Complaint resolution service publishes case studies, recall information and consumer news.

Consumers who qualify to receive economic stimulus rebates from the government were told today that the calendar had been moved up for the payments.

The Internal Revenue Service maintains a terrific resource on all things stimulus payment.

The page includes all of the information consumers need to know about receiving cash from Uncle Sam soon. Highlights you want to know are the phase out amounts (well over $100K for most two income couples), direct deposit of the payment if you had a refund already and even a calendar for payments (some taxpayers receive money as early as next week).

Remember: don’t bank on the whole amount. Get a copy of your federal return, and use the IRS calculator to determine how much of the $600 per adult and $300 per child under the age of 17 you will receive.

Posted under Finance

Today marks the start of Tennessee’s own economic stimulus: a three day weekend eerily similar to Senator John McCain’s proposed gas tax holiday for this summer.

As with the Republican nominees, there is a lot of sizzle and excitement in the news, but not very much substance. Nationally, Senator McCain’s proposal broadly sweeps through federal coffers. For consumers, however, there is much more to be happy about. Senator McCain’s proposal won’t even allow someone buying 15 gallons of gas to offset the retail price of a single gallon. Sure, saving $2 or $3 for a single fill-up is nice, but not enough to cause a shift in consumer spending.

The same holds true for Tennessee’s annual tax free weekend. A second weekend was added this year, and if you’re reading this before Monday, you’re still in the window. Just remember to check out the tax-free rules before you start hog-wild spending.

A school item, for example, that is $100 or less is tax-exempt this weekend,. but if the item is $101, you owe sales tax for the entire amount, not just the single dollar over $100. Likewise, a computer under $1500 (think online retailers don’t love this?) is tax-exempt, but you had better be under $1500 when all the extras are added. And, like every local tax authority, the good folks in the Tennessee government are happy to remind their constituents that use tax, as always, applies.

Posted under Finance

To curb the marketing of tax shelters to corporations and individuals, the Justice Department’s Tax Division has helped the IRS to identify and pursue nearly every customer who engaged in certain abusive tax shelter transactions, while at the same time pursuing the professionals who designed, facilitated or accommodated the underlying tax shelter transactions.

Bringing Fraudulent Tax Return Preparation to a Halt

The Tax Division continues to bring civil injunction suits to stop tax preparers who habitually prepare bogus tax returns. In response to the government’s efforts, courts across the country have barred tax preparers from preparing inaccurate returns.

Since January 2001, the Justice Department has sought and obtained injunctions against more than three dozen tax return preparers, including 18 since January 2006. It expects to obtain many more injunctions throughout the year. The United States recently has obtained injunctions that barred the following schemes by tax preparers:

*Filing tax returns that falsely report “zero income”;

*Claiming that only income from a foreign source is taxable, using a spurious interpretation of Section 861 of the Internal Revenue Code; *Claiming personal living expenses as business expenses;

*Preparing amended tax returns to claim tax refunds without customers’ knowledge or consent; and

*Asserting that casino gaming proceeds paid to Native Americans are exempt from federal income tax.

The Department of Justice also has obtained injunctions against employers who fail to withhold, account for, and pay over employment and withholding taxes and against return preparers who prepare related false returns.

Stopping Tax Evasion

During fiscal year 2006, the Justice Department’s Tax Division authorized prosecutions of nearly 1,200 defendants for tax crimes, an increase of more than 34 percent over the number authorized for prosecution in 2001. The Tax Division’s criminal enforcement priorities include investigating schemes that involve:

*Using trusts or other entities to conceal control over income and assets;

*Shifting assets and income to hidden offshore accounts;

*Making false statements to the IRS in order to claim tax refunds;

*Selling and promoting fraudulent tax avoidance schemes;

*Using frivolous justifications for not filing truthful tax returns;

*Failing to withhold, report and pay payroll and income taxes;

*Failing to report income on individual and corporate returns; and

*Failing to file tax returns.

*Stopping the Promotion of Tax Fraud Schemes

Since April 2006, the Justice Department and the IRS have vigorously pursued the promoters of tax fraud schemes to stop their activity and to warn would-be promoters that promoting tax fraud schemes leads nowhere but to a federal court injunction or to a long stay in jail.

Since January 2001, the Justice Department has sought and obtained injunctions against nearly 200 promoters of tax fraud schemes, including 66 since January 2006. These injunctions have stopped promoters from selling tax evasion schemes on the Internet, at seminars, or though other means. The tax-scam promoters the government has sought to enjoin have cost the U.S. Treasury an estimated $2.5 billion, and have had an estimated 500,000 customers. Among the government’s results in this area are:

In May 2006, David Carroll Stephenson was sentenced to eight years in prison in connection with his promotion of a tax evasion scheme using “pure equity trust” organizations.

