Posts Tagged ‘Taxes’

Supreme Court: Maryland has been wrongly double-taxing residents who pay income tax to other states

Friday, May 22nd, 2015

Originally Published in The Washington Post

A divided Supreme Court ruled Monday that Maryland’s income tax law is unconstitutional because it does not provide a full tax credit to residents for income tax paid outside the state, a ruling likely to cost Maryland counties and localities across the country millions of dollars in revenue.

The court voted 5 to 4 to affirm a 2013 Maryland Court of Appeals ruling that the state’s practice of withholding a credit on the county segment of the state income tax wrongly exposes some residents with out-of-state income to double taxation. Justices said the provision violated the Constitution’s commerce clause because it might discourage individuals from doing business across state lines.

In most states, income from elsewhere is taxed both where the money is made and where tax­payers live. To guard against double taxation, states usually give residents a full credit for income taxes paid on out-of-state earnings.

Maryland residents are permitted to deduct income taxes paid to other states from what they pay in Maryland income tax. But the state did not allow the same deduction to be applied to a “piggyback” tax that is collected by the state for counties and the city of Baltimore.

The ruling affects about 55,000 Maryland taxpayers, according to the state comptroller’s office.

Those who tried to claim the credit on their county income tax returns between 2006 and 2014 are likely to be eligible for refunds, which officials estimate could total $200 million with interest.

Going forward, certain small-business owners who pay income taxes to another state on income earned in that state will be able to claim a credit for both the state and county portions of the Maryland tax, costing Maryland an estimated $42 million a year in revenue.

Montgomery County, which has the highest share of residents with out-of-state income, stands to be hardest hit. State officials estimate that the county is on the hook for about $115 million in refunds and interest, plus a loss of $24 million a year in tax revenue.

“I was hoping we would avoid this,” said County Executive Isiah Leggett (D), warning that the loss of revenue increases the likelihood of a major property tax increase next year. “This case cannot be overstated in terms of its significance.”

The ruling in Comptroller of the Treasury of Maryland v. Wynne also potentially affects thousands of other cities, counties and states with similar tax laws, including New York, Indiana, Pennsylvania and New York.

The case was brought by a Howard County couple, Brian and Karen Wynne, who reported $2.7 million in 2006 income, about half from their stake in Maxim Healthcare Services, a Columbia-based home-care and medical staffing company that does business in more than three dozen states.

The Wynnes paid $123,363 in Maryland state income tax and claimed an $84,550 Maryland credit for taxes paid in other states on income from Maxim.

Maryland taxes personal income at up to 5.75 percent. It also collects and distributes a piggyback income tax of up to 3.2 percent for each of the 23 counties and Baltimore City. But Maryland until now has offered no credit for the piggyback tax — in this case, the 3.2 percent the Wynnes owed to Howard County. The Wynnes and their attorneys contended that this represented about $25,000 in illegal double taxation.

The court was sharply divided, although not along the usual ideological lines. Justice Samuel A. Alito Jr. wrote the opinion for a majority that comprised him, Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Stephen G. Breyer and Sonia Soto­mayor.

Alito said the court has long recognized that the commerce clause has a “dormant” or underlying meaning. This holds that while the clause gives Congress the power to regulate commerce among the states, it also was intended to ensure that states would not pass laws to restrict interstate business.

Maryland’s tax law violates that implicit aspect of the commerce clause, Alito said.

State officials argued that under the due process clause of the Constitution, states have a historic right to tax the income of their residents, no matter where it is earned.

The piggyback segment is excluded from the tax credit, officials said, to ensure that all residents pay an equitable share for local government services such as schools and public safety.

But Alito said Maryland’s argument is flawed because states have long offered a similar credit for out-of-state taxes paid by corporations, who “also benefit heavily from state and local services.”

Alito called Maryland’s tax policy “inherently discriminatory,” saying it essentially operates as a tariff, or a tax designed to restrict trade.

