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Archive for June, 2013

Report Outlines Changes for IRS To Ensure Accountability, Chart a Path Forward; Immediate Actions, Next Steps Outlined

June 27th, 2013

irs

Internal Revenue Service Principal Deputy Commissioner Danny Werfel today issued a report outlining new actions and next steps to fix problems uncovered with the IRS’ review of tax-exempt applications and improve the wider processes and operations in place at the IRS.

The three-part report covers a wide range of areas Werfel and his leadership team examined during the past month. The report cites actions to hold management accountable and identifies immediate steps to help put the process for approving tax-exempt applications back on track. Werfel also outlines actions needed to protect and improve wider IRS operations, ranging from compliance areas to taxpayer service.

“It is critical that the IRS takes steps to ensure accountability, address the problems uncovered in recent weeks and improve the operations of the IRS to continue to carry out our critical mission on behalf of the public,” Werfel said. “We have made a number of changes already, more are in the works and even more will develop as we move forward.”

Importantly, the initial IRS review shows no signs of intentional wrongdoing by IRS personnel or involvement by parties outside the IRS in the activities described in the recent TIGTA  report.  However, the report notes that investigations are ongoing, and that the IRS is committed to a full fact-finding effort to provide the public answers to these and other important questions.

“The IRS is committed to correcting its mistakes, holding people accountable, and establishing control elements that will help us mitigate the risks we face,” Werfel said. “This report is a critical first step in the process of restoring trust in this critical institution. We have more work in front of us, but we believe we are on the right track to move forward.”

Werfel’s report, titled “Charting a Path Forward at the IRS: Initial Assessment and Plan of Action,” covers three primary areas:

Accountability. This covers the steps being taken to ensure accountability for the mismanagement described in last month’s Treasury Inspector General for Tax Administration (TIGTA) report:

  • • The report finds that significant management and judgment failures occurred, as outlined in the TIGTA report. These contributed to the inappropriate treatment of taxpayers applying for tax- exempt status.
  • • To address this, new leadership has been installed across all five executive management levels involved in the chain of command connected to these matters. In addition, the IRS has empaneled an Accountability Review Board to provide recommendations within      60 days (and later as needed) on any additional personnel actions that should be taken.

Fixing the Problems with the Review of Applications for Tax-Exempt Status. This part covers several process improvements underway to ensure that taxpayers are treated appropriately and effectively in the review of applications for tax-exempt status:

  • The report outlines a new voluntary process to help certain applicants gain fast-track approval to operate as a 501(c)(4) tax-exempt entity if they are being reviewed for advocacy questions and  have been in our application backlog for more than 120 days. This self-certification process allows them a streamlined path to tax-exempt status if they certify they will operate within specified limits and thresholds of political and social welfare activities. In addition, the IRS has added new technical and program staff to assist with reviewing 501(c)(4) applications.
  • The IRS also suspended the use of any “be-on-the-lookout,” or BOLO lists in the application process for tax-exempt status.

irs

Review of IRS Operations and Risks. The report identifies a series of actions to ensure taxpayers that selection criteria across the IRS are appropriate and that taxpayers are aware of how they can seek assistance if they have concerns about the IRS. The report further outlines steps underway to ensure that critical program or operational risks within the IRS are identified early, raised to the right decision-makers and shared timely with key stakeholders:

  • The report calls for establishing an Enterprise Risk Management Program to provide a common framework for capturing, reporting      and addressing risk areas across the IRS.  This will improve timeliness in bringing information to the attention of the IRS      Commissioner and other IRS leaders as well as key stakeholders to help prevent future instances of inappropriate treatment or mismanagement.
  • Although there is no current evidence that selection criteria in other IRS organizations is inappropriate, the nature of the problems identified in the tax-exempt application process warrants a review of certain process controls within the IRS.  The IRS will initiate a comprehensive, agency-wide review of compliance selection criteria.  Results will be shared with the Department of the Treasury, the IRS Oversight Board, and the Chairpersons of the House Ways and Means Committee and the Senate Finance Committee.
  • The IRS will initiate additional internal and external education and outreach about the role of the National Taxpayer Advocate in      assisting taxpayers in resolving problems they encounter with the IRS.

