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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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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

Conserve
200 CrossKeys Office park
Fairport, NY 14450

Performant
333 N Canyons Pkwy
Livermore, CA 94551

Pioneer
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.

https://www.irs.gov/uac/newsroom/new-private-debt-collection-program-to-begin-next-spring-irs-to-contract-with-four-agencies-taxpayer-rights-protected

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.

 

How to Settle Your IRS Tax Debts

Arena
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.

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.

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.

 

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.