Security Summit Focuses on Identity Theft

Posted on November 23, 2015 by Kursti Nakagawa

In March of this year, all of the major players in the tax industry came together to focus on the problems of identity theft and tax refund fraud. Their aim was to have safeguards in place before the beginning of the 2016 filing season. This convocation, identified as the Security Summit, includes the IRS, state tax authorities, and representatives from the tax software and financial services industries. Tax Commissioner John Koskinen, who has called the Security Summit an “unprecedented effort,” maintains that income tax fraud “is not a battle the IRS can fight alone.” He went on to say that identity theft has “become a serious threat to the nation’s tax system” and one that must be dealt with aggressively.

Tax fraud has become an increasingly serious problem as the percentage of e-filed returns has multiplied. Currently, almost every business and tax professional, as well as a significant number of individual taxpayers, files electronically. With this increase in convenience, comes a whole host of associated problems surrounding the issues of taxpayer identification, the sharing of information and internet security. It is exactly these topics that are the focus of the Security Summit. According to remarks made by Koskinen at an October 20th press conference, the Security Summit “now covers virtually the entire population of taxpayers who e-file their tax returns.”

The Security Summit has made significant progress since their initial meeting in March. To date, they have identified and tested more than 20 security items related to the electronic filing of taxes. These items, which focus on all aspects of tax return and tax refund fraud, will be made available to both the IRS and State Tax Agencies to be used in the prevention of identity theft and are expected to be in place by the time the 2016 filing season opens. They target such things as the time it takes to produce a return and identifying instances where multiple returns are generated automatically. The Summit has announced that implementation of these measures is internal. While they will serve to enhance the security of the transmission process, they will not affect how taxes are filed.

In addition to measure designed to enhance the security of e-filed returns, the Security Summit has made recommendations in several other areas. In particular, the Tax Professional Work Group, which is one of the working committees of the larger effort, is investigating other means by which tax preparers themselves can contribute to the prevention of identity theft. On top of this, the United States Tax Commissioner has asked Congress to pass legislation requiring W-2s, 1099s and other information returns to be sent out earlier, thus allowing more time for the matching of these items with the information submitted on tax returns.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Pros & Cons of Outsourcing the Collection of Tax Debt

Posted on August 24, 2015 by Kursti Nakagawa

Pros and Cons of Outsourcing the Collection of Tax Debt

Pros & Cons of the Outsourcing of Collection of Tax Debt

Pros & Cons of Outsourcing the Collection of Tax Debt

The Senate Finance Committee has recently revived their discussion of outsourcing the collection of back taxes. According to certain estimates, turning the collection of delinquent taxes over to private collection agencies would save the government more than two billion dollars over a period of ten years. However, opponents of privatization maintain that this would not be the case. In addition to emphasizing the potential threat to taxpayer security, they point to attempts at outsourcing the collection process that have not worked particularly well in the past. Time will tell whether the Treasury Secretary, who currently has the authority to make such a switch, will give it another try.

Those who favor privatizing the collection of tax debt say that it will raise more revenue that it costs. While this did not happen in a previous attempt at outsourcing that was made between 2006 and 2009, proponents say that the powers that be have learned from their past mistakes.They say that turning IRS collections over to private collection agencies will generate extra revenue that The IRS can use to hire new employees. In addition, they point to the fact that removing the task of debt collection from the IRS will allow the understaffed agency to focus its human resources on other important tax matters that have suffered in recent years.

On the other side of the fence, opponents of outsourcing say privatizing the collection of tax debt will not work. The National Treasury Employees Union points to data from the previous attempt at outsourcing which shows that the IRS collected over 60% more in the first two years of the program than the private collection agencies did – $139 million compared to $56 million. Although the private companies did better at collecting from cases where the amount owed was not in dispute, they lacked the authority to collect in the more difficult cases. The Center for Effective Government maintains that private companies will never be as effective as the IRS at collecting back taxes. According their spokesperson. “Collecting back taxes is an inherently governmental function, something that the government is uniquely positioned to do.” The IRS is the only collection agency that can garnish wages, levy bank accounts, Social Security benefits and 401k plans, place tax liens on property and even seize assets, all without judicial approval! These powers indeed make it the most powerful collection agency in the county, a fact that opponents of outsourcing tax debt collection are quick to point out.

