IRS Press Release: IRS releases Data Book for 2017 showing range of tax data, including audits, collection actions and taxpayer service

IRS Press Release:

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IR-2018-77, March 29, 2018

WASHINGTON — The Internal Revenue Service today released the 2017 IRS Data Book, a snapshot of agency activities for the fiscal year.

The 2017 IRS Data Book describes activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017, and includes information about tax returns, refunds, examinations and appeals, illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload, and IRS budget and workforce levels when compared to fiscal year 2016. New to this edition is a section on taxpayer attitudes from a long-running opinion survey.

Revenue Collection, Returns Processing, Taxpayer Service, and Enforcement Actions
During fiscal year 2017, the IRS collected more than $3.4 trillion, processed more than 245 million tax returns and other forms and issued more than 121 million individual income tax refunds totaling almost $437 billion.

The IRS provided taxpayer assistance through almost a half billion visits to IRS.gov and helped more than 53 million taxpayers through different service channels, such as correspondence, toll-free telephone helplines or at walk-in sites. There were also more than 278 million inquiries to the “Where’s My Refund?” application.

Compared to the prior year, there were fewer audits and collection actions during fiscal year 2017. The IRS audited almost 934,000 individual income tax returns during the fiscal year, the lowest number of audits since 2003. The chance of being audited fell to 0.6 percent, the lowest coverage rate since 2002.

In fiscal year 2017, the IRS also continued a years-long effort to fight tax-related identity theft. The IRS Criminal Investigation Division completed 524 criminal investiga­tions of tax-related identity thefts.

Several collection actions fell during the fiscal year. IRS levies were down 32 percent compared to the prior year, and the agency filed about 5 percent fewer liens than in fiscal year 2016.

The IRS Data Book’s online format makes navigating data on taxpayer assistance, enforcement and IRS operations easier. The publication contains depictions of key areas and quick links to the underlying data.

The Comprehensive Taxpayer Attitude Survey (CTAS)
In 2017, more than 2,000 taxpayers provided the IRS feedback via cell phone, landline or online surveys. Their opinions will help inform IRS efforts to improve taxpayer service. Nearly all taxpayers (about 95 percent of respondents) said it is their civic duty to pay their fair share of taxes. Most taxpayers (79 percent of respondents) said that they were satisfied with their personal interactions with the IRS.

An electronic version of the 2017 IRS Data Book can be found on the Tax Stats page of IRS.gov. Printed copies of the 2017 IRS Data Book, Publication 55B, will be available May 2018 from the U.S. Government Printing Office. To obtain a copy, write to the Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954, call (202) 512-1800 for voicemail, or fax a request to (202) 512-2250.

Click here to view the original IRS press release.

2018 Standard Deduction Amounts, Mileage Rates and Itemized Deduction Changes

Standard Deduction for 2018
The Tax Cuts and Jobs Act increased the standard deduction amounts for 2018 as follows:

• $24,000 – Married Filing Jointly/Surviving Spouse
• $12,000 - Single or Married Filing Separately
• $18,000 - Heads of Household

Additional Standard Deduction for Aged/Blind:

• $1,300 – Married or surviving spouse 
• $1,600 – Unmarried and not a surviving spouse

Standard Deduction for individuals who may be claimed as a dependent cannot exceed the greater of $1,050 or the sum of $350 (up to the standard deduction amount) and the individual’s earned income.

For more details see IRS Revenue Procedure 2018-10.

Also remember a deduction for exemptions is no longer applicable for 2018.

Mileage Rates for 2018

• Business purposes: 54.5 cents per mile
• Medical of moving purposes: 18 cents per mile
• Charitable purposes: 14 cents per mile

For more details see Standard Mileage Rates for 2018 up from Rates for 2017 on the IRS website.

