TaxConnections


 

Archive for Nina Olson

National Taxpayer Advocate Report To Congress FY 2018

National Taxpayer Advocate Report To Congress

The Internal Revenue Code requires the National Taxpayer Advocate to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The National Taxpayer Advocate is required to submit these reports directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, or the Office of Management and Budget. The first report, due by June 30 of each year, must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year.

Read more

Know How Getting Married Changes Your Tax Situation

Tina Olson- Know How Getting Married Changes Your Tax Situation

When you get married, your tax situation changes. Your marital status as of Dec. 31 determines your tax filing options for the entire year. If you’re married at year-end, you have two filing status choices:

  1. filing jointly with your new spouse, Married Filing Jointly, or
  2. filing separate from your spouse, Married Filing Separately

Most married couples file jointly because it is simpler and makes you eligible for many tax deductions and tax credits. However, if either spouse owes back taxes, whether federal or state, or owes certain other non-tax debts, such as delinquent child support or student loans in default, the IRS may offset your joint tax refund to satisfy the individual debts. Also, individuals who file a joint return incur “joint and several liability” explained later. Filing separately may seem like a good idea if you’re aware of prior tax and other liabilities of your spouse and don’t want to be responsible for them, but there’s potentially a downside. Filing separately may make you ineligible to claim certain tax deductions and tax credits, such as the child-care credit and the earned income tax credit (EITC). Refer to IRS Publication 501 for more information.

Read more

IRS Fraud Detection – A Process That Is Challenging For Taxpayers To Navigate An Outdated Case Management System Resulting In Significant Delays Of Legitimate Refunds – Part 2

Nina Olson - IRS Fraud Detection - Part 2

In my last blog, I discussed issues that arose during the 2018 filing season that contributed to the delay of taxpayers’ refunds when those taxpayers’ returns were selected into the non-IDT refund fraud program, including:

  • timing issues with the matching of third-party information;
  • how the system does not consider how third-party information would affect a taxpayer’s refund, and
  • how the pre-refund wage verification program’s case management system, Electronic Fraud Detection System (EFDS), had to have third-party information uploaded manually instead of systemically.

These issues resulted in an unprecedented increase in Taxpayer Advocate Service (TAS) case receipts in 2018 as more affected taxpayers sought TAS assistance.

Read more

IRS Fraud Detection – A Process That is Challenging For Taxpayers To Navigate With An Outdated Case Management System Resulting In Significant Delays Of Legitimate Refunds -Part 1

Nina Olson- December 2018

As we approach the filing season, I thought it would be a good idea to discuss an issue that affects many taxpayer returns, namely the IRS processes for identifying and stopping refund fraud. Attempted refund fraud has become a significant problem in our tax system. According to the most recent figures available, in calendar year (CY) 2016, identity theft (IDT), refund fraud alone, cost the government roughly $1.7 billion. I fully support the IRS’s efforts to reduce refund fraud and protect revenue. However, I have expressed concern over several years that the refund fraud false positive rate (FPR) is too high and that the IRS takes far too long to process legitimate taxpayers’ returns once it has determined that they have been inaccurately selected. For some taxpayers who rely on their tax refund to pay for necessary living expenses, their anxiety increases every day that their refund is delayed.

One of the main drivers behind these issues is the timing between when the IRS selects returns to be analyzed for possible refund fraud, and when it receives payor information that would either verify or disprove this possibility. But before we get into specific concerns surrounding the IRS’s fraud detection program, here is a little background on how the systems that select possible fraudulent returns work.

Read more

As The IRS Redesigns Form W-4, Employee’s Withholding Allowance Certificate, Stakeholders Raise Important Questions

Nina Olson- 2019 W-4 Form

The IRS is redesigning Form W-4, Employee’s Withholding Allowance Certificate. The changes to this form will affect nearly every employee and employer, potentially more than once a year. When a person starts a new job or his or her tax situation changes (e.g., due to a birth, a pay raise, a marriage, or a home purchase), he or she may be required by IRC § 3402(f)(2) to fill out a new Form W-4 and give it to his or her employer. The employer uses the number of “allowances” claimed on the Form W-4 to compute (based on IRS tables) how much of each paycheck to withhold and send to the IRS.

If employees claim too many allowances, they will have too little tax withheld (i.e., be under-withheld) and also violate IRC § 3402, whereas if they claim too few allowances, they will have too much tax withheld (i.e., be over-withheld). They can avoid an underpayment penalty under IRC § 6654 if either (1) they owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or (2) the amount withheld is at least 90 percent of their tax liability for the current year or 100 percent (or 110 percent for higher income taxpayers) of their tax liability shown on their tax return for the prior year, whichever is smaller.

Read more

As The IRS Redesigns Form W-4, Employee’s Withholding Allowance Certificate, Stakeholders Raise Important Questions

Nina Olson NTA W2 Form

The IRS is re-designing Form W-4, Employee’s Withholding Allowance Certificate. The changes to this form will affect nearly every employee and employer, potentially more than once a year. When a person starts a new job or his or her tax situation changes (e.g., due to a birth, a pay raise, a marriage, or a home purchase), he or she may be required by IRC § 3402(f)(2) to fill out a new Form W-4 and give it to his or her employer. The employer uses the number of “allowances” claimed on the Form W-4 to compute (based on IRS tables) how much of each paycheck to withhold and send to the IRS.

