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IRS Updates
January 21, 2015
Columbus Area Tax Administrators
Dennis Bell, Senior Tax Specialist
Identity theft occurs when someone uses your personal information such as your name, Social Security Number (SSN) or other identifying information, without your permission, to commit fraud or other crimes
What is identity theft?
• Stopping identity theft and refund fraud is a top priority for the IRS. The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization.
• For the 2013 filing season, the IRS expanded these efforts to better protect taxpayers and help victims.
IRS’s response to identity theft
• In calendar year 2013, the IRS worked with victims to resolve and close more than 963,000 cases of tax-related identity theft.
• In calendar year 2013, the IRS suspended or rejected 5.7 million suspicious returns worth more than $17.8 billion.
Increasing efforts to help victims
• Refund-related identity theft
–Identity thief uses a stolen SSN to file a forged tax return and obtain a fraudulent refund.
• Employment-related identity theft
–Identity thief uses a stolen SSN to obtain employment.
• Business-related identity theft
–Identity thief uses a business’s identifying info without authority to obtain tax benefits.
Types of tax-related identity theft
Increased investigations
•Tax-related identity theft is a national priority for IRS Criminal Investigation.
•During fiscal year 2012, IRS Criminal Investigation initiated 890 identity theft investigations.
•During FY 2013, an additional 1,492 cases were investigated.
Criminal investigation of identity theft
• Don’t respond to suspicious IRS emails,
• Texts and faxes.
• Secure your computers (i.e., firewalls, anti-virus/anti-phishing/anti-spam, etc.).
• Use strong passwords.
• Back up critical personal information
• Limit the personal information you provide
• on social media.
• Never answer ‘yes’ to pop-up screens
• Visit onguardonline.gov.
Preventing online identity theft
If you or a client receive a suspicious communication claiming to be the IRS:
•Go to IRS.gov, scroll to the bottom of the homepage and click on ‘Report Phishing.’
•Report all unsolicited email claiming to be from the IRS to [email protected].
Suspicious IRS-related communication
• Call the Identity Protection Specialized Unit at 800-908-4490.
• Complete the Form 14039, Identity Theft Affidavit, with all documentation.
• Take additional “non-tax” identity protection steps
–File police report.
–Place fraud alert on credit accounts by calling one of the credit bureaus.
–File a complaint with the Federal Trade Commission at www.FTC.gov.
Assisting ID theft victims
Business Master File identity theft
•Business Master File, or BMF, identity theft is defined as creating, using or attempting to use a business’s identifying information, without authority, to obtain tax benefits.
•The following examples represent situations that may be due to identity theft related to the fraudulent use of business information.
Business-related identity theft
Example 1:•An identity thief files a business tax return (Form 1120, 720 etc.) using the Employer Identification number of an active or inactive business to obtain a fraudulent refund.
Examples of BMF identity theft
Example 2:
•An identity thief, using the EIN of an active or inactive business, files fraudulent Forms 941 and W-2s to support a bogus Form 1040 claiming a fraudulent refund.
Examples of BMF identity theft
Example 3:
•An identity thief obtains an EIN using the name and Social Security number of another individual as the responsible party, then files fraudulent tax returns (Form 941, 1120, 1041 etc.) to avoid paying taxes, obtain a refund, or further perpetuate individual identity theft or fraud.
Examples of BMF identity theft
Business Master File Identity Theft•In January, 2014, PGLD released BMF identity theft program guidance, policy and procedures. The new BMF procedures included:
•Form 14039-B, and electronic form designed for employees to use when they require taxpayers to provide supporting BMF identity theft documentation.
•BMF identity theft tracking indicators used to mark EINs affected by identity theft.
•Mandatory research requirements needed in support of a BMF identity theft determination.
Business-related identity theft
Businesses can take practical measures to reduce the risk of tax-related identity theft:
•Protect the organization’s federal tax identification number as you would a personal identification number.
•Only provide your organization’s federal tax identification number and other sensitive information when necessary.
•Verify the security of any website through which your organization transmits sensitive data.
•Properly dispose of sensitive company documents (for example using a micro-cut shredder).
•Increase identity theft awareness within your organization to ensure everyone is protecting sensitive data.
Protecting businesses from identity theft
If you suspect your organization has been compromised by business identity theft, take the following steps:
•File a report with local law enforcement.
•Contact the major business credit agencies, including Equifax, Experian, TransUnion and Dunn and Bradstreet, to report the fraudulent activity and obtain a credit report to check for additional fraudulent activity.
•Contact all credit card companies, financial institutions and creditors to alert them to the possibility of fraudulent activity.
