TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Wednesday, May 14, 2014

The IRS Scandal, Day 370

IRS Logo 2Power Line:  The IRS Scandal for Dummies:

Nixon’s efforts to misuse the IRS were futile. They went nowhere. Nixon and his henchmen desired the IRS to “screw” their political opponents, but their efforts were a pathetic failure.

Nixon henchman Jack Caulfield astutely complained that the IRS was a “monstrous bureaucracy…dominated and controlled by Democrats.” As we have come to see, Caulfield was on to something. By contrast with Nixon’s failures to misuse the IRS, the IRS has very effectively “screwed” Obama’s political opponents, and we have yet to learn what the president knew and when he knew it.

Continue reading

May 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, May 13, 2014

TIGTA: IRS Again Fails to Comply With Statutory Mandated Reduction in Improper Payments -- 26% EITC Fraud Costs $16 Billion/Year

TIGTA The Treasury Inspector General for Tax Administration today released The Internal Revenue Service Fiscal Year 2013 Improper Payment Reporting Continues to Not Comply With the Improper Payments Elimination and Recovery Act (2014-40-027):

The Improper Payments Elimination and Recovery Act (IPERA) of 2010 strengthened agency reporting requirements and redefined “significant improper payments” in Federal programs. The Office of Management and Budget has declared the Earned Income Tax Credit (EITC) Program a high-risk program that is subject to reporting in the Department of the Treasury Agency Financial Report. The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.

The IRS continues to not provide all required IPERA information to the Department of the Treasury for inclusion in the Department of the Treasury Agency Financial Report Fiscal Year 2013. For the third consecutive year, the IRS did not publish annual reduction targets or report an improper payment rate of less than 10 percent for the EITC. IRS management has indicated that the IRS and the Department of the Treasury are in continued discussions with the Office of Management and Budget to obtain its approval to develop supplemental measures that are appropriate to gauge the impact of EITC compliance and outreach efforts in lieu of developing error reduction targets. Finally, although risk assessments were performed for each of the programs that the Department of the Treasury required the IRS to assess, the risk assessment process still may not provide a valid assessment of improper payments in tax administration. As such, the EITC remains the only revenue program fund to be considered at high risk for improper payments.

TIGTA

TIGTA 2

May 13, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (2)

The IRS Scandal, Day 369

IRS Logo 2USA Today op-ed:  The Media Ignore IRS Scandal, by Paul L. Caron:

Today's news media are largely ignoring the IRS scandal, and it is impossible to have confidence in the current investigations by the FBI, Justice Department, and House committee. I am not suggesting that the current scandal in the end will rise to the level of Watergate. But the allegations are serious, and fair-minded Americans of both parties should agree that a thorough investigation needs to be undertaken to either debunk them or confirm them.

Step one should be to give Lois Lerner full immunity from prosecution in exchange for her testimony. And then let the chips fall where they may.

Rasmussen Reports:  57% Favor Further Investigation of the IRS:

Half of voters still believe the IRS broke the law when it targeted Tea Party and other conservative groups, and even more think the matter needs to be looked into further.

A new Rasmussen Reports national telephone survey finds that 57% of Likely U.S. Voters think the Obama administration’s handling of the IRS matter merits further investigation. Just half as many (28%) say the case should be closed. Fifteen percent (15%) are not sure. (To see survey question wording, click here.)

Continue reading

May 13, 2014 in IRS News, IRS Scandal | Permalink | Comments (4)

Monday, May 12, 2014

The IRS Scandal, Day 368

IRS Logo 2New York Post editorial:  Our Newly Efficient IRS:

Many of the press accounts we read suggest there is no scandal here unless the targeting of Americans for their conservative political beliefs can be tied back to President Obama or the White House.

We beg to differ. Wouldn’t it be even more frightening if a federal agency as powerful as the IRS on its own decided to use its vast powers to squelch others on the basis of politics and ideology?

Continue reading

May 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, May 11, 2014

The IRS Scandal, Day 367

Saturday, May 10, 2014

The IRS Scandal, Day 366

Friday, May 9, 2014

The IRS Scandal, Day 365

Continue reading

May 9, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Thursday, May 8, 2014

The IRS Scandal, Day 364

Continue reading

May 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Wednesday, May 7, 2014

The IRS Scandal, Day 363

IRS Logo 2Washington Post:  There Are Plenty of Smidgens in the IRS Scandal, by Ed Rogers:

Today, the House Rules Committee is considering a resolution recommending that former IRS official Lois Lerner be held in contempt for refusing to answer questions about her role in the IRS targeting of President Obama’s political opponents. It is likely that the resolution will pass, and then it will come to the floor for a full vote in the House. When it does, the vote to hold Lerner in contempt should be bipartisan – if not unanimous. Any Democrats who vote “no” should be labeled as enablers of obstruction of justice. It should be impossible for Democrats to defend a vote that could only serve to encourage more corruption and non-cooperation in the future. Of course Lerner had the right to plead the fifth, but that doesn’t mean Democrats should not pay a price for voting to bless her stonewalling.