Common Misconceptions about the IRS

Posted on May 5, 2015 by Kursti Nakagawa

A Few Common Misconceptions about the IRS

Audits are not as common as they may seem. Although many taxpayers worry that their tax return might be selected for an IRS audit, the fact is that less than two percent of personal tax returns are audited by the IRS each year. On top of this, even if a return is selected for further examination, the IRS usually just contacts the taxpayer by mail and asks them to provide documentation to support certain specific items. Following this communication (aptly labeled a correspondence audit), there are three possible outcomes, none of which are accompanied by a serious consequence. An additional tax amount will be assessed, the return will be accepted as originally submitted or, in some cases, a tax refund may even be issued.

Making an honest mistake on a tax return usually has no serious consequences. When

Common Misconceptions about the IRS

the IRS detects a mistake on a tax return, their normal procedure is to contact the taxpayer through some form of written communication and request that the error be corrected. Although the taxpayer will be expected to pay any additional tax amount owed, there is usually no penalty for making an honest mistake on a tax return. Taking legitimate tax deductions does not flag a return for audit. The tax code provides taxpayers with certain tax credits and tax deductions with the expectation that they will make use of them. In fact, provided that they have the necessary documentation, taxpayers should claim all tax credits and tax deductions to which they are entitled because, to not do so, almost certainly means that they will be paying a higher tax bill than they would otherwise need to pay. Unless that sum total of the tax breaks claimed on a return is excessive compared to the reported income, it is unlikely that they will cause the return to be flagged for an IRS audit.

It is better to file a tax return even when resources are not available to pay the taxes owed. Although the IRS assesses a penalty for failing to pay an outstanding tax liability, they assess an additional penalty for failing to file a tax return by the filing deadline. Because of this late filing penalty, it is always advisable for a taxpayer to either submit a completed tax return by the due date or apply for an automatic six-month extension even when funds are not available to pay tax amounts owed. By doing so, the taxpayer avoids the late filing penalty which is calculated as 5% of the back tax balance for each month or partial month that the return is late up to a maximum penalty of 25 %. Once the return has been filed, there are numerous options available for resolving any back tax balance. These include setting up a payment plan or negotiating one of the various other tax settlement options offered by the IRS.

Do Not Ignore Mail from the IRS….

Posted on June 17, 2014 by Kursti Nakagawa

Ignoring Communication from the IRS Brings Serious Consequences

Why You Should Not Ignore Mail from the IRS – Although the issuance of an IRS Notice of Deficiency is usually the first step in the collection of an outstanding tax liability, ignoring it can have serious consequences. The Notice of Deficiency is an official communication from the IRS informing a taxpayer that the tax amount due shown on their tax return is less than the amount owed according to the calculations of the IRS. Because the IRS is allowed to collect a tax debt without proof that the debt exists, a taxpayer who receives an IRS Notice of Deficiency must either pay the tax liability shown on the notice or file a petition with the United States Tax Court contesting the tax amount owed. The burden of proof rests with the taxpayer.

A Notice of Deficiency is a formal written communication from the IRS. It is sent by certified or registered mail to a taxpayer’s last address of record for the purpose of announcing a tax deficiency. It must include an explanation of the deficiency together with a statement of the total amount of taxes, interest and penalties that have been assessed. In addition, the Notice of Deficiency informs the receiving taxpayer of their appeal rights with the United States Tax Court and states the cutoff date for filing an appeal. Although a IRS Notice of Deficiency is most often sent when there is a discrepancy between IRS calculations and the tax amount due shown a on a tax return, it can also be sent when no tax return has been filed.

A taxpayer must respond to a Notice of Deficiency within 90 days from the date it was mailed or within 150 days if it was mailed to an address outside of the United States. The taxpayer must either pay the assessed tax liability or to file an appeal with the United States Tax Court. Once the appeal deadline has passed, the appeal process is closed and the IRS has the authority to collect the tax amount owed. At this point, the IRS is likely to issue a Notice of Intent to Levy. The Notice of Intent to Levy allows a response time of 30 days (which is not required if the IRS determines that collection of the tax debt is in jeopardy), after which a taxpayer’s property can be seized to cover their tax debt. A taxpayer’s only option once the 90 day appeal deadline has passed is to pay the tax balance owed and apply for a refund, although even this action may not stop the collection process once it is set in motion!

