As part of continuing efforts to protect the community, the Internal Revenue Service issued a warning about the rising threat of impersonation scams.
Dear Clients and Friends,
As part of continuing efforts to protect the community, the Internal Revenue Service issued a warning about the rising threat of impersonation scams.
These scams are typically targeting older adults by pretending to be government officials, aiming to steal sensitive personal information and money. By posing as representatives from agencies such as the IRS, or other government agencies, these fraudsters use fear and deceit to exploit their victims.
Understanding the threats
The IRS has identified a concerning trend where fraudulent actors are increasingly targeting unsuspecting individuals, particularly senior citizens, by masquerading as IRS agents. Victims are pressured into making immediate payments through unorthodox methods such as gift cards or wire transfers under the pretense of resolving fictitious tax liabilities or securing false refunds.
These scammers deploy advanced techniques to fabricate a veneer of credibility, including the manipulation of caller IDs to appear legitimate. Here are just a few examples of their schemes:
- Impersonation of known entities: Fraudsters often pose as representatives from government agencies — including the IRS, Social Security Administration and Medicare — others in the tax community or familiar businesses and charities. By spoofing caller IDs, scammers can deceive victims into believing they are receiving legitimate communications.
- Claims of problems or prizes: Scammers frequently fabricate urgent scenarios, such as outstanding debts or promises of significant prize winnings. Victims may be falsely informed that they owe the IRS money, are owed a tax refund, need to verify accounts or must pay fees to claim non-existent lottery winnings.
- Pressure for immediate action: These deceitful actors create a sense of urgency, demanding that victims take immediate action without allowing time for reflection. Common tactics include threats of arrest, deportation, license suspension or computer viruses to coerce quick compliance.
- Specified payment methods: To complicate traceability, scammers insist on unconventional payment methods, including cryptocurrency, wire transfers, payment apps or gift cards, and often require victims to provide sensitive information like gift card numbers.
Scam precautions and reporting
If an individual receives an unexpected call from someone claiming to be from the IRS, but they have not been notified by mail about any issues with their IRS account, they should hang up immediately. The call is likely from a scammer.
Do not return the call using the number provided by the caller or the one displayed on their caller ID. If taxpayers are uncertain about the legitimacy of IRS communications, they can contact IRS customer service for verification at 800-829-1040.
To view details about an individual’s tax account, they can set up or check their IRS individual online account on IRS.gov.
Electronic scams are also on the rise, with scammers sending malicious emails and texts posing as IRS representatives to steal personal information. The IRS reminds taxpayers that it does not initiate contact via email, text, or social media regarding tax bills or refunds.
Report the call or electronic scam by visiting the Hotline page of the Treasury Inspector General for Tax Administration and using an IRS Impersonation Scam Reporting form or by calling 800-366-4484. Forms to report different types of fraud are available on the Hotline page of Treasury Inspector General for Tax Administration website. Taxpayers can click the appropriate option under "IRS Scams and Fraud" and follow the instructions.
Key points to remember:
Individuals should understand how and when the IRS contacts taxpayers to help them verify whether any communication they receive is genuinely from an IRS employee.
Most IRS communications are initiated through regular mail delivered by the United States Postal Service. However, in certain situations, the IRS may make phone calls or visit homes or businesses. These situations include having an overdue tax bill, an unfiled tax return or missing employment tax deposit.
Additionally, an IRS employee might review assets or inspect a business as part of a collection investigation, audit or ongoing criminal investigation.
Remember the following:
- The IRS will never demand immediate payment via prepaid debit cards, gift cards or wire transfers. Typically, if taxes are owed, the IRS will send a bill by mail first.
- The IRS will never threaten to involve local police or other law enforcement agencies.
- The IRS will never demand payment without allowing opportunities to dispute or appeal the amount owed.
- The IRS will never request credit, debit or gift card numbers over the phone.
Remaining vigilant and informed about these scams can help protect taxpayers from financial loss and identity theft. We urge everyone to be cautious, especially when dealing with unsolicited communications concerning taxes.
