Tax Preparedness Series: This #GivingTuesday Remember Donations May Cut Tax Bills

This is the fourth in a series of reminders to help taxpayers prepare for the upcoming tax filing season.

IR-2016-154, Nov. 28, 2016

WASHINGTON – As tax filing season approaches, the Internal Revenue Service reminds taxpayers who give money or goods to a charity by Dec. 31, 2016, that they may be able to claim a deduction on their 2016 federal income tax return and reduce their taxes.

Only donations to eligible organizations are tax-deductible. IRS Select Check on IRS.gov is a searchable online tool that lists most eligible charitable organizations. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations even if they are not listed in this database.

Claiming Charitable Donations

Only taxpayers who itemize using Form 1040 Schedule A can claim deductions for charitable contributions. Charitable deductions are not available to individuals who choose the standard deduction or file Form 1040A or 1040EZ. Most tax software will alert taxpayers about the tax savings available if their itemized deductions, such as mortgage interest, charitable contributions, state and local taxes, exceed the standard deduction.

Monetary Donations

A bank record or a written statement from the charity is needed to prove the amount of any donation of money. Bank records include canceled checks, and bank, credit union and credit card statements. Donations of money include by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Donating Property

For donations of clothing and other household items the deduction amount is normally limited to the item’s fair market value. Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items must be in good or better condition to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations.

Benefit in Return

Donors who get something in return for their donation may have to reduce their deduction. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

Older IRA Owners Have a Different Way to Give

IRA owners, age 70½ or older, can transfer up to $100,000 per year to an eligible charity tax-free. