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ALL TAXPAYERS NOW ELIGIBLE FOR IDENTITY PROTECTION PINS

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The IRS has expanded the Identity Protection PIN Opt-In Program to all taxpayers who can verify their identities. The Identity Protection PIN (IP PIN) is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers’ personally identifiable information. “This is a way to, in essence, lock your tax account, and the IP PIN serves as the key to opening that account,” said IRS Commissioner Chuck Rettig. “Electronic returns that do not contain the correct IP PIN will be rejected, and paper returns will go through additional scrutiny for fraud.”

The IRS launched the IP PIN program nearly a decade ago to protect confirmed identity theft victims from ongoing tax-related fraud. In recent years, the IRS expanded the program to specific states where taxpayers could voluntarily opt into the IP PIN program. Now, the voluntary program is going nationwide.

Taxpayers who want an IP PIN for 2021 should go to IRS.gov/IPPIN and use the Get an IP PIN tool. This online process will require taxpayers to verify their identities using the Secure Access authentication process if they do not already have an IRS account. See IRS.gov/SecureAccess for what information you need to be successful. There is no need to file a Form 14039, an Identity Theft Affidavit, to opt into the program.

Once taxpayers have authenticated their identities, their 2021 IP PIN immediately will be revealed to them. Once in the program, this PIN must be used when prompted by electronic tax returns or entered by hand near the signature line on paper tax returns. All taxpayers are encouraged to first use the online IP PIN tool to obtain their IP PIN. Taxpayers who cannot verify their identities online do have options.
Taxpayers whose adjusted gross income is $72,000 or less may complete Form 15227 PDF , Application for an Identity Protection Personal Identification Number, and mail or fax to the IRS. An IRS customer service representative will contact the taxpayer and verify their identities by phone. Taxpayers should have their prior year tax return at hand for the verification process.

Taxpayers who verify their identities through this process will have an IP PIN mailed to them the following tax year. This is for security reasons. Once in the program, the IP PIN will be mailed to these taxpayers each year. Taxpayers who cannot verify their identities online or by phone and who are ineligible for file Form 15227 can contact the IRS and make an appointment at a Taxpayer Assistance Center to verify their identities in person. Taxpayers should bring two forms of identification, including one government-issued picture identification. Taxpayers who verify their identities through the in-person process will have an IP PIN mailed to them within three
weeks. Once in the program, the IP PIN will be mailed to these taxpayers each year.

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COVID-19 TEXT SCAM

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The IRS is warning of a new text scam created by thieves that trick people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment. The IRS reminds taxpayers that neither the IRS nor state agencies will ever text taxpayers asking for bank account information so that an EIP deposit may be made.

“Criminals are relentlessly using COVID-19 and Economic Impact Payments as cover to try to trick taxpayers out of their money or identities,” said IRS Commissioner Chuck Rettig. “This scam is a new twist on those we’ve been seeing much of this year. We urge people to remain alert to these types of scams.”

The scam text message states: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment…” The text includes a link to a fake phishing web address.
This fake phishing URL, which appears to come from a state agency or relief organization, takes recipients to a fraudulent website that impersonates the IRS.gov Get My Payment website. Individuals who visit the fraudulent website and then enter their personal and
financial account information will have their information collected by these scammers.

People who receive this text scam should take a screen shot of the text message that they received and then include the screenshot in an email to phishing@irs.gov with the following information:
• Date/Time/Timezone that they received the text message.
• The number that appeared on their Caller ID.
• The number that received the text message.

The IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards.

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WHY PAYROLL TAX DEFERRAL IS NOT SUCH A GREAT IDEA

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On August 8, 2020, the President issued a memorandum directing the IRS to use its authority under IRC section 7508A to defer the withholding, deposit, and payment of the employee’s share of Social Security taxes (the 6.2% FICA tax that is withheld from employee wages). The IRS recently issued guidance that leave a number of questions unanswered or simply create more confusion.

Of particular interest is what is not included in Notice 2020-65:

1) The notice does not provide any elections for employees. The relief provision applies to the employer, not the employee. The notice identifies the employer as the Affected Taxpayer. There is no option for the employee to make an election to have the taxes continue to be withheld, and does not require the employee to make an affirmative election to have the withholding of taxes deferred. Employees who have their take home pay temporarily increased by not having Social Security taxes withheld will experience a 12.4% drop in take home pay after January 1, 2021 when double the amount of Social Security taxes begins to be withheld.

