Posts Tagged ‘Taxpayer.Advocate.Service’

Is IRS Correspondence Broken?

Thursday, May 30th, 2024

As a tax professional with quite a few clients, our clients receive IRS notices. Much of this correspondence (not all, but a large portion) has to be responded to.  My three most recent cases are making me think there are major issues with the IRS handling mail.

Client #1 received an Automated Underreporting Unit (AUR) notice alleging four items: two 1099-NECs not reported, one 1099-MISC, and some capital gains.  We timely responded in December pointing out with backup documentation where all the alleged unreported income was on the tax return (it was all there).  Earlier this month we received a notice reducing the alleged unreported items to three (one of the 1099-NECs was removed from the list). We just sent basically the same response with the same documentation to the AUR group (and hope it won’t take four back-and-forths to go through a four-item list).

Client #2 received a notice alleging a “Math Error” on his return.  You have exactly 60 days to respond.  We did so–and this is required to be mailed using certified mail, return receipt requested (which we did). The IRS alleged we didn’t timely respond. I sent back documentation proving we timely responded.  It’s been several months, and we’re still waiting on a response.

Client #3 received a notice alleging his return was untimely filed. His return was required to be mailed; he was outside the United States and sent it with tracking from New Zealand (timely). It wasn’t received timely (but that’s the fault of the Postal Service, not my client) and doesn’t impact him; there’s a rule in tax called the Postmark Rule which governs this situation. My client has now received a letter from IRS Collections even though we disputed the entire issue months ago.

It’s not just me. If you’re a tax professional, prepare to be very depressed when you read this Twitter/X thread from a CPA in Indiana named Mike Sylvester.  An excerpt:

…[The Taxpayer Advocate agent’s] case load has tripled since 2019.

She said the cases she sees now the IRS is wrong almost every time. She said The IRS correspondence system is beyond broken. Her words, not mine.

She said the IRS broke during Covid and still has not recovered.

Then the part that just floored me. Understand the long time policy of The Taxpayer Advocate is only contact them as a last resort. Try to work the problem with the IRS hard yourself first.

I told her another problem I am having and how many times the IRS and I have gone back and forth. She told me I was wasting my time and I should have opened a Taxpayer Advocate case several months ago.

She said I need to open cases faster…

I am still shocked by this.…[emphasis in original]

There is plenty more, and reading through the comments made me depressed. One comment is that there are fewer than 12 individuals working at the IRS Philadelphia Service Center to handle correspondence! My experience with the Taxpayer Advocate Service (TAS)–when they get to your case–has been excellent. However, it’s clear they are buried.

Major work is needed with correspondence, and tax professionals and taxpayers are suffering. TAS is supposed to be a last resort; it should not be a necessity most of the time. Yet it may become so (if that has not already occurred).

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An Identity Protection Unit Saga: Part 6

Monday, April 22nd, 2024

When last we left the saga of my client and his tax year 2020 refund, we were waiting for a call from the Taxpayer Advocate Office.  Well, we received the callback and my client’s refund check was issued last Friday.  Post Office willing, it should reach him in Arkansas sometime this week.

As for the Taxpayer Advocate, once I spoke with them they were (as I’ve found in the past) extremely helpful in getting this resolved. Indeed, I don’t think this could have been resolved without their assistance.  It turns out that my client’s return needed two special processes run in order to be processed and the refund issued.  That took about three months (once the Taxpayer Advocate Office was involved).  Unfortunately, all of us (as taxpayers) are paying for this: my client is receiving nearly $5,000 of interest on his refund.

Let’s examine how this could have been prevented:

1. The IRS could have had better instructions on verifying your identity.  When my client verified his identity with ID.me, he thought he had completed the process; after all, he had verified his identity.  My client was not alone in this; the IRS later changed the instructions about verifying your identity to note that you still need to verify your identity with the IRS.

