Harless Tax Blog
Happy New Year!! In the tax world, it wouldn’t be a New Year without tax legislation impacting your planning. Welcome to 2020 and with it, new significant tax legislation that may have a meaningful impact on your retirement planning.
What’s important to know?
NAME: The Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE” Act) was signed into law on December 20, 2019.
EFFECTIVE: The SECURE Act is effective January 1, 2020.
CHANGES: The Most Notable Changes to Retirement Planning under The SECURE Act:
- Elimination of the “Stretch” IRA. Elimination of the ability to “stretch” certain inherited retirement accounts over a designated beneficiary’s life expectancy.
- Raises RMD Age. Raises the age at which required minimum distributions (RMDs) must begin from the year the taxpayer attains age 70 ½ to 72.
NEW LAW: Under the SECURE Act:
- “10-Year Rule”. An IRA must be distributed by December 31 of the 10th year following the year in which the retirement account owner dies. Designated
- Exceptions to the 10-Year Rule if the IRA designated beneficiary is:
- a surviving spouse
- a disabled or chronically ill person
- the child of the decedent who is younger than 18 years of age until the child attains 18 and then the 10-year rule applies (exception does not apply to grandchildren)
- an individual who is not more than 10 years younger than the decedent
- IRAs that have already been inherited should be grandfathered, and thus free from the SECURE Act new requirements
NO CHANGE TO “5-YEAR” RULE.
- No designated beneficiary (i.e., if the beneficiary is a charity or certain trusts that do not qualify as a designated beneficiary) = “5-Year” Rule.
- Law Still in Effect After the SECURE Act – An inherited IRA with no designated beneficiary is ineligible for stretch treatment (both lifetime and now 10-year rule). Such inherited IRA is subject to an accelerated withdrawal period of 5 years.
Read article here.
There’s a new incentive to file a tax return this year: an Internal Revenue Service agent may be making a house call if you don’t.
The IRS is increasing efforts to reach high-income individuals who have failed to file at least one or more tax returns in recent years as a last-ditch attempt to encourage compliance, the agency said on Wednesday. This would be the final step before the agency would pursue more severe procedures, including civil or criminal action against that individual, the IRS said.
The agency will send several dozens agents to make at least 800 face-to-face visits in February and March of this year, Hank Kea, who directs the IRS field collections operations, said Thursday. The IRS will be identifying other non-compliant individuals throughout the year and adding cases as they find them, he said.
“Enforcement truly is our last resort,” Kea said. “Don’t delay filing or worse yet avoid filing all together.”
The IRS is concentrating efforts on individuals who received at least $100,000 in income during a year and didn’t file tax returns. The agency knows the incomes of many taxpayers from third-party reporting from employers or financial institutions, even if they don’t file a return.
The agency will focus on the most egregious cases first, Kea said, such as individuals contacted by the agency multiple times via mail with no response.
“The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes,” Paul Mamo, the IRS’s director of collection operations, said in a statement. “We want to ensure taxpayers know their options to get right with their taxes and avoid bigger issues later.”
Not a Scam
The goal of these visits is to educate taxpayers about their filing requirements and try to bring them into compliance without taking stronger enforcement actions against the individual, Mamo said.
The agency will have several precautions in place to assure taxpayers that a home visit isn’t a scam. The IRS employee will provide two forms of official credentials, including a serial number and a photo ID. IRS employees will also not make threats nor demand an unusual form of payment, such as a gift card.
All taxpayers met in person will also have also been contacted multiple times by the IRS, so they should know they have a tax issue, the agency said. However, the timing of most visits will be unannounced.
The increased efforts to reach non-compliant people comes as the agency has come under criticism from its watchdog, the Treasury Inspector General for Tax Administration, and outside groups that say the agency isn’t effectively auditing corporations and high-income individuals with complicated returns. IRS Commissioner Chuck Rettig has said he is focusing on improving enforcement – in both criminal and civil cases – and has asked Congress for more money to staff these efforts.
In the past decade, the number of income tax returns increased by about 9%, but the IRS’s funding and number of employees both declined by more than 20%, according to a January report from the Taxpayer Advocate Service, an independent government office.
The report also found that some taxpayers who are audited or face adverse action from the IRS often cannot reach the agency to resolve the situation. The IRS received 15 million calls on its automated telephone lines in fiscal year 2019. Employees were able to answer only about 31% of those calls, and taxpayers who got through waited on hold for an average of 38 minutes, the Taxpayer Advocate said.
