IRS Begins Implementing the FAST Act: What Will Your Client’s Transcript Show?

by Patti Logan, EA (Speaker at the Tax Alliance Conference)

IRS has begun identifying individuals with seriously delinquent debts so that their passports may be revoked.  What will your client’s tax  transcript show? 

“Intial levy imposed.” Have you seen it on any of your clients’ IRS account transcripts? I have. It suddenly appeared on 1040 transcripts for clients where we are working out a currently uncollectible (CNC) hardship closure or where they have already been reported CNC. I’ve spoken to an assistor who didn’t know what it was. I’ve spoken to Stakeholder Liaison but they didn’t know. A friend called the Practitioner Priority Service who said it was a “glitch.”  I was concerned about this annotation on the transcript because IRS is not allowed to levy if it would cause a hardship so they should not levy if they have already determined that it would be a hardship for the taxpayer to pay.   Since I had tried every other place I knew, I submitted the issue to Systemic Advocacy and guess what?  I got an answer within just a few days.

In 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST).  Section 32101 of the FAST Act added IRC 7345 which charged IRS with the requirement to report individuals owing a “serious delinquent tax debt” to the State Department so that passports may be rejected or applications denied.  A “seriously delinquent tax debt” is one which is assessed, greater than $50,000 and sometime in the past either a levy has been served or a lien filed.  There are three exceptions: 1) Those individual taxpayers who owe more than $50,000 but have worked out a payment arrangement either through an installment agreement or an accepted offer in compromise; 2) When the collection of the debt is suspended because the individual has claimed innocent spouse  relief;  3) When collection is suspended because the individual has requested a Collection Due Process hearing due to a proposed levy or while the request is pending. The State Department will then revoke a passport or may deny a new application.

So what is this “Initial levy imposed” that we are finding on some of our clients’ account transcripts?   It is a first step in identifying which accounts meet the criteria of IRC 7345 for passport revocation, denial or limitation. As mentioned above, there are four criteria for individuals to be reported to the Secretary of State: 1) Tax must be assessed 2) taxpayer must owe over $50,000 3) a levy has been served in the past or 4) a lien was filed on the account. So, IRS came up with a new code transaction code 971 with action code 640 which shows up on the transcript with “initial levy imposed”. This just indicates an account that has had a levy served in the past. It is being put on all individual accounts where a levy has been served no matter if the taxpayer owes $50,000 or not. The other criteria must still be met. It is not telling the taxpayer that they have been reported to the Secretary of State but it is a first step. IRS should notify the taxpayer when their account is sent to the State Department. The only action available to fight this is to take it to court.

If you want to hear more about reading the codes on the IRS transcripts, join me at The Tax Alliance Conference June 6, 7 and 8, 2017.  For more information go to www.taxalliance.org.

 

 

Why Tax Preparers Should Have Tax Representation Skills

Image result for images of tax representationThe tax profession is a rather wide profession.  One can provide a variety of tax services to their clients as well as specialize in specific industries and other areas of tax law.  In fact, a common division amount tax professionals is choosing between providing either tax preparation services or tax representation services.   However, from experience, having a good foundation in tax representation only strengthens ones tax preparation.

Of course, many tax preparers are likely asking “How does tax representation knowledge help me prepare tax returns?”  Well, consider this.  A self-employed client provides you their tax documents, such as a profit and loss statement showing revenue and expenses, assets purchased for the business, property taxes, mortgage interest, and various other documents.   You prepare the return, review it with the client, and file it.  A year or so later, the client calls and says they have a letter from the IRS, the infamous CP2000, saying they owe more taxes.

If you’re a tax preparer who doesn’t provide representation skills, you might be quick to refer them to someone else.  But let’s just say you’re not that type of tax preparer.  So you ask to see the letter and you find out that the IRS is basing the additional tax assessment on a 1099K from Groupon.  So you tell your client to provide you with the monthly Groupon statements.  You total them up and realize Groupon was charging the client about 1/3 of the collected revenue as a fee, the notorious “marketing fee”, and depositing the net amount into the client’s bank account.  However, Groupon reported the gross revenue amount on the 1099K and of course, the client never expensed the 1/3 taken by Groupon taken as an expense.  After you prepare an amended return, you see the client doesn’t owe anything.  You then write and send a response on behalf of the client and the issue is resolved.

