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Enrolled Agent’s PTIN Stolen by Tax “Professional”

Taxpayers are not the only victims of identity theft in the tax world. Apparently, now tax professionals have had their PTINs stolen by other tax professionals – or rather, un-professionals. This recently happened to a new kid on the tax block, an Enrolled Agent who had never signed a taxpayer’s return before. Imagine this EA’s surprise when an IRS penalty notice for failing to include an EITC worksheet on a filed return showed up at the door.

Imagine the EA’s even greater surprise when they logged into their PTIN account online and found out that more than 100 tax returns had been filed using their professional info. This wasn’t just a bad case of job hazing. It seems that a fraudulent preparer wanted to cash in on preparing tax returns – without going through the hassle of continuing education or dealing with potential preparer penalties.

It’s cases like these that make you stop and say, What the heck were they thinking? Surely the fake preparer knew they would get caught? Well, it’s not quite that simple. Although the IRS Return Preparer Office advises tax professionals with compromised PTINs to file Form 14157, Complaint: Tax Return Preparer, the tricky part is filing that form without it seeming like an honest preparer is complaining about his or her self. The risk is that the IRS might open a complaint file against the preparer who didn’t do anything wrong.

The RPO also advises preparers to periodically login to their PTIN accounts to make sure all of their information is A-OK. While this is good advice, the problem is that if something actually is wrong, there doesn’t seem to be an IRS procedure for replacing a compromised PTIN. It’s pretty much like shutting the stable door after the horse has bolted. Furthermore, there’s also no IRS procedure for removing the penalty for failing to include the EITC worksheet, even though the real EA didn’t even file the return.

As with the IRS’s sluggish troubleshooting for taxpayers who are victims of identity theft, it seems the agency’s solutions for tax preparers with stolen PTINS aren’t fully fledged either. As such, both new and veteran tax professionals will have to take matters into their own hands for now and diligently safeguard their PTIN information.

U.S. Treasury Inspector General for Tax Administration (TIGTA)…Identity Theft Victim Customer Service Still Slow as Molasses

Identity theft has been a hot topic in the tax realm over the past few years. Things haven’t cooled down yet, with the IRS feeling the heat this time around. TIGTA recently conducted an audit of the IRS’s response quality for tax return identity theft victims and what they found wasn’t good. On average, such victims had to wait 278 days for the IRS to resolve their accounts. In other words, not only did these taxpayers have to deal with someone stealing their name and Taxpayer Identification Number/SSN, they also had to deal with the IRS taking its sweet time to solve their cases so they could get on with filing their taxes and receiving their refunds.

In the same audit, TIGTA also discovered that good things don’t always come to those who wait. Apparently, the IRS ended up not even correctly resolving 17 percent of accounts in the examined statistical sample of affected taxpayers. By the numbers, this means that possibly 25,565 of the 267,962 identity theft accounts resolved from Oct. 1, 2012 to Sept. 30, 2013 were actually resolved incorrectly, with the victims’ refunds delayed or the wrong amount issued. The IRS has been telling a different story to taxpayers, which TIGTA shone the spotlight on as well. They found IRS case resolution reports to be misleading, with the agency, for example, assuring identity theft victims that their cases would be cleared up in 180 days.

As a result, TIGTA had some sage advice for the Internal Revenue Service in terms of tax return identity theft case troubleshooting. For example, they recommended that an identity theft training course be developed to teach assistors how to handle complex cases, and that the IRS come up with procedures for accurately calculating the average time it takes to fully resolve taxpayer accounts affected by identity theft. Although the IRS agreed with 3.5 out of TIGTA’s 5 recommendations, they disagreed with the latter about improving tracking of account resolution time-frames.

Accordingly, any taxpayers affected by identity theft shouldn’t hold their breath in the hopes that everything will be resolved right on schedule. Hopefully the IRS will implement TIGTA’s other suggested solutions with positive results in the near future, but in the meantime, the agency’s assurances should be taken with a grain of salt.

Most people dream of traveling the globe. For others, journeying abroad is just all in a hard day’s work. If you’re U.S. citizen or resident who is employed overseas this year, or you earn income from a foreign source, continue reading for important pointers about reporting your non-U.S. income on next year’s tax return.

Although you may live in Kansas, the interest earned on funds in your Swiss bank account doesn’t exist somewhere over the rainbow in a land free of taxes. U.S. citizens and residents are required to report their worldwide income, including income from foreign bank accounts and trusts. This is done by filing the proper tax forms, namely Schedule B, Interest and Ordinary Dividends, Form 8938, Statement of Specified Foreign Financial Assets, and/or FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

However, if you have a home away from home in another country for work purposes, you might qualify for the Foreign Earned Income Exclusion. Use Form 2555 or Form 2555-EZ to see if you’re eligible for this exclusion. If so, you won’t have to pay taxes on up to $100,800 of your wages and other foreign earned income in 2015. And while looking at exclusions, also check for credits and deductions. You’ll have to make a tough choice between the foreign tax credit and doing an itemized deduction, but you generally won’t want to miss out either way. The goal is to keep from getting hit with a double tax-whammy from the U.S. and the foreign country where you’re bringing home the bacon.

