ACA Individual Penalty Still Applicable for 2018

The Tax Cuts and Jobs Act did remove the individual penalty provision; however, it does not go into effect until 2019. Therefore, if an individual did not have health insurance for all or part of 2018 and did not qualify for an exemption they will owe a penalty on their 2018 federal return.

If it is determined that an individual does owe a penalty for 2018, it is calculated as the greater of: 

·         2.5% of the individual’s income that exceeds their 2018 filing threshold (standard deduction for their filing status)

Or

·         A flat dollar amount that is assessed for the taxpayer, spouse, and dependents as follows:

o    $695 for taxpayer, spouse, and dependents over age 18

o   $347.50.50 for each dependent under age 18

The maximum family flat dollar amount for 2018 is $2,085

See pages 16 – 20 of the draft 2018 Form 8965 instructions for more information on how the penalty is calculated.

Health Care Coverage Exemptions

Most individuals who did not have health insurance for all or part of 2018 probably qualified for an exemption. Therefore, it is important that before any penalty is calculated that an individual determines whether they may qualify for a health care coverage exemption.

If an individual qualifies for a health care coverage exemption they must complete the applicable parts of the 2018 Form 8965 (Health Coverage Exemptions) and include it with their 2018 federal return.

If an individual needs help in determining whether they qualify for an exemption, a Find Exemptions tool is available on the Healthcare.gov website.

IRS Tax Professional Data Theft Attacks

Due to the increase in cybercriminal attacks on tax professionals during 2018 the IRS is urging practitioners to take steps to protect their computer networks.

This increase represents a significant trend in tax-related identity theft, and it is a sign that tax practitioners must take stronger measures to safeguard their clients and their business.

The IRS also reminds all professional tax preparers that they are required by federal law to create and maintain a written data security plan. Sole practitioners are just as vulnerable to data theft as practitioners in large firms.

Here are some common clues that data theft has occurred:

• Client e-filed returns begin to reject because returns with their Social Security numbers were already filed;
• Clients who haven’t filed tax returns begin to receive authentication letters (5071C, 4883C, 5747C) from the IRS;
• Clients who haven’t filed tax returns receive refunds; 
• Clients receive tax transcripts that they did not request;
• The number of returns filed with tax practitioner’s Electronic Filing Identification Number (EFIN) exceeds number of clients;
• Network computers running slower than normal;
• Computer cursors moving or changing numbers without touching the keyboard

See IRS News Release of December 7 - IRS, Security Summit Partners warn tax professionals of high risk of data theft attacks for more information on the increase of these attacks and on what basic security steps tax preparers should take to protect themselves.

Security Summit Partners Highlight New Password Guidance

As part of National Security Awareness Week the IRS, state tax agencies and the nation’s tax industry is urging people to review new, stronger standards to protect the passwords of their online accounts.

These new standards are a reflection of the new thinking on what a strong password is. The latest guidance suggests using a passphrase such as a favorite line from a movie or a series of associated words for their password. The idea is to create a passphrase that can be remembered easily.

The National Institute of Standards and Technology or NIST last year rethought its guidance on passwords and suggested three steps to build a better password:

Step 1 – Leverage your powers of association. Identify associated items that have meaning to you. 

Step 2 – Make the associations unique to you. Passphrases should be words that can go together in your head, but no one else would ever suspect. Good example: Items in your living room such as BlueCouchFlowerBamboo. Bad example: Names of your children.

Step 3 – Picture this. Create a passphrase that you can picture in your head. In our example, picture items in your living room. The key is to create a passphrase that is hard for a cybercriminal to guess but easy for you to remember

For more information see the IRS News Release of Dec 4 - Security Summit Partners highlight new password guidance, urge taxpayers and practitioners to protect all accounts

Tax Update: Important Reminders for the Upcoming 2019 Filing Season

Important Reminders for the Upcoming 2019 Filing Season

• Delay in Federal Refunds for Returns that claim EITC or Additional Child Tax Credit

