Back to top

March

Tax Prep Software Vendors Urged to Authenticate Tax Filers

Tax preparation software developers like Intuit are coming under pressure to do more to control security to safeguard their software from identity thieves.

 

That's especially important in the wake of revelations last month from tax authorities in several states who detected a large number of suspicious filings from TurboTax users, prompting Intuit to temporarily halt transmission of state tax returns (see Intuit Temporarily Halts State E-Filing Amid Fraud Concerns).

Two former employees claimed that Intuit knowingly processed returns filed by cybercriminals, which Intuit vigorously denied in a statement on its Web site (see Intuit Refutes Cyberfraud Allegations). However, Intuit has taken steps to improve the security of TurboTax, according to the Washington Post, including requiring customers to file both a federal and state tax return together to increase the chances of fraudulent tax returns being caught, as rivals H&R Block and TaxAct also do. It also now requires “multi-factor authentication,” so returning customers need to enter a specific code that is sent to them at either their email address or mobile phone before they can file.

 

However, at least one security expert says there are other steps that can be taken to authenticate users. Hemanshu Nigam, a former chief security officer for News Corporation and Microsoft security executive who has advised both the White House and the United Nations and is now chief strategist and director of online security for the Chicago-based technology company Verie, says he has a solution that companies like Intuit can implement.

 

“Identity theft, because of the way the hackers are operating, is going up exponentially,” he said in an interview last week. “Many companies keep extremely large databases of information on the people that they deal with, and that information can be pretty detailed, detailed enough to lead to some serious identity theft. You’re seeing that happening in all the tax fraud cases that are going on right now. If you look at the problem at its core, it’s this: when somebody is filing a tax return, if they have information that’s stolen, that belongs to somebody else, it’s very difficult for the tax agency to know who is actually submitting that information, who is the person behind the keyboard.”

 

He noted that the IRS has not yet come up with a reliable way of stopping identity theft before issuing a tax refund. “Oftentimes they’ll find out much later because the person who is in fact the owner of that information is submitting their own forms, and then a discrepancy at some point gets noticed by the IRS,” said Nigam. “That’s all because of one core issue, which is how do you know who’s punching in the data that’s getting submitted?”

 

Verie's technology aims to authenticate users. “What the Verie app is doing is it’s creating an environment that we call ‘just in time, just in place, and just on device,’ where you’re not allowed to use historical data, but actually take action in real time,” Nigam explained. “So it's either a video or photo of yourself in real time, and no use of historical data. Take a photo of your driver’s license in real time, front and back. Then we use our proprietary image recognition technology to determine whether there’s a match. It’s also geolocated into that particular device so it’s all tied together, and in essence we’ve created a virtual reality that mirrors the physical reality.”

 

Nigam hopes to convince tax prep software makers like Intuit, rather than the IRS, to use his company's technology.

 

“That’s where you can stop the fraud at the entry point rather than identifying it at the time of refund checks being issued and then some audit being done many, many months or years later,” he said.

Part of his business plan is to approach the tax prep software vendors, but in the meantime Verie is preparing to release its product for testing to several other organizations that also need to authenticate users.

 

“One of the things that we recognize fully is that security is not something you should be competing on,” said Nigam. “So if Intuit is doing it, many of the other competitors should be doing it. The industry needs to band together, find solutions that work, and implement them together. That's very different than competing on services, product, ease of use, and pricing. Those things, everyone should compete on, and everyone should try to offer the best they can. But when it comes to security, this is a time in our society in the digital century where we need to start working together and finding solutions together.”

 

Nigam believes it's important for security companies to always stay one step ahead of the identity thieves.

 

“The game will always continue, but if you've identified ways to get the upper hand as a business, it's one way to build customer trust,” he said. “It's also the way to avoid a government investigation, especially in the accounting industry.”

 

 

 

Top 10 Tax Tips about Home Mortgage Debt Cancellation

If your lender cancels part or all of your debt, you normally must pay tax on that amount. However, the law provides for an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2014. In most cases where the exclusion applies, the amount of the cancelled debt is not taxable. Here are the top 10 tax tips about mortgage debt cancellation:

 

1. Main Home.  If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.

 

2. Loan Modification.  If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.

 

3. Refinanced Mortgage.  The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. Amounts used for other purposes don’t qualify.

 

4. Other Cancelled Debt.  Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.

 

5. Form 1099-C.  If your lender reduced or cancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, in January of the next year. This form shows the amount of cancelled debt and other information. 

 

6. Form 982.  If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.

 

7. IRS Free File.  IRS e-file is fastest, safest, and easiest way to file. You can use IRS Free File to e-file your tax return for free. If you earned $60,000 or less, you can use brand name tax software. The software does the math and completes the right forms for you. If you earned more than $60,000, use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It is best for people who are used to doing their own taxes. Free File is available only on IRS.gov/freefile.

 

8. IRS.gov tool.  The IRS has several free tools on its website to help you file your tax return. Use the Interactive Tax Assistant tool on IRS.gov to find out if your cancelled mortgage debt is taxable.

 

9. Exclusion extended.  The law that authorized this exclusion had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014.

 

10. More Information.  For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.  

 

 

 

Top 10 Tax Tips about Home Mortgage Debt Cancellation

If your lender cancels part or all of your debt, you normally must pay tax on that amount. However, the law provides for an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2014. In most cases where the exclusion applies, the amount of the cancelled debt is not taxable. Here are the top 10 tax tips about mortgage debt cancellation:

 

1. Main Home.  If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.

 

2. Loan Modification.  If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.

 

3. Refinanced Mortgage.  The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. Amounts used for other purposes don’t qualify.

 

4. Other Cancelled Debt.  Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.

 

5. Form 1099-C.  If your lender reduced or cancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, in January of the next year. This form shows the amount of cancelled debt and other information. 

 

6. Form 982.  If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.

 

7. IRS Free File.  IRS e-file is fastest, safest, and easiest way to file. You can use IRS Free File to e-file your tax return for free. If you earned $60,000 or less, you can use brand name tax software. The software does the math and completes the right forms for you. If you earned more than $60,000, use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It is best for people who are used to doing their own taxes. Free File is available only on IRS.gov/freefile.

 

8. IRS.gov tool.  The IRS has several free tools on its website to help you file your tax return. Use the Interactive Tax Assistant tool on IRS.gov to find out if your cancelled mortgage debt is taxable.

 

9. Exclusion extended.  The law that authorized this exclusion had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014.

 

10. More Information.  For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.  

 

 

 

 

IRS’s Top Ten Identity Theft Prosecutions; Part of Ongoing Efforts to Protect Taxpayers, Prevent Refund Fraud

IRS YouTube Videos

 

WASHINGTON — Continuing its enforcement push against refund fraud and identity theft, the Internal Revenue Service today announced the Top Ten Identity Theft Prosecutions for Fiscal Year 2014 (FY14).  The ongoing efforts to bring identity thieves to justice remains a significant priority as part of the IRS’s comprehensive identity theft strategy focusing on preventing, detecting and resolving identity theft cases as soon as possible.

 

“Identity theft is a crime that carries significant consequences, and these cases send a warning to criminals,” said Richard Weber, Chief, IRS-Criminal Investigation. “Our top 10 cases represent the seriousness of these crimes and the magnitude of the consequences that will be faced by those who victimize honest taxpayers and steal from hard-working Americans.”

 

Learn more about identity theft and what the IRS is doing to combat it at IRS.gov/identitytheft. You can also read IRS Fact Sheet 2015-1, IRS Combats Identity Theft and Refund Fraud on Many Fronts, and IRS Fact Sheet 2015-2, Identity Theft Information for Taxpayers and Victims.

The summary of the following 10 identity theft cases is based on public information available in court records:

 

Top Ten Identity Theft Cases

 

1. Couple Sentenced for False Tax Refund Conspiracy - On April 24, 2014, in Charlotte, North Carolina, Senita Birt Dill and Ronald Jeremy Knowles, were sentenced to 324 and 70 months in prison, respectively. Both were also ordered to pay $3,978,211 in restitution to the IRS. Dill and Knowles pleaded guilty to false claims of conspiracy and access device fraud. Dill also pleaded guilty to aggravated identity theft. Dill and Knowles used fraudulently obtained personal identification information (including names, dates of birth and social security numbers) to file false tax returns claiming tax refunds. Dill and Knowles used neighboring addresses to fill out the fraudulent tax returns and checked the homes’ mailboxes frequently to retrieve the fraudulent refund checks upon delivery. The defendants also used addresses in Greenville and Greer, S.C., which belonged to Knowles’ businesses. Dill and Knowles filed over 1,000 false tax returns using the fraudulently obtained personal identification information.

 

2. Georgia Man Sentenced for Tax Fraud and Identity Theft - On Aug. 25, 2014, in Atlanta, Georgia, Mauricio Warner was sentenced to 240 months, three years of supervised release, ordered to pay $5,041,869 in restitution and forfeiture of bank accounts that contained $4,185,455. Warner was convicted on wire fraud, aggravated identity theft, filing false claims, and money laundering. Warner filed over 5,000 false tax returns using the names and social security numbers of unsuspecting victims that were told they could submit an application for an “Obama stimulus payment” or “Free Government Money” by providing their names and social security numbers. In addition to word-of-mouth marketing, Warner used toll-free telephone numbers to collect victims’ personal identifying information.

 

3.  Dallas Men Sentenced for Role in Massive Stolen Identity Refund Fraud Scheme - On May 15, 2014, in Dallas Texas, Ogiesoba City Osula was sentenced to 210 months in prison and ordered to pay $15.9 million in restitution. Osula was convicted on conspiracy to commit wire fraud, mail fraud and bank fraud; presenting fraudulent claims upon the U.S.; access device fraud and aiding and abetting; and aggravated identity theft and aiding and abetting. Previously sentenced were co-defendants: George Ojonugwa, sentenced to 174 months and ordered to pay $15,979,187 in restitution; Eseos Igiebor, sentenced to 96 months and ordered to pay $9,660,658 in restitution; Ebenezer Legbedion, sentenced to 40 months and ordered to pay more than $1 million in restitution; and Evelyn Nyaboke Haley sentenced to 60 months and ordered to pay approximately $5.7 million in restitution.  The defendants conspired to defraud the United States by using stolen identity information and false information to create and electronically file false tax returns to claim refunds. On Nov. 8, 2011, police in a Cincinnati suburb questioned Osula and Ojonugwa, who were in a parked car.  When the vehicle was searched, police found more than $300,000 in cash and money orders and numerous debit cards.  During that incident, while Osula was in a police car and waiting to be questioned, he ate a debit card.

