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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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Tips to Help You Plan for Next Tax Season

aaTAX_9.15Tax season seems to sneak up on us every year. Oftentimes, we find ourselves overwhelmed and anxious knowing that tax season is coming up.

Filing taxes doesn’t have to be an ordeal. It comes every year and the steps are pretty much the same. It can be less time consuming and less frustrating if you start preparing for next year’s tax season right now.

Don’t let tax season scare you into an anxious state. Here are a few tips that will help make the filing process much easier.

Stay organized

Most people will procrastinate filing their taxes and rush at the last minute to make the deadline. Now, you forgot your spouse’s birth date. Or maybe you were scrambling to find your kid’s social security number. Tax season is enough of a headache. Tracking this information just adds to the hassle of doing your taxes. Don’t wait until the end of the year to consolidate your documents.

The IRS use social security number to track everyone. A missing social security number could cost you. Gather all information and documents at the start of the year and place them in a secure spot.

Plan to maximize credits and deductions

Plan ahead and perform some research on how you can maximize the credits and deductions you can claim.

If you have paid for expenses related to your job and it wasn’t reimbursed by your employer, this can be deducted on your return. Work-at-home individuals, on the other hand, you can claim deductions for your home office.

Find a tax preparer

The first year I paid an accountant $800, it definitely put a hole on my budget. But then I realized it was a good idea after all since I was able to save $10,000 in taxes. An accountant can help you use tax saving strategies, receive a bigger refund and pay less in taxes.

Don’t rush at the last minute to find an accountant to complete your tax return. Find one sooner rather than later.


When Should You File an Amended Tax Return?

Taxes 9.8So you already did the math and double checked everything on your tax return. Now, that everything has been checked, you dropped the return in the mail. But despite your best efforts, you still forgot something or made a foolish mistake.

Considering how complicated it can be, it’s not uncommon to forget something on your taxes. Maybe you forgot to report some income on your 1040 or a new 1099 just came in the mail. What should you do now? Don’t panic. You still have a chance to fix those errors by filing an amended tax return.

An amended tax return allows you to file again in order to add credits or deductions you have missed, correct your income or your filing status.

If any of the following apply to you, consider filing an amended tax return.

Reporting additional income

You were too eager to file your tax return that you have already sent it even before you 1099, K1s and other information showed up in the mail. Upon checking, you then realized that the income is much higher as compared to the one you reported. This calls for an amended tax return.

Change your filing status

Choosing the wrong filing status can have a big financial impact. After all it is used to determine your tax rates, standard deductions and brackets your income is subject to. The IRS allows you to change your filing status, but only if it was filed within 3 years from the original filing date.

Changing the number of dependents

If you accidentally claimed dependents you weren’t eligible for or you didn’t claim a dependent you could have, then go ahead and file an amended tax return. The IRS won’t know until you tell them.

If you amend, make sure that you correct everything. You can’t just cherry-pick the ones in your favor and leave those that increase your tax liability.

Tax Tips for Newly Married Couples

Getting married brings about a lot of changes. For some, it brings a new home, new name and a new baby. Get ready for another change because it will be your first time to face the IRS as a couple.

Filing tax returns was probably one thing you never gave much thought when you got married. However, it is important for you to understand how getting married affects your taxes.

Here are some tips from the IRS for the newlyweds.

Filing status

Even if you were married on the last day of the year, December 31, the IRS still consider you as married for the entire year. But if you got married on the last day of the tax year, then you can file as single or head of household.

Filing jointly vs filing separately

Now that you’re married, you only have 2 choices: either file as married filing jointly or marred filing separately.

In most cases, it makes more sense to file jointly. You’ll probably pay less tax and it’s easier too. But we also need to keep in mind that every couple’s situation is different and there are times when filing a separate return may be a good idea. You can have your accountant run both sets of numbers to determine which filing status will result in lower taxes.

Some couples choose to keep their financial lives separate. If this sounds like you, then you’d be better off filing separately.

Change of name and address

When you file an income tax return, you need to make sure that the name on your form matches your records at the Social Security Administration. That said, it is important that you report the change to the SSA by filling form SS-5.

Also, don’t forget to update your address with the IRS and the U.S. Postal Service if you have moved to a new permanent address. All you need to do is to fill out form 8822 and mail it to the address on the form.

Tax Saving Tips for Teachers

This month, teachers shall bid farewell to the lazy days of summer and embark on a new school year. If months continue to fly by like that, the next thing we know it’s the holiday season once again and tax time right after that. That said, you should start planning for your tax deductions.

