Mar

22

Underpaid Tax Relief

By Bill

Underpaid Tax Relief

IR-2019-55, March 22, 2019

WASHINGTON — The Internal Revenue Service today provided additional expanded penalty relief to taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is lowering to 80 percent the threshold required to qualify for this relief. Under the relief originally announced Jan. 16, the threshold was 85 percent. The usual percentage threshold is 90 percent to avoid a penalty.

“We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year,” said IRS Commissioner Chuck Rettig. “The expanded penalty waiver will help many taxpayers who didn’t have enough tax withheld. We continue to urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”

This means that the IRS is now waiving the estimated tax penalty for any taxpayer who paid at least 80 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two.

Today’s revised waiver computation will be integrated into commercially-available tax software and reflected in the forthcoming revision of the instructions for Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts.

Taxpayers who have already filed for tax year 2018 but qualify for this expanded relief may claim a refund by filing Form 843, Claim for Refund and Request for Abatement and include the statement “80% Waiver of estimated tax penalty” on Line 7.  This form cannot be filed electronically.

Today’s expanded relief will help many taxpayers who owe tax when they file, including taxpayers who did not properly adjust their withholding and estimated tax payments to reflect an array of changes under the Tax Cuts and Jobs Act (TCJA), the far-reaching tax reform law enacted in December 2017. 

The IRS and partner groups conducted an extensive outreach and education campaign throughout 2018 to encourage taxpayers to do a “Paycheck Checkup” to avoid a situation where some might have had too much or too little tax withheld when they file their tax returns. If a taxpayer did not submit a revised W-4 withholding form to their employer or increase their estimated tax payments, they may have not had enough tax withheld during the tax year.

Additional information

Because the U.S. tax system is pay-as-you-go, taxpayers are required, by law, to pay most of their tax obligation during the year, rather than at the end of the year. This can be done by either having tax withheld from paychecks or pension payments, or by making estimated tax payments.

Usually, a penalty applies at tax filing if too little is paid during the year. This penalty is an interest based amount approximately equivalent to the federal interest on the amount not paid in a timely manner. Normally, the penalty would not apply for 2018 if tax payments during the year met one of the following tests: 

  • The person’s tax payments were at least 90 percent of the tax liability for 2018 or
  • The person’s tax payments were at least 100 percent of the prior year’s tax liability, in this case from 2017. However, the 100 percent threshold is increased to 110 percent if a taxpayer’s adjusted gross income is more than $150,000, or $75,000 if married and filing a separate return. 

For waiver purposes only, today’s relief lowers the 90 percent threshold to 80 percent. This means that a taxpayer will not owe a penalty if they paid at least 80 percent of their total 2018 tax liability. If the taxpayer paid less than 80 percent, then they are not eligible for the waiver and the penalty will be calculated as it normally would be, using the 90 percent threshold. For further details, see Notice 2019-25, posted today on IRS.gov.

Like last year, the IRS urges everyone to take a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone now facing an unexpected tax bill when they file. This is also an important step for those who made withholding adjustments in 2018 or had a major life change to ensure the right tax is still being withheld. Those most at risk of having too little tax withheld from their pay include taxpayers who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

To help taxpayers get their withholding right in 2019, the updated Withholding Calculator is now available on IRS.gov.

Jan

16

Filing Season Opens

By Bill

Filing Season Opens Jan 28, 2019

IR-2019-01, January 7, 2019

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.

Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

Jan

15

2019 Mileage Rates

By Bill

2019 Mileage Rates

IR-2018-251, December 14, 2018

WASHINGTON — The Internal Revenue Service today issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
     
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
     
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The charitable rate is set by statute and remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2010-51.

Notice 2019-02, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Aug

22

Withholding Checkup Urged by the IRS for All Taxpayers

By Bill

Withholding Checkup Urged by the IRS for All Taxpayers

IR-2018-168, Aug. 17, 2018

WASHINGTON — The Internal Revenue Service urges anyone working in the sharing economy to perform a Paycheck Checkup now to avoid an unexpected tax bill when they file their return next year.

