New Consumer Warning Issued by the IRS Talks of Recent Surge in e-mail Schemes for 2016 Tax Season

Tax season is once again in full swing, and while that thought alone can be frightening to some, the renewed threat of scammers that are popping up recently is even more alarming. While tax schemes and phishing attempts have long been an unfortunate risk to citizens trying to do the right thing and stay on the “good side” of the IRS, this tax year has already seen a dramatic increase in their nefarious existence.

IRSPhishingThe Internal Revenue Service just released a warning to citizens to beware of suspicious emails after already seeing an approximate 400% increase in these phishing and malware incidents so far this tax season alone. These emails are designed to fool taxpayers into thinking that they are official written communication coming directly from the IRS or other tax authority representatives, including tax software companies.

“This dramatic jump in these scams comes at the busiest time of tax season,” said IRS Commissioner John Koskinen. “Watch out for fraudsters slipping these official-looking emails into inboxes, trying to confuse people at the very time they work on their taxes. We urge people not to click on these emails.”

This year’s steep increase in this fraudulent activity has officials very concerned. They are not only using the traditional phone and email methods of communicating with would-be victims, but are also now reaching people via text messaging. The messages appear to be legitimate and ask taxpayers to provide a wide variety of information. Some requests inquire about filing status, requests to verify PIN information, or verification of refund information, while others seek to confirm personal information or even order official transcripts.

So what do fraudsters do with this information?

They can actually use the stolen information to be able to file false tax returns, amongst other things. When an unknowing victim clicks on one of these emails, they are redirected to websites that look very legitimate and often imitate official web pages like one might find at IRS.gov or on other real websites. These fraudulent sites then ask for social security numbers and other personal information that thieves can use to file false income tax returns.

Many of these sites also contain malware, which can infect your computer and allow criminals to access your files or obtain additional information, such as passwords and logins, by tracking your keystrokes.

According to the official news release, the IRS has seen an increase in reported phishing and malware schemes, including:scam-alert

  • There were 1,026 incidents reported in January, up from 254 a year earlier.
  • The trend continued in February, nearly doubling the reported number of incidents compared to a year ago. In all, 363 incidents were reported from Feb. 1-16, compared to the 201 incidents reported for the entire month of February 2015.
  • This year’s 1,389 incidents have already topped the 2014 yearly total of 1,361, and they are halfway to matching the 2015 total of 2,748.

As the email scams increase, the IRS is working with other leaders in the tax industry to find a resolution for this issue.

“While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers,” Koskinen said. “We continue to work cooperatively with our partners on this issue, and we have taken steps to strengthen our processing systems and fraud filters to watch for scam artists trying to use stolen information to file bogus tax returns.”Phishing_magnifying_glass_fi

One way the IRS, state revenue departments and other tax organizations are trying to protect taxpayers, is by providing them with as much knowledge of the situation as possible. Combining forces to form the “Taxes. Security. Together” campaign, they hope to educate consumers and help keep them away from these potential scammers that could cause financial devastation to many tax payers.

What should you do if you think you have received a phony or questionable email or text message from the IRS?

If a taxpayer receives an unsolicited email that appears to be from either the IRS e-services portal or an organization closely linked to the IRS, they are urged to report it by sending it to phishing@irs.gov.

Recent email examples the IRS has seen include subject lines and underlying text referencing:

  • Numerous variations about people’s tax refund.
  • Update your filing details, which can include references to W-2.
  • Confirm your personal information.
  • Get my IP Pin.
  • Get my E-file Pin.
  • Order a transcript.
  • Complete your tax return information.

Also, it is important to keep in mind that the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

To learn more about this latest warning, you can visit their website or call the IRS if you feel you have been a victim of these very crafty and cunning criminals.