If employees claim too many allowances, they will have too little tax withheld (i.e., be under-withheld) and also violate IRC § 3402, whereas if they claim too few allowances, they will have too much tax withheld (i.e., be over-withheld). They can avoid an underpayment penalty under IRC § 6654 if either (1) they owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or (2) the amount withheld is at least 90 percent of their tax liability for the current year or 100 percent (or 110 percent for higher income taxpayers) of their tax liability shown on their tax return for the prior year, whichever is smaller.

Read more

Veterans Face Challenges In Claiming Refunds For Taxes Improperly Withheld From Disability Severance Pay

Nina Olson- Veterans And Refunds Owed Them

In December 2016, lawmakers advised that a potential 13,800 veterans had had taxes mistakenly withheld from lump-sum disability separation pay and were due refunds. The term “disability severance pay” (DSP) refers to one-time lump sum payments made to service members separated due to medical disability. DSP is paid to service members who are separated specifically because they are not fit for duty due to their disability. To be eligible, service members must be found unfit for duty; have less than 20 years of service; and have a disability rating of less than 30 percent. (“Disability rating” refers to the percentage assigned to a veteran’s medical condition to determine the amount of military benefits he or she should receive.) By law, DSP is not taxable if it is paid for combat-related injuries determined by the military service at the time of separation, or the veteran is eligible for disability compensation from the Department of Veterans Affairs (VA).

Read more

When Evaluating The Pilot Program On The Participation Of Counsel And Compliance, IRS Appeals Should Be Transparent

Nina Olson, National Taxpayer Advocate

Over the years, I have expressed significant concern with the continuing erosion of taxpayers’ right to appeal an IRS decision in an independent forum. (IRC § 7803(a)(3)). Of late, one of the major challenges to this right and to the independence of Appeals has been Appeals’ express desire to include IRS Counsel and Compliance in conferences regardless of whether taxpayers consent to this expanded participation. I have blogged about this before and also raised the subject in my Fiscal Year 2019 Objectives Report to Congress. Nevertheless, the issue continues to exist and I believe it is important to revisit the concerns and suggest a transparent, data-driven way forward.

In October 2016, Appeals revised its Internal Revenue Manual (IRM) guidance to encourage the inclusion of Counsel and Compliance in conferences (IRM 8.6.1.4.4). Beyond my own misgivings, this emphasis generated substantial uneasiness within the tax practitioner community.

Read more

Exempt Organizations: Form 1023-EZ Now Elicits Additional Information, But It’s Not Clear That IRS Reviewers Are Considering It

National Taxpayer Advocate - Nina Olson

Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, introduced in the summer of 2014, has been in use for over four years. While I am in favor of a shortened form that smaller organizations can use to apply for recognition as an IRC § 501(c)(3) organization, I have always had concerns about Form 1023-EZ, as discussed in my 20152016, and 2017 Annual Reports to Congress (including a study in volume 2 of the 2015 report).

One of my main concerns has been that Form 1023-EZ does not elicit enough information to allow the IRS to make an informed determination about whether an organization qualifies for IRC § 501(c)(3) status. My concerns were heightened by our reviews of successful applicants’ articles of incorporation to ascertain whether the articles contained purpose and dissolution clauses as required by Treasury regulations, thereby conforming with the statutory organizational test for tax exempt status. It’s important to note that our reviews were limited to representative samples of applicants that are corporations and are in states that make articles of incorporation available online for free.

Read more

National Taxpayer Objectives Report To Congress For 2019

Nina Olson-National Taxpayer Advocate 2019

The advocate states in the current environment, it is critical for the IRS to direct its resources where they have the greatest positive effect on achieving tax compliance, particularly voluntary tax compliance.  Over the long run, voluntary compliance is the least expensive form of compliance to maintain.  It is also the least burdensome from the taxpayer’s perspective.  Importantly, voluntary tax compliance is heavily linked to customer service and the customer experience.

Read more

The IRS Refuses To Provide Mandatory Employee Training On Taxpayer Rights

Nina Olson The IRS Refuses To Provide Mandatory Employee Training

For many years, I urged the IRS to adopt a Taxpayer Bill of Rights (TBOR) and for Congress to add the list of fundamental taxpayer rights to the Internal Revenue Code (IRC). In addition to its legal significance, a thematic, principle-based list of core taxpayer rights is an important source of foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS. A TBOR also serves as an organizing principle for tax administrators in establishing agency goals and performance measures. A TBOR also helps the IRS to restore trust in the tax system and ensure taxpayers know their rights and are able to avail themselves of those rights. Read more

The IRS’s Level Of Service Measure Fails To Adequately Show The Experience Of Taxpayers Seeking Assistance Over The Phone – Part 2

Nina Olson Measuring the Taxpayer Experience

In last week’s blog, I discussed how the Level of Service (LOS) measure used by the IRS paints a misleading picture of the taxpayer experience because it does not fully reflect taxpayers’ ability to speak with a telephone assistor and get the answer they need. The high LOS reported by the IRS masks its weaknesses in providing a high-quality customer experience, and reliance on this measure causes these weaknesses to go unaddressed. Similarly, the IRS reports an impressive overall toll-free customer satisfaction rating of 90 percent for fiscal year 2017; however, the response rate for the survey that is the basis for this measure has been low in previous years, and the measure only accounts for those callers that were able to speak with a telephone assistor. In this week’s blog, we will take a closer look to see how this rating stacks up against external evaluations and to understand the drivers of a successful taxpayer experience communicating with the IRS, regardless of the channel chosen or utilized. We will also examine how the IRS compares to other federal agencies and private sector companies, and identify practices the agency can adopt to prioritize the taxpayer experience. Read more

Meet Tax Experts At TaxConnections...