Many people working in the sharing economy are employees, in which case their employers should be withholding taxes from their wages. Many others are not working as employees, so they need to make sure they pay their taxes either through withholding from other jobs they may have, or through estimated taxes.

Either way, because of the far-reaching tax changes taking effect this year, IRS urges taxpayers, including those in the sharing economy, to perform a Paycheck Checkup now. The easiest way for most employees to check their withholding is through the Withholding Calculator available on IRS.gov.

The U.S. tax system operates on a pay-as-you-go basis, so taxes must be paid as income is received rather than at the end of the year. This includes anyone involved in the sharing economy.

People who participate in the sharing economy but do not have an employer, usually need to make quarterly estimated tax payments to cover their tax obligation. In this case Publication 505, Tax Withholding and Estimated Tax, and the worksheet in  Form 1040-ES, Estimated Tax for Individuals, can help people check their withholding and figure their payments correctly. IRS Direct Pay is the fastest and easiest way to pay.

In recent years, the IRS has seen the number of taxpayers who paid the estimated tax penalty jump from 7.2 million in 2010 to 10 million in 2015, an increase of nearly 40 percent. Using the Withholding Calculator or Publication 505 and following the recommended steps can help avoid this underpayment penalty.

Jul

17

New 1040 Form

By Bill

New Form 1040

IR-2018-146, June 29, 2018

WASHINGTON – As part of a larger effort to help taxpayers, the Internal Revenue Service plans to streamline the Form 1040 into a shorter, simpler form for the 2019 tax season.

The new 1040 – about half the size of the current version — would replace the current Form 1040 as well as the Form 1040A and the Form 1040EZ.  The IRS circulated a copy of the new form and will work with the tax community to finalize the streamlined Form 1040 over the summer.

This new approach will simplify the 1040 so that all 150 million taxpayers can use the same form. The new form consolidates the three versions of the 1040 into one simple form. At the same time, the IRS will still obtain the information from each taxpayer needed to determine their tax liability or refund.

The new Form 1040 uses a “building block” approach, in which the tax return is reduced to a simple form. That form can be supplemented with additional schedules if needed. Taxpayers with straightforward tax situations would only need to file this new 1040 with no additional schedules.

Since more than nine out of 10 taxpayers use software or a tax preparer, the IRS will be working with the tax community to prepare for the streamlined Form 1040. This will also help ensure a smooth transition for people familiar with software products and the interview process used to prepare tax returns.

Taxpayers who file on paper would use this new streamlined Form 1040 and supplement it with any needed schedules.

Jun

20

Achieving Better Life Experience Account (ABLE)

By Bill

Achieving Better Life Experience Account (ABLE)

IR-2018-139, June 15, 2018

WASHINGTON – People with disabilities can now put more money into their tax-favored Achieving a Better Life Experience (ABLE) accounts and may, for the first time, qualify for the Saver’s Credit for low- and moderate-income workers, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act, the tax reform legislation enacted in December, made major changes to the tax law for 2018 and future years, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and brackets.

The new law also enables eligible individuals with disabilities to put more money into their ABLE accounts, qualify for the Saver’s Credit in many cases and roll money from their 529 plans — also known as qualified tuition programs — into their ABLE accounts.

States can offer specially designed ABLE accounts to people who become disabled before age 26. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses. Though contributions are not deductible, distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability-related expenses.

Normally, contributions totaling up to the annual gift tax exclusion amount, currently $15,000, may be made to an ABLE account each year for an eligible person with a disability, known as a designated beneficiary. But, starting in 2018, if the beneficiary works, the beneficiary can also contribute part or all of what they make to their ABLE account.

This additional contribution is limited to the poverty line amount for a one-person household. For 2018, this amount is $12,140 in the continental U.S., $13,960 in Hawaii and $15,180 in Alaska. However, the designated beneficiary is not eligible to make this additional contribution if their employer contributes to a workplace retirement plan on their behalf.