Itemized Deduction Changes for 2018
The Tax Cuts and Jobs Act made the following changes to itemized deductions for 2018:

• Itemized deduction for state and local income, sales and property taxes on Schedule A is limited to $10,000.
• Mortgage Interest is only deductible on a taxpayer’s principal home and the for a mortgage on a home purchased after December 15, 2017 the interest is limited to interest on up to $750,000 of a loan.
• Home equity loan interest is only deductible if the loan is used to improve an existing home. If the home equity loan was used to pay personal expenses, such as credit card debts, it is not deductible.
• Job expenses and miscellaneous itemized deductions subject to 2% AGI floor are no longer deductible on Schedule A. This includes employee business expenses that were reported on Form 2106 such as vehicle expenses, travel expenses, meals and entertainment, job education, etc.
• Only casualty losses that are attributable to a presidentially declared disaster will be deductible as an itemized deduction on Schedule A.
• The medical deduction threshold is 7.5% for 2018.

IRS Press Release: Tax filing deadline postponed until June 29 for victims of Hurricane Maria in Puerto Rico and the Virgin Islands

IRS Press Release

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IR-2018-69, March 22, 2018

WASHINGTON –– The Internal Revenue Service is reminding victims of Hurricane Maria in the U.S. Virgin Islands and in the Commonwealth of Puerto Rico that filing and payment activities have been further postponed beyond Jan. 31, 2018.

The IRS extended tax deadlines for affected individuals and businesses until June 29, 2018, for the following localities:

• In the U.S. Virgin Islands (starting Sept. 16, 2017): Islands of St. Croix, St. John and St. Thomas.
• In Puerto Rico (starting Sept. 17, 2017): In any of the 78 municipalities.

The disaster relief page on the IRS website has details on the returns, payments and tax-related actions qualifying for the additional time. Following the IRS extension, affected individuals and businesses will have until June 29, 2018, to file their 2017 tax returns and pay any taxes due on those returns. This relief also includes individual estimated tax payments, payroll and excise tax returns, corporate income tax returns originally due or on extension during the relief period and tax-exempt organizations required to file Form 990 series returns with an original deadline falling during this period. This relief also applies to taxpayers who had a valid extension to file their 2016 return that was due to run out on Oct. 16, 2017, and which was already postponed until Jan. 31, 2018.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply for 2017 tax returns. The IRS automatically provides this relief to any taxpayer located in the disaster area. Taxpayers need not contact the IRS to get this relief.

Beyond the relief provided to taxpayers in the FEMA-designated localities, the IRS will work with any taxpayer who resides outside the disaster area but whose books, records or tax professionals are in the areas affected by Hurricane Maria. Taxpayers who live outside of the impacted area and think they may qualify for this relief need to contact the IRS at 866-562-5227.

The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA. For information on disaster recovery, individuals should visit disasterassistance.gov.

Publication 570, Tax Guide for Individuals with Income from U.S. Possessions, contains an explanation of the presence test for residents of territories such as Puerto Rico and the U.S. Virgin Islands.

Publication 976, Disaster Relief, describes the tax benefits available to filers as a result of Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires.

See also the IRS Hurricanes Irma and Maria Information Center.

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View the original IRS press release here.

IRS Press Release: Summit partners warn tax pros to be on alert; step up security measures

IRS Press Release

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IR-2018-68, March 22, 2018

WASHINGTON — The IRS, state tax agencies and the tax industry warned tax professionals to be alert to taxpayer data theft in the final weeks of the tax filing season. The Security Summit partners urged tax professionals to enhance their data safeguards immediately.

In recent days, the “New Client” scam has re-emerged, signaling ongoing attempts by cybercriminals to target tax professionals with spear phishing schemes. In this scam, a “new client” emails the tax pro about a tax issue, attaching documents to their email that they claim to be an IRS notice or prior-year tax information. The documents actually contain malware that, if opened, enable the criminals to steal taxpayer information.

This filing season, the Internal Revenue Service has seen a steep upswing in the number of reported thefts of taxpayer data from tax practitioner offices. Seventy-five firms reported taxpayer data thefts in January and February, nearly a 60 percent increase from the same time last year. Much of this increase follows one scam, the erroneous refund scheme, that affected thousands of taxpayers and numerous practitioners earlier this filing season.

