How to Pay Zero Taxes, 2020-2021: Your Guide to Every Tax Break the IRS Allows

By Jeff A. Schnepper

Save BIGGER THAN EVER with this fully updated edition of the classic tax-saving guide!

Tax whiz Jeff Schnepper has been helping ordinary taxpayers dramatically lower their tax bills for decades. Now, Schnepper brings his classic guide up to date for the coming tax season.

Presented in language anyone can understand, How to Pay Zero Taxes 2020-2021 delivers everything you need to take full advantage of the newest tax laws—and pay the IRS less than ever before. Schnepper uncovers hundreds of sanctioned deductions, shelters, credits, and exemptions and provides invaluable tax tips you’ll only find here. You’ll learn how to navigate the tax code like a pro and save the maximum legal amounts on:

• Capital gains and dividends
• IRA and retirement plans
• Converting personal expenses into deductible business expenses
• Charitable deductions
• Child care and elder care
• Moving and job-hunting expenses
• Mortgages and points
• Investment expenses

Every April, thousands of people around the country pay far more than they have to. Don’t give the IRA one dollar more than the law requires. Use How to Pay Zero Taxes 2020-2021 to keep more of your hard-earned money in your own pocket.

• Language: English
• Publisher: McGraw-Hill Education
• Release date: Dec 27, 2019
• ISBN: 9781260461718

Book preview

Also by Jeff A. Schnepper

How to Pay Zero Estate Taxes

Inside IRS

Professional Handbook of Business Valuation

New Bankruptcy Law

Can You Afford to Retire?

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This book is normally dedicated to my mogul,

Barbara, who taught me how to love, and to

my children, Brandy, Joshua, Allison, Mario,

and Jonelle, who gave me five more reasons why.

If I had the choice of doing it all over again,

I would begin by loving you again.

Also normally dedicated to the memory

of Frisco T. D. Schnepper, Tiger T. C. Schnepper,

Fred T. C. Schnepper, and to Bruno,

who now give me paws,

BUT

Forget it, guys . . . This one’s

for my Bianca Rose Conlin,

and her brothers Drew Ethan Conlin, Tyler Evan Conlin,

Spencer Henry Conlin, and Owen Bae Alexander Conlin

and their cousins Dylan Simon Schnepper and Aubrey

Anne Schnepper, who have redefined my universe!

Contents

ACKNOWLEDGMENTS

CHAPTER 1

Tax Insanity

CHAPTER 2

Is It Legal?