In an interview with Fox News’ Bill O’Reilly in February, President Obama pre-empted his own Department of Justice investigation and declared that there was not a “smidgen of corruption” in the IRS scandal. Well, I think a senior official at the center of the allegations pleading the fifth constitutes a smidgen. It is not unfair to draw logical inferences from her continued refusal to cooperate with the investigation into the IRS targeting of conservative groups. To the best of my knowledge, no one in this White House has ever called on Lerner to cooperate. Why? Because they know it is not in their interest for her to cooperate. They hope she will continue her silence in comfortable retirement and that Republicans and the media will be intimidated into giving up. Or, at the very least, they hope they can run out the clock on the remainder of Obama’s term.

Meanwhile, at the Justice Department, the White House has built a firewall by appointing Obama donor Barbara Bosserman to head the investigation into the IRS affair. No smidgens here folks. Move along, nothing to see. Please. Someone in this Administration is guilty of manipulating the IRS – or, is guilty of knowing that the IRS was engaging in activities that targeted the president’s political opponents. There are smidgens lying all over the place.

Continue reading

May 7, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, May 6, 2014

IRS Seeks Grant Applications for Funding for TCE and VITA Programs

IRS Logo 2The IRS announced yesterday (IR-2014-60) that it is accepting grant applications for the Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) grant programs through June 2, 2014:

The TCE program was established in 1978 to provide tax counseling and return preparation to persons who are 60 or older. Volunteers who provide free federal income tax help to seniors nationwide receive free training and technical assistance.

The VITA program, created in 1969, provides free federal income tax filing assistance to underserved communities. The VITA Grant program was established in 2007 to supplement the VITA program. The grant program enables VITA to extend services to underserved populations in hard-to-reach urban and non-urban areas. It increases the taxpayer’s ability to electronically file returns, and enhances volunteer training to improve the accuracy rate of returns prepared at VITA sites.

May 6, 2014 in IRS News, Tax | Permalink | Comments (0)

Low Income Taxpayer Grant Recipients

LITC LogoThe IRS announced yesterday (IR-2014-61) that it has awarded nearly $10 million in matching grants to Low Income Taxpayer Clinics (LITCs) for the 2014 grant cycle (Jan. 1, 2014 through Dec. 31, 2014). Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations. For the 2014 grant cycle, the IRS awarded LITC grants to 133 organizations. For the full list of grant recipients, see here. For a list of the 37 law school tax clinic grant recipents, and the amount of their grants, see below the fold:

Continue reading

May 6, 2014 in IRS News | Permalink | Comments (1)

The IRS Scandal, Day 362

Monday, May 5, 2014

The IRS Scandal, Day 361

Sunday, May 4, 2014

The IRS Scandal, Day 360

Saturday, May 3, 2014

The IRS Scandal, Day 359

Friday, May 2, 2014

The IRS Scandal, Day 358

IRS Logo 2Power Line:  Bill Henck: Inside the IRS, Part 2:

William Henck has worked inside the IRS Office of the Chief Counsel as an attorney for over 26 years. We posted his personal account, including his testimony to a retaliatory audit conducted by the IRS against him, this past February in “Inside the IRS.” This post follows up on the matters discussed in that post. 

IRS executives are confident in their lack of accountability because the decision makers in Washington will not hold them accountable. Ordinary people understand that misconduct and corruption in the national tax collection agency is a critical problem. They also understand the difference between right and wrong. Ordinary people, however, are not running things.

Continue reading

May 2, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, May 1, 2014

The IRS Scandal, Day 357

Wednesday, April 30, 2014

The IRS Scandal, Day 356

Tuesday, April 29, 2014

The IRS Scandal, Day 355

Monday, April 28, 2014

The IRS Scandal, Day 354

Sunday, April 27, 2014

The IRS Scandal, Day 353

IRS Logo 2House Committee on Oversight Press Release, Oversight Committee Probes Justice Department Role in IRS Targeting:

House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) and sixteen Oversight Committee members asked Department of Justice Attorney General Eric Holder to produce documents and a Justice Department official for a transcribed interview to explain why his agency would consider prosecution of tax-exempt groups already improperly targeted by the Internal Revenue Service (IRS).  Last week, Judicial Watch released IRS documents showing former IRS official Lois Lerner in contact with Justice Department about potential prosecution of tax-exempt groups.

A previously unreleased e-mail related to last week’s FOIA release by Judicial Watch reveals that the Justice Department employee did not reach out to Lerner on his own. Instead, Richard Pilger, Director of the Election Crimes Branch of the Department’s Public Integrity Section, noted via e-mail to Lerner on May 8th 2013, “I have been asked to run something by you.” The e-mail does not indicate who had asked Pilfer to contact Lerner. Additionally, the letter notes that the Department considered prosecuting these groups for actions that are legal for 501(c)(4) nonprofits under federal tax law – that is, engaging in political speech.

The members wrote: “Mr. Pilger’s communications with Ms. Lerner are also striking for their timing.  They show that the IRS and the Justice Department were actively considering efforts to target tax-exempt organizations just two days before Ms. Lerner’s public apology for the targeting. This information certainly undermines the sincerity of Ms. Lerner’s apology, but it calls into question your reaction that targeting was ‘outrageous’ and ‘unacceptable.’  These comments ring hollow in light of evidence that your subordinates apparently colluded with the IRS to target nonprofit groups less than a week before.

