Nov
 
6

Budget Cuts Hit IRS’s Ability to Collect Delinquent Taxes

Originally Published in ACCOUNTINGTODAY.COM

Years of budget cuts are having a negative impact on the ability of the Internal Revenue Service to collect delinquent taxes, according to a new government report.

The IRS’s Automated Collection System is responsible for answering incoming taxpayer calls and working the inventory of taxpayer delinquent accounts, the report from the Treasury Inspector General for Tax Administration noted. Since fiscal year 2010, the ACS workforce has declined by 39 percent due to attrition or reassignment, TIGTA found. Because those resources are needed to answer telephone calls, fewer resources are available to work on the inventory of past-due taxes.

This has contributed to unfavorable trends in several ACS business results, the report noted, including the amount of new inventory of cases of uncollected taxes outpacing closures of such cases; the inventory of delinquent tax cases taking longer to close; more cases being closed as uncollectible; fewer enforcement actions being taken; and more aged cases being transferred to a holding file queue that the IRS maintains of uncollected taxes.

In addition, the IRS has not established performance metrics to measure the effect that answering incoming calls has had on compliance business results, TIGTA pointed out. Capturing such data would allow ACS management to assess the impact of prioritizing call handling.

“IRS management should take steps to ensure that inventory routing and ACS resource capabilities are aligned with overall IRS tax administration priorities and their vision for the role of the ACS in the Collection enforcement strategy,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA recommended that the IRS re-examine the ACS’s role in the collection workflow process, including inventory delivery to the ACS as well as case retention criteria, and align ACS resources accordingly. The IRS should also request a study to determine the impact of the policy change to not require Notice of Federal Tax Lien determinations on certain unpaid balances, according to TIGTA. The IRS should also establish performance metrics for ACS call handling data to measure the impact that answering taxpayer calls has on compliance business results, the report suggested.

IRS officials agreed with the recommendations and plan to take corrective actions. “We recognize the critical role ACS plays in our Collection program and, while it is our intent that ACS’s role not be diminished going forward, the current budget environment requires us to continually evaluate our programs and priorities in light of declining resources,” wrote Karen Schiller, commissioner of the IRS’s Wage & Investment Division, in response to the report. “To that end, the Wage & Investment and Small Business/Self-Employed Divisions are currently realigning our compliance programs. As part of this effort, we are creating a single Collection organization within the Small Business/Self-Employed Division. The executive lead of this new Collection organization will have end-to-end accountability for the Collection program and will be responsible for reducing redundancies in our Collection processes and improving taxpayer services while identifying emerging Collection issues. While we are continuing to develop the structure and the concept of operations for this new Collection organization, ACS will be a key component. And, as part of our work on the concept of operations for the new Collection organization, we will be reviewing our ACS program to determine whether the Collection responsibilities and authorities currently assigned to our ACS employees need to be enhanced. We are proud of ACS’s contributions to our Collection program and it is our intent that ACS’s role be enhanced going forward.”

In further response to the report, the IRS pointed out that budget cuts are havin g an impact on its ability to collect revenue and taxes. “This report dramatically illustrates the bottom-line impact that IRS budget reductions have on revenue collection and unpaid taxes,” the IRS said in a statement emailed to Accounting Today. “With the IRS funding down by $850 million since Fiscal 2010 and priority programs such as identity theft requiring more resources, staffing for Automated Collection System fell from 2,824 in 2010 to 1,730 in 2013. At the same time, the report notes that tax collection in this program fell by $400 million. This is a clear example that deep cuts to the IRS budget hurts tax collection and threatens the nation’s revenue collection.”

Nov
 
6

IRS Prodded to Fix Search and Seizure Process

Originally Published in ACCOUNTINGTODAY.COM

The Internal Revenue Service’s Criminal Investigation unit needs to improve its search and seizure warrant process to ensure that the evidence it seizes is properly secured and controlled, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, found that the IRS does not always follow all procedures to ensure that evidence it seizes is properly stored and controlled.