Justices Ruth Bader Ginsburg, Antonin Scalia, Elena Kagan and Clarence Thomas dissented, with Ginsburg, Scalia and Thomas writing separate opinions.

Ginsburg, writing the principal dissent, said there was nothing in the Constitution that compelled Maryland — or any other state — to change its laws because of taxes paid by its residents elsewhere. .

In his dissent, Scalia called the dormant commerce clause “a judge-invented rule under which judges may set aside state laws that they think impose too much of a burden upon interstate commerce.” Scalia said he agreed that such a view of the clause has a long history. “So it does, like many weeds,” he wrote. “But age alone does not make up for brazen invention.”

Brian Wynne, who now lives in Carroll County and no longer works for Maxim, declined to comment Monday.

Michelle Parker, a spokeswoman for Comptroller Peter Franchot (D), said in a statement Monday that the office will “work diligently and in a timely manner to comply with the decision and enforce Maryland law consistent with the decision of the Supreme Court.” Parker added that the office is already reviewing about 8,000 refund claims dating back tjo 2006.

Money for the refunds will come from the state’s income tax reserve fund. The state will recoup that money by reducing state income tax revenue sent to localities each quarter over a period of two years, starting in June 2016.

Maryland’s General Assembly last year lowered the interest rate that applies to refunds from past years in order to cushion the blow in case the Supreme Court ruled against the state. The interest rate was reduced from 13 percent to the average prime rate during fiscal 2015, or about 3 percent.

IRS Commissioner Predicts Miserable 2015 Tax Filing Season

Monday, December 22nd, 2014

Originally Posted on Forbes

Internal Revenue Service Commissioner John Koskinen warned that close to half the people trying to reach the IRS by phone might not get through during the upcoming 2015 tax filing season. “Phone service could plummet to 53%,” he told an audience of tax practitioners at the AICPA National Tax Conference in Washington, D.C. today. That would be down from an already unacceptable 72% during the 2014 filing season. The average hold time projection: 34 minutes! What’s to blame? Budget woes. “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for,” he said.

Koskinen’s remarks followed National Taxpayer Advocate Nina Olson who was even gloomier:“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

There are five key factors at play – complicating the upcoming filing season (that’s when you file your 2014 tax return). The IRS agency budget is the number one challenge, Koskinen said. The House has voted to cut the IRS budget for 2015 by $341 million, and the Senate has proposed to increase it by $240 million—that would still be 7% below 2010 funding levels.

In the meantime, Congress keeps passing laws that the IRS has to implement, namely the Affordable Care Act (“ACA”) and the Foreign Account Tax Compliance Act (“FATCA”). For example, Koskinen said the IRS requested $430 million in 2014 from Congress to implement the ACA but got zero, forcing it to take money out of enforcement and taxpayer services budgets.

This will be the first filing season with two major provisions from the Affordable Care Act –the premium tax credit and the individual shared responsibility payment–on Form 1040. National Taxpayer Advocate Olson said she’s very concerned about the IRS receiving accurate information from the health exchanges. It won’t be the IRS’s fault, but taxpayers will likely put the blame on the IRS. Koskinen touted the web pages that the IRS has created to help explain the ACA tax provisions.

Olson expects that implementation of FATCA, which affects taxpayers with accounts overseas, will also cause trouble this filing season. A new withholding requirement will mean there will be an issue with taxpayers trying to get refunds back in a timely manner. “If they are overseas, who are they going to call? There is not toll free number,” Olson said.

Then there are the tax extenders, 50-plus laws whose fate is uncertain. Congress has vowed to vote on the future of these laws in the upcoming lame duck session. But Koskinen warns that if the uncertainty continues into December, it could delay the start of the filing season and delay tax refunds.

Another factor Koskinen ticked off complicating this year’s filing season will be that the IRS is implementing a voluntary oversight program for return preparers. He said he’s still pushing for a mandatory oversight program. In the meantime, there will be a page on the IRS web site with a database of qualified tax preparers, including unregulated preparers who chose to participate in voluntary education programs. Attorneys, CPAs and enrolled agents, who all have separate licensing requirements, will also be listed.