Tax Tips: How to Prepare for an IRS Tax Audit

IRS audits are actually becoming less common these days, with the number of actual audits performed in 2012 dropping 5.3% compared to the year before. That trend is expected to continue due to budget cuts and new responsibilities that have been placed on the department, ultimately resulting in fewer IRS agents available to conduct examinations.

The number of IRS agents available to perform tax audits in 2014 is expected to be at its lowest number in over 3 decades.

Last year the Internal Revenue Service selected approximately 1,481,966 individual tax returns to audit, or roughly 1% of tax payers. While the mere mention of the words “tax audit” strikes fear in the lives of many, there is really nothing to worry about if you are chosen as one of the lucky few. Nothing to worry about as long as you are prepared and haven’t committed tax fraud, that is.

Find out why you were chosen to be audited

If you have been selected for an audit, that doesn’t necessarily mean that you have made an error on your tax return. Individual tax payers returns are selected using several different methods, including:

  • Random: Some returns are selected at random by a computer screening process, which can often involve a statistical formula that identifies returns that are out of the “normal” or “average” range.
  • Document Mismatch: Oftentimes the simplest slip of a finger while entering information on your return, could result in inaccurate information being submitted. This could include W-2 forms or 1099’s that are reported but don’t match the information provided.
  • Related/Partner Returns: Sometimes a return may be selected for audit when it includes transactions or other related issues with other taxpayers. This is usually found due to a business partners or investors return already being audited.

What type of audit are you facing?

There are actually 3 main types of audits that the IRS performs regularly. Depending on which type they have scheduled for you, it may end up being a fairly painless procedure for you. The IRS will always start the audit process by sending you a letter. This letter should tell you what kind of audit you are being scheduled for.

Correspondence audit (Form 566(CG)) This is by far the simplest form of an IRS audit. Usually a taxpayer will receive this type of an audit when they forgot something simple on their tax return (like a signature) or if more explanation is required of something more specific (like itemized deductions).

In-office audit(Form 3572) These types of audits are most commonly sent to people who are self-employed or who own small businesses. The taxpayer will be required to go to the local IRS office to explain certain things on their tax return. These types of audits can generally take several hours, but are usually resolved on the day of the visit.

Field audit (Form 4564) These are the audits where IRS Field Representatives will be sent to your home or your place of business to conduct the examination. That is usually because of the fact that there is too much information to send via mail or carry with you into the nearest office. These are by far the most comprehensive types of all the audits and can take multiple visits to resolve all of the issues involved.

Know Your Legal Requirements

There are many laws you should know with regard to the retention of your personal and business financial records. For example, all business records regarding any particular asset should be kept for as long as the asset is kept, plus three years. Payroll records need to be kept for all personnel for at least six past years plus the current year.

The IRS can include returns filed within the last three years when they perform an audit. They can also include additional years if a substantial error is found, but will generally not go back further than six years.

Gather the Necessary Documentation

Once you have identified the type of audit that is being performed, you can start preparing your supporting documents. The IRS will include in its letter to you any specific documentation that they will need to review during the examination.

The key to having all the documentation you need for an easy audit is to get in the habit of retaining all your documents in a clean and organized manner ahead of time. Every year when you file your return, you should maintain a file that includes any and all supporting documentation to go along with it.

Keep all of this information along with a copy of your W-2’s or 1099’s and a copy of the return you submitted with the IRS.

If you have not kept the tidiest of records for the year that is being examined, go through your return very carefully and try to recollect the information that got you to those figures originally. Once you have identified where the figures came from, you can try to find them again. For example, if you claimed a lot of medical expenses, you may have some luck by contacting the billing department of the hospital or Doctor’s office that treated you and requesting copies of your bills for that year.

Having to recreate records this way will certainly take you longer to collect, so make sure you start gathering all of your required documents as early as possible.

Organization = A Quick Audit

Keeping your records in a clean and simple manner is critical to a problem-free audit. If you have all of your supporting documentation in a well organized, professional manner when the IRS Field Agent comes knocking on your door, they will be able to get all the information they need to wrap up the examination quickly.

