Come again? What did the National Taxpayer Advocate Just Say??

I am a huge fan of the Taxpayer Advocate service.  This is the emergency “go to” that people who can’t afford proper representation can reach out to, and maybe get some assistance.  Personally, I believe it’s a valuable resource for both taxpayers and representatives.

The “grand poopa” of Taxpayer Advocates is the National Taxpayer Advocate, Nina Olson.   Mrs. Olson oversees this entire branch of the Internal Revenue Service, and she recently made some comments that, in my opinion, appear to be completely inaccurate.

Mrs. Olson questioned the effectiveness of correspondence exams in comparison with face to face audits.  She stated in a blog, this past Tuesday, that “…taxpayers were almost three times more likely to respond to and participate in a face to face audit than one conducted by correspondence.”  As an example, she cited earned income tax credit audits.  She points out that correspondence audits have gone up four times as much as face to face audits over the past 10 years.  She then points to a “survey of taxpayers” where the “IRS found that they expressed far greater satisfaction with face to face audits as opposed to correspondence exams, at a rate of 71% to 43%.”

OK.  First, with respect to the “survey.”  I don’t know one person who has had both a face to face audit and a correspondence audit.  I am fascinated in the sample of people used for this survey  (i.e., Wesley Snipes and Willy Nelson?).

Second.  For the record, a taxpayer has to be absolutely nuts to prefer a face to face IRS examination over a correspondence exam.  Why?  I don’t have enough space on my server frankly, but let’s discuss three:

One.  No visit to your home!  They can’t see your new kitchen in a face to face interview.  They are not examining your lifestyle, because they can’t!  The correspondence audit is probably coming out of Cincinnati, which is a far cry from home!  It’s a paper audit!

Two.  No taxpayer interviews!  No intrusive questions!  We don’t have an examiner jotting notes down about your demeanor, why you hesitated, or were sweating, or who knows what else they jot down in their little notepad.  You don’t have to be put on the spot!

Three.  No requests for copies of tax returns for the year preceding or following the year under examination.  This is how the IRS expands the scope of their examinations to include other years.  They ask you for a copy of the return (the one you already filed, and they have – it’s just buried someplace too deep for the IRS agent to look), and then they look at it and decide if you are being examined for multiple years, as opposed to just one.

That is just three.  I believe Mrs. Olsen is commenting on the fact that people tend to ignore correspondence audits, and therefore the IRS has no choice but to make assessments based upon the information they have, coupled with the answers they were NEVER provided as a result of the examined taxpayer not responding.  This obviously is less likely to happen when the examiner is knocking at the taxpayer’s door.

But nonetheless, the message to the IRS to ramp up face to face examinations as opposed to correspondence exams is nothing short of a fiscal disaster to taxpayers.  Bad message! 

So my advice to any reader out there is, correspondence audits are many, many times better than face to face audits, despite what the National Taxpayer Advocate says, and for Goodness’ sake, simply respond to them when and if you ever get one.

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Owe Taxes, Revoke Passport?

I stand corrected.  Just yesterday, I was telling a candidate for State Representative in Massachusetts that the Commonwealth goes way too far in revoking drivers licenses from individuals behind in their taxes.  I pontificated on the wisdom of such a drastic step, and it really got this candidate’s attention.  One of the items I noted was that “You would never see the IRS do something like that.”

Well, I’ll be damned.

Hidden in a Highway Transportation Bill unanimously approved by the United States Senate last Tuesday, the State Department would be able to “deny, revoke or limit a passport for any individual whom the Internal Revenue Service has certified as having a “seriously delinquent tax debt” in excess of $50,000.”  By “seriously delinquent,” it appears that a notice of federal tax lien or a notice of levy has been filed.  But there appears to be exceptions, such as when a payment plan is in place, or a collection due process hearing has been requested “or is pending.”  Sobering stuff.

Desperately searching for more detail here, I reached out to my friend Michael Cohn of Accounting Today, the author of the article, in the hopes of acquiring greater detail in what appears to be a major potential restraint on travel on an unsuspecting public.  There are more of these tax liabilities than people realize.  I can think of many instances where this is incredibly over-reaching, particularly where there are tax disputes regarding the liability amount and/or sufficient assets to satisfy the liability, right here in the United States.

This is all about the money, and not about compliance.  Why?  Thus far I haven’t heard one word about chronic non-filers, or tax protesters being subject to this.  Just Taxpayers who “owe” money, assuming they even do in the first place.