Is there any promising news? Taxpayers are flocking to the IRS’s Where’s My Tax Refund feature where you can click and track the progress of your federal refund. They’re also using IRS direct pay, a secure online option for making tax payments (I use it; it really is quick and easy).

In the future (“some years from now”) Koskinen evisions a complete online tax filing experience. Taxpayers would have an account online where you could log on securely, see documents the IRS has received on your behalf, see your previous filings, and if there is an issue with your return, the IRS would contact you immediately—not two or three years down the line. “It’s not illusory,” he inists, adding that once more activities are moved online, the agency could sustain itself without annual budget increases.

Obama Threatens Veto of Emerging Tax-Break Agreement in Congress

Tuesday, November 25th, 2014

Originally Published in ACCOUNTINGTODAY.COM

(Bloomberg) President Barack Obama would veto a tax-break agreement being negotiated in Congress by Senate Democrats and House Republicans.

“The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Jen Friedman, a White House spokeswoman, said in an e-mail today.

Lawmakers are nearing an agreement on extending U.S. tax breaks that lapsed at the end of 2013 and making others permanent. The proposal would add about $450 billion to the budget deficit over the next decade, said a Democratic aide.

A veto would require an override by two-thirds of lawmakers in the House and Senate, a high barrier for a deal that could draw opposition from some Democrats.

The biggest beneficiaries of the breaks would include corporations that conduct research, residents of states such as Washington and Texas that lack an income tax, and wind-energy producers concerned that their tax benefit would end all at once instead of being phased out. Tax breaks for low-income families that lapse at the end of 2017 wouldn’t be extended.

The tax break for corporate research, which would be expanded and made permanent, benefits companies including Intel Corp. and Johnson & Johnson. A benefit for small-business investments also would be locked in.

The plan would make permanent a provision allowing individuals to deduct state sales taxes, an issue important to Senate Democratic Leader Harry Reid of Nevada. In that state 22 percent of tax filers take advantage of the break, the second- highest percentage in the U.S., according to the Pew Charitable Trusts.

Wind Energy
The production tax credit for wind energy would be phased out over several years, said the aide, who spoke on condition of anonymity because the package wasn’t yet public.

A tax break for mass-transit commuters would be permanently extended as would a tax credit for college tuition, the aide said. Those are items championed by Senator Charles Schumer of New York, the third-ranking Senate Democrat.

Other breaks that may be made permanent include incentives for landowners to donate conservation easements and for individuals to make charitable donations directly from tax- advantaged retirement accounts.

Dozens of other tax breaks that expired at the end of 2013 would be continued through 2015. Among those that have lapsed are a provision that lets home sellers exclude from income the forgiven debt from short sales, as well as accelerated depreciation for motorsports tracks.

Child Credit
After reports of an emerging agreement yesterday, the Obama administration issued a statement signaling that it opposed a package that doesn’t extend expansions of the child tax credit and earned income tax credit that lapse at the end of 2017.

“An extender package that makes permanent expiring business provisions without addressing tax credits for working families is the wrong approach, at the expense of middle-class families,” Treasury Secretary Jacob J. Lew said yesterday. “Any deal on tax extenders must ensure that the economic benefits are broadly shared.”

Congress returns on Dec. 1 to finish its post-election session, and lawmakers want to leave Washington by Dec. 11.

That time frame might make it difficult for Obama to veto any plan, especially because the Internal Revenue Service has warned that waiting could delay tax refunds next year.

If this proposal falls apart, House Republicans’ fallback plan is to extend the lapsed breaks through Dec. 31, 2014, Ways and Means Committee Chairman Dave Camp said yesterday.

That approach would require lawmakers to return to the issue next year, when Republicans will control the House and the Senate.

IRS Offers Rules on Hardship Exemptions from ACA Individual Mandate

Tuesday, November 25th, 2014

Originally Published in ACCOUNTINGTODAY.COM

The Internal Revenue Service has issued a notice, regulations and other guidance related to the Affordable Care Act, including information on getting a hardship exemption from the individual mandate for health insurance coverage.