What if you’re not prepared?

If the date of your scheduled appointment with the IRS is soon approaching and you do not feel completely prepared, you can always try requesting more time. You should contact your auditor directly at the number that was provided in your notification letter to explain that you would like to postpone your appointment.

While the IRS agent is more than likely to want to work with you, it is important to remember that the sooner the audit begins, the sooner it can be over. It may be more beneficial to keep your original appointment and at least get the process going. You can then schedule a follow up appointment at a later date and time to submit any additional documentation that you were able to gather.

Obtain professional representation if needed

In any case, if you feel that you are in over your head or intimidated by the auditing process, it may be a wise idea to consult with a licensed tax professional. They can review your case information and all of the documentation that you are able to provide and better advise you on how to proceed in dealing with the IRS.

The most important thing is to remain calm and collected. The more organized you are, the better. And don’t forget to behave in your highest professional regard when dealing with the IRS agent directly. Your attitude and willingness to cooperate with their procedures will make the examination quicker and less painful for all involved.

Additional Tax Tips:

What Happens in an IRS Audit
What to do during an IRS Audit
How to survive an IRS tax audit

Jersey Shore Star Michael Sorrentino Charged with $9M Tax Fraud

Michael Sorrentino, better known as “The Situation,” made his fortune starring on the reality television show, “Jersey Shore.” And for all six seasons, he earned approximately $150,000 per episode. But now, Sorrentino has found himself in a situation he would rather have avoided.

“The Situation” Failed to Pay Taxes on $9M Income

Sorrentino and his older brother and business manager, Marc Sorrentino, were arrested and indicted early Septtember 24th, on a total of 7 different charges involving tax fraud. The pair was each charged with one count of conspiring to defraud the United States. In addition, Marc was charged with three counts of filing false tax returns for 2010-2012. Mike was charged with two of the same counts for that time period, along with being accused of failing to file a tax return in 2011, when he reportedly earned nearly $2 million. (Yahoo News)

The older brother and manager, Marc Sorrentino faces up to 14 years in prison for his charges, while Mike is facing up to 11 years along with up to $600,000.00 worth of fines. The pair plead not guilty in a Newark, NJ federal court yesterday, and are currently out on a $250,000 bond. Their next court appearance is scheduled for October 6, 2014.

These federal charges stem from the pair allegedly failing to pay taxes on nearly $9 million worth of income earned between 2010 and 2012. The indictment names the two individuals along with several companies reported to be owned by the pair. These companies include MPS Entertainment, Situation Nation, and Situation Productions.

Another Celebrity Caught by the IRS

The income, totaling $8.9 million dollars, reportedly was earned from a variety of sources besides the Jersey Shore. Personal and television appearances, ownership of an online clothing business, the publication of an autobiography and a comic book featuring the Situation as a superhero are just a few. Also, as he grew to be nearly as popular as co-star Snooki, his name was put on DVDs, clothing lines, jewelry, tuxedos, and designer sunglasses.

“The brothers allegedly claimed costly clothes and cars as business expenses and funneled company money into personal accounts,” claimed the U.S. Attorney. He went on to say “The law is absolutely clear: telling the truth to the IRS is not optional.” – Justice.gov

Sorrentino popularized the phrase, “Gym, Tan, Laundry” when he referred to the pre-party ritual of he and his housemates on Jersey Shore. His popularity on the show and his reputation for drinking heavily also lead him to many endorsement deals, including one with Devotion Vodka. He was also well known for showing off his finely toned abdominal muscles, leading him to release a work-out DVD and gain an endorsement with GNC Vitamins. He appeared on Season 11 of “Dancing With The Stars” but was eliminated after just the 4th round.

This makes him yet another well-paid celebrity, like Vanessa Williams and Conan O’Brien, has been targeted by the IRS.

When asked for a comment on his tax woes, Sorrentino reportedly said, “The situation will sort itself out.”