The report comes in the wake of a recent high-profile exposé in The New York Times of abuses in IRS Criminal Investigation’s civil asset forfeiture practices. The Times investigation identified cases in which the IRS had seized large sums of money from business people who had been depositing cash in their bank accounts in amounts under $10,000, prompting the banks to send suspicious activity reports to the IRS. In some cases, innocent business people had thought that keeping the deposits under $10,000 would make it easier for the banks to process the deposits without needing to do the extra paperwork that is required for reporting any deposits over $10,000. But the practice also fits a pattern known as “structuring” that could be a sign of illegal activity, prompting the IRS to seize the assets without needing to file criminal charges. The IRS now plans to change its policy in such cases.

The new TIGTA report pointed out that each IRS Criminal Investigation, or CI, special agent has the authority to perform all duties under all laws and regulations administered by the IRS, including the authority to conduct searches and issue search and seizure warrants.

For its report, TIGTA requested 152 closed search and/or seizure warrant cases from the IRS to review. However, CI management did not provide 91 of these cases. According to CI management, the cases contained grand jury information, were part of an ongoing investigation or had been sealed by the court.

For 70 of the cases, CI management could not provide any documentation to support the contention that the cases contained grand jury information, were part of an ongoing investigation or were sealed. Instead, TIGTA had to rely on CI management’s verbal statements. TIGTA noted this constitutes a significant “scope impairment” on its audit because it prevented TIGTA from fully evaluating CI’s processing of search and seizure warrants and from determining whether the IRS is following established legal requirements to prevent the abuse of taxpayer rights.

However, TIGTA was able to review the remaining 61 closed search and/or seizure warrant cases provided by the IRS and found that 14 cases were missing documentation of the Criminal Tax Counsel’s post-search warrant inventory review, were missing signed affidavits, and/or contained errors on their search warrants.

“Our report found that procedures were not always followed to ensure that seized evidence was properly stored and/or controlled,” said TIGTA Inspector General J. Russell George in a statement. “Without maintaining proper documentation and following evidence procedures, evidence may be inappropriately disclosed, lost, tampered with, or stolen.”

TIGTA recommended that the IRS ensure that the required documentation is maintained in the case files, including the Criminal Tax Counsel’s post-search warrant inventory reviews, as well as signed copies of the affidavits. TIGTA also recommended that the IRS reinforce the need for physical controls over seized evidence, study the physical space needs for evidence storage, and improve access controls over evidence.

In response to the report, the IRS agreed with all five recommendations and plans to take corrective actions on four of them. While the IRS said it agreed with the fifth recommendation, IRS officials stated that they do not have the capability to have a designated evidence custodian in each post of duty due to resource constraints. Instead, the IRS will issue a reminder to managers and special agents of the proper procedures for preserving the chain of custody.

“We take the findings in this report very seriously, and appreciate and agree with your recommendations for ensuring proper documentation and proper storage of all evidence,” wrote J. Donald Fort of IRS Criminal Investigation. “Reductions in our administrative resources have necessitated that special agents maintain the administrative files and evidence for their individual cases; however, we are in the process of working on an improved system of maintaining and storing documents such as search and seizure warrant files. In addition to implementing your recommendations, we intend to add additional procedures and measures of our own to further improve and strengthen our current procedures. First, the policies for proper case file documentation for search and seizure warrants and proper storage of the evidence will be reinforced to all Special Agents. Second, through management and national reviews, we will ensure that the policies and procedures for properly maintaining administrative documentation related to search and seizure warrants are being properly followed. In addition, we are actively working on securing sufficient space for all seized evidence. As you are aware, evidence can only be stored in Criminal Investigation (CI) space, which is restricted secured-access space that is accessible only by CI employees. CI is cognizant of, respects and is sensitive to the rights of taxpayers, when utilizing the authority to conduct searches and obtain search and seizure warrants in accordance with the Fourth Amendment to the United States Constitution. We stress to our special agents to consider all other investigative tools before deciding that a search warrant is the least intrusive means to acquire evidence for an investigation.”