 

4. Floridian Sentenced in Identity Theft Tax Fraud and Social Security Schemes - On Sept. 17, 2014, in Miami, Florida, Kevin Cimeus, was sentenced to 156 months in prison and three years of supervised release. Cimeus was convicted of conspiracy to steal government property or money, theft of government money or property, access device theft, and aggravated identity theft.  Federal agents found over 2,400 social security numbers and names of real people stored on thumb drives, laptop computers, iPad, and Cimeus’ email account at Cimeus’ residence. Cimeus recruited Miami Dade College students to allow him to use their bank accounts to receive fraudulently obtained tax refunds. Cimeus also used his own bank accounts to receive fraudulently obtained tax refunds. Cimeus filed at least one thousand tax returns from two IP addresses. He also used the two IP addresses to access the Social Security Administration’s web site and create online profiles for social security recipients in order to re-route the victims’ social security payments to other accounts.

 

5. Ohio Man Sentenced for Participation in $3.5 Million Identity Theft Scam - On Aug. 21, 2014, in Columbus, Ohio, Roma L. Sims was sentenced to 100 months in prison, three years of supervised release, and ordered to pay $3,517,534 in restitution to the IRS. Sims pleaded guilty to aggravated identity theft, wire fraud and conspiring to commit identity theft in a scheme to defraud the IRS. Sims advertised through various means in order to collect personal identification information from low-income or unemployed single parents with children. After tricking the innocent individuals who responded into providing their personal identification information, Sims prepared and filed false income tax returns in their names. Sims also obtained additional personal identification information by conspiring with Robert Earthman, who had access to the Kentucky child support enforcement database, which contained personal identification information of single parents with children who were recipients of child support. In total, Sims was responsible for the preparation and filing of approximately 977 income tax returns for the 2010 - 2012 tax years. Samantha C. Towns was sentenced to three years of probation and ordered to pay $1,312,513 in restitution to the IRS. Robert S. Earthman was sentenced to 24 months in prison, three years of supervised release and was ordered to pay $1,312,513 in restitution to the IRS.

 

6. New York Tax Preparer Sentenced for Filing False Tax Returns and Aggravated Identity Theft - On April 24, 2014, Mahamadou Daffe, a tax preparer in Queens, N.Y., was sentenced to 102 months in prison and three years of supervised release. Daffe was found guilty of conspiracy to steal government funds, theft of government funds, conspiracy to file false claims, wire fraud, and aggravated identity theft in connection with the preparation and filing of nearly 1,000 false income tax returns submitted online using stolen identities.

 

7. Alabama Man Sentenced for Scheme Using Prisoner Identities to Obtain False Tax Refunds - On April 29, 2014, in Montgomery, Ala., Harvey James was sentenced to 110 months in prison, three years of supervised release and ordered to pay $618,042 in restitution. James pleaded guilty to mail fraud and aggravated identity theft. James and his sister, Jacqueline Slaton, obtained stolen identities from various individuals, including one person who had access to inmate information from the Alabama Department of Corrections. James and others used those inmate names to file federal and state tax returns that claimed fraudulent refunds.  Vernon Harrison, a U.S. Postal Service employee, provided James with addresses from his postal route, which were used as mailing addresses for the fraudulent prepaid debit cards and state tax refund checks. In total, James filed over 1,000 federal and state income tax returns that claimed over $1 million in fraudulent tax refunds. Slaton was sentenced to 70 months in prison and Harrison was sentenced to 111 months in prison.

 

8. Several Sentenced in $19 Million Tax Fraud Conspiracy - On December 30, 2013, in Anchorage, Alaska, Joel Santana-Pierna and Abel Santana-Pierna, citizens of the Dominican Republic residing in Alaska, were sentenced to 135 months and 72 months in prison, respectively. In addition, they were ordered to pay $559,755 in restitution to the IRS and agreed to forfeit approximately $130,000 obtained as part of their drug trafficking activities.  The brothers pleaded guilty to conspiracy to distribute cocaine and conspiracy to defraud the government. The Santana-Pierna brothers conspired to use more than 3,000 stolen Puerto Rican identities to file false income tax returns and obtain large income tax refunds to which they were not entitled. In total, eleven individuals have been sentenced in this scheme with sentencings ranging from probation to 135 months in prison.

 

9. Woman Sentenced for Tax Fraud and Aggravated Identity Theft - On Oct. 22, 2014, in Orlando, Florida, Tanya Fox was sentenced to 240 months in prison for conspiracy to defraud the federal government, wire fraud, theft of government property, and aggravated identity theft. Fox was also ordered to pay a money judgment in the amount of $4,055,735. On July 24, 2014, Fox was found guilty by a jury of one count of conspiracy, five counts of wire fraud, ten counts of theft of government property, and ten counts of aggravated identity theft. According to court documents, Fox orchestrated a scheme to file fraudulent tax returns using identities that had been stolen from a variety of sources. Fox directed other individuals to open business bank accounts in the name of a fraudulent tax preparation business and to have the tax refunds deposited into those accounts. She then worked with those individuals to withdraw the funds and she spent the money on several luxury and other vehicles, cosmetic surgery and to open a restaurant in the Orlando area. Four others have been sentenced for providing approximately 2,400 names from the Orange County Health Department to Fox, with sentencing’s ranging from five years to two years and six months in prison.   

 

10. Bogus Charity Operator Sentenced for ID Theft and Wire Fraud Scheme - On June 12, 2014, in Columbus, Ohio, Jonathan Webster was sentenced to 108 months in prison, three years of supervised release and ordered to pay $1,457,936 in restitution. Webster pleaded guilty to wire fraud and aggravated identity theft.  Webster purchased advertising in newspapers representing himself as a charity seeking to provide financial assistance to others. Webster set up an online website where individuals responding to the advertisements could provide their names and social security numbers. Webster and a co-conspirator electronically filed more than 500 false income tax returns using the names and social security numbers of the individuals.

 

Statistical Information

In fiscal year 2014, the IRS initiated 1,063 identity theft related investigations. Criminal Investigation enforcement efforts resulted in 748 sentencings as compared to 438 in FY 2013, an increase of 75 percent. The incarceration rate rose 7.1 percent to 87.7 percent. The courts also imposed more jail time in 2014, with the average months of those being sentenced rising to 43 months as compared to 38 months in FY 2013. The longest sentence was 27 years.

 

Enforcement Efforts

During FY 2014, Criminal Investigation dedicated significant time and resources to bringing down identity thieves attempting to defraud the federal government. 

 

The nationwide Law Enforcement Assistance Program provides for the disclosure of federal tax return information associated with the accounts of known and suspected victims of identity theft with the express written consent of those victims. There are now more than 755 state/local law enforcement agencies from 47 states participating. Since the start of the program, more than 6,776 requests were received from state and local law enforcement agencies.

 

The Identity Theft Clearinghouse (ITC) continues to develop and refer identity theft refund fraud schemes to CI Field Offices for investigation. Since its inception in FY 2012, it has received over 7,600 individual identity theft leads. These leads involved approximately 1.47 million returns with over $6.8 billion in refunds claimed.  

 

CI continues to be the lead agency that investigates identity theft and is actively involved in more than 78 multi-regional task forces or working groups including state, local and federal law enforcement agencies solely focusing on identity theft.  CI has one of the highest conviction rates in all of federal law enforcement -- at 93.4% -- and is the only federal law enforcement agency with jurisdiction over federal tax crimes.  CI is routinely called upon to be the lead financial investigative agency on a wide variety of financial crimes including international tax evasion, identity theft and transnational organized crime.

 

 

 

Five Key Facts about Unemployment Benefits

 

If you lose your job, you may qualify for unemployment benefits. The payments may serve as much needed relief. But did you know unemployment benefits are taxable? Here are five key facts about unemployment compensation:

 

1. Unemployment is taxable.  You must include all unemployment compensation as income for the year. You should receive a Form 1099-G, Certain Government Payments by Jan. 31 of the following year. This form will show the amount paid to you and the amount of any federal income tax withheld.

 

2. Paid under U.S. or state law.  There are various types of unemployment compensation. Unemployment includes amounts paid under U.S. or state unemployment compensation laws. For more information, see Publication 525, Taxable and Nontaxable Income.

 

3. Union benefits may be taxable.  You must include benefits paid to you from regular union dues in your income. Other rules may apply if you contributed to a special union fund and those contributions are not deductible. In that case, you only include as income any amount that you got that was more than the contributions you made.

 

4. You may have tax withheld.  You can choose to have federal income tax withheld from your unemployment. You can have this done using Form W-4V, Voluntary Withholding Request. If you choose not to have tax withheld, you may need to make estimated tax payments during the year.

 

5. Visit IRS.gov for help.  If you’re facing financial difficulties, you should visit the IRS.gov page: “What Ifs” for Struggling Taxpayers. This page explains the tax effect of events such as job loss. For example, if your income decreased, you may be eligible for certain tax credits, like the Earned Income Tax Credit. If you owe federal taxes and can’t pay your bill, contact the IRS. In many cases, the IRS can take steps to help ease your financial burden.

 

 

 

 

Key Points to Know about Early Retirement Distributions

 

Some people take an early withdrawal from their IRA or retirement plan. Doing so in many cases triggers an added tax on top of the income tax you may have to pay. Here are some key points you should know about taking an early distribution:

 

1.Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.

 

2.Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an added 10 percent tax.

 

3.Nontaxable Withdrawals.  The added 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.

 

4.Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs. See IRS.gov for details about these rules.

 

5.File Form 5329.  If you made an early withdrawal last year, you may need to file a form with your federal tax return. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, for details.

