An IRS Identity Protection Unit Saga: Part 4

September 22nd, 2023

Last week I continued the saga of my client, call him John Smith, who has been waiting and waiting to receive his 2020 tax refund.  His 2020 federal return was selected for identity verification; he successfully completed that process in March 2023.  His refund, though, is nowhere to be seen.  Mr. Smith is not desperate for the funds (luckily, he’s a successful businessman); however, he’d like this resolved.

This morning, I ran yet another IRS Account Transcript to see if there had been any progress with this.  Unfortunately, his return does not show as having been processed.  Yes, the agent I spoke with in August said to allow nine weeks so this isn’t surprising.  But what of my request for the IRS Taxpayer Advocate?

Crickets.  I haven’t heard a thing (nor has Mr. Smith).

Meanwhile, interest continues to pile up on this which you and I are paying for.  To date, the interest totals over $4,000; if the refund is issued exactly a month from today there will be another $241 of interest.  And I’m not particularly hopeful this will be resolved by the end of October.

I’d love to state that this is a one-off in dealing with the Identity Protection Unit and the Taxpayer Advocate.  It’s not.  I dealt with a similar case last year with the Identity Protection Unit; it took nearly a year to get resolved.  (In that case, my client owed tax–which he had paid when he filed the return–but he needed that return to be in the IRS computer system for another matter.)  I strongly believe that the ancient IRS computer systems (the main IRS computer system dates to 1959 and, yes, you read that correctly) has a lot to do with the issues.

I’m also disappointed with the Taxpayer Advocate Office.  Yes, I know they’re buried, but no acknowledgment, no nothing means I’m stuck.  Now as a tax professional I know how to deal with this situation. (If in a month if nothing has changed I’ll be making more phone calls.)

But consider Joe and Mary Doe who are not familiar with the IRS.  They desperately need their $20,000 tax refund…and they’re stuck in limbo.  If they did exactly what Mr. Smith did, they would have done everything correctly…and be stuck in limbo.  If you wonder why there’s frustration with the IRS, and why members of Congress have IRS liaisons, look no further.

The next update on this saga will be in a month (unless Mr. Smith magically receives his refund or I hear from the Taxpayer Advocate).

An IRS Identity Protection Unit Saga: Part 3

September 11th, 2023

One week ago I uploaded Part 2 of my client’s ongoing saga of obtaining his 2020 tax refund.  My client, call him John Smith, was supposed to either receive his refund by mid-August or we were supposed to receive a call.  Mid-August came, and Mr. Smith had not received his refund (and it did not show as having been issued on an Account Transcript) nor had I received a call from the IRS.  On August 16th I again called the Practitioner Priority Service (PPS) to see if there had been any progress.  They couldn’t see any, and again transferred me to the Identity Protection (IP) unit.

Call #1 (August 16):  After being on hold for just under an hour, the IP Unit agent picked up.  I explained the situation, and she investigated through her systems.  After another hold-time period of 15 minutes, she said because my Power of Attorney form covered only 2020 she couldn’t talk to me.  I explained that Mr. Smith had already verified his identity and we are just trying to obtain the refund.  “No. I may need to ask questions about 2019, and without that I must let this call end.”  [1]

Call #2 (August 16): Since I knew the IP agent was wrong, I called back.  This call is actually three attempts, but all three ended up getting: “We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time.  Goodbye.”

I did have Mr. Smith sign a new POA covering 2019 (though it wasn’t necessary), and submitted it to the IRS on August 17.

Call #3 (August 17): At 7am PDT I called the IP unit again.  I was directed into the callback service (that told me I’d get a return call in 29 minutes, which I did).  I explained the issue to the agent, and he said, “If your client is not on the phone with you I cannot help you.”  I told him that with a signed IRS Power of Attorney form, I’m allowed to act for my client.  “No, you’re not for this purpose.”  And he hung the phone up on me. [2]

Call #4 (August 17): I made another attempt.  However, “”We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time.  Goodbye.”  I did not have enough time to try again.

Call #5 (August 18): I again called at 7am, and again received a callback (this time in 38 minutes).  I again explained the situation to the IP unit agent…and we got disconnected. I’ll be generous and state this was an IRS phone system issue and that I wasn’t hung up on, but I have my doubts.

