“Dirty Dozen” tax scam list now includes telephone scams

 

BY ALISTAIR M. NEVIUS, J.D.

FEBRUARY 19, 2014

Identity theft and telephone scams top this year’s list of the “Dirty Dozen” fraudulent tax schemes released by the IRS on Wednesday. The annual list contains various common scams that taxpayers may be subjected to at any time, but the IRS says many of them reach a peak during tax filing season. “These schemes jump every year at tax time,” said IRS Commissioner John Koskinen in a prepared statement.

“Pervasive telephone scams” represent a new entry onto the list. The IRS reports an increase in scams in which callers pretend to be from the IRS and try to steal taxpayers’ money or identities. The IRS says that in these scams the callers may say the victim owes money or is entitled to a huge refund. Sometimes the callers threaten the victim with arrest or threaten that his or her driver’s license will be revoked.

The IRS warns that the callers can appear genuine because they may be able to recite the last four digits of the victim’s Social Security number or may imitate the IRS’s toll-free number on caller ID to make it appear that the IRS is calling.

The IRS also warns that some telephone scams target recent immigrants, who are threatened with arrest or deportation if they do not pay up promptly.

The IRS asks that taxpayers who think they are being targeted by phone scammers to contact the Service at 800-829-1040, the Treasury Inspector General for Tax Administration at 800-366-4484, and the Federal Trade Commission using the FTC Complaint Assistant at FTC.gov.

The rest of the “Dirty Dozen” is similar to last year’s list:

• Identity theft;
• Phishing;
• False promises of free money from inflated refunds;
• Tax return preparer fraud;
• Hiding income offshore;
• Charitable organization impersonation;
• False income, expenses, or exemptions;
• Frivolous arguments;
• Falsely claiming zero wages or using a false Form 1099;
• Abusive tax structures; and
• Misuse of trusts.

Global tax rates, time to comply are on the decline
Tax rates have declined over the past few years and the administrative burden of paying a company's taxes continues to decline, according to a report by consulting firm PwC and The World Bank, "Paying Taxes 2013: The global picture." The report found that the U.S. total tax rate was 46.7%, a little higher than the global average. Its average time to comply was 175 hours, which was less than the global average. Business Finance (1/9)     

U.S. tax code needs full revamp, expert says
Nina Olson, the Internal Revenue Service's taxpayer advocate, calls on Congress in her annual report to overhaul the tax code. Filing a tax return has become a "significant, even unconscionable, burden," she says. The AICPA has a longstanding tradition of advocating for sound tax policy and assisting lawmakers on tax policy matters. Read more at AICPA.org. The New York Times (tiered subscription model) (1/9)     

Filing Season Opens January 30: The IRS plans to begin processing 2012 individual income tax returns on Wednesday, 1/30/13. According to the IRS, the vast majority of filers—more than 120 million households—should be able to start filing tax returns on that date, whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch, as well as the three major extenders—the state and local sales tax deduction, higher education tuition and fees deduction, and educator expense deduction. Several forms affected by the 2012 American Taxpayer Relief Act, including Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization), and Form 3800 (General Business Credit), will require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future. News Release 2013-2.

IRS announces Jan. 30 tax season start for most taxpayers
The Internal Revenue Service announced Tuesday that it will start accepting most individual tax returns on Jan. 30, delaying the start of tax season by less than a week for most taxpayers. However, because of form and system changes required by the Jan. 2 enactment of the American Taxpayer Relief Act of 2012, some taxpayers will not be able to file until February or March. JournalofAccountancy.com (1/8)     

Charitable Contributions

Strict substantiation requirements can trip up charitable donors
At this time of year, when many taxpayers give to charity, it's important that tax practitioners understand the strict substantiation requirements that must be met to qualify for a charitable deduction. A recent Tax Court case illustrates the lengths the Internal Revenue Service will go to enforce the substantiation requirements. The Tax Adviser (12/2012)     

Estate Planning - Young Families

Young families need to consider estate planning, too
Estate planning is important for young families too, especially if there are children or a spouse dependent on one adult's income. Steps young families should take include naming an executor for the estate, naming a guardian for minor children, providing instructions for distribution of assets and planning for disability. PFP/PFS members, for more estate planning considerations, can access the 2012 edition of the comprehensive CPA's Guide to Financial and Estate Planning. National Underwriter Life & Health (11/29)     

