Top Tax News Stories of 2013

William Perez for About.com writes: As the year 2013 draws to a close, we look back over the past year. Here is a roundup of some of the biggest tax-related news stories of the year.

1. American Taxpayer Relief Act was passed on January 1, 2013. This tax law instituted at top personal tax rate of 39.6%, bumped up the top capital gains rate to 20%, provided for indexing the alternative minimum tax to inflation, reinstated the phaseouts on itemized deductions and personal exemptions. This law was Congress's way of dealing with the fiscal-cliff, which was the name applied to the expiration of a several tax laws first enacted during the Bush administration.

• News coverage from TheHill and from the New York Times.

2. The late passage of the American Taxpayer Relief Act caused a delay in the filing season at the beginning of the year, as the IRS has to revise tax forms and their software to reflect the latest tax law. The IRS opened began processing tax returns on January 30, 2013, one week later than the originally planned January 22nd start, but some taxpayers had to wait until February or March to allow time for the IRS to update its forms and software. "Approximately 11.6 million taxpayers were unable to file their tax returns until February or March 2013, depending on the types of forms included with their tax returns," notes an audit report from the Treasury Inspector General for Tax Administration.
3. The IRS was closed and furloughed its employees for three days (May 24, June 14, and July 5), but canceled two of its planned furlough days (July 22 and August 30). The IRS implemented the furlough days as a way to manage its operating budget in light of budget cuts required by sequestration.
In October, the IRS shut down along with the rest of the federal government. The IRS was closed and furloughed its employees from October 1st to October 16th, 2013. The shut down occurred during the time when many people were filing their tax returns for the October 15th deadline.
Furloughs and shutdown is taking its toll. "Between the problems caused by sequestration, government shutdowns, scandals and more, morale among IRS workers is at an all-time low," reports Mark Saal at the Standard-Examiner.

• More about the shut down: from About US Politics and from About US Economy.

4. Loving fights the IRS and wins.
The IRS attempted to regulate tax professionals without having first been given the authorization to do so. Or so claimed the plaintiffs in Loving v. IRS. Three independent tax professionals (Sabrina Loving, John Gambino, and Elmer Kilian) took the IRS to court over its plans to require all persons who prepare a tax return for compensation to pass a competency test, submit to background screening, and take a minimum number of hours of professional education. The IRS said a 1884 law gives the agency authority to regulate tax preparers, however the court disagreed and ruled in favor of Loving and the other plaintiffs. The case is now on appeal.

• More from Forbes.

5. IRS inappropriately scrutinizes applications for tax-exempt status.
The problem was that the IRS scrutinized some organizations seeking tax-exempt status more than they scrutinized other organizations seeking similar tax-exempt status. The scrutiny seems to have been directed disproportionately at conservative-leaning organizations, although some liberal-leaning organizations also suffered scrutiny. The scandal became so huge that three IRS executives lost their jobs: Lois Lerner, the IRS employee at the center of the scandal; acting IRS commissioner Steven Miller; and Joseph Grant, who was in charge of the IRS's tax-exempt division.

• Tax Professor Paul Caron has cataloged news reports of the IRS scandal, now reaching 234 days and still counting. All of professor Caron's reports can be found on the TaxProfBlog using the search label IRS scandal. The scandal also has its own Wikipedia page.

6. Excessive spending was the other big IRS scandal in 2013.
The IRS got in trouble for excessive spending on travel, conferences and training videos featuring parodies of the popular television shows.

• Details were revealed in in a TIGTA audit, and there's a good news story from the Washington Post.

7. Identity Theft continues to drain money out of the Treasury.
The IRS faces an unprecedented problem. Tax returns are being filed falsely, and the IRS pays out the tax refunds. The problem occurs when a tax return using a person's real name and Social Security number is filed with the IRS. The IRS doesn't discover the problem until the real person subsequently files a tax return, and the IRS realizes it has two tax returns for the same person. And by that time, it's too late, as the identity thief has made off with the stolen refunds. In an audit of IRS data, the Treasury Inspector General for Tax Administration found approximately $3.6 billion in potentially fraudulent tax refunds for the tax year 2011 that appear to be related to identity theft, down from the $5.2 billion in potentially fraudulent refunds discovered for tax year 2010. TIGTA also discovered that identity thieves are stealing employer identification numbers so they can file false W-2 forms in an effort to bypass the IRS's fraud detection systems, which could result in the $2.3 billion in potentially stolen tax dollars.
TIGTA also reports that victims of identity theft wait an average of 312 days for the IRS to resolve their case.

