Outsource the IRS!

IRS Needs Funding for GOP Tax Overhaul, Report Says Years of budget cuts have hindered taxpayer service and tech upgrades, according to advocate

Excerpt:

Sen. John Cornyn of Texas, the Senate’s second-ranking Republican, said Wednesday, “We need to reform the IRS...but I am concerned that they’re not able to do their job and not maintaining their information systems to protect personal financial data by taxpayers and the like.” He added that he doesn’t have “an arbitrary amount that I think should be spent.” The agency will need $495 million over two years to implement the law, according to an IRS estimate cited in Ms. Olson’s report. She said the years of budget cuts have prevented the IRS from providing adequate taxpayer service or updating its technology.

IRS Spends Four Years and $140 Million to Upgrade Windows Software for Only Half Their Servers. Note: This article is 2 years old, but represents the incompetence of the tech side of the agency! 

Excerpt:

The IRS has failed to upgrade Windows software on its computers and servers by end of life deadlines, despite being expected to spend almost $140 million in taxpayer funds, according to a recently released report by the Treasury Inspector General for Tax Administration (TIGTA). The agency has already spent four years upgrading this technology, but is yet to upgrade half of its servers. In all, the IRS had 110,000 workstations to upgrade from Windows XP and 6,000 servers to upgrade from Windows Server 2003. This process officially began in April 2011, but the IRS did not actually begin upgrades until September 2012, 17 months later. Progress was so unsatisfactory that the agency’s Chief Technology Officer began to directly oversee this process. As the report notes: "Because the Windows 7 effort was not making sufficient progress in its completion, the Chief Technology Officer (CTO) made the decision in July 2012 to oversee the Windows 7 upgrade directly due to its complexity and magnitude." At the time of the TIGTA report, the IRS still has not upgraded half of its windows servers despite the “new” operating system being seven years old, and the current system being out of date and unsupported by Microsoft. However, it has completed upgrades for "most" computers although over 1,000 machines remain unaccounted for.

Top Ten Most Ridiculous Items Purchased with IRS Credit Cards

The list:

1. $119 worth of Nerf footballs that were intended to be used for a “team-building exercise.” As if that wasn’t bad enough, they never used the balls, which are “currently stored in a filing cabinet” somewhere in the bowels of the IRS.
2. At one luncheon, IRS credit cards were used for “related alcohol purchases” including 28 bottles of wine—for 41 guests. As a bottle of wine contains about five servings, this equates to three and a half glasses of wine per person.
3. For the child in all of us, the IRS purchased these for “managers’ meetings.” These were part of the “almost $4,000 in improper decorative and give-away items” that TIGTA found in their review. [see article for image]
4. Along with some jigsaw puzzles, the IRS purchased the “world’s largest crossword puzzle.” These purchases cost $89 of taxpayer money. Hopefully the IRS actually used these in their “team building” activities -- unlike those poor Nerf footballs.
5. Even IRS agents need a little love sometimes, which may be why plush animals were purchased with IRS credit cards as give away prizes.
6. Another one of the “give-away items” at the IRS managers’ meetings were “bathtub toy boats”. The IRS spent $418 to purchase these, along with some other “improper decorative and give-away items.” [see article for image]
7. Stove top hats [think Abe Lincoln] were purchased using an IRS credit card as yet another “give-away prize.”
8. The IRS must enjoy the sound of Kazoos. They used your tax money for “novelty decorations and give-away items, such as kazoos” which were awarded as prizes during their managers’ meetings.
9. a “dinner at an approximate cost of $140 per person, four times the Federal Government per diem rate in Washington D.C.” At the time of this conference the per diem rate was $36 for dinner.
10. The IRS spent five times the Federal Government per diem rate of $18 when they bought lunch at $100 per guest.

IRS admits Tea Party, other conservative groups were targets during Obama era

Excerpt:

In an unprecedented victorious conclusion to our four year-long legal battle against the IRS, the bureaucratic agency has just admitted in federal court that it wrongfully targeted Tea Party and conservative groups during the Obama administration because of their political viewpoints and issued an apology to our clients for doing so. In addition, the IRS is consenting to a court order that would prohibit it from ever engaging in this form of unconstitutional discrimination in the future.

In a proposed Consent Order filed with the Court yesterday, the IRS has apologized for its treatment of our clients -- 36 Tea Party and other conservative organizations from 20 states that applied for 501(c)(3) and (c)(4) tax-exempt status with the IRS between 2009 and 2012 -- during the tax-exempt determinations process. Crucially, following years of denial by the IRS and blame-shifting by IRS officials, the agency now expressly admits that its treatment of our clients was wrong.

