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Another tax filing season means another season of opportunities for tax fraud. And to add insult to last year’s injury, some of the same people who were victims of the IRS’ data breach are being victimized once again.
Brian Krebs of KrebsOnSecurity is reporting the Identity Protection (IP) PIN the IRS sent out to those affected by last year’s “Get Transcript” fraud has the potential of being obtained by those who are not you (i.e. fraudsters). The PIN is initially sent to a person who has been a victim of fraud in the mail. This isn’t where fraudsters are obtaining the PIN. 
The point of attack is actually back with the IRS on the “Retrieve Your Lost or Misplaced IP PIN” portion of their website. As often happens in this day and age of too many passwords to remember, people misplace or forget their IP PIN. The IRS has created an electronic way to retrieve this PIN, but the system uses the same retrieval method that allowed the “Get Transcript” fraud. The system uses knowledge-based authentication which will have you answer four questions from the credit bureau Equifax. These questions will be something in the ballpark of your previous address, loan amounts and other questions of a similar nature. The problem is the answers to these questions are easy to guess especially since a taxpayer who is using an IP PIN already had their information compromised. A good question is why is the IRS using the same authentication system that caused issues last year?
Additionally, more good news out of the IRS is further review of the “Get Transcript” incident from 2015 has identified an additional 390,000 taxpayer accounts that had potential access. This brings the total number of affected taxpayers to somewhere over 700,000. 
Not necessarily all had fraudulent returns filed, luckily, but those taxpayers will now most likely have to deal with the IP PIN. Not all is doom and gloom, though. KrebsOnSecurity does have a handy write-up on things you can do to keep yourself from being a victim of tax fraud.
Fundraising has gone digital. Millions of individuals are now utilizing social media sites such as kickstarter.com and gofundme.com to attract contributors or donations to support their cause. Few, though, are thinking about the income tax ramifications that are created by the crowdfunding environment.
Congress and the IRS have not yet addressed the crowdfunding income specifically, which leaves little guidance for CPAs and tax advisors preparing returns in the coming season. Applying common tax principles, along with some common sense, will help taxpayers and preparers alike to decide the appropriate reporting of funds received.
There are three types of crowd-funding:
Reward and donation-based funding use third party payment processing, such as PayPal. Any campaign creator who collects over $20,000.00 will receive a 1099-K reporting the funds received during the campaign. Pledges for donation-based funding are likely going to qualify as a non-taxable gift, unless an individual gifts more than the annual gift exclusion ($14,000 in 2015 and 2016). Funds received for reward-based funding for creative new ventures are likely to be treated as income to the recipients.
Kickstarter states that it cannot give tax advice, but does indicate that in the US, funds raised through campaigns on kickstarter.com will generally be considered income (see “Kickstarter and Taxes: A Guide for Your Accountant”). They suggest that expenses can offset the income, or that some may be considered gifts, but does not distinguish between the two.
Amounts received for reward-based funding are likely to be treated as income under Section 61 and should be reported by the creator of the campaign in the year of receipt. If it is an active trade or business, business expenses would likely be deductible against the income under Section 62. If this is a hobby, hobby loss rules would apply and limit expenses to the extent of income. Start-up business will also have additional requirements for expensing or capitalizing the organizational costs related to the start-up of the business.
As you can see, there are many different scenarios that will need to be considered when reporting crowd-funding during this period of limbo until the IRS addresses the topic. That makes it even more important as tax preparers and taxpayers alike to ask the right questions, document your position, and substantiate your reporting to the best of your ability.
With all of the talk of tax deadlines switching for 2016 tax returns it’s important to go over some of the deadlines for this current tax season. The deadlines for this year are the same as they have been in the past. Here are a few of those dates, but additional guidance can be found on the IRS website.
File form 1120 or 1120S for calendar year 2015 and pay any tax due
File form 7004 for an automatic 6 month extension, and deposit estimated tax
The return or extension must be postmarked or transmitted for e-filing by Monday, April 18, 2016
Your tax payment is still due by April 18 and can be submitted with the extension form
Non-profits can request an automatic three-month extension by submitting Form 8868
For taxpayers who have over $10,000 in total in foreign bank accounts
These forms must be filed electronically and there are no extensions
The organization can request an additional three-month extension (not automatically granted) by filing another Form 8868 and filing out the information in Part II
If you filed for an extension, this is the final deadline to file your individual tax return for 2015
All of the deadline changes will occur in 2017 for 2016 returns.