Top 10 benefits of working with a professional tax relief firm

Having an outstanding tax debt is becoming a growing issue that many Americans face. The number of Federal tax liens and levies filed by the IRS has grown significantly in recent years.  In 2011, nearly 4 million tax levies were served on third parties, a 456% increase when compared to the same IRS reports from 2001. Similarly, the IRS issued over one million Federal tax liens in 2011, up 145% from a decade earlier.

The IRS is usually relentless in their pursuit of collecting outstanding tax debt. The stress and pressure that is often placed on individuals and families can be overwhelming. Professional tax relief firms can be an incredible source of assistance when it comes to dealing with the IRS (or other State Tax Authorities) regarding back tax amounts owed or a wide range of other tax related challenges. Here are the top 10 benefits of working with one of these organizations.

1.  You don’t have to face the IRS alone

One of the major benefits of using a tax relief company is the fact that they have many professionals with different educational backgrounds to help you. By having a wide range of experts who understand how the IRS works (such as attorneys, CPA’s, or other specialists), they are able to put that knowledge to work for you so that you can reach the best possible settlement or solution for your tax problems.  After all, when dealing with the IRS or State Tax Authority, you can never have too many professionals working on your side.

2.  Reduce the overall balance you owe

The total amount you owe the IRS is often compounded by additional penalties and interest, and may involve more than one tax period or issue. These penalties and interests are automatically assessed to your account by their computer system; however you may not actually have to pay the additional fees.

A professional tax relief firm can evaluate your situation, and depending on the circumstances behind why you owe the debt, can oftentimes have these penalties removed from the total balance owed. This applies to the interest accruing on your balance as well, which can really add up over any length of time.

3. Avoid losing your home or other property from an IRS seizure

In some extreme cases, people have lost their home or other property because of past due tax debts. Although property seizure is one method that the IRS can use to collect amounts owed, it is usually a last resort for them.

However the number of IRS property seizures has increased dramatically in the last decade. In 2011, the IRS conducted 776 property seizures (compared to 234 seizures in 2001), resulting in a 230% increase in this form of enforcement in just 10 years. An experienced tax relief organization can help you avoid becoming one of these alarming statistics.

4. Avoid having your bank account levied

Similar to a property seizure, the IRS can also implement other actions to collect past due taxes. One more common method used is to levy your bank account. This action will occur after the IRS sends several written notices and warnings, yet still takes many people by surprise when they find out their bank account has been cleared out overnight.

According to the IRS, over $55 billion dollars was collected as a result of enforcement actions in 2011, up 63.3% from a decade before. Imagine the nightmare of waking up one morning only to find that the IRS followed through with their threat of levying your bank account, and realizing that the money in your account that you were going to use for bills, rent, or other items, is no longer yours to spend.

But this is just another example of a situation that can be avoided by having a professional tax relief service help you. You should contact them the moment you receive that first threatening letter from the IRS.

5. Stop or prevent an IRS wage garnishment

Garnishing your wages is yet another tool the IRS can implement to collect past due amounts owed to them. This adjustment to your paycheck can be financially devastating to your household income, usually taking somewhere between 30-75% of your NET paycheck before it makes it into your hands.

The IRS legally requires an employer to comply with their collection efforts and the wage order stays in effect until the IRS releases it, usually not until the entire amount owed to them has been collected.

A skilled tax relief firm can appeal to the IRS on your behalf and have the garnishment of your earnings reduced to a more reasonable amount or oftentimes stopped altogether.

6. Settle your outstanding tax debt for much less than you actually owe

Oftentimes the IRS is willing to negotiate with tax payers in regards to outstanding debts that are owed. This is true largely because of the fact that they would rather collect a lesser amount than nothing at all. But entering into a settlement negotiation with the IRS can be risky territory, especially if you are not fully aware of all of your rights or settlement programs that exist to reduce your overall debt.

