IRS Adopts Taxpayer Bill of Rights

  • By lemaster
  • 10 Sep, 2015
Washington, D.C. (June 10, 2014)

By Michael Cohn, Editor-in-Chief, AccountingToday.com

The Internal Revenue Service has adopted a “Taxpayer Bill of Rights” that it said would become a cornerstone document to provide the nation’s taxpayers with a better understanding of their rights.

The Taxpayer Bill of Rights takes multiple existing rights that have already been included in the Tax Code and groups them into 10 broad categories, making them more visible and easier for taxpayers to find on IRS.gov.

Publication 1, “Your Rights as a Taxpayer,” has been updated with the 10 rights and will be sent to millions of taxpayers this year when they receive IRS notices on issues ranging from audits to collection. The rights will also be publicly visible in all IRS facilities for taxpayers and employees to see.

“The Taxpayer Bill of Rights contains fundamental information to help taxpayers,” said IRS Commissioner John A. Koskinen in a statement. “These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before.”
The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service, an independent office inside the IRS that represents the interests of U.S. taxpayers. Since 2007, adopting a Taxpayer Bill of Rights has been a goal of National Taxpayer Advocate Nina E. Olson, and it was listed as the Advocate’s top priority in her most recent Annual Report to Congress.

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,’” Olson said. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

The Tax Code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are:

1. The Right to Be Informed
2. The Right to Quality Service
3. The Right to Pay No More than the Correct Amount of Tax
4. The Right to Challenge the IRS’s Position and Be Heard
5. The Right to Appeal an IRS Decision in an Independent Forum
6. The Right to Finality
7. The Right to Privacy
8. The Right to Confidentiality
9. The Right to Retain Representation
10. The Right to a Fair and Just Tax System

The rights have been incorporated into a redesigned version of Publication 1, a document that is routinely included in IRS correspondence with taxpayers. Millions of these mailings go out each year. The new version has been added to IRS.gov, and print copies will start being included in IRS correspondence in the near future.

The timing of the updated Publication 1 with the Taxpayer Bill of Rights is critical because the IRS is in the peak of its correspondence mailing season as taxpayers start to receive follow-up correspondence from the 2014 filing season. The publication initially will be available in English and Spanish, and updated versions will soon be available in Chinese, Korean, Russian and Vietnamese.

The IRS has also created a special section of IRS.gov to highlight the 10 rights. The web site will continue to be updated with information as it becomes available, and taxpayers will be able to easily find the Bill of Rights from the front page. The IRS internal web site for employees is adding a special section so people inside the IRS have easy access as well.
As part of this effort, the IRS will add posters and signs in coming months to its public offices so taxpayers visiting the IRS can easily see and read the information.

“This information is critically important for taxpayers to read and understand,” Koskinen said. “We encourage people to take a moment to read the Taxpayer Bill of Rights, especially when they are interacting with the IRS. While these rights have always been there for taxpayers, we think the time is right to highlight and showcase these rights for people to plainly see.”

“I also want to emphasize that the concept of taxpayer rights is not a new one for IRS employees; they embrace it in their work every day,” Koskinen added. “But our establishment of the Taxpayer Bill of Rights is also a clear reminder that all of the IRS takes seriously our responsibility to treat taxpayers fairly. The Taxpayer Bill of Rights will serve as an important education tool, and we plan to highlight it in many different forums and venues.”

During a conference call with reporters Tuesday, Accounting Today asked Koskinen and Olson about whether tax preparers would also be able to assert the Taxpayer Bill of Right on behalf of clients.

“Absolutely,” Olson responded. “Between November 2013 and February 2014, my office conducted 32 focus groups around the country, 16 with taxpayers and 16 with preparers, including CPAs. It was interesting. The preparers felt unanimously that this was an incredibly helpful thing to have and enabled them to explain sort of the process in a way and the protections to their clients and that they would like very much to have brochures or to see it in Pub 1 because it would really help educate their clients. It probably will help educate some preparers as well, particularly those that are not what we would call Circular 230 preparers—the attorneys, the accountants, the CPAs, the enrolled agents, who may not know about these things.”

