penalties it can impose for late filing, late payment, interest, and much more. Starting on the 2014 tax returns there’s a new penalty the IRS can impose based on the Patient Protection and Affordable Care Act, commonly known as Obamacare.

With a few exceptions, everybody is expected to have minimal qualifying health insurance in place by April 1st 2014. It doesn’t matter how you obtain the insurance; you may already have it through your work, Medicare, or Medicaid. For some people, subsidies are available through their state’s health insurance marketplace (also called the exchange).

If you don’t have health insurance in place, you will have to pay a fee on your Federal income taxes for every month you’re without coverage. For 2014, this fee is $95 per adult (half for a child) up to a maximum of $285 per family, or 1% of your taxable income, whichever is greater. This penalty goes up in subsequent years, being 2% of income or $325 per person in 2015, and 2.5% of income or $695 per person in 2016. After that the amount will continue to be adjusted for inflation.

Of course, you may be exempt from these penalties. For example, you’re allowed a “gap” of up to three months without coverage during the year. Or, perhaps you fall under the hardship conditions of being homeless, evicted, the victim of domestic violence, etc. Or, maybe your religion objects to insurance. This is a complex law, spanning over 1,000 pages, but it will apply to most people. This is where it gets interesting.

When you’re completing your 2014 tax return (in 2015) you’re expected to state whether, or not, you have qualifying health insurance. However, there does not appear to be anything in place that will enable to IRS to check this information. It’s difficult enough for the IRS to confirm all the standard income and expense tax form information, but the IRS does have procedures in place and “red flags” suspicious returns.

Even if everybody is completely honest and states when they do not have insurance and owe the new penalty, the IRS still has the problem of collecting the money. Unlike other debts that we discuss on 20/20 Tax Debt Help, for the Obamacare penalty, the IRS cannot issue any liens or levies. In fact, the only way they can collect the money (if somebody chooses not to pay it) is by subtracting it from any tax refund.

Now, we’re not suggesting for a moment that you should try to not get health insurance or try to avoid paying the penalty. However, it is clear that there are serious issues with Obamacare collection procedures and the burden it will place on an already overtaxed (pun intended) IRS.

The IRS “Dirty Dozen” for 2014

Another year, another Dirty Dozen from the IRS. Yes, as usual, the IRS has released its “Dirty Dozen” list of tax scams. The list doesn’t change that much each year; typically the methods become more sophisticated, but the intent is much the same. So it goes with the 2014 list, where the IRS highlights the following schemes:

