Monday, September 23, 2019

According to TIGTA - The IRS Systematically Loses and Destroys Important Taxpayer Records

According to a report (TIGTA Report) dated July 13 2017, by the Treasury Inspector General for Tax Administration (TIGTA), the Internal Revenue Service (IRS) systematically loses and destroys important taxpayer records due to carelessness and negligence.

1 Freedom of Information Act Responses Were Found Lacking. Even when taxpayers request files from the IRS under the Freedom of Information Act (FOIA), the IRS work has been somewhat careless and one is left with little confidence that the agency will make a serious attempt to find the requested documents. FOIA enables the public to request access to Federal records and information. The IRS’ ability to adequately respond to FOIA requests is essential in maintaining the public’s trust and ensuring transparency in this government agency.   

Yet, the TIGTA Report found numerous problems with the FOIA requests including these: “the search methods used were not properly documented in accordance with IRS policies, did not identify all potential custodians, and erroneously concluded that records associated with separated employees had been destroyed when potentially responsive records were available.

Federal laws governing FOIA searches, IRS policies for responding to congressional requests, and court procedures all include specific guidance that requires adequate searches of records in response to external requests. However, in some of the cases reviewed, documentation of IRS search efforts in response to requests for records was not adequate.”
 In addition, federal law mandates that FOIA requests have explicit response deadlines specifically, Federal agencies are required to respond to requests within 20 business days of receipt, and can request an extension of 10 working days.

If an agency grants a FOIA request, the law requires that the agency make responsive records “promptly available” to the requester.  TIGTA examined almost 50,000 closed FOIA cases during its audit period.  The IRS records indicated that over 36,000 FOIA cases were closed in 20 business days or less. For the almost 13,000 remaining cases, the average closing time was 51 business days. In reviewing the remaining cases that had much longer processing times, TIGTA found that 100 cases took between one and two years to close, and three cases took between two and 2.5 years to close.


2. Effect on Expatriates. One area of disagreement between the IRS and a taxpayer is as to whether a tax return was ever filed for a particular year.  Any taxpayer facing this problem is confronted with a Herculean task to prove he filed the “missing” return.  This is a serious problem for any taxpayer but it can be particularly harrowing if the taxpayer is an American living and working overseas.  Often times, a taxpayer living Stateside can prove the IRS lost a federal tax return by showing his State tax return that was filed. Many US States have a tax system that mirrors the federal system and may even require the taxpayer to attach a copy of the federal tax return to their State return.  On the contrary, a US taxpayer living and working abroad typically has no need to file any State tax returns since he will have broken residency with the State.
  • Most Americans working abroad know they may be eligible to exclude certain foreign earned income (wages, compensation for services) and housing amounts from US taxable income.  This means that, unlike their counterparts working in the USA, they won’t be taxed on some or all of the amounts paid by their employer when they are living and working in a foreign country. These exclusions are permitted under the rules governing the Foreign Earned Income Exclusion (FEIE) and  Foreign Housing Exclusion (FHE) of Section 911 of the Internal Revenue Code.  A tax return must be filed within certain time limits in order to claim these exclusion benefits by filing an election to take them.
  • What happens if a taxpayer moves abroad and has filed tax returns making the election, but the IRS later asserts that a tax return was never filed for the year(s) in question? Under the relevant tax rules, claiming the exclusions is permitted for any tax year, no matter how far back and no matter when the delinquent returns are filed so long as the IRS has not taken the first step and notified the taxpayer of their failure to make the election and that tax is owed.  On the other hand, if the IRS contacts the taxpayer first, the benefits can be denied; this can happen if the taxpayer owes any amount of federal income tax. If the taxpayer fails to keep a copy of the return and proof of filing it with the IRS, he may be out of luck.  This is particularly troublesome if the “missing” tax return is an earlier tax return claiming the FEIE/FHE election, since once the election is made it carries over to all subsequent tax years if not revoked by the taxpayer. In any event, counting on the IRS to have a copy of the tax return is foolhardy, especially in light of the recent TIGTA Report. 

3. Gifts or Bequest from A Former American?  Can You Prove Five Years of Tax Compliance? The IRS’ lack of good record-keeping should be of great concern to Americans receiving gifts or inheritances from former US citizens or green card holders since these individuals may be called upon to prove that the former American from whom they received the gift or bequest was, among other things, fully tax compliant for the five year period prior to relinquishing US status (i.e., he must prove the individual was not a so-called “covered expatriate”).  Internal Revenue Code Section 2801 imposes a tax on US recipients of certain gifts and bequests received from “covered expatriates”. 

