In two letters this week (IR-2017-23
) the IRS warned taxpayers about inflated refunds and tax preparer fraud.
Some tax preparers promise excessive refunds. This issue is part of the
"Dirty Dozen" tax schemes highlighted each year by the IRS.
IRS Commissioner John Koskinen urged taxpayers to be aware of these excessive
claims. He stated, "Exercise caution when a return preparer promises
an extremely large refund or one based on credits or benefits you have
never been able to claim before. If it sounds too good to be true, it
There are several specific strategies that a preparer may use improperly.
These may include falsely claiming Social Security benefits, educational
credits or the earned income tax credit (EITC).
Some preparers also have wrongly suggested that you may file a return
and report zero wages. Another improper strategy is to claim that there
are secret government accounts for U.S. citizens and that by filing IRS
Form 1099-OID you can obtain a refund from your secret account.
All of these ideas have been used to obtain excessive refunds, but many
taxpayer fraudsters have been discovered by the IRS and forced to repay
an appropriate amount.
The second IRS letter urges taxpayers to understand how to select a good
tax preparer. Most tax preparers are reputable and honest, but it is helpful
to know methods that enable you to select a good preparer.
Koskinen noted, "Choose your tax return preparer carefully because
you entrust them with your private financial information that needs to
be protected. Most preparers provide high-quality service but we run across
cases each year where unscrupulous preparers steal from their clients
and misfile their taxes."
The IRS offers several tips for selecting a good tax preparer.
1. Preparer Tax Identification Number (PTIN)
– Tax preparers are required to register with the IRS. They receive
a PTIN and it must be included on any tax return.
2. Professional Credential
– A tax preparer may be a CPA, an attorney or an enrolled agent.
These are all appropriate certifications for a tax preparer. Many of these
persons will also be members of a professional association.
– The preparer should share his or her qualifications with you.
There also is an IRS Directory of Federal Tax Return Preparers with Credentials
and Select Qualifications. It is available on
4. Better Business Bureau
– Many tax preparers are listed on this directory or through another
agency. CPAs will be members of the State Board of Accountancy. Attorneys
will be members of their State Bar Association. Finally, Enrolled Agents
are listed on
– Koskinen explains that eFiling is the safest and most accurate
method. Nearly all tax preparers offer an eFiling service.
6. Audit Representation
– If you have a dispute with the IRS, an attorney, CPA or Enrolled
Agent may represent you before the agency.
7. Signing Returns
– You should review your return before signing. Do not sign a blank
return. Your tax refund should be directed to your bank account or your
Border Adjustable Tax Debate Continues
Chairman of the House Ways and Means Committee Kevin Brady (R-TX) and
Members of the House and Senate all weighed in this week on the proposed
border adjustable tax.
Brady gave the keynote at the International Tax Policy Forum on February
3. While the bill is still being drafted, he revealed several specifics
that are expected to be included in this initial version of the 2017 Tax
Brady expects the top corporate tax rate to be 20%. Private business will
be taxed at 25%, but wages and other income will be subject to the top
33% personal rate. The bill is expected to repeal both the estate tax
and the alternative minimum tax. Another benefit for business is immediate
deductions for capital investments. This will simplify their taxes by
eliminating depreciation schedules.
The reform bill includes a territorial tax with border adjustments. Brady
noted, "To ensure we leapfrog America back into that lead pack and
keep us there, we are proposing to replace our worldwide tax system with
a territorial tax approach and to end the 'Made in America' tax
on U.S. exports."
Brady continues to be a strong advocate of the border adjustable tax.
He continued, "Our proposal is simple and it is based on one powerful
idea: all products consumed in America will be taxed at an equal rate,
regardless if they are made in America or abroad."
Rep. Peter Roskam (R-IL) is the House Ways and Means Tax Policy Subcommittee
Chair. He responded to concerns that the border adjustable tax could be
in conflict with the World Trade Organization (WTO) rules that prohibit
export subsidies. Roskam noted, "We are moving toward a consumption
tax, we are mirroring essentially what the rest of the world is doing,
and we are asserting a right to be treated in the same fashion as the
rest of the world. We think when it all comes down to it, we will be exonerated
Several commentators have criticized the complexity of the border adjustable
tax. In a blog post for the Urban-Brookings Tax Policy Center, commentator
Howard Gleckman stated, "Taxwriters will have to resolve scores of
legal and economic problems before enacting this plan. Addressing any
one will be complex and time-consuming. Dealing with them all could be
a policy nightmare."
Members of the Senate have been reluctant to support a new tax on imports.
Sen. David Perdue (R-GA) sent a letter to the other 99 senators reflecting
his concern with the border adjustable tax. Perdue stated, "Since
all imports would be taxed, the clear effect of the proposed border adjustment
tax is an increase in consumer prices. This would hammer consumer confidence
and lower overall demand, thus putting a downward pressure on jobs."
The House is rapidly moving forward with drafting a complex tax bill that
may be 3,000 pages. House Ways and Means member Kenny Marchant (R-TX)
suggested that the target date for transfer of an actual bill to the Joint
Committee on Taxation (JCT) is early March. When an actual bill is released,
there will be a thundering herd of Washington lobbyists contacting members
of the House and Senate.
Council on Foundations (COF) Cautions on Political Activity
In 1954 then-Senate Majority Leader Lyndon Johnson added an amendment
to a bill that was subsequently passed. The amendment prohibited Sec.
501(c)(3) organizations from intervening in political elections. The intent
of the amendment was to preclude nonprofits from supporting candidates
Bills currently pending in both the House and Senate propose modifying
or repealing the "Johnson Amendment." In a letter to members
of the 115th Congress, Hadar Susskind, Senior Vice President of Government
Relations for the Council on Foundations, urged caution about changes
to Sec. 501(c)(3).
Hadar explained that nonprofit organizations exist "to channel the
generosity of private citizens" toward charitable causes. He suggests
that it is essential for broad support of charities that they have a high
level of "public trust" and for this trust to not be diminished
by involvement in partisan activities.
Hadar recognized that religious organizations desire to have the ability
to speak according to their particular beliefs. However, he cautions action
that could constitute "engagement or intervention in political campaigns."
The bills would potentially clarify the rights of over 300,000 religious
organizations, but would also apply to the other 900,000 nonprofits in America.
Hadar concludes by urging Congress "to consider the wide range of
unintended or indirect consequences that would occur as a result of altering
Sec. 501(c)(3) of the Internal Revenue Code, and reject any proposal that
would result in our sector being tainted with instances of charitable
resources being diverted for campaigns and political activity."
There is a balance between the First Amendment right to speak out on moral
or religious grounds and a desire to avoid nonprofit support of specific
candidates for office. Most larger nonprofits have a diverse range of
donors. While advocacy is important, nonprofits must be careful to avoid
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