With tax time once again upon us, it is time to give some thought to the agency we all love to hate this time of year: the Internal Revenue Service.
While nobody likes paying taxes and anyone who's been through an IRS audit probably doesn't have warm and fuzzy feelings toward the agency and its personnel, I do have more than a little sympathy for the rank-and-file people at the IRS I deal with on my clients' behalf who have to administer a complex tax code with insufficient funds and personnel.
Simply put, it has to be frustrating to work for the IRS these days.
Unable to fulfill their mandate, IRS employees are often compelled to engage in triage - enforcing some regulations casually (if at all) and sometimes ignoring IRS forms they receive because they simply lack the human power necessary to process them.
As with most situations in which processing paper forms becomes cumbersome and inefficient, technology can come to the rescue. A small investment in software can save tons of money and frustration with some of the IRS' more basic functions.
Here are three situations that are causing considerable frustration among my small-business clients right now, along with recommendations for simple and inexpensive fixes that will save the IRS time and money.
Changing a Company Name. When a company is first organized, it picks a name and is assigned a federal tax ID number, or EIN. If it changes from one organizational type to another — for example, a limited liability company (LLC) converting into a corporation — it must change its EIN at that time.
But what if the company just changes its name without changing its organizational type?
Believe it or not, the IRS doesn't have a form for that.
It has forms for individuals who are changing their names (Form SS-5) and for companies that are changing their address (Form 8822-B), but there is no form for changing a company name. What you have to do is write a letter to the IRS service center to which the company files its tax returns and hope it changes the name on the IRS electronic records.
Good luck with that, especially if you're trying to borrow money from a bank (or refinance an existing line of credit) and the bank can't take action because your company name doesn't match the name associated with your EIN.
How hard would it be for the IRS to amend Form 8822-B to allow for company name changes or, even better, add this as an option to the electronic Form SS-4 application form (www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online)?
Obtaining Tax ID Numbers (EINs) Online for Multiple Entities. Using the IRS online registration form, you can obtain EINs for multiple entities (up to four a day) as long as the responsible party of each (the founder or owner) has a different EIN or Social Security number each time.
But if you get an EIN for a company and want that company to become the responsible party for a second company (for example, a parent corporation that then forms a subsidiary), you cannot obtain an EIN for the second company online. The IRS software melts down and tells you to call an office in Lower Slobbovia, fax a paper Form SS-4 to that office and go over every line item in the paper form on the phone with an extremely overworked and bored IRS employee. Repeat the process for each other company in the daisy chain of companies you want to set up.
In 2018, we shouldn't have to be doing that. A simple software fix should allow you to set up multiple LLCs and corporations without any human intervention, perhaps with a CAPTCHA-type confirmation that proves you are not a robot trying to obtain multiple EINs for illegal purposes.
Automating the 501(c)(3) Application Process for Small Charities. If you want to form a small nonprofit organization (less than $50,000 per year in gross receipts), the IRS has a simple form (Form 1023EZ) you can use to obtain tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The form is relatively easy to fill out and doesn't require the detailed cash-flow projections of the form required for larger charities (Form 1023).
The problem with Form 1023EZ is that you still have to file the darn thing manually and wait up to six months for the IRS to make their determination that your organization qualifies for 501(c)(3) status. The IRS should seriously consider converting Form 1023EZ into an electronic question-and-answer form the same way it has with the annual report form for small charities (Form 990-N).
Don't get me wrong. I'm not suggesting the IRS should hand out "get out of paying taxes" exemptions like candy on Halloween. But digitizing Form 1023EZ would speed up the review process (acceptance or rejection could easily be determined in a day or two) and enable startup nonprofits to receive tax-deductible donations and fulfill their missions more quickly.
Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at www.creators.com.