IRS Encourages Taxpayers to be ready for Tax Filing Season

Get Ready for Taxes:  Get ready today to file 2019 federal income tax returns

The Internal Revenue Service today urged taxpayers to act now to avoid a tax-time surprise and ensure smooth processing of their 2019 federal tax return.

This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season.  To that end, a special page, newly updated and available on IRS.gov, outlines things taxpayers can do now to prepare for the 2020 tax season ahead.

Adjust withholding; Make estimated or additional tax payments

The IRS urges everyone to use the Tax Withholding Estimator to perform a  paycheck or pension income checkup. This is even more important for those who received a smaller refund than expected or owed an unexpected tax bill last year.

It’s also a good idea for anyone who had a key life event, such as getting married, getting divorced, having or adopting a child, retiring, buying a home or starting college.

If the Tax Withholding Estimator recommends a change, an employee can then submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer. Don’t send this form to the IRS.

Similarly, recipients of pension or annuity income can use the results from the estimator to complete a Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give it to their payer.

Taxpayers who receive a substantial amount of non-wage income should make quarterly estimated tax payments. This can include self-employment income, investment income (including gain from the sale, exchange or other disposition of virtual currency), taxable Social Security benefits and in some instances, pension and annuity income. Making estimated tax payments can also help a wage-earner cover an unexpected withholding shortfall.

Estimated tax payments are due quarterly, with the last payment for 2019 due on Jan. 15, 2020. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to help figure these payments. Payment options can be found at IRS.gov/payments.

Workers and retirees who receive self-employment income or income from the gig economy, including payments in the form of virtual currency, should make sure to take these amounts into account when they fill out the Tax Withholding Estimator. Payments received in virtual currency by independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC. Similarly, wages paid using virtual currency are taxable to the employee, subject to withholding, and must be reported by the employer on a Form W-2.

People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes those who owe alternative minimum tax or various other taxes, and people with long-term capital gains or qualified dividends.

Gather documents and organize tax records

The IRS urges all taxpayers to develop a recordkeeping system − electronic or paper − that keeps important information in one place. Keep copies of filed tax returns and all supporting documents for at least three years. This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, other income documents, records documenting all virtual currency transactions, and Forms 1095-A for those claiming the Premium Tax Credit. Add tax records to the files as they are received. Having complete and timely records can help any taxpayer file a complete and accurate return.

Taxpayers should confirm that each employer, bank or other payer has a current mailing address or email address. Typically, year-end forms start arriving by mail – or are available online – in January. Review them carefully and, if any of the information shown is inaccurate, contact the payer right away for a correction.

To avoid refund delays, be sure to gather all year-end income documents before filing a 2019 return. Filing too early, before receiving a key document, often means a taxpayer must file an amended return to report additional income or claim a refund. It can take up to 16 weeks to get an amended return refund.

Anyone using a software product for the first time may need the Adjusted Gross Income (AGI) amount shown on Line 7 of their 2018 return to file their 2019 return electronically. Consult the taxpayer’s copy of last year’s return, or alternatively, visit the View Your Tax Account link on IRS.gov. Learn more about verifying identity and electronically signing a return at Validating Your Electronically Filed Tax Return.

Notify the IRS of address changes and notify the Social Security Administration of a legal name change to avoid refund delays.

Renew expiring tax ID numbers

Taxpayers with expiring Individual Taxpayer Identification Numbers can get their ITINs renewed more quickly and avoid refund delays next year by submitting their renewal application soon.

An ITIN is a tax ID number used by any taxpayer who doesn’t qualify to get a Social Security number. Any ITIN with middle digits 83, 84, 85, 86 or 87 will expire at the end of this year. In addition, any ITIN not used on a tax return in the past three years will expire. ITINs with middle digits 70 through 82 that expired in 2016, 2017 or 2018 can also be renewed.

The IRS urges anyone affected to file a complete renewal application, Form W-7, Application for IRS Individual Taxpayer Identification Number, as soon as possible. Be sure to include all required ID and residency documents. Failure to do so will delay processing until the IRS receives these documents.

Once a completed form is filed, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS. But it can take longer — nine to 11 weeks — if an applicant waits until the peak of the filing season to submit this form or sends it from overseas.

Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. With nearly 2 million taxpayer households impacted, applying now will help avoid the rush as well as refund and processing delays in 2020. For more information, visit the ITIN information page on IRS.gov.

Be prepared to file electronically; Use Direct Deposit for refunds

Filing electronically is easy, safe and the most accurate way to file taxes. There are a variety of free electronic filing options for most taxpayers including using IRS Free File for taxpayers with income below $66,000, or Fillable Forms for taxpayers who earn more. Taxpayers who generally earn $56,000 or less can have their return prepared at a Volunteer Income Tax Assistance site. Tax Counseling for the Elderly sites offer free tax help for all taxpayers, particularly those who are 60 years of age and older.

Combining Direct Deposit with electronic filing is the fastest way to get a refund. With Direct Deposit, a refund goes directly into the taxpayer’s bank account. No need to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are deposited directly.

Direct Deposit is easy to use. Taxpayers select it as their refund method through tax software or let their tax preparer know they want direct deposit. Taxpayers can even choose Direct Deposit on a paper return. Be sure to have bank account and routing numbers handy and double check entries to avoid errors.

Direct Deposit also saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each Direct Deposit.

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. For example, the IRS, along with its partners in the tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.

Start with IRS.gov for help that includes tools, filing options and other services and resources. Taxpayers increasingly use IRS.gov as their first resource for tax matters. Information in languages other than English is available under the “Language” tab on IRS.gov.

The Let Us Help You page on IRS.gov features links to information and resources on a wide range of topics.

The IRS Is Hot on the Trail of Unreported Virtual Currency Transactions

Article Highlights:

  • Coinbase Disclosure
  • IRS Compliance Letters
  • New 1040 Question
  • Reporting under Penalty of Perjury
  • Treated as Property
  • Employee Payments
  • Independent Contractor Income
  • Information Reporting
  • New IRS Guidance

Back in 2018, Coinbase, a company handling virtual currency (also referred to as cryptocurrency) transactions, released the data of 14,000 of its users to the IRS after the information was subpoenaed, and virtual currency traders held their breath about what the IRS would do with the information related to those 14,000 users.

Although it took some time, after analyzing the Coinbase data, the IRS recently issued letters to more than 10,000 taxpayers whom they suspect have not been properly reporting their virtual currency transactions, and not all of the letters were the same. In fact, one letter was quite frightening. The following is a synopsis of each of the three letters:

  • Letter 6173 – This letter required a response from the taxpayer, by either providing a statement to the IRS that they have already complied with the required reporting or by filing a return that reports their virtual currency transactions. For situations in which the taxpayer had already filed a return but had left off the virtual currency transactions, they will need to file an amended return (Form 1040X). Taxpayers who have received this letter and ignored it may face a full-blown audit by the IRS and could be subject to substantial penalties.
  • Letter 6174 – This was a “soft notice” that did not require a response, and the IRS says it won’t be following up on it. However, the notice also warns that the taxpayer will be in hot water if they had virtual currency gains and fail to amend their return or continue to be noncompliant on future returns despite receiving the letter.
  • Letter 6174-A – The taxpayer isn’t required to respond to the letter but does need to correct their prior returns in which virtual currency transactions were omitted. The IRS warns of future enforcement action if the taxpayer doesn’t amend their return(s) or file their delinquent returns. After receiving the letter, the taxpayer can’t use an excuse of not knowing the law for failing to report their virtual currency gains.

Of course, Coinbase is not the only company handling virtual currency transactions, so others are not on the IRS’s radar – at least, not yet. The draft of the 2019 Form 1040 tax return was recently released, and it includes a new question…

“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtually currency? Yes or No.”

And for those who have not read the fine print in the signature area of the 1040, it reads as follows:

“Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.”

Those taxpayers who have virtual currency transactions and fail to answer the question or answer it “no” have committed perjury and can be subject to some very serious penalties. As you can see, the IRS is definitely ramping up its compliance efforts.

Virtual currency is treated as property, so whenever it is sold, traded, or used to pay for services or to make a purchase, it constitutes a reportable tax transaction, just like selling a stock, where a gain or loss must be determined for each transaction.

