IRS & Credit Issues

The IRS issued a worrisome warning on Tuesday, March 1, 2016: payroll and human resources departments should beware of an email phishing scheme in which cybercriminals pose as company executives (including CEOs) and ask for confidential employee information, such as Forms W-2, Wage and Tax Statement, as well as employees’ Social Security numbers, address, date of birth, and salary. Once this information has been stolen, it can be used to commit a number of crimes, including filing fraudulent tax returns to obtain refunds.

This article addresses the critical action the IRS is taking to foreworn HR and Payroll professionals concerning this new criminal tactic. We especially want to encourage HR and Payroll professionals to be aware of the specific tactics being used, and to caution everyone involved in HR and payroll activities to be extra vigilant. 

The following is an excerpt taken directly from the IRS website:

WASHINGTON — The Internal Revenue Service today issued an alert to payroll and human resources professionals to beware of an emerging phishing email scheme that purports to be from company executives and requests personal information on employees.

The IRS has learned this scheme — part of the surge in phishing emails seen this year — already has claimed several victims as payroll and human resources offices mistakenly email payroll data including Forms W-2 that contain Social Security numbers and other personally identifiable information to cybercriminals posing as company executives.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments,” said IRS Commissioner John Koskinen. “If your CEO appears to be emailing you for a list of company employees, check it out before you respond. Everyone has a responsibility to remain diligent about confirming the identity of people requesting personal information about employees.”

IRS Criminal Investigation already is reviewing several cases in which people have been tricked into sharing SSNs with what turned out to be cybercriminals. Criminals using personal information stolen elsewhere seek to monetize data, including by filing fraudulent tax returns for refunds.

This phishing variation is known as a “spoofing” email. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office employee and requests a list of employees and information including SSNs.

The following are some of the details contained in the e-mails:

• Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.

• Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).

• I want you to send me the list of W-2 copy of employees wage and tax statement for 2015, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.

The IRS recently renewed a wider consumer alert for e-mail schemes after seeing an approximate 400 percent surge in phishing and malware incidents so far this tax season and other reports of scams targeting others in a wider tax community.

The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

Are you seeking financial relief from a tax liability for an amount less than the full amount owed? The Internal Revenue Service has published the following Tax Topic 204 as a guide for taxpayers seeking relief from a tax liability for an amount less than the full amount owed.

An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer's tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means will not qualify for an OIC in most cases. In order to qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

In most cases, the IRS will not accept an OIC unless the amount offered by a taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer's ability to pay. The RCP includes the value that can be realized from the taxpayer's assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income less certain amounts allowed for basic living expenses.

The IRS may accept an OIC based on three grounds:

• First, the IRS can accept a compromise if there is doubt as to liability. A compromise meets this only when there is a genuine dispute as to the existence or amount of the correct tax debt under the law.

• Second, the IRS can accept a compromise if there is doubt that the amount owed is fully collectible. Doubt as to collectability exists in any case where the taxpayer's assets and income are less than the full amount of the tax liability.

• Third, the IRS can accept a compromise based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the tax is legally owed and that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.

In general, a taxpayer must submit a $186 application fee with the Form 656. Do not combine this fee with any other tax payments. However, there are two exceptions to this requirement:

• First, no application fee is required if the OIC is based on doubt as to liability.

• Second, the fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception. This exception applies if the taxpayer's total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. Section 4 of Form 656 contains the Low Income Certification guidelines to assist taxpayers in determining whether they qualify for the low-income exception. A taxpayer who claims the low-income exception must complete section 4 of Form 656 and check the certification box.

Taxpayers may choose to pay the offer amount in a lump sum or in installment payments. A "lump sum cash offer" is defined as an offer payable in five or fewer installments within five or fewer months after the offer is accepted. If a taxpayer submits a lump sum cash offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the $186 application fee. The 20 percent payment is nonrefundable, meaning it will not be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. Instead, the 20 percent payment will be applied to the taxpayer's tax liability. The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent payment.

An offer is called a "periodic payment offer" under the tax law if it is payable in six or more monthly installments and within 24 months after the offer is accepted. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment is required in addition to the $186 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum cash offer. Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. These amounts are also nonrefundable. These amounts are applied to the tax liabilities, and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.

Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration, and it is further suspended if the OIC is rejected by the IRS and if the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.

If the IRS accepts the taxpayer's offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. For doubt as to collectability and effective tax administration OICs, the terms and conditions include a requirement that the taxpayer timely file all tax returns and timely pay all taxes for five years from the date of acceptance of the OIC. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed (less payments made), plus interest and penalties. Additionally, any refunds due within the calendar year in which the offer is accepted will be applied to the tax debt.

If the IRS rejects an OIC, the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter. In some cases, an OIC is returned to the taxpayer rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration. A return is different from a rejection because there is no right to appeal the IRS's decision to return the offer.

Unfortunately, when the tax season ends and most people stop thinking about tax issues, the tax scammers are just getting started. Their year-round commitment to finding new scams means taxpayers must remain vigilant and well informed.

Here are several tips, taken directly from the most recent tips from the IRS, to help you avoid becoming a victim of these scams:

• Scams use scare tactics. These aggressive and sophisticated scams try to scare people into making a false tax payment that ends up with the criminal. Many phone scams use threats to try to intimidate you so you will pay them your money. They often threaten arrest or deportation, or that they will revoke your license if you don’t pay. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a phone number or an email address for you to reply.

• Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legit. They may use online resources to get your name, address and other details about your life to make the call sound official.

• Scams use phishing email and regular mail.  Scammers copy official IRS letterhead to use in email or regular mail they send to victims. In another new variation, schemers provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. All in an attempt to make the scheme look official.