The IRS further elaborated on the steps it is taking in a statement emailed to Accounting Today. “The IRS takes the findings of this report very seriously and notes that TIGTA had no findings of any improper search or seizure warrants served,” the IRS said. “While the IRS’s Criminal Investigation division currently emphasizes proper documentation and storage of evidence, it will pro-actively address the areas where improvements can be made. IRS agrees with all five TIGTA recommendations and is taking corrective action on four of them. The fifth recommendation, to have a designated evidence custodian at each post-of-duty, requires staffing and other resource costs that the current budget environment cannot support. However, CI case agents are the official evidence custodians for the evidence obtained in their investigations and as such maintain the chain of custody.”

“It is important to note that IRS Criminal Investigation facilities are themselves in secure space, which is not accessible by the general public or unauthorized persons,” the IRS pointed out. “We are working with Facility Management and Security Services to secure space to address CI space needs to increase storage capacity.”

The IRS also pointed to the impact of budget cuts on its enforcement efforts. “Since 2010, the IRS budget has been reduced nearly $850 million,” said the IRS. “At the same time, we have 13,000 fewer employees today than we did in 2010. Specifically for our enforcement efforts, we have experienced a decrease of nearly 10 percent in the number of Special Agents during the same time period, falling from 2,780 in 2010 to 2,549 in 2013.”

Oct
 
16

Report: IRS’s English not always plain

Originally Published in The Hill

The IRS needs to do a better job keeping it simple with taxpayers, according to a new federal audit.

Treasury’s inspector general for tax administration found that the IRS generally did a good job complying with the Plain Writing Act, a 2010 law that requires federal agencies to make official communications easy to understand.

But the inspector general also found that the IRS doesn’t have a full list of all the letters and messages it sends to taxpayers, making it difficult to know how clearly the agency is communicating.

The watchdog also said that half the letters and two-thirds of the notices it examined either weren’t written clearly or didn’t give enough information.

“The IRS mails more than 200 million letters and notices each year to individual and business taxpayers to help them understand and meet their tax obligations,” Russell George, the tax administration inspector general, said in a statement.

“Not only does it make good business sense, but the law requires clear government communications that the public can understand and use.”

Agency officials say they have tried to inventory all the messages they send out, but that the sheer number makes that difficult. The IRS office that corresponds with taxpayers also has 44 separate systems it uses to craft letters or notices to taxpayers.

Even so, the IRS said it would be a waste of limited resources for the agency to try to catalog all the different types of correspondences.

The inspector general did say that the IRS had made strides in some areas to comply with the Plain Writing Act, including by increasing training for staffers and corresponding differently with taxpayers and tax professionals.

Aug
 
18

Job Openings in U.S. Increase to Highest Level Since 2001

Originally Published in BLOOMBERG

Job openings rose in June to the highest level in more than 13 years, firming up the U.S. labor market picture for the second half of the year.

The number of unfilled positions climbed by 94,000 to 4.67 million, the most since February 2001, from a revised 4.58 million in May, a report from the Labor Department showed today.

Today’s figures are among those on Federal Reserve Chair Janet Yellen’s employment “dashboard,” which she uses to help guide monetary policy. The increase in openings, combined with the highest readings on the number of people hired and leaving their jobs since 2008, means the healing in the labor market is broadening, albeit at a measured rate.

“There’s improvement, but it’s still slow and uneven,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. Hiring, firings and quits will need to be closer to pre-recession levels “before Yellen and Co. get concerned that maybe the economy might be overheating.”

Stocks fell after the biggest two-day rally in the Standard & Poor’s 500 Index since April, depressed by a drop in energy shares as the price of crude oil retreated. The S&P 500 declined 0.3 percent to 1,930.79 at 11:16 a.m. in New York.

The Job Openings and Labor Turnover Survey, or JOLTS, contextualizes monthly payrolls figures by measuring dynamics including resignations, help-wanted ads and the pace of hiring.

Although it lags the Labor Department’s other jobs data by a month, Yellen follows the report as a measure of labor-market tightness and worker confidence.

Openings, Jobless

Today’s figures indicate there are about 2 unemployed people vying for each opening. The ratio when the last recession began in December 2007 was 1.8 job seekers per opening.

