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by Larson Accounting
8 de May de 2024
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ALERTTax 2024

IRS final reminder: Time to claim $1 billion in tax refunds from 2020 expires May 17

The Internal Revenue Service today reminded the 1 million people who didn’t file their tax year 2020 returns they may be eligible for a refund if they file by the May 17 deadline.

The IRS estimates more than $1 billion in refunds remain unclaimed because people haven’t filed their 2020 tax returns yet. The state-by-state table below shows how many people are potentially eligible for these refunds, and the average median refund in each state.

There’s no penalty for failure to file if a refund is due. However, a return claiming a refund must be filed within three years of its due date for a refund to be allowed. After the expiration of the three-year period, the refund statute generally prevents the issuance of a refund check and the application of any credits, including overpayments of estimated taxes or withholding amounts, to other tax years that are underpaid.

For 2020 tax returns, people have a little more time than usual to file their claim for refunds. Typically, the filing deadline to claim old refunds falls around the tax deadline of April 15. However, the 2020 filing deadline was pushed to May 17, due to COVID-19, making the three-year window deadline for 2020 unfiled returns May 17, 2024. The IRS issued Notice 2023-21 on Feb. 27, 2023, providing legal guidance on claims required by the postponed deadline.

Many people who didn’t file may be eligible for more

By missing out on filing a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2020. The estimate does not include credits that non-filers may be eligible to receive. Credits include the Earned Income Tax Credit (EITC), the Recovery Rebate Credit or other credits that may be applicable.

Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2020, the EITC was worth as much as $6,660 for taxpayers with qualifying children. The EITC helps individuals and families whose incomes are below certain thresholds.

The IRS has previously reminded those who may be entitled to the COVID-era Recovery Rebate Credit in 2020 that time is running out to file a tax return and claim their money. The Recovery Rebate Credit is a refundable credit for individuals who did not receive one or more Economic Impact Payments, also known as stimulus payments, distributed in 2020 and 2021.

Plan to file? IRS offers options to get key documents

Gathering all the necessary documents and forms to file a return for 2020 may take some time. People should start as soon as possible to make sure they have enough time to file before the May 17 deadline for 2020 refunds. Here are some options:

  • Request copies of key documents. Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2020, 2021 or 2022 can request copies from their employer, bank or other payers.
  • Use Get Transcript Online at IRS.gov. Taxpayers who have lost contact with their employer or other payers can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. For many taxpayers, this is by far the quickest and easiest option.
  • Request a transcript. Another option is for people to file Form 4506-T, Request for Transcript of Tax Return, with the IRS 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 from the transcript to file their tax return. But plan ahead – these written requests can take several weeks; people are strongly urged to try the other options first.
  • Current and prior years’ tax forms. Tax year 2020 Forms 1040 and 1040-SR and instructions are available on the IRS.gov Forms, instructions & publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

Taxpayers who are unsure if they are required to file a return can visit Do I need to file a tax return? or refer to Publication 17, Your Federal Income Tax (For Individuals).

Free help is available

For individuals who have not filed a federal income a tax return for 2020, the IRS offers tools and resources on IRS.gov. Free support includes the Interactive Tax Assistant (ITA), information on What to do if you haven’t filed your return, and Frequently asked questions and answers (FAQs).

Qualified taxpayers can also access free tax preparation assistance through the Volunteer Income Tax Assistance and the Tax Counseling for the Elderly programs. Use the VITA Locator Tool or call 800-906-9887 to locate the nearest VITA site.

The IRS also reassures taxpayers there is no penalty for claiming a refund on a late-filed tax return. Direct deposit is recommended as the quickest and simplest way to receive a tax refund.

State-by-state estimates of individuals who may be due 2020 income tax refunds

The IRS estimated the number of individuals in each state and the median potential refund a filer may be entitled to receive. The actual refund amount will vary based on a household’s tax situation.