• Affordable Care Act Penalty for 2018 returns

• Expiration of ITINs

Visit the CrossLink Tax Resource Center for detailed information: www.crosslinktax.com/tax-updates/Important-Reminders-for-the-Upcoming-2019-Filing-Season.asp 

TAX UPDATE: 2018 Child Tax Credit

Remember the federal Child Tax Credit has the following changes:

• Child must have a valid Social Security Number
  
• Credit was increased to $2,000 per child of which $1,400 is eligible to be refundable
  
• New $500 nonrefundable credit for other dependents has been added for:
• Children that are 17, 18, or students
• Other qualifying dependents
• Qualified children under 17 that have an ITIN
  
• Income phase out has been increased to $400,000 for joint filers ($200,000 for all others)

For more information see IRS news release – Get Ready for Taxes: Here’s how the new tax law revised family tax credits

New IRS Publication 5307 (Tax Reform Basics)

The IRS has released a new publication that is designed to help taxpayers learn how Tax Reform may affect their taxes for tax year 2018 and beyond. Publication 5307 (Tax Reform Basics for Individuals and Families) gives an overview of the Tax Cuts and Jobs Act and how it will affect individuals when they file their 2018 federal return during the upcoming filing season.

Expiring ITINs

The IRS is reminding taxpayers with expiring ITINs (if they have not done so already) to submit their renewal applications as soon as possible.

The IRS mailed more than 13 million letters to taxpayer households that included an ITIN holder with middle digits 73, 74, 75, 76, 77, 81 or 82 informing them that their ITINs were expiring at the end of 2018. Affected taxpayers who expect to file a tax return in 2019 should submit a renewal application now.

See IRS news release IR-2018-24 (Renew Expiring ITINs now to file a return next year) for further information on who needs to renew and how to renew an ITIN.

IRS Press Release: "401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000"

IRS PRESS RELEASE

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IR-2018-211, Nov. 1, 2018

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  The IRS today issued technical guidance detailing these items in Notice 2018-83.

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
   
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
   
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
   
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Detailed Description of Adjusted and Unchanged Limitations

Section 415 of the Internal Revenue Code (Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made following adjustment procedures similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective Jan. 1, 2019, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $220,000 to $225,000. For a participant who separated from service before Jan. 1, 2019, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2018, by 1.0264.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2019 from $55,000 to $56,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2019 are as follows:

• The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $18,500 to $19,000.
   
• The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $275,000 to $280,000.
   
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $175,000 to $180,000.
   
• The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $220,000 to $225,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $120,000 to $125,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $405,000 to $415,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $12,500 to $13,000.
The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $18,500 to $19,000.

The limitation under Section 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $50,000.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation remains unchanged at $110,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $220,000 to $225,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $130,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under Section 432(e)(9)(H)(v)(III)(aa) is increased for 2019 from $1,087,000,000 to $1,097,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2019 are as follows:

• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $38,000 to $38,500; the limitation under Section 25B(b)(1)(B) is increased from $41,000 to $41,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $63,000 to $64,000.
   
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Section 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $47,250 to $48,000.
   
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the Retirement Savings Contribution Credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Section 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,500 to $32,000.
   
• The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions is increased from $5,500 to $6,000.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $101,000 to $103,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) increased from $63,000 to $64,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $189,000 to $193,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $189,000 to $193,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $120,000 to $122,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

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Link to original IRS press release:  www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

2018 Depreciation Changes

Here is a reminder of what changes the Tax Cuts and Jobs Act has made to depreciating assets for 2018 federal returns:

100% Bonus Depreciation
100% bonus depreciation may be taken for qualifying new or used property acquired September 28, 2017 – December 31, 2022.

For more information see the following on the IRS website:

• Additional First Year Depreciation Deduction (Bonus) FAQs
• IRS Tax Reform Tip 2018 -57 - New 100-percent depreciation deduction benefits business taxpayers

Depreciation Limits for Autos and Personal Use Property
The yearly limitations for passenger autos placed in service during 2018 are:

• $10,000 for year placed in service
• If bonus depreciation is claimed the first year limit is $18,000
• $16,000 for year 2
• $9,600 for year 3
• $5,760 for year 4 and later

Section 179 Expense
For 2018 the maximum amount that can be taken as a Section 179 expense is $1,000,000 which begins to phase out when total asset purchases reaches $2,500,000 for the year.