This is another area where a company that specializes in tax resolution can assist you. By negotiating with the IRS on your behalf, they can usually reach an agreement that not only significantly lowers the total amount you owe, but also makes the terms of payment simple and for a shorter period of time.

7. Get caught up on past returns

It is estimated that 1 in 6 Americans (26 million people) is currently struggling with tax problems. Many people let these problems grow and compound over years and end up failing to file new tax returns, figuring they are already in enough trouble with the IRS as it is. Working with a professional tax relief organization can also offer benefits by helping you get caught up on any back tax returns you may still need to file.

8. Assistance during audits

One nightmare than many people fear is being audited by the IRS. A reputable tax relief firm will stand by you through this process and make sure that everything you need to have is covered. The chances of being selected for an audit are relatively low with only around 1% of tax returns being selected for this process each year. Furthermore, of those returns that are audited, only about an additional 1% of them are for individual tax payers. So while the odds of being audited are low, it is nice to know you have someone on your side if you need them.

9. Avoid dings in your credit score due to unpaid tax issues

While the IRS is not currently providing information to the 3 major credit bureaus about any unpaid taxes you may owe, it is something they have strongly considered recently. Additionally, if the IRS files a lien because of outstanding debt owed, that information could show up on your credit report since it is considered a judgment, and will remain on your credit report for 7 years after you have repaid it or 10 years if you ignore it. This information can definitely affect your overall credit score and sometimes even potential employment.

10. Enjoy a little piece of mind again

The stress and pressure that can be placed on an individual or family because of outstanding tax debt can be so overwhelming and can even cause major problems in the lives of people who are struggling with it. It can seem like the easiest solution is to run and hide from the problem, but let’s face it, the IRS is one powerful and relentless authority and when they want their money, chances are they will find you.

These issues will not go away on their own. The only way to make them disappear is to face them and address them as they arise. Having an experienced tax relief firm on your side to help with all the complicated policies and procedures can help your overall mental health dramatically.

Although facing the IRS and State Tax Authorities can be a very scary and intimidating experience for many people, it doesn’t have to be so difficult. There are many options to help reduce or sometimes eliminate the debt you owe, but trying to handle it on your own can be equally challenging. Working with a professional tax relief firm is often your best bet. These knowledgeable and skilled individuals can help you handle everything necessary to get your tax related problems resolved once and for all.

43% of Americans don’t have to file a federal tax return–are you one of them?

While the IRS expects to receive 148 million tax returns to be filed this year, it is estimated that nearly 43% of Americans don’t have to file a federal tax return, down from 47% in 2009. This figure comes from the Urban Institute and Brookings Institution’s Tax Policy Center (TPC), an organization based in Washington D.C. that was formed in 2002 to analyze tax issues in the United States.

So how are millions of Americans avoiding this annual tedious task of having to prepare and file a tax return?

Who is off the taxpaying hook?

The recent recession had a lot to do with the fact that nearly half the country is off the hook when it comes to filing a tax return. Many people faced a drastic reduction in their earned income, and now simply do not make enough money to meet the minimum requirements to file. Additionally, President Obama teamed up with Congress to boost existing credits and create new stimulus measures which have resulted in many people qualifying for tax benefits and credits which eliminate their tax obligation entirely.

Whether you are required to file a federal income tax return or not depends mainly on three things: your filing status, your age on December 31, 2013, and your gross income for the year. 

If you are age 64 or younger, are filing as single and earned more than $10,000.00 in 2013 ($11,500.00 if age 65 or older), then you are among those who have to file a tax return with the IRS this year. If you were married at the end of 2013 and you plan on filing separate returns, you must file if you earned more than $3,900.00 in 2013. 