CHAPTER 3

How Our Tax System Works

CHAPTER 4

Exclusions—Tax-Free Money

A    Alternatives to Earned Income

1.  Hospitalization Premiums

2.  Group Life Insurance Premiums

3.  Group Legal Services Plans

4.  Accident and Health Plans

5.  Employee Death Benefits

6.  Merchandise Distributed to Employees on Holidays

7.  Expenses of Your Employer

8.  Meals and Lodgings

9.  Employee Discounts

10.  Workers’ Compensation

11.  Cafeteria Plans and Flexible Spending Accounts

12.  Dependent Care Assistance Program

13.  Employer Educational Assistance

14.  Employee Awards

15.  Clergy Housing Allowance

16.  Miscellaneous Fringe Benefits

B    Donative Items

17.  Gifts, Bequests, and Inheritances

18.  Scholarships and Fellowships

19.  Prizes and Awards

20.  Qualified Charitable Distributions (QCDs)

C    Investors

21.  Interest on State and Municipal Obligations

D    Benefits for the Elderly

22.  Public Assistance Payments

23.  Social Security and Other Retirement Benefits

24.  Annuities

25.  Sale of Your Home

E    Miscellaneous Individual Exclusions

26.  Carpool Receipts

27.  Damages

28.  Divorce and Separation Arrangements

29.  Life Insurance

30.  Qualified State Tuition (§529) Programs

31.  Your Home—The Mother of All Tax Shelters!

32.  Disabled Veteran Payments

33.  Exclusion of Income for Volunteer Firefighters and Emergency Medical Responders

34.  Unemployment Benefits

35.  Homeowner Security

36.  Reimbursed Costs to Parents of Children with Disabilities

37.  Wrongful Conviction and Incarceration

38.  Restitution Payments

39.  Frequent Flier Miles

40.  Hurricane Sandy

41.  Cancellation of Indebtedness

42.  Medicaid Payments for Foster Care of Related Individuals

43.  ABLE Accounts

44.  Foreign Earned Income Exclusion

F    Schedule of Excludable Items

CHAPTER 5

Credits—Dollar-for-Dollar Tax Reductions

A    Estimated Tax and Withholding Exemptions

B    Credits

45.  Refundable The Earned Income Credit

46.  Excess Social Security Tax

47.  The Child and Dependent Care Credit

48.  Credit for the Elderly or Permanently and Totally Disabled

C    Special Credits

49.  Work Opportunity Credit (Formerly Targeted Jobs Tax Credit)

50.  Welfare to Work Credit

51.  Research Tax Credit

52.  Orphan Drug Tax Credit

53.  Adoption Assistance

54.  Hope Scholarship Credit

55.  American Opportunity Tax Credit

56.  Lifetime Learning Credit

57.  Child Tax Credit

58.  Disability Credits

59.  Health Insurance Credit

60.  Saver’s Credit

61.  Small Employer Credit

62.  Electric Vehicle Credit

63.  Credit for Residential Energy Efficient Property

64.  Energy Saving Home Improvement Credit

65.  Hybrid Vehicles Credit

66.  Telephone Tax Refund

67.  First-Time Home Buyer Credit

68.  Making Work Pay Tax Credit

69.  Plug-in Electric Drive Vehicle Credit

70.  Plug-in Electric Vehicle Credit

71.  Conversion Kits

72.  Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed against AMT

73.  Small Business Health Insurance Credit

74.  Small Business Health Care Credit

75.  Foreign Tax Credit

76.  The Premium Tax Credit

77.  Employer Credit for Family and Medical Leave Benefits

CHAPTER 6

Above the Line Deductions

A    Deductions for Adjusted Gross Income

78.  Trade and Business Deductions

79.  Employee Business Expenses of Actors and Other Performing Artists

80.  Employee Business Expenses

81.  Alimony

82.  Interest on Qualified Education Loans

83.  Retirement Plan Payments

84.  Self-Employment Tax

85.  Health Insurance Deduction for Self-Employeds

86.  Moving Expenses—Old Law

87.  Clean Fuel Vehicles

88.  Deduction for Qualified Higher Education Expenses—Tuition and Fees

89.  Legal Fees

90.  Classroom Materials

91.  Medical Savings Accounts (Archer Medical Savings Accounts)

92.  Health Savings Accounts

93.  Sales Tax Deduction on Motor Vehicles

CHAPTER 7

Below the Line Deductions

A    The Importance of Filing Status

B    Tax Planning with Itemized Deductions

94.  Medical Expenses

95.  Income Taxes

96.  Real Property Taxes

97.  Personal Property Taxes

98.  Interest

99.  Mortgage Insurance

100.  Charitable Contributions

101.  Casualty Losses

102.  Theft Losses

103.  Miscellaneous Trade and Business Deductions of Employees

104.  Job Loss Insurance

105.  Travel Expenses

106.  Transportation Expenses

107.  Meals and Entertainment Expenses

108.  Gifts

109.  Reimbursable Employee Business Expenses

110.  Educational Expenses

111.  Limit on Itemized Deductions

C    Schedules of Deductions

112.  Medical Deductions

113.  Deductible Taxes

114.  Charitable Deductions

115.  Casualty and Theft Loss Deductions

116.  Miscellaneous Deductions

117.  Employee Miscellaneous Deductions

118.  Investor Deductions

CHAPTER 8

Traditional Tax Shelters

A    Deferral and Leverage

119.  Real Estate

120.  Fees in Public Real Estate Partnerships

121.  Oil and Gas

122.  Equipment Leasing

123.  Single-Premium Life Insurance

124.  Cattle Feeding Programs

125.  Cattle Breeding Programs

126.  Tax Straddles

127.  Art Reproduction

128.  Noncash Gift Shelters

129.  Municipal Bond Swaps

B    How to Analyze a Tax Shelter

130.  Getting Out of the Tax Shelter

131.  Master Limited Partnerships

132.  Abusive Shelters

CHAPTER 9

Super Tax Shelters

A    Family Shifts

133.  Unearned Income of Minor Children

134.  Outright Gifts

135.  Clifford Trusts

136.  Interest-Free Loans

137.  The Schnepper Shelter: Gift Leasebacks

138.  The Schnepper Deep Shelter

139.  Family Partnerships

140.  Family Trusts

141.  The Schnepper Malagoli Super Shelter

142.  Employing Members of the Family

143.  Author’s Delight

B    Running Your Own Business

144.  Your Home

145.  Your Car

146.  Meals and Entertainment

147.  Travel and Vacation

148.  Gifts

149.  Advertising

150.  Deductible Clothes

151.  Creative Deductions—Busting the IRS

152.  Medical Premiums

153.  Borrowing from Your Company

154.  Miscellaneous Corporate Advantages

CHAPTER 10

Investment Planning to Save Taxes

155.  Short Sales

156.  Broad-Based Index Options and Regulated Futures Contracts (RFCs)

157.  Wash Sales

158.  Premiums on Taxable and Tax-Exempt Bonds

159.  Original Issue Discount (OID)—Taxable Bonds

160.  Original Issue Discount (OID)—Tax-Exempt Bonds

161.  Market Discount

162.  Municipal Bond Swaps

163.  Employee Options—Nonqualified

164.  Incentive Stock Options

165.  Year-End Stock Sales

166.  Fund Strategies

167.  Dividends

168.  Tax-Exempt Income

169.  Old Prices

170.  Alternative Minimum Tax for Individuals

171.  U.S. Savings Bond Exclusion

172.  Madoff Losses

173.  Collars—Tax Free Lock in Your Gain

CHAPTER 11

Last-Minute Tax Planning

174.  Defer Taxes

175.  Accelerate Expenses

176.  Accelerate Special Deductions

177.  Dependents and Personal Exemptions

178.  Phase-out of Exemptions

179.  Timing Strategies

180.  Retirement Plans

181.  Individual Retirement Plans (IRAs)

182.  H.R. 10 or Keogh Plans

183.  Marital Status

184.  The Goldinger Deferral

CHAPTER 12

More Tax Changes

A    The Patient Protection and Affordable Care Act

B    Small Business Jobs Act of 2010

C    The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

D    American Tax Relief Act of 2012

E    Tax Increase Prevention Act of 2014

F    The ABLE Act

G    More Changes

H    The Tax Cuts and Jobs Act of 2017

I    The Budget Deal Passed on February 9, 2018

CHAPTER 13

How to Avoid/Survive an IRS Audit

APPENDIX A

Cost Recovery/Depreciation

APPENDIX B

Business Use of Listed Property

APPENDIX C

Auto Leases

INDEX

Acknowledgments

I wish to thank Nancie Crook, Barbara Thomassian, Pat Berenson, Ronnie Smith, and Anne McVay, without whom this book could not have been written, and the U.S. Congress and the IRS, without whom this book wouldn’t have been needed.

I also want to thank Sayes B. Block and Paul Malagoli, for their encouragement and professional guidance; Sandi Walker, April Napolitano, and Anne Rigney, for their typing and editorial assistance; my editors at McGraw-Hill, Mary Glenn, Jane Palmieri, Patricia Amoroso, Scott Kurtz, Tania Loghmani, Zach Gajewski, Patricia Wallenburg, Devanand Madhukar, Maki Wiering, Amy Li, and Cheryl Ringer; and Sri Haran, CPA, Robert Doyle, Steve Leimberg, Jeff Kelvin, Michael Vassey, Joel Petchon, John McFadden, Kenn Tacchino, Bill Rotella, George Hasenberg, Frank Kesselman, Lester Smalls, John Oxley, Stephen D. Leightman, Noeleen McLoughlin, Julian Egnaczyk, Ed Caldwell, CPA, Al Blum, Brian Hans, Harry K. Sorenson, CPA, Patrick O’Rourke, CPA, S. Scott Davison, Rose Thompson, Lilly Thompson, Claire Davison, Kamryn Davison, Allison Schnepper, Zulma Lombardo, Morris Abraham, Richard and Janice Schank, Mark S. Fineberg, CPA, Anthony Lyras, Aboubacar, Okeké-Diagne and Ron Campbell for their professional assistance; and Simba T.C. Schnepper Conlin, Bruno T.D. Conlin, and Fred T.C. Schnepper, who give me reason to paws. Special thanks to Stephanie Davison-Thompson and Brian Lance for research and editorial assistance, Bill Fox for his investment insights, Ray Palmucci for his guidance and care of my San Diego assets.

CHAPTER 1

---

Tax Insanity

Our income tax system is overly complex. It distorts investment decisions and encourages people to put money into schemes to reduce their tax bills instead of into enterprises to create jobs and help our economy grow.

BILL BRADLEY, New Jersey senator (1984)

"The words of such an act as the Income Tax  . . . merely dance before my eyes in a meaningless procession: cross-reference, exception upon exception—couched in abstract terms that offer no handle to seize hold of—leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out the net, against all possible evasion; yet at times I cannot help recalling a saying of William James about certain passages of Hegel: that they were, no doubt, written with a passion of rationality; but that one cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness . . . "

JUDGE LEARNED HAND, Thomas WalterSwan, 57 Yale L.J. 167, 169 [1947].

Q: What’s the difference between Obama’s cabinet and a penitentiary?

A: One is filled with tax evaders, blackmailers, and threats to society. The other is for housing prisoners.

—DAVID LETTERMAN

I don’t believe in a law to prevent a man from getting rich; it would do more harm than good.