Payrolls expanded by 209,000 workers in July, following a 298,000 gain the prior month, Labor Department figures showed last week. Gains have exceeded 200,000 for six straight months, the first time that’s happened since 1997.

The improving conditions drew more job seekers into the labor force, pushing up the unemployment rate to 6.2 percent from 6.1 percent.

Two-thirds of Yellen’s dashboard measures are still shy of their pre-recession levels, including the share of jobless Americans who have been out of work for 27 weeks or longer, and the portion of the working-age population in the labor force.

In today’s report, the number of people getting jobs rose to 4.83 million in June, the most since April 2008, from 4.74 million, pushing the hiring rate to 3.5 percent from 3.4 percent. The metric is calculated by dividing the number of monthly hires by the number of employees who worked or received pay during that period. It averaged 2.8 percent during the previous expansion.

Help Wanted

Job openings in June increased at factories, retailers and professional and business services. The rate of openings rose to 3.3 percent, the highest since June 2007, from 3.2 percent.

Some 2.53 million people quit their jobs in June, the most since June 2008, up from the prior month’s 2.49 million.

The quits rate, which shows the willingness of workers to leave their jobs and may gauge the degree of optimism in finding a new position, held at 1.8 percent. It read 2.1 percent when the recession started at the end of 2007.

Separations rose to 4.55 million in June from 4.53 million, today’s report showed. Dismissals, which exclude retirements and voluntary departures, decreased to 1.62 million from 1.66 million a month before.

In the 12 months ended in June, the economy generated a net 2.4 million jobs, which included 55.7 million hires and 53.3 million separations.

Propel Incomes

Hiring gains could catalyze enough income growth to drive up consumer spending, which accounts for almost 70 percent of the economy.

Businesses expanding their talent pools include Union Pacific Corp. (UNP) The largest publicly traded railroad expects to hire a total of 5,000 people in 2014, of which 4,000 are expected to cover attrition. Cognizant Technology Solutions Corp. (CTSH), one of the largest providers of outsourcing services, netted 8,800 new hires in the second quarter, the most since 2011.

The overall progress in the economy and labor market has allowed Fed policy makers to further reduce their bond-buying while keeping interest rates at record lows. The Federal Open Market Committee announced July 30 that it would trim monthly asset purchases by $10 billion, to $25 billion. The central bankers repeated that they’ll probably reduce purchases in “further measured steps,” while keeping interest rates low for a “considerable time.”

Aug
 
6

Senators Introduce Bill to Prevent Tax Refund Theft

Originally Published in ACCOUNTINGTODAY.COM

Leaders of the Senate Finance Committee have introduced bipartisan legislation to improve protection for taxpayers against fraudulent tax refund claims made with stolen identities.

Sen. Orrin Hatch, R-Utah, ranking member of the Senate Finance Committee, and Ron Wyden, D-Ore., who chairs the Senate Finance Committee, introduced theTax Refund Theft Prevention Act of 2014, S. 2736, on Thursday.

The bill includes new assistance for taxpayers who have been victims of identity theft and requires the Internal Revenue Service to establish a new security feature that individuals can use to protect their tax return filings.

“Tax refund fraud is a one-two punch for taxpaying individuals,” Hatch said in a statement. “Millions of taxpayers’ identities are compromised, and all taxpayers have their tax dollars wasted. Our bill aims to address such fraud by enhancing the IRS’s capabilities in detecting fraud and by giving victims the assistance and safeguards they need to repair the damage done by tax theft criminals. In order to further deter this crime, we make tax refund fraud a specific category of a felony offense and enhance security features for filers. Hard-working American families deserve a government that protects both their tax dollars and their sensitive taxpayer information. I am pleased Chairman Wyden has joined me in this advancing this effort.”

“We have to better protect lawful taxpayers from this nightmare issue,” Wyden said. “Earlier this year, I made it clear that taxpayer consumer protection must be at the heart of improving the American tax system. This bill offers a comprehensive, commonsense solution to a growing problem that will help prevent fraud and also provide assistance to those who have been victimized. Senator Hatch and I remain committed to protecting the integrity of our tax system.”

