Archives for March 2019

PA Dept. of Revenue Warns Taxpayers

March 26, 2019 by Frank

TIS THE SEASON WHEN THE IRS REMINDS TAXPAYERS OF THE VARIOUS ID THEFT SCAMS CON ARTISTS ARE USING – THE PA DEPT. OF REVENUE ISSUES ITS OWN ANNOUNCEMENT

While One Should Always be Cautious of Sharing Personal Information, “Tax Time” Always Calls for Increased Caution and Discretion

The PA Department of Revenue issued a reminder to taxpayers to be cautious of scams and “phishing” schemes that are being used by criminals to steal taxpayers’ money and personal financial information.

While these warnings mimic those of the IRS, they serve as a reminder that one can never be too careful about sharing your information with others.

“These scams are especially common at this time of year when people start to file their personal income tax returns,” Revenue Secretary Dan Hassell said. “Criminals use high-pressure tactics and threats to pressure hard-working Pennsylvanians into providing money or sensitive information. We want the public to be aware of these scams to avoid taking action that they’ll regret.”

Common Scam: Criminals Posing as a Government Agency

Criminals Posing as a Government Agency

One prevalent scam involves phony “Final Demand For Payment” notices that have been mailed to many taxpayers. The notices from the “Tax Processing Center” threaten the seizure of a taxpayer’s property if the recipient of the notice fails to make immediate payment to the “State of Pennsylvania.” The notices also provide an 800-number to call to “avoid enforcement.”

This is a classic scam that uses pressure tactics and fear to motivate the recipient into taking immediate action. Criminals may also access public records so they can include taxpayer-specific information on the notices to make them appear legitimate.

Email, ‘Phishing’ and Malware Scams

Individuals should beware of criminals using “phishing” schemes, which involve the use of fraudulent email messages, deceptive software or malicious files that are designed to steal sensitive information, such as passwords, usernames or personal financial information. Scammers often use this information to steal your money, your identity or both.

In addition to individual taxpayers, the IRS reports that these schemes have targeted tax professionals, payroll professionals, human resources personnel and school administrators.

In one common scam publicized by the IRS, criminals pose as a person or organization the taxpayer trusts or recognizes. They may hack an email account and send mass emails under another person’s name, or they may pose as a bank, credit card company or tax software provider.

Criminals also go to great lengths to create websites that appear legitimate but contain phony log-in pages. These criminals hope victims will “take the bait” and provide money, passwords, Social Security numbers and other information that can lead to identity theft.

Tips To Avoid Scams

The PA DOR is encouraging Pennsylvanians to keep the following tips in mind to safeguard against these deceptive scams:

Look for imposters: Criminals often pose as a government entity or an official business. If you are targeted by a con artist through the mail, phone or email, do not provide personal information or money until you are sure you are speaking to a legitimate representative.

Examine notifications and electronic messages: Criminals often design vague communications to cast a wide net to lure in as many victims as possible. Examine questionable notices for identifying information that can be verified. Look for blatant factual errors and other inconsistencies, such as a fake return address. If the notice is unexpected and states “This Is Your Final Notice,” take a moment and verify its legitimacy. The PA DOR will send multiple letters to taxpayers if there is a legitimate liability owed.

Approach unusual attachments and links with caution: Scammers may include a link or an attachment to an email that is infected with malware that can download malicious software. Spyware can track the recipient’s keystrokes to obtain passwords, Social Security numbers, credit card numbers or other sensitive information.

Unusual payment methods: Avoid scenarios where you are asked to pay your debt with reloadable debit cards, gift cards or money wiring services. The DOR and other government agencies will never ask you to pay an outstanding liability using these payment methods. And yet, individuals constantly are pressured to make such payments to avoid being arrested.

Conduct research online: Using information included in a potentially fraudulent notice, such as company name, address or telephone number, conduct a search online to see if a scam has been reported by other people or government agencies.

Steps to Follow If You Are a Victim of a Scam

The DOR reminds taxpayers that it has a Fraud Detection and Analysis Unit dedicated to assisting victims of identity theft and combating tax refund fraud.