Letter From Darrell Issa to Eric Holder (Apr. 23, 2014):

The Committee on Oversight and Government Reform continues to examine the Interna Revenue Service's targeting of conservative tax-exempt appl icants.  We are deeply dismayed that the Department of Justice may have contributed to this inappropriate treatment by considering prosecution of tax-exempt groups engaged in political speech.  This information, released by Judicial Watch, damages the integrity of the Department and tµldennines its fundamental mission of "fair and im partial admi nistration of justice for all Americans."  We request your assistance as we examine this matter.

We are severel y disappointed in the Department's apparent contribution to the Administration's targeti ng of tax-exempt applicants. With your constant remi nders about the Department's limited criminal justice resources, we would have hoped that the Department would better focus its prosecutorial resources. To examine fully the Department's apparent role in targeting tax-exempt applicants and the Department's coordination with the IRS on this matter, we ask that you produce the following material as soon as possi ble, but no later than May 5, 2014.

Continue reading

April 27, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, April 26, 2014

The IRS Scandal, Day 352

IRS Logo 2Tax Analysts Blog:  The IRS and the Tax System: Integrity and Fairness for Whom?, by Christopher Bergin:

There are many people who no doubt would like to harm the IRS. Some of that comes with the territory –- after all, most taxpayers dislike the tax collector. But right now, the one hurting the IRS the most is the IRS itself. In the latest bonehead maneuver from the IRS, the Treasury Inspector General for Tax Administration issued a report this week that revealed that agency employees with conduct and tax compliance problems received bonuses and awards. ...

Are you kidding me?! ...

The IRS’s mission statement couldn’t be clearer:

Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

If some of the tax cops aren’t playing by the rules – and getting bonuses for it – how does that provide us taxpayers “top quality service” and help us understand and meet our tax responsibilities? The two most important words in this mission statement are “integrity” and “fairness.” The one thing largely missing from our tax code is fairness. And the one thing now beginning to disappear from the agency charged with administering that tax code is integrity.

Continue reading

April 26, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Friday, April 25, 2014

IRS Shuts Down Killer B Repatriations (Again)

IRS Logo 2The IRS today released Notice 2014-32,  2014-20 I.R.B. ___ (May 12, 2014):

Notice 2014-32 announces modifications and clarifications to the regulations under section 367(b) of the Internal Revenue Code relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving foreign corporations (colloquially referred to as the “Killer B regulations”). The notice eliminates the deemed contribution model under the existing regulations. In addition, the notice modifies the amount of income and gain taken into account for purposes of applying the priority rules of section 367(a) and (b). Further, the notice clarifies the application of the anti-abuse rule.

(Hat Tip: Brian Davis)

April 25, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 351

Thursday, April 24, 2014

The IRS Scandal, Day 350

Wednesday, April 23, 2014

TIGTA: IRS Gave $1 Million in Cash Bonuses to 1,100 Employees Who Owe Back Taxes

TIGTA The Treasury Inspector General for Tax Administration has released The Awards Program Complied With Federal Regulations, but Some Employees With Tax and Conduct Issues Received Awards (2014-10-007):

[B]etween October 1, 2010 and December 31, 2012, more than 2,800 employees with recent substantiated conduct issues resulting in disciplinary action received more than $2.8 million in monetary awards, more than 27,000 hours in time-off awards, and 175 quality step increases. Among these, more than 1,100 IRS employees with substantiated Federal tax compliance problems received more than $1 million in cash awards, more than 10,000 hours in time-off awards, and 69 quality step increases within a year after the IRS substantiated their tax compliance problem.

With few exceptions, the IRS does not consider tax compliance or other misconduct when issuing performance awards or most other types of awards. Governmentwide policies do not provide guidance on providing awards to employees with conduct issues. The IRS Restructuring and Reform Act of 1998 does not specifically mention awards, but does make mandatory the removal of IRS employees who are found to have intentionally committed certain acts of misconduct, including willful failure to pay Federal taxes. Thus, while not specifically prohibited, providing awards to employees with conduct issues, especially those who fail to pay Federal taxes, appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration. 

TIGTA

April 23, 2014 in IRS News, Tax | Permalink | Comments (2)

GAO: Budget Cuts Hurt IRS's Performance

GAO,  GAO LogoInternal Revenue Service: Absorbing Budget Cuts Has Resulted in Significant Staffing Declines and Uneven Performance (GAO-14-534) (Apr. 21, 2014):

IRS’s appropriations have declined to below fiscal year 2009 levels and FTEs have been reduced by about 8,000 since fiscal year 2009. Planned performance in enforcement and taxpayer service has decreased or fluctuated; for example, in the fiscal year 2014 congressional justification the audit coverage target for individual examinations was 1.0 percent for fiscal year 2014, however, the target was lowered to 0.8 percent in the fiscal year 2015 congressional justification. Amidst lower demand, IRS’s telephone level of service performance (the percentage of callers seeking live assistance and receiving it) was 73 percent from January 1 through March 15, 2014 compared to 69 percent during the same period last year. However, between fiscal years 2009 and 2013, IRS’s telephone level of service fluctuated between 61 percent and 74 percent. Average wait times have almost doubled since fiscal year 2009—from 8.8 minutes to 16.8 minutes as of mid-March 2014.

