TallyTaxMan : Tallahassee Income Tax Service

Revenue consequences of IRS underfunding

admin — Thu, 17 May 2012 11:30:51 +0000

The report says inadequate funding for the IRS contributes to many of these problems and means the IRS cannot adequately pursue unpaid tax liabilities. The report points out that the IRS functions as the “accounts receivable” department of the federal government, as it collects more than 90% of all federal revenue and therefore provides the funds that make almost all other federal spending possible. On a budget of $12.1 billion, the IRS collected $2.42 trillion in FY 2011.

In other words, for every $1 that Congress appropriated for the IRS, the IRS collected
about $200 in return. However, current federal budgeting rules do not take into account
that a dollar appropriated for the IRS typically generates substantially more than a dollar
in additional tax collections, leaving the agency substantially underfunded to do its job
and limiting its ability to close the tax gap and thereby help reduce the federal budget
deficit.

The report points out that the size of the tax gap raises important equity concerns, because
compliant taxpayers end up carrying a disproportionate share of the tax burden.
For 2001, the most recent year for which a complete tax gap estimate existed when the
report was written, the IRS estimated it was unable to collect $290 billion in taxes. Since
there were then 108 million households in the United States, the average household paid
a “noncompliance surtax” of almost $2,700 to enable the federal government to raise the
same revenue it would have collected if all taxpayers had reported their income and paid
their taxes in full. “That is not a burden we should expect our nation’s taxpayers to bear
lightly,” the report says.

Since this report was released, the IRS released updated tax gap estimates.
For 2006, the IRS estimated it was unable to collect $385 billion in taxes
when there were 114 million households, producing an updated “noncompliance
surtax” of nearly $3,400 per household.

Taxpayer service concerns: delays and non-responses to taxpayer inquiries

admin — Tue, 15 May 2012 11:30:59 +0000

Two key indicators of taxpayer service are the IRS’ ability to answer taxpayer telephone calls
and the IRS’ ability to respond to taxpayer correspondence. From FY 2004 to FY 2011, the
percentage of calls that the IRS answered from taxpayers seeking to speak with a telephone
assistor dropped from 87% to 70%.

Over the same period, the IRS’ ability to timely process taxpayer correspondence also
declined. Comparing the final week of FY 2004 with the final week of FY 2011, the backlog
of correspondence in the tax adjustments inventory jumped by 158% (from 357,151 to
920,768), and the percentage of correspondence in this inventory classified as “over-age”
(i.e., 45 days or older, with issues that have not been resolved) increased by 309% (from
11.5% to 47.0% of correspondence).

“The decline in these key measures is deeply disturbing,” the report says. “Telephone
calls and correspondence are the two main ways taxpayers communicate with the IRS.
Few government agencies or businesses would be satisfied if their customer service departments were unable to answer three out of every ten calls, nor would they be content
when nearly half of all correspondence takes more than 6½ weeks to answer.”

Substantial IRS delays to receive large tax refunds

admin — Thu, 10 May 2012 11:30:24 +0000

Among taxpayers who sought assistance from TAS after their refunds were withheld on a suspicion of fraud, 75% received relief. These taxpayers had to wait an average of nearly six months overall to receive their refunds. The average refund amount was $5,600, a significant sum for most households. Thus, these delays can create significant financial hardships.

“In light of the IRS’ indiscriminate use of automation to avoid personal contact with taxpayers
and the sheer volume of work to be accomplished,” Olson wrote, “the IRS is increasingly
in danger of judging taxpayers as noncompliant when in fact they are not.”

The IRS determines some taxpayers have committed fraud

admin — Tue, 08 May 2012 11:30:09 +0000

The IRS determines some taxpayers have committed fraud without notifying them
and giving them an opportunity to respond. Under a program designed to detect returns
relating to a scheme known as “Operation Mass Mail,” the IRS declined to process
about 900,000 returns in 2011. In most situations where the IRS identifies questionable
claims, it sends notices to the affected taxpayers to give them an opportunity to contest
the IRS’ position. In these cases, however, the IRS simply “auto-voided” the returns, providing
the individuals who had submitted them with no notice of the IRS action. Yet in tens of thousands of these cases, the IRS later marked the accounts with a code that indicates it had erred and the return had been submitted by a legitimate taxpayer. The report expresses concern that this “auto-void” procedure violates fundamental notions of due process, as individuals whom the government suspects of fraud—a serious charge—normally are given notice and an opportunity to respond before the government takes adverse action.

