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IRS Has Millions of Dollars in Frozen Credit Accounts



The Internal Revenue Service needs to take action to resolve millions of dollars in so-called “frozen credit accounts” that are effectively in a state of limbo, preventing some taxpayers from receiving their tax refunds, according to a new government report.

J. Russell George

The report, from the Treasury Inspector General for Tax Administration, examines the accounts, which require special handling or await the occurrence of a pending future event. The IRS’s computer system uses special coding to identity these types of accounts. These situations are commonly referred to as freeze conditions. Taxpayer accounts in “credit” status (in which payments exceed assessments), and also coded with at least one freeze condition, are commonly referred to as frozen credit accounts.

If the freeze conditions are not adequately identified and resolved, TIGTA noted, IRS processing of taxpayer frozen credit accounts can be delayed and taxpayers can be adversely affected by delayed refunds or payments not applied to the proper tax modules.

Frozen credit accounts that are not adequately identified and resolved could also lead to barred assessments, collections and refunds due to the expiration of the applicable statute of limitations; unnecessary payment of additional interest to taxpayers for not issuing applicable refunds on a timely basis; or taxpayer burden if the delayed refunds or payments not applied to the proper tax module affect a taxpayer’s ability to meet their financial obligations.

The IRS has procedural requirements and standardized systemic checks in place to identify and resolve most frozen credit accounts. In addition, the IRS has conducted research projects to help identify ways to improve the processing of these accounts. However, TIGTA’s review found that further IRS actions are still needed to resolve some frozen credit accounts and some IRS computer systems need modifications to better reflect current procedures.

By reviewing samples of three different frozen credit conditions, TIGTA identified 156 individual tax modules with credits of $46.4 million and 128 business tax modules with credits of almost $1.6 billion for which the IRS did not take actions that could have resolved the credit tax modules sooner.

“By improving adherence to its processing procedures and making improvements to certain computer systems, the IRS can minimize resolution delays for many frozen credit accounts,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA made 10 recommendations for the IRS to re-emphasize its existing procedures, establish and enforce new procedures, and make improvements to its computer systems. In response, IRS management agreed with nine of the 10 recommendations and plans to take appropriate corrective actions. However, IRS management stated that, due to resource constraints, they will not take corrective actions for two of the agreed recommendations related to improving computer systems. For the one disagreed recommendation, IRS management said it believes the current process will ensure that credits are properly resolved within the Offshore Voluntary Disclosure Program. TIGTA contended that it continues to believe that the IRS remains at risk for not resolving frozen credits in taxpayer accounts by not implementing all of the recommendations.

“As you acknowledge in your report, we have detailed procedures and standardized systemic checks to identify and resolve the conditions leading to a frozen credit in a taxpayer’s account,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “Most special conditions are resolved within a few months. And, as you also note in your report, we have initiated research projects to help identify ways to improve frozen credit processing. These projects have resulted in several recommendations, many of which we have implemented with the goal of returning frozen credit accounts to the normal compliance process and providing taxpayer refunds, when appropriate, in a more timely and efficient manner. However, you found that further action is needed to resolve some accounts with frozen credit condition and recommended we take several actions to improve our performance in resolving these accounts. We agree that there are additional actions we can take.”


Need Want and a Full Gas Tank

A client stopped by today to drop off his weekly paperwork. We chatted and he told me his vehicle ran out of gas earlier today. He walked to a gas station and bought a gallon and poured it into his vehicle then continued on.  This time of year his business slows down and I know he gets tighter with his cash. This client is cautious. He keeps a reasonable emergency fund in cash, pays for business insurance in full at the start of the policy, and over-pays his estimated taxes. Why would he let his vehicle run out of gas?

Asking why a person does or does not act will not get the real answer.  Ask people why a person does something the person knows is stupid and most people will answer “I was not thinking.” Chatting with him I learned he was headed to a gas station for gas and then to a vendor nearby it. He wanted to buy gas at that station because it cost 27¢ less a gallon and it was close to his next stop.  He felt he could reach it with the gas in his vehicle’s tank. At this point of the conversation he adds that when he got back to his vehicle a tow truck driver was sitting behind his vehicle.  Houston enacted Safe Clear which authorizes tow truck drivers to remove “abandoned” vehicles from the freeways and feeder roads to ensure the free flow of traffic.  He was fortunate to return to his vehicle before the driver towed his vehicle to the impound yard, a.k.a. car jail.  The cost to bail his vehicle out of car jail would be over $250; if he got there the same day it is impounded.  For each day a vehicle is impounded a storage fee is added.  For this client $250 is a large amount of cash at this time of the year.  And the possible cost could have been much higher.  After telling him about Safe Clear my client fell silent thinking about his choice and the possible outcome had his vehicle been towed. He left after stating “I dodged a bullet.”