2. Follow-up Letters from the Identity Protection Unit.  The IRS should send out a second letter six months after the first letter to those who have not yet verified their identity.  My client likely would have called or messaged me about this, and I would have let him know that he did have to go through the verification process with the IRS.

3. More IRS employees trained and working at the Identity Protection Unit.  Calling the IRS’s Identity Protection Unit is a saga in itself; too many times you will get the message, “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.”

4. Better training of Identity Protection Unit employees. As noted in Part 3, many of these employees seem to regard tax professionals with POAs as non-persons.

5. The IRS should send letters from the Identity Protection Unit to IRS Power of Attorney (and Tax Information Authorization) representatives–especially for those who reside outside the United States.  Mail in the US is generally reliable; mail outside the United States can be hit and miss (or miss and miss).  A client of mine living in Central America recently received an Identity Protection Unit letter; it only took seven months to get to her.  As a reminder to the IRS, the taxpayer in this situation has authorized his or her tax professional to be notified (and, in the case of a Power of Attorney, to act on behalf of the taxpayer).  The IRS’s refusal to copy tax professionals on Identity Protection Unit letters is a major cause of problems.

6. Better IRS computer systems.  This is not something that the IRS can really control, but hopefully the computer improvements that are coming will assist in this area (it certainly can’t hurt).

7. Acknowledgments and more realistic time-frames from the Taxpayer Advocate Office. The representative I dealt with is buried; he told me that the four months it took for him to get to my client’s case was “typical.”  The intake individuals at the Advocate need to be aware of this and communicate this to people who are obtaining the Advocate’s services.

Finally, let’s consider Joe and Mary Doe.  As I wrote in part 4,

They desperately need their $20,000 tax refund…and they’re stuck in limbo. If they did exactly what Mr. Smith did, they would have done everything correctly…and be stuck in limbo. If you wonder why there’s frustration with the IRS, and why members of Congress have IRS liaisons, look no further.

I wish I could tell you with certainty that things with the Identity Protection Unit will improve in the future. I think they will, but some of these issues appear systemic; it will take top-down changes at the IRS to cause improvements in this area.  We can always hope.

Previous posts on this:

An Identity Protection Unit Saga: Part 1
An Identity Protection Unit Saga: Part 2
An Identity Protection Unit Saga: Part 3
An Identity Protection Unit Saga: Part 4
An Identity Protection Unit Saga: Part 5

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An IRS Identity Protection Unit Saga: Part 5

Monday, December 18th, 2023

When I last updated this saga (on September 22nd), I hadn’t heard a thing from the IRS or my request for the Taxpayer Advocate Office to take a look at the missing refund for my client (call him John Smith).  So in mid-November, I again called the Identity Protection Unit requesting status.  I discovered that this case had been assigned to the Taxpayer Advocate.  However, the IRS Identity Protection Unit couldn’t tell me who at the Taxpayer Advocate was assigned to the case: either they didn’t know or they’re simply not allowed to talk about anything assigned to the Taxpayer Advocate.

I called the Taxpayer Advocate hotline and was told the name of the individual who was assigned to the case.  I then called him, got his voice mail, and left a message with a promised callback coming within two weeks.  It’s been a month, and unsurprisingly (given how this case has gone) there’s been no callback.  I left another message requesting status this morning.  We’ll see if we have a callback by January 2nd (I’m not holding my breath).

Neither my client nor I have ever received any communication from the Taxpayer Advocate Office stating that the case has been assigned to someone.  We haven’t received any communications from anyone, for that matter, since my client successfully verified his identity.  Meanwhile, the interest owed to my client has passed $4,500–something you and I will be paying for.  It’s hard to see my client receiving his refund for at least another month; by the time this saga ends it’s likely interest will exceed $5,000.

Consider individuals who desperately need their tax refunds, and this large refund (approximately $30,000) is needed to pay bills.  Do I need say more? It shouldn’t take nine weeks to have a return processed after identity verification (but it does); my client has been waiting 39 weeks (and counting).