Do you have to file a tax return?
If your filing status is… and at the end of 2013 you were… you must file if your gross income is at least…
Single under 65 / 65 or older $10000 / 11500
Married Filing Jointly under 65 (both spouses) / 65 or older (one spouse) / 65 or older (both spouses) $20000 / 21200 /22400
Married Filing Separately any age $3900
Head of Household under 65 / 65 or older $12850 / 14350
Qualifying widow(er) with Dependent Child under 65 / 65 or older $16100 / 17300

* If you turn 65 on January 1, 2014, you are considered to be age 65 at the end of 2013.

These days there are more and more children working each year, oftentimes earning enough throughout the year to require that they file a return as well. This can be a complicated matter when trying to decide if the child should file a return and how that could affect their parents claiming them as dependents on their own return. Basically a child must file a tax return if their earned income was over $6,100, however parents are still able to claim these children as dependents on their tax return if the child lived with them.

Even if you’re not required to file…

One important thing to consider is even if you are not required to file a federal tax return for 2013, you may want to still file a return as it may result in a refund owed to you. If you had income tax withheld from your paycheck or if you qualify for the EITC, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit, filing a return will most likely result in the IRS sending you a refund check.

A major tax credit that helps Americans reduce their tax liability is the Earned Income Tax Credit (EITC).  The EITC was originally approved by Congress in 1975 to help working Americans (with a low to moderate income level) keep more of what they earned. According to the TPC, about 1 in 5 tax returns (close to 28 million) that were filed in 2010 claimed the EITC, resulting in over 60 million dollars in credit to Americans. For the 2013 tax year, working families with children that have annual incomes below $37,870 to $51,567 (depending on number of children) will be eligible for the federal EITC, as well as those without children that have incomes below $14,340.

According to the IRS, about three out of four people who file a tax return this year will receive a refund. Last year taxpayers received an average refund of $2,744, and the IRS is typically able to process that refund within 3 weeks. To get your refund from the IRS the quickest, be sure to e-file your tax return and opt for direct depositing your refund into your bank account.

Filing your annual income tax return can be a complicated and tedious task, but there are many benefits and credits available now to help reduce or even eliminate your tax liability. Even if you are not required to file a return, these tax credits can result in an unexpected refund from Uncle Sam. But you have to file the return to receive the cash, so be sure to explore all of the available credits and deductions when preparing your return this year.

Are You Leaving Unclaimed Tax Money on the Table?

We could all use a few extra bucks now and then, and at times face incredible hardships just to make ends meet. But few of us realize just how much unclaimed tax money that may very well have our name on it.

Unclaimed Tax Money Total = $60 billion

According to a 2013 article on CNN Money, there is currently close to $60 billion in unclaimed cash and benefits out there waiting to be collected. The Federal government is sitting on a total of $18 billion that belongs to its citizens, while State and Local governments hold close to $42 billion. This astonishing figure is comprised of a collection of many different types of forgotten funds including abandoned bank accounts, retirement funds that go unclaimed, un-cashed paychecks, unclaimed tax refunds, insurance payouts, and many others.

One of the largest amounts of unclaimed money being held by the US treasury is from people not cashing in their savings bonds, currently close to $16 billion worth. Additionally, the IRS recently estimated the amount of tax refunds that have not been collected by hard working Americans at $917 million for the 2009 tax year alone.

Get Your Billion Back

We all know that the IRS can be relentless when it comes to collecting tax money that is owed, but they are considerably less assertive when it comes to trying to reach people who have unclaimed tax refunds. The majority of this unclaimed tax refund money comes from people who don’t think they need to file a tax return because they did not earn much, or from people overlooking some of the many tax credits that are now in effect.

But you had better act fast if you think some of this money might belong to you, because the government has imposed a law stating that the IRS only has to have a 3 year waiting period to hold these unclaimed funds. If you do not file a tax return to try to collect within those 3 years, your refund officially becomes property of the US Treasury.

