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Taxpayer Bill of Rights begins with the right to be informed

When something happens to a taxpayer’s account, that person has the right to be informed about the activity. In fact, this right is one of ten in the Taxpayer Bill of Rights.

The Taxpayer Bill of Rights takes the multiple existing rights in the nation’s tax code and groups them into 10 categories for easier use and reference.

The right to be informed leads the list. This means taxpayers have the right to:

  • Know what they need to do to comply with the tax laws.
  • Have clear explanations of the laws and IRS procedures in all forms, instructions, publications, notices and correspondence.
  • Be informed of IRS decisions about their tax accounts.
  • Receive clear explanations of the outcomes of IRS decisions.

To make sure taxpayers are informed, the IRS will:

  • Include within certain notices any amount of the tax, interest and certain penalties the taxpayer owes.
  • Explain why the taxpayer owes any taxes.
  • Explain the specific reasons why it denied a refund claim.
  • Post information on IRS.gov to help taxpayers understand their IRS notice or letter.
  • Send a letter when the agency assesses a tax. That letter must include:
       o Information on how the taxpayer can appeal the
          decision.
       o An explanation of the entire process from audit
          through collection.
       o Details on how the Taxpayer Advocate Service can
          help.
  • Send an annual statement to taxpayers who enter into a payment plan. The statement will include how much the taxpayer:
       o Owes at the beginning of the year.
       o Paid during the year.
       o Still owes at the end of the year.
  • Make forms and publications available on IRS.gov. Taxpayers can also have hard copies mailed to them by calling 800-829-3676.
  • Use social media to provide helpful tax information to a wide audience of taxpayers.

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IRS willing to consider requests for relief from double taxation related to repatriation

WASHINGTON — The IRS announced today that the agency has become aware of limited circumstances in which it may be appropriate to provide relief from double taxation resulting from application of the repatriation tax under section 965, as amended by the Tax Cuts and Jobs Act (TCJA). 

The IRS has determined that in unique circumstances, such as where a corporation paid an unusual dividend for business reasons, not because of the enactment of TCJA, it may be appropriate to provide relief from double taxation. When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result.

The IRS is open to considering relief from such double taxation where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid. 

Taxpayers who have fact patterns that may fit these limited circumstances may raise them with the IRS by contacting the Office of Associate Chief Counsel (International) at 202-317-3800.

Taxpayer Advocate finds problems with tax refund delays and taxpayer service

By Michael Cohn January 08, 2020, 11:49 a.m. EST

The Internal Revenue Service’s new anti-fraud filters are unnecessarily flagging millions of tax returns and delaying legitimate tax refunds for weeks or months, according to a new report from the acting National Taxpayer Advocate’s office.

Bridget Roberts, who took over the job last year from Nina Olson, the longtime head of the IRS’s Taxpayer Advocate Service, released her first annual report to Congress Wednesday, where she focused on inadequate taxpayer service, limited funding of the IRS, and implementation of the Taxpayer First Act, which was passed by Congress last year. Unlike Olson, however, Roberts was appointed to fill the role in only an acting capacity, and she said the job deserves a permanent appointee.

The report noted that during the 2019 filing season, the IRS used a new refund fraud filter known as “Filter X” that ultimately flagged and stopped the processing of nearly 1.1 million tax returns. More than half of those refunds were eventually paid. But the false positive rate for other non-identity theft refund fraud filters was a whopping 71 percent. That means 71 out of every 100 tax refunds stopped by the IRS’s fraud filters were ultimately determined to be legitimate.

Along with the annual report, Roberts also released the third edition of the National Taxpayer Advocate’s “Purple Book,” presenting 58 legislative recommendations aimed to strengthen taxpayer rights and improve tax administration.

The report found that the Taxpayer First Act, which was signed into law on July 1, 2019, has made the most comprehensive revisions to IRS procedures since the IRS Restructuring and Reform Act of 1998. The new law includes 23 provisions previously recommended by the National Taxpayer Advocate.

“By passing the Taxpayer First Act, Congress has sent the IRS a clear message that it needs to rethink the way it operates – the services it provides, its organizational structure, the way it trains employees, and the technology it uses,” Roberts wrote in her preface to the report.

Despite the passage of the Taxpayer First Act, the report found the IRS is struggling to accomplish its mission of providing taxpayers with top-quality service to meet their tax responsibilities. The IRS is among the lowest-performing federal agencies in providing a positive customer experience, according to the American Customer Satisfaction Index and the Forrester U.S. Federal CX Index. The 2019 Forrester report ranked the IRS as 13th out of 15 federal agencies and characterized the IRS’s score as “very poor.”

During fiscal year 2019, the acting National Taxpayer Advocate’s report found the IRS received approximately 100 million telephone calls, but the agency’s customer service representatives answered only 29 percent of the calls. In recent years, the agency has also closed more than 10 percent of its face-to-face Taxpayer Assistance Centers, generally requiring taxpayers to schedule appointments in advance, and reduced the number of taxpayers served by nearly half from FY 2015 to FY 2018.

