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An IRS Identity Protection Unit Saga: Part 3

Monday, September 11th, 2023

One week ago I uploaded Part 2 of my client’s ongoing saga of obtaining his 2020 tax refund.  My client, call him John Smith, was supposed to either receive his refund by mid-August or we were supposed to receive a call.  Mid-August came, and Mr. Smith had not received his refund (and it did not show as having been issued on an Account Transcript) nor had I received a call from the IRS.  On August 16th I again called the Practitioner Priority Service (PPS) to see if there had been any progress.  They couldn’t see any, and again transferred me to the Identity Protection (IP) unit.

Call #1 (August 16):  After being on hold for just under an hour, the IP Unit agent picked up.  I explained the situation, and she investigated through her systems.  After another hold-time period of 15 minutes, she said because my Power of Attorney form covered only 2020 she couldn’t talk to me.  I explained that Mr. Smith had already verified his identity and we are just trying to obtain the refund.  “No. I may need to ask questions about 2019, and without that I must let this call end.”  [1]

Call #2 (August 16): Since I knew the IP agent was wrong, I called back.  This call is actually three attempts, but all three ended up getting: “We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time.  Goodbye.”

I did have Mr. Smith sign a new POA covering 2019 (though it wasn’t necessary), and submitted it to the IRS on August 17.

Call #3 (August 17): At 7am PDT I called the IP unit again.  I was directed into the callback service (that told me I’d get a return call in 29 minutes, which I did).  I explained the issue to the agent, and he said, “If your client is not on the phone with you I cannot help you.”  I told him that with a signed IRS Power of Attorney form, I’m allowed to act for my client.  “No, you’re not for this purpose.”  And he hung the phone up on me. [2]

Call #4 (August 17): I made another attempt.  However, “”We’re sorry, but due to extremely high call volume in the topic you’ve chosen we cannot take your call at this time.  Goodbye.”  I did not have enough time to try again.

Call #5 (August 18): I again called at 7am, and again received a callback (this time in 38 minutes).  I again explained the situation to the IP unit agent…and we got disconnected. I’ll be generous and state this was an IRS phone system issue and that I wasn’t hung up on, but I have my doubts.

Call #6 (August 18): The sixth time was the charm (sort-of).  I received the promise callback (in 29 minutes), and this agent agreed that I didn’t need a 2019 POA. Unfortunately, he saw nothing having been done.  He put another referral into the sub-unit to get the return processed…but with a nine-week turnaround time.  He said he did see notes of the previous conversations, but this was all he could do.  I also discovered that on April 14th the IP unit supposedly printed my client’s electronically filed return and forwarded it for processing.  [3]

That afternoon I spoke with my client and explained what had happened.  I told him that besides the IP unit referral, the next step would be to complete IRS Form 911–a request for assistance from the IRS Taxpayer Advocate.  I explained that given IRS promises he was likely eligible for assistance.  I faxed Form 911 that afternoon.

I’ll be back next week with more, but let’s take a look at some IRS systemic issues that my client ran into.

[1] and [2].  I’ve been calling the IP unit for years, and many of the agents do not want to speak with authorized representatives.  When a client grants me an IRS Power of Attorney (POA) form that gives me full rights to negotiate and talk with the IRS on any issues that the POA covers.  That includes identity protection issues.  The behavior I saw with Mr. Smith is typical:

  • Agents say years that aren’t required for my POA are.
  • Only the taxpayer, not an authorized representative, can speak to the Identity Protection Unit.
  • When notices are sent by the Identity Protection Unit, previously authorized representatives are not copied.  For example, let’s say I have a POA on file for Jane Brown for the 2022 tax year.  The Identity Protection Unit sends her a notice requesting she verify her identity for her 2022 tax return; I will not be copied.  This is especially troublesome when we have clients who are traveling or reside outside the United States and don’t have reliable mail.

[3] Yes, you’re reading this correctly.  My client electronically filed his tax return, but the only way it can be processed is paper.  It’s not that 2020 returns can’t be electronically filed today (they can, through sometime in November); rather, it’s how the IRS Identity Protection Unit is setup.  Interestingly, TIGTA (the Treasury Inspector General for Tax Administration) issued a report today titled, “The Internal Revenue Service Has Experienced Challenges in Transitioning to Electronic Records.”  Boy, is that true.

Meanwhile, my client is stuck waiting.  And you and I pay for this: My client will (eventually) be paid interest on the refund.  And with his refund being approximately $30,000, that interest will be substantial.

I’ll be back next week with Part 4 of this saga.

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An IRS Identity Protection Unit Saga: Part 2

Tuesday, September 5th, 2023

When we last left the Identity Protection (IP) Unit saga of John Smith, he successfully verified his identity and was told he should receive his refund within nine weeks (or by May 25th).  On July 12th Mr. Smith sent us a message saying he hadn’t heard a thing (nor had he received his refund).  I confirmed with him that he had successfully verified his identity.

