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Thursday December 14, 2017

Washington News

Washington Hotline

Top Five IRS Refund Myths

In IR-2017-16, the IRS explained the top five "myths" about IRS refunds. Most early filers will receive a timely refund, but some taxpayers do not understand the process.

In this letter, the Service clarified some potential areas that hopefully will reduce taxpayer misunderstandings.

Myth 1: All Refunds Delayed – An estimated 90% of refunds will be processed by the IRS within 21 days. However, refunds involving the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) are required by Congress to be delayed until the middle of February.

Myth 2: Call IRS for Quicker Refund – Contacting the IRS will not change your refund date. It is best to use the "Where's My Refund" tool on www.irs.gov. The IRS database is generally updated each day. Calling the IRS is not going to provide new information – the IRS operators are looking at the same database as the taxpayers.

Myth 3: Order a Transcript – Taxpayers are permitted to order a transcript of their prior tax filings. This is frequently done for a mortgage application, student loan or other type of loan. However, the tax transcript will not show the refund date.

Myth 4: "Where's My Refund" Must Have Deposit Date – If filing and claiming the EITC or ACTC, there may be no deposit date on "Where's My Refund." Congress required the IRS to wait until mid-February with these refunds. By the fourth week of February there is likely to be a deposit date reflected on "Where's My Refund."

Myth 5: EITC and ACTC Refunds on February 15 – While Congress is required to hold all refunds for taxpayers claiming EITC or ACTC, it still will require some time to process those payments. The likely distribution date will be the fourth week of February.

The "Where's My Refund" on www.irs.gov or IRS2Go app has three steps. First, the return has been received. Second, a refund has been approved. Third, the refund has been sent. The best plan is to check "Where's My Refund" one time per day. The IRS computers are normally updated each evening.

Dangerous W-2 Phishing Scam


In IR-2017-20, the IRS warned of a "Dangerous W-2 Phishing Scam" that is "Targeting Schools, Restaurants, Hospitals, Tribal Groups and Others."

The attack often commences when a hacker breaks into the email account of an organization executive. The hacker may monitor the account to learn the typical contacts and activities of the executive.

Following this preparation, the attacker "spoofs" by sending an email to the finance or HR department. The "spoofed executive" directs finance or HR to send a list of W-2s to the executive.

After receiving all of the employee W-2 data, the hacker may also use a new strategy.

Hackers are also sending an email from the "spoofed executive" to the chief financial officer (CFO) of the organization. The bogus email directs the CFO to make a wire transfer of funds to a specific account. After the transfer is completed, the hacker withdraws the funds and vanishes into cyberspace.

All schools, restaurants, hospitals, tribal groups and other organizations should have set policies on distribution of W-2 forms. Organization leaders should explain to HR and finance staff the nature of this attack.

If you are attacked, contact the government by forwarding the bogus email to phishing@irs.gov and use "W2 Scam" as your subject line. If you have actually been victimized by this scam, then file a complaint with the Internet Crime Complaint Center (IC3). This complaint will be reviewed by the Federal Bureau of Investigation.

Commissioner John Koskinen warned about the new scam. He stated, "This is one of the most dangerous email phishing scams we've seen in a long time. It can result in the large-scale theft of sensitive data that criminals can use to commit various crimes, including filing fraudulent tax returns."

Border Tax Debate Intensifies


The chief advocate for the destination based cash flow tax is House Ways and Means Chairman Kevin Brady (R-TX). He continues to claim that the "Made in America" tax under current law should be replaced by a new system. His "border adjustable tax" is designed to place a tax on imports and remove tax for exports. The House "Better Way" proposal recommends implementing the border adjustable tax.

Senate Finance Committee Chairman Orrin Hatch (R-UT) stated this week that he is uncertain that such a major change is the best option. Hatch recognized that the tax on imports may have substantial impact on various industries.

Hatch also suggested that the Senate is moving toward reconciliation because it is now likely that a tax reform bill must be passed with primarily Republican support. Hatch stated, "If we do not get any Democrats on board, we will basically need universal Republican support to pass anything through reconciliation."

Other Republicans have also expressed concerns about the border adjustable tax. Sen. Chuck Grassley noted that this tax could raise energy and minerals costs. Various minerals are used in the agricultural industry. Grassley pointed out that raising the cost of these items does not have "much support in the Senate compared to what it's got in the House."

Various associations and commentators also offered opinions this week on the tax. Economist Douglas Holtz-Eakin of the American Action Forum spoke at the Peterson Institute for International Economics webcast. He supported the tax and noted, "Its main virtue, in the context of the House blueprint, is to protect the integrity of the U.S. tax base. Because you are discarding all cross-border transactions and calculating your tax base, the valuation of those transactions does not matter for your tax liability. So your choice of transfer prices does not matter for your tax liability, and it removes all the incentives in a territorial system to transfer your profits to a low-tax jurisdiction and return them to the U.S. tax-free."

The Americans for Prosperity and Retail Industry Leaders Association both expressed opposition to the tax. The Americans for Prosperity indicated that the tax on imports will be passed through and be a major tax hike on consumers.

The Retail Industry Leaders Association represents many commercial enterprises. The Retail Industry press release stated, "However, the border adjustable tax is harmful, untested, and would put American retail jobs at risk and force consumers to pay as much as 20% more for essentials."

Editor's Note: Speaker Ryan and Chairman Brady are likely to include the border adjustable tax in the House bill. They suggest that the effects could be minimized if it is phased in over an extended period of time. As is now occurring, all comprehensive tax reform bills will lead to strong opposition by groups whose taxes may increase. This process is likely to intensify as the bill moves closer to passage.

Applicable Federal Rate of 2.6% for February -- Rev. Rul. 2017-4; 2017-6 IRB 1 (19 Jan 2017)


The IRS has announced the Applicable Federal Rate (AFR) for February of 2017. The AFR under Section 7520 for the month of February will be 2.6%. The rates for January of 2.4% or December of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published February 3, 2017
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