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Issue Number: IR-2012-13
Inside This Issue
Identity Theft Crackdown Sweeps Across the Nation; More than 200 Actions Taken in Past Week in 23 States
WASHINGTON – The Internal Revenue Service and the Justice Department today announced the results of a massive national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.
Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states. The coast-to-coast effort took place over the last week and included indictments, arrests and the execution of search warrants involving the potential theft of thousands of identities and taxpayer refunds. In all, 939 criminal charges are included in the 69 indictments and informations related to identity theft.
In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past week. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.
“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”
“The Justice Department is working closely with the IRS to investigate, prosecute, and punish tax refund crimes committed through the theft of identities,” said Principal Deputy Assistant Attorney General John A. DiCicco of the Tax Division. “Now, more than ever, we must remain vigilant against the unauthorized use of identification information to defraud the U.S. government.”
The national effort is part of a comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.
The law-enforcement sweep started last week across the country, reflecting investigative efforts stretching back months and even years.
The nationwide effort by the Justice Department and the IRS led to actions taking place in 23 locations across the country with 105 individuals. The actions included 80 complaints/indictments and informations, 58 arrests, 19 search warrants, 10 guilty pleas and four sentencings. A map of the locations and additional details on the actions are available on IRS.gov, the IRS Civil and Criminal Actions page and the Department of Justice Tax Division page.
Beyond the criminal actions, the IRS enforcement personnel conducted a special sweep last week and on Monday to visit 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk places identified by the IRS covering areas in and surrounding Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.
In addition, the IRS has more than 250 check-cashing operations under audit across the country and will be looking for indicators of identity theft as part of the exam effort.
The information from these audits and compliance visits will be used to assist continuing IRS investigations into refund fraud and identity theft.
The IRS also is taking a number of additional steps this tax season to prevent identity theft and detect refund fraud before it occurs. These efforts includes designing new identity theft screening filters that will improve the IRS’s ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.
To help taxpayers, the IRS earlier this month created a new, special section on IRS.gov dedicated to identity theft matters, including YouTube videos, tips for taxpayers and a special guide to assistance. The information includes how to contact the IRS Identity Protection Specialized Unit and tips to protect against “phishing” schemes that can lead to identity theft.
Identity theft occurs when someone uses another’s personal information without their permission to commit fraud or other crimes using the victim’s name, Social Security number or other identifying information. When it comes to federal taxes, taxpayers may not be aware they have become victims of identity theft until they receive a letter from the IRS stating more than one tax return was filed with their information or that IRS records show wages from an employer the taxpayer has not worked for in the past.
If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.
IRS Releases Guidance on Foreign Financial Asset Reporting
WASHINGTON—The Internal Revenue Service in coming days will release a new information reporting form that taxpayers will use starting this coming tax filing season to report specified foreign financial assets for tax year 2011.
Form 8938 (Statement of Specified Foreign Financial Assets) will be filed by taxpayers with specific types and amounts of foreign financial assets or foreign accounts. It is important for taxpayers to determine whether they are subject to this new requirement because the law imposes significant penalties for failing to comply.
The Form 8938 filing requirement was enacted in 2010 to improve tax compliance by U.S. taxpayers with offshore financial accounts. Individuals who may have to file Form 8938 are U.S. citizens and residents, nonresidents who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory.
Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would not file Form 8938 unless their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
The thresholds for taxpayers who reside abroad are higher. For example in this case, a married couple residing abroad and filing a joint return would not file Form 8938 unless the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
Instructions for Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.
Form 8938 is not required of individuals who do not have an income tax return filing requirement.
The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR (Report of Foreign Bank and Financial Accounts). For more go to the FBAR page on this website.
Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40 percent penalty on any understatement of tax attributable to non-disclosed assets can also be imposed. Special statute of limitation rules apply to Form 8938, which are also explained in the instructions.
Form 8938, the form’s instructions, regulations implementing this new foreign asset reporting, and other information to help taxpayers determine if they are required to file Form 8938 can be found on the FATCA page of irs.gov.
See TD 9567.
IRS Offers Tips for Year-End Giving
WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
• And, as always it’s important to keep good records and receipts.
IRS.gov has Additional information on charitable giving including:
• Charities & Non-Profits
• Publication 526, Charitable Contributions.
• On-line mini-course, Can I Deduct My Charitable Contributions?
