IRS Warns About Tax Scams Related To Hurricanes, Wildfires and Vegas Shooting

The Internal Revenue Service is warning taxpayers about tax and information-stealing scams that continue to be reported around the country. Phishing, phone scams and identity theft top the list of items normally reported. However, following hurricanes and other disasters, the IRS urged taxpayers to be on the lookout for schemes stemming from these recent events.

“These scams evolve over time and adjust to reflect events in the news, but they all typically are variations on a familiar theme,” said IRS Commissioner John Koskinen. “Recognizing these schemes and taking some simple steps can protect taxpayers against these con artists.”

While individuals and businesses deal with the devastation of Hurricanes Harvey, Irma and Maria and wildland fires in the West, criminals may take advantage of this situation by creating fake charities to get money or personal information from sympathetic taxpayers. They may also attempt to con victims by impersonating a relief agency or charity that will provide relief. Such fraudulent scams and solicitations for donations may involve contact by telephone, social media, e-mail or in person.

Below are some of the more typical scams the IRS has seen:

Email Phishing Scams

The IRS has recently seen email schemes that target tax professionals, payroll professionals and human resources personnel in addition to individual taxpayers.

In email phishing attempts, criminals pose as a person or organization that taxpayers trust and recognize. They may hack an email account and send mass emails under another person’s name. They may pose as a bank, credit card company, tax software provider or government agency. If a person clicks on the link in these emails, it takes them to fake websites created by fraudsters to appear legitimate but contain phony login pages. These criminals hope victims will take the bait and provide money, passwords, Social Security numbers and other information that can lead to identity theft.

Scam emails and websites also can infect computers with malware without the user knowing it. The malware can give the criminal access to the device, enabling them to access sensitive files or track keyboard strokes, exposing logins and other sensitive information.

If a taxpayer receives an unsolicited email that appears to be from either the IRS or a program closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.  Learn more by going to the Report Phishing and Online Scams page.

The IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help protect taxpayers from email scams.

Phone Scams

The IRS does not call and leave prerecorded, urgent messages asking for a call back. In this tactic, the victim is told if they do not call back, a warrant will be issued for their arrest.

The IRS recently began sending letters to taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Because of this, taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had – and has been aware of – for years. Taxpayers also would have been previously contacted by the IRS about their tax debt.

How to Know It’s Really the IRS Calling or Knocking on Your Door

The IRS initiates most contacts through regular mail delivered by the United States Postal Service.

However, there are special circumstances in which the IRS will call or come to a home or business, such as when a taxpayer has an overdue tax bill, to secure a delinquent tax return or delinquent employment tax payment, or to tour a business as part of an audit or during criminal investigations.

Even then, taxpayers will usually first receive several letters (called “notices”) from the IRS in the mail. For more information, visit “How to know it’s really the IRS calling or knocking on your door” on IRS.gov.

Tax Refund Fraud -- Identity Theft

Tax-related identity theft occurs when someone uses a stolen Social Security number or Individual Taxpayer Identification Number (ITIN) to file a tax return claiming a fraudulent refund.

In 2015, the IRS joined forces with representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators to combat identity-theft refund fraud and protect the nation's taxpayers. This group -- the Security Summit -- has held a series of public awareness campaigns directed at taxpayers called "Taxes.Security.Together."  For tax professionals, the “Protect Your Clients; Protect Yourself” and “Don’t Take the Bait” campaigns encourage the tax community to take steps to protect themselves from identity thieves and cybercriminals.

Security Reminders for Taxpayers

The IRS and its Summit partners remind taxpayers they can do their part to help in this effort. Taxpayers and tax professionals should:

• Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files such as tax records stored on computers and devices. Use strong passwords.  

Source: http://www.cpapracticeadvisor.com/

5 Tax Tips for Hurricane Victims

Recent hurricanes have left many homeowners and businesses with major, unprecedented damage. In addition to the widespread property losses, disasters can have tax and other financial implications. Fortunately, a new law passed on September 29 provides special tax breaks for victims of Hurricanes Harvey, Irma and Maria. If you’ve been affected, consider these five tips as you work to rebuild your home or business.

1. Take advantage of more valuable personal casualty loss write-offs

For federal income tax purposes, you suffer a casualty loss when your property’s fair market value is reduced or obliterated by a sudden event such as a hurricane, flood, storm, fire or earthquake — to the extent losses aren’t covered by insurance. Property losses due to theft or vandalism also count as casualty losses.

Normally, personal casualty loss deductions are significantly less than whattaxpayers expect — or may be nothing at all — due to limitations in tax law. But the new law loosens the restrictions to allow recent hurricane victims larger deductions. Here’s what changed:

• You must normally reduce the loss amount (after offsetting it by applicable insurance proceeds) by $100. Under the new law, this $100 limitation per casualty is increased to $500. However, even though this amount went up, eligible victims can claim a larger deduction as described below.
• Generally, you must further reduce your loss by 10% of your adjusted gross income (AGI) for the year you would claim the loss on your tax return. Under the new law, this requirement is eliminated for Hurricane Harvey losses.
• You normally don’t get a deduction if you don’t itemize. But under the new law, this requirement is eliminated for eligible hurricane victims so even non-itemizers get a deduction.