Some “math errors” may be corrected using IRS data

admin — Thu, 03 May 2012 11:30:43 +0000

Some “math errors” may be corrected using IRS data. In 2010, the IRS issued notices
correcting 10.6 million “math errors,” up from four million in 2005. These notices are tax
assessments that presumably result from mathematical or clerical errors. Unless a taxpayer
disputes the IRS assessment within a limited timeframe, it may not be appealed
to the Tax Court. The report notes that math error authority is increasingly used where
there is disagreement over a facts-and-circumstances issue. The report says that math
error notices are often vague and do not state the perceived error with specificity, making
it difficult, if not impossible, for affected taxpayers to determine what has changed on
their returns and whether to accept or contest the adjustments. Taxpayers whose returns
are correct sometimes do not respond because they do not know what is being asked of
them.

IRS math error notices also are sometimes inaccurate. When the IRS used math
error authority in 2010 to disallow exemptions for dependent children on about 300,000
returns, it ultimately had to reverse about 55% of the adjustments. Of the 184,000 corrected
math errors, a Taxpayer Advocate Service (TAS) sample showed the IRS had internal
data to immediately resolve 56% of these reversals, and thus could have avoided denying
eligible taxpayers their dependency exemptions and related tax credits and refunds.

IRS Non-audits and automated examinations

admin — Tue, 01 May 2012 11:30:59 +0000

In 2010 alone, the IRS made about 15 million contacts with individual taxpayers to adjust their tax liabilities, but it treated only about 10% (1.6 million) as audits. Thus, in the majority of cases, the IRS’ actions did not give rise to traditional audit protections, including the right to avoid repetitive and unnecessary examinations and the right to seek review of the IRS’ determination in the U.S. Tax Court before tax is assessed. Even where the IRS designated reviews of individual taxpayer returns as “audits,” it conducted about 78% of them by correspondence in a highly automated campus setting where no single IRS employee was responsible for the audit, making it more difficult for the taxpayer to communicate with the IRS about his or her case.

“Shortcuts” shortcut taxpayer rights

admin — Thu, 26 Apr 2012 11:30:09 +0000

“Shortcuts” shortcut taxpayer rights: “Non-audits,” IRS math errors, lack of notice,
and delays. To keep up with its rising workload, the IRS is increasingly relying on automated
data-matching procedures to identify potentially inaccurate claims and adjust
tax liabilities. However, automated processes are inherently imperfect so the taxpayer’s
return position often turns out to be correct. Moreover, taxpayers subject to audits are
entitled to established taxpayer rights protections, but an increasing number of IRS adjustments are not classified as audits so these protections often do not apply. Throughout
the report, Olson describes IRS practices that “harm taxpayers by acting on assumptions
of noncompliance arrived at by automated processes that do not solicit, encourage, or allow
taxpayer response.”

IRS Complains of Being Overworked….really!

admin — Tue, 24 Apr 2012 11:30:16 +0000

National Taxpayer Advocate Nina E. Olson released her annual report to Congress, identifying the combination of the IRS’ expanding workload and declining resources as the
most serious problem facing taxpayers. The result, the report says, is inadequate taxpayer
service, erosion of taxpayer rights, and reduced tax compliance. The advocate expressed
her continuing concern that the IRS’ expanding use of automated processes to adjust tax
liabilities is causing harm to taxpayers and recommended that Congress enact another Taxpayer Bill of Rights.

“The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut,” Olson said in releasing the report. “This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers—and at the same time reduces the IRS’ ability to deliver on its core mission of raising revenue.”