Courtesy of the Internal Revenue Service.
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Merger Clause Excludes Arbitration Clause

June 24th, 2013

“Contemporaneously signed documents relating to one subject matter or transaction are constructed together.” In one transaction involving multiple documents signed at a single sitting, order signing is irrelevant to parties’ intent. Retail sales contract stated that it was “the complete and exclusive statement of the agreement between” appellant and respondent, but that does not negate separate arbitration contract. Arbitration contract reference to a finance contact did not constitute a modification of retail installment contract. Judgment affirming denial of motion to compel arbitration affirmed. Remanded for findings on unconscionability and fraud in the inducement.
Missouri Supreme Court- SC92539

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Courtesy of The Supreme Court of Missouri.

Student Loans — Do Criminals Have More Rights?

June 21st, 2013

student-loan-debt

Student lenders have collection powers denied most creditors. Credit card companies can’t garnish your wages without a court order. A federal student loan collector can garnish your wages just by sending a notice in the mail to your employer. Credit card companies can’t sue you after the statute of limitation has expired. Even IRS debt has a ten year time limit on collection and can often be discharged in bankruptcy. Student loans used to have a five year statute of limitation, then seven years, before Congress eliminated it altogether. Common criminals like burglars and arsonists are protected from prosecution by a statute of limitations. Murderers, kidnappers, federal student loan borrowers and the like — you know, society’s worst offenders — have no statute of limitation. They can be taken to court until the day they die.

With all of the special protections afforded federal loans under the law, it’s not surprising a study by the National Consumer Law Center (“NCLC”) found the Department of Education (“ED”) to be abysmal at resolving consumer complaints. NCLC found the culprit to be ED’s penchant for abdicating its responsibility for student loans to private debt collectors. The Department of Education awarded almost $1 billion in commissions in 2011. Collectors insisted on stiff payments, ignoring rules that made borrowers eligible for leniency. One collector working for Educational Credit Management Corporation received $454,000 in commissions in one year. This is more than double the yearly salary of the commissioner of the Department of Education. The CEO of Sallie Mae, a private student loan collector, has found the student loan business so profitable he owns his own golf course. Unencumbered by the fiduciary duties expected of a government agency towards its citizens, private debt collectors are free to ignore complaints as costly distractions. Indeed, a Department of Education audit found exactly that. ED found collectors ignored verbal complaints, never passing them on to the Department of Education for appropriate action. This level of disorganization has left borrowers dazed and confused.

AshleyJane Kneeland knows this better than most. The onslaught of illnesses she’s endured in the past few years is mind-boggling. As an independent, high achiever, she graduated from high school early to attend George Washington University only to be diagnosed with rheumatoid arthritis in her senior year at the tender age of 21. Her pain medication caused internal bleeding which resulted in anemia, leading to several hospitalizations. When she did not improve, doctors upped their diagnosis to an undifferentiated connective tissue disease. Undaunted, AshleyJane did not give up. After receiving a Masters from the University of New Hampshire, she found full-time employment as an Activities Director of an elder care facility. Working became a challenge. Her doctors realized she had lupus. This is an incurable disease that can cause kidney failure, a possibility her doctors have already warned her about. Fatigue was a constant companion, and stress caused her symptoms to worsen. The more stress she endured, the faster her condition deteriorated, a vexing problem for someone used to pushing herself to perform well under pressure. To add insult to injury, she contracted shingles, a painful disease, suffered through 16 open skin ulcers, and continues to endure muscle spasms. Working full-time became impossible. Even a part-time job at the Concord Boys & Girls Club proved to be too much.

With the help of family she managed to make her student loan payments. She had to move back home to live with her parents to do it but honoring her debts was important to her. This wasn’t the life an independent young woman envisioned for herself when she went off to college to pursue her dreams. She would give anything to have that life back. As lupus forced on her an increasing dependency, she applied for Social Security Disability Income (“SSDI”). The Social Security Administration did not hesitate in finding her permanently and totally disabled. She receives $832 per month. She managed to survive only through the help of family. As her parents near retirement and entering an over-55 housing project, AshleyJane knows she won’t qualify to live there. Paying back $60,000 while trying to live independently on $832 per month is simply impossible. Something has to give.

When she was found to be disabled, she naively assumed Sallie Mae would work with her on a forgiveness program or at least a deferment of payments. Sallie Mae informed her that “your disability doesn’t change anything. Even if you lose a limb, you still have to repay these student loans.” Out of options, she filed bankruptcy and has requested the bankruptcy court to forgive her loans as an ‘undue hardship.’ AshleyJane Kneeland v. Sallie Mae and Affiliated Computer Services, Inc., AP# 13-1016-JMD (Bank. D. N.H. filed 2/21/13). Sallie Mae has opposed that request. It knows full well that the burden of proof required to discharge student loans in bankruptcy court is almost impossible to meet. One study found that only 1 out of 1000 filers with student loans even attempt this feat. Far fewer than that actually succeed. Expense is a big reason. It is difficult to compete with the litigation budget of a national student loan servicer. Outspending an impoverished litigant is a familiar tactic.