In addition, starting in 2018, ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions qualify for this special credit designed to help low- and moderate-income workers. Claimed on Form 8880, Credit for Qualified Retirement Savings Contributions, this credit can reduce the amount of tax a person owes or increase their refund. Like other IRS tax forms, Form 8880 will be revised later this year to reflect changes made by the new law.

In addition, some funds now may be rolled into an ABLE account from the designated beneficiary’s own 529 plan or from the 529 plan of certain family members.

Like other workers, ABLE account beneficiaries and other people with disabilities should make sure they are having the right amount of income tax withheld from their pay. Because of the far-reaching tax changes taking effect this year, the IRS urges all employees to perform a paycheck checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty. The easiest way to do that is to use the fully-accessible Withholding Calculator, available on IRS.gov.

For more information about ABLE accounts and the tax reform changes, visit IRS.gov/taxreform.

Apr

9

Time Running Out to Claim 2014 Refunds

By Bill

Time Running Out to Claim Refund for TY2014

 

IR-2018-83, April 3, 2018

WASHINGTON — The Internal Revenue Service is reminding an estimated 1 million taxpayers that time is running out to file a 2014 tax return and claim refunds totaling more than $1 billion. To claim any refund due, taxpayers must file their 2014 federal tax return by April 17, 2018.

There is no penalty for filing a late return for those receiving refunds. The law provides most taxpayers with a limited window of opportunity for claiming a tax refund. If they do not file a tax return within three years to claim a refund, the money becomes the property of the U.S. Treasury.

The IRS estimates the median potential refund for 2014 is $847. By failing to file a tax return, people stand to lose more than just their refund. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). For 2014, the credit was worth as much as $6,143.

The IRS reminds taxpayers seeking a 2014 tax refund that it may be held if they have not filed tax returns for 2015 and 2016. In addition, any refund will be applied to amounts owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans.

Taxpayers who are unable to get Forms W-2, 1098, 1099 or 5498 for 2014, 2015 or 2016 from their employer or other payer should act now to order a wage and income transcript using the Get Transcript Online tool at IRS.gov.

IRS transcripts are often used to validate past income to help with tax preparation. Taxpayers can also use Get Transcript by Mail or call the IRS automated phone transcript service at 800-908-9946 to order a tax return or tax account transcript be sent by mail. Transcripts arrive in five to 10 calendar days at the address the IRS has on file for the requester. The “Get Transcript by Mail” application is available in Spanish through Ordenar Transcripción.

Because software is no longer available for tax year 2014, prior year tax forms (such as 2014 Form 1040, 1040A and 1040EZ) and instructions are available to be printed from the Prior Year Forms and Instructions page on IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the tax filing deadline, which this year is Tuesday, April 17.

Mar

21

The Many Ways To Pay A Balance Due

By Bill

The Many Ways to Pay a Balance Due

 

IR-2018-57, March 15, 2018

WASHINGTON — The Internal Revenue Service today reminded taxpayers that there are several easy options to pay taxes electronically. For those unable to pay on time, the IRS offers a variety of ways to take care of a tax liability.

This is the fifth in a series of nine IRS news releases called the Tax Time Guide, designed to help taxpayers navigate common tax issues.

This year’s tax-filing deadline is April 17. Taxpayers who owe taxes can choose among the following quick and easy electronic payment options:

