Thursday, November 30, 2017

W-2 Scam to get employee data

National Tax Security Awareness Week: Thieves Use W-2 Scam to get Employee Data
The IRS warns the nation’s business, payroll and human resource communities about a growing W-2 email scam. Criminals use this scheme to gain access to W-2 and other sensitive tax information that employers have about their employees.
This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies, the tax industry and groups across the country to remind people about the importance of data protection.
This W-2 scam puts workers at risk for tax-related identity theft. The IRS recommends that all employers educate employees about this scheme, especially those in human resources and payroll departments. These employees are usually the first targets. Here are five warning signs about the W-2 scam:
  • The thief poses as a company executive, school official or other leader in the organization.
  • These scam emails often start with a simple greeting. It can be something like, “Hey, you in today?”
  • The crook sends an email to one employee with payroll access. The sender requests a list of all employees and their Forms W-2. The thief may even specify the format in which they want the information.
  • The thieves use many different subject lines. The criminal might use words like “review,” “manual review” or “request.” In some cases, the thief may send a follow up email asking for a wire transfer.
  • Because payroll officials believe they are corresponding with an executive, it may take weeks for someone to realize a data theft occurred. The criminals usually try to use the information quickly, sometimes filing fraudulent tax returns within a day or two.
This scam is such a threat to taxpayers and to tax administration that a special IRS reporting process has been set up. Anyone who thinks they were a victim of this scam can visit Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers to find out how to report it.

Tuesday, November 28, 2017

Phising Emails and how to be secure

National Tax Security Awareness Week No. 2: Don’t Take the Bait; Avoid Phishing Emails by Data Thieves
WASHINGTON – With the approach of the holidays and the 2018 filing season, the IRS, state tax agencies and the nation’s tax industry urge people to be on the lookout for new, sophisticated email phishing scams that could endanger their personal information and next year’s tax refund.
The most common way for cybercriminals to steal bank account information, passwords, credit cards or Social Security numbers is to simply ask for them. Every day, people fall victim to phishing scams that cost them their time and their money.
Those emails urgently warning users to update their online financial accounts – they’re fake. That email directing users to download a document from a cloud-storage provider? Fake. Those other emails suggesting the recipients have a $64 tax refund waiting at the IRS or that the IRS needs information about  insurance policies – also fake. So are many new and evolving variations of these schemes.
The Internal Revenue Service, state tax agencies and the tax community -- partners in the Security Summit -- are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. In part two, the topic is avoiding phishing scams.
Phishing attacks use email or malicious websites to solicit personal, tax or financial information by posing as a trustworthy organization. Often, recipients are fooled into believing the phishing communication is from someone they trust. A scam artist may take advantage of knowledge gained from online research and earlier attempts to masquerade as a legitimate source, including presenting the look and feel of authentic communications, such as using an official logo. These targeted messages can trick even the most cautious person into taking action that may compromise sensitive data.   The scams may contain emails with hyperlinks that take users to a fake site. Other versions contain PDF attachments that may download malware or viruses.
Some phishing emails will appear to come from a business colleague, friend or relative. These emails might be an email account compromise. Criminals may have compromised your friend’s email account and begin using their email contacts to send phishing emails.
Not all phishing attempts are emails – some are phone scams. One of the most common phone scams is the caller pretending to be from the IRS and threatening the taxpayer with a lawsuit or with arrest if payment is not made immediately, usually through a debit card.
Phishing attacks, especially online phishing scams, are popular with criminals because there is no fool-proof technology to defend against them. Users are the main defense. When users see a phishing scam, they should ensure they don’t take the bait.
Here are a few steps to take:
  • Be vigilant; be skeptical. Never open a link or attachment from an unknown or suspicious source. Even if the email is from a known source, approach with caution. Cybercrooks are adept at mimicking trusted businesses, friends and family. Thieves may have compromised a friend’s email address or they may be spoofing the address with a slight change in text, such as vs In the latter, merely changing the “m” to an “r” and “n” can trick people.
  • Remember, the IRS doesn't initiate spontaneous contact with taxpayers by email to request personal or financial information. This includes text messages and social media channels. The IRS does not call taxpayers with threats of lawsuits or arrests. No legitimate business or organization will ask for sensitive financial information via email. When in doubt, don’t use hyperlinks and go directly to the source’s main web page.
  • Use security software to protect against malware and viruses. Some security software can help identity suspicious websites that are used by cybercriminals.
  • Use strong passwords to protect online accounts. Each account should have a unique password. Use a password manager if necessary. Criminals count on people using the same password repeatedly, giving crooks access to multiple accounts if they steal a password. Experts recommend a password have a minimum of 10 digits, including letters, numbers and special characters. Longer is better.
  • Use multi-factor authentication when offered. Some online financial institutions, email providers and social media sites offer multi-factor protection for customers. Two-factor authentication means that in addition to entering your username and password, you must enter a security code generally sent as a text to your mobile phone. Even if a thief manages to steal usernames and passwords, it’s unlikely the crook would also have a victim’s phone.
The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect taxpayers. Everyone can help. Visit the “Taxes. Security. Together.” awareness campaign or review IRS Publication 4524, Security Awareness for Taxpayers, to learn more.