Several posts ago, we wrote about our fear of a slippery slope with respect to tax regulation.  That slope just got tweaked a few degrees steeper.

Passport Revocation Article

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IRS Reverts to “Old” Reporting Requirements for Gross Receipts

In what has to be the best news I have heard in a long time, it appears that the IRS is no longer going to pursue separate reporting of credit card gross receipts from “other” gross receipts. 

As everyone in business should know by now, for 2011 the IRS was to begin mandating that all business entities separately report credit card gross receipts from other gross receipts.  This created a huge administrative scare, particularly in the small business area, as this would require considerable additional administrative work in order to comply.  The IRS backed away from this for 2011, but the issue was expected to reappear for 2012.

We read with confusion the most recent Kiplinger Tax Letter, which appeared to allude to the “repeal,” but the language could have been better.  Well, we reached out to the wonderful Joy Taylor, tax editor at Kiplinger, and she was kind enough to forward the letter we are attaching.  This letter, from Steven Miller, head of Large and Mid Size Business Division of the IRS, to Susan Eckerly of the National Federation of Independent Business, says it all.

In short, it appears that the tax forms will revert back to the 2010 style, and will no longer ask for separation of gross receipts from credit cards.

Now, is this a big “win?”  Not really.  They are not stopping the requirement that credit card companies issue 1099K’s, which report credit card gross receipts.  So big brother still gets the information they need, when you think about it.  But it’s nice to see that our friends at the IRS recognize from time to time the tremendous administrative burdens placed on businesses for proper tax compliance.

Thank you, Joy!!!!

Paul Mancinone

IRS Letter Re: Merchant Card Gross Receipts

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WARNING MA DOR Examining Schedule C Returns with Earned Income Credit

Less than two years ago, the Taxpayer Advocate’s office informed me that the Commonwealth of Massachusetts was going to begin examining returns that apply for the earned income credit (EIC). Interestingly, we were told that this is an IRS initiative.  However, with the lack of manpower with respect to this seemingly (on an individual basis) small issue, they defer to Massachusetts to conduct the examination.  As such, if a taxpayer loses the EIC at the Massachusetts level, the eventual loss of the EIC will be much greater at the Federal level.  In essence, the Commonwealth is doing audits of EIC tax returns for the indirect benefit of the Internal Revenue Service.

As an aside, we have one of the toughest Departments of Revenue in the country.  Hands down, and we have an earlier post with respect to CFO magazine’s view of the Commonwealth.  But conversely, we have probably the best Taxpayer Advocate in Dennis Buckley.  I tip my hat to Dennis, I consider him a friend, and he is the Commonwealth’s best advocate for fairness.

Now back to the EIC.  We have seen this a few times.  On one case, we responded to the information request, and never heard from the examiner again.  No closure, no letter, no answer to our request for an appeal if we couldn’t agree or anything of the sort.  Not bad work if you can get it, but I would prefer a case be closed with proper protocol.

But just days after e-filing a 2010 return for a client, they were notified of a Mass DOR audit.  This was a Schedule C taxpayer that also qualified for the EIC.  We immediately had the client keep their Federal refund in the bank, just in case.  We quite recently closed that case successfully, preserving 75% of the original EIC in the process (which means we preserved about the same percentage of the Federal EIC).  However, we just learned from Boston Tax Institute that they are now aware of a case for 2011.  That case was also a Schedule C taxpayer that qualified for the EIC.  We attempted to reach out to this local practitioner in order to share notes because there are traps for the unwary, but to no avail, tax season being what it is I guess…

It’s a simple audit, but with an interesting strategy.  The Commonwealth will intensely focus on Schedule C expenses, attempting to ascertain what can be deemed to be personal in nature, if anything.  The more expenses are disallowed, the EIC diminshes accordingly.   And in turn, that benefits the IRS as well.  Schedule C’s are the juiciest of the juicy for changes.

What we did learn, and it developed into a good defense strategy, was that the Commonwealth wasn’t giving adequate time to handle this type examination.  We were surprised, and contested this issue throughout the audit, as it was very difficult to comply with the document request in their timeframe.  Finally, after the third go around for more documents, we simply told the examiner to write up the case and we will go to the Appellate Division.  We wanted to raise our concern about the “rush” nature of this audit, in addition to the facts.

We learned in doing so that the case gets pulled out of the audit function, and is now at the Appeals level.  That effectively ended the “intrusive side” of the examination, and from that point forward, we dealt with Appeals and addressed whatever questions they had.  Using a mutually agreed to formula for the personal portion of two line items, we settled the case favorably.