  1. Topping the list is Identity Theft. Despite efforts by the IRS to reduce this, it’s still a major issue. Check out the IRS Identity Protection area of their website for ways in which you can protect yourself.
  2. Pervasive Telephone Scams are next on the list. This is where callers pretend to be from the IRS in the hope of gaining information from their victims that will allow them steal money or identities. There has been a definite increase in this area, including more legitimate-sounding callers, threats of jail, follow-up calls from people claiming to be from the police, and so on. Even if you’re aware that you really owe taxes, it does no harm to call the IRS yourself (1-800-829-1040) so that you’re sure you are talking to a real IRS representative.
  3. Most people are aware of Phishing scams, where you receive a bogus, but very real-looking, email that takes you to a fake website asking for information. Amazingly, many people still fall for these schemes. Always remember, the IRS will never initiate contact through electronic media, such as emails or text messages (or should that be “taxed messages”?).
  4. Please, do not be fooled by Offers of “Free Money” or Inflated Refunds, such as fictitious rebates, benefits, or tax credits. Scammers typically pose as tax preparers and will charge their victims for falsified returns, and you could even end up being penalized – remember, you are responsible for your return, regardless of who prepared it.
  5. Connected with the previous point is Return Preparer Fraud. Approximately 60% of taxpayers have their returns prepared by tax professionals and, since you are legally responsible for your return, you should make sure you choose a legitimate preparer that will sign the return they prepare and enter their IRS Preparer Tax Identification Number (PTIN).
  6. Are you Hiding Income Offshore? This doesn’t have to be the rich tax evader who is intentionally trying to hide assets. If you have any assets abroad then you are legally required to disclose the information, including Report of Foreign Bank and Financial Accounts filings.
  7. The Impersonation of Charitable Organizations scam crops up regularly on the list. This is perhaps one of the worst items, where, especially following a natural disaster, scammers use phone calls, emails, and false websites to solicit money from donators, or claiming to help the victims file casualty loss claims and get tax refunds. If you want to help disaster victims, be proactive, contact a recognized charity or disaster helpline, and don’t give out personal information.
  8. While it is expected that you will claim everything you’re legitimately entitled to, do not claim False Income, Expenses or Exemptions. This can result in interest, penalties, or even prosecution.
  9. The IRS Tax Code is ridiculously long and most people agree that it needs to be overhauled. However, nothing is hidden – the entire tax code is published for everybody to see, so there’s no excuse for making what the IRS refers to as Frivolous Arguments to try to evade or defeat your tax obligations. Do not try to do so and do not be fooled by people that promote such frivolous arguments.
  10. It’s actually pretty simple, do not fall victim to people who encourage you to claim deductions or credits to which you are not entitled. This includes listening to people who encourage you to claim deductions or credits to which you are not entitled, such as Falsely Claiming Zero Wages or Using False Form 1099; two scams that can get you into a great deal of trouble. These complex schemes, which include filing false documents to justify bogus claims, are pretty easy to spot. If it seems too good to be true, it probably is.
  11. While this scam won’t affect too many taxpayers, Abusive Tax Structures are a problem that the IRS is trying to tackle. These complex schemes often involve multiple offshore entities, credit cards, etc. Buying into any arrangement that promise to eliminate or substantially reduce your tax liability is probably a bad idea and could result in criminal prosecution.
  12. Often connected with abusive tax structures, the IRS is seeing an increase in the Misuse of Trusts and related questionable transactions. While there are many legitimate uses for trusts, if they are used as a means of avoiding income tax liability and hiding assets you’re probably going to end up in trouble.

As always, these are just some of the schemes in use, so please take care when dealing with tax issues and/or giving out any personal information.

IRS Warns of Latest Phone Scam

If you ever receive a phone call from a person that claims to be an IRS employee, don’t immediately engage in a conversation about your taxes. In particular, the IRS Acting Commissioner, Mr. Danny Werfel, has just warned American taxpayers about an ongoing telephone scam that has already affected people all over the country.

It sounds like a real phone call from the IRS. Your phone shows a caller ID of the Internal Revenue toll free line, and a person on the phone seems to have your personal information, sometimes even the last four digits of your Social Security Number. You might even hear on a background how other “IRS agents” are making similar phone calls. However, there is something unusual about it.

The “pretend-to-be IRS agent” insists that you make a payment towards your tax debt immediately; otherwise you will face very unpleasant consequences. Depending on your situation and status, you might be threatened with a revocation of your Driver License, taking into custody, or immediate deportation.  Here is where you should start being suspicious.  The IRS will usually send a taxpayer a huge amount of letters and notices before the situation becomes serious enough and can lead to a legal collection action by taxing authorities. However, even then it is not up to the IRS toll free line employee to decide whether or not you will be arrested or sent out of the country for not paying your taxes.

Another indication that the person calling you has nothing to do with the IRS is that this person is willing to accept your credit or debit card number right away, over the phone. You might also be asked to make a wire transfer. Mr. Werfel has clearly stated that the IRS “will not ask for credit card numbers over the phone, nor request a wire transfer”.

To make the scam calls more convincing, scammers often follow up with another call, this time from the Motor Vehicle Department or police. Of course, none of this is real. What can you do in this frustrating situation? First of all, do not answer any questions. Ask the person on a phone for his or her contact information (just in case it was a real IRS employee) and say that you need to do some research first. Even if you are sure that you don’t owe any taxes, it does not hurt to confirm this with the IRS. You can get an answer to this question by calling the IRS’ real office at 1-800-829-1040. If you do have a liability the IRS agent will inform you about that and will provide you with the contact information of the person (or an office) that has been assigned to your case.