Bitcoin and taxes

Tax preparers may by now have encountered clients' transactions involving bitcoin, ethereum, and other virtual currencies. What they might just be beginning to see are clients day-trading these currencies. Recent price swings have attracted interest among retail investors—and definitely the IRS's. In fact, the IRS has sued one of the largest third-party exchanges, Coinbase, for customer information to find underreported income (Coinbase, No. 17-cv-01431-JSC (N.D. Cal. 11/17/16) (ex parte petition filed)). Despite its enforcement measures in this area, the IRS has not provided comprehensive guidance for tax reporting of virtual currency trading. It did provide some general guidance in April 2014 in Notice 2014-21 (see also "Tax Practice Corner: What Tax Preparers Need to Know About Digital Currency, JofA, June 2014, and "Technology Q&A: Digital Money: A Bit About Bitcoin," JofA, March 2016).


According to the notice, stocks and virtual currencies are taxed the same when held as capital assets by the taxpayer. Virtual currencies are characterized as property rather than as currency for tax purposes. The IRS considers a virtual currency not to be a real currency, even though it acts like one. For example, bitcoin is a storer of value, a unit of account, and a medium of exchange, but it has no physical form and is not legal tender in any jurisdiction.
More importantly, the IRS is interested in virtual currencies that are convertible. Some virtual currencies can be traded only inside a closed world, such as tokens inside the game of Pokémon Go. Other virtual currencies, like bitcoin and ethereum, can also be traded in an open world, such as on a third-party exchange like Coinbase and its platform for speculative trading, GDAX, and can be transformed into real currencies, services, or goods.
There can be tax consequences for the trader in convertible virtual currencies. For example, a sale of bitcoin for dollars creates a tax event and a possible tax liability. Taxable gains or losses for virtual currencies are determined, in part, by using the exchange rate quoted on the third-party exchange, given that the rate is determined by market demand and supply.


For the tax preparer, determining taxable gain or loss for clients trading virtual currencies is similar to that for stocks. As stated by the IRS, there will be gains or losses when the fair market value of the virtual currency sold is greater or less than its adjusted basis. While stock trading occurs in a brokerage account, virtual currencies trade within "wallets," which reside either with the third-party exchange or on the trader's electronic device.
Example 1: On June 17, 2017, one bitcoin is purchased for $2,664, and it is sold on Aug. 6, 2017, for $3,322. The gain of $658 ($3,322 — $2,664) is short-term capital gain.
Rather than converting virtual currency into dollars, their holders can exchange them for other virtual currencies, which is not possible for stocks. Per the IRS notice, the taxpayer can recognize a gain or loss when virtual currency is exchanged for another virtual currency. This means the trader could owe a tax liability but have no real currency to pay it with.
Example 2: Assume the same facts as Example 1, except the one bitcoin is exchanged for ethereum. Also assume the bitcoin—ethereum exchange rate is 1 bitcoin (BTC) = 12.3214 ethereum (ETH) and that the ETH—dollar exchange rate is 1 ETH = $268.49. The trader has a dollar value of $3,308 in ethereum and a taxable gain of $644 ($3,308 — $2,664).
Taxable gains from exchanges of virtual currencies could be delayed if the like-kind exchange rules under Sec. 1031(a)(1) apply. They do not apply to stocks (Sec. 1031(a)(2)), but it remains unclear whether they might apply to virtual currencies. The AICPA has requested that the IRS clarify "if there are particular factors that distinguish one virtual currency as like-kind to another virtual currency for section 1031 purposes" (AICPA Comments on Notice 2014-21, June 10, 2016).


Beginning in 2011, third-party reporting of cost basis from certain securities began under Sec. 6045(g). However, unlike stocks, virtual currencies are not "specified securities" and thus lack tax guidance that would ease tax accounting and reporting of basis in trades. Without third-party reporting, it falls upon tax return preparers to summarize and report their clients' virtual currency transactions. (However, Notice 2014-21 notes that a Form 1099-K, Payment Card and Third Party Network Transactions, may be issued for payments made in settlement of reportable payment transactions, including those made by virtual currency.)
Under the cost-basis rules, stock traders can use the default method of first in, first out to match purchases and sales of stocks (Regs. Sec. 1.1012-1(c)). In addition, taxpayers may elect other methods of tracing basis of stock shares to find the most tax-efficient accounting method (Regs. Sec. 1.1012-1(e)(2)(i)). Unfortunately, none of the alternative methods is available for bitcoin or ethereum, since virtual currencies are not characterized as stock. Thus, return preparers must be aware of the accounting method used by third-party exchanges when they report virtual currency transactions to customers.