Sincerely,
Dave Sabino, CPA and Bryan Harris, CPA
Dear Client & Friends:
As some of you may know, there are two ways you can take deductions on your federal income tax return: you can itemize deductions or use the standard deduction.
Dear Client & Friends:
As some of you may know, there are two ways you can take deductions on your federal income tax return: you can itemize deductions or use the standard deduction.
Either method reduces the amount of your taxable income. Due to tax law changes several years ago, if you itemized in the past, you might not be able to continue to do so, so it is important for you to identify all deductions to report on your income tax return. Here are some details about the two methods to help you understand which will benefit you the most:
Standard Deductions
The standard deduction amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and do not itemize deductions are entitled to a higher standard deduction. Married individuals filing separately whose spouse itemizes deductions are precluded from using the standard deduction.
The 2024 basic standard deduction amounts are as follows:
Married filing jointly: $29,200
Single: $14,600
Head of Household: $21,900
Itemized Deductions
Taxpayers may need to itemize deductions because they cannot use the standard deduction, as noted above, or if the sum of their itemized deductions exceeds the standard deduction.
A taxpayer may benefit by itemizing deductions for items that include:
- State and local income, real estate, and personal property taxes (capped at $10,000 annually)
- Qualified mortgage interest (subject to maximum mortgage limits, if applicable)
- Charitable contributions/donations to a qualified charity (subject to income limits)
- Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income
If you would like help in determining the best option for your individual tax planning needs, please call our office.
Sincerely,
Dave Sabino, CPA and Bryan Harris, CPA
The IRS has provided guidance on two exceptions to the 10 percent additional tax under Code Sec. 72(t)(1) for emergency personal expense distributions and domestic abuse victim distributions. These exceptions were added by the SECURE 2.0 Act of 2022, P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations under Code Sec. 72(t) and request comments to be submitted on or before October 7, 2024.
The IRS has provided guidance on two exceptions to the 10 percent additional tax under Code Sec. 72(t)(1) for emergency personal expense distributions and domestic abuse victim distributions. These exceptions were added by the SECURE 2.0 Act of 2022, P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations under Code Sec. 72(t) and request comments to be submitted on or before October 7, 2024.
Distributions for Emergency Personal Expenses
Code Sec. 72(t)(2)(I) provides an exception to the 10 percent additional tax for a distribution from an applicable eligible retirement plan to an individual for emergency personal expenses. The term "emergency personal expense distribution" means any distribution made from an applicable eligible retirement plan to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The IRS specifically noted that emergency expenses could be related to: medical care; accident or loss of property due to casualty; imminent foreclosure or eviction from a primary residence; the need to pay for burial or funeral expenses; auto repairs; or any other necessary emergency personal expenses.
The IRS provides that a plan administrator or IRA custodian may rely on a written certification from the employee or IRA owner that they are eligible for an emergency personal expense distribution. Furthermore, the IRS provides that an emergency personal expense distribution is not treated as a rollover distribution and thus is not subject to mandatory 20% withholding. However, the distribution is subject to withholding, the IRS said. If the emergency personal expense distribution is repaid, it is treated as if the individual received the distribution and transferred it to an eligible retirement plan within 60 days of distribution.
If an otherwise eligible retirement plan does not offer emergency personal expense distributions, the IRS indicated that an individual may still take an otherwise permissible distribution and treat it as such on their federal income tax return. The individual claims on Form 5329 that the distribution is an emergency personal expense distribution, in accordance with the form’s instructions. The individual has the option to repay the distribution to an IRA within 3 years.
Distributions to Domestic Abuse Victims
Code Sec. 72(t)(2)(K) provides an exception to the 10 percent additional tax for an eligible distribution to a domestic abuse victim (domestic abuse victim distribution). The guidance defines a"domesticabusevictimdistribution" as any distribution from an applicable eligible retirement plan to a domestic abuse victim if made during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner. "Domesticabuse" is defined as physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.
As with distributions for emergency personal expenses, a retirement plan may rely on an employee’s written certification that they qualify for a domestic abuse victim distribution. Similarly, if an otherwise eligible retirement plan does not offer domestic abuse victim distributions, the IRS indicated that an individual may still take an otherwise permissible distribution and treat it as such on their federal income tax return. The individual claims on Form 5329 that the distribution is a domestic abuse victim distribution, in accordance with the form’s instructions. The individual has the option to repay the distribution to an IRA within 3 years.