The following property now is eligible for Section 179 expensing:

• Qualified improvement property made to a building’s interior with the exception if it is for the enlargement of the building, any elevator or escalator or the internal framework of the building
• Roofs, HVAC, fire protection systems, alarm systems and security systems

Depreciation of Improvements on business property
A new qualified improvement property category has been created which replaces the old qualified leasehold improvement, qualified restaurant and qualified retail improvement property categories.

The new qualified improvement property has a general 15 recovery period. However unless Congress makes a technical correction, qualified improvement property must be depreciated over 39 years and does not qualify for 100% bonus depreciation.

Farm Property Depreciation
Beginning in 2018 the recovery period for machinery and equipment used on a farm is 5 years (it was 7 years).  This does not apply to grain bins, cotton ginning assets, fence or other land improvements.

The Tax Cuts and Jobs Act repealed the requirement to use the 150 percent declining balance method for property used in a framing business (i.e. for 3, 5, 7 or 10 year property).

For more details on the above depreciation changes see IRS Fact Sheet FS-2018-9 - New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act on the IRS Tax Reform page of their website.

Visit the CrossLink Tax Resource Center to learn more.

2018 Tax Law Changes that are Directly Reported on Form 1040

October 3, 2018

As a reminder, the Tax Cuts and Jobs Act made a number of changes to provisions that are reported directly on Form 1040 or the new 1040 Schedules 1 - 6. Here are the provisions that will affect most taxpayers:

ACA Penalty for not having Health Insurance
Although not a change want to remind you that the shared responsibility payment (penalty) for not having health insurance still applies for 2018 federal returns.  Therefore if an individual did not have health insurance for all or part of 2018 they will either need to qualify for an exemption and complete Form 8965 or include a penalty amount on Form 1040, Schedule 4, line 61.

The penalty goes away beginning in 2019.

Standard Deduction was increased beginning in 2018 to:

• $12,000 – Single
• $24,000 – Married Filing Joint
• $18,000 – Head of Household

The additional standard deduction for the Aged and Blind still applies.

Exemptions were eliminated. Therefore the exemption boxes for the taxpayer, spouse and dependents were eliminated and the line for totaling the exemptions were removed from 1040.

Child Tax Credit had the following changes:

• Increased the credit to $2,000 per child of which $1,400 is eligible to be refundable. The age limit to qualify for the child tax credit remains at children under the age of 17.
• Child must have a Social Security Number to be eligible for the child tax credit.
• The earned income threshold for the refundable portion of the child tax credit has been lowered to $2,500.

Other Dependent Credit

• Created new $500 nonrefundable other dependent credit for:
• Children that are 17, 18, or students
• Other qualifying dependents
• Qualified children under 17 with an ITIN

Moving Expenses

• The moving expense adjustment to income (Form 1040, Schedule 1, 26) is only allowed for members of the armed forces.
• Moving expense reimbursements may no longer be excluded from income.

Tax Rates 
The tax rates and brackets for 2018 for Single and Married Filing Joint filing status’ are:

Rate	Unmarried Individuals	Married Filing Joint
10%	Up to $9,525	Up to $19,050
12%	$9,526 - $38,700	$19,501 - $77,400
22%	$38,701 - $82,500	$77,401 - $165,000
24%	$82,501 - $157,500	$165,001 - $315,000
32%	$157,501 - $200,000	$315,001 - $400,000
35%	$201,001 - $500,000	$400,001 - $600,000
37%	Over $500,000	Over $600,000

For more information on the above provisions and other provisions in the Tax Cuts and Jobs Act see the following:

• Crosslink Tax Resource Center – Federal Tax Law Changes Included in the Tax Cuts and Jobs Act
• IRS Tax Reform page on IRS website – Latest information on the implementation of the Tax Cuts and Jobs Act

IRS Tax Transcripts Changes

In a move to better protect taxpayer data the Internal Revenue Service is revising the format of taxpayer tax transcript that will partially redact certain identifying information. The new tax transcript will be available to the taxpayer or tax professionals beginning on September 23.

