IRS Scammers Net $14 Million from 3,000 Victims

The pervasive IRS impersonation phone scam has claimed nearly 3,000 victims who have collectively paid over $14 million, according to a new warning from the Treasury Inspector General for Tax Administration.

As the 2015 tax filing season begins, TIGTA reminded taxpayers to beware of phone calls from individuals claiming to represent the IRS while intending to defraud them.

“It is critical that all taxpayers continue to be wary of unsolicited telephone calls from individuals claiming to be IRS employees,” said TIGTA Inspector General J. Russell George in a statement. “This scam, which is international in nature, has proven to be the largest scam of its kind that we have ever seen. The callers are aggressive, they are relentless, and they are ruthless. Once they have your attention, they will say anything to con you out of your hard-earned cash.”

TIGTA has received reports of roughly 290,000 contacts from scammers with taxpayers since October 2013. In the scam, the scammers make unsolicited calls to taxpayers fraudulently claiming to be IRS officials and demanding that they send them money for unpaid taxes via prepaid debit cards or wire transfer.

George noted that the scam has hit taxpayers in every state in the U.S. The scammers threaten those who refuse to pay with immediate arrest, deportation or loss of a business or driver’s license.

“The increasing number of people not only receiving but accepting these unsolicited calls from individuals who fraudulently claim to represent the IRS is alarming,” George added. “At all times, and particularly during the tax filing season, we want to make sure that innocent taxpayers are alert to this scam so they are not harmed by these criminals. Do not become a victim.”

The IRS usually first contacts people by mail—not by phone—about unpaid taxes. The agency will not ask for payment using a pre-paid debit card or wire transfer. IRS employees also will not ask for a credit card number over the phone.

“This is a crime of opportunity, so the best thing you can do to protect yourself is to take away the opportunity,” the Inspector General advised. “Do not engage with these callers. If they call you, hang up the telephone. … If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.”

The callers who commit this fraud often use an automated robocall machine and employ common names and fake IRS badge numbers. They may already know the last four digits of the victim’s Social Security Number.

The scammers can make their caller ID information appear as if the IRS is calling. They may also send bogus IRS e-mails to support their scam. In addition, they many call a second or third time claiming to be the police or the Department of Motor Vehicles, and the caller ID will again support their claim.

If taxpayers receive a call from someone claiming to be with the IRS asking for a payment, TIGTA advises that If they know owe federal taxes, or think they might owe taxes, they should hang up and call the IRS at 800-829-1040 for help with payment questions. If taxpayers know they don’t owe taxes, they should fill out the “IRS Impersonation scam” form on TIGTA’s Web site, www.treasury.gov/tigta or call TIGTA at 800-366-4484. Taxpayers can also file a complaint with the Federal Trade Commission at www.FTC.gov. They should add “IRS Telephone Scam” to the comments in the complaint.

In addition, the IRS will never request personal or financial information by email, texting, or any social media. Scam emails can be forwarded to phishing@irs.gov. Recipients should not open any attachments or click on any links in these emails.

Taxpayers should also be aware that there are other unrelated scams (such as a lottery sweepstakes winner) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

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Obama Calls for Fairer Taxes in State of the Union

President Obama urged the Republican-dominated Congress to move ahead on tax reform to lower taxes on middle-class families during his State of the Union address on Tuesday evening.

Obama avoided laying out the details of the tax reform plan that the White House previewed over the weekend, which would raise taxes on upper-income taxpayers, trust funds, capital gains and financial transactions (seeObama Proposes Tax Increases on Wealthy to Aid Middle Class). However, he argued for broader tax reforms that would help families with needs such as childcare as part of the budget that the administration will propose in the next few weeks.

“Middle-class economics means helping working families feel more secure in a world of constant change,” he said. “That means helping folks afford childcare, college, healthcare, a home, retirement—and my budget will address each of these issues, lowering the taxes of working families and putting thousands of dollars back into their pockets each year.”

“It’s time we stop treating childcare as a side issue, or a women’s issue, and treat it like the national economic priority that it is for all of us,” he added. “And that’s why my plan will make quality childcare more available, and more affordable, for every middle-class and low-income family with young children in America—by creating more slots and a new tax cut of up to $3,000 per child, per year.”