With bitcoin futures, however, virtual currencies will soon be more similar to stocks. By the end of 2017, the Chicago Board Options Exchange reportedly will launch bitcoin futures. Trading bitcoin futures, rather than actual bitcoins, could eliminate the unfavorable tax consequences associated with trading virtual currencies. Under certain circumstances, futures taxed as Sec. 1256 contracts receive a favorable tax treatment, where 60% of the gain is taxed as long-term capital gain and the remainder is taxed as short-term capital gain (Sec. 1256(a)(3)).
Due to their novelty, bitcoin futures' tax characterization is uncertain at this point. But if taxed as Sec. 1256 contracts, then bitcoin futures would also simplify tax reporting for traders. Sec. 1256 contracts are subject to a mark-to-market regime, where open contracts are marked to their market price at the end of the year (Sec. 1256(a)(1)). The profits and losses from these open contracts, along with the closed or completed contracts, are reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions (Regs. Sec. 1.6045-1(c)(5)(i)).


Due to recent price highs and swings, tax preparers may have clients who are trading virtual currencies and for whom preparers should consider the following for the upcoming tax season:
  • Ask on the year-end tax organizer whether there were any virtual currency transactions, especially trading.
  • Report virtual currency trades on Form 8949, Sales and Other Dispositions of Capital Assets.
  • Confirm the accounting method used by third-party exchanges for reporting virtual currency transactions.
  • Discuss with clients who trade virtual currencies the limitations of deducting short-term capital losses.
  • Discuss with clients the potential tax benefits of trading bitcoin futures.
Thanks to Tom Prieto for this information.  He is a CPE teacher and author and college professor.

Saturday, November 18, 2017

U.S. House passes Tax Bill

The U.S. House of Representatives passed the Tax Cuts and Jobs Act bill, H.R. 1, by a vote of 227–205, on Thursday afternoon, with all Democrats and 13 Republicans voting no.
The legislation as passed had not been amended since its approval by the House Ways and Means Committee last week (see “House Ways and Means Approves Amended Tax Cuts and Jobs Bill,” for details).
The bill features four tax brackets for individuals, instead of the current seven; a larger standard deduction; the repeal of many itemized deductions; a reduction of the corporate income tax rate to 20%; repeal of the alternative minimum tax and, after 2023, the estate and generation-skipping taxes; and many other changes.

Friday, November 17, 2017

Jan 31 filing deadline for forms W-2 and forms 1099

Reminder to Employers and Other Businesses: Jan. 31 Filing Deadline
Now Applies to All Wage Statements and Independent Contractor Forms

IR-2017-189, Nov. 16, 2017

WASHINGTON — The Internal Revenue Service today reminded employers and other businesses of the Jan. 31 filing deadline that now applies to filing wage statements and independent contractor forms with the government.

The Protecting Americans from Tax Hikes (PATH) Act includes a requirement for employers to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. The Jan. 31 deadline also applies to certain Forms 1099-MISC filed with IRS to report non-employee compensation to independent contractors. Such payments are reported in box 7 of this form.

This deadline makes it easier for the IRS to verify income that individuals report on their tax returns and helps prevent fraud. Failure to file these forms correctly and timely may result in penalties. As always, the IRS urges employers and other businesses to take advantage of the accuracy, speed and convenience of filing these forms electronically.

Hints to help filers get ready
Employers should verify employees’ information. This includes names, addresses, Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January. If paper Forms W-2 are needed, they should be ordered early.

An extension of time to file Forms W-2 is no longer automatic. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809.

For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at

Thursday, November 09, 2017

Military tax topics

IRS has Resources for Veterans, Current Members of the Military
As the nation prepares to celebrate Veterans Day, the IRS reminds them that they may be eligible for certain tax benefits. There are also tax benefits that can affect current members of the military.
The IRS has resources for both these groups. The following tools will help military members and veterans navigate tax issues:
Resources for veterans
  • Frequently asked questions about veteran employment and retirement plan benefits. These include information about the re-employment of veterans and the restoration of retirement plan benefits.
  • The Resources for Disabled Veterans page features links to resources geared to this audience: ◦Where to get free help in preparing income tax returns.
    • Access to IRS forms and publications in formats accessible for people with disabilities.
Resources for current members of the military
  • The Tax Information for Members of the Military page on includes resources geared to several groups: ◦Current and former military personnel.
    • Those serving in a combat zone.
    • Disabled veterans.
  • Publication 3, Armed Forces Tax Guide covers special situations of active members of the Armed Forces, including: ◦Travel expenses of Armed Forces Reservists.
    • IRA contribution rules for members of the military serving in combat zones.
    • Rules for members of the Armed Forces deducting moving expenses.
  • The Tax Exclusion for Combat Service page highlights information for members of the military who serve in a combat zone.
  • The Notifying the IRS by E-mail about Combat Zone Service page includes information about the steps that someone serving in a combat zone follows to notify the IRS about their service.