Tax Season 2019: September 2013

Friday, September 27, 2013

The IRS is committed to working with taxpayers who are the victims of identity theft

The IRS has taken numerous steps to combat identity theft and protect taxpayers. They are continually looking at ways to increase data security and protect taxpayers' identities with assistance from our Identity Protection Specialized Unit. Identity theft cases are among the most complex ones we handle.

The IRS know identity theft is a frustrating process for victims. They take this issue very seriously and continue to expand on their robust screening process in order to stop fraudulent returns and protect innocent taxpayers.

Depending upon your personal circumstances, the information found here will cover a variety of scenarios involving identity theft, ranging from contacting us with a case of identity theft to providing tips to help keep your records safe.

Victim of identity theft?
Do you have reason to believe you are the victim of identity theft and your tax accounts have been affected?
Lost or stolen wallet?
Have you become the victim of identity theft? Here are places for help.
Protect yourself
Tips from the IRS to help protect yourself from identity theft
IRS action on identity theft
Steps the IRS is taking to prevent, detect and resolve identity theft cases
Additional helpful resources
IRS identity theft news and outreach
Taxpayer Guide to Identity Theft
A one-page guide for identity theft victims.
Special Identity Theft Enforcement Efforts
2013
2012
Law Enforcement Assistance Pilot Program
Pilot program designed to aid law enforcement in investigating and prosecuting specific cases of identity theft.

Remember:
The IRS 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.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication

Eight Tax-Time Errors to Avoid

DEADLINE: October 15, 2013

If you make a mistake on your tax return, it usually takes the IRS longer to process it. The IRS may have to contact you about that mistake before your return is processed. This will delay the receipt of your tax refund.

The IRS reminds filers that e-filing their tax return greatly lowers the chance of errors. In fact, taxpayers are about twenty times more likely to make a mistake on their return if they file a paper return instead of e-filing their return.

Here are eight common errors to avoid.

Wrong or missing Social Security numbers. Be sure you enter SSNs for yourself and others on your tax return exactly as they are on the Social Security cards.
Names wrong or misspelled. Be sure you enter names of all individuals on your tax return exactly as they are on their Social Security cards.
Filing status errors. Choose the right filing status. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child. See Publication 501, Exemptions, Standard Deduction and Filing Information, to help you choose the right one. E-filing your tax return will also help you choose the right filing status.
Math mistakes. If you file a paper tax return, double check the math. If you e-file, the software does the math for you. For example, if your Social Security benefits are taxable, check to ensure you figured the taxable portion correctly.tax booklet carefully.
Errors in figuring credits, deductions. Take your time and read the instructions in your tax booklet carefully. Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit and the standard deduction. For example, if you are age 65 or older or blind check to make sure you claim the correct, larger standard deduction amount.
Wrong bank account numbers. Direct deposit is the fast, easy and safe way to receive your tax refund. Make sure you enter your bank routing and account numbers correctly.
Forms not signed, dated. An unsigned tax return is like an unsigned check – it’s invalid. Remember both spouses must sign a joint return.
Electronic signature errors. If you e-file your tax return, you will sign the return electronically using a Personal Identification Number. For security purposes, the software will ask you to enter the Adjusted Gross Income from your originally-filed 2011 federal tax return. Do not use the AGI amount from an amended 2011 return or an AGI provided to you if the IRS corrected your return. You may also use last year's PIN if you e-filed last year and remember your PIN.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication

Tax-filing and Payment Extensions Expire Oct. 15; Check Eligibility for Overlooked Tax Benefits; Choose e-file; Payment Options Available

The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax benefits and then file their returns electronically using IRS e-file or the Free File system.

Many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file. Though Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due. People with extensions in parts of Colorado affected by severe storms, flooding, landslides and mudslides also have more time, until Dec. 2, 2013, to file and pay.

Check Out Tax Benefits

Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other often-overlooked credits and deductions:

Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.
Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.
Same-sex couples, legally married in jurisdictions that recognize their marriages, are now treated as married, regardless of where they live. This applies to any return, including 2012 returns, filed on or after Sept. 16, 2013. This means that they generally must file their returns using either the married filing jointly or married filing separately filing status. Further details are on IRS.gov.

E-file Now: It’s Fast, Easy and Often Free

The IRS urged taxpayers to choose the speed and convenience of electronic filing. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The tax agency verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too.

Everyone can use Free File, either the brand-name software, offered by IRS’ commercial partners to individuals and families with incomes of $57,000 or less, or online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.

Of the nearly 141.6 million returns received by the IRS so far this year, 83.5 percent or just over 118.2 million have been e-filed.

Quick and Easy Payment Options

Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System (EFTPS), by electronic funds withdrawal or with a credit or debit card. There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors do charge a convenience fee. For those who itemize their deductions, these fees can be claimed on next year’s Schedule A Line 23. Those who choose to pay by check or money order should make the payment out to the “United States Treasury”.

Taxpayers with extensions should file their returns by Oct. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest, currently at the rate of 3 percent per year compounded daily, and late-payment penalties, normally 0.5 percent per month, will continue to accrue.

Fresh Start for Struggling Taxpayers

In many cases, those struggling to pay taxes qualify for one of several relief programs. Most people can set up a payment agreement with the IRS on line in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months or request a short-term extension to pay. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.

