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UNEMPLOYMENT INCOME DILEMMA AND SBA ISSUES GUIDANCE FOR VICTIMS OF IDENTITY THEFT RELATED TO DISASTER LOANS

What are the issues that receipients of unemployment income face when filing their 2020 income tax returns?

There are two issues that I have seen relating to recipients of unemployment income in 2020. They are the following:

The first issue is individuals received far greater amounts of unemployment than in past years. This was based on the additional $600 or $300 per week provided by Pandemic Unemployment Assistance (PUA). Receiving more money is certainly a good thing, however, unemployment income is considered to be taxable income. I’m not even going to get into my feeling on taxing unemployment (if individuals are in need why are we taxing them on the assistance?). Well maybe I’m going to get into a little bit. The increased amount of unemployment is blindsiding individuals with balances due.

While it is true these individuals had the option to withhold Federal income tax, most either withheld nothing or, at most, 10%. I recently completed a return for an individual that had $22,000 in W-2 wages and $38,000 in unemployment income. This income moved the individual into the 22% tax bracket and created a significant balance due. Withholding was taken out, but not enough.

The second issue concerns unemployment income received by dependents. I have a situation where a college student had $500 of W-2 earnings and collected $14,000 of unemployment income. The problem in this scenario is that while the standard deduction of a single individual is $12,400, this does not hold true for dependents. Children that can be claimed as a dependent (whether or not they are actually claimed) are limited on their standard deduction to the greater of $1,100 or their earned income plus $350. The student in my scenario was limited to an $1,100 standard deduction and therefore owed tax on almost all of the unemployment income.

To make matters even worse because the student is a dependent and the unemployment is considered unearned income, the student is subject to the Kiddie tax. Without getting too detailed, the kiddie tax was designed to stop wealthy parents from shifting assets to their kids in order to lower the income tax bite. Let’s take an example where the parents are in the 37% tax bracket and earn $10,000 of interest income on assets worth $300,000. The parents would pay tax of $3,700 plus there is an investment tax of 3.8% on married individuals filing jointly with Adjusted Gross Income (AGI) exceeding $250,000. This adds another $380 of tax bringing the parents’ total to $4,080. If a child were in the 10% bracket, by moving the assets to the child the tax would be $1,000. The savings is $3,080. This example excludes the standard deduction which would lower the child’s income tax even further.

The kiddie tax combats this exact scenario by requiring the dependent child to pay income tax on the unearned income at the parents income tax rate.

Since unemployment income is considered unearned income, my college student client owes tax of almost $2,800 after completing the kiddie tax schedule. While the computation is complex, you understand the concept. I am leaving aside the potential gift tax issues this scenario would also cause.

SBA ISSUES GUIDANCE FOR VICTIMS OF IDENTITY THEFT RELATED TO DISASTER LOANS

There are taxpayers receiving loan statements from lending institutions showing balances owed based on Disaster Loans they did not receive. The Paycheck Protection Program (PPP) is an example of a disaster loan. Identity theft is not limited to PPP loans. Keep in mind that while all PPP loans are Disaster Loans, not all Disaster Loans are PPP loans. PPP is a disaster loan with a provision that if certain conditions are met becomes a forgivable loan, meaning all or part of the loan may not have to be paid back. I mention PPP because it has been in the news so often during the last 10 months that most people are familiar with the term.

The letter issued by the SBA explains the procedure for solving this situation.

The SBA will require the following items to commence solving your problem. These documents are:

A copy of an Identity Theft Report filed with the Federal Trade Commission (FTC) at IdentityTheft.gov or filed with another federal law enforcement agency or your local police department.

A copy of your photo identification issued by a Federal or state agency. Examples are a Driver’s License, state ID card, U.S. Passport, or military ID.

