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 December 9th, 2016, the IRS announced that the 2017 tax filing season will begin on January 23rd, 2017, when it will start accepting electronic tax returns. Per its website, the IRS is expecting more than 153 million individual tax returns to be filed during 2017, some of which will be affected by recent changes in tax law. Specifically, the IRS is now required to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15th, 2017. This rule applies to the entire refund, not just the portion of the refund relating to these credits. Furthermore, due to delays in refund processing through financial institutions, weekends, and the Presidents’ Day holiday on Monday, February 20th, 2016, the IRS is warning taxpayers who claim either credit that they most likely will not be receiving their refunds before February 27th, 2017.
How can you check the status of your refund?
There are two easy ways:
– Where’s My Refund on the IRS website – This website will be updated with estimated deposit dates for early EITC and ACTC refund filers after February 15th, 2017. All you need is your social security number or ITIN, filing status, and your exact refund amount.
– IRS2Go – This is the official mobile app of the IRS. It can be downloaded from the IRS website. EITC and ACTC refund filers can start checking the status of their refunds after February 15th, 2017.
According to the Network for Good, 30% of all online charitable contributions in 2015 were made during the month of December. This is not surprising as the gift-giving spirit around the holidays inspires many people to donate to causes near to their hearts at that time. Fortunately for us taxpayers, a donation to an IRS qualified charity can provide a tax deduction regardless of when it was made throughout the year. Summers, in particular, are a great time of year to think about donating. First, you can give cash without the stress of holiday spending. Second, you can donate non-cash items and declutter your home at the same time. Here are some tax tips on deducting charitable donations posted by the IRS on its website:
1. Make sure to donate a qualified charity. You cannot deduct donations to individuals or political organizations or candidates. Use the IRS Select Check tool to check the status of the charity to which you would like to give.
2. Be aware that your deduction may be limited. If you receive something in return for your donation, you can only deduct the amount in excess of the value of what you received in return. For example, if you donate $50 to a qualified charity and receive a ticket to a fundraising dinner valued at $30, you may only deduct $20. In addition to this rule, there are AGI limits on charitable donation deductions. Generally, donations may only be deducted up to 50% of AGI. See Publication 526, Charitable Contributions for more information.
3. If you donate non-cash items, there are several things to keep in mind. For donated property to be deductible, it must generally be in good condition. Also, the amount of the deduction for donated property is generally its fair market value. There are special rules for cars, boats, and other types of property. See Publication 526, Charitable Contributions, for more information on these rules. See also Publication 561, Determining the Value of Donated Property.
4. Be diligent with recordkeeping. There are very specific substantiation rules regarding charitable donations. The amount and type of your donation will determine what kind of record you must keep. In general, you must have a written record of any cash you give to claim a deduction. For donations of $250 (cash or property) or more, you must have a written statement from the charity stating the amount and/or a description of the property you gave and whether or not you received anything in return.
The IRS has a section on its website dedicated to information relating to charitable contribution deductions. More guidance can also be found in Publications 526 and 561.
There are a number of beneficial tax provisions that have been implemented to help military members who have been deployed to combat zones and their families. Two substantial benefits are extensions of filing deadlines and military pay exclusions. To be able to take advantage of these special tax treatments, however, specific requirements need to be met. The following takes a brief look at some of the regulations affecting military members when serving in combat zones. More information can be found on the IRS website or in IRS Publication 3 – Armed Forces’ Tax Guide.
Per IRS Publication 3, the U.S. Armed Forces comprise officers and enlisted personnel in all regular and reserve units subject to control by the Secretaries of Defense, Army, Navy, Air Force, and Coast Guard. The U.S. Merchant Marine and the American Red Cross are not included.
Per the IRS website, combat zones are specified by executive orders from the President. They are regions (including the airspace above them) in which the U.S. Armed Forces currently are or previously were engaged in combat. At this time, there are three combat zones:
In addition to these designated combat zones, the Department of Defense has ordered several other areas to qualify for combat zone tax benefits. These regions have played crucial roles in supporting military operations under either Operation Enduring Freedom or Operation Iraqi Freedom. A few examples are Pakistan, Tajikistan, Jordan, Yemen, and Somalia.
When serving in combat zones, military members and their spouses are allowed an extension to file their Forms 1040. The deadline is extended for 180 days after the service member’s last day in a combat zone. Additionally, any period of time before the regular filing deadline that the service member spent in a combat zone is added to the 180 days. For instance, if a service member deployed to a combat zone on January 15, 2016 and returned November 15, 2016, the deadline for filing his 2015 Form 1040 would be extended for 274 days (180 days plus the 94 days he was deployed prior to April 18, 2016) after he returned on November 15, 2016, making his filing deadline August 16, 2017. The IRS has listed many examples on its website and in its Publication 3 for guidance.
