by | Jul 22, 2020 | Tax Tips and News
The IRS this week published the first installment of the Security Summit’s annual data security outreach campaign: “Working Virtually: Protect Tax Data at Home and at Work.” Taking place over five weeks, this year’s event—as the title suggests—focuses on how to keeping data safe when working from home. Focusing on remote work is particularly timely given the resumption of more stringent social-distancing policies across the country.
Remember, identity thieves have been trying to crowbar their way into tax professionals’ client databases for years. After all, paid tax return preparers handle sensitive financial information—the larger the office, the riper the target. (If that wasn’t bad enough, criminals use stolen preparer credentials to fraudulently file tax returns.)
What is the Security Summit?
In 2015, the IRS, state departments of revenue, and private members of the tax industry established the Security Summit. Their goal was to develop best practices for teaching tax professionals and taxpayers to avoid identity theft tax refund fraud.
Security Summit outreach campaigns have since helped substantially cut the number of tax-related identity theft scams. The IRS notes in the press release announcing this year’s topics that there has been a 80% drop in reported incidents in the intervening years—even more impressive considering there are more adults with access to the Internet than when the Summit’s work began.
What are the “Security Six” recommendations?
The first week of the “Working Virtually: Protect Tax Data at Home and at Work” campaign is dedicated to spreading awareness of the “Security Six,” a list of six proactive steps anyone can take to protect their data. You will probably recognize a few of the recommendations.
Antivirus software tops the list, and it’s probably the one that is familiar to most people. These programs certainly offer out-of-the-box protection against older malware, but the criminals writing computer viruses aren’t content to rest on their laurels. The IRS says that you need to need to regularly download updates for your antivirus and perform both automatic and manual scans to gain the full benefit of these programs.
Firewalls filter Internet traffic for your computer or network, and they come in two flavors: hardware and software. Hardware firewalls “are particularly useful for protecting multiple computers and control the network activity that attempts to pass them,” and software firewalls perform that function for individual devices. Generally, operating systems include a firewall, but third-party programs are available.
Multi-factor authentication requires users to enter more than one security code to access the protected device. “Often [multi-factor] authentication means the returning user must enter credentials (username and password) plus another step, such as entering a security code sent via text to a mobile phone,” the IRS explains. “The idea is a thief may be able to steal the username and password but it’s highly unlikely they also would have a user’s mobile phone to receive a security code and complete the process.”
Backup software and services store a copy of your computer files in a separate location. This protection lets you restore all of the files that would otherwise be lost on a damaged or malware-compromised hard drive. Considering the rise in ransomware—criminal-created programs that lock access to infected computers—having a regularly updated backup is a very good idea. The IRS also recommends that you encrypt any taxpayer data that you back up.
Drive encryption makes life difficult for criminals by “[transforming] data on the computer into unreadable files for an unauthorized person accessing the computer to obtain data.” Anyone who has seen a documentary about encoded wartime messages is familiar with the basic concept. As with firewalls, the IRS says there are hardware- and software-based solutions.
Virtual Private Networks are the final “Security Six” recommendation, and the IRS says they’re the most important tool for anyone working from home. “A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the Internet and the company network,” the IRS explains. “Search for “Best VPNs” to find a legitimate vendor; major technology sites often provide lists of top services.”
Source: IR-2020-167
– Story provided by TaxingSubjects.com
by | Jul 21, 2020 | Tax Tips and News
Many states are rolling back reopening plans, and the looming flu season could present additional complications. That’s why the Internal Revenue Service and Security Summit partners are developing a five-week data security campaign that focuses on remote work.
“To help tax practitioners, the IRS, state tax agencies, and the nation’s tax industry, next week will begin a five-part summer awareness initiative called Working Virtually: Protecting Tax Data at Home and at Work,” the IRS explains in the press release from last Friday. “The initiative highlights security actions key to protecting tax professionals as they respond to COVID-19 while working remotely from their office and clients. Taxpayers can also benefit from some of the security tips.”
What are the Working Virtually: Protecting Tax Data at Home topics?
Tax professionals who closely follow the Security Summit will recognize the five Working Virtually: Protecting Tax Data at Home topics that are scheduled to drop on July 21, July 28, August 4, August 11, and August 18:
- “The ‘Security Six’ − basic protections that all practitioners should take”
- “Multi-Factor Authentication to protect accounts”
- “Virtual Private Networks to protect remote sites”
- “Phishing scams, including COVID-19 and Economic Impact Payments”
- “Protect Yourself: The need for a security plan and data theft plan”
It might seem quaint that people would need to be reminded to install security software, but the IRS notes that the Security Summit’s campaigns have significantly helped taxpayers: “Between 2015 and 2019, the number of taxpayers reporting they were identity theft victims to the IRS fell 80%, and the number of confirmed identity theft returns stopped by the IRS declined by 68%. In 2019, there were 443,000 confirmed identity theft tax returns compared to 1.4 million in 2015.”
(Besides, I’m sure everyone knows at least one person who rarely updates their virus definitions—if they even have an antivirus program installed at all.)