ABRAHAM LINCOLN

Politicians tax the middle class for the same reason some people rob banks. That’s where the money is.

FORBES MAGAZINE

May 11, 1992

If our current tax strucure were a TV show, it would either be ‘Foul-ups, Bleeps and Blunders,’ or ‘Gimme a Break.’ If it were a movie, it would be ‘Revenge of the Nerds’ or maybe ‘Take the Money and Run.’ And if the IRS ever wants a theme song, mabye they’ll get Sting to do ‘Every breath you take, every move you make, I’ll be watching you.’

PRESIDENT REAGAN, in remarks to students at Northside High School, Atlanta, Georgia, June 6, 1985

2019 – IT OPENED WITH A SHUTDOWN!

Despite a 35-day partial government shutdown, ending January 25, 2019, the IRS began processing tax returns just three days after the government reopened. On day one, the IRS processed more than 1.9 million e-filed returns during its peak hour – setting a new record with a rate of 536 submissions per second. But the IRS lost 25 informational technology specialists each week during the shutdown. Another two dozen IT workers retired during that period. Passwords expired and some employees lost access to systems while others did not complete their training for tax season and will need four additional weeks to prepare.

During the shutdown, IRS phones were answered only about 35 percent of the time, after waits of up to 40 minutes. It was estimated by the IRS that there were 3.8 million failed attempts to call the Service. The IRS needed to cancel 16,530 scheduled appointments at Taxpayer Assistance Centers and the received more than five million pieces of taxpayer correspondence.

Another shutdown could also put the IRS computer security functions at risk, according to Mark Mazur, a former Treasury official who now runs the Urban-Brookings Tax Policy Center.

There are lots of potential job openings for these people elsewhere, Mazur said.

Computer malfunctions have plagued the IRS as the agency tries to update systems built on 1950s-era technology and hackers become more adept. Last year, the IRS had to extend the filing deadline by a day after its website crashed on what was supposed to be the filing deadline.

The shutdown, and the threat of another one, also makes it difficult for the agency to recruit and hire seasonal staff who interact with taxpayers, said Caroline Bruckner, the managing director at the American University’s Kogod Tax Policy Center.

The taxpayers who rely on IRS help are often low-income and depend on refunds to pay for major expenses, such as health care, she said. There are serious consequences if the refund is delayed or smaller than anticipated, Bruckner said.

You can only beat a dog so many times before it bites you, former IRS Commissioner Everson said. We are on the edge of something bad.

The government shutdown was not the only challenge the IRS had last year. According to the Treasury Inspector General for Tax Administration (TIGTA) and the Government Accounting Office (GAO), last year revealed that:

•   The IRS did not effectively manage IBM tools software licenses and did not actively monitor the costs of purchasing the software licenses, subscription, and support, wasting $3.4 million between fiscal years 2015–2017.

•   In an audit of IRS information technology, it was found that taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure until all areas of the IRS security program are fully implemented. Problems were reported in the handling of the privacy of taxpayer data, physical security and systems access controls, authentication controls, identification and protection of system boundary components, system configuration and change management, system scanning, vulnerability remediation and patching, network monitoring and audit logs, and system security documentation.

•   The House and Senate made a series of Planned Corrective Actions (PCAs) to address IRS cybersecurity. A review of a judgmental sample of 23 PCAs revealed that only 13 were fully implemented

•   In a second review of IRS cybersecurity, it was found that three cybersecurity function areas were effective – IDENTIFY, RESPOND, and RECOVER, and that two function areas, PROTECT and DETECT, were not effective.

•   The IRS is not effectively managing or controlling software versions on systems and applications to ensure that software is approved and up to date. Instances of software versions running on IRS systems were found to be outdated and unapproved.

•   IRS charge cards were illegally used to purchase such items as a personal chair mat, hand sanitizer, an Amazon Prime membership, and a magnifier. I guess they needed the magnifier to find the big money hidden away.

•   143 businesses may have filed erroneous research tax credit claims totaling $11.8 million.

•   1,128 tax returns claiming the earned income credit were incorrectly adjusted by the IRS.

•   The IRS estimates that 25.06 percent ($18.4 billion) of Earned Income Tax Credit (EITC) payments were issued improperly in fiscal year 2018.

•   The IRS knew about the bug that caused an 11-hour outage and shut down its online tax filing system nearly a year in advance! Why wasn’t it fixed? The IRS response – Improvements are needed. . . .

•   The IRS paid more than $74 million in potentially excess Social Security credits due to selection criteria and examiner processing errors.

•   The IRS is still trying to use private collection agencies (PCA) to collect inactive tax receivables from taxpayers. TIGTA found that PCA payment calculators do not calculate do not calculate interest and penalties correctly. The PCAs calculations of payment terms for 92 percent of the arrangements were inconsistent with IRS payment calculators. Terms differed by an average of four months plus, some by more than four years. These private debt collectors only reaped about 2 percent of what was owed. The national average collection percent according to the collection industry that year was 9.9 percent. And, they collected a mere 34 percent of what taxpayers agreed to pay.

•   The IRS failed to comply with congressional directives in closing Taxpayer Assistance Centers in calendar year 2018. The IRS did not hold a public forum, provide a report to Congressional committees, nor conduct a study on taxpayer impact before closing the Centers.

•   IRS Appeals employee training materials and Internal Revenue Manual procedures for Appeals managers and employees fail to provide guidance on fair tax collection practices.

•   The IRS does not accurately account for and track information referrals of suspected tax fraud.

•   The IRS failed to refer more than 1,000 complaints of illegal political activity by tax exempt organizations for further review.

•   The IRS lost nearly $2 billion in revenue in 2016 because businesses incorrectly reported how much tax they withheld from payments not related to payroll, such as interest payments and dividends.

•   A levy is an action to seize a taxpayer’s assets. Systemic levies issued by the Automated Collection System (ACS) were suspended in January 2016 due to resource constraints. Since then, levy proceeds decreased by 70 percent, or almost $966 million. In addition, 1) aggregate balances due on all ACS taxpayer delinquent accounts grew by $5.1 billion to $55.4 billion, a 10 percent increase, 2) dollars written off due to collection statute expiation while cases were in the ACS increased by $1.17 billion to $4.3 billion, a 271 percent increase, and 3) 912,124 cases were shelved, a 211 percent increase.

•   The IRS phone service metric dropped to 67 percent during the 2019 filing season. Only 23 percent of people who called a help line actually spoke to a live person, after an average wait of nine minutes. Others had questions answered through the automation process. If you wanted forms, you waited 11 minutes. You were on hold for 50 minutes or longer if you wanted to set up an installment agreement.

•   It was estimated that the IRS will spend $79.4 million in additional processing costs because taxpayers are unable to electronically file an amended return.

•   Financial reporting and sensitive taxpayer data on IRS computer systems will remain vulnerable until certain security deficiencies are addressed. Such deficiencies relate to access control, configuration management, segregation of duties and contingency planning.