Under the bill, businesses would be required to report both employee compensation and certain non-employee compensation to the government earlier in tax season. The change would improve the IRS’s ability to identify and prevent fraudulent refund claims.“We have to better protect lawful taxpayers from this nightmare issue,” Wyden said. “Earlier this year, I made it clear that taxpayer consumer protection must be at the heart of improving the American tax system. This bill offers a comprehensive, commonsense solution to a growing problem that will help prevent fraud and also provide assistance to those who have been victimized. Senator Hatch and I remain committed to protecting the integrity of our tax system.”

Paid tax preparers would be required to file individual income tax returns and most information returns electronically under the proposed legislation. In addition, the electronic filing requirement for preparers who file over 250 tax returns would be scaled back to 20 returns, over a three-year period, to improve the IRS’s ability to identify and prevent fraudulent refund claims.

The existing access that the Treasury Department has to the National Directory of New Hires database would be expanded for the purpose of identifying and preventing fraudulent tax filings and refund claims.

Victims of tax refund theft would be assigned a single contact person within the IRS for help with correcting their tax records and receiving their tax refunds.

Under the bill, the list of aggravated identity theft crimes that are classified as felonies would be expanded to include tax refund theft. Tax preparers would also face significant new penalties if they inappropriately disclosed taxpayer information in connection with an identity theft crime.Victims of tax refund theft would be assigned a single contact person within the IRS for help with correcting their tax records and receiving their tax refunds.

Individual taxpayers would be able to add password security to their tax filings under the legislation. If a tax return filer elected to add this security measure, then a valid tax return could not be filed without also using the correct password.

Under the bill, due diligence requirements imposed on tax preparers with respect to the Earned Income Tax Credit would be expanded to include a requirement that the preparer verify the tax filer’s identity. The senators’ office noted that many fraudulent returns falsely claim the EITC in order to generate a tax refund.

Under the proposed legislation, he IRS would be prohibited, with limited exceptions, from issuing multiple tax refunds to the same account or address. Annual tax statements received by employees for wages earned would be required to use a truncated Social Security number in order to protect the number from identity theft.

Jul
 
2

New 1023-EZ Form Makes Applying for 501(c)(3) Tax-Exempt Status Easier; Most Charities Qualify

From IRS Newswire, an IRS e-mail service

WASHINGTON — The Internal Revenue Service today introduced a new, shorter application form to help small charities apply for 501(c)(3) tax-exempt status more easily.

“This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well,” said IRS Commissioner John Koskinen. “The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”

The new Form 1023-EZ, available today on IRS.gov, is three pages long, compared with the standard 26-page Form 1023. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

“Previously, all of these groups went through the same lengthy application process — regardless of size,” Koskinen said. “It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months.

Following feedback this spring from the tax community and those working with charitable groups, the IRS refined the 1023-EZ proposal for today’s announcement, including revising the $50,000 gross receipts threshold down from an earlier figure of $200,000.

“We believe that many small organizations will be able to complete this form without creating major compliance risks,” Koskinen said. “Rather than using large amounts of IRS resources up front reviewing complex applications during a lengthy process, we believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”

The new EZ form must be filed online. The instructions include an eligibility checklist that organizations must complete before filing the form.

The Form 1023-EZ must be filed using pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40, posted today on IRS.gov.

There are more than a million 501(c)(3) organizations recognized by the IRS.

Jun
 
27

Economists brush off dire GDP: ‘This is a blip’

Originally Published in The Hill

Economists and financial experts are bullish on the economy despite the stunning drop in gross domestic product reported for the first quarter of the year.

The Commerce Department on Wednesday reported that the gross domestic product (GDP) shrank by 2.9 percent in the first three months of 2014, far worse than the 2 percent contraction that had been expected.

The GDP number was the worst for the U.S. since the first quarter of 2009, when the country was mired in a deep recession.

Experts tracking the economy closely said the dismal report is no reason to panic, and argue the recession-era number can be attributed to a number of one-off factors, including harsh winter weather, a decline in exports exacerbated by global turmoil, and an expected spike in healthcare spending that never materialized.