 

 

 

Top Six Things You Should Know about the Child Tax Credit

 

The Child Tax Credit may save you money at tax-time if you have a qualified child. Here are six things you should know about the credit.

 

1. Amount.  The Child Tax Credit may help reduce your federal income tax by up to $1,000 for each qualifying child that you are eligible to claim on your tax return.

 

2. Additional Child Tax Credit.  If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the Additional Child Tax Credit.

 

3. Qualifications.  For this credit, a qualifying child must pass several tests:

• Age test.  The child must have been under age 17 at the end of 2014.

• Relationship test.  The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. The child may be a descendant of any of these individuals. A qualifying child could also include your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

• Support test.  The child must not have provided more than half of their own support for the year.

• Dependent test.  The child must be a dependent that you claim on your federal tax return.

• Joint return test.  The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.

• Citizenship test.  The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.

• Residence test.  In most cases, the child must have lived with you for more than half of 2014.

 

4. Limitations.  The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate your credit depending on your filing status and income.

 

5. Schedule 8812.  If you qualify to claim the Child Tax Credit, make sure to check whether you must complete and attach Schedule 8812, Child Tax Credit, with your tax return. For example, if you claim a credit for a child with an Individual Taxpayer Identification Number, you must complete Part I of Schedule 8812. If you qualify to claim the Additional Child Tax Credit, you must complete and attach Schedule 8812. Visit IRS.gov to view, download or print IRS tax forms

 

 

 

 

 

Employers Remain Unprepared for ACA Requirements

BY BRIAN M. KALISH

 

As more regulations continue to come into effect for employers under the Affordable Care Act, some with financial penalties, many employers report they are not prepared to deal with the slate of changes.

 

In a recent Ernst & Young webcast poll, 25 percent of employers said they were not ready to meet all the implementation requirements of the ACA. Of the 56 percent who reported that they were partially ready, they said they still have work to do.

 

Tax and finance departments, who historically relied on HR to handle compliance requirements, are facing the most pressure, says Juliette Meunier, partner in the Ernst & Young Human Capital Group in Los Angeles.

 

Finance managers have a lot on their plate and were forced to deal with the most pressing and highest priority items first, Meunier says. “Due to all the various [ACA] delays and talk of repeal, many organizations wanted to make sure it was here to stay and waited [to] start working on it,” she explains.

 

Further, the Internal Revenue Service had not issued much guidance about required compliance until about a year ago and final regulations for reporting did not come out until March 2014, making it “difficult for finance/tax departments to comply,” Meunier says.

 

The fact that employers are not ready is not surprising, says Steve Wojcik, vice president of public policy at the National Business Group on Health. “Employers are feeling bewildered partially because forms and instructions for employer reporting just came out and require coordination across different functions and systems,” he says.

 

“It’s important for companies to [understand] employer penalties, and important for employees with respect to their own liabilities,” he adds. “It’s easy to imagine that some employers or somebody within a company is feeing this is a lot of work for them–because it is.”

 

Wojcik says many companies were not taking a wait-and-see approach but were already acting and trying to gather the information they could. Despite that, there are still no rules on the looming Cadillac tax. “You can only get ready so much until the rules are finalized,” he adds.

 

Not Too Late
 

Despite employers not feeling ready, Meunier says it is not too late to prepare as the major penalties will be assessed month-to-month. To get ready, Meunier says employers should:

• Understand their contingent workforce and their non-employees, and if those are common law employees that coverage must be offered too;

• Make sure all information systems and data are ready to fill out IRS forms; and

• Be prepared to receive and respond to questions employees have about state exchange notices.

Wojcik says employers have some time before the first reporting requirements—which are for the calendar year 2015, although actual reporting isn’t necessary until 2016.

 

This article originally appeared in Employee Benefit Adviser.

 

 

 

 

 

 

IRS Won’t Penalize Those Who Received Wrong Tax Info from Health Insurance Marketplaces

BY MICHAEL COHN

 

The Internal Revenue Service will not try to collect additional taxes from those taxpayers who have already filed their taxes after receiving incorrect information from the federal health insurance marketplace, Healthcare.gov.

 

Last week, the Centers for Medicare and Medicaid Services announced that approximately 800,000 taxpayers who received coverage via Healthcare.gov and qualified for premium tax credits had received the wrong information on a Form 1095-A, “Health Insurance Marketplace Statement,” sent to them in the mail (see800,000 Taxpayers Received Wrong Tax Info from Health Insurance Marketplace). They were asked to wait to file their taxes until March when a corrected form will be sent to them.

 

In a statement Tuesday, an unidentified Treasury Department spokesperson said that those who have already filed their tax returns will not be subject to additional taxes once the correct information is available and they do not need to file an amended tax return.

 

 “Treasury estimates that approximately 50,000 tax filers (or less than 0.05% of total tax filers) already have filed their taxes using these incorrect form 1095As,” said the statement. “We have concluded that these individuals do not need to file amended returns. The IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms.”

 

The incorrect information that appeared on the 1095-A specified the premium amount for the “second lowest cost Silver plan” in the taxpayer’s area. The amount is supposed to represent the benchmark plan used to determine the amount of the premium tax credit the taxpayer is eligible to receive. That information was calculated incorrectly for many taxpayers, although CMS stressed that it won’t be an issue for the majority of people who received health coverage through Healthcare.gov.

 

Still, some taxpayers and their tax preparers may want to file amended tax returns anyway. “Nonetheless, some individuals may choose to file amended returns,” said the Treasury spokesperson. “A tax filer is likely to benefit from amending if the 2015 monthly premium for his or her second lowest cost Silver plan (or ‘benchmark’ plan) is less than the 2014 premium. For example, if a filer’s original form lists a benchmark premium of $100 and her updated form lists a premium of $200, it may be in her interest to refile. Individuals may want to consult with their tax preparers to determine if they would benefit from filing amended returns. As CMS announced last week, affected individuals who have not yet filed their taxes should wait to file until they receive their corrected forms.”

 

 

 

Supreme Court Allows Challenge to Colorado Notice Requirements on Sales Tax Collection

BY ROGER RUSSELL

 

The U.S. Supreme Court decided unanimously Tuesday that the Direct Marketing Association, a trade association of retailers, was not barred by the federal Tax Injunction Act from bringing a suit against the Colorado Department of Revenue attacking Colorado’s notification and reporting requirements for non-collecting retailers of sales tax.

 

Colorado requires residents who purchase tangible personal property from a retailer that does not collect sales or use taxes to file a return and remit those taxes directly to the State Department of Revenue. To improve compliance, Colorado passed a law requiring retailers that do not collect the tax to notify Colorado customers of their use-tax liability and to report tax-related information to customers and to the Department of Revenue.

In Direct Marketing Association v. Brohl, the Supreme Court decided that the Tax Injunction Act, which provides that federal district courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,” bars a suit to enjoin the enforcement of this law. The court held that it does not.

 

The issue decided by the Supreme Court was very narrow, according to Duane Morris LLP partner Stanley Kaminski, CPA, Esq.

 

“The court held that the Tax Injunction Act’s restriction on bringing cases in federal court for actions that sought the injunction, suspension or restraint of state tax collection or levy did not encompass an action that merely challenged the notice and reporting provisions that Colorado imposed on non-Colorado retailers in order to help Colorado collect sales and use taxes,” he said. “The Supreme Court interpreted the word ‘restrain’ more narrowly than the Tenth Circuit Federal Appeals Court and basically concluded that the action did not try to stop collection or levy of a tax so it was not barred by the Tax Injunction Act. As the court explained, ‘a suit cannot be understood to “restrain” the “assessment, levy or collection” of a state tax if it merely inhibits those activities.’”

 

“I’m not surprised that the decision was unanimous,” said Kaminski. “What was surprising was the concurrence by Justice Kennedy, who felt that the decision in Quill [the 1992 case that imposed the physical presence test to require remote sellers to collect tax] should be revisited.”

 

“Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill,” stated Kennedy. “A case questionable even when decided, Quill now harms States to a degree far greater than could have been anticipated earlier.”

 

 

 

IRS Steps up Prosecutions for Identity Theft

BY MICHAEL COHN

 

The Internal Revenue Service is continuing its enforcement push against refund fraud and identity theft, and today announced the Top Ten Identity Theft Prosecutions for Fiscal Year 2014.

 

The IRS said its ongoing efforts to bring identity thieves to justice remains a significant priority as part of the agency’s comprehensive identity theft strategy focusing on preventing, detecting and resolving identity theft cases as soon as possible.

 

“Identity theft is a crime that carries significant consequences, and these cases send a warning to criminals,” said IRS-Criminal Investigation chief Richard Weber in a statement. “Our top 10 cases represent the seriousness of these crimes and the magnitude of the consequences that will be faced by those who victimize honest taxpayers and steal from hard-working Americans.”

 

In fiscal year 2014, the IRS initiated 1,063 identity theft related investigations. Criminal Investigation enforcement efforts resulted in 748 sentencings as compared to 438 in FY 2013, an increase of 75 percent. The incarceration rate rose 7.1 percent to 87.7 percent. The courts also imposed more jail time in 2014, with the average months of those being sentenced rising to 43 months as compared to 38 months in FY 2013. The longest sentence was 27 years.

 

During FY 2014, Criminal Investigation dedicated significant time and resources to bringing down identity thieves attempting to defraud the federal government.

 

The nationwide Law Enforcement Assistance Program provides for the disclosure of federal tax return information associated with the accounts of known and suspected victims of identity theft with the express written consent of those victims. There are now more than 755 state/local law enforcement agencies from 47 states participating. Since the start of the program, more than 6,776 requests were received from state and local law enforcement agencies.

 

The Identity Theft Clearinghouse continues to develop and refer identity theft refund fraud schemes to CI Field Offices for investigation. Since its inception in FY 2012, it has received over 7,600 individual identity theft leads. These leads involved approximately 1.47 million returns with over $6.8 billion in refunds claimed. 