Request for Comments
The Treasury Department and the IRS invite comments on the guidance, and specifically on whether the Secretary should adopt regulations providing exceptions to the rule that a plan administrator may rely on an employee’s certification relating to emergency personal expense distributions and procedures to address cases of employee misrepresentation. Comments should be submitted in writing on or before October 7, 2024, and should include a reference to Notice 2024-55.
On June 17, 2024, the U.S. Department of the Treasury and the Internal Revenue Service announced a new regulatory initiative focused on closing tax loopholes and stopping abusive partnership transactions used by wealthy taxpayers to avoid paying taxes.
On June 17, 2024, the U.S. Department of the Treasury and the Internal Revenue Service announced a new regulatory initiative focused on closing tax loopholes and stopping abusive partnership transactions used by wealthy taxpayers to avoid paying taxes.
Specifically targeted by this new tax compliance effort are partnership basis shifting transactions. In these transactions, a single business that operates through many different legal entities (related parties) enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability. These basis shifting transactions allow closely related parties to avoid taxes.
The use of these abusive transactions grew during a period of severe underfunding for the IRS. As such, the audit rates for these increasingly complex structures fell significantly. It is estimated that these abusive transactions, which cut across a wide variety of industries and individuals, could potentially cost taxpayers more than $50 billion over a 10-year period, according to an IRS News Release.
"Using Inflation Reduction Act funding, we are working to reverse more than a decade of declining audits among the highest income taxpayers, as well as complex partnerships and corporations," IRS Commissioner Danny Werfel said during a press call discussing the new effort on June 14, 2024.
"This announcement signals the IRS is accelerating our work in the partnership arena, which has been overlooked for more than a decade and allowed tax abuse to go on for far too long," said IRS Commissioner Danny Werfel. "We are building teams and adding expertise inside the agency so we can reverse long-term compliance declines that have allowed high-income taxpayers and corporations to hide behind complexity to avoid paying taxes. Billions are at stake here".
This multi-stage regulatory effort announced by the Treasury and IRS includes the following guidance designed to stop the use of basis shifting transactions that use related-party partnerships to avoid taxes:
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proposed regulations under existing regulatory authority to stop related parties in complex partnership structures from shifting the tax basis of their assets amongst each other to take abusive deductions or reduce gains when the asset is sold;
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proposed regulation to require taxpayers and their material advisers to report if they and their clients are participating in abusive partnership basis shifting transactions; and
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a Revenue Rulingproviding that certain related-party partnership transactions involving basis shifting lack economic substance.
"Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit," said U.S. Secretary of the Treasury Janet L. Yellen.
In the June 14, 2024, press call, Commissioner Danny Werfel also noted that there will be an increase in audits of large partnerships with average assets over $10 billion dollars and larger organizational changes taking place to support compliance efforts, including the creation of a new associate office that will focus exclusively on partnerships, S corporations, trusts, and estates.
By Catherine S. Agdeppa, Content Management Analyst
A savings account with the tax benefits of a health savings account or an educations savings account but without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
A savings account with the tax benefits of a health savings account or an educations savings account but without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
The concept was promoted by multiple witnesses testifying during a recent Senate Finance Committee hearing on the subject of child savings accounts and other tax advantaged accounts that would benefit children. It also is the subject of a recently released report from The Tax Foundation.
Rather than push new limited-use savings accounts, "policymakers may want to consider enacting a more comprehensive savings program such as a universalsavingsaccount," Veronique de Rugy, a research fellow at George Mason University, testified before the committee during the May 21, 2024, hearing. "Universalsavingsaccounts will allow workers to save in one simple account from which they would withdraw without penalty for any expected or unexpected events throughout their lifetime."
She noted that, like other more focused savings accounts, like health savings accounts, it would have "the benefit of sheltering some income from the punishing double taxation that our code imposes."
De Rugy added that universal savings accounts "have a benefit that they do not discourage savings for those who are concerned that the conditions for withdrawals would stop them from addressing an emergency in their family."