So how does this experience help a tax preparer?  Well, first it maintains credibility with the client.  If the client had been referred to someone else, it could have been viewed as the preparers fault and she may have lost a client.  Additionally, it demonstrates the tax professional’s skills, such as analyzing the IRS proposed assessment, proposing a solution, and working it to resolution with the IRS.  Finally, based on the experience, a professional tax preparer would learn and develop some additional due diligence steps moving forward, such as:

  • Ask clients if they accept credit card or other forms of payment where 1099Ks are issued and request all 1099Ks;
  • Reconcile all 1099Ks received by a client to total revenue reported by the client to make sure all reported income is on the return;
  • If the tax preparer sees a Groupon 1099K, she would likely ask for Groupon statements to compute the “marketing fee” for Groupon.

Of course, this is just one example.  Additional representation skills can help you better prepare those returns with incorrect 1099 MISC and other types of third party forms, assist clients who owe taxes but are not able to pay, and various other common taxpayer issues that arise during tax season.  When you have done this often enough, your clients will actually listen when you tell them to ignore various IRS press releases, such as “You don’t need your Form 1095 to file your 2015 tax return.”  We know you have  more than your share of clients who got IRS notices for that misinformation.

For more of tax tips and ideas, REGISTER NOW to attend the Tax Alliance Conference in Plano, TX June 6-8, 2017.

Private Debt Collectors – Congress Tells IRS: Try, Try and Try AGAIN!

Are you ready to deal with the private debt collectors, again?  Yes, Congress has instructed IRS to contract with them again.

We have all heard the definition of insanity is doing something over and over again and expecting a different result.  Well, looks like Congress has decided to test that theory.  Once again, they have mandated that IRS use private debt collectors to attempt collection of “inactive tax receivables.”

These “inactive tax receivables” are defined as receivables that IRS has removed from active inventory because of lack of resources or inability to locate the taxpayer, more than 1/3 of the statutory period of collection has lapsed and the receivable has not been assigned to any employee of the IRS or a receivable that has been assigned to collection but more than 365 days have passed without interaction with the taxpayer or a third party in an effort to collect the tax.

However, the law went on to note which receivables will NOT be assigned to a private collection firm:

1)  If an offer in compromise is pending or active.

2)  If an installment agreement is pending or active.

3)  If the case has been classified as an innocent spouse case

4)  If the taxpayer is deceased, under aged 18, in a designated combat zone or a victim of tax-related identity theft.

5)  If the case is currently under examination, litigation, criminal investigation, or levy or,

6)  The case is currently subject to a proper exercise of a right to appeal.

According to IR-2016-125 dated September 26, 2016, IRS has contracted with four collectors to handle these accounts:  CBE Group, Conserve, Performant, and Pioneer.  The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency.  Then the private collection agency will send a second, separate letter to the taxpayer and their representative confirming this transfer.

When reading about the Congressional mandate to use private debt collectors, one is immediately reminded of the phone scams where taxpayers who may not even owe taxes are contacted and threatened with law suits and even jail if they do not immediately pay the amount the scammers claim as taxes owed.  Congress has set some parameters that they hope will set the private collectors apart from the scammer.  Along with sending the two letters to the taxpayer and their representatives notifying them that the account has been transferred, the private debt collectors also are not allowed to ask for payment on a prepaid debit card. Hoping to reassure the taxpayers that their money is going to towards their delinquent taxes, the taxpayers contacted by the collectors will be notified of their ability to pay their taxes on irs.gov/payments and payment by check will be made payable to the U. S. Treasury and sent directly to the IRS not to the private collection agency.

It behooves anyone representing taxpayers before the IRS or preparing tax returns to stay up to date on the progress of the private debt collectors.   For more information, IRS has set up a webpage at  https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection.