“We’re not talking about free money here,” said Peter Sepp, Executive VP of the National Taxpayers’ Union. “This was money that an individual or a family earned and gave too much of to the federal government. They should get it back.” This sentiment has been echoed by many and has even prompted H&R Block to launch their newest campaign, urging Americans to “Get your billion back”. They have aired numerous commercials as well as other marketing for this campaign, offering assistance in retrieving some of this lost cash and putting it back in the pockets of the hard working citizens that it belongs to.

Unclaimed Property Recovery Programs

According to The National Association of Unclaimed Property Administrators (NAUPA), unclaimed property laws have been around since the 1930’s, but have only recently become broader and stricter in enforcement. Property becomes “unclaimed” when an organization loses contact with the owner of the property for a period of one year or longer. At that point, these organizations are required to turn over these funds to a State Official who is responsible for trying to find the rightful owner.

These State Officials have developed many programs to try to reunite the owner with their lost money, including developing a national database missingmoney.com. This program alone is responsible for getting nearly $2 billion a year back to its rightful owners.

While there are numerous companies out there that offer services to help you reclaim some of your potential missing cash, beware of those that offer this service after paying a fee. There are plenty of organizations that offer this assistance free of charge, such as the website Unclaimed.org which is managed by the NAUPA. From their site you can find links to begin your search of any of the 50 states unclaimed property databases to see if you have money out there waiting to be claimed.

Savings Bonds, Pensions, and Forgotten Funds

The Treasury Department has a website where you can search to see if you have any matured yet unredeemed savings bonds. All you will need to perform a simple search is your social security number (or the SS# of the person who gave you the savings bond as a gift). Additionally, the FDIC has a website available to search for unclaimed funds from closed banks at www2.fdic.gov/funds/index.asp, where you can search by name and state for any money that might be waiting with your name on it.

The Pension Benefit Guaranty Corporation is the US Government Agency that is responsible for paying benefits on failed pension plans. You can search their website to see if you have any unclaimed pension or retirement funds. The United States Department of Labor can also help with locating lost or forgotten retirement funds.

Claim Your Money–It’s Yours

Searching for lost or unclaimed money in your name isn’t difficult and doesn’t take long. The results can be considerably beneficial to those who find forgotten funds. Just think of all the wonderful things you could do if you had some extra money in your pocket right now. After all, you won’t have anything to lose once you search to find what you’ve already forgotten!

Taxpayer Advocate, “The Voice of the People”

Tax season can be a very confusing and frustrating time for many Americans, especially in recent years as the IRS has implemented several changes that have impacted United States taxpayers.

Since 2010 the IRS has had its funding cut by 8%, including an 87% drop in their training budget, and have cut nearly 8,000 full time positions. Congress has meanwhile increased the responsibilities of the IRS which now plays a key role in the administration of Obamacare. When you also factor in the complications of last October’s government shutdown and automatic spending cuts imposed, it’s no wonder that many Americans dread having to have any dealings with the IRS.

The Taxpayer Advocate Report

But fortunately taxpayers have a resource fighting on their behalf in the Office of the Taxpayer Advocate, an independent office within the IRS that was created under the Taxpayer Bill of Rights 2 in 1996.  Nina Olson, current US Taxpayer Advocate, identifies the major problems that taxpayers face throughout the year and offers ideas and solutions for each of them in an annual report which is released each December. In addition to reporting these findings to the IRS, Olson is also the only IRS employee authorized to make legislative proposals directly to Congress.

In Olson’s most recent Taxpayer Advocate Service (TAS) report released last month, she identified the most serious problem that taxpayers face is trying to comprehend the complex and often changing IRS tax code. The TAS analyzed IRS data and found that taxpayers spend around 6.1 billion hours a year in attempting to comply with filing requirements. The report states that “if tax compliance were an industry, it would be one of the largest in the United States. To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”

The report also states that “according to a tally compiled by a leading publisher of tax information, there have been approximately 4,680 changes to the tax code since 2001, an average of more than one a day.” This constantly evolving set of rules and regulations makes it difficult for honest taxpayers to keep up with the latest laws and much easier for criminals to commit tax fraud. The TAS report has suggested to both the IRS and Congress for a number of years that the current complex tax code needs to be simplified, and since it has been 28 years since the last fundamental tax reform enacted by Congress, it is perhaps long overdue.