Enlisted members, warrant officers, and commissioned warrant officers, who serve in combat zones during any part of a month, can exclude all of their military pay for that month from their gross income. This rule applies to commissioned officers as well, but with one limitation. The amount of the income tax exclusion is limited to the highest rate of enlisted pay, plus any hostile fire or imminent danger pay received. For 2015, the exclusion amount is $8,119.50 per month ($7,894.50 for the highest enlisted pay plus $225 for imminent danger pay).
There are many other tax regulations that affect individuals serving in the military. As mentioned, the foregoing is intended to take a glimpse at some of the tax benefits received by service members deployed to combat zones. The IRS has a section on its website dedicated to giving military members tax information and, more specifically, rules regarding combat zone service. IRS Publication 3 is also a useful resource.
Identity theft can be a devastating experience that can turn a person’s life upside down. In an effort to combat identity theft and financial crimes in general, the IRS Criminal Investigation examines possible criminal violations of the Internal Revenue Code and related financial crimes, including fraud related to identity theft. Each year, the Criminal Investigation gathers and releases statistics on the number of investigations initiated, prosecution recommendations, indictments or informations, and convictions as well as the incarceration rate and average number of months sentenced to serve. For the fiscal year ending September 2015, there were 3,853 investigations initiated, 3,289 prosecution recommendations, 3,208 indictments or informations, and 2,879 convictions. For identity theft investigations in particular, the statistics were as follows: 776 investigations initiated, 774 prosecution recommendations, 732 indictments or informations, and 790 sentencings. The incarceration rate for identity theft related crimes was 84.6% and the average number of months sentenced to serve was 38.
To help victims of identity theft resolve their cases, the IRS recently changed its former policy of refusing to provide copies of fraudulently filed tax returns. Recognizing a victim’s need to figure out just what personal financial information was stolen and how it was used, the IRS now allows taxpayers to acquire copies of tax returns filed fraudulently under their social security numbers. In order to request a copy of a fraudulent return, however, there are strict requirements that need to be met. One of the requirements is that the victim’s name and social security number must be listed as the primary or secondary taxpayer on the return; dependents cannot make requests. In addition, the underlying fraud case must have been settled by the IRS at the time of request. Finally, the copy of the fraudulent return will be redacted to conceal any information that might be related to additional possible victims. For more information on requesting copies of fraudulent returns, go to the IRS website.
There are many things you can do to protect yourself against identity theft. Here are some helpful tips that are listed on the IRS website:
For many years now, the IRS has been continually warning the public about the ever-changing tax scams used by individuals to take advantage of unsuspecting taxpayers. These schemes can take place by mail, email, or over the phone and most often involve tricking the taxpayer into giving up personal financial information or intimidating the taxpayer into making fake tax payments directly to the scammer. On August 6, 2015, the IRS released yet another warning to taxpayers alerting them to new variations of these scams.
One of the most common schemes is deception over the phone by impersonating an agent of the IRS or another governmental agency. The new variation of this scheme involves the use of technology. Nowadays, scammers have the ability to change what shows up on a taxpayer’s caller ID to make it appear as if it is a legitimate call from the IRS or another agency, such as the DMV. In addition, to make the call seem genuine, they will gather as much of the taxpayer’s online personal information as possible. Finally, they will use false names, titles, and badge numbers to try to establish their fraudulent identities.
Another way to deceive taxpayers is by mail. In some circumstances, scammers will duplicate official IRS letterhead and direct taxpayers to the nearest bank or business at which they can make payments. Some fraudsters will even provide an actual IRS address to which the victim can send his or her proof of payment.
The IRS stresses that the underlying factor of these scams is fear. Scammers will often use threats of arrest, deportation, or license revocation. In addition, they will emphasize that the matter is urgent and requires immediate attention. The IRS also highlights that while scammers used to only target vulnerable individuals, such as elderly taxpayers or taxpayers whose first language is not English, this is no longer the case. Today, any taxpayer is at risk. In fact, according to the IRS, the Treasury Inspector General for Tax Administration has received approximately 600,000 complaints since October 2013. In addition, there have been over 4,000 victims with a combined total of $20 million in financial losses due to these scams.
In order to protect yourself, here are a few of the tips that the IRS has listed on its website. The IRS will never:
For more information on how to protect yourself or what to do if you find yourself a target, go to the IRS website.
On June 22, 2015, Washoe County announced that it was the first in Nevada, along with the Nevada Humane Society, to team up with Finding Rover, an app that uses facial recognition to help identify lost dogs. Finding Rover consists of a free mobile app and website and is very easy to use. It has been extremely beneficial in assisting dog owners reunite with their lost pets in a timely manner. Here is how it works:
The app and website use a lost and found dog notification system that sends out push notifications to users within a 10-mile area. When a potentially lost dog is identified, the user takes a picture of the dog, either within the app or uploads the picture from his or her device’s photo album, and Finding Rover’s facial recognition software determines whether or not the uploaded picture matches one of the lost pets on file. Once a dog has been identified through the software, the finder receives information on how to contact the dog’s owner.