I ran an Account Transcript to see if the tax return had been processed; it did not show as having been processed.  On July 14th, I called the IRS Practitioner Priority Service (PPS); PPS has some tools that can see returns in other stages of processing than practitioners can.  Unfortunately, the PPS representative didn’t see anything; he transferred me to the IP Unit.  I was told:

Your client successfully verified his identity on March 23.  The 2020 return has not posted to the main IRS system for processing; , the issue is that even though everything has been entered into the system by the IP unit, it’s stuck.  The return is “being worked” to get unstuck. A referral was sent to the subunit working the return (with you as contact).  You will hear back within 30 days with either your return having been processed or they will call me.

Thus, all should be well by August 14th, right?  I think you can guess where this is going (part 3 will be next week)….

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Many Floridians Receive Hurricane Extension Due to Idalia

Thursday, August 31st, 2023

The IRS announced yesterday that victims of Hurricane Idalia have their tax filing deadlines extended until February 15, 2024.  As of this moment, most of central and northern Florida including the Tampa/St. Petersburg area, Orlando, and Jacksonville are eligible for this extension.  This is an extension for filing, not paying your tax.  But if you have a valid extension for your partnership, corporation, trust/estate, or individual return and are in this area, you have several months before you must file.  An excerpt of the IRS announcement:

The Internal Revenue Service today announced tax relief for individuals and businesses affected by Idalia in parts of Florida. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, 46 of Florida’s 67 counties qualify. Individuals and households that reside or have a business in these counties qualify for tax relief, but any area added later to the disaster area will also qualify. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

I would expect areas in Georgia and possibly North and South Carolina to join this list.

Kudos to the IRS for quickly announcing this relief.

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An IRS Identity Protection Unit Saga: Part 1

Monday, August 28th, 2023

I’ve written about James Smith before.  A few years ago, Mr. Smith was the victim of IRS “help” when they changed the Employer Identification Number (EIN) without his knowledge; that saga ended in 2022.  Unfortunately, Mr. Smith is now suffering through an Identity Protection Unit saga with no end in sight.

In 2021 Mr. Smith’s 2020 personal tax returns were timely filed with the IRS and Arkansas.  Mr. Smith’s 2020 federal return showed a refund of approximately $30,000; his Arkansas return showed a refund of about $10,000.  He promptly received his Arkansas refund.  However, about four months after filing Mr. Smith received an IRS 5071C letter requesting he verify his identity.

The process when you receive such a letter is that you must create an account on IRS.gov.  That’s now done through a third-party company, ID.me.  That company requires you to verify your identity–so you end up having to verify your identity twice.  The IRS now includes this important piece of information in their FAQ:

Yes, you must come back to this page and sign in to answer questions about your tax return.

But Mr. Smith did his verification in November 2021, not May 2022, and he didn’t realize that he had to verify his identity twice.  In late 2022 he called me to check on his refund.  I obtained an IRS Power of Attorney form covering 2020-2022 and called the Practitioner Priority Service in January 2023.  They told me he had never verified his identity online, and he would now need to call the Identity Protection Unit.

Calling the IP Unit is an adventure, and Mr. Smith is a busy businessman.  After several attempts he successfully verified his identity on March 23, 2023.  The IP Unit told him the return and refund should be processed within nine weeks.  Well, since I’m writing this you probably realize that didn’t happen.  We’ll cover the next steps in Part 2 of this saga next week.

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Everything Is in the Best of Hands: “Security Weaknesses Are Not Timely Resolved and Effectively Managed”

Monday, August 14th, 2023

The Treasury Inspector General for Tax Administration (TIGTA) released a report today, and it doesn’t make for pleasant reading; it’s titled, “Security Weaknesses Are Not Timely Resolved and Effectively Managed.”  If you wonder why some don’t feel confident with the IRS preparing tax returns, look no further.  The summary (relating to what the IRS is currently doing with “Plan of Action and Milestones (POA&Ms)”) is quite damning:

The IRS did not timely review 291 (73 percent) of 401 POA&Ms TIGTA analyzed based on agency security policies nor did it perform the required closure reviews within the 60-day time period for 138 (49 percent) of 282 POA&Ms marked as either Accepted, Completed, or Validated.

Due to staffing shortfalls, IRS employees are not facilitating the timely resolution of information security weaknesses. Agency-wide, there are more than 500 POA&Ms categorized as Late, including 23 with risk severity ratings of either critical or high…

In addition, business units are not timely creating POA&Ms or consistently entering required POA&M information…

Finally, the IRS is not accurately identifying and tracking resources required to resolve information security weaknesses. For the 12,089 POA&Ms, there was a total estimated cost of $2.6 billion to resolve the information security weaknesses. From January 1, 2018, through August 26, 2022, the IRS finalized remediation efforts for 3,139 POA&Ms with total estimated costs of $134.5 million to resolve the information security weaknesses. However, during the closure process, the IRS did not reevaluate the estimated budget and update it with actual costs at closure, as required.