Obama emphasized the country’s economic growth in recent years and the recovery since he took office in the depths of the recession, while also pointing to the income inequality that has become more pronounced amid stagnant wages for many Americans. He urged Congress to move ahead on tax reform, as he traditionally does in his State of the Union address, although he admitted his tax reform priorities do not match the Republican majority’s.

“Now, the truth is, when it comes to issues like infrastructure and basic research, I know there’s bipartisan support in this chamber,” he said. “Members of both parties have told me so. Where we too often run onto the rocks is how to pay for these investments. As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle-class families who do.”

As in his speech last year, Obama again asked Congress to end tax breaks for companies that shift their tax addresses and profits abroad. “Let’s close loopholes so we stop rewarding companies that keep profits abroad, and reward those that invest in America,” he said. “Let’s use those savings to rebuild our infrastructure and make it more attractive for companies to bring jobs home. Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford. And let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for childcare and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together.”

The President also issued a number of proposals that the White House has highlighted in the weeks leading up to the speech, including free community college tuition and paid sick leave for workers. In discussing international affairs, he called on Congress to pass a resolution authorizing the use of force against ISIL. He also highlighted the pressing need to do more to combat climate change and pointed to a recent agreement between the U.S. and China on limiting greenhouse gas emissions.

In the Republican response, freshman Senator Joni Ernst, R-Iowa, agreed on the need for tax reform, although without raising taxes. “Let’s simplify America’s outdated and loophole-ridden tax code,” she said. “Republicans think tax filing should be easier for you, not just the well-connected. So let’s iron out loopholes to lower rates and create jobs, not pay for more government spending.”

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IRS Commissioner Warns Tax Refunds Could Be Delayed by Budget Cuts

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Taxpayers who file their tax returns on paper could face delays of a week or more on their refunds this tax season because of budget cuts, Internal Revenue Service commissioner John Koskinen warned.

John Koskinen

In a memo sent to IRS staff on Tuesday, Koskinen offered details on the impact of the recent budget cuts on IRS operations, which he warned would lead to a longer hiring freeze, fewer resources dedicated to customer service, tax enforcement and overtime, and a possible two-day furlough for IRS employees.

The budget cuts will have an impact on taxpayers and preparers.

“People who file paper tax returns could wait an extra week—or possibly longer—to see their refund,” Koskinen wrote. “Taxpayers with errors or questions on their returns that require additional manual review will also face delays.”

Koskinen noted that Congress approved a $10.9 billion budget for the IRS, meaning the agency will have to absorb a cut of $346 million during the remaining nine months of the fiscal year.

“But that really amounts to a total reduction of about $600 million when you count another $250 million in mandated costs and inflation,” he added. “This is the lowest level of funding since 2008, and the lowest since 1998 when inflation is considered.”

He described the various ways that the budget cuts will affect the IRS, including delays to critical IT investments of more than $200 million, which will set back efforts to curb identity theft-related tax fraud.

“This will hurt taxpayer service and cost-efficiency efforts as well as reduce outside contractor support for critical projects,” said Koskinen. “This means that new taxpayer protections against identity theft will be delayed.”

He noted that the Taxpayer Advocate Service at the IRS won’t be able to implement a new case management system to oversee taxpayer hardship cases.

National Taxpayer Advocate Nina Olson, who heads the Taxpayer Advocate Service, delivered her annual report to Congresson Wednesday and commented on the impact of the successive rounds of budget cuts at the IRS (seeTaxpayer Advocate Report Highlights Decline in Taxpayer Services, Promotes Taxpayer Bill of Rights). “The budget environment of the last five years has brought about a devastating erosion of taxpayer service, harming taxpayers individually and collectively,” she wrote.

Koskinen noted that aging IT systems will not be replaced at the IRS, increasing the risk of downtime that affects taxpayer service. The IRS will not be able to invest money upfront to gain future operational savings, such as moving to a shared cloud infrastructure and reducing data center space.

Enforcement Cuts
The IRS will also see enforcement cuts of more than $160 million, Koskinen noted. The reduced staffing in enforcement will result in fewer audit and collection cases, including at least 46,000 fewer individual and business audit closures and more than 280,000 fewer Automated Collection System and Field Collection case closures.

“As a result of the hiring freeze, we will lose about 1,800 enforcement personnel through attrition during FY 2015,” Koskinen added. “The reduced enforcement staffing for just FY 2015 means the government will lose at least $2 billion in revenue that otherwise would have been collected.”