Seeking a discharge of student loans in bankruptcy entails significant risk. If AshleyJane loses, not only will she owe $60,000 plus interest, but all the attorney’s fees expended will be added to her loan balance, essentially burying her in debt forever. That filing bankruptcy can actually make student loan debt worse is not an isolated problem. Chapter 13, a type of bankruptcy often used by homeowners to save their home from foreclosure, lasts from 3 to 5 years. During that time, most bankruptcy courts don’t allow student loan payments to continue, leaving borrowers deeper in the hole when the bankruptcy is over. Solving a mortgage problem only to have higher student loan debt waiting is a Pyrrhic victory at best. It’s like the proverbial Three Stooges bureau where one drawer closes, only to have another one open. Or to use another analogy, the light at the end of the chapter 13 tunnel has become an approaching freight train. The ‘fresh start’ guaranteed by the U.S. Bankruptcy Codes can become an empty promise for student loan borrowers.

With the more than one trillion in student loan debt now exceeding the amount of credit card debt, this isn’t a problem that’s just going to go away. Student loan debt is being bundled together and sold to investors, much like mortgage backed securities, the same investment model which contributed to the economic collapse in 2008. The student loan debt crisis has become a drag on the economy. There has been some discussion in Congress about changing the Bankruptcy Code to give more relief to borrowers in financial distress. Congress of course is not known for taking preemptive action against the interests of big business. There are no heroes or headlines in averting a disaster. The student lending industry has little incentive to be proactive, knowing a bailout saved them from ill-advised business decisions the last time around. With the special protections bestowed on them by Congress, student loan collection can be a merciless process. There’s no bailout for the ‘little guy.’

TIPS FOR STUDENT LOAN BORROWERS

(1) Exhaust federal loan options before considering any private student loan. You have far more rights. If you can’t afford your payment, federal loans are eligible for payment plans like Income Based Repayment (“IBR”) that may lower your payment. Educate yourself on the options available to you before you get too far behind. Once you go into default, you no longer qualify for IBR and other programs. It is common for 15% to 25% to be added to your loans as a collection cost. You may want to consider working with a student loan lawyer to help get out of default before a wage garnishment, tax intercept, or lawsuit occurs.

(2) The first thing a student loan lawyer will ask you is what type of student loan debt you have — federal, private, or state. Just knowing your loans are with Sallie Mae won’t answer this question. Sallie Mae services both federal and private loans. Start by checking the National Student Loan Data System. This will list the type of loan, loan balance, and servicer for each loan. If you don’t see your loans there, you most likely have private or state loans. Checking your credit report may help nail down this answer. Asking your student loan servicer is another possibility since it’s illegal for them to provide you with false information.

(3) There are no mandated payment programs available for private student loans. Like a credit card, once you default, a private student lender can accelerate the entire loan balance, and sue you in court. Your inability to repay this amount won’t stop the collection process. One of the few advantages of private student loans is that they are subject to a statute of limitation. Once the statute has run, further collection becomes illegal. Answering this question can be complicated. Judgments are good in most states for 20 years. Having a copy of the promissory note and your payment history will help a lawyer to assess your situation. Collecting on student loan debt beyond the statute of limitation may be a violation of the Federal Fair Debt Collection Practices Act or your state’s fair debt collection law.

Courtesy of NACBA.  This article was written by Richard Gaudreau who is a lawyer admitted to practice in New Hampshire (NH) and Massachusetts (Ma) with a specialty in bankruptcy and student loans. He has litigated student loan issues in the U.S. Bankruptcy Court, First Circuit Bankruptcy Appellate Panel, and Federal First Circuit Court of Appeals. He may be reached through his website at attorneygaudreau.com, by email at Richard@attorneygaudreau.com, or by calling 603-893-4300.
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IRS Electronic Tax Administration Advisory Committee Delivers Report to Congress

June 20th, 2013

The Electronic Tax Administration Advisory Committee (ETAAC) presented its 2013 Annual Report to Congress during a public meeting today. The report discusses five groups of recommendations on issues in electronic tax administration.