If you are a victim of identity theft or discover a fraudulent PA personal income tax return was filed using your identity, please contact the Fraud Detection and Analysis Unit at 717-772-9297 or RA-RVPITFRAUD@pa.gov.

For more information on ways to protect yourself, visit Revenue’s Identity Theft Victim Assistance webpage. You can also find further information about protecting yourself online at PA.gov/Cybersecurity.

If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.

Copyright © 2019 Keystone Financial Solutions, Inc. All rights reserved. BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.

About F. Bryan Haarlander, EA, CTRS:

Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

Get IRS Transcripts Now

March 19, 2019 by Frank

Avoid the Rush: Request Your IRS Transcripts Online Today

It’s a Good Idea to Obtain a Copy of Your IRS Tax Return Transcripts – You Never Know When You Will Need Them

Most taxpayers maintain copies of their IRS income tax returns. Most taxpayers do not request copies of their tax return transcripts. Transcripts can prove valuable when you are refinancing a home or requesting a loan. A third party (e.g., a lender) may prefer seeing your transcripts because anyone can print a tax return today online. How does one know if the copy of the tax return provided is true and correct? A tax return accompanied by an IRS transcript may give the lender more credence that the return you are sending them was actually filed with the IRS.

How to Request A Transcript from the IRS:

The IRS makes obtaining your tax transcripts relatively easy. Visit the IRS website at Get Transcript Online. Due to concerns about ID theft, taxpayers must pass the Secure Access identity verification process. Select the “Tax Return Transcript” and use only the “Adjusted Gross Income” line entry. If you maintained a copy of your prior years’s tax return, you will need it as the IRS asks for you to enter your Adjusted Gross Income (AGI) as part of its security verification process.

While on the IRS website, you will notice that the IRS allows you to receive your transcript by mail. You can also call the IRS at 800-908-9946 to obtain a transcript. Again, the IRS will request your prior year’s AGI so be sure to have that tax return in front of you when you call.

The IRS has redesigned tax transcripts to partially mask all personally identifiable information for any person or entity on the 1040-series return. All financial entries remain fully visible. Taxpayers who need a tax transcript for income validation purposes can still use Get Transcript Online or by Mail. Review About the New Tax Transcript and the Customer File Number for more details. If you call the IRS and request a copy of your tax transcripts, you can request that an unredacted transcipt be sent you.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

PA Dept of Revenue Initiative Causes Vendors to Send “Dear John” Letters to PA Residents

March 13, 2019 by Frank

If You Purchase Goods on the Internet, Don’t Be Surprised If You Receive a “Dear John” Letter from the Vendor

PA Dept of Revenue Initiative, along with Supreme Court Decision in Wayfair, Is Closing Sales Tax Loophole for Taxpayers Who Make Online Purchases and Do Not Remit Use Tax

Fact Pattern:

PA resident purchases goods on the Internet (or in Delaware) that are subject to PA sales tax. The vendor selling the goods on the Internet is not registered with the PA DOR because the vendor lacks nexus in PA. (Nexus is the amount of contact a business has in a state that subjects the business to that state’s taxes.) Accordingly, there is no PA sales tax charged by the vendor on the sale. The PA resident is required by law to remit PA’s use tax (6% – the same rate as the PA sales tax) on the taxpayer’s PA-40 personal income tax return. For example, you buy a Rolex watch on the Internet and are not charged any sales tax. The PA resident is required by law to remit to PA a 6% use tax (the same as if the watch had been purchased in PA).

The taxpayer’s remittance of the use tax was on the honor system – PA really had no means to check if the taxpayer remitted all of the use tax that was due. For PA, with Delaware next door without a sales tax, it became even more of a challenge to collect the taxes due it.

The June 21, 2018 Supreme Court decision in South Dakota vs. Wayfair allows states to tax remote – online, catalog, and/or mail order sales. Prior to this landmark decision, a vendor had to have a physical presence in the state to be able to charge sales tax to residents of that state. Now, states are free to collect sales tax from any person based on economic nexus – just having an economic interest in the state – such as from a sale of goods.

