National Taxpayer Advocate | TaxConnections

17 Mar 2021

Offset Of Recovery Rebate Credits: The IRS Has Agreed To Exercise Its Discretion To Stop Offsets of Federal Tax Debts

https://www.taxpayeradvocate.irs.gov/news/nta-blog-update-on-offset-of-recovery-rebate-credits-the-irs-has-agreed-to-exercise-its-discretion-to-stop-offsets-of-federal-tax-debts/

In a previous blog, I pointed out that a change in the law made in late December affected the treatment of recovery rebate credits (RRCs) claimed on taxpayers’ 2020 income tax returns. Unlike the advance payments issued to individuals last spring and in early January, the credit claimed on a 2020 tax return will be reduced to pay off certain outstanding debts. This offset creates an inconsistency between the treatment of the advance payments and the treatment of RRCs claimed on 2020 tax returns where the RRC will be reduced by outstanding liabilities. This is a big deal for taxpayers affected by the change.

Good news: The IRS has agreed to use its discretion to bypass offsets for federal tax debts for taxpayers who file 2020 returns that claim the RRC.

By Way of Background

When Congress directed the IRS to issue stimulus payments (otherwise known as Economic Impact Payments or EIPs) of $1,200 per adult and $500 per qualifying child in April 2020 and then for an additional $600 per person in December, it required that the payments be issued without reduction to satisfy other debts of the recipient (except for child support for the first round of payments). The rationale seemed clear: Individuals in debt are often the ones financially struggling the most, and Congress wanted the funds to reach these people without any reductions as soon as possible.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

04 Mar 2021

Wait, When Did This Virtual Currency Question Appear On My 1040 Tax Form?

The IRS Form 1040 now includes a checkbox which taxpayers must address regarding virtual currency. The form asks taxpayers if “at any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The key question at hand is who is required to answer “Yes” and who may answer “No?” National Taxpayer Advocate Erin M. Collins addresses these and many other questions taxpayers have when it comes to virtual currency and their taxes.

Given the explosion in virtual currency, the IRS has increased its focus on virtual currency tax compliance. In 2019, the IRS sent letters to over 10,000 American taxpayers who may have failed to report their virtual currency transactions and pay the associated income taxes. The National Taxpayer Advocate says, “taxpayers should proceed with care in order to experience the benefits of virtual currency while avoiding its pitfalls.”

16 Feb 2021

National Taxpayer Advocate 2021 Purple Book

The National Taxpayer Advocate is releasing the National Taxpayer Advocate 2021 Purple Book. In it, she presents a concise summary of 66 legislative recommendations that she believes will strengthen taxpayer rights and improve tax administration. Most of the recommendations have been made in detail in prior reports, but others are presented in this book for the first time. She believes that most of the recommendations presented in this volume are non-controversial, common sense reforms that the tax-writing committees and other Members of Congress may find useful.

Among the 66 legislative recommendations for consideration by Congress are:

• Provide the IRS with sufficient funding to meet taxpayer needs and improve tax compliance. Since fiscal year (FY) 2010, the IRS’s budget has been reduced by about 20 percent after adjusting for inflation. As a result, the IRS has been unable to meet taxpayer needs (e.g., the IRS received over 100 million telephone calls in FY 2020, yet employees were only able to answer about 24 percent). IRS also has been unable to modernize its information technology (IT) systems. In FY 2020, the IRS collected about $3.5 trillion on a budget of about $11.51 billion, producing a remarkable return on investment of more than 300:1.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

12 Feb 2021

If You Didn’t Get Your Economic Impact Payment, Your Joint Tax Return May Be the Reason Why

ERIN COLLINS - NATIONAL TAXPAYER ADVOCATE

If you didn’t receive your Economic Impact Payments (EIPs) and a 2018 or 2019 joint return was filed in your name without your consent, you may be eligible to claim the Recovery Rebate Credit (RRC) on your 2020 tax return. Since the issuance of the first round of EIP, our office has been working with the IRS Office of Chief Counsel and the IRS to establish procedures to help a victim of domestic violence where their spouse filed a joint return without the victim’s consent, and kept the EIP that was based on that joint return. On November 16, 2020, the IRS updated its procedures specific to EIP when a joint return election is invalid, and therefore there is an invalid return as to one of the spouses.

Economic Impact Payments

The IRS issued EIPs by looking at taxpayers’ recent federal income tax returns, either 2018 or 2019 for the first round of EIP, and 2019 for the second round. But what if the EIP was based on a return with married filing jointly filing status that was not valid? What if one spouse signed a married filing joint return under duress? What if one spouse never intended to file a joint return and the other spouse forged his or her signature? What if the individuals were not legally married? These are just some of the questions that may point to a conclusion that the joint election was invalid, and the return was invalid as to the victim; it’s an issue that often comes up with victims of domestic violence. When the IRS concludes that a joint election was invalid, the IRS follows Internal Revenue Manual (IRM) procedures, found in IRM 21.6.1.5.7, for changing the taxpayers’ accounts from “married filing jointly” status to single, married filing separately, or head of household.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

26 Jan 2021

Tax Professional Alert: Protecting The Rights Of Taxpayers Who Rely On IRS Frequently Asked Questions

Consider this: In the course of preparing your federal income tax return, you are wondering whether a particular expense is deductible. You go to the IRS website and find a “Frequently Asked Question” (FAQ) that’s directly on point. Good news: The IRS says the expense is deductible. So you deduct it. The next year, the IRS audits your return. The examining agent informs you the IRS changed its position after you filed your return. The examining agent not only denies the deduction, but he imposes a 20 percent accuracy-related penalty as well. You go back to IRS.gov to try to find the FAQ you relied on, but it’s gone.

If the Taxpayer Bill of Rights is to be given meaning, this scenario violates “The Right to Informed” and “The Right to a Fair and Just Tax System.” It is neither fair nor reasonable for the government to impose a penalty against a taxpayer who follows information the government provides on its website.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate • Protect Taxpayer Rights

09 Dec 2020

National Taxpayer Advocate Interactive Map: What Happens When You Are Audited

The Taxpayer Advocate Service (TAS) reintroduces its website with a new design and layout featuring a new digitally interactive Taxpayer Roadmap.

The digital Taxpayer Roadmap features an interactive experience which allows taxpayers and tax professionals to navigate through the IRS tax process and view notices along the way. The newly designed website continues to provide valuable information and resources to taxpayers and tax practitioners that can help them resolve tax problems with the IRS, including the “Get Help” section with its more than 50 common tax-related topics available to help citizens understand and, in many cases, resolve general tax issues.

The new TAS website is an important public tax resource. The updated site focuses on what taxpayers need to know, including their rights as a taxpayer.

National Taxpayer Advocate

Written by National Taxpayer Advocate | Posted in Audit • National Taxpayer Advocate

03 Dec 2020

Advance Payments Of The Premium Tax Credit To Help Pay For Your Health Insurance

If you are a recipient of Advance Payments of the Premium Tax Credit (APTC) and:

you received a warning notice from your Marketplace telling you you’re in jeopardy of losing APTC benefits next year;
your 2019 income tax return has not yet been processed by the IRS; or
you have received notification from the IRS about your Form 8962.

You should self-attest on your Marketplace’s website to show that you have complied with your tax filing obligations for tax year 2019. If you do not complete the self-attestation by the end of the open enrollment period (December 15 for the federal Marketplace), you could be in jeopardy of losing your APTC starting in January 2021.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

08 Oct 2020

The Coronavirus Aid, Relief, And Economic Security Act Provides Relief To Eligible Individuals Taking Early Withdrawls

The Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (CARES Act), provides relief to eligible individuals taking withdrawals or loans from qualified employer retirement plans and Individual Retirement Arrangements (IRAs).

Coronavirus-related withdrawals and loans

Individuals may be eligible for coronavirus-related relief on withdrawals from qualified employer retirement plans or IRAs and on loans from qualified employer retirement plans. The relief only applies to certain withdrawals and loans made to the following individuals:

Written by TaxConnections Admin | Posted in CARES ACT • National Taxpayer Advocate

03 Sep 2020

The IRS’s Reliance On Antiquated Technology Poses A Continuing Risk To Tax Administration

In my previous blog post, I discussed the expansion of digital service options to improve taxpayers’ experiences interacting with the IRS. Here, I will discuss the desperate need for multi-year funding to modernize IRS computer systems and infrastructure. Tax administration is at risk, and the country and the IRS need a solution now more than ever.

A Supreme Court justice famously opined that “taxes are the life-blood of government.” In that vein, the IRS is responsible for collecting approximately $3.5 trillion in taxes each year – roughly 95 percent of federal revenue. In addition, the agency is tasked with administering recurring social benefits programs like the Earned Income Tax Credit, and one-time financial relief programs like Economic Stimulus Payments in 2008 and Economic Impact Payments in 2020. Despite these enormous and critical responsibilities, the IRS is overwhelmingly reliant on “legacy” information technology (IT) systems – which the IRS’s IT function has defined as systems that are at least 25 years old, use obsolete programming languages (e.g., COBOL), or lack vendor support, training, or resources to maintain. A recent report published by the Treasury Inspector General for Tax Administration found that 231 IT systems used by the IRS are legacy systems.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

02 Sep 2020

Lessons Learned From Covid-19: The Critical Need To Improve IRS Digital Services

Individuals, businesses, schools, and federal and state agencies all continue to be impacted by the COVID-19 pandemic. And as the IRS resumes its business operations that were partially or completely shut down at the inception of the COVID-19 national emergency, it is still facing challenges of balancing the health and safety of its employees with accomplishing its core mission: providing much-needed services for taxpayers; administering the 2020 filing season in which it has already processed over 149 million returns and issued over 119 million refunds totaling over $290 billion; guarding against identity theft, refund fraud and sophisticated cyber-attacks often exceeding 1.4 billion attempts each year; performing the extensive programming required to administer the 2021 filing season; processing any remaining Economic Income Payments (EIPs); analyzing potential legislation and preparing for another possible round of stimulus payments; providing legal and administrative guidance; incorporating new legislation changes into its operations; and deploying hundreds of Customer Service Representatives to assist with wildfire and hurricane relief efforts – all while continuing its tax enforcement efforts in a socially distanced environment. As part of the reopening, the IRS continues to evaluate what needs to be done to administer the tax laws and provide necessary taxpayer services under similar conditions in the future so that it can provide the necessary service required by taxpayers. My office will continue to advocate for improved taxpayer services regardless of the circumstances.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

21 Aug 2020

Options Available Under COVID-19 Rules For Retirement Accounts And IRAs

This tax tip simplifies available options for certain taxpayers that may need to withdraw money from existing retirement plans or IRAs to get cash or who may want to opt-out of the normally required retirement distribution payment, which may reduce additional taxes. Before you attempt any of these options as outlined, we encourage you to review the complete guidelines and rules for each situation and, when possible, consult a financial planning or retirement specialist first.

Option 1: Tax relief for retirement plan and IRA distributions

In certain circumstances, you may be eligible for special tax treatment for coronavirus-related distributions from traditional IRAs or retirement plan accounts.

To be eligible for relief, an individual must be a qualified individual, who is someone:
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Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

01 Jul 2020

National Taxpayer Advocate Discusses Taxpayer Challenges Arising From Pandemic

Erin M Collins: National Taxpayer Advocate

National Taxpayer Advocate Erin M. Collins released her first report to Congress identifying taxpayer challenges due to the pandemic, the CARES Act(Coronavirus Aid, Relief And Economic Security Act) and the IRS’s implementation of the Taxpayer First Act.

The report praises the IRS for acting quickly to postpone over 300 filing, payment, and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative,” and disburse some 160 million Economic Impact Payments (EIPs) authorized by the CARES Act, enacted on March 27, 2020.

However, the report says that despite the IRS’s best efforts, there have been notable adverse taxpayer impacts, including:

• Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. The IRS had to suspend the processing of paper tax returns, and as of May 16, it estimated it had a backlog of 4.7 million paper returns. Although the IRS is reopening some of its core operations, it is not clear when it can open and process all the returns sitting in mail facilities.
Read More

Written by National Taxpayer Advocate | Posted in CARES ACT • National Taxpayer Advocate • Taxpayer First Act