Example: You incurred a $30,000 personal casualty loss last year, had AGI of $150,000 and itemized your deductions. Your allowable deduction would have been only $14,900 ($30,000 minus $100 minus $15,000). (If instead your loss was $15,100 or less, you would have gotten no write-off at all.) Under the new law, if you sustain a $30,000 qualified disaster-related loss due to Hurricane Harvey, Irma or Maria, your allowable deduction will be $29,500 ($30,000 minus $500).

2. Understand business casualty loss write-offs

If you have disaster losses to business property, you can deduct the full amount of the uninsured loss as a business expense on your entity’s tax return or on the appropriate Form 1040 schedule if you operate as a sole proprietor. As with personal casualties, you can opt to claim 2016 deductions for 2017 losses in a federally declared disaster area.

3. Beware of taxable involuntary conversion gains

If you have insurance coverage for disaster-related property damage under a homeowners, renters, or business policy, you might actually have a taxable gain instead of a deductible loss.

If the insurance proceeds exceed the tax basis of the damaged or destroyed property, you have a taxable profit under tax law. This is true even if the insurer doesn’t fully compensate you for the pre-casualty value of the property. These are called “involuntary conversion gains” because the casualty causes your property to suddenly be converted into cash from insurance proceeds.

When you have an involuntary conversion gain, you generally must report it as taxable income unless you make a special election to defer the gain and make sufficient expenditures to repair/replace the affected property..

If you make the gain-deferral election, you’ll have a taxable gain only to the extent the insurance proceeds exceed what you spend to repair/replace the property. The expenses generally must occur within the period beginning on the damage or destruction date and ending two years after the close of the tax year in which you have the involuntary conversion gain. The deferred gain amount is subtracted from your basis in the affected property.

4. Take note of special principal residence rules

For federal income tax purposes, special rules apply to involuntary conversion gains on principal residences. For this purpose, principal residence means the place has been your main home for at least the last two years. Some benefits depend on whether you own your principal residence:

For a principal residence you own. You can probably use the federal gain exclusion tax break to reduce or eliminate any involuntary conversion gain. The maximum gain exclusion is $250,000 for unmarried homeowners and $500,000 for married joint-filing couples. To qualify for the maximum exclusion, you must have owned and used the property as your main home for at least two of the last five years. If you still have a gain after taking advantage of the gain exclusion tax break, you have four years (instead of the normal two years) to make sufficient expenditures to repair or replace the property and thereby avoid a taxable involuntary conversion gain if your residence was damaged or destroyed by an event in a federally declared disaster area.

For a home you own or rent. If contents in your principal residence were damaged or destroyed by an event in a federally declared disaster area, there is no taxable gain from insurance proceeds that cover losses to unscheduled personal property. In other words, you don’t need to repair or replace contents to avoid a taxable involuntary conversion gain. You can do whatever you want with insurance money from unscheduled personal property coverage without tax concerns. This beneficial rule applies whether you own your principal residence or not.

5. You may be able to tap into your retirement account

The IRS previously announced that 401(k) plans and similar employer-sponsored retirement plans can make loans and hardship distributions to Hurricane Harvey victims and members of their families with streamlined procedures and liberalized hardship distribution rules. The new law provides additional relief to eligible taxpayers.

Under current law, if a participant takes distributions from a qualified retirement plan before age 59½, a 10% early withdrawal penalty is due on the amount withdrawn, unless the taxpayer meets the rules for one of several exceptions. Regular income tax is also due on the amount. Under the new law, eligible victims under age 59½ can take tax-favored distributions from retirement plans without paying the 10% early withdrawal penalty. They’re also allowed the option of spreading the income resulting from the distributions over a three-year period.

In addition, the new law provides more flexibility to eligible hurricane victims by allowing them to borrow more from their accounts. It also removes some loan limitations and delays certain repayment dates.

Make sure to consult with a tax professional

As you work to rebuild, be sure to consult with a tax advisor for a full explanation of the implications of a major property loss as there could be additional considerations in your situation. This area of the tax law can be complicated, but the tax dollars involved may be significant.

Source: CPA Practice Advisor

Northern California wildfire victims given more time to file extensions

The IRS has given victims of the Northern California wildfires who are on a filing extension until January 31, 2018, to file their returns. (IR-2017-172) California automatically conforms to federal postponement periods for any presidentially declared disasters, and the FTB confirmed that today. (R&TC §18572)

Relief is available to:

• Taxpayers located in the counties declared a presidential disaster area (Butte, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba); 
• Firefighters and relief workers providing help in these disaster areas; and
• Taxpayers whose tax preparers are located in these disaster areas.

For federal returns, taxpayers who have an address of record with the IRS in a disaster area qualify for automatic relief. Other qualifying taxpayers must contact the IRS at (866) 562-5227 to obtain the relief. For California returns, call the FTB Tax Practitioner Hotline at (916) 845-7057.

The January 31, 2018, extension relief applies to various tax filing and payment deadlines that occurred starting on October 8, 2017, including the October 31 deadline for quarterly payroll and excise tax returns.

The IRS is also waiving late deposit-penalties for federal payroll and excise tax deposits normally due after October 8 and before October 23 if the deposits are made by October 23.

Note: This relief only applies to victims of the Northern California fires. Orange County fire victims unable to timely file will have to request reasonable cause penalty abatement if they are unable to timely file their returns.

Source: Spidell