Highlights of the report include recommendations on the following key outcomes:

  • Approve standards for security, privacy and fraud prevention
  • Provide incentives for e-filing employment tax returns
  • Expand access to data and online tools
  • Leverage relationships in the electronic filing community
  • Fund CADE 2 and the 1040 Modernized e-file (MeF) programs

“The IRS appreciates the committee’s hard work and efforts to help the agency improve electronic tax administration for all taxpayers,” said Carol A. Campbell, Director of the Return Preparer Office. “We look forward to reviewing the recommendations that ETAAC members have carefully crafted.”

The 15-member committee provides an organized public forum for discussion of electronic tax administration issues and the overriding goal that paperless filing should be the preferred and most-convenient method of filing tax and information returns.

“With extraordinary challenges facing all sectors of the federal government along with unprecedented budgetary constraints intensified by the 2013 sequester, ETAAC commends the IRS in effectively and efficiently addressing its strategic priorities and, in particular, the significant progress the agency has made toward achieving its 80 percent electronic filing goal,” said Alice Burnett, ETAAC Chair. “The committee further recommends the IRS continue its steadfast focus on fraud and identify theft prevention, as well as the development of additional online tools to better serve the taxpayer and tax preparation community.”

ETAAC submits an annual progress report to Congress each June. The IRS created the ETAAC in 1998 as required by the IRS Restructuring and Reform Act of 1998.

The report is the result of research and analysis as well as meetings with senior IRS executives.

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Bank of America former employees: ‘We were told to lie’

June 19th, 2013

Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.

“We were told to lie to customers,” said Simone Gordon, who worked in the bank’s loss mitigation department until February 2012. “Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect.”

In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.

They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier “in-house” loans and paying bonuses to employees based on the number of new foreclosures they initiated.

The employees’ sworn testimony goes a long way to explain why the government’s Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.

Bank of America denied the allegations in the affidavits, which were filed in a Massachusetts lawsuit on behalf of dozens of Bank of America borrowers in 26 states.

“We continue to demonstrate our commitment to assisting customers who are at risk of foreclosure and, at best, these attorneys are painting a false picture of the bank’s practices and the dedication of our employees,” a spokesman said in a statement. “While we will address the declarations in more depth when we file our opposition to plaintiffs’ motion next month, suffice it is to say that each of the declarations is rife with factual inaccuracies.”

Share Your Story:  Have you worked for a mortgage servicer?

Since the housing crisis unfolded in 2007, Bank of America and other large mortgage servicers have maintained that the widespread delays in processing loan modifications largely resulted from an overwhelming and unprecedented wave of troubled loans.

But regulators have repeatedly cited lenders for mistreating borrowers trying to modify their mortgages. In April 2012, five big banks—including Bank of America—settled a sweeping complaint with 49 states and several federal regulators about their foreclosure and loan modification practices. The banks agreed to provide $26 billion in relief and adhere to a sweeping series of new rules when modifying loans.

Later this week, a monitor assigned to track the bank’s practices will issue a report that’s expected to cite ongoing violations of those new rules.

(Read More:Banks Slow to Clean Up the Mortgage Mess)

In their sworn testimony, the former Bank of America employees detail a series of specific company policies designed to provide as little foreclosure relief as possible.

“Based on what I observed, Bank of America was trying to prevent as many homeowners as possible from obtaining permanent HAMP loan modifications while leading the public and the government to believe that it was making efforts to comply with HAMP,” said Theresa Terrelonge, a Bank of America collector until June 2010. “It was well known among managers and many employees that the overriding goal was to extend as few HAMP loan modifications to homeowners as possible.”

The reason was fairly simple, according to William Wilson Jr., who worked as a manager in the company’s Charlotte, N.C., headquarters, where he supervised 13 mortgage representatives working on with customers seeking HAMP loan modifications.

After stonewalling qualified borrowers seeking an affordable HAMP loan, Bank of America representatives could upsell them to a more costly “in-house” loan modification, with rates 3 points higher than the 2 percent rate available under HAMP guidelines, Wilson testified.

“The unfortunate truth is that many and possibly most of these people were entitled to a HAMP loan modification, but had little choice but to accept a more expensive and less favorable in-house modification,” he said.

Courtney Scott was among the Bank of America customers who experienced repeated delays and denials for a government-sponsored modification of the mortgage on her suburban Atlanta home. The retired nurse and grandmother grew increasingly frustrated after bank representatives repeatedly requested she fill out paperwork covering the same information.

So she was surprised when the bank approved her six months later for an “in-house” modification.

“I got the [HAMP] denial in January, 2010 and then in June they came back with an in-house offer saying ‘Congratulations, you’ve been approved for a modification,'” said Scott. “But it only lowered my payments by about $7 and some cents.”

