Friday, June 19, 2020

Tax Court Moves Quickly to Make Virtual Proceedings a Reality

On May 29, 2020, Chief Judge Maurice Foley announced new procedures for conducting Tax Court proceedings remotely, in light of the COVID-19 national emergency. In so doing, Judge Foley noted that with trial sessions held in 74 cities throughout the country, the sessions typically involve a great number of people in the courtroom which include not only the litigants themselves, but also people representing clinics, pro bono programs, as well as Court personnel.

Along with the announcement, the Court published newly-amended standard forms to guide Tax Court litigants through the way in which trials and hearing will be held, effective immediately until further notice.

The Notice Setting Case for Trial will now include, under the place of trial, the city chosen by the taxpayer, with the legend, “THIS TRIAL SESSION WILL BE CONDUCTED REMOTELY.” Parties are directed to be prepared to try the case “at a proceeding to be held using Zoomgov…”  Under a new heading called “ACCESS REMOTE PROCEEDING,” all notices setting case for trial will now provide instructions on how to access the remote proceeding including dial-in information. The Court’s Notice itself will also include the meeting ID and a password.

The Court’s detailed Standing Pretrial Order will now contain a new section, “Technology,” which provides:
Technology. For remote proceedings, you must appear before the Judge as instructed in the Notice Setting Case for Trial. That may be by telephone or by video. Information on how to use Zoomgov, including tips, can be found on the Court’s website, www.ustaxcourt.gov. A personal Zoom account is not required, and there is no cost to you. If you have any concerns about your ability to fully participate in a remote Court proceeding, you should immediately let the Judge know. 
 Another new section added to the Standing Pretrial Order provides,
Remote Proceeding Access. Parties shall be responsible for ensuring, to the best of their abilities, that they and their witnesses have adequate technology and internet resources to participate in a remote proceeding. The parties should log on and test their connections at least 30 minutes before the proceedings scheduled time.
The Court’s recommended format for Pretrial Memoranda has been amended with the addition of the phrase, “Remote Proceedings” at the top of the page.

A few weeks ago, we published in Tax Notes Federal, “COVID-19 and the Tax Court: Time for Virtual Trials?” [republished below] where we described how difficult it is now for Tax Court judges to do their jobs.

Even before COVID-19, a judge living in the Washington, D.C. metropolitan area  has  to take two flights to get to most of  the 74 metropolitan areas it serves  and live out of a hotel room for anywhere from a day or so or up to two weeks.  Now with the safety protocols of the pandemic it would seem for their own safety, the judges on the Court will surely welcome a switch to video conferencing and trials.

The entire government is in the process of reinventing itself in the face of the new normal.  As a court of nationwide jurisdiction where the Court comes to the people, the Tax Court is in a unique position now to transition to virtual litigation.  Considering the fact that we are only within a few months of the onset of the pandemic, its seems as though the Tax Court under Judge Foley’s leadership is at the forefront of setting the stage to play its enormous role in tax administration in the 2020s and beyond.

COVID-19 and The Tax Court: Time for Virtual Trials? by Steven J. Mopsick; originally published in TaxNotes Federal, May 18, 2020 p. 1209

As the world moves ever so slowly out of the emergency phase of the coronavirus pandemic to some middle ground of new rules before a vaccine is widely available, government agencies and the judiciary will reinvent themselves to carry out their missions effectively.

Tax professionals throughout the United States are trying to visualize the immediate future and how they will serve their clients vis-à-vis the IRS examination and collection process. It would seem natural for the Tax Court to now migrate to a fully efficient virtual system and completely do away with the need for live calendars and court appearances.

The Tax Court is unique in the world of specialty courts and has its own proud history. The court is a federal trial court of record established by Congress under Article I of the U.S. Constitution, which gives it the power to “constitute tribunals inferior to the Supreme Court.”

Although taxpayers may choose to challenge the IRS in a variety of legal settings, the Tax Court is the only forum in which taxpayers may do so without having first paid the disputed tax in full. Parties who wish to challenge the assertion of taxes may also bring an action in any U.S. district court, or in the U.S. Court of Federal Claims; however, these venues require that the tax be paid first, and that the party then file a lawsuit to recover the contested amount. Tax Court judges are appointed by the president for a term of 15 years, subject to presidential removal for “inefficiency, neglect of duty, or malfeasance in office.”

The first iteration of the Tax Court was the “U.S. Board of Tax Appeals,” established by Congress in 1924 “in order to address the increasing complexity of tax-related litigation.” The board was initially established as an “independent agency in the executive branch of the government.” It was first housed in the IRS building on Constitution Avenue in Washington.

In 1942 it was renamed the “Tax Court of the United States.” However, funding limitations brought on by the Vietnam War delayed the start of construction of its own building until 1972.

Social Distancing at Calendar Call

Most courts in the United States, both federal and local, have jurisdiction over a geographical area. In the Tax Court, taxpayers bring suit against the IRS by filing a simple petition in Washington, but the rules allow them to designate where they want their trials to be held.

The taxpayer can choose (even if he doesn’t live there) from a long list of cities spread throughout the United States, which Tax Court judges visit for as little as a day or so, to two full weeks, to conduct hearings and try cases.

Travel as a Tax Court Judge During the Pandemic

In these extraordinary times, it would seem, simply for their own safety, that the judges on the Tax Court would welcome a post-COVID-19 emergency switch to video conferencing and trials.

Almost all the judges have a home in the Washington, D.C. area. The weekend before a calendar is scheduled to begin, a judge and a trial clerk will fly to the city designated for trial. In most cases, because there are few direct flights from Washington to the many smaller cities, that means at least two full travel days involving two separate flights, airports, two planes to get on and off, and multiple hours of possible exposure on each flight. Then it’s a cab to a hotel, checking in, and a room that the judge hopes has been sanitized.

All this is before the judge even begins to think about where he or she will eat for the next two weeks. Are there restaurants that are open? Fresh on Monday morning, there is a taxi to a local federal building where a full-blown regular courtroom is available to the judge. If it were not for the risks incurred solely during a judge’s travels, the calendar call itself can be one of the most daunting “people to people” experiences for any judge in the best of times.

At 10 a.m., the clerk begins to read from a list of all the cases that have not yet settled or need to be heard for whatever reason. It usually takes the full morning to get through the entire list, after which the judge retires briefly and then comes back into the courtroom to announce the schedule of trials or hearings for the next two weeks.

The problem today is that when the court is first called to order, the courtroom is usually crowded and the people there waiting to be heard, are quite animated. Most people are unrepresented by counsel and are either nervous or confused about what they are supposed to do. Some are impatient and angry. Almost all of them know the Tax Court is a unique place in our government where, without first having to pay the tax the government is trying to collect, the most humble American is free to stand up and say to the whole world, “I have had it with the IRS; I want to speak to a judge.”

Conclusion

Rightly so, Congress’s approach to the pandemic is to get money into the hands of the people. One of the ways it does that is by passing new tax laws. Today, once again, the IRS is charged with figuring out what Congress meant when it rushed the disaster relief changes through.

In the years ahead, taxpayers will challenge the IRS’s interpretation of the new COVID-19 relief provisions -- from wanting to know why their economic impact payment was so small, to how the new net operating loss provisions or credits and refunds work. It is likely that the Tax Court will continue to be active throughout the entire decade.

The Tax Court is a taxpayer-friendly venue that is good at what it does and was not broken before the pandemic. As it is currently structured, the transition to virtual Tax Court trials should be easy, to usher in the new normal in tax administration.

Thursday, April 23, 2020

Living in the World of COVID-19: You May Want to Check in with the IRS to Make Sure They Know Where to Find You!

IRS (Finally!) Launches Registration Tool For Stimulus ChecksNo one can predict the future, but it is possible there will be another round of direct payments to American households. One legislative proposal is for a $2,000 per month payment for each household for a six month period. It’s not possible to say what additional relief will be made available, but the easiest way for the government to do its job here is by using the existing infrastructure of the IRS and the Social Security Administration since their computers already know where you live.

But this is not simply about collecting $2,000. In addition to getting in the right line for the next round of Economic Impact Payments, there is a much bigger reason to get square with your taxes. The IRS’ People First Initiative provides for relief on certain enforcement procedures, but there are also pitfalls for the unwary which I wrote about in more detail here.

In three weeks in March and April, Congress passed more tax legislation than it usually does in a year and a half. The impact and the details of how the new legislation affects businesses and family matters is almost too complex to enumerate here, but see the Resources Page of our website at mopsickcarrere.com for a work-in-progress listing.

Clearly, because the new COVID-19 tax laws so extensively impact almost every family and business in the country, checking-in right now with a competent tax person is essential. It is very possible that the new law may cause you to amend your already filed 2019 or prior year’s returns, or learn of a new tax benefit to which you are entitled, or even change your tax preparer if you inquire and find they are not up to the job of both reviewing your business situation and being conversant in every single tax aspect of the new legislation.

We work closely with a number of very good accounting firms and solo practitioners with whom we sometimes join up with to serve a single client.

In these uncertain times, people are looking inwardly, defensively, and are reevaluating every aspect of their financial status. How much money is coming in to the household, and how long can the family continue to depend on a particular source of income?  A good accountant will be able to help you analyze your financial affairs and control your costs.

Your ability to survive the crisis and rebuild your business as we learn about the permanent changes affecting our lives going forward, depends in part on "being current” with the IRS. Sadly, that is big problem for millions of Americans.

Those who meet the filing threshold and continue to keep their head in the sand without consulting with a tax professional now may be setting themselves up for problems in the future with the IRS. While it is true that the current IRS guidelines do not require the filing of delinquent returns in order to receive future Economic Impact Payments, taxpayers would be well-advised to work with a tax professional now to avoid almost certain future IRS scrutiny including, the possibility that the IRS may want to see if there are criminal tax issues surrounding past delinquencies.

But what happens at the IRS when you suddenly start filing after years of non-filing? Will the IRS send a special agent to your door? Not likely. They may want to talk to you after things settle down, but IRS resources are now stretched very thinly, for how long we do not know.

Prior criminal conduct may be a different matter; but for the most part, the IRS will engage you about “getting current” and work with you or your representative.

Everyone knows the IRS has extended the duty to file and pay until July 15 and that it relaxed the rules on installment payments and other collection remedies (see Ryan Carrere’s blog here). However, no one in Washington has announced there will be a general amnesty and your tax debts forgiven. That said, for those who already owe the IRS money and have liens filed against their names, now may be a time to consider an Offer in Compromise.

There are multiple issues as we move forward. As with other hastily enacted tax legislation, practitioners are noting inconsistencies and confusion as these new provisions are being analyzed. When will IRS regulations be written for further guidance on the new net operating loss rules, tax credits and refunds? Another issue is, will there be procedures to appeal government decisions on how much direct payments should be from family to family?

We at Mopsick Carrere, LLP are working hard, as are tax professionals around the country, to read, study, publish, and talk about the new legislation. Please keep up with our website for new developments which we are adding almost every day.

Tuesday, April 14, 2020

COVID-19--THE PEOPLE FIRST INITIATIVE-- AND DELINQUENT TAXPAYERS: A CHANCE TO JOIN THE IRS FRESH START PROGRAM?

There is a subtle hint in one of the recent press releases from the IRS which might be of interest to people
who are seriously delinquent in filing their federal tax returns.

In a news release about the People First Initiative,  the Internal Revenue Service announced a sweeping series of steps to assist taxpayers by providing a temporary break from a variety of enforcement activity. During this period, to the maximum extent possible, the IRS will avoid in-person contacts. However, the IRS will continue to take steps where necessary to protect the government’s interests.