Aside from learning about the benefits of additional security measures like multi-factor authentication and VPNs, the final week in the series promises to explain tax office security plans. For those who aren’t familiar, paid tax return preparers are covered by the Federal Trade Commission’s Safeguards Rule. It requires that you have a written security plan in place that outlines your office’s procedures for protecting client data and addressing security breaches if they occur.
The Virtual Nationwide Tax Forums will also highlight data security.
The IRS says the first Virtual Nationwide Tax Forums will be available from July 21 to August 20, and “tax professional security will be a special focus.” Registration costs $289 per person—don’t forget to visit the Drake Software virtual booth during the event!
Source: IR-2020-163
– Story provided by TaxingSubjects.com
by | Jul 20, 2020 | Tax Tips and News
The Internal Revenue Service says seniors and retirees aren’t required to take money out of their IRAs and workplace retirement plans this year.
The Coronavirus Aid, Relief, and Economic Security Act—also known as the CARES Act—waives the required minimum distributions during 2020. The provision covers IRAs and retirement plans and includes beneficiaries with inherited accounts.
The waiver includes Required Minimum Distributions (RMDs) for those individuals who turned 70 ½ in 2019 and took their first RMD in 2020. Roth IRAs do not require withdrawals until after the death of the owner.
Already Taken a Required Minimum Distribution?
If a taxpayer has already taken an RMD in 2020—including someone who turned 70 ½ during 2019—they will have the option of returning the distribution to their account or some other qualified plan.
RMDs already taken in 2020 are considered eligible for rollover, so RMDs can be rolled over to another IRA, another qualified retirement plan, or simply returned to the original plan.
An IRA owner or beneficiary who has already received an RMD in 2020 can repay the distribution to the distributing IRA no later than Aug. 31, 2020, to avoid paying taxes on the distribution.
IRS Notice 2020-51 (PDF) also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs do not apply to this repayment.
The IRS says CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, profit sharing plans and other defined contribution plans.
The RMD suspension does not apply to qualified defined benefit plans.
For more information on the suspension of RMDs, the CARES Act and retirement plans, check out the IRS’ website for Coronavirus-related relief for retirement plans and IRAs.
– Story provided by TaxingSubjects.com
by | Jul 18, 2020 | Tax Tips and News
A new report gives the Internal Revenue Service high marks for the steps taken in the fight against refund fraud and identity theft tax refund fraud. But despite the large gains made against criminal efforts, the report adds that there’s no time to rest on one’s laurels.
The report comes from the office of J. Russel George, the Treasury Inspector General for Tax Administration (TIGTA). There were two basic reasons for the audit, TIGTA writes. One is that identifying and stopping individual tax refund fraud, including fraud stemming from identity theft, continues to be a challenge to IRS management.
In addition, the Taxpayer First Act, passed in 2019, allowed for more information-sharing between the IRS and industry partners to better identify more cases of identity theft and tax refund fraud. The Inspector General wanted to see if the IRS was making headway in those areas.
Is the IRS on the right track?
TIGTA’s report is largely complementary of the IRS’ efforts against refund fraud, saying the agency continues to evaluate and expand on its successful fraud detection actions, while also testing new fraud-detection initiatives.
“The actions taken on the part of the IRS have been extremely effective in addressing the identity theft epidemic and reducing its negative impact on tax administration,” the report states. “For example, the IRS actively works with the Security Summit partners to continue to improve its identification of fraudulent tax returns.”
This partnership means the IRS is able to use nearly all the available data elements in tax returns as part of its automated fraud detection filters, protecting some $18.6 million in tax refund as of December 2019.
Some provisions of the Taxpayer First Act, however, have been less successful. For example, the Taxpayer First Act requires that the IRS develop performance metrics to measure the success of the Information Sharing and Analysis Center (ISAC) in detecting and preventing identity theft tax refund fraud. Currently, the only measure the IRS has relative to the ISAC is the level of participation.
The provision has been implemented, the IRS says, but the data tools to measure the success of the ISAC in detecting and preventing identity theft tax fraud haven’t been developed.
TIGTA says there’s room for improvement.
In a 2018 identity theft report, the IRS said it was able to stop around $6 billion in fraudulent tax refunds from being issued. Despite this, identity thieves were still able to get their hands on an estimated $90 million to $380 million in fraudulent tax refunds (termed unprotected revenue).
The IRS set a goal of reducing the amount of unprotected identity theft tax refund paid by 2% by Dec. 31, 2019, and a further 1% thereafter until Dec. 31, 2024.
The Inspector General recommended that the IRS Commissioner of the Wage and Investment Division develop measures to report on the success of the ISAC in identifying and detecting fraudulent tax returns.
IRS management agreed with the recommendation, adding that the agency plans to take corrective actions. However, the management reply conceded that management can only commit to measuring IRS outcomes, since the reporting of state and industry outcomes is beyond IRS control.
– Story provided by TaxingSubjects.com
by | Jul 17, 2020 | Tax Tips and News
The IRS announced relief for meeting Community Health Needs Assessments requirements.