Not including other budgetary resources such as user fees, the fiscal year 2015 budget request for IRS is $12.5 billion, which is an increase of 10.5 percent ($1.2 billion) in funding and 8.3 percent in staffing (6,998 FTEs) over fiscal year 2014. According to the President’s budget, of the requested $1.2 billion, $480 million is predicated on a cap adjustment—funding above the discretionary spending limit—and largely covers enforcement and infrastructure initiatives. IRS’s workload has increased as a result of legislative mandates and priority programs, such as work related to the Patient Protection and Affordable Care Act and identity theft.

IRS has absorbed approximately $900 million in budget cuts since fiscal year 2010 through savings and efficiencies and by reducing, delaying, or eliminating services. For example, IRS delayed two information technology projects (Information Reporting and Document Matching and Return Review Program) and substantially reduced employee training. To help improve operations, the President requested a large budget increase for IRS in fiscal year 2015. However, additional funding is not the only solution. We have open recommendations on IRS’s operations that may help it achieve efficiencies over time, such as developing a long-term plan to improve web services.

IRS Enacted Appropriations, FY 2009-2014, and Fiscal Year 2015 Request

Continue reading

April 23, 2014 in Congressional News, Gov't Reports, IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 349

Tuesday, April 22, 2014

WSJ: IRS Whistleblower Awards, Amounts Fell in 2013

Following up on my previous post, IRS Whistleblower Office Issues Annual Report to Congress:  Wall Street Journal, IRS Pays Awards to Whistleblowers, by Laura Saunders:

IRS Whistleblower (2014)The IRS paid $53 million in awards to whistleblowers in fiscal 2013 and collected $367 million based on information provided by tipsters, according to the agency's latest report to Congress. ...

The IRS has two whistleblower programs. One, which has existed for decades, makes payments as high as 15% of tax collected and now applies in cases involving less than $2 million of tax. The other, enacted in 2006, makes payments of up to 30% of tax collected and is for cases involving tax of $2 million or more. The agency reports combined dollar amounts for awards and collections from the two programs.

WSJ Chart

April 22, 2014 in IRS News, Tax | Permalink | Comments (3)

The IRS Scandal, Day 348

Monday, April 21, 2014

TRAC-IRS Releases Tax Enforcement Data

GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

GAO LogoFollowing up on my previous post, David Cay Johnston, How to Cheat on Your Taxes: the Government Accountability Office has released Characteristics of Population and IRS Audits (GAO-14-379R):

This report provides data on the number and characteristics of large partnerships as well as Internal Revenue Service (IRS) audits of large partnership returns. For purposes of this report, GAO did not identify a statutory, IRS, or industry-accepted definition of a large partnership. Instead, GAO used a combination of criteria for partner size and asset size used by IRS to define large partnerships as those that reported having 100 or more direct partners and $100 million or more in assets. The number of large partnerships increased from 720 in tax year 2002 to 2,226 in tax year 2011. Large partnerships also increased in terms of the average number of direct partners and average asset size. IRS had data on two categories of large partnership return audits. First, the number of completed field audits of large partnership returns increased from 11 in fiscal year 2007 to 31 in fiscal year 2013. Second, IRS counted audits closed through its campus function, which increased from 42 to 143 over the same period. Unlike field audits, campus function audits generally do not entail a review of the books and records of the large partnership return but rather were opened to pass through large partnership return audit adjustments to the related partners' returns. The percentage of IRS audits that resulted in no change to the taxpayer's return varied from fiscal year 2007 to 2013 but was 52 percent for campus function audits and 45 percent for field audits in fiscal year 2013.

April 21, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 347

Sunday, April 20, 2014

Tax Court: 'Taxpayers Rely on IRS Guidance at Their Peril'

Forbes:  'Taxpayers Rely on IRS Guidance at Their Own Peril,' Tax Judge Rules, by Janet Novack:

Tax Court Logo 2Taxpayers rely on IRS guidance at their own peril,” Judge Joseph W. Nega wrote in an order entered on April 15th —an order [No, 7022-11 (Apr. 15, 2014)] denying a motion that he reconsider his earlier decision [T.C. Memo. 2014-21 (Jan. 28, 2014)] to penalize tax lawyer Alvan L. Bobrow [Partner, Mayer Brown, New York] for making an IRA rollover move that IRS Publication 590, Individual Retirement Arrangements (IRAs), says is allowed. Technically, Nega denied the motion as moot, since Bobrow and his wife Elisa had reached a settlement with the government. But the judge wrote in his order that IRS guidance isn’t “binding precedent” or even sufficient “substantial authority” to get a taxpayer excused from penalties if he follows that guidance and the IRS’s interpretation of the tax law turns out to be wrong.

Huh? Sound unfair? Some of the nation’s most prominent tax lawyers sure think so. In a friend of the court brief urging Nega to reconsider his original decision, the Board of Regents of the American College of Tax Counsel had argued that it undermines public confidence in the tax system to tell taxpayers who have followed the IRS’ own guidance that they “have made an error with potentially catastrophic financial consequences.” Nega was unimpressed. He cited in his order Tax Court and Appeals Court decisions holding that IRS published guidance doesn’t count in court and added that he had been well aware of what Pub 590 said before his original ruling.