If, as a result, you discovered that a phone call you received was a scam, you should report it to the Treasury Inspector General for Tax Administration.  You can do it over the phone by calling 1-800-366-4484 or by visiting http://www.treasury.gov/tigta/ website.  There is a Report Fraud, Waste and Abuse button in the upper left corner of the page that you need to click to proceed with your report.

If instead of a phone call you received an email from someone pretending to be an IRS employee, don’t open any attachments, don’t click on any links. Just forward this email to phishing@irs.gov.

IRS – We’re Back!

Not that the Service stopped collections completely during the government shutdown that lasted for  more than two weeks, but it definitely has not pulled the expected amount of back taxes. In addition, as of today, billions of dollars of refunds have to be paid to individuals and businesses in America. What does this mean to a regular taxpayer with unpaid taxes? Although it might take the IRS some time to completely resume operations, as soon as it catches up, there might be an increase in the enforced collection actions by Revenue Officers and Automated Collection System of the IRS.

In a statement dated October 17, 2013, the IRS asked taxpayers to be patient while its employees “are reporting back to work” and “assessing the impact of the 16 days shutdown”. In the attempt to restart its most important operations, the IRS is delaying some services, such renewals of PTINs (Preparer Tax Identification Numbers).

On the other hand, the Internal Revenue Service has already reminded all taxpayers that the government shutdown did not extend the deadline to file tax returns for those who asked for a six months extension back in April. According to the IRS, “the current lapse in federal appropriations does not affect the federal tax law”. This message makes it very clear that, although the IRS functions were affected by the shutdown, it does not mean that taxpayers will be able to use this as an excuse not to comply with tax obligations.

At 20/20 Tax Resolution, we continued to work on client cases during the government shutdown to comply with all deadlines despite the fact that the IRS was not operating.  Although there was no way to communicate with federal taxing authorities, our employees did everything necessary to provide the best possible service to our clients.  We prepared and sent a large number of Installment Agreement proposals and Offers in Compromise. “At this point, we know we received a large amount of correspondence during the closure”, said the IRS in its Operation Resumption Statement.

It is obvious that sorting out all this correspondence will take some time. However, the foreseeable result of the shutdown is an increase in aggressive collection activity by the IRS, which will mostly affect those taxpayers who were not proactive in resolving their tax debt.

IRS Shutdown (Not Quite)

The government shutdown that started on October 1, 2013 resulted in the closure of almost all IRS offices – no customer service representatives to phone, no walk-in taxpayer assistance, no Appeals Officers, not even Taxpayer Advocates are available.

However, somehow the IRS continues to process tax returns with payments, although it does not issue any tax refunds.  Automated phone lines remain open and the IRS computer system continues generating automated notices to the taxpayers. In other words, if you received a letter from the IRS, there is nobody there to call to discuss it.

Despite the IRS closure, the tax law remains in effect, which means that individuals and businesses are required to file tax returns and pay taxes by the deadline. For instance, October 15, 2013 is still a due day to file 2012 1040 Income Tax Returns for those taxpayers who requested an Extension to File.

Filing tax returns electronically is the fastest way to get them processed, especially while the IRS is closed. Most electronically submitted returns will be processed automatically, even though no refunds will be sent out until the end of the shutdown.  Filing online also helps to avoid any problems that may occur when the IRS resumes operations and has to process a huge number of mailed correspondences, which can be easily lost or misplaced.

Although no new levies and liens will be issued during the shutdown, taxpayers can still receive Levy or Lien notices that were generated before October 1, 2013.

IRS Criminal Investigation department continues to work to protect the government interest.