In June 2006, a federal judge sentenced five defendants, Dennis Poseley (seven years), David Trepas (five years), Patricia Ensign (18 months), Rachel McElhinney (16 months), and Keith Priest (18 months), to prison terms for their respective roles in promoting a tax evasion scheme that used offshore trusts and bank accounts.

On June 22, 2006, District Judge Elizabeth Kovachevich issued an injunction permanently barring Douglas Rosile, a former certified public accountant whose clients included Wesley Snipes, from preparing federal income tax returns for others and from promoting a frivolous tax argument based on Section 861 of the Internal Revenue Code. Among the documents the government filed in court was a return submitted to the IRS on behalf of Snipes claiming a bogus $7.3 million tax refund.

In November 2006, a federal judge sentenced Milton H. Baxley II to 18 months in prison and fined him $10,000 for contempt of court. On August 9, a jury convicted Baxley on two counts of violating an injunction order barring him from promoting a tax fraud scheme. In December 2006, a federal judge sentenced Thomas Miller to nearly four years in prison for conspiring to defraud the United States in connection with a “pure trust” tax fraud scheme. Miller operated Freedom Education Center, a business in California that sold anti-tax literature and helped people create bogus trusts.

Curbing High-End Tax Shelters

During the past year, the Justice Department and the IRS have continued their vigorous enforcement efforts against the promoters and facilitators of abusive tax shelters. Abusive shelters for large corporations and high-income individuals have cost the U.S. Treasury billions annually, according to Treasury Department estimates. The Tax Division also has had great success in federal court defending the U.S. Treasury against tax shelter-related claims of large companies and individual investors. The Tax Division is currently litigating approximately 86 tax shelter cases or groups of cases, including 47 separate cases involving the Son of BOSS tax shelter. Among the successes during the past year in this area are the following:

In December 2006, Utah businessman Chandler S. Moisen pleaded guilty to conspiracy and wire fraud in connection with a criminal probe of tax shelters promoted by a group of KPMG, LLP executives. In January 2007, Steven Michael Acosta, a former KPMG manager, pleaded guilty to four felony tax charges in connection with his involvement in KPMG’s promotion of tax shelter transactions.

The Supreme Court let stand the decision of the U.S. Court of Appeals for the 6th Circuit that the COLI (corporate-owned life insurance) program The Dow Chemical Company used to claim more than $33 million of tax deductions was an economic sham.

The Supreme Court also let stand the decision of the U.S. Court of Appeals for the Federal Circuit that the IRS was right to disallow the $375 million loss Coltec Industries claimed from its “contingent liability” tax shelter.

The U.S. Court of Appeals for the 2nd Circuit held that the IRS properly disallowed the losses General Electric Capital Corporation claimed from its participation in an equipment leasing tax shelter, resulting in $62 million in additional income taxes. The U.S. District Court for the Middle District of North Carolina granted summary judgment for the United States in the first Lease In - Lease Out (LILO) tax shelter to go to court, BB&T Corporation v. United States.

The U.S. Court of Appeals for the Federal Circuit ruled for the United States on an issue raised by tax shelter participants in several tax shelter refund suits in A D Global Fund, LLC v. United States. The court ruled that the statute of limitations on the return of a person who participates in a tax shelter partnership does not expire at least before the statute of limitations on the partnership’s return does.

Coordinated Civil and Criminal Proceedings

The government brings both its civil and its criminal tools to bear in the fight against tax fraud. An ongoing tax scam causes continuing harm to the federal Treasury and it leaves participants owing taxes, interest, and often, penalties. The government does not wait until a criminal case has been developed to take action to stop the scam. Rather, the Justice Department brings civil injunction suits to stop both the promotion of tax scams and the preparation of false or fraudulent returns. Additionally, in appropriate cases, the Justice Department brings criminal charges against the promoters, preparers, and scam participants to punish them for their unlawful conduct.

Posted under Finance

The Internal Revenue Service urged taxpayers to check to see if they qualify for the telephone excise tax refund after more than 10 million early filers did not request the one-time refund.

The agency said that about 30 percent of all taxpayers did not request the telephone tax refund.

“Many taxpayers are overlooking this special refund and the chance to get a bigger refund,” said IRS Commissioner Mark W. Everson. “We encourage taxpayers to spend a few extra minutes reviewing their tax return to make sure they are making an accurate request. A little extra time can mean a bigger refund check.”

