Taxpayers guide to identity theft -- what you should know

The IRS is very serious about protecting you against identity theft. In the past few weeks the Justice department tax division has issue over 200 indictments in 23 states. The following information was taken from the IRS website. For a more information on what the IRS is doing and how to protect yourself visit www.irs.gov.

What is identity theft?

Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.

How do you know if your tax records have been affected?

An identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season. 

You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN. 

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

• More than one tax return for you was filed,
• You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or 
• IRS records indicate you received wages from an employer unknown to you. 

What to do if your tax records were affected by identity theft?

If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039. 

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490.

How can you protect your tax records?         

If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?

• Don’t carry your Social Security card or any document(s) with your SSN on it.
• Don’t give a business your SSN just because they ask. Give it only when required.
• Protect your financial information.
• Check your credit report every 12 months.
• Secure personal information in your home.
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
• Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Important note: The IRS Does not initiate contact with taxpayers by email to request personal or financial information. For more information visit:

IRS.gov/identitytheft  IRS.gov/phishing

The IRS is Taking Action

Identity Theft Crackdown Sweeps Across the Nation; More than 200 Actions Taken in Past Week in 23 States

WASHINGTON – The Internal Revenue Service and the Justice Department today announced the results of a massive national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.
Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states. The coast-to-coast effort took place over the last week and included indictments, arrests and the execution of search warrants involving the potential theft of thousands of identities and taxpayer refunds. In all, 939 criminal charges are included in the 69 indictments and informations related to identity theft.
In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past week. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.
“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”
“The Justice Department is working closely with the IRS to investigate, prosecute, and punish tax refund crimes committed through the theft of identities,” said Principal Deputy Assistant Attorney General John A. DiCicco of the Tax Division. “Now, more than ever, we must remain vigilant against the unauthorized use of identification information to defraud the U.S. government.”
The national effort is part of a comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.
The law-enforcement sweep started last week across the country, reflecting investigative efforts stretching back months and even years.
The nationwide effort by the Justice Department and the IRS led to actions taking place in 23 locations across the country with 105 individuals. The actions included 80 complaints/indictments and informations, 58 arrests, 19 search warrants, 10 guilty pleas and four sentencings. A map of the locations and additional details on the actions are available on IRS.gov, the IRS Civil and Criminal Actions page and the Department of Justice Tax Division page.
Beyond the criminal actions, the IRS enforcement personnel conducted a special sweep last week and on Monday to visit 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk places identified by the IRS covering areas in and surrounding Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.
In addition, the IRS has more than 250 check-cashing operations under audit across the country and will be looking for indicators of identity theft as part of the exam effort.
The information from these audits and compliance visits will be used to assist continuing IRS investigations into refund fraud and identity theft.
The IRS also is taking a number of additional steps this tax season to prevent identity theft and detect refund fraud before it occurs. These efforts includes designing new identity theft screening filters that will improve the IRS’s ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.
To help taxpayers, the IRS earlier this month created a new, special section on IRS.gov dedicated to identity theft matters, including YouTube videos, tips for taxpayers and a special guide to assistance. The information includes how to contact the IRS Identity Protection Specialized Unit and tips to protect against “phishing” schemes that can lead to identity theft.
Identity theft occurs when someone uses another’s personal information without their permission to commit fraud or other crimes using the victim’s name, Social Security number or other identifying information. When it comes to federal taxes, taxpayers may not be aware they have become victims of identity theft until they receive a letter from the IRS stating more than one tax return was filed with their information or that IRS records show wages from an employer the taxpayer has not worked for in the past.
If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.
Taxpayers looking for additional information can consult the Taxpayer Guide to Identity Theft or the IRS Identity Theft Protection page on the IRS website.

What is the right business structure for me?

I get this question a lot. The following post will explain the different choices available to you and the pro and cons. It is a good starting point.

