For many of us, we’re living in a time that has no comparison. We’ve seen wars, famines, economic crashes, but no pandemic—until now. Jim Buttonow of Accounting Today magazine says for the Internal Revenue Service, a bad situation may be about to get even worse.
Buttonow sees the IRS in the unenviable position of being in the middle of a perfect storm for a federal agency. In the middle of a busy tax filing season, the IRS still has some 70 million individual tax returns to process, and it’s doing the job with 20,000 fewer workers than it had a decade ago.
But legislative remedies for the economic downturn caused by the coronavirus pandemic have also tasked the IRS with one of the biggest jobs in the country: distributing many of the benefit payments in the stimulus package passed by Congress. The IRS has been tasked with figuring out who gets a payment and then sending out millions of checks and electronic deposits. To cap it all off, there are changes to the Tax Code that were made part of the relief legislation that will have to be implemented in the IRS returns processing systems and other operations.
It’s a daunting to-do list at the very least.
In the short term, the virus is also forcing the IRS to make changes to the way it does business. The agency is trying to restructure operations so that it doesn’t require face-to-face contact with taxpayers, all the while attempting to conduct business as usual serving those taxpayers who need assistance.
One of the most urgent tasks is to create the capability for employees at IRS locations across the country to instead work from home. With about 70,000 employees nationwide, Buttonow says it will take the IRS some time to return to normal operations—and might not return to normal until long after the pandemic is declared over.
For taxpayers and tax pros alike, interacting with the IRS during this time will be completely different than we’re used to, Buttonow writes. He’s given us 10 important things to remember about IRS operations and just how to interact with the agency until the situation returns to something akin to normal.
- Use .gov First to Get Answers to Questions
Even during regular income tax filing, the IRS phone system struggles to keep up with demand. Instead, Buttonow writes, use the IRS website to research questions. Many taxpayers are trying to call the IRS help line to get stimulus payment information when the best—and easiest—way to find that information is to check the IRS coronavirus web page.
- Live Assistance is Scarce
Taxpayer Assistance Centers have all been shut down for the foreseeable future and IRS phone lines are likely to be down for a number of weeks as well. Many other IRS hotlines are out of commission, whether for taxpayers or tax pros. Don’t expect any phone support until we get close to the new tax deadline of July 15. The agency has suspended almost all audits and collection activities until then.
- The IRS will be Hard to Reach from Here On
Expect a mountain of backlogged correspondence to face the IRS once the agency opens the gates. Even with its plans for other types of channels for taxpayer communications, such as email or its new e-fax lines, Buttonow says the agency likely will face a mountain of correspondence and clogged telephone lines after normal operations start up again.
- Put That Audit on Hold—Mostly
In its “People First Initiative,” the IRS announced all new audits had been suspended and wouldn’t resume until after July 15. However, Buttonow observes it’s realistic to expect the agency to continue to use audits in the meantime to stop suspicious or erroneous refunds. Any taxpayer with a questionable refund is likely to see the IRS filing filters stop their refunds until the taxpayer can verify the return is legitimate.
- Reprieve on Back Taxes
The IRS has halted collection enforcement activities through July 15. And, as part of the People First Initiative, liens, levies and passport restrictions are also on hold during that time. Proceeding of collection alternatives—including offers in compromise—are similarly suspended. Taxpayers can, however, still go to the IRS website to set up a new monthly payment plan for tax due.
- Monthly Installment Agreement Payment Not Needed—or Is It?
On one hand, the IRS “People First Initiative” said taxpayers aren’t required to make the monthly payment on an established installment agreement from April 1 through July 15. That’s fine for taxpayers who pay by check, but those who use direct debit are caught in the middle. Most banks say, “Hey, can’t stop the draft,” and taxpayers have to call the IRS directly to void a payment during the “free” Buttonow says that means taxpayers are really stuck.
“Taxpayers are in a pickle: IRS phone lines are closed, so taxpayers cannot contact the IRS to “skip” the automatic payments during this time. Also, the IRS is not automatically suspending direct debit payments. The IRS has not provided any guidance on how it will enable taxpayers to initiate a skip on their scheduled drafted payments,” Buttonow writes.
- Use IRS Transcripts to Answer Account-Related Questions
An official transcript from the IRS can help answer questions about AGI, estimated tax payments and more. Taxpayers can access transcripts immediately by setting up an IRS online account and using the “Get Transcript” tool on gov. They can also call the automated “Get Transcript” line and order a transcript to be delivered to the record on file with the IRS.
