Tell-Tale Signs Of an IRS Scam

I know I sound like a broken record, but it’s important to be vigilant in recognizing scammers who claim to be from the IRS. As per the IRS:

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. The IRS will usually first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

Yikes– Yet Another Scam Involving IRS Impersonators

Now the scammers are sending bogus certified letters claiming to be the IRS. Please, please, please, don’t respond to these without checking the authenticity. If you’re not sure, call your tax professional. Per the IRS:

IRS Warns of New Phone Scam Involving Bogus Certified Letters; Reminds People to Remain Vigilant Against Scams, Schemes this Summer

WASHINGTON – The Internal Revenue Service today warned people to beware of a new scam linked to the Electronic Federal Tax Payment System (EFTPS), where fraudsters call to demand an immediate tax payment through a prepaid debit card. This scam is being reported across the country, so taxpayers should be alert to the details.

In the latest twist, the scammer claims to be from the IRS and tells the victim about two certified letters purportedly sent to the taxpayer in the mail but returned as undeliverable. The scam artist then threatens arrest if a payment is not made through a prepaid debit card. The scammer also tells the victim that the card is linked to the EFTPS system when, in fact, it is entirely controlled by the scammer. The victim is also warned not to contact their tax preparer, an attorney or their local IRS office until after the tax payment is made.

“This is a new twist to an old scam,” said IRS Commissioner John Koskinen. “Just because tax season is over, scams and schemes do not take the summer off. People should stay vigilant against IRS impersonation scams. People should remember that the first contact they receive from IRS will not be through a random, threatening phone call.”

EFTPS is an automated system for paying federal taxes electronically using the Internet or by phone using the EFTPS Voice Response System. EFTPS is offered free by the U.S. Department of Treasury and does not require the purchase of a prepaid debit card. Since EFTPS is an automated system, taxpayers won’t receive a call from the IRS. In addition, taxpayers have several options for paying a real tax bill and are not required to use a specific one.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

  • Do not give out any information. Hang up immediately.
  • Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on Please add “IRS Telephone Scam” in the notes.

For anyone who owes tax or thinks they do:

The IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds. For more information, visit the “Tax Scams and Consumer Alerts” page on Additional information about tax scams is available on IRS social media sites, including YouTube videos.

IRS Notices and Correspondence Audits

Due to the Internal Revenue Service’s shrinking resources (coupled with the possibility of future budget cuts), audits of individual tax returns fell to a 10-year low of just 0.7%. In addition to directing more and more of their everyday questions and functions (such as paying your taxes) to their website (, the IRS will be relying more on “Correspondence Examinations (or audits).”

Basically an “audit by mail,” they are more efficient and automated than the standard office audit AND consume far fewer IRS resources. That being said, we may expect the individual audit rates to increase, especially after they’ve implemented the “Taxpayer Digital Communications” pilot program, which will further automate the audit process (still in the infant stages).

Items usually selected for Correspondence Exams are usually the Earned Income Tax Credit, Schedule A, C, E, F and Form 2106 (Employee Business Expenses). I hate repeating myself, but again, the IRS will NEVER initiate contact by phone– only by mail!

How does the IRS analyze returns for a potential audit? 1) Results of prior audits (i.e., are you making the same errors you did before?); 2) Third party information returns (W-2, 1099s, etc.) don’t match with your return; 3) Certain entries on the return “pop” by being too high/low and then require substantiation.

Correspondence audits are generally far less extensive than office or field audits and usually just focus on specific items on your return, like substantiating employee business expenses,  providing documentation for charitable contributions, providing backup for the vehicle expense deduction, or providing school records for the education credit. Most of the time, it’s just a matter of mailing or faxing (but NOT both!) the required backup.

So, what should you do if you receive an IRS notice by mail? My first piece of advice is DO NOT THROW IT AWAY! Ignoring it will only make the problem worse. Let your tax professional know about the notice, and he/she will either handle it for you or tell you what to do.  The most important tip from IRS auditors? Respond to these notices in a timely manner! Usually they require a response within 30 days of the notice, but you can always request additional time to put together your response (very easy to do so). Also, if you’re going to mail the requested documentation, NEVER mail originals– always mail photocopies.



Employee or Independent Contractor? Know the Rules

If you’re not sure how to classify your new hire– whether Employee or Independent Contractor, the IRS  lists these rules:

The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:

  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss

2. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:

  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company
  • The extent to which the worker has unreimbursed business expenses

The IRS can help employers determine the status of their workers by using form Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. IRS Publication 15-A, Employer’s Supplemental Tax Guide, is also an excellent resource.