TIGTA made four recommendations, and at least the IRS agreed with all of them; the IRS plans on correcting all of them no later than May 15, 2024.  As to why this is important, TIGTA noted: “Failure to timely review, track, and close POA&Ms to resolve information security weaknesses puts the IRS at risk for exploitation by threat actors. In addition, tracking associated resources required to resolve POA&Ms facilitates informed decision-making.”  Tax professionals have enough security risks without having the IRS contributing more!

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Vermont Flood Victims Get an Extra Month to File their Returns

Thursday, July 13th, 2023

Many areas of Vermont have seen severe flooding over the past couple of weeks.  The area has been declared a federal disaster area.  The IRS announced today that impacted individuals have an extra month to file returns on extension (until November 15th); business returns on extension are also now due on November 15th.  Unfortunately, today’s weather forecast for Vermont includes more thunderstorms and possible severe weather that might exacerbate an already bad situation.

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The Supreme Court Takes Up a Wealth Tax; You May Need to File a Protective Claim for Refund

Monday, June 26th, 2023

At the end of 2017, Congress passed the Tax Cuts and Jobs Act (TCJA).  This complex measure added some deductions (such as the Deduction for Qualified Business Income), added restrictions on other deductions (such as the $10,000 limit on taxes as an itemized deduction), and added a few taxes.  One of the taxes added was the Section 965 Repatriation Tax.

Charles & Kathleen Moore invested in 2006 in an Indian company that was profitable. Under this tax, they had to pay (in 2017) tax on all the accumulated income even though they had never received any of the income.  They owed about $14,729 in tax.  They paid the tax, but then filed a Claim for refund (which was denied).  They then filed a lawsuit in federal district court in Washington to recover the tax.  The district court dismissed the case; the 9th Circuit Court of Appeals affirmed the dismissal on appeal.  You can read the Moore’s petition here; you can read the United States’s brief in opposition here; and you can read the Moore’s reply here.

If you were impacted by the Section 965 tax, you may have only until July 15, 2023 to file a “Protective Claim for Refund” for the 2019 tax year.  Two of our clients are impacted by this, and we notified both of them today.  (An option available with the tax was to pay this over an eight-year period; both of our impacted clients chose this option so they can still file a protective claim for 2019.)

I’ll have more on this case in the next few weeks, as it impacts the idea of wealth taxes (something that Senator Sanders, among others, likes the idea of).

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When the IRS Computer Sends Out Lots of Bad Notices…

Wednesday, June 7th, 2023

Almost everyone in California has an extension for filing and paying their taxes until October 16th (a result of the flooding in the state in January).  The IRS certainly know about this: they issued multiple announcements on the extensions.  Thus, a California taxpayer could file his or her return today and pay in October without any late payment penalties, late filing penalties, or interest (from April 15th onward).  This is absolutely, positively correct.

But.

Yes, there’s a but.  The wonderful IRS computer is sending out balance due notices to California clients (including one of ours).  John Smith (not his real name) owes the IRS about $30,000 for his 2022 tax (the return was filed in mid-May); he’s already set up a payment on IRS Direct Pay for October 16th.  Earlier this week he received a CP14 notice showing his balance due with penalties and interest.  This caused him to call me, where I confirmed that he didn’t have to pay the IRS until October and that the IRS notice was erroneous, and:

  • Mr. Smith previously called the normal IRS telephone line (800-829-1040), and the agent he spoke to wasn’t aware of the extension for Californians and told him that he did need to pay now or penalties or interest would be charged.  He also waited on hold for over two hours before speaking with someone;
  • I called the Practitioner Priority Service and discovered that (a) calls regarding these notices are heavy, (b) the IRS is apparently looking at stopping sending out the CP14 notices to Californians, and (c) yes, almost everyone in California doesn’t have to pay until October 16th.

The agent I worked with did put a freeze on notices to Mr. Smith, so his situation should be fine.  (It’s possible he’ll receive another notice in early October, but given his payment will be made in mid-October that’s not a big deal.)  But this is a result of not thinking things through completely.  These notices should never have been sent.  California’s Franchise Tax Board (California’s state tax agency) did not send Mr. Smith a notice regarding his California balance due (about $5,000).  That payment, too, is scheduled to be made on October 16th.  It shouldn’t have been a big deal for the IRS to correctly program its computers.