• Enrolled agent Jason Dinesen chronicled the first-hand story of an identity theft victim in an 18-part series.

Identity theft is often caused when a thief obtains a taxpayer's real name and Social Security number from the Death Master File, which is freely available from the federal government. Access to the Death Master File will now be restricted due to a legislative change enacted as part of the 2014 federal budget, as Bloomberg reports.

8. Gay married couples can now file tax returns as married couples.
The Supreme Court decided, in the case of the United States v. Windsor, that the federal government has no good reason to deny recognizing the marital status of same-sex couples. Previously, the IRS had denied gay couples the ability to filed as married. With part of the Defense of Marriage Act struck down as unconstitutional, the IRS had to quickly respond to figure out how to recognize same-sex marriages. The IRS decided that a same-sex couple's marriage would be recognized for federal tax purposes "as long as they were married in a state whose laws authorize the marriage of two individuals of the same sex, even if they are domiciled in a state that does not recognize the validity of same-sex marriages". As a result of this Supreme Court decision, gay and lesbian married couples were able to re-file their tax returns as married taxpayers and claim refunds for overpaid tax.

• Jason Dinesen, an enrolled agent who blogs about tax issues, has covered the federal and state impact of the Windsor case.

9. 100th anniversaries of the 16th amendment and the modern tax code.
2013 saw not one but two 100th anniversaries. The 16th Amendment to the US Constitution, which authorized the collection of an income tax, turned 100 years old on February 3, 2013. And Revenue Act of 1913, the first modern income tax law, celebrated its 100th anniversary on October 3, 2013.

• On the centenary of the 16th Amendment: from About.com and from Forbes.
• On the centenary of the Revenue Act of 1913, from the New York Times.

10. Tax Reform got started and made some serious progress.
Max Baucus (Senate Finance Committee) and Dave Camp (Ways and Means Committee) held hearings, issued policy reports, and went on a nationwide tour to meet with taxpayers about how the federal tax system can be reformed. To date, no legislation has been introduced.

• Tax reform-related document and hearings can be found through the taxreform.gov Web site.
• Professor Annette Nellen has a comprehensive resource page on federal tax reform.

11. Eighteen Countries sign FATCA-implementation agreements.
The United States has signed intergovernmental agreements with 18 different countries to enable the sharing of tax data between those countries with the IRS. The agreements are part of an effort to implement the Foreign Account Tax Compliance Act (FATCA). "FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest," notes the Treasury Department. Meanwhile, many Americans living abroad have found it difficult to maintain or to open bank accounts outside the United States as banks turn away American customers, reports the International Business Times.

12. Taxpayers continue to be penalized for undisclosed offshore bank accounts.
As of December 2012, the IRS has collected about $5.5 billion in tax, penalties and interest from taxpayers who failed, forgot or didn't know they had to disclose the existence of foreign bank and financial accounts to the Treasury Department. The Taxpayer Advocate, analyzing data from a GAO report, found that penalties imposed on taxpayers with the smallest offshore accounts (in the bottom 10% of offshore cases) was disproportionate to the penalties imposed on taxpayers with the largest offshore accounts (in the top 10% of offshore cases). The difference: taxpayers in the bottom 10% paid on average 575% of penalties as a percentage of their underreported income, while taxpayers in the top 10% paid on average 86% or less in penalties as a percentage of their underreported income (pdf report, 4 pages).

13. IRS believes it can read taxpayer's emails without a warrant, the ACLU discovers.
As a result of a freedom of information act request, the American Civil Liberties Union discovered that the criminal division of the IRS believes it can read a person's emails and other electronic communications without a warrant. CNET has the details.