Monday, February 29, 2016

Dan Murphy: Causes and costs of tax complexities



Daniel Murphy
This time of the year brings Vol basketball, National Signing Day, snowless school holidays, and prayers for warmer weather.
What a hopeful season until the stream of mail stamped "Tax Documents Enclosed" begins to arrive and we are promptly reminded that the fun is over and it is now "Tax Time in Tennessee!"
Only during tax season do otherwise productive persons spend their evenings and weekends searching for misplaced receipts, trying to make sense of their 1099s, 1098s, W-2s and K-1s, and deciphering various tax forms and instructions. More than once I have been asked, "How in the heck did our tax system get so complicated?"
The system was not always this complicated. When enacted in 1913, the income tax law was only 27 pages, whereas, today's law and regulations comprise almost 12,000 pages -- about seven times longer than the King James Bible.
The individual tax form 1040 was one page long, tax rates ranged from 1 percent to 7 percent, and less than 1 percent of American families paid any income tax. Interestingly, the public and press complained bitterly about the income tax's complexity and even the New York Times asked in 1920, "Why can't we have a simpler method?"
In its early years, the sole purpose of the income tax was to fund government spending. Beginning as early as the 1940s and accelerating in the 1980s, tax policy became less focused on balancing the budget and increasingly used to effect economic and social policy. Rewards, penalties, and incentives took a front seat to fiscal discipline as Congress expanded the number of targeted tax credits, deductions, and deferrals to favored groups and activities.
The result of this shift in policy has resulted in both an increase in tax complexity as well as financial and societal costs. An IRS study shows that almost 170 million individual tax returns were filed in 2012, with each return requiring an average of eight hours and a cost of $120 to prepare. This translates into a total compliance cost to individual taxpayers of more than $20 billion and 1.35 billion hours.
More fundamentally, tax complexity creates suspicion and distrust among taxpayers about their government. The current tax regime breeds public cynicism of Congress and furthers suspicion that the tax laws are written by and for the benefit of the wealthy.
When Congress wants more revenue, its options are straightforward: Increase tax rates and/or eliminate deductions and income deferrals. Because either approach has political risks, Congress has opted for a strategy of intentional confusion by raising revenues through deduction phaseouts, alternative minimum taxes, and expense limitations that are difficult even for experienced tax professionals to understand.
This strategy is used successfully by Congress to raise taxes without raising tax rates or repealing deductions. As noted by the former IRS Taxpayer Advocate, "Complexity matters because people don't know why they are getting the results they are getting."

Sunday, February 21, 2016

Consumers Warned of New Surge in IRS E-mail Schemes during 2016 Tax Season; Tax Industry Also Targeted



WASHINGTON - The Internal Revenue Service renewed a consumer alert for e-mail schemes after seeing an approximate 400 percent surge in phishing and malware incidents so far this tax season.
The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.
Variations of these scams can be seen via text messages, and the communications are being reported in every section of the country.
"This dramatic jump in these scams comes at the busiest time of tax season," said IRS Commissioner John Koskinen. "Watch out for fraudsters slipping these official-looking emails into inboxes, trying to confuse people at the very time they work on their taxes. We urge people not to click on these emails."
This tax season the IRS has observed fraudsters more frequently asking for personal tax information, which could be used to help file false tax returns.
When people click on these email links, they are taken to sites designed to imitate an official-looking website, such as IRS.gov. The sites ask for Social Security numbers and other personal information. The sites also may carry malware, which can infect people's computers and allow criminals to access your files or track your keystrokes to gain information.
The IRS has seen an increase in reported phishing and malware schemes, including:
  • There were 1,026 incidents reported in January, up from 254 from a year earlier.
  • The trend continued in February, nearly doubling the reported number of incidents compared to a year ago. In all, 363 incidents were reported from Feb. 1-16, compared to the 201 incidents reported for the entire month of February 2015.
  • This year's 1,389 incidents have already topped the 2014 yearly total of 1,361, and they are halfway to matching the 2015 total of 2,748.
"While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers," Koskinen said. "We continue to work cooperatively with our partners on this issue, and we have taken steps to strengthen our processing systems and fraud filters to watch for scam artists trying to use stolen information to file bogus tax returns."
As the email scams increase, the IRS is working on this issue through the Security Summit initiative with state revenue departments and the tax industry. Many software companies, tax professionals and state revenue departments have seen variations in the schemes.
For example, tax professionals are also reporting phishing scams that are seeking their online credentials to IRS services, for example the IRS Tax Professional PTIN System. Tax professionals are also reporting that many of their clients are seeing the e-mail schemes.
As part of the effort to protect taxpayers, the IRS has teamed up with state revenue departments and the tax industry to make sure taxpayers understand the dangers to their personal and financial data as part of the “Taxes. Security. Together” campaign.
If a taxpayer receives an unsolicited email that appears to be from either the IRS e-services portal or an organization closely linked to the IRS, report it by sending it to phishing@irs.gov.  Learn more by going to the Report Phishing and Online Scams page.
It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help protect taxpayers from email scams.
Phishing and malware schemes again made the IRS "Dirty Dozen" tax scam list this year. Check out the last IRS Phishing Scam news release for more info.
What to look for in these scams
Taxpayers receive an official-looking email from what appears to be an official source, whether the IRS or someone in the tax industry.
The underlying messages frequently ask taxpayers to update important information by clicking on a web link. The links may be masked to appear to go to official pages, but they can go to a scam page designed to look like the official page. The IRS urges people not to click on these links but instead send the email to phishing@irs.gov.
Recent email examples the IRS has seen include subject lines and underlying text referencing:
  • Numerous variations about people's tax refund.
  • Update your filing details, which can include references to W-2.
  • Confirm your personal information.
  • Get my IP Pin.
  • Get my E-file Pin.
  • Order a transcript.
  • Complete your tax return information.
Numbers provided are for phishing and malware incidents combined.
Additional IRS Resources:

Tuesday, February 2, 2016

Phone Scams Continue to be a Serious Threat, Remain on IRS “Dirty Dozen” List of Tax Scams for the 2016 Filing Season

WASHINGTON — Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, headlining the annual "Dirty Dozen" list of tax scams for the 2016 filing season, the Internal Revenue Service announced today.
The IRS has seen a surge of these phone scams as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.
"Taxpayers across the nation face a deluge of these aggressive phone scams. Don't be fooled by callers pretending to be from the IRS in an attempt to steal your money," said IRS Commissioner John Koskinen. “We continue to say if you are surprised to be hearing from us, then you're not hearing from us.”
"There are many variations. The caller may threaten you with arrest or court action to trick you into making a payment,” Koskinen added. “Some schemes may say you're entitled to a huge refund. These all add up to trouble. Some simple tips can help protect you."
The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so.
This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam.
"The IRS continues working to warn taxpayers about phone scams and other schemes," Koskinen said. "We especially want to thank the law-enforcement community, tax professionals, consumer advocates, the states, other government agencies and particularly the Treasury Inspector General for Tax Administration for helping us in this battle against these persistent phone scams."
Protect Yourself
Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email.
Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.
The IRS will never:
  • Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:
If you don’t owe taxes, or have no reason to think that you do:
  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" in the notes.
If you know you owe, or think you may owe tax:
  • Call the IRS at 800-829-1040. IRS workers can help you.
Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.