Adam Michel, director of tax policy studies at the Cato Institute, who also promoted the idea of universal savings accounts. He said these accounts "would allow families to save for their kids or any of life’s other priorities. The flexibility of these accounts make them best suited for lower and middle income Americans."
He also noted that they are promoting savings in countries that have implemented them, including Canada and United Kingdom.
"For example, almost 60 percent of Canadians own tax-free savingsaccounts," Michel said. "And more than half of those account holders earned the equivalent of about $37,000 a year. These accounts have helped increase savings and support the rest of the Canadian savings ecosystem."
De Rugy noted that in countries that have implemented it, they function like a Roth account in that money that has already been taxed can be put into it and not penalized or taxed upon withdrawal.
Michel also noted that the if the tax benefits extend to corporations as they do with deposits to employee health savings accounts, "to the extent that you lower the corporate income tax, you’re going to encourage a different additional investment into savings by those entities."
Simulating The Universal Savings Account Impact
The Tax Foundation in its report simulated how a universal savings account could work, based on how they are implemented in Canada. The simulation assumed the accounts could go active in 2025 for adults aged 18 years or older.
On a post-tax basis, individuals would be allowed to contribute up to $9,100 on a post-tax basis annually, with that cap indexed for inflation. Any unused "contribution room" would be allowed to be carried forward. Earnings would be allowed to grow tax-free and withdrawals would be allowed for any purpose without penalty or further taxation. Any withdrawal would be added back to that year’s contribution room and that would be eligible for carryover as well.
"The fiscal cost of this USA policy would be offset by ending the tax advantage of contributions to HSAs beginning in 2025," the report states. "As such, future contributions to HSAs would be given normal tax treatment, i.e. included in taxable income and subject to payroll tax with subsequent returns on contributions also included in taxable income."
In this scenario, the Tax Foundation report estimates that "this policy change would on net raise tax revenue by about $110 billion over the 10-year budget window."
As for the impact on taxpayers, the "after-tax income would fall by about 0.1 percent in 2025 and by a smaller amount in 2034, reflecting the net tax increase in those years," the report states. "Over the long run, and accounting for economic impacts, taxpayers across every quintile would see a small increase in after-tax income on average, but the top 5 percent of earners would continue to see a small decrease in after-tax income on average."
By Gregory Twachtman, Washington News Editor
The Internal Revenue Service’s use of artificial intelligence in selecting tax returns for National Research Program audits that areused to estimate the tax gap needs more documentation and transparency, the U.S. Government Accountability Office stated.
The Internal Revenue Service’s use of artificial intelligence in selecting tax returns for National Research Program audits that areused to estimate the tax gap needs more documentation and transparency, the U.S. Government Accountability Office stated.
In a report issued June 5, 2024, the federal government watchdog noted that while the agency uses AI to improve the efficiency and selection of audit cases to help identify noncompliance, "IRS has not completed its documentation of several elements of its AI sample selection models, such as key components and technical specifications."
GAO noted that the IRS began using AI in a pilot in tax year 2019 for sampling tax returns for NRP audits. The current plan is to use AI to create a sample size of 4,000 returns to measure compliance and help inform tax gap estimates, although GAO expressed concerns about the accuracy of the estimates with that sample size.
"For example, NRP historically included more than 2,500 returns that claimed the Earned Income Tax Credit, but the redesigned sample has included less than 500 of these returns annually," the report stated.
IRS told GAO that it "is exploring ways to combine operational audit data with NRP audit data when developing its taxgapestimates. IRS officials also told us that if IRS can reliably combine these data for taxgap analysis, IRS might be better positioned to identify emerging trends in noncompliance and reduce the uncertainty of the estimates due to the small sample size."
The report also highlighted the fact that the agency "has multiple documents that collectively provide technical details and justifications for the design of the AI models. However, no set of documents contains complete information and IRS analyst could use to run or update the models, and several key documents are in draft form."
"Completing documentation would help IRS retain organizational knowledge, ensure the models are implemented consistently, and make the process more transparent to future users," the report stated.
By Gregory Twachtman, Washington News Editor