Posts Tagged ‘National.Taxpayer.Advocate’

Is IRS Correspondence Broken?

Thursday, May 30th, 2024

As a tax professional with quite a few clients, our clients receive IRS notices. Much of this correspondence (not all, but a large portion) has to be responded to.  My three most recent cases are making me think there are major issues with the IRS handling mail.

Client #1 received an Automated Underreporting Unit (AUR) notice alleging four items: two 1099-NECs not reported, one 1099-MISC, and some capital gains.  We timely responded in December pointing out with backup documentation where all the alleged unreported income was on the tax return (it was all there).  Earlier this month we received a notice reducing the alleged unreported items to three (one of the 1099-NECs was removed from the list). We just sent basically the same response with the same documentation to the AUR group (and hope it won’t take four back-and-forths to go through a four-item list).

Client #2 received a notice alleging a “Math Error” on his return.  You have exactly 60 days to respond.  We did so–and this is required to be mailed using certified mail, return receipt requested (which we did). The IRS alleged we didn’t timely respond. I sent back documentation proving we timely responded.  It’s been several months, and we’re still waiting on a response.

Client #3 received a notice alleging his return was untimely filed. His return was required to be mailed; he was outside the United States and sent it with tracking from New Zealand (timely). It wasn’t received timely (but that’s the fault of the Postal Service, not my client) and doesn’t impact him; there’s a rule in tax called the Postmark Rule which governs this situation. My client has now received a letter from IRS Collections even though we disputed the entire issue months ago.

It’s not just me. If you’re a tax professional, prepare to be very depressed when you read this Twitter/X thread from a CPA in Indiana named Mike Sylvester.  An excerpt:

…[The Taxpayer Advocate agent’s] case load has tripled since 2019.

She said the cases she sees now the IRS is wrong almost every time. She said The IRS correspondence system is beyond broken. Her words, not mine.

She said the IRS broke during Covid and still has not recovered.

Then the part that just floored me. Understand the long time policy of The Taxpayer Advocate is only contact them as a last resort. Try to work the problem with the IRS hard yourself first.

I told her another problem I am having and how many times the IRS and I have gone back and forth. She told me I was wasting my time and I should have opened a Taxpayer Advocate case several months ago.

She said I need to open cases faster…

I am still shocked by this.…[emphasis in original]

There is plenty more, and reading through the comments made me depressed. One comment is that there are fewer than 12 individuals working at the IRS Philadelphia Service Center to handle correspondence! My experience with the Taxpayer Advocate Service (TAS)–when they get to your case–has been excellent. However, it’s clear they are buried.

Major work is needed with correspondence, and tax professionals and taxpayers are suffering. TAS is supposed to be a last resort; it should not be a necessity most of the time. Yet it may become so (if that has not already occurred).

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At Least The IRS Could Find 95% of the Returns…

Thursday, September 3rd, 2020

Two items crossed my in-box within a few minutes of each other this morning. The first was a blog post from the National Taxpayer Advocate requesting that Congress give multi-year funding for modernizing IRS computer systems. The second was a TIGTA report noting the IRS couldn’t find about 5% of tax returns requested.

Do you know anyone who knows COBOL (a computer language)? If you do, the IRS wants to hear from him or her! COBOL dates from 1959 (before I was born). The IRS’s IMF and BMF (Individual and Business Master Files) are older than I am, and run in Cobol on IBM mainframes. They are the oldest computer systems still in use by the federal government! I’ll date myself: I was in the last class at Berkeley to learn computer programming on punch cards. On the bright side, the IRS uses the best of 1950’s technology….

Why doesn’t the IRS take their paper records and digitize them? Some of it has to do with the legacy systems they are run on. A lot of it has to do with inadequate funding.

Seriously, this is a problem. In our office, we don’t keep paper records. We scan everything (and return all paper to our clients). The IRS does this for electronically filed tax returns, but not for all paper returns. Indeed, the TIGTA report notes that 347 of the IRS’s 956 forms cannot be electronically filed (that’s more than 36%). The IRS has 468,000 cubic feet of storage available on their campuses. Additionally, Federal Record Centers store about five million cubic feet of IRS records! The IRS spends $57 million a year on storing and retrieving this mountain of paper.

To give an idea of how large this is, my house is 2400 square feet with (I believe) 10 foot high ceilings (because of the heat in Las Vegas). That’s 24,000 cubic feet. So IRS paper records would fill more than 227 of my sized home. It’s frightening to think of all that paper.

The Taxpayer Advocate noted the IRS needs $2.5 billion over six years to complete its (hoped for) modernization program. They received $150 million in the 2019 fiscal year and $180 million in the 2020 fiscal year for modernization. At the current rate, it will take more than 12 additional years to complete it.

The TIGTA report looked at the ability to get specific pieces of paper. Retrieving that paper is necessary for audits and many other required IRS tasks. TIGTA had requests sent through normal channels for tax returns and examination case files. Most of the time the records could be found. However, 6% of examination case files and 3% of tax returns could not be located. An additional 23% of examination case files and 10% of tax returns were not provided timely.