NOTE: If you have deemed the new hire to be an Independent Contractor, make sure you have he or she sign an Independent Contractor agreement listing and agreeing to all the specifics. That way, there are no issues in the future.

Sole Proprietor? Hire Your Kids!

If you’re a Schedule C Sole Proprietor and are looking for some extra help, think about hiring your own kids. If you have minor-age children (17 and under), you can add them to your payroll without having to pay the employer payroll taxes or Workers Compensation. In addition, if they earn under the Standard Deduction ($6,350 in 2017), and they are your dependent, they won’t have a tax liability. The kicker here is that your business gets to deduct your kids’ payroll, and your kids don’t have to pay taxes on the money earned (as long as it stays under the Standard Deduction).

You still have to treat them like any other employee– have them fill out a time card, pay them via payroll and issue them a Form W-2 at year-end.

If you do this correctly, it’s a great way to put away funds for college, as well as teach your children responsibility and important skills.


Tax E.R. : To Extension– Or Not To Extension?

As we’re just a few days away from the April 18 deadline for filing tax returns, and both taxpayers and tax preparers are gearing up for the final showdown, I am asked “what’s wrong with just filing an extension?” Unless your tax firm shuts down after the April deadline, my response to the extension question is “Why not?”

Let me preface this by saying that an extension, which will give you until October 15 to file your tax return, is NOT an extension to pay your taxes. If you believe you owe taxes, pay them by April 18, or you will incur penalties and interest. With that out of the way, I personally LOVE extensions. Here are some of the advantages:

  1. You now have more time to gather your tax documents. If you’re missing a document, you can take your time retrieving it to ensure that you’re reporting the correct amounts on the tax return. Rushing to estimate certain amounts can risk reporting incorrect numbers (and possibly inviting an IRS notice).
  2. You also have more time to come up with tax-saving deductions. I can’t tell you the amount of time a tax client left out charitable deductions, Vehicle License Fees, additional property taxes, etc., simply because they ran out of time to pull up those numbers! It’s even more important if you’re a business owner or landlord. An extension gives you time to go through your calendar to make sure you’re not missing tax-deductible mileage, meals or travel expenses.
  3. If you have investments in securities, like mutual funds, stocks, etc., it is NOT uncommon for the financial adviser to issue an amended 1099– sometimes as late as mid-March or later. If your investments include Limited Partnerships, your K-1 forms may not even come in until April or May, so in those cases, you don’t have a choice but to file an extension. Nothing is more frustrating (and costly) than receiving an amended 1099 AFTER you’ve filed your return. Then you have to pay your tax preparer to file an amended return.
  4. After the crunch season, your tax professional will be more relaxed and will be able to spend more time on your return. That reduces the possibility of error, as well as increase the possibility of finding more deductions (and of course, reducing your taxes).
  5. And finally, after tax season is when we tax accountants like to take our continuing education classes and attend various tax law and strategy seminars to maintain our licenses. I know after I return from a tax seminar, I am totally pumped, excited and ready to take on whatever new tax challenge the client brings before me!

A tax extension is NOT a bad word, or an admission of failure. If you need more time to make sure your tax return is accurate, complete, and that you only pay the taxes you’re legally obligated to pay, then “Extend On!”

Six Tax Tips for the Self-Employed

Self-employed taxpayers normally earn income by carrying on a trade or business. Here are six important tips from the IRS for the self-employed:

  • Self-Employed Taxpayers. Sole proprietors and independent contractors are two types of self-employment. Taxes can be complex for the self-employed. Check out the IRS Self Employed Individuals Tax Center.
  • Estimated Tax. Self-employed taxpayers generally need to make quarterly estimated tax payments. IRS Publication 505, Tax Withholding and Estimated Tax, has details on making those payments.
  • Schedule C or C-EZ. Self-employed taxpayers must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040. For expenses less than $5,000, use Schedule C-EZ. Each form’s instructions provide the rules for which form to use.
  • SE Tax. For those making a profit, self-employment and income tax may need to be paid. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax.
  • Allowable Deductions. Taxpayers can deduct expenses paid to run a business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and proper for a trade or business.
  • When to Deduct. In most cases, taxpayers can deduct expenses in the year paid or incurred. Some costs must be ‘capitalized,’ however. This means deducting the cost over a number of years.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity.