In a September 16, 2020 press release, the IRS offered Oregonians living in certain counties affected by the recent wildfires some breathing room from the upcoming October 15, 2020 deadline to file their returns. This relief assumes the taxpayer filed the automatic extension from the already extended July 15, 2020 deadline for this tax season due to the Covid-19 pandemic. The Oregon Department of Revenue has also released guidance stating Oregon has followed the IRS and extended the filing deadline for the required state returns.
Who benefits from this tax filing deadline relief? Oregonians living in or operating a business in Clackamas, Douglas, Jackson, Klamath, Lane, Linn, Lincoln, and Marion counties. The IRS and Oregon Department of Revenue will now allow additional time for those taxpayers from the listed counties to file their 2019 tax returns.
How much time? Until January 15, 2021. The recent guidance does not state anything needs to be filed or requested in advance for this filing extension. Nor do you need to have experienced a loss of your home or personal belongings to benefit from this extension in the listed counties.
What exactly is extended to January 15, 2021? Third quarter estimated tax payments that were due September 15, 2020; individual, corporate, and estate and trust income tax returns; partnership returns; S corporation returns; trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and, employment and certain excise tax returns that have an original or extended due date occurring on or after September 7, 2020 and before January 15, 2021 are now all due on or by January 15, 2021.
Not all filings are covered by these extensions. The information returns in the W-2, 1094, 1095, 1097, 1098, and 1099 series are still due. As are Form 1042-S, 3921, 3922, or 8027 and Employment and Excise tax deposits. Penalties on those deposits due on or after September 7 and before September 22, 2020 can be abated as long as the tax deposits were made by September 22, 2020, according to the September 16, 2020 IRS press release.
For those that have experienced losses, not just expenses for evacuation, have the option of claiming disaster related casualty losses on their federal income tax return for the year the loss occurred or in the prior year. Those taxpayers in the affected areas claiming the disaster loss on the 2019 or 2020 tax years should make sure to write “Oregon – Wildfires and Straight-line Winds” in bold letters across the top of Form 4684, Casualties and Thefts. A reference to the disaster declaration number for FEMA is also appropriate on these returns. The disaster number is FEMA 4562. See Publication 547 for details or schedule an appointment with Kent Anderson Law Office for assistance.
If your tax return is audited by the Oregon Department of Revenue, you will likely receive a Notice of Deficiency at the conclusion of the audit. The Notice of Deficiency summarizes changes that have been made to your tax return (or returns) and informs you of your options for appealing the Department’s decision. You have two options to request an administrative appeal of the Notice of Deficiency: you can submit a written protest or you can request an appeals conference. You must choose one or the other, and you must submit your appeal in writing within 30 days of the date on the notice.
A written protest should detail each of your objections to the audit changes, and may include additional documentation to support your arguments. When you submit a written protest, it will be considered by the same person who conducted the audit. In many ways, the written protest is like an extension of the audit. If you were not happy with the way the audit was handled, an appeals conference may be a better option.
An appeals conference is an informal meeting between you, the auditor, and a conference officer—a more senior Department of Revenue employee with substantial audit experience. The conference can be held in person or by phone, and you will have the opportunity to submit additional documentation to the conference officer. Although a conference gives you the opportunity to have a second opinion from an experienced Department of Revenue employee, you should take note—conference officers are not independent of the Department, which means that their decisions should not be considered objective or unbiased.
At the conclusion of the administrative appeal, or if no administrative appeal is made within 30 days of the date on the Notice of Deficiency, the Department will issue a Notice of Assessment. This notice is particularly important because it begins the 90-day period to appeal to the Oregon Tax Court. If you do not appeal within that time frame, the adjustments become final and your options for challenging the tax are very limited.
While considering whether to appeal to the Tax Court during the 90-day period following the Notice of Assessment, it is important to be aware of the Department’s collection activities during that time frame. Thirty days after the Notice of Assessment goes out, the Department will send a Notice and Demand to Pay. While this letter seems threatening, it is the next notice that you should watch out for. Thirty days after the Notice and Demand to Pay is sent (now 60 days after the Notice of Assessment) the Department will send a Distraint Warrant. This document authorizes the Department to garnish your wages or bank account, or potentially seize other assets, without further notice. It is important to understand that the Department could take these actions even before your appeal rights have expired.
If you receive a Notice of Deficiency or Notice of Assessment, or any other notice from the Department of Revenue, consult with an experienced tax attorney who understands the assessment and collection process and who will advocate on your behalf. If you do not take appropriate steps to respond to the Department’s notices, your assets are at risk. Be proactive, talk to a professional, and educate yourself about your rights as a taxpayer.
