Tuesday, April 15, 2014
Senators Convince Social Security to Stop Seizing Tax Refunds for Decades-old Overpayments
A pair of senators have called on the Social Security Administration to end the policy of seizing taxpayers' refunds to hold them accountable for decades-old errors made by the agency that led to the overpayment of benefits, and the agency has agreed to do so.
"While this policy of seizing tax refunds to repay decades-old Social Security overpayments might be allowed under the law, it is entirely unjust," the senators wrote in a letter Friday to the Acting Commissioner of the Social Security Administration, Carolyn Colvin. "Grice and other families like hers are unfairly being held responsible for decades-old errors at the Social Security Administration – even though many of these taxpayers were children at the time the error was made. Too many of these families are now finding themselves trapped in a mess of paperwork and red tape that is both costly and time-consuming."
These garnishments are possible because of a provision in the 2008 Farm Bill, which allowed the Social Security Administration to pursue claims owed to it for overpayments beyond what had previously been a ten-year statute of limitations. However, the law gives the Social Security Administration the discretion not to pursue repayment of the debt in cases where doing so would be "against equity and good conscience."
Senators Boxer and Mikulski also asked the agency to provide a summary of its efforts to recover overpayments that are more than a decade old, and to detail how many of the cases involve individuals who were minor children at the time the mistake was made.
On Monday, the Social Security Administration announced an immediate halt to the practice.
"I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law to refer debt to the Treasury Department," said Colvin in a statement. "If any Social Security or Supplemental Security Income beneficiary believes they have been incorrectly assessed with an overpayment under this program, I encourage them to request an explanation or seek options to resolve the overpayment."
Senator Charles Grassley, R-Iowa, had also sent letters to the Social Security Administration and the Treasury, asking about how they interpreted their authority to pursue old debts. He also welcomed the change in policy Monday.
"Payment beneficiaries have to be accountable for overpayments from the government, but the government has to be reasonable and use common sense," he said in a statement. Is it fair and reasonable to pursue debts from the surviving children for payments to the parents, no matter how long ago any overpayment occurred? The agency is right to revisit that point. However, it shouldn't take embarrassing media coverage and lawsuits for this step to take place. Agencies should be able to apply common sense and fairness without a public firestorm. And Congress needs to be careful about legislating one line in an unrelated bill that an agency then develops into something possibly beyond what Congress intended. The statute of limitations language didn't give the agency permission to collect debts where the debtor is deceased. It's not clear where that authority came in. There's a difference between collecting decades-old debt from the debtors and decades-old debt from their kids. I still expect responses to my letters."
Sunday, April 13, 2014
Apr 13, 2:12 PM EDT
CHANCES OF GETTING AUDITED BY IRS LOWEST IN YEARS
BY STEPHEN OHLEMACHER
WASHINGTON (AP) -- As millions of Americans race to meet Tuesday's tax deadline, their chances of getting audited are lower than they have been in years.
Budget cuts and new responsibilities are straining the Internal Revenue Service's ability to police tax returns. This year, the IRS will have fewer agents auditing returns than at any time since at least the 1980s.
Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.
"We keep going after the people who look like the worst of the bad guys," IRS Commissioner John Koskinen said in an interview. "But there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we're not going to catch."
Better technology is helping to offset some budget cuts.
If you report making $40,000 in wages and your employer tells the IRS you made $50,000, the agency's computers probably will catch that. The same is true for investment income and many common deductions that are reported to the IRS by financial institutions.
But if you operate a business that deals in cash, with income or expenses that are not independently reported to the IRS, your chances of getting caught are lower than they have been in years.
Last year, the IRS audited less than 1 percent of all returns from individuals, the lowest rate since 2005. This year, Koskinen said, "The numbers will go down."
Koskinen was confirmed as IRS commissioner in December. He took over an agency under siege on several fronts.
Last year, the IRS acknowledged agents improperly singled out conservative groups for extra scrutiny when they applied for tax-exempt status from 2010 to 2012. The revelation has led to five ongoing investigations, including three by congressional committees, and outraged lawmakers who control the agency's budget.
The IRS also is implementing large parts of President Barack Obama's health law, including enforcing the mandate that most people get health insurance. Republicans in Congress abhor the law, putting another bull's-eye on the agency's back.
The animosity is reflected in the IRS budget, which has declined from $12.1 billion in 2010 to $11.3 billion in the current budget year.
Obama has proposed a 10 percent increase for next year; Republicans are balking.
Rep. Ander Crenshaw, R-Fla., chairman of the House subcommittee that oversees the IRS budget, called the request "both meaningless and pointless" because it exceeds spending caps already set by Congress.
Koskinen said he suspects some people think that if they cut funds to the IRS, the agency won't be able to implement the health law. They're wrong, he said.
The IRS is legally obligated to enforce the health law, Koskinen said. That means budget savings will have to be found elsewhere.
Koskinen said he can cut spending in three areas: enforcement, taxpayer services and technology. Technology upgrades can only be put off for so long, he said, so enforcement and taxpayer services are suffering.