State ordistrict Estimatednumber of individuals Medianpotential refund Totalpotential refunds *
Alabama 15,200 $926 $16,839,800
Alaska 3,700 $931 $4,335,300
Arizona 25,400 $871 $26,939,600
Arkansas 8,700 $923 $9,392,600
California 88,200 $835 $94,226,300
Colorado 18,500 $894 $20,109,900
Connecticut 9,800 $978 $11,343,600
Delaware 3,600 $945 $4,156,500
District of Columbia 2,900 $968 $3,503,800
Florida 53,200 $891 $58,210,500
Georgia 36,400 $900 $39,175,600
Hawaii 5,200 $979 $5,972,600
Idaho 4,500 $761 $4,369,600
Illinois 36,200 $956 $40,608,000
Indiana 19,200 $922 $20,893,000
Iowa 9,600 $953 $10,601,700
Kansas 8,700 $900 $9,285,600
Kentucky 10,600 $920 $11,236,300
Louisiana 15,100 $957 $17,357,300
Maine 3,800 $923 $4,030,200
Maryland 22,200 $991 $26,365,400
Massachusetts 21,800 $975 $25,071,800
Michigan 34,900 $976 $38,274,800
Minnesota 13,500 $818 $14,043,900
Mississippi 8,100 $861 $8,685,000
Missouri 19,500 $893 $20,803,400
Montana 3,400 $851 $3,632,100
Nebraska 4,700 $901 $5,007,300
Nevada 10,200 $890 $11,143,900
New Hampshire 4,200 $982 $4,923,100
New Jersey 24,400 $920 $27,408,300
New Mexico 6,500 $868 $7,032,700
New York 51,400 $1,029 $60,837,400
North Carolina 27,500 $895 $29,304,100
North Dakota 2,200 $953 $2,482,600
Ohio 31,400 $909 $32,939,900
Oklahoma 14,300 $902 $15,566,900
Oregon 15,300 $847 $15,857,800
Pennsylvania 38,600 $1,031 $43,412,900
Rhode Island 2,600 $986 $2,980,500
South Carolina 11,900 $840 $12,564,900
South Dakota 2,200 $892 $2,346,300
Tennessee 16,800 $909 $18,007,000
Texas 93,400 $960 $107,130,200
Utah 7,800 $836 $8,191,700
Vermont 1,700 $911 $1,818,600
Virginia 25,900 $914 $28,944,600
Washington 26,200 $976 $31,110,300
West Virginia 3,800 $950 $4,130,400
Wisconsin 11,800 $837 $12,139,400
Wyoming 2,100 $961 $2,416,300
Totals 938,800 $932 $1,037,161,300

* Excluding credits.

Source: IRS-2024-133, May 6, 2024

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by Larson Accounting
8 de May de 2024
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Tax 2024

IRS encourages tax-exempt organizations to file their taxes ahead of May 15 deadline

The Internal Revenue Service encouraged thousands of tax-exempt organizations today to file their taxes ahead of their filing deadline.

The annual filing due date for certain returns filed by tax-exempt organizations is normally by the 15th day of the 5th month after the end of an organization’s accounting period. Those operating on a calendar year (CY) basis must file a return by May 15. Returns due include:

  • Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF).
  • Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ.
  • Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts).
  • Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code.

Mandatory electronic filing

Electronic filing provides fast acknowledgement that the IRS has received the return and reduces processing time, making compliance with reporting requirements easier. Note:

  • Organizations filing a Form 990, 990-EZ, 990-PF or 990-T for CY 2023 must file their returns electronically.
  • Private foundations filing a Form 4720 for CY 2023 must file the form electronically.
  • Charities and other tax-exempt organizations can file these forms electronically through an IRS authorized e-file provider.
  • Organizations eligible to submit a Form 990-N must do so electronically and can submit it through Form 990-N (e-Postcard)on IRS.gov.

Common errors

IRS encourages organizations to review their forms for accuracy and to submit complete returns. If an organization’s return is incomplete or the wrong return for the organization, the return will be rejected. Common errors include missing or incomplete schedules.