A completed and signed Declaration of Identity Theft

Send all three above documents by email to IDTheftRecords@sba.gov, or you can fax your documents to (202) 481-5200, or mail them to:

U.S. Small Business Administration

Processing and Disbursement Center

Attn: ID Theft Records

14925 Kingsport Road

Fort Worth, TX 76155

The letter also states that the SBA’s review is only to release you from your debt obligation to the SBA. They will not update you on any possible criminal investigation.

A copy o the SBA letter is attached to this email.

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Jeff Skolnick, CPA, M.S. Taxation

UPDATED PPP LOAN ISSUES AS OF FEBRUARY 7 2021

On February 3, 2021, the AICPA sent a Letter to the SBA outlining 4 concerns that have been affecting borrowers of both first and second draw PPP loans. A summary of these concerns are:

Challenge with Draw One & Draw Two applications being denied acceptance into E-Tran system. There were certain validation checks put into place to stop fraudulent applications. The validation checks are causing many legitimate applications to be denied. Neither lenders nor applicants understand the errors or how to address them which is causing anxiety and confusion. Applicants are being informed incorrectly that they have a criminal record or sole proprietorships that were instructed to apply under an owners social security number in round 1, but their EIN in round 2 are being denied. The AICPA requested guidance on the validation process and called for the SBA to fix the errors occurring in the application acceptance process.

SBA processing and resolution delays for applications successfully submitted into E-Tran system. The SBA reviews loan applications once the lenders submit them to the SBA. There are over 40 error codes which are resulting in 20 to 30% of successfully submitted applications to be flagged. As mentioned earlier one example relates to sole proprietors being required to use their EIN for second draw applications, instead of their social security number (which they used for their first application). One of the requirements for a second draw loan is the applicant must have had a first draw loan. The system has had issues with being able to identify that the sole proprietor in question is the same borrower. The AICPA is asking for clarity with the error codes and public communication that nearly 1/3 of applications are being further reviewed which causes delays in the acceptance process.

SBA capping of PPP Draw One and Draw Two loan amounts. The SBA’s loan processing system has put a cap of $35,000 per employee for both first and second draw loans. The AICPA is requesting guidance and communication that explain the process. Borrowers are unaware of why their maximum loan amount is being limited based on this cap.

Broad communication on available funding, overall processing and timing. Again, we know the process is taking a bit longer this time around compared to last year (once the initial process was straightened out last year) due to increased validation checks. Borrowers are concerned funding will run out while their application is delayed. The AICPA requests that the SBA inform the public of the delays and clearly communicate that funding is adequate for both first and second draw loans.

Forgiveness of First Draw Loans

THE SBA has indicated that they are prioritizing new first and second draw loan applications over loan forgiveness. This is causing forgiveness applications to take longer than expected to be processed.

Delay of Form 3508S for borrowers of $150,000 or less

Although Form 3508S, a simplified forgiveness form for borrowers of $150,000 or less, was finalized by the SBA a few weeks back many lenders are still in the process of integrating this form in their system. This is causing eligible borrowers that apply for forgiveness to either use Form 3508EZ (which requires documentation that the 3508S does not) or, in some instances, to not be able to apply at all at this time. 

Discussion on FTE Reductions on Forgiveness

We know that for borrowers with original loan amounts in excess of $50,000 that a reduction in Full time Equivalent Employees (FTE) will cause a reduction in forgiveness. Borrowers must compare their FTEs during their covered period with FTEs from either the period February 15th through June 30th, 2019 or January 1, 2020 through February 29,2020. Keep in mind if a borrower obtained a first draw loan and paid all employees over an 8-week covered period for their first draw but then reduced their staff based on economic conditions, will have a reduction on second draw loans if 2019 payroll amounts are used for the maximum loan computation. In other words, if a borrower had FTEs from February 15, 2019 – June 30, 2019 of 20. Paid all 20 employees during their first draw covered period but later reduced staff to 10 and has maintained this lower-level number of employees, they will have a reduced PPP forgiveness amount on their round 2 draw. The reason for this is the maximum loan amount is based on 2019 payroll when FTEs were 20. Although the borrower has maintained their staff at the same level of 10 since the end of their first draw covered period, payroll is down 50% from the period used to calculate the maximum loan. In this example the borrower would have their forgiveness reduced by 50%.