  • Electronic Funds Withdrawal (EFW). This option allows taxpayers to e-file and pay from their bank account when using tax preparation software or a tax professional. EFW is only available when electronically filing a tax return.
  • Direct Pay. Available at IRS.gov/directpay, this free online tool allows taxpayers to securely pay their taxes directly from checking or savings accounts without any fees or preregistration. Taxpayers can schedule payments up to 30 days in advance. Those using the tool will receive immediate confirmation when they submit their payment. Taxpayers can opt in to receive email notifications about their payments each time they use Direct Pay.
  • Credit or Debit Card. Pay online, by phone or with a mobile device through any of the authorized debit and credit card processors. The processor charges a fee. The IRS doesn’t receive or charge any fees for payments made with a debit or credit card. Go to https://www.irs.gov/payments for authorized card processors and phone numbers.
  • IRS2Go. The IRS2Go mobile app is free and offers taxpayers the option to make a payment with Direct Pay for free or by debit or credit card through an approved payment processor for a fee. Download IRS2Go free from Google Play, the Apple App Store or the Amazon App Store.
  • Electronic Federal Tax Payment System. This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll and for more information, call 800-555-4477, or visit eftps.gov. Both business and individual taxpayers can opt in to receive email notifications about their payments.
  • Cash. Taxpayers paying with cash can use the PayNearMe option. Payments are limited to $1,000 per day, and a $3.99 fee applies to each payment. The IRS urges taxpayers choosing this option to start early, because PayNearMe involves a four-step process. Initiating a payment well ahead of the tax deadline will help taxpayers avoid interest and penalty charges. The IRS offers this option in cooperation with OfficialPayments.com/fed and participating 7-Eleven stores in 34 states. Details, including answers to frequently asked questions, are at IRS.gov/paywithcash.
  • Same-Day Wire Payments. Taxpayers may be able to do a same-day wire transfer from their financial institution. Contact the financial institution for availability, cost and cut-off times. Download and complete the Same-Day Taxpayer Worksheet and take it to the desired financial institution. If paying for more than one tax form or period, complete a separate worksheet for each payment.

Taxpayers must file their 2017 tax returns by April 17, 2018, or request a six-month extension. Extensions can be requested using Free File, by filing Form 4868 or by paying all or part of  the estimated income tax due and indicating that the payment is for an extension using Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or a credit or debit card. Taxpayers do not have to file a separate extension form and they receive a confirmation number for their records.

Taxpayers who choose to pay by check or money order should make the payment out to the “United States Treasury.” To help ensure that the payment gets credited promptly, also enclose a Form 1040-V payment voucher. Also, print on the front of the check or money order: “2017 Form 1040”; name; address; daytime phone number; and Social Security number.

Taxpayers can go to IRS.gov/account to securely access information about their federal tax account. They can view the amount they owe, pay online or set up an online payment agreement; access their tax records online; review the past 18 months of payment history; and view key tax return information for the current year as filed. Visit IRS.gov/secureaccess to review the required identity authentication process.

Taxpayers who owe, but cannot pay the balance in full, do have options. Often, they qualify for one of several relief programs, including:

Payment Plans, Installment Agreements — Most individuals can set up a payment plan, including an installment agreement, with the IRS using the Online Payment Agreement application in a matter of minutes. If you owe $50,000 or less in combined tax, penalties and interest you may qualify for a long-term payment plan of up to 72 months. If you owe less than $100,000 in combined tax, penalties and interest, you may qualify for a short-term payment plan of up to 120 days. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS. Alternatively, for a long-term payment plan, taxpayers can request an installment agreement by filing Form 9465. Download the form from IRS.gov and mail it along with a tax return, IRS bill or notice.

Offer in Compromise — Some taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. To help determine eligibility, individual taxpayers may use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.

Taxpayers can find answers to tax questions, tax forms and instructions and easy-to-use tools online at IRS.gov 24 hours a day, seven days a week. No appointments needed and no waiting on hold.

Feb

21

Knowing Prior Year Tax Information

By Bill

Knowing Prior Year Tax Information

IR-2018-30, Feb. 16, 2018

WASHINGTON — The Internal Revenue Service today reminded taxpayers who have changed tax software products that they may need information from their 2016 tax return to complete their taxes this year.

It’s always a good idea to keep copies of previously-filed tax returns. That recommendation is more important this year because, for some taxpayers, certain data from the 2016 tax return – the adjusted gross income — will be required to validate their electronic signature on their 2017 tax return due April 17.