Extension of time to file

Tax-exempt organizations may request a six-month automatic extension by filing a Form 8868, Application for Extension of Time to File an Exempt Organization Return. In situations where tax is due, extending the time for filing a return does not extend the time for paying tax.

Pre-recorded workshops

IRS provides a series of pre-recorded online workshops to help exempt organizations comply with their filing requirements. These workshops are designed to assist officers, board members and volunteers with the steps they need to take to maintain their tax-exempt status, including filing annual information returns.

It’s easy to stay up to date on tax information year-round with the IRS verified social media accounts and e-news services. Taxpayers can get tips, guidance and the latest tax law news delivered to their social feed or inbox.

Source: IRS-2024-135, May 6, 2024

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by Larson Accounting
29 de April de 2024
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NewsTax 2024

IRS provides guidance for the 2024 allocation round for the Qualifying Advanced Energy Project Credit Program

The Department of Treasury and the Internal Revenue Service today issued Notice 2024-36PDF for owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects and critical material projects.

On Feb. 13, 2023, the Department of Treasury and the IRS issued Notice 2023-18 to establish the program and announce an initial allocation round of credits. On May 31, 2023, the Department of Treasury and the IRS issued Notice 2023-44 to provide additional guidance for the program. Approximately $4 billion in credits were allocated in the first allocation round.

Today’s notice announces the second round of credit allocations for the program to allocate the remaining $6 billion credits. The notice also modifies appendices A, B and C of Notice 2023-44.

Like in the prior allocation round, the Department of Treasury and the IRS are partnering with the Department of Energy (DOE) to recommend projects. The DOE section 48C portal will open no later than May 28, 2024, for taxpayers to submit a concept paper and begin the process of seeking a section 48C credit allocation.

More information about IRA guidance may be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Source: IRS-2024, April 29, 2024

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by Larson Accounting
28 de April de 2024
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News

National Small Business Week 2024 begins; IRS offers tax resources, information to nation’s entrepreneurs

The Internal Revenue Service today offered helpful information to entrepreneurs in anticipation of the upcoming kick-off of National Small Business Week, celebrating and recognizing the crucial contributions America’s small businesses make to the nation’s economy.

Each year, the U.S. Small Business Administration spearheads National Small Business Week, helping entrepreneurs with resources, benefits and other important business startup information that small business owners can use to launch their enterprises. This year’s celebration — Building on America’s Small Business Boom — runs from April 28 through May 4.

The Internal Revenue Service is a partner in the National Small Business Week celebration, and this year the IRS will be showcasing numerous resources to help small business entrepreneurs learn and understand their tax responsibilities and benefits. Throughout the week, IRS will be publishing helpful information in its popular tax tips e-News publications, as well as on IRS social media platforms including Facebook, X (formerly Twitter), LinkedIn and Instagram.

Next week, the IRS will share several important tax topics to help small business entrepreneurs prosper and grow:

  • Monday, April 29. Best practices for small businesses — The IRS strongly encourages small business entrepreneurs to take advantage of the numerous resources available on IRS.gov. Knowing how to start a business and understanding best practices are essential for the success of small businesses.
  • Tuesday, April 30. What to know when starting a business — Gain insights into key factors to consider when launching a new business venture. Access the Starting a business webpage to ensure a strong foundation for an entrepreneurial journey.
  • Wednesday, May 1. Beware of scams — The IRS Dirty Dozen and more. Most cyberattacks are aimed at small businesses with fewer than 100 employees. Small business owners must implement data protection safeguards and always be on the lookout for tax-related scams.
  • Thursday, May 2. Tips for tax pros who support small businesses — Stay informed with the latest IRS updates and access resources tailored for tax professionals.
  • Friday, May 3. Expect the unexpected — The IRS can help small businesses after a disaster. A critical focus of the IRS is to relieve the federal tax burden of taxpayers who have been impacted by federally declared disasters. The IRS works with various agencies to provide assistance and coordinate disaster relief.

Seeking to start a small business involves several important considerations related to tax issues:

How to get an employer identification number

Most business owners need an employer identification number (EIN), a permanent form of identification that, in many cases, must be used for filing a tax return and can be used for various business needs such as opening bank accounts. Businesses can get an EIN online immediately at IRS.gov, and it’s free.

