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Issue Number:    IR-2017-29

Inside This Issue

IRS Includes Falsifying Income Scam in 2017 List of “Dirty Dozen”

IRS YouTube Videos:

Dirty DozenEnglish | Spanish | ASL

WASHINGTON — The Internal Revenue Service today continued issuing its annual list of common tax scams by warning taxpayers to avoid schemes to erroneously claim tax credits. This year’s “Dirty Dozen” includes falsifying income to claim tax credits.

“Taxpayers should ensure all the information they provide on their tax return is accurate,” said IRS Commissioner John Koskinen. “Falsifying income to claim tax credits is against the law. Taxpayers are legally responsible for all the information reported on their tax returns.”

The “Dirty Dozen,” a list compiled annually by the IRS, describes a variety of common scams that taxpayers may encounter. Many of these schemes peak during filing season as people prepare their returns or hire others to help them.

Scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

Don’t Make Up Income

Some people falsely increase the income they report to the IRS. This scam involves inflating or including income on a tax return that was never earned, either as wages or self-employment income, usually to maximize refundable credits.

Much like falsely claiming an expense or deduction you did not pay is not right, claiming income you did not earn is also inappropriate. Unscrupulous people do this to secure larger refundable credits such as the Earned Income Tax Credit and it can have serious repercussions. Taxpayers can face a large bill to repay the erroneous refunds, including interest and penalties. In some cases, they may even face criminal prosecution.

Fake Forms 1099-MISC

The IRS cautions taxpayers to avoid getting caught up in scheme disguised as a debt payment option for credit cards or mortgage debt. It involves the filing of a Form 1099-MISC, Miscellaneous Income, and/or bogus financial instruments such as bonds, bonded promissory notes or worthless checks.

Con artists often argue that the proper way to redeem or draw on a fictitious held-aside account is to use some form of made-up financial instrument such as a bonded promissory note that purports to be a debt payment method for credit cards or mortgage debt. Scammers provide fraudulent Form(s) 1099-MISC that appear to be issued by a large bank, loan service and/or mortgage company with which the taxpayer may have had a prior relationship, to further perpetrate the scheme. Form 56, Notice Concerning Fiduciary Relationship, may also be used by participants in this scam to assign fiduciary responsibilities to the lenders.

Taxpayers may encounter unethical return preparers who make them aware of these scams. Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else.

Choose Return Preparers Carefully

It is important to choose carefully when hiring an individual or firm to prepare your return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to jail time for defrauding their clients.

To find tips about choosing a preparer, better understand the differences in credentials and qualifications, research the IRS preparer directory, and learn how to submit a complaint regarding a tax return preparer, visit www.irs.gov/chooseataxpro.

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e-News for Tax Professionals February 10, 2017

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Issue Number:  2017-6

Inside This Issue


1.     Don’t Fall Prey to the Dirty Dozen

2.     Annual Filing Season Program Update

3.     Two New Members Join the Electronic Tax Administration Advisory Committee

4.     Alert to Return Preparers: Letters 4858 and 5364

5.     YouTube: Retirement Plan and IRA Rollovers

6.     Technical Guidance


1.  Don’t Fall Prey to the Dirty Dozen

Compiled annually, the Dirty Dozen is a list of common scams that taxpayers and tax professionals may encounter anytime of the year. But many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Learn more about the Dirty Dozen in this video.

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2.  Annual Filing Season Program Update

More than 48,000 tax return preparers have participated in the 2017 IRS Annual Filing Season Program and obtained an official Record of Completion.

But another 37,000 return preparers who have completed the required amount of continuing education and been invited to participate have not consented to the Circular 230 requirements to receive a Record of Completion.

The deadline for preparers to consent to the Circular 230 requirements and become full participants is April 18. A video tutorial of the process is available here.

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3.  Two New Members Join the Electronic Tax Administration Advisory Committee

The IRS announced the selection of two new members for the Electronic Tax Administration Advisory Committee (ETAAC).

Established in 1998, ETAAC provides an organized public forum for discussion of electronic tax administration issues, including the prevention of identity theft and refund fraud, in support of the overriding goal that paperless filing should be the preferred and most convenient method of filing tax and information returns. ETAAC members work closely with the Security Summit, a joint effort of the IRS, state tax administrators and tax software providers to fight electronic fraud.

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4.  Alert to Return Preparers: Letters 4858 and 5364

IRS is sending Letter 4858 to tax preparers who completed 2016 returns claiming the earned income tax credit but who may not have met the required due diligence requirements. Disregarding due diligence requirements could result in penalties and other consequences for preparers and their clients. Letter 4858 comes in both English and Spanish.