Continue reading

April 20, 2014 in IRS News, Tax | Permalink | Comments (4)

The IRS Scandal, Day 346

IRS Logo 2Washington Post op-ed:  Regulatory Overkill, by George F. WIll:

This case, which comes from Cincinnati, where the regional IRS office was especially active in suppressing the political speech of conservative groups, involves the intersection of two ominous developments. One is the inevitable, and inevitably abrasive, government intrusions into sensitive moral issues that come with government's comprehensive and minute regulation of health care with taxes, mandates and other coercions. The Supreme Court will soon rule on one such controversy, the ACA requirement that employer-provided health care plans must cover the cost of abortifacients. The other development is government's growing attempts to regulate political speech, as illustrated by the Obama administration's unapologetic politicization of the IRS to target conservative groups.

These developments are not coincidental. Government's increasing reach and pretensions necessarily become increasingly indiscriminate.

Continue reading

April 20, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Saturday, April 19, 2014

IRS Uses Private Company to Track Taxpayer License Plates

Bloomberg, IRS Among Agencies Using License Plate-Tracking Vendor:

IRSThe IRS and other U.S. agencies awarded about $415,000 in contracts to a license plate-tracking company before Homeland Security leaders dropped a plan for similar work amid privacy complaints. Federal offices such as the Forest Service and the U.S. Air Force’s Air Combat Command chose Livermore, California-based Vigilant Solutions to provide access to license plate databases or tools used to collect plate information, according to government procurement records compiled by Bloomberg.  ...

“Especially with the IRS, I don’t know why these agencies are getting access to this kind of information,” said Jennifer Lynch, a senior staff attorney with the Electronic Frontier Foundation, a San Francisco-based privacy-rights group. “These systems treat every single person in an area as if they’re under investigation for a crime -- that is not the way our criminal justice system was set up or the way things work in a democratic society.”

Continue reading

April 19, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 345

Friday, April 18, 2014

58,000 IRS Computers Are Still Running Windows XP; IRS Says It Is Paying Microsoft $9/Computer for Security Patches, 95% Less Than Cost to Others

Following up on my previous post, IRS Computers Are Still Running Windows XP, Confidential Taxpayer Data Is At Risk:  Computer World, IRS Misses XP deadline, Will Spend $30M to Upgrade Remaining PCs:

XPThe IRS acknowledged last week that it missed the April 8 cut-off for Windows XP support and will be paying Microsoft for an extra year of security patches. But the tax agency disputed an earlier estimate by Computerworld that put the cost of those patches in the millions, saying that it was paying Microsoft "less than $500,000" for the after-retirement support.

Microsoft terminated Windows XP support on Tuesday when it shipped the final public patches for the nearly-13-year-old operating system. Without patches for vulnerabilities discovered in the future, XP systems will be at risk from cyber criminals who hijack the machines and plant malware on them. ...

According to the IRS, it has approximately 110,000 Windows-powered desktops and notebooks. Of those, 52,000, or about 47%, have been upgraded to Windows 7. The remainder continue to run the now retired XP. ...

John Koskinen, the commissioner of the IRS, defended the unfinished migration at the hearing, saying that his agency had $300 million worth of IT improvements on hold because of budget issues. One of those was the XP-to-7 migration. ... But he stressed that the migration had to continue. "Windows XP will no longer be serviced, so we are very concerned if we don't complete that work we're going to have an unstable environment in terms of security," Koskinen said.

Koskinen concurred with Crenshaw's $30 million figure as the cost for upgrading the IRS's remaining Windows XP systems. The money will be taken from the agency's enforcement budget. Part of that $30 million will be payment to Microsoft for what the Redmond, Wash., developer calls "Custom Support," a program that provides patches for critical vulnerabilities in a retired operating system.

Earlier this year, analysts said Microsoft had dramatically raised prices for Custom Support. ... Microsoft negotiates each contract separately, asking for an average of $200 per PC for the first year of Custom Support, those analysts said. Using that average -- and the number of PCs the IRS admitted were still running XP -- Computerworld estimated that the IRS would pay Microsoft $11.6 million for one year of Custom Support. Late Friday, however, the IRS disputed that estimate. An agency source said that the IRS was paying Microsoft less than $500,000 for Custom Support on its remaining 58,000 Windows XP PCs, or about $9 each. According to the source, the exact figure will be disclosed at a later date.

April 18, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 344

IRS Logo 2Above the Law:  Should ‘Campaign For Liberty’ Have Called Itself ‘Campaign For Progress’ Instead?:

Campaign for Liberty, Ron Paul’s 501(c)(4) organization, announced this week that it’s actually pretty sure that its tax recent filings are incomplete, even if true and correct. (Two out of three ain’t bad?) According to C4L, the organization refused to divulge the names of its donors when it filed its IRS 990 forms. The IRS fined Campaign for Liberty just shy of $13,000, plus growing interest for each day the fine goes unpaid. ...

Megan Stiles, the communications director at Campaign for Liberty, told the Washington Examiner in an email on Tuesday:  There is no legitimate reason for the IRS to know who donates to Campaign for Liberty. The IRS technically requires donor information from 501(c)(4) organizations and is forbidden by law from releasing it to the public, yet despite this they have ‘mistakenly’ released the information repeatedly over the years. Often these leaks have been made to political opponents of the conservative groups whose information was leaked. Leaking the donor information is intended to harass and to intimidate those donors from donating to political causes. Campaign for Liberty has refused to provide donor information to the IRS to protect the privacy of our members. Now the IRS has demanded the information and fined Campaign for Liberty for protecting its members’ privacy. ...