Some tax professionals worry that fewer employees at the agency mean that more taxpayers will try to cheat on their returns. Individuals face a 0.45% chance of being audited, while businesses are audited at a rate of 1.6%, some of the lowest audit figures on record, according to the IRS’s annual report, released in January.
Individual income taxes are the largest group of uncollected taxes before audits, representing about $314 billion, according to agency statistics on the tax gap.
Article from www.bloomberg.com
Source from fa-mag.com |
The U.S. House of Representatives approved legislation that relaxes the rules for retirement savers and corrects an unintended side-effect of the 2017 tax law that hit children of military members who died in combat with higher-than-expected tax bills.
The bill, which passed Thursday with a vote of 417-3, delays until 72 the age at which retirees must start withdrawing from individual retirement accounts and removes the age limit at which taxpayers must stop contributing. Now, taxpayers have to stop contributing to such accounts at age 70 1/2 and begin taking distributions. An amendment recently added to the bill also reverses an error in the 2017 tax law that had caused military families, known as “Gold Star” families to owe much higher taxes on survivor benefits.
The retirement legislation passed the House Ways and Means Committee last month. The bill has broad bipartisan support, making it one of the few pieces of legislation this year that might be approved by the Senate and signed into law. In addition to increasing the age limit for required minimum distributions, the bill also makes it easier for companies to unite and form joint retirement plans, and attempts to incentivize the creation of such plans for part-time workers and small businesses.
Before Thursday’s vote, some Republicans expressed frustration that the House late in the process stripped from the bill a provision that would allow parents to use education-savings plans to pay for some home-schooling expenses.
Retirement policy has long been a priority for Ways and Means Chairman Richard Neal, who took control of the tax-writing committee this year. Neal has said Thursday’s bill won’t be the last time he tries to work with Representative Kevin Brady, the senior Republican on the committee, to modify the retirement system.
“This is the most substantive promotion of retirement savings in the last 15 years,” Neal said on the House floor before the vote.
However, at least some of the committee’s work for the remainder of 2019 is likely to be overwhelmed by the higher-profile battle for President Donald Trump’s tax returns. Neal helms one of only three committees that the law empowers to request individual taxpayers’ information. Neal invoked the power last month and followed with a subpoena this month. So far Treasury Secretary Steven Mnuchin hasn’t complied on the grounds that the Department of Justice says the request violates the Constitution. That means Neal will likely take the executive branch to court.
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Source from cnbc.com |
Around two or three times per month, KVC Health Systems, a midsize nonprofit agency for child welfare based in Kansas City, receives phishing emails from criminals with the goal of rerouting an employee’s paycheck by direct deposit.
The emails look legitimate at first, as though they come from the CEO, CFO or payroll director.
The scammer is trying to convince human resources personnel to change the bank account and routing information the employee uses to have paychecks direct-deposited. Once routed to the criminal’s account, the company is on the hook for replacing the stolen funds and the employee faces the inconvenience of a late paycheck.
It’s a new version of wire fraud scams that have devastated businesses in recent years, and a more focused version of a series of payroll fraud crimes that the IRS warned late last year were on the rise. The fraud is growing, experts said, because it easily bypasses many existing technical controls, and the small sums stolen are inoffensive enough that they can be folded into the cost of doing business.
The fake emails defy many existing controls for malicious communications, said Erik Nyberg, director of information technology at KVC. They are usually well written, cordial and lack the misspellings, grammar mistakes and exclamation points that would trigger many popular email filters that search for spam or phishing attempts.
“They might just say, ’I need to update my direct deposit information,” said Nyberg. “Or they start with, ‘Hey, do you have a second?’ and if that target person responds, then they go from there.” KVC has had a few near misses, Nyberg said, but has not transferred any paychecks to scammers.
A new scam with a convincing pitch
The scam has only emerged in the past month, according to Adrien Gendre, chief solutions architect at email security company Vade Secure.
Many companies “have put processes in place to validate big wire transfers, so now [criminals] want to stay under the radar. It’s a new approach, and every day we have more customers reporting it,” he said. Gendre said a dozen Vade companies have reported attempts to change direct deposit information.
The scam does not only bypass some email controls. It also bypasses warnings companies may have already issued to their employees about wire fraud, because scammers aren’t asking for money or an invoice transfer — they’re simply asking to change a bank account number.
