Thursday, May 28, 2015

IRS Hacked.

Of all the targets available, it really isn’t surprising that hackers would try to gain access to the substantial database of financial information at the IRS.  Unfortunately, a successful breach of the security protocols was accomplished by such hackers beginning in February and into mid-May through the “get transcript” function of the IRS website. 

Ordinarily, for someone to get a transcript through the IRS website, they must enter such personal information to authenticate their identity.  It appears the hackers already had the information needed to satisfy the existing authentication protocols and simply used the system that existed to access the transcripts.  The IRS believes that the needed personal information for the compromised tax accounts was already in the hands of the hackers through the hacking of other databases or identity theft efforts.  As a result, the hackers were able to gain access to social security numbers, dates of birth and home addresses on the IRS system.  Income information would also have been vulnerable. 

Hackers attempted access to approximately 200,000 accounts but only gained access on about half of those attempts. In the next several days, the IRS will be notifying taxpayers that were the subject of the hack attacks by letter and offering one year of free credit monitoring to the 100,000 who had their information compromised.  These letters will not request personal information.  If you receive a letter that does request additional personal information, it may be a further effort at fraud by unscrupulous scam artists. 

Unfortunately, the authentication process in the IRS system is similar to (or even more complex than) that used by various other financial databases with online access.  If the hackers had the information needed to access the IRS system, they can likely get into other systems as well.  If you receive a letter from the IRS that your information was compromised, you should monitor any other online financial accounts and consider changing your login credentials.    

The IRS announcement about the hack can be found here:  IRS statement on data breach.  

Thursday, May 21, 2015

Planning ahead - 2015 Forms 1040 will be due on April 18,2016 (for most)

You get an extra weekend to file your tax returns in 2016 thanks to an uncommon mix of holidays and weekends.  Ordinarily an unextended Form 1040 Individual Income Tax Return is due on April 15th of any given year.  However, when the 15th falls on a weekend or legal holiday, the due date of the tax return is the day after the weekend or legal holiday.

April 15, 2016 is a Friday.  Without more, your income tax return would be due that day.  Yet, the District of Columbia observes Emancipation Day on April 16.  Where Emancipation Day falls on a Saturday, it is observed the day before.  Where Emancipation Day falls on a Sunday, it is observed on the day after.   Because Emancipation Day 2016 falls on Saturday, April 16, it will be observed in Washington D.C. of Friday, April 15.  This makes the 15th a legal holiday.  Altogether, this pushes the Form 1040 due date to Monday April 18th.

If, however, you live in Massachusetts or Maine, you will have until April 19th due to the statewide observance of Patriot's Day on Monday April 18, 2016.

For greater detail see IRS Revenue Ruling 2015-13.

Wednesday, May 20, 2015

“The IRS is calling…and threatening to arrest me!”

A few days ago, I received a call from a panicked former client.  Two years back we had gone through an IRS tax audit and worked out a reasonable payment plan to resolve the remaining tax debt.  The client had been honoring all obligations of that payment plan: paying on time, filing on time and not incurring any new debts.
The client’s immediate fear, however, was triggered by a call from a “US Treasury agent.”  That “agent” was instructing my client to pay a fictional the balance due by cashier’s check before the end of the day. A failure to do so would mean that local law enforcement would come to his home to arrest him. 

My client is sophisticated.  In the past, we had spoken about what the IRS can do and what it cannot.  He suspected it may be a scam, but was still worried that the “agent’s” threat to arrest him might be true.  It wasn't.  The IRS does not act this way.

The IRS will NEVER call and threaten you with arrest for the non-payment of taxes. 

The IRS doesn't have the power or authority to arrest someone for being unable to pay.  Sure, if you commit tax fraud you can go to jail after a thorough investigation.  But, being unable to pay is not fraud.
What my client was dealing with was a pervasive telephone scam that remains on the IRS “Dirty Dozen” list of tax scams.  Someone pretending to be from the IRS calls to demand payment of taxes.  The caller may even have certain personal information that appears to lend credibility to any threats they make.  On occasion the victim follows the instruction and sends money.  

A big part of the problem is the mystery surrounding the power of the IRS and the procedures that must be followed before the IRS can do something.  It’s true that the IRS can file liens, garnish wages, levy bank accounts and even seize property when trying to collect a tax debt.  However, there are a number of notices that have to be issued and appeal opportunities that exist before they are able to do so.  You will receive letters (some by certified mail) before they can take anything from you. They must follow these notification procedures.  Putting you in jail for non-payment is not one of those procedures.

If you receive a call from someone claiming to be from the IRS, know that the IRS will never:

·         Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
·         Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
·         Require you to use a specific payment method for your taxes, such as a prepaid debit card.
·         Ask for credit or debit card numbers over the phone.
·         Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you do receive a call, you can file a complaint with the FTC through the FTC Complaint Assistant. You can also contact the IRS or a tax professional to discuss whether you do owe an unpaid tax debt.

The IRS is working to get out information on this scam and have posted the following on their website:

The IRS is also on YouTube  and addresses the scam here: Tax Scams.