Example: Taxpayer buys Bitcoin (BTC) so he can use it to make online purchases without the need for a credit card. He buys one BTC for $2,425 and later uses it to buy goods worth $500 (BTC was trading at $2,500 when he made his purchase). He has a $75 ($2,500 − $2,425) reportable capital gain. This is the same result that would have occurred if he had sold the BTC at the time of the purchase and used cash to purchase the goods. This example points to the complicated record-keeping requirement of tracking BTC’s basis. Since this transaction was personal in nature, no loss would be allowed if the value of BTC had been less than $2,425 when the goods were purchased.

Bitcoin is the most well-known of the over 4,000 variations of virtual currency, and although its value fluctuates, Bitcoin’s value has increased about 14 times in value from September 2016 to October 15, 2019. Many have purchased virtual currencies as a long-term investment, have never sold or traded their investment, and thus have no tax-reporting requirements. However, those who have acquired and then sold or exchanged virtual currency need to report their transactions to avoid some substantial penalties.

Using virtual currency to pay for goods and services in a business creates additional tax reporting issues, all of which include substantial penalties for non-compliance.

Paying Employees – The fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax (Social Security and Medicare A), and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. Of course, these amounts are to be reported in U.S. dollars.

Independent Contractor Payments – The fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to self-employment tax.

Information Reporting – A payment made using virtual currency is subject to information reporting, to the same extent as any other payment made in property. For example, a person who, in the course of a trade or business, makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee.

New Guidance from the IRS – The IRS recently released new guidance about virtual currency – the first in 5 years –which mainly dealt with whether taxpayers have gross income from two cryptocurrency events: hard forks of cryptocurrency the taxpayer owns and an airdrop of a new cryptocurrency following a hard fork, if the taxpayer receives units of new cryptocurrency. If you own virtual currency, no matter whether these terms sound like a foreign language to you or you are familiar with them, you may need to account for these events on your tax return for the year when they occur.

If you have unreported virtual currency transactions or need assistance understanding the new IRS guidance, you are encouraged to contact us as soon as possible so that you might bring your virtual currency transactions into tax compliance before you hear from the IRS.

3 Common Personal Income Tax Problems & How to Respond

Tax problems aren’t just a worry that hang over people’s heads from January through April every year. Many of them go far beyond the numbers that you report, and they can require additional evidence that your bank statements and paychecks can’t provide. Additionally, the IRS isn’t the only source of those problems: state tax authorities are hungry for revenue, and if you divide your time among different states, you may find it difficult to establish nexus and may even have to file taxes in multiple states.

Below are some of the most common personal income tax issues people are likely to face.

1. You didn’t make (or underpaid) estimated tax payments.

Self-employment is the most common cause of this. When you’re used to having taxes withheld from your paychecks at work, it can be a shock to have to pay taxes yourself. You can end up owing not just a large amount of self-employment and income taxes, but also penalties for not making tax payments on time. Estimates must be deposited quarterly, or you will face an underpayment penalty.

If your total tax due when you go to file is under $1,000, you won’t have to worry about getting smacked with an underpayment penalty. However, it’s a good idea to set aside at least 25%-30% of your income for estimated tax payments and commit to paying this amount every month if quarterly taxes are too complicated to figure out.

Other situations like freelancing on the side or rental income while you’re still employed can also cause you to fall short at tax time, so make sure to have extra taxes withheld from your paycheck if you don’t want to make estimated payments. State tax payments also shouldn’t be neglected.

2. You didn’t correctly file state tax returns after moving.

Moving to a state with little or no income taxes like Nevada or Florida can be appealing if your bank account feels squeezed in high-tax states like New York or California. Many people divide their time between multiple states for work or personal reasons, and if it’s not just a two- or three-week creative retreat or corporate assignment, it can make nexus difficult to determine in some cases.

With the prospect of a lower tax burden becoming even more appealing, it seems logical to just move to the tax-haven state you’ve been eyeing. But even after you file for a change of address with the postal service, change your voter registration, and get recognized as a resident by your new state, the high-tax state that you left is likely to also still treat you as one.

