Apr
 
15

IRS Reiterates Warning of Pervasive Telephone Scam

Sent In the IRS Newswire

WASHINGTON – As the 2014 filing season nears an end, the Internal Revenue Service today issued another strong warning for consumers to guard against sophisticated and aggressive phone scams targeting taxpayers, including recent immigrants, as reported incidents of this crime continue to rise nationwide. These scams won’t likely end with the filing season so the IRS urges everyone to remain on guard.

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail. The IRS never asks for credit card, debit card or prepaid card information over the telephone. For more information or to report a scam, go to www.irs.gov and type “scam” in the search box.

People have reported a particularly aggressive phone scam in the last several months. Immigrants are frequently targeted. Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked. Callers are frequently insulting or hostile – apparently to scare their potential victims.

Potential victims may be told they are entitled to big refunds, or that they owe money that must be paid immediately to the IRS. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

• Scammers may be able to recite the last four digits of a victim’s Social Security number.

• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

• Victims hear background noise of other calls being conducted to mimic a call site.

• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.

• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.

You can reblog the IRS tax scam alert via Tumblr.

Mar
 
20

Tax Season Unleashes Cyberscams

Originally Posted on CNN Money

As if tax season isn’t stressful enough, cybercriminals are also out in full force, looking to unleash attacks against unsuspecting small businesses.

Cybercrooks often use current events to disguise their attacks, said Kevin Haley, director of Symantec Security Response.

In 2011, for example, the royal wedding triggered a huge spike in spamming emails. Similarly, the annual tax filing season creates a perfect storm for cyberschemes.

“Not only do criminals exploit its anxiety and fear factor, but the tax season also gives them the opportunity to generate a variety of social engineering tricks,” Haley said.

These typically take the form of (fraudulent) tax-themed messages from the IRS that are actually phishing scams and ransomware.

Related: Most dangerous cyberattacks against small businesses

Small businesses are targeted more than large firms because they’re more vulnerable and the schemes are more lucrative.

“Large companies are better protected,” said Haley. “Cybercriminals know that smaller firms are more lax with their security and probably keep more money in their bank accounts.”

Alex Watson, director of security research at Websense Security Labs, said his firm has tracked a sharp increase in tax-related cyberscams this year against businesses.

“We’re seeing about 100,000 IRS-themed email scams circulating every two weeks in the U.S.,” said Watson. “They started in late December and it’s going strong now.”

Related: Cybercrime’s easiest prey: Small business

Here are the three most dangerous cyberattacks:

Financial Trojans: This type of attack uses names of popular tax-prep programs like Turbotax. Haley said targets receive an email with an attachment disguised as an important tax document from Turbotax.

“In most cases, the attachment looks like a spreadsheet or a document file,” he said.

If you open it, it launches malware on to your computer or phone. Once it’s installed, the malware allows scammers to steal login information and bank account credentials.

Tax-themed phishing scams: Haley said these scams use HTML files that capture personal data and company information and then send it to a server controlled by the cybercrooks.

In its annual list of “Dirty Dozen” tax scams, the IRS highlighted this particular attack, which is carried out through a fraudulent email or website.

The IRS emphasized that it never uses email to request personal or financial information.

IRS-disguised ramsonware: This attack mimics a Cryptolocker threat, meaning the virus seizes control of your computer files and threatens to erase them unless you pay a ransom.

During tax season, Haley said the Cryptolocker virus is disguised in an email that purports to have important tax-related information.

“This is a particularly vicious attack,” he said. “It will not only lock your personal files but also encrypt them and hold them for ransom.”

Some businesses feel they have no choice but to pay, he said.

Want to outsmart the cybercriminals? Regularly back up important files or encrypt sensitive data, Haley said.

There are other steps small businesses can take to protect themselves from cyberscams.

Good security software is a must, said Haley, as is password protection. Just don’t use the same password everywhere! Also, be very careful about clicking on links in an email.

Finally: “Be suspicious,” Haley said. “Scammers are quite good at making emails and links look legitimate. Know that the email ‘from’ the IRS will never be from the IRS.” To top of page

Mar
 
18

What do I need to know about the Health Care Law for my 2013 Tax Return?

Originally shared via the IRS Tax Tips Mailing List

For most people, the Affordable Care Act has no effect on their 2013 federal income tax return. For example, you will not report health care coverage under the individual shared responsibility provision or claim the premium tax credit until you file your 2014 return in 2015.