For more of tax tips and ideas and to hear directly from the IRS, come to the Tax Alliance Conference in Plano, TX, June 6-8 of 2017.

Tax Professionals Beware!

The 2017 tax filing season is here!

Thieves have already geared up to file millions of fraudulent tax returns before the real taxpayer.  In a previous IRS CID presentation, the IRS indicated that thieves filed as many as 17 million tax returns on the first day of the filing season.  As the IRS, states, and tax industry continue the fight to combat identity theft by putting mechanisms in place to halt the processing of tax returns and freeze refunds due to potential identity theft, thieves will naturally seek other ways to steal taxpayer information and file fraudulent returns to get them through the system as legitimate returns.

IRS is warning tax professionals to secure their systems and protect their client data.  Through the Protect Your Clients; Protect Yourself campaign launched in September 2016 via the Security Summit partnership between IRS, states, and tax industry, the IRS has issued a series of tax tips geared toward educating and assisting tax professionals in protecting themselves and protecting their client’s data.

So you are not caught by surprise, let’s recap some of the email scams against tax professionals that you should be on the lookout for:

IR-2017-03, January 11, 2017 –  New Two Stage Email Scheme – In this scam tax professionals receives one email that asks the tax professional a question such as, “I need a preparer to file my taxes”; if the tax professional responds a second email is received with a PDF attachment or embedded web address where tax professional think they are downloading a potential client’s tax info but in reality thieves are collecting preparer’s email address and password and other information.

IR-2016-145, Nov. 4, 2016 – New e-Services Scam – The subject line for the fraudulent email is “Security Awareness for Tax Professionals.” The “From” line is “Your e-Services Team.” It has both an IRS logo and an e-services logo that hyperlinks to a URL verified as a phishing site. Thieves attempt to steal e-Services username and passwords.

Special Edition Tax Tip – September 23, 2016Fake Tax Bill Scam – Scammers emailing fake tax bills in the form of CP2000 notice related to the Affordable Care Act (ACA) requesting information regarding 2014 coverage and requesting checks be made out to I.R.S. and sent to “Austin Processing Center”. Please be aware that IRS requests checks be made out to Department of Treasury instead of I.R.S. and also there is no such IRS center called the “Austin Processing Center”.

IR-2016-119, September 2, 2016Thieves are able to access tax professional’s computers and use remote technology to take control, accessing client data and completing and e-filing returns but directing refunds to criminals’ own accounts.

IR-2016-103, August 11, 2016Email scheme mimicking tax software providers attempting to trick recipients into clicking on a bogus link appearing to be an update to their software package but really downloading a program to track the tax professional’s keystrokes to eventually steal information.

The following tips are suggested to protect yourself and your client from a data breach:

  1. Make sure your virus software is up to date and run a security scan to search for viruses and malware.
  2. Use encryption software to safeguards your client’s sensitive financial data such as tax returns or other tax information stored on your hard drive.
  3. Protect your wireless network with a strong password.
  4. Never use public Wi-Fi to share sensitive data. (Note: If Wi-Fi does not require password, it’s probably not secure.)
  5. Use strong passwords (minimum of 8 characters including lower and upper case letter, number, and special character) for both computer access and access to your tax software.
  6. Do not click or open any attachments from unknown senders.
  7. Create internal policies and educate staff members about the dangers of phishing scams in the form of emails, texts, and phone calls.
  8. Review any software your employees use to remotely access your network and/or your IT support vendor uses to remotely trouble shoot technical problems and support systems.
  9. Monitor your PTIN for any suspicious activity.  (Click here for IRS Instructions)
  10. Back up data periodically via your protected cloud storage or separate disk.

If you suffer a data breach or other security incident, see IRS Protect Your Clients; Protect Yourself Tax Tip Number 7, January 18, 2016 to determine next steps.

For more of tax tips and ideas and to hear directly from the IRS, come to the Tax Alliance Conference in Plano, TX, June 6-8 of 2017.

Responding to Mathematical and Clerical Errors

Image result for images of irs noticeAccording to the 2015 IRS Data Book, over 2.1 million math error notices were mailed to individual taxpayers in 2015 concerning tax returns filed for tax year 2014.     Math errors include a variety of conditions such as computational errors, incorrectly transcribed values, and omitted entries identified during the processing of tax returns.