- Call Local Taxpayer Advocate Service (TAS) Office if You Have a Hardship
This includes taxpayers who experience a financial hardship due to a hold on a refund. The central TAS hotline is closed but taxpayers can contact a local advocate by phone. Go online for a list of local advocates: https://www.irs.gov/advocate/local-taxpayer-advocate
- File Now if You Can
The IRS is still processing tax returns and most stimulus payments will be figured from filed 2019 returns or from a 2018 return if a ’19 return hasn’t been filed yet. It’s a good time to file the required back tax returns, especially important for those who haven’t filed a 2018 and 2019 return.
- Stimulus Payments Won’t go for Tax Debts
The stimulus legislation says the IRS won’t apply the amount of the stimulus payment against any tax due owed. It can, however, be used for outstanding child support debt.
Buttonow notes that the IRS, while sending out the stimulus checks, is not in charge of deciding how much each taxpayer gets. That’s laid out in the stimulus legislation, and with any lawmaking process, it’s likely that some Americans will fall through the cracks.
Our thanks to Jim Buttonow and our friends at Accounting Today magazine for their article. You can access the full version here.
– Story provided by TaxingSubjects.com
Federal authorities say they’ve arrested a Pennsylvania man in connection with a nationwide IRS impersonation scam.
Made in the USA
The federal indictment that prompted the arrest was returned against Ronnell Taylor, Jr., 37, of Jeannette, Pa. He was named in a one-count indictment from the federal grand jury in the Western District of Pennsylvania, alleging conspiracy to commit wire fraud. Besides Taylor, the indictment also named Barry Nealer, 40, of Pittsburgh, and Michael Galanis, 31, of Export, Pa.
The Scam at Work
The federal indictment says the conspiracy involved impersonators calling victims across the country and posing as IRS employees. The fake IRS “employees” left voicemails instructing the victim to contact the IRS at specific telephone numbers.
When the unsuspecting victims called the provided numbers, their calls were automatically forwarded to voice-over-Internet (VoIP) phone numbers and routed to the IRS impersonators, who then extorted money from the victims to pay bogus tax debts.
The incitement alleges the setup of the scheme started in March, 2016 and ran through August in 2017. Taylor, Galavis and Nealer activated SIM cards and programmed prepaid cell phones to automatically forward victims’ calls to the VoIP phone numbers.
Taylor also allegedly supplied his codefendants with prepaid SIM cards to activate and instructed them on how to activate them and program the cell phone numbers associated with the SIM cards in order to forward calls to VoIP phones.
Prospective victims were called by an IRS impersonator, who directed them to wire money or purchase stored-value cards, iTunes gift cards, Target retail store gift cards, or other gift cards to pay tax debts alleged by the impersonators. The ring managed to defraud their victims of some $89,000.
If found guilty, Taylor faces a maximum sentence of 20 years in federal prison, a fine of $250,000, or both. The U.S. Attorney’s Office says under Federal Sentencing Guidelines the actual sentence imposed would be based upon the seriousness of the offense and any prior criminal history.
While the news release from federal authorities describes Taylor’s arrest, it makes no mention of arrest of Nealer or Galavis, which could mean they remain at large.
At his initial court appearance in January, Taylor posted a $20,000 unsecured bond and was released. Federal investigators say additional legal actions are pending.
The United States Treasury Inspector General for Tax Administration, U.S. Department of Homeland Security, and the U.S. Postal Inspection Service conducted the investigation leading to the indictment.
– Story provided by TaxingSubjects.com
Last Saturday, Taxing Subjects spotlighted a phishing scam that emerged after legislators passed the CARES Act, which distributes economic impact payments to help recover from financial hardships caused by COVID-19. Today, the IRS outlined common tactics used by these scammers, as well as briefly explaining the economic impact payment process.
What is the ‘coronavirus stimulus scam?’
Scammers are posing as government officials and contacting targets to request information they say is required to process coronavirus stimulus payments. Unfortunately, they are now using every tactic possible, from email and phone scams to text messages, social media, and fake websites.