January through April represents prime season for cybercriminals to attack tax practitioners, but data thefts can occur at any time. Tax professionals should be on high alert and deploy strong security measures as the filing season reaches a peak with the April 17 deadline approaching. Criminals try to take advantage of this extremely busy time of year when tax professionals are in greater contact with taxpayers and are therefore in possession of more data.

Some tax professionals may be unaware they are victims of data theft. Here are some signs:

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

Identity thieves often are part of sophisticated criminal syndicates based in the U.S. and abroad. These syndicates are resourceful, being tax savvy and having digital expertise to pull off these crimes. They use a variety of tactics to break into tax professionals’ computer systems and steal client information if appropriate security measures have not been taken.

A common tactic, called spear phishing, occurs when the criminal singles out one or more tax preparers in a firm and sends an email posing as a trusted source such as the IRS, e-Services, a tax software provider or a cloud storage provider. Thieves also may pose as clients or new prospects. The objective is to trick the tax professional into disclosing sensitive usernames and passwords or to open a link or attachment that secretly downloads malware enabling the thieves to track every keystroke.

The “New Client” scam is one form of spear phishing. Here’s an example: “I just moved here from Michigan. I have an urgent Tax issue and I was hoping you could help,” the email begins. “I hope you are taking on new clients.” The email says one attachment is the IRS notice and the other attachment is the prospective client’s prior-year tax return. This scam has many variations. (See IR-2018-2, Security Summit Partners Warn Tax Pros of Heightened Fraud Activity as Filing Season Approaches.)

The IRS Criminal Investigation Division continues to investigate a series of data thefts at tax preparers’ offices that occurred earlier this year in which the criminals added a new twist to their scheme to file fraudulent tax returns. The thieves directed the fraudulent refunds into the taxpayers’ actual bank accounts. This scam has claimed thousands of taxpayer victims. (See IR-2018-17, Scam Alert: IRS Urges Taxpayers to Watch Out for Erroneous Refunds.)

Although reports of this data theft have lessened recently, taxpayers and tax professionals should remain on alert for this scam. Taxpayers should return any fraudulent refunds to the IRS as well as discuss security options for their checking or savings accounts with their financial institutions. Here are the recommended security steps by the Security Summit:

• Learn to recognize phishing emails, especially those pretending to be from the IRS, e-Services, a tax software provider or cloud storage provider. Never open a link or any attachment from a suspicious email. Remember: The IRS never initiates contact via email.
• Create a data security plan using IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security – The Fundamentals, by the National Institute of Standards and Technology.
• Review internal controls:
  • Install anti-malware/anti-virus security software on all devices (laptops, desktops, routers, tablets and phones) and keep software set to automatically update.
  • Use strong and unique passwords of 10 or more mixed characters, password protect all wireless devices, use a phrase or words that are easily remembered and change passwords periodically.
  • Encrypt all sensitive files/emails and use strong password protections.
  • Back up sensitive data to a safe and secure external source not connected fulltime to a network.
  • Wipe clean or destroy old computer hard drives that contain sensitive data.
  • Limit access to taxpayer data to individuals who need to know.
  • Check IRS e-Services account weekly for number of returns filed with EFIN.
• Those who experience a security incident or a breach resulting in data disclosure should report the incident to the appropriate IRS Stakeholder Liaison.

View the original IRS press release here.

IRS Press Release: "IRS wraps up ‘Dirty Dozen’ list of tax scams for 2018; Encourages taxpayers to remain vigilant"

IRS Press Release:

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IR-2018-66, March 21, 2018

WASHINGTON — The Internal Revenue Service today concluded its annual "Dirty Dozen" list of tax scams with a warning to taxpayers to remain vigilant about these aggressive and evolving schemes throughout the year.

This year's “Dirty Dozen” list highlights a wide variety of schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. The schemes can run the gamut from simple refund inflation scams to technical tax shelter deals. A common theme throughout these: Scams put taxpayers at risk.