It is important that borrowers are aware of these rules before applying for a second-round draw. The PPP funds, even if not forgiven, are still a source of inexpensive borrowing (a 1 percent loan payable over 5 years), that is a small consolation to a borrower expecting full forgiveness.

When must borrowers apply for forgiveness

Borrowers must apply within 10 months of when their covered loan period ends. Additionally, borrowers must apply for forgiveness on their first draw loans on or before they apply for forgiveness on their second draw loans.

Recovery Rebate Checks

If you have not yet received either your first and/or second stimulus check, you can cure this through the filing of your 2020 income tax return. The only issue with this is if your income increased in 2020, you may be considered ineligible, while if your 2018 or 2019 income tax information was used, you may have received the check. It is important to remember these rebate checks are based on 2020, but if you received a rebate check and later find that based on 2020 income that you would not have been eligible, you do not have to repay the amount.

Stimulus Package

It appears imminent that a new stimulus relief bill is about to be passed. Joe Biden and the democrats have been discussing a $1.9 trillion bill, while republicans were looking at a bill of approximately $600 billion. The bill should be much closer to the higher figure based on the fact that democrats control all 3 chambers of the government.

One other item

Although nothing has been set in stone, I feel there is a good chance we will see an extension of the filing deadline beyond April 15th.  Tax practitioners are split on their feelings regard in this issue. On the one hand when a new law is passed, we must spend time reading through and understanding its impact (not to mention the many clarifications that will follow) which will cause delays in processing income tax returns. On the other hand, in 2020 it felt as if tax season never ended. Tax season had been extended to July 15th. September 15th quickly followed. September 15th is the deadline for Partnership and S corporation returns that are on extension to be filed. October 15th, which is the deadline for all individuals and C corporations on extension to file, followed quickly. Lastly, once October 15th passed, we were on to yearend planning and dealing with the new tax law passed on December 27th.

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Hang in there and stay safe,

Jeff Skolnick, CPA, M.S. Taxation

Obviously being an income tax accountant I hear certain questions over and over again.  One of the most common questions I receive is from small business owners wondering what issues are considered “red flags” by the IRS and would increase the chances of being selected for audit.  I am going to narrow this article to those red flags connected to sole proprietors (those who file Form Schedule C with their income tax return).

 

Am I more likely to be audited because I am a sole proprietor?

The quick answer unfortunately is yes.  There are a few reasons for this answer.  The first is that employees usually work for 1 or 2 companies during the year and when they receive their Forms W-2 at yearend most will not overlook any employment and what the employee reports to the IRS is the same as what the IRS has received from the various employers.  When individuals run a sole proprietorship they may receive many Forms 1099 at yearend and if the taxpayer does not have accurate books and records they may miss a Form and report less income than the IRS has reported under their social security number.  If the IRS thinks you are underreporting income this is a red flag.

 

As I have discussed in past articles owners of sole proprietorships are entitled to many deductions that individuals who do not own small businesses are not.  There may be large write offs of automobile expense, wages paid to members of the family and other items which for employees would fall to itemized deductions and only become deductible once certain thresholds are met (2% of Adjusted Gross Income for certain miscellaneous deductions and 10% for medical deductions).  While these deductions may all be legitimate, they may also be scrutinized.

 

Lastly if you are writing off losses that may be considered hobby losses that can cause the IRS to take a look at your return.   Generally if your small business makes a profit 3 out of 5 years (2 out of 7 for horse breeding) then you are considered to be running a business with the expectation of making a profit.  That is not to say that if you do not meet these criteria that you cannot deduct the loss, you just do not meet the “safe harbor” test and must be able to provide reasons why your business is legitimate and why you expect to earn a profit.