Last year, only 61 percent of taxpayers calling the IRS for help got it. This year, Koskinen said he expects the numbers to be similar. To help free up operators, callers with complicated tax questions are directed to the agency's website.
"The problem with complicated questions is they take longer," Koskinen said.
Your chances of getting audited vary greatly, based on your income. The more you make, the more likely you are to get a letter from the IRS.
Only 0.9 percent of people making less than $200,000 were audited last year. That's the lowest rate since the IRS began publishing the statistic in 2006.
By contrast, 10.9 percent of people making $1 million or more were audited. That's the lowest rate since 2010.
Only 0.6 percent of business returns were audited, but the rate varied greatly depending on the size of the business. About 16 percent of corporations with more than $10 million in assets were audited.
Most people don't have much of an opportunity to cheat on their taxes, said Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham University.
Your employer probably reports your wages to the IRS, your bank reports interest income, your broker reports investment income and your lender reports the amount of interest you paid on your mortgage.
"Anybody who's an employee, who gets paid by an employer, has a limited ability to take risks on their tax returns," Maresca said. "I think people who own their own business or are self-employed have a much greater opportunity (to cheat), and I think the IRS knows that, too."
One flag for the IRS is when your deductions or expenses don't match your income, said Joseph Perry, the partner in charge of tax and business services at Marcum LLP, an accounting firm. For example, if you deduct $70,000 in real estate taxes and mortgage interest, but only report $100,000 in income.
"That would at least beg the question, how are you living?" Perry said.
Koskinen said the IRS could scrutinize more returns - and collect billions more in revenue - with more resources. The president's budget proposal says the IRS would collect an additional $6 for every $1 increase in the agency's enforcement budget.
Koskinen said he makes that argument all the time, but for some reason, it's not playing well in Congress.
"I say that and everybody shrugs and goes on about their business," Koskinen said. "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."
Follow Stephen Ohlemacher on Twitter:HTTP://TWITTER.COM/STEPHENATAP
Saturday, April 12, 2014
Simpsons characters show the perils of last-minute tax filing
// Don't Mess With Taxes
This old clip from The Simpsons highlights why most of us nowadays, even after the Heartbleed bug online security scare, are e-filing our annual tax returns.
If you're not an early filer like Ned Flanders and are still working on your return (or plan to this weekend) so you can get it to the post office on April 15 or, more likely, hit "enter" on your keyboard by that day, the Daily Tax Tips could help.
Feel free to peruse them all; they started Jan. 6 and will wrap up on, you guessed it, April 15. And start at whatever month you want. Each compilation -- January, February, March and April -- has links to the other tips listings.
All the tips are like my kids, so it's hard to pick favorites. But here are some that might be particularly useful, especially for late filers:
- Tax tips for new filers
- Tax filing checklist
- Electronic tax filing options
- 10 often overlooked tax breaks
- 10 common filing mistakes
- Tax break bait and switch
- Tax concerns of the unemployed
- Cut your taxes without itemizing
- 12 small business deductions
- 4 tax breaks for older filers
- 5 new taxes that target rich taxpayers
- Don't deduct that!
- Being DIFferent could prompt a tax audit
- Selfies as tax filing, audit defense tool
Of course, taxes and tastes in tax tips are intensely personal. So your tax tip choices might differ. But with 96 tips and counting -- we'll hit tip #100 on April 15 -- hopefully you'll find some information to make your late-season filing easier.
And if you find you just can't finish your 1040 by next Tuesday, then don't. But do file Form 4868 to get an automatic extension. It's better to file later and get it right than to get in a hurry and send in an error-riddled return.
Remember, though, that 4868 is an extension to file the forms, not pay your tax bill. So send the Internal Revenue Service any tax bill you expect to owe, or as much as you can, with your extension request.
Making at least a partial payment will reduce the penalties and interest you'll owe when you eventually finish your filing.
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Feds Snatch Kids' Tax Refunds to Pay Off Parents' Old Debts
// Money Talks News
Uncle Sam is intercepting some taxpayers' tax refund checks to collect on Social Security overpayments made to their parents -- even decades ago.
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Thursday, April 10, 2014
Why is income received in advance a liability?
// AccountingCoach.com Q&A
Under the accrual method of accounting, income that is received in advance is a liability because the company that received the money has not yet earned it and it has an obligation (a liability) to deliver the related goods or services in the future. Accountants may say that the income should be deferred to a balance sheet account until it is earned. Once the money is earned it will be moved from the balance sheet account to a revenue or income account.
In terms of debits and credits, the company receiving the money in advance will debit the asset account Cash and will credit a liability account such as Unearned Income, Unearned Revenues, Deferred Income, Deferred Revenues, Customer Deposits, etc. Let's assume that the credit is made to Deferred Income.
After the company earns the money that was prepaid (by delivering the goods or services), it will then debit Deferred Income and will credit a revenue or income account.
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