Of course, the IRS is dealing with technology that’s older than I am.  Yes, the main IRS computer system dates back to 1959.  Think punch cards and a computer that takes up a huge room.  (An aside: Are you a COBOL programmer?  If you are, the IRS wants to hire you!)  Making programming changes is very difficult.  The money going to the IRS to upgrade technology is really needed.  (Yes, there’s no guarantee that it will be spent wisely but the IRS definitely needs to update its computer systems.)

If you are a California resident and receive a CP14 notice, let your tax professional know.  At this point, it may be that a call to the IRS is necessary (unfortunately), but you really don’t have to pay until October 16th (unless you live in one of the three California counties that weren’t extended).

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Why Were California Returns Extended Again from May to October? (A Theory)

Monday, May 8th, 2023

Back in January, severe winter storms impacted California.  Much of the state was declared a federal disaster area; these declarations are always county-by-county.  As of today, only two counties in California (both in the northeastern corner of the state) are not federal disaster zones.  The IRS rightly extended tax filing deadlines from April 18th to May 15th.

But on February 24th the IRS announced that they were again extending California deadlines from May to October.  Why was this done?  The announcement doesn’t specify a reason, and almost all other disaster zones didn’t get this treatment.  For example, victims of the horrific tornadoes in Mississippi are looking at a July 31st deadline.  Indeed, Broward County (Florida) was just declared a federal disaster zone due to massive flooding in April; their tax deadline was extended only to August 15th.  I have a theory, and it has nothing to do with taxes and everything to do with politics.

President Biden recently formally announced he’s running for reelection.  (It’s been clear for a while he’s running.)  One of his biggest rivals in the Democratic Party is California Governor Gavin Newsom.  Governor Newsom recently toured other states and gave the impression (at least, to me) that he’s considering running for President.  Meanwhile, California faces a budget crisis–there’s at least a $22.5 billion deficit.  And that figure likely understates the problem: the tech industry is not doing well, and that (a) drives personal income tax collections in California (the top 1% of taxpayers pay about half the state’s personal income tax, and many of that 1% are technology industry executives) and (b) personal income tax collections make up about two-thirds of California tax collections.

Suppose you were running for reelection and you wanted to make sure a rival couldn’t run against you.  A budget crisis right at the time the rival would be announcing his candidacy would sure hurt him.  California was forced in January to extend its own deadlines for tax filing to May (state law mandates conformity to federal disaster extensions).  Delaying payments five more months would cause problems to California’s finances–and given the current state of the tech industry might kneecap a rival from running.  (When the IRS extended the deadline to October, California did conform.)  All good political reasons for delaying the deadline another five months.  Of course, the IRS is supposed to be an apolitical organization; however, one thing I’ve learned from the Lois Lerner scandal is that most political appointees within the IRS absolutely, positively look at the political spin on almost everything they do.

Now, I have no proof of what I’ve written.  It’s a theory (some might even call it a conspiracy theory).  It does, though, conform to the facts of the situation and there’s no evidence that I can find to refute my theory.  I hope I’m wrong about it, but like investigators looking at a troubling situation I suspect I’m correct.

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Why You Use Certified Mail When Mailing Items to Tax Agencies

Wednesday, April 26th, 2023

My mother passed away last year (after a long and fruitful life).  I filed her final tax returns–and money was due to both the IRS and California.  I could not use IRS Direct Pay, nor could I have the funds debited from my bank account; thus, I mailed checks (and vouchers) to the tax agencies.  I sent these on Monday, April 17th using certified mail.

Today, Thursday, April 26th, the IRS payment was received (it has not cleared my bank account yet, but should in the next day or so).  Yes, it took nine days to be received.  Here’s the tracking for it:

As to why it sat around for four days in Cincinnati, you’ve got me.  No matter, because the payment deadline is a postmark deadline I’m fine and my mother’s tax to the IRS for her final return was timely paid.

Meanwhile, Sacramento is a lot closer than Cincinnati; you’d expect the payment to California to have already been processed.  Well, no:

The payment’s been somewhere in Sacramento since April 19th and is still somewhere other than with the Franchise Tax Board (FTB), California’s income tax agency.  Again, I have no answers for the postal service’s ineptitude but sooner or later (perhaps that should be later or later) the payment will make it to the FTB.  Because I mailed it certified mail–and have that proof–even if the payment is lost I’ll be fine.

Each of these envelopes cost $4.78 (total) to mail; that’s $4.15 more than first class mail.  The late payment penalty and interest would be in the hundreds of dollars for each of these payments.  If I had not mailed these certified mail, I could be looking at those penalties. (Yes, the tax agencies are supposed to look at postmarks but I’ve received plenty of mail without postmarks.)

There’s one other issue: The IRS (and other tax agencies) need to lengthen the time period for responding to notices.  These mail delays are typical–and the IRS needs to build in current realities to mailed responses to notices.

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