However, for some people, a few provisions may affect your 2013 tax return, such as increases in the itemized medical deduction threshold, the additional Medicare tax and the net investment income tax.

Here are some additional tips:

Filing Requirement: If you do not have a tax filing requirement, you do not need to file a 2013 federal tax return to establish eligibility or qualify for financial assistance, including advance payments of the premium tax credit to purchase health insurance coverage through a Health Insurance Marketplace. Learn more at HealthCare.gov.

W-2 Reporting of Employer Coverage: The value of health care coverage reported by your employer in box 12 and identified by Code DD on your Form W-2 is not taxable. Learn more.

Information available about other tax provisions in the health care law: More information is available on IRS.gov regarding the following tax provisions: Premium Rebate for Medical Loss Ratio, Health Flexible Spending Arrangements, and Health Saving Accounts.

More Information

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

Find out more about the Health Insurance Marketplace at HealthCare.gov.

Feb
 
27

Taxpayers Plan to Use Tax Refunds for Necessary Expenses

Originally Published in Accounting Today

About 52 percent of Americans intend to spend their annual tax refund on necessary expenses such as loans, credit cards and other household expenses, while another 30 percent plan to put the money into savings and only 8 percent plan to invest the tax refund money, according to a new survey.

The survey, released Tuesday by the financial services firm Edward Jones, contrasts with a similar survey released Monday by TD Ameritrade, which found greater interest in investing tax refunds, at least among the investors who were polled (see Many Plan to Invest Their Tax Refunds).

The Edward Jones survey polled over 1,000 taxpayers in general. It found that the respondents between the ages of 55 and 64 are most likely to save their refund (43 percent). Respondents who are just a few years younger had a much different opinion, with only 25 percent of those between 45 and 54 years of age planning to save their tax refunds. The survey’s youngest respondents, those between the ages of 18 and 34, are most likely to spend their refund checks on “fun” things such as clothes, entertainment and restaurants (12 percent). This compares to just 5 percent of those 65 and older who would do the same.

Household income has the most influence on the decision to save, spend or invest a tax refund in 2014. Survey respondents with the lowest household income (those making less than $35,000 a year) are the most likely to spend their tax refund on necessary expenses (61 percent). This compares to just over one-third (37 percent) of those with the highest household income ($100,000 or more). The wealthiest respondents are not the most likely to invest their refunds, the survey found. Instead, those with household incomes between $50,000 and $75,000 were the most likely to invest the tax refund money.

In general, households with children are the most likely to spend their tax refunds on everyday expenses, and those with older children are even more likely. Following that point, Americans with no children are the most likely (10 percent) to spend their tax refund on something “fun,” whereas only 1 percent of those with children ages 13 to 17 are willing to splurge.

Americans living in the Northeast are the most likely to invest their tax refunds (11 percent). Those who live in the West are the most likely simply to save their tax refunds (35 percent).

Feb
 
24

Cities with highest (and lowest) taxes

Originally Published on Yahoo!

Although a little late this year, due largely to the federal government’s 17-day shutdown in 2013, tax season is here. And, according to a new report, what you owe in taxes could be largely determined by where you live.

The report, released by the Office of Revenue Analysis of the government of the District of Columbia, reviewed the estimated property, sales, auto and income taxes for a hypothetical family at various income levels in 2012 in the largest city within each state. City tax burdens vary widely. A family of three earning $75,000 in Cheyenne, Wyoming, paid just $3,475, or 4.6% of its income, in state and local taxes. In Bridgeport, Connecticut, a family of three earning $75,000 paid $16,333, or 21.8% of its income — a total that does not even include federal taxes.

ALSO READ: Ten U.S. Cities Where Violent Crime Is Soaring

Not surprisingly, tax rates influence overall tax burdens significantly. This is especially true for property taxes. Seven of the cities with the highest tax burdens also had among the 10-highest property tax rates, according to the Office of Revenue Analysis. Homeowners in Columbus, Ohio, which had the fifth-highest tax burden in the nation, paid an effective rate of $3.57 for every $100 in home value, the highest such rate in the U.S.

Lori Metcalf, fiscal analyst at the Office of Revenue Analysis, noted in an interview with 24/7 Wall St. that property taxes tended to comprise a higher share of state and local tax burdens. Because of this, “the trend that you see in the property tax should be reflected in the overall burden.”

Another tax that is often important in determining overall tax burden is the income tax. This is especially true for cities with the lowest tax burdens, seven of which are located in states that do not have an income tax. Only one of the five cities with the lowest tax burdens, Billings, Montana, is not located in a state that has no income tax.