In the middle of the four page announcement, the IRS says:

Non-Filers –The IRS reminds people who have not filed their return for tax years before 2019 that they should file their delinquent returns. More than 1 million households that haven't filed tax returns during the last three years are actually owed refunds; they still have time to claim these refunds. Many should consider contacting a tax professional to consider various available options since the time to receive such refunds is limited by statute. Once delinquent returns have been filed, taxpayers with a tax liability should consider taking the opportunity to resolve any outstanding liabilities by entering into an Installment Agreement or an Offer in Compromise with the IRS to obtain a "Fresh Start." See IRS.gov for further information.

Wait! What?! Yes, the IRS still has tax compliance in mind. The IRS is reaching out to everyone with a reminder to file their tax returns and to use this period of eased enforcement as an opportunity to come current.

In the March 25, 2020, People First Initiative press release is this startling statement:

During this period, the IRS will generally not start new field, office and correspondence examinations. We will continue to work refund claims where possible, without in-person contact.

The IRS Fresh Start Initiative

The Fresh Start Initiative referenced in the March 25 news release is nothing new. Nine years ago in IR-2011-20 , the IRS trumpeted a “New Effort to Help Struggling Taxpayers Get a Fresh Start.” That initiative in 2011, introduced a number of new measures which provided for increasing the dollar threshold when liens are generally issued resulting in fewer tax liens, making it easier for taxpayers to obtain lien withdrawals after paying a tax bill, withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement, and creating easier access to Installment Agreements for more struggling small businesses. It also expanded a streamlined Offer in Compromise program to cover more taxpayers.

The former Commissioner was reported as saying “[w]e are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start.”

For those delinquent filers who are reading this blog, the “subtle hint” referred to above should be clear: join the ranks of compliant Americans who dutifully file and pay their taxes each year as the IRS isn’t forgetting about the non-compliant.

Could things go a lot better for you if you do it now as opposed to waiting to see what will happen?

Here are some facts:

  1. IRS has made clear that it is easing enforcement through July 15. It has not stated that non-compliant taxpayers will get a free pass;
  2. Revenue officers, revenue agents, appeal officers, special agents, and attorneys are still working. We know this because they are actively working cases and communicating with our office. The IRS will not ignore a key part of its mission to enforce compliance even if we see a period of relaxed enforcement; and
  3. The IRS appreciates voluntary compliance and actually does work with taxpayers who engage in the process to resolve problems.

Generally compliant American taxpayers might be surprised to learn that a large number of taxpayers:

  1. who have high-paying jobs never bother to file at all;
  2. file every year but regularly omit from  reporting, large amounts of money from rental properties, moon-lighting jobs, and cash transactions;
  3. have been knowingly taking overly-aggressive legal positions which report items as capital gains when they should be reported as ordinary income, bonus depreciation to which they are not entitled,  and greatly inflated amounts for business expenses;
  4. derive a significant amount of money from illegal sources such as sale of contraband, gambling, or kickbacks;
  5. thousands of Millennials who completed college and graduate school and went on to get great jobs but who were never hard-wired to consider paying taxes as something they had to do; and
  6. have been lying to their return preparers for years about income and deductions and thereby causing them to file returns they know are false.

Be reminded that the IRS eventually catches up with a large number of these non-compliant taxpayers and it always costs a lot more than if they had just filed timely and correctly to begin with. In my many years of experience working both in the IRS and in private practice, I have found that for the taxpayers with delinquencies, most are in a state of constant low level anxiety and fear about their years of neglecting their taxes. They wonder when the IRS will show-up. While most people never see a Special Agent, the IRS is good at rooting out the non-compliant taxpayer. They don’t catch up with everyone, but they do catch up with many eventually. Skirting the tax system is a gamble that is simply not worth it.

Welcome to Tax Administration During the Pandemic and the Age of the “Touchless” Economy

Despite the pandemic, the likely economic downturn, and the permanent change in the way Americans live their lives, there are still people who go to bed at night thinking about the fact that they haven’t filed tax returns in five or ten years.

These people now see the government handing out Economic Impact Payments, but the real issue here is not whether you are going to get $1,200 within the next few weeks but whether this might be a chance to reset your relationship with the IRS.

In our practice over the years, one of the most common situations on which we are asked to help is where a non-filer comes to us and wants to come clean. They have no idea whether their past delinquencies are serious enough to cause an IRS audit of past years, or worse, launch a criminal investigation if it ever finds out a taxpayer’s past.

