IRS Warns Of Delayed Refunds, Long Waits For Taxpayers & Possible Shutdown

IRS Warns Of Delayed Refunds, Long Waits For Taxpayers & Possible Shutdown

 

Kelly Phillips Erb, Contributor, Forbes.com

 

With a week to go before tax season opens, taxpayers were already bracing for a potentially “miserable” filing season. It turns out that it could live up to the hype.

Internal Revenue Service (IRS) Commissioner Koskinen has advised employees that the budget cuts will result in reduced services to taxpayers. In an email to employees sent earlier today, Commissioner Koskinen advised that “realistically we have no choice but to do less with less.”

What does that mean for taxpayers?

  • Identity theft could increase. Despite the need for increased taxpayer protections against identity theft, the implementation of additional measures will be delayed. That’s bad news for taxpayers since, despite the efforts of IRS and other agencies to stem the tide of identity theft, scammers have grown more bold. TIGTA reported that
  • telephone scammers, posing as IRS representatives, managed to steal more than $5 million from taxpayers last year. And as quickly as the scams are picked up, theychange. IRS-Criminal Investigation has responded to what has been termed an “epidemic” of identity theft by ramping up investigations – but with wholesale cuts to IRS, expect those investigations to dip, too.
  • Refund delays. It turns out that satirical piece on tax refunds making the rounds might have had some merit after all. According to the Commissioner, taxpayers who file paper tax returns may have to wait an extra week or longer to see their refund. In the email, the Commissioner didn’t specifically address whether delays would affect refunds for taxpayers who e-file, though a few weeks again he refused to say that refunds would not be delayed.
  • Lags in correspondence. Those of us in the field have already become familiar with those letters from IRS that begin “We need more time…” It looks like those are about to kick up even more. With fewer employees on staff, IRS expects “lengthy delays” to answer correspondence.
  • Fewer resolutions. Those taxpayers who have legitimate gripes but can’t find a resolution will be out of luck. The Commissioner says that the Taxpayer Advocate Service, normally the next step when cases aren’t resolved through normal channels, won’t be able to obtain a new case management system to oversee taxpayer hardship cases.
  • Unanswered calls. Predictions weren’t terrific for answered call rates before. Now, the Commissioner is warning of “an even lower level of telephone service.” Specifically, he notes the “real possibility that fewer than half of taxpayers trying to call us will actually reach us.” Those calls that are answered, he says, “will face extended wait times that are unacceptable to all of us.”
  • Shutdowns. Although the Commissioner wavered on saying yes to furloughs last month, temporary shutdowns look to be the case after all. The Commissioner indicated that the agency is planning for at least one shutdown this fiscal year; he suggested there might be two furlough days. There was no word on when those dates might be other than later in the fiscal year (read: not during tax season).
  • Fewer Audit Closures. The silver lining – if you can call it that – is that the reduction in staffing means
  • fewer taxpayer audits will be closed in 2015 (no word on how that will affect selection of new matters). Collections case closures will also be reduced. That might be good news for those under the audit gun but not so great for the Treasury. Commissioner Koskinen estimates that the government will, as a result, lose at least $2 billion in revenue.

Quite frankly, none of this information is earth-shattering. I think many of us – tax professionals and taxpayers alike – have been hoping for the best but bracing for the worst this tax season. It looks like we’re getting the latter.

Tax season is still slated to open on January 20, 2015 (those pesky rumors suggesting the date has been pushed out further are just that: rumors). For the latest word on the 2015 tax season, keep checking back.

 

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Top 10 Tax Mistakes To Avoid At All Costs

Top 10 Tax Mistakes To Avoid At All Costs

A tax audit involves the time and expense of being examined and often a tax dispute. Avoid these common mistakes and you’ll reduce your chances of grief from the IRS.

Click on this line to read the full article.

Depreciation, Expensing and Taxes

September 11, 2013

Bruce Bartlett wrote an article with a nice breakdown of the history of depreciation in the United States. An interesting point he makes is that depreciation was initially an accounting gimmick:

If the railroads treated capital expenditures the same way that operating expenses were treated, they would have huge losses for many years that would discourage investors. So the idea of depreciation was born – writing off capital investments over time.

Maybe that helped businesses sell projects to investors, but the addition of the corporate income tax in 1909 made depreciation rules important for taxes, too.

In the article, Bartlett lays out two common economic arguments why depreciation rules can be bad for tax purposes.

The first argument is that under current depreciation rules, inflation erodes the value of the tax right off. These types of depreciation rules understate the cost of the equipment to business, overstate the profit, and lead to higher taxes for the business.

The second argument is that as technology changes more rapidly, high-tech equipment becomes irrelevant sooner than it physically wears out.

Expensing solves both these issues and offers other benefits of its own – namely, increased investment and economic growth.

Expensing is effective in increasing investment, because it lowers the cost of capital. As the Tax Foundation’s Steve Entin wrote in a recent report:

The rules for how quickly a company can write off investments in plants, equipment, and buildings directly impact the cost of doing business. The higher those costs are, the slower the economy will grow. The lower the cost, the bigger the economy will be, and with it the number of jobs and the level of wages.