2) The notice does not state whether or not the deferral of taxes is voluntary. It simply states that the withholding and payment deadline is deferred. IRC section 7508A allows the IRS to extend the filing and payment deadline for taxes due to a presidentially declared disaster, but does not require taxpayers to delay the filing and payment of their taxes. The law appears to allow employers to continue to withhold and pay the tax at the time the wages are paid. In fact, the IRS notice specifically states: “If necessary, the Affected Taxpayer may make arrangements to otherwise
collect the total Applicable Taxes from the employee.” An employer may decide it is too big a risk not to withhold the tax and that it is necessary to continue to withhold the taxes from employee wages to insure that the funds will be available to pay the tax when payment is due.

3) The notice does not address the related employer rules.

4) The notice does not address how the deferral of withholding and payment of taxes will be reported on Form 941, Employer’s Quarterly Federal Tax Return.

5) The notice does not address a situation where the employee separates from service prior to the employer’s ability to withhold the taxes from employee wages. A footnote in the IRS notice says the deposit obligation for employee Social Security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the tax, the deposit obligation is delayed. However, Regulation section 31.3102-1(a) says the employer must collect the tax from the employee in some way, even if the wages are paid in something other than money, and pay over the tax to the government. The guidance does not provide any liability relief for
employers who are unable to eventually collect the tax from employees who quit prior to January 1, 2021.

6) The notice does not address a situation where the employer decides to not defer the withholding and payment of the employee’s share of Social Security tax, and then Congress later decides to forgive the tax liability. There will likely be political pressure on Congress to enact payroll tax forgiveness to avoid a decline in employee take home pay after January 1, 2021. By not taking advantage of the relief provided for in the notice, employees could eventually lose out on tax forgiveness.

7) The notice does not explain how the relief benefits the employer, even though the relief applies to the employer. By not withholding the tax, the employee’s take home pay is increased. Thus, the employer’s net payroll cost savings is zero. The relief is clearly for the employee, even though it is the employer who decides whether or not to take advantage of the relief. The employer’s relief appears to be limited to making the employee happy due to an increase in take home pay, which could be an incentive for the employer to take advantage of the relief.

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Going Paperless

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If taxpayers are still keeping old tax returns and receipts stuffed in a shoebox in the back of the closet, they might want to rethink that approach.  Everything you have to track for the IRS can be done digitally.  Since there’s no real downside to holding onto electronic records, you can keep digital records indefinitely.  Now is a good time to switch to e-delivery of all financial records. Benefits include quicker delivery, better security, easier to organize and retrieve, saves time and reduces paper clutter.  Most financial institutions offer up to 7 years of retrieval.

Generally, the IRS recommends keeping copies of tax returns and supporting documents at least three years. Some believe the rule of thumb for documents should be up to seven years in case a taxpayer needs to file an amended return or if questions arise. Keep records relating to real estate up to seven years after disposing of the property.

Health care information statements should be kept with other tax records. Taxpayers do not need to send these forms to IRS as proof of health coverage. The records taxpayers should keep include records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage. Taxpayers should keep these — as they do other tax records — generally for three years after they file their tax returns.

The IRS accepts digital documentation, so if you’re going paperless, you may dispose of paper records.  Be sure to shred your paper since the information may be confidential.  If you’re throwing things out and you’re not sure, scan it and then throw it out.

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Guidance for Retirement Plan Loans under the CARES ACT

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The Internal Revenue Service today released Notice 2020-50 (PDF) to help retirement plan participants affected by the COVID-19 coronavirus take advantage of the CARES Act provisions providing enhanced access to plan distributions and plan loans. This includes expanding the categories of individuals eligible for these types of distributions and loans (referred to as “qualified individuals”) and providing helpful guidance and examples on how qualified individuals will reflect the tax treatment of these distributions and loans on their federal income tax filings.

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1 and December 30, 2020. A coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on loans made between March 27 and September 22, 2020, is raised from $50,000 to $100,000.

As authorized under the CARES Act, Notice 2020-50 expands the definition of who is a qualified individual to take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates with respect to an individual, as well as adverse financial consequences to an individual arising from the impact of the COVID-19 coronavirus on the individual’s spouse or household member. As expanded under Notice 2020-50, a qualified individual is anyone who –

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
     
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • being unable to work due to lack of childcare due to COVID-19;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • having a job offer rescinded or start date for a job delayed due to COVID-19.

Notice 2020-50 clarifies that employers can choose whether to implement these coronavirus-related distribution and loan rules, and notes that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren’t changed. The guidance clarifies that administrators can rely on an individual’s certification that the individual is a qualified individual (and provides a sample certification), but also notes that an individual must actually be a qualified individual in order to obtain favorable tax treatment. Further, Notice 2020-50 provides employers a safe harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020, but notes that there may be other reasonable ways to administer these rules.

Employers, financial institutions, and individuals should refer to Notice 2020-50 for more details about how the CARES Act rules for coronavirus-related distributions and loans from plans apply.

This tax relief and other information related to the effects of COVID-19 on federal income tax is available on the IRS Coronavirus Tax Relief pages of IRS.gov.

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