Identity Theft is growing issue with IRS tax returns being filed

The following is a re-print from the National Society of Accountants about the problems identity theft is creating with fake tax returns being filed with IRS. What is happening is people steal an identity and make up a false tax return. File the return with the IRS and receive a refund. The real person files their return only to have it returned by the IRS stating the return has already been filed. Or the real person receives a letter from IRS stating there is an error on the return and the real person must repay thousands of dollars in excess refunds. The IRS Office of Chief Counsel addressed several disclosure issues that have arisen as a result of continuing efforts to address identity theft. Some interesting twists: * A “bad return”—one filed by an alleged identity thief—upon its filing and receipt by IRS is the return information of both the victim and the alleged identity thief, the Office of Chief Counsel said. “Because section 6103 does not incorporate any temporal limit on the designation or identification of returns and return information as being that of a particular taxpayer, the ‘bad return’ remains the return information of the victim (as well as the thief) even if it is later determined that it was not filed by the victim and even if and when the victim's account is ‘restored’ to its status prior to the fraudulent filing,” it said. * Under Section 6103(e)(7), an identity theft victim may obtain from IRS a copy of a bad return filed by an alleged identity thief, as well as other return information associated with the processing of such a return. The office noted, however, that the tax code provides no authority for disclosure of an identity thief's return information to an identity theft victim. “This would include the identity of the person who filed the ‘bad return.’ ” it said. * Section 6103(i)(3)(A), which authorizes the disclosure of certain return information to federal agencies with jurisdiction to enforce federal non-tax crimes, allows the disclosure of a bad return to appropriate federal law enforcement agencies. The office warned that it is essential such a disclosure occur only after a factual determination has been made that the bad return is fictitious in order to avoid unauthorized disclosure. * State and local law enforcement agents appointed to the Justice Department as part of Internal Revenue Code and non-I.R.C. grand jury investigations may access return information under Sections 6103(h)(2) or (i)(1), (i)(2), and (i)(3)(A) respectively. State and local law enforcement personnel may be considered federal employees for Section 6103 purposes so long as they are formally appointed as federal employees, they are assisting in a federal investigation, and are supervised by a federal employee. * Under Section 6103(c), an identity theft victim may consent to the disclosure of a bad return filed by the alleged identity thief to state and local law enforcement agencies in connection with their investigations.

Offers to settle IRS debts for less than the full amount

The following is a re-print of an IRS article. The IRS has had a program call Offer in Compromise where taxpayers could make a settlement offer with the IRS on past due income taxes. Unfortunately the numbers of offers accepted by the IRS has declined steadily over the past 5 years. The IRS has started a new offer program that they call Fresh Start. The IRS has expanded its “Fresh Start” initiative by offering more flexible terms to its Offer-in-Compromise Program. These newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker. An offer-in-compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to determine the reasonable collection potential. This expansion of the “Fresh Start” initiative focuses on the financial analysis used to determine which taxpayers qualify for an OIC. Here are the OIC changes: • Revising the calculation for a taxpayer’s future income. The IRS will now look at only one year (instead of four years) of future income for offers paid in five or fewer months; and two years (instead of five years) of future income for offers paid in six to 24 months. All OICs must be paid in full within 24 months of the date the offer is accepted. • Allowing taxpayers to repay their student loans. Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer’s post-high school education. Proof of payment must be provided. • Allowing taxpayers to pay state and local delinquent taxes. When a taxpayer owes delinquent federal and state or local taxes, and does not have the ability to fully pay the liabilities, monthly payments to state taxing authorities may be allowed in certain circumstances. • Expanding the Allowable Living Expense allowance. Standard allowances incorporate average expenses for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer-in-compromise requests. The National Standard miscellaneous allowance has been expanded. Taxpayers can use the allowance to cover expenses such as credit card payments and bank fees and charges. Hopefully these new rules will allow more taxpayers to qualify for the offer program with workable solutions.