Yet the relationship between income taxes and higher tax burdens is not as straightforward. To highlight this, Metcalf noted that higher incomes families usually live in higher-value homes. “This means that when you pay income taxes you’ll have a larger deduction because you’ll have a larger property tax based on a more expensive home and a larger mortgage interest deduction,” Metcalf explained. As a result of this deduction, homeowners’ income tax burdens are often reduced, obscuring the relationship between income taxes and overall tax burdens.

ALSO READ: America’s Fastest Growing (and Shrinking) Economies

Several factors not reviewed by the Office of Revenue Analysis, whose study focused primarily on the characteristics of tax systems, may play a role in determining tax burdens. One such potential factor is unemployment. In many cities with low tax burdens, the unemployment rate was also very low. Sioux Falls, South Dakota, and Billings, Montana, had among the lowest unemployment rates in the nation in 2012. At the other end of the spectrum, Detroit, Michigan and Providence, Rhode Island had both hefty tax burdens and high unemployment.

A number of the cities with the lowest tax burdens were located in states that are considerably less densely populated, such as Alaska, Wyoming, and South Dakota. Even some of the cities themselves are in less densely populated metro areas. Birmingham, Alabama, had one of the lowest tax burdens in the U.S. and was located in the the least densely populated metro area of any reviewed. By comparison, many of the cities with high tax burdens are located in more densely populated parts of the country, such as the Northeast.

While this falls outside the scope of the report, it is possible that the reason areas with low population density have lower tax burdens is because the cost of running these cities is less. Local governments with fewer residents can spend less on government services. As a result, the government does not have to make as much in taxes.

Several low tax burden cities were also located in states that had a relative abundance of fossil fuels, including oil, natural gas, and coal. Houston, Texas, is located in the nation’s top state for oil and natural gas production. Cheyenne is the largest city in Wyoming, which accounts for a large portion of the nation’s coal output. A 2012 study by the National Conference of State Legislators found that Alaska, Montana, and Wyoming, all of which have cities with low tax burdens, relied on taxing oil and gas activity for much of their revenue.

Based on the Office of Revenue Analysis’ report: “Tax Rates and Tax Burdens in the District of Columbia — A Nationwide Comparison,” 24/7 Wall St. reviewed the cities where a hypothetical family of three in different income brackets had the highest and the lowest combined tax burdens. To calculate tax burden, the report identified four different types of taxes: income, property, automobile, and sales. The report examined tax systems in the largest city in each state, as well as in Washington, D.C. All estimates are for the 2012 fiscal year. Median housing value and median income data used by the report to determine property value are for metro areas. When two cities were located within the same metro area, county level data was used. 24/7 Wall St. also reviewed income figures for these areas from the U.S. Census Bureau, as well as area unemployment rates as of 2012 from the Bureau of Labor Statistics.

Cities Paying the Highest Taxes:

5. Columbus, Ohio Taxes for family earning $25,000: $2,953 (17th lowest) Taxes for family earning $150,000: $22,333 (6th highest) Unemployment rate: 6.1%

A family of three earning $25,000 a year in Columbus faced only an 11.8% tax burden, lower than more than half of all cities reviewed. However, tax burdens for families with higher earnings were among the highest in the nation. This is due in large part to the city’s real estate taxes. Although the housing values in the city were not especially high, lower than the average for cities reviewed, residents faced especially high property taxes. At 3.57%, Columbus had the highest effective property tax rate of any city.

4. Baltimore, Md. Taxes for family earning $25,000: $2,950 (16th lowest) Taxes for family earning $150,000: $24,747 (4th highest) Unemployment rate: 7.2%

Baltimore area residents are fairly well-off compared with most of the country — median household income was nearly $67,000 in 2012, among the nation’s highest. Baltimore’s property tax burden is especially high. Families of three earning $150,000 paid $13,772 in property taxes in 2012. Families earning $25,000 had no income tax burden, but those earning $150,000 paid more than 5% of their income in state and local income taxes alone, the sixth-highest percentage of any city reviewed.

