IRS

REM Cycle Review: Unexpected DNA kits and spousal support

At last, the moment you’ve been waiting for all week—the latest installment of the REM Cycle Review, the only weekly tax roundup compiled by a penguin who consumes nothing but Red Bull and burritos. (You’ve got to lay off the Red Bull, Crystal. It’s starting to get weird.) We’ve got lots of tax tidbits to get you through these cold winter nights, plus this week’s staff video picks. Join us, won’t you?

Spousal support after a divorce? There’s a new tax rule for that. A more in-depth, less pun-laden look at the new divorce rules under the Tax Cuts and Jobs Act (TCJA) than last week’s article on the Jeff and MacKenzie Bezos split. [Business Insider]

Withholding and estimated tax payments fall short? The IRS may waive your penalty. In a move sure to relieve many, the IRS announce this week that it will waive the estimated tax penalty for many taxpayers whose withholding and estimated tax payments fell short of their total tax liability for the year. [IRS.gov]

Surprising absolutely no one, student loan debt keeps young people from buying homes. The Federal Reserve commissioned a long-term study to figure out why millennials weren’t buying houses. As it turns out, $1.5 trillion ($1,500,000,000,000—that’s eleven zeroes, for those playing along at home) in education-related loans is an “important factor.” [CNBC]

Unexpected DNA test kits + hackers + $10 Amazon gift cards = FRAUD. It’s weird enough to receive a DNA test kit in the mail you didn’t order. Weirder still if you discover the kit was ordered by someone you don’t know, who used a stolen credit card number in order to do it. The weirdness reaches M.C. Escher levels when it’s revealed all this nefarious naughtiness was committed in the name of… getting a ten-dollar gift card for Amazon? Uhhh… seriously? [USA Today]

Today, January 18, is National Thesaurus Day. National Thesaurus Day is observed annually on January 18 in honor of Peter Mark Roget (1779-1869), creator of Roget’s Thesaurus. Today, the thesaurus is also celebrated, appreciated, valued, treasured, esteemed, and held in high regard. [National Day Calendar]

This week we’re watching…

The REM Cycle editorial staff recommends one professional development video and one funny or thought-provoking video each week.

Former FBI hostage negotiator Christopher Voss created his company Black Swan based on the skills learned as a negotiator in hostage situations.

DNA tests you can take with do-it-yourself kits sent right to your home are more popular than ever, but how well do they really work?

Thanks to astute reader Greg Lavin for pointing out the correct number of zeroes in a trillion. We send him a trillion thanks and good wishes.

The REM Cycle Review is a weekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general.

Got a hot tip? Email us at REMCycle@rem-co.com.

REM Cycle Review: amnesty, virtual currency, and a rude awakening

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It’s Friday afternoon, and you know what that means… yes, it’s time for the REM Cycle Review, your weekly tax news roundup. So pull up a chair, grab some coffee, and prepare to be dazzled.

New Jersey launches extensive tax amnesty program. We’ll be diving deep into this topic in next Tuesday’s blog post, but here’s a quick primer to whet your appetite. [www.nj.com]

IRS Advisory Council says taxpayers should be permitted to pay taxes using virtual currency. Considering the rising number of taxpayers who use or invest in virtual currencies, this isn’t unreasonable. [Forbes]

U.S.-based tech companies may be in for a rude tax awakening. French Minister Bruno Le Maire urged the European Union member nations to raise taxes on tech giants like Apple, Microsoft, and Amazon: “I cannot accept to have Google, Amazon, or Facebook paying less taxes ... than my butcher or my bookshop.” [FastCompany]

Check your wallet. No, not that one. If you use cryptocurrency, you probably use a virtual currency wallet app to manage your money, send and receive payments, etc. It’s a simple, real-time way to keep track of your funds. Except when the wallet’s a fake and you’ve been scammed. [Ethereum World News]

PROFESSIONAL DEVELOPMENT VIDEO: “How to become more productive at work | Harvard Business School.”

INTERESTING VIDEO: “Former CIA Chief Explains How Spies Use Disguises.” Former Chief of Disguise for the CIA, Jonna Mendez, explains how disguises are used in the CIA, and what aspects to the deception make for an effective disguise.