CI continues to be the lead agency that investigates identity theft and is actively involved in more than 78 multi-regional task forces or working groups including state, local and federal law enforcement agencies solely focusing on identity theft.  CI has one of the highest conviction rates in all of federal law enforcement—at 93.4 percent—and is the only federal law enforcement agency with jurisdiction over federal tax crimes.  CI is routinely called upon to be the lead financial investigative agency on a wide variety of financial crimes including international tax evasion, identity theft and transnational organized crime.

 

The summary of the following 10 identity theft cases is based on public information available in court records:

 

Top Ten Identity Theft Cases

 

1. Couple Sentenced for False Tax Refund Conspiracy - On April 24, 2014, in Charlotte, North Carolina, Senita Birt Dill and Ronald Jeremy Knowles, were sentenced to 324 and 70 months in prison, respectively. Both were also ordered to pay $3,978,211 in restitution to the IRS. Dill and Knowles pleaded guilty to false claims of conspiracy and access device fraud. Dill also pleaded guilty to aggravated identity theft. Dill and Knowles used fraudulently obtained personal identification information (including names, dates of birth and social security numbers) to file false tax returns claiming tax refunds. Dill and Knowles used neighboring addresses to fill out the fraudulent tax returns and checked the homes’ mailboxes frequently to retrieve the fraudulent refund checks upon delivery. The defendants also used addresses in Greenville and Greer, S.C., which belonged to Knowles’ businesses. Dill and Knowles filed over 1,000 false tax returns using the fraudulently obtained personal identification information.

 

2. Georgia Man Sentenced for Tax Fraud and Identity Theft - On Aug. 25, 2014, in Atlanta, Georgia, Mauricio Warner was sentenced to 240 months, three years of supervised release, ordered to pay $5,041,869 in restitution and forfeiture of bank accounts that contained $4,185,455. Warner was convicted on wire fraud, aggravated identity theft, filing false claims, and money laundering. Warner filed over 5,000 false tax returns using the names and social security numbers of unsuspecting victims that were told they could submit an application for an “Obama stimulus payment” or “Free Government Money” by providing their names and social security numbers. In addition to word-of-mouth marketing, Warner used toll-free telephone numbers to collect victims’ personal identifying information.

 

3.  Dallas Men Sentenced for Role in Massive Stolen Identity Refund Fraud Scheme - On May 15, 2014, in Dallas Texas, Ogiesoba City Osula was sentenced to 210 months in prison and ordered to pay $15.9 million in restitution. Osula was convicted on conspiracy to commit wire fraud, mail fraud and bank fraud; presenting fraudulent claims upon the U.S.; access device fraud and aiding and abetting; and aggravated identity theft and aiding and abetting. Previously sentenced were co-defendants: George Ojonugwa, sentenced to 174 months and ordered to pay $15,979,187 in restitution; Eseos Igiebor, sentenced to 96 months and ordered to pay $9,660,658 in restitution; Ebenezer Legbedion, sentenced to 40 months and ordered to pay more than $1 million in restitution; and Evelyn Nyaboke Haley sentenced to 60 months and ordered to pay approximately $5.7 million in restitution.  The defendants conspired to defraud the United States by using stolen identity information and false information to create and electronically file false tax returns to claim refunds. On Nov. 8, 2011, police in a Cincinnati suburb questioned Osula and Ojonugwa, who were in a parked car.  When the vehicle was searched, police found more than $300,000 in cash and money orders and numerous debit cards.  During that incident, while Osula was in a police car and waiting to be questioned, he ate a debit card.

 

4. Floridian Sentenced in Identity Theft Tax Fraud and Social Security Schemes - On Sept. 17, 2014, in Miami, Florida, Kevin Cimeus, was sentenced to 156 months in prison and three years of supervised release. Cimeus was convicted of conspiracy to steal government property or money, theft of government money or property, access device theft, and aggravated identity theft.  Federal agents found over 2,400 social security numbers and names of real people stored on thumb drives, laptop computers, iPad, and Cimeus’ email account at Cimeus’ residence. Cimeus recruited Miami Dade College students to allow him to use their bank accounts to receive fraudulently obtained tax refunds. Cimeus also used his own bank accounts to receive fraudulently obtained tax refunds. Cimeus filed at least one thousand tax returns from two IP addresses. He also used the two IP addresses to access the Social Security Administration’s web site and create online profiles for social security recipients in order to re-route the victims’ social security payments to other accounts.

 

5. Ohio Man Sentenced for Participation in $3.5 Million Identity Theft Scam - On Aug. 21, 2014, in Columbus, Ohio, Roma L. Sims was sentenced to 100 months in prison, three years of supervised release, and ordered to pay $3,517,534 in restitution to the IRS. Sims pleaded guilty to aggravated identity theft, wire fraud and conspiring to commit identity theft in a scheme to defraud the IRS. Sims advertised through various means in order to collect personal identification information from low-income or unemployed single parents with children. After tricking the innocent individuals who responded into providing their personal identification information, Sims prepared and filed false income tax returns in their names. Sims also obtained additional personal identification information by conspiring with Robert Earthman, who had access to the Kentucky child support enforcement database, which contained personal identification information of single parents with children who were recipients of child support. In total, Sims was responsible for the preparation and filing of approximately 977 income tax returns for the 2010 - 2012 tax years. Samantha C. Towns was sentenced to three years of probation and ordered to pay $1,312,513 in restitution to the IRS. Robert S. Earthman was sentenced to 24 months in prison, three years of supervised release and was ordered to pay $1,312,513 in restitution to the IRS.

 

6. New York Tax Preparer Sentenced for Filing False Tax Returns and Aggravated Identity Theft - On April 24, 2014, Mahamadou Daffe, a tax preparer in Queens, N.Y., was sentenced to 102 months in prison and three years of supervised release. Daffe was found guilty of conspiracy to steal government funds, theft of government funds, conspiracy to file false claims, wire fraud, and aggravated identity theft in connection with the preparation and filing of nearly 1,000 false income tax returns submitted online using stolen identities.

 

7. Alabama Man Sentenced for Scheme Using Prisoner Identities to Obtain False Tax Refunds - On April 29, 2014, in Montgomery, Ala., Harvey James was sentenced to 110 months in prison, three years of supervised release and ordered to pay $618,042 in restitution. James pleaded guilty to mail fraud and aggravated identity theft. James and his sister, Jacqueline Slaton, obtained stolen identities from various individuals, including one person who had access to inmate information from the Alabama Department of Corrections. James and others used those inmate names to file federal and state tax returns that claimed fraudulent refunds. Vernon Harrison, a U.S. Postal Service employee, provided James with addresses from his postal route, which were used as mailing addresses for the fraudulent prepaid debit cards and state tax refund checks. In total, James filed over 1,000 federal and state income tax returns that claimed over $1 million in fraudulent tax refunds. Slaton was sentenced to 70 months in prison and Harrison was sentenced to 111 months in prison.

 

8. Several Sentenced in $19 Million Tax Fraud Conspiracy - On December 30, 2013, in Anchorage, Alaska, Joel Santana-Pierna and Abel Santana-Pierna, citizens of the Dominican Republic residing in Alaska, were sentenced to 135 months and 72 months in prison, respectively. In addition, they were ordered to pay $559,755 in restitution to the IRS and agreed to forfeit approximately $130,000 obtained as part of their drug trafficking activities.  The brothers pleaded guilty to conspiracy to distribute cocaine and conspiracy to defraud the government. The Santana-Pierna brothers conspired to use more than 3,000 stolen Puerto Rican identities to file false income tax returns and obtain large income tax refunds to which they were not entitled. In total, eleven individuals have been sentenced in this scheme with sentencings ranging from probation to 135 months in prison.

 

9. Woman Sentenced for Tax Fraud and Aggravated Identity Theft - On Oct. 22, 2014, in Orlando, Florida, Tanya Fox was sentenced to 240 months in prison for conspiracy to defraud the federal government, wire fraud, theft of government property, and aggravated identity theft. Fox was also ordered to pay a money judgment in the amount of $4,055,735. On July 24, 2014, Fox was found guilty by a jury of one count of conspiracy, five counts of wire fraud, ten counts of theft of government property, and ten counts of aggravated identity theft. According to court documents, Fox orchestrated a scheme to file fraudulent tax returns using identities that had been stolen from a variety of sources. Fox directed other individuals to open business bank accounts in the name of a fraudulent tax preparation business and to have the tax refunds deposited into those accounts. She then worked with those individuals to withdraw the funds and she spent the money on several luxury and other vehicles, cosmetic surgery and to open a restaurant in the Orlando area. Four others have been sentenced for providing approximately 2,400 names from the Orange County Health Department to Fox, with sentencing’s ranging from five years to two years and six months in prison.  

 

10. Bogus Charity Operator Sentenced for ID Theft and Wire Fraud Scheme - On June 12, 2014, in Columbus, Ohio, Jonathan Webster was sentenced to 108 months in prison, three years of supervised release and ordered to pay $1,457,936 in restitution. Webster pleaded guilty to wire fraud and aggravated identity theft.  Webster purchased advertising in newspapers representing himself as a charity seeking to provide financial assistance to others. Webster set up an online website where individuals responding to the advertisements could provide their names and social security numbers. Webster and a co-conspirator electronically filed more than 500 false income tax returns using the names and social security numbers of the individuals.

 

 

 

 

Obamacare Subsidy Case Divides U.S. Supreme Court Justices

BY GREG STOHR, DAVID MCLAUGHLIN AND ALEX WAYNE

 

 A U.S. Supreme Court argument over Obamacare’s tax subsidies divided the justices along ideological lines, potentially leaving two pivotal members to decide the fate of the landmark law.

 

Chief Justice John Roberts, who cast the decisive vote to uphold the health-care law in 2012, asked only a handful of questions and gave little indication which way he will go this time.

 

Justice Anthony Kennedy, who voted to invalidate the statute three years ago, asked questions of both sides in the one-hour, 20-minute hearing in Washington. He said limiting the tax credits to 16 states, as a group of challengers urge, would create a “serious constitutional problem.”