ALSO READ: States With the Best (and Worst) Schools

3. Milwaukee, Wisc. Taxes for family earning $25,000: $3,245 (26th highest) Taxes for family earning $150,000: $26,296 (2nd highest) Unemployment rate: 7.4%

Like a number of other cities with high tax load, Milwaukee residents faced especially high property tax burdens. The effective property tax rate in the city was 3%, higher than all but a few regions reviewed. Also driving up taxes were the especially high income tax burdens in the city. The state used a graduated income tax system, meaning tax rates are higher for families that earn more, although Milwaukee had no local income taxes.In 2013, the state reformed its tax code, lowering the highest rate as well as the number of overall tax brackets. Wisconsin Governor Scott Walker recently pushed the state assembly to cut both property taxes and and the income tax rate for the state’s lowest tax bracket.

2. Philadelphia, Pa. Taxes for family earning $25,000: $3,794 (7th highest) Taxes for family earning $150,000: $25,317 (3rd highest) Unemployment rate: 8.6%

Philadelphia’s poorer families were subject to a much higher tax burden than those in most other large cities. A family of three earning $25,000 in 2012 paid $788 in income taxes that year, more than all but one other large city. The city’s property tax burden was also considerably high for most income levels that year. A family whose earnings fell into the $100,000 tax bracket, for example, paid more than $11,806 in property taxes in 2012, second-most among large cities. After a new property tax valuation system was implemented and some residents’ tax assessments more than tripled, the city introduced a “gentrification relief program” at the end of 2013. Fuel was also heavily taxed in 2012, with gasoline costing an additional 31 cents per gallon due to state taxes, which were among the highest in the U.S.

1. Bridgeport, Conn. Taxes for family earning $25,000: $4,001 (4th highest) Taxes for family earning $150,000: $33,208 (the highest) Unemployment rate: 7.8%

No large U.S. city had a higher tax burden than Bridgeport, where a family of three earning $150,000 a year paid more than 22% of its income in state and local taxes. However, the metro area, which includes affluent Fairfield county, is wealthier than much of the U.S. and was used to calculate home values and property burdens by the Office of Revenue Analysis. More than 20% of households had an annual income of at least $200,000, more than any other metro area reviewed. The city’s high tax burden was due in large part to property taxes, as the area had both high home values and high effective property tax rates. Also propelling the city to the top of the list were Connecticut’s relatively high income tax burden of 5.2% on families earning $150,000 per year as well a high tax burden for car owners.

Click here for the full list of cities paying the highest taxes.

Cities Paying the Least in Taxes:

5. Sioux Falls, S.D. Taxes for family earning $25,000: $2,772 (10th lowest) Taxes for family earning $150,000: $9,425 (3rd lowest) Unemployment rate: 4.1%

The low tax burden in Sioux Falls is partly due to the absence of a state income tax. However, city also had low tax burdens in other categories measured. Families in the area with higher incomes had lower tax burdens than families with lower incomes. This was due to the state’s tax structure, which was criticized by the Institute on Taxation & Economic Policy, a think tank that supports a progressive tax code, for being too reliant on low-income residents. However, even Sioux Falls’ lowest income residents faced a relatively low tax burden.

4. Anchorage, Alaska Taxes for family earning $25,000: $2,366 (4th lowest) Taxes for family earning $150,000: $9,790 (4th lowest) Unemployment rate: 6.0%

Automobile tax burdens in Anchorage were consistently low across all levels of income. Like most American cities, Anchorage did not have a local gasoline tax in 2012, and the state’s gasoline tax of 8 cents per gallon that year was the lowest in the nation. The city also had no excise or personal property tax that it charged to car owners. Sales tax burdens were also considerably lower than in other large cities — families in every tax bracket paid less than $200 in sales taxes in 2012. The median income of city residents was more than $71,000 in 2012, one of the highest nationwide. Alaska, however, taxed none of this income because it is one of few states without any income tax.

ALSO READ: The 10 Most Hated Companies in America

3. Billings, MT Taxes for family earning $25,000: $2,347 (3rd lowest) Taxes for family earning $150,000: $10,668 (7th lowest) Unemployment rate: 4.4%

Billings families faced some of the lowest sales and property tax burdens in the nation. Montana did not have a general sales tax in 2012. Helping to keep property taxes low, Billings levied real estate taxes on only a small portion of a home’s value, and residents also paid a relatively low effective property tax rate. Billings had one of the nation’s lowest jobless rates as of December as well. Just 4.4% of people in the workforce were unemployed in 2012, and the State has benefitted from the nearby Bakken Shale oil boom. Montana taxes oil and gas production, which can alleviate the tax loads residents face.

