Communicating with the IRS

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It seems to us the IRS is much more delayed in their communication. They have a lot to handle considering the recently added responsibilities such as the Affordable Care Act, funding cuts, and hiring freezes. This has caused the IRS had to decrease the time and ways taxpayers can communicate with them. This has become a burden for people seeking answers from the IRS. This week, we would like to review the different ways you can communicate with the IRS and what you can expect from each method.

Phone Call

You have always been able to call the IRS with questions about your taxes, general questions, and to negotiate payments. A phone call is still an option. However, you can only ask them about your return status, a letter you received, or set up a payment arrangement. If you have any questions about tax deductions or tax rules and regulations, they will not answer them. This is because the people on the other end are not trained to answer those types of questions. They will simply refer you to Additionally, you can expect call waiting times to be anywhere from ½ hour up to 4 hours.

Visit to the Local IRS Office

Walking into an IRS office and asking questions can be a more productive method. The people who work in the offices seem to know more and are willing to help if you take the time to go in and wait. However, they will only talk to you about resolving your tax problem. So if you have a question about tax deductions or tax rules they will also refer you to If they can’t solve your problem, they will at least tell you what to do to solve it. Wait times at the office are generally ½ to 1 hour.

Written Letter

Writing the IRS is a good way to communicate. If you choose this method it is a good idea to send your letter registered, so you have proof that they received the letter and what you said. You will also have proof of the response. The down side of writing is that it can take from 6 weeks to several months depending on the type of correspondence. If there are forms to be reviewed or any research to be done it will take months to get a response. Sometimes you will get a letter that says, “Just want you to know we are still working on your problem.” Also, because it takes so long to get a response, you may continue to get bills charging increased penalties and interest while they are trying to solve the problem. And it can also delay any potential refunds.

So as you can tell, communicating with the IRS is not easy at any level. Often times your tax preparer can answer your questions, help you look up information online, and tell you your options. When you have a question or concern we recommend you always call your preparer first.

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Updates from the National Tax Forum

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We recently attended the National Tax Forum, put on by the IRS, which educates and updates us on the latest tax changes. This year there were four areas that were stressed. They included the Affordable Care Act (Obamacare), Earned Income Tax Credit, DOMA (Defense of Marriage Act) and IRS Scams. We have touched on a couple of these in recent blogs but I would like to briefly mention them again.

  1. The Affordable Care Act rules are affective starting for the 2014 tax year. Those who have had health insurance the entire year will simply have to mark a box on their tax return. Insurance companies will be filing a form with the IRS confirming all those who have health insurance. Those who have not had insurance for all or part of the year and make more than the income threshold, will be required to fill out a work sheet to determine how much of the Shared Responsibility Payment they will owe. This is a complex calculation but the IRS has assured us that the worksheet will be easy to follow. Once again, the payment will be deducted from any refunds and the IRS has no means to collect the payment if it is not paid.
  2. The Earned Income Tax Credit rules and requirements have been tightened up. Because so many people have claimed the credit fraudulently, tax payers will be required to provide proof that they and their dependents qualify for the credit. There is a list of questions that must be answered and sent in with the tax return. In some cases proof of which parent had physical custody and proof of support will be required to be provided.
  3. The new Defense of Marriage Act came about because of same sex marriage. Basically it makes all legal marriages whether between a man and a woman or between two people of the same sex treated the same for federal tax purposes. This means that if a same sex couple is married in a state or country where it is legal then the IRS requires them to file married jointly or married filing separate. This is a benefit for some and a tax increase for others. The problem is that not all states recognize the marriages and so in some states couples will be required to file jointly for federal tax purposes and single on their state returns.
  4. IRS scams continue to be a problem. We have even experienced them in our office. Remember that the IRS will not contact you by phone or email unless you are in the middle of an audit or negotiation. If the IRS contacts you by phone, do NOT give any information to them, do not call them back, just hang up and report it to the IRS. If you receive an email, do not open it, forward it to and then delete it.

If you have further questions about any of these topics regarding your personal situation, contact your tax preparer.

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IRS Good News and Bad News

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Recently the IRS has been experiencing some significant struggles.  IRS funding has been declining since 2010, as well as hiring freezes have decreased the employee head count.  In addition, the IRS’ work load has been increasing due to programs such as health care reform, foreign bank account reporting rules, and its efforts to prevent fraudulent refunds and going after scammers.  This has created some good news for tax payers as well as some bad news.

The good news is that audits are down.  Last year the number of audits of individuals was the lowest since 2005.  Audits for corporations, LLC’s and partnerships are also down.  Certain things that the IRS has monitored closely in the past have had to be put on hold such as alimony reporting, overstatements of retirement contributions, and matching the new 1099K (that report credit card sales) with actual income on tax returns.  The IRS is also experiencing brain drain because older, more experienced auditors are retiring they are being replaced by younger less experienced people.  It is taking extra time and energy to bring these new people up to speed on all the complex tax issues.

The bad news is that because the IRS is under staffed and over worked, tax payers will experience problems trying to communicate with the IRS.  There has been longer wait times when calling the IRS (we have seen up to 4 hour waits).  The IRS will no longer answer general tax questions.  Instead taxpayers will be asked to research the questions on their own via the IRS website.  Correspondence letters are also taking longer to process because the IRS is way behind.  This is causing some tax payers to receive erroneous billings because their information has not been processed.

Don’t expect the IRS to come roaring back anytime soon.  Congress appears to be keeping a tight hold on the funding.

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Should I Convert My IRA to a Roth?

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If you have a traditional IRA and want to convert it to a Roth IRA there are many things to consider.  Sometimes it can be a tax benefit and sometimes it can cost you more taxes.

First, what is the difference between the two?   For a traditional IRA the money contributed is generally tax deferred going in.  When you take it out you pay taxes on what you put in plus any money it has earned over the years.  For a Roth IRA, the money that is contributed is taxed.  When you take it out, the money is tax free.  There are several things to consider when deciding if converting is a good idea for you.

  1. When you convert a traditional IRA to a Roth, you must pay the taxes on the money you convert at your current tax rate.  If you foresee your tax rate being lower when you retire than it is currently, you may end up paying more taxes on that money now than if you simply keep it in the traditional IRA and pull it out at retirement.
  2. No minimum distributions are required on a Roth IRA when you reach 70 ½.  You can let the money sit in the Roth no matter how old you are.  After your death, your heirs (except your spouse) must start withdrawing money from the account, but the payouts are tax free.
  3. There is a chance for some taxpayers that if they convert, they will be subject to the new 3.8% Medicare surtax.  If pulling it out puts your income above the threshold  (AGI over $200,000 for singles and over $250,000 for couples) then you could be subject to 3.8% of your passive income.
  4. If you are receiving Social Security and/or Medicare, converting could cause you to pay higher Medicare premiums and pay on your Social Security benefits.
  5. Doing partial conversions over several years can eliminate potential tax problems.

Converting to a Roth can be a good tax strategy because the earnings on your money are tax free.  Just be sure you check with your tax advisor before you make the switch to make sure you are doing everything to minimize your tax liability.

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