 

A decision limiting the credits might unravel the Affordable Care Act, making other core provisions ineffective and potentially causing the market for individual insurance policies to collapse in much of the country. Millions of people might be unable to afford insurance, and hospitals could be left with billions of dollars in unpaid bills.

 

The fight centers on a four-word phrase that has become a linchpin of the law. Challengers say that phrase limits the tax credits to the 16 states that have set up their own marketplaces, or online exchanges, for people to buy insurance.

 

Kennedy suggested the court might have to allow nationwide subsidies to avoid trammeling the rights of the states, which he said would face a choice between setting up their own exchanges or seeing their insurance markets collapse. He mentioned the legal doctrine of “constitutional avoidance,” under which the court tries to interpret statutes so as not to render them unconstitutional.

 

More Natural
 

At the same time, Kennedy indicated he saw the challengers’ reading of the law as the more natural one. At one point, he indicated he might be willing to side with them no matter the consequences.

 

“It may well be that you’re correct as to these words, and there’s nothing we can do,” he told Michael Carvin, the lawyer representing four Virginians seeking to block the subsidies. “I understand that.”

 

A ruling against President Barack Obama’s administration would put pressure on the 34 states, most of them Republican-controlled, that have refused to set up their own exchanges. Residents of those states would face the prospect of losing tax credits. Congress could step in, though it is riven by opposition to the health-care law. The Obama administration says it can do little on its own.

 

State Exchange
 

The measure says people qualify for tax credits when they buy insurance on an exchange “established by the state.”

 

The challengers say that phrase means subsidies aren’t available in 34 states that didn’t set up their own exchanges. Residents of those states instead use the federal healthcare.gov system, and an estimated 7.5 million now receive discounts.

 

In an otherwise fast-paced hearing Wednesday, Roberts interjected with a question only four times. His most substantive query explored U.S. Solicitor General Donald Verrilli’s contention that the court should defer to the interpretation of the Internal Revenue Service, which said the tax credits apply nationwide.

 

“That would indicate that a subsequent administration could change that interpretation?” Roberts asked.

Justices Antonin Scalia and Samuel Alito both expressed skepticism about nationwide subsidies. Scalia said Congress would intervene if a ruling against subsidies had major consequences.

 

‘Congress Adjusts’
 

“You really think Congress is just going to sit there while all of these disastrous consequences ensue?” he asked Verrilli. “Congress adjusts, enacts a statute that takes care of the problem. It happens all the time. Why is that not going to happen here?”

 

“This Congress?” Verrilli answered, drawing laughter from the packed courtroom.

 

Alito raised the idea of the court delaying the effective date of a ruling against the administration so it wouldn’t affect the 2015 tax year.

 

The court’s Democratic appointees made clear they leaned toward the administration. Justice Elena Kagan said Carvin’s position would make the law “replete” with anomalies.

 

Justice Sonia Sotomayor joined Kennedy in saying Carvin’s approach would improperly coerce the states into setting up their own exchanges.

 

Federal-State Relationship
 

“If we read it the way you’re saying, then we’re going to read a statute as intruding on the federal-state relationship,” she said.

 

Kennedy said repeatedly that the coercion of the states might create a constitutional problem. At another point, however, he indicated a problem with the government’s approach.

 

“It seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here?” Kennedy said.

 

Kennedy is one of the court’s staunchest advocates of states’ rights. One lawyer who filed a brief opposing the tax credits said the justice’s questions indicated his vote is up for grabs.

 

“He is the big question mark,” said Cory Andrews of the Washington Legal Foundation. “That’s the big takeaway from today.”

 

Legal Injury
 

Justice Ruth Bader Ginsburg pressed both Carvin and Verrilli about whether any of the four plaintiffs in the case has suffered the type of legal injury that entitles a person to sue.

 

White House spokesman Josh Earnest told reporters it would be “unwise” to draw conclusions from the justices’ questions during the argument.

 

If the court ruled against the subsidies, “prices would likely go through the roof,” Earnest said. “This is a fundamental part of the Affordable Care Act, and it’s at risk.”

 

The House and Senate’s Republican majorities oppose Obamacare, and they also “struggle mightily” to accomplish even popular goals such as funding the Department of Homeland Security, Earnest said.

 

Hospitals rose the most on the Standard & Poor’s 500 Index on Wednesday, as of 1:56 p.m. in New York. Tenet Healthcare Corp. was up 4.9 percent to $49.35, and HCA Holdings Inc. gained 5.6 percent to $74.77. Community Health Systems Inc. advanced 5.1 percent to $52.12.

 

The case is King v. Burwell, 14-114.

 

 

 

 

IRS Whacks Robert De Niro with $6.4 Million Tax Lien

BY MICHAEL COHN

 

The Internal Revenue Service reportedly sent a tax lien for $6,410,449.20 to Academy Award-winning actor Robert De Niro for his 2013 taxes, but it has now been paid after the notice went to the wrong address.

De Niro’s spokesman Stan Rosenfied told the Web site The Smoking Gun that the notices were sent to an old address and once the actor found out about his overdue taxes, the full amount was hand-delivered to the IRS on Thursday morning.

 

The lien was dated February 3 and was uncovered by researchers at a new Web site called FamousTaxLiens.com.

 

De Niro won Academy Awards for playing the young Vito Corleone in “The Godfather Part II” in 1974 and boxer Jake LaMotta in “Raging Bull” in 1980. Of special interest to accountants, De Niro also played a bounty hunter in the 1988 movie “Midnight Run,” who is hired to bring to justice an accountant played by Charles Grodin who embezzled $15 million from the mob.

 

 

 

 

Tax Increase Prevention Act of 2014 (TIPA)

 

The Tax Increase Prevention Act of 2014 (TIPA) was signed into law on December 19, 2014. Thankfully, TIPA retroactively extends most of the federal income tax breaks that would have affected many individuals and businesses through 2014. So, these provisions may have a positive impact on your 2014 returns. Unfortunately, these extended provisions expired again on December 31, 2014. So, unless Congress takes action again, these favorable provisions won’t be available for 2015.

 

In this article, we will discuss some of the extended provisions impacting individual taxpayers.

 

Tax breaks for individuals extended through 2014

 

Qualified tuition deduction. This write-off, which can be as much as $4,000 for married taxpayers with adjusted gross income up to $130,000 ($65,000 if unmarried) or $2,000 for married taxpayers with adjusted gross income up to $160,000 ($80,000 if unmarried), expired at the end of 2013. TIPA retroactively restored it for 2014.

 

Tax-free treatment for forgiven principal residence mortgage debtFor federal income tax purposes, a forgiven debt generally counts as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to COD income from canceled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was canceled in 2007–2013 was treated as a tax-free item. TIPA retroactively extended this break to cover eligible debt cancellations that occurred in 2014.

 

$500 Energy-efficient Home Improvement Credit. In past years, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. The credit equals 10% of eligible costs for energy-efficient insulation, windows, doors and roof, plus 100% of eligible costs for energy-efficient heating and cooling equipment, subject to a $500 lifetime cap. This break expired at the end of 2013, but TIPA retroactively restored it for 2014.

 

Mortgage insurance premium deduction. Premiums for qualified mortgage insurance on debt to acquire, construct or improve a first or second residence can potentially be treated as deductible qualified residence interest. The deduction is phased out for higher-income taxpayers. Before TIPA, this break wasn’t available for premiums paid after 2013. TIPA retroactively restored the break for premiums paid in 2014.

 

Option to deduct state and local sales taxes. In past years, individuals who paid little or no state income taxes had the option of claiming an itemized deduction for state and local general sales taxes. The option expired at the end of 2013, but TIPA retroactively restored it for 2014.

 

IRA Qualified Charitable Contributions (QCDs). For 2006–2013, IRA owners who had reached age 70½ were allowed to make tax-free charitable contributions of up to $100,000 directly out of their IRAs. These contributions counted as IRA Required Minimum Distributions (RMDs). Thus, charitably inclined seniors could reduce their income tax by arranging for tax-free QCDs to take the place of taxable RMDs. This break expired at the end of 2013, but TIPA retroactively restored it for 2014, so that it was available for qualifying distributions made before 2015.

 

$250 deduction for K-12 educators. For the last few years, teachers and other eligible personnel at K-12 schools could deduct up to $250 of school-related expenses paid out of their own pockets — whether they itemized or not. This break expired at the end of 2013. TIPA retroactively restored it for 2014.

 

What about 2015?

 

Unfortunately, as we said at the beginning of this article, none of these favorable provisions will be available for 2015, unless Congress takes further action. This is entirely possible, but far from certain. We’ll keep you posted as the year progresses.

 

 

 

ABLE accounts for disabled individuals

 

The Tax Increase Prevention Act of 2014 (TIPA) also included another bill, the Achieving a Better Life Experience Act (ABLE) of 2014. ABLE establishes a new type of tax-advantaged account for disabled individuals, allowing them to save money for future needs while remaining eligible for government benefit programs.

 

Beginning in 2015, TIPA allows states to establish tax-exempt ABLE accounts to assist persons with disabilities in building an account to pay for qualified disability expenses.

Note: Although states can establish ABLE accounts beginning in 2015, it is likely they won’t be available until after the IRS provides guidance as to how these accounts should be administered. TIPA requires the IRS to provide this guidance by mid-June 2015.

 

Contributions to an ABLE account aren’t deductible for income tax purposes. However, earnings in the account are deferred until distributed from the account or, if the distributions are used to pay qualified disability expenses, they are tax-free.

 

Except for Supplemental Security Income (SSI), ABLE accounts are disregarded for federal means-tested programs. Also, some ABLE accounts are provided limited bankruptcy protection.

 

Eligible individuals. An ABLE account can be set up for an individual (1) who is entitled to benefits under the Social Security disability insurance program or the Supplemental Security Income (SSI) program due to blindness or disability occurring before the individual reached age 26 or (2) for whom a disability certification has been filed with the IRS for the tax year.

 

Contributions. Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion for that tax year ($14,000 for 2015).

 

Distributions. Distributions from ABLE accounts are tax-free to the extent they don’t exceed the designated beneficiary’s qualified disability expenses for the year. Distributions that exceed the qualified disability expenses for the year are included in taxable income and are generally subject to a 10% penalty tax.