Why file delinquent returns now during the extreme emergency?

It is a good question to ask why now? To some, they look out and see chaos in government and a serious impending economic decline. Some have even predicted social unrest during the next 18 months and the potential for violence.

Here are a number of reasons why people who are seriously delinquent with the IRS should think seriously about acting now while the IRS is temporarily distracted:

  1. What we see today in America is not likely to be the way things will be 18 months from now or later. Social behavior may never be the same again but the IRS will be back in the near future, possibly better staffed and better at its job.
  2. In the event there is a change in administrations in Washington in November, the new leadership is likely to have an entirely different view of government and the proper role of the IRS.
  3. It is highly likely that delinquent or amended returns filed now to address prior defalcations are more likely to be accepted as filed now than ever before and certainly when the IRS is renewed and empowered in the near future.
  4. If you die, a heightened concern amid the COVID-19 crisis, and never get right with Uncle Sam, it is highly likely you will saddle your children and heirs with a far more complex task of cleaning up after you by having to file  your delinquent returns to close out your estate, scrambling to locate books and records which they will need to wrap up your affairs, and it is likely your heirs will have far more lawyer and accounting fees which will diminish your estate and the amount of money your heirs could be enjoying.
  5. Filing now starts the running of the statute of limitations, if there is one (i.e., there is no fraud) which could be three or six years. The IRS could take three years to recover from the damage which has already begun, some irreparable, to government, our lifestyles, our country and our economy. Once delinquent returns are filed, the next move belongs to the government to ask questions, and in most cases if they don’t, the taxpayer can be at ease about correcting his bad behavior.
  6. At some point in life, you may want to know just how much you owe for any number of reasons. Remember during the emergency, no one is talking about forgiveness of indebtedness. When it comes to taxes, the accumulation of interest and penalties can often exceed the total amount of the tax when there are a lot of years involved.
  7.  You might be able to start sleeping through the night again and not worry about your taxes.

Clearly it remains in the best interests of the non-filer or delinquent taxpayers to move promptly to correct their tax delinquencies.

Here is what needs to be done. The delinquent taxpayer needs to contact an experienced tax attorney, not just a qualified CPA, to disclose everything relevant about their filing history or lack thereof.

A tax attorney needs to determine whether the threshold for a criminal inquiry exists before returns are filed.  In most cases, taxpayers have an outsized fear about what the government is likely to do to them.

A qualified tax attorney will need to consider each legal issue, for example, whether a transaction should have been reported as ordinary income as opposed to capital gain, whether there exists a proper method of accounting, or depreciation, or whether an amount is even reportable as income, and whether related corporations and partnerships are also delinquent in their filings.

One of the issues will be how many years will you have to go back to file? After the review, the tax attorney and client must find a capable CPA or other qualified return preparer and work closely with them with guidance on how to prepare the delinquent returns. In some cases, the attorney might have to engage the preparer in a confidential arrangement to preserve the attorney/client privilege throughout the process.

One big issue is whether the Voluntary Disclosure Program should be considered as the mechanism for a taxpayer to come back into filing compliance. A voluntary disclosure in accord with longstanding IRS policy may be appropriate in some egregious cases to minimize the chance of criminal investigation.

For the non-filer or delinquent taxpayer, now is not the time to think that the IRS and the rest of the law enforcement community have gone away and will never come back. We will survive this awful pandemic and there will be a new paradigm in place. The smart move is to get ready now before it becomes too late.

Thursday, April 9, 2020

COVID-19 ECONOMIC IMPACT PAYMENT: WHAT IF YOU ARE A DELINQUENT NON FILER?

On March 30, 2020, the IRS announced that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child, according to the announcement.

According to the announcement, tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible. Social Security recipients and railroad retirees who are otherwise not required to file a tax return are also eligible and will not be required to file a return.

In an effort to make obtaining the relief payment as seamless and quick as possible, in the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to waiting for checks to arrive in the mail.