Taxpayers often call or visit the IRS seeking their prior-year tax transcript, which is a record of their tax return. But the days around Presidents Day mark the busiest time of the year for the IRS, and there are online options that are faster and more convenient for taxpayers.

Taxpayers can avoid the rush by always keeping copies of their tax returns, generally for the past three to six years depending on the type of return filed. Alternatively, taxpayers may try to locate their 2016 tax return from their previous year’s tax preparation software or tax return preparer. Or, they may use online tools to access their tax transcript.

The electronic signature is the way the taxpayer acknowledges that information on the tax return is true and accurate. Validating the electronic signature by using prior-year adjusted gross income is one way the IRS, state tax agencies and the tax industry work to protect taxpayers from identity thieves.

Generally, for returning users, the tax software product will carry over the prior-year information and make for an easy, seamless validation process. However, taxpayers using a new tax software product for the first time may be required to enter the information manually.

Here’s the way the electronic signature and signature validation work:

  • Taxpayers sign their returns electronically by creating a four-digit Personal Identification Number (PIN), also known as a Self-Select PIN. To validate that e-signature PIN, taxpayers must enter their birthdates and either their adjusted gross income from the prior-year return or the prior-year Self-Select PIN.
  • If taxpayers have kept a copy of their prior-year tax return, completing this task is easy. On the 2016 tax return, the Adjusted Gross Income (AGI) is on line 37 of Form 1040; line 21 on Form 1040-A; or line 4 on Form 1040-EZ.
  • If a copy of their 2016 tax return is not available, taxpayers may be able to obtain a copy from their previous year’s tax preparation software or previous tax preparer.
  • Taxpayers may also obtain a tax transcript online from the IRS.
    • Use Get Transcript Online to immediately view the AGI. Taxpayers must pass the Secure Access identity verification process. Select the Tax Return Transcript and use only the “Adjusted Gross Income” line entry.
    • Use Get Transcript by Mail or call 800-908-9946. Taxpayers who fail Secure Access and need to request a Tax Return Transcript can use the mail option.  Allow 5 to 10 days for delivery. Use only the “Adjusted Gross Income” line entry.

Taxpayers who have been issued an Identity Protection (IP) PIN should enter it when prompted for an IP PIN by the software. The IP PIN will serve to verify the taxpayer’s identity. If the taxpayer has never filed a tax return before and is age 16, enter zero as the AGI.

As the IRS, state tax agencies and the tax industry have made progress against tax-related identity theft as part of the Security Summit effort, cybercriminals try to steal more personal information to file fraudulent tax returns. They know that just stealing a name, address and Social Security number is not enough information to commit tax fraud.

This is one reason why some states in recent years have required taxpayers to enter their driver’s license number on electronically-filed tax returns. States can match taxpayers to the driver’s license database and help validate the return.

Many software companies, working in conjunction with state authorities, require taxpayers to answer the request for a driver’s license number in one of three ways: 1) provide the information as requested, 2) indicate that the taxpayer lacks a driver’s license or state-issued photo ID, or 3) indicate that the taxpayer chooses not to provide the information. Taxpayers must complete the field with one of these three answers.

The IRS does not require a driver’s license number on a federal tax return.

When taxpayers or tax professionals are prompted for additional information, such as a driver’s license number, providing this detail will help stop tax-related identity theft. Identity validation and identity proofing are keys to ensuring that refunds go only to the legitimate taxpayer.

Feb

15

Identity Theft

By Bill

Identity Theft

IR-2018-21, Feb. 8, 2018

WASHINGTON –The Internal Revenue Service today announced steep declines in tax-related identity theft in 2017, attributing the success to the Security Summit initiatives that help safeguard the nation’s taxpayers.

Key indicators of identity theft dropped for the second year in a row in 2017. This includes a 40 percent decline in taxpayers reporting they are victims of identity theft in 2016. Since 2015, the number of tax-related identity theft victims has fallen by almost two-thirds and billions of dollars of taxpayer refunds have been protected.