The IRS is making these changes because the tax transcript has become a sought after document by identity thieves. This is because in order to try and get past the IRS fraud filters the identity thieves need to create a return that looks like what the taxpayer has filed in the past. Therefore the criminals are attempting to pose as taxpayers or tax preparers in order to obtain the tax transcripts for prior year returns of individuals.

The new format of tax transcripts will now partially redact the following identifying information:

• Last 4 digits of:
• Any SSN on the transcript
• Any EIN listed on the transcript
• First 4 characters of:
• Account or telephone number
• Business name
• First 6 characters of street address, including spaces

The new tax transcript will include all money amounts, including balance due, interest and penalties.

The IRS has also created a new Customer File Number that lenders, colleges and other third parties that order transcripts for non-tax purposes will use as an identifying number instead of the taxpayer’s SSN.

For more details see the following of the IRS website:

• IRS News Release of August 22 – IRS to introduce new tax transcript to better protect taxpayer data
• About the New Transcript FAQs
• Sample of New Tax Transcript

Learn more in the CrossLink Tax Resource Center.

Revised 2018 Schedule A

The Tax Cuts and Jobs Act made several changes to itemized deductions that will be in effect from 2018 – 2025. Due to these changes the 2018 Schedule A has been revised as follows:

• Lines on the Schedule A have been renumbered.
• Taxes You Paid Section has been altered as follows:
• Line 5a – 5e: Includes Real Estate taxes, state and local income taxes/general sales tax and personal property tax with a subtotal line and a total deductible line for the lesser of the total of these taxes or $10,000.
• Line 6 – For other deductible taxes that are not limited.
• The Job Expenses and Certain Miscellaneous Deductions subject to 2% of AGI section was eliminated (old Lines 21 – 27).
• The checkboxes for limiting itemized deductions have been removed.

For more details see the draft of the 2018 Schedule A on the IRS website.

Click here to read the full article in the CrossLink Tax Resource Center.

Tax Security 101: Security Summit reminds professional tax preparers of data security plan requirements

IRS Press Release

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IR-2018-175, Aug. 28, 2018

WASHINGTON — The Internal Revenue Service and Security Summit partners reminded tax professionals that protecting taxpayer information isn’t just good for the clients and good for business – it’s also the law.

The Summit partners urged tax professionals to be aware of their obligations to protect client data and to cooperate with any IRS investigation related to data theft.

The IRS has a number of publications to help tax professionals navigate tax-related rules and regulations related to protecting data. In addition, the IRS, state tax agencies and the tax industry today reminded tax return preparers that a 1999 law requires that they create and implement a data security plan.

This is the eighth in a series called “Protect Your Clients; Protect Yourself: Tax Security 101.” The Security Summit awareness campaign is intended to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.

Although the Security Summit is making progress against tax-related identity theft, cybercriminals continue to evolve, and data thefts at tax professionals’ offices are on the rise. Thieves use stolen data from tax practitioners to create fraudulent returns that are harder to detect.

The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley (GLB) Act, gives the Federal Trade Commission authority to set information safeguard regulations for various entities, including professional tax return preparers.

According to the FTC Safeguards Rule, tax return preparers must create and enact security plans to protect client data. Failure to do so may result in an FTC investigation. The IRS also may treat a violation of the FTC Safeguards Rule as a violation of IRS Revenue Procedure 2007-40, which sets the rules for tax professionals participating as an Authorized IRS e-file Provider.

In addition, members of the IRS Electronic Tax Administration Advisory Committee (ETAAC) in June noted that they believe “far fewer than half of tax professionals are aware of their responsibilities under the FTC Safeguards rule and that even fewer professionals …have implemented required security practices.”