I will update this saga in the New Year.

Previous posts on this:

An Identity Protection Unit Saga: Part 1
An Identity Protection Unit Saga: Part 2
An Identity Protection Unit Saga: Part 3
An Identity Protection Unit Saga: Part 4

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At Least The IRS Could Find 95% of the Returns…

Thursday, September 3rd, 2020

Two items crossed my in-box within a few minutes of each other this morning. The first was a blog post from the National Taxpayer Advocate requesting that Congress give multi-year funding for modernizing IRS computer systems. The second was a TIGTA report noting the IRS couldn’t find about 5% of tax returns requested.

Do you know anyone who knows COBOL (a computer language)? If you do, the IRS wants to hear from him or her! COBOL dates from 1959 (before I was born). The IRS’s IMF and BMF (Individual and Business Master Files) are older than I am, and run in Cobol on IBM mainframes. They are the oldest computer systems still in use by the federal government! I’ll date myself: I was in the last class at Berkeley to learn computer programming on punch cards. On the bright side, the IRS uses the best of 1950’s technology….

Why doesn’t the IRS take their paper records and digitize them? Some of it has to do with the legacy systems they are run on. A lot of it has to do with inadequate funding.

Seriously, this is a problem. In our office, we don’t keep paper records. We scan everything (and return all paper to our clients). The IRS does this for electronically filed tax returns, but not for all paper returns. Indeed, the TIGTA report notes that 347 of the IRS’s 956 forms cannot be electronically filed (that’s more than 36%). The IRS has 468,000 cubic feet of storage available on their campuses. Additionally, Federal Record Centers store about five million cubic feet of IRS records! The IRS spends $57 million a year on storing and retrieving this mountain of paper.

To give an idea of how large this is, my house is 2400 square feet with (I believe) 10 foot high ceilings (because of the heat in Las Vegas). That’s 24,000 cubic feet. So IRS paper records would fill more than 227 of my sized home. It’s frightening to think of all that paper.

The Taxpayer Advocate noted the IRS needs $2.5 billion over six years to complete its (hoped for) modernization program. They received $150 million in the 2019 fiscal year and $180 million in the 2020 fiscal year for modernization. At the current rate, it will take more than 12 additional years to complete it.

The TIGTA report looked at the ability to get specific pieces of paper. Retrieving that paper is necessary for audits and many other required IRS tasks. TIGTA had requests sent through normal channels for tax returns and examination case files. Most of the time the records could be found. However, 6% of examination case files and 3% of tax returns could not be located. An additional 23% of examination case files and 10% of tax returns were not provided timely.

The TIGTA report should be looked in its entirety for a depressing picture of the reality (vis-a-vis computer systems) at the IRS. It’s not that IRS management disagrees with TIGTA on the recommendations that TIGTA made (they agreed with the four recommendations in the report); rather, the problem is that the IRS almost certainly doesn’t have the money to complete the necessary tasks.

Here’s an example from real life: A fellow tax professional’s client mailed in a Form 1040X last year. That client just received a letter stating, “We have a record of receiving your Form 1040X for the 2018 tax year. We cannot find it. Please send another signed copy by mail to this office….”

I’ve been impacted by this. I had a client a few years ago request an ITIN (Individual Taxpayer Identification Number) for his child. The ITIN unit managed to lose the paperwork (sent by certified mail) three times, including once when it was hand-carried to them by the Taxpayer Advocate Office! (Thankfully, the Taxpayer Advocate kept a copy and the fourth time was a charm!)

Do I think Congress will loosen the purse strings here? Well, maybe before I retire….