 

Conclusion

This article discusses very generally why running sole proprietorships make your return more likely to be audited.  Keep in mind even if you are audited if you have books and records that support your income and deductions you nothing to fear.  I would always suggest that any individual running a sole proprietorship be in contact with a tax professional because the rules are quite extensive and running afoul of them may get your return more attention than you would like from the IRS.

Now that tax season is here, it is time to discuss some new regulations put in place this year pertaining to due dates of tax returns and driver’s license numbers required for some income tax returns.

 

Driver’s License Numbers

I am only going to concentrate on New Jersey, New York and Pennsylvania for purposes of this article.  While New Jersey and Pennsylvania both allow taxpayers to enter their driver’s license numbers on their 2016 income tax returns, it is not a requirement.  New York, however, requires driver’s license numbers to be provided for 2016 individual income tax returns.

 

Tax Return Due Dates for 2016 Tax Returns

On July 31, 2015 President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.  This legislation contained a provision that changed the due dates of certain types of income tax returns.

 

Below I use the term original due date as the date that a calendar yearend entity would have to file a tax return by without an extension.  The extended due date is the date that a calendar year entity would be required to file a return that has a valid extension.

 

Partnership returns which previously had a due date of April 15^th and an extended due date of September 15^th have been changed to an original due date of March 15^th while keeping the extended due date at September 15^th.

 

S Corporation returns will remain the same as in prior years, an original due date of March 15^th and an extended due date of September 15h.

 

C corporations which previously had an original due date of March 15^th now have an original due date of April 15^th.  The extended due date has been moved to October 15^th from September 15^th.

 

Calendar yearend Trust and Estate returns will still have an original due date of April 15^th, however, the extended due date is now September 30^th instead of September 15^th.

 

Individual returns due dates remain the same as in prior years with an original due date of April 15^th and an extended due date of October 15^th.

 

Please note that for this coming tax season any return with an April 15^th due date will actually be due on April 18^th. The reason for this is that April 15^th falls on a Saturday and the Washington D.C. Emancipation Day holiday is being observed on April 17^th. Any returns that are due on October 15^th will actually be due on October 16^th since the 15^th falls on a Sunday.

 

Conclusion

If you are an individual filing only an individual income tax return then the new due date rules will not affect you.  If you are a taxpayer that is required to file returns for one of the other entities listed above please make sure you do not get taken by surprise.  Lastly, to reiterate no driver’s license numbers are required for either New Jersey or Pennsylvania in 2016, however, New York filers will be required to provide this information.

 

While I usually report mainly Federal income tax issues because of the fact that I have clients and followers in different parts of the country, this article will focus on recent changes made by the State of New Jersey.

 

New Jersey Estate and Inheritance Taxes

 

The biggest change to come about recently is that New Jersey has increased its Estate Tax exemption amount form $675,000 to $2,000,000 as of January 1, 2017.  This means that individuals with Estates under $2,000,000 as of  January 1, 2017 will not have to file NJ Estate tax returns. As of January 1, 2018 New Jersey has totally eliminated the Estate tax.

 

New Jersey does still have an Inheritance tax and there have been no changes to this tax.  The Inheritance tax is imposed on certain classes of beneficiaries. There is no inheritance tax if a New Jersey Estate is left to a Class “A” beneficiary.  A class “A” beneficiary is a father, mother, grandparent, spouse or child (including an adopted or step child).

 

For inheritances left to anyone else there is a tax ranging from 11% to 16% depending on the size of the inheritance and the classification of the beneficiaries.  Further explanation of the rates and classes of beneficiaries is beyond the scope of this article.

 

Sales and Use Tax

The New Jersey sales and use tax rate will drop from 7 percent to 6.875 percent on January 1, 2017 and to 6.625 percent on January 1, 2018.

 

Gas Tax

As of November 1, 2016 there is an increase of 23 cents per gallon of gasoline.

 

Retirement Income Exclusion

The New Jersey retirement exclusion will increase from the current 2016 amounts ($20,000 per year for joint filers, $15,000 for individual filers and $10,000 for those married filing separately) to $100,000, $75,000 and $50,000 respectively in year 2020. The amounts increase by $20,000 per year, $15,000 per year and $10,000 per year respectively until the new limits are reached in 2020.