The vast majority of people do not need to take any action, the IRS advises. The Service will calculate and automatically send the economic impact payment to those eligible.

The IRS release continues, for people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed. This may pose a problem for those who filed a joint return with a spouse, but have since divorced as one spouse ends up with the entire economic impact payment.

In a statement issued the day after the IRS announcement, the Treasury Department clarified that Social Security beneficiaries who are not typically required to file tax returns will not have to file. Instead, payments will be automatically deposited into their bank accounts.

Economic Impact Payments, part of the recently enacted  COVID-19 relief legislation, is clearly a logical way for the  government to get cash quickly into the hands of people who are just trying to survive, as well as to keep the economy alive during these troubled times.

What about Tax Filing Delinquents: A Trap for the Unwary?

One of the underlying assumptions of the EIP Program is that in large part, it assumes most people have been dutifully filing tax returns every year. Again, the IRS announcement offers guidance for those who have yet to file 2019 returns, and even those who haven’t even filed for 2018, but what if a taxpayer hasn’t filed for years?

The announcement urges people who have yet to file for 2018 or 2019, “to file as soon as they can.” Easy to say, but for some, there may be cause to consult with a tax professional before jumping in.  What the announcement does not say is “just go ahead and file something.” Taxpayers should take care to ensure tax returns are complete and accurate when presented to the IRS for filing. For those that sloppily file to get the economic impact payment can expect normal audit selections procedures to apply. For those that haven’t fulfilled the filing requirement for multiple years, the IRS may rightfully query why prior years are unfiled. Was it willful? Was there illegal source income?

Obviously, for some, participating in the EIP Program is not risk free. Nowhere has the Service indicated that filing for 2018 or 2019 will not lead to an audit. In some cases, a taxpayer may be well-advised to consult with tax counsel before a hastily made move results in an unwary taxpayer getting a lot more than he asks for. 

Wednesday, April 1, 2020

NEW COVID-19 PROTOCOLS: IRS AGENTS ARE NOW PERMITTED TO USE EMAIL

IRS Technology Revolution: Nonprofit Tax FormsIn a memorandum to all IRS employees dated March 27, 2020, the Deputy Commissioner for enforcement decreed that in order to assist employees, taxpayers, and their representatives who are working from alternative locations during the national virus disaster,  a “temporary deviation” will now allow the wide-spread use of email and other forms of digital communication.

Specifically, the decree says IRS employees can now accept images of signatures (scanned or photographed) and digital signatures on documents related to the determination or collection of tax liability.

Also now permitted, IRS employees can now transmit documents to taxpayers using SecureZip[1] or other established secured messaging systems.

The categories of documents include a broad range of key IRS operative documents.

Signatures

Under this temporary arrangement, the IRS will accept images of signatures (scanned or photographed) in one of the following file types: tiff, jpg, jpeg, pdf, Microsoft Office suite, or Zip.

The IRS will also accept digital signatures that use encryption techniques to provide proof of original and unmodified documentation on one of the following file types: tiff, jpg, jpeg, pdf, Microsoft Office suite, or Zip.

To eliminate mailing documents to the extent possible, IRS employees can continue to use all existing and previously allowable means of receiving and transmitting documents, such as eFax or established secured messaging systems.

Taxpayer’s Choice

The choice to transmit and receive documents electronically is solely that of the taxpayer. If the taxpayer is not able to eFax the executed document or to provide them through established secure messaging, the taxpayer may use email with attachments to transmit the document to the IRS if the following steps are taken:

NEW RULES

“Trust but Verify”

 1. Before engaging in the temporary liberalized protocols, agents are now required to use the telephone to authenticate the identity of the person who is trying to communicate digitally.

 2. The taxpayer or the representative must be advised on the phone that unencrypted email over the internet is not secure.  They must explain that, except for minimal identifying information in the body of the email, for example, name, last four digits of a TIN, they should keep sensitive information out of the subject line and body of emails, as much as possible, and should use password-protected encrypted attachments via SecureZip as much as possible.

