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Fake IRS Tax Bill Notices September 2016

Beware of Fake IRS Tax Bill Notices

The Internal Revenue Service and its Security Summit partners are warning taxpayers and tax professionals of fake IRS tax bills related to the Affordable Care Act.

The IRS has received numerous reports of scammers sending a fraudulent version of a notice- labeled CP2000 – for tax year 2015. The issue has been reported to the Treasury Inspector General for Tax Administration for investigation.

This scam may arrive by email, as an attachment, or by mail. It has many signs of being a fake:

  • The CP2000 notices appear to be issued from an Austin, Texas, address;
  • The letter says the issue is related to the Affordable Care Act  and requests information regarding 2014 coverage;
  • The payment voucher lists the letter number as 105C;
  • Requests checks made out to I.R.S. and sent to the “Austin Processing Center” at a post office box.

IRS impersonation scams take many forms: threatening phone calls, phishing emails and demanding letters. Learn more at Reporting Phishing and Online Scams. The IRS does not initiate unsolicited email contact or contact by social media.

An authentic CP2000 notice is used when income reported from third-party sources such as an employer does not match the income reported on the tax return. Unlike the fake, it provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed. A real notice requests that checks be made out to “United States Treasury.”

The IRS and its Security Summit partners – the state tax agencies and the private-sector tax industry – are conducting a campaign to raise awareness among taxpayer and tax professionals about increasing their security and becoming familiar with various tax-related scams. Learn more at Taxes. Security. Together. or Protect Your Clients; Protect Yourself.

The President Signs the Tax Extender Bill

The President signed the “Protecting Americans from Tax Hikes (PATH) Act of 2015” December 18, 2015.  The PATH Act of 2015  makes some of the extended provisions permanent while extending others only for two years.  Among the provisions included in the PATH bill are a number of items that may be of direct interest to NSA members. These provisions include the following sections:

  • Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively).  These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended.  The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing.  The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.
  • Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.
  • Extension of deduction of State and local general sales taxes.  The provision permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. The taxpayer may either deduct the actual amount of sales tax paid in the tax year, or alternatively, deduct an amount prescribed by the Internal Revenue Service.
  • Extension and modification of research credit. The Provision permanently extends the research and development (R&D) Tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
  • Safe harbor for de minimis errors on information returns and payee statements.  The provision establishes a safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements by providing that if the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return and no penalty is imposed. A recipient of such a return (e.g., an employee who receives a Form W-2) can elect to have a 9 corrected return issued to them and filed with the IRS. The provision is effective for returns and statements required to be filed after December 31, 2016.
  • Modification of filing dates of returns and statements relating to employee wage information and nonemployee compensation to improve compliance.  The provision requires forms W-2, W-3, and returns or statements to report non-employee compensation (e.g., Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. The provision also provides additional time for the IRS to review refund claims based on the earned income tax credit and the refundable portion of the child tax credit in order to reduce fraud and improper payments. The provision is effective for returns and Statements relating to calendar years after the date of enactment (e.g., filed in 2017).
  • Increase the penalty applicable to paid tax preparers who engage in willful or reckless conduct. The provision expands the penalty for tax preparers who engage in willful or reckless conduct, which is currently the greater of $5,000 or 50 percent of the preparer’s income with respect to the return, by increasing the 50 percent amount to 75 percent. The provision applies to returns prepared for tax years ending after the date of enactment.
  • Clarification of enrolled agent credentials.  The provision permits enrolled agents approved by the IRS to use the designation “enrolled agent,” “EA,” or “E.A.”  The provision is effective on the date of enactment.

A summary of the entire bill can be found at http://waysandmeans.house.gov/?attachment_id=39841003

The text of the entire bill can be found at http://waysandmeans.house.gov/wp-content/uploads/2015/12/PATH_Act_xml.pdf A technical explanation of each of the provisions in the bill is available here.

IRS Increases De Minimis Safe Harbor

Expensing Threshold from $500 to $2,500

The IRS has increased from $500 to $2,500 the maximum threshold for expensing certain capital items under the de minimis safe harbor provided in Reg. §1.263(a)-1(f). The threshold for taxpayers with an applicable financial statement (AFS) remains set at a maximum of $5,000 per invoice (or per item as substantiated by the invoice).

The increase is in response to practitioner comments that the $500 limitation was too low to effectively reduce the administrative burden of capitalizing the cost of many commonly purchased items such as computers, smart phones, machinery and equipment parts. The $500 threshold also did not correspond to the financial accounting policies of many small businesses, which frequently permit the deduction of amounts in excess of $500 as immaterial.

The increased threshold is effective for tax years beginning on or after January 1, 2016.  For a tax year beginning before January 1, 2016, the IRS will not raise the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor for an amount that does not exceed the new $2,500 limit if the taxpayer otherwise satisfies the requirements for using the safe harbor. Furthermore, if the taxpayer’s use of a threshold that greater than the $500 threshold but not higher than the new $2,500 threshold is an issue under consideration under in examination, appeals, or before the Tax Court in a tax year that begins after December 31, 2011, and ends before January 1, 2016, the IRS will not pursue the issue as long as the taxpayer satisfied all other applicable requirements for using the safe harbor.

Since the safe harbor is not accounting method, it is not necessary to file an accounting method change to use the increased threshold amount. However, in accordance with the existing rules, the taxpayer must have accounting procedures in place at the beginning of the tax year that expense for nontax purposes amounts paid for property that costs less than a specified dollar amount (not to exceed the applicable threshold) and the taxpayer must actually expense those amounts on its books and records. In the case of a taxpayer without an AFS the written accounting procedures do not need to be in writing.