Edmundson CPA, PLLC

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2014

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IRS taxpayer service declines

The Taxpayer Advocate released their mid-year report on how the tax season went. “Likening the 2015 filing season to ‘A Tale of Two Cities,’ however, the report says:  ‘For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful.  For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.’” This is even worse than last year’s report detailed in this post – IRS doing more with less?

Highlights

  • IRS processed 126.1 million individual returns versus 125.6 million the prior year.
  • The average refund was up slightly to $2,711 from $2,686 the prior year but about 3 million taxpayers received a refund this year.
  • Hold times for taxpayers were 23 minutes versus 14 minutes the prior year.
  • Sadly, only 37% of taxpayer calls were answered versus 71% the prior year. Answered means the taxpayer talked to a human and does not mean the taxpayer was actually helped.
  • Supposedly the IRS Taxpayer Advocate is a taxpayer’s last hope at IRS. With hold times of 19 minutes and only 39% of calls answered taxpayers seem to have little hope.
  • Tax practitioners have their own hotline to speed up service to them. Apparently 45 minutes on hold is faster than the 23 minutes non-tax practitioners received. Must be the newer “new math.” The IRS did answer 45% of tax practitioners calls which is better than for individuals but that may be because they held longer.
  • IRS is trying to introduce a new term to the average American – “courtesy disconnect.” It means the IRS hung up on us. What a polite way to say “we do not care.” About 8.8 million of use were shown this “courtesy” this year versus only 544,000 last year. If you get hung up on by the IRS you can no longer even consider yourself special.

Incentivizing taxpayers to cheat?

The news release says:

Olson wrote that the decline in taxpayer service imposes increased compliance burdens on taxpayers and may lead to erosion in taxpayer trust.  “For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well,” she wrote.  “In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.

I read that to mean the Taxpayer Advocate would not be surprised if people throw up their hands and do what they think is best for them instead of trying to figure out the law and the forms.

Long-term plan concerns

According to the report, IRS’ long-term plan is too heavy on enforcement and too light on customer service. Additionally, the IRS’ is pushing too much online taxpayer service and cutting back on human assistance. For a hint on a better way to search the IRS website see the Website section of this post – Get IRS help by appointment.

Identity theft protection

OK your identity has been stolen and someone is using your information to get a tax refund. From my experience, this is an extremely stressful situation for most people. So how does IRS help?

If someone else uses your Social Security Number before you file, expect to wait an average of six months for a refund. If you owe, do not worry they will promptly take your payment. If an IRS’ fraud filter incorrectly flags your return, IRS makes you wait an average of 28 minutes to speak to someone and “courtesy disconnects” 83% of callers. The good news is IRS is catching more fraudulent returns before sending refunds. The bad news is IRS’ fraud filters are flagging more legitimate returns – over 600,000 this year.

Obamacare problems

Not surprisingly, there were quite a few problems caused by the new Affordable Care Act (ACA) provisions. Interestingly, the Taxpayer Advocate attributes many of them to other parties. For example, the Center for Medicare and Medicaid Services sent out about 800,000 erroneous Forms 1095-A regarding health care acquired through the ACA exchange.

Conclusion

Considering the 17% inflation adjusted budget cut IRS has experienced since 2010, the problems with answering the phone are not surprising. I discussed the IRS budget earlier in this post. Of course, if IRS would stop shooting themselves in the foot they could do a better job with their existing budget. A bit more money to customer service and less to enforcement might actually be profitable.

 

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Get IRS help by appointment


In the past, IRS Taxpayer Assistance Centers were open on a first come first served basis to provide in person assistance with tax issues. Now the IRS is testing letting taxpayers get IRS help by appointment in-person. IRS encourages taxpayers to use the face-to-face meeting to only handle issues that cannot be taken care of over the phone or online.

You can find an IRS Taxpayer Assistance Office offering appointments here. Scroll to the bottom and click on your state or the international link. Look for a link to “By Appointment” in the Days/Hours of Service column for those offices scheduling appointments. As of this writing, the only NC IRS site taking appointments is in Wilmington. All other locations are drop-in with first come first served service. So how good are IRS’ suggested alternatives?