Typically, you must spend at least 183 days of the year in the other state and maintain a primary residence there. Simply having property in another state won’t do if the rest of your family doesn’t also live and wait there for you after your work or travel. Where you spend time outside of work also matters because where you sleep every night is ultimately what counts.

If your move is indeed permanent and your residency is valid, you may have to file a part-year resident tax return for the final months you stayed in the old state. You won’t need to worry about it for following years, but keep track of how many days were spent in each state before and after moving day.

3. You neglected to file state income tax returns as a nonresident.

If you have business or rental income in another state, you may be required to file state tax returns as a nonresident. If this income is significant, it can end up producing a large tax bill if you’re unprepared.

If you have an out-of-state job, chances are that your payroll provider may also be incorrectly withholding taxes for the appropriate state and/or city. In concentrated regions like the tri-state area, especially for New York City and Philadelphia residents, ensure that city taxes are being correctly withheld if you are a resident, and that withholding curtails if that is no the longer the case. There are usually reciprocity agreements among states and municipalities in areas where state lines cross, but you should carefully check to make sure you don’t owe nonresident taxes in addition to what you owe your home state.

Failure to make tax payments on time, and to the right agency, are income tax problems that are often overlooked and can quickly spiral out of control. To avoid these issues and many more, contact our office so we can consult you on your state and local taxation, as well as rules for establishing nexus.

Crowdfunding Can Have Unexpected Consequences

  • Gifts
  • Charitable Gifts
  • Business Ventures
  • SEC Registration

Raising money through Internet crowdfunding sites prompts questions about the taxability of the money raised. A number of sites host money-raising projects for fees ranging from 5 to 9%, including GoFundMe, Kickstarter, and Indiegogo. Each site specifies its own charges, limitations, and withdrawal processes. Whether the money raised is taxable depends upon the purpose of the fundraising campaign.

Gifts – When an entity raises funds for its own benefit and the contributions are made out of detached generosity (and not because of any moral or legal duty or the incentive of anticipated economic benefit), the contributions are considered tax-free gifts to the recipient.

On the other hand, the contributor is subject to the gift tax rules if he or she contributes more than $15,000 to a particular fundraising effort that benefits one individual; the contributor is then liable to file a gift tax return. Unfortunately, regardless of the need, gifts to individuals are never tax deductible.

A “gift tax trap” occurs when an individual establishes a crowdfunding account to help someone else in need (whom we’ll call the beneficiary) and takes possession of the funds before passing the money on to the beneficiary. Because the fundraiser takes possession of the funds, the contributions are treated as a tax-free gift to the fundraiser. However, when the fundraiser passes the money on to the beneficiary, the money then is treated as a gift from the fundraiser to the beneficiary; if the amount is over $15,000, the fundraiser is required to file a gift tax return and to reduce his or her lifetime gift and estate tax exemption. Some crowdfunding sites allow the fundraiser to designate a beneficiary so that the beneficiary has direct access to the funds which keeps the fundraiser from encountering any gift tax problems.

Gifts to specific individuals, regardless of the need are not considered a charitable contribution under tax law. An example is raising funds to help pay for someone’s funeral expenses. Another example, which includes a little tax twist, would be raising money to help someone pay for their medical expenses. Because it is a gift, it is not taxable to the recipient, but if the recipient itemizes their deductions, any amount of the gift the recipient spends to pay for their or a spouse’s or dependent’s medical expenses can be included as a medical expense on the recipient’s Schedule A.

Charitable Gifts – Even if the funds are being raised for a qualified charity, the contributors cannot deduct the donations as charitable contributions without proper documentation. Taxpayers cannot deduct cash contributions, regardless of the amount, unless they can document the contributions in one of the following ways:

  • Contribution Less Than $250 – To claim a deduction for a contribution of less than $250, the taxpayer must have a cancelled check, a bank or credit card statement, or a letter from the qualified organization; this proof must show the name of the organization, the date of the contribution, and the amount of the contribution.
  • Cash contributions of $250 or More – To claim a deduction for a contribution of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization; this acknowledgment must include the following details:
    o The amount of cash contributed;o Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution, along with a description and good-faith estimate of the value of those goods or services (other than intangible religious benefits); and

    o A statement that the only benefit received was an intangible religious benefit, if that was the case.