 

Reciprocal Agreement with Pennsylvania

Since the late 1970s New Jersey and Pennsylvania have had in place a reciprocal agreement under which each state would tax employee wages earned in the other state as if earned in the taxpayer’s state of residence.  In other words if a New Jersey company employed a Pennsylvania resident even though normally that employee would have New Jersey withholding, the Company would withhold Pennsylvania taxes and the employee, even though working in New Jersey, would not have to file a New Jersey return.  The same held true for New Jersey residents employed in Pennsylvania.

 

In October notices were sent to employers stating that the reciprocal agreement was to end as of December 31, 2016.  On November 22, 2016 Governor Christie reversed his decision and the agreement will remain in place.

 

Conclusion

There were certainly other changes made to New Jersey tax law recently.  I have highlighted what I feel to be the most significant.  Once again if you’re not sure, then check with a tax professional to help determine if you are affected by any new legislation.

Like-Kind Exchanges or 1031 transactions allow taxpayers to dispose of property and defer the gain or loss if the property is exchanged for like kind property.

 

In English, what this means is that if you were to trade real estate, then you would have to exchange it for real estate, an automobile for an automobile, etc.  Keep in mind both the property given and the property received must be used for business or investment purposes.

 

Like-kind exchange rules may apply to many types of property.  The most common questions revolve around real estate and therefore this will be my focus.

 

Like-kind exchange rules generally discuss exchanging one piece of property for another simultaneously.  These rules certainly can apply to real estate; however it is very difficult to find two individuals willing to exchange properties.  The solution to this problem can be found in a delayed exchange.

 

In a delayed exchange a taxpayer may sell a piece of business or investment property and purchase, at a later date, replacement property and still qualify under the like-kind exchange rules.  While this can obviously be a very attractive way to sell property that has appreciated in value, great care must be taken as the rules are complex and any mistake will disqualify the transaction and render it immediately taxable.

 

The major requirements of a delayed exchange are as follows:

 

• Replacement property must be identified within 45 days of the sale of the property relinquished.

 

• The taxpayer must close on the replacement property on the earlier of the 180^th day after the sale of the property relinquished or the due date of the taxpayer’s income tax return (including extensions).

 

• The taxpayer cannot receive the money from the sale of the relinquished property. In most cases the proceeds of the first sale are held by a “qualified intermediary” until they are needed to close on the replacement property.

 

• The purchase price of the replacement property must be at least as much as the sales price of the property relinquished or a portion of the gain will not be tax deferred.

 

Once again, if any of the above provisions are violated, then the transaction will become immediately taxable.

 

It is important to keep in mind that although the rules for what qualifies as like-kind real estate are fairly liberal, neither personal residences nor vacation homes will qualify.  These types of properties may be converted to business or investment use; however this usually requires significant time (approximately 2 years).

 

It is also important to remember that like-kind exchanges defer taxes and do not eliminate them.  If the taxpayer later sells the replacement property gain or loss would be recognized unless the taxpayer enters in to another like-kind exchange.

 

In addition, there are a variety of other factors that may come in to play.  This article is meant to give a basic overview of the law.

 

The rules of like-kind exchanges are complex and stringent, however if followed correctly can be well worth the time and effort. It is, of course, vital that any taxpayer seek the advice of tax professionals familiar with such transactions.

 

 

 

Many people I speak to have questions regarding rental properties.  Real estate has always been one of the most popular investment vehicles but with the myriad of rules surrounding rental real estate taxpayers are often confused by what they can and cannot do on their tax returns.  This article offers a quick overview of the rules relating to rental real estate.

 

Background

The government generally only allows losses from “passive activities” to offset income from “passive activities”.  Passive activities are any trade or business in which the taxpayer does not materially participate.  Real estate rental is generally considered a passive activity and therefore if the general rule was followed, losses would only be allowed against income from passive activities.  There are, however, two major exceptions to the general rule.