So be aware.  It would appear that a Schedule C activity with an Earned Income Credit will be selected for examination by the Commonwealth of Massachusetts.  And don’t give up any of the EIC if you can, because Uncle Sam is waiting behind the door!

 

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IRS and DOJ Have Begun Making Identity Theft Arrests

Well, alright then!!   The Justice Department has targeted 105 people in 23 states, in a coast to coast initiative, involving the potential theft of “thousands of identities,” according to Accounting Today.

We have attached the IRS page outlining the arrests and indictments, all within the past week or so.  What is up with Montgomery, Alabama?  I can understand New York City, simply because of its sheer size.  But Alabama?

An interesting twist here, is that the Department of Justice, as part of this investigation, also conducts investigations of check cashing enterprises, in and around the target area.  It would appear then, that perhaps Identity Thieves are requesting paper refunds rather than electronic, and check cashing outlets are therefore a convenient way to cash the checks.  Bad stuff, and one can only imagine how widespread this is.

Well, my congratulations to the IRS, FBI, and Department of Justice on a job well done.  I have seen nothing in the mainstream media, and I hope this gets out there quick, so that future would be thieves know that the IRS is on this.

Identity Theft Busts, January 2012

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IRS Increases 1099 Expectations

That was the headline in this morning’s Accounting Today.  Story number one.

Well, okay.  Michael Cohn is a fantastic writer for Accounting Today, and I frequently forward his articles to clients, as they are in plain language, and they are good.

Given that the IRS is now specifically asking the following question on tax returns, “were you required to issue 1099’s, and if so, did you?” (or words to that effect), I was looking forward to getting some inside scoop from Mr. Cohn as to how much additional compliance the IRS was anticipating.  Given the new questions, of course the IRS is expecting more 1099’s to be issued.  Much more!!

But all Mr. Cohn wrote about were the statistics, he never touched on why the IRS is expecting more!  So I wrote him an email, this morning, advising him of the new question on all business entity tax returns.  Mr. Cohn, being the gentleman that he is, immediately responded to us, and not only took our comments under advisement, he immediately revised the article, being gracious enough to credit my office in the process by quoting me.  Very professional.

This approach regarding 1099 informational reporting is a long time coming, no doubt.  I appreciate the reasoning, and I am highly confident that not only will the IRS see more 1099 informational reporting, but the Treasury Department will see new dollars to boot.

However, I cannot refrain from communicating my increasing worries that we are heading down a slippery slope.  Knowing what taxpayers now know with the new tax return questions, they are now being forced to “report” or “tell” on other taxpayers.  Whistleblowing (grrrrr…) without the reward dollars.  As much as this is probably a good thing, I fear that this is the beginning of a “Killer Blow” to a voluntary tax system.  As citizens, we lost something.   And losing that “something” bothers me deeply. 

Naturally, I had no choice but to italicize, bold and underline the area referring to me.  First time in a National rag, so please indulge me!!

Accounting Today 1/30/12, IRS Increases 1099 Expectations

 

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IRS ISSUES NEW FORM 2848, POWER OF ATTORNEY

Effective with a Revised Date of October, 2011, the Internal Revenue Service has issued a new Power of Attorney, Form 2848, Power of Attorney and Declaration of Representative. 

Although a cursory glance won’t reveal too many changes, the “What’s New” section of the instructions seems to reveal a new designation for “registered tax preparers.”  While that certainly seems logical in light of the changes related to PTIN numbers and rules regarding paid preparers, there is something else…

There also appears to be room for only one Taxpayer name and Taxpayer social security number.  That is clearly a “new change” and warranted mention in that area of the instructions.  Thus, if a representative is representing a husband and a wife on a joint return, are two Forms 2848 now required?  I’m publicly posing this question.

I am representing a taxpayer in a current matter, and the revenue examiner called me to indicate that the new Power of Attorney “must” be filed.  It “must” be?

