The White House is saying “snip, snip” to the IRS’s budget this year, but not for the first time. The agency’s allowance has been cut by 20 percent in just seven years, even though it collects $4 for every $1 spent. Some Americans may be celebrating, expecting a seemingly less stressful tax year, but a slashed IRS means things like less funding for our nation’s many government programs, a wider tax gap, and more problems for everyday Americans who answer to Uncle Sam.
Here are six repercussions the IRS budget cuts have on taxpayers:
1. A slower (and downright miserable) customer experience – Call the IRS and you’ll likely sit on hold for over 30 minutes listening to Muzak. Due to staffing cuts over the years, the IRS doesn’t have the resources to provide efficient service for its overwhelming number of callers – both on and off tax season. Not only that, but many representatives who are answering calls are less equipped to deal with your issues quickly due to lack of training.
2. Fewer, less experienced, or even unethical representatives – An understaffed IRS does more than just hold up customer service lines – it delays Revenue Officer case assignment and adds to the timeline in which you resolve your tax debt. To fill the talent gap, the IRS rehired over 200 employees that have been fired for unethical behavior, like fraud, theft, and even taxpayer data abuse. The people you are supposed to trust could be a danger to your financial life.
3. Clunky and unsafe service-automation processes – Fewer humans means more robots. And for the IRS, the robots don’t quite measure up. For example, taxpayers have the right to appeal an IRS decision with a local Appeals or Settlement Officer, but 12 states are without any qualified local appeals staff. To discourage in-person appeals, the IRS has released a telecommunication system within its centralized appeal office. Non-local Officers understand less about local businesses’ challenges, are out of tune with regional issues and are lower-ranked employees who lack expertise and experience.
The IRS believes that technology can replace the local expertise at a lower cost, but this hasn’t yet shown true. In fact, visits to the IRS website decreased by 4.1 percent despite the push for more online services (enough to make that 30+ minutes on hold sound tempting). This combination of a limited local presence and a poor attempt at replacement with technology ultimately leaves taxpayers who need help out to dry.
4. A lack of taxpayer outreach and education – You may think the government is a pro when it comes to confusing the public about taxes, but the IRS wants you to be informed about (and comply with) tax law. Unfortunately, taxpayers are left in the dark due to lack of awareness and education when only four percent of the “Taxpayer Services” budget goes to working with organizations such as state tax authorities and volunteer groups (most of this budget goes to processing returns). More cuts will continue to widen the gap of outreach and support.
5. More scams and ID theft – Financial scams involving sensitive personal data are everyone’s worst nightmare. If the IRS can’t provide adequate education and awareness of how to mitigate these risks, fraudulent activity increases. Ignorance isn’t the only loophole – confidential data can be easily compromised to do a lack of sufficient infrastructure and technology. The IRS has made significant gains over the past few years, but maintaining the progress may become difficult with less financial support.
6. Debt collection from private companies – Congress recently ruled (again) that a portion of debt collection would be outsourced to private debt collectors (PDCs) – an approach that comes with its own set of issues. For one, a sizable percentage of government funding (25 percent) money now goes to PDCs instead of government programs. When prior private debt collection programs have proven to cost more than the government makes, it’s lose-lose for Uncle Sam and citizens. Taxpayers need to protect themselves and stay informed more than ever.
For people who have tax debt, these six issues aren’t making the already-difficult process any easier. Luckily, tax professionals can deal with the IRS on your behalf (so you can say “sayonara” to long hold times). If you have questions about individual or small business IRS issues, call Tax Defense Network for a free consultation at (877) 588-1098.
Do you know who is collecting your tax debt?
The IRS has called for backup from the private sector, and these four companies could be coming after your tax debt in lieu of the IRS. Here’s what you need to know to stay informed, lawful and safe.
What’s the deal with Private Debt Collection Agencies (PDCs)?
Private debt collection agencies, or PDCs, aren’t rookies to the federal tax debt collection game – they assisted the IRS in both 1996-1997 and 2006-2009. Despite warnings from the IRS and National Tax Advocate on the unsuccessfulness of these previous efforts – wasting money, yielding half the amount of collections, and contributing to inequities in the U.S. tax collection system – it seems that history is repeating itself.
Congress passed Fixing America’s Surface Transportation Act (FAST Act) in December 2015, which includes a section requiring the IRS to use PDCs for outstanding tax debt that the IRS is no longer pursuing. Now a year and a half later, the program is in full swing. The IRS has hired four PDCs: Conserve, Pioneer, Performant Recovery, and CBE Group. Though not all tax debt cases are eligible for PDCs to handle (e.g. offer-in-compromise, innocent spouse cases, deceased), you may be getting a notice that your account will be in new (private) hands.