Notice 2014-76 provides a list of the hardship exemptions that taxpayers can claim on a federal income tax return without obtaining a hardship exemption certification from the health insurance marketplace.

Under the Affordable Care Act, for each month beginning after Dec. 31, 2013, Section 5000A of the Tax Code requires individuals to either have minimum essential health coverage for themselves and any nonexempt family member whom the taxpayer can claim as a dependent, qualify for an exemption, or include an individual shared responsibility payment with their federal income tax return.

An individual is exempt from the requirements for a month if he or she has a hardship exemption certification issued by the health insurance marketplace certifying that the person has suffered a hardship affecting their ability to obtain minimum essential coverage that month.

The IRS simultaneously released Revenue Procedure 2014-62, which announces the indexed applicable percentage table for calculating an individual’s premium tax credit for taxable years beginning after 2015. The document also announces the indexed required contribution percentage for determining whether an individual is eligible for affordable employer-sponsored minimum essential coverage for plan years beginning after 2015.

The same Revenue Procedure cross-references the required contribution percentage, as determined under guidance issued by the Department of Health and Human Services, for determining whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage, beginning after 2015.

In addition, the IRS issued TD 9705, finalizing its regulations for minimum essential coverage and other rules regarding the individual shared responsibility payment, also known as the individual mandate.

Budget Cuts Hit IRS’s Ability to Collect Delinquent Taxes

Thursday, November 6th, 2014

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.”

Senators Introduce Bill to Prevent Tax Refund Theft

Wednesday, August 6th, 2014

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.

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

Wednesday, July 2nd, 2014

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.

IRS Doing More Audits of Large Partnerships

Tuesday, April 22nd, 2014

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.”

IRS Reiterates Warning of Pervasive Telephone Scam

Tuesday, April 15th, 2014

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.

You can reblog the IRS tax scam alert via Tumblr.

Taxpayers Plan to Use Tax Refunds for Necessary Expenses

Thursday, February 27th, 2014

Originally Published in Accounting Today

About 52 percent of Americans intend to spend their annual tax refund on necessary expenses such as loans, credit cards and other household expenses, while another 30 percent plan to put the money into savings and only 8 percent plan to invest the tax refund money, according to a new survey.

The survey, released Tuesday by the financial services firm Edward Jones, contrasts with a similar survey released Monday by TD Ameritrade, which found greater interest in investing tax refunds, at least among the investors who were polled (see Many Plan to Invest Their Tax Refunds).

The Edward Jones survey polled over 1,000 taxpayers in general. It found that the respondents between the ages of 55 and 64 are most likely to save their refund (43 percent). Respondents who are just a few years younger had a much different opinion, with only 25 percent of those between 45 and 54 years of age planning to save their tax refunds. The survey’s youngest respondents, those between the ages of 18 and 34, are most likely to spend their refund checks on “fun” things such as clothes, entertainment and restaurants (12 percent). This compares to just 5 percent of those 65 and older who would do the same.

Household income has the most influence on the decision to save, spend or invest a tax refund in 2014. Survey respondents with the lowest household income (those making less than $35,000 a year) are the most likely to spend their tax refund on necessary expenses (61 percent). This compares to just over one-third (37 percent) of those with the highest household income ($100,000 or more). The wealthiest respondents are not the most likely to invest their refunds, the survey found. Instead, those with household incomes between $50,000 and $75,000 were the most likely to invest the tax refund money.

In general, households with children are the most likely to spend their tax refunds on everyday expenses, and those with older children are even more likely. Following that point, Americans with no children are the most likely (10 percent) to spend their tax refund on something “fun,” whereas only 1 percent of those with children ages 13 to 17 are willing to splurge.

Americans living in the Northeast are the most likely to invest their tax refunds (11 percent). Those who live in the West are the most likely simply to save their tax refunds (35 percent).