Choosing a business structure

Small business owners, as taxpayers, must decide on what the most appropriate business structure should be for their enterprise when they start their new business. The business structure they choose dictates the type of income tax return form that the business owner will file each year. Some common business structures include:

  • Sole proprietorship. Individuals who own unincorporated businesses exclusively, by and for themselves are sole proprietors.
  • Partnerships. A partnership is the relationship between two or more people to conduct trade or business, with each person contributing money, property, labor or skill and sharing in the profits and losses of the business.
  • Corporations. In a corporation, prospective shareholders exchange money, property or both in order to acquire the corporation’s capital stock.
  • S corporations. An S corporation is a corporation that elects to pass corporate income, losses, deductions and credits to its shareholders for federal tax purposes.
  • Limited liability company (LLC). An LLC may be treated as a corporation, a partnership or as part of the owner’s tax return (e.g., sole proprietorship), depending on elections made by the LLC and its members. LLCs may also be subject to state regulations, which vary from state to state.

Understanding business taxes

Federal law requires all individuals, including small business owners, to pay taxes on all income earned. This typically involves making quarterly estimated tax payments for small business owners and self-employed individuals. How business taxes are paid depends on the business structure that an entrepreneur has chosen. The following are the four generally recognized business tax types:

  • Income tax. With the exception of partnerships, all businesses must file an annual federal income tax return; partnerships must file an information return.
  • Self-employment tax. A Social Security and Medicare tax primarily for individuals who work for themselves. Tax payments contribute to the individual’s Social Security system coverage.
  • Employment tax. Small businesses with employees have certain employment tax responsibilities that must be paid, along with specific forms that must be filed.
  • Excise tax. Imposed on various goods, services and activities, excise taxes may be imposed on a manufacturer, retailer or consumer, depending on the specific tax.

Choosing a “tax year”

A “tax year” is an accounting period for reporting income and expenses. Small businesses can choose which tax year works best for their operational needs:

  • Calendar year. Twelve consecutive months beginning January 1 and ending December 31.
  • Fiscal year. Twelve consecutive months ending on the last day of any month except December. A 52- to 53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.

Be a responsible recordkeeper

Maintaining well-organized business records not only helps in tax return preparation, but also assists small business owners in preparing financial statements, identifying income sources, tracking deductible expenses and monitoring their business progress. Small business owners should retain their business records for at least three years.

More small business information

Finally, for more information on a broader range of topics and answers to small business tax questions, visit the IRS website at IRS.gov.

Source: IRS-2024-123, April 26, 2024

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by Larson Accounting
25 de April de 2024
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NewsTax 2024

IRS releases final guidance on transfers of certain credits under the Inflation Reduction Act

The Department of Treasury and Internal Revenue Service issued final regulations today describing rules and definitions for the transfer of eligible credits in a taxable year, including specific rules for partnerships and S corporations.

The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors act (CHIPs) enable taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer provisions.

For tax years beginning after Dec. 31, 2022, eligible taxpayers can choose to transfer all or a portion of eligible credits to unrelated taxpayers for cash payments.

The unrelated taxpayers are then allowed to claim the transferred credits on their tax returns. The cash payments are not included in gross income of the eligible taxpayers and are not deductible by the unrelated taxpayers.

The final regulations also describe special rules related to excessive credit transfers and recapture events, including rules for determining whether an event has occurred, the resulting tax impact and the person responsible for that tax impact.

The final regulations also provide rules for a mandatory IRS pre-filing registration process through an electronic portal. The pre-filing registration process must be completed, and a registration number received, prior to making an election to transfer eligible credits.

In addition, the final regulations describe specific rules for partnerships and S corporations as eligible taxpayers and transferee taxpayers.

Previously, the IRS issued proposed regulations for the transfer of applicable credits and temporary regulations for the mandatory IRS pre-filing registration process.