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Federal officials also authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

To make the refund easier to figure, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only have to fill out one line on their return, and they don’t need to present proof to the IRS.

Out of the tax returns filed through Feb. 16, more than 10 million taxpayers did not request the telephone tax refund. And nearly half of those returns — more than 4.8 million — were completed by a tax preparer.

“We are surprised how many tax preparers are overlooking the telephone tax refund,” Everson said. “We want all taxpayers entitled to this refund to get it, whether they are using a tax preparer or doing the return themselves.”

For people requesting the telephone tax refund, it adds $30 to $60 — or even more — onto a refund. The IRS wants to make it as easy as possible for anyone who paid the tax to get this special refund. If you paid the tax and haven’t filed yet, here are some tips to help you figure the refund correctly and get it quickly:

* File electronically. Electronic-filing software flags often overlooked tax breaks and helps you figure them accurately and report them properly. If you use a professional tax preparer, ask that person to e-file your return.

* E-file for free. If your income is $52,000 or less, use the IRS’ Free File program to connect to a private-sector company offering free e-file services.

* Choose direct deposit. Whether you file electronically or on paper, you can get your refund at least a week sooner by having it deposited directly into your checking or savings account.

* Consider using the standard-refund amount for the telephone-tax refund. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. You only have to fill out one line on your return, and you don’t need to present proof to the IRS. The standard amount, ranging from $30 to $60, is based on the number of exemptions you can claim on your return.

* If you paid more than the standard amount, you may figure your refund using the actual amount of tax shown on your phone bills and other records. Base your refund request on the three-percent federal tax paid, not the total phone bill. Do not count tax paid on local-only service. You must have the phone bills or other records adequate to support the amount you are requesting. These documents should not be sent along with the refund request but should be retained in case the IRS questions the amount requested.

* Do not file duplicate requests. If you file a regular income-tax return, do not file Form 1040EZ-T. Designed exclusively for requesting the telephone-tax refund, this simple form is for people who don’t need to file a regular income-tax return. If you want to take advantage of the earned income tax credit for low and moderate income workers, the child tax credit or other tax breaks, file a regular return and include your telephone-tax refund request on that return.

* Stay away from tax preparers who falsely claim that many, if not most, phone customers can get hundreds of dollars or more back under this program.

Posted under Finance

The Internal Revenue Service has announced that the traditional April 15 tax deadline date has been extended for two days until April 17.

The move has ample precedence. April 15, 2007 falls on a Sunday, and taxes are not due on Sundays partially because the U.S. Postal Service is closed. Monday, April 16, is Emancipation Day in the District of Columbia. Despite still not having full voting representation in Congress, the hundreds of thousands of District residents managed to buy the entire country another day’s worth of interest…or at least more time to prep their paperwork.

Posted under Finance

Individuals and businesses making contributions to charity should keep in mind several important tax law changes made last summer by the Pension Protection Act.

The new law offers older owners of individual retirement accounts a new way to give to charity. It also includes rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.

New Tax Break for IRA Owners

An IRA owner, age 70 ½ or over, can directly transfer tax-free, up to $100,000 per year to an eligible charitable organization. This option is available in tax years 2006 and 2007. Eligible IRA owners can take advantage of this provision, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.

Not all charities are eligible under this provision. For example, donor-advised funds and supporting organizations are not eligible recipients.

Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient.

This provision applies to contributions made in taxable years beginning after Aug. 17, 2006. For taxpayers that file returns on a calendar-year basis, including most individuals, the new provision applies to contributions made beginning in 2007.

The new law does not change the prior-law requirement that a taxpayer get an acknowledgement from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end donations, the IRS offers the following additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2006. This is true even if the credit-card bill isn’t paid until next year. Also, checks count for 2006 as long as they are mailed this year.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found on IRS.gov under, “Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
• For individuals, only taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2006 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return. See IRS Publication 526, Charitable Contributions, for more information.

Posted under Finance

BellSouth announced that it is immediately eliminating a fee assessed on its DSL Internet services. The broadband fee was designed to recover a number of costs remaining from previous regulatory obligations and other network expenses. Since the FCC eliminated the continuing applicability of many of these regulations, BellSouth announced it could cut the rates.

The vast majority of BellSouth’s DSL Internet service customers will see this change on their bills within a week, although it will take up to six weeks to implement this change for all of BellSouth’s DSL Internet service customers. Any payments attributable to this fee will be credited back to August 16, 2006.

Posted under Customer Service

New York Attorney General Eliot Spitzer sued the nation’s largest tax preparation company for fraudulent marketing of individual retirement accounts (IRAs) on March 15, just 1 month before millions of Americans’ tax forms are due.