[C]an you blame them for being skeptical of how the IRS will treat them and their donors? It’s been a year since the Treasury Inspector General for Tax Administration conceded that the IRS used “inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based on their names or policy positions instead of indications of potential political campaign intervention.” President Obama himself has in the past used donor lists to publicly chastise private citizens who oppose him politically.

The investigation by the House Oversight and Government Reform Committee crawls along with all the deliberate speed of a patient on Seconal. However, Judicial Watch released yesterday a new batch of internal IRS emails showing that former IRS official Lois Lerner communicated with the Department of Justice on strategies for targeting 501(c)(4) groups. Even as Lerner broke the news of the IRS scandal by blaming “low-level” employees in Cincinnati, Lerner was still consulting with the DOJ about how the targeted organizations could be prosecuted. There’s mounting evidence to support conservative concerns about the political nature of the IRS.

In November, the IRS proposed changes to the rules governing 501(c)(4) organizations. The changes would constrict the political activity of groups claiming this tax-exempt status and require them to disclose their donors. The proposal elicited a record-breaking 169,000 public comments. IRS Commissioner John Koskinen told USA Today on Monday that, given the extraordinary number of comments, “In all likelihood we will re-propose a redefined rule and ask for more public comment.” He predicted that the process would not be complete “until the end of the year and beyond.”

Conservatives like Senate Minority Leader Mitch McConnell (R-Ky.) have opposed these changes, unsurprisingly. However, even the ACLU has criticized the proposed rules as unduly burdensome on First Amendment rights. It’s not only conservatives who should be wary about not only what the IRS has done in the past, but also what it aims to do in the future.

Can you blame Campaign for Liberty for not wanting to expose its private-citizen donors to retribution, even if that means disregarding IRS demands? Perhaps we should just ask former Mozilla CEO Brendan Eichwhat the consequences of disclosure might be.

Continue reading

April 18, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Thursday, April 17, 2014

The IRS Scandal, Day 343

IRS Logo 2U.S. News & World Report: The IRS Scandal's Smoking Gun?:

The so-called “smoking gun” proving the Internal Revenue Service played politics with conservative groups seeking official non-profit, social welfare status over the last several years may finally have been found.

In a rash of documents provided under the Freedom of Information Act to Judicial Watch, a non-partisan public interest law group, is an April 2013 email written by David Fish, acting manager of IRS Exempt Organizations Technical Guidance and Quality Assurance and sent to, among others, former IRS Director of Exempt Organizations Lois Lerner. It was part of a thread discussing a recent U.S. Senate hearing on the potential for the abuse of the 501(c)(4) tax status by organizations intervening inappropriately or improperly in candidate elections.

Responding to a message “What can I say?” from Lerner, Fish responds, “Tell Ruth she needs to get on the stick and that the next election cycle is around the corner. This is obviously a wonderful idea (that’s why we suggested it). I think you told Greg all you can tell him, unless you want to tell him that we’re taking guidance plan suggestions.”

The email is dated April 15, 2013 – well after initial allegations that the IRS had “slow-walked” the applications of conservative groups had been made and, by the agency, denied.

The “Ruth” mentioned in the message refers to Ruth Madrigal, an official at the U.S. Treasury Department. The “Greg” mentioned in Fish’s message is apparently a San Francisco-based attorney named Gregory Colvin, who started this chain with an e-mail to Lerner and Madrigal letting them know he has just testified before the Senate Judiciary Subcommittee on Crime and Terrorism on the issue of whether officers of (c)(4) organizations who made false statements under penalty of perjury on tax returns “could be criminally prosecuted.”

The Obama administration has insisted from the beginning that conservative groups were not singled out and that electoral considerations did not factor into what clearly went on. They prefer to adhere to the fiction that anything untoward that occurred generated spontaneously in branch offices among low level staff and not at the direction of anyone in Washington.

The particular mention by Fish of the idea that “the next election cycle is around the corner” seems to any reasonable person to confirm or at least suggest higher-ups at the IRS including Lerner knew exactly what they were doing, had used their positions for partisan political purposes, and were continuing to do so even though the word about what they were doing had leaked out....

[C]ongressional investigators need to refocus, to cast a wider net and make sure all the documents they asked for were actually turned over. If they weren’t, then it would seem reasonable to conclude a cover-up had in fact occurred and may be a bigger thing than the underlying crime.

Rather than slow down its efforts and wind them up, congressional committees investigating what the IRS actually did and finding what other federal agencies – if any – it worked with to subvert the constitutionally protected rights to freedom of speech and association need to go into high gear. The upcoming summer recess would be the perfect time to focus on it since there will be nothing else going on in town.

Continue reading

April 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (7)

Wednesday, April 16, 2014

The Fluctuating Math Errors in Americans’ Tax Returns

538FiveThirtyEight:  The Fluctuating Math Errors in Americans’ Tax Returns:

Seeing as Tuesday night is the deadline for filing tax returns, and seeing as data is FiveThirtyEight’s raison d’être, I was excited to find a set of statistics titled “Math Errors on Individual Income Tax Returns, by Type of Error.” Even better, that data has been published for tax years from 2001 to 2012.