IRS is also sending Letter 5364 to tax preparers who completed two or more 2016 paper returns claiming Earned Income Tax Credit (EITC), American Opportunity Tax Credit (AOTC), or Child Tax Credit/Additional Child Tax Credit (CTC/ACTC) without including Form 8867, Paid Preparer’s Due Diligence Checklist.

For more information on the due diligence requirements, visit Tax Preparer Toolkit on EITC Central.

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5.  YouTube: Retirement Plan and IRA Rollovers

Find out how your clients can roll over funds in an IRA or retirement plan into another account by watching this IRS YouTube video.

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6.  Technical Guidance

Revenue Ruling 2017-05 includes covered compensation tables effective January 1, 2017.

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IRS to Contract with Four Private Collection Agencies for Back Taxes

Tax debt, Collection, Back taxes, harassment

IR-2016-125, Sept. 26, 2016

WASHINGTON – The Internal Revenue Service announced today that it plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program.

The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables. As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act. The IRS has selected the following contractors to carry out this program:

CBE Group
1309 Technology Pkwy
Cedar Falls, IA 50613

200 CrossKeys Office park
Fairport, NY 14450

333 N Canyons Pkwy
Livermore, CA 94551

325 Daniel Zenker Dr
Horseheads, NY 14845

These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.

Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and must be courteous and respect taxpayer rights.

The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

Private collection agencies will not ask for payment on a prepaid debit card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/payments. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency.

The IRS will continue to keep taxpayers informed about scams and provide tips for protecting themselves. The IRS encourages taxpayers to visit IRS.gov for information including the “Tax Scams and Consumer Alerts” page.

For more information visit the Private Debt Collection page on IRS.gov.


If you are contacted by IRS Collections or one of these newly contracted collection agents don’t try to handle it yourself. Call 303-847-4038 and get professional help from Arena and Associates, Inc.

Settling Tax Debts with an Offer in Compromise

Radio and television are filled with advertisements claiming that tax debts can be settled for less than what you owe. This settlement program is known as offer in compromise. This can be a great solution, provided you qualify.

In this settlement program, you are offering to pay less than the full amount to the IRS. The IRS will accept an offer in compromise if the taxpayer doesn’t have to ability to pay the amount owed or if there is doubt that the person is actually liable for the tax debt.

The IRS’ stringent acceptance standards have made it extremely difficult for most taxpayers with outstanding balances to qualify. Prepare to be scrutinized when you attempt an offer in compromise. Think of it like a tax audit. But in addition to auditing your finances, they will also be auditing your assets and liabilities. They would even calculate future income to determine if you have the ability to make continuously monthly payments.

To file an offer in compromise, the first thing you need to do is to fill out Form 433-A and Form 656. Add to that, you also need to calculate the offer amount.

You don’t want to initiate a settlement with the IRS with a ridiculous offer. There is a formula that used to calculate the offer amount. It is not simply picked out of the air.

If you choose to go this route, then you have to be very patient. Why? It’s because the negotiation process can seem to drag on forever. It may take anywhere from a few months to a few years to determine whether or not you’re approved.

It is essential that you do the math before filing an offer in compromise. Not only will you be wasting valuable time if you don’t get approved, you’ll also be wasting thousands of dollars on application fee and professional fee.

If your offer has been approved, do your best to keep it from being revoked. Be sure to file and pay your taxes on time for the next 5 years and pay the offer amount.

If you think you might be a candidate for an OIC, your best bet is to seek help from a company with experiences in such matters such as Arena & Associates Incorporated.

How to Settle Your IRS Tax Debts

If you owe taxes but you’re underemployed or unemployed, tax debts can be settled for less than the amount owed. Believe it or not, the IRS does realize that there are some circumstances wherein a person should not be held liable for some tax debts. Keep in mind, though, that tax settlement can only be considered if the taxpayer doesn’t have the means to pay.

Here are 2 options for reducing the amount of your tax liability.

Offer in compromise

The IRS may grant an offer in compromise if collection of taxes would cause you financial hardships, if there is doubt that the amount owed is correct or if they think the person has no capability to pay the full amount of tax owed.

Of course, you have to be able to prove that you can’t pay the full amount. Here, you will need to make an offer to the IRS and convince them that the amount of money you’re offering is equal to or greater than the amount they can collect from the sales of your assets such as automobiles, real estate properties, investments etc.

You also need to pay a $150 application fee to request an OIC. That payment will go to the tax debt if the application is not approved.

Partial payment installment agreement

If you can’t pay your taxes in full, but you will likely have the money to pay it in the future, you can negotiate for an installment payment plan. Here, you’ll make regular monthly payment to the IRS over a certain period of time, but this amount will be less than what you owe. A portion of your debt is forgiven after the terms of the installment agreement are fulfilled.

The monthly payment is typically based on what you can afford after taking into account your living expenses. This can be easier and less time-consuming than requesting for an OIC.