“It was ugly reading, but I think it was a combination of a lot of one-off negative impacts that all hit at the same time,” said Scott Anderson, chief economist for Bank of the West.

“It’s eye-catching. It’s big,” said Ben Herzon, senior economist at Macroeconomic Advisers. “But we know what it’s about, and the reasons to expect a rebound in growth going forward are still there.

“That part of the story hasn’t changed.”

Financial markets also took the bleak new data in stride. All three major indices were in positive territory by Wednesday afternoon, with little sign that traders were hunkering down for rocky economic times.

The case that the awful first quarter report was an outlier is bolstered by the relative strength of other recent economic data.

The unemployment rate has fallen to 6.3 percent, and the U.S. has added over 200,000 jobs in each of the last three months. And there has been a run of good news on the housing front, which has long been deadweight on the economy.

Reports this week showed that sales of new single-family homes rose 18.6 percent to a seasonally adjusted annual rate of 504,000 units in May, the highest rate since May 2008.

Another report said sales of existing homes rose 4.9 percent in May, the largest gain on that front since August 2011. In addition, housing confidence rose 4 points in June, another good sign for the sector.

The housing market, which was hit hard by the severe winter weather, also stumbled last fall when mortgage rates rose as the Federal Reserve determined its tapering schedule.

“Potential homebuyers are adjusting to the higher mortgage rates, builders are responding by building homes at lower price points, and mortgage credit availability is slowing improving for first-time buyers,” said Mark Zandi, chief economist at Moody’s Analytics.

If the economy were to take a fundamental turn for the worse, it could be a blow to Democrats hoping to retain control of the Senate and gain seats in the House, as the party has made economic issues a central piece of their campaign message.

The underlying optimism around the economy could help explain the relatively muted political reaction to Wednesday’s disappointing numbers. A handful of Republican lawmakers blasted the Obama administration’s economic policies after the numbers came out, but Speaker John Boehner (R-Ohio) did not mention it during a press conference with reporters.

The White House, meanwhile, sought to paint Wednesday’s report as an aberration.

Jason Furman, chairman of the president’s Council of Economic Advisers, wrote that the revisions for the first quarter of the year were the most dramatic in the roughly 30 years the government has tracked gross domestic product in that fashion. He also noted that the GDP number was “significantly below” other economic measures from that time, highlighting an increase in private-sector hours and industrial output in manufacturing from the same period.

He also noted that other economic indicators declined in the first two months of the year, only to spike back up in March, giving credence to the idea that harsh winter conditions held back the economy early in the year.

The widespread belief that the first quarter number was a one-off has only raised expectations for a strong second quarter report. Zandi forecasts a strong April-June quarter rebound that could see growth near a 4 percent annual pace. If that bears out, it would represent a nearly 7-point swing, with the economy expected to maintain a similar growth path for the rest of the year.

“We’ll see good growth in the rest of 2014. This is a blip,” said Gus Faucher, senior economist at PNC. “I do think that going forward, things are looking much better.”

Apr
 
24

IRS Workers Got $1.1 Million in Bonuses Despite Owing Back Taxes

originally posted on latimes.com on April 23, 2014

WASHINGTON — The IRS paid a total of about $1.1 million in bonuses over about two years to more than 1,100 employees who had been disciplined for failing to pay their own taxes, according to an inspector general’s report.

Those employees also received awards of more than 10,000 hours of extra time off and 69 faster-than-normal pay grade increases. They were among more than 2,800 IRS employees during that period who got performance awards within one year of disciplinary action, such as suspensions or written reprimands, the report found.

This is bad news for the Internal Revenue Service’s image, “which already has taken some very serious hits over the past couple of years,” said Pete Sepp, executive vice president of National Taxpayers Union.

The Treasury’s inspector general for tax administration noted that the performance awards did not violate the law.

But he said that “providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’ charge of ensuring the integrity of the system of tax administration.” The IRS’ contract with the National Treasury Employees Union says disciplinary action or investigations do not preclude an employee receiving a bonus or other performance award unless it would damage the integrity of the agency.

