Our Taxing Times

Just Remembered - e-Services Cuts

I wonder how much the TIGTA report last September had to do with cutting Disclosure Authorizations from e-Services?

e-Services Cuts

Just after I tweeted about NAEA (National Association of Enrolled Agents) announcing in an email that the IRS is talking about closing two of the e-Services programs on August 11th, I received an e-News for Tax Professions from the IRS with the same information.

E-services is a service from the IRS which allows tax professionals to do a wide variety of services online. The programs the IRS is talking about cutting are the Disclosure Authorization (DA) and the Electronic Accounts Resolution (EAR). The DA allows forms 2848 and 8821 to be filed online and instantly get access to transcripts for clients. With EAR, a tax pro can help resolve account issues for a client and receive answers by email. With EAR, the tax pro deals with the same IRS employee until the matter is resolved.

The reason for the program cuts seems to be the low number of DAs and EARs filed through e-Services. Only about 10% of the DAs have gone through e-Services while only 3% of account issues have used e-Service. In order to prepare for the closures, the IRS is looking to improve their regular processes and looking for electronic replacements for the DA and EAR.

I use and like e-Services and I wouldn’t want to see any part of it cut. I file all the Forms 2848 I can through the system. But there are some clients that have to have their forms faxed in. So my question is of the 90% of the DAs that didn’t go through e-Service, how many actually could go? Two thirds of my Forms 2848 this summer had to be faxed because the clients hadn’t filed in years or didn’t have back year returns. (e-Service needs the Adjusted Gross Income from one of the last 3 years as a way to verify taxpayer identity.)

Working on an account problem through EAR is great because I am dealing with the same person and have an answer is writing. I don’t have to spend time on hold with the Practitioner Priority Hotline. And let’s face it the wait times there have been increasing with each IRS cutbacks.

I hope that tax pros will raise hell about these cuts and the IRS will at least delay the closures until they can improve the quality of the non-online programs.

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Fiscal Cliff-Kansas Style

While Washington DC is focused on the IRS tax exempt scandal and Federal tax reform seems to be on hold, the Kansas legislature keeps trying to change the state’s tax structure. On Thursday (May 30^th), the Kansas House voted down a proposal to reduce the state sales tax on groceries to 4.9% while everything else would be taxed at 6.3%.

Last year, the Kansas lawmakers drastically changed the state income tax. Tax rates were decreased and standard deductions were increased for some taxpayers. The big change was removing business profits from taxation. To help pay for the tax cuts, the legislature cut many tax credits and deductions including the Food Sales Tax Refund. Kansas is one of the few states that adds sales tax to groceries. The Food Sales Tax Refund helped offset part of the burden of the sales tax on the lower income elderly, families with children and the disabled.

The latest proposal would reduce the sales tax on food to 4.9% while everything else would be taxed at 6.3%. The bill seemed to have support from the Kansas Senate and Governor Brownback but was defeated in the House by a 94-18 vote. The big issue is not the lower food rate but the 6.3% for everything else. The current state sales tax is 6.3% but that is scheduled to decrease to 5.7% in August. The Governor has been fighting to keep the higher rate to help pay for the income tax cuts passed last year and prevent a budget shortfall in the future. However, too many of the legislators do not want to explain any tax increase to their constituents back home.

The deadlock on the sales tax has forced a hold on the passage of a budget for the next two years. The new budget should go into effect in July of this year. The pressure is on state lawmakers because they have already gone over their 90 day legislative session. They are now up to day 97 with no true end in sight. And they are adding to any deficit with the additional cost of $35, 000 to $45,000 a day they stay in session.

It seems that the Kansas Legislature has taken a page from Congress’s last minute tax deal in January and is waiting until they are at their Fiscal Cliff to set the state’s budget and the taxes that will pay for it. Not a good example to follow.

Phishing Again

Since there is a new set of phishing emails saying they’re from the IRS going around, a quick reminder. The IRS does not, repeat, does not initiate contact with taxpayers by email. No, not ever. They will send you a letter.