As noted by the IRS, some of the scammers will even go so far as giving potential victims directions to a nearby bank where victims can acquire the means to pay the fake IRS agent with a debit card. As this scam has evolved, criminals might also give the victim a legitimate IRS address to mail a receipt for the payment. They go to such lengths to convince the victim the scam is official IRS business.

The con artist’s primary weapon is fear. They use aggressive tactics to provoke an immediate, fearful reaction without slowing down or carefully thinking through the situation.

As noted by the IRS, scams have cost victims over $20 million:

The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 600,000 contacts since October 2013. TIGTA is also aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

“We continue to see these aggressive tax scams across the country,” IRS Commissioner John Koskinen said. “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”

Con artists pretending to be IRS agents have traditionally targeted vulnerable groups such as:

• Older Americans

• Recently arrived immigrants

• People who do not speak English as their first language

However, scammers, who are becoming bolder, are now targeting anyone.  

The IRS recently published the following “Dirty Dozen” list for 2015, which highlights the most prevalent phone scams that con artists are using:

• Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers.

• Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information.

• Identity Theft: Taxpayers need to watch out for identity theft especially around tax time.

• Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers.

• Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore.

• Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds.

• Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors.

• Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against.

• Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes.

• Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits.

• Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits.

• Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes.

As it notes in its publications, the actual IRS will never do any of the following practices:

• Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.

• Demand that you pay taxes and not allow you to question or appeal the amount that you owe.

• Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.

• Ask for credit or debit card numbers over the phone.

• Threaten to bring in police or other agencies to arrest you for not paying.

If you suspect anything suspicious when someone contacts you claiming to be an IRS agent -- especially if you do not owe taxes or have any reason to think you would warrant contact from the IRS, then the IRS recommends the following actions:

• Do not provide any information to the caller. Hang up immediately.

• Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.

• You should also report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add "IRS Telephone Scam" in the notes.

However, if you do know that you owe taxes or think you might have some tax issue that needs resolution, you can deal with it by calling the IRS at 800-829-1040. The IRS employees will help you if you do have unpaid tax obligations.

Also, always remember that the authentic IRS website is IRS.gov. Never use a website claiming to be the IRS that uses .com, org, .net, or any other address that is not .gov.

And never under any circumstance should you give personal information to a stranger contacting you out of the blue. It’s best to hang up and call the IRS directly yourself using the number above.

Stay up-to-date with the latest scam alerts from the IRS at their page Tax Scams and Consumer Alerts on IRS.gov.

Sources: IR-2015-99, Aug. 6, 2015; IRS Summertime Tax Tip 2015-18, August 12, 2015; IR-2015-26

If you realize you made a mistake on your taxes you already filed. Don’t worry, here’s what you need to do.

If you filed your taxes by the deadline only to now find a mistake, you don’t need to worry. Usually, all you have to do is file an amended tax return (Amended U.S. Individual Income Tax Return). There are some things you should be aware of prior to filing the amended return however.

Form 1040X is the form that should filed for a tax return amended with corrections. There is not an option to e-file an amended tax return so you’ll have to file the updated return using a paper form. An amended return cannot be e-filed.

Any other schedules or forms will have to be attached to the amended return.

You should file a 1040x specifically to fix errors or make updates to information such as information that you might not have known for sure at the time of filing. For example, a form from an institution stating financial contributions arrived late. Other examples of when to amend your return are changing your filing status, correcting your income and accurately adjusting deductions or credits.

Math errors are typically caught and corrected by the IRS. An amended tax return should not be used in the case of omission. For example, if you forgot to include your W-2. In this case, the IRS will contact you requesting it specifically.

If in 2014, you claimed a premium credit using information provided by a state or federal health insurance marketplace that was not correct, you typically are not required to file a 1040x no matter what the error—this includes additional taxes that might be owed. However, The IRS might reach out to you requesting a corrected Form 1095-A so they can to validate the information.

When amending multiple returns, you’ll need to fill out a 1040X for the returns individually. They should even be separately mailed to the IRS. At the top of the form, make sure to communicate the tax year of the relevant amended return. The “mail to” address is located on the 1040x form.
If it turns out you are due an additional refund, be sure you have received your your first tax refund prior filing the amended return form. Returns that have been amended can take as long sixteen weeks for processing. It’s perfectly acceptable to cash your first refund even though you are waiting for the remainder of your actual refund.

If you’re filing Form 1040X for an amended return because you owe taxes, you should file and send the payment as quickly as you can to mitigate interest and penalties. To pay quicker, use IRS Direct Pay and have the amount be directly paid via your bank account.

Returns that have been amended using the the 1040x typically have to be filed within three years from the date that year’s return was originally filed (or within 2 years of making the payment).

Three weeks after you file, the IRS provides a “Where’s My Amended Return” widget for you to monitor the status of your amended tax return and this is available up to 3 years. You can track the status of your amended return here.

If you participated in an eligible Marketplace health plan, it’s probable you filed a tax return based on a Marketplace-sent Form 1095-A. It’s likely your plan provider sent you a corrected Form 1095-A citing errors with the original. When you compare the forms, you can assess if it’s advantageous for you to file an amended tax return.

There’s a really good chance you’re entitled to larger refund or you will owe less when using the corrected Form 1095-A should the 2 Forms 1095-A contain about the same information. These are 5 of the possible differences in the 1095-A forms.

1. The premium is larger on the corrected form for the second lowest Cost Silver Plan.
2. The amount of the monthly premiums are more in the correct form.
3. The advance premium payments are lower for the Premium Tax Credit Amounts on the corrected form.
4. Your corrected form shows more coverage months
5. Your corrected form shows less coverage months.

It’s always best to discuss any tax discrepancies you may have with us. We’re happy to help make sure you get all the money that you deserve while helping you meet all of your tax obligations. Give us a call today!