Archive for the ‘IRS’ Category

Do Call Us, We Won’t Call You

Thursday, August 28th, 2014

The IRS does not initiate collection activities by phone calls. If you owe money to the IRS, the first notice will always be a letter delivered by the Postal Service. Unfortunately, scammers are continuing to pray on people. The IRS issued this press release today:

Scam Phone Calls Continue; IRS Identifies Five Easy Ways to Spot Suspicious Calls

WASHINGTON — The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:
1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:
• If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
• If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or at
• If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, too, the IRS does not use email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to and type “scam” in the search box.

For all the grief that the IRS has (rightly) gotten over the IRS Scandal, they deserve no grief from these scam artists. The tips the IRS gives are completely accurate. If you get a phone call from the IRS demanding money, call TIGTA and report all the details.

Remember Those Missing IRS Emails? They Appear to Exist….

Monday, August 25th, 2014

“There’s no such thing as Lois Lerner’s missing emails. It’s all been a big lie. They’ve been lying to the courts, to the American people, and to Contgess. It is really outrageous.” That’s Tom Filton, President of Judicial Watch:

The reason that the IRS allegedly hasn’t attempted to recover the missing emails? “It would be too difficult.”

Now, I do need to point out that all we have at this point is Mr. Filton’s stating that Department of Justice attorneys stated this (along with a statement released by Judicial Watch). It’s possible that this isn’t true. That said, it makes sense that there are backup systems in place. I backup information and I have nowhere near the critical needs of the government.

Assuming that what Mr. Filton stated is true, both Congress and the Courts have been lied to by the current IRS Commissioner John Koskinen and by various attorneys. This isn’t deceit, this isn’t misstatements; this is out-and-out lying. If I were a federal judge being told today that the emails exist (after telling you they didn’t) but it’s too hard to get them, I know what my reaction would be. I suspect most judges will have the same reaction.

The next court hearing involving this scandal should be mighty interesting….

Judge Sullivan Not Impressed by the “Dog Ate my Homework” Excuse

Sunday, August 17th, 2014

Judicial Watch filed a Freedom of Information Act (FOIA) request with the IRS for information on the targeting of conservative groups. When the FOIA request went nowhere, Judicial Watch filed a lawsuit against the IRS. In July, Judge Emmet Sullivan required the IRS to issue a written response (due last week) on what happened. The IRS response was insufficient for Judge Sullivan:

MINUTE ORDER. In light of [26] the Declarations filed by the IRS, the IRS is hereby ORDERED to file a sworn Declaration, by an official with the authority to speak under oath for the Agency, by no later than August 22, 2014.

In this Declaration, the IRS must:

(1) provide information about its efforts, if any, to recover missing Lois Lerner emails from alternate sources (i.e., Blackberry, iPhone, iPad);

(2) provide additional information explaining the IRS’s policy of tracking inventory through use of bar code property tags, including whether component parts, such as hard drives, receive a bar code tag when serviced. If individual components do not receive a bar code tag, provide information on how the IRS tracks component parts, such as hard drives, when being serviced;

(3) provide information about the IRS’s policy to degauss hard drives, including whether the IRS records whose hard drive is degaussed, either by tracking the employee’s name or the particular machine with which the hard drive was associated; and

(4) provide information about the outside vendor who can verify the IRS’s destruction policies concerning hard drives.

Signed by Judge Emmet G. Sullivan on August 14, 2014. [paragraphing added for ease of reading]

The Hill noted,

Tom Fitton, Judicial Watch’s president, celebrated Sullivan’s new order, saying it proved the government had offered little in their filings on Monday.

“Today’s order confirms Judicial Watch’s read of this week’s IRS’ filings that treated as a joke Judge Sullivan’s order,” Fitton said in a statement.

In a statement to The Hill, Fitton later called Sullivan’s order “an incredible court intervention.”

“Judicial Watch has filed hundreds of FOIA lawsuits,” Fitton said.” I have never seen this type of court action in all my 16 years at Judicial Watch.”

We’ll see what response the IRS comes up with this week….

Where Karen Hawkins Disagrees With Me…

Sunday, August 10th, 2014

Karen Hawkins is the Director of the Office of Professional Responsibility (OPR). OPR is the agency within the IRS that is in charge of preparer regulation and oversight; their vision is, “To be the standard-bearer for integrity in tax practice;” their mission is to, “Interpret and apply the standards of practice for tax professionals in a fair and equitable manner.”