On the GOOD side:

•   The IRS Criminal Investigation division found nearly $10 billion in tax fraud in fiscal 2018 – four times more than the prior year thanks to its focus on using data analytics.

•   For the 2019 filing season, the IRS updated 542 tax products, updating 128 information technology systems, developed and issued guidance documents, and updated fraud detection systems.

•   In April, 2019, the IRS began a new initiative to modernize and consolidate its information technology systems – shifting away from purchasing IT products and services. The IRS estimates the initiative to cost $2.3 billion to $2.7 billion over the next six fiscal years. It includes a goal of implementing an IRS call back program on 95 percent of all IRS lines by 2024.

•   Freedom of Information Act requests are being responded to on a timely basis and only 1 percent of sampled requests had information improperly withheld.

•   Reports of identity theft have fallen 71 percent in the last three years. Between 2015 and 2018, the number of filed identity theft reports fell to 199,000 in 2018 from 677,000 in 2015. During that period, the IRS protected a combined $24 billion in fraudulent refunds, with financial industry partnerships recovering an additional $1.14 billion.

•   The IRS is in trouble due to funding cuts. Between 2011 and 2017, the IRS lost 27 percent of its enforcement staff, including an 18 percent drop in tax examiners and a 40 percent reduction in revenue officers. The IRS is also experiencing a brain drain as experienced examiners and managers retire in droves or take jobs in the private sector. Over 33 percent of IRS employees are age 56 or older and only about 125 workers are under the age of 26. The result – audits of individuals are down 40 percent and the IRS doubled the dollar threshold to select refund claims for further examination.

On the DUH side:

•   Intuit Inc. had some problems. It was found not to be at fault but will pay $2.82 million in attorney fees and $5,000 to each of the six class representatives to settle a class action claim that it failed to prevent identity thieves from filing false returns using its Turbo Tax product. Almost three million dollars to the lawyers and only $5,000 to the injured parties—now who are the thieves?"

•   If your 2018 adjusted gross income was $66,000 or less, you qualified to use free tax preparation software from any of a consortium of tax preparation providers known as the Free File Alliance, led by Intuit Inc.’s TurboTax. In a class action lawsuit against Intuit, Inc., it was charged that TurboTax lured customers into the service with the promise of free filling of U.S. returns only to charge them anyway.

•   A former attorney and IRS employee, Craig P. Orrock, was convicted for federal income tax evasion of more than $500,000 and obstruction of internal revenue laws and faces eight years in prison.

•   The 1998 IRS Restructuring and Reform Act prohibited the use of any record of tax enforcement results (ROTER), quotas or goals to evaluate employees. According to TIGTA, 20 years later multiple instances of noncompliance were found.

•   Form 2848, when properly executed, allows someone else to represent you with the IRS, including access to your personal information. TIGTA found that IRS management had not implemented sufficient processes and procedures to authenticate the validity of Forms 2848.

•   The IRS also failed to protect 300 taxpayers after identifying that their Taxpayer Identification Numbers were obtained by fraudsters.

•   In view of all the above, it’s comforting to know that the IRS can be subject to a claim for emotional distress damages . . . at least in a bankruptcy case (Hunsaker v. United States, 2018 BL 313348, 9th Circuit, 16-35991, 8/30/18.

•   Our National Taxpayer Advocate has called for the IRS to create a Taxpayer Anxiety Index to help taxpayers frustrated and stressed out over our tax system and the lack of face to face help. How to construct the index, and what to do with it, were never discussed. . . . She did however say that the IRS was not providing the quality customer service that taxpayers expect.

2018 – A WHOLE NEW TAX SYSTEM

The Tax Cuts and Jobs Act of 2017, passed and signed in the last two weeks of December, 2017, was the biggest tax law change since the Economic Growth and Tax Relief Act of 2001. The IRS estimated that it would cost approximately $397 million and require hiring the equivalent of 1,734 full time employees over the next two years to implement the new rules. The details of the new law, and the strategies and techniques to maximize your benefits under it, are covered in Chapter 12 of How to Pay Zero Taxes—2020–2021. But last year also saw the Bipartisan Budget Act, passed in February, 2018, which retroactively extended over 30 tax breaks into the 2017 tax year. That meant that every 1040 form filed for 2017 was incomplete and missed lines for allowable deductions. If you knew about the changes, you could write them in. If not, you missed them and have 3 years from the due date to amend your return.

Missing lines on their tax forms was not the only problem the IRS had last year. The IRS core systems computers went down on tax day (April 17th for 2017) and, as a result of this malfunctioning, the filing season had to be extended for an additional day. That Tax Day Glitch was not the only problem the IRS had in 2018. According to the Treasury Inspector General for Tax Administration (TIGTA) and the Government Accounting Office (GAO), last year revealed that:

•   The Health Coverage Tax Credit is a refundable credit that covers 72.5 percent of the cost of qualified health insurance premiums for eligible individuals and their families. In tax year 2016, 9.5 percent (3,839 returns out of 40,227 filed for the credit) were erroneously processed.

•   In the 2017 filing season, the IRS paid taxpayers $5.8 billion more in advanced premium tax credits than the law would allow.

•   The Public Transportation Subsidy Program was created to encourage the use of public transportation when commuting to and from work. In 2016, 6,449 participants used almost $1.6 million more in transportation benefits than necessary for commuting to work or used benefits while on leave, while teleworking or while in a non-pay status.

•   The GAO audits the IRS. For fiscal years 2016 and 2017, it found that the IRS’s internal control over financial reporting contained continuing material weakness in internal control. And they have a fit when you are missing a single receipt!

•   The IRS won’t get back a $21 million refund it erroneously issued to Starr International Co. Inc. because the agency failed to file suit within the allotted statute of limitations period.

•   In fiscal years 2016 and 2017, the IRS issued more than $1.7 million in awards to 1,962 employees who had a disciplinary or adverse action during the 12 months prior to receiving their award. Such misconduct included unauthorized access tax return information, substance abuse, and sexual misconduct.

•   In an October, 2017 study, the TIGTA found that the IRS had rehired more than 200 employees that were previously separated while under investigation for a substantial conduct or performance issue.

•   IRS programing errors allowed the issuance of more than 227,000 Employer Identification Numbers (EIN) to individuals who already had an EIN or who were dead.

•   In a review of IRS charge card use, the TIGTA found 42 instances totaling more than $15,000, of prohibited purchases being made.

•   During the 2017 filing season, the IRS erroneously paid $2.8 billion in American Opportunity Tax Credits to 1.7 million ineligible taxpayers.

•   During fiscal 2017, the IRS also improperly issued $16.2 billion (23.9%) in Earned Income Tax Credits.

•   In a review of IRS procurement and grant transactions, the TIGTA found that significant improvements were needed to ensure the completeness, accuracy and overall quality of the information submitted. Over 97 percent had one or more data elements that were inaccurate.