Call #6 (August 18): The sixth time was the charm (sort-of).  I received the promise callback (in 29 minutes), and this agent agreed that I didn’t need a 2019 POA. Unfortunately, he saw nothing having been done.  He put another referral into the sub-unit to get the return processed…but with a nine-week turnaround time.  He said he did see notes of the previous conversations, but this was all he could do.  I also discovered that on April 14th the IP unit supposedly printed my client’s electronically filed return and forwarded it for processing.  [3]

That afternoon I spoke with my client and explained what had happened.  I told him that besides the IP unit referral, the next step would be to complete IRS Form 911–a request for assistance from the IRS Taxpayer Advocate.  I explained that given IRS promises he was likely eligible for assistance.  I faxed Form 911 that afternoon.

I’ll be back next week with more, but let’s take a look at some IRS systemic issues that my client ran into.

[1] and [2].  I’ve been calling the IP unit for years, and many of the agents do not want to speak with authorized representatives.  When a client grants me an IRS Power of Attorney (POA) form that gives me full rights to negotiate and talk with the IRS on any issues that the POA covers.  That includes identity protection issues.  The behavior I saw with Mr. Smith is typical:

  • Agents say years that aren’t required for my POA are.
  • Only the taxpayer, not an authorized representative, can speak to the Identity Protection Unit.
  • When notices are sent by the Identity Protection Unit, previously authorized representatives are not copied.  For example, let’s say I have a POA on file for Jane Brown for the 2022 tax year.  The Identity Protection Unit sends her a notice requesting she verify her identity for her 2022 tax return; I will not be copied.  This is especially troublesome when we have clients who are traveling or reside outside the United States and don’t have reliable mail.

[3] Yes, you’re reading this correctly.  My client electronically filed his tax return, but the only way it can be processed is paper.  It’s not that 2020 returns can’t be electronically filed today (they can, through sometime in November); rather, it’s how the IRS Identity Protection Unit is setup.  Interestingly, TIGTA (the Treasury Inspector General for Tax Administration) issued a report today titled, “The Internal Revenue Service Has Experienced Challenges in Transitioning to Electronic Records.”  Boy, is that true.

Meanwhile, my client is stuck waiting.  And you and I pay for this: My client will (eventually) be paid interest on the refund.  And with his refund being approximately $30,000, that interest will be substantial.

I’ll be back next week with Part 4 of this saga.

An IRS Identity Protection Unit Saga: Part 2

September 5th, 2023

When we last left the Identity Protection (IP) Unit saga of John Smith, he successfully verified his identity and was told he should receive his refund within nine weeks (or by May 25th).  On July 12th Mr. Smith sent us a message saying he hadn’t heard a thing (nor had he received his refund).  I confirmed with him that he had successfully verified his identity.

I ran an Account Transcript to see if the tax return had been processed; it did not show as having been processed.  On July 14th, I called the IRS Practitioner Priority Service (PPS); PPS has some tools that can see returns in other stages of processing than practitioners can.  Unfortunately, the PPS representative didn’t see anything; he transferred me to the IP Unit.  I was told:

Your client successfully verified his identity on March 23.  The 2020 return has not posted to the main IRS system for processing; , the issue is that even though everything has been entered into the system by the IP unit, it’s stuck.  The return is “being worked” to get unstuck. A referral was sent to the subunit working the return (with you as contact).  You will hear back within 30 days with either your return having been processed or they will call me.

Thus, all should be well by August 14th, right?  I think you can guess where this is going (part 3 will be next week)….

Many Floridians Receive Hurricane Extension Due to Idalia

August 31st, 2023

The IRS announced yesterday that victims of Hurricane Idalia have their tax filing deadlines extended until February 15, 2024.  As of this moment, most of central and northern Florida including the Tampa/St. Petersburg area, Orlando, and Jacksonville are eligible for this extension.  This is an extension for filing, not paying your tax.  But if you have a valid extension for your partnership, corporation, trust/estate, or individual return and are in this area, you have several months before you must file.  An excerpt of the IRS announcement:

The Internal Revenue Service today announced tax relief for individuals and businesses affected by Idalia in parts of Florida. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, 46 of Florida’s 67 counties qualify. Individuals and households that reside or have a business in these counties qualify for tax relief, but any area added later to the disaster area will also qualify. The current list of eligible localities is always available on the disaster relief page on

I would expect areas in Georgia and possibly North and South Carolina to join this list.

Kudos to the IRS for quickly announcing this relief.

An IRS Identity Protection Unit Saga: Part 1

August 28th, 2023

I’ve written about James Smith before.  A few years ago, Mr. Smith was the victim of IRS “help” when they changed the Employer Identification Number (EIN) without his knowledge; that saga ended in 2022.  Unfortunately, Mr. Smith is now suffering through an Identity Protection Unit saga with no end in sight.