If you have a question about the received correspondence from the IRS, you are welcome to call us at 20/20 Tax Resolution, and we will be happy to help you to understand the problem. You don’t need to be our client to get a free consultation by calling our 1-800-880-7318 toll-free number.

In NY Tax Debt Can Lose You Your Driving License

A very creative approach to resolve tax issues has been taken by the State of New York. On August 5, 2013, Governor Cuomo announced a new state initiative regarding outstanding individual taxes. According to this new rule, the State of New York Department of Taxation can now request a suspension of New York driver licenses of those individuals who have unresolved State of New York tax issues that exceed $10,000.

This decision is just a follow-up of a law passed in 2013 as part of the Executive Budget. The State of New York hopes that the new plan will help collect an additional $26 million this year and increase state tax collection by $6 million per year after that.

The state has already started the process. About 16,000 notices have been sent to taxpayers, giving them 60 days to resolve their tax problems with the New York Department of Taxation. It does not necessarily mean that the liability has to be paid in full by this deadline. Setting up a payment plan for back taxes will be sufficient to avoid trouble.

If the problem is not taken care of within 60 days of the day when the suspension notice was issued, the taxpayer will receive a second letter, this time from the Department of Motor Vehicles, allowing an additional 15 days to take appropriate action. Failure to resolve the problem will result in the suspension of the taxpayer’s driver license.

It’s not news that the New York State Department of Taxation is not the most lenient tax collecting authority. It has very strict rules that have to be applied when the state collection officer makes a decision about repayment of the debt. To make things worse, New York state taxes do not expire in ten years as federal taxes do, which means taxpayers cannot really hope that their problem will take care of itself over time.

Among the most popular options to settle the debt with the New York Department of Taxation are an Installment Agreement (also known as a Payment Plan), and an Offer in Compromise. The first option allows the taxpayer to pay off the debt within a certain timeframe in equal monthly installments. The second is an agreement between the taxpayer and the New York State that allows the taxpayer to avoid full payment of the debt. Instead, the state agrees to compromise on a smaller amount, as long as this amount is the absolute maximum a taxpayer can pay without experiencing economic hardship. In both cases, a taxpayer has to stay compliant with all tax obligations from this point forward.

Compliance is one of the most important conditions that must be satisfied before any tax resolution options will be approved by the State of New York Department of Taxation. All missing returns have to be filed and processed before a taxpayer can enter into an Installment Agreement or get an Offer in Compromise accepted. This means that the 60 days that the State of New York gives its taxpayers is not at all excessive, especially considering that not every accountant is immediately available to start preparing returns as soon as he or she is contacted by a taxpayer. Waiting for the state to process filed returns may take even longer.

Even when all returns are filed and appear in the state computer system, negotiating the best resolution for the state back taxes is not the easiest work one can imagine. It requires knowledge of the state tax rules and regulations and experience in discussing tax issues with state tax enforcement officers. If you are in trouble with the state or federal taxes, call us for help today. At 20/20 Tax Resolution, we are not only happy to resolve your tax liability, but also provide free consultations for those who need it.

IRS Big Data High-Tech Tools

We live in a new age of information and the IRS is ramping up to take full advantage of big data to help with the collection of taxes and pursuit of tax cheats. Most of this information appears to be coming from online sources, such as Facebook, eBay, eCommerce, and credit card usage. However, the IRS has also made it clear that, in certain circumstances, it will also investigate personal emails.

The IRS will encounter problems trying to capture, integrate, and analyze this vast wealth of additional data. However, should the IRS overcome these obstacles, it should go a long way to helping them bridge the estimated $300 billion annual gap in lost tax revenue.

There has been very little discussion about the extra information that the IRS is now collecting. The typical taxpayer is generally unaware of the new data powers that the IRS is incorporating into its monitoring and enforcement processes. There has been little discussion and no public outcry on privacy issues.