•   In a September, 2017 report, the TIGTA found that taxpayer data remains vulnerable to inappropriate and undetected use, modification, or disclosure. It found that three cybersecurity functions, Identify, Protect and Detect, were not effective. Weaknesses in the IRS’s Computer Security Incident Response Center program could prevent the timely detection, prevention, or reporting of unauthorized access and disclosure of taxpayer data. In a June, 2018 report, the TIGTA found that the IRS Cybersecurity Data Warehouse continues to need improved security controls.

•   IRS controls for verifying and validating tax transcript requests failed to comply with government standards and did not protect taxpayers against unauthorized release of their tax information.

•   A computer glitch resulted in the IRS failing to notify 458,658 victims of identity theft that somebody else was using their identity.

•   The IRS’s lack of a strategy for storing data online puts taxpayer data at risk.

•   Special procedures are required before the IRS can Levy on a retirement account. TIGTA found that in a sample of 27 account levies, 11 were done without regard to those special procedures.

•   It is important that taxpayers receive fair and balanced treatment from IRS employees when they attempt to collect taxes. TIGTA found violations including contacting taxpayers directly without the required consent of the taxpayer’s power of attorney, harassing or abusing taxpayers, and using obscene or profane language with taxpayers during collection related activities.

•   Seizures conducted by the IRS, did not adequately comply with the guidelines put in place to ensure taxpayer’s rights were not violated.

•   The IRS improperly withheld information 14.3 percent of the time when responding to Freedom of Information requests.

•   The IRS could be missing out on as much as $60.9 million in unreported rental income because it is not spotting all nonresident aliens who owe the tax.

•   Sixty-four percent of the IRS’s information technology hardware infrastructure is beyond its useful life. These aged hardware failures may also have had a negative effect on IRS employee productivity, security of taxpayer information, and customer service.

•   The IRS does not have an adequate tracking system to account for the records foreign countries send on a regular basis under the Automatic Exchange of information Program.

•   The IRS’s Criminal Investigation’s Active Directory architecture lacks necessary logical security controls. For example, the operating system on the domain controllers are only 64 percent compliant with security requirements, and 295 service accounts and 1,751 user accounts are improperly configured.

•   In November, 2017, according to Mary Beth Murphy, Commissioner of the Small Business/Self Employed Division of the IRS, the IRS received about 1 million cybersecurity threats a day. Also in November, 2017, according to the IRS Commissioner John Koskinen, We get attacked four million times a day. Maybe they should get their statistics in line. . . . In May 2018, then IRS Commissioner David Kautter said the agency gets 2.5 million cyberattacks each day. Are they just making these numbers up?

•   You have three years to file your return. If you did not file for 2014 in 2015, the statute of limitations expired in April, 2018. According to the IRS, refunds worth $1.1 billion were left on the table unclaimed and now lost.

•   The cost of tax complexity? Over 8.9 billion hours to comply with IRS paperwork and more than $409 billion each year.

•   As a result of the Tax Cuts and Jobs Act of 2018, the IRS will have to create and revise 450 new tax forms and reprogram approximately 140 interrelated return processing systems.

•   Private debt collection in fiscal 2017 generated $6.7 million in taxpayer payments. But the program cost the government $20 million. Plan to make it up in volume?

•   The IRS Criminal Investigation division returned $9.9 million to people whose property it determined had been seized erroneously. I guess that’s why they’re called the Criminal investigation division. . . .

•   The IRS has suspended a program (Enterprise Case Management) because the software product the IRS had selected was not viable. That’s $85.4 million and about two and a half years work down the drain.

There was some good news:

•   Former Rep. Corrine Brown (D-FL) was sentenced to five years in prison for her role in a scheme involving a fraudulent educational charity and for tax obstruction and failing to disclose income.

•   Those with the money are paying the taxes. The top 1 percent of taxpayers in 2015 (the 1.4 million filers with adjusted gross incomes of $480,930 or more) paid 39.0 percent of all federal income taxes. The top 5 percent, with incomes of $195,778, paid 59.6 percent and the top 10 percent, with income of $138,031 or more, paid 70.6 percent. Those in the bottom 50 percent only paid 2.8 percent of the total federal income tax take.

•   Identity theft indicators continued their dramatic decline . . . . reports of identity theft were down 40 percent in 2017 from 2016; the number of tax returns with confirmed identity theft was down 32 percent from 2016 to 2017; and the inventory backlog of taxpayers who filed identity theft reports in 2017 was only 10 percent (34,000 cases) of that in 2013 (372,000 cases).

•   The IRS issued a new strategic plan for 2018–2022 focusing on six goals to improve customer service:

1.  Empower and enable taxpayers to meet their tax obligations.

2.  Protect the integrity of the tax system by encouraging compliance through administering and enforcing the tax code.

3.  Collaborate with external partners proactively to improve tax administration.

4.  Cultivate a well-equipped, diverse, flexible and engaged workforce.

5.  Advance data access, usability and analytics to inform decision making and improve operational outcomes.

6.  Drive increased agility, efficiency, effectiveness and security in IRS operations.

2017 – POLITICS AGAIN TRUMPS ECONOMICS

2017 was the year when facts depended on who said it and in what context. It was also the year where the primary objective of each political party was to keep the other from achieving anything of value regardless of whether they agreed with the final objective . . . just make sure the other guy doesn’t get any credit. In the middle of this chaos, President Trump proposed an outline for a major overhaul and simplification of our whole tax system . . . including a refocus of the IRS from enforcement to service.

Nevertheless, How to Pay Zero Taxes, 2020–2021 needs to step back from wish it were so to deal with the tax code, court cases, and regulations as they exist today. You can’t play the game unless you know the rules and the agency that enforces them—the Internal Revenue Service. In that context, let’s review the effectiveness of that agency as detailed by the Treasury Inspector General for Tax Administration (TIGTA) and the Government Accounting Office (GOA) during the last year:

•   The IRS spent $12 million for subscriptions for a Microsoft enterprise e-mail system that, as it turned out, it could not use. The purchase was made without first determining project infrastructure needs, integration requirements, business requirements, security and portal bandwidth, and whether the subscriptions were technologically feasible for the IRS. . . . Really?

•   IRS employees sent hundreds of unencrypted e-mails containing sensitive taxpayer information, and some used personal e-mail accounts for official agency business. I guess they thought it was OK as long as they were not running for president and the Russians didn’t object.

•   IRS examination function personnel did not always follow collectibility procedures, coordinate with the collection function, nor measure the collectibility of assessments.

•   The IRS paid more than $27.2 million in potentially erroneous refunds or tax credits to 1,938 taxpayers who claimed frivolous tax arguments in tax year 2014. Frivolous tax arguments are those that have no basis in fact or in tax law. That’s not too bad considering. . . .

•   The IRS made about $25 billion in erroneous tax credit payments in 2016. Almost $17 billion of that was for the earned income credit.

•   The IRS incorrectly disallowed about $54,000 in educator expense deductions and $1.5 million in residential energy credits in 2016 because of errors in the process.

•   The IRS’s electronic record retention policies did not consistently ensure that records were retained and produced when requested.

