New Identity Safeguards for 2016 Tax Returns (State and Federal)

For 2016, the Internal Revenue Service (IRS) and the Nebraska Department of Revenue (DOR) are taking steps to reduce tax-related identity theft, which has become a growing issue. For example, in 2013, the IRS identified almost $30 billion of fraudulent refund requests. While most of the efforts at the IRS will be invisible to the taxpayer, new login steps for e-filers of federal returns will likely be noticeable.

On the state level, each state is taking different procedures to prevent tax-related identity theft. In Nebraska, the DOR will request further information from taxpayers who elect to use the e-filing system. The DOR will ask for a driver’s license or similar state issued ID card during the e-filing process. This additional identity information is voluntary and a tax return will be processed if it does not contain this information, however, it may take longer to process in order to ensure that the return is not fraudulent.

When filing, if the IRS or DOR notes that you have filed more than one tax return, or the records indicate work income from an employer you did not perform work for in the tax year, or you somehow have an abnormal taxing event, steps should be taken to determine whether you are a victim of tax-related identity theft, to prevent further damage.

 © 2015 Vandenack Williams LLC
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New Law Requires IRS to Use Private Debt Collectors

Private debt collectors are now likely to take a more active role in the collection of federal tax debts. New law recently amended IRC § 6306 to require the use of private debt collectors when: (1) the tax debt is not being collected because of a lack of IRS resources or the IRS cannot locate the taxpayer; (2) More than 1/3 of the statute of limitations has lapsed and no IRS employee has been assigned the collection; and (3) in the case of a collection that has been assigned to an IRS employee, but more than 365 days have passed without interaction with the taxpayer or a third party for furthering the collection.

A private debt collector may not be used when (1) there is a pending or active offer-in-compromise or installment agreement; (2) it is an innocent spouse case; (3) the taxpayer is deceased, under 18, in a combat zone, or a victim of tax-related identity theft; (4) the taxpayer is under examination, litigation, criminal investigation, or levy; or (5) the debt is in the process of an appeal.

Taxpayers should be aware of the procedures and the restrictions on these private debt collectors. If a tax debt is turned over to a private debt collector, the taxpayer will receive a letter notifying them of the outstanding debt and that it is being turned over to the debt collection company. In addition, the debt collection company will not be able to accept payment over the phone as the IRS will continue to process payments. As private debt collectors, these debt collectors will be subject to the Fair Debt Collection Practices Act. The Fair Debt Collocation Practices Act prohibits debt collectors from engaging in certain abusive or deceptive conduct. If the private debt collector violates the Fair Debt Collection Practices Act, the taxpayer may be able to recover damages. Nevertheless, taxpayers should remain vigilant and informed regarding tax scams as the increased involvement of private debt collectors may give rise to new scams or related issues.

© 2015 Vandenack Williams LLC
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Passport Revocation for Seriously Delinquent Taxpayers

The Internal Revenue Service has a new tool to encourage taxpayers to pay delinquent tax debts. If the IRS notifies the Secretary of State by certification that an individual has a seriously delinquent tax debt, the Secretary of State may deny issuing or renewing a passport or revoke the individual’s passport. IRC § 7345 is part of the Fixing America’s Surface Transportation Act and was signed into law by President Obama on December 4, 2015.

A seriously delinquent tax debt is an unpaid, legally enforceable federal tax liability greater than $50,000, which has been accessed and taxpayer has received a notice of lien or levy is made. Taxpayers are not considered to have a seriously delinquent tax debt if they are involved in settling their debt through an offer-in-compromise, installment agreement, or are legally contesting the debt.

If the IRS notifies the Secretary of State of such a tax debt, the Code also requires that the taxpayer receive the same notice. If the taxpayer believes the certification is erroneous, taxpayer may bring a civil action in federal district court or the tax court. If a court determines that the certification was erroneous, the court will order the IRS to notify the Secretary of State of such error. Additionally, if the IRS determines that such certification was erroneous or if the debt is satisfied or ceases to be seriously delinquent, the IRS must send notice to the Secretary of State.

