The Internal Revenue Service’s Low Income Taxpayer Clinic (LITC) Program Office has issued its fourth annual program report. The new report describes how LITCs across the nation have assisted low income taxpayers and individuals who speak English as a second language (ESL) with free or low-cost representation in disputes with the IRS.
The mission of the LITC Program is to ensure the fairness and integrity of the tax system for taxpayers who are low income or speak English as a second language by:
1. Providing pro bono representation on their behalf in tax disputes with the IRS;
2. Educating low income and ESL individuals about their rights and responsibilities as taxpayers; and
3. Identifying and advocating for issues that impact low income and ESL taxpayers.
Economic vulnerability places a low income taxpayer at risk of falling into an economic hardship if the IRS imposes a collection action and the taxpayer is not able to communicate effectively with the IRS to negotiate a collection alternative.
The IRS awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain an LITC. The grant program is administered by the Office of the Taxpayer Advocate at the IRS. Although LITCs receive partial funding from the IRS, LITCs, and their employees and volunteers operate independently from the IRS.
During 2014, LITCs represented 19,882 taxpayers in disputes with the IRS and provided consultation or advice to an additional 18,810 taxpayers. LITCs helped taxpayers secure more than $4.3 million in tax refunds and eliminate over $62 million in tax liabilities, penalties and interest.
Through outreach and education activities, LITCs also ensured individuals understood their rights as U.S. taxpayers. LITCs conducted 3,046 educational activities attended by 75,706 persons. Overall, almost 1,800 volunteers contributed to the success of the LITCs.
The IRS examined an ESL taxpayer’s 2013 tax return after she claimed EITC, a child tax credit, head of household filing status, and dependency exemptions for her two young nieces who lived with her and for whom she provided care. In connection with the correspondence exam, the IRS froze the taxpayer’s refund. Before coming to the LITC for assistance, the taxpayer attempted to respond to the IRS on her own but had been unsuccessful. After reviewing the exam notice and the taxpayer’s documentation, the LITC explained the process to the taxpayer and helped her compile the additional supporting documents needed to prove her case. The LITC submitted the required documents and an advocacy letter to the IRS. A few months later, the taxpayer received a determination from the IRS stating that there would be no changes to her original return and she would receive her refund of more than $7,000.
LITC Assists Elderly Victim of Theft to Eliminate Tax and Obtain Refund of Stolen Assets
A taxpayer was referred to an LITC by the grantee’s Elder Law Unit after a family member stole her assets, including cashing in a life insurance policy. The thief intercepted the taxpayer’s mail and without her knowledge set up an installment payment agreement with the IRS to pay the taxes on the stolen life insurance proceeds.
The Elder Law Unit worked with local law enforcement authorities to bring criminal charges against the thief. The LITC, relying on the Tax Court’s holding in Roberts v. Commissioner, 141 T.C. 569 (2013), filed amended federal and state tax returns and argued that the proceeds were not income received by the taxpayer and that the installment payments made in the taxpayer’s name should be returned to her. The IRS agreed, abating the tax and refunding the payments. State tax authorities also conceded the tax issue.
The full report includes an overview and history of the LITC program, discusses the representation, education, and advocacy services that LITCs provide, and illustrates the results that LITCs achieve on behalf of their clients.
The Internal Revenue Service said Tuesday, February 9, that it recently identified and stopped an automated attack on its E-Filing PIN application. Tax season always marks a spike in fraud and identity theft. After nationwide reports of scammers calling residents claiming they owe money to the IRS or AARP, this recent attack is just another instance of criminal activity during the tax season. The criminals used personal data stolen from outside the IRS and malware to acquire E-Filing PINs They used over 400,000 Social Security Numbers and 101,000 SSNs were successfully used to access the E-Filing PINs. The IRS said the incident is not connected or related to last week’s outage of IRS tax processing systems.
“No personal taxpayer data was compromised or disclosed by IRS systems,” said the IRS in a statement. The IRS said its cybersecurity experts are currently assessing the situation. They are working closely with other agencies and the Treasury Inspector General for Tax Administration. The IRS is also sharing information with its Security Summit state and industry partners. “The IRS also is taking immediate steps to notify affected taxpayers by mail that their personal information was used in an attempt to access the IRS application. The IRS is also protecting their accounts by marking them to protect against tax-related identity theft.”