For those of us who have been around long enough, you know that there are various types of Internal Revenue Service (IRS) letters to taxpayers detailing proposed adjustments to a tax return.  In most situations, taxpayers’ have pre-assessment rights under deficiency procedures, such as issuance of a Notice of Deficiency prior to assessment and collection, petitioning the Tax Court, among others.

Image result for images of tax errors

However, under IRC 6213(b)(1), the Internal Revenue Service can assess taxes against taxpayers that are “mathematical or clerical errors”.  Such assessments allow the Internal Revenue Service to assess the tax and move to collection efforts without any pre-assessment rights of the taxpayer.

Why is this an issue?  Well, many proposed assessments by the Internal Revenue Service are significantly incorrect.  In addition, the IRS’ currently struggles opening taxpayer responses, training employees on basic tax law, and at times not supervising employee responses.  Have you gotten the response that clearly shows they didn’t read what you sent?  Not sure how that gets out under a manager review.

Of course, from the tax professional’s perspective, the client may view such proposed adjustments as your mistake causing ill-will with your clients.  So it is worthwhile for us to know how to handle various IRS proposed adjustments to clients’ tax returns.

Tips on Responding to Mathematical or Clerical Adjustments

  1. Under IRC 6213(b)(2), the taxpayer may request abatement of the proposed adjustment due to mathematical or clerical error if done within 60 days of receiving the notice;
  2. In notices proposing adjustments, insert at the top of your response, the following, which requires the Internal Revenue Service to abate the adjustment and follow deficiency procedures for any subsequent assessment:

    “With regards to the issue identified in your letter, under IRC 6213(b)(2), we are requesting that this assessment be abated and that this request is being made within the 60 day period noted under IRC 6213(b)(2).”

  3. Key benefits to requesting abatement:
    • It stops the IRS from moving directly to collection.
    • It preserves your client’s pre-assessment rights, such as appeals and Tax Court.
    • Due to the potential for review of the assessment, the IRS employee is more likely to review the taxpayer’s alternative position on the adjustment.
    • When the response is ignored, the taxpayer has grounds for the Taxpayer Advocate to get involved as under IRM 13.1.7.2.

For more of tax tips and ideas, come to the Tax Alliance Conference in Plano, TX, June 6-8 of 2017.


 

IRS Taxpayer Assistance Centers are Now Taking Appointments

Image result for images of making an appointmentIRS Taxpayer Assistance Centers (TACs) are your source for free personal tax help when you believe your client’s tax issue cannot be handled online or by phone.

As the IRS continues to evolve to meet the growing trends in customer service, all of the TACs will offer appointment service by the end of 2016.

Here is how it works. Instead of going directly to your local TAC with a tax issue, you will now call a special toll free number (1-844-545-5640) to reach an IRS representative. According to the IRS, representatives are trained to either help you resolve your issue or can schedule an appointment for you to get the help you need. You may be able to resolve your tax issue by calling, getting guidance and eliminating the need to even travel to a TAC, which is sometimes a pretty significant trip.

You should always check IRS.gov for days and hours of service as well as services offered at the IRS TAC location you plan to visit.

As a reminder, IRS.gov offers numerous online options for assistance that can save time and effort. Services include:

Interactive Tax Assistant

Where’s My Refund?, check refund status and estimated delivery date

Get Transcript, assist your client with ordering their  a tax transcript online and have it mailed

Direct Pay, assist your clients with making tax payments or estimated tax payments directly debited from a checking or savings account

Electronic Federal Tax Payment System, individuals or businesses can make all types of federal tax payments

Online Payment Agreement, your eligible clients can set up installment payments for taxes owes

Where’s My Amended Return?, track the status of your client’s amended return

Tax Law Questions, provides direct links to helpful resources to answer many tax questions

Forms and Publications, find and download current tax forms, instructions and publications

For additional information on available services, check out Publication 5136, the IRS Services Guide.