In 2021 Mr. Smith’s 2020 personal tax returns were timely filed with the IRS and Arkansas.  Mr. Smith’s 2020 federal return showed a refund of approximately $30,000; his Arkansas return showed a refund of about $10,000.  He promptly received his Arkansas refund.  However, about four months after filing Mr. Smith received an IRS 5071C letter requesting he verify his identity.

The process when you receive such a letter is that you must create an account on  That’s now done through a third-party company,  That company requires you to verify your identity–so you end up having to verify your identity twice.  The IRS now includes this important piece of information in their FAQ:

Yes, you must come back to this page and sign in to answer questions about your tax return.

But Mr. Smith did his verification in November 2021, not May 2022, and he didn’t realize that he had to verify his identity twice.  In late 2022 he called me to check on his refund.  I obtained an IRS Power of Attorney form covering 2020-2022 and called the Practitioner Priority Service in January 2023.  They told me he had never verified his identity online, and he would now need to call the Identity Protection Unit.

Calling the IP Unit is an adventure, and Mr. Smith is a busy businessman.  After several attempts he successfully verified his identity on March 23, 2023.  The IP Unit told him the return and refund should be processed within nine weeks.  Well, since I’m writing this you probably realize that didn’t happen.  We’ll cover the next steps in Part 2 of this saga next week.

Everything Is in the Best of Hands: “Security Weaknesses Are Not Timely Resolved and Effectively Managed”

August 14th, 2023

The Treasury Inspector General for Tax Administration (TIGTA) released a report today, and it doesn’t make for pleasant reading; it’s titled, “Security Weaknesses Are Not Timely Resolved and Effectively Managed.”  If you wonder why some don’t feel confident with the IRS preparing tax returns, look no further.  The summary (relating to what the IRS is currently doing with “Plan of Action and Milestones (POA&Ms)”) is quite damning:

The IRS did not timely review 291 (73 percent) of 401 POA&Ms TIGTA analyzed based on agency security policies nor did it perform the required closure reviews within the 60-day time period for 138 (49 percent) of 282 POA&Ms marked as either Accepted, Completed, or Validated.

Due to staffing shortfalls, IRS employees are not facilitating the timely resolution of information security weaknesses. Agency-wide, there are more than 500 POA&Ms categorized as Late, including 23 with risk severity ratings of either critical or high…

In addition, business units are not timely creating POA&Ms or consistently entering required POA&M information…

Finally, the IRS is not accurately identifying and tracking resources required to resolve information security weaknesses. For the 12,089 POA&Ms, there was a total estimated cost of $2.6 billion to resolve the information security weaknesses. From January 1, 2018, through August 26, 2022, the IRS finalized remediation efforts for 3,139 POA&Ms with total estimated costs of $134.5 million to resolve the information security weaknesses. However, during the closure process, the IRS did not reevaluate the estimated budget and update it with actual costs at closure, as required.

TIGTA made four recommendations, and at least the IRS agreed with all of them; the IRS plans on correcting all of them no later than May 15, 2024.  As to why this is important, TIGTA noted: “Failure to timely review, track, and close POA&Ms to resolve information security weaknesses puts the IRS at risk for exploitation by threat actors. In addition, tracking associated resources required to resolve POA&Ms facilitates informed decision-making.”  Tax professionals have enough security risks without having the IRS contributing more!

Form 8300, Cryptocurrency, and Gambling

August 9th, 2023

A Twitter/X post from John Reed Stark reminded me about an issue that may soon impact you if you are a professional gambler playing on one of the current US-facing sites such as Ignition or America’s Card Room (ACR).  FINCEN (the Financial Crimes Enforcement Network) Form 8300 requires anyone in business–this includes individuals (sole proprietors), partnerships, LLCs, and corporations–to report cash transactions of more than $10,000.  This law isn’t new, and like almost anything related to money laundering/FINCEN there are draconian penalties for not complying.  What is new is that cryptocurrency is considered “cash” for this purpose under Section 6050I of the Infrastructure Act (which passed in November 2021).  This section of the law takes effect on January 1, 2024.

Form 8300 requires you to inform FINCEN (or the IRS if you’re not subject to electronic filing rules) within 15 days of any transaction of more than $10,000:

Who must file. Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300. Any transactions conducted between a payer (or its agent) and the recipient in a 24-hour period are related transactions. Transactions are considered related even if they occur over a period of more than 24 hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.

This would include deposits onto gambling websites and withdrawals.  It would include two $5,500 transactions if you deliberately split your withdrawal into two transactions or if the gambling website splits the transaction into two.  (If you are outside of the United States when the entirety of the transaction occurs you are generally exempt.)