Website help

Is the IRS’ website a realistic option? Depends on how complex your problem is and whether it is specific to your account or not. Downloading forms and publications is pretty straight forward, assuming you know the form or publication you need. The IRS search tool is not ideal (being polite here). If I do not know where the information is on the IRS site, I usually use Google to search just the IRS website. You can do this in at least two ways – 1) use the Google Advanced Search screen and complete at least one search field and put “irs.gov” in the site or domain field or 2) type your search normally and at the end add “site:irs.gov.” Leave out the quotation (“) marks. Here is an example search for information on the child tax credit that will provide results only from the IRS site:


 

 

 

 

 

So the IRS website will only help you can find and understand the information on their site. It is no help if you need specific help with your actual account (e.g. respond to an IRS notice).

Phone help

Good luck calling IRS! You are better off searching IRS’ website than calling. The Treasury Inspector General for Tax Administration (TIGTA) has several reports on IRS phone efficiency. Need help because you have a collection notice? TIGTA reports IRS collections answers 25% fewer calls than they did in 2011 and taxpayers who do get through wait 97% longer (about 8 more minutes) than in 2011.

What about taxpayers seeking answers to help them complete their returns? TIGTA wishes them good luck (OK, not really but that is the gist of the report). TIGTA reports the level of service in 2015 through March 7th has dropped to 38.5% from 74.7% in 2014. The level of service is a measure of a taxpayers success in getting assistance (i.e. talking to an IRS employee, not necessarily getting the right answer). The average wait time more than doubled from 11.7 minutes to 24.6 minutes in the mid-season report.

On July 15, 2015 the Taxpayer Advocate gave updated numbers – IRS answered 39% of calls and hold times averaged 23 minutes compared to 71% answered the prior year with an average hold time of 19 minutes. So by the end of the tax season things got a little better or less bad.

Only the IRS could come up with a term like “courtesy disconnects” to replace “we hung up on you while you were on hold.” IRS hung up on 8.8 million callers before they got to speak to anyone. Wonder how many were hung up after starting to talk to an IRS employee but before receiving help? At least the hang ups only increased 544,000 from 2014.

In conclusion

It will be interesting to hear from people actually using the appointment system. Please add a comment letting us know if they were available at the scheduled time, were able to resolve your issue, and how difficult it was scheduling the appointment. If you prefer, you can send your comment directly to me.

 

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Really? Only 2 incidences of taxpayer abuse or harassment?

Treasury Inspector General for Tax Administration logo

The Treasury Inspector General for Tax Administration (TIGTA) released their report titled Review of Fair Tax Collection Practice Violations During Fiscal Year 2014 on May 28, 2015. When Congress passed the Fair Debt Collection Practices Act in 1977, they exempted the federal government from its requirements. (An aside, it must be nice to exempt yourself from rules others have to follow.) In 1998, Congress finally decided to apply the law to the IRS collection activities but they wrote a special version for IRS called the Fair Debt Collection Practices Act (FDCP).

FDCP Act requirements (from TIGTA report):

[T]he IRS may not communicate with taxpayers in connection with the collection of any unpaid tax:

  • At unusual or inconvenient times.
  • If the IRS knows that the taxpayer has obtained representation from a person authorized to practice before the IRS and the IRS knows or can easily obtain the representative’s name and address.
  • At the taxpayer’s place of employment, if the IRS knows or has reason to know that such communication is prohibited.

In addition, the IRS may not harass, oppress, or abuse any person in connection with any tax collection activity or engage in any activity that would naturally lead to harassment, oppression, or abuse. Such conduct specifically includes, but is not limited to:

  • Use or threat of violence or harm.
  • Use of obscene or profane language.
  • Causing a telephone to ring continuously with harassing intent.
  • Placement of telephone calls without meaningful disclosure of the caller’s identity. (end quoted text)

Really?

TIGTA reports two, yes two (2), violations in the last fiscal year. The IRS is a huge organization. Even operating as well as a great customer service driven commercial entity I find it difficult to believe there were only incidences when they broke the rules. My guess is that most taxpayers do not take the time to report the abuse or harassment as they are afraid it will lead to more of the same.

What do you think?

Please add your opinion in the comment section.