 Such “covered” gifts or bequests may be taxable to the US recipient of that gift or bequest at the highest gift or estate tax rate in effect at the time of receipt. Currently, the highest Gift and Estate Tax rate is 40%. Under recently proposed IRS Regulations implementing Section 2801, the compliance burden is firmly placed on the US recipient of a gift or bequest from a foreign person to determine if the Code Section 2801 tax might apply to the recipient. 

When the US recipient is tasked with determining whether the person from whom he received the gift or bequest was a “covered expatriate”, he or she really needs proof about the status of that foreign person and such proof may entail the necessity to have the former American’s tax returns to hand.  One can imagine that obtaining this proof may be difficult, if not impossible – especially if the gift or bequest is received many years after the expatriation has taken place.  You cannot count on the IRS to have maintained the former American’s tax records!

TIGTA Recommendations

TIGTA made five recommendations related to improving the IRS’ policies for record retention and responding to external requests for records, including recommendations that IRS implement an enterprise e-mail solution  enabling it to comply with Federal records management requirements, and agency-wide dissemination of its newly issued policy on the collection and preservation of Federal records associated with separated employees. Not surprisingly, IRS management agreed with all five of TIGTA’s recommendations.

Will things really improve?  Let’s wait and see, but I am not holding my breath.

Have an IRS Tax Problem?

 Contact the Tax Lawyers at
Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact US at or
or Toll Free at 888-8TaxAid (888 882-9243). 


New Amendments to Swiss-US Tax Treaty Enter Into Force on Sept. 20

Friday, September 20, 2019

Senate Committee Approves Budget Calls For $11.5B In IRS Funding Up $200 Million From 2019 Budget!

On March 20, 2019, we posted 2020 Budget Calls For $11.5B In IRS Funding Up $200 Million From 2019 Budget!, where we discussed that President Donald Trump’s budget for fiscal year 2020 calls for $11.5 billion in funding for the Internal Revenue Service, up from $11.3 billion in the current fiscal year and that a slight $200 million increase in the Internal Revenue Service budget does little to make up for $845 million in lost funding over the last 10 years,” the union said in a statement.
Now the Senate Appropriations Committee on September 19, 2019 voted to advance the FY2020 Financial Services and General Government Appropriations Act, which funds the U.S. Treasury Department and the IRS. The measure provides $11.414 billion for the IRS, including $200 million more than the FY2019 enacted level for enforcement activities to address the tax gap.

The Senate funding for IRS, however, falls short of the House-passed Financial Services and General Government Appropriations Act, 2020 (H.R. 3351) which would provide $12 billion for the IRS, nearly a $700 million increase from the FY2019 enacted level. 
In addition, the Senate bill includes:
  • A prohibition on IRS funds for bonuses or to rehire former employees unless employee conduct and tax compliance is given consideration;
  • A prohibition on funds for the IRS to target groups for regulatory scrutiny based on their ideological beliefs;
  • A prohibition on funds for the IRS to target individuals for exercising their First Amendment rights. 
Have an IRS Tax Problem? 
Contact the Tax Lawyers at 
Marini & Associates, P.A. 
for a FREE Tax HELP Contact us at: or or
Toll Free at 888-8TaxAid (888) 882-9243

Thursday, September 19, 2019

TIGTA Reports That Billions of Dollars in Non-Filer Employment Taxes Went Unassessed

Final Report issued on September 16, 2019, Highlights of Reference Number:  2019-30-069 to the Commissioner of Internal Revenue. 
When a taxpayer that has a filing requirement fails to file a tax return, the IRS is authorized under Internal Revenue Code Section 6020(b) to determine and assess a tax liability.  For certain business nonfilers with unfiled employment tax returns, the IRS can systemically prepare a substitute return using the Automated 6020(b) [A6020(b)] program. 
The Nonfiler Case Creation Process For Business Returns Has Been Declining Since FY 2011 And Virtually Stopped In October 2016 Due To Significant Reductions In Staffing.