The sharp increase in the IRS’ workload is due to several factors, including the increasing
complexity of the tax code and the code’s frequent changes, the need to provide service
to an increasingly diverse taxpayer population, the IRS’ increasing responsibility for administering economic and social policies, a surge in refund fraud and tax-related identity
theft, and the implementation of new third-party information reporting requirements.
There were approximately 4,430 changes to the tax code from 2001 through 2010, an average of more than one a day, including an estimated 579 changes in 2010 alone. The IRS
must explain each new provision to taxpayers, write computer code so it can process returns
affected by the provision, and train its auditors to identify improper claims.

In addition, the report says, an expansion of refundable credits in recent years—including
the First-Time Homebuyer credit, the Making Work Pay credit, the American Opportunity
tax credit, the health care premium tax credit, the adoption tax credit, and the Additional
Child Tax credit—has helped spawn an increase in illegal activity that seeks to profit off
the tax system by filing bogus refund claims and often by stealing and using another taxpayer’s identity. While refundable credits provide valuable benefits to the target populations, they can be tempting targets for fraud because taxpayers eligible for them may
claim refunds that exceed the amount of taxes they have paid. In 2011, the IRS’ Electronic
Fraud Detection System (EFDS) flagged 1,054,704 returns on suspicion of fraud, an increase
of 72% over 2010. Meanwhile, the IRS’ centralized Identity Protection Specialized Unit (IPSU) received more than 226,000 identity theft-related cases, an increase of 20% over 2010.

“Each year,” Olson wrote, “the IRS’ task in identifying these claims has become more
challenging, with the inevitable result that some fraudulent claims are never identified
and many legitimate claims are mistakenly held up, imposing a significant burden on
honest taxpayers.”

ID theft investigation stops $1.4B in tax refunds Internal Revenue Service seeing rise in fraudulent returns being filed

admin — Thu, 19 Apr 2012 11:30:14 +0000

A U.S. government crackdown on suspected identity thieves filing false tax returns stopped $1.4 billion in bad refunds from being sent out in calendar 2011, the tax-collecting Internal Revenue Service said on Tuesday.

The IRS and the Justice Department together stopped 260,000 bad returns last year, IRS Deputy Commissioner Steve Miller said.

“There is no doubt in the last couple of years this rate of fraud has gone up,” Miller told reporters.

A national sweep by the two agencies over the last week targeted 105 people in 23 states and led to 939 criminal charges in 69 indictments related to identity theft. Some of the investigations stretched back years.

Arrests were made last Friday in Michigan, Ohio, New Jersey and New York, where three employees of JPMorgan Chase Bank were charged by the Manhattan U.S. attorney with taking kickbacks in a $4.8 million tax refund scam that used the identities of Puerto Rican citizens.

Law enforcement agencies said other schemes involved stealing the identities of dead taxpayers and mentally disabled people.

The IRS also went to numerous check-cashing operations across the country to ensure that they were not involved with refund fraud and identify theft.

Cheat on taxes? Never! Or, as much as possible

admin — Tue, 17 Apr 2012 11:30:02 +0000

Here’s the good news for Uncle Sam: The vast majority of Americans still believe that you should never cheat on your taxes — or, at least, that’s what they tell the pollsters representing the Internal Revenue Service Oversight Board.

The bad news: The percentage of people who say you should cheat on your income taxes “as much as possible” hit 8 percent in 2011, double what it was in 2010. That’s also higher than any other recent year in which the question was asked.

Another 6 percent of those surveyed said a little cheating here and there is OK.

The oversight board this week released its annual survey of taxpayer’s attitudes about the IRS. The survey was conducted by an outside research firm in August.

For the most part, despite our grumbling, Americans seem to at least accept that taxes are a necessary part of life. Almost everyone surveyed agreed that it is every American’s civic duty to pay taxes, and most people said they thought tax cheats should be held accountable.

Still, that doesn’t mean we all feel the need to be the tax police. About six in 10 people said people have a personal responsibility to report tax cheats.

Americans also seem to think we should pay our fair share of taxes because it’s the right thing to do. Most people said their “personal integrity” had a great deal of influence on whether they report their income honestly.

Other factors, such as a fear of an audit, seemed to have less influence.