Vendors have two ways to comply. They can collect the tax from the customer and remit the tax to each state where it does business, OR provide the state with a list of customers who made purchases during the calendar year and the amount of those purchases and notify the customers to remit the use tax. Which of the two do you think the vendors will select? The latter, because it is less costly to implement.

Should you be a recipient of such a letter and agree with the information provided to you by the vendor, you need to report and remit the use tax to PA. The PA DOR will then cross-check the lists it receives from vendors against your individual income tax return (PA-40). Tax preparers will be requesting the amount of use tax to report on their tax organizers.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.

S CORP Shareholder-Employee Form 1099 or W-2?

March 6, 2019 by Frank

S CORP Shareholder-Employee Form 1099 or W-2

Can a Shareholder-Employee of an S Corp Be Issued a Form 1099-MISC? You Need to Understand the Tax Consequences When an Owner of S Corp. Improperly Receives a 1099-MISC

Fact Pattern: PA resident purchases goods on the Internet that are subject to PA sales tax. The vendor selling the goods on the Internet is not registered with the PA DOR because the vendor lacks nexus in PA. There is no PA sales tax charged by the vendor on the sale. The PA resident was required to remit PA’s use tax (6% – the same rate as the PA sales tax) on the taxpayer’s PA-40). The taxpayer’s remittance of the use tax was on the honor system – PA really had no means to check if the taxpayer remitted all of the use tax that was due. For PA, with Delaware next door without a sales tax, it became even more of a challenge.

Background

Assume that a single shareholder (owner) of an S Corporation receives compensation for his services and either fails to issue himself a W-2 or decides to issue himself a Form 1099-MISC instead of Form W-2. The motivations for not following the law are usually to (1) avoid penalties related to the late remittance of payroll taxes associated with a W-2 filing; (2) avoiding the expense of engaging a payroll processing company; and (3) the flawed thinking that as long as the compensation is reported to the IRS, it makes no difference how the compensation is reported to the IRS because the shareholder will pay income taxes and self-employment taxes under either scenario.

This thinking is flawed because IRS FS-2008-25 states that corporate officers are specifically included within the definition of an employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and FIT (federal income tax) withholdings under the Internal Revenue Code.

Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages.

The one known and limited exception to not paying a shareholder/employee W-2 compensation is discussed in our Feb. 21, 2017 blog post.

Let’s discuss some of the perils a business owner faces by ignoring the requirement to issue the officer/shareholder a W-2. IRS audits of payroll taxes is becoming more common. If compensation is not reported as wages, the IRS can assess:

Unpaid payroll taxes for multiple periods as the statute of limitations starts when returns are filed;
Interest on the unpaid payroll taxes:
Penalties for failure to file quarterly Form 941;
Penalties for failure to timely pay the tax withholdings to the IRS;
Penalties for failure to file and issue Form(s) W-2;
Back taxes for state and local payroll filings, intgerest, and penalties;

AND, there is more bad news . . . .

What many employers do not realize is that even though the “independent contractor” who is paid via a Form 1099 pays all of the self-employment, Social Security and Medicare taxes, that the payment of self-employment taxes is a different tax than payroll withholding taxes even though they are both taxed at 15.3%. Thus, the employer could still be found liable for payment of the employer and employee share of Social Security and Medicare taxes (Western Management case).
The Tax Cuts and Jobs Act introduced the Qualified Business Deduction which uses “reasonable compensation” to determine business profits which in turn . . .
Causes the IRS to place more emphasis on audits of businesses to determine if the shareholder-employee is being paid a reasonable compensation. If it is determined that a reasonable compensation is not being paid, those distributions made to the shareholder-employee run the risk of being reclassified as hidden compensation resulting in the penalties and interest assessments discussed above.

While almost everyone always focuses on federal taxes, don’t forget those state auditors. States generally prefer wages over self-employment income because wages are subject to state unemployment taxes, another source of revenues for the states.

About F. Bryan Haarlander, EA, CTRS:

A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.