I was a little surprised this evening to see that Ms. Hawkins commented on my post of earlier this week titled, “The IRS Apparently Thinks They Won the Loving Case.” Ms. Hawkins stated,

As the “owner” of Form 2848, I’d like to clarify what Loving did and did not say: IRS was enjoined from requiring a test be taken and passed before a PTIN could be obtained, and from requiring annual CPE in order to renew the PTIN. The District court also acknowledged that the IRS could register/license individuals on a voluntary basis. Nothing in the decision addressed the use of the RTRP designation. In fact, those who passed the RTRP exam before the injunction (nearly 75000) are being exempted from the annual federal update requirement put in place by the new voluntary record of completion program (see Rev Proc 2014-42). The President has also put forward a legislative recommendation to amend 31 USC 330 to provide for mandatory regulation of return preparers. This is a difficult issue to address in black and white terms but please don’t assume the IRS can’t figure out what the law says and doesn’t say.

I felt that Director Hawkins’s view on this deserved a wider audience than a comment on a previous blog post. (The comment would not be seen unless someone clicked on the post itself.)

I did not know that, as Ms. Hawkins states, “…those who passed the RTRP exam before the injunction (nearly 75000) are being exempted from the annual federal update requirement put in place by the new voluntary record of completion program (see Rev Proc 2014-42).” Ms. Hawkins is referring to the new “Annual Filing Season Program.” I should point out that it’s unclear whether this program will be in place for next tax season; the AICPA has filed a lawsuit seeking to enjoin the IRS from offering this program.

Here is the actual Court Order that Judge Boasberg issued in Loving v. IRS:

For the reasons set forth in the accompanying Memorandum Opinion, the Court ORDERS that:
1. Plaintiffs’ Motion for Summary Judgment is GRANTED;
2. Defendants’ Motion for Summary Judgment is DENIED;
3. Defendants lack statutory authority to promulgate or enforce the new regulatory scheme for “registered tax return preparers” created by 76 Fed. Reg. 32,286;
4. Defendants are permanently enjoined from enforcing such scheme; and
5. Judgment is ENTERED in favor of Plaintiffs.
SO ORDERED. [emphasis in original]

Ms. Hawkins is technically correct that Judge Boasberg’s order says nothing about the use of an RTRP designation. However, the Order specifically states that the IRS has no authority to create such a regulatory scheme. If there isn’t such a regulation, what’s the use of the designation?

I do want to point out that Ms. Hawkins has a sometimes thankless job. As I’ve noted on numerous occasions, there are plenty of bad tax “professionals” out there. (As I frequently state when I comment on such professionals, if it sounds too good to be true it probably is.) Ms. Hawkins and her staff have the task of trying to ensure competency among tax professionals. Unfortunately, her job is never-ending and thankless.

The IRS Apparently Thinks They Won the Loving Case

Tuesday, August 5th, 2014

Yesterday the IRS released a new version of the Power of Attorney form (Form 2848). The IRS has added the ability for a fourth representative for a taxpayer. They also noted two new matters for the POA (the Section 5000A Shared Responsibility Payment and the Section 4980H Shared Responsibility Payment).

Both the taxpayer and the taxpayer’s representative must sign the form (that’s not a change). When the representative signs the form, he or she must note his title. I was quite surprised to see the following as a choice for a representative’s designation:

i Registered Tax Return Preparer—registered as a tax return preparer under the requirements of section 10.4 of Circular 230. Your authority to practice before the Internal Revenue Service is limited. You must have been eligible to sign the return under examination and have prepared and signed the return. See Notice 2011-6 and Special rules for registered tax return preparers and unenrolled return preparers in the instructions (PTIN required for designation i).

In Loving v. IRS, the IRS was permanently enjoined from the Registered Tax Return Preparer designation. One would think that the IRS would realize this and remove the designation from forms. I’ve sent the IRS a note reminding them that there is no such thing as an RTRP and this should be removed from Form 2848.

Overall, the new version of Form 2848 has just minor changes.

Perhaps the Lerner Emails Still Exist (IRS Scandal Update)

Saturday, July 26th, 2014

There has been plenty of news regarding the IRS scandal. The most interesting is that IRS managers testified that it’s possible that Lois Lerner’s emails still exist.

The Washington Post published an article on six questions that IT managers believe should be asked of the IRS.

An IRS manager noted that other employees who are related to the scandal suffered hard drive failures, too. Really?