Taxpayers need to guard against ploys to steal their personal information. And they should be wary of shady promoters trying to scam them out of money or talk them into engaging in questionable tax schemes.

The IRS highlighted the “Dirty Dozen” scam list in separate news releases across 12 days. Taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these con games throughout the year.

The IRS reminds people that participating in illegal schemes can lead to significant fines and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Taxpayers should always keep in mind that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer. For more see the Choosing a Tax Professional page.

Here is a recap of this year's "Dirty Dozen" scams:

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or tax refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2018-39)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2018-40)

Identity Theft: Taxpayers should be alert to tactics aimed at stealing their identities, not just during the tax filing season, but all year long. The IRS, working in the Security Summit partnership with the states and the tax industry, has made major improvements in detecting tax return related identity theft during the last two years. But the agency reminds taxpayers that they can help in preventing this crime. The IRS continues to aggressively pursue criminals that file fraudulent tax returns using someone else’s Social Security number. (IR-2018-42)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest, high-quality service. There are some dishonest preparers who operate each filing season to scam clients, perpetuating refund fraud, identity theft and other scams that hurt taxpayers. (IR-2018-45)

Fake Charities: Groups masquerading as charitable organizations solicit donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally-known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2018-47)

Inflated Refund Claims: Taxpayers should take note of anyone promising inflated tax refunds. Those preparers who ask clients to sign a blank return, promise a big refund before looking at taxpayer records or charge fees based on a percentage of the refund are probably up to no good. To find victims, fraudsters may use flyers, phony storefronts or word of mouth via community groups where trust is high. (IR-2018-48)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities or satisfy the requirements related to qualified research expenses. (IR-2018-49)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their tax returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions, such as charitable contributions and business expenses, or improperly claiming credits, such as the Earned Income Tax Credit or Child Tax Credit. (IR-2018-54)

Falsifying Income to Claim Credits: Con artists may convince unsuspecting taxpayers to invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers should file the most accurate tax return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. (IR-2018-55)

Frivolous Tax Arguments: Frivolous tax arguments may be used to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims about the legality of paying taxes despite being repeatedly thrown out in court. The penalty for filing a frivolous tax return is $5,000. (IR-2018-58)

Abusive Tax Shelters: Abusive tax structures are sometimes used to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2018-62)

Offshore Tax Avoidance: Successful enforcement actions against offshore cheating show it’s a bad bet to hide money and income offshore. People involved in offshore tax avoidance are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. (IR-2018-64)

View the original IRS press release here.

IRS Press Release: Taxpayers can now e-file returns including four tax benefits related to incentives for energy production and conservation

IRS Press Release
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IR-2018-59, March 16, 2018

WASHINGTON --The Internal Revenue Service today said that it is ready to process tax year 2017 returns claiming four additional tax benefits recently renewed retroactively into law.

The Bipartisan Budget Act, enacted on Feb. 9, renewed for tax year 2017 a wide range of individual and business tax benefits that had expired at the end of 2016. The IRS has now reprogrammed its processing systems to handle returns claiming four energy-related tax incentives. As a result, taxpayers can now file 2017 returns claiming:

• Credit for nonbusiness energy property claimed on Form 5695
• Alternative motor vehicle credit claimed on Form 8910
• Credit for qualified plug-in electric drive motor vehicles claimed on Form 8936
• Credit for certain two-wheeled vehicles claimed on Form 8936

The IRS had already reprogrammed its processing systems to handle the three benefits most likely to be claimed on returns filed early in the tax season.
Thus, starting last month, taxpayers could also file returns claiming:

• Exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982,
• Mortgage insurance premiums treated as qualified residence interest, claimed on Schedule A, and
• Deduction for qualified tuition and related expenses claimed on Form 8917.