2. Las Vegas, Nev. Taxes for family earning $25,000: $3,260 (24th highest) Taxes for family earning $150,000: $8,314 (2nd lowest) Unemployment rate: 11.2%

Unlike most cities with low tax burdens, Las Vegas had an exceptionally high unemployment rate of 11.2% in 2012, nearly the worst compared with other large cities. The median income was also lower than $50,000 that year, less than median incomes in most urban areas. Overall, property taxes were low in 2012. A family earning $150,000 paid slightly more than $5,000 that year in property taxes, one of the lowest amounts nationwide.

1. Cheyenne, Wyo. Taxes for family earning $25,000: $2,476 (5th lowest) Taxes for family earning $150,000: $6,307 (the lowest) Unemployment rate: 6.1%

Cheyenne had the lowest tax burden of any state in the nation, and not only because Wyoming had no state income tax. The total sales tax rate of just 6.0% in Cheyenne, which was lower than in most comparable cities, contributed to the the low sales tax burden in the city. Wyoming residents also paid just 14 cents in state taxes per gallon on gas, one of the lowest rates in the U.S. and a major reason why tax burdens on car ownership were towards the low-end. Additionally, Cheyenne’s effective property tax rate of 0.67% was among the lowest in the nation. Low tax rates on families in the city and the state may be tied to Wyoming’s energy industry. The state is the nation’s largest producer of coal, as well as a sizable producer of oil and natural gas, and taxes from these industries help the state fill its coffers.

Click here for the full list of cities paying the least in taxes.

Feb
 
15

After GOP filibuster bid, Senate votes to suspend Treasury’s borrowing limit

Originally published in the Washington Post

After a dramatic vote, the Senate cleared the critical 60-vote threshold Wednesday that allowed for passage of legislation to suspend the Treasury’s borrowing limit.

The cliffhanger vote was scheduled for 15 minutes, but it lasted an hour. It ended when Senate Minority Leader Mitch McConnell (R-Ky.) and his leadership team voted to end a potential GOP filibuster, casting votes that left them exposed to attacks from conservative opponents.

After the filibuster threat was choked off, the Senate approved the debt ceiling legislation on a party-line vote, 55 to 43, sending it on to President Obama for his signature, ensuring that the Treasury will not default on more than $17 trillion in federal debt.

Stock markets, already jittery this month, started a slow but steady drop throughout the 2 o’clock hour as the vote looked in doubt, ending the day down slightly. The votes came two weeks before the Feb. 27 deadline established by Treasury Secretary Jack Lew, after which experts warned of havoc in financial markets if Congress did not act.

Democrats were relieved at the outcome. “It was painful to watch,” Sen. Patty Murray (Wash.) said afterward.

That followed Tuesday’s vote in the Republican-controlled House, which required overwhelming Democratic support to approve the legislation.

The bill, which passed the House by a 221 to 201 vote, received the support of just 28 Republicans. In previous years, House Republicans had proved to be the greatest obstacles in striking compromise fiscal deals. So after the Tuesday vote, Senate approval was expected to be a pro forma matter.

Instead, Wednesday turned into a wild ride in the Senate. All the political unrest that has roiled the Republican Party in recent years — the establishment vs. conservative outsiders who threaten incumbent Republicans with primary challenges from the right — was on full display.

As he has for the past year, Sen. Ted Cruz (R-Tex.) placed himself at the center of the day’s action. McConnell and Majority Leader Harry M. Reid (D-Nev.) had sought to allow a simple majority – all Democrats – to approve the suspension of the debt limit until March 2015. But Cruz refused to go along, forcing more complicated procedural moves. That infuriated his Republican colleagues, because it meant that at least five GOP senators would have to vote with the Democrats to end the filibuster.

“Today was a classic victory for Washington establishment interests, and the people who lost today are the American people,” Cruz told reporters after the vote. He said he didn’t regret forcing 12 Republicans into a vote that could hurt them with conservative voters in GOP primaries.

“It should have been an easy vote,” he said. Cruz declined to say whether he supported McConnell’s continued leadership of the Republican caucus. “That is ultimately a decision . . . for the voters of Kentucky,” he said before ducking into an elevator.

McConnell is facing a difficult reelection bid. If he fends off a challenge by a conservative businessman in the Republican primary, he will confront Kentucky Secretary of State Alison Lundergan Grimes in the general election in November.