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New Guidance Issued for Health Coverage Tax Credit

On December 23, 2015, the Internal Revenue Service issued Notice 2016-2, a notice providing new guidance for the Health Coverage Tax Credit. The Health Coverage Tax Credit under Section 35 of the Internal Revenue Code provides an income tax credit for a percentage of the amount paid for health insurance coverage by eligible taxpayers. The credit was created to help pay the cost of private health coverage for displaced workers certified to receive certain benefits and individuals receiving certain pension benefits. The credit was allowed to expire in 2013, but was reinstated retroactively and extended through 2019 by the Trade Preferences Extension Act of 2015.

Notice 2016-2 provides updated information about who may claim the credit, the process and procedures for claiming the credit for 2014, and information for taxpayer who enrolled in a health insurance plan through the Health Insurance Marketplace.

Eligible taxpayers are allowed a refundable credit for 72.5% of the amount paid for qualified health insurance coverage for themselves and qualifying family members. Eligible taxpayers are persons receiving trade adjustments assistance under the Trade Act, participants in worker retraining programs under the Trade Act, or individuals who are 55 years of age or older and receive a pension from the Pension Benefit Guarantee Corporation. The most common health insurance coverage eligible for the credit includes COBRA, state-qualified health plans, and spousal coverage.

For taxpayers who were eligible for the credit in 2014, the taxpayer must file an amended return (1040X) to claim the credit. The updated instructions for Form 1040X include the steps necessary to receive the credit.

In 2015, the taxpayer must make an annual election on Form 8885 and file the Form with their 2015 income tax return. Form 8885 and its instructions are also updated for 2015.
For more information in the Notice see, Internal Revenue Service, Notice 2016-2, available at https://www.irs.gov/pub/irs-drop/n-16-02.pdf.

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IRS Announces Increase in De Minimis Safe Harbor Rule for Small Business Capital Expenses

It is a common decision for a small business to not keep audited financial statements, which means they do not get some of the tax benefits given to companies that have “applicable financial statements.” One such tax provision is the amount a company can claim under the de minimis safe harbor for capital items.

The de minimis safe harbor is designed to reduce paperwork and recordkeeping requirements, but still allow business to deduct expenses for improvement in tangible property that would normally qualify as a capital item. Under the previous Internal Revenue Service (IRS) regulation, the small business not keeping applicable financial statements were limited to $500, while those with audited financial statements were allowed up to $5,000. Starting with the 2016 tax year, the small business not keeping audited financial statements will be able to deduct up to $2,500 per invoice under the de minimis safe harbor for expenses to improve tangible property.

What this means for many small business owners is that expenses for the “acquisition or production of new property or for the improvement of existing property” may be deducted if the expenditure is less than $2,500 per invoice. This should ease accounting burdens and paperwork requirements for small business that sought to deduct these types of expenses under the previous rule.

© 2015 Houghton Vandenack Williams
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IRS Announces “Taxes. Security. Together.”

On November 19, 2015, the IRS announced the newest campaign to help protect taxpayer information, “Taxes. Security. Together.” The campaign is a public awareness campaign aimed at encouraging taxpayers to protect personal and financial data. This effort comes as a result of the recent Security Summit which was the collaboration of the IRS, states, and members of the tax industry.

The campaign will complement the IRS’s own efforts to protect personal data by providing taxpayers with information about how they can protect their own sensitive information. Through April 2016, Taxpayers should expect to see YouTube videos, weekly tax tips, and local events across the county. A new tax tip will be published each Monday through the start of the tax season in January.

Within the announcement, the IRS provided some simple efforts for taxpayers to protect data:

• Utilize security software and other efforts to protect computes. This includes firewalls, anti-virus protection, file encryption, and strong passwords
• Be aware of email and phone scams. Taxpayers should be aware of the various efforts identity thieves are using to steal names, Social Security numbers, passwords, credit card numbers and bank information. The IRS has recently warned of emails, calls and text message. For our blog regarding these scams, see IRS Warns of Tax Scams, available at https://hvwtaxandbusinesslaw.wordpress.com/2015/08/14/irs-warns-of-tax-scams/
• Protect personal information: The IRS reminds taxpayers not to routinely carry Social Security cards and the dispose of old tax returns or client copies provided by preparers. Taxpayers should consider checking credit reports and Social Security Administration accounts to monitor for fraudulent activity.

For additional information about the announcements following the Security Summit, see our previous blog post, New Efforts by the IRS to Detect Identity Theft, available at https://hvwtaxandbusinesslaw.wordpress.com/2015/11/04/new-efforts-by-the-irs-to-detect-identity-theft/

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