The inspector general’s report, released Tuesday, found that the more than two-thirds of IRS employees received performance awards in the 2011 and 2012 fiscal years.

The audit was done because new federal guidelines in 2011 required agencies to reduce spending on bonuses and other awards.

IRS spending on bonuses went down in 2012 compared to 2011.

In 2011, the IRS paid $91.6 million in bonuses and granted almost 520,000 hours of extra time off to a total of 70,500 of the agency’s approximately 104,400 employees, the report said. That amounted to awards for 67.5% of employees.

The following year, spending on cash bonuses dropped to $86.3 million and time off awards fell to about 490,000 hours. But the percentage of employees receiving performance awards increased. The agency gave awards to 67,870 of its 98,000 employees in 2012 — or 69.3%.

Throughout that time, many employees who had been the subject of disciplinary action received performance awards.

From Oct. 1, 2010, to the end of 2012, more than 2,800 employees who had been disciplined received more than $2.8 million in cash bonuses and more than 27,000 extra hours of time off, the report said.

Those included 1,146 employees with tax problems, the report said.

The IRS has been under fire since agency officials said last year that employees improperly targeted applications from conservative groups seeking tax-exempt status.

IRS employees disciplined for failing to pay back taxes should not be denied bonuses, but the money should be diverted to pay the penalty, said Sepp of the Taxpayers Union.

“If we’re assuming that the awards are given out on true merit … then say, ‘Sorry you owe $800 on a lien and you’ve exhausted all your appeals your reward is reduced accordingly,’ ” he said.

The inspector general, however, recommended the IRS consider a policy requiring managers to consider disciplinary actions, especially those for failure to pay taxes, before deciding on bonuses and other performance awards.

The agency issued a statement saying that it already was making changes to its bonus policy.

“The IRS takes seriously our unique role as the nation’s tax administrator. We strive to protect the integrity of the tax system, and we recognize the need for proper personnel policies,” the agency said.

The IRS said it had developed a policy linking conduct to performance awards for executives and senior-level employees.

Even without such a policy, during the previous four years “the IRS has not issued awards to any executives that were subject to a disciplinary action,” the agency said.

The IRS said it is considering a similar policy for the rest of the agency’s workforce, but that would have to be negotiated with the National Treasury Employees Union.

A spokesman for the union did not immediately respond to a request for comment.

Sepp said he had broader concerns about the large percentage of IRS employees receiving bonuses. “It just doesn’t’ seem in tune with the reality of any workforce, public or private, that more than half of them would get some kind of merit-based award,” he said.

Apr
 
22

IRS Doing More Audits of Large Partnerships

Originally Published in ACCOUNTINGTODAY.COM

As the number of large partnerships involving 100 or more direct partners continues to grow, the Internal Revenue Service is taking a closer look at them, according to a new government report.

The report, from the Government Accountability Office, acknowledged that there is no statutory, IRS or industry-accepted definition of a “large partnership.” However, the GAO used a combination of criteria for partner size and asset size used by IRS to define large partnerships as those that reported having 100 or more direct partners and $100 million or more in assets. Due to the growth of large partnerships and the limited publicly-available data on them, the GAO was asked to provide information on the number and characteristics of large partnerships and on those large partnership returns that have been subject to an IRS audit.

The GAO report found that the number of large partnerships increased from 720 in tax year 2002 to 2,226 in tax year 2011. Large partnerships also increased in terms of the average number of direct partners and average asset size.

The IRS had data on two categories of large partnership return audits. First, the number of completed field audits of large partnership returns increased from 11 in fiscal year 2007 to 31 in fiscal year 2013. Second, IRS counted audits closed through its campus function, which increased from 42 to 143 over the same period. “Unlike field audits, campus function audits generally do not entail a review of the books and records of the large partnership return but rather were opened to pass through large partnership return audit adjustments to the related partners’ returns,” the GAO noted.

The percentage of IRS audits that resulted in no change to the taxpayer’s return varied from fiscal year 2007 to 2013 but was 52 percent for campus function audits and 45 percent for field audits in fiscal year 2013, according to the GAO.