The suit alleges that the H&R Block Company steered hundreds of thousands of its clients, including almost 30,000 New Yorkers, into IRAs that were virtually guaranteed to lose money because of a combination of hidden fees and low interest rates.

“The conduct described in today’s complaint is particularly appalling because many of those hardest hit were working families who struggle to save,” Spitzer said. “Instead of providing these families with accurate information that would have allowed them to make informed choices, H&R Block steered them into retirement accounts that actually shrank over time.”
The Attorney General’s office began the investigation in 2005 after receiving information from an H&R Block tax preparer.

Over the past four years, H&R Block opened more than half a million “Express IRA” accounts for its tax preparation clients. Customers were told that the IRA paid “great rates”and was “a better way to save,” but 85 percent of the customers who opened the accounts paid the company more in fees than they earned in interest. More than 150,000 H&R Block customers closed their accounts, incurring additional undisclosed fees, as well as nearly $6 million in tax penalties.

The civil complaint filed in State Supreme Court in Manhattan cites internal documents showing that H&R Block’s senior management knew that many of its customers were losing money on their Express IRAs. For example, in a 2002 email to Mark Ernst, the company CEO, a district manager complained about the impact of these accounts on customers:

“I really don’t think maintenance fees should exceed the amount of interest that we are paying on these accounts. Clients won’t be happy seeing [their] investments decreasing … .”

Mr. Ernst forwarded this email to the Express IRA product manager and added his own comments: “The attached note . . . reflects the general sense that I think exists - that Express IRA is the right thing for our clients, but the product is designed to nickel and dime clients to the point where our field people [don’t] feel as good about the product as they should… .”

Some conscientious H&R Block employees (including the person who brought the information to the Attorney General) actually refused to promote the product to clients.

In 2003, an internal H&R Block report prepared by the Express IRA product manager described the growing concerns of tax professionals about the product in the following way:

“Top 4 reasons tax pros are not offering the product:
1. $15 setup fee – ‘it’s too steep for my clients’
2. $15 recontribution fee – ‘they’ve already paid once, why charge them again?’
3. Low interest rate – ‘my client will never make up the fee’
4. $10 annual maint. fee – ‘my clients have to pay this in addition to the $15 fee.’”

The company’s management took no action to address these concerns. Instead, H&R Block continued to tout the Express IRA as a good way for lower and moderate income people to save.

The complaint alleges that the company pushed the Express IRA in an effort to encourage repeat customers for its tax preparation services and to maximize its fee revenue.

Spitzer’s complaint describes the experience of several New York customers:
– A 32-year-old Albany resident with a taxable income of $17,847 made a one-time, minimum contribution of $300 to an Express IRA in 2002. Over the past four years, the investment earned $10.29 in interest but incurred a total of $45 in fees. The Albany resident’s investment lost 12 percent of its value and will continue to decline.
– A 68-year-old resident of Brooklyn with a taxable income of $25,421 made a one-time contribution of $300 to an Express IRA in 2004. The individual was charged a $15 account opening fee, a $10 account maintenance fee, and a $25 closing fee when the account was closed after 18 months. These fees dwarfed the interest earned on the account ($5.18) and, as a result, the Brooklyn resident’s investment declined by 15 percent.

Advocates for lower-income consumers praised the lawsuit: Sarah Ludwig, Director of the Neighborhood Economic Development Advocacy Project in New York, said: “Lower and middle- income New Yorkers encounter a host of abuses at tax prep sites such as H&R Block. The abuse that the Attorney General has uncovered in connection with the Express IRA is particularly troubling. Working families are entitled to know all the facts about a retirement product – both good and bad – before they decide to invest. Our organization strongly encourages people to get their taxes done at free tax prep sites, which will prepare people’s taxes professionally, with zero incentive to rip people off.”

Spitzer’s lawsuit specifically alleges that H&R Block, based in Kansas City, failed to adequately disclose its fees to its customers, failed to warn that the interest paid would not cover the fees in certain instances, and misleadingly described the interest rates as “great” when they were at times less than one percent annually. This misleading and incomplete disclosure violated New York’s consumer fraud law and was a breach of the company’s fiduciary duty to its clients. Relief sought includes an injunction from further violations of New York law, damages and civil penalties.

The investigation was led by Assistant Attorney General James Park, with Assistant Attorneys General Gary Connor and Matthew Gaul, and Economist Hampton Finer, and was supervised by David D. Brown, IV, Chief of the Investment Protection Bureau.