For detailed instructions on how to use the tool, refer to Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 Pre-Filing Registration ToolPDF.

Source: IRS-2024-120, April 25, 2024

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by Larson Accounting
25 de April de 2024
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NewsTax 2024

Inflation Reduction Act implementation teams focus on enhanced taxpayer service

WASHINGTON — With the funding from the Inflation Reduction Act (IRA), the Internal Revenue Service continues to help taxpayers in unique ways to take advantage of clean energy credits.

The IRA, with its associated funding, gave the IRS the opportunity to transform taxpayer services – creating new, fully electronic processes and systems, updating legacy systems and improving compliance and fraud mitigation.

The agency continues focusing on customer service and expanding online tools by offering virtual sessions to answer taxpayer questions, helping with technical issues and providing a steady assistance for those looking to benefit from the clean energy credits.

IRS Energy Credits Online

In November 2023, the IRS announced that sellers of clean vehicles can register using the new IRS Energy Credits Online tool.

Known as IRS Energy Credits Online or IRS ECO, this free electronic service is secure, accurate and requires no special software, making it accessible to large and small businesses alike.

The IRS’s new Energy Credits Online tool allows dealers and sellers of clean vehicles to complete the entire process online and receive advance payments within 72 hours of the expiration of a cancellation period. The tool will generate a time of sale report that the vehicle buyer will use when filing their federal tax return to claim or report the credit.

IRA and CHIPS Pre-filing Registration Tool

In December 2023, the IRS announced that qualifying businesses, tax-exempt organizations or entities such as state, local and Indian tribal governments can register using the new IRA/CHIPS Pre-filing Registration Tool, available free from the IRS so they can take advantage of the elective payment or transfer of credits.

The Inflation Reduction Act and the Creating Helpful Incentives to Produce Semiconductors Act, known as CHIPS, allows taxpayers to take advantage of certain manufacturing investment, clean energy investment and production tax credits through elective pay or transfer.

Elective payment and the transfer election create alternative ways for applicable entities and eligible taxpayers who have earned one of the IRA clean energy or the CHIPS credits to get the benefit of the credit even if the taxpayer cannot use the credit to offset their tax liability.

Milestones

To date, more than 900 entities registered nearly 59,000 facilities and properties for a direct payment or transfer of credit. IRS registered 13,200 dealers, acknowledged 96,800 advance payments and paid over $665 million.

The IRS and Treasury conducted a robust and wide-ranging educational campaign on these new provisions to benefit taxpayers, including hosting office hour sessions where representatives from the IRS are available to answer questions related to the preregistration process.

Office hours

The IRS also developed new ways to engage end users and share messaging on IRA clean energy credits, to include implementing a specialized customer service model that provides personalized services so taxpayers can receive prompt assistance with applying for clean energy credits. The IRS is committed to resolving any issues facing manufacturers, dealers and sellers navigating the IRS’ new ECO tool.

For example, the IRS hosted over 40 “office hours” sessions with more than 5,000 attendees to assist users with clean vehicle registration, elective pay and transferability on IRS ECO. During these sessions, IRS subject matter experts conduct walk-throughs of the registration process and answer questions.

Source: IRS-2024-121, April 25, 2024

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by Larson Accounting
16 de April de 2024
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ALERTTax 2024

IRS offers tax relief to corporations

The Internal Revenue Service is waiving penalties to companies that fail to pay their estimated taxes for the first quarter for the corporate alternative minimum tax.

In Notice 2024-33, the IRS said Monday the relief notice applies only for calculating the installment of estimated income tax of a corporate taxpayer that’s due on or before April 15, 2024, or for companies whose tax year starts in February, until May 15, 2024.

The notice waives any tax penalties under Section 6655 of the Tax Code to the extent the amount of any underpayment can be attributed to the portion of the corporate alternative minimum tax liability due in that installment.