The IRS is also struggling to collect taxes. The IRS recently estimated it was unable to collect an annual average of about $381 billion in unpaid tax attributable to legal-source income for tax years 2011-2013. Each U.S. household that does comply is estimated to be effectively paying an average annual “surtax” of more than $3,000 to subsidize noncompliance by others.

The IRS frequently focuses its enforcement efforts against taxpayers with the least ability to pay, but taxpayers often can’t reach the IRS to make it aware of their hardships. During FY 2019, the IRS’s Automated Collection System (ACS) more than doubled the number of levies it served (from about 200,000 in FY 2018 to approximately 428,000 in FY 2019), while the percentage of calls answered on the consolidated ACS telephone lines dropped from 49 to 31 percent. Wait times for taxpayers who were able to reach the IRS by phone increased from 24 minutes to 38 minutes. The report urged the IRS to prioritize phone service for taxpayers against whom it takes collection action.

The report attributed the IRS’s shortcomings mostly to budget constraints but also to a culture in which the agency focuses on its own priorities without adequately factoring in the needs of taxpayers. Since FY 2010, the IRS budget has been cut approximately 20 percent after adjusting for inflation, and the number of full-time equivalent employees has fallen by about 22 percent. The report urged Congress to increase the IRS’s funding and to change the budget rules to account for the revenue additional IRS appropriations are likely to generate. In FY 2018, the IRS collected nearly $3.5 trillion on a budget of about $11.4 billion. In particular, the report recommends that Congress increase funding for taxpayer service and technology.

The report also found the Free File program was failing to promote the best interests of taxpayers, and pointed to low usage and taxpayer confusion. Under the Free File program’s terms, 70 percent of individual taxpayers should qualify to prepare their returns at no cost, but fewer than 2 percent of taxpayers actually use the program, the report found. Over the past four years, fewer than half of taxpayers who have used Free File in one year have used it again the following year. The low initial usage rate and low repeat usage rate suggest taxpayers are not generally satisfied with the program. On top of that, the report found the IRS incurs costs to administer the program and Free File members provided free tax software to at least 17.7 million taxpayers outside the Free File program during the 2019 filing season. The report noted that it is likely that most, if not substantially all, of the 2.5 million taxpayers who used Free File software last year would have been able to file for free through company websites if Free File didn’t exist. The IRS announced a new agreement last week with the Free File software vendors to make it easier to find free versions of their tax prep software.

The IRS issued a statement in response to the report. “The IRS respects the vital role the National Taxpayer Advocate and employees of the Taxpayer Advocate Service play in the tax administration process,” said IRS spokesman Dean Patterson in the statement. “IRS leadership will be reviewing this year’s report to help us in our continuing efforts to help the nation’s tax agency improve and evolve. The IRS emphasizes the agency and our employees are fully committed to proudly serving the nation’s taxpayers and ensuring fairness throughout the tax system. The IRS remains committed to continuing to do as much as it can, subject to budget constraints, to provide meaningful services to all taxpayers, whether in-person, on the phone or online. And the agency has taken important steps in the past year to appropriately balance taxpayer services with meaningful enforcement efforts to pursue those who would intentionally evade their tax obligations, to assure law-abiding citizens that everyone is paying what the law requires. The new IRS annual report highlights many of the areas where the IRS and our employees are taking important steps forward.”

Michael Cohn Editor-in-chief, AccountingToday.com 

Reprinted with permission

IRS: Don’t be victim to ‘ghost’ tax return preparers

WASHINGTON – With the start of the 2020 tax filing season near, the Internal Revenue Service is reminding taxpayers to avoid unethical “ghost” tax return preparers.

According to the IRS, a ghost preparer does not sign a tax return they prepare. Unscrupulous ghost preparers will print the return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost will prepare but refuse to digitally sign as the paid preparer.

By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid Preparer Tax Identification Number, or PTIN. Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a fast buck by promising a big refund or charging fees based on the size of the refund.

Ghost tax return preparers may also:

  • Require payment in cash only and not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s account.

The IRS urges taxpayers to choose a tax return preparer wisely. The Choosing a Tax Professional page on IRS.gov has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.

Free basic income tax return preparation with e-file is available to qualified individuals from IRS-certified volunteers at Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites across the country. For more information and to find the closest visit Free Tax Return Preparation for Qualifying Taxpayers on IRS.gov

No matter who prepares the return, the IRS urges taxpayers to review it carefully and ask questions about anything not clear before signing. Taxpayers should verify both their routing and bank account number on the completed tax return for any direct deposit refund. And taxpayers should watch out for ghost preparers inserting their bank account information onto the returns.

Taxpayers can report preparer misconduct to the IRS using IRS Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.

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NATP

National Association of Tax Professionals