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In September of 2016, the IRS announced that it would start using private debt collectors to recover certain overdue federal tax debts in the spring of 2017. To implement this new program, the IRS contracted with four private collection agencies: CBE Group, Conserve, Performant, and Pioneer. In carrying out their collection efforts, these four companies are required to respect taxpayer rights and obey the consumer protection regulations established in the Fair Debt Collection Practices Act.

How does this new program work?

Considering the continual mail and phone scams that keep emerging, the IRS Commissioner warned taxpayers to be alert for new scams related to this program. When a taxpayer’s account is transferred to a private debt collection agency, the IRS will give the taxpayer written notice of the transfer. In addition, the private collection agency will then send a second, separate letter to the taxpayer verifying this transfer. The private collection agency will not ask for payments to be made on a prepaid debit card or for checks to be made out to the collection agency. All checks should be made payable to the U.S. Treasury. The IRS emphasized that even with private debt collection, taxpayers should not be receiving phone calls from the IRS insisting on immediate payment. The IRS always mails multiple collection notices before making phone calls.

There are several types of accounts that the IRS will not transfer to private collection agencies. Some of these accounts include taxpayers who are deceased, in designated combat zones, victims of identity theft, or in presidentially declared disaster areas and requesting relief from collection. If a taxpayer does not want to work with a private collection agency appointed to his or her account, he or she must notify the private collection agency in writing. Also, the IRS urges taxpayers who are unsure if they have unpaid taxes due from a previous year to check their account balances on www.irs.gov/balancedue.

For more information on private debt collection visit the Private Debt Collection page on the IRS website.

On May 11, 2017, the Tax Court issued a Memorandum Decision (TC Memo 2017-79) that addressed, among other things, the Taxpayer arguing that the software “lured” him into claiming too many deductions on his tax return.

There were a number of issues on this return that caught the eye of the IRS: alimony paid deduction, interest deduction, and deduction for other expenses. When examined by the IRS, the Taxpayer did not have much in the way of paperwork to support his positon for the deductions reported.

In addition to disallowing the majority of the deductions taken, the Taxpayer was assessed an accuracy related penalty for substantial understatement of income tax. For this penalty, the burden shifts to the Taxpayer to show that his mistakes were reasonable and in good faith. “He admitted during trial that he deducted items he shouldn’t have, and that he overstated certain losses. He tried to blame TurboTax for his mistakes, but tax preparation software is only as good as the information one inputs into it,” the Court concluded.

Tax preparation software must be used correctly to be useful for purposes of showing reasonable cause and good faith as a defense to accuracy related penalties. The majority of court cases have rejected this defense.

It is the taxpayer’s responsibility to review the output as well as the input when using tax software. Remember the old adage: Garbage In Garbage Out.

When preparing your return, ensure you are reviewing the return before filing it. I just received a phone call this week from someone that was asking if his tax software was properly calculating the tax on rental property he had sold. A first for him. I commend him for wanting to understand what he was filing.

Remember: You can’t blame the software!

Right before this year’s tax deadline, the IRS put out a release reminding people that some of us may not have to ask for an extension. While this advice is coming a bit late from me for the current tax year, it is definitely something to keep in mind. As the IRS notes “Taxpayers in Presidentially-declared disaster areas, members of the military serving in a combat zone and Americans living and working abroad get extra time to both file their returns and pay any taxes due.”

If you are a taxpayer in a disaster area you will often have extended time to file and pay. These extensions of time also apply to other tax-related items like contributing to an IRA. The IRS states that generally any area given a disaster declaration by FEMA is provided this relief, which is extended to relief workers, businesses and anyone who has their tax records located in the disaster area.

If you are a member of the military or eligible support personnel serving in a combat zone you will have at least 180 days after you leave the combat zone to file your tax returns and pay your taxes. As with the disaster relief, this extension also pertains to other tax-related items like contributing to your IRA. The IRS suggest checking Publication 3, Armed Forces’ Tax Guide, for further details.

For U.S. citizens and resident aliens who are living and working outside the United States and Puerto Rico, you have until June 15, 2017 (for the current tax year) to file your return and pay any taxes due. This also applies for military members on duty outside the U.S. who do not qualify for the combat zone extension. The IRS does note two items with this category of extended filing: 1) Attach a statement with your return explaining which situation applies for you; and 2) interest still applies to payments received after the standard filing deadline (generally April 15). See Publication 54 for more information.

For everyone else, just remember to ask for more time by filing Form 4868.

A trust can be set up for a multitude of purposes in various forms and of course there are tax consequences, with which a Reno CPA can assist you. There are many moving parts with trust taxation, but simplistically nongrantor trusts must file a federal tax return of which the highest income tax rate is assessed on incomes over $12,400, as opposed to a single person with this threshold over $415,050.

Various state income taxes can also be assessed by merely having a trustee in a state like California or Colorado, even if the beneficiary lives in another state that doesn’t impose personal or trust income taxes like Nevada. These states consider the trust to be a resident trust in that state as the trust is administered in that state by having the trustee located there.

As you can probably guess, California’s trust taxes can be quite onerous. The trust tax rate can reach 12.3% of taxable income. Combined with the federal tax rate of 39.6% and the additional tax on investment income to pay for the Affordable Care Act of 3.8%, a California trust could be taxed at up to 55.7%!

This 12.3% California trust tax can easily be avoided by choosing a trustee that resides in the state of Nevada, even if the beneficiary lives in California. A trustee can be a trusted family member, banker, attorney or a CPA. For any trust related tax questions the Reno CPAs at Barnard Vogler can help sort through the regulations.

The IRS is warning that con artists are using video relay services (VRS) as a way of potentially scamming deaf and hard of hearing individuals. It appears these bad actors are using VRS just like many of the other phone and email scams that are constantly being reported. These people will call claiming to be from the IRS and demand payment of a tax debt or say that the taxpayer is due a refund. Simply, these scammers are looking for personal information. As always, do not give out personal and financial information to anyone you do not know and confirm that the person requesting information really is who they claim to be. The IRS adds that people should not assume they can trust VRS calls as VRS interpreters do not screen calls for validity.

As listed on IRS.gov, the IRS will never:

• Demand immediate payment and require the payment be made a specific way, such as by prepaid debit card, gift card or wire transfer. In most cases, the IRS will not call taxpayers about taxes owed without first having mailed a letter to the taxpayer.
• Threaten that local police or other law-enforcement groups will immediately arrest taxpayers for not paying a tax bill.
• Demand that taxpayers pay taxes without giving them the opportunity to question or appeal the amount owed.
• Ask for credit or debit card numbers over the phone.

If a deaf or hard of hearing individual suspects they received one of these calls, they should call the Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484. The IRS now accepts calls from all type of relay services whether they are federal, state or private relay providers. The IRS also has YouTube videos in American Sign Language (ASL) with a listing that can be found here. A YouTube video in ASL about this VRS scam is also available.