Scott turned down the offer and the bank moved to foreclose,an action she is contesting with the help of an attorney.

Scott’s frustration in complying with the banks request was designed to motivate her to agree to the in-house modification according to the former Bank of America workers.

In his affidavit, Wilson said most of the information the bank repeatedly requested from homeowners was already available in multiple document review systems. Some completed applications were denied one at a time, while other borrowers were rejected en masse in a process known as “the blitz,” Wilson said.

“Approximately twice a month, Bank of America would order that case managers and underwriters ‘clean out’ the backlog of HAMP applications by denying any file in which the financial documents were more than 60 days old,” he said. “These included files in which the homeowner had provided all required financial documents.”

The procedures described in the affidavits will come as no surprise to attorneys working with borrowers trying to save their homes from foreclosures, according to Max Gardner, a North Carolina bankruptcy attorney who trains other lawyers on legal strategies to thwart foreclosure

“This policy—of dragging it out as long as we possibly can and tell [the homeowner] you didn’t qualify or the mod failed or we didn’t get this document or you didn’t sign it in the right place or we lost this form—is consistent with what we’ve seen,” he said.

Courtesy of NBC News.
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IRS Offers Information, Support and Services for Small Businesses

June 18th, 2013

Do you own or operate a small business? Or do you plan to start a business someday soon? If you answered yes to either question, the IRS has online information, support and services that may be helpful to you.

Small Business Week Webinars.  During National Small Business Week 2013, the IRS is hosting two free, live small business webinars. Go online to learn about the many tax benefits available to businesses. You will also learn how to avoid common mistakes made by small businesses. IRS staff will answer questions during each webinar.

  • Attend the free live webinars on June 18 and June 20 at 2 p.m. (ET).
  • Register for the events at IRS Webinars for Small Businesses.
  • Although tax professionals will not get continuing education credits, they will receive lots of useful information.

If you’re unable to attend the live events, you can view the archived versions on the IRS Video Portal. They’ll be available about three weeks after the broadcasts.

Online Support Anytime.  The IRS offers many online products and services for small businesses. They’re available any day of the week throughout the year on IRS.gov. Here are just a few examples of the business resources the IRS offers:

  • The Online Learning and Educational Products page features useful small business tools. The Online Tax Calendar helps you keep track of important tax deadlines. You can subscribe to e-News for Small Businesses to help you stay on top of the latest tax news affecting small businesses.
  • The Self-Employed Individuals Tax Center is for sole proprietors, independent contractors, members of partnerships, and others who are in business for themselves. Check it out for self-employed tax information and more tools.
  • The Small Business and Self-Employed Tax Center is for small businesses with assets under $10 million. Visit this page for resources like Small Business Taxes: the Virtual Workshop. This popular class helps you learn the basics of federal taxes. It offers nine lessons to help you  tax issues so your small business can thrive.

Courtesy of the Internal Revenue Service.

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Insurance Not Required for Passengers

June 13th, 2013

Automobile liability policy did not cover passenger. Whether read alone or together, statutes governing uninsured motorists and Motor Vehicle Financial Responsibility Law do not require coverage of passengers. The uninsured motorist “statute thereby measures what…coverage must be provided by reference to who is required to be included in liability coverage under the policy terms and the MVFRL, rather than by reference to whether the person would have been entitled to recover from the uninsured motorist.”

Charzetta Steele, Appellant vs. Shelter Mutual Insurance Company, Respondent.
Missouri Supreme Court- SC92520

Courtesy of the Missouri Bar.

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Skimming Was Stealing

June 10th, 2013

Elements of stealing without consent include property of another. Record supported a finding that money in account of entity owned by appellant was property of appellant’s employer. Employer bought goods at inflated price from seller, who (unknown to employer) returned part of price to entity controlled (unknown to seller) by appellant. Appellant was thus receiving part of purchase price paid by employer in which employer had a proprietary interest. Those facts support an instruction on stealing without consent and finding for the State on that element.

State of Missouri, Respondent, vs. Jason Paul Mitchell, Appellant.
Missouri Court of Appeals, Eastern District- ED98752

Prepare for Hurricanes, Natural Disasters by Safeguarding Tax Records

June 4th, 2013

With the start of this year’s hurricane season, the Internal Revenue Service encourages individuals and businesses to safeguard themselves against natural disasters by taking a few simple steps.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records –– including, for example, bank statements, tax returns, insurance policies, etc. –– is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

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Courtesy of the Internal Revenue Service.