The IRS continues to work closely with tax professionals and the tax-preparation industry to ensure that their software can now accommodate these new provisions. As always, filing electronically and choosing direct deposit is the fastest, most accurate and most convenient way to receive a tax refund. Last year, nearly 87 percent of individual returns were filed electronically and nearly 80 percent of refunds were direct deposited.

The IRS is continuing to update its systems to handle returns claiming the other tax benefits extended by the new law, enacted on Feb. 9. In general, these benefits affect a smaller number of taxpayers. Taxpayers eligible for these benefits can avoid delays or possibly needing to file an amended return later, by filing after IRS systems have been updated to reflect these changes. Check Extenders and Form Updates for future updates. Other impacted forms, instructions and publications that the IRS had already released, are being revised and reposted to Download Forms.

As a reminder, taxpayers who have already filed their 2017 federal tax return and now wish to claim one of these renewed tax benefits can do so by filing an amended return on Form 1040X. Amended returns cannot be filed electronically and can take up to 16 weeks to process. Visit IRS.gov for details.

Click here to view the original IRS press release.

IRS and Security Summit Urges Tax Preparers to Protect Their PTINs, EFINs and CAF numbers

The IRS, state tax agencies and the tax industry is urging tax practitioners to maintain and monitor their EFINs and CAF numbers to help safeguard taxpayer data.

Cyber-criminals 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. To protect EFINs, PTINs and CAF numbers a tax preparer should avoid phishing emails which cyber-criminals commonly use to trick practitioners into disclosing their sensitive information. Tax preparers can review the Don’t Take the Bait campaign to learn more about the various tactics are used by identity thieves.

To assist tax professionals the IRS has created a How to Maintain, Monitor and Protect Your EFIN video and web page that offer tips to preparers.

Tax preparers should make a weekly check of their EFINs to determine how many returns were filed under their number. They should also update their EFIN application within 30 days of any change, including if there are any new personnel, telephone numbers, addresses or email addresses.

Additionally, tax professionals who are attorneys, CPAs, enrolled agents or participants in the Annual Filing Season Program and file more than 50 returns can also check the number of returns that the IRS processed with their PTIN in the current year. This information is updated weekly and can be located by going to their online PTIN account and selecting “View Returns Filed per PTIN”.

For more details see IRS news release IR-2018-61 (Security Summit urges tax pros to protect their identification numbers).

IRS Press Release: IRS warns against frivolous tax arguments; Part of ‘Dirty Dozen’ scams list

IRS Press Release

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IR-2018-58, March 16, 2018

WASHINGTON — The Internal Revenue Service today continued releasing the 2018 list of “Dirty Dozen” tax scams with a warning to taxpayers about using frivolous tax arguments to avoid paying taxes.

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish legal claims to avoid paying their taxes. Time and again, these arguments have been thrown out of court.

The “Dirty Dozen” is an annual list compiled by the IRS. It describes a variety of common scams that taxpayers may encounter. Many of these schemes peak during filing season as people prepare their returns or hire others to help with their taxes.

A recurring Dirty Dozen theme through the years involves claims about "secret" schemes to avoid people paying taxes.

In “The Truth about Frivolous Tax Arguments,” the IRS outlines some of the more common frivolous arguments, explains why they’re wrong and cites relevant court decisions. Examples include:

• The First Amendment allows taxpayers to refuse to pay taxes on religious or moral grounds;
• The only “employees” subject to federal income tax are those who work for the federal government;
• Only foreign-source income is taxable.

Perpetrators of illegal scams, as well as those who make use of them, may face possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Don’t Get Talked into Using a Frivolous Argument

Taxpayers have the right to contest their tax liabilities using IRS administrative appeals procedures or in court, but they are still obligated to follow the law.

Besides risking criminal prosecution, taxpayers can also face a variety of civil penalties. Key among them is the $5,000 penalty for filing a frivolous tax return. The penalty applies to anyone who submits a frivolous tax return or other specified submissions, such as a request for a collection due process hearing, installment agreement, offer-in-compromise or taxpayer assistance order if any part of these submissions are based on a frivolous position. A list of more than 40 such positions can be found in Notice 2010-33, 2010-17 I.R.B.609. The list is not all inclusive, and the IRS and the courts may add to it at any time.

