Year: 2016

Identity Theft and the IRS

Identity Theft and the IRSThe most common ways that a taxpayer becomes aware that their tax account has been a victim of identity theft are:

1. The taxpayer attempts to file a return electronically but the IRS rejects the return indicating that someone else has filed a return using the same identification number of the filer or a dependent.
2. An IRS notice that indicates more than one return has been filed for a single account.
3. An IRS bill for additional tax, an unknown refund offset , or collection action.
4. The IRS asks for confirmation of information on a return that was not filed by the taxpayer.
5. A notice is received that reflects wages earned from an employer the taxpayer has never worked for.
6. Some kind of compliance action has been taken against the taxpayer for a period which the taxpayer never filed a return nor received a refund.

Businesses are not immune either to identity theft, look for unusual notices from the IRS or other state or local agencies concerning:

1. A closed business.
2. Individuals who were never employees.
3. Unexpected unpaid taxes.
4. Original returns accepted as an amended return.
5. A business that has been “administratively terminated” by the secretary of state for no activity or failure to pay registration fees suddenly comes back to life and notices are received from the SOS.

Things that a taxpayer can do if they are the victim of identity theft:

1. Submit Form 14039, Identity Theft Affidavit, to the IRS as quickly as possible.
2. Respond to any IRS notice or letter immediately.
3. Continue to file and pay taxes even if by paper.
4. Visit www.irs.gov/identitytheft to review all focused identity theft information the IRS provides.

The IRS actions will most likely be:

1. Confirm that the identity theft victim has filed Form 14039.
2. Do a coding of the taxpayer account file to indicate there has been a receipt of  identity theft documentation.
3. Reconcile the account to reflect any valid return information.
4. Place an identity theft indicator on the account, if the IRS deems that step to be necessary.
5. Place a hold on the account during the investigation. Information exchange is limited during this phase and the taxpayer will likely be frustrated with an inability to have a conversation with the IRS regarding their account. From the IRS’s perspective, while attempting to determine the real taxpayer, they will choose to err on the side of caution.
6. Taxpayer will be at the mercy of the IRS until they can satisfy themselves as to proper identity. The policy of the Identity Protection Specialized Unit is to stop the flow of information until all parties have been identified.

If a taxpayer suspects identity theft it may be best to contact their tax preparer, if they have one, to determine the best steps to take. It may be better to do some information gathering like getting a transcript of their account to identify if any discrepancies exist before submitting Form 14039.

REMEMBER the IRS does not call the taxpayer first! That is not how they operate. The first contact from the IRS is always a letter or notice. If you receive a call from someone out of the blue telling you they are the IRS it is bogus and a phishing call by someone trying to get your personal information.

IRS First-Time Abatement Penalty Waiver

Abatement Penalty Waiver

Abatement Penalty WaiverMany have forgotten or don’t know about the IRS first-time penalty waiver program (FTA). This program was introduced more than 15 years ago but still remains a little known method of getting assessed penalties abated for a first-time non-compliant taxpayer for a single tax period. Abatement Penalty Waiver.

Individual taxpayers may request an FTA for a failure file or failure to pay penalty. Business taxpayers can request an FTA on the previously described penalties or a payroll tax deposit penalty.

This penalty abatement request should be taken advantage of only if other penalty relief provisions have been examined and not deemed applicable or have been exhausted.

To qualify, the taxpayer must demonstrate timely filing and timely payment compliance and  have a clean three year penalty history. The taxpayer may have an open installment agreement with the IRS as long as the payments are current.

To satisfy the clean penalty history, the taxpayer must not have had any “significant” penalty amounts assessed in the prior three years for the same tax return for which the taxpayer is requesting abatement. If the IRS rejects the request for abatement because there is some minor penalty during the time frame, the taxpayer or his advisor should remind the IRS of the “significant” qualification in the IRM. Even if the taxpayer has a tax penalty in the prior three years but has a clean history other than that, he may be eligible for relief given his track record.

CPA Salt Lake City

Wholesome Food Contribution Rules (IRC Sec. 170(e)(3)

Wholesome Food Contribution Rules

For those of you involved mainly in the grocery or restaurant business there is an a great tax deduction for donating to charitable organizations wholesome food that you no longer will sell due to your own internal standards. The points are as follows:

1. A taxpayer engaged in a trade or business is eligible to claim an enhanced deduction for donations of food inventory.

2. The enhanced deduction equals the lessor of (a) what you paid for the food (basis) PLUS half of the ordinary income that would have been recognized if the property were sold at fair market value (FMV) at the contribution date, or (b) twice the property’s basis.

3. To qualify for the deduction a contribution of food inventory must be apparently wholesome food – i.e. meant for human consumption and meeting certain quality and labeling standards.

4. For a taxpayer other than a C Corporation, the aggregate amount of contributions of apparently wholesome food that may be taken into account for the tax year cannot exceed 15% of the taxpayer’s aggregate net income from trades or businesses from which the contributions were made.

As we approach year end this is something to keep in mind to get that extra tax deduction and you will also be helping out those less fortunate as well.

Quick Notes on Education Expenses

Education Expenses Salt Lake City

Quick Notes on Education Expenses Salt Lake City

As the new school year approaches here are some things to remember regarding certain deductible and non deductible education expenses:

  1. The cost of private or parochial school tuition is not deductible. However for those children under age 13, some of the costs could be attributable to childcare and may qualify the taxpayer for a tax credit.
  2. Charitable contributions for school fundraisers are limited by the fair market value of any goods or services you receive in exchange for your donation.
  3. Earnings in 529 Plans are not taxable and can be withdrawn tax free if the money is used for eligible college expenses.
  4. Tax deferred accounts like Educational Savings Accounts can be used to pay for qualified educational expenses including books and computers for elementary, high school and for college expenses.
  5. Student loan interest is deductible as an above the line deduction, meaning you do not have to itemize in order to claim the deduction. You can deduct up to $2,500 of interest. The deduction is gradually reduced if your modified gross income is with a certain range.
  6. The American Opportunity Tax Credit is a very robust credit wherein you can get up to a $2,500 credit against your taxes per eligible student each year for the first four years of their college education. $1,000 of this credit can be refundable even if you owe no tax. Eligible expenses include tuition, books and supplies. Adjusted gross income limits also apply to this credit.
  7. A lifetime learning credit is also available for qualified education expenses paid for students enrolled in eligible educational institutions. The credit is a non refundable credit of 20% of qualified education expenses up to a maximum of $10,000 ($2,000 credit). This credit can not be taken in conjunction with the American Opportunity Tax Credit. There is no limit on the number of years this credit can be taken. Adjusted gross income limits apply.

Just some things to keep in mind as you eye the rising costs of education for your children.

New Qualified Improvement Property Classification

Property Taxes Salt Lake City UT

Property Taxes Salt Lake City UTOn Dec. 18, 2015, Congress passed a tax extenders package, the Protecting Americans from Tax Hikes (PATH) Act of 2015 and in that Act gave a new definition to non residential real property improvements falling in the category named Qualified Improvement Property. The definition of this property is as follows:

Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service, excluding:

  1. ) enlargements;
  2. ) elevators/escalators; and
  3. ) internal structural framework. The improvements do not need to be made pursuant to a lease.

Qualified improvement property is depreciated over 39 years unless it also qualifies as qualified leasehold, restaurant or retail property. If falls into one of these classifications the improvements can be depreciated over 15 years. The real kicker in this is that all of these improvements are eligible for bonus depreciation.

Bonus depreciation for property placed in service thru December 31, 2017 is 50% of the cost.

In 2018 it is 40% and 2019 it is 30%. This is quite the expansion of the deduction for these types of costs and could provide significant tax savings in the year the improvements are completed. For a more in-depth explanation of qualified improvement property and a refresher on the definition of leasehold, restaurant or retail improvements, Give Us a Call and we would be happy to discuss it with you.

Areas of Service: Property Taxes Salt Lake City UT, Property Tax UT