Taxpayers and Representatives Must Include a New Statement of Intent with All Electronic Communications

The new procedures now require a statement, either in the form of an attached cover letter or within the body of the email to the effect,

 “The attached [name of document] includes [name of taxpayer]’s valid signature and the taxpayer intends to transmit the attached document to the IRS.”

IRS Electronic Transmittals to Taxpayers—Need to Call First to Solicit a “Test Email” With Consent to Receive an Email from the IRS

If the taxpayer or representative can use, or has access to email but has no fax machine, the IRS employee is ordered to send an email first with SecureZip or other IRS established secured messaging systems.  The IRS employee is instructed to ask the taxpayer or representative to send the employee a “test email” to confirm the email address, with a statement indicating,

“[Name of taxpayer] consents to receiving [name of documents] by SecureZip.”

Finally, the agent must inform the taxpayer or the representative by phone, that he will be transmitting the document through a password-protected SecureZip attachment.

NO DISCLOSURES IN EMAIL SUBJECT LINES: NEW PASSWORD PROCEDURE

Employees are reminded that sensitive information often appears in email subject lines and employees are directed to use password-protected encrypted attachments and to refer to http://it.web.irs.gov/news/20120713HTLSecureZIPtips.htm and follow the instructions there.

NO EMAILING OF PASSWORDS

IRS personnel are now advised that 12 character, upper and lower case letters with a symbol and a number must be communicated verbally to the representative or taxpayer.

For years, practitioners and taxpayers have lamented the fact that revenue agents and revenue officers have been prohibited from using email. While this convention was observed more in the breach than in compliance, out of sheer frustration, dedicated Service employees including Appeals Officers and Area Counsel employees used it anyway,  recognizing that the 21st century it was imperative that the government do business on the same level as the private sector. It is a sad irony, indeed that it has taken a national disaster to cause this significant change in the way the IRS communicates with the public. Although the new temporary procedures appear to be unduly cumbersome, it is likely that the taxpayers and representatives around the country will applaud this latest effort by the government to take part in the national recovery.


These new protocols are scheduled to expire by July 15. It is hoped that they will not be revoked entirely and that something will remain of the new procedures that will be a permanent change for the better.

[1] SecureZIP is an application for zipping files to save storage space as well as encrypting files with password control to protect information. SecureZIP not only works alone to perform the zipping and encryption functions but also integrates well with Microsoft Office 2010 to facilitate information security in Word, Excel, PowerPoint and Outlook.

Monday, March 30, 2020

IRS Order to Employees: Evacuate Your Post of Duty

Free Tax Filing Programs | Milford Town LibraryOn Friday March 27, according to the Federal News Network,[1] effective today, IRS employees are to evacuate their posts in an effort to limit the spread of COVID-19, which has now claimed the United States as the world leader in the number of infected people. Those that are able to work from home are directed to do so.

The order is clearly a good-faith effort by the Treasury Department to do its part in fighting the national emergency. According to the National Treasury Employees Union (“NTEU”), the IRS can issue such an order under Treasury Regulations, notwithstanding any collective bargaining agreement that may be in place. Despite the order, the NTEU also stated that the IRS will expressly reserve the right to direct employees to report for work, as needed, to carry out mission critical activities.

Carrying out the order by the IRS as a whole for any lengthy period will be a daunting task for an agency that is behind the times in terms of technology. The IRS currently has about 75,000 full time workers (computed as “full time equivalents” or FTEs for 2019) spread throughout the 50 states and D.C., and major cities around the world.

According to the FNN article, the evacuation order says if the employee currently has an approved work-remotely agreement in place, and is already working from home, they are considered “telework ready” and are expected to continue to work under their present arrangement. For those workers who have an approved telework agreement in place but are not yet teleworking, they are apparently ordered to start working from home.

For those employees in a “telework eligible position” and otherwise meet the requirements but have not yet entered into a telework agreement, they may be  assigned “any work necessary or required to be performed during the evacuation period as long as the employee has the necessary knowledge or skills to perform the work assignments.”

For those employees who lack the skills and knowledge to perform a job which is telework eligible, they are apparently ordered to evacuate their post of duty and remain on standby to receive possible orders from management to perform mission-critical duties.