Washoe County Regional Animal Services and the Nevada Humane Society are now using the Finding Rover app to help Washoe County residents find their lost dogs. Both shelters now upload pictures of all newly found or admitted dogs to Finding Rover, which not only matches up found dogs with lost dogs submitted by users, but also allows users to browse the shelters’ listings of found dogs right from their phones or computers. In addition, the Nevada Humane Society now registers all newly adopted dogs with Finding Rover at the time of adoption, which could prove to be an extremely valuable resource in the event that a dog goes missing.
For more information on the app, visit Finding Rover’s website at www.findingrover.com
Have you ever wondered when and how the IRS got its start? I did and so I did a little research.
The IRS traces its origins back to the Civil War. In 1862, President Lincoln signed the Revenue Act of 1862 into effect. This law was intended to help pay for war expenses by establishing a Commissioner of Internal Revenue and the country’s first income tax. It imposed a 3% tax on income between $600 and $10,000 and a 5% tax on income over $10,000. In 1872, after much public disapproval and resistance, Congress allowed the law to expire and so the income tax was temporarily eliminated. According to the IRS website, from 1868 until 1913, 90% of all revenue came from liquor, beer, wine, and tobacco taxes.
In 1894, Congress attempted to reintroduce the income tax by enacting the Wilson Tariff Act and creating an income tax department within the Bureau of Internal Revenue. Congress’s success was short-lived as the Supreme Court ruled the new income tax law unconstitutional one year later in 1895. It reasoned that the income tax constituted a direct tax and, therefore, needed to be imposed in proportion to each state’s population, which it was not (i.e. apportioned). Following the Supreme Court’s decision, the income tax division of the Bureau of Internal Revenue ceased to exist.
In 1909, President Taft encouraged Congress to propose a constitutional amendment that would effectively override the Supreme Court’s decision. The amendment would permit the government to impose an income tax without apportionment. In 1913, the 16th Amendment was adopted, which reads, “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any consensus or enumeration.” Shortly thereafter, Congress enacted a 1% tax on net personal income over $3,000 with a surtax of 6% on income over $500,000. The first Form 1040 was created.
During World War I, the top income tax rate increased to 77% in 1918. After the war, it fell to 24% in 1929, but increased again during the Depression. During World War II, payroll withholding, quarterly tax payments, and the standard deductions were implemented. During the 1950s, the Bureau of Internal Revenue was restructured to employ professional employees and its name was changed to the Internal Revenue Service. In 1998, Congress passed the IRS Restructuring and Reform Act of 1998, which caused the most wide-ranging restructuring since the mid-century. The IRS was split into four divisions, each focused on different taxpayer needs.
Tax season is quickly approaching. According to its website, the IRS received 149,684,000 individual income tax returns in 2014 as of December 26, 2014 (2014 Filing Season Statistics). Of these returns, the IRS states that more than half were prepared by hired tax professionals. If you decide to hire a tax professional to prepare your tax return this year, it is essential to choose them carefully to avoid hiring an abusive return preparer.
What is an abusive return preparer?
The IRS defines a return preparer as “any person (including a partnership or corporation) who prepares, for compensation, all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.” An abusive return preparer is a return preparer who engages in return preparer fraud, which involves preparing and filing false income tax returns.
An abusive tax return preparer may use different methods to commit this type of fraud. For instance, he or she may prepare a false Schedule C, Profit or Loss from Business, to claim deductions for fake expenses to counterbalance income derived from outside employment. Another method is to take false and overstated deductions on Schedule A, Itemized Deductions, for charitable contributions and medical expenses. An abusive return preparer may also claim fake Schedule E, Supplemental Income and Loss, losses. Finally, he or she may include impermissible credits or excessive exemptions to lower taxable income or taxes owed.
How do you avoid an abusive return preparer?
To avoid an abusive return preparer, the IRS lists several helpful tips on its website:
Regardless of whether or not you hire a return preparer, remember that you are responsible for the information on your tax return, including all related schedules, forms, and supporting documentation. If there is something on your return that does not make sense or that you do not understand, always ask your return preparer to explain it and correct it, if necessary. You do not want to be liable for additional taxes, interest, and possible penalties when the IRS discovers your false return.
On June 10, 2014, the IRS implemented the Taxpayer Bill of Rights. In an effort to make it easier for taxpayers to understand and access their rights when dealing with the IRS, this Taxpayer Bill of Rights arranges the numerous existing rights established in the Internal Revenue Code into ten basic rights. These rights include:
Initially, the Taxpayer Bill of Rights was only released in English and Spanish. However, in August, to reach as many taxpayers as possible, the IRS published it in four additional languages: Chinese, Korean, Russian, and Vietnamese. The Taxpayer Bill of Rights has also been included in IRS Publication 1, Your Rights as a Taxpayer, which is sent to countless taxpayers across the nation with various IRS notices. Only time will tell whether or not this new Taxpayer Bill of Rights will fulfill the IRS’s mission, which is to “Provide America’s taxpayer’s top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”