The REM Cycle Review is a weekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general. Got a hot tip? Email us at REMCycle@rem-co.com.

Beware: dangerous tax account transcript scam runs rampant

iStock and REM Cycle

iStock and REM Cycle

Posted by Evan Piccirillo, CPA

Here is something important to know: the IRS does not send unsolicited emails to taxpayers. Please remember that; it just might save your assets.

Due to a spike in reported cases, the IRS has recently warned taxpayers of a scam involving the malware known as “Emotet.” Emotet is a computer virus distributed as a trojan, meaning that it is sent under the guise of something legitimate. In this case, you may receive an email about a tax account transcript from the IRS. If you open an attachment or click on a link, you are at risk of the virus finding its way onto your machine. The malevolent parties will send the fraudulent email to thousands of email addresses, hoping that a few will take the bait. This process is commonly referred to as phishing (no relation to the band Phish). Once the malware has infected a computer or network, information can be stolen and used maliciously by outside parties. The warning from the IRS is primarily directed towards businesses, but it is a good reminder for all taxpayers that the IRS has a very specific methodology when reaching out to taxpayers.

In nearly all cases, the IRS will first reach out through the mail in letter form, referred to as a notice. The notice will contain information about why the IRS has attempted to contact you and actions to take, if any. The common reasons to receive a notice are: an adjustment to a tax return, a request for a tax return, a tax bill, or being selected for an audit. Here is something else important: immediately turn that notice over to your tax preparer. A timely response is important when resolving IRS notices. If the IRS has not received a response to an initial notice or several follow-up notices, a representative may indeed show up in person.

Here are some red flags that may clue you in on an attempted scam: You are asked for a specific type of payment like a gift card, you are asked to provide credit card numbers over the phone, you are not advised of your rights as a taxpayer. Also, be very suspicious if you are threatened with law enforcement if you don’t pay. I urge you to be cautiously skeptical and always reach out to your tax preparer or advisor before responding.

Lucky for us, the IRS has provided useful information, details, and links on their website to help taxpayers identify what is legitimate and what is bogus.

I recently received a voicemail from “the IRS” using a computerized voice informing me that an arrest warrant had been issued for me. Oh, dear! And both me and my assets were being monitored—very scary! They demanded immediate payment and left a direct line for me to call them back. I called, but sadly no one answered. Fortunately for me, I am fairly well-informed and realized right away that this is a poor attempt at a scam. Whew! I hope that after reading this, you’ll be well-informed, too.

The IRS is not amused with states' attempts to circumvent federal tax changes

 
 

The recently enacted Tax Cuts and Jobs Act (TCJA) makes some potentially detrimental changes to state and local tax (SaLT) deductions, namely a limitation on the tax deduction of $10k for married filers and $5k for single filers for state taxes.  Prior to the TCJA, there was no such limitation (even though some taxpayers were hit with the Alternative Minimum Tax, but that is a different discussion).  This presents a problem for taxpayers in “high-tax” states: any jurisdiction that imposes a high income tax, a high property tax, or both, such as New York, New Jersey, California, and Connecticut.  The TCJA did not cap the deduction on charitable contributions; in fact, they increased the limit from 50% to 60% of adjusted gross income for certain types of gifts, and even then excess contributions are allowed to be carried over into subsequent years.

If only there was some way to decrease the amount of state taxes paid to say, less than $10K, while at the same time increasing charitable gifts!  State legislators in these high-tax states were quick to cook up a work-around to this change and came up with a doozy.  States will establish state-run charitable trust funds.  Taxpayers would be allowed a state tax credit of some percent (New York provides 85%; New Jersey, 90%) of their contribution to these funds, and in theory, also get a deduction on their federal tax return for a charitable contribution.  Thus, states would shift the character of payment from one category to the other and there will be much rejoicing (and tax deductions).