Frankly, the old form should suffice if in a pinch (for CPA’s and/or Attorneys anyways).  The very same instructions to the revised Form 2848 state the following.  “The IRS will accept a power of attorney other than Form 2848 provided the document satisfies the requirements for a power of attorney…  These alternative powers of attorney cannot, however, be recorded on the CAF unless a completed Form 2848 is attached…” 

Ok.  Well, frankly I don’t really care about CAF unless I am dealing with a collection matter or non-examination type of engagement.  In an examination I am dealing with one office and usually, one examiner, and he or she has my POA which has all the required information.  So while I completely disagree with the need to use the “revised” Form (the examiner’s “must” language), since I am a CPA and an Attorney (thus making the registered tax preparer designation irrelevant), I do respect this requirement and will use the form going forward.  Naturally, I recommend the same to all practitioners.  It’s futile and silly not to, actually.  CAF is a computerized system, and we all understand how things must neatly fit into little boxes at the IRS.  However, from a legal standpoint, I firmly believe that a revenue examiner cannot bypass a representative (read, CPA and/or Attorney) who uses the “old” Form 2848, and for whatever reason, cannot timely retrieve a “revised October, 2011” POA (taxpayer out of the country for extended period, for example).  The IRS would have what it needs for representation in that isolated case.

Here is the new, revised Form 2848, for the reader’s reference.

New IRS POA Form 2848

 

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MERRY CHRISTMAS!!!

Our office wishes everyone a Merry, Merry Christmas, and our hopes for a wonderful, healthy and prosperous New Year!!

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MA DOR: So-Called Tax Resolution Companies claim False Promises!

Well, that took long enough.  FINALLY, in an Alert dated December 15, 2011, issued by the Rulings and Regulations Department of the MA DOR, the Taxpayer Advocate’s office basically unleashed their thoughts with respect to National Tax Resolution Companies.

The text of the Alert, issued to email subscribers of the MA DOR, can be found below.

From: Rulings and Regulations

To: Paul L. Mancinone

Sent: Thu, Dec 15, 2011 5:42 pm

Subject: Tax Resolution Companies Harmful To Taxpayer Health

Taxpayer Advocate Alert:

So-called tax resolution companies continually market themselves as the solution to a taxpayer’s problems. Their pitch is simple: pay our company some money and our tax experts will lower and settle your tax liability.

These claims are false.  DOR has issued warnings about these claims. If something is too good to be true, it probably isn’t, and that is certainly true about what these companies promise. DOR publishes all Offers in Final Settlement in its annual report. None were reached with the help of a tax resolution company; all were negotiated directly between the taxpayer and DOR.

These companies take money that taxpayers would be better served spending on reducing their tax liabilities. They offer false hope.

But the Taxpayer Advocate has just heard of a new tack from a tax resolution company that sinks to a new low: The company has advised a client to deliberately break a payment agreement worked out with DOR.

Specifically, the company advised a client to deliberately bounce payment checks sent to DOR as a way to get a better payment plan.

This is bad strategy and advice. In the case of this particular taxpayer, a bank levy was issued and an account used to make payroll was frozen. After the taxpayer contacted DOR, the levy was reduced to allow for payroll to be met. The taxpayer got no benefit from the company, only more problems.

Despite the promise of television and radio commercial, these companies will take your money and deliver nothing but broken promises.

End.

First, YES that is a typo from the MA DOR.  “If something is too good to be true, it probably isn’t???”  I DON’T think that was the message there!  However, I included the email verbatim, so there you go!

As a practitioner, I am in total agreement with the MA DOR view with respect to Nationally advertised tax resolutions specialists.  What can be more unprofessional and disingenuous than making a claim that you can help someone without knowing the facts?  That is a reckless statement, at best.  These companies have long since been a stain on the profession, and although I have yet to see an IRS position on it, and can tell you that off the record the collection officers I have spoken to with the IRS are also “less than impressed.”

However, the MA DOR, in this alert does give the impression that Taxpayers can “go it alone” and work directly with them to resolve a tax issue.  I cannot disagree with the MA DOR any more, and I am astonished that the MA DOR would actually believe this.  Frankly, I don’t think this is really what was meant, but the Taxpayer Advocate did miss a great opportunity to promote locally based CPA’s and tax attorneys, who don’t make false claims and are dedicated professionals.  So after 20 plus years of practice, I will leave this post with the following:  Any person who deals directly with the MA DOR (or IRS) on an examination or collection matter, without professional representation, does so at their peril.  Period.

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Paul Mancinone, Guest on “In Focus” WWLP TV-22

Well, presuming one is so bored that the proverbial cliff is starting to look attractive, may we offer our performance on “In Focus”, a weekly news program produced by our NBC affiliate, WWLP TV22. I was invited to be their guest to discuss a variety of tax topics that may be affecting the general public.

http://www.wwlp.com/dpp/news/local/infocus/infocus-tips-for-filing-tax-returns

Hope you enjoy, and please share your comments!!

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