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Federal Tax

IRS Announces “Get Transcript” Application Breach

The IRS announced on Tuesday that identity thieves were able to access tax transcript information of more than 100,000 tax accounts through their “Get Transcript” application. Prior knowledge of personal information allowed the criminals to pass a multi-step authentication process to access the tax transcripts. The IRS believes approximately 200,000 attempts to access transcript information were made in total from “questionable e-mail domains” starting in February and ending in mid-May, with more than 100,000 gaining access.


The IRS has temporarily disabled the “Get Transcript” application. They also plan to contact via mail those 200,000 taxpayers whose accounts the criminals had attempted access. For those 100,000 accounts that were successfully accessed, the IRS will be offering free credit monitoring. The letters to those affected are set to be mailed later this week.


You can read the full IRS statement here

 

Reverse Rollover: A Bridge over the Backdoor Roth Trapdoor

Much has been written about the benefits of Roth versus Traditional IRAs, and over the past several
 years a popular “backdoor Roth” conversion has made headlines as well. As a refresher, this method allows high-income taxpayers, who are excluded from making direct contributions to Roth IRAs, the ability to make non-deductible contributions to a Traditional IRA, and then immediately convert that amount to a Roth. The net effect, ideally, is minimal tax on any earnings between the date of contribution and the conversion, and years of tax-free growth in a Roth account moving forward. This is especially beneficial for young people who can benefit from growth over time, and can avoid theoretically higher tax rates in the future when distributions may be taken. Furthermore, required minimum distributions do not apply to Roth accounts.

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On the surface, there doesn’t appear to be much downside. However, many taxpayers found out the hard way that there can be significant tax implications if other IRAs exist at the time of conversion. This is true because the IRS considers the value of all IRA assets at the time of conversion. For instance, if you had a Traditional IRA account with pre-tax assets of $544,500, made a $5,500 non-deductible IRA contribution and then immediately converted that $5,500 to a Roth account, 99% (or $5,445) would be taxable. In addition to creating an unintended tax liability, it also creates an administrative burden to track the amount on which tax has already been paid.

New Applicable Federal Rates Released for April by IRS

Each month, the IRS provides various prescribed rates for federal income tax purposes. These rates, known as Applicable Federal Rates (AFRs), are regularly published as revenue rulings.

The AFRs for April 2015 are as follows:

 

Annual Semi-Annual Quarterly Monthly
Short-Term: 1-3 years 0.48% 0.48% 0.48% 0.48%
Mid-Term: >3 & up to 9 years 1.70% 1.69% 1.69% 1.68%
Long-Term: >9 years 2.47% 2.45% 2.44% 2.44%

Precise Record Keeping Required on all Charitable Contributions

There have recently been a series of cases decided by the Tax Courts disallowing charitable contributions due to a lack of proper documentation about them. The rules here (under Code Section 170(f)(8)) are precise and strict:

  • Contributions of $250 or more must be supported by a written acknowledgement from the recipient organization dated prior to your return filing that states the amount of cash contributed and/or a description of any property other than cash,
  • A statement of whether or not the recipient provided any goods or services in consideration of the donation and if so an estimate of their value.

The IRS Dirty Dozen: Unscrupulous Tax Preparers

Posting by John Merchant

The Internal Revenue Service (IRS) has released its annual “dirty dozen” for 2015. The annual dirty dozen are the top twelve tax related scams that IRS has found are being perpetrated on unsuspecting victims each year. Once again, Unscrupulous Tax Preparers are on the list. The IRS reports that approximately 60% of all taxpayers use a paid preparer. While IRS acknowledges that most preparers provide very good service, every year there are some that run scams to defraud the government or to cheat their clients. Either way, the results can be devastating as these scams can lead to financial loss or even criminal prosecution for the taxpayer.

The unscrupulous preparers take advantage of honest taxpayers in several ways. Some promise large refunds and then take unallowable deductions to achieve their goal. Others prepare tax returns through April 15th and then simply disappear, leaving no one to help the taxpayer if the IRS questions the return. A few advertise themselves as licensed tax preparers when, in fact, they have no license and no training or background in tax law or tax return preparation.

The IRS offers several tips to taxpayers. These include:

  • Avoid preparers that base their fee on the size of your refund.
  • Always have any refund sent to you, not to the preparer.
  • Review your return carefully and make sure that you agree with amounts reported.
  • Make sure that the preparer signs your return and includes their Preparer Tax identification Number (PTIN).

For a complete list of IRS tips to taxpayers, go to www.irs.gov. Remember, even if you use a paid preparer, you are still responsible for the accuracy of your tax return. Choose your preparer carefully.

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