“We are delighted to encourage the taxpayers to be comfortable contacting us directly, particularly if they have questions,” Koskinen pointed out. “If they have difficulty becoming compliant, we’re happy to talk to them directly. But it is important for them to understand they don’t lose any rights and we don’t treat them any differently if they are represented by a certified accountant, preparer, enrolled agent, or attorney. We’re perfectly comfortable with that. We’re delighted when they choose to be represented. We want people to understand that you can deal with us directly, but if you have a representative, you won’t lose anything. We won’t treat you any differently. You still have the right to a fair and just system.”

They noted that the House has recently passed legislation containing an earlier version of Olson’s suggested Taxpayer Bill of Rights, but the Senate has not approved similar legislation, Olson noted.
Koskinen said the subject of a Taxpayer Bill of Rights had come up when he visited IRS offices across the country and met with employees after taking over as commissioner.

“One of the things I learned when I became commissioner back in December was the importance of taxpayer rights and also how focused our employees are on this issue,” he said. “Over the past several months I have visited dozens of IRS offices around the country and had the opportunity to see and hear the many ways our employees serve taxpayers and work to protect their rights. I also came to believe that we as an institution needed to do a better job of communicating taxpayer rights to the public and showing taxpayers how deeply we respect those rights.”

Koskinen said he would encourage taxpayers to take a look at the Taxpayer Bill of Rights, especially when they are interacting with the IRS. However, he pointed out that budget cuts at the IRS in recent years have had a negative impact on IRS taxpayer service. He and Olson had met to discuss which of the initiatives in her report to Congress could be implemented without costing much in IRS resources, and the Taxpayer Bill of Rights seemed to be at the top of the list, as it contained protections that were already included in the Tax Code.

“I also want to mention a concern I have in regard to taxpayer rights, and that involves our funding situation,” said Koskinen. “This is a concern that I know is shared by the Taxpayer Advocate. The IRS budget, as you know, has been reduced by more than $850 million, or about 7 percent since 2010. These reductions greatly complicate the work we do to ensure that we provide quality service, which is one of the 10 fundamental taxpayer rights. If we do not have adequate funding, that means we don’t have enough people answering the phones, taking care of correspondence, or staffing our walk-in taxpayer assistance sites. So I will continue making the case to Congress that the IRS needs adequate resources in order to properly serve taxpayers.”

Olson pointed out that she has long called for a Taxpayer Bill of Rights in her reports to Congress, and she had recommended that the IRS adopt its own Taxpayer Bill of Rights and not wait for Congress to codify it. Even though the various provisions are already scattered across the Tax Code, many taxpayers are not aware of them.

“I want to emphasize that this is a real issue that has real impact on taxpayers that the IRS is adopting the Taxpayer Bill of Rights,” said Olson. “The Taxpayer Advocate Service commissioned a survey in 2012 with a representative sample of United States taxpayers and we found that only 46 percent of U.S. taxpayers believed that they had rights before the IRS. That is, 54 percent of them did not believe that they had rights before the IRS or just didn’t know, and only 11 percent of taxpayers knew what those rights were. Let me emphasize, if you don’t know what your rights are, you will never avail yourself of those rights and things will happen to you.”




Gambling Winnings

By proadAccountId-371192 24 Oct, 2017

Victims of hurricanes Harvey, Irma, and Maria get relief from Congress. They can take casualty losses from the storms even if they don’t itemize. They’re able to deduct uninsured personal losses more than a $500 threshold without regard to the 10%-of-AGI offset that generally applies to the deduction.  2016 income can be used to figure the 2017 earned income tax credit. The same applies for the child tax credit. This will prevent a cut in these tax breaks for lower-incomers whose jobs have been suspended or lost due to the hurricanes.

 

The 10% penalty on pre-age 59½ payouts from retirement accounts is waived, if the IRA or retirement plan withdrawals are not greater than $100,000. The income tax due on such distributions can be spread over a three-year period. Amounts recontributed to the plan or IRA during that span will be treated as rollovers, and tax paid on those amounts can be recovered by filing an amended Form 1040.

 

Victims can borrow more from company retirement plans such as 401(k)s, up to the lesser of $100,000 or 100% of the account. Loan repayments can be deferred. The 50%-of-AGI limitation on charitable donations is suspended for any cash donations to qualified charities that aid victims of Harvey, Irma and Maria.