Senate Finance Committee Chairman Ron Wyden, D-Ore., took note of the findings in the report and said it could play a role in the tax reform efforts. “This is a real problem and serves as yet another example of why Congress needs to get serious about comprehensive, bipartisan tax reform,” he said in a statement. “This includes looking at the growth of large partnerships and working with the proper parties—including the IRS—to put in place a smart framework for auditing and governance. By rebuilding our tax fundamentals, rather than jumping from one fire drill to the next, Congress can better ensure that we have a fair code and enforcement system in place.”

However, the IRS may be constrained in its audit efforts by budget constraints. IRS commissioner John Koskinen said recently that the audit rate for individual tax returns last year was at its lowest rate since 2005, due to budget cuts in recent years, and he expects it to decline further this year (see IRS Audit Rate Hits New Low).

Wyden, along with Senators Carl Levin, D-Mich., and John McCain, R-Ariz., pointed out that the GAO’s preliminary report shows that the IRS is failing to audit 99 percent of the tax returns filed by large partnerships with assets exceeding $100 million.

“The GAO report shines a needed spotlight on how the IRS is auditing large partnerships, and the news isn’t good,” said Levin, chairman of the Senate Permanent Subcommittee on Investigations. “The GAO report shows that while the number of these massive partnerships with massive assets has exploded, IRS audits haven’t kept pace.”

According to GAO, “[b]etween tax years 2002 and 2011, the number of businesses organized as partnerships (with 100 or more partners and $100 million or more in assets) increased more than 200 percent, accounting for $2.3 trillion in assets and $68.9 billion in total net income by 2011.”

Yet in 2012, for example, IRS field audits reviewed the books and records of only 0.8 percent of large partnership returns, according to the preliminary report.

“Auditing less than 1 percent of large partnership tax returns means the IRS is failing to audit the big money,” said Levin in a statement. “It means over 99 percent of the hedge funds, private equity funds, master limited partnerships and publicly traded partnerships in this country, some of which earn tens of billions each year, are audit-free. It is obvious something is wrong with the IRS audit program for large partnerships. We literally cannot afford to allow these entities to go unaudited.”

The final GAO report is expected to provide additional qualitative analysis of why the IRS has performed so few audits of large partnerships. It is expected to focus in part on the unified partnership audit procedures in the Tax Equity and Fiscal Responsibility Act (TEFRA), which some view as responsible for making large partnership audits time-consuming and expensive.

“If Congressionally-imposed red tape or budget cuts are partly responsible for the poor audit numbers, we need to find that out and change it,” Levin added.

The IRS told the Associated Press that budget cuts in recent years have led to reductions in its enforcement staff.

“Since Fiscal 2010, the IRS budget has been reduced by nearly $900 million,” the IRS said in a statement. “The IRS has about 10,000 fewer employees than in 2010, affecting our work across our taxpayer service and enforcement categories. Last year, we had 3,100 fewer people in our key enforcement positions than in 2010.”

Apr
 
15

IRS Reiterates Warning of Pervasive Telephone Scam

Sent In the IRS Newswire

WASHINGTON – As the 2014 filing season nears an end, the Internal Revenue Service today issued another strong warning for consumers to guard against sophisticated and aggressive phone scams targeting taxpayers, including recent immigrants, as reported incidents of this crime continue to rise nationwide. These scams won’t likely end with the filing season so the IRS urges everyone to remain on guard.

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail. The IRS never asks for credit card, debit card or prepaid card information over the telephone. For more information or to report a scam, go to www.irs.gov and type “scam” in the search box.

People have reported a particularly aggressive phone scam in the last several months. Immigrants are frequently targeted. Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked. Callers are frequently insulting or hostile – apparently to scare their potential victims.

Potential victims may be told they are entitled to big refunds, or that they owe money that must be paid immediately to the IRS. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

• Scammers may be able to recite the last four digits of a victim’s Social Security number.

• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

• Victims hear background noise of other calls being conducted to mimic a call site.

• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.

• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.

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