December 5, 2011
Health Care Coverage Now Reported on your 2011 W-2s is not taxable
The Affordable Care Act indicates that employers are now required to report the cost of employer-sponsored group health plan coverage on the Form W-2, Wage and Tax Statement. This new reporting requirement is for information only, to inform you about the cost of your health coverage. It does not mean that your employer-provided health care coverage is now subject to tax.
Some employers will report the cost in Box 12 of your 2011 Form W-2 using Code DD. However, some employees may not see it yet since many employers are under “transition relief” and aren’t required to report this amount on the W-2 until further notice from IRS. One of the forms of relief is specifically for smaller employers. Any employer that files fewer than 250 Forms W-2 for 2011 (generally furnished in 2012) will not be subject to this requirement for 2012.
In news release IR 2011-31, the IRS issued interim guidance Notice 2011-28, that explained which employers are eligible for relief and how the informational reporting should be performed by employers subject to the requirement. The IRS is also requesting comments on this interim guidance.
Notice 2010-69, issued last fall, made this requirement optional for all employers for the 2011 Forms W-2 (generally furnished to employees in January 2012).
You can see more information about this W-2 reporting and about other tax provisions in the Affordable Care Act on the ACA pages of IRS.gov.
The Adoption Tax Credit helps you with qualified adoption expenses
If you adopted a child in 2011, you may be eligible for the Adoption Tax Credit. The Affordable Care Act raised the maximum adoption credit to $13,360 per child in 2011. The credit is refundable, meaning that, if eligible, you can get it even if you don’t owe tax for the year.
The Adoption Tax Credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. If your modified adjusted gross income was more than $185,210 in 2011, you may not qualify for the full amount. The credit phases out completely if you earned more than $225,210.
If you adopted a special needs child, you may qualify for the full amount of the adoption tax credit even if you paid few or no adoption-related expenses.
How to claim the Adoption Tax Credit
If you are claiming the Adoption Tax Credit, you must:
• File a paper tax return, not one filed electronically.
• Complete and attach a Form 8839, Qualified Adoption Expenses, to your return.
See the instructions for Form 8839 to learn more. Remember, if you are claiming the credit, you will have to file a paper tax return.
Don’t delay your adoption tax credit. Attach the required documents and Form 8839 when you file your paper tax return.
The adoption credit, at up to $13,360 per child, is the largest refundable tax credit available to individual taxpayers. Don’t delay your adoption credit refund by failing to include your required adoption related documents and Form 8839 with your tax return.
It is necessary for the IRS to review your documents submitted with your Form 8839, therefore, it could take approximately six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached.
The IRS appreciates your assistance in providing the documentation needed to protect this important credit to ensure only those who qualify receive it.
Retirement contributions may qualify you for the Saver’s Credit
Did you know that you may qualify for the Saver’s Credit of up to $1,000 ($2,000 if filing jointly) for making eligible contributions to an employer-sponsored retirement plan or an individual retirement arrangement (IRA)? Unlike a deduction, a credit is a dollar-for-dollar reduction of your federal income tax liability and can reduce the amount you owe or increase your federal income tax refund!
Are you eligible for the credit?
To claim the Saver’s Credit, you must be:
1. Age 18 or older;
2. Not a full-time student;
3. Not claimed as a dependent on another person’s return; and
4. With an adjusted gross income of not more than:
• $56,500 if your filing status is married filing jointly (for 2011; $57,500 for 2012),
• $42,375 if your filing status is head of household (for 2011; $43,125 for 2012), or
• $28,250 if your filing status is single, married filing separately, or qualifying widow(er) (for 2011; $28,750 for 2012).
Are your contributions eligible for the credit?
Eligible contributions include:
1. contributions to a traditional or Roth IRA, and
2. salary reduction contributions (including voluntary after-tax and designated Roth contributions) to most employer-sponsored retirement plans.
Rollover contributions aren’t eligible for the Saver’s Credit, and your eligible contributions for the credit may be reduced by any recent distributions you received from an employer-sponsored retirement plan or an IRA.
Amount of the credit
The amount of the credit you can get is based on the contributions you make and your credit rate. Your credit rate can be as low as 10% or as high as 50%, depending on your income and your filing status.
Remember to complete Form 8880, Credit for Qualified Retirement Savings Contributions, to determine if you qualify for the Saver’s Credit on your 2011 tax return and plan ahead to claim the credit on your 2012 tax return. ___________________________________________________________________________________________