Monday January 30, 2023
Helping Nonprofits Respond to Natural Disasters
There is "horrendous flooding in Kentucky," and major wildfires in "Arizona, California, New Mexico, Oregon, and Texas." Thousands have been impacted by "severe, damaging storms in Kansas, Maryland, Minnesota, Nebraska, North Dakota, Oklahoma, and South Dakota." There are landslides in Alaska and exceptional drought in California, Idaho, Nevada, Utah and Wyoming. America now faces a fall season with major hurricanes and the worst of wildfires.
Millions of Americans are suffering from natural disasters and need services from nonprofits. However, nonprofits are still "struggling to recover from the significantly added workloads they endured throughout the pandemic." Therefore, the coalition calls on Congress to restore and increase charitable giving incentives.
The coalition urges Congress to restore the nonitemizer deduction, increase the giving limit per year and renew the Employee Retention Tax Credit.
1. Nonitemizer Deduction - The coalition asks Congress to renew the $300 ($600 per married couple filing jointly) above-the-line deduction. Hopefully, this amount would be increased substantially.
2. Expanded Charitable Deduction - During 2020 and 2021, generous individuals were able to donate cash and deduct up to 100% of their adjusted gross income. Renewing this provision would help increase gifts from major donors. Another helpful expansion is for corporations to be able to give and deduct up to 25% of taxable income.
3. Employee Retention Tax Credit (ERTC) - There was a refundable tax credit to encourage employment during the pandemic. This credit enabled many nonprofits to retain staff. If this employee tax credit is renewed, many nonprofits will be able to increase staff and better serve Americans in need.
The charitable coalition concludes, "The people you and charitable nonprofits serve urgently need help now: those without homes, their businesses, and basic necessities of food, clothing, and more can't wait for assistance until September, or even later. We urge you to come together and pass immediate disaster relief legislation that will enable the charitable community to provide the greatest support possible for our fellow residents."
Editor's Note: All nonprofits are rebuilding after the major challenges of the COVID pandemic. The charitable coalition correctly explains to Congress that provisions passed in the last three years could be renewed and will benefit millions of Americans.
New Scams to Steal Client Data
In IR-2022-143, the Internal Revenue Service (IRS) cautions tax professionals that identity thieves continue to steal client data. The majority of thefts occurred among midsized tax professionals who were not using multi-factor authentication.
IRS Commissioner Chuck Rettig noted, "Identity theft scammers continually try new schemes to steal client personal and financial information from tax professionals. We continue to see a barrage of emails aimed at tax professionals trying to trick them into providing valuable access to identity thieves. And we continue to urge people to use multi-factor authentication, including those using cloud-based services. Constant vigilance is necessary, not just during tax season, but year-round. We urge tax pros, both large operations and smaller ones, to consider these invaluable recommendations to help protect their clients and themselves."
Identity thieves use phishing emails and SMS/text or "smishing" strategies. The identity thief tricks a tax professional into allowing access to network servers to acquire passwords, bank account numbers, credit card numbers or Social Security numbers.
Most successful thefts occur because the thief claims to be a colleague, familiar bank or credit card company, cloud or tax software provider, the IRS or another government agency. The successful efforts often have an urgent tone to trick the tax professional.
A more sophisticated strategy that has succeeded with many tax professionals is the potential client who builds a relationship. A potential client contacts the tax professional and sends four to seven typical emails as expected from a new client who is gathering information. After the identity thief and tax professional have built a level of trust, the thief sends the email with an attachment claiming to contain tax information.
When the tax professional clicks on the attachment, a remote access trojan (RAT) software program is loaded. The RAT is able to identify pending tax returns. The identity thief will frequently complete the return and e-file it but will change the bank account information to steal the refund.
There have also been several highly publicized ransom events. The number of victims of ransomware has grown exponentially this year. Ransomware is used to lock the files of an organization and then demand a cryptocurrency ransom. While most of the ransomware victims have been cities, counties or medical centers, tax professionals also could be vulnerable.
The IRS recommends multi-factor authentication methods other than email. Some of the identity thieves have both installed malware on the network and hacked the email of the tax pro. A safer method for the second factor is through a text or phone call.
The IRS encourages the use of two-factor authentication and anti-virus software that is automatically updated. Many tax professionals also encrypt and regularly back up their files.
The IRS website offers assistance through IRS Publication 4557, Safeguarding Taxpayer Data. There also is an IRS Identity Theft Central page on IRS.gov.
Tell-Tale Signs of Identity Theft
Identity thieves continue to target tax professionals. With the increased level of attacks, tax preparers must understand the primary signs of data theft.
"Tax pros must be vigilant to protect their systems from identity thieves who continue to look for ways to steal data," said IRS Commissioner, Chuck Rettig. "Practitioners can take simple steps to remain on the lookout for signs of data and identity theft. It's critical for tax pros to watch out for these details and to quickly take action when tell-tale signs emerge. This can be critical to protect their business as well as their clients against identity theft."
Many tax professionals who have had a security breach report they were slow to recognize the problem. If they had known the signs, it would have been possible to minimize the damage caused by the fraudsters. All tax professionals should be alert for the following signs:
1. Client Returns Rejected - In most cases, the rejected return is caused by a fraudster using the client's Social Security Number on another tax return.
2. Multiple e-File Acknowledgements - If more acknowledgements are received than the number of returns filed, the tax professional may have been hacked.
3. Unexpected Client Response - Client responds to emails that the tax professional did not send.
4. Slow or Sluggish Network - Most tax professionals have an internal network. If your network is unusually slow or sluggish, you may have a fraudster problem.
5. Computer or Network Locked - With the rapid growth of ransomware, many tax professionals are now targets for overseas hackers.
Tax professionals should also warn clients to watch for problems. There are several red flags for clients to take action to protect their data.
1. IRS Letters - After a return is filed, taxpayers may receive IRS Authentication letters (5071C, 6331C, 4883C, 5747C). Check with the IRS if letters are received without filing a return.
2. Unexpected Refund or Tax Transcript - If a tax return is not filed or a tax transcript is not requested and the refund or transcript mysteriously appears, there may be a problem.
3. Random Calls or Emails - If a client receives calls or emails claiming to be from the tax professional, he or she should hang up and then call the tax professional to confirm the identity of the party behind the calls or emails.
4. IRS Account Problems - There can be several types of problems with an IRS account. First, an account may not be set up. Second, another person may have gotten access to the IRS account or disabled the account.
If a tax professional is the victim of a data theft, he or she should report it immediately to the IRS Stakeholder Liaison. The IRS may be able to reduce the damage and protect your clients by blocking fraudulent returns. You should also email the Federation of Tax Administrators at StateAlert@taxadmin.org.
Two helpful IRS resources are Publication 5293, Data Security Resource Guide for Tax Professionals and IRS Publication 4557, Safeguarding Taxpayer Data.
Applicable Federal Rate of 3.8% for August -- Rev. Rul. 2022-14; 2022-31 IRB 1 (15 July 2022)
The IRS has announced the Applicable Federal Rate (AFR) for August of 2022. The AFR under Section 7520 for the month of August is 3.8%. The rates for July of 3.6% or June of 3.6% 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 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.