•   A June 2017 report revealed that more than 24,000 fraudulent returns with more than $1.3 billion in claimed refunds were filed with prisoner Social Security numbers.

•   An estimated $4.3 billion in refundable tax credit payments were issued improperly during fiscal year 2016. At 5 percent interest, that’s over $589,000 per day!

•   The IRS Automated Non-Master File (ANFL), which contains roughly $4.5 billion in unpaid tax, penalties, and interest due from taxpayers, is subject to calculation errors and inefficient processing.

•   In October of 2016, additional improvements were still needed to strengthen the IRS Electronic Authentication Process controls, which allowed fraudsters to gain access to about 724,000 taxpayer accounts in May of 2015.

•   The IRS is vulnerable to the loss of laptop computers. Improved controls are also needed to account for the issuance and return of contractor employee laptop computers, which may contain sensitive taxpayer information.

•   In 2016, TIGTA identified weaknesses within the IRS cybersecurity program in which three areas need significant improvement—Information Security Continuous Monitoring, Configuration Management, and Identify and Access Management. There were identified weaknesses in electronic authorization process controls, physical security controls, and backing up and restoring data.

•   The IRS answered 79 percent of the telephone calls it received on its Account Management (AM) telephone lines that were routed to telephone assistors. That’s up from 72 percent from 2016. In addition, time spent on hold declined from 11.1 minutes in 2016 to 6.5 minutes during the 2017 filing season.

•   But, despite answering a higher percentage of calls, assistors actually answered 25 percent fewer calls in 2017 than in 2016. Had they received the same number of calls in 2017 as in 2016, the IRS would have answered only 54 percent of taxpayer calls. The fiscal year 2018 IRS budget projects that the agency will answer only 39 percent of calls routed to telephone helpers next year.

•   The IRS only answered 40 percent of the 2.7 million calls it received in fiscal 2017 from taxpayers seeking to make payments, down from 36 percent the prior year. The wait time also increased from 11 minutes in 2016 to 47 minutes in 2017.

•   Want to see a live IRS agent? You now need an appointment to receive any assistance at any of the 376 Taxpayer Assistance Centers (TACs) operated by the IRS. Call 844-545-5640 to schedule an appointment or you will be turned away.

•   From January 2015 through March 2016, the IRS brought back more than 10 percent of the 2,000 employees who were terminated or separated from the agency while under investigation for a substantiated conduct or performance issue.

•   Taxpayers who go to the IRS Office of Appeals for collection due process issues are still misclassified and receive the wrong type of hearing.

•   Up to 14 Fair Tax Collection Practices violations at the IRS were identified in 2015.

•   Between fiscal 2015 and 2016, calculation errors caused the IRS to underpay 900 employees and overpay 600 more. Based on a sample of IRS employees who received salary increases of more than 10 percent for promotion into management positions between fiscal 2006 and 2015, 31 percent of sampled employees were not paid correctly.

•   The IRS Whistleblower Office does not have appropriate controls in place for sufficient oversight of claims processing.

•   $17.1 million was unlawfully seized by the IRS and forfeited to the government allegedly in violation of the Bank Secrecy Act. In a TIGTA civil forfeiture sample of 278 investigations, 91 percent of them were found to be businesses where the funds were obtained legally.

•   During the 2016 filing season, the IRS doled out $1.2 million less in a property tax credit than taxpayers were owed. It was because the IRS failed to make computer program changes first highlighted in 2015. Because of another computer problem, 5,600 direct deposits did not properly convert to paper checks.

•   In 2016, the IRS’s information security program was not fully effective due to program issues.

•   Most people (57%) who claimed the health coverage tax credit on their 2015 returns did not qualify for that credit. Good news! The IRS correctly determined the amount of the allowable premium tax credit 93 percent of the time in 2015 and 97 percent of the time in 2016.

•   The IRS failed to accurately impose a fee for failure to file a return for 85 accounts worth more than $1.7 million, overcalculated the penalty fee on 153 accounts totaling about $89,000, and underassessed the fee on 227 accounts, totaling about $354,000.

•   About 1.1 million taxpayers were victims of employment-related identity theft—which happens when a taxpayer’s identity is stolen to get a job—from February 2011 to December 2015. More than 800,000 victims were harmed just in 2015. Yet in June 2017 the IRS processes were still not sufficient to identify and assist all employment theft victims.

•   As of September 30, 2016, the IRS had only 98 employees conducting education and outreach to the 62 million small business and self-employed taxpayers, and only 365 employees for the nearly 125 million individual taxpayers.

•   A 2016 GAO report on IRS audits led House Ways & Means Chairman Brady and Oversight Subcommittee Chairman Roskam to conclude that the findings show that the agency does not have protections in place to ensure that taxpayers are treated fairly when being selected for audits.

•   The number of IRS employees working taxpayer correspondence cases and answering phone questions fell about 11 percent between fiscal years 2013 and 2015. This was despite taxpayer services funding increasing 9 percent, to $198 million, between fiscal years 2013 and 2016.

•   Since 2001 to the end of 2016, there have been almost 5,900 legislative tax changes . . . more than one a day.

•   In 2017, we spent close to $1 trillion more for taxes than for food, clothing, and housing combined.

•   From the gang that couldn’t shoot straight––one of the IRS’ fabled successes is the takedown of gang leader Al Capone for tax evasion. The agency lent the new Mob Museum in Las Vegas a prized possession from its collection of historical artifacts—a handgun once owned by Mr. Capone. One small problem . . . it was the wrong gun!

•   According to Ibis World, the U.S. tax preparation industry generates $8.9 billion in annual revenue. My children thank you!

•   Interesting news! The Tax Revolution Institute has created a new website, AuditIRS.com, to collect personal experiences from taxpayers about their encounters with the IRS, and it plans to conduct an audit of the IRS’s treatment of taxpayers.

•   Good news! From January to April 2016, the IRS stopped $1.1 billion in fraudulent refunds claimed by identity thieves on more than 171,000 tax returns, compared to $754 million in fraudulent refunds claimed on 141,000 returns for the same period in 2015.

•   Better news! During fiscal 2016, the IRS stopped more than $6.5 billion in fraudulent refunds on the 969,000 tax returns confirmed to be filed by identity thieves. Complaints of ID theft fell 46 percent in 2016 from the previous year, dropping to 376,500.

•   Crazy news! Hope and belief beat out experience every time. That’s why people keep getting married over and again—full disclosure—I have a sister-in-law who has been married ten times! After being discontinued twice before because of complaints about harassment of taxpayers and low success in collections, our Congress has reinstated a program to hire four private collection agencies to help collect unpaid federal income tax debts. The IRS has contracted with these collection agencies: Pioneer, in Horseheads, NY; Conserve, in Fairport, NY; Performant, in Livermore, CA; and CBE Group, in Cedar Falls, IA.