The Oregon Department of Revenue recently held a hearing on a proposed rule that would authorize the Department to post a list of delinquent taxpayers online. Although the IRS is prohibited from publishing the information of delinquent taxpayers, almost half of the states in the U.S. use “naming and shaming” to improve tax compliance. Studies suggest that this practice can facilitate the collection of taxes if done properly. However, there is reason to believe that the use of a delinquent taxpayer list can backfire if taxpayers view an agency’s collection procedures as unfair or coercive.
As part of its public disclosure pilot program, the Department of Revenue will publish a list of the “largest tax delinquencies” for which a warrant has been recorded in any Oregon county clerk’s office. The rule provides no indication as to exactly how many delinquencies will be included on the list, but a previous draft of the rule limited the list to the 25 largest delinquencies. The removal of that limitation in the current draft could be a bad omen for Oregon taxpayers with outstanding balances.
On December 1, the Department rolled out its new computer system, which includes an automated warrant system. Previously, revenue agents had to manually review each account to decide when a delinquent liability should be subject to a recorded warrant. Now, any liability over $2500 not paid within 60 days of assessment will be subject to an automatic, recorded warrant. The new automated warrant system streamlines the process and greatly expands the pool of delinquent taxpayers potentially eligible for public disclosure. Before a taxpayer is placed on the public delinquency list, the Department must send a written notice giving the taxpayer 30 days to correct the delinquency, either by paying in full or entering into an approved payment plan. Taxpayers can also stay off the list by initiating a bankruptcy proceeding or by convincing the Department that the delinquency is uncollectible due to financial hardship (an unlikely prospect).
Is “naming and shaming” good policy? Will it promote compliance with Oregon’s tax laws? I recently attended the inaugural International Conference on Taxpayer Rights in Washington, D.C., where government initiatives to promote voluntary compliance were heavily discussed.
The keynote address by Eric Kirchler, Professor of Economic Psychology at the University of Vienna, looked at the ways in which taxpayers’ attitudes towards tax agencies affect voluntary compliance. Mr. Kirchler distinquished an agency’s use of legitimate power (based on the agency’s professionalism, expertise, and legal authority) from the agency’s use of coercive power (such as asset seizure, penalties, and public shaming). If an agency exercises too much coercive power in relation to its exercise of legitimate power, the agency’s use of that power will be viewed as unfair and oppressive. As a result, taxpayer trust in the agency will suffer and overall levels of compliance will decrease. To be effective in promoting compliance, Kirchler said, coercive power should be used only in limited circumstances.
Lennart Wittberg, a strategist with the Swedish Tax Agency, discussed the application of these ideas in Sweden, which has one of the world’s highest voluntary compliance rates. In 2006, Sweden changed its approach to audits and tax enforcement, recognizing that if taxpayers perceive the tax system as fair and just, they are more willing to accept decisions of the taxing agency that negatively affect them. Wittberg noted that most Swedish taxpayers feel that they are treated with fairness and respect during the audit process. Because they are given a meaningful chance to present their case to the auditor, taxpayers tend to view the agency’s final decision as an exercise of legitimate power. As a result, Swedish taxpayers are highly likely to comply with the tax laws following an audit, regardless of the audit outcome.
In order to promote voluntary compliance, the Oregon Department of Revenue should apply these principles to its tax collection policies. Publicly disclosing the names and addresses of delinquent taxpayers is a coercive power which must be used with caution. If the collection process is viewed as unfair and unjust, taxpayer compliance will likely decrease. For example, the proposed rules provide that Oregon taxpayers may avoid the disclosure list by entering into a payment agreement for satisfaction of their liabilities. But if taxpayers are not offered a meaningful opportunity to enter into a payment agreement based on an amount they can reasonably afford to pay, public shaming will likely build resentment towards the Department. Shaming should be strictly reserved for taxpayers who are able to pay and have been offered an opportunity to pay, but who choose not to. The power to destroy the reputations of businesses and individual taxpayers should not be taken lightly.
If you are being pursued by the Oregon Department of Revenue for past-due tax liabilities, you know what the collections process is like. Many taxpayers seek the assistance of an attorney because they feel that they are being treated unfairly by revenue agents who don’t give them the opportunity to make reasonable payment arrangements. Whether or not the Department of Revenue’s collection policies are fair and just (or even legal, in some cases) is a complicated question that will be the subject of future discussions. In the meantime, as the Department of Revenue ramps up collections efforts, policymakers would be well advised to keep in mind that when it comes to promoting voluntary compliance, winning the trust and respect of taxpayers is vital to success.
If your tax return is audited by the Oregon Department of Revenue, you will likely receive a Notice of Deficiency at the conclusion of the audit. If you receive a Notice of Deficiency or Notice of Assessment, or any other notice from the Department of Revenue, consult with an experienced tax attorney who understands the assessment and collection process and who will advocate on your behalf