IRS issues guidance on 0.9% Medicare surtax

IRS issues guidance on 0.9% Medicare surtax
The Internal Revenue Service issued proposed regulations on the 0.9% additional Medicare tax that will take effect next year. The regulations cover filing requirements, how to make adjustments for underpayments and overpayments of the tax, and how to file refund claims for overpayment of the tax. JournalofAccountancy.com (12/3)     

Free Webinar on Fiscal Cliff

Free client-oriented Web seminar on the "fiscal cliff"

The "fiscal cliff" is the combination of tax increases and spending cuts scheduled to take effect on Jan. 1 for the purpose of increasing government revenue and decreasing the budget deficit. It is imperative not only that your clients have the best strategies in place for maximizing their tax savings and protecting their net worth (view free recording and presentation materials on this topic from the PFP Division), but also to ensure that they understand the economic outlook and long-term outcomes of the fiscal cliff and its impact on them. Invite your clients to a free Web seminar on Dec. 18 from 1 to 2 p.m. ET, where leading CPA financial planners Michael Goodman, CPA/PFS, and Ted Sarenski, CPA/PFS, will walk your clients through a plain-English discussion of the fiscal cliff, the economic outlook and what this means for the consumer. Register now.     

Fiscal Cliff Calculator

"Fiscal cliff" tax calculator tries to shed light on uncertainty
Financial advisers' bread-and-butter clients -- a family with two children, earning $147,000 a year -- could see their tax liability increase by $7,323 if there isn't a resolution to the "fiscal cliff." There are countless scenarios, though, of what could happen, making planning difficult. The Urban Institute and Brookings Institution's jointly run Tax Policy Center has created a fiscal cliff tax calculator that shows how various plans under consideration might affect a taxpayer's liability. Visit aicpa.org/PFP/YearEnd for FREE resources to help you get financial plans in place for your clients now, so you are ready to trigger when there is more certainty. AdvisorOne (11/29)     

Penalty Relief and Installment Agreements to Help Long-term Unemployed.

IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers under Expanded Fresh Start Initiative

WASHINGTON — The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet," said IRS Commissioner Doug Shulman. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers."

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

• Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.
These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Details on IRS Collection and Other Information

A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, www.irs.gov.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations:

Proposed Changes to Corporate Tax Structure

Obama's corporate-tax proposal would close loopholes, cut rate
President Barack Obama's proposed overhaul of corporate taxes would reduce the basic tax rate from 35% to 28% while eliminating dozens of subsidies and loopholes, a senior administration official said. Manufacturers would be given incentives that bring their effective tax rate down to 25%, while a new minimum tax rate for multinational corporations would be established to curb "accounting games to shift profits abroad." The New York Times (tiered subscription model) (2/22), FoxNews.com (2/22)     

Do You Engage in Bartering?

Four Things to Know About Bartering

In today’s economy, small business owners sometimes save money through bartering to get products or services they need. The IRS wants to remind small business owners that the fair market value of property or services received through barter is taxable income.

Bartering is the trading of one product or service for another. Usually there is no exchange of cash. However, the fair market value of the goods and services exchanged must be reported as income by both parties.

Here are four facts on bartering :

1. Organized barter exchanges A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is internet-based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.

2. Barter income Barter dollars or trade dollars are identical to real dollars for tax reporting purposes. If you conduct any direct barter – barter for another’s products or services – you must report the fair market value of the products or services you received on your tax return.

3. Tax implications of bartering Income from bartering is taxable in the year it is performed. Bartering may result in liabilities for income tax, self-employment tax, employment tax or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.

4. How to report The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations or Form 1120-S for Small Business Corporations.

For more information, see the Bartering Tax Center in the Business section at www.irs.gov.

Social Security Tax Cut Extended

Payroll-tax cut extension passed by Congress
Congress passed the Middle Class Tax Relief and Job Creation Act on Friday, extending the reduced 4.2% Social Security tax rate through the end of the year. The lower rate had been scheduled to expire Feb. 29. The bill now goes to the president's desk for signature. JournalofAccountancy.com (2/17)