The IRS has some good news for tax-exempt hospitals feeling overwhelmed by the COVID-19 pandemic. In a recent press release, the agency says that it is once again moving the deadline for Community Health Needs Assessments.
Initially moved from April 1 to July 15, the IRS is now pushing the CHNA deadline to December 31, 2020. This development comes as coronavirus cases are surging across the country, hopefully providing affected hospitals the time they need to maintain their tax-exempt status.
Community Health Needs Assessments are one requirement for hospitals to establish and maintain their tax-exempt status. According to the IRS press release, that means “conducting a CHNA and adopting an implementation strategy to meet the community health needs identified through the CHNA”–which must now be completed before the new December 31 deadline. But what does that look like on the tax side of things?
“Tax-exempt hospital organizations filing Forms 990 must indicate on Schedule H if they have conducted a CHNA in the current taxable year or in either of the two immediately preceding taxable years and if they have adopted an implementation strategy to meet the significant health needs identified through the most recently completed CHNA,” the IRS explains. In addition to putting the hospital’s tax-exempt status in jeopardy, it can come with a $50,000 tax “for each hospital facility that fails to meet either or both of these requirements.”
The IRS says hospitals that decide to take advantage of the new deadline “should state in the narrative of Part V.C. of Schedule H (Form 990) that they are eligible for and are relying on the relief provided in [Notice 2020-56].”
The “Coronavirus Tax Relief and Economic Impact Payments” page on IRS.gov contains information about other tax relief provided as a result of the pandemic.
Source: IR-2020-156
– Story provided by TaxingSubjects.com
by | Jul 16, 2020 | Tax Tips and News
The Internal Revenue Service, along with the U.S. Treasury Department, has released a draft version of a proposed new-and-improved partnership form for tax year 2021. The aim is to provide “greater clarity for partners on how to compute their U.S. income tax liability,” especially in areas where international tax is relevant, including claiming deductions and credits.
The redesigned form and its instructions provide guidance to partnerships on just how to report international tax information to their partners in a standardized way. The revised form would apply to a partnership that’s required to file Form 1065 only if the partnership has items of international tax relevancy — usually foreign activities or foreign partners.
The proposed changes won’t come into play for domestic partnerships with no international tax items to report.
The IRS is seeking comments on the draft Schedule K-2.
The IRS says this early release is intended to afford time for stakeholder input and engagement. Treasury and IRS are inviting comments from affected stakeholders through Sept. 14, 2020. Written comments should be sent to the following email address: lbi.passthrough.international.form.changes@irs.gov with the subject line: “International Form Changes.”
The Treasury Department and the IRS will be “actively engaged” with stakeholders to solicit input on the proposed changes before the forms are finalized later this year.
At present, partners are required to report international tax information, but on several different tax forms and schedules. Partners generally get the information to be reported from their partnerships, usually in narrative statements attached to a K-1. Those statements are compiled in a variety of formats and may be difficult for partners to translate into their own returns.
The proposed changes seek to ease the burden using a standard format offering greater clarity to partners and partnerships alike.
What are the changes in the draft Schedule K-2?
IRS and Treasury intend to release the new draft Schedule K-2, Partners’ Distributive Share Items – International and Schedule K-3 (Form 1065), Partner’s – Share of Income, deductions, Credits, etc. – International, both for tax year 2021 (filing season 2022), and the draft instructions, to allow partnerships and other stakeholders time to consider the proposed changes and to provide comments that will be taken into account in finalizing the schedules and instructions.
The proposed parts included in new Schedule K-2 (Form 1065) replace portions of existing Form 1065, Schedule K, lines 16(a) through 16(r). The proposed schedule provides for international tax information to be reported in a standardized manner generally corresponding to the tax forms already listed.
The proposed parts included in the new Schedule K-3 (Form 1065) replaces portions of Schedule K-1, Part III, Boxes 16 and 20, and provides information to the partner generally in the format of these forms that might be completed by the partner:
- Form 1040, U.S. Individual Income Tax Return;
- Form 1040-NR, U.S. Nonresident Alien Income Tax Return;
- Form 1116, Foreign Tax Credit (Individual, Estate, or Trust);
- Form 1118, Foreign Tax Credit – Corporations;
- Form 1120, U.S. Corporation Income Tax Return;
- Form 1120-F, U.S. Income Tax Return of a Foreign Corporation;
- Form 4797, Sales of Business Property;
- Form 8949, Sales and Other Dispositions of Capital Assets;
- Form 8991, Tax on Base Erosion Payments of Taxpayers with Substantial Gross Receipts;
- Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI); and
- Form 8993, Section 250 Deduction for Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI).
The Treasury Department and the IRS plan similar revisions, where they apply, to Form 1120-S (U.S. Income Tax Return for an S Corporation) and Form 8865 (Return of U.S. Persons with Respect to Certain Foreign Partnerships). Comments are welcomed on similar changes to be made to Forms 1120-S and 8865 for the 2021 tax year.
– Story provided by TaxingSubjects.com
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