For more tax tips and ideas, come to the Tax Alliance Conference in Plano, TX, June 6-8, 2017.

IRS Warns Tax Professionals of New e-Services Email Scam

Image result for images tax scamsOn Friday, November 4, 2016, the IRS issued a warning to tax professionals who use e-Service alerting them to be aware of fake emails received from scammers asking them to update their e-Services account.

This scam comes in  wake of a previous IRS news release requiring e-services users to re-register and validate their identities through Secure Access authentication which the IRS has since delayed.

To learn more about this scam and what to do should you receive a fake email, see the IRS news release below.

Source: IRS Warns Tax Professionals of New e-Services Email Scam

For more of tax tips and ideas, come to the Tax Alliance Conference in Plano, TX June 6-8 of 2017.

 

Remember, The Taxpayer Advocate Is A Source For You and Your Clients

national-taxpayer-advocate-fbar-ovdp-300x186For those tax professionals who provide tax representation services, you will eventually have cases that seem too small to help.  Maybe their issue is not complex enough, the amount of taxes involved are rather small….usually to justify your fee.  As ethical professionals, we always evaluate the cost and benefits our clients incur working with us.

Worse is that case that you thought was a “no-brainer” issue to resolve, but the IRS bureaucracy bogs it down.  Simple issues like they just need to actually read your response, the IRS lost the supporting documents you sent in, or the IRS employee is not responding to your requests.  When possible, these issues should be directed to the supervisor of any directly assigned IRS employee on your client’s case.  However, these are more common when dealing with correspondence exams, CP2000 type issues, or ACS Collections, where a specific person may not be assigned or easily reached.

So what is a tax professional to do?  Let the IRS run up client fees with needless delays?  Not charge the client for the time related to managing IRS delays?

Well, there is a better answer.  The Taxpayer Advocate can usually resolve these delays.  You can request help from the Taxpayer Advocate by filing a Form 911.

Tip #1: When completing the form,  detail how your client’s case meets the Taxpayer Advocate’s criteria for cases they will accept.  The Taxpayer Advocate case criteria is detailed in the Internal Revenue Manual Section 13.1.7.2.  It provides for 9 criteria, any one of which a taxpayer’s case can meet for it to be accepted.  Each of the 9 criteria are grouped into 4 basic areas, which are:

  1. Economic Burden. Economic burden cases are those involving a financial difficulty to the taxpayer: an IRS action or inaction has caused or will cause negative financial consequences or have a long-term adverse impact on the taxpayer.
    • Criteria 1: The taxpayer is experiencing economic harm or is about to suffer economic harm.
    • Criteria 2: The taxpayer is facing an immediate threat of adverse action.
    • Criteria 3: The taxpayer will incur significant costs if relief is not granted (including fees for professional representation).
    • Criteria 4: The taxpayer will suffer irreparable injury or long-term adverse impact if relief is not granted.
  2. Systemic Burden. Systemic burden cases are those in which an IRS process, system, or procedure has failed to operate as intended, and as a result the IRS has failed to timely respond to or resolve a taxpayer issue.
    • Criteria 5: The taxpayer has experienced a delay of more than 30 days to resolve a tax account problem.
    • Criteria 6: The taxpayer has not received a response or resolution to the problem or inquiry by the date promised.
    • Criteria 7: A system or procedure has either failed to operate as intended, or failed to resolve the taxpayer’s problem or dispute within the IRS.
  3. Best Interest of the Taxpayer. TAS acceptance of these cases will help ensure that taxpayers receive fair and equitable treatment and that their rights as taxpayers are protected.
    • Criteria 8: The manner in which the tax laws are being administered raises considerations of equity, or has impaired or will impair the taxpayer’s rights.
  4. Public Policy. Acceptance of cases into TAS under this category will be determined by the National Taxpayer Advocate and will generally be based on a unique set of circumstances warranting assistance to certain taxpayers.
    • Criteria 9. The National Taxpayer Advocate determines compelling public policy warrants assistance to an individual or group of taxpayers. It is not difficult to meet one or more of these criteria, but

While the 9 criteria give a variety of ways a case can qualify, realize that those under economic burden and systemic burden tend to be more likely to get TAS to provide assistance.  Just look at some of the qualifying criteria for systemic burden…delays of 30 days to resolve a tax matter or not getting a response by the date promised.  Heck…30 day delays are hardly uncommon.