Four Basic Forms

• C Corporation (and PSC or Professional Service Corporation)
• S Corporation
• General Partnership
• Limited Partnership

Recently Developed Alternatives

• LLC (Limited Liability Corporation)
• LLP (Limited Liability Partnership)
• LLLP (Limited Liability Limited Partnership)
• And the very basic form, Sole Proprietorship
  
  Two Most Important Factors

• Tax rates imposed on enterprise’s income and appreciation (after factoring double taxation)
• The investor’s potential personal liability for the enterprise’s obligations and actions. Note that owners and officers are liable for fraud and taxes regardless of the business form.

Three Fundamental Questions

•  First – Will the enterprise benefit from the double tax that might occur using a C corporation or from the one time pass-through tax offered by non-C corporation alternatives.
• Second – If a pass-through entity is preferred, would the enterprise benefit more from the use of the S corporation or the partnership taxation rules.
• Third – If the partnership rules are preferred, which business form is most suitable: general partnership, limited partnership, LLC, LLP or LLLP.

Tax advantages of an S corporation over a C corporation for closely held Corporations

• Single Taxation – taxable income is passed to the owners. Note that C corporations use tax planning to avoid double taxation, which includes bonus and salary distributions to eliminate taxable income at the corporate level.
• No accumulated earnings taxes.
• Losses pass though to shareholders subject to the passive loss and at risk rules.
• Accrual Method of Accounting - C corporations must use the accrual rules when gross receipts exceed $5,000,000, while S corporations do not.

Tax advantage of a C corporation over an S corporation

• C Corporation - Tax rate is 34% up to $10,000,000
•  Individuals – Top tax rate is 39.6%
• Alternative Minimum Tax – AMT is determined at the shareholder level for S corporations and at the corporate level for C corporations. Currently the corporate AMT rate is 20% while the individual rate can be as high as 28% if AMT exceeds $175,000. An AMT credit for individuals does not allow a credit for exclusion preference items, while a C corporations generates AMT credit against regular tax for all items causing AMT. C corporations with average gross receipts less than $5,000,000 for the first test year and $7,500,000 or less in subsequent years are totally exempt from AMT.
• Fringe Benefits – partners in S corporations with more than a 2% ownership are treated as partners in partnerships for fringe benefit purposes.

Partnership versus S Corporation Taxation

Background

In a partnership, general partners are liable for partnership liabilities while limited partners have limited liability. Also, in many states, the limited partners cannot participate in the partnership’s business operations and retain limited liability. A Limited Liability Company (“LLC”), with proper planning, will be taxed as a partnership while giving the owners limited liability similar to corporate stockholders. Moreover, unlike limited partners, LLC owners can materially participate in the LLC business activities without incurring personal liability.

General Information

LLCs and are created by statutes. The LLC’s principal competitor for choice of a business entity for small businesses is the S corporation. This is because both entities are the only entities that offer all of the following:

• Pass-through tax treatment to all owners
• Limited liability to all owners
• Material participation by all owners without losing limited liability

          However, following are tax differences between a partnership and an LLC (taxed as a partnership):

• Formation. Tax-free formation of an S Corporation requires the stockholders to satisfy an 80% control test, and the stockholder’s must avoid gain by excess debt under f357(c), while an “LLC” has no control requirement upon formation and it is much less likely that a contributing member will trigger gain from excess debt upon formation.
• Capital Structure. An LLC can allocate cash flow in the same flexible manner as a partnership, while S corporations’ single class of stock requirement prohibits any non-pro rata allocation except by salaries for services performed.
• Income Allocation. An LLC can allocate income, gain, loss, and deductions as agreed to by the partners so long as the allocations have ‘substantial economic effect.” S corporation income and losses must be allocated pro rata based strictly on stock ownership.

Limited Liability Partnerships (LLP)

An LLP is a registered partnership that offers partners liability protection from malpractice, errors, and omissions of the other partners, but not from commercial or contract liability of the partnership.

Although LLPs offer less liability protection than LLCs, professional organizations that have multi-state practices opt for this business entity form because some states prohibit “professionals” from operating as LLCs and many states require that all members of a LLC be members of the same profession.

Limited Liability Limited Partnerships (LLLP)

An LLLP is a registered partnership that offers general partners liability protection from malpractice, errors, and omissions of the other general partners, but not from commercial or contract liability of the partnership.

