IRS, Version 2015: The Perfect Storm?

John (Rusty) Davis, CPA

When the calendar flipped over to 2015 from 2014, we figured we left behind political and governmental drama – for a while at least. While the passage of The Tax Increase Prevention Act of 2014 (TIPA) on December 19, 2014 extended many tax benefits for 2014 filings, the reality is that the tax world must adjust to new laws, planning, and enforcement. With time, taxpayers and professionals will handle the laws and the planning, but there are growing concerns about the ability of the Internal Revenue Service to process tax filings, keep pace with technology, and manage the agency.

In recent weeks, media reports have profiled some distressing developments about the ability of the IRS to “run the shop”, which includes operating with time and money restraints, overburdened employees, and breakdowns in security and leadership.

Is this the building of The Perfect Storm?

How about Nina Olson, National Taxpayer Advocate for the IRS, in her annual report to Congress…

A new report paints a pretty bleak picture at the Internal Revenue Service. In her annual report to Congress, Nina Olson, the national taxpayer advocate, said that consistent budget cuts over the past five years have led to a “devastating erosion of service” — an erosion that will lead to even longer waits on the phone and delayed refunds this filing season. The cuts also hurt the IRS’s ability to conduct and close audits. The upside? Fewer audits. The downside? Fewer audits, which suggests less tax revenue, and for those unlucky enough to be audited, the process may take… MORE

Of course not everyone should worry about the red tape with tax audits, but maybe you should understand the risks with increasing ID Theft and fraudulent online tax filings…

Tax filing season arrived with a bang this year, punctuated by a big uptick in fears about fraud. There was nearly a bank run when TurboTax had to suspend filing state tax returns over fraud concerns. It would be bad enough to find that someone had filed ‘your’ tax return in your state and scooped up your refund. But all indications were that this was just a state tax problem, not a federal one. Not anymore. Although details are sketchy, the FBI is now investigating fraudulent tax returns filed through TurboTax… MORE

But you say you hire a tax preparer, and assume that should keep order in your world…….?

IRS on March 13 issued a consumer alert warning taxpayers about “unscrupulous” tax return preparers who instruct their clients to make individual shared responsibility payments under the Affordable Care Act directly to the preparer. The agency said it has received reports of such a scenario and there have been some cases in which the taxpayer was not even required to make such a payment. According to IRS, taxpayers with limited English proficiency—primarily Spanish speaking—are at particular risk, In these cases, the preparers utilize several methods, including: telling individuals that they must make an individual shared responsibility payment directly to the preparer because of their immigration status; promising to lower the payment amount if the client pays it directly to the preparer; or demanding money from individuals who are exempt from the individual shared responsibility payment. In its consumer alert, IRS stressed that individuals who owe the individual shared responsibility payment should make a payment only with their tax return or in response to a letter from the agency. “The payment should never be made directly to an individual or return preparer,” IRS said… MORE

Well, that is going to get straightened out. The Affordable Care Act will be a good thing for the uninsured, and with a little extra tax reporting for last year we are on our way to coverage for all…

Obama administration officials and other supporters of the Affordable Care Act say they worry that the tax-filing season will generate new anger as uninsured consumers learn that they must pay tax penalties and as many people struggle with complex forms needed to justify tax credits they received in 2014 to pay for insurance. The White House has already granted some exemptions and is considering more to avoid a political firestorm… MORE

Lastly, the Lois Lerner headline of 2013 is still bubbling to remind us that we should trust our leaders!

Rep. Peter Roskam (R-Ill.) is now chairman of the Ways and Means subcommittee whose jurisdiction includes oversight of the Internal Revenue Service, and hence of Lois G. Lerner’s legacy. He knows how interesting her career was before she, as head of the IRS tax-exempt organizations division, directed the suppression of conservative advocacy groups by delaying and denying them the exempt status that was swiftly given to comparable liberal groups… MORE

OK, back to work! We have a lot of tax returns to prepare.