 

The two exceptions are for: (1) real estate professionals and (2) up to$25,00 of losses, subject to an Adjusted Gross Income (AGI) phase-out.

 

Real estate professional

A qualifying real estate professional is allowed to deduct losses from a rental property without limit. The losses while without limit would still have to be legitimate and expenses are subject to the same IRS definition of ordinary and necessary as all other businesses.

 

A taxpayer qualifies as a real estate professional if:

 

• More than half of the personal services that he performs during the year are performed in real property trades or businesses in which he/she materially participates; and

 

• he/she performs more than 750 hours of services during the year in real property trades or businesses in which he/she materially participates.

 

Real property generally refers to real estate.

 

$25,000 Allowance

Taxpayers qualifying for this treatment are allowed to deduct up to $25,000 of rental real estate losses against their ordinary income.  In order to be eligible for this deduction the taxpayer must:

 

Actively participate in the rental activity.  This means the taxpayer and/or spouse must own at least 10% of the rental property and must have substantial involvement in the  management of the property.  Active participation includes making management decisions and arranging for others to provide services.  Examples of these decisions would include approving new tenants, deciding on rental terms and approving capital improvements or repair expenditures.

 

Taxpayers meeting the above criteria, as stated earlier, may deduct losses from rental activities up to $25,000 subject to an income phase-out.  When a taxpayer’s AGI exceeds $100,000 the $25,000 is reduced by $1 for every $2 that the taxpayer’s income exceeds $100,000 until the entire loss is disallowed at AGI of $150,000. For taxpayers married and filing separately the limits are $12,500 (instead of $25,000) and phase-out begins at $50,000 (instead of $100,000).

 

Conclusion

This article discusses very general questions relating to rental real estate losses.  Many situations are unique and as always if you’re not sure of the rules, then check with a tax professional.

 

 

This article will focus on two of the more commonly contested deductions; automobile expense and meals and entertainment deductions.

 

What documentation do I need to deduct automobile expenses?

The first thing to keep in mind when deducting automobile expenses is that only business use is deductible.  In previous articles I have addressed the two methods of deducting automobile expenses. The two methods are either actual costs or standard mileage rate.  When using the actual costs method, the taxpayer as the term suggests, uses his or her actual costs of gas, insurance, depreciation, repairs, etc.  These expenses are totaled and then allocated to either business or personal usage.

 

The standard mileage rate method simply applies the IRS standard rate (57.5 cents per mile in 2015 and 54 cents per mile in 2016) to the business mileage.

 

Keep in mind that under either method commuting mileage to and from the taxpayer’s regular place of business is not considered business mileage.

 

The best way to substantiate business mileage is through the use of a diary.  The IRS will want to see the date, mileage and business or investment purpose of each trip.  When listing the business appointments it is important to note the location of each meeting. Listing the location will provide the auditor the information he/she needs to test whether the mileage shown is reasonable.

 

What documentation is needed to deduct meals and entertainment expenses?

The taxpayer must be able to show the amount, time and place and business purpose of each expense deducted as meals and entertainment.  In addition, the taxpayer must be able to show the relationship to the taxpayer of persons entertained or receiving gifts.

 

Lastly, even when all of the above criteria are met only 50 % of meals and entertainment expenses are deductible.

 

What happens if I cannot substantiate expenses?

If deductions cannot be properly substantiated, the expenses will be disallowed and the taxpayer will likely be assessed an “accuracy-related” penalty of 20% of the tax balance due plus interest.  If the IRS feels the expenses were fraudulent, then the penalties can be 75% of the additional tax amount due.

 

Conclusion

This article discusses IRS positions on certain deductions, please keep in mind that taxpayers could also be audited by state taxing authorities. While I have given a quick overview of these areas I would certainly encourage anyone undergoing an audit to contact a tax professional.