Posted under Customer Service, Finance

As tax season draws to a close over the next two weeks, and tens of millions of American consumers share their personal information with the federal government to calculate income taxes, Consumer Help Web finds it refreshing that Google was the sole search engine portal to refuse a government demand for data on consumer searches.

Regardless of the reasons cited in the Department of Justice’s suit, most industry watchers, the media and even the general public viewed this exercise as a fishing expedition. That Google stood up to the government for months is a testament to the company’s unwillingness to be complicit in data mining without specifics.

Consumer Help Web, Inc. salutes Google for its stand. For more information on this and similar issues, consumers should visit the Electronic Frontier Foundation.

Posted under Customer Service

National Taxpayer Advocate Nina E. Olson today released a report to Congress that urges Congress to enact fundamental tax simplification.

“Our tax code has grown so complex that it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system,” Olson writes. “As taxpayers become confused and make mistakes, or deliberately ‘push the envelope,’ the IRS understandably responds with increased enforcement actions. The exploitation of ‘loopholes’ leads to calls for new legislation to crack down on abuses, which in turn makes the tax law more complex. Thus begins an endless cycle – complexity drives inadvertent error and fraud, which drive increased enforcement or new legislation, which drives additional complexity. In short, complexity begets more complexity. This cycle can only be broken by true tax simplification, followed by ongoing legislative and administrative discipline to avoid ‘complexity creep.’”

Olson states that the tax code should be revised to incorporate six core principles:

It should not “entrap” taxpayers.
It should be simple enough so that taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can fully and accurately answer taxpayers’ questions.
It should be written in a way that anticipates the largest areas of noncompliance and minimizes the opportunities for such noncompliance.
It should provide some choices, but not too many choices.
It should not necessarily avoid refundable credits but, if it includes them, it should design them in a way that is administrable.
It should require a periodic review of its provisions – in short, a sanity check.

The report also makes legislative recommendations to reduce noncompliance in the “cash economy”; to simplify the Code’s family-status provisions; to revamp the rules governing joint-and-several liability on joint returns as well as community property in the collection of tax; to require brokers to track and report cost basis for stocks and mutual funds to both investors and the IRS; to lessen the burdens of tracking the cost basis of stocks and mutual funds if the current-law step-up in basis on death is eliminated as scheduled in 2010; and to restructure and reform the Code’s collection due process (CDP) provisions.

By statute, the National Taxpayer Advocate is required to identify at least 20 of the most serious problems encountered by taxpayers. In this year’s report, Olson identifies trends in taxpayer service as the #1 most serious problem. While expressing support for a strong IRS enforcement presence, Olson expresses concern that the IRS is expanding enforcement at the expense of taxpayer service. The report states that the IRS has eliminated TeleFile, significantly reduced the number of returns IRS personnel prepare for taxpayers who seek IRS assistance, reduced the percentage of taxpayer calls IRS telephone assisters answer as compared with FY 2004, and substantially reduced its taxpayer education function for small businesses.

“Significantly, these actions are taking place without any empirical evidence that the reductions will not harm taxpayers and not result in decreased compliance,” Olson writes. “Although the IRS maintains that it is difficult to measure the impact of high quality taxpayer service on compliance, the National Taxpayer Advocate finds that position unpersuasive. Too much is at stake not to conduct the appropriate research and develop cutting-edge strategies that will provide world-class taxpayer service.” The report makes recommendations about how to approach and conduct such research.

The report cites Criminal Investigation (CI) refund freezes as the #2 most serious problem facing taxpayers. The report states that CI places “freezes” on hundreds of thousands of refunds each year due to a suspicion of fraud and then makes a “determination” whether the returns are, in fact, fraudulent without notifying taxpayers that their refund claims are under review or giving them an opportunity to present evidence supporting their positions.

In FY 2004, more than 28,000 taxpayers whose refunds had been frozen sought assistance from the Taxpayer Advocate Service (TAS). The TAS research function studied a statistically representative sample of these cases and found that, with TAS assistance, taxpayers ultimately received the full amount of the refund they had claimed in 66 percent of the frozen-refund cases and a portion of the refund they had claimed in an additional 14 percent of the cases. Olson urges the IRS to implement procedures to notify taxpayers promptly that their refunds have been frozen, provide taxpayers with an opportunity to submit supporting documentation, and bring cases to a quicker resolution. The TAS research study is published as Volume II of the report.

Among other problems the report identifies are the need for IRS to develop a comprehensive strategy to address noncompliance in the “cash economy,” the adequacy of training for private debt collection employees as the IRS rolls out its Private Debt Collection (PDC) initiative in 2006, and delays and related problems in examining returns that claim the earned income tax credit (EITC).

Posted under Finance