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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.

IRS Agent or Scammer? 5 Ways to Spot a Scam Phone Call

reflectingThe IRS has issued a strong warning for consumers to stay on guard and protect themselves from scam artists. Callers may claim to be from the IRS and demand immediate payment. Others may try to con you by saying that you’re due for a refund. But the truth is, they’re trying to trick you into sharing private information.

Many people are unable to tell the difference between a scammer and an IRS agent. Here are 5 telltale signs that you could be dealing with a scammer.  Keep these things in mind to avoid being victimized.

Payment method

The IRS will not require you to use a specific payment method. If the caller asks you to send payment through wire transfer or prepaid debit card, then you’re probably dealing with a scammer. The IRS accepts money through various forms of payment.

Demands urgent payment

Scammers make it seem like you need to settle your debts immediately. Of course, the sooner you send money, the sooner they can move on to their next victim. The IRS will give you an opportunity to question or appeal the amount they say you owe; while a scammer will not.

Threatening phone calls

Potential victims are often threatened with driver’s license revocation, arrest or even deportation. These, of course, are false threats. Some would even call back pretending to be the police to scare you.

Asking for personal information

Fake agents may know a lot about you, making it somewhat believable. They may also ask you for banking or credit card information over the phone. Don’t give out or confirm information over the phone.

Calling out of the blue

If you received a call from someone claiming to be from the IRS and asking money, there’s a good chance that it may be a bogus call. Why? It’s because the IRS always contact people about their unpaid taxes by mail, not by phone.


Surviving a Tax Audit

TaxAuditWe all dread having the IRS tell us it wants to reassess our tax return. The chances of being audited are very slim, but if you receive an audit notice from the IRs, there’s no need to hit the panic button.

The good news is that an audit doesn’t have to be a painful and invasive process. Here are some useful tips to help allay all your fears and deal with tax audits.

Don’t ignore the letter

You’ll be given 30 days to respond to an audit notice. Be sure to respond in a timely manner. Ignoring the notice or delaying your response allows potential penalties to add up.

Prepare financial document

You should always hold on to documents regarding taxable income, tax deductions and other credits to back up the return. Start collecting any relevant paperwork once you find out what parts of your tax return are in question. You are allowed to reconstruct records if you are missing receipts or other documents.

Be brief

If you want to get the process over with fast, be sure to provide exactly what the agent asks for. Providing additional information will only lead to new potential questions and end up slowing the process.

Get help

Experienced tax professionals know the audit procedure. They can help keep the audit on track, guide your responses and tell you what to expect. They also know how to represent your arguments to the examiner and prevent you from making mistakes.

Know your rights

For the actual appointment, you can attend by yourself, with a professional by your side or ask a representative to attend in your place. You also have the right to conduct the audit at a time and place that is convenient to you. If by the end of the process you find that you are unhappy with the result, you may appeal within the IRS or go on to tax court. The more rights you assert, the better off you will be.

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.

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.