Wednesday, September 28, 2016
The Internal Revenue Service has chosen four private debt collection agencies to help collect unpaid tax debts as the IRS gears up to resurrect the controversial program.
The three agencies are CBE Group of Cedar Falls, Iowa, Conserve of Fairport, N.Y., Performant of Livermore, Calif., and Pioneer of Horseheads, N.Y. The IRS is required to revive the private debt collection program this year because of a provision in a highway funding bill that Congress passed last December.
Senators Charles Grassley, R-Iowa, and Charles Schumer, D-N.Y., were among the proponents of a bill to bring back the program, and it was incorporated in the highway legislation (see Here Come the Private Tax Debt Collectors … Again and the slideshow 7 Things You Need to Know about Private Tax Collectors). Three of the four agencies chosen are based in their states. The program has been discontinued twice before because of complaints about harassment of taxpayers and the private companies’ low success rate at collecting unpaid tax debts. The increasing problem of scammers who pretend to be IRS employees and call taxpayers demanding immediate payment has also prompted concerns about reviving the program (see Highway Bill Will Revoke Passports for Tax Delinquents and Bring Back Private Tax Debt Collectors).
For the new program, the IRS said it will first send a written notice to taxpayers that it is turning over their tax debts to a collection agency. The IRS said it will send a written notice to both the taxpayer and their representative telling them the account has been turned over to a private collection agency, followed by a second letter confirming the transfer.
The private collection agencies are only supposed to work on accounts where taxpayers owe money and the IRS is no longer actively pursuing their accounts. These include older, overdue tax accounts, along with accounts where a lack of resources at the IRS prevent its employees from working on the cases.
The private collection agencies will be able to identify themselves as contractors of the IRS. However, their employees will need to follow the provisions of the Fair Debt Collection Practices Act, requiring them to be courteous and respect taxpayer rights.
The IRS said it will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, especially given the prevalence of phone scams where criminals demand tax payments be sent on prepaid debit cards and gift cards.
The IRS noted the private collection agencies are not going to request payment on a prepaid debit card. They will instead inform taxpayers about the electronic payment options available to them on IRS.gov. Tax debts can also be paid by checks made out to the U.S. Treasury and sent directly to IRS, but not the private collection agency.
The IRS said it will keep taxpayers informed about any scams and offer tips for protecting themselves on the Tax Scams and Consumer Alerts page on IRS.gov.
Thursday, September 8, 2016
The IRS is sending letters to taxpayers who received advance payments of the premium tax credit in 2015, but who have not yet filed their tax return. You must file a tax return to reconcile any advance credit payments you received in 2015 and to maintain your eligibility for future premium assistance. If you do not file, you will not be eligible for advance payments of the premium tax credit in 2017.
If you receive Letter 5858 or 5862, you are being reminded to file your 2015 federal tax return along with Form 8962, Premium Tax Credit. The letter encourages you to file within 30 days of the date of the letter to substantially increase your chances of avoiding a gap in receiving assistance with paying Marketplace health insurance coverage in 2017.
Here’s what you need to do if you received a 5858
- Read your letter carefully.
- Review the situation to see if you agree with the information in the letter.
- Use the Form 1095-A that you received from your Marketplace to complete your return. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
- File your 2015 tax return with Form 8962 as soon as possible, even if you don’t normally have to file.
- If you have already filed your 2015 tax return with Form 8962, you can disregard the letter.
Here’s what you need to do if you received a 5862 letter:
- Read your letter carefully.
- Review the situation to see if you agree with the information in the letter.
- Use the Form 1095-A that you received from your Marketplace to complete Form 8962. If you need a copy of your Form 1095-A, log in to your HealthCare.gov or state Marketplace account or call your Marketplace call center.
- File your 2015 tax return with Form 8962 as soon as possible, even though you have an extension until October 17, 2016, to file.
- If you have already filed your 2015 tax return with Form 8962, please disregard this letter.
Thursday, August 18, 2016
WASHINGTON — The Internal Revenue Service today warned taxpayers against telephone scammers targeting students and parents during the back-to-school season and demanding payments for non-existent taxes, such as the “Federal Student Tax.”
People should be on the lookout for IRS impersonators calling students and demanding that they wire money immediately to pay a fake “federal student tax.” If the person does not comply, the scammer becomes aggressive and threatens to report the student to the police to be arrested. As schools around the nation prepare to re-open, it is important for taxpayers to be particularly aware of this scheme going after students and parents.
“Although variations of the IRS impersonation scam continue year-round, they tend to peak when scammers find prime opportunities to strike”, said IRS Commissioner John Koskinen. “As students and parents enter the new school year, they should remain alert to bogus calls, including those demanding fake tax payments from students.”
The IRS encourages college and school communities to share this information so that students, parents and their families are aware of these scams.
Scammers are constantly identifying new tactics to carry out their crimes in new and unsuspecting ways. This year, the IRS has seen scammers use a variety of schemes to fool taxpayers into paying money or giving up personal information. Some of these include:
- Altering the caller ID on incoming phone calls in a “spoofing” attempt to make it seem like the IRS, the local police or another agency is calling
- Imitating software providers to trick tax professionals--IR-2016-103
- Demanding fake tax payments using iTunes gift cards--IR-2016-99
- Soliciting W-2 information from payroll and human resources professionals--IR-2016-34
- “Verifying” tax return information over the phone--IR-2016-40
- Pretending to be from the tax preparation industry--IR-2016-28
If you receive an unexpected call from someone claiming to be from the IRS, here are some of the telltale signs to help protect yourself.