Because tax law is complex and receiving an official communication from the IRS can be intimidating and sometimes confusing, it may be advisable for a taxpayer to enlist the services if a qualified tax professional before responding to a Notice of Deficiency. A CPA or Enrolled Agent will be able to determine whether the tax amount shown on the Notice of Deficiency is accurate and will be able to communicate effectively with the IRS on the taxpayer’s behalf.

If you have received an IRS Notice of Deficiency, a Notice of Intent to Levy or have been officially warned of an impending tax lien or wage garnishment, we can help you stop the immediate collection activity and work toward resolving your tax debt. Visit www.professionaltaxresolution.com to learn more about full range of tax settlement services. Contact us today at (949) 596-4143 or email us at info@protaxres.com to receive a free, no obligation consultation and get the tax relief you deserve.

Avoiding an IRS Tax Audit

Posted on March 26, 2014 by Kursti Nakagawa

Avoiding an IRS Tax Audit

Avoiding an IRS Tax Audit: It is important to realize that receipt of an IRS Notice announcing that a tax return has been selected for an audit does not necessarily mean that there is an error on the return or that the IRS suspects the taxpayer or business submitting the return has done something dishonest. An IRS Audit is simply the process used by the IRS to verify the accuracy of a tax return by confirming specific items reported on the return. The audit process is always announced by an official IRS Notice which includes a list of the specific items of documentation being requested and a statement of the deadline by which these items must be provided.

Although the IRS selects tax returns for audit in a variety of ways, including random sampling, there are certain factors that increase the likelihood of a return being selected for further scrutiny. Several of these red flags are outlined below.

Inaccuracies and Omissions

The IRS computer systems are very sophisticated and will pick up any number such as a social security number or a birth date that has been inaccurately recorded. In addition, the Agency receives copies of all 1099’s and W-2’s and will be alerted if the amounts reported on any of these forms are missing or listed incorrectly.

High Income

Although earning a higher income is otherwise desirable, taxpayers with annual incomes in excess of $250,000 are more likely to have their tax returns audited than those with lower incomes.

Sizeable Charitable Deductions

If a taxpayer claims a large charitable contribution or claims charitable deductions that represent a relatively large portion of their annual income, their tax return is more likely to be audited. Since the IRS computers are programmed with the standard charitable contribution for each income level, returns that show deductions in excess of this amount are more likely to be flagged for an audit.

Deductions for a Home Business

Returns that claim home office deductions have a higher than random probability of being selected for an audit. While home office deductions can be great write-offs, it is important to have the proper documentation and to only claim space that is used regularly and exclusively for business.

Foreign Bank Accounts

Because the IRS has recently stepped up its scrutiny of money held in offshore accounts, returns showing foreign assets are more likely than others to be selected for an audit. Taxpayers or businesses holding foreign assets should be especially careful to follow all established reporting procedures set by the IRS.

It is the legal responsibility any individual or business whose return is selected for an audit to substantiate the specific income and deduction items specified in the official IRS Notice announcing the audit. All required documentation must be provided within the specified time period. If additional taxes and interest are assessed by the IRS as the result of the audit, these amounts are usually matched by the State Tax Agency. Although the combined interest and penalty assessments resulting from an audit can be significant, it is important to realize that many properly conducted audits result in no additional tax assessments. If an individual or business disagrees with the results of an audit, they have the right to file an appeal though the IRS Appeals Division provided the appeal is submitted within 30 days of the issuance of the auditor’s report.

If your tax return has been selected for an audit, our experienced professionals can assist you in collecting the necessary documentation and preparing your response. The licensed CPAs, Tax Attorneys and Enrolled Agents at Professional Tax Resolution have extensive experience in the area of audit defense and are authorized to communicate directly with the IRS on your behalf. They have successfully represented many clients in IRS Audits that have resulted in either a refund or acceptance of the original tax return. For more information about our services, call us today at 877.889.6527 or visit us at www.professionaltaxresolution.com.