I learned why he ran out of gas; he wanted to buy gas from a station with less expensive gas prices, 27¢ less per gallon.  And it was close to his next stop.  It was a choice he made knowing the vehicle’s fuel level was low.  He felt he would reach the desired station with the fuel in his vehicle’s gas tank. It was his wants and feelings that determined his thinking. My client let his wants determine his choice, not a principle, or the facts of the situation.  The fact for my client was his vehicle’s gas gage indicated the tank was empty.  The need was for him to stop at the next gas station and buy gas.

Sadly most people do the same. People use their wants and feelings as the reason for a choice. Not the facts or needs.  People buy vehicles because of how they feel driving it.  Or want to project an image of success, glamor, or being in the right crowd.

When you choose ask yourself if you are choosing to satisfy a want, a feeling, or is it based on the facts and needs. Knowing why you making the choice may make you change it.  


Businesses See More Revenue & Profit if Using a Public Accountant, Says Survey

by Isaac M. O'Bannon


Small busineseses are much more confident heading into 2015, based largely on significantly increased revenues and profits so far in

2014, according to a new survey of small business owners. Small businesses who use a professional public accountant, like a CPA, reported even greater gains than businesses that did not.

Overall, the study, commissioned by online accounting software maker Xero, showed that 81 percent of small businesses experiencing revenue growth this year, 22 percent are seeing gains of more than 100 percent.

For 2015, nearly 90 percent forecast a revenue increase, with 21 percent expecting to grow more than 100 percent. This data shows that

SMBs are having a fiscally healthy 2014 with no signs of stopping in the new year. As a result of such significant growth, SMBs are confident, happy and taking risks:

  • A Certainty of Satisfaction: 87 percent are content to extremely satisfied with how their business is performing.
  • Risky Business: 68 percent of small businesses never or only occasionally take a risk while 32 percent will almost always take a risk.
  • Nothing Ventured, Nothing Gained: These risk takers have experienced a 49 percent growth in revenue over the last 12 months vs. 43 percent for non or occasional risk takers.
  • Glass Half Full: Risk taking SMBs are also more optimistic, forecasting 63 percent growth over the next 12 months vs. 51 percent for those who are risk averse.

In order to achieve 2015 goals and grow their businesses, SMBs are looking to expand their teams and invest in top talent such as accounting professionals:

  • Hiring Now and in the Future: 51 percent of small businesses plan to hire now and through 2015.
  • Employing an Accountant Pays Off: SMBs who use an accounting professional with online accounting software experienced a 16 percent increase in revenue over businesses that do not work with an accountant but use online accounting software.
  • Using More Accountants Equals More Revenue: When SMBs pair an outside accounting professional with an internal one and use online accounting software they increase the prior mentioned revenue gains by 50 percent – seeing a 24 percent increase in revenue vs. 16 percent when working with only one accountant.

“We’re thrilled to see that small businesses are growing, thriving and hiring,” said Jamie Sutherland, Xero’s U.S. President. “As a company that makes online accounting software, we hear every day from business owners how having an accurate, up-to-date view of their financials is key to their growth. It’s great to see the actual data support this with significant revenue gains when business owners work with an accountant and use accounting software.”



If You Pay Peanuts, You Get Monkeys.

People love a deal, the satisfaction of being a good negotiator, tales of how the sales person gave the deal wanted, the steal it was.  Truthfully, people like the sensation of control a good bargain grants. But, is it a bargain when there are hidden payments after the deal is closed? Hire a contractor because he is cheaper than everyone else may look like good business at the start of the project. But what if that contractor drops equipment down a hole and someone else must be paid to extract it.  The costs of recovery will exceed the “savings” of a cheap contractor. There is a reason the contractor is cheap.  He is hoping to finish the job with no incidents. 

It is the same with bookkeepers and office managers, the office help you ignore until the letter from the IRS announces to you payroll taxes are unpaid with interest and penalties accruing. Or the state sends you the letter declaring the corporate entity has been terminated because a form was not filed. Those are big events in a business; both can and have been the point of no return for businesses, money to pay the payroll taxes now spent on the current project, or inability to bid on new projects until the corporate entity is reinstated. Hopefully the office girl as you call the person in the back office has paid the CPA who will help you get out of this mess quick if not cheaply.