Whether you’re drinking coffee in the Big Apple or shivering in Antarctica (hopefully not), you can file your taxes for free with IRS Free File. The IRS has made a dedicated push to make electronic tax filing quick and painless, and it is, for the most part. You’ll have a nice buffet of brand-name tax software to choose from if you make $60,000 or less per year, and if your income is over that, you can use the Free File Fillable Forms – which are slightly more of painful to complete, but still free. And most importantly, some Free File software products and fillable forms also support foreign addresses for all the folks living elsewhere.

Taxpayers back on American soil have the luxury of easy access to direct help on their tax questions via the IRS’s toll-free customer service line, Taxpayer Assistance Centers, Volunteer Income Tax Assistance, and other outlets. However, the IRS didn’t forget those abroad, although the assistance options aren’t quite as broad. For example, there are IRS employees ready, willing, and able to help in the U.S. Embassies in London and Paris. Both locations offer rather limited hours for walk-in assistance and phone service, so if you miss out and have a pressing question, try calling the International Taxpayer Service Call Center for a toll at 267-941-1000. If all else fails and the idea of filing your tax return on time makes you want to set up camp in a remote corner of the world, you might qualify for an automatic two-month extension, provided that you live and work outside the United States.

If you have a long flight back home or you’re just looking for some titillating reading, check out the IRS’s Tax Guide for U.S. Citizens and Resident Aliens Abroad – it’ll make reporting foreign income on your 2015 U.S. tax return easier so you can embark on new adventures.

Nowadays, many Americans enjoy their morning eggs, hash browns, and orange juice without thinking about where all that good food came from. But all across the country, a small number of farmers are still working hard to meet the always-hungry demand of the U.S. population. According to the EPA, there are about 2.2 million farms in the United States. The farmers who operate these ranches, orchards, and more have to pay taxes just like the rest of us, though with slightly different rules. If you’re one of the 1% of the U.S. population still operating a farm, these pointers will ensure you’re ready to grab the tax bull by its horns when filing season comes around again.

When it rains, it pours. If you receive insurance payments for crop damage this year, you should report these payments as income on your 2015 tax return. You also must report the sale of items or livestock that you buy for resale, taking into account the difference between your selling price and your basis in the item. However, if you end up having to sell more livestock than usual due to bad weather, you might be able to hold off reporting your gain from the unexpected sale of these additional animals.

Deductions are always nice, though the reason for them often isn’t as great. If you took out a loan and paid interest on it, you can only deduct that interest if the loan was used specifically for farming purposes. You can also deduct wages you pay to farm employees, both full and part-time workers, and you must withhold Social Security, Medicare and income taxes from their wages. Finally, you’re allowed to deduct any “ordinary and necessary expenses” that you pay to keep your farm alive and kicking.

Once all is said and done, and you’ve added up your totals, you might find that expenses are more than your income for the year. In that case, you may have a net operating loss. While the bad news is that, well, you have a net operating loss, the good news is that you can get something of a tax break in this situation. After all, the IRS isn’t trying to milk you for all you’re worth. You might be able to carry the loss over to other years and deduct it, get a partial or full income tax refund for prior years, and lower your tax down the road.

Hopefully the former situation doesn’t happen to you, and you end up having a great year with fields of gold. Then, you can lighten your tax burden by averaging some or all of your current year’s farm income over the past three years. This is especially helpful if income was down in one or more of those previous three years. Also, don’t forget about those excise taxes you paid on fuel to keep your farm up and running – you might be able to claim a tax credit or refund for them.

All farm income should be reported on the aptly-named Schedule F, Profit or Loss from Farming. But before you start counting your chickens before they hatch, you should also read through Publication 225, Farmer’s Tax Guide for an even better understanding of how federal tax laws apply to farming.

And get ready to head abroad for the final blog in the Tax Pointers series: Reporting Foreign Income…

The federal tax filing deadline has come and gone. However, April 15, 2015 passing doesn’t mean you’re done with taxes forever – in less than a year, you’ll be moaning and groaning about having to file the 2015 tax return. But you can make these future filings much easier by keeping better records in the coming months. If your 2014 tax return was a pain-in-the-butt, try to understand what gave you trouble, and work on it now, rather than later. Otherwise you’ll be stuck saying shoulda’, woulda’, coulda’ when that 1040 comes around again.