Who picked these debt collectors? In a letter to Pioneer, Senator Sherrod Brown (D-OH), Senator Benjamin Cardin (D-MD), Senator Jeff Merkley (D-OR), and Senator Elizabeth Warren (D-MA) expressed concerns that Pioneer may be:

1.  failing to adequately protect taxpayers from criminals posing as IRS agents;

2.  pressuring taxpayers into risky financial transactions;

3.  violating the Fair Debt Collections Practices Act (FDCPA) and provisions of the Internal Revenue Code, and

4.  violating IRS guidelines and provisions of Pioneer’s contract.

The Senators were particularly concerned because Pioneer’s parent company, Navient, abused federal student loan borrowers through its Education Department student loan servicing contracts.

In addition, this private collection program will surely be hampered by telephone scammers who pretend to be from the IRS in order to embezzle funds from unknowing taxpayers. Criminals impersonating IRS employees have stolen $55 million from more than 10,300 individuals in the last three years.

The IRS solution? TIGTA released a new flyer and a new poster warning taxpayers about potentially fraudulent calls from IRS imposter employees. You can always make an appointment to see them at any local IRS office . . . but don’t try without an appointment.

IF YOU DO GET A CALL, ASK THEM TO SEND YOU A LETTER. THE REAL IRS NEVER MAKES A CALL UNTIL LETTERS HAVE BEEN SENT.

Call the TIGTA Hotline at 800-366-4484 for complaints and questions about IRS private debt collectors.

2016 – A NEW PRESIDENT AND CONTINUING CHAOS

2016 was the year we elected a new president, and now almost half the voters are contemplating moving out of the country. Throw in global warming and your best long-term investment may well be land in Canada.

2016 was also the year the House of Representatives Committee on Oversight and Government Reform voted to censure and impeach IRS Commissioner John Koskinen for lying to Congress. I’m not sure I understand. I thought the inability to tell the truth was a prerequisite to being a politician.

2016 was also the year in which the annual extenders game came to a halt. The extenders were a series of fifty some odd tax provisions that pretty much on an annual basis Congress would wait till the last minute to renew—and then renewed only for a short period of time. They included a group of deductions such as the $250 above the line allowance for teachers’ expenses, the deduction for state sales taxes, the mortgage insurance premium deduction, the tuition and fees deduction, the forgiven mortgage debt exclusion, the nonbusiness energy credits, etc. The Protecting Americans from Tax Hikes (the PATH Act), passed in the last two weeks of December 2015, extended several provisions through 2016 and made others permanent. See page 574 for details.

Here are some of the indignities suffered by the IRS in 2016 as revealed by the General Accounting Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA):

•   Because of a programming error impacting more than 13,000 returns in 2013, over $27 million in refunds were erroneously issued.

•   A computer programming error and the ineffective monitoring of potentially fraudulent tax returns resulted in the erroneous release of more than $46 million in refunds during 2014.

•   In an analysis of 2011 data, it was found that the IRS failed to assess $200 million in fines and penalties for employer improper wage reporting. The IRS just didn’t send out the bill!

•   It was revealed that in 2011 the IRS paid out $3.6 billion in fraudulent refunds, growing to $5.8 billion in 2013. In June 2015, the IRS website got hit with thieves stealing information on about 100,000 taxpayers to generate $39 million in fraudulent refunds.

•   The IRS Electronic Fraud Detection System was developed in 1994 and remains the IRS’s main system for detecting fraudulent returns. The failure to phase out this old system with a developed new one could cost taxpayers an estimate additional $18 million per year to run both systems.

•   Half of the IRS-approved free e-file services failed the IRS’s security and privacy mandated standards. Among those who failed were 1040.com, 1040Now.net, FileYourTaxes.com, Free1040TaxReturn.com, Online Taxes at OLT.com, and Jackson Hewitt Online.

•   IRS employee, Nakeisha Hall, who worked for the Taxpayer Advocate Service, where her job was to help taxpayers resolve their identity theft problems, pleaded guilty to identity theft. She got 9 years in prison.

•   The new IRS fraud detection system failed to detect $313 million in fraudulent identity theft refunds in 2015.

•   The IRS took an average of 70 days to accommodate requests by disabled employees. It should have been done in 15 days, absent extenuating circumstances.

•   More than a dozen IRS employees misused their government-issued charge cards.

•   The IRS is not ensuring that keys, identification badges, and other security items are collected from employees who leave the agency.

•   By the end of 2016, the IRS plans to eliminate the walk-in option at Taxpayer Assistance Centers (TAC), migrating to an appointment only system.

•   The IRS is conducting a pilot program under which it will not accept tax payments from walk-in taxpayers. Now you need an appointment to pay your bill!

•   Nearly one third of the 4.6 million taxpayers who received an advanced premium tax credit for insurance coverage bought on a health care marketplace didn’t report the credit on their returns.

•   The IRS has failed to adequately test a database that will house all taxpayer information for the Affordable Care Act–related reporting requirements.

•   The IRS’s computer system miscalculated the allowable Premium Tax Credits for more than 27,000 taxpayers who received subsidies for health insurance under the Affordable Care Act in 2015.

•   The IRS cannot adequately identify certain U.S. and foreign citizens who fail to pay Social Security taxes.

•   The IRS allowed nearly $95 million in potentially improper foreign tax credits between tax years 2010 and 2012.

•   Tax preparers who were given identification numbers by the IRS and allowed to practice in 2015 may have owed more than $367 million in taxes.

•   Many of the special personal identification numbers issued by the IRS to protect victims of identity theft may have been stolen.

•   About 724,000 taxpayer accounts were breached by hackers targeting the IRS’s Get Transcript application, 390,000 more than the agency previously reported.

•   The IRS failed to fully redact Social Security Numbers and Employer Identification Numbers from hundreds of its Offer in Compromise files that are available to the public.

•   The IRS, which has 2,316 special agents, spent nearly $11 million on guns, ammunition, and military style equipment. That’s nearly $5,000 in gear for each agent.

•   Because of IRS failures, taxpayers received $572 million in excess Obamacare tax credits.

•   The IRS needs to improve the management of its backup and restoration process.

•   The IRS needs to strengthen certain internal controls for audit selection. Currently the IRS uses over 30 methods, called workstreams, to identify and review tax returns that may merit an audit. The returns were initially identified through seven sources, which include referrals, computer programs that run filters, rules, or algorithms to identify noncompliant taxpayers.

•   The IRS did not always follow its own procedures when selling some of the property it seized for unpaid taxes.

•   The IRS’s Automated Collection System lacks key controls for selecting which delinquent tax cases to pursue.

•   Section 1204 of the IRS Restructuring and Reform Act of 1998 (RRA 98) mandates that managers evaluating employees not use any record of tax enforcement results (ROTER). Employees should not get promotions and awards based upon the amount of money they get from taxpayers at an audit. TIGTA found multiple instances in a 2015 report where these rules were not followed.

•   In fiscal 2014, the IRS reported payments of $65.2 billion for the earned income tax credit (EITC). The IRS estimated that 27.2 percent, or $17.7 billion of those program payments were improper.