You Can’t — and Shouldn’t — Abolish the IRS

Excerpt:

...the IRS does a lot of things besides just process complicated individual tax returns. Much of its resources, for instance, go into enforcing the corporate tax code ... . Meanwhile, a lot of IRS agents — quite possibly not enough — are assigned to providing customer service to taxpayers. And while conservatives are rightly wary of the civil-liberties violations that tax enforcers can commit, labor-intensive audits are important. If a lot of income goes unreported or taxes go uncollected, trust in the system breaks down, rates have to be higher, and the economy ails.

Comments:

• I am not proposing abolishing the IRS (see the final article). It could be abolished with a flat tax or consumption tax (national sales tax) or VAT tax, but none of these are politically attractive. 
• I've long proposed eliminating the corporate tax because all corporate taxes end up embedded in the products and services consumers purchase. But this too is not palatable to Joe sixpack who is clueless about this basic principle
• I propose the calculations for personal income tax be outsourced to the TurboTaxes of the world: TurboTax, TaxAct, H&R Block, Tax Slayer, and the professional tax software vendors.
• The IRS would still be the central repository of documents filed: The 1099's, W-2's, et cetera
• And the IRS would continue to be the dispersal agent of refunds and the recipient of taxes due. They would continue to be the official "bank" of withholding taxes and e-payments of estimated taxes (EFTPS)  (et al)
• What the IRS does a crappy job of - systems - would be outsourced to the TurboTaxes of the world (bullet point above). (see "IRS says it's using technology from JFK's time")
• This year I paid (gladly! They have a great product!) about $ 100 bucks for Turbo Tax client for my Mac. The TurboTaxes of the world are much more efficient at updating their products than the IRS is updating their own systems

What do you think? Comments appreciated! 

IRS - Where's My Refund site

Where's My Refund - It's Quick, Easy and Secure.

Comment: Of course I want it now!

On refunds: Four Ways to Make Your Tax Refund Pay You Back.
Our plan:

• Replenish savings depleted by last year's health issues.
• Prepare for upcoming travel: Florida trip to see Kathee's brother and Dallas trip to help Mother in her transition

1099-DIV: Qualified vs. Ordinary Dividends

Comment: I don't think I have every really understood the difference. This is what I found out.

Ordinary Dividends

Excerpt:

A share of a company's profits passed on to the shareholders on a periodic basis. Ordinary dividends are taxed as ordinary income and are reported on Line 9a of the Schedule B of the Form 1040. All dividends are considered ordinary unless they are specifically classified as qualified dividends.

Qualified Dividend

Excerpt:

A type of dividend to which capital gains tax rates are applied. These tax rates are usually lower than regular income tax rates. Ordinary dividends that do not qualify for this tax preference are taxed at an individual's normal income tax rate. In order to qualify:

1. The dividend must have been paid by an American company or a qualifying foreign company.
2. The dividends are not listed with the IRS as dividends that do not qualify.
3. The required dividend holding period has been met.

More from Fidelity: Qualified Dividends

Qualified dividends are generally dividends from domestic corporations and certain qualified foreign corporations for which the requisite holding period(s), described below, are satisfied. ... Requisite holding periods: Dividend–paying stock — In order for a dividend you received during the 2012 tax year (1/1/12 – 12/31/12), with respect to a share of stock, to be classified as a qualified dividend, you must have held that share of stock unhedged for at least 61 days out of the 121–day period that began 60 days before the ex–dividend date. For certain preferred stock, the relevant holding period is at least 91 days out of the 181–day period beginning 90 days before the ex–dividend date.

My summary explanation:

• Qualified dividends are taxed at a lower rate
• Qualification is a function of the ex-dividend date and the length of time one has held the stock.
• My broker keeps track of (Wells Trade) and reports on the 1099-DIV 

Arrived the same day as my tax refund

Comment: Murphy's law!

IRS: New date (2/29)

IRS: Tax Refund Delays

IRS still experiencing delays in sending tax refunds

 Excerpt:

Tax preparers said Thursday that the Internal Revenue Service is continuing to have delays in sending federal tax refunds this year, with hundreds of South Floridians complaining they still haven't gotten their check.

"Our phone is ringing off the hook with people saying they should have their refund by now," said Mark Daly, franchise owner of several Jackson-Hewitt Tax Service outlets in South Florida.

"There's no rhyme or reason why some returns are being quickly processed and others not," Daly added. "We've had hundreds and hundreds of complaints."

"The IRS is experiencing delays this year in sending refunds," said H&R spokesman Gene King in a statement sent Thursday to the Sun Sentinel. "Based on current IRS guidance, most refunds are now issued from the IRS in 10 to 21 days."

Comment: IRS website still reports that my refund will be deposited on 2/21 ....

IRS Refund: Missed that date!