“These dramatic declines reflect the continuing success of the Security Summit effort,” said Acting IRS Commissioner David Kautter. “This partnership between the IRS, states and the tax community is helping protect taxpayers against identity theft. More work remains in this effort, and we look forward to continuing this collaborative effort to fight identity theft and refund fraud.”

The Internal Revenue Service, state tax agencies and the tax industry have started their third filing season working as the Security Summit, a private-public sector partnership formed in 2015 to combat identity theft. Summit partners have put in place multiple behind-the-scenes safeguards that are helping protect the nation’s taxpayers.
Because the IRS and Summit partners have stepped up efforts to stop suspected fraudulent returns from entering tax processing systems, there continues to be a substantial decline in the number of taxpayers reporting that they are victims of identity theft.

Here are key calendar-year 2017 indicators:

  • The number of taxpayers reporting to the IRS that they are victims of identity theft continued its major decline. In 2017, the IRS received 242,000 reports from taxpayers compared to 401,000 in 2016 – a 40 percent decline. This was the second year in a row this number fell, dropping from the 677,000 victim reports in 2015. Overall, the number of identity theft victims has fallen nearly 65 percent between 2015 and 2017.
  • The number of tax returns with confirmed identity theft declined to 597,000 in 2017, compared to 883,000 in 2016 – a 32 percent decline. The amount of refunds protected from those fraudulent returns was $6 billion in 2017, compared to $6.4 billion in 2016. In 2015, there were 1.4 million confirmed identity theft returns totaling $8.7 billion in refunds protected. Overall during the 2015-2017 period, the number of confirmed identity theft tax returns fell by 57 percent with more than $20 billion in taxpayer refunds being protected.
  • The financial industry is a key partner in fighting identity theft, helping the IRS recover fraudulent refunds that may have been issued. In 2017, banks recovered 144,000 refunds compared to 124,000 in 2016 – a 16 percent increase. The amount of refunds recovered was $204 million in 2017, compared to $281 million in 2016. In 2015, the financial industry recovered 249,000 refunds totaling $852 million.
  • In addition to these steep declines, the IRS also is continues reducing the year-over-year inventory backlog of taxpayers who file identity theft reports. For fiscal year 2017, the beginning inventory of identity theft reports submitted by taxpayers was approximately 34,000, under 10 percent of the fiscal year 2013 beginning inventory of 372,000 taxpayer identity theft cases.

These declines follow extensive Summit education efforts in 2017. The Summit partnership conducted awareness campaigns for tax professionals – Don’t Take the Bait – and for taxpayers – National Tax Security Awareness Week  – because everyone has a role in fighting against identity theft.

Cybercriminals Looking for New Lines of Attack

Last year, multiple data breaches from outside the tax system means cybercriminals have basic information on millions of Americans, such as names, Social Security numbers and addresses. The steps taken by the Summit partners since 2015 help protect against fraudulent tax filings that use this basic data. As the IRS and Summit partners have strengthened their defenses, identity thieves are looking to steal more detailed financial information to help provide a more detailed, realistic tax return to better impersonate legitimate taxpayers. Because they need more personal data, cyberthieves increasingly are targeting tax professionals, human resource departments, businesses and other places that have large amounts of sensitive financial information. The IRS continues to see a number of these schemes in attempts to get taxpayer W-2 information from tax professionals and employers.

Everyone must be vigilant and alert. Both taxpayers and tax professionals are encouraged to:

  • Use Security Software. Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files, such as tax records, stored on computers. Use strong, unique passwords for each account.
  • Watch out for scams. Learn to recognize and avoid phishing emails, threatening calls and texts from thieves posing as legitimate organizations such as banks, credit card companies and even the IRS or a tax software firm. Do not click on links or download attachments from unknown or suspicious emails.
  • Protect personal data. Don’t routinely carry Social Security cards and make sure tax records are secure. Shop at reputable online retailers. Treat personal information like cash; don’t leave it lying around.

For more information, see www.irs.gov/identitytheft.