It appears that, although the data is available to the IRS, and has been used in some circumstances, it is generally only being used in situations where irregularities have already been detected in returns. Furthermore, the IRS is taking great pains to ensure that the information is not specifically used to target particular groups of high-risk individuals. The IRS National Taxpayer Advocate has already demanded that the IRS provides details of exactly what data is being used, but the IRS has responded that such information could detract from its enforcement operations.

Many systems are already in place for the IRS to use this big data to track individual internet usage patterns that could identify potential tax evaders. Additionally, it is already believed that the systems are being used to analyze tax returns for specific patterns and flag them for real-time, electronic audits.

These measures will, of course, target primarily low and medium income individuals, households, and businesses. The high earning tax evaders will continue to operate their own tax dodges, which are difficult to detect and expensive to investigate.

Attempt to Streamline Income Tax Return Process

Although it is designed to help taxpayers prepare individual Income Tax returns without spending too much time on collecting information and filling out the form, new legislation introduced by two Congressmen, Bill Foster and Mike Quigley, in April 2013 has already caused controversial debates over pros and cons of this development.

The Autofill Act of 2013 proposes an amendment to the 1986 IRS Code by introducing a computer program that will automatically generate an Individual Income Tax return for each taxpayer by using data received by the IRS from employers, financial institutions, and Social Security Administration. The idea behind it is to reduce the time burden for return preparation, to save taxpayer’s money spent on tax preparers and CPAs, and to increase accuracy. It was predicted that the Autofill Act of 2013 might save up to $2 billion a year paid in fees.  Instead of reading through more than a hundred pages of instructions on how to complete an Income tax return, or paying a professional to prepare it for you, a taxpayer will be able to log into his personal page on the secure website and download a pre-prepared form.

This idea sounds like a good solution for many taxpayers who have difficulty filing their returns. However, the legislation clearly states that a taxpayer will have full responsibility “for the accuracy or completeness of his return of tax”. In other words, even if the IRS makes a mistake on the pre-prepared document, it will be still responsibility of a taxpayer to fix it.

Another concern that was already expressed about the Autofill Act of 2013 is a possible increase in identity theft that might occur if such a system exists. This program might become a target for various criminal groups that are already operating in many states.

The potential cost of creating and supporting a program like this once again speaks against the Autofill Act of 2013. The IRS will need to spend money paying not only for software development, but also to the IRS representatives whose responsibility will include correcting mistakes and helping taxpayers use the system.

IRS Attempt to Regulate Return Preparers Fails

It is not a secret to anybody that the IRS has enormous amounts of rules and regulations about how to prepare tax returns. Instructions to complete form 1040, Individual Income Tax Return, are more than 100 pages long, and being updated each year. It is not surprising that taxpayers make mistakes completing this form – mistakes that often result in federal tax liability, payment plan proposals and penalty abatement requests.

In order to avoid these mistakes, many taxpayers hire professionals to prepare their returns, such as Certified Public Accountants (CPAs), Enrolled Agents (EA), or Tax Attorneys. These people are officially regulated as tax return preparers. They have passed the IRS exams and have the IRS approval not only to prepare returns, but also to represent their clients before the IRS to resolve any tax-related issued. However, anybody can be paid to prepare a tax return, without any need for qualifications.

Dough Shulman, former IRS Commissioner, in his speech given on November 7, 2012, said that “ensuring a basic competency level for tax return preparers” was an IRS priority. According to Shulman, the IRS was planning on requesting that all Paid Tax Return Preparers complete 15 hours of continuing education with the IRS each year and take a competency test before they are allowed to continue providing tax return preparation services to people.

In an attempt to oppose these change, three paid tax preparers from Illinois, New Jersey and Wisconsin filed a suit against the IRS with the US District Court for the District of Columbia. Judge J.E. Boasberg ruled against the IRS’ plans to enforce its Registered Tax Return Preparer (RTRP) requirements on the basis that Congress has never given the IRS the authority to license tax preparers.

The IRS can appeal the ruling. However, as things now stand, the RTRP licensing requirements that went into effect on January 1st 2013 are no longer required.