It’s unsurprising that some Americans make mistakes on their taxes; the 1040 form (the primary tax form) has 77 line items, as well as a 189-page appendix of instructions. But Internal Revenue Service data shows that math mistakes — potentially an indication of how confusing that form is — have changed a lot over time.

chalabi-math-errors

Why does the number of errors fluctuate so much? ...

Moving from facts to theory, the decrease in errors since 2009 might also partly be explained by the increase in use of TaxACT, TaxSlayer, TurboTax and other online filing services. That assumes that such providers are less prone to mistakes than alternative solutions, such as Americans calculating their own taxes or using traditional accountants. The National Taxpayers Union has claimed that is not a safe assumption.

(Hat Tip: David Herzig.)

April 16, 2014 in IRS News, Tax | Permalink | Comments (4)

The IRS Scandal, Day 342

Tuesday, April 15, 2014

The IRS Scandal, Day 341

Monday, April 14, 2014

The IRS Scandal, Day 340

IRS Logo 2National Review:  Woodward on IRS Scandal: ‘There’s Obviously Something Here’:

The Washington Post’s Bob Woodward knows a thing or two about investigating Washington scandals, and he believes the Internal Revenue Service’s targeting of conservative groups merits a deeper look.

“We should dig in to it — there should be answers,” he said on Fox News Sunday. “For the president to take that position is very, very unusual and say there’s not a ’smidgen of evidence here.’”

Woodward raised questions about the Republican House committees’ ability to properly and effectively carry out such an investigation. He laid out what his approach would be to dealing with stonewalling from Lois Lerner, as well as the administration, including speaking with others close to the situation rather than just the major players. But Woodward also warned of congressional Republicans’ crossing the line in their accusations of Lerner and others involved.

“There’s obviously something here,” he explained. “The question is, does this committee know how to investigate.”

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

Continue reading

April 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, April 13, 2014

The IRS Scandal, Day 339

Saturday, April 12, 2014

IRS Debunks Tax Protester Arguments

IRS Logo 2The IRS yesterday released (IR-2014-51) its annual update of The Truth about Frivolous Tax Arguments:

This document describes and responds to some of the common frivolous arguments made by individuals and groups who oppose compliance with the federal tax laws. The first section groups these arguments under five general categories, with variations within each category. Each contention is briefly explained, followed by a discussion of the legal authority that rejects the contention.

A. The Voluntary Nature of the Federal Income Tax System

  1. Contention: The filing of a tax return is voluntary
  2. Contention: Payment of tax is voluntary
  3. Contention: Taxpayers can reduce their federal income tax liability by filing a “zero return”
  4. Contention: The IRS must prepare federal tax returns for a person who fails to file
  5. Contention: Compliance with an administrative summons issued by the IRS is voluntary

B. The Meaning of Income: Taxable Income and Gross Income

  1. Contention: Wages, tips, and other compensation received for personal services are not income
  2. Contention: Only foreign-source income is taxable
  3. Contention: Federal Reserve Notes are not income
  4. Contention: Military retirement pay does not constitute income

C. The Meaning of Certain Terms Used in the Internal Revenue Code

  1. Contention: Taxpayer is not a “citizen” of the United States, thus not subject to the federal income tax laws
  2. Contention: The “United States” consists only of the District of Columbia, federal territories, and federal enclaves
  3. Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws
  4. Contention: The only “employees” subject to federal income tax are employees of the federal government

D. Constitutional Amendment Claims

  1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
  2. Contention: Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment
  3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment
  4. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment
  5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional
  6. Contention: The Sixteenth Amendment does not authorize a direct nonapportioned federal income tax on United States citizens

E. Fictional Legal Bases

  1. Contention: The Internal Revenue Service is not an agency of the United States
  2. Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act
  3. Contention: African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment
  4. Contention: Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime
  5. Contention: An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes
  6. Contention: A “corporation sole” can be established and used for the purpose of avoiding federal income taxes
  7. Contention: Taxpayers who did not purchase and use fuel for an off-highway business can claim the fuels tax credit
  8. Contention: A Form 1099-OID can be used as a debt payment option or the form or a purported financial instrument may be used to obtain money from the Treasury

The second section responds to some of the common frivolous arguments made in collection due process cases brought pursuant to sections 6320 and 6330. These arguments are grouped under ten general categories and contain a brief description of each contention followed by a discussion of the correct legal authority. A final section explains the penalties that the courts may impose on those who pursue tax cases on frivolous grounds. The court opinions cited as relevant legal authority illustrate how these arguments are treated by the IRS and the courts. Note that courts often decline “to refute [frivolous] arguments with somber reasoning and copious citation of precedent” for a variety of reasons. Wnuck v. Commissioner, 136 T.C. 498 (2011) (quoting Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)).

This document, including the relevant legal authorities cited, is not intended to provide an exhaustive list of frivolous tax arguments. Merely because a frivolous argument is not included in this document does not mean that it is not frivolous. Taxpayers may not rely on frivolous arguments to avoid or evade federal taxes. The government and courts are not precluded from penalizing taxpayers who raise a frivolous argument not addressed in this document.