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NC not last, Oregon finally updates for 2014 federal changes

Snails by fdecomite, on Flickr

Back in early April 2015, I wrote about how slow NC was in updating their 2014 income tax laws. You can read that post here. It turns out the NC Legislature is fast compared to Oregon. According to CCH, Oregon just updated their income tax laws to conform (or not conform) with late 2014 changes by Congress. You can read more about the Congressional changes here and here.

At least the changes are effective for 2015. Returns for 2014 filed under the Internal Revenue Code as of 12/31/2013  are not subject to this late change. It is difficult though for Oregon taxpayers that have to know two different federal tax laws for 2014 – the 2014 law for federal returns and the 2013 federal law for 2014 Oregon returns.

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IRA distributions when reaching age 70 1/2 in 2014

IRA by GotCredit, on Flickr, under Creative Commons license, on Flickr

When do you turn 70 1/2?

First things first, what genius in Congress decided to use age 70 1/2 instead of 70 or 71? When are you 70 1/2? The IRS says you turn 70 1/2 on “the date six calendar months after the 70th anniversary of the employee’s birth.” (Regulation 1.401(a)(9)-2, A-3) An example in the regulation says that if your birth date is June 30th, then you turn 70 1/2 on December 30th (shouldn’t that be December 31st, well it is not). On the other hand, if your birth date is July 1st, then you turn 70 1/2 on January 1 of the next year.

Why should you care?

If you turned 70 1/2 years old during 2014, you are required to take a minimum distribution by April 1, 2015 or face a 50% penalty. That is 50% of the amount you should have withdrawn but failed to. That is a pretty steep penalty. IRS is fairly liberal on waiving the penalty the first time but after that they are quite strict. Even though IRS is liberal in forgiving the penalty, there is no guarantee and an excuse like “I did not want to take my required distribution” will not work. NC does not have an equivalent penalty.

Distribution deadline

For the year you turn age 70 1/2 you can take your minimum required distribution (MRD, aka RMD for required minimum distribution) any time after turning 70 1/2 through April 1st of the following year. Please note that an IRA distribution the year you turn 70 1/2 does not count as an MRD if it is before you reach 70 1/2. Why April 1st? Perhaps Congress thought it would be funny to penalize people for missing something on April Fool’s Day. I will leave it to you to decide the why.

What is important is the date. A lot of people get confused and equate the deadline with the individual filing deadline of April 15th. Sorry, take your post 70 1/2 MRD after April 1st of the following year and on or before April 15th and you owe the 50% penalty. Determining your MRD is beyond the scope of this post as it depends on several factors. Your IRA custodian may be able to help but remember, they will probably disavow any responsibility if they get it wrong.

Note: The MRD rules do not apply to Roth IRAs during the original owner’s life. The MRD rules do apply to people inheriting Roth IRAs.

Conclusion

If you turned 70 1/2 in 2014 take your MRD now! It takes time for your IRA custodian to process the paper work so do not wait until the last-minute. Also, please do not count on IRS being forgiving.

 

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Tax season to start on time

 

Tax Season to Start on Time

On December 29th, 2014 IRS announced that they expect tax season to start on time. Congress passed the 2014 tax extenders act in time for IRS to meet its originally planned start date of January 20, 2015. Both electronic and paper returns will be accepted beginning then. Some taxpayers may still have to wait if they have special situations that software vendors are still programming into tax preparation software.

President signs Tax Extenders Act

While we were away for the holidays, President Obama signed the 2014 tax extenders act on December 19th. The act is formally known as the Tax Increase Prevention Act of 2014 and is also known as H.R. 5771 which is how the press release in the prior link refers to it.

Budget cuts may still affect tax season

Politico and other news media reported IRS Commissioner Koskinen warned that the IRS may “have to shut the place down” due to the cuts to IRS’ budget made in the recently passed spending bill. They also report that Koskinen ordered a suspension of overtime and a hiring freeze. While Congress is punishing IRS with budget cuts, they are also penalizing innocent taxpayers for the wrongs committed by IRS. For more on the budget cuts, read Joe Kristan, CPA’s post – “If you think I’m unsympathetic to Commissioner Koskinen’s pleas of IRS poverty ….”

Hopefully, these changes will not delay refunds during tax season and beyond.