Our Taxing Times

First Time Penalty Abatement

You’ve been a good taxpayer. For years your returns have all been filed on time and your balance dues have been timely paid. Then you have a bad year and you end up with a failure to file or a failure to pay penalty. Before you pay the penalty you might want to check and see if the IRS will waive (abate) the penalty.

The IRS will abate a penalty for many reasons; if the taxpayer has reasonable cause for having the penalty, there may be waivers set by law, the IRS may have made a mistake or you might qualify for an administrative waiver. But you have to ask for the waiver especially the First Time Abatement.

The First Time Abatement (FTA) is an administrative waiver that the IRS doesn’t publicize too much. (Don’t believe me? Try running a search for the program on IRS.gov.) A TIGTA report found that in 2010 1.65 million taxpayers qualified for the program but only 8.8% of them actually received the waiver. FTA is available for individuals and business. For individuals, the program can abate the failure to file and failure to pay penalties for one tax year. Businesses can also use the FTA for the file and pay penalties as well as late filing penalties. They can also request FTA for one quarter’s failure to deposit (payroll). FTA is not available on Estate and Gift Tax return. Nor will the program abate the estimated tax or accuracy penalties.

To qualify for FTA, the taxpayer must have been compliant for at least 3 years. That means all their returns have to have been filed and they didn’t have any significant penalty, except the estimated tax penalty, during that 3 years. FTA can be requested by phone or in writing but it has to be requested. The IRS won’t volunteer the information.

For more info, check out Jim Buttonow’s cpa2biz.com article on FTA.

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Tax Book for Taxpayers

Fellow blogger, Robert Flach of Wandering Tax Pro fame, has a book you might be interested in; My Best Tax Advice. Robert has been preparing taxes for over 40 years and has shared his experience with us. The book covers picking a tax pro, keeping records, tax procedures and lots more.

My Best Tax Advice is $4.95 and can found here.

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IRS Stops Letter Forwarding Program

Did you know that the IRS has been forwarding letters to individuals that they didn’t generate? Nope, me neither. Under Revenue Procedure 94-22, the IRS would forward letters for retirement plans to find missing plan participants as well as state and federal agencies and the general public looking for someone to tell them about a possible financial windfall. All you had to do was to request in writing to use the IRS’s letter forwarding program. If you requested less than 50 letters be forwarded there was no cost.

But the program is no more. Citing costs and the wealth of other missing person locator services, the IRS has stopped the program. If a request was postmarked before August 31^st, the IRS will still forward the letter but not after that.

For more info, check out Accounting Today and Plan Sponsor.

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Scams - Tax and Energy

My e-mail trash is full of phishing spam. Much saying it’s from the Internal Revenue Service. Nothing new there. The current spam tells me that my tax deposit/transfer has been rejected. Someone is always trying to scam taxpayers with bogus tax related e-mails. This specific type of phishing will be around for a while and then it will fade out for a while to be replaced by another tax scam. The bottom line is that the IRS doesn’t use e-mail to make primary contact with taxpayers. Unless you are working with the IRS on a specific issue and trading e-mails with a specific individual or department, IRS e-mails are probably phishing and should be trashed with extreme prejudice. If you want to report the phishing to the IRS, they have a special page on their website set up to do that.

While I’m talking scams, I received an e-mail from Alex Bishoff today. He publishes an energy website.  The impression I got was that he wanted to comment on a post and mention energy scams but I close comments after several months (due to comment spam) and he was unable to comment. Instead, he sent me an e-mail linking to his website; open4energy. In the left sidebar are links to 3 collections of energy scams. They debunk devices or programs which are supposed to save energy directly or indirectly. I would check it out if you are considering an energy saving/monitoring device.

The internet has made it easier to scam people. It doesn’t matter what the hook; taxes or energy. But it also makes it easier for us to check out what we find in our inboxes. It’s up to you.

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IRS Billings

I am awful about billing for my services. Too often I forget to charge for a form or realize that I missed tracking some time charges. But I don’t feel so bad now that I’ve learned that the IRS has the same problem.

The Economy Act, (Title 31, sections 1535-1536) gives US government agencies permission to provide goods and services to each other and be reimbursed for those goods and services. The Act requires that both direct and indirect costs be reimbursed from the receiving agency.

For fiscal year 2011, the IRS had 89 agreements. 74 were with other government agencies and 15 agreements were with non-Federal entities (state and foreign governments.) They collected about $90 million for their services. Unfortunately, they shorted themselves.

The Treasury Inspector General for Tax Administration (TIGTA) recently randomly reviewed 6 of the IRS’s agreements and found that in half of the transactions the IRS billed less than the cost involved. For those three agreements, the billings were short $28 million dollars. $26 million of the shortage were from an agreement with Financial Management Service for refund offsets. The FMS handles processing of refunds to pay for delinquent student loans, VA loans, and child support.

TIGTA also cited two other areas of concern. They found that the IRS didn’t follow their own procedures to calculate overhead costs in 4 cases. In two of those cases, overhead wasn’t taken into consideration. Finally, the IRS couldn’t provide supporting documentation for the labor costs they billed. In fact, there was no solid way to track labor costs and supervisors were estimating the costs in 2 cases.

The IRS has agreed with TIGTA’s findings and promises to do better. They will review all agreements and develop procedures and guidelines to better track their expenses. They will also work to better train employees in the systems to bill other agencies.

TIGTA Report 2012-10-176

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