The fraudsters typically impersonate the company’s higher-value employees, like the CFO or CEO, Nyberg said. The emails are usually brief, polite and lightly urgent, and often ask HR personnel to change the direct deposit information quickly, “before the next paycheck.”
Others try to discourage the target from calling, by writing “I am going into a meeting now.”
The spoofing doesn’t require the criminal to hack into anyone’s email account, as it often does with bigger-ticket wire fraud. The scammers generate the fake emails with free services like Gmail -- the scammer simply opens a new Gmail account and fills in the employee’s name — which allows them to get around tools meant to detect hacking attempts on employee email, Nyberg explained. Employees may not notice, either because they are working quickly and they don’t notice the full email address, or they are working on a mobile device where only the person’s name is displayed in the “from” field, he said.
Why would scammers target a nonprofit? Nyberg said he expects that the organization may be attractive in part because of its genial culture: “The nature of our work is helpful, people who are very literally here to help other people. They might also believe that our training isn’t as rigorous as a Fortune 500 company,” he said.
Despite the relatively low dollar figure associated with this scam -- thousands of dollars compared with hundreds of thousands in a typical wire scam -- Gendre said it’s so cheap to execute that he expects it to become more attractive for criminals.
“They have found a way to automate it, which means you can scale it. You may not make $100,000 in one hit, but you may be able to make 20 hits staying in one company, and be able to make your return [on investment].”
How to combat it
To fight the threat, Nyberg said the organization has focused on training people on a simple truth: “The CEO is never going to email you out of the blue and ask you for any deposit changes. And if you have any sliver of a doubt, call the person who is making the request.”
Gendre said his company has used “natural language processing,” which analyzes the language used in incoming emails to test for “urgency,” then flagging those emails as potentially suspicious, especially if they come from a new email address.
Nyberg also said they’ve asked executives to avoid using their personal emails when sending messages to staff, and the company has also tweaked its email filters to pick up on common hallmarks of the request. Companies that see versions of the scam can also report them to the FBI’s IC3 tip line.
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Source from irs.gov | IRS Tax Tip 2019-36 | Taxpayers may need to take money out of their individual retirement account or retirement plan early. However, this can trigger an additional tax on top of other income tax they may owe. Here are a few key things for taxpayers to know:
- Early withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
- Additional tax. The IRS charges a 10 percent penalty on early withdrawals from most qualified retirement plans. There are some exceptions to this rule.
- Nontaxable withdrawals. The additional tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the retirement plan.
- Rollovers are a nontaxable withdrawal. A rollover happens when taxpayers take cash or other assets from one retirement plan and put the money in another plan within 60 days. A rollover can also happen when they direct their plan administrator to make the payment directly to another retirement plan or to an IRA.
- Form 5329. Taxpayers who took an early withdrawal last year may have to file Form 5329 with their federal tax return.
- Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is the easiest and most accurate way to file a tax return. The tax software will pick the right tax forms, do the math, and help find tax benefits.
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Source from irs.gov | IRS Tax Tip 2019-33 |
Taxpayers filing their tax returns to meet the upcoming tax filing deadline should know that the easiest way to check on their tax refund is to use "Where’s My Refund?" This tool is available on IRS.gov and through the IRS2Go app. The fastest way to get that tax refund is to use IRS e-file and direct deposit.
Taxpayers can use Where’s My Refund? to start checking on the status of their tax return within 24 hours after the IRS receives an e-filed return. For a paper return, it’s four weeks after the taxpayer mailed it.
The tool has a tracker that displays progress through three phases: Publication 1 is available in English and Spanish. All IRS facilities publicly display the rights for taxpayers.
- Return Received
- Refund Approved
- Refund Sent
All a taxpayer needs to use “Where’s My Refund?” is their Social Security number, tax filing status and the exact amount of the refund claimed on their tax return.
“Where’s My Refund?” is updated no more than once every 24 hours, usually overnight, so there’s no need to check the status more often.
Taxpayers should only call the IRS tax help hotline on the status of their tax refund if :
- It has been 21 days or more since the tax return was e-filed
- It has been six weeks or more since the return was mailed
- When “Where’s My Refund?” tells the taxpayer to contact the IRS
Taxpayers who owe should pay as much as possible to minimize interest and penalty charges. The taxpayers should visit IRS.gov/payments to explore their payment options.
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Source from irs.gov | IRS Tax Tip 2019-31 |
This is the first tip in a two-part summary of the rights granted to all taxpayers.