But it’s important for long-term economic growth that expensing not just be used as a short-term solution to stimulate investment, as it has been used in the past.

CLICK ON THIS LINE TO READ THE FULL ARTICLE

Are Some Americans Paying Federal Income Tax They Don’t Owe?

Headline got your attention? No, it isn’t a come-on for a new tax avoidance scheme. Rather, it reflects an interesting but little known problem with the federal income tax system: People who have tax withheld from their paychecks but, for some reason, don’t file returns. For many, blowing off their 1040 means they are paying tax they don’t owe.

According to one estimate, in 2003 more than 8 million people had almost $16 billion in taxes withheld but did not file 1040s. Not only did many pay tax they didn’t owe but some likely missed out on refundable credits that could have improved their well-being.

To some degree, this is the flip side of another set of numbers that get far more attention—those American who pay no federal income tax.  The other day, the Tax Policy Center estimated that about 43 percent of Americans will be off the federal income tax rolls in 2013, down from 47 percent in 2009.

Nearly three in four non-payers file 1040s. Nearly all pay some tax—sales taxes, payroll taxes, excise taxes and the like. And most have income taxes withheld from their paychecks but get these payments returned from the government in the form of refunds or credits.

There are also people who make money, have no tax withheld, and owe no tax. Think low-income retirees who are living on Social Security or younger adults who work but make very little.

But a surprisingly large number of people do work, do have taxes withheld, but never file 1040s. Because we don’t know much about them, TPC treats them as non-payers of income tax even though some do pay through withholding. As a result, our estimate that 43 percent of Americans don’t pay federal income tax is probably high.

CLICK ON THIS LINE TO READ THE FULL ARTICLE

Begging The Bank To Forgive Some Of The Mortgage On Your Primary Residence? Better Act Fast

[Note: this column was originally published in November 2012, but due to the Band-Aid approach to tax law favored by Congress, it is relevant once more]

If you are one of the 97% of the population whose home is worth significantly less than when you purchased it (relax real estate brokers of America, I’m exaggerating for effect), you’ve likely been seeking out some type of debt modification with your lender. Or perhaps things have gotten so bad that you’re contemplating a foreclosure or short sale.

Here’s the thing: anytime a mortgage is modified (i.e., reduced), the borrower is required to recognize cancellation of indebtedness (COD) income under Section 61(a)(12) to the extent of the debt forgiveness. Similarly, if a property is sold at foreclosure or in a short sale and the underlying mortgage is recourse (meaning the borrower has personal responsibility for any excess loan deficiency remaining after the sale), then to the extent the remaining deficiency is forgiven, the borrower will again recognize COD income.

CLICK ON THIS LINE TO READ THE FULL ARTICLE

IRS Rule Leads Restaurants to Rethink Automatic Tips

An updated tax rule is causing restaurants to rethink the practice of adding automatic tips to the tabs of large parties.

Starting in January, the Internal Revenue Service will begin classifying those automatic gratuities as service charges—which it treats as regular wages, subject to payroll tax withholding—instead of tips, which restaurants leave up to the employees to report as income.

The change would mean more paperwork and added costs for the restaurants—and a potential financial hit for waiters and waitresses who live on their tips but don’t always report them fully.

Darden Restaurants Inc., DRI +0.58% owner of Olive Garden, LongHorn Steakhouse and Red Lobster, has long included automatic 18% tips on the bill for parties of eight or more at its more than 2,100 restaurants, but is experimenting with eliminating them because of the IRS ruling, said a spokesman.

CLICK ON THIS LINE TO READ THE FULL ARTICLE

Top 10 Tax Mistakes Made by Investors

Investing is a complex undertaking. The supply of investment alternatives is seemingly endless. Evaluating various alternatives can be quite difficult and very time consuming.

And unless held in check, the actual decision-making process is fraught with human emotions that often lead investors to make counterproductive investment choices. Add to this the myriad tax rules and regulations that impact investments and you have enough to overwhelm many investors.

Trusted financial professionals are in a position to help make sense of it all. Certainly, appropriate portfolios should be structured for investors, and suitable investments should be chosen given the current economic environment and the investor’s unique set of circumstances. But tax consequences must also be carefully considered, and the accountant often plays a role in this. Tax treatment, good or bad, can make or break an investment decision.

Here are the top 10 tax mistakes made by investors as gathered in a recent survey we conducted of investment advisors:

VERY FUNNY – ‘The Daily Show’ Explains Why Our Congress Hasn’t Reformed the Tax Code”

“Congress may be out on its month-long August recess, but that doesn’t mean “The Daily Show” stops its skewering. Last night, host John Oliver took on our broken tax code – and used the issue to take down our broken political system….”

CLICK ON THIS LINE TO SEE THE VIDEO.

QUIZ: How many page are in the U. S. Tax Code?

How long is the federal tax code?

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