Republicans had been trying to warm up to their relatively new colleague after openly feuding with him in the fall, but Wednesday’s actions brought out Cruz’s critics again. “There was no endgame there,” said Sen. Bob Corker (R-Tenn.). “There was no stated outcome by anyone other than a clean debt ceiling. We can put the country through two weeks of turmoil, or we can get this vote done.”

The drama came at 2 p.m. as Republicans exited a closed-door lunch without a clear plan for how many would join with the 55 members of the Democratic caucus to end the filibuster, but they were determined to avoid having the vote fail and create financial uncertainty as the deadline neared.

Early in the vote, just two or three Republicans had given their support on the procedural vote. A long standoff ensued. Attention focused on Sen. Lisa Murkowski (R-Alaska), who has supported many recent compromises with Democrats but was initially unwilling to stick her neck out without a lot of support from other senior Republicans.

“I got a chance to visit with a lot of close friends,” Murkowski joked afterward, alluding to the many huddles she had on the floor with McConnell.

Murkowski lost her 2010 Republican primary to a tea party-backed challenger but then won the general election as a write-in candidate.

At that point, McConnell’s leadership team was unanimously opposed to cutting off the filibuster, but in a surprise move, the GOP leader and his top deputy, Minority Whip John Cornyn (R-Tex.), stepped up to vote yes.

Rank-and-file Republicans appreciated the tough votes by McConnell and Cornyn.

“They did what they thought was best for the party and the future of the caucus. I think people appreciate that,” said Sen. Lindsey O. Graham (R-S.C.), who is facing a collection of primary challengers this year. Graham voted to sustain the filibuster.

“They were leaders who led,” Sen. Mark Kirk (R-Ill.), who was one of the first yes votes among Republicans, told reporters.

Once the threat of a filibuster was thwarted, the 12 Republicans then flipped around and voted against final passage of the debt ceiling suspension.

Feb
 
10

IRS Provides Safe Harbor for Taxpayers with Discharged Debts for Real Property

Originally published in Accounting Today

The Internal Revenue Service has issued a revenue procedure to help taxpayers with so-called mezzanine financing in workouts and similar circumstances when they have debts that have been discharged in connection with real property.

Revenue Procedure 2014-20 provides a safe harbor under which the IRS will, under certain defined circumstances, treat indebtedness that is secured by 100 percent of the ownership interest in a disregarded entity that holds real property as indebtedness that is secured by real property for purposes of Section 108(c)(3)(A) of the Tax Code. The revenue procedure will assist taxpayers with mezzanine financing in workouts and similar circumstances.

The IRS noted that borrowers will often incur debt in connection with real property used in a trade or business. If the debt is later discharged, the income from the discharge of indebtedness may be excluded from gross income if certain requirements are met. In some cases, the real property is held by the borrower in an entity that is wholly owned by the borrower, and is, for federal tax purposes, disregarded as an entity separate from its owner. In these cases, the debt may be secured by the borrower’s ownership interest in the disregarded entity holding the real property.

Revenue Procedure 2014-20, will be included in Internal Revenue Bulletin 2014-09 on Feb. 24, 2014.

Jan
 
30

IRS Flags $1.5M in Improper Claims for Health Care Tax Credits by Tax-Exempt Groups

Previously published on Accounting Today

The Internal Revenue Service has generally been able to identify potentially improper claims for Small Business Health Care Tax Credits by tax-exempt organizations and subject them to further review, but improvements are still needed to ensure the claims are being caught in time, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, found that during tax year 2012, tax exempt organizations claimed more than $73 million in Small Business Health Care Tax Credits that were provided for under the Patient Protection and Affordable Care Act. The IRS’s Tax Exempt and Government Entities Division has designed controls that systemically identify questionable credits for potential examination.

Since implementing these processes, the IRS said it has denied more than $1.5 million in credits that it had determined were improper. However, TIGTA noted that additional controls would provide further assurance that potentially improper claims for the tax credits are identified and addressed effectively and efficiently.

The Tax Exempt and Government Entities Division designed computer routines that identify potentially improper credits claimed by tax exempt organizations for possible examination prior to processing the tax returns before a refund is issued.

Between Jan. 1 and July 23, 2012, the Tax Exempt and Government Entities Division initiated pre-refund examinations for 43 percent of the potentially improper credits identified by its computer routines. But because the IRS does not conduct pre-refund examinations on all of the potentially improper credits, the IRS needs to focus its limited resources on the most productive pre-refund examinations.