In-line with this is the first in a three blog series of Tax Pointers to keep in mind as you handle your business for the rest of 2015. First up is the most time-sensitive: paying estimated taxes on your 2015 income. This is most applicable to self-employed taxpayers, but if you’re an employee and you don’t have enough tax withheld, or don’t have any tax withheld at all, you’ll probably have to make estimated tax payments throughout the year.

Not everybody who falls into the aforementioned categories has to make these payments. For example, if you had no tax liability for the prior year, you were a U.S. citizen or resident for the whole year, and your prior tax year covered a 12 month period, you won’t have to pay estimated tax for 2015.

If you’re not one of those lucky individuals, generally, you’ll pay your estimated tax in quarterly payments according to some rather strange deadlines set by the IRS. The U.S. tax system is a pay-as-you-go system, and these quarterly dates make sure that you pay your fair share just like those employees who have taxes withheld from their paychecks. And, by paying as you go, you won’t get stuck owing Uncle Sam a big, scary, chunk of change next April. If you pay too much before then, don’t worry – you can get it back in your refund. The quarterly deadlines come around four times a year, but the intervals aren’t exactly every four months: Q1: April 15, Q2: June 15, Q3: September 15, Q4: Jan. 15, 2016.

You’ll notice immediately that the first & second quarterly deadline already passed. Yup, if you expect to owe $1,000 or more when you file your 2015 federal tax return, you should have already made the first estimated payment by April 15, 2015 and the second by June 15, 2015. If you forgot due to that looming 2014 federal tax return deadline, and/or if you underpay your estimated taxes, you could be hit with a penalty. And the longer you wait to make or correct an estimated tax payment, the more the penalty will add up as the days go by.

You’ll see also that the second quarterly payment is due only two months after the first. Yup, it’s a shorter time period, but the goal is to pay the same amount as the first quarter. This estimated amount, of course, can change depending on big events like getting married, having a kid, or suddenly making a bunch of money. In that case, you would have to revise your estimated tax payments, and if you’re an employee, you might need to change the amount of tax withheld from your pay with a new Form W-4.

Now comes the hard part. As the name clearly suggests, your estimated tax payments are only guesses. However, estimating that you’ll owe $5 in taxes each quarter clearly isn’t going to cut it. You have to be in the ballpark of the actual amount you would owe come tax filing time – specifically, a 90% accuracy ballpark. Finding that ballpark number involves figuring your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year, and using Form 1040-ES. And form means a complex worksheet which will make you wish you had paid closer attention in math class.

One easier route is to look at the total tax on your 2014 return, and make sure you pay at least 100% of that number this year (110% if your income is higher) via your quarterly estimated payments. This is good news because according to the IRS, “generally, most taxpayers will avoid this [underpayment] penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.”

While figuring out your estimated tax can be tough, paying is a piece of cake. You can pay online using IRS Direct Pay, online with your debit or credit card, by phone, or by mail using the payment vouchers that come with Form 1040-ES. However you choose to pay, be sure to keep records of the date and payment amount!

Stay tuned for the next piece in the series when we head back to the ranch and look at Tax Pointers for Farmers.

Hiring Freeze and Unanswered Tax Phone Calls Expected

Last March 2014 the IRS reminded taxpayers to make the most of its online services as a way of avoiding backed-up telephone lines. That advice is even more pertinent this filing season in light of the agency’s warning that half the phone calls it receives about taxes won’t be answered.

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This major setback stems directly from a spending bill signed into law on Dec. 16, 2014, which allotted the IRS only $10.9 billion for the fiscal year. That’s actually 3 percent less than last year, when telephone response times were already slower than a herd of snails traveling through peanut butter. It’s also 12 percent less than what the administration requested. Taking inflation into account, the IRS will basically have as much money as it did in 1998 – a year when it processed 30 million fewer returns, the cost of postage stamps was 32 cents, Friends was still on-air, and President Bill Clinton was Time‘s Man of the Year.

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Ironically, the spending bill directs the IRS to improve telephone services, and also allows funding for toll-free help lines. It might be tough (ahem, impossible) to accomplish those goals considering the reduction in operation funds. And unanswered calls are just the tip of the iceberg: the IRS will also have to freeze hiring and stop overtime pay as a result of the bill.

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It’s certainly going to be a long winter at the IRS. Commissioner John Koskinen explained that, “We have found substantial efficiencies in recent years, but there is little left to cut without hitting our core service and enforcement operations. This year we will have little choice but to do less with less.” In fact, the Center on Budget and Policy Priorities said that overall IRS spending has been cut by about 20 percent since 2010, with taxpayer services getting dinged 14 percent since then.

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This time around, the IRS will have $2.16 billion for taxpayer services, $4.86 billion for enforcement, and $3.64 billion for operations support, among a few other budget allocations. Knowing all this, taxpayers should head online or plan ahead and start calling the Internal Revenue Service ASAP to beat the filing rush hour in April. Or they can always call their friendly local accountant to have their tax questions answered.

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