Another major problem the TAS report addresses involves the impact of the IRS budget cuts on their ability to serve the American taxpayers. Because of the funding shortages that the IRS is dealing with, they are unable to answer millions of taxpayer’s phone calls each year, and only able to respond to about 47% of correspondence submitted by taxpayers. Last year the IRS was only able to field about 61% of their incoming phone calls and the average wait time to get through to a representative was nearly 18 minutes.

“The IRS mails over 200 million pieces of correspondence to taxpayers each year, yet it does not track how much of this mail is annually returned as “undeliverable as addressed.” — National Advocate Report

TAS Recommendations

The TAS report recommends that Congress establish new guidelines when setting the IRS budget, and significantly increase their current operating budget to allow better customer service to taxpayers who are honestly trying to file their return. This recommendation is critical due to the fact that the US tax system is based on voluntary compliance, and the IRS has a moral obligation to taxpayers to make compliance as simple as possible. The fact that nearly 43 million phone calls to the IRS go unanswered each year, and that 53% of written correspondence to the IRS is ignored, is unacceptable and fails to serve the needs of the very people who are attempting to honestly comply with IRS regulations.

The report also points out the fact that since the IRS is essentially the “Accounts Receivable” department of the United States government, it is crucial that this department have sufficient funding to perform its duties. In 2013 the IRS had a budget of only $11.2 billion yet it collected a total of $2.86 trillion tax dollars – translating roughly to a rate of return of $255 for every $1 spent. This demonstrates the significance of how an increase in budget levels could impact potential increases in revenue collection and could even help reduce the overall economic deficit that America is dealing with today.

Another serious and growing problem facing American taxpayers these days is tax-related identity theft. In 2012 the IRS received almost 450,000 cases claiming issues surrounding stolen identity. Usually, a tax-related identity theft occurs when someone uses the personal information of another person without their knowledge or permission to collect a fraudulent refund. This causes a series of major problems which could take many months to resolve.

In order to address the increasing problem of tax-related identity theft, the IRS created the Identity Protection Specialized Unit (IPSU) in October of 2008. While the original intent of this unit was to provide a central point of contact for identity theft victims to resolve their tax-related issues quickly and efficiently, the results that taxpayers receive are anything but effective and timely.

The time required to have identity theft related tax cases resolved by the IRS averages 312 days, delaying proper refunds to victims, causing problems to overlap tax years, and requiring a number of different units within the IPSU to be involved before a final solution can be found. There are currently more than 20 separate divisions within the IPSU that are required to coordinate and pass information along to each other in order for a case to be resolved. While the original intent of creating the IPSU was to provide a stream-lining of sorts for these types of cases, its internal complexity of different units has only made the process more time consuming.

The TAS report recommends that the IRS review the structure of the IPSU and make appropriate changes so that the process of addressing identity theft can truly be stream-lined as the unit was originally intended. In addition, the report recommends increasing the funding to this division of the IRS so that the increasing volume of cases coming in can be resolved in a more timely manner.

Conclusion

Dealing with the IRS can be a dreadful time for many taxpayers each year. Whether it’s trying to keep up with the always changing tax-code, resolving identity theft issues, or attempting to contact the IRS with questions, there are many hurdles that Americans face when attempting to comply with US tax requirements. Fortunately, the Taxpayer Advocate Service exists for the sole purpose of serving as the “voice of the people,” offering assistance to taxpayers while making recommendations for improvement to the IRS and Congress.

For more information about the Taxpayer Advocate Service or to view the full 2012 TAS report, visit http://www.taxpayeradvocate.irs.gov.

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