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Where I Agree (In Part) With IRS Commissioner John Koskinen

Tuesday, November 3rd, 2015

It’s rare for me to agree with IRS Commissioner John Koskinen. However, he spoke to some tax practitioners today and I do agree with some of what he said. From Accounting Today:

Once again, Congress has been working on legislation to extend a group of expired tax provisions, but it has not completed action yet. The uncertainty we face over the extenders legislation raises operational and compliance risks for the IRS in its administration of the tax law and delivery of the filing season. This uncertainty imposes stress, not only on the IRS, but also on the entire tax community, including everyone in this room.

If this uncertainty persists into December, we could be forced to postpone the opening of the 2016 filing season…This would delay the start of processing of tax refunds for millions of taxpayers. It’s also important for lawmakers to understand what the effect would be if they made any substantive changes to tax provisions that are extended, or decided to approve any new tax provisions. We would need to reprogram our systems and make processing changes that would result in delays. So I will continue to urge members of Congress not to let this uncertainty drag on. We believe it is critical for Congress to make a decision one way or another on the extenders legislation no later than the end of November in order to ensure there are no disruptions to the upcoming filing season.

Commissioner Koskinen is correct. Congress should get off its duff and pass the extender legislation. That said, the calendar hasn’t hit December so I don’t expect anything to happen for four weeks.

Meanwhile, Commissioner Koskinen complained about the funding cuts to the IRS. Yes, they’ve hurt service (on that, he’s correct). However, the biggest villain isn’t Congress; it’s the IRS. The 501(c)(4) scandal and the wishy-washy testimony from almost everyone at the IRS (including Commissioner Koskinen) has led directly to the cuts in funding. Republicans aren’t going to fully fund an agency being used against them. Until this is resolved, Commissioner Koskinen can complain all he wants but the funding levels aren’t going to increase.

Interestingly, IRS Taxpayer Advocate Nina Olson also appeared and spoke at the same meeting. She noted that the funding issues are hurting morale (I’m sure they are) and that there is resistance to the Taxpayer Advocate from the IRS.

We are finding instances where the IRS is refusing to let me or my staff have access to the administrative files of the taxpayers unless I sign a document agreeing in writing not to share any information that I find or see in that file with the taxpayer him or herself. I find that deeply offensive. I am subject to the same laws as any other IRS employee about disclosure of tax information. I am also by law entitled to any tax return or any tax return information that I need to conduct my tax administration duties. My tax administration duties are in the code and number one is help taxpayers resolve their problems with the IRS, and I need to be able to see the administrative files in order to determine how they go about doing that. My position is that the IRS in those instances has violated the law by not providing me access to those files, and I do not say that lightly.

Well, if the IRS will violate the law in regards to 501(c)(4) organizations, they can violate the law with regards to the Taxpayer Advocate Service. Until Congress or the courts stop it, that’s the environment that we work in.

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It’s Nice to Know I’m Right, But…

Saturday, December 14th, 2013

I’ve written on a few occasions about my battles with the IRS over incorrectly assessed Failure to File and Failure to Pay penalties. (See here, here, and here.) As I noted in the last post linked to above, I submitted this to the IRS’s Systemic Advocacy Management System (SAMS). Well, progress has been made.

It turns out there’s not a systemic issue, but at least two of them (and almost certainly at least three). First, the regulation that exists does provide an automatic extension for taxpayers outside of the US on April 15th for any reason. Here’s that regulation again (it’s Treasury Regulation, 26 CFR § 1.6073-4 (c)):

(c) Residents outside the United States. In the case of a U.S. resident living or traveling outside the United States and Puerto Rico on the 15th day of the 4th month of a taxable year beginning after December 31, 1978, an extension of time for filing the declaration of estimated tax otherwise due on or before the 15th day of the 4th month of the taxable year is granted to and including the 15th day of the 6th month of the taxable year.

The woman I’ve been dealing with at SAMS confirmed that the plain language of the regulation does govern. It’s also noted in the Internal Revenue Manual (IRM), which is how the IRS is supposed to resolve penalties. But:

1. IRS publications are likely wrong. Publication 54 notes that an extension is available only if outside of the US on April 15th for business purposes and you have to reside outside of the US. The clear language of the regulation is different and governs, so publications are wrong. They’ll have to be rewritten, which won’t happen for 2013 publications (they’ve already been issued and have a July deadline).