National Taxpayer Advocate Nina E. Olson released her 2015 annual report to the Congress on January 6, 2016. Olson expressed her concerns that the IRS is scaling back telephone and face-to-face services to assist the nation’s individual taxpayers and business entities in complying with their tax obligations.
In addition, other key issues were addressed in the report. Of particular interest is the growing rate of false positives in a key tax fraud filter used by the IRS in processing returns. The rate of false positive in 2015 was about 36 percent, affecting nearly 180,000 taxpayers. The “Anti-Fraud Filters” are used to filter out improper refund claims.
Olson’s report states that The Pre-Refund Wage Verification Program, “income wage verification,” allows the IRS to temporarily freeze a taxpayer’s refund when possible false wages and withholding are detected. The IRS sends out notices to taxpayers whose returns were flagged by the filters and instructs them to authenticate their identities online, by phone or by mail.
Following is an actual case of a legitimate refund that is still being withheld by the IRS. The 2014 tax return of the taxpayer was electronically filed and accepted by the IRS on October 11, 2015. A notice to verify the income and withholding was received on November 1, 2015. A copy of the taxpayer’s form W-2 was sent to the IRS on November 2, 2015. By January 7, 2016, the refund still had not been received. A telephone call was placed to the IRS and found out they still had not processed the return (the taxpayer was lucky to have gotten through without being hung up on). It’s been 16 weeks since the return was accepted, still no refund. Time to call the Taxpayer Advocate.
The intention of the Anti-Fraud Filters is to protect the taxpayers. However, it is very frustrating when legitimate refunds are delayed for excess amounts of time and contacting the IRS is nearly impossible.
In December of 2015, I wrote about many tax provisions benefiting taxpayers for 2015 and beyond that had expired. 
Most CPAs were anticipating these to be retroactively approved by Congress. After much anticipation, Congress ended up extending and in many cases making the provisions permanent. Below is a summary of the main legislation:
On Tuesday, tax season officially began, and the IRS started accepting electronic returns, and processing paper returns. However, many of you may be waiting for your tax documents. The IRS urges taxpayers to wait until they have received all tax documents before filing. Here is a list of some common IRS forms you may be waiting for to file your return. I have included the due dates that are listed on the back of the tax documents. The form is considered on time if they have been mailed to the recipient on or before that date. Generally, many of these forms are required to be mailed by January 31st, but since this date falls on a weekend the due date is the next business day.
Check the IRS website under Current Forms & Publications Search to look at any additional tax forms that you have questions about.
Be sure to look out for any mention of possible amendments on any of these forms. It is common for brokerages to provide 1099 forms by the deadline, but then have a note on them that there may be changes that could cause an amended 1099.
If you are waiting on a K-1 from a separate entity, you may be waiting awhile longer. The date you receive this will depend on when the entity files their return. Be sure to check the due date of the entity’s return, and be aware of possible extensions.
Fixed income recipients may see substantial changes to their “net” take home of Social Security benefits in 2016. Social Security benefits are not likely to see a cost-of-living adjustment (COLA) for 2016 due to stagnant inflation during the year, but Medicare Part B premiums are scheduled to increase around 16%.
If you have already been receiving benefits, and are under the MAGI (modified adjusted gross income) threshold of $85,000 for singles and $170,000 for married, then you should not see an increase in your Part B premiums of $104.90 per month in 2015. This is due to a “hold harmless” provision that is designed to keep recipients’ net Social Security benefits from shrinking. This provision states that an increase in premiums cannot be more than the COLA for the year. Since there will be no COLA for 2016, your premiums cannot increase. This includes about 70% of all recipients.
But what about the other 30% of recipients? There are three questions that need to be asked:
If you answered “Yes” to any of these questions, chances are likely that your Medicare Part B premiums will increase in 2016. This is because only individuals under the MAGI threshold who have begun collecting benefits prior to 2016 are protected under the “hold harmless” provision. 