Thus, if the contributor is to claim a charitable deduction for the cash donation, some means of providing the contributor with a receipt must be provided.

Business Ventures – When raising money for business projects, two issues must be contended with: the taxability of the money raised and the Security and Exchange Commission (SEC) regulations that come into play if the contributor is given an ownership interest in the venture.

  • No Business Ownership Interest Given – This applies when the fundraiser only provides the contributor nominal gifts, such as products from the business, coffee cups, or T-shirts; the money raised is taxable to the fundraiser.
  • Business Ownership Interest Provided – This applies when the fundraiser provides the contributor with partial business ownership in the form of stock or a partnership interest; the money raised is treated as a capital contribution and is not taxable to the fundraiser. The amount contributed becomes the contributor’s tax basis in the investment. When the fundraiser is selling business ownership, the resulting sales must comply with SEC regulations, which generally require any such offering to be registered with the SEC. However, the SEC regulations carve out a special exemption for crowdfunding:

    o Fundraising Maximum – The maximum amount a business can raise without registering its offering with the SEC is $1.07 million in a 12-month period. Non-U.S. companies, businesses without a business plan, firms that report under the Exchange Act, certain investment companies, and companies that have failed to meet their reporting responsibilities may not participate.

    o Contributor Maximum – The amount an individual can invest through crowdfunding in any 12-month period is limited:

    • If the individual’s annual income or net worth is less than $107,000, his or her equity investment through crowdfunding is limited to the greater of $2,200 or 5% of the investor’s annual net worth.
    • If the individual’s annual income or net worth is at least $107,000, his or her investment via crowdfunding is limited to 10% of the investor’s net worth or annual income, whichever is less, up to an aggregate limit of $107,000.

On the bright side, even if the money raised is income to the business, it will probably net out to zero taxable if it is spent on tax deductible business expenses.

Does the IRS Track Crowdfunding? – Maybe. It depends on the aggregate number of backers contributing to the fundraising campaign and the total amount of funds processed through third-party transaction companies (credit card, PayPal, etc.). These third-party processers are required to issue a Form 1099-K reporting the gross amount of such transactions. There is a de minimis reporting threshold of $20,000 or 200 reportable transactions per year. Question is, will the third party follow the de minimis rule?

If you have questions about crowdfunding-related tax issues, please give this office a call.

Taxpayers Should Beware of Property Lien Scam

With scam artists hard at work all year, taxpayers should watch for new versions of tax-related scams. One such scam involves fake property liens. It threatens taxpayers with a tax bill from a fictional government agency.

Here are some details about the property lien scam that will help taxpayers recognize it:

  • This scheme involves a letter threatening an IRS lien or levy.
  • The scammer mails the letter to a taxpayer.
  • The lien or levy is based on bogus overdue taxes owed to a non-existent agency.
  • The non-existent agencies might have a legitimate-sounding name like the “Bureau of Tax Enforcement.” There is no such agency.
  • This scam may also reference the IRS to confuse potential victims into thinking the letter is from a real agency.

Taxpayers who do owe tax or think they might owe should:

  • Review their tax account information and payment options at IRS.gov. Reviewing tax account information online will show the taxpayer if they indeed owe the IRS and how much. This is the fastest way to get this information.
  • Call the IRS at 800-829-1040 to confirm the notice if they’re still not sure they owe.
  • Call IRS Problem Solvers to help you resolve your tax problem.
Anyone who doesn’t owe taxes and has no reason to think they do should:

What Is the Statute of Limitations on Unpaid Taxes?

If you have unpaid taxes that you haven’t yet been making payments toward, it might make you fearful that the IRS will come a-knocking one day to collect on what you owe. Tax debt can quickly snowball from interest, penalties, late fees, and the amount of the taxes due.

However, a lot of the scaremongering surrounding the IRS is largely sensationalized in media and daily conversation. Agents won’t come bursting through your door just because you have tax debt. Instead, they must follow due process in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA). This means that you will always receive written notice concerning your balance due as well as collection actions and any requests for payment plans or settling your account.

However, if you haven’t received further notification concerning what you owe, you may be able to ride out the little-known statute of limitations on tax debt collections, which is 10 years.