2. IRS staff is not using the IRM to properly resolve the matter. Based on the experiences of my clients, these penalties should have been resolved at the service centers. The staff at the service centers may be using publications rather than the IRM to look up how the Tax Code works. (It’s also possible that the IRM needs to be rewritten in this area to note this situation.) There will be a need to determine why the penalties weren’t resolved at the service center; it’s possible that retraining some staff is required.

3. The IRS computer system likely needs to be reprogrammed to stop these penalties from being assessed in the first place. That’s almost certainly not going to happen before 2013 returns are processed, but the sooner the underlying problem(s) in the programming are discovered, the sooner they can be resolved.

Since SAMS now agrees that there is at least one systemic issue, the matter is being elevated and an analyst (and team) will be assigned to attempt to resolve this…hopefully before 2013 tax returns are filed. Unfortunately for my clients impacted by this for 2012 returns, each such case must be fought individually. While I am now fairly certain my clients will all win in the end, it’s still a pain in the neck.

There are two related matters. First, how many taxpayers were erroneously assessed these penalties and didn’t fight them? I noticed the systemic issue because I had multiple individuals impacted in multiple years. It’s likely there are hundreds or thousands of taxpayers who paid penalties that shouldn’t have. If you happen to be one of them (and the tax year in question is still open), I’d immediately write the IRS requesting a refund of the penalty(ies).

Second, I wish to praise the Taxpayer Advocate’s Office of Systemic Advocacy. They did not blindly assume that the IRS was right on these penalties, and did look fully at the evidence I brought up. While I would have liked SAMS to move somewhat faster, getting the acknowledgment of being correct in four months is probably quite fast in terms of the normal speed of the bureaucracy.

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“The IRS Has Failed to Provide Effective and Timely Assistance to Victims of Identity Theft”

Wednesday, January 9th, 2013

That’s not just my opinion, it’s the opinion of the National Taxpayer Advocate, Nina Olson. Most tax professionals who have run into identity theft can relate horror stories. Jason Dinesen, an Enrolled Agent in Iowa, has been dealing with an identity theft matter for over 20 months (that’s nearly two years). The matter is still unresolved.

Ms. Olson today came to the conclusion that:

■■ The IRS is moving backward — away from a centralized approach to assisting identity theft victims — and is increasing the risk that taxpayer-victims may fall through the cracks;
■■ After years of ineffective efforts to reengineer its processes, the IRS still takes too long to fully resolve the accounts of victims;
■■ While the Identity Protection Personal Identification Number (IP PIN) that the IRS has developed provides additional security, it does not cover all victims;
■■ The Taxpayer Protection Unit may not be sufficiently staffed to handle the volume of calls from impacted taxpayers;
■■ Congress may unnecessarily create additional exceptions to taxpayer privacy protections; and
■■ The Social Security Administration still makes the Death Master File available to the public, creating an opportunity for identity thieves to steal and then misuse personal information.

The IRS and the Taxpayer Advocate both have reasonable arguments; the report (linked to above) notes both sets of issues. But I think Ms. Olsen misses a key point: The place to stop identity theft is checking addresses when returns are filed. The proposal that I made back in September would stop some identity theft before it happens. An ounce of prevention is worth a pound of cure.

Ms. Olson hits a bullseye with her comments on the Social Security Death Master File; she sees no reason for that to be available to the public while the social security numbers could be used for identity theft. I agree completely. The government is handing to crooks information they need to be crooks.

Finally, Ms. Olson’s comments about the length of time it takes to resolve many identity theft claims are accurate. The cases take a long time. They are complex. That said, many individuals are waiting years to get matters resolved. This is a disservice to an agency that has “service” in their name.

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