Finally, Kim Strassel has an excellent piece in the Wall Street Journal on the IRS scandal and ObamaCare. Here’s an excerpt:

Yet rather than engage in a basic legal analysis—a core duty of an agency charged with tax laws—the IRS instead set about obtaining cover for its predetermined political goal. A March 27, 2011, email has IRS employees asking HHS political hires to cover the tax agency’s backside by issuing its own rule deeming HHS-run exchanges to be state-run exchanges. HHS did so in July 2011. One month later the IRS rushed out its own rule—providing subsidies for all.

That proposed rule was criticized by dozens of scholars and congressional members, all telling the IRS it had a big legal problem. Yet again, the IRS did no legal analysis. It instead brought in a former aide to Democratic Rep. Lloyd Doggett, whose job appeared to be to gin up an after-the-fact defense of the IRS’s actions. The agency formalized its rule in May 2012.

I have no doubt that this scandal will be unresolved when I return from my vacation.


Saturday, July 26th, 2014

That’s how long I spent on hold on the IRS Practitioner Priority Service (PPS) yesterday–two hours, forty-two minutes. A client had made a payment and it was misapplied by the IRS; I needed to have the IRS correctly apply it. As I have a copy of the cancelled check, this is a relatively easy fix…if I can speak to someone at the IRS.

I didn’t yesterday.

I called at 2:50pm PDT. I was warned that the wait time was greater than sixty minutes. About an hour and a half into the call the call was transferred and it appeared I would soon be speaking to someone at the IRS. Unfortunately, ten minutes later the call was transferred again; this time the call was transferred back into the PPS cue and I was told I had at least another thirty minutes to wait.

At 5:32pm PDT I hung up. I had an engagement I needed to head to. I did let my client know I’d tackle this when I return from my vacation.

Unfortunately, lengthy hold times appear to be growing. About two weeks ago I was on hold for 101 minutes. And things aren’t likely to improve in the near future: The IRS’s budget will likely be cut again. While President Obama requested a large budget increase for the IRS, Republicans in the House rightly said no. While the Senate won’t agree to the House’s budget proposal for the IRS, there’s no chance of the IRS budget increasing until the IRS scandal is resolved.

If you’re going to be calling the IRS my advice is to call early in the day or very late in the day. I’d also avoid Mondays and Fridays. At least I have multiple phone lines and a speakerphone allowing me to work while on hold.

DC Circuit Court of Appeals Deals ObamaCare Major Blow: Federal Exchange Tax Subsidies Axed

Tuesday, July 22nd, 2014

The Court of Appeals for the District of Columbia dealt the Obama Administration a major blow today when the court ruled 2-1 that only state health exchanges plans are eligible for tax subsidies. The IRS had promulgated a rule that health exchanges run by the federal government were eligible for the subsidies.

Here is the conclusion of the primary opinion:

We reach this conclusion, frankly, with reluctance. At least until states that wish to can set up Exchanges, our ruling will likely have significant consequences both for the millions of individuals receiving tax credits through federal Exchanges and for health insurance markets more broadly. But, high as those stakes are, the principle of legislative supremacy that guides us is higher still. Within constitutional limits, Congress is supreme in matters of policy, and the consequence of that supremacy is that our duty when interpreting a statute is to ascertain the meaning of the words of the statute duly enacted through the formal legislative process. This limited role serves democratic interests by ensuring that policy is made by elected, politically accountable representatives, not by appointed, life-tenured judges.

The basic issue is that the Affordable Care Act (aka ObamaCare) allows a tax credit for exchanges established by a state. Are federal exchanges established by a state? The court ruled they weren’t.

UPDATE: The Fourth Circuit ruled in a similar case that the IRS rule was valid. This is almost certainly heading to the US Supreme Court with a decision probably next June.

While this decision will be appealed (to either an en banc panel of the DC Circuit Court of Appeals or the US Supreme Court), it appears sound. The law is what’s written, and neither the Administration nor the IRS can avoid such bright lines.

This is likely to cause more headaches for both taxpayers and tax professionals next year. It is almost certain this case will be appealed, and the appeals will likely not be resolved until next Spring at the earliest. Will tax credits be allowed for an Exchange in, say, Kansas, where the Exchange is run by the federal government? I have no idea. Both California and Nevada have exchanges run by the state, so subsidies in these states appear legal. However, Nevada will be moving to a federal exchange for 2015 so this could have a major impact then (2015 returns prepared in 2016).