The creation of fewer nonfiler cases resulted in a reduction of potential inventory to select work from for the A6020(b) program.  Because of resource limitations, A6020(b) program new case starts have been declining since FY 2014 and were halted November 7, 2016.  As a result, the A6020(b) program secured fewer returns and collected less revenue on a portion of employment tax nonfiler cases during the time period that new cases were not started.
High-dollar nonfiler employment tax cases currently have to be manually assigned to the A6020(b) program to be worked, due to a low dollar threshold used for systemic assignment.  If the IRS removed the dollar threshold associated with systemic and manual case selection, hundreds of thousands of high-dollar cases could be worked by the A6020(b) program.
TIGTA identified 243,210 standalone nonfiler employment tax modules (taxpayers with unfiled tax returns but no balances due) that were assigned to other Collection functions as of January 2019. 
If The IRS Assigned The Top 86,554 Modules To The Program, Based On The Highest Dollar Proposed Assessments, The IRS Could Potentially Assess More Than $10.2 Billion and Potentially Collect More Than $3.3 Billion.
From A6020(b) cases closed between FYs 2011 and 2017, TIGTA also identified 6,784 cases for which the A6020(b) program did not post a tax assessment when it should have, resulting in a loss of proposed assessments of $19.7 million and potentially $6.4 million of revenue collected.

TIGTA made six recommendations, including that the IRS consider: 
  1. allocating additional resources to the A6020(b) program for FY 2020;
  2. updating the systemic and manual case selection criteria to work high-dollar cases;
  3. transferring the highest dollar standalone nonfiler inventory from other Collection functions to be worked by the A6020(b) program; and
  4. implementing system fixes to ensure that A6020(b) default assessments post as they should.
In response to the report, IRS management agreed with three of six recommendations and plans to take corrective action.  Click her to view the report, including the scope, methodology, and full IRS response.
Have Payroll Tax Problems?
Contact the Tax Lawyers at
Marini & Associates, P.A. 
 for a FREE Tax Consultation Contact US at or
or Toll Free at 888-8TaxAid (888 882-9243). 

Wednesday, September 11, 2019

TIGTA Identified Some Improvements Necessary in CDP Appeals.



Final Report issued on September 6, 2019. Highlights of Reference Number:  2019-10-058 to the Commissioner of Internal Revenue.
The Collection Due Process hearing provisions are designed to give taxpayers an opportunity for an independent review to ensure that the levy action that has been proposed or the Notice of Federal Tax Lien that has been filed is warranted and appropriate.  An effective process is necessary to ensure that statutory requirements are met and taxpayers’ rights are protected.
This audit was initiated because TIGTA is statutorily required to determine whether the IRS complied with the required procedures under 26 United States Code Sections 6320 and 6330 when taxpayers exercised their rights to appeal the filing of a Notice of Federal Tax Lien or the issuance of a Notice of Intent to Levy.
Appeals properly informed taxpayers that Collection Due Process and Equivalent Hearings were conducted by an impartial hearing officer with no prior involvement with the tax or tax periods covered by the hearing.  However, TIGTA identified some errors that were similar to errors identified in prior reports.  Specifically, the Office of Appeals did not always classify taxpayer requests properly, and as a result, some taxpayers received the wrong type of hearing.  TIGTA reviewed a statistically valid stratified sample of 140 cases and identified nine taxpayer cases that were misclassified.  This is approximately the same number of misclassified cases that were identified in the prior year’s review.
Based on the same stratified sample, TIGTA determined that the Collection function did not timely process the hearing requests for an additional five taxpayers.  When taxpayers mail or fax their hearing request to the wrong Collection function location, Collection function procedures require employees to fax the taxpayer’s request to the appropriate Collection Due Process Coordinator at the correct location on the same day.  While the Office of Appeals provided taxpayers with the correct hearing type in these cases, the Collection function did not follow procedures.  As a result, the IRS may not have adequately protected the taxpayers’ rights due to the untimely processing of the misdirected hearing requests.
In addition, TIGTA continued to identify errors related to the determination of the Collection Statute Expiration Date (CSED) on taxpayer accounts.  TIGTA identified eight taxpayer cases that had an incorrect CSED.  For five taxpayer cases, the IRS incorrectly extended the time period, allowing the IRS additional time to collect delinquent taxes.  In the remaining three taxpayer cases, the IRS incorrectly decreased the time to collect the delinquent taxes.  Overall, this is approximately the same number of CSED errors that were identified in the prior year’s review.
TIGTA recommended that the Director, Collection, take action to provide reasonable assurance that Collection function personnel forward misdirected Collection Due Process and Equivalent Hearing requests to the correct location on the same day the requests are received.  TIGTA also recommended that the Chief, Appeals, update the inaccurate CSEDs for the eight taxpayer accounts that TIGTA identified with CSED errors.  IRS management agreed with both recommendations and plans to take appropriate corrective actions.
To view the report, including the scope, methodology, and full IRS response, go to:
Need to Appeal and IRS Tax Levy?
Contact the Tax Lawyers at 
Marini & Associates, P.A. 
for a FREE Tax HELP Contact Us at:
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