 

Corporations can fully deduct cash donations for hurricane relief. The usual 10% of taxable income limit does not apply to such contributions. There’s a special break for hurricane-affected firms that keep paying workers even though business operations have been suspended in the wake of the storms. They get a 40% tax credit for up to $6,000 of wages paid to each idle employee.

+���
By proadAccountId-371192 24 Oct, 2017

IRS’s simplified per diems for lodging, meals, and incidentals are going up. In high-cost localities, employees can get up to $284 each day free of tax. In other areas, their daily stipend is capped at $191. Both amounts are up $2. 

 

Businesses using this method have the choice to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use these higher rates as of Oct. 1 or wait until Jan. 1, 2018. Firms can opt instead to use federal per diems separately figured for hundreds of cities.

 

No change to the rates for meals and incidentals only, this stayed at $68 per day in high-cost areas and $57 in other locations. Self-employed individuals on travel can use these rates in lieu of keeping receipts, but their lodging expenses must be sustained separately. They cannot use the full $284/$191 per diems. The per diem rate solely for incidentals is also unchanged at $5 a day.

By lemaster 17 Oct, 2017
Harris County residents experienced one of the worst flooding disasters in U.S. history when Hurricane Harvey impacted the region late August 2017. Dozens of lives were lost and thousands of homes were destroyed as catastrophic rainfall devastated Harris and surrounding counties.

As communities continue to reclaim normalcy from Harvey, the Harris County Office of Homeland Security & Emergency Management is working in collaboration with the State of Texas, the Federal Emergency Management Agency (FEMA) & non-profit partners to help with the recovery process.

This Harvey Recovery Resource Guide offers important information about available resources and assistance available to residents affected by the floods.

All individuals impacted by flooding should apply for FEMA assistance at 1-800-621-3362 or online at www.DisasterAssistance.gov by October 26, 2017.

The Office of Ted Heap, Harris County Constable Pct. 5 continues to patrol those neighborhoods that were devastated by flooding. Contract neighborhoods received more coverage than normal as a result of diverting all the department’s resources to a law enforcement function. We hope this guide will help provide answers for those that were impacted by the storm.
By proadAccountId-371192 29 Sep, 2017
Donating leave for Hurricane Harvey.
Under new IRS guidance for leave-based donations, employers can make cash payments to qualifying charities that match vacation, sick, or personal leave forgone by employees. The donations are not income to these employees— but they are not charitable deductions either. The cash payments must be made to organizations qualified under code §170, Charitable, etc., contributions and gifts, before Jan. 1, 2019.

Key point: Employers can choose to deduct the payments as charitable contributions or as business expenses and should not include the payments as income on the contributing employees’ W-2s. [Notice 2017-48; 2017-39 IRB 10]
By proadAccountId-371192 29 Sep, 2017

A Senate proposal on worker classification is drawing praise from business.

 The bill from Sen. John Thune (R-SD) would provide a new safe harbor based on three criteria that, if met, would qualify workers as independent contractors:

  •  The relationship between the respective parties, the existence of a written contract, and the location of the services or how the services are provided. The measure lists objective factors that would satisfy each of these categories.
  •  Additionally, the proposal makes changes to the Form 1099 reporting rules. Currently, the 1099-MISC is required when payments to a nonemployee exceed $600. Third-party networks must send a 1099-K to payees who have over 200 transactions and were paid more than $20,000. Compliance with these rules is haphazard at best. Many third-party networks file 1099-Ks. Others use the 1099-MISC. Some send both.
  •  Thune would have third-party networks in the gig economy use the 1099-K, while payers in traditional independent contractor relationships would file the MISC.
  •  Reporting on the 1099-K would be required on annual payments over $1,000 to contractors. This idea would raise a significant amount of money, something that tax writers will look on favorably on as they eye revenue-raisers to offset lower tax rates in tax reform.   Additionally, the threshold for filing the 1099-MISC would increase to $1,000.

By proadAccountId-371192 29 Sep, 2017

You won’t automatically be audited for having above-average deductions; however, if your write-offs are excessively large, your audit risk can go up because that is a key factor in the Revenue Service’s return selection process. 