What the 10-Year Statute of Limitations Entails

Your tax debt can actually be canceled in 10 years if the IRS makes no efforts to collect on your account – and if you also don’t contact the IRS. However, it’s not as simple as just waiting a decade without ever paying the taxes you owe. There are conditions that must be satisfied. The first is that this 10-year time frame doesn’t begin when you filed that tax return with a balance due or when you realized you owed taxes you couldn’t pay.

The official statute of limitations date begins once you receive written notice from the IRS concerning what you owe. You may receive a notice of deficiency with an actual tax bill or a substitute tax return if you didn’t file by the due date. So, if you filed your tax return on June 15, 2019, and got a notice in the mail dated September 1, your statutory period would begin September 1, not June 15. This date is called the CSED (Collection Statute Expiration Date), and if you make it to September 1, 2029, without further collection actions, then you can actually get your entire tax bill from this period canceled. (Note: Future tax bills, such as next year’s taxes you also can’t afford to pay on the due date, do not count toward this.)

However, the IRS will not notify you of this. While the date of assessment is also generally when that notice is received, the IRS has argued over when the assessment date actually was. Some situations can also delay the CSED by halting the clock on the 10-year time frame, such as:

  • Filing for bankruptcy
  • Being outside the U.S. for at least six months
  • Military deferment
  • Submitting an offer in compromise to settle back taxes
  • Filing a lawsuit against the IRS
  • Having your assets held in court custody due to divorce, judgments against you, etc.

It takes six months after bankruptcy cases settle to get the clock restarted on the CSED, so this means the IRS has more time to take collection actions against you, and the IRS will tend to ramp up these efforts before the statute of limitations expires.

State Tax Debt

Unlike the IRS, state tax departments do not have reciprocity with the RRA or the Taxpayer Bill of Rights. Taxpayers who are subject to state income tax need to find out what options, if any, are offered by their state tax department. State tax departments may actually take harsher collection actions since they don’t have to have oversight committees and the option for taxpayers to settle back taxes or make payment plans, and they do not have a statute of limitations on collections. The IRS tends to get a bad rap in movies and on TV, but it’s actually the state tax departments that are more likely to show up unannounced or issue liens a lot sooner.

It’s very rare than anyone rides out the statute of limitations, and it’s usually due to extenuating circumstances like disability or a debilitating business closure. If enough time has passed that you think you might be able to go the whole 10 years without payments or responses to collection actions, you must keep fastidious records of all correspondence with the IRS. If the IRS sent you little or no mail in the time period after the time you think the CSED kicked off, you may qualify for the statute of limitations but should not intentionally try to ride it out without the guidance of a tax professional specializing in tax relief and resolution issues.

Did you get an email from the IRS? Watch out for this new scam

Don’t be fooled. The IRS will never send you any unsolicited email or email you about the status of your tax refund. Opens a New Window.

Officials this month warned taxpayers to watch out for a new scam after receiving an uptick of reports about unsolicited emails from imposters claiming to represent the IRS.

Some of the recent scam emails included subject lines like “Automatic Income Tax Reminder” or “Electronic Tax Return Reminder,” officials said. They include links to websites that look like IRS.gov, but aren’t the actual IRS website. When a user clicks to access files purportedly about their refund, electronic return or tax account, they inadvertently download malware.

“The IRS does not send emails about your tax refund or sensitive financial information,” IRS Commissioner Chuck Rettig said. “This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be on guard at all times.”

Officials said they’ve worked with state tax agencies and the tax industry to combat stolen identity refund fraud, but people still remain vulnerable to scams by imposters sending phony emails or making annoying phone calls.

It’s important to remember that the IRS doesn’t initiate contact with taxpayers by email, text messages or social media, officials said. Anyone requesting personal or financial info like PIN numbers, passwords or account information on those channels is not working for the IRS.

The IRS also doesn’t call to demand immediate payment using a specific method like a prepaid debit card, gift card or wire transfer, officials said. They will usually mail you a bill instead.