The TIGTA report should be looked in its entirety for a depressing picture of the reality (vis-a-vis computer systems) at the IRS. It’s not that IRS management disagrees with TIGTA on the recommendations that TIGTA made (they agreed with the four recommendations in the report); rather, the problem is that the IRS almost certainly doesn’t have the money to complete the necessary tasks.

Here’s an example from real life: A fellow tax professional’s client mailed in a Form 1040X last year. That client just received a letter stating, “We have a record of receiving your Form 1040X for the 2018 tax year. We cannot find it. Please send another signed copy by mail to this office….”

I’ve been impacted by this. I had a client a few years ago request an ITIN (Individual Taxpayer Identification Number) for his child. The ITIN unit managed to lose the paperwork (sent by certified mail) three times, including once when it was hand-carried to them by the Taxpayer Advocate Office! (Thankfully, the Taxpayer Advocate kept a copy and the fourth time was a charm!)

Do I think Congress will loosen the purse strings here? Well, maybe before I retire….

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National Taxpayer Advocate Report: Identity Theft, OVDP, and ITINs Among the Major Issues

Sunday, June 30th, 2013

Nina Olson, the National Taxpayer Advocate, issued her annual report to Congress this past week. She also included a special report on “Political Activity and the Rights of Applicants for Tax-Exempt Status.” Here are some of the other issue she highlighted:

1. Tax reform. “The Time for Tax Reform is Now!” screams the lower right portion of the report. No argument–the US Tax Code is far too complex. Unfortunately, having tax reform depends on a functional Congress…and that’s not going to happen this year.

2. The IRS refuses to issue refunds to victims of tax preparer fraud. As Ms. Olson points out, the IRS Chief Counsel’s office says that the false return can be deemed a “nullity” and the true return can be accepted and processed. Yet the problem of getting refunds for innocent taxpayers continues.

3. Identity Theft. As Jason Dinesen can vouch, victims of identity theft will see delay after delay. Ms. Olson states that the current Identity Protection Specialized Unit is harming identity theft victims.

4. The current IRS Offshore Voluntary Disclosure Program burdens benign actors and damages IRS credibility. This is something I’ve commented on before, and I’m glad to see Ms. Olson agrees with me.

5. Lack of coordination between the IRS and FINCEN (responsible for the FBAR) burdens taxpayers and undermines compliance efforts. Ms. Olson focused on filing of the FBARs. I’d like her to take a look at the duplication between the FBAR and Form 8938. By the way, one piece of good news on the FBAR front: Buried in the FAQ of the BSA efile system is the announcement that tax professionals are now allowed to efile the FBAR for clients as long as we’re assured the information is accurate.

There’s plenty more in Ms. Olson’s report that I agree with, but I do want to point out one area where I disagree with her. Ms. Olson argues that the current limited oversight of return preparers makes taxpayers vulnerable to unscrupulous or incompetent preparers. Ms. Olson forgets that the IRS does have tools to weed out tax preparers who are unscrupulous. Indeed, the IRS has filed numerous civil and criminal cases against such tax preparers over the years. (I do agree with Ms. Olson that anyone using a tax professional should ask about his qualifications and should obtain a signed copy of the return.)

All-in-all, Ms. Olson’s report is worth reading by the IRS and Congress. She highlights many of the areas of concern that tax professionals have with the current system. Unfortunately, I expect her report to be lost in the sea of other news regarding the IRS that has come out of Washington this Spring and Summer.

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“The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft”

Wednesday, January 9th, 2013

That’s not just my opinion, it’s the opinion of the National Taxpayer Advocate, Nina Olson. Most tax professionals who have run into identity theft can relate horror stories. Jason Dinesen, an Enrolled Agent in Iowa, has been dealing with an identity theft matter for over 20 months (that’s nearly two years). The matter is still unresolved.

Ms. Olson today came to the conclusion that:

■■ The IRS is moving backward — away from a centralized approach to assisting identity theft victims — and is increasing the risk that taxpayer-victims may fall through the cracks;
■■ After years of ineffective efforts to reengineer its processes, the IRS still takes too long to fully resolve the accounts of victims;
■■ While the Identity Protection Personal Identification Number (IP PIN) that the IRS has developed provides additional security, it does not cover all victims;
■■ The Taxpayer Protection Unit may not be sufficiently staffed to handle the volume of calls from impacted taxpayers;
■■ Congress may unnecessarily create additional exceptions to taxpayer privacy protections; and
■■ The Social Security Administration still makes the Death Master File available to the public, creating an opportunity for identity thieves to steal and then misuse personal information.

The IRS and the Taxpayer Advocate both have reasonable arguments; the report (linked to above) notes both sets of issues. But I think Ms. Olsen misses a key point: The place to stop identity theft is checking addresses when returns are filed. The proposal that I made back in September would stop some identity theft before it happens. An ounce of prevention is worth a pound of cure.

Ms. Olson hits a bullseye with her comments on the Social Security Death Master File; she sees no reason for that to be available to the public while the social security numbers could be used for identity theft. I agree completely. The government is handing to crooks information they need to be crooks.

Finally, Ms. Olson’s comments about the length of time it takes to resolve many identity theft claims are accurate. The cases take a long time. They are complex. That said, many individuals are waiting years to get matters resolved. This is a disservice to an agency that has “service” in their name.

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