 
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The IRS wasted little time responding and announced that they will release proposed regulations to provide guidance to taxpayers on how the IRS is the authority on the characterization of charitable contribution and it doesn’t matter what the states say.  The central factors in determining if a charitable contribution is deductible is that it 1) is paid to a qualified organization (which the states’ trust funds can meet) and 2) the deduction must be reduced by any benefit the taxpayer receives.  If you have been paying attention, you will have noticed that, in this arrangement, the taxpayer would receive a benefit for their contribution in the form of a tax credit, and therefore they would have to reduce their charitable contribution deduction by the state tax credit they received.  This results in a net zero benefit to taxpayers.

More than anything, this is posturing by politicians in state and federal positions.  Unfortunately for those of us in high-tax states, we will have to deal with paying taxes to our state and not getting the benefit we were used to getting in the past.  There are other important issues that states will have to address in the wake of the TCJA which we will discuss in future posts.  If you would like to complain about this or other topics, reach out to your trusted advisor, or give me a call.

Is the IRS really emailing me?

Posted by REM Cycle Staff

Tax-filing season has started, which unfortunately means tax-scam season has started, as well. The IRS is already warning taxpayers to be on guard about a new refund scam, and just two days ago, a Manhattan grandma made the news by foiling an IRS phone scammer. All of which raises the question of how to identify an IRS scam in the first place. We've put together this infographic to help you separate tax fact from fiction.

Copyright 2018 Raich Ende Malter & Co. LLP.

Copyright 2018 Raich Ende Malter & Co. LLP.

What's your experience with tax scammers? Drop us an email to let us know.

Sharing is caring - Employer Shared Responsibility Payments

 
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There will be angry emails; there will be heated telephone discussions.  Fingers will be pointed and harsh words will be uttered.  I’m not talking about holiday shopping, but rather penalties on the Employer Shared Responsibility Payment (ESRP).

Early this month, the IRS announced that enforcement of the ESRP penalties would begin in late 2017.  And so it has begun.  As a mandate of the Affordable Care Act (Obamacare), Applicable Large Employers (ALEs) must provide minimum essential health insurance coverage (MEC) for their employees or pay what is essentially a penalty.  This is referred to as the “Play or Pay” mandate.  There is some nuance to the definitions of ALE, MEC, and everything else having to do with Obamacare, but ALEs are those employers with 50 or more full-time employees (in 2015 that threshold is 100) and MEC is affordable and sufficient health insurance.  These are more specifically defined in the related code sections; go have a read.

In addition, reporting of coverage is required on the 1094 and 1095 series of forms.  These forms let the employee and the IRS know what coverage was offered and for which months.  In the event that the employer does not “Play” in a given month, they must “Pay”.

There are two flavors of ESRP that may apply if: a) minimum essential coverage is not offered to most employees and any employee applies for and receives a premium tax credit to pay for insurance; b) minimum essential coverage is offered to most employees but it is either too expensive or wasn’t of minimum value.  The percent of employees defined as “most” increases from 70% to 95% from 2015 to 2017 and the prices and value are indexed each year.  Only one of the two types of ESRP can apply to a given month, not both.

The intention of the Play or Pay mandate is to compel employers to become part of the insurance pool, but bad planning and/or unintentional errors can have drastic consequences.

You see, the rub here is that the penalty is calculated based on ALL employees of the company for any month in which at least one employee falls under a situation described in “a” or “b” above.  In 2015, the penalties for “a” and “b” are $173 and $260 per month, respectively.  In the event that you have, say, 130 full-time equivalent employees and have only one employee that falls under the “a” penalty variety for every month of the year, you may be on the hook for more than $200k.  Let that sink in a moment. Two. Hundred. Thousand.

“Yikes.  I just received such a notice and I only have 30 days to respond!  They are proposing an ESRP of over $100k!  This looks really bad.  What should I do?”

As the Hitchhiker's Guide advises: Don’t Panic!  Forward the notice you received to your accountant or trusted advisor.  If you respond within the 30-day window, you can secure an extension of time to digest and fully respond to the information contained in the notice.  In absence of a response, the IRS may issue a notice and demand for payment and proceed with their routine methods of collecting that payment.  Don’t let that happen.

6 ways the IRS and NYS are collecting back taxes

Guest post by Karen J. Tenenbaum, Esq., LLM, CPA, Tax Attorney at Tenenbaum Law, P.C.

 
iStock
 

Taxpayers who owe money to the IRS or New York State face an expanding arsenal of tools the government is using to collect back taxes. The federal and state governments are using similar tactics, but each with their own twist. Due to the success of some of these methods, taxpayers and tax professionals can expect to see them more often. Here are a few of the top collection tactics.

1) Private debt collectors                                                                   

Both the IRS and New York State have recently started using outside collection agencies to collect delinquent taxes. The IRS uses private debt collectors for tax liabilities of less than $50,000. Private debt collectors are only allowed to locate taxpayers, ask taxpayers if they can pay in full, or set up a five-year Installment Agreement if they cannot pay in full. Despite criticism of the program and collectors’ tactics, they are permitted to contact taxpayers by phone, unlike government agencies. The private agencies cannot collect any actual payments; those are made directly to the IRS. The agencies receive 25% of the funds collected. Currently, the IRS is using four agencies: CDE Group, Conserve, Performant, and Pioneer. Note that taxpayers who have accounts in Offer in Compromise, Installment Agreement, Collection Due Process, and Innocent Spouse Relief status are exempt.

New York State is currently contracted with one outside collection agency: Performant Recovery Inc. As with the IRS, taxpayers will continue to make payments directly to the state, not the collection agency.

2) IRS passport revocation

Since the end of 2015, a taxpayer can lose his/her passport if he/she owes the IRS $50,000 or more including penalties and interest. The Secretary of State is permitted to deny the issuance or renewal of a passport or revoke the passport of that individual. The IRS must give notice to the individual involved at the same time it gives notice to the Secretary of State that the taxpayer is “seriously delinquent.”

If the individual is outside the United States, the Secretary of State may also limit a previously issued passport only for return travel to the United States or issue a limited passport that only permits return travel to the United States.

3) NYS driver’s license suspensions

The State can suspend an NYS Driver’s license if the driver owes $10,000 or more in tax, penalty, and interest and there is no collection resolution in place (such as an Installment Payment Agreement, Income Execution, or Offer-in-Compromise). New York State has collected over $715 million in back taxes to date from this program.

An added twist to this tactic is the Multi-State Driver License Compact. Many taxpayers think that if their New York State driver license is suspended, they can simply get one from New Jersey or Florida. However, 45 states and the District of Columbia have entered into the Compact, which is an interstate information exchange. If the taxpayer’s license is suspended in any member state, that suspension will hold in all other member states. The only states not in the program are Georgia, Maine, Michigan, Tennessee, and Wisconsin.

4) Liens

A New York State Tax Warrant is a legal judgment and notice for priority. It is a perfected lien and enables New York State to take certain collection action against a taxpayer’s real and personal assets. A Tax Warrant also ensures that New York will get paid ahead of subsequent creditors. It is a public document, and can be found on the Department of State’s website. It should be noted that there is now a single 20-year statute of limitations on collections, which begins on the first day that a tax warrant could have been filed.

The IRS uses a federal tax lien to collect back taxes. If a tax isn’t paid after a formal request, the Internal Revenue Code grants the IRS an automatic lien, sometimes referred to as a “silent lien” against all of a taxpayer’s property and rights to property. It even attaches to property acquired after the assessment itself.

The IRS files a Notice of Federal Tax Lien in order to establish collection priority. The IRS must collect a tax liability within 10 years from the date of assessment.

5) Levies on wages

In New York, an income execution is a type of levy that is issued against a taxpayer’s gross wages. It is limited to 10% of gross earnings and it remains in effect until the underlying tax liability is satisfied. The state is not required to issue a tax warrant prior to entering into an income execution.

At the federal level, the IRS can also levy on a taxpayer’s wages. Federal wage garnishment is quite harsh, since the IRS takes almost everything. The employer is provided an exemption table to calculate the amount of wages exempt from the levy based on the number of exemptions claimed by the taxpayer.

6) Other levies

New York can collect on a taxpayer’s outstanding liabilities with various types of levies, including: bank levies that last for a 90-day period; levies on third parties, such as customers or tenants; refunds and offsets; and seizure and sale at tax auction. 

The IRS can also levy on property, including bank accounts, provided it meets notice requirements and gives the taxpayer an opportunity to file a request for a collection due process hearing.

In order to avoid or stop these collection actions, both the IRS and New York State offer ways for taxpayers to address their debts. An IRS Installment Agreement or NYS Installment Payment Agreement allows taxpayers who are financially unable to pay the full amount of the liability at once to pay in monthly installments over time. Taxpayers who cannot afford to pay their tax bill may qualify for an Offer in Compromise, wherein the government agrees to accept less than the full amount due of tax, interest, and penalties. Both options have stringent requirements.

If you are facing an audit or collection matter, consult a qualified tax professional.


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Karen Tenenbaum, Esq., LL.M. (Taxation), CPA is founder and partner of Tenenbaum Law, P.C., a tax law firm in Melville, New York, which has focused its practice on the resolution of IRS and New York State tax controversies for over 20 years.

Think you know your S corp basis?

Utilizing the tax advantages of the S Corp for closely-held businesses run by self-employed shareholder-owners requires attention to some basic rules, planning, and documentation so that the transfer of money between the shareholder and corporation is reported correctly. The potential alternative is a costly lesson

Tick-tock on the tax clock

How accountants feel the day after tax deadline.  Wikipedia

How accountants feel the day after tax deadline. Wikipedia

Posted by Evan Piccirillo, CPA

Time constraints coupled with the sheer volume of work makes tax season an incredibly stressful time for taxpayers and tax preparers.  Taxpayers will have to compile all of their tax information for the prior year and send it over to their accountant who will no doubt have a series of uncomfortable, probing questions.  The ever-present apprehension of having to write a large check looms overhead like a coming storm.  Tax preparers will spend countless hours poring over tax documents and IRS code sections trying to efficiently turn around tax returns, leaving no deduction or credit on the table.  The late nights and delivery food build up in preparers’ systems and erode their constitutions transforming them into mere husks of their former selves.

As each grain of sand runs through the hourglass, it feels as if the noose is tightening.

For taxpayers, the procrastination builds on itself like a cancer.  Dealing with all of this is painful, so why not put it off until tomorrow?  All of a sudden the calendar page turns and it is April 1st… not only has nothing been sent to the preparer’s office, the envelopes on many tax documents are still sealed and sitting in a pile on the desk.  In a frenzy, the documents (still sealed) are shoved into a large manila folder and mailed out, without a proper care and review.  Are some things missing?  Probably, but we have time right?  We can count on our trusted preparers!  There are still two weeks left!

For tax preparers, the work piles up and it seems impossible that there is a chance it will be completed on time.  Each day more packages arrive.  Each day the lists grow.  The arms on the clock spin at an astonishing rate.  How many returns did we get out today?  None!  This client still has open items, that client has yet to return their electronic filing authorizations, and by the way, they have a new trust return this year.  Tensions grow high and at any point a tiny spark could burst into a raging fire.  It is a marvel that we are able to maintain a level of calm in such conditions.

As the deadline comes into view just over the horizon, it feels like a blessing and a curse at the same time.  Knowing that it will soon come to an end is little solace when all one can think about is the final sprint to the finish line.  Tax preparers, many of whom have now fallen into the same rut as those for whom they are servicing, will likely still need to finish their own tax returns.  Many taxpayers are now growing anxious about making the deadline in addition to what they might owe in tax and that added stress pours like a waterfall over the preparers.

It builds and builds, panic turns to madness, the only thing fueling us is the little bit of adrenaline left in the tank.  Focus in such a torrent comes at a premium, and only the hardiest can maintain.  Frantically, the last of the returns are finalized and somehow all clients are either filed timely or on extension.  And then finally, as if waking from a nightmare, it is over.

Now that tax season is at an end, spring can truly begin.  Both taxpayers and tax preparers can breathe a collective sigh of relief and gather their wits.  Tax preparers can perhaps take some days off to be with their families, who at this point might have forgotten what they look like.  Taxpayers can worry about all of the other things in their life that need attention.  We can all forget what a test of wit and fortitude it has been until next year (actually four or five months).

So I say to you all as emphatically as I might: Happy End-of-Tax-Season!