Last June, the Treasury Department and the IRS issued a notice that waived CAMT tax penalties for any tax year that starts after Dec. 31, 2022, and before Jan. 1, 2024. But that time has since passed, so a new notice was needed until final regulations are issued. Last year, the Treasury Department and the IRS announced they intended to issue forthcoming proposed regulations addressing the application of the CAMT. They provided interim guidance to clarify the application of certain aspects of the CAMT. Affected taxpayers need to file Form 2220 with their federal income tax return, even if they owe no estimated tax penalty, to avoid a penalty notice.

The instructions to Form 2220, “Underpayment of Estimated Tax by Corporations,” will be modified to provide specific instructions on how to avoid a penalty notice and to clarify that no addition to tax will be imposed under Section 6655 based on a corporation’s failure to make an estimated tax payment of its CAMT liability for the installment of estimated tax that is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024), and that a company can exclude those amounts when calculating the amount of its required annual payment on Form 2220.

Source: AccountingToday
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by Larson Accounting
15 de April de 2024
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NewsTax 2024

Tax Day, the day federal and most state taxes are due, is here

Here is what you need to know about filing your income tax return this year.

When is the deadline?
For most taxpayers, the deadline to file their federal tax return, pay any tax owed or request an extension to file is Monday.

Taxpayers living in Maine or Massachusetts have until April 17, 2024, due to the Patriot’s Day and Emancipation Day holidays. If a taxpayer lives in a federally declared disaster area, they also may have additional time to file.
Most states use the federal Tax Day deadline as the deadline to file state taxes, but not every state does. Click here to make sure of the deadline for your state.

What happens if I don’t file on the 15th?
If you don’t file your income tax return, and you owe the government money, you will face fines and penalties in addition to the taxes you owe.

Can I get an extension on filing my return?
You can file for an extension, but filing for an extension does not mean you do not have to pay any taxes you owe. It simply means you have more time to file the return.
If you owe taxes, you are required to pay the bill by April 15.

What kind of penalties do I face if I don’t file my return by Tuesday?
If you owe taxes and do not pay by April 15, penalties immediately take effect. The two penalties you will face are penalties for failure to file a return and failure to pay your tax bill. The penalties can be hefty.

According to the IRS:

  • The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.
  • If you still haven’t paid after five months, the Failure to File Penalty will max out, but the Failure to Pay Penalty continues until the tax is paid, up to its maximum of 25% of the unpaid tax as of the due date.
  • If your return was over 60 days late, the minimum Failure to File Penalty is $435 (for tax returns required to be filed in 2020, 2021 and 2022) or 100% of the tax required to be shown on the return, whichever is less.

How do I file my taxes?
Electronic filing is the way most people file their taxes. It is easier for the IRS to process the return and issue a refund or collect taxes owed.
If you file electronically and include direct deposit information, you should get your refund within 21 days.
If you file a paper return, it will take longer since the returns will have to be processed by hand.

Will I have to pay to file a return?
The IRS uses a service known as Free File if your adjusted gross income is $73,000 or lower.
If your income is above $73,000, then you will have to pay a tax preparation company to file electronically.

What if you can’t pay the amount of tax owed?
There are payment plans available to people who do not have the money to pay their tax bills by April 15.
However, under those plans, penalties will still be charged.

Should you skip filing if you cannot pay the tax you owe?
No, you should not skip filing. If you skip filing, you will have to pay a penalty for failing to file in addition to failing to pay the tax owed.

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by Larson Accounting
10 de April de 2024
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NewsTax 2024

IRS changes how tax pros receive transcripts

The Internal Revenue Service is making some changes in the way it sends tax transcripts for clients to tax professionals to beef up security.

“As part of the IRS’s effort to continue combatting identity theft and protecting taxpayers’ personal information, we’re making changes that will impact how tax professionals receive transcripts,” the IRS said in an email to tax professionals Friday

Starting Monday, April 8, tax professionals need to call the Practitioner Priority Service to request transcripts to be deposited into their secure object repository, or SOR. While PPS has been the main avenue for such requests, other IRS toll-free lines will no longer offer the SOR as a delivery method.

