IRS Update for ITR 2016

I. IRS VIEW OF THE 2016 FILING SEASON

A. The IRS added 1,000 temporary employees to the tax payer assistance toll-free lines. According to the commissioner, this meant an improved level of service from 37% to 75% in 2016
B. The goal continues to be answering correspondence within 45 days. On April 19, the "over-age" correspondence inventory was 923,000.
C. In the last fiscal year, the IRS workforce diminished by approximately 2,500 employees; the total loss of full time workforce since FY 2010 now equals over 17,00 FTEs.
D. Identity theft continues to be a growing problem. Total taxpayer theft cases rose to more than 700,000.
E. A significant component of the IRS efforts to assist taxpayer's who have been threatened by ID theft was the IP PIN retrieval tool. In Febraury 2016, the service identified 5,000 fraudulent attempts to access the IP PIN tool. Due to this issue, the site was closed (recently the IRS has reopened the online IP PIN tool).
F. The IRS has allocated $16.1 million of its budget for an andvanced secure access verification system.
G. National Taxpayer Advocate Nina Olson had some exceptions to note on the commisioner's comments:
1. In Taxpayer Assistance Centers, the NTA noted that only the most "basic" of questions are answered. If the question is deemed to be more complex, the TAC indicates the question is "out of scope".
2. Taxpayer Assistance Centers will be available only by appointment in 2017. In centers that tested the appointment process in 2016 it took 20% of taxpayers 13-41 days to schedule an appointment. In 5% of cases it took over 41 days. Based on 2016 activity TACs it is unlikely that taxpayers will be able to deliver payments or file returns through the centers.
3. EITC documentation continues to be an issue. IRS demands proof of eligibility by submission of specific documents. Any variation from that list is normally denied, leaving eligible individuals unable to claim the credit that was designed to assist them.
4. The IRS increasingly relies on online contact to solve taxpayer issues. The NTA sees much of the future vision as positive for many taxpayers but is deeply concerned that it fails to address taxpayers and practitioners who have limited resources or online capabilities. Phone and in-person contact needs to be a key part of that vision per the NTA. A recent survey of the "Get Transcript" authentication procedures indicated a failure rate of about 30%.
H. An AICPA survey reported that most of their responding members indicated the IRS was doing a better job of answering the phone. Problems continue with the Tax Practitioner Priority Service. Of those members, 24% indicated they could never get TPPS to answer their calls. A third of those whose phone calls were answered indicated the TPPS was not able to resolve their questions.
I. The IRS spent $600,000 in their last fiscal year to "determine why taxpayers cheat." The National Science Foundation oversaw the project which also has determined that in the past 10 years, there were 130,000 cases of law violations by IRS employees. Of those, only 1,580 were deemed to be willful cheats. However, only 616 were terminated for those violations (as required by law); the rest were given counseling.

II. SOME DATE CHANGES

A. Effective for tax year 2016 (returns due in 2017), the IRS is now statutorily prohibited from issuing refunds for the earned income tax credit (EITC) or additional child tax credit (ACTC) prior to February 15.
B. A "small change" in store for 2017 is that some of the business return filing dates have changed:
1. Calendar year Form 1065 is now due on 03/15, and
2. Calendar year Form 1120 (C Corp only) is due on 04/15
3. However, the due date for the extended returns of calendar year Forms 1120, 1220-S, and 1065 will continue to be 09/15
C. Many practitioners are predicting higher levels of extensions for Form 1065. The question then becomes whether there will be an increased risk of audit for an extended return. All data released regarding the issue suggests there is no measurably increased risk of audit incurred from filing an extension. Conversely, nor is it less likely that the return will be examined.

III. DIRECT DEPOSIT PROBLEMS INCREASE

A. The IRS encourages taxpayers to select the direct deposit option. However, direct deposit increasingly has problems that are difficult to correct, such as:
1. Incorrect account numbers.
2. Accounts that were closed due to theft issues.
3. Errors in bank routing numbers.
*M&L Accounting now requires our clients to have a void check for there ITR
B. In a post season announcement, the IRS indicated these types of errors are among the Top 9 errors in correctly processing a return.
C. When these problems are discovered post-filing, there is currently no way to change them after a return has been e-filed.
D. If you determine there has been an error in the direct deposit info shortly after filing, contacting the service at 800-829-1040 may solve the problem.
E. The bank may discover the error when the refund is presented for deposit, in which case the funds will be returned to the IRS and a paper check should follow.
F. Accessing "Where's My Refund?" at www.irs.gov normally only indicates that a refund processed, without regard to whether it has gone to the correct account.
G. If the deposit is processed and placed in the wrong account, the taxpayer must first contact the bankk to attempt to recover the errant deposit.
1. Once contact has been made with the financial institution without resolution, after two weeks, FORM 3911 (TAX Statement Regarding Refund) should be filed with the IRS. These type of issues take 3 months to resolve.
2. The IRS cannot compel the institution to turn the funds over to the taxpayer if the bank indicates the funds are not available, or simply refuses to do so.
3. When no resolution between the taxpayer and the financial institution can be arrived at, the only solution is to file a civil suit against the bank.
H. Practitioners are encouraged to take steps to see that all direct deposit information is confirmed by the taxpayer before filing.