As IRS Criminal Investigation Chief Don Fort points out in the press release, “History has shown that criminals take every opportunity to perpetrate a fraud on unsuspecting victims, especially when a group of people is vulnerable or in a state of need.” To avoid becoming a victim of this latest phishing scam, the agency suggests keeping an eye out for communications that use any of these common tactics:
- [Emphasizing] the words “Stimulus Check” or “Stimulus Payment.” The official term is economic impact payment.
- [Asking] the taxpayer to sign over their economic impact payment check to them.
- [Asking] by phone, email, text, or social media for verification of personal and/or banking information saying that the information is needed to receive or speed up their economic impact payment.
- [Suggesting] that they can get a tax refund or economic impact payment faster by working on the taxpayer’s behalf. This scam could be conducted by social media or even in person.
- [Mailing] the taxpayer a bogus check, perhaps in an odd amount, then [telling] the taxpayer to call a number or verify information online in order to cash it.
Remember, the IRS will not request information to process “stimulus payments” by phone, email, text, or social media. It turns out that most economic impact payments will be issued automatically.
What is the real economic impact payment process?
“In most cases, the IRS will deposit economic impact payments into the direct deposit account taxpayers previously provided on tax returns,” the IRS explains. “Those taxpayers who have previously filed but not provided direct deposit information to the IRS will be able to provide their banking information online to a newly designed secure portal on IRS.gov in mid-April.”
While the IRS generally uses recently filed tax returns to determine economic impact payment eligibility, the agency says that retirees who don’t have a filing requirement—Social Security recipients, in particular—do not have to do anything to receive their payment. (At this time, it remains unclear how the IRS will issue payments to other taxpayers who aren’t required to file.)
Just like a standard tax refund, those who don’t set up a direct deposit account will receive a physical check in the mail.
What should I do if I am targeted by the stimulus scam?
If someone calls asking for information needed to process a stimulus payment, hang up the phone; the IRS does not want you to interact with scammers. Similarly, if you get an email or message on Facebook asking for that information, do not respond, and do not click on any embedded links. Instead, the IRS wants you to report the incident to follow the directions on their Report Phishing and Online Scams webpage.
– Story provided by TaxingSubjects.com
One of the ways American business changed with the coronavirus is that thousands—if not millions—of employees are now working from home. The good news is that they’re getting the job done while practicing social distancing.
The bad news may be that both workers and employers might be a little closer to state and local tax measures than they thought.
Nexus and Other Minefields
Jared Walczak of the The Tax Foundation, one of the nation’s leading tax policy institutions, points up the risks some businesses may run in having a home-bound workforce. Most businesses, they say, are cautious about offering a work-at-home arrangement as an option simply because it may expose them to taxation in states where they might otherwise have too few contacts to be taxable. The technical term for this is “nexus.”
The coronavirus pandemic, of course, changed all that, making work-at-home the option of choice for many companies.
Nexus is a way of telling whether a business has enough presence in a state to pay state tax on its activities. Another yardstick—apportionment—lays out the division of the income to yield the appropriate share for a given state to tax. These two terms, Walczac writes, form the yardstick by which companies are measured by states.
“Without some standards for nexus and apportionment, there would be nothing to prevent states from taxing businesses that have no connection to that state, or from taxing the entirety of a business’s income even though it is also taxed in other states on much or all of that income as well,” Walczak states.
Federal law says states can’t use nexus against a corporation just because it solicits sales there. There has to be some kind of additional activity—such as having property in the state, or having employees working there. Many companies meet these requirements in most or all states—up to now, anyway.
The difference between nexus or no nexus can be tenuous. Walczak writes that even a single employee working from home in a state where the company lacked nexus before can be enough to qualify the company as taxable there.
Apportionment can push a company farther over the state’s line. Traditional apportionment takes payroll, property, and sales into account. While many states now use a single sales factor apportionment, if a state does still use three-factor apportionment where the amount of payroll in a state helps determine how much income is taxable, any employees working from home can increase apportionment.
Even in states that use the single sales factor method, working at home can make a big difference. Walczak uses the example of a company with extensive sales in a state, but doesn’t have nexus since it doesn’t have a sales team there, doesn’t service its goods there and ships into the state using freight lines instead of their own trucks.
“That company has no corporate income tax liability in the state into which it is selling—but suddenly, if even one employee is working remotely there, the state could begin taxing them, taking all of those sales into account in determining the share of net income to tax,” Walczak writes.