 

On December 18, 2015 the President signed the 2015 tax extenders bill in to law.  While this law once again came out far too late to be fully utilized certain steps were taken in order to avoid this in the future.

 

Provisions that had expired as of December 31, 2014 were extended not only until December 31, 2015 but some were made permanent and others were extended for multiple years.  I will highlight some of the major provisions.

 

Provisions Made Permanent

Section 179 expensing.  This provision allows taxpayers to expense certain capital assets in 1 year that would normally be depreciated over several years. The number has been $500,000 since 2010. Unfortunately for the last few years this law has been extended on a year by year basis.  In 2014 and 2015 the law was not passed until late December and although it was retroactive to January 1^st, gave taxpayers less than 2 weeks to plan in advance knowing the law.

 

15 year life of qualified retail, restaurant and retail improvements.  The previous depreciable life of these improvements was 39 years.

 

Reduction in S corporation built-on gains recognition period. C corporations who convert to S corporations and have appreciated assets at the conversion date can avoid tax on these assets if they wait 5 years to sell them.  Previously this number was 10 years.

 

Enhanced American Opportunity Credit. This is the credit that is allowed for post-secondary education of up to $2,500 per year for 4 years per student subject to certain income phase outs.

 

Taxpayers over the age of 70 ½ may make charitable donations from their IRA and will not be taxed on amounts up to $100,000.

 

Provisions Extended Through December 31, 2019

Bonus depreciation.  A 50% 1^st year expensing of certain equipment is allowed for 2015, 2016 and 2017. The percentage drops to 40% for 2018, 30% for 2019 and the credit disappears after 2019.;

 

Provisions Extended Through December 31, 2016

Cancellation of Debt (COD) Income on a principal residence. If a principal home is sold and the lender is not paid in full any portion of the loan forgiven is “cancellation of debt income” and would normally be taxable. This exception allows taxpayer forced to sell a home for less than the loan value to not incur a tax on this income.

 

Tuition deduction of up to $4,000.

 

Energy credit of up to $500 for purchasing energy efficient property.

 

Conclusion

This article highlights the new tax law in a few paragraphs and although this is not a huge tax law this article only skims the surface.  If you are unsure of whether there are any provisions in the new law that may benefit you contact a tax professional with knowledge of these new provisions.

Over the past few years there have been an increasing number of both telephone and email scams targeting taxpayers and making them believe they are being contacted by the IRS.

 

How the IRS contacts taxpayers

The first and most important thing to keep in mind is that the IRS does not initiate contact with taxpayers by email, text messages, social media or telephone.  Once you are already involved in an ongoing matter with the IRS they may contact you by telephone but never as an initial contact.

 

Who is being targeted and how?

In April of 2014 the IRS released information stating that immigrants are frequently targeted.  Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked if they do not immediately pay the IRS.

Additionally, scams may also include the caller claiming the taxpayer is eligible for a large refund.

 

Email and to a lesser extent social media and texting scams are also very prevalent in today’s world.  It is important to keep in mind that the IRS never contacts taxpayers using email, texting or social media and therefore any contact through these mediums claiming to be from the IRS is always a scam. Be very careful to not provide your social security number, any personal information, passwords, pin numbers or credit card information.

 

What do I do if I suspect someone is trying to scam me?

Per the IRS If you receive a phone call from someone claiming to be from the IRS then you should record the employee’s name, badge number and caller ID if available. You should then call 1-800-366-4484 to determine if the caller is an IRS employee with a legitimate need to contact you.  If the person is an IRS employee, call them back, if not, report the incident to the Treasury Inspector General for Tax Administration and to phishing@irs.gov.

 

Per the IRS if you receive an email do not reply.  Also do not open any attachments. They can contain malicious code that may infect your computer.  Don’t click on any links and forward the email to phishing@irs.gov.

 

Conclusion

This article broadly explains some common scams being used today.  If you are unsure of whether the contact you are receiving from a supposed an IRS agent then either follow the steps outlined above or call a tax professional that deals with the IRS on a regular basis.