The IRS reminds taxpayers these schemes also can bring other civil penalties including:

• Accuracy-related penalty—20 percent of the underpaid tax;
• Civil fraud penalty—75 percent of the underpayment attributable to fraud;

• Erroneous refund claim penalty—20 percent of the excessive amount.

Late-filing and late-payment penalties may also apply. The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Further details, including a list of the Dirty Dozen and information about other tax scams, can be found on IRS.gov.

View the original IRS press release here.

IRS Press Release: IRS ‘Dirty Dozen’ list of tax scams for 2018 contains warning to avoid improper claims for business credits

IRS Press Release

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IR-2018-49, March 13, 2018

WASHINGTON — The Internal Revenue Service today warned that taxpayers should avoid making improper claims for business credits, a common scam used by unscrupulous tax preparers.

Two common credits targeted for abuse by shady return preparers include the research credit and the fuel tax credit. Both credits have legitimate uses, but there are specific criteria that taxpayers need to qualify for these.

As part of the 2018 “Dirty Dozen” tax scams, the IRS reminds taxpayers to watch out for these red flags involving business credits when dealing with return preparers. Remember, the taxpayer is responsible for the information on the tax return long after the scammer is gone.

Each year, the IRS publishes its “Dirty Dozen” list of a variety of common scams that taxpayers may encounter any time. These can especially peak during the tax filing season as people prepare their returns or hire people to help with their taxes.

Research Credit Scams

Section 41 of the Internal Revenue Code provides a credit for increasing research activities, commonly known as the "research credit." Congress enacted the research credit in 1981 to provide an incentive for American private industry to invest in research and experimentation.

The IRS continues to see significant misuse of the research credit. Improper claims for this credit generally involve a failure to participate in or substantiate qualified research activities and/or a failure to satisfy the requirements related to qualified research expenses.

To qualify for the credit, a taxpayer’s research activities must, among other things, involve a process of experimentation using science with a goal of improving a product or process the taxpayer uses in its business or holds for sale or lease. However, there are certain activities specifically excluded from the credit., including research after commercial production, adaptation of an existing business product or process, foreign research and research funded by the customer. Qualified activities also do not include activities where there is no uncertainty about the taxpayer’s method or capability to achieve a desired result.

The IRS often sees expenses from non-qualified activities included in claims for the research credit. In addition, qualified research expenses include only in-house wages and supply expenses and 65 percent (typically) of payments to contractors. Qualified research expenses do not include expenses without a proven nexus between the claimed expenses and the qualified research activity.

Steps to Properly Claim the Credit

Taxpayers who qualify for the credit may claim up to 20 percent of qualified expenses above a base amount by completing and attaching Form 6765, Credit for Increasing Research Activities, to their tax return. For tax years beginning in 2016, eligible small businesses may use the research credit to offset the alternative minimum tax. Also for tax years beginning in 2016, qualified small businesses may elect to use a portion of the research credit as a payroll tax credit against the employer’s portion of the Social Security tax. Qualified small businesses make this election on Form 6765 and must complete and attach Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, to their Form 941, Employer’s Quarterly Federal Tax Return.

To claim a research credit, taxpayers must evaluate and document their research activities contemporaneously (i.e. over the period of time in which the research occurs) to establish the amount of qualified research expenses paid for each qualified research activity. While taxpayers may estimate some research expenses, taxpayers must have a factual basis for the assumptions used to create the estimates.

Unsupported claims for the research credit may subject taxpayers to penalties. Taxpayers should carefully review reports or studies prepared by third parties to ensure they accurately reflect the taxpayer’s activities. Third parties who are involved in the preparation of improper claims or research credit studies also may be subject to penalties

Fuel Tax Credit Scams

Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000. Furthermore, illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The fuel tax credit is generally limited to off-highway business use or use in farming.  Consequently, the credit is not available to most taxpayers. Still, the IRS routinely finds unscrupulous tax return preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.