On the bright side, it should be a smooth transition for many revenue officers, revenue agents, tax examiners, or special agents who already work remotely. Additionally, it should be expected that a certain number of employees will continue reporting for work to carry out mission critical tasks, like processing payments and mail, protecting the government’s interest to help ensure statutes of limitation do not lapse, etc. No doubt the activities of the IRS will be slowed during this time, but the critical work will carry on.   

There will be a large number of employees, likely in the thousands, for whom there is simply no work. The NTEU is working through these issues.  Nevertheless, the two main points are that the IRS is doing what it can to protect workers, and is continuing to carry out its mission. It is clear that the IRS managers in Washington who drafted the evacuation order did not contemplate all issues in the short time it had to issue this unprecedented order.

There is little doubt the IRS will be issuing guidance to its employees in the days to come on exactly how the order will be carried out. One of the issues to think through, for example, is that a revenue agent can work at home completing a final audit report, the manager can review and approve it, but how will it ultimately be processed and issued to the taxpayer? Will this type of processing be deemed mission critical to the IRS? What about the stimulus checks; how are those to be issued, and will they be delayed? Do the answers to these types of questions change if the order is in place for a longer period of time, compared to a week or two? The IRS has been through shutdowns before, but this is unprecedented.

Recall also that even before the onset of the COVID-19 virus outbreak, the IRS has been constrained by a limited budget and experienced shutdowns due to congressional impasse in approving a budget. The budget cuts have been sustained by drastic staffing cuts, resulting in reduction in taxpayer service, employee training, and upgrading the IRS’s 1960s-era main frames. Only recently has it been able to hire and begin to replenish its ranks. While there are indeed much bigger concerns right now, it is certainly not the best time for this to be hitting the IRS.

Surely, IRS workers are entitled to the very same protections as every other American worker during the new reality. The new evacuation order most assuredly will be a welcome development for the IRS rank and file.  Notwithstanding,  for those taxpayers and practitioners who are working in good faith to maintain an appropriate level of tax compliance in the new era,  working with the IRS from this time forward will present new challenges. But let there be no doubt, we will all get through this.


[1] https://federalnewsnetwork.com/workforce/2020/03/nteu-says-irs-preparing-evacuation-notice-to-send-all-employees-home/

Wednesday, March 14, 2018

IRS OVDP Ending: Last Chance for Some Taxpayers with Unreported Foreign Financial Assets


By: Steven J. Mopsick and Allison Ornelaz

As many in the tax and accounting field have predicted for some time, the IRS will be ending the 2014 Offshore Voluntary Disclosure Program (OVDP) officially on September 28, 2018.  See IR 2018-52.

The OVDP has been around since 2009, partly in response to the implementation of the Foreign Account Tax Compliance Act (FATCA), as well as stepped up IRS enforcement generally, in the foreign area. Over the past nine years, the program has produced a total of $11.1 billion from over 56,000 taxpayers. The program at its peak saw 18,000 taxpayers come forward in 2011 and has been on a decline ever since. A mere 600 taxpayers came forward through the program in 2017.

What is the IRS’ rationale for ending the program?  One could assume the IRS believes that taxpayers have had plenty of time to heed the requirement to disclose their unreported offshore financial assets and come into compliance. Arguably, the rationale for ending the program is, those who have either had their head in the sand or are willfully avoiding their tax reporting obligations should not be granted any type of “deal” the IRS may grant for voluntarily coming forward.

Fortunately taxpayers who fit the criteria for the Streamlined Filing Compliance Procedures will still be able to use those protocols. However, the IRS reminds us that just as it has done with OVDP, the Streamlined Procedures can end at any time, urging taxpayers with undisclosed foreign financial assets to come forward now before risking draconian penalties and even potential criminal action.

Along with the Streamlined Filing Compliance Procedures remaining as an available option, the IRS also mentions the Criminal Investigation Voluntary Disclosure Program, Delinquent FBAR submission procedures, and the delinquent international information return submission procedures which will also remain in effect.