Distributions can be rolled over tax-free within 60 days to another ABLE account for the benefit of the beneficiary or an eligible individual who’s a family member of the beneficiary. Similarly, an ABLE account’s beneficiary can be changed, as long as the new beneficiary is an eligible individual who’s a family member of the beneficiary.

 

Death of the beneficiaryAt the beneficiary’s death, any amounts remaining in the account after Medicaid reimbursements go to the deceased’s estate or designated beneficiary. They are subject to income tax on investment earnings, but not to the 10% penalty.

 

 

 

 

Tax breaks for businesses extended through 2014

Extended cost recovery provisions

 

50% bonus depreciation. The Tax Increase Prevention Act of 2014 (TIPA) extended 50% first-year bonus depreciation for an additional year to cover qualifying new (not used) assets that are placed in service in calendar year 2014. For a new passenger auto or light truck that is subject to the luxury auto depreciation limitations, the 50% bonus depreciation provision increases the maximum first-year depreciation deduction by $8,000.

 

Generous Section 179 rules. For qualifying assets placed in service in the tax year beginning in 2014, TIPA restored the maximum Section 179 deduction to $500,000 (same as for tax years beginning in 2013). The temporary rule that allowed up to $250,000 of Section 179 deductions for qualifying real property placed in service in tax years beginning in 2013 was also retroactively restored for tax years beginning in 2014.

 

15-year depreciation for leasehold improvements, restaurant property, and retail space improvements. TIPA retroactively restored the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements for property placed in service in 2014.

 

Extended provisions for business

 

Business credits. TIPA retroactively extended:

      The research credit to cover qualifying expenses paid or accrued before 2015,

      The deadline for employing eligible individuals for purposes of claiming the Work Opportunity Tax Credit to cover qualifying hires that began work in 2014, and

      The credit for eligible small employers that provide differential pay to employees while they serve in the military to cover payments made in 2014. The credit equals 20% of differential pay of up to $20,000 paid to each qualifying employee.

 

Favorable rule for S Corporation donations of appreciated assets. TIPA retroactively restored for tax years beginning in 2014 the favorable shareholder basis rule for stock in S corporations that make charitable donations of appreciated assets. For such donations, each shareholder’s tax basis in the S corporation’s stock is only reduced by the shareholder’s pro rata percentage of the company’s tax basis in the donated assets. Without the extended provision, a shareholder’s basis reduction would equal the passed-through write-off for the donation (a larger amount). The extended provision is taxpayer-friendly because it leaves shareholders with higher tax basis in their S corporation shares.

 

Break for S corporation built-in gains. When a C corporation converts to an S corporation, a built-in gains tax generally applies when built-in gain assets (including receivables and inventories) are turned into cash or sold within the recognition period. The tax is only assessed on built-in gains (excess of FMV over basis) that exist on the conversion date. The recognition period is normally the 10-year period that begins on the conversion date. However, for S corporation tax years beginning in 2012 and 2013, the recognition period was five years. TIPA retroactively restored the five-year recognition period for tax years beginning in 2014. In other words, for gains recognized in 2014, the built-in gains tax won’t apply if the fifth year of the recognition period has gone by before the start of 2014.

 

Energy-efficient commercial buildings deductionTIPA retroactively restored the deduction for the cost of an energy-efficient commercial building property placed in service during the tax year, for property placed in service before 2015. The maximum deduction for any building for any tax year is the excess (if any) of the product of $1.80 and the square footage of the building, over the total amount of the Section 179 deductions claimed for the building for all earlier tax years.

 

What about 2015?

 

Unfortunately, none of these special provisions will be available for 2015 unless Congress takes further action. This is entirely possible, but far from certain. We’ll keep you posted as the year progresses.

 

 

 

 

4 good reasons to direct deposit your refund

 

If you are getting a refund this year, here are four good reasons to choose direct deposit:

 

1.   ConvenienceWith direct deposit, your refund goes directly into your bank account. There's no need to make a trip to the bank to deposit a check.

 

2.   Security. Since your refund goes directly into your account, there’s no risk of your refund check being stolen or lost in the mail.

 

3.   EaseChoosing direct deposit is easy. You just need to provide us your bank account and routing number and we’ll take care of it.

 

4.   Options. You can split your refund among up to three financial accounts. Checking, savings, and certain retirement, health and education accounts may qualify.

 

You can have your refund deposited into accounts that are in your own name, your spouse’s name, or both, but not to accounts owned by others. Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Check with your bank for its direct deposit requirements.

 

 

 

 

 

National Taxpayer Advocate delivers annual report to Congress

 

National Taxpayer Advocate Nina E. Olson recently released her 2014 annual report to Congress, which expresses concern that taxpayers this year are likely to receive the worst levels of taxpayer service since at least 2001, when the IRS implemented its current performance measures. The report recommends that Congress enact a principles-based Taxpayer Bill of Rights, adopt additional safeguards to make those rights meaningful, and provide sufficient funding to make the “Right to Quality Service” a reality.

 

The report says the combination of the IRS’s increasing workload, the erosion of public trust, and the sharp reduction in funding have created a “perfect storm” of trouble for tax administration and therefore for taxpayers. “Taxpayers who need help are not getting it, and tax compliance is likely to suffer over the longer term if these problems are not quickly and decisively addressed,” Olson wrote.

 

The report also urges Congress to enact comprehensive tax reform, pointing out that simplification would ease burdens on taxpayers and the IRS alike.

 

 

 

 

Gay Couples' Tax-Season Nightmares Continue

BY BEN STEVERMAN

 

Tonya Keith typically spends four to eight hours doing her taxes each year. This year, she says, “I’ve got about 30 hours in, and I’m not done.” The reason: She and her wife got married last year in Seattle, but they live in Georgia, which doesn’t recognize their marriage.

 

This tax season is particularly bitter for gays and lesbians who live in states that still don’t recognize same-sex marriage. After decades together, many are filing their first joint tax returns. In a growing number of states, this is easy: An additional 20 states have legalized same-sex marriage since the beginning of 2014. But in Georgia, Michigan, Ohio and nine other states, gay couples are still treated as legal strangers. They face extra paperwork, heftier tax-prep fees, and tax questions that puzzle even the experts. Relief could come from the U.S. Supreme Court, which is expected to rule by June whether gays and lesbians have a right to marry. Taxes, however, are due by April 15.

 

Of course, much more than taxes is at stake in front of the Supreme Court—adoption rights, inheritance law, survivor benefits, the right to make medical-care decisions for a sick spouse, and more—but tax season brings the confusing and complicated contradictions between state policy and federal law into sharp relief. Keith and other gay married couples must prepare five returns: First, they complete a joint, official federal return that they’ll file with the IRS. Then, they must each fill out—but not file—a federal return as if they were single people, shadow returns they’ll use to prepare their state tax returns.

 

Filing a joint federal return is easy. The difficulty is properly dividing a married couple’s entwined finances into two state and federal returns. It’s like “unscrambling an egg,” says Ohio resident Sandra Anderson, who married her wife in August after 22 years together. A charitable deduction, for example, is split evenly between spouses if it’s made from a joint bank account, but if it’s made via credit card, only one spouse can claim it.

 

If a couple has children, things get even more complicated. Deductions for dependent children and adoption and child-care credits must be allocated correctly between their parents. Each state can have slightly different rules, but, when asked about them, state employees don’t always give consistent answers. Keith spent a week trying to figure out whether she and her wife should file on their state return as “single” or “head of household,” and they kept getting different answers. It turns out they each claim “head of household” status, because each of them claims dependent children.

 

Then there’s the insult of filing a legal document that says you’re single when you’re not. At HLM Financial Group, an Atlanta firm that specializes in LGBT clients, customers insisted on writing in large red letters on the top of their state returns: “Filed under protest. Taxpayer is not single.”

 

If the Supreme Court rules that gay and lesbian couples have a right to marry in all 50 states, these problems go away. Gay married couples could file for an extension until Oct. 15, at which point their tax situations could be a lot clearer. Any tax due must be paid by April 15, but otherwise there’s no penalty for a delay. “If it were me, I’d file the extension,” says Lynn Pasqualetti, managing partner at HLM.

 

Keith won’t be doing so. She and her wife are expecting an $8,800 federal refund. “There’s been a lot of wine devoted to this tax return,” she says, and at this point she’d just like to get it over with.

 

 

 

Cut Taxes and Save on Energy Bills with Home Energy Credits

You can reduce your taxes and save on your energy bills with certain home improvements.  Here are some key facts that you should know about home energy tax credits:

Non-Business Energy Property Credit 

  • Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
  • The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
  • This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
  • Your main home must be located in the U.S. to qualify for the credit.
  • Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
  • This credit had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014. You may still claim the credit on your 2014 tax return if you didn’t reach the lifetime limit in prior years.

Residential Energy Efficient Property Credit

  • This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
  • Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
  • There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
  • The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.
  • This credit is available through 2016.

 

 

Why "Starving" the IRS "Beast" is fallacy

Lawrence Tucker, CPA, CGMA

The slashing of the IRS budget has broken the ability of taxpayers to agree to pay the IRS. When would this ever be considered good policy?

"Due to overwhelming demand, your request cannot be processed at this time. Please try again later or on another business day."

This was the automated message I received while trying to help a client set up a payment plan. We're not contesting the tax assessed, it is actually based on the return prepared. All I'm looking to do is buy the client a bit of breathing room so they can handle their current period issues without threat of IRS levying bank accounts. But the current state of the IRS has made it impossible to agree to pay the IRS absent extraordinary intervention.

(Before the trolls bomb the comments: Yes, the IRS does have an automated installment agreement tool, it doesn't work in many cases including this one. The IRS employees use a tool that says this taxpayer is available for an installment agreement but the online tool says they are not. I have never received an explanation for why.)

I agree there is waste within the IRS, and there are certainly things that could be done better. This is a topic I've covered before and will likely cover again since I regularly deal with IRS dysfunction, day in and day out. But the idea that, by reducing the IRS's budget without planning or directed targeting of efforts, the Service will magically become more efficient is idiotic.