Typically, employers withhold for the state in which the work is performed, even if the employee lives in another state. The employee gets to take a credit against income taxes paid in the jurisdiction in which they worked against their tax liability where they reside.
Enter the work-at-home response to the coronavirus.
Now many of these employees live and work in the same state, and it’s not the state where the company has offices. Their company should now start withholding in the state where the employees work, even if it’s just temporary. This can be a costly compliance measure for businesses not already accustomed to having a workforce spread out over many states.
The situation, Walczak writes, only gets more complex when, because of the pandemic, an employee moves in with relatives due to comfort, convenience, or necessity. If that move entails travel to another state, it can introduce yet another wrinkle to the withholding tapestry.
The Tax Foundation suggests a couple of remedies for the hornets’ nest these conditions might create.
First, Walczak says states could disregard telework when it comes to figuring nexus and apportionment for the duration of the pandemic. Congress, he adds, also should consider a temporary nationwide provision that deems such telework to take place at an employee’s normal place of work for nexus and apportionment purposes.
Walczak’s conclusion says it best:
“During the present crisis, remote work has become a necessity for many people. The tax implications, however, are very real and potentially quite complex. States and the federal government have a role here in eliminating needless complexity and would do well to treat temporary pandemic-related telework as if the employee’s place of business had not changed.”
Our thanks to Jared Walczak and the Tax Foundation. For the complete article, check out the Tax Foundation website.
– Story provided by TaxingSubjects.com
The coronavirus pandemic has pushed the IRS to order its workforce to work from home. The IRS issued an email announcing the shift, and Accounting Today magazine obtained a copy of the email.
“As a result of recent OPM [U.S. Office of Personnel Management] guidance, starting Monday, March 30, 2020, the IRS is directing all employees, including employees who are currently not teleworking but whose work is portable or can be adapted to work off-site, to evacuate the work site and work from home (or an alternate location)—including employees who are not currently on a telework agreement,” said the memo. “All employees affected by this directive must take their equipment home to be prepared to work from home.”
The email directed workers to a chart that shows just which employees were expected to leave the premises and gave information to managers to better answer employee questions.
The memo also makes it clear that sick employees should not come in to the office, citing concerns for their own safety—and the safety of others.
The move to evacuate is no surprise to the union that represents IRS workers. Accounting Today reports the National Treasury Employees Union previously urged all federal agencies to close buildings housing 50 or more employees.
Latest in a Series of Steps
The IRS just recently closed its Practitioner Priority Service, which services the needs of tax professionals. The IRS website also said some other operations are being curtailed during the virus onslaught, but the agency is continuing to accept tax returns and send out refunds, both activities deemed mission-critical by the IRS.
The work-at-home order may have implications for the IRS’ latest project: sending out the stimulus payments that were approved by Congress to taxpayers. Those millions of checks and direct deposits are expected to be sent out in the next few weeks. The IRS cautions, though, checks sent through the mail will take longer to process.
– Story provided by TaxingSubjects.com
Economic Impact Payments are automatic for retirees.
The Treasury Department recently dispelled some uncertainty regarding how it would handle economic impact payments for Americans on Social Security. According to the press release, those who rely on Social Security payments will simply receive stimulus money via direct deposit.
Treasury is instructing the IRS to use Forms SSA-1099 and RRB-1099 to direct payments to those who don’t regularly file tax returns. Treasury Secretary Steven Mnuchin explained the rationale for the update: “We want to ensure that our senior citizens, individuals with disabilities, and low-income Americans receive Economic Impact Payments quickly and without undue burden.”
The clarification comes days after initial guidance recommended that those who don’t normally file tax returns “file a simple tax return to receive an economic impact payment,” specifically listing Social Security recipients alongside “low-income taxpayers, senior citizens, … [and] some veterans and individuals with disabilities.”
Some of the confusion seems to have arisen from the method used to determine economic impact payment eligibility: the income claimed in a recent tax return. Since these payments have a phase-out threshold, tax returns are being used to determine how much stimulus money—if any—taxpayers will receive. Now, Social Security recipients will automatically get their $1,200 payment.
Guidance isn’t yet clear as to what steps should be taken by low-income taxpayers who don’t receive Social Security benefits and aren’t required to file a tax return. Be sure to check the Taxing Subjects blog for other tax updates!
Source: “Social Security Recipients Will Automatically Receive Economic Impact Payments”
– Story provided by TaxingSubjects.com