•   During the 2015 filing season in 2016, the IRS estimated it may have paid $30 million to fraudsters who filed approximately 7,200 tax returns that passed through the Taxpayer Protection Program to identify fraudulent returns.

•   The Taxpayer Protection Program (TPP) was set up to protect identity theft. Its false positive rate for 2015 was 36.6 percent, which means that 760,000 legitimate refunds were stopped.

•   During the 2016 filing season, the TPP only answered 22.7 percent of more than 4.4 million calls. Nearly four out of five calls were not answered.

It wasn’t just the IRS that had its problems. On April 6, 2016, former US Tax Court Judge Diane Kroupa and her husband were indicted for conspiracy to commit tax evasion and obstruction of an IRS audit.

There was some positive news:

•   The GAO found that the IRS was generally successful in collecting delinquent taxes from current and retired federal employees. The IRS identified 304,665 federal employees and retirees who owed approximately $3.54 billion in unpaid taxes at the end of fiscal 2014.

•   Federal income tax collection rose 10.5 percent in 2015. The $3.2 trillion collected from all federal taxes in 2015 was the highest on record.

•   Good news if your identity has been stolen. The value of identity protection services provided by an entity whose data has been breached is NOT taxable income to the breach victim.

•   During its pilot in calendar year 2014, the Return Review Program identified 10,348 identity theft cases, totaling $43 million in refunds and an additional 350,000 potentially fraudulent returns that were not detected by the existing fraud detection system.

•   IRS spending on conferences, meetings, and events was only $22.2 million in fiscal 2014, down 87.5 percent from the prior year.

•   From January through April 2016, the IRS stopped $1.1 billion in fraudulent refunds claimed by identity thieves on more than 171,000 tax returns. That compares to $754 million in fraudulent refunds claimed on 141,000 returns for the same period in 2015.

•   Since January 2016, the IRS Identity Theft Victims Assistance function experienced a marked drop of 48 percent, which includes identity theft affidavits filed by victims.

•   Because of low incomes or refundable credits, 44 percent of Americans paid no federal income tax.

2015 – EXTENDERS AGAIN AND A TOUGH YEAR FOR THE IRS

Insanity has been defined as doing the same thing over and over again and expecting different results. Yet year after year, we elect the same representatives back to Congress expecting them to legislate and govern and all they do is play politics (that’s from the Greek poli meaning many and tics meaning bloodsuckers).

Once again, the extenders expired only to be renewed in the last two weeks of the year. Last year’s extender legislation had a shelf life of less than a carton of eggs. Signed into law on December 18, 2014, the provisions expired less than two weeks later. See page 584 for details on the 2014 extensions.

I Actually Felt Bad for the IRS in 2015

Clearly Congress is unhappy with the IRS. Clearly Congress has no idea what it is doing. There is no dispute that the IRS officials have acted inappropriately and potentially criminally in multiple occasions in the past. But, instead of coming down hard on the individuals responsible, Congress has punished the institution by severely slashing its budget at the same time the Affordable Care Act substantially increases its responsibilities. Less money to do more work. The results would be obvious to a fifth grader but maybe I’m giving our representatives too much credit.

Here are some of the indignities suffered by the IRS in 2015 as reported by the General Accounting Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA):

•   Remember the 24,000 missing Lois Lerner e-mails tied to alleged IRS political targeting? More than 1,000 previously unreported e-mails have been recovered but as much as 23,000 more are still missing since backup data in 422 disaster recovery tapes were erased months after a preservation order and a subpoena to retain them were issued. It’s a destruction of evidence according to House Oversight and Government Reform Committee Chairman Jason Chaffetz of Utah.

•   The IRS bragged about preventing $24.2 billion in fraudulent identity theft refunds last year. But then it was revealed that the IRS did pay out $5.8 billion in fraudulent claims. That’s more than twice my daughter’s clothes budget for a year!

•   The GAO noted that weaknesses remain in information security control that could affect the confidentiality, integrity, and availability of financial and sensitive taxpayer data, as a result of which—

•   Hackers broke through the security program used to protect taxpayer data on the IRS’ Get Transcript Online System and stole past tax return information, including Social Security numbers, from more than 334,000 tax returns.

•   If you are a victim of identity theft, go to www.IdentityTheft.gov for checklists as to what to do and file Form 8821-A. However, according to the TIGTA, the IRS has not always responded with accurate, timely information to requests from law enforcement officials to help identity theft victims.

•   The IRS awarded $18.8 million in contracts to 17 corporations that owed back taxes in fiscal 2012 and 2013 despite a law specifically prohibiting such contracts with firms with unpaid tax debts.

•   Identity theft fraudulent returns using TurboTax software caused its owner, Intuit, Inc., to suspend the filing of state tax returns. Massachusetts and Vermont actually suspended issuing tax refunds in an abundance of caution.

•   Between fiscal years 2010 and 2015, the IRS budget was reduced by more than $1.2 billion. This has resulted in a 21 percent reduction of Automated Collection Service (ACS) contact representatives and 28 percent of Field Collection revenue officers. The IRS is answering 25 percent fewer taxpayer telephone calls since 2011 and taxpayers who actually got through waited an average of eight minutes longer to speak with a representative. In fiscal 2014, 35.6 percent of phone calls to the IRS went unanswered and 50 percent of correspondence with the agency was not handled in a timely manner. During the 2015 tax filing season, the IRS’ over-loaded phone system hung up on more than 8 million calls from taxpayers. According to a Ways & Means report, the time IRS employees spent on union activities would have allowed for an additional two million plus in taxpayer assisted phone calls. In fiscal 2014, revenue officers closed 34 percent fewer cases and collected $222 million (7 percent) less in revenue than in 2011. Fiscal year computer downtime reached 66,448 hours, the equivalent of losing 32 full-time employees for the year. The IRS currently employs about 90,000 people, of which only about 2,000 are under the age of 30, and about 650, less than 0.01 percent, were born after 1990—not a recipe for sustainment. More than half of the IRS work force is over age 50, and about 40 percent will be eligible to retire in 2019. Because of budget cuts, the IRS will continue its hiring freeze and expects to lose through normal attrition approximately 3,000 additional full-time employees in fiscal year 2015. That would bring the total reduction in full-time staffing since fiscal year 2011 to over 18,000, while the amount spent on employee training for those left has been cut by 83 percent.

•   While funding and employees have crumbled, over the past decade the number of individual tax returns have jumped 11 percent, business returns are up 18 percent, and phone calls to the IRS have soared 70 percent.

•   According to the Treasury Department, every $1 cut from the IRS enforcement budget results in a loss of $6 in additional revenue.

•   Adjusted for inflation, the IRS will have as much money as it did in 1998, when it processed 30 million fewer returns. According to IRS Commissioner John Koskinen, such budget cuts will result in the loss of $2 billion in revenue through enforcement cut backs.

•   In 2015, budget prevented the IRS from distributing paper forms in libraries and most post offices. In fact, the IRS actually ran out of preprinted tax forms and reportedly didn’t even have the extra blank paper to print out more forms.

•   Computer upgrades will also