Tax professionals will also now need to pass the current required authentication and also verify their Short Identification. The Short ID is a unique eight- to 10-character alphanumeric code that’s systemically assigned by the system when an IRS account is established. This Short ID is visible when a tax pro logs into their e-Services SOR. If the tax pro’s identity can’t be verified, taxpayer transcripts will only be mailed to the address of record.

The PPS assistors who work for the IRS can’t resolve issues with either ID.me identity proofing or the status of an ID.me account. The IRS uses ID.me to authenticate taxpayer identities for taxpayer and tax professional accounts.

By: Michael Cohn

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by Larson Accounting
8 de April de 2024
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ALERTNewsTax 2024

Dirty Dozen: IRS urges taxpayers to not fall prey to untrustworthy tax preparers; “ghost preparers” can disappear with taxpayer cash, information

WASHINGTON — In day seven of the Dirty Dozen tax scam series, the Internal Revenue Service and Security Summit partners today alerted taxpayers to be on the lookout for unscrupulous tax preparers who could encourage people to file false tax returns and steal valuable personal information.

A common problem seen annually during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they don’t qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and IRS.gov has important information to help people choose a reputable, accredited practitioner.

“Ghost preparers and other shady return preparers form a real threat every tax season to well-meaning taxpayers,” said IRS Commissioner Danny Werfel. “By trying to make a fast buck, these scammers prey on seniors and underserved communities, enticing them with bigger refunds by including bogus tax credit claims or making up income or deductions. But after the tax return is filed, these ghost preparers disappear, leaving the taxpayer to deal with consequences ranging from a stolen refund to follow-up action from the IRS. We urge people to choose a trusted tax professional that will be around if questions arise later.”

Unethical tax preparers serve as day seven of the annual IRS Dirty Dozen campaign – a list of 12 scams and schemes to help taxpayers and the tax professional community protect their personal and financial information. Compiled annually since 2002, 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 returns or hire someone to help with their taxes.

Bogus tax preparers have been a recurring theme in the Dirty Dozen for years. Anyone can file a tax return because preparing tax returns is unregulated, which adds risks for vulnerable taxpayers during filing season. To protect taxpayers, the IRS and the Treasury Department have again proposed regulating tax practitioners as part of the proposed Fiscal Year 2025 budget.

Shady tax practitioners can also be involved in stealing taxpayer identities. As a member of the Security Summit, the IRS has worked with state tax agencies and the nation’s tax industry for nine years to cooperatively implement a variety of internal security measures to protect taxpayers. The collaborative effort by the Summit partners also has focused on educating taxpayers about scams and fraudulent schemes throughout the year, which can lead to tax-related identity theft. Through initiatives like the Dirty Dozen and the Security Summit program, the IRS strives to protect taxpayers, businesses and the tax system from cyber criminals and deceptive activities that seek to extract information and money, including ghost preparers.

Tips for taxpayers: Warning signs to look out for

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid preparer tax identification number (PTIN) on every tax return. A ghost preparer is someone who doesn’t sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

  • Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund.
  • False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund.
  • Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

File accurately and check eligibility for credits and deductions

Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares it. Taxpayers can visit IRS.gov to find answers to tax-related questions and access tools like the Interactive Tax Assistant, which provides answers to several tax law questions specific to individual circumstances.

Filing electronically reduces tax return errors, and people can take advantage of free online and in-person tax preparation options if they qualify through programs like IRS Free File and the Volunteer Income Tax Assistance and Tax Counseling for the Elderly.

Taxpayers should also make sure that they are taking advantage of available credits and deductions, like the Earned Income Tax Credit (EITC), which is refundable and can help low-to-moderate income workers receive up to $7,340 based on their qualifications. People need to make sure they understand which credits and deductions they are eligible to claim and keep records to show their eligibility.

Report fraudulent activity and scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242PDF and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail:

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, CA 92677-3405
Fax: 877-477-9135

Taxpayers can also report preparer misconduct using Form 14157, Complaint: Tax Return PreparerPDF. If a taxpayer suspects a preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct AffidavitPDF.

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

Source: IRS-2024-96, April, 2024

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