In my inbox this morning was an email that said it was from fraud.dep@irs.gov. The subject line said that there was a complaint against me. Scary; a complaint and it’s from the IRS. But it’s not as scary as what might happen if I downloaded the rest of the message. A phishing scheme like this could contain a virus or request confidential information. So, don’t do anything but trash it.

The IRS has a lot of information of their website about phishing and what you can do if you receive an email that says it’s from them. The first line on the Phishing page is:

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.

If you receive one, or more, of the latest phishing emails that say they are from the IRS (I’ve received 5 today), use their website to let the IRS know but don’t panic and most especially don’t open or download or respond anything on that email.

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New Form I-9

Attention employers! The U.S. Citizenship and Immigration Service (USCIS) has issued a new form I-9, Employment Eligibility Verification. This is the form which you are required to have all new (and rehired) employees complete when they are hired to verify they are eligible to work in the U.S.

The new I-9 (revision date 3/8/13) expands the actual form from one to two pages but really doesn’t ask for too much more information. There is more space to list which documents have been used for verification and the area where the employee verifies that they are eligible for U.S. employment has been expanded slightly. The instructions have also been expanded.

Employers have been required since 1986 to have all employees complete an I-9 and keep the form in their files. This has not changed. Also, employers are not required to have current employees with an I-9 on file fill out the new form. The new form is only required for new and re-hired employees. The form needs to be completed by the first day the employee works but it shouldn’t be done before the employee accepts the job.

Employers must keep the completed forms on file and they can be inspected by several Federal departments. Employers who don’t maintain the files can be subject to civil penalties and possible criminal penalties.

The new I-9 can be downloaded on the USCIS website.

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Oklahoma DIsaster- Tax Relief.

The IRS has announced (IR-2013-53) its tax relief for victims of the Oklahoma tornados on Monday. Taxpayers in Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties (possibly more to be added later) will be able to postpone tax and payment filings until September 30^th.The IRS will abate failure to file and failure to pay penalties for taxpayers who have to delay their tax filings.

The tax and payment filings include any due from May 18^th. This will include 2^nd and 3^rd quarter estimates for individuals and a wide variety of business taxes. The IRS will also work with taxpayers whose books and records are in the disaster area and workers with recognized relief organizations but live outside the disaster area. (They can contact the IRS at 866-562-5227.)

The IRS also reminds taxpayers who might qualify to take a casualty loss that they don’t have to wait until filing their 2013 tax return. Since they are in a federal disaster area, they have the option of taking the loss on their 2012 return. They can file an amended return or, if they haven’t filed a return yet, original 2012 return.

For more disaster relief, tax and otherwise, check out the disaster website.

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Bad Year

The IRS is having a bad year.

 

No, they are having a terrible, horrible, no good, very bad year. (Nod to Judith Viorst)

• Congress put off dealing with the tax changes until after the first of 2013. As a result, the IRS had to delay the start of the tax season to implement those changes. It took until the middle of February to get everything working.
• Tax preparer regulation gets thrown a loop by the Loving Decision. And the IRS didn’t get a stay on the injunction. Now they’re in the appeal process.
• H&R Block’s issues with the Education Credit Form 8863 forced the IRS to clean up after them to get taxpayers their refunds faster.
• “Where’s My Refund” got bogged down from all the use and taxpayers had to be asked to only try once a day.
• Modernized e-file needed maintenance a few days before the end of the tax season.
• There were delays e-filing on April 15^th because of the volume of returns filed.
• Long delays on phone help lines due to budget cutbacks.
• 5 to 7 furlough days without pay.
• No leadership. Shulman gave notice on Oct 21, 2012 but no replacement was named until last week.
• The tax exempt mess has already cost several people their jobs and promises to continue for a while.