He also anticipates cuts in overtime and temporary staff hours of more than $180 million. This will lead to delays in refunds for some taxpayers who file on paper or make errors, with longer delays in correspondence between the IRS and taxpayers, as well as on the phone lines.

“We realize there will be growing inventories in Accounts Management, and taxpayer correspondence will face lengthy delays,” Kosiknen wrote. “Taxpayer service diminished further over the phone and in person. We now anticipate an even lower level of telephone service than before, which raises the real possibility that fewer than half of taxpayers trying to call us will actually reach us. During fiscal year 2014, 64 percent were able to get through. Those who do reach us will face extended wait times that are unacceptable to all of us.”

Olson wrote in her report to Congress about the declines in customer service at the IRS. She said the IRS is unlikely to answer even half the telephone calls it receives, and levels of service may average as low as 43 percent. Taxpayers who manage to get through are expected to wait on hold for 30 minutes on average and considerably longer at peak times. In addition, she pointed out, the IRS will answer far fewer tax-law questions than in past years.

“During the upcoming filing season, it will not answer any tax-law questions except ‘basic’ ones,” Olson wrote.  “After the filing season, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.” Tax return preparation assistance has been eliminated, according to Olson.

Hiring Freeze and Furloughs
In his memo to employees, Koskinen said the IRS will extend its hiring freeze through FY 2015. “As a result of the hiring freeze and assuming normal attrition rates, we expect to lose between 3,000 and 4,000 additional full-time employees,” he wrote. “The total reduction in full-time staffing between FY 2010 and FY 2015 is expected to be between 16,000 and 17,000.”

Koskinen said the IRS has tried to protect critical areas as much as it could during the process of assessing the impact of the budget cuts. “We will still work to deliver as smooth a filing season as possible,” he said. “We will maintain IT systems critical to the filing season and tax enforcement. This commitment also includes providing appropriate training and technology support for you and your colleagues to help you do your job.”

However, even with all of the anticipated reductions, he warned, the IRS still faces a remaining budget shortfall and may need to shut down for two days later this year after tax season and furlough IRS employees.

“Unfortunately, this means at this time we need to plan for the possibility of a shutdown of IRS operations for two days later this fiscal year, which will involve furloughing employees on those days,” said Koskinen.

He said the IRS plans to work with the National Treasury Employees Union on this possibility, and will fulfill the IRS’s bargaining obligations with the NTEU.

Responding to the National Taxpayer Advocate report on Wednesday, NTEU national president Colleen M. Kelley said. “The nation, along with the IRS workforce, is suffering from the $1.2 billion worth of budget cuts the IRS has endured since fiscal year 2010. It is appalling to me that only half of the callers will be able to get through to a customer service representative during this filing season, that Taxpayer Assistance Centers will be forced to turn people away and that millions of people who file paper returns will see their refunds delayed.”

“This is an area of major concern for me and the entire IRS leadership team,” said Koskinen. “Shutting down the IRS will be a last resort, but I want to be upfront with you about the problem. I know even a day’s worth of pay makes a huge difference in household budgets and family situations. While we will continue to do the best we can to avoid this action, the cuts in the budget are so deep that we may have no other choice.”

He added that if a furlough becomes necessary, the goal will be to minimize disruption to employees and IRS operations as well as taxpayers and the tax professional community. “The timing for these dates would be late in the fiscal year, so between now and then we can do everything possible to avoid them,” he wrote.

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Small Business Transactions Signal Improving Economy

The number of purchases and sales of small businesses, at an all-time high in 2013, grew even more during 2014. In addition to further showing signs of a reviving economy, this is good news for baby boomer business owners who want to retire, and for entrepreneurs who want to own their own business.Participating business brokers reported 7,494 closed transactions in 2014, an increase of over 6 percent from the 7,056 transactions in 2013.

“The number of closed transactions is the highest number of businesses changing hands since we started tracking the data in 2007,” said Bob House, group general manager of BizBuySell, the Internet business-for-sale marketplace.

“This marks the second straight year of such strong activity following several slow years during and immediately following the recession,” said House.

The figures were compiled from data submitted by over 1,000 brokers to BizBuySell for its Insight Report.

The increasing volume of small businesses changing hands can be attributed to a number of factors, according to House. “Brokers cited an increase in the number of qualified buyers in the market as the top driver of growth. The second most common response was the general improvement of the small business environment.”