The IRS Will Never:
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.
- Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
- Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
- Ask for credit or debit card numbers over the phone.
If you get a suspicious phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:
- Do not give out any information. Hang up immediately.
- Search the web for telephone numbers scammers leave in your voicemail asking you to call back. Some of the phone numbers may be published online and linked to criminal activity.
- Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page or call 800-366-4484.
- Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.
- If you think you might owe taxes, call the IRS directly at 800-829-1040.
Wednesday, August 10, 2016
Tax-related identity theft normally occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Many people first find out about it when they do their taxes.
The IRS is working hard to stop identity theft with a strategy of prevention, detection and victim assistance. Here are nine key points:
For more on this Topic, see the Taxpayer Guide to Identity Theft.
IRS Tax Tips provide valuable information throughout the year. IRS.gov offers tax help and info on various topics including common tax scams, taxpayer rights and more.Additional IRS Resources:
Monday, August 8, 2016
Millions of people enjoy hobbies. Hobbies can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income from hobbies is different from how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are five basic tax tips you should know if you get income from your hobby:
Business versus Hobby. There are nine factors
to consider to determine if you are conducting business or
participating in a hobby. Make sure to base your decision on all the
facts and circumstances of your situation. Refer to Publication 535, Business Expenses, to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
Allowable Hobby Deductions.
You may be able to deduct ordinary and necessary hobby expenses. An
ordinary expense is one that is common and accepted for the activity. A
necessary expense is one that is helpful or appropriate. See Publication 535 for more on these rules.
Limits on Expenses. As a general rule, you can only
deduct your hobby expenses up to the amount of your hobby income. If
your expenses are more than your income, you have a loss from the
activity. You can’t deduct that loss from your other income.
- How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. See Publication 535 for how you should report them on Schedule A, Itemized Deductions.
Wednesday, August 3, 2016
If you pay for college in 2016, you may receive some tax savings on your federal tax return, even if you’re studying outside of the U.S. Both the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe, but only the AOTC is partially refundable.
Here are a few things you should know about education credits:
American Opportunity Tax Credit ‒ The AOTC
is worth up to $2,500 per year for an eligible student. This credit is
available for the first four years of higher education. Forty percent of
the AOTC is refundable. That means, if you’re eligible, you can get up
to $1,000 of the credit as a refund, even if you do not owe any tax.
Lifetime Learning Credit ‒ The LLC
is worth up to $2,000 per tax return. There is no limit on the number
of years that you can claim the LLC for an eligible student.
Qualified expenses ‒ You may use only qualified expenses
paid to figure your credit. These expenses include the costs you pay
for tuition, fees and other related expenses for an eligible student to
enroll at, or attend, an eligible educational institution. Refer to IRS.gov for more on the rules that apply to each credit.
Eligible educational institutions ‒ Eligible educational schools
are those that offer education beyond high school. This includes most
colleges and universities. Vocational schools or other postsecondary
schools may also qualify. If you aren’t sure if your school is eligible:
- Ask your school if it is an eligible educational institution, or
- See if your school is on the U.S. Department of Education’s Accreditation database.
Form 1098-T ‒ In most cases, you should receive Form 1098-T,
Tuition Statement, from your school by February 1. This form reports
your qualified expenses to the IRS and to you. The amounts shown on the
form may be either: (1) the amount you paid for qualified tuition and
related expenses, or (2) the amount that your school billed for
qualified tuition and related expenses; therefore, the amounts shown on
the form may be different than the amounts you actually paid. Don’t
forget that you can only claim an education credit for the qualified tuition and related expenses that you paid in the tax year and not just the amount that your school billed. If Form 1098-T does not have the amount paid, you must have copies of receipts showing these payments or a statement from the school showing amounts paid for qualifying expenses.
- Income limits ‒ The education credits are subject to income limitations and may be reduced, or eliminated, based on your income.
Tuesday, August 2, 2016
Exclusion of Gain. You may be able to exclude part or
all of the gain from the sale of your home. This rule may apply if you
meet the eligibility test. Parts of the test involve your ownership and
use of the home. You must have owned and used it as your main home for
at least two out of the five years before the date of sale.
Exceptions May Apply. There are exceptions to the
ownership, use and other rules. One exception applies to persons with a
disability. Another applies to certain members of the military. That
rule includes certain government and Peace Corps workers. For more on
this topic, see Publication 523, Selling Your Home.
Exclusion Limit. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
May Not Need to Report Sale. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
When You Must Report the Sale.
You must report the sale on your tax return if you can’t exclude all or
part of the gain. You must report the sale if you choose not to claim
the exclusion. That’s also true if you get Form 1099-S, Proceeds From
Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
Exclusion Frequency Limit.
Generally, you may exclude the gain from the sale of your main home
only once every two years. Some exceptions may apply to this rule.
Only a Main Home Qualifies.
If you own more than one home, you may only exclude the gain on the
sale of your main home. Your main home usually is the home that you live
in most of the time.
First-time Homebuyer Credit.
If you claimed the first-time homebuyer credit when you bought the
home, special rules apply to the sale. For more on those rules, see Publication 523.
Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.
- Report Your Address Change. After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. Mail it to the address listed on the form’s instructions. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.