Source: https://www.foxbusiness.com/personal-finance/email-from-irs-scam

The IRS Has Cryptocurrency on Its Radar

Article Highlights:

  • IRS Focus
  • About Cryptocurrency
  • Tax Treatment
  • IRS Compliance Program
  • Letters Being Sent

If you own cryptocurrency, you need to know that the IRS has owners of cryptocurrency in its sights because many cryptocurrency owners are not reporting or paying taxes on their cryptocurrency transactions. In fact, the IRS is so focused on this issue that it recently issued warning letters to over 10,000 taxpayers it suspects might have an under-reporting problem.

About Cryptocurrency – If you are unfamiliar with the term cryptocurrency, the short definition is a form of digital money that is not controlled by any central authority. The first cryptocurrency created was Bitcoin, back in 2009. Since then, over 4,000 other cryptocurrencies have been created. Cryptocurrency can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, euros, and other real or virtual currencies.

Tax Treatment – One of the big issues of cryptocurrency is how it is treated for tax purposes. The IRS says that it is property, so that every time it is traded, sold or used as money in a transaction, it is treated much the same way as a stock transaction would be, meaning the gain or loss over the amount of its original purchase cost must be determined and reported on the owner’s income tax return. That treatment applies for each transaction every time it is sold or used as money in a transaction.

Example A: Taxpayer buys Bitcoin (BTC) so he can make online purchases without the need for a credit card. He buys one BTC for $2,425 and later uses it to buy goods worth $500 (let’s say BTC was trading at $2,500 at the time he made his purchase). He has a $75 ($2,500 – $2,425) reportable capital gain. This is the same result that would have occurred if he had sold the BTC at the time of the purchase and used cash to purchase the goods. This example points to the complicated record-keeping requirement for tracking BTC’s basis. Since this transaction was personal in nature, no loss would be allowed if the value of BTC had been less than $2,425 at the time the goods were purchased. Of course, if the taxpayer in this example only sold a fraction of a Bitcoin – enough to cover the $500 purchase – the gain would only be $15: $500/$2500 = .2 x 2425 = 485; 500 – 485 = 15

On the bright side, for most, cryptocurrency is generally treated as a capital asset, so any gain is a capital gain, and if the gain is held for more than year and a day, any gain will be taxed at the more favorable long-term capital gains rates. If the cryptocurrency is being held as an investment and the sale results in a loss, then the loss may be deductible. Capital losses first offset capital gains during the year, and if a loss remains, taxpayers are allowed a $3,000-per-year loss deduction against other income, with a carryover to the succeeding year(s) if the net loss exceeds $3,000.

When cryptocurrency is used as payment to an employee, the usual payroll withholding and reporting still apply, and if used to make payments to an independent contractor, 1099 form reporting is still required. If the individual receiving payment in cryptocurrency is subject to backup withholding, the payer is required to withhold the required amount. In all reporting and withholding instances, the amounts must be in U.S. dollars.

IRS Compliance Program – That brings us to the issue at hand. The IRS has begun sending letters to taxpayers; by the end of August, more than 10,000 taxpayers will receive one of three varieties of letters. If you have received one of these letters, do not ignore it! The IRS compiled this list of taxpayers that it feels has not been reporting their cryptocurrency transactions from various ongoing IRS compliance efforts. The following is a synopsis of the types of letters:

Letter 6173 – Requires a response from the taxpayer, either by the taxpayer providing a statement to the IRS that they have already complied with the required reporting or by filing a return that reports their cryptocurrency transactions. For situations where the taxpayer had already filed a return but had left off the cryptocurrency transactions, an amended return (Form 1040X) will need to be filed. Taxpayers who ignore this letter may face a full-blown audit by the IRS and could be subject to penalties.

Letter 6174 – This is a “soft notice” that does not require a response, and the IRS says it won’t be following up on it. However, the notice also warns that if the taxpayer had cryptocurrency gains and fails to amend their return or continues to be noncompliant on future returns despite receiving the letter, the taxpayer will be in hot water.

Letter 6174-A – The taxpayer isn’t required to respond to the letter but does need to correct their prior returns in which cryptocurrency transactions have been omitted. The IRS warns of future enforcement action if the taxpayer doesn’t amend their return(s) or file their delinquent returns. After receiving the letter, the taxpayer can’t use an excuse of not knowing the law for failing to report their cryptocurrency gains.