Efficiency isn't something that can be forced by scarcity. The initial response to any scarcity is rationing, not magically accomplishing the same goals with drastically reduced resources. Efficiency is the result of careful analysis of priorities and existing systems, selectively reducing redundancies and waste. Unfortunately for taxpayers, our elected officials decided a sledge hammer was a better tool than a scalpel when they cut the budget without first improving the systems.

Congress has decided to "starve" an uncaged beast that can figuratively eat the taxpayers alive. This is the wrong option and if Congress truly wants to reduce the size of the IRS, they must do it correctly and with a plan, or risk forever breaking the very institution they depend on to "fund raise" for their continued spending of our money.

Doing too much with too little

I have a client facing levies for taxes that have been paid in full. We issued correspondence 6 months ago that has yet to be addressed; this used to keep lien/levy proceedings at bay but not anymore apparently. The issue: taxpayer issued payment for extension without stating tax period on the check and the IRS allocated to the subsequent year. This should be a relatively easy fix, but instead I'm considering filing for tax court on this matter.

By judicially challenging the assessment I can theoretically preserve my clients standing to challenge without having to pay the tax again, guarantee appeals and avoid the endless correspondence while also stopping the potential lien/levy proceedings. I get a markedly better path for only the filing cost of $65 and the time to prepare the petition; I anticipate it will be money well spent.

As more and more cases are filed in tax court as a matter of necessity, the dockets will be filled with cases that are administrative errors, leading to delays requiring more resources to address. These errors should be settled at the administrative level but instead, because of the expansion of the IRS mission scope coupled with a nearly 10% budget cut over the last 2 fiscal years, they will cost infinitely more when run through the tax court system.

Camus, Existentialism, and the IRS

I had only to wish that there be a large crowd of spectators the day of my execution and that they greet me with cries of hate.

At the close of L'Etranger, Mersault, the novel's protagonist, wishes for nothing other than recognition of his existence. Throughout the novel he has been indifferent and apathetic and, as he goes to greet his demise, we realize he is a mirror reflecting the indifference of the world to our very existence. His last grasp at life is hoping for recognition even in the form of hatred. I find this an uncomfortably fitting allegory with the current state of the IRS.

I will use every tool at my disposal to ensure that my issues are addressed. I'm not above openly insulting examiners as a matter of practice, but this still requires they open and read the correspondence. The current rate of reply indicates this method will soon be impossible to use for resolution measured in less than geologic time scale. The last remaining method, telephone, amounts to nothing more than waiting on hold, hoping for assistance from a government agency that is both persecutor and perpetrator: that's not Camus - it's Kafka!

If we want to change the IRS, great. It's an unwieldy beast which relies far too much on manual efforts. But changing it through deprivation is political brinkmanship which does nothing but harm taxpayers. A starved beast doesn't necessarily become leaner, it just becomes rabid.

Larry Tucker is a Colorado licensed CPA, and owner of Tucker Accounting & Tax, PLLC in Longmont, Colorado. I provide services which help taxpayers clear the obstacles to their success. This piece is my opinion (primarily) and should not be relied upon by anyone to do anything.

 

 

 

 

 

IRS Readies Regulations for ABLE Accounts

BY MICHAEL COHN

The Internal Revenue Service has issued a notice in anticipation of the ABLE tax-free savings accounts that disabled Americans will soon have the ability to set up to cover expenses such as education, housing and transportation.

When Congress passed a temporary extension of dozens of tax breaks last December in the Tax Increase Prevention Act of 2014, it also passed the Achieving a Better Life Experience Act, also known as the ABLE Act, which authorizes the ABLE accounts.

Notice 2015-18 provides notification of a provision that the IRS expects will be included in the proposed regulations to be issued under section 529A of the Internal Revenue Code. Section 529A will permit a state (or a state agency or instrumentality) to establish and maintain a new type of tax-advantaged savings program, a qualified ABLE program, under which contributions may be made to an ABLE account that is established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account who is a resident of that state and who is disabled.

The notice announces that the Treasury Department and the IRS currently anticipate issuing proposed regulations that will provide that the designated beneficiary of an ABLE account is the owner of the account. The notice also provides that, with regard to the ABLE account of a designated beneficiary who is not the person with signature authority over that account, the person with signature authority may neither have nor acquire any beneficial interest in the account and must administer the account for the benefit of the designated beneficiary.

If a state does not establish and maintain its own qualified ABLE program, it may enter into a contract with another state in order to provide its residents with access to a qualified ABLE program, according to the notice. The statute directs the Treasury Secretary or his designee to issue regulations or other guidance to implement section 529A no later than June 19, 2015. Several state legislatures currently are in the process of enacting enabling legislation in order to ensure that their citizens may create ABLE accounts during 2015, according to the notice. While the Treasury Department and the IRS currently are working on section 529A guidance, they anticipate that ABLE programs may be in operation in some states before the guidance can be issued.

 

 

 

Intuit Gets U.S. Government Inquiries over Tax-Filing Software

BY BRIAN WOMACK

Intuit Inc., maker of tax-preparation software TurboTax, said that it has received information requests from the U.S. government following its decision to temporarily halt state tax filing due to fraudulent activity.

Intuit said that it’s cooperating with inquiries from regulatory authorities, including Congress, the Federal Trade Commission, and the Department of Justice, the company said in a statement Friday.

The government’s involvement—which Intuit said it had expected—steps up the scrutiny on the company’s TurboTax business, which is used by U.S. consumers to file their annual tax returns. Intuit first disclosed the suspicious activity in February, and has been working to reassure users that their information is safe.

TurboTax is part of Intuit’s consumer tax group, which made $244 million in sales, or 30 percent of total revenue, in the fiscal second quarter that ended in January.

“We understand our important role in this issue as a market leader,” Dave Williams, Intuit’s chief tax officer, said in the statement. “We take it very seriously. So too do the various government authorities who have a stake in the tax prep process. We welcome the opportunity to share information and cooperate with their inquiries.”

U.S. taxpayers are typically issued refunds on national and state taxes already paid, creating an opportunity for crooks to file false claims for the money. Americans are in the middle of the annual tax-filing season ahead of an April 15 deadline.

The Mountain View, California-based software maker company has denied claims that it prioritized the processing of fraudulent state and federal tax refunds at the expense of customers.

Phony Taxes

Criminals, using stolen identification information, can create a phony TurboTax account in a person’s name to file for a tax refund. In these cases, because the filing fee is deducted from the total amount of the refund request, TurboTax may still receive a payment when the Internal Revenue Service approves the fraudulent return.

Diane Carlini, a spokeswoman for Intuit,declined to comment. Intuit said in the statement that it won’t provide additional details on the inquiries until they’re complete.

 

 

 

 

 

Americans Concerned about Tax-Filing Security

BY MICHAEL COHN

A majority of Americans continue to be concerned about the privacy and safety of their personal and financial data when filing their tax returns online. 

According to a new survey commissioned by Taxsoftware.com, 70 percent expressed concerns about the safety of their data when using desktop computers to file their state and federal tax forms. In addition, 68 percent said they are concerned when using their iPads or tablets, while 69 percent are concerned when using their smartphones.

All of the results indicate dramatically higher concerns than when the survey was originally conducted in 2012. Three years ago, 52 percent of the survey respondents expressed concerns with using desktop computers, 42 percent when using iPads or tablets, and 54 percent when using smartphones. 

"The rise in concern by taxpayers is to be expected, given the recent headlines about computer hacking and data theft," said Taxsoftware.com spokesperson Mickey Macedo in a statement.  "In one respect, the IRS is actually encouraging the theft of private financial information by providing a free e-file service that allows criminals to repeatedly guess at taxpayer information.  This allows hackers to steal tax refunds at no cost, and at little risk to themselves. The IRS would do all taxpayers a great favor by eliminating its free e-file service, and thereby dramatically and immediately help reduce fraud.”

The survey was commissioned by Taxsoftware.com, and conducted February 8-10, 2015 by Google Surveys with a margin of error of 2.5 percent. The survey consisted of a national sample of 6,500 of adults 18 years of age or older from an online panel. The percentages were rounded up or down.

 

 

 

 

Are You Self Employed? Check Out These IRS Tax Tips

Many people who carry on a trade or business are self-employed. Sole proprietors and independent contractors are two examples of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips about income from self-employment:

  • SE Income.  Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
  • Schedule C or C-EZ.  There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form.
  • SE Tax.  You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, make sure you file the schedule with your federal tax return.
  • Estimated Tax.  You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You usually pay this tax in four installments for each year. If you do not pay enough tax throughout the year, you may owe a penalty.
  • Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
  • When to Deduct.  In most cases, you can deduct expenses in the same year you paid for them, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

 

 

 

More Taxpayers Will Get Their Refunds by Mail, Like It or Not

BY SUZANNE WOOLLEY

States have been pushing taxpayers to get their refunds via direct deposit for years. Now people choosing that option may be surprised with a paper check instead.

South Carolina informed residents this week that, in response to a recent spike in fraud, the state is converting some refunds for people who requested direct deposit to paper checks; Colorado announced a similar move in mid-February.

In Connecticut, all first-time filers and all refunds flagged as potentially suspicious will get paper checks. And Utah’s increase in paper checks is “dramatic,” because requests for refunds on certain types of debit cards are all being issued checks, says Charlie Roberts, a spokesman for the Utah State Tax Commission.

Those examples are “the tip of the iceberg,” says Verenda Smith, deputy director at the Federation of Tax Administrators. “We don’t have a lot of numbers, but there’s more of these conversions going on now, and more that will go on.” Smith says that while state revenue departments have always had the option of flipping a direct deposit refund to paper, it’s being done more publicly now. “It’s a minor inconvenience to taxpayers but very helpful in stopping fraud,” she says, and tax officials don’t get a lot of heat politically for doing it.