What are the risks associated with PDCs?
The problems don’t necessarily lie with the four companies themselves, but the program’s loopholes. Here are some of the dangers associated with private debt collection:
- Scam magnets: More scam artists can pretend to be PDCs, especially because PDCs aren’t required to identify themselves as IRS contractors. Here’s a smart rule of thumb: Do not disclose any personal information to someone randomly demanding payment over the phone or internet.
- Elevated risk for low-income taxpayers: PDCs have an agenda to push people to make payments, even if the taxpayers can’t afford it. This can create economic hardship for people who would otherwise qualify for alternative payment plans by the IRS. National Taxpayer Advocate reports half of taxpayers outsourced have incomes of less than 250 percent of the federal poverty level (FPL) and nearly a quarter are at less than 100 percent of the FPL. The result is low-income, elderly, and income-restricted individuals are buried deeper in economic woes and unpayable debt.
- A lack of consumer awareness: The IRS wants consumers to know what’s up, but public awareness campaigns are minimal at best due to drastic IRS funding cuts. As a result, consumers are left in the dark and even more vulnerable to scams.
What you need to know to protect yourself:
- How the IRS works – The IRS isn’t like your crazy ex – it will never call or text you out of the blue to demand payment, but rather send you notices in the mail that progressively increase in urgency to act. If your case has been assigned to a PDC, the IRS will let you know so it won’t be a surprise.
- Don’t pay the PDC directly – Though the PDC is hired to collect your debt, you’re not actually writing out your check to them. All your repaid debt will go straight to the IRS as usual.
- Consult with a licensed tax professional – Turning to a licensed tax professional, which may include CPAs, enrolled agents or tax attorneys, can give you the support and direction you need regarding your tax debt. These experts can negotiate with the IRS on your behalf to relieve tax debt or tie-ups like liens, levies and wage garnishments.
While the lawfulness of PDC use is under scrutiny, it is today’s reality. The key to avoiding trouble is being smart about tackling your tax debt and not going at it alone.
Remember: It’s crucial that you never disclose information to someone calling or messaging to collect immediate payment. Instead, call the IRS directly to see if you owe taxes, or call Tax Defense Network for a free consultation at (877) 588-1098.
With summertime in full swing, you may be considering some much-needed time away from home. Whatever your travel plans, you might want to consider whether or not you’ll be able to take tax breaks for your time off. Believe it or not, there’s a chance that you’ll be able to take some deductions for that much-needed vacation.
Business and Pleasure
The best way to maximize your tax savings when you’re on the road is to incorporate your job into your travel plans; or, perhaps more accurately, squeeze pleasure time in between work activities. Your plane fare, lodging and even meals can be written off if the expenses are made under working conditions. So, just because you have to meet with clients doesn’t mean you can’t enjoy a dip in the hotel pool.
Passive vs. Active Business Trips
There are two types of common work-related trips: passive and active. A passive trip is educational in nature, such as a software training or an industry conference. An active venture involves actual work functions, like business meetings or factory inspections. Expenses for both passive and active trips may be deducted on your taxes – but just make sure that you’re actually paying the bill for these items. In other words, don’t try to write off expenses that your company is covering.
The Acceptable and the Unsuitable
The IRS will allow some tax deductions while rejecting others. Examples of acceptable tax deductions while you’re out of town for work include:
- Your rental car
- Luggage fees
- Hotel wifi service
If you’re combining your vacation with work, you can still take the above deductions if they’re for work activities. What you don’t want to do is attempt to write off expenses for your friend, companion or relative as work-related (unless he or she is a legitimate co-worker). Here are some examples of what not to include:
- Mom’s pedicure while you’re meeting with potential clients
- The kids’ theme park tickets while you’re on conference calls
- Family dinner after your seminar
If your family is tagging along and sharing your hotel room while you’re on the clock, that’s completely acceptable, but don’t try writing off obvious leisure and non-work items. Most importantly, don’t forget to keep receipts for every individual item you write off. While you want to take every deduction you can, you also want to avoid making a fatal error on your return.
How to Play It Smart
It’s a good idea to ask for help when you’re writing off vacation expenses. If the IRS sees anything they perceive as questionable, you might be in for an uncomfortable discussion about your return. A licensed tax professional can help you prevent any IRS issues from mistaken deductions or resolve an existing tax issue.