Major Court Decision Extends Loving; IRS Enjoined from a Circular 230 Regulation

Saturday, July 19th, 2014

Thus, what Ridgley challenges here is the IRS’s proclaimed authority to regulate fee arrangements entered into by CPAs for preparing and filing Ordinary Refund Claims before the commencement of any adversarial proceedings with the IRS or any formal legal representation by the CPA.

That’s the gist of Ridgely v. Lew, a major court decision announced earlier this week. Gerald Ridgely is a CPA who wanted to charge a contingency fee when filing an “Ordinary Refund Claim.”

Let’s say you file your tax return for 2013 and you realize you left out a major deduction. When you file an amended return noting the additional deduction, what you’re really doing is filing an ordinary refund claim–a claim for refund prior to the IRS instituting examination (audit) proceedings.

Enrolled tax professionals (attorneys, CPAs, and Enrolled Agents) are regulated under Circular 230 (31 CFR § 10.3). In 2007, the IRS prohibited contingent fees for Ordinary Claim for Refunds. Mr. Ridgely claimed he lost business and that the IRS didn’t have the authority to make this regulation.

At Chevron step one, then, this case boils down to the following question: does Section 330 unambiguously foreclose the IRS’s interpretation that CPAs act as “representatives” who “practice” before the IRS when they prepare and file Ordinary Refund Claims?

This may sound familiar to readers who followed the Loving decision. In Loving, courts held that the IRS does not have authority to regulate unenrolled preparers of tax returns; that preparing a tax return is not practice before the IRS.

But Loving also expressly addressed two key questions that the Court faces here: who are “representatives” and what is “practice” under Section 330? In the Court’s view, Loving is controlling precedent that must guide the Court’s examination of Section 330’s text, context, and history with respect to the claims at issue in this case…

Loving also sheds light on the meaning of the term “practice” in Section 330. As the Court explained, “practice . . . before the Department of the Treasury,” like practice before any agency or court, “ordinarily refers to practice during an investigation, adversarial hearing, or other adjudicative proceeding.” Id. at 1018. The process of filing an Ordinary Refund Claim— again, before any back-and-forth with the IRS—is similar to the process of filing a tax return in that both take place prior to any type of adversarial assessment of the taxpayer’s liability. If a “tax-return preparer do[es] not practice before the IRS when [he] simply assist[s] in the preparation of someone else’s tax return,” then a CPA hardly “practices” before the IRS when he simply prepares and files a taxpayer’s refund claim, before being designated as the taxpayer’s representative and before the commencement of an audit or appeal. Id. at 1018. Following Loving, the Court therefore concludes that the plain text of Section 330 excludes preparers and filers of Ordinary Refund Claims from the ambit of the IRS’s regulatory authority.

The IRS could appeal the decision but unless or until they do, tax professionals can charge contingent fees for Ordinary Claims for Refund.

If You’re a Fugitive, Posting on Facebook Isn’t a Good Idea

Saturday, July 19th, 2014

This headline really tells the whole tale. But this tale deserves a full telling, so here goes:

In August 1992, Francisco Legaspi was indicted on three counts of aiding and assisting in the presentation of false tax returns. In November 1992 he pleaded guilty to one count of preparing a false tax return (this appears to be a normal plea bargain); sentencing was scheduled for January 28, 1993. On January 27, 1993, an IRS employee visited his office to collect payroll taxes. The two did discuss that sentencing was scheduled the next day. Mr. Legaspi decided that instead of going to court he’d head to Mexico.

Yes, that’s illegal. He was charged with Failure to Appear in February 1993.

After staying in Mexico Mr. Legaspi moved to London, Ontario, Canada. He lived a low-profile life for nearly 20 years but then made a major mistake: He set up a Facebook page. Yes, the authorities read Facebook. This includes the State Department’s Bureau of Diplomatic Security.

It is unclear to me why this agency rather than the US Marshals Service was the agency that found Mr. Legaspi. No matter, federal law enforcement agencies do communicate with each other and to other countries’ police authorities. The Bureau of Diplomatic Security let the Royal Canadian Mounted Police know about Mr. Legaspi in 2012; the RCMP found him and he was extradited back to the United States.

Mr. Legaspi had already pleaded guilty to the tax charge; this past week he pleaded guilty to Failing to Appear. He’ll be sentenced in October to both counts. This time he’s being held in prison until being sentenced. He could receive up to five years at Club Fed plus a fine of up to $500,000.