The federal government taxes gasoline, diesel fuel, kerosene, alternative fuels and certain other types of fuel. Certain commercial uses of these fuels are nontaxable. Individuals and businesses that purchase fuel for one of those purposes can claim a tax credit by filing Form 4136, Credit for Federal Tax Paid on Fuels.

The tax is on fuels used to power vehicles and equipment on roads and highways. Taxes paid for fuel to power vehicles and equipment used off-road may qualify for the tax credit and may include farm equipment, certain boats, trains and airplanes.

Improper claims for the fuel tax credit generally come in two forms. An individual or business may make an erroneous claim on their otherwise legitimate tax return. It is also possible for an identity thief to claim the credit as part of a broader fraudulent scheme.

The IRS has taken a number of steps to improve compliance processes involving fuel tax credits. IRS compliance systems are preventing a significant number of questionable fuel tax credit claims from being processed. For example, new identity theft screening filters have also improved the IRS’s ability to identify questionable fuel tax credit claims during return processing.

View original IRS Press Release here.

IRS PRESS RELEASE: Fake charities make 2018 ‘Dirty Dozen’ list; taxpayers should be alert to scams involving disasters, worthwhile causes

IRS PRESS RELEASE:

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IR-2018-47, March 9, 2018

WASHINGTON — The Internal Revenue Service today warned taxpayers against scam groups masquerading as charitable organizations, luring people to make donations to groups or causes that don't actually qualify for a tax deduction.

These ‘fake’ charities attempt to attract donations from unsuspecting contributors, using a charitable reason and a tax deduction as bait for taxpayers. Fake charities are one of the “Dirty Dozen” tax scams for the 2018 filing season.

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their tax returns or hire someone to prepare their taxes.

Perpetrators of illegal scams can face significant penalties and interest and possible criminal prosecution. To help protect taxpayers, IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

The IRS offers these basic tips to taxpayers making charitable donations:

• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, that allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy through the IRS Select Check.
• Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution. Scam artists may use this information to steal identities and money from victims. Donors often use credit cards to make donations. Be cautious when disclosing credit card numbers to those seeking a donation. Confirm that those soliciting a donation are calling from a legitimate charity.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
• Consult IRS Publication 526, Charitable Contributions, available on IRS.gov. This free booklet describes the tax rules that apply to making tax-deductible donations. Among other things, it provides complete details on what records to keep to help taxpayers at tax time.

Impersonation of charitable organizations

Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters.

The IRS encourages taxpayers to donate to recognized charities established to help disaster victims. Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers.

Scam artists can use a variety of tactics following a disaster. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

Remember, fraudsters may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims.

Taxpayers can find legitimate and qualified charities with the Select Check search tool on IRS.gov.

Access the original IRS Press Release here.

IRS Press Release: IRS: Refunds worth $1.1 billion waiting to be claimed by those who have not filed 2014 federal income tax returns

IRS Press Release:

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IR-2018-44, March 8, 2018

WASHINGTON ―Unclaimed federal income tax refunds totaling about $1.1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2014 federal income tax return, according to the Internal Revenue Service.

To collect the money, these taxpayers must file their 2014 tax return with the IRS no later than this year's tax deadline, Tuesday, April 17.

"We’re trying to connect a million people with their share of $1.1 billion in unclaimed refunds for 2014,” said Acting IRS Commissioner David Kautter. “Time is running out for people who haven’t filed tax returns to claim their refunds. Students, part-time workers and many others may have overlooked filing for 2014. And there’s no penalty for filing a late return if you’re due a refund.”

The IRS estimates the midpoint for the potential refunds for 2014 to be $847; half of the refunds are more than $847 and half are less.

In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. For 2014 tax returns, the window closes April 17, 2018. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by that date.

