Dirty Dozen Tax Scams, Part 2
The IRS has completed their Dirty Dozen tax scam series, warning individuals and businesses about popular schemes and scams targeting taxpayers. Information to help recognize a scam, and steps to take for those who have been targeted or have fallen prey to such predators. The final scams to be aware of are:
- Tax advice on social media can lure otherwise honest taxpayers into compromising tax situations. Two recent schemes currently circulating involve filing fraudulent Form 8944 and Form W-2.
- Spearfishing emails, where fraudsters attempt to steal client data or professional credentials from tax preparers. These can look like potential new clients or a request targeting payroll or human resource departments asking for Form W-2 information.
- Offer in Compromise “mills” claiming they can help settle IRS debts for pennies on the dollar. Taxpayers who don’t meet the technical requirements for an offer often face excessive fees from promoters for information easily obtained themselves. Taxpayers should know they can check their eligibility using the IRS’s Offer in Compromise Pre-Qualifier tool.
- Abusive tax arrangements targeting wealthy taxpayers may involve things like Charitable Remainder Annuity Trusts and monetized installment sales. The promoters often misapply the rules, leaving filers vulnerable. “People should seek out trusted, reputable tax advice and not be fooled by aggressive advertising,” says IRS commissioner Danny Werfel.
- Bogus schemes to reduce or avoid taxes may involve syndicated conservation easements, micro-captive insurance arrangements. They can also involve international methods; hiding cash and digital assets offshore or using Maltese foreign individual retirement accounts or foreign captive insurance.
- A summary of the scams may be found here.
April 18 Deadline Reminder
The IRS reminds taxpayers that Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023. These payments are usually due from those who do not have taxes withheld from their paychecks throughout the year, such as the self-employed, retirees, investors, businesses and corporations. Income not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying estimated taxes in a timely fashion will lessen and even eliminate any penalties. Eligible taxpayers in recent disaster areas in California, Alabama, Georgia and now Tennessee have several deadlines extended to make their estimated payments. A current list of areas qualifying for disaster relief can be found at Tax Relief in Disaster Situations.
Debunking Tax Myths
“I don’t need to report income since I didn’t receive a Form 1099-K.” “If I file an extension, I don’t have to pay anything until October.” Find the truth about these and other myths before Tax Day.
Filing Season Scams Abound
The IRS has issued an alert warning taxpayers of new scams that urge people to claim false tax credits with inaccurate wage information. One scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement with false income information. Scam artists instruct people to use the bogus information in their electronically-filed return with the aim of getting a large refund. A variation of the scam involves using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals to claim a credit based on income earned as an employee. These credits are not available for 2022 tax returns.
Another warning has been renewed, urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit. Third parties are aggressively pushing ineligible people to use this, misleading people and businesses into thinking they can claim these credits. Penalties are wide-ranging and may include a $5000 fine or criminal prosecution. Those who have participated in such schemes can amend a previous return or consult with a trusted tax professional.
Digital Intake Ramps Up
The IRS has announced an expansion of digital scanning, having already scanned more than 120,000 paper Forms 940 since the beginning of the year. This is a 20-fold increase compared to all of 2022. The effort will expand soon to include scanning of Forms 1040 and Forms 941. The IRS has used various technologies to scan tax returns over the years, but recently took a leap forward thanks to the Inflation Reduction Act. Most tax returns are filed electronically but millions of forms are still filed by paper. With an increased capability to scan and electronically process these paper returns, the IRS will be able to shorten overall processing time.
Retiree Reminder: April 1 Deadline Approaches
The IRS reminds retirees who turned 72 during 2022 that, in most cases, Saturday, April 1, 2023 is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans. These payments, called required minimum distributions (RMDs) are normally made by the end of the year. However, those who reached age 72 during 2022 are covered by a special rule that allows them to wait until as late as April 1, 2023 to take their first RMD. This delayed deadline only applies to the RMD for the first year. In subsequent years the RMD must be made by the year’s end. This means that those who opt for their 2022 RMD by April 1 must still receive their 2023 RMD by December 31, 2023. Both RMDs are taxable and will be reported on the 2023 tax return. Visit the RMD FAQs page for more information.
Business E-File Regulations Finalized
The IRS and Treasury have issued final regulations amending the rules for filing returns and other documents electronically. Filers of partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, some information returns and other statements, notifications, and reports will be required to e-file beginning in 2024. A new online portal has been created to help businesses file form 1099 returns electronically.