Any legitimate filer surprised with a paper check may never learn why his filing was targeted. In South Carolina, checks will come with a letter saying that the refund was flagged as potentially fraudulent, but that “for security purposes, we are unable to disclose additional details related to this determination.” Colorado’s release about its new antifraud measures, which include issuing more paper checks, notes that “sending a paper check to the taxpayer’s mailing address is intended to prevent criminals from easily diverting fraudulent refunds to their own prepaid, reloadable cards or debit cards.”

South Carolina’s release reminds taxpayers that if you get a refund check but haven’t yet filed your return—a sign that someone has filed a fraudulent return using your name—don’t cash the check. Smith says every year there are people for whom a few hundred dollars in the bank is a big deal, and they’ll cash a check that obviously wasn’t meant for them. That can get messy, she says, because it can turn into a collection issue, and interest can be levied.

The states’ actions come in the wake of reports of a spike in suspicious state income tax refund claims that started in late January. Minnesota temporarily stopped accepting e-filed returns on Jan. 30. On Feb. 5, Intuit, the maker of TurboTax, stopped transmitting e-filed state income tax returns for 24 hours. Now the FBI and the criminal division of the IRS have investigations under way.

 

 

 

 

Five Key Points about Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five key points to keep in mind if your child has investment income:

1. Investment Income.  Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate.  If your child's total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child's tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s Return.  You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents' Election to Report Child's Interest and Dividends, for more.

4. Child’s Return.  If your child’s investment income was $10,000 or more in 2014 then the child must file their own return. File Form 8615 with the child’s federal tax return.

5. Net Investment Income Tax.  Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax. For more on this topic, visit IRS.gov.

 

 

 

What Kind of Health Insurance Qualifies as Minimum Essential Coverage?

The individual shared responsibility provision requires you and each member of your family to have basic health insurance coverage – also known as minimum essential coverage – qualify for an exemption, or make an individual shared responsibility payment when you file your federal income tax return.

Many people already have minimum essential coverage and do not need to do anything more than maintain that coverage and report their coverage when they file their tax returns. Most taxpayers will simply check a box to indicate that each member of their family had qualifying health coverage for the whole year.

Here are some examples of coverage that qualify as minimum essential coverage:

Employer-sponsored coverage

• Group health insurance coverage for employees under

a governmental plan such as the Federal Employees Health Benefit program
 a plan or coverage offered in the small or large group market within a state
 a grandfathered health plan offered in a group market

• Self-insured group health plan for employees
• COBRA coverage
• Retiree coverage

Individual health coverage:

• Health insurance purchased directly from an insurance company
• Health insurance purchased through the Health Insurance Marketplace
• Health insurance provided through a student health plan

Coverage under government-sponsored programs:

• Medicare Part A coverage
• Medicare Advantage plans
• Most Medicaid coverage
• Children’s Health Insurance Program or CHIP
• Most types of TRICARE coverage
• Comprehensive health care programs offered by the Department of Veterans Affairs
• Department of Defense Nonappropriated Fund Health Benefits Program
• Refugee Medical Assistance

U.S. citizens, who are residents of a foreign country for an entire year, and residents of U.S. territories, are considered to have minimum essential coverage for the year.

 

 

 

Taxpayers Ready to Do More to Fight Tax Fraud

BY MICHAEL COHN

Taxpayers are willing to go through more steps when preparing their tax returns, such as confirming their identifications and proving additional documentation, if it can help combat tax fraud and identity theft, according to a new survey.

The survey, by H&R Block, found that 96 percent of consumers are willing to take action to combat tax fraud. Some of the top responses include answering additional questions on their returns, providing additional documentation, using a professional tax preparer who is regulated by the Internal Revenue Service and answering questions to confirm their identity when using do-it-yourself software or Web sites.

“We believe challenging suspicious activity—before returns get to the IRS—is the right thing to do,” said H&R Block president and CEO Bill Cobb in a statement. “Consumers agree.”

This is the second year for the survey, conducted by the Tax Institute at H&R Block and ORC International, which shows an increase in taxpayer willingness to engage from a 2014 survey.

The survey respondents believe that fraudulent returns are most likely to originate from do-it-yourself tax preparation software or Web sites, with the percentage of people who believe this growing 14 percentage points from last year (68 percent vs. 54 percent).

Among the 63 percent of survey respondents who use a professional tax preparer, 90 percent support requiring tax preparers to meet minimum training standards. This is consistent with last year's findings of 89 percent.

The survey found that consumers support consistent filing requirements, regardless of how they file their taxes. Eighty-eight percent of all respondents support requiring tax forms and documentation requirements to be the same whether using a professional tax preparer or DIY software or Web sites. That is consistent with last year's finding of 86 percent.

Consumers who prepare and file their own tax returns support requiring minimum standards for DIY tax preparation software and Web sites, according to the poll. Among the 30 percent of respondents who use DIY tax preparation software, 92 percent support requiring DIY tax preparation software and Web sites to meet minimum standards. This is consistent with last year's findings of 91 percent.

"Tax fraud and improper payments are at least a $20 billion problem,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “Whether they file their taxes with a tax preparer or with do-it-yourself software, consumers believe that tax preparers, software providers, government and they themselves have responsibility to solve this problem. For their part, they are willing to take several actions including confirming their identity and answering more questions.”

 

 

 

Taxpayers Receiving Identity Verification Letter Should Use IDVerify.irs.gov 

The Internal Revenue Service today reminded taxpayers who receive requests from the IRS to verify their identities that the Identity Verification Service website, idverify.irs.gov, offers the fastest, easiest way to complete the task.

Taxpayers may receive a letter when the IRS stops suspicious tax returns that have indications of being identity theft but contains a real taxpayer’s name and/or Social Security number. Only those taxpayers receiving Letter 5071C should access idverify.irs.gov.

The website will ask a series of questions that only the real taxpayer can answer.

Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them. If they did file the return, it will take approximately six weeks to process it and issue a refund.

Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it. The IRS does not request such information via email, nor will the IRS call a taxpayer directly to ask this information without you receiving a letter first. The letter number can be found in the upper corner of the page.

The letter gives taxpayers two options to contact the IRS and confirm whether or not they filed the return. Taxpayers may use the idverify.irs.gov site or call a toll-free number on the letter. Because of the high-volume on the toll-free numbers, the IRS-sponsored website, idverify.irs.gov, is the safest, fastest option for taxpayers with web access.

Taxpayers should have available their prior year tax return and their current year tax return, if they filed one, including supporting documents, such as Forms W-2 and 1099 and Schedules A and C.

Taxpayers also may access idverify.irs.gov through www.IRS.gov by going to Understanding Your 5071C Letter or the Understanding Your IRS Notice or Letter page. The tool is also available in Spanish. Taxpayers should always be aware of tax scams, efforts to solicit personally identifiable information and IRS impersonations. However, idverify.irs.gov is a secure, IRS-supported site that allows taxpayers to verify their identities quickly and safely.

IRS.gov is the official IRS website. Always look for a URL ending with “.gov” – not “.com,” “.org,” “.net,” or other nongovernmental URLs.

 

 

 

Affordable Care Act Consumer Alert:  Choose Your Tax Preparer Wisely

The IRS urges taxpayers to choose their tax professional carefully as reports are coming in from around the country describing unscrupulous preparers who instruct their clients to make individual shared responsibility payments directly to the preparer.

The IRS reminds individuals who owe the payment that it should be made only with their tax return or in response to a letter from the IRS.  The payment should never be made directly to an individual or return preparer. Most people don’t owe the payment at all because they have health coverage or qualify for a coverage exemption.

The IRS has received several reports of this kind of unscrupulous activity.  In some cases, return preparers have told taxpayers to make the payment directly to them, even though the taxpayer had Medicaid or other health coverage and doesn’t need to make the shared responsibility payment at all. In some parts of the country, unscrupulous return preparers are targeting taxpayers with limited English proficiency and, in particular, those who primarily speak Spanish.

These preparers are asking for direct payment to them, but their reasons vary. Methods include:   

  • telling individuals that they must make an individual shared responsibility payment directly to the preparer because of their immigration status, 
  • promising to lower the payment amount if the client pays it directly to the preparer, or
  • demanding money from individuals who are exempt from the individual shared responsibility payment.

If you believe you have been targeted by an unscrupulous preparer or you have been financially affected by a tax return preparer’s misconduct or improper tax preparation practices, you can report it to the IRS on Form 14157, Complaint: Tax Return Preparer.

Taxpayers who are unsure if they must make a payment can use our Interactive Tax Assistant tool - Am I required to make an Individual Shared Responsibility Payment? -  to help determine if they qualify for an exemption or owe the payment. 

Choose a Tax Preparer Carefully

The vast majority of tax professionals provide honest, high-quality service. However, the IRS encourages taxpayers to avoid dishonest and unscrupulous preparers by choosing their preparer wisely. To help, the IRS offers a new, online, searchable public directory of tax preparers who currently hold professional credentials recognized by the IRS or certain other qualifications.

For information on choosing a preparer, filing a complaint about an unscrupulous preparer, or using the new directory, see our Choosing a Tax Professional page on IRS.gov.

Tips about Individual Shared Responsibility Payments

  • Payments are not required for individuals who had coverage or qualify for an exemption for each month of the year.
  • Individuals who are not U.S. citizens or nationals, and are not lawfully present in the United States, are exempt from the individual shared responsibility provision and do not need to make a payment. For this purpose, an immigrant with Deferred Action for Childhood Arrivals (DACA) status is considered not lawfully present and therefore is exempt.  An individual may qualify for this exemption even if he or she has a social security number (SSN).
  • Taxpayers either pay the shared responsibility payment with their tax return or in response to a letter from the IRS requesting payment.  They should not make the payment directly to any individual or return preparer. If a shared responsibility payment is due, taxpayers should pay it to the United States Treasury. In most cases, the shared responsibility payment reduces a taxpayer’s refund. If there is no refund, the payment will increase the amount a taxpayer owes on the tax return.

Find out more about the tax-related provisions of the health care law at IRS.gov/aca.

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

15427 Vivian - Taylor, Michigan 48180 – voice (734) 946-7576  fax (734) 946-8166

website: www.rigotticpa.com    email: rigotticpa@gmail.com  Tax ID # 38-3083077