The IRS reminds taxpayers seeking a 2014 tax refund that their checks may be held if they have not filed tax returns for 2015 and 2016. In addition, the refund will be applied to any amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2014. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2014, the credit was worth as much as $6,143. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2014 were:

• $46,997 ($52,427 if married filing jointly) for those with three or more qualifying children;
• $43,756 ($49,186 if married filing jointly) for people with two qualifying children;
• $38,511 ($43,941 if married filing jointly) for those with one qualifying child, and;
• $14,590 ($20,020 if married filing jointly) for people without qualifying children.

Current and prior year tax forms (such as the tax year 2014 Form 1040, 1040A and 1040EZ) and instructions are available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2014, 2015 or 2016 should request copies from their employer, bank or other payer. Taxpayers who are unable to get missing forms from their employer or other payer can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. Alternatively, they can file Form 4506-T to request a wage and income transcript. A wage and income transcript shows data from information returns received by the IRS, such as Forms W-2, 1099, 1098, Form 5498, and IRA contribution Information. Taxpayers can use the information on the transcript to file their tax return.

State-by-state estimates of individuals who may be due 2014 income tax refunds

State or District	Estimated Number of Individuals	Median Potential Refund	Total Potential Refunds*
Alabama	17,700	$836	$18,302,700
Alaska	4,500	$898	$5,263,200
Arizona	23,800	$750	$23,496,700
Arkansas	9,500	$808	$9,726,900
California	93,600	$785	$95,745,100
Colorado	20,400	$796	$20,887,500
Connecticut	11,000	$934	$12,740,100
Delaware	4,000	$883	$4,378,400
District of Columbia	3,000	$850	$3,237,700
Florida	69,800	$865	$74,040,300
Georgia	34,800	$772	$35,006,000
Hawaii	6,200	$898	$6,830,900
Idaho	4,500	$723	$4,376,100
Illinois	39,500	$895	$43,600,000
Indiana	22,700	$878	$24,353,000
Iowa	10,500	$885	$11,083,400
Kansas	11,100	$852	$11,645,300
Kentucky	13,600	$848	$14,035,100
Louisiana	19,900	$846	$21,700,800
Maine	4,000	$804	$3,941,700
Maryland	21,800	$853	$23,773,000
Massachusetts	22,800	$935	$26,018,500
Michigan	34,100	$845	$36,505,700
Minnesota	15,800	$785	$15,832,600
Mississippi	10,200	$777	$10,291,100
Missouri	23,000	$797	$23,212,400
Montana	3,500	$808	$3,617,700
Nebraska	5,600	$806	$5,629,100
Nevada	12,000	$831	$12,663,200
New Hampshire	4,600	$917	$5,169,500
New Jersey	28,600	$928	$32,452,500
New Mexico	7,800	$831	$8,472,600
New York	53,600	$913	$60,135,600
North Carolina	30,800	$791	$30,659,900
North Dakota	3,000	$952	$3,433,300
Ohio	38,100	$826	$38,956,700
Oklahoma	17,200	$855	$18,366,800
Oregon	15,100	$747	$14,816,600
Pennsylvania	39,300	$907	$42,866,100
Rhode Island	2,900	$916	$3,217,200
South Carolina	12,000	$757	$12,023,400
South Dakota	3,000	$866	$3,075,300
Tennessee	20,300	$837	$20,967,500
Texas	108,100	$899	$121,956,100
Utah	7,800	$754	$7,831,300
Vermont	2,100	$816	$2,028,600
Virginia	27,800	$828	$29,345,300
Washington	27,000	$894	$30,423,900
West Virginia	5,200	$914	$5,875,100
Wisconsin	13,400	$774	$13,041,800
Wyoming	3,000	$973	$3,556,300
Totals	1,043,600	$847	$1,110,605,600

* Excluding the Earned Income Tax

View the original IRS Press Release here: www.irs.gov/newsroom/irs-refunds-worth-one-point-one-billion-dollars-waiting-to-be-claimed-by-those-who-have-not-filed-2014-federal-income-tax-returns