However, TIGTA found that the Tax Exempt and Government Entities Division’s compliance plan for the Small Business Health Care Tax Credit did not include plans for periodically reviewing its computer routines to determine if any changes are needed based on the pre-refund examination results. In addition, the IRS does not have a post-refund compliance strategy for the tax credit.

After listening to TIGTA’s concerns, IRS officials indicated to the Inspector General that they have begun to analyze the outcomes of pre-refund examinations and initiated post-refund examinations as well.

On top of that, TIGTA determined that amended returns are not always subjected to the same level of review by the IRS as the original returns.

TIGTA recommended that the acting commissioner of the IRS’s Tax Exempt and Government Entities Division complete the work to analyze and document the outcomes of pre-refund examinations, complete post-refund examinations, periodically update the compliance plan for the credit, and ensure that amended returns are subjected to the same reviews as original returns.

In response to the report, IRS officials said they generally agreed with TIGTA’s recommendations and plan to take or have taken corrective actions.

“As explained during the course of the audit, all returns, both original and amended, are subject to examination selection criteria and either accepted as filed or selected for examination,” wrote Michael D. Julianelle, acting commissioner of the IRS’s Tax Exempt and Government Entities unit. “We agree that documenting how we applied the criteria to amended returns should be improved and we have already initiated corrective action as noted in the attached response. Had the documentation occurred as stated in your recommendation, the five amended returns selected as samples which you identified as a potentially improper claim for the credit, would have indicated these were reviewed, considered for examination, and would not have been selected based on the results of the review.”

However, Julianelle added that the IRS did not agree with TIGTA’s outcome measure related to amended returns. “Your methodology implies that if the five identified returns had been systemically reviewed using the same process as original returns, the five returns would have been selected for examination,” he wrote. “However there is no certainty that any of the five would have been selected. In addition, the outcome measure appears to be based on an assumption that if the five returns had been selected for examination, the result would be a one hundred percent denial of the credit amount claimed. However to date, approximately thirty percent of the credit amounts claimed on examined returns are disallowed. Finally, your extrapolation of savings over five years does not take into account future changes to the statutory requirements to claim the Credit, notably the limitation that allows eligible small employers to claim the Credit for only two consecutive tax years beginning in TY14.”

Jan
 
15

2013 Year-End Tax Planning in January 2014

Originally Published on Accounting Today.

Many considered Dec. 31, 2013, the final date for year-end tax planning, but there are numerous planning actions that you can take in 2014 retroactive to 2013. Here’s a quick and easy guide to help you with your planning.

Retirement Plans
• Conventional and Roth IRA contributions for 2013 can be made until the April 15 return due date for the payment to be attributed to 2013.

• Contributions for Keogh, SIMPLE and 401(k) can be made up until the due date of the return including extensions. However, the Keogh, SIMPLE and 401(k) plans must have been established before the end of 2013 (Sept. 30 for SIMPLE plans), unlike the IRAs.

• SEP plans can be opened any time in 2014 until the tax return due date, including extensions, and/or payment delayed until then for the 2013 deduction to be allowed.

Stock Sales
• Wash sales occur when stock sold at a loss is reacquired within 30 days before or after the stock’s sale. For sales made in December 2013 that had a loss, repurchasing the stock this month (within the 30-day prohibited period) will cause the 2013 loss to be disallowed and added to the basis of the January 2014 purchased shares.

Estimated Tax
• The final estimated tax installment is due Jan. 15; however, if that installment isn’t paid but the return is filed and the full tax is paid by Jan. 31 there will be no penalty for underpaying that installment.

Trusts, Estates and Foundations
• Distributions from trusts and estates that are made within 65 days after the end of the year can be attributed to 2013 if the appropriate box is checked on Form 1041 when the return is filed for 2013.

• Private charitable foundations can make distributions related to 2013 income until the end of 2014.

• Grantor trusts that mistakenly obtained a taxpayer identification number can notify their banks, brokers and others of the future use of the grantor’s Social Security Number and the discontinuance of the TIN eliminating the need to continue filing trust tax returns.

• Estates for people dying in 2013 can elect the six months later alternate valuation date on a timely filed estate tax return.

• Qualified disclaimers can be made within nine months of death for people that died in 2013, as long as the funds were not distributed or otherwise used by the beneficiary.

• Estates can make many elections retroactively on the estate tax returns up until the return’s due date.

Business Issues
• C corporations and personal holding companies, or PHCs, that pay dividends by March 15, 2014 can elect to have those dividends attributed to 2013 in order to avoid the imposition of the accumulated earnings penalty or PHC tax.