Under economic burden, one criteria is that the taxpayer will incur significant cost if relief is not granted.  Having a tax professional unnecessarily following up with the IRS due to delays or file an appeal for a rather straight forward CP2000 issue would likely require unnecessary costs to the taxpayer.

Tip #2:  Present the issue to the Taxpayer Advocate to resolve the case. Remember these are typically easy resolutions and not complex cases.  So making this case easy to resolve will improve your chances of success.  So providing all supporting documents, organized and cross reference where appropriate, and with a straightforward explanation are critical.

So now you have gotten your case accepted by the Taxpayer Advocate.  You have also provided strong and clear documentation as to how this case is to be resolved.  What next?  You will probably have to follow up with the Taxpayer Advocate as well, but usually they respond and provide updates or request additional information if needed.  For the small, straightforward cases that get bogged down in IRS bureaucracy, resolution usually doesn’t take long.

So hopefully you now have an option on how to resolve those small cases that seem to just not go away.

For more of tax tips and ideas, come to the Tax Alliance Conference in Plano, TX June 6-8 of 2017.

What Aetna’s Withdrawal Means for Obamacare – The New Yorker

Since we as tax practitioners are faced with exceedingly tricky and complex issues regarding The Affordable Care Act, the following article is found to be a most thought-provoking and honest observation of Obamacare.  With 8.3 million fewer people enrolled through the exchanges this year than projected and with some insurers pulling out of most of them, but with twenty million more people covered by health insurance because of it, the article addresses current and future challenges for Obamacare.

Source: What Aetna’s Withdrawal Means for Obamacare – The New Yorker

Visit the Tax Alliance Conference for GREAT CPE an an affordable price!

How to Communicate with the IRS

As tax professionals, we often have to contact the IRS regarding a client’s tax issue. For many of us, it would seem second nature to pick up the phone and the IRS employee assigned to the case or at least the hotline. Unfortunately, verbal conversations by themselves can put your client at a disadvantage. Take this dialogue for example:

Revenue Officer: Hello, this is Revenue Officer Al Levy.

Tax Professional: Yes, Mr. Levy. I am contacting you regarding your request for financial information from my client Robin Banks.

Revenue Officer: Yes.

Tax Professional: You’re setting a deadline of August 19th. However, we can’t meet that date. We will try for August 31st, but more likely it will be closer to September 15th. My client may have to have surgery and that may interrupt his ability to collect that information.

Revenue Officer: Well I need to close this case as soon as possible.

Tax Professional: I understand your expectations, but we need some flexibility on this time line.

Revenue Officer: Well, I’ll do what I can.

In a subsequent conversation with the Revenue Officer, he claims your client has been dragging the matter out because you missed the August 31st deadline you committed to. His notes in the system document that you called and committed to August 31st to provide Form 433 information. You are now in a he said she said situation and the IRS typically wins those.

So what is your alternative? Here are some tips:

  • When possible, fax a response to the IRS. And don’t just use any fax. Use the electronic or internet based faxes. When you fax from an e-fax, not only does it have confirmation that it was received, but the entire fax is saved. So it shows what documents were included in the fax.
  • If you mail documents to the IRS, send it certified return receipt. Also, paginate all pages of the set of documents, such as 1 of 10, 2 of 10, etc. Finally, put the USPS tracking number on each page of the documents. My experience is that when this is done, few documents ever get lost.
  • If a phone call to the IRS is needed, follow up with an e-fax documenting what was discussed and other details. This will typically get included in the administrative file.

By following these tips, you better protect your client from frivolous claims that documents were never received, lack of follow up by the client or their representative, or other misrepresented claims. And if such claims are made, you have the documentation to counter the claim.

For more of tax tips and ideas, come to the Tax Alliance Conference in Plano, TX, June 6-8, 2017.