April 12, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 338

IRS Logo 2Tax Analysts Blog: The Gift That Is Lois Lerner, by Christopher Bergin:

[W]hen you see all of what the Ways and Means Committee compiled about Lerner, it hardly paints a pretty picture of her. To me, it certainly shows that she did many stupid things and that she probably abused her power as a high-ranking IRS official. Did she break the law? I don’t know, but that is why I agree with Ways and Means Republicans that there should be a Justice Department investigation – although I thought one was already going on. ...

The bad behavior going on at the IRS – whether it is politically motivated or not – does not stop with Lerner. It has to go higher than that. How much higher, I do not know, but that’s yet another reason why we need an investigation – a real one.

And that is why I think the Ways and Means Republicans are doing the IRS – and, perhaps, the Obama administration – a huge favor. Making Lerner the scapegoat changes the conversation. It makes it about her. It’s not about her. It’s about the IRS. Something bad happened here. And however bad her behavior, the problem isn’t Lerner. The problem is a culture that allows what she did to continue and that probably allows behavior that’s much, much worse. That is what new IRS Commissioner John Koskinen must deal with.

And here is where I agree to some degree with Ways and Means Democrats. The GOP committee members have become so obsessed with the political dimensions of this scandal that they are forgetting their job -- a job they actually explain at the top of the letter to the DOJ. Their job is not to fix blame; it’s to fix the problem. Their job is not to destroy the IRS; it is to protect the rights of ALL American taxpayers. This scandal isn’t about Lerner; it’s about our tax system. If all of this goes to the White House, so be it. But it’s about getting to the truth, not getting to the president of the United States. You’d think the GOP would have learned that from Monica Lewinsky. Think what you want about that so-called scandal, but I think this so-called scandal poses a far bigger threat to the country.

Continue reading

April 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Friday, April 11, 2014

The IRS Scandal, Day 337

CNN:  Should Lois Lerner Be Held In Contempt?:

CNN Crossfire

Continue reading

April 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, April 10, 2014

The IRS Scandal, Day 336

Continue reading

April 10, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, April 9, 2014

IRS Computers Are Still Running Windows XP, Confidential Taxpayer Data Is At Risk

Washington Post:  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline:

XPMicrosoft on Tuesday stopped providing free support and security updates for Windows XP. The long-planned expiration of the popular operating systems has sent millions of users scrambling to upgrade their computer systems.

Among who still that need to make the transition is the Internal Revenue Service, which has yet to complete its migration away from Windows XP, less than a week ahead of its own important deadline: Tax Day.

The agency is "struggling" to find $30 million dollars to complete its move to Windows 7, according to Rep. Ander Crenshaw (R. - Fla.), chairman of the financial services and general government subcommittee. During a hearing on IRS budget Monday, Crenshaw questioned why the agency had not prioritized the move "even though Microsoft announced in 2008 that it would stop supporting Windows XP past 2014."

IRS Commissioner John Koskinen defended the agency's efforts, noting that it has been operating amid budget uncertainty for years. The migration to Windows 7 was just one of nearly $300 million dollars worth of information technology projects that has not been completed due to funding shortfalls, he said.

"You're exactly right," Koskinen said of the timing. "It's been some time where people knew Windows XP was going to disappear." But testifying just a day before Microsoft ended support for the operating system, he conceded the agency was still trying to finish up the transition. "So we are very concerned that if we don't complete that work, we're going to have an unstable environment in terms -- in terms of security."

The GAO yesterday released IRS Needs to Address Control Weaknesses That Place Financial and Taxpayer Data at Risk (GAO-14-405):

GAOThe IRS continued to make progress in addressing information security control weaknesses and improving its internal control over financial reporting; however, weaknesses remain that could affect the confidentiality, integrity, and availability of financial and sensitive taxpayer data. During fiscal year 2013, IRS management devoted attention and resources to addressing information security controls, and resolved a number of the information security control deficiencies that were previously reported by GAO. However, significant risks remained. Specifically, the agency had not always (1) installed appropriate patches on all databases and servers to protect against known vulnerabilities, (2) sufficiently monitored database and mainframe controls, or (3) appropriately restricted access to its mainframe environment. In addition, IRS had allowed individuals to make changes to mainframe data processing without requiring them to follow established change control procedures to ensure changes were authorized, and did not configure all applications to use strong encryption for authentication, increasing the potential for unauthorized access.

An underlying reason for these weaknesses is that IRS has not effectively implemented portions of its information security program. The agency has established a comprehensive framework for the program, and continued to improve its controls; however, components of the program did not always function as intended. For example, IRS's testing procedures over financial reporting systems were not always thorough in that its testing methodology did not always determine whether required controls were operating effectively. In addition, IRS had not updated key mainframe policies and procedures to address issues such as users accessing files used by one processing environment from a different environment. Further, IRS did not include sufficient detail in its authorization procedures to ensure that access to systems was appropriate.

Until IRS takes additional steps to (1) more effectively implement its testing and monitoring capabilities, (2) ensure that policies and procedures are updated, and (3) address unresolved and newly identified control deficiencies, its financial and taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure. These deficiencies, including shortcomings in the information security program, were the basis of our determination that IRS had a significant deficiency in its internal control over its financial reporting systems for fiscal year 2013.

April 9, 2014 in IRS News, Tax | Permalink | Comments (0)