• Businesses that want to claim inventory devaluations of regular for sale items should consider 2014 sales at the reduced amounts prior to the filing of the 2013 tax return that will report the write downs.

• Businesses with a 2013 installment sale can elect out of the installment treatment if their 2013 tax bracket will be much lower than 2014 and later years are expected to be. This decision can be made before you file your 2013 tax return.

• Last in – first out, or LIFO, inventory valuation conversions can be done until due date of the 2013 tax return.

• People who had informal partnerships and joint ventures in 2013 should consider filing partnership tax returns and issuing K-1s to report those activities. Formal partnership agreements are not necessary to have a valid partnership for tax purposes.

Employee Issues
• Cafeteria plans and flexible spending accounts can make payments and reimbursements for 2013 salary-reduction amounts or applicable expenses incurred and paid through March 15, 2014 if the plan permits it.

• Compensation is generally reported when received or made available to the recipient; however, if it is paid by check and the delivery of the check is delayed or otherwise not made available for collection, then the income does not need to be reported until the payment is actually received. For example, if a commission check is written at the end of 2013 and mailed to the payee while the payee is traveling or on vacation until January, then the payee will not have to report the income until 2014 (the year of actual receipt) even though his or her Form 1099 would show the 2013 payment. If this is the case, appropriate disclosure must be made on the 2013 tax return explaining why the Form 1099 amount is greater than the amount reported. Alternatively you can report the entire amount on the 1099 and on a different line on the return show a subtraction for the amount not actually received, and provide an explanation. Note that if the funds had been wired into the payee’s account by Dec. 31, it would be considered received because if they wished to withdraw it at that point, they could have.

• Credit card charges made in 2013 for deductible items are reportable on the 2013 tax return even though not paid until 2014 or later.

• Certain employer payments for deferred compensation plans are deductible in 2013 even if they are not paid until 2014, as long as they are paid by March 15, 2014. In such a case, the employee would report the income when received.

• An employee who received employer-granted restricted stock or ISOs in December 2013 can make an election within 30 days after receiving the stock to report the income or AMT in the year the stock or ISO was received rather than when the restrictions lapse. This election is made pursuant to Internal Revenue Code Section 83(b). A timely January election will have the income taxed on the 2013 tax return.

• Receipts for 2013 charitable contributions must be received by April 15, 2014 for such deductions to be allowable. If qualified appraisals are necessary, they must be attached to the returns. The receipts and appraisals can be prepared in 2014 for the 2013 contributions.

The above are some items where post-2013 planning can affect the 2013 tax return. Many of these steps involve technical issues and a professional tax advisor should be consulted prior to acting upon them. Some of these actions will need to be done right away, while others allow some time.

Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. The above was prepared with assistance from Brian Lovett, CPA, JD, a senior tax manager at WithumSmith+Brown. This article originally appeared in the Partners Network blog.

Dec
 
26

IRS to Begin Accepting Business Tax Returns on Jan. 13

orignially posted to www.accountingtoday.com on December 24, 2013

The Internal Revenue Service plans to begin accepting business tax returns on January 13, more than two weeks ahead of the start date for accepting individual tax returns.

The IRS announced last Wednesday that it would begin accepting individual 1040 tax returns on January 31, blaming the 16-day federal government shutdown in October for delaying its annual programming, updating and testing its tax-processing systems (see IRS Sets the Date: Tax Season Starts Jan. 31). However, the IRS posted on its Web site last Thursday that it will also begin accepting 2013 business tax returns on Monday, Jan. 13, 2014. This start date applies to both electronically filed and paper-filed returns.

The business tax returns include any return that posts on the IRS’s Business Master File system. BMF tax returns include a variety of income tax and information returns such as Form 1120 filed by corporations, Form 1120S filed by S corporations, Form 1065 filed by partnerships and Form 1041, the return filed by estates and trusts. It also includes various excise and payroll tax returns, such as Form 720, Form 940, Form 941 and Form 2290. The IRS expects to be able to begin processing any of these business returns on January 13.

The IRS noted that the January 13 start date does not apply to unincorporated small businesses that report their income on Form 1040. The start date for all 1040 filers is Jan. 31, 2014. While the IRS is encouraging these small businesses to begin preparing their returns now, it will not be able to accept these or any other individual returns or begin processing them until January 31. This includes sole proprietors who file a Schedule C, landlords who file a Schedule E and farmers who file a Schedule F.

Further details are available on IRS.gov.