Initial Steps for Victims of Tax Related Identity Theft

As the 2016 tax season comes to a close, many taxpayers may have discovered they were victims of identity theft. Taxpayers often discover that they have been a victim of identity theft after they receive information that a tax return has already been filed using their social security number. If you are e-filing and a return has already been filed, your filing will likely be rejected. If the IRS suspects identity theft, you will receive Letter 5071C, which will request you verify your identity. Such verification can be completed online at https://idverify.irs.gov/IE/e-authenticate/welcome.do.

 After discovering that you have been a victim of identity theft, you should take multiple actions to protect your identity and correct any fraudulent returns with the IRS. It is recommended that you contact the FTC at identitytheft.gov and contact one of the major credit bureaus to place a fraud alert on your credit. If you have received a notice from the IRS or your attempt to e-file a return was denied, you should immediately contact the IRS. If your e-filing has been denied and you believe it is related to identity theft, you must complete Form 14039, Identity Theft Affidavit. Form 14039, a paper copy of your return, and any required payment of tax should be mailed to the IRS.

 If issues persist related to any fraudulently filed tax returns, additional information can be obtained from the IRS’s website, https://www.irs.gov/, or by contacting Vandenack Williams LLC.

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Internal Revenue Service Experiences Computer Issues

Last week, the Internal Revenue Service experienced wide spread computer issues. On Wednesday, February 3, many of IRS’s computer systems became unavailable. Within 24 hours after initially reporting the outage, the IRS announced it had resumed processing individual and business tax returns. Initial reports indicate that the outage was caused by a hardware failure.

The IRS is telling taxpayers they should not take additional action in response to the outage. While the outage prevented the IRS from accepting returns, reports are that the outage should not affect taxpayers who filed prior to February 3 or before the outage occurred that day. For taxpayers who submitted returns during the outage through tax preparation services such as H&R Block and Turbo Tax, those services held returns until the IRS resolved its computer issues.

The IRS is also indicating that the issues should not create any delays in taxpayers receiving refunds. The IRS is continuing to state that 9 out of 10 taxpayers should receive their refunds with 21 days after being accepted by the IRS. If you have filed your return, you can check the status of your refund using the “Where’s My Refund?” tool at https://www.irs.gov/Refunds.

For additional information about the outage, visit the IRS website at https://www.irs.gov/uac/Newsroom/IRS-Experiencing-Systems-Outage2. Additional information may be released as the IRS continues to examine the cause of the outage and monitor for any issues.

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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.

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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 “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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New Efforts by the IRS to Detect Identity Theft

The IRS is continuing to make efforts to limit taxpayer victimization from tax scams or identity theft. This year the IRS worked with tax preparers and state governments to identify ways to prevent identity theft related to tax filings. In a recent news release, the IRS announced that following a Security Summit, the IRS and leaders in the tax preparation industry developed new methods for protecting taxpayers.

These methods include the development of 20 data components that will be submitted with a tax return transmission. The IRS will now review for improper or repetitive use of IP addresses and review computer device identification data. Additionally, the IRS identified that it will review the time it took to complete the tax return as a way to detect mechanized fraud. Finally, there will be metadata attached to the transmission that the IRS stated will be used to detect identity theft related fraud.

As part of the Security Summit, major tax preparer software companies, H&R Block, Intuit, TaxHawk, and TaxSlayer all indicated a commitment to protect taxpayer data for the upcoming tax season. For taxpayers using tax preparation software from these companies, they will likely see additional security questions and device recognition upon logging in. These features will be similar to those used in online banking.

For more information, see IRS, States, Industry Continue Progress to Protect Taxpayers from Identity Theft (Oct. 20, 2015), available at https://www.irs.gov/uac/Newsroom/IRS,-States,-Industry-Continue-Progress-to-Protect-Taxpayers-from-Identity-Theft.

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Internal Revenue Service Releases 2016 Tax Numbers

On October 21, 2015, the Internal Revenue Service released the annual inflation adjustments for more than fifty tax provisions and the tax rate schedules for individuals, married individuals filing jointly, and heads of households. For 2016, Taxpayers will see a slight increase in some tax benefits, while other benefits will remain the same. Along with the tax benefits, several penalties have also been adjusted.

We updated our Key Tax Numbers which can be located on our website at the following link: Key Tax Numbers. Additionally, the IRS provided a summary of the provisions that it believes would be of the greatest interest to most tax payers. The summary and a link to the Revenue Procedure can be found at https://www.irs.gov/uac/Newsroom/In-2016-Some-Tax-Benefits-Increase-Slightly-Due-to-Inflation-Adjustments,-Others-Are-Unchanged. Alternatively, the Revenue Procedure will appear in the Internal Revenue Bulletin 2015-44 dated November 2.

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Beginning Farmer Tax Credit Application Due Oct. 1

The deadline to apply for the Iowa Agricultural Asset Transfer Tax Credit, otherwise known as the Beginning Farmer Tax Credit, is October 1, 2015. For landowners leasing agricultural assets to a beginning farmer and wishing to take advantage of the tax credit,  an application must be submitted to the Iowa Agricultural Development Division by the deadline to be considered for the 2015 tax year.

The Beginning Farmer Tax Credit was passed by the Iowa legislature in 2006 and became operative for the 2007 tax year. The goal of the Iowa legislature was to ensure that agricultural land remained active and continued to produce agricultural products.  The tax credit has specific guidelines, including limitations and qualifications on the asset that can be leased. For example, a qualifying asset is agricultural land, buildings, and depreciable property located in Iowa and used for farming purposes. Depending upon the underlying asset and lease agreement, the specific value of the tax credit will vary. For those applying, the application fee and other requirements will vary based upon similar factors.

A joint application must be submitted by the beginning farmer and the asset owner. Additional financial information and other documents may be required. The application form can be download at the Iowa Finance Authority website: http://iowafinanceauthority.gov/File/DownloadFile/5260.

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