The FTC-required information security plan must be appropriate to the company’s size and complexity, the nature and scope of its activities and the sensitivity of the customer information it handles. According to the FTC, each company, as part of its plan, must:

• designate one or more employees to coordinate its information security program;
• identify and assess the risks to customer information in each relevant area of the company’s operation and evaluate the effectiveness of the current safeguards for controlling these risks;
• design and implement a safeguards program and regularly monitor and test it;
• select service providers that can maintain appropriate safeguards, make sure the contract requires them to maintain safeguards and oversee their handling of customer information; and
• evaluate and adjust the program in light of relevant circumstances, including changes in the firm’s business or operations, or the results of security testing and monitoring.

The FTC says the requirements are designed to be flexible so that companies can implement safeguards appropriate to their own circumstances. The Safeguards Rule requires companies to assess and address the risks to customer information in all areas of their operations.

The IRS has revised Publication 4557, Safeguarding Taxpayer Data, to detail critical security measures that all tax professionals should enact. The publication also includes information on how to comply with the FTC Safeguards Rule, including a checklist of items for a prospective data security plan.

The IRS and certain Internal Revenue Code (IRC) sections also focus on protection of taxpayer information and requirements of tax professionals. Here are a few examples:

IRS Publication 3112 - IRS e-File Application and Participation, states: Safeguarding of IRS e-file from fraud and abuse is the shared responsibility of the IRS and Authorized IRS e-file Providers. Providers must be diligent in recognizing fraud and abuse, reporting it to the IRS, and preventing it when possible. Providers must also cooperate with the IRS’ investigations by making available to the IRS upon request information and documents related to returns with potential fraud or abuse.

IRC, Section 7216 - This provision imposes criminal penalties on any person engaged in the business of preparing or providing services in connection with the preparation of tax returns who knowingly or recklessly makes unauthorized disclosures or uses information furnished to them in connection with the preparation of an income tax return.

IRC, Section 6713 - This provision imposes monetary penalties on the unauthorized disclosures or uses of taxpayer information by any person engaged in the business of preparing or providing services in connection with the preparation of tax returns.

Rev. Proc. 2007-40 - This procedure requires authorized IRS e-file providers to have security systems in place to prevent unauthorized access to taxpayer accounts and personal information by third parties. It also specifies that violations of the GLB Act and the implementing rules and regulations put into effect by the FTC, as well as violations of non-disclosure rules addressed in IRC sections 6713 and 7216, are considered violations of Revenue Procedure 2007-40. These violations are subject to penalties or sanctions specified in the Revenue Procedure.

Many state laws govern or relate to the privacy and security of financial data, which includes taxpayer data. They extend rights and remedies to consumers by requiring individuals and businesses that offer financial services to safeguard nonpublic personal information. For more information on state laws that businesses must follow, consult state laws and regulations.

In some states, data thefts must be reported to various authorities. To help tax professionals find where to report data security incidents at the state level, the Federation of Tax Administrators has created a special page with state-by-state listings. To notify the IRS in case of data theft, contact local IRS Stakeholder Liaisons.

Tax professionals also can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security: the Fundamentals by the National Institute of Standards and Technology.

Publication 5293, Data Security Resource Guide for Tax Professionals, provides a compilation of data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals, QuickAlerts and Social Media.

To improve data security awareness by all tax professionals, the IRS will host a webinar on Sept. 26, 2018. The focus will be on the same topics as this series: “Protect Your Clients; Protect Yourself: Tax Security 101.” Although tax preparers will be eligible for one CPE credit, the IRS invites others working on tax issues to attend. Protecting taxpayer information takes everyone working together.

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Read the original IRS Press Release here.

Tax Security 101: Tax professionals must maintain, protect EFINs; Monitor EFINs, PTINs and CAF numbers

IRS Press Release:

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WASHINGTON — The Internal Revenue Service and the Security Summit partners warned tax professionals that savvy cybercriminals target IRS-issued identification numbers to help impersonate practitioners as well as taxpayers.

To help protect against this threat used on the Dark Web, the IRS, state tax agencies and the tax industry reminded practitioners that they must maintain, monitor and protect their Electronic Filing Identification Numbers (EFINs) as well as keep tabs on their Preparer Tax Identification Numbers (PTINs) and Centralized Authorization File (CAF) numbers.