May 15 Disaster Area Deadlines Extended
Disaster area taxpayers in much of California and parts of Alabama and Georgia now have until Oct 16, 2023 to file various federal tax returns and make payments, the IRS has announced. Previously, the deadline had been postponed to May 15 for these areas. This deadline includes individual and business returns normally due on March 15 and April 18; returns of tax-exempt organizations normally due on May 15. Those affected also have until October 16 to make 2022 contributions to IRAs and health savings accounts. The deadline also applies to various tax payments. Current tax-related disaster information can always be found on the IRS Disaster Tax Relief page.
AMT Guidance for Insurance Providers Issued
The Treasury and IRS have issued Notice 2023-20 which provides interim guidance for insurance companies and some other taxpayers for the new corporate alternative minimum tax (CAMT) until proposed regulations are issued. The Inflation Reduction Act of 2022 created the CAMT, imposing a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning in 2023. Large corporations, including insurance companies, with adjusted financial statement income exceeding $1 billion will be those generally affected by the CAMT. Comments on the rules are welcome and must be submitted by April 3, 2023.
2022 Return Tax Time Guide
The IRS reminds taxpayers to gather their necessary information and visit IRS.gov or their trusted tax preparer for help with their 2022 tax return. Several changes have been implemented due to the Inflation Reduction Act and American Rescue Plan Act, including the reduction in Earned Income Tax Credit, Child Tax Credit, and Child and Dependent Care Credit amounts. Additionally, those that don’t itemize cannot deduct their charitable contributions this year. More in the Tax Time Guide series will be forthcoming.
Be Prepared For Disaster
Ahead of hurricane season, the IRS is reminding taxpayers to create or review their emergency preparedness plans, including protecting important tax-related information. The following tips are advised:
- Protect documents – original tax returns, birth certificates, titles and insurance policies should be kept in waterproof containers in a secure place. Duplicates or digital copies should be made and deposited with a trusted person outside the area.
- Document property – home or business photos, including contents, can help if insurance claims must be made.
- Check fiduciary bonds – employers should ensure that their payroll provider has a fiduciary bond in place, which would protect the employer in the event of default by the provider.
- Reconstructing documents – the IRS has a webpage to help.
National Small Business Week
In honor of National Small Business Week, the IRS is highlighting many tax benefits and resources for entrepreneurs:
IRS Reaches Out To Puerto Rico
The IRS is encouraging residents of Puerto Rico with even one child to file a federal tax return to claim the Child Tax Credit. Beginning with Tax Year 2021, the Credit is available, even if they had no income, only tax-exempt income, or paid no US Social Security taxes. If the April 18 filing deadline was missed, returns can still be filed without penalty to claim the Credit through April 15, 2025. Additionally, the IRS is expanding outreach to serve Puerto Rico residents who may have little or no experience filing a federal tax return. “Not only do we want them to know about the credit, but we also want them to know there is help – some of it free – for getting it.”
2021 Recovery Rebate Credit FAQ
The IRS has issued frequently asked questions (FAQs) for the 2021 Recovery Rebate Credit. This credit may apply to those who didn’t receive the full amount of their third Economic Impact Payment. To claim the credit, which can reduce taxes owed or provide a refund, eligible people must file a 2021 tax return. The FAQ covers eligibility, claiming the credit, calculating the credit, and finding the relevant information in order to claim the credit.
January 31 Wage Statement Deadline
The IRS is reminding employers to be aware of the January 31 deadline to file Forms W-2 and other wage statements. Filing accurate forms by this date helps the IRS more easily detect refund fraud and helps employers avoid penalties. Applications for extension may also be submitted to provide more time to file with the IRS. A separate extension application may extend the due date for furnishing wage statements to employees.
Some Filing Reminders
The IRS reminds taxpayers to keep a few things in mind when filing federal income tax returns this year. Their checklist encourages individuals to:
- Use e-file and direct deposit, even if using a trusted tax professional
- Collect all documents, including letters regarding the Advance Child Tax Credit and third Economic Impact Payment
- Use online tools and resources to save time over calling the IRS
2022 Tax Season Begins
The IRS has kicked off the 2022 tax filing season admonishing taxpayers to take extra precautions when filing. Electronic filing, with direct deposit, is the fastest way to avoid any refund delay. Tax software, a trusted tax professional, or Free File for those who qualify, is recommended. Recipients of the advance Child Tax Credit payments or Economic Impact Payments should ensure those amounts are entered correctly as inaccuracies in this area will result in extensive delays. Most taxpayers have a filing due date of April 18, thanks to the Washington, DC Emancipation Day holiday observance. Those in Massachusetts and Maine have until April 19 due to Patriots Day, and as always, some disaster victims have later filing deadlines.