Tuesday, May 27, 2014
As Washington DC legislators in the U.S. Congress consider the provisions of what would become part of the EXPIRE Act of 2014, they are mulling over the institution of a twice failed program to collect past due tax debts – the use of private debt collection agencies. In each of the last two decades the attempts to use private debt collectors to chase tax liabilities have defied projections and lost more money than was collected. Recently, the National Taxpayer Advocate has written a letter to the senate (found here) to reiterate that problem and to outline the numerous other concerns with any such program. These are:
- The private debt collection initiative is premised on the mistaken belief that the IRS does not collect taxes on cases that are inactive or awaiting assignment.
- The private debt collection program will require the IRS to incur significant start-up costs, jeopardizing taxpayer service and other IRS operations that are already suffering from budget cuts.
- The government’s objective of maximizing long-term compliance without causing financial hardship for taxpayers is fundamentally different from the profit-maximizing objective of a private collection agency.
- The provision appears to target low income taxpayers.
- Providing taxpayer identifying information to private companies creates risks that taxpayer data will be misused.
- Strict penalties on IRS collection employees who are abusive to taxpayers do not apply to private collection agency employees who are abusive to taxpayers.
- IRS employees are openly instructed to be straightforward in dealing with taxpayers, while employees of private collection agencies confidentially instruct their employees to use “psychological” techniques to pressure taxpayers to agree to payments.
- Use of “psychological” tactics often results in financially struggling taxpayers feeling pressured into making commitments they ultimately cannot keep.
- The proposal would require IRS to send taxpayer cases to private collection agencies where the sole or primary reason for the liability is the Patient Protection and Affordable Care Act (ACA) (either the penalty for not getting coverage or owning back an advance premium credit), which, in turn, could make it more difficult for the IRS to administer the ACA.
- The private debt collection program will raise little revenue and is more likely to be another revenue loser.
- The proposal would require the IRS to continue the program even if it loses money and does not give the IRS sufficient discretion to make modifications.
- The National Taxpayer Advocate is uncertain about what the proposal is intended to accomplish.
It is my hope that this potential program does not make its way into any form of final legislation. A program that has previously proven to cost more than it makes is simply a bad idea. Moreover, the Taxpayer Advocate outlines the clear problems that are likely to arise. The targeted low income taxpayers are less likely to know what their legal options are in contesting asserted liabilities. Those that do may not be able to afford to hire adequate representation to assist them. Given the significant budget cuts faced by the IRS, agents are already unable to spend enough time on a file to make sure all rights are protected. An unrepresented low income taxpayer will be at a greater disadvantage because they may not even know that these rights exist.
To read the full text of the Taxpayer Advocate’s letter objecting to the use of Private Debt Collectors, click here.
Wednesday, January 22, 2014
Not long ago, I came across this online gem that has been floating around for while. The spoof of the most well known scene of the movie "A Few Good Men" questions the whether lap dances at a strip club can be reimbursed as a business expense.
The video is entertaining, but a more substantive discussion on the issue can be found at Bloomberg.com. The article correctly identifies the questions as whether a lap dance is an ordinary and necessary business expense under Internal Revenue Code section 162 and whether the expenses can be adequately substantiated. The article generally concludes that a claimed lap dance deduction will not likely hold up on audit. However, it is a fact based inquiry that will depend on the circumstances.
Link to the video: http://youtu.be/xJ_roB9j_B4
Tuesday, January 21, 2014
President Obama has signed the Omnibus Spending Bill which will fund the U.S. Government through fiscal year 2014. This bill gives the IRS $11.3 billion to fund its operations. This is a reduction in IRS funding levels by $526 million compared to the previous year. While the reduction is small in comparison to the total funds allocated to the IRS (only 4.4 percent decrease), it is still a substantial decrease in the funding levels.
What does this mean? The IRS will be forced to do more with less. In addition to undertaking additional responsibilities under the Affordable Care Act, the IRS has been committing substantial resources to combating identity theft. Of course, they will still be involved in tax audits, collections and enforcement of the tax laws.
Responsibilities are growing, but the budget has been cut, so where will the sacrifices be made?
Hiring will likely be at a minimum and some employees may be reassigned to cover the growing responsibilities of the agency. As a result, the problem will likely be seen heavily in IRS "customer service." If the IRS cannot absorb the reduced funding through increased efficiency, it will mean that IRS auditors, collection agents and other representatives will not be able spend enough time to adequately work a case. Trying to do so would result in an increasing backlog such that tax cases could draw to a virtual standstill. Therefore, IRS employees will be forced to spend less time on cases than before. Don't misunderstand however, this is not a good thing. It may become more difficult to thoroughly get to the bottom of complicated legal or factual issues.
Someone dealing with an IRS problem will have to watch their case to make sure that it is getting the attention it requires. In doing so, make sure to comply with deadlines set by the IRS agents and follow up regularly to ensure that your case is not being sidelined in favor of a squeakier wheel. You won't be able to overcome all delays, but letting the IRS know that you are paying attention to your case will help ensure that they pay attention to it as well. If you run into obstacles, the Taxpayer Advocate Service may be helpful as well. Of course, they are also facing the budget cuts and will have delays of their own.
Tuesday, October 22, 2013
Restarting the government after a two and one half week shutdown is like waking up on a weekend after you found the time to sleep in. It doesn't happen quickly. The websites of each the IRS and Tax Court have each posted notices about what to expect from them as they wake up and the wheels start turning again.
The IRS has issued news releases concerning the resumption of operations following the shutdown. They can be found here and here. The IRS is substantially backlogged. They continued to receive returns, correspondence and information from people during the shutdown, but there was nobody to look at any of it. As a result, they are telling taxpayers to expect substantial delays and to wait to call the IRS “if their issue is not urgent.”
The tricky part is that there is no clear explanation of what is urgent. The IRS likely takes the position that questions concerning your refund are not urgent, but, those concerning liabilities… probably should be treated as urgent. As the IRS resumes operations, they will resume issuing liens and levies. Those that owe tax and wish to avoid liens or levies, should get in touch with the IRS regardless of how long they might have to wait to get through to someone. It may take a while to get a response, but being proactive is better than having to deal with an empty bank account because you and the IRS disagreed about whether the case was urgent.
Those individuals and businesses dealing with a specific IRS agent might expect to receive a phone call to discuss the timing of any future action. In the meantime, any previous deadlines set by the IRS should be respected unless otherwise discussed with the agent.
The United States Tax Court has posted detailed guidance on its website. Those with trials that were scheduled during the shutdown will hear from the Court about rescheduling. Those trials that were to start this week and later will begin as scheduled unless there was an inability to discuss the cases with the IRS. In such cases, the Court should be advised and it will consider how best to proceed. The notice also identifies the deadlines for taking certain actions that were/are impacted by the shutdown.
The Tax Court notice advises, however, that any statutory filing deadlines provided in the Internal Revenue Code are not impacted by the shutdown. That is, if you have a fixed 90 day deadline in which to file a case with the Tax Court, the 90 days still stands. If that 90 days would have expired during the shutdown, the postmark date of any filed Petitions will govern whether the time period was satisfied. If a Petition to the Tax Court is outside of the 90 days, it will likely mean that the case will be dismissed as filed late.