Today’s form doesn’t have a place for cryptocurrency, but I would expect that to be remedied by the end of the year (the last version of the form is dated August of 2014).  Form 8300 can be paper-filed or electronically filed on the BSA efile system.  (NOTE: Beginning January 1, 2024, if you are required to efile other information returns such as W-2s or 1099s, you will be required to efile Form 8300.)

While efforts exist in Congress to repeal the new Section 6050I, it’s highly unlikely these efforts will come to fruition.  Indeed, very little of substance has come out of this Congress; given the political divide in the country, expect this law to be in force in five months.  If you’re a professional gambler doing large cryptocurrency transactions (or, for that matter any business that accepts cryptocurrency) you will have more work ahead of you in the new year.


Unshocking News from the IRS: Staking Income Is Taxable

August 1st, 2023

In what shouldn’t be a surprise to anyone, the IRS announced yesterday in Revenue Ruling 2023-14 that staking income, when received, is taxable income based on the fair market value when constructively received.  This should be a surprise to no one–if you receive something with a value it’s an accession to wealth and that’s the definition of income.  For myself and our clients, this has been how we’ve treated staking income because the answer of whether or not this was taxable was so obvious.

The Real Winners of the 2023 World Series of Poker

July 18th, 2023

Yesterday afternoon, the 2023 Main Event of the World Series of Poker concluded. A record 10,043 entrants ponied up the $10,000 buy-in to the event leading to a prize pool of $93,399,900 (the $7,030,100 difference is the funds kept by Caesars for running the event). We focus on the nine-handed final table, but 1,507 received winnings from the prize pool; a minimum cash was worth $15,000. The winner received a whopping $12.1 million; however, did he get to keep it all?

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Daniel Weinman, a professional poker player from Atlanta. On the final hand, Steven Jones, the runner-up, raised and Mr. Weinman called. On the flop of J-5-2, Mr. Weinman checked, Mr. Jones made a continuation bet, and Mr. Weinman raised with Mr. Jones calling. The turn came a 4, Mr. Weinman bet again, Mr. Jones raised all-in (after a four minute deliberation), and Mr. Weinman called in less than 30 seconds. Both players had a pair of Jacks (Mr. Weinman held K-J while Mr. Jones held J-8). Mr. Jones needed an eight on the river to win the hand, but the river was an Ace giving Mr. Weinman the championship. First place was a cool $12.1 Million. Mr. Weinman owes federal and state income tax and self-employment tax on his winnings. I estimate he will pay $4,831,195 to the IRS and $690,777 to the Georgia Department of Revenue (45.64% lost to taxes).

Second place went to the aforementioned Steven Jones. Mr. Jones, a real estate broker from Scottsdale, Arizona, earned $6.5 million for finishing second. An amateur gambler, Mr. Jones avoids self-employment tax but does owe income tax to Arizona. I estimate he will owe $2,364,616 to the IRS and $193,700 to the Arizona Department of Revenue (taxes took 39.36% of his winnings).

In third place was Adam Walton of nearby Henderson. Mr. Walton was eliminated when his pair of eights ran into Daniel Weinman’s pair of aces. Mr. Walton, a professional poker player, earned $4 million for his finish. As a Nevada resident, he avoids state income tax. However, he does owe federal income tax and self-employment tax. I estimate he will pay $1,557,986 (38.95%) in tax to the IRS.

Jan-Peter Jachtmann, a marketing manager and publisher of PokerBlatt in Germany, finished fourth for $3,000,000. Formerly a pot-limit Omaha specialist (Mr. Jachtmann won a WSOP event in that game in 2012), he’s likely to play quite a bit more no-limit hold’em in the future. On his final hand, his King-Queen ran into the pocket Aces of Adam Walton; the board gave Mr. Jachtmann no help and he was eliminated. The US-Germany Tax Treaty exempts gambling from withholding. Fortunately for Mr. Jachtmann, Germany taxes only professional poker players. Germany’s Rennwett und Lotteriesteuer (which dates to 1922!) exempts winnings of players (except for professionals). So as long as Mr. Jachtmann keeps his gambling as a hobby he won’t have to pay tax on it to Germany.

Finishing in fifth place for $2,400,000 was Ruslan Prydryk of Lungansk, Ukraine. Mr. Prydryk, a lawyer by training, plays poker part-time. He moved all-in with Queen-Ten, but ran into an Ace-Jack from his opponent. It didn’t help that the opponent also flopped two-pair. The US and Ukraine do have a tax treaty, and it exempts gambling so the IRS gets nothing. Ukraine does tax gambling, though; he faces a 19.5% flat tax rate. He ends up owing an estimated $456,000 (or 16,751,816 hryvnia) to the State Tax Service of Ukraine.