Click for larger image. Message is:

"You should receive your refund by February 21, 2012"

Comment: IRS Where's My Refund site. Calling the IRS is like (well ... dealing with Comcast!). Finally got ahold of a very kind woman who said they had not begun to process my return yet. I wanted to ask ... why does the website say that my refund would be here yesterday ... but I knew she wouldn't have the answer!

The Onerous Compliance Cost of the Internal Revenue Code

Comment: Source: Bearish News. More in this channel

Federal Tax Code: KJV x 5

Tax System: Too Complex To Be Constitutional?

Excerpt:

Douglas Shulman says he uses a hired tax preparer because the U.S. tax code is so complex. That's a bad sign. He's the I.R.S. commissioner.

The tax system has clearly gotten too complicated. The code itself holds about 3.8 million words, nearly five times as many as the King James Bible. There's also a much larger body of regulations, which carry the weight of law, written by the Internal Revenue Service, along with court precedents going back at least a century. Add to that the IRS's published opinions on its regulations.

Even if someone could read all of it, the rules would be obsolete by the time he finished. There have been more than 4,400 changes to the tax code over the past decade, or more than one a day.

Comment: Where's Steve Forbes (a fairer flatter tax!) when we need him!

The IRS plans more audits

How to Fight the IRS

Excerpt:

With Washington searching for ways to cut the budget deficit, IRS officials face intense pressure to collect more revenue. The agency plans more audits, especially of taxpayers in high brackets or those who are self-employed and deal in large amounts of cash. The IRS also has turned up the heat in such areas as offshore tax evasion, including undisclosed foreign bank accounts.

If you become an IRS target, what should you do?

For many people, the answer may seem simple: Surrender as quickly as possible, no matter how good a case you have.

Even if you are sure you are right and have all the records to prove it, fighting the IRS, one of the most powerful government bureaucracies on the planet, can be the ultimate nightmare. Seemingly routine struggles can drag on for years, leading to endless frustration and sleepless nights. Even those who eventually triumph may wonder if the fight was worth all the time, effort and expense.

But if you're ready for the challenge, there are many smart ways to fight back—and win. Start by keeping comprehensive, well-organized documents. Always scour the IRS's claims for mistakes. Don't get discouraged when dealing with tax officials. If you are convinced you are correct, consider pushing your case up the chain of command. Try the IRS appeals division. You may also get valuable help from the IRS's taxpayer advocate service. Or go to court.

At the same time, there are some classically dumb mistakes to avoid—everything from simply ignoring the IRS to arguing that it somehow is voluntary to pay federal income tax.

Here are some combat tips from lawyers, accountants and "enrolled agents," who are federally licensed tax experts authorized to represent taxpayers at all levels of the IRS.

Comment: Full article has tips. We were contacted by the IRS once for a clarification (this was back in about 1985). We had made a mistake on our return. I hired a tax accountant to file an amended return. We had to pay out a small amount plus a penalty.

50 percent of people who are getting something for nothing

Nearly half of US households escape fed income tax

Excerpt:

Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

Comment: You have to wonder if this is good for our democracy!

The IRS as health care enforcer

Republicans assail IRS provision in health care bill

Excerpt:

Subcommittee on Oversight ranking member Charles Boustany (R-La.) said the IRS provision in the bill "dangerously expands, in an ominous way the tentacles of the IRS and it's reach into every American family," he said today during a press conference.

"This is a vast expanse of power," he said.

Boustany said the bill would allow the IRS to confiscate refunds if there are penalties for not buying health care.

Lawmakers have questioned whether the IRS can handle the increased workload to oversee, administer and collect penalties for people who don't buy health insurance.

"This is increasing tax liability and tax scrutiny," said Rep. Peter Roskam (R-Ill.).

Comment: Earlier post

IRS: 2 agents for 4 ¢

Bob Shallit: IRS visits Sacramento carwash in pursuit of 4 cents

Excerpt:

Arriving at Harv's Metro Car Wash in midtown Wednesday afternoon were two dark-suited IRS agents demanding payment of delinquent taxes. "They were deadly serious, very aggressive, very condescending," says Harv's owner, Aaron Zeff.

The really odd part of this: The letter that was hand-delivered to Zeff's on-site manager showed the amount of money owed to the feds was ... 4 cents.

Inexplicably, penalties and taxes accruing on the debt – stemming from the 2006 tax year – were listed as $202.31, leaving Harv's with an obligation of $202.35.

Zeff, who also owns local parking lots and is the president of the Midtown Business Association, finds the situation a bit comical.

"It's hilarious," he says, "that two people hopped in a car and came down here for just 4 cents. I think (the IRS) may have a problem with priorities."

Now he's trying to figure out how penalties and interest could climb so high on such a small debt. He says he's never been told he owes any taxes or that he's ever incurred any late-payment penalties in the four years he's owned Harv's.