Taxpayers can also request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.

Alternatively, some struggling taxpayers qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

Details on all filing and payment options are on IRS.gov.

Friday, September 20, 2013

Tax Court Holds Accounts Receivable Are Debt

In a new ruling, the Tax Court has held that accounts receivable constituted related party debt under Code section 965(b)(3), and therefore part of the deduction claimed by the taxpayer, BMC Software, Inc., was disallowed.

The section 965(b)(3) related party debt rule reduces the dividends otherwise eligible for the 85 percent dividends received deduction by any increase in the indebtedness of a controlled foreign corporation to any related person. The one-time dividend received deduction was created in 2004 to encourage U.S. corporations to repatriate their foreign earnings and increase investment in the U.S.

BMC Software, Inc., is a U.S. corporation that develops and licenses computer software, and is the common parent of a group of subsidiaries that joined in the filing of a consolidated federal income tax return. BMC has a wholly-owned controlled foreign corporation, BMC Software European Holding (BSEH).

Under cost-sharing agreements BMC and BSEH co-owned software and each held exclusive distribution rights for certain territories. BMC terminated the CSAs in 2002 and took sole ownership of the software, agreeing to pay future royalties to BSEH and licensed to BSEH the software for distribution.

The IRS concluded that the royalty payments from 2002 through 2006 were not arm’s length. BMC entered a transfer pricing closing agreement, under which the IRS increased BMC‘s income by $102 million for the four years, representing net reductions in royalties BMC paid to BSEH.

The primary adjustments required BMC to make secondary adjustments to conform its accounts. These secondary adjustments would have been treated as deemed capital contributions from petitioner to BSEH except that BMC elected to establish accounts receivable under Rev. Proc. 99-32 for repayment. This resulted in a second closing agreement between BMC and the IRS that established interest-bearing accounts receivable from BSEH to BMC. The accounts receivable bore interest at the applicable federal rate, which was deductible from BSEH’s taxable income and includible in BMC’s taxable income.

Before it entered the closing agreements, BMC repatriated from BSEH $721 million. On its 2006 federal corporate return, BMC claimed $709 million in repatriated dividends as qualifying for the one-time dividends received deduction under Code section 965.

Under Code section 965, the amount of the deduction is reduced by increased indebtedness during a testing period running from the close of the taxable year in which the election is in effect and October 3, 2004. The IRS determined that $43 million of the repatriated dividends was ineligible for the dividends received deduction, since they were deemed established during the testing period and constituted increased related party indebtedness.

The Tax Court held that the accounts receivable deemed established during the testing period are increased related party indebtedness for purposed of section 965.

Although BMC contended that the related party debt rule only applies to abusive transactions, the court disagreed. It found that the accounts receivable constitute indebtedness for purposes of section 965(b)(3).

IRS to Get Stricter on Preparer Penalties

In response to a recent government report, the IRS will be improving its procedure for determining and enforcing penalties on paid tax preparers.

The report from the Treasury Inspector General for Tax Administration was requested by the IRS Oversight Board to determine how effective the IRS is in using the existing requirements and penalty regime that applies to unenrolled paid tax return preparers. The overall objective was to determine whether controls are in place to ensure that the IRS effectively enforces and applies penalties to paid preparers as required by Internal Revenue Code Section 6694, which provides penalty standards for paid preparers who take unreasonable positions or intentionally prepare inaccurate tax returns.

TIGTA reviewed a statistical sample of 98 closed Section 6694 preparer penalty cases from a population of 2,345 cases with penalties totaling $9.35 million that were closed during fiscal years 2009 through 2011. In eight cases, the immediate managers did not properly approve $19,000 in preparer penalty assessments as required.

Section 6751(b) requires that no penalty shall be assessed unless the initial determination of such assessment is personally approved in writing by the immediate supervisor. The lack of proper approval could hinder the IRS’s ability to successfully litigate these penalty assessments in court if necessary. When this issue was brought to their attention, IRS officials took immediate corrective actions by emphasizing the importance of properly approving, in writing, preparer penalty assessments.

TIGTA also analyzed the IRS’s quality reviews for civil penalty determinations to evaluate whether preparer penalties were properly considered and documented. IRS quality reviewers found that examiners did not always adequately document the examination case files with the facts that supported whether or not they considered paid preparer penalties. This appeared to be attributable to management’s interpretation of procedures regarding proper documentation in the examined cases.

In addition, TIGTA analyzed the Master File to determine whether the IRS is effectively enforcing paid preparer penalties, and found that current enforcement practices do not treat paid preparers with unpaid penalties as a priority, which could impact whether penalties achieve their intent of changing preparer behavior and increasing voluntary compliance.

TIGTA recommended that the IRS update the Internal Revenue Manual and implement improvements to ensure that managers and employees adhere to internal procedures for documenting actions and results in the preparer penalty case files. TIGTA also recommended that the IRS develop procedures to expedite assigning Section 6694 preparer penalty tax accounts to a revenue officer, as well as to give more consideration before suspending collection actions on these types of accounts.

IRS officials agreed with all of the recommendations and said that they plan to take corrective actions.