I’m sure I missed something. But the stress level at the IRS must be off the meter right now. Hang in there everyone.  Hopefully, someone else will mess up and take over the media spotlight away from you and change your luck/karma.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.

Another Tax Exempt Twist

By now, everyone should know about the IRS and the tax exempt status “scandal”. For those hiding in the attic the last few weeks, the IRS used key words like: tea party” and “patriot” to give some applications for 501(c)(4) status extra attention.

A 501(c)(4) organization is an organization which is set up to promote social welfare or a local association of employees which has a charitable, educational or recreational purpose. They have become very popular in recent years as a way for an organization to do some limited political activity without having to publish their donors. This is different from a Section 527 political organization. A section 527 group also has tax exempt status but tighter information reporting requirements.

The Treasury Inspector General for Tax Administration TIGTA) has issued their report on the subject and found that the IRS did select some 501(c)(4)  applications for more attention. This action was not politically motivated but based on lack of clear vetting criteria to screen applications for organizations which will be too political.

As with any political scandal there has been much finger pointing, calls for resignations and Congressional hearings. In Friday’s hearing (May17, 2013), Rep. Lloyd Doggett (D-TX) introduced a new twist when he asked TIGTA’s J. Russell George if the scandal would have been avoided if the IRS had followed the actual Internal Revenue Code wording for a 501(c)(4) organization. It turns out that the IRC specifically states that to qualify for tax exempt status under section501(c)(4) an organization must be operated exclusively for social welfare. The regulations the IRS wrote to carry out that section, however, say that the organization only needs to operate primarily for social welfare. Primarily isn’t exclusive.

This isn’t a new argument. Citizens for Responsible Ethics in Washington (CREW) filed a brief on Friday in the Gill v. Department of the Treasury court case. (The IRS had filed to have the case dismissed.) Dr. David Gill is challenging the IRS about their 50 year old regulation defining 501(c)(4) as primarily for social welfare and not following the IRC’s  exclusive definition. While a candidate for Congress, he alleges that he was targeted by a 501(c)(4) organization which would not meet the exclusive test.  

In an already bad year for the IRS, they are now in the spotlight for handling a sensitive subject badly and that they might have been doing it wrong for 50 years.

Thanks to Accounting Today for the head's up.

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What You Don't Save May Cost You.

I’ve said it over and over again; keep copies of your tax returns and the supporting documents. That means the state return too. It can save you both time and money.

Here’s the situation. I was asked to help respond to a notice from the Kansas Department of Revenue but the clients didn’t have a copy of the KS-40 return they filed (I didn’t prepare the return.) So, I sent in a request for a copy of the return or transcript info and a copy of a Kansas Power of Attorney. Today, I was told that since I didn’t send in payment for the info I requested, KDOR won’t send anything. A month after I sent my original request, I had to fill out the special form and write a check for $5.00 to get the information I need.

This mess illustrates two lessons. Taxpayers need to keep a copy, paper or electronic, of their tax returns. All returns. And state revenue departments are hard up and previously free information may now come with a price tag. Don’t assume because the IRS doesn’t charge for transcripts and account info doesn’t mean that that your state won’t require payment for that info.

 

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Important Tax Exempt Information

Tax returns for tax exempt organizations are due tomorrow. That’s right, the due dates for 990s is May 15^th. If a return isn’t filed for 3 consecutive years, then the organization will lose their tax exempt status and have to re-apply. Not a fun prospect so get that return filed.

 

And no, I’m not going to write a big post on the IRS tax exempt scandal. I’ve never been a conspiracy person and think this was a stupid over extension by the IRS. I’ll wait for the TIGTA report and for all the details to come out. I hope that the scandal allows a good discussion on how to balance the need to accurately screen Forms 1023 and 1024 for qualified organizations with the organization’s rights. That’s what I hope but I think most people will rather point fingers than solve problems.

If you are looking for a good variety of blog posts on the tax exempt crisis, check out Joe Kristan’s Tax Update Blog.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.