The remaining 30% of recipients will bare the costs of the increase. Click here for an officially released table from the Centers for Medicare & Medicaid Services(CMS) for the anticipated increase of Part B premiums for 2016 for those not protected by the “hold harmless” provision.
So, for those unlucky individuals who fall into these categories, be prepared for a reduction of “net” Social Security benefits in 2016 and forward.
MAGI Simple Calculation = AGI + passive losses – passive income +non-taxable interest.
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:
I recently had a chance to visit the Nevada Museum of Art’s Lake Tahoe exhibit and I have to say, I was blown away by the number of historical art pieces the museum had on display depicting Lake Tahoe during a time that few people today can remember. The museum suggests guests start off on the third floor in order to begin with the earliest paintings working your way towards the present time. I highly suggest taking the museum up on this suggestion as it allows you to view the changes that have taken place in the Lake Tahoe Basin since the late 1800’s. While the art on display does not go back much further than the 1800’s, most changes in that area did not really occur until the twentieth century and thus it does not take away from the historical representation of the changes that have occurred in the Lake Tahoe Basin.
Starting on the third floor guests are introduced to some of the early paintings depicting the beauty of Lake Tahoe. Artists on this floor include Thomas Hill, John C. Fremont, Mark Twain, John Muir and many more. Not only does the gallery give you a visual representation through the paintings of these artists, but the museum has explanations of what was going on in the painting, as well as, during that particular time period. 
These explanations present a logical flow to the exhibit which, if you take the suggested route, allows the visitor to fully understand the changes that took place around our beloved lake. Another great representation on the third floor is that of the Washoe Indians basketry which showed amazing woven baskets from the early Nevada years. The detail in some of the baskets is remarkable and they have held up to the test of time as they still look as though they are in excellent condition.
The second floor introduces guests to the time that the museum has dubbed as the rise of the resort. This level depicts the vast changes that Lake Tahoe underwent during the twentieth century, and even includes a thirty minute documentary explaining what went on during this period. 
Artists on this level include Frank Lloyd Wright, Maynard Dixon, Ansel Adams, Edward Weston, as well as others. It still amazes me that structures built during this period can still be visited today and that these structures have remained despite the harsh winters that often occur in the Sierra Nevada Mountains. The first floor of the museum has a few of the items depicted in the exhibit for sale in the gift shop where if you really would like to take the exhibit home with you, you can purchase a few of the Washoe Indian baskets to bring the past home with you. This exhibit has been executed very well and I will definitely be returning one more time, at least, before the exhibit changes in mid January.
A month or so ago, while on Facebook a sponsored ad came up on my news feed for Acorns, an investment app that allows you to open an account via your smartphone and in essence, invests your spare change.
I was curious so clicked on it and was introduced to a whole new world of robo investing applications that I apparently had missed hearing about when they were first introduced.
For many millennials like myself, investing can seem daunting, and most don’t have the initial large deposits that are required with traditional investment companies in order to use the services of a financial advisor. Our money is going to other things like weddings, starting a family, paying off student loans, mortgages, and hopefully also contributing to a retirement account.
That is why I was intrigued with Acorns, which links to your bank account and invests your spare change from purchases you make every day (essentially, rounding up every purchase to the nearest dollar).
There is no minimum deposit and the investment fees are a $1/month for accounts under $5,000 and .25% for accounts over $5,000. However, students and anyone under 24 can invest for free on accounts of any size.
I then came across another investment app called Betterment. Betterment allows you to set up retirement accounts while Acorns does not. Betterment chooses your portfolio for you automatically based on one of the 5 general investment goals you select. Similar to Acorns, you need no initial minimum deposit. The fees are $3 a month, or .35% with a minimum auto deposit of $100 a month. The fees drop to .25% once you exceed $10,000.
Wealthfront is another investment app I looked into that also supports retirement accounts, but does require a minimum account balance of $500. However, there are no annual fees for accounts up to $10,000.
There are many other robo investment companies out there, some with apps, some available via website only. They all utilize similar investment theories for their automated investment guidance based on what you select as your goal or risk profile, which may or may not earn you more than a traditional financial advisor or yourself if you have the skills and time to manage your own investments. Investorjunkie.com provides some great reviews on many of the ones available if you want to give robo investing a try.