Members of congress are questioning whether the IRS is equipped to fight these attacks and protect the identities of American taxpayers. During a hearing before the Senate Finance Committee on Wednesday about the IRS budget with IRS Commissioner John Koskinen, committee chairman Orrin Hatch (R-Utah) said, "We were reminded of these risks last year when data thieves breached the IRS’s own website through the Get Transcript portal and successfully stole the tax records of 330,000 taxpayers...That is 330,000 taxpayers who now have their most sensitive tax information sitting out there in the hands of criminals waiting to use that information to do further damage this tax year, or the next, or even 10 years from now. We were reminded of this threat yet again just yesterday, when news broke of another large-scale attack against the IRS, but thankfully it appears that the attack was unsuccessful. The Get Transcript breach is going to haunt us for years to come, and, unfortunately, it’s only one of many."
Although the IRS has "thrown 2,000 people in jail for identity theft", they do not have the power to completely stop criminals from attempting to commit fraud against taxpayers. Instead, they have put measures in place designed to protect the identities of residents. IRS Commissioner John Koskinen urges people to use a different number than their Social Security Number for filing their taxes. The identity protection personal identification numbers (IP PIN), originally reserved for the victims of identity theft, can now be used by any taxpayer looking to protect their identity.
The answer is YES! You might be pleased to know that deducting the veterinary expenses of a service animal is a completely legal tax deduction. A lot of people overlook this little tax tip, because they automatically assume that veterinary expenses would never be allowable as a tax deduction.
Veterinary care, when it relates to the care of animals trained to assist persons who are visually-impaired, hearing-impaired, or disabled, is a tax deduction on Schedule A. And that's not all... you can also deduct maintenance costs for the animal, such as pet food, grooming.
Example: Jim is a Gulf War Veteran. JIm is recovering from severe Post-Traumatic Stress Disorder. Jim's physician recommends that he obtain a service dog to help aid him with his recovery. The doctor gives Jim a written physician’s statement explaining the recommendation. With the help of a Veteran’s support group, Jim obtains a trained service dog in 2015. The dog’s veterinary costs are deductible medical expenses on Jim's individual tax return.
It's always a good idea to retain proof of the disability or condition, and a short statement from your doctor is a great way to make sure that your deduction is protected in the case of an audit. And always, always, keep all your receipts! My suggestion: just create a little folder or shoebox and put all your service pet's related costs in there. As the bills add up, so will your tax deduction.
Author: Christy Pinheiro, EA ABA
Enrolled Agent, Accredited Business Accountant
Hold times on IRS phone calls may be seeing a substantial and much-welcomed reduction during the 2016 tax year, thanks in part to Oregon-based IT company, EnQ, Inc., creating a new service to transfer waiting calls to paying customers. Call Hold times over the past few years have been a growing problem, particularly in the midst of tax season, gradually increasing to nearly triple the average wait time of 2010. During the previous tax year of 2015, when call rates were at their peak, hold times averaged 30 minutes or longer and only about 38 percent of callers were able to reach a representative, as caller overload forced the switchboards to disconnect the majority of waiting customers on the line. EnQ Inc.’s new service will help mitigate this problem by having its company representatives make calls to the IRS on their customers’ behalf.
The representatives will sell their established place on the line to customers, cutting down on wait time and the chances of being disconnected. This new service promises to help reduce the wasted time and frustration of dealing with long hold times and tentative connections, an especially helpful tool for tax preparers and businesses. EnQ also projects unveiling a similar service for callers attempting to reach Social Security or tax authorities in the UK sometime in the future.
In addition to EnQ Inc.’s caller service, the IRS is also taking measures of its own to cut back on the wait times and disconnect problems that plagued the 2015 tax year. A recent congressional approval of a $290 million increase in budget will be put toward hiring 1,000 more representatives to handle calls and serve customers with more efficiency and in greater volume. IRS Commissioner John Koskinen spoke frankly in regards to the troublesome state of phone call holds and disconnected calls during the previous year: “We expect the level of service on the phone will be better than last year…the level of service last year was so bad that anything would be better.” With this raise in budget and phone representatives, the IRS hopes to prevent a repeat of last year’s performance and reverse the recent upward trend of rising hold times and disconnections. The IRS also recommends callers seeking answers about their taxes go online to irs.gov before placing a call in order to help reduce caller volume overall, but for those who need to make a call and don’t have the time to wait, EnQ Inc.’s caller service, combined with more representatives taking calls this year, should make for a less time-consuming experience overall.
