Posts Tagged ‘Taxpayer.Advocate.Service’

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….

Where I Agree (In Part) With IRS Commissioner John Koskinen

Tuesday, November 3rd, 2015

It’s rare for me to agree with IRS Commissioner John Koskinen. However, he spoke to some tax practitioners today and I do agree with some of what he said. From Accounting Today:

Once again, Congress has been working on legislation to extend a group of expired tax provisions, but it has not completed action yet. The uncertainty we face over the extenders legislation raises operational and compliance risks for the IRS in its administration of the tax law and delivery of the filing season. This uncertainty imposes stress, not only on the IRS, but also on the entire tax community, including everyone in this room.

If this uncertainty persists into December, we could be forced to postpone the opening of the 2016 filing season…This would delay the start of processing of tax refunds for millions of taxpayers. It’s also important for lawmakers to understand what the effect would be if they made any substantive changes to tax provisions that are extended, or decided to approve any new tax provisions. We would need to reprogram our systems and make processing changes that would result in delays. So I will continue to urge members of Congress not to let this uncertainty drag on. We believe it is critical for Congress to make a decision one way or another on the extenders legislation no later than the end of November in order to ensure there are no disruptions to the upcoming filing season.

Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation. That said, the calendar hasn’t hit December so I don’t expect anything to happen for four weeks.

Meanwhile, Commissioner Koskinen complained about the funding cuts to the IRS. Yes, they’ve hurt service (on that, he’s correct). However, the biggest villain isn’t Congress; it’s the IRS. The 501(c)(4) scandal and the wishy-washy testimony from almost everyone at the IRS (including Commissioner Koskinen) has led directly to the cuts in funding. Republicans aren’t going to fully fund an agency being used against them. Until this is resolved, Commissioner Koskinen can complain all he wants but the funding levels aren’t going to increase.

Interestingly, IRS Taxpayer Advocate Nina Olson also appeared and spoke at the same meeting. She noted that the funding issues are hurting morale (I’m sure they are) and that there is resistance to the Taxpayer Advocate from the IRS.

We are finding instances where the IRS is refusing to let me or my staff have access to the administrative files of the taxpayers unless I sign a document agreeing in writing not to share any information that I find or see in that file with the taxpayer him or herself. I find that deeply offensive. I am subject to the same laws as any other IRS employee about disclosure of tax information. I am also by law entitled to any tax return or any tax return information that I need to conduct my tax administration duties. My tax administration duties are in the code and number one is help taxpayers resolve their problems with the IRS, and I need to be able to see the administrative files in order to determine how they go about doing that. My position is that the IRS in those instances has violated the law by not providing me access to those files, and I do not say that lightly.

Well, if the IRS will violate the law in regards to 501(c)(4) organizations, they can violate the law with regards to the Taxpayer Advocate Service. Until Congress or the courts stop it, that’s the environment that we work in.

It’s Nice to Know I’m Right, But…

Saturday, December 14th, 2013

I’ve written on a few occasions about my battles with the IRS over incorrectly assessed Failure to File and Failure to Pay penalties. (See here, here, and here.) As I noted in the last post linked to above, I submitted this to the IRS’s Systemic Advocacy Management System (SAMS). Well, progress has been made.

It turns out there’s not a systemic issue, but at least two of them (and almost certainly at least three). First, the regulation that exists does provide an automatic extension for taxpayers outside of the US on April 15th for any reason. Here’s that regulation again (it’s Treasury Regulation, 26 CFR § 1.6073-4 (c)):

(c) Residents outside the United States. In the case of a U.S. resident living or traveling outside the United States and Puerto Rico on the 15th day of the 4th month of a taxable year beginning after December 31, 1978, an extension of time for filing the declaration of estimated tax otherwise due on or before the 15th day of the 4th month of the taxable year is granted to and including the 15th day of the 6th month of the taxable year.

The woman I’ve been dealing with at SAMS confirmed that the plain language of the regulation does govern. It’s also noted in the Internal Revenue Manual (IRM), which is how the IRS is supposed to resolve penalties. But:

1. IRS publications are likely wrong. Publication 54 notes that an extension is available only if outside of the US on April 15th for business purposes and you have to reside outside of the US. The clear language of the regulation is different and governs, so publications are wrong. They’ll have to be rewritten, which won’t happen for 2013 publications (they’ve already been issued and have a July deadline).

2. IRS staff is not using the IRM to properly resolve the matter. Based on the experiences of my clients, these penalties should have been resolved at the service centers. The staff at the service centers may be using publications rather than the IRM to look up how the Tax Code works. (It’s also possible that the IRM needs to be rewritten in this area to note this situation.) There will be a need to determine why the penalties weren’t resolved at the service center; it’s possible that retraining some staff is required.

3. The IRS computer system likely needs to be reprogrammed to stop these penalties from being assessed in the first place. That’s almost certainly not going to happen before 2013 returns are processed, but the sooner the underlying problem(s) in the programming are discovered, the sooner they can be resolved.

Since SAMS now agrees that there is at least one systemic issue, the matter is being elevated and an analyst (and team) will be assigned to attempt to resolve this…hopefully before 2013 tax returns are filed. Unfortunately for my clients impacted by this for 2012 returns, each such case must be fought individually. While I am now fairly certain my clients will all win in the end, it’s still a pain in the neck.

There are two related matters. First, how many taxpayers were erroneously assessed these penalties and didn’t fight them? I noticed the systemic issue because I had multiple individuals impacted in multiple years. It’s likely there are hundreds or thousands of taxpayers who paid penalties that shouldn’t have. If you happen to be one of them (and the tax year in question is still open), I’d immediately write the IRS requesting a refund of the penalty(ies).

Second, I wish to praise the Taxpayer Advocate’s Office of Systemic Advocacy. They did not blindly assume that the IRS was right on these penalties, and did look fully at the evidence I brought up. While I would have liked SAMS to move somewhat faster, getting the acknowledgment of being correct in four months is probably quite fast in terms of the normal speed of the bureaucracy.

“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.