Last year, the IRS announced a virtual (crypto) currency compliance campaign to address tax noncompliance related to virtual currency use through outreach and examinations of taxpayers. The IRS has announced that it will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits and criminal investigations.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are liable for the tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.

If you have received one of these IRS letters – or even if you haven’t had correspondence from the IRS but have unreported cryptocurrency transactions from past years – and need assistance in responding to the letter or in preparing the amended or late original returns to report your cryptocurrency transactions, please contact us right away.

Fake IRS Letters Being Sent to Taxpayers

The IRS is cracking down on fake letters being sent out to people across the nation.

“Aside from the phone calls, the phishing, now the letters,” said Irma Trevino, who works with the IRS in Harlingen.

Fake tax letters are popping up in people’s mailboxes.

“The thieves don’t rest, they are trying to get you any way they can,” said Trevino.

Trevino says the IRS is getting more and more calls about these fake letters that have an IRS emblem on it and at first glace look normal, but Trevino says there are ways to tell the fake part.

“When IRS sends a correspondence, it’s an official envelope and that letter has the name of the representative, the identification number and a phone number,” said Trevino. “So please do not ignore the correspondence, open the letter, call the number and verify it is the IRS that is trying to contact you.”

If you call that number and the person on the other end is demanding money- it’s not the IRS.

The IRS will never ask for money over the phone and will never threaten to have you arrested for not paying.

The easiest way for you to be sure a letter is real is to visit IRS.GOV/Payments and check your tax account.

“It’s so easy, you check your tax account so there is your history, so if the IRS has an outstanding tax liability, it’s going to show over there,” said Trevino. “These new variations of scams is going on across the country.”

To report a fake letter call the IRS at 1-800-829-1040.

(Source: https://valleycentral.com/news/local/fake-irs-letters-being-sent-to-tax-payers)

IRS Sends 1000s Of “Fishing” Letters To Crypto Users

The United States Internal Revenue Service (IRS) is sending letters to crypto investors to apparently scare them into accurately reporting their crypto-related income.

Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” IRS Commissioner Chuck Rettig said in a statement.

The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

According to a Forbes report by crypto tax attorney Tyson Cross, published on July 26, a number of Cross’s clients have received a letter “6174-A” from the IRS, threatening “future civil and criminal enforcement activity” if they fail to fully comply with reporting requirements.

IRS Letter 6174-A. Source: Tyson Cross via Forbes

While Cross notes that the letter may give the impression that it is a personally targeted enforcement action, he argues that it is much more likely to be a generic mailing campaign intended to encourage voluntary compliance — one year after the IRS first launched its cryptocurrency compliance push.

Although the agency could feasibly have identified tax cheats and sent the letter to specific individuals, Cross notes that over a dozen of his clients — all of whom accurately reported their crypto-derived income — had received the letter.

Much more likely, he claims, is that the IRS has used its list of taxpayers identified in 2017 by Coinbase and conducted a blanket campaign to exert psychological pressure on investors. He notes:

“This would seem to indicate the IRS is sending these letters to taxpayers as a fishing attempt without any real belief that each recipient has under-reported.”

Cross writes that several other tax professionals have revealed to him that their own clients — despite accurate reporting — had also received Letter 6174-A.

The IRS hopes to tighten the noose

Cross advised investors not to panic should they receive the letter, but to thoroughly ensure the accuracy of their tax returns, given that at the very least it means they are on the agency’s radar.

As previously reported, data released ahead of the close of the preceding tax year indicated that just 0.04% of tax filers were reporting capital gains from crypto investments to the IRS.

Back in July 2017, the IRS had required that major U.S. crypto exchange Coinbase hand over detailed information on every one of its then 500,000+ users in an attempt to prevent tax evasion. However, a court order in November 2017 reduced this number to around 14,000 “high-transacting” users, which the platform later reported as 13,000.

An alleged presentation by the agency earlier this month reportedly revealed that the IRS hopes to use Grand Jury subpoenas on firms such as Apple, Google and Microsoft to check taxpayers’ download history for crypto-related applications.

Source: https://www.zerohedge.com/news/2019-07-26/irs-sends-1000s-fishing-letters-crypto-users