For the coming tax year, the IRS’s goal is to raise the percentage of callers who reach their connection to 60 percent or higher while lowering hold times to 20 minutes or lower. The projections are still longer than average call times in 2010, but it is a considerable reduction of last year’s waiting time and suggests future improvement after years of decline in efficiency, aiming to make a more streamlined phone system for 2016 and potentially in years to follow.
With tax season for 2016 already underway, irs.gov is offering some helpful resources for taxpayers under a set income level to file this year's taxes for free. Taxpayers with an income below $62,000 will be eligible to use one of several Free File Software services provided by various companies and websites, including H&R Block, TurboTax, and Jackson Hewitt.
Over a dozen different Free File Software offers are currently available on the IRS website, each with specific qualifications based on the taxpayer's Adjusted Gross Income, age, place of residence, and a few other factors. The IRS recommends taxpayers check each business and its list of qualifications carefully to determine which Free File Software offer they are able to use. Free File Software pertains specifically to federal taxes and returns, and offers may differ on whether they provide free returns on state taxes. Some Free File Software may charge a fee for state tax returns, so taxpayers are advised to look over each policy carefully before proceeding.
For taxpayers having trouble deciding which offer is right for them, they can narrow down the options by filling out a simple online form offered by the IRS. By entering AGI, state of residence, age, and military service (if applicable), the IRS will show which offers each taxpayer qualifies for, as well as which offers include free state tax returns as part of their service. A PDF is also available online to help walk low-income taxpayers through use of Free File Software, to help answer any further questions they may have.
For taxpayers with an income higher than $62,000, the IRS does not offer Free File Software, but does provide Free File Fillable Forms online for taxpayers who wish to file their own taxes this year.
Nearly all documents required for the 2016 tax season are already available online. Documents not yet uploaded will be posted February 13, at which time taxpayers with an income above $62,000 will have access to everything they need to file for 2016.
The IRS also offers helpful PDFs to explain how to get started, how to factor the new Health Care laws into this year's taxes, and line-by-line help explaining how to fill out each form, but it is highly recommended taxpayers who choose to file online understand how to file their own taxes. Although Free File Fillable Forms does come with some explanations, as well as help with calculating taxes, it will not do the work of a tax preparer. Along with the tax forms, the IRS also recommends taxpayers those who plan to e-file note which browsers and operating systems are best optimized for filing before they proceed.
Taxpayers are advised to make certain their browser/OS combination is appropriate before they begin to avoid glitches or potential security risks. As a counter-measure to any further potential problems, taxpayers whose returns are rejected may also use a Fillable Forms error search tool, in which they can copy and paste the error messages cited in their rejection email in order to identify and correct filing mistakes. These resources are offered at no charge regardless of income level.
Does your tax preparer actually know tax law?
2014 mystery shopper tests conducted by the U.S. Government Accountability Office (GAO) have established that tax return errors are a big problem. Only 11% of the returns from these tests had the correct refund amount. “The mistakes ranged from giving taxpayers $52 less to $3,718 more than they were entitled to.” At the moment, only the states of California, Maryland, New York, and Oregon have enacted consumer protections to ensure that paid tax preparers have the knowledge and training to prepare tax returns correctly. These consumer protections have been proposed in several other states as well as at the federal level. Legislation has yet to be introduced.
A 2016 report by the Consumer Federation of America, Public Views on Paid Tax Preparation: Strong Public Support for New Consumer Protections to Prevent Errors and Fraud, revealed that a large majority of Americans believe paid tax preparers should pass a test administered by the government and licensing requirements should be introduced. These are the findings of the report:
1. About half of the public uses paid tax preparers from time to time and nearly a third uses them frequently. 49% of those surveyed used a tax preparation company in the past five years. The GAO estimates that around 56% of 2011 individual tax returns were completed by paid preparers.
2. 80% of the public supports requiring paid tax preparers to pass a test administered by the government to ensure that paid tax preparers have the knowledge and training to correctly complete tax returns.
3. 83% of the public supports paid tax preparer licensing requirements for paid preparers by a state agency that would also accept and resolve complaints, and enforce consumer protections.
4. 89% of respondents support requiring paid preparers to supply an upfront list of fees.
5. 56% believe paid preparers should have special training but don’t need a degree. 31% believe that paid tax preparers should have a college degree in accounting.
CFA Report (2016): http://consumerfed.org/wp-content/uploads/2016/01/160120_report_publicviewsonpaidtaxpreparation_cfa.pdf