The sixth place finisher was Dean Hutchison, a professional poker player from Glasgow, Scotland. Mr. Hutchison’s long run in the main event ended when his pocket fives ran into the pocket sevens of Jan-Peter Jachtmann (and he received no help from the community cards). Mr. Hutchison earned $1,850,000 for his deep run in the event. Better still, he benefits from two quite favorable tax situations. First, the tax treaty between the United States and the United Kingdom exempts gambling from withholding. Second, the United Kingdom doesn’t tax gambling–even for professional gamblers. It’s always nice when your after-tax income is legally the same as your pre-tax income.

Toby Lewis, a professional poker player from Southampton, England finished in seventh place. Mr. Lewis was perhaps the most accomplished tournament player (along with Daniel Weinman) who made the final table. He maneuvered his short starting stack up two places to finish in seventh for $1,425,000. Like the aforementioned Mr. Hutchison, Mr. Lewis gets to keep all of his winnings thanks to the US-UK Tax Treaty and UK law.

In eighth place was Juan Maceiras of La Caruna, Spain. The Spanish poker professional entered the final table in fifth place but could never get anything going. Still, $1,125,000 is a good consolation prize. The US-Spain Tax Treaty exempts his winnings from withholding by the IRS. However, Spain does tax gambling. Indeed, Spain’s Agencia Tributeria is well known in poker circles as looking for every penny it can find (it has gone after winnings of non-Spaniards who cashed in poker tournaments held in Spain). Earlier this year, the Agencia Tributeria ruled that professional poker players are professional sportsmen; that means Spain gets to withhold tax on non-Spaniards winnings in Spain. For Mr. Maceiras, he will be in Spain’s top tax bracket of 47% (on income of €300,000 or more). Overall, I estimate Mr. Maceiras will owe $528,750 (€523,400) to Agencia Tributeria; he pays the highest percentage of tax of any of the final table participants.

The ninth place finisher was Daniel Holzner. Mr. Holzner is an apple farmer in Italy (yes, he really is) and received the entry as a birthday present for turning 30. He is quoted by PokerNews, “…I guess I have to make a really big, big, big party for them, all of them.” He’ll have plenty of funds for that party. His ninth place finished earned him $900,000. The US-Italy Tax Treaty exempts Italians from withholding. However, he will be taxed in Italy. (Gambling winnings in Italy and the European Union are exempt from Italian tax.) I estimate he will owe $387,000 to Italy’s Agenzia delle Entrate (a high 43% tax rate).

Here’s a table summarizing the tax bite:

Amount won at Final Table $33,300,000
Tax to IRS $8.753.797
Tax to Georgia Department of Revenue $690,777
Tax to Agencia Tributeria (Spain) $528,750
Tax to State Tax Service (Ukraine) $456,000
Tax to Agenzia delle Entrate (Italy) $387,000
Tax to Arizona Department of Revenue $193,700
Total Tax $11,010,024

That means 33.06% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Daniel Weinman $12,100,000 $6,578,028
2. Steven Jones $6,500,000 $3,941,684
4. Jan-Peter Jachmann $3,000,000 $3,000,000
3. Adam Walton $4,000,000 $2,442,014
5. Ruslan Prydryk $2,400,000 $1,944,000
6. Dean Hutchison $1,850,000 $1,850,000
7. Toby Lewis $1,425,000 $1,425,000
8. Juan Maceiras $1,125,000 $596,250
9. Daniel Holzner $900,000 $513,000
Totals $33,300,000 $22,289,976

Once again, a player ended up placing higher than his actual finish based on after-tax results. This year, Mr. Jachmann of Germany was the beneficiary of being an amateur gambler. Do note that German professional gamblers don’t get such a good tax result. Indeed, many German professional poker players have moved to Austria (a much more favorable tax situation).

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in second place (based on pre-tax prizes) with a haul of just $8,753,797. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

Vermont Flood Victims Get an Extra Month to File their Returns

July 13th, 2023

Many areas of Vermont have seen severe flooding over the past couple of weeks.  The area has been declared a federal disaster area.  The IRS announced today that impacted individuals have an extra month to file returns on extension (until November 15th); business returns on extension are also now due on November 15th.  Unfortunately, today’s weather forecast for Vermont includes more thunderstorms and possible severe weather that might exacerbate an already bad situation.