Sole Proprietorship

There are no requirements to form a sole proprietorship. Taxable income of the business is the taxable income of the Sole Proprietor. There is no liability protection. If there are no employees, there is no payroll reporting. A tax deduction of up to 60% of health plan benefits is available.

DISCLAIMER
THIS SUMMARY IS DESIGNED AS A GUIDE TO UNDERSTANDING OF THE VARIOUS RETIREMENT PLANS AVAIABLE AND THEIR TAX BENEFITS AND CONSEQUENCES. THIS SUMMARY IS NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL SERVICES.

Paldino Company CPA Files and Uploads - Mamaroneck, NY 10543 - 914-253-6857 - AmericanTowns.com

Paldino Company CPA Files and Uploads - Mamaroneck, NY 10543 - 914-253-6857 - AmericanTowns.com

IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

WASHINGTON — The Internal Revenue Service today encouraged taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates.
The IRS has noted an increase in tax-return-related scams, frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest.
Most paid tax return preparers provide honest and professional service, but there are some who engage in fraud and other illegal activities.   Unscrupulous promoters deceive people into paying for advice on how to file false claims. Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved.
Taxpayers should be wary of any of the following:

• Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
• Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
• Unfamiliar for-profit tax services teaming up with local churches.
• Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit.
• Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income.

In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return which results in a fraudulent return.
Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives.
Promoters of these scams often prey upon low income individuals and the elderly.
They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone.
Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is.
Anyone with questions about a tax credit or program should visit www.IRS.gov, call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.
For questions about rebates, credit and benefits from other federal agencies contact the relevant agency directly for accurate information.

BEWARE OF IRS EMAIL SCAMS

Beware of e-Mail Scams about Electronic Federal Tax Payments

Consumers should be aware of a scam e-mail about an electronic federal tax payment the e-mail claims they tried to make or which specifies the Electronic Federal Tax Payment System (EFTPS). The e-mail states that tax payments made by the e-mail recipient through EFTPS have been rejected. The e-mail then directs recipients to a bogus link for a transaction report that, when clicked, downloads malicious software (malware) that infects the intended victim’s computer. The malware is designed to send back to the scammer personal and financial information already contained on the taxpayer's computer or obtained through capturing keystrokes. The scammer uses this personal and financial information to commit identity theft. To avoid malware, do not click on any links, open any attachments or reply to the sender for this or any other unsolicited e-mails you may receive about your tax account which claims to come from the IRS or EFTPS. If you responded to this scam and believe you may have become the victim of identity theft, find out what steps you can take. The IRS and the Financial Management Service (the Treasury bureau that owns EFTPS) do not communicate payment information through e-mail. A scam that tricks someone into revealing their personal and financial data is identity theft. A scam that attempts to do this through e-mail is known as phishing. Find out more about IRS-impersonation phishing scams and how to recognize and report them to the IRS. EFTPS is a tax payment system that allows individuals and businesses to pay federal taxes electronically via the Internet or phone. It is committed to taxpayer privacy and uses industry-leading security practices and technology to protect taxpayer data.

Nine Facts on filing an Amended Return

An amended tax return generally allows you to file again to correct your filing status, your income or to add deductions or credits you may have missed.

Here are nine points the IRS wants you to know about amending your federal income tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended income tax return.
2. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. An amended return cannot be filed electronically, thus you must file it by paper.
3. Generally, you do not need to file an amended return due to math errors. The IRS will automatically make that correction. Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules. The IRS normally will send a request asking for those.
4. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
5. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS campus. The 1040X instructions list the addresses for the campuses.
6. If the changes involve another schedule or form, you must attach that schedule or form to the amended return.
7. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
8. If you owe additional 2010 tax, file Form 1040X and pay the tax before the due date to limit interest and penalty charges that could accrue on your account. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
9. Form 1040X was recently redesigned. Previously the form consisted of three columns; Column A-Original amount, Column B-Net change, and Column C-Correct amount. The redesigned form now has just one column where the Correct Amount is the only figure entered, making it easier to make changes to previously filed returns.