This is the sixth in a series called "Protect Your Clients; Protect Yourself: Tax Security 101." The Security Summit awareness campaign is intended to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.

Although the Security Summit -- a partnership between the IRS, states and the private-sector tax community -- is making progress against tax-related identity theft, cybercriminals continue to evolve, and data theft at tax professionals’ offices is on the rise. Thieves use stolen data from tax practitioners to create fraudulent returns that are harder to detect.

Cybercriminals sometimes post stolen EFINs, PTINs and CAF numbers on the Dark Web as a crime kit for identity thieves who can then file fraudulent tax returns. EFINs are necessary for tax professionals or their firms to file client returns electronically. PTINs are issued to those who, for a fee, prepare tax returns or claims for refund. CAF numbers are issued when tax practitioners or their firms file a request for third-party access to client files.

These identification numbers may only be obtained directly from the IRS.

Here’s what tax professionals can do to protect these important numbers from identity thieves:

Maintaining EFINs

Once a tax professional has completed the EFIN application process and received an EFIN, it is important that they keep their account up-to-date at all times. This includes:

• Review the e-file application periodically. Tax professionals’ e-file application must be updated within 30 days of any changes such as individuals involved, addresses or telephone numbers. Failure to do so may result in the inactivation of an EFIN.
• Ensure proper individuals are identified on the application, and update as necessary. The principal listed on the application is the individual authorized to act for the business in any legal or tax matters. Periodically access the account.
• Add any new principals or responsible officials promptly.
• Update any business address changes, including adding new locations.
• EFINs are not transferable; if selling the businesses, the new principals must obtain their own EFIN.
• There must be an EFIN application for each office location; for those expanding their business, an application is required for each location where e-file transmissions will occur.

Monitoring EFINs, PTINs and CAFs

Tax professionals can obtain a weekly report of the number of tax returns filed with their EFIN and PTIN. For PTIN holders, only those preparers who are attorneys, CPAs, enrolled agents or Annual Filing Season Program participants and who file 50 or more returns may obtain PTIN information. Weekly checks will help flag any abuses by cybercriminals. Here’s how:

For EFIN totals:

• Access the e-Services account and the EFIN application;
• Select “EFIN Status” from the application;
• Contact the IRS e-help Desk if the return totals exceed the number of returns filed.

For PTIN totals:

• Access the online PTIN account;
• Select “View Returns Filed Per PTIN;”
• Complete Form 14157, Complaint: Tax Return Preparer, to report excessive use or misuse of PTIN.

For those with a Centralized Authorization File (CAF) number, make sure to keep authorizations up to date. Tax professionals should make an annual review to identify outstanding third-party authorizations for people who are no longer their clients. It is important that tax professionals remove authorizations for taxpayers who are no longer their clients.

See “Withdrawal of Representation” in Publication 947, Practice Before the IRS and Power of Attorney. Information also is available in the instructions for Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, for additional information on withdrawing representation.

Protecting EFINs

The same good security habits for protecting client data also can protect the EFIN. Those include the use of strong anti-virus software, strong and unique passwords, two-factor authentication where available.

• Learn to recognize and avoid phishing scams; do not open links or attachments from suspicious emails, most data thefts begin with a phishing email.
• Secure all devices with security software and let it automatically update.
• Use strong passwords of eight or more mixed characters; use phrases that are easily remembered and password protect all wireless devices.
• Encrypt all sensitive files/emails and use strong password protections.
• Backup sensitive data to a safe and secure external source not connected fulltime to the network.
• Wipe clean or destroy old computer hard drives that contain sensitive data.

In addition to these steps, the Security Summit reminds all professional tax preparers that they must have a written data security plan as required by the Federal Trade Commission and its Safeguards Rule. They can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security: the Fundamentals by the National Institute of Standards and Technology.

Publication 5293, Data Security Resource Guide for Tax Professionals, provides a compilation of data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals, QuickAlerts and Social Media.

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Read the original IRS Press Release here.