Every taxpayer has rights when dealing with the IRS. The Taxpayer Bill of Rights takes these rights from the tax code and groups them into 10 categories. To help taxpayers interacting with the IRS understand their rights, the agency outlines them in Publication 1, Your Rights as a Taxpayer.
Here are the first five rights along with more information about each one:
The Right to Be Informed. Taxpayers have the right to know how to comply with tax laws. They are entitled to clear explanations of the laws and IRS procedures. Taxpayers have the right to know about IRS decisions affecting their accounts with clear explanations of the outcomes.
The Right to Quality Service. Taxpayers have the right to receive prompt, courteous and professional assistance when dealing with the IRS. They also have the right to speak with a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.
The Right to Pay No More Than the Correct Amount of Tax. Taxpayers must pay only the amount of tax legally due. This includes interest and penalties. The IRS must apply all tax payments properly.
The Right to Challenge the IRS’s Position and Be Heard. Taxpayers have the right to object to formal IRS actions or proposed actions. They can also provide justification with additional documentation. Taxpayers can expect the IRS to consider timely objections and documentation promptly and fairly. Taxpayers can expect a response when the IRS disagrees with the taxpayer’s position.
The Right to Appeal an IRS Decision in an Independent Forum. Taxpayers are entitled to a fair and impartial appeal of most IRS decisions. This includes appealing certain penalties. Taxpayers have the right to receive a written response from the IRS regarding a decision. Taxpayers generally have the right to take their case to court.
The IRS will include Publication 1 when sending a notice to taxpayers on a variety of issues, such as an audit or collection matter. Publication 1 is available in English and Spanish. All IRS facilities publicly display the rights for taxpayers.
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Source from irs.gov | Notice 2019-25 notice modifies and supersedes the guidance in Notice 2019-11, which announced the waiver of the addition to tax for underpayment of estimated income tax for certain individuals for tax year 2018. This notice increases the availability of the waiver of the addition to tax by expanding the waiver to individuals whose total withholding and estimated tax payments equal or exceed eighty percent of the tax shown on the return for the 2018 taxable year. The notice updates procedures for requesting the waiver of the addition to tax. Additionally, the notice provides procedures for taxpayers who paid additions to tax for underpayment of estimated tax but who qualify for relief under this notice to request a refund of the addition to tax.
Source from irs.gov | Before visiting an IRS Taxpayer Assistance Center for in-person help with their tax issues, a taxpayer needs to call 844-545-5640 to schedule an appointment. All TACs provide service by appointment. The Contact Your Local Office tool on IRS.gov helps taxpayers find the closest IRS TAC, the days and hours of operation and a list of services provided.
Once they make an appointment , taxpayers will receive an automated email to the address they provide. The email will confirm the day and time of their appointment. Taxpayers should consider the self-service options on IRS.gov before calling for an appointment. Taxpayers can resolve many questions online without taxpayers having to travel to a Tax Assistance Center.
Taxpayers checking on a tax refund status can:
- Use the “Where’s My Refund?” online tool.
- Call 800-829-1954 anytime to access the audio version of this tool.
Before using these tools, a taxpayer should have their Social Security number, filing status, and exact refund amount ready.
Taxpayers who need answers to tax questions can:
- Use the Interactive Tax Assistant, which asks the taxpayer a series of questions and provides answers based on their input.
- Check out Publication 17, which covers a broad range of topics and updates on tax law changes.
- Visit the IRS Tax Map to find tax information on a variety of tax topics.
- Visit IRS.gov for info about what to do when a letter from the IRS arrives.
- View Publication 5136, IRS Services Guide (PDF), for additional ways taxpayers and tax professionals can get help.
Taxpayers who need to make a payment can:
- Use IRS Direct Pay on IRS.gov - a free, secure electronic payment method from a checking or savings account.
- Visit the Electronic Federal Tax Payment System for online and phone options.
- Pay when using tax software when e-filing, Taxpayers can pay online, by phone, or with a mobile device using the IRS2Go app.
- View their balance online or refer to the information in the notice they received to determine the amount owed. They can also access their tax account to view recent payment history.
- Make a cash payment in-person at more than 7,000 retail stores nationwide.
- Mail a personal, cashier’s check or money order made payable to “U.S. Treasury” along with a completed Form 1040-V, Payment Voucher. Taxpayers should never send cash.
Taxpayers who need forms & publications can:
- View, download and print federal tax forms and publications anytime. Dozens of IRS publications are available to download.
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