But, you say those are the things you keep an eye on. Or, the data entry person knows not to do that. Do they know how to keep from double paying invoices? How many of your vendors will tell you about double payments? How much time will it take to clean out the double entries? When will you notice? How much will it cost to have the CPA come or send his bookkeeper?  Can you stomach the worry and for how long. Or will you just change bookkeepers until one gets it right?  Will your investment that you thought will make you rich survive?

There are hidden costs in hiring cheap. Ask what the hidden costs are before you buy the sales item, or hire your daughter to keep your books. You are surrendering control when you purchase or hire. Don’t give up control cheaply.  You get what you pay for.


Where ARE My Tax Forms?

April 15th is on a Tuesday this year so taxpayers will not have the additional time they enjoyed last in prior years when the tax due date fell on weekends.  Everyone understands the need to gather tax documents, records, total receipts and the general summarization required for filing tax returns.  Most however do not make it a habit thru out the year like CPAs.

You will need to dig thru that stack of mail growing on the hall table and look inside magazines for them.  Maybe even look in the recycle bin (you know, that big green garbage can the city left at your house) for them.  Many people do not recognize the envelope the form comes in, some taxpayers stick the 1099-B with the rest of their investment retirement papers unopened.

If your CPA sends a Tax Organizer to you look on the first page for a list of tax forms used in prior years. Typically the tax forms are listed on the first page in most tax organizers as taxpayers only look at the organizer once. This list will help you determine what forms are missing before you contact your employer, investment advisor, CPA at a time that is most stressfull for them.

As a final check check your paystub for the website were you will be able to download a copy of your W-2 (if download is offered by your company) and the investment advisor or brokerage house website for download of Forms 1099-DIV, 1099-INT and 1099-B. And check your email for such websites and links to them.

If you are unable to locate a copy of the tax form contact your employer for your W-2. If the employer has moved or closed try anyway. Try Google for new address of old employers and send them a letter. Most will have forwarding address or someone responsible for wrapping up the business. 

Make every reasonable effort to collect the forms. They may have been mailed to your old address and and not forwarded, your address was incorrect or incomplete in the sender's records or they may not be aware they are suppose to provide you the form. (More on that in a later post.)

If you have been unable to get a form copy or contact the one responsible for providing a copy then wait until April 14th and call the IRS at 1.800.829.1040. Have your personal information handy (name, social security number, address, and blood type). Also have information on your employer such as Name, Address, Phone Number and Wages, Withholding, (from your last paystub or best guess) and the dates you worked for them. The IRS will Form 4598, Form W-2, 1098 or 1099 Not Received, Incorrect, or Lost to you and to your employer. Smart form providors will send you your tax forms.

WAIT until April 15th to file your return using Form 4598.

If you use Form 4852 for “improper use” you could be hit with accuracy-related penalties equal to 20% of the amount of taxes that should have been paid; civil fraud penalties equal to 75% of the amount of taxes that should have been paid, and/or a $5,000 civil penalty for filing a frivolous return or taking a frivolous position.

If, after filing your return, you receive the tax document and need to correct the filing do so using Form 1040X-Amended U.S. Individual Income Tax Return

Please wait to file your return until you have ALL your tax documents. If you file telling your preparer that is all the forms or provide information for missing forms you will be forced to file an amended return. Tax preparers charge the same or greater fees for preparing an amended return. And amended returns are a red flag to the IRS to audit a taxpayer.

So get your forms together and if you do not have them all by April 15th then pay an estimated tax amount and EXTEND until October 15th.

The most common forms taxpayers will need to send to their tax preparer are:

W-2: Wages

W-2G: Gambling Winnings

1099-B: Proceeds from Broker and Barter Exchange Transactions

1099-C: Cancellation of Debt

1099-DIV: Dividends and Distributions

1099-G: Government Payments

1099-H: Health Insurance Advance Payments

1099-INT: Interest Income

1099-K: Merchant Card and Third Party Network Payments

1099-MISC: Miscellaneous Income

1099-OID: Original Issue Discount

1099-Q: Payment from Qualified Education Programs

1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts

1099-S: Proceeds from Real Estate Transactions (Typically tax payer home)

1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

SSA-1099: Social Security Benefit Statement

1098: Mortgage interest

1098-C: Contribution of a motor vehicle, boat, or airplane to a charity

1098-E: Student loan interest

1098-T: Tuition Statement

K-1: From a Partnership (Form 1065), S-Corp (Form 1120S), Trusts (Form 1041)