Retiring baby boomers also make up a large portion of potential sellers, House observed. “Seventy-eight percent of the brokers we surveyed attribute at least a quarter of their sales to baby boomers,” he said.

The report supports the belief that small businesses are performing at a higher level. “The big story is that we continue to see strength in the marketplace,” House said. “There’s a clear upward trend in two financial metrics, median revenue and median cash flow. The median revenue of small businesses sold grew from $405,905 in 2013 to $417,562 in 2014.”

Improving financials gave sellers more leverage during the sales process, leading to a slight increase in the median sales price, from $180,000 in 2013 to $185,000 in 2014, according to House. Financial multiples grew modestly as the average revenue multiple rose from 0.59 to 0.61 and the average cash flow multiple moved from 2.212 to 2.24. “This indicates that while sellers are getting slightly higher returns out of their businesses, buyers continue to receive good value on their purchases,” he said.

“The other part of the story is that prices have been increasing,” he added. “The market was previously seen as a strong buyer’s market. As we came out of the recession, buyers wanted to buy into businesses for their improved performance, but it’s starting to balance out, and sellers are getting more for their business now. Fifty-nine percent of brokers still feel it’s a buyers’ market, but 20 percent feel it has balanced out, and 18 percent feel it’s now a sellers’ market.”

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IRS Tax Forms Changing under Health Care Reform

The Internal Revenue Service has made some changes to its forms this tax season and introduced some new ones as a result of the Affordable Care Act.

The IRS said Tuesday that along with a few new lines on existing forms, there will also be two new forms that will need to be included with some tax returns. While most taxpayers will simply need to check a box on their tax return to indicate they had health coverage for all of 2014, there are also new lines on Forms 1040, 1040A, and 1040EZ related to the health care law.

To help navigate these changes, the IRS recommended that taxpayers and their tax professionals should consider filing their tax returns electronically. Tax preparation software will help taxpayers file a more complete and accurate tax return as it guides individuals and tax preparers through the process and does all the math. There are a variety of electronic filing options, including free volunteer assistance, IRS Free File for taxpayers who qualify, commercial software, and professional assistance.

Here is information about the new forms and updates to the existing forms:

Form 8965, Health Coverage Exemptions

•    Complete this form to report a Marketplace-granted coverage exemption or claim an IRS-granted coverage exemption on the return.

•    Use the worksheet in the Form 8965 Instructions to calculate the shared responsibility payment.

Form 8962, Premium Tax Credit

•    Complete this form to reconcile advance payments of the premium tax credit, and to claim this credit on the tax return.

Additionally, if individuals purchased coverage through the Health Insurance Marketplace, they should receive Form 1095-A, Health Insurance Marketplace Statement, which will help complete Form 8962.

Form 1040

•    Line 46: Enter advance payments of the premium tax credit that must be repaid

•    Line 61: Report health coverage and enter individual shared responsibility payment

•    Line 69: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040A

•    Line 29: Enter advance payments of the premium tax credit that must be repaid

•    Line 38: Report health coverage and enter individual shared responsibility payment

•    Line 45: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040EZ

•    Line 11: Report health coverage and enter individual shared responsibility payment

•    Form 1040EZ cannot be used to report advance payments or to claim the premium tax credit

The Obama administration has also reportedly begun mailing out the Form 1095-A to those taxpayers who received health care coverage and premium tax credits through the health insurance exchanges or marketplaces.

“Certainly the introduction of the Affordable Care Act and the compliance from the last year in 2014 being mandatory will have an impact on many types of filings,” said Greg Rosica, a tax partner at Ernst & Young and contributing author to the EY Tax Guide 2015. “There are really only a few different criteria that people fall under: whether you currently have existing health coverage through your employer and therefore you don’t need to do anything different as a result of it, or you meet one of the exemptions, or you actually went out and purchased [coverage] in the Marketplace because you didn’t have it. There are additional tax filings that need to get done by many people that are using it from the marketplace, both in terms of waiting for a new form to arrive in the mail, the Form 1095-A that people should get by the end of the month of January. Then they also need to report some of this information on a new form for the 1040 to deal with that. All of that adds something new that will take a little bit more time for people to understand.”

For more information about the Affordable Care Act and income tax return riling, visit www.IRS.gov/aca.

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