In this blog post, we’ll help you find deductions that you may have overlooked in the past so you can get back as much money as possible.

Classroom supplies

Most teachers would purchase supplies for their classrooms out of their own pockets. It’s amazing how small purchases can quickly add up, and can put a hole in your household budget. The good news is that you deduct these expenses to help reduce your taxes.

Back in the days, teachers were allowed to deduct up to $250 for unreimbursed classroom-related expenses each year. Unfortunately, this law has expired in 2013. Don’t worry; you can still deduct the cost of the supplies you purchased as unreimbursed employee expense. That said, it is important to keep all of your receipts or credit card statements and compile them in an envelope.

Continuing education expenses

Teachers and educators, who take courses to keep up their competency, may qualify for the Lifetime Learning Credit. Here, teachers are given 20% tax credit off the cost of courses taken up to a maximum of $2,000 per educator per year.

Costs incurred in attending trainings, workshops, conferences and seminars are also tax-deductible, provided that they are work-related.

Travel-related deductions

If you are a teacher, who travels from school to school or a coach, who oversee after-school activities outside the campus, be sure to keep track of your travel expenses. If you itemize your deductions, you can deduct $0.57 a mile for all business miles driven.

Professional expenses you incur for teaching

If you are a teacher, who has spent your own money for professional books, union dues and any other expense that are related to your profession, be sure to keep track of them and claim the costs on your taxes as a deduction.

Penalties for Failing to File Your Taxes

file-your-taxes-for-freeWe’ve all heard the countless tales of people avoiding income tax. Maybe they don’t have enough money to pay their taxes or they don’t have the information to complete their return. No matter what the reason is, ignoring the IRS is certainly not a good idea. Mind you, delaying filing or payment can be more costly for you.

The following penalties shall be imposed for not filing or paying your taxes on time.

Late penalties

Tax payers who do not file or pay their income tax by the due date are subject to fees, interest and penalties in addition to the amount of tax due.

Failure to file your income tax by the April 15 deadline will incur a 5% penalty on top of the amount you owe. But if you do not pay your taxes by the due date, a penalty of .5 -1% of the unpaid tax per month applies. The penalty will take effect immediately after the deadline and will be charged for every month you delay.

Since the penalty for failing to pay is lesser than the failure to file, we urge you to file your taxes on or before the deadline whether or not full payment can be made.


In addition to the penalty, you’ll also be charged an interest for not paying your taxes in full. The interest rate is set quarterly by the federal government. Pay as much as you can to reduce the amount you owe.

Tell the IRS why you’re late

Everyone makes mistakes, especially when under the stress. So if you have a good excuse for not being able to file or pay taxes on time, do not hesitate to let the IRS know. If they consider your excuse, then you may not have to face penalties.

Filing an extension

If you requested for an extension to file and you were able to pay 90% of your tax by April 15, then you don’t have to face a failure-to-pay penalty. But be sure to settle the remaining balance on or before the extended due date.

Tax Deductions for Self-Employed Individuals

Being self-employed means taking on costs and risks that you don’t have when you work for someone else. While most self-employed people celebrate the freedom of not having a boss, they often cringe at the sight of their taxes.

With the high rising costs of doing business and securing your own health insurance, it is important that you get all the tax write-offs you are entitled to in order to thrive and survive.

Here are some tax deductions that can benefit self-employed individuals and small business owners alike.

Home office

The cost of any workspace that is especially devoted to your business, whether you own or rent it, can be deducted as a home office expense. This allows you to deduct a portion of your utilities, repairs, home improvement and rent or mortgage payments to your home.

To calculate your deduction, measure your work area and divide it by the square footage of your home. Then, multiply that by the home’s expenses for the year.

Health insurance premiums

If you are paying for your family’s health insurance out of your pocket, then you can deduct 100% of your premiums as an adjustment to your business income.

Vehicle and mileage

The IRS also allows you deduct the cost of using your car for your business. Keep a record of the miles you drive business-related activities and deduct the dollar value of business miles travelled on your tax return. Be sure that personal and business use is completely separated.

Phone and internet

You are also entitled to deduct your phone and internet expenses. If you only one have phone in the house, it means that the phone is used for both personal and business purposes. That said, you shouldn’t deduct the entire monthly bill. The key is to deduct the expenses that are directly related to your business.

Educational expenses

Think about any classes, workshops, seminars you’ve attended to improve your job or business. All of these are tax-deductible. Also, don’t forget, books, magazines and other research materials.