 Here’s an example where taking large charitable deductions raised a red flag with the agency.  A couple was audited after they claimed total charitable write-offs of $142,250 for property donations to Goodwill. Because they couldn’t prove the value of the items donated, the Tax Court disallowed all but $250 of their deduction and slapped them with the 20% penalty for negligence (Ohde, TC Memo. 2017-137).

 Charitable deductions can sometimes be lost if conditions are attached by the donor. In this case, the owner of a run-down movie theater wanted to transfer it in a bargain sale to an unrelated, newly formed nonprofit. Since the transferee hadn’t yet received its tax exemption, the building’s owner arranged a bargain sale with another charity but agreed that it could direct a subsequent conveyance to the ultimate transferee. This transfer restriction included in the contract of sale caused the Tax Court to rule that the owner didn’t relinquish dominion and control over the building and that no charitable gift was made (Fakiris, TC Memo. 2017-126).

By proadAccountId-371192 29 Sep, 2017

Worker classification remains a priority. The Internal Revenue Service continues to seek back taxes and penalties from firms that wrongly treat workers as contractors. Unreported or underreported employment taxes make up a big chunk of the overall federal tax gap. The Labor and Justice Departments, along with Individual States also have vital roles to play in ensuring that workers are properly classified by the businesses they work for.

 

The stakes have always been high, lost taxes for federal and state governments and fewer benefits for workers who are improperly treated as contractors.  The importance is magnified with the growth of freelance service gigs. Freelance gigs such as Uber, Rover, Grubhub and Fiverr are making up a growing portion of the part time economy.  

 

To classify workers, the IRS uses three tests, each made up of multiple factors.

             

The Behavioral Test focuses on whether the company controls or has the right to control what the worker does and how to do the job. Key factors for employee status include instructions about performing the work, evaluation criteria and training.

 

The Financial Test looks at who controls the economics of the worker’s job. Being able to work for multiple firms and providing your own tools needed for the job are indicative of independent contractor status. Some factors favoring employee status are eligibility for reimbursement of travel costs and payment based on hours worked.

 

The Type-of-Relationship Test examines how the parties perceive each other. Providing paid vacation and retirement benefits indicates a worker is an employee, as does hiring to provide services indefinitely rather than for a specific time. Written language stating the worker is an independent contractor isn’t determinative.

 

Aberdare Business Solutions offers a variety of Lunch & Learn Seminars or on-site seminars regarding the above topics. Additionally, we include information pertaining to the Department of Labor and the Texas Workforce Commission. If you are interested in attending a seminar or having us speak at your company or association please contact our office at 281.599.3380 or info@aberdare.us.com

By proadAccountId-371192 29 Sep, 2017

The cost to become a dog groomer doesn’t qualify for an education tax break through The American Opportunity Tax Credit. The couple in the case has a daughter who after taking one class at a local community college, decided on a different track and enrolled in a dog grooming program with a company aptly named Canine Clippers.

 Only tuition paid to accredited postsecondary institutions is eligible for the AOTC, and the parents provided no evidence that Canine Clippers met that standard or that their daughter attended at least half-time (Martin, TC Summ. Op. 2017-73).

By proadAccountId-371192 29 Sep, 2017

IRS is on the prowl for filers who claim large charitable deductions, as a big-game hunter found out after he took a $1.45 million write-off for animal hides, skulls, horns, and other hunting specimens he donated to charity. He claimed the items he gave were of museum quality, with no market comparables, and should be valued at their estimated replacement cost.

 

The Tax Court disagreed, saying the specimens were commodities, not collectibles, and that fair market value is based on market prices of similar items. The Court allowed a $163,000 deduction, the figure determined by the Service’s appraiser (Gardner, TC Memo. 2017-165).


 

By proadAccountId-371192 29 Sep, 2017
IRS’s efforts at combatting tax identity theft seem to be paying off. Complaints of ID theft fell 46% in 2016 from the previous year, to 376,500.

Additionally, the numbers for the first quarter of 2017 seem to be following that trend. Some of the decline may be because of new antifraud measures the agency is using to filter out returns filed by identity thieves. Last year, IRS computers stopped more than $6.5 billion in fraudulent refunds on approximately 970,000 returns filed under stolen Social Security numbers and tax identification numbers.
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