•Respond to the IRS notice you received and provide a detailed explanation of how you believe your organization has been affected by identity theft.
Dealing with tax-related identity theft
Physical safeguards:
•Lock rooms and cabinets.
•Store records in secured area.
•Protect against destruction and damage.
•Inventory hardware.
•Dispose of information and hardware securely.
Protecting your business and clients
System safeguards:
•Use strong passwords: Minimum of eight alphanumeric characters.
•Change passwords periodically.
•Use timed, password-activated screen savers.
•Don’t post or share passwords.
•Encrypt sensitive data when:– Transmitting over networks.
– Storing on servers or media.
•Encrypt entire computers, media.
Protecting your business and clients
More system safeguards
• Don’t store sensitive data on a machine with an internet connection.
• Back up system periodically on secure media.
• Maintain updated firewalls, anti-virus, software updates, security patches, anti- spyware and anti-ad ware.
• Provide central management security tools and passwords/security protections.
Protecting your business and clients
If you have a security breach:
• Notify law enforcement.
• Notify the Federal Trade Commission (www.FTC.gov for contact information).
• Notify customers and business partners.
• Take corrective actions.
• Prevent other breaches.
Protecting your business and clients
• Identity theft information
–http://www.irs.gov/uac/Identity-Protection
• Individual identity theft
• Business identity theft
• Data breach information
• Additional resources
• Taxpayer Guide to Identity Theft
Additional information
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• Begins when a return is filed without paying the debt in full
• Paying your taxes
–Options for paying in full
–Options if you can’t pay in full now
• Installment agreement
• Offer in compromise
−If you need more time to pay
The Collection Process
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• Taxpayers can appeal most collection actions.
• Main options:
− Collection Due Process
− Collection Appeals Program
Collection Appeals Options
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• Penalties
−Failure to file
−Failure to pay
• Interest
• Abatement
The Collection Process
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Online Payment Agreement
• Streamlined
• Less financial info required
• Maximum time to pay 72 months
• Immediate approval notification
• Eligibility (all required returns filed)
– Individuals less than or equal to $50,000 tax and penalties
– Businesses less than or equal to $25,000 tax and penalties
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Online Payment Agreement Application
When applying online, be ready to provide: authentication information, tax return data
and basic financial information.
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Online Payment Agreement Application
• Application fees (as of Jan. 1, 2014)
– $120, standard agreement
– $52, direct debit agreement
– $43, applicant meets low income guidelines
• Online system available
– Monday – Friday, 6 a.m. – 12:30 a.m. ET
– Saturday, 6 a.m. -10 p.m. ET
– Sunday, 6 p.m. - midnight ET
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• Five basic requirements:
−Filed all returns
−Made all required estimated taxes payments
−Current with federal tax deposits
−Can’t pay full amount
−Not in bankruptcy
Offer in Compromise
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• IRS may accept an offer on three grounds:
− Doubt as to liability
− Doubt as to collectability
− Effective tax administration
Offer in Compromise
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• The completed offer package must include all of the following items:
– Form 433A or 433B
– Form 656 for each taxpayer
– $186 non-refundable fee
– Non-refundable payment
Offer in Compromise Components
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OIC Pre-Qualifier Tool
The OIC Pre-Qualifier tool helps applicant s confirm eligibility and prepare
preliminary proposals.
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Process used by IRS to help taxpayers when they disagree with the results of an IRS audit of their tax returns, or returns created for them by the IRS because they did not file tax returns as authorized by the Internal Revenue Code 6020(b).
Audit Reconsideration
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• Step 1:
–Review examination report and attachments; determine which items you feel are incorrect
–Gather documentation needed to support your position
–Verify supporting documentation is information that has not been presented before; ensure it’s for tax year in question
Audit Reconsideration Process
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• Step 2:
–Make photocopies of documents and attach them to your letter explaining your request for reconsideration
–If available, attach copy of examination report, Form 4549, along with new documentation supporting your position
–Include a daytime and evening telephone number and the best time for us to call you
Audit Reconsideration Process
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EIC Due Diligence
• FY13 improper payments of earned income credit estimated between $13.3B - $15.6B
• IRS is combating these errors with
– Due diligence requirements
– Due diligence compliance audits
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• Due diligence requirements:
− Complete/Submit eligibility checklist
− Compute the credit
− Knowledge
− Recordkeeping
EIC Due Diligence
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• Consequences of not meeting due diligence requirements
– Penalties
– Suspension/expulsion from IRS e-file
– Disciplinary action by IRS OPR
– Injunctions
EIC Due Diligence
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Questions