In fact, he provided us with an Oct. 22, 2009, letter from the IRS that states Harv's "has filed all required returns and addressed any balances due."

Comment: A failure to be reasonable. I'm not surprised.

Kamikaze on the IRS?

Plane crashes into Northwest Austin office building

Excerpts:

FBI sources said that the eyewitness accounts saying that the plane did not slow down is making some authorities wonder if it was an intentional act.

FBI spokesman Bill Carter said the building hit by a plane at the Echelon office complex did not contain an FBI office. While the FBI has an office at the complex, the plane did not crash into that particular building, Carter said.

William Winnie, an Internal Revenue Service agent, said he was in a training session on the third floor of the building when he saw a light-colored, single engine plane coming at the building.

“It looked like it was coming right in my window,” Winnie said. He said the plane veered down and to the left and crashed into the floors below. “I didn’t lose my footing, but it was enough to knock people who were sitting to the floor.”

The building mostly houses IRS offices, said Kathi Hall, with KVSA Asset Management, which manages the property.

Comment: Domestic terrorism?

The "Efficiency of the Post Office, compassion of the IRS"

Health care reform means more power for the IRS

Excerpt:

... the primary federal bureaucracy responsible for implementing and enforcing national health care will be an old and familiar one: the Internal Revenue Service. Under the Democrats' health care proposals, the already powerful — and already feared — IRS would wield even more power and extend its reach even farther into the lives of ordinary Americans, and the presidentially-appointed head of the new health care bureaucracy would have access to confidential IRS information about millions of individual taxpayers.

In short, health care reform, as currently envisioned by Democratic leaders, would be built on the foundation of an expanded and more intrusive IRS.

Under the various proposals now on the table, the IRS would become the main agency for determining who has an "acceptable" health insurance plan; for finding and punishing those who don't have such a plan; for subsidizing individual health insurance costs through the issuance of a tax credits; and for enforcing the rules on those who attempt to opt out, abuse, or game the system. A substantial portion of H.R. 3200, the House health care bill, is devoted to amending the Internal Revenue Code of 1986 in order to give the IRS the authority to perform these new duties.

The Democrats' plan would require all Americans to have "acceptable" insurance coverage (the legislation includes long and complex definitions of "acceptable") and would designate the IRS as the agency charged with enforcing that requirement. On your yearly 1040 tax return, you would be required to attest that you have "acceptable" coverage. Of course, you might be lying, or simply confused about whether or not you are covered, so the IRS would need a way to check your claim for accuracy. Under current plans, insurers would be required to submit to the IRS something like the 1099 form in which taxpayers report outside income. The IRS would then check the information it receives from the insurers against what you have submitted on your tax form.

If it all matches up, you're fine. If it doesn't, you will hear from the IRS. And if you don't have "acceptable" coverage, you will be subject to substantial fines — fines that will be administered by the IRS.

Under some versions of health reform now circulating on Capitol Hill, the IRS would also be intimately involved in how you pay for insurance. Everyone would be required to buy coverage. The millions of Americans who can't afford it would receive a subsidy to pay for it. Under the version of the plan currently under negotiation in the Senate Finance Committee, that subsidy would come through the IRS in the form of a refundable tax credit. Under the House plan, the subsidy would come directly from the Health Choices Administration.

In either scenario, the IRS would be the key to making the system work. Before you could receive any subsidy, whether through the IRS or not, the Health Choices Administration would have to determine whether you are eligible for it. To do so, the bills under consideration would give the Health Choices Commissioner the authority to demand sensitive, confidential information from the IRS about individual taxpayers. The IRS would have to provide it.

Comment: The quote (title) goes back at least 20 years!

Taxing company cell phones as a "fringe benefit"

Tax Man's Target: The Mobile Phone

Excerpt:

The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a "fringe benefit," spurring efforts by the wireless industry and others to kill the idea.

The Internal Revenue Service proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

Comment: Would impact both K and I as we have company paid cell phones. Sounds like a great benefit but it means we could be called any time of day or night (and we sometimes are!)

Mac Hammond wins round # 1

Brooklyn Park megachurch smites IRS in info showdown

Excerpt:

A U.S. district magistrate judge's recommendation, issued Tuesday, sides with the Living Word Christian Center. The church had argued that it didn't have to provide detailed financial information focusing on the compensation of its founder and senior pastor, James (Mac) Hammond, requested by the IRS.

Earlier this year, the IRS petitioned the U.S. District Court to force the church to answer its demand for information. The church argued that the request wasn't made by a "high-ranking official" as required by law, and the magistrate judge agreed.

A U.S. District Court judge will decide whether to follow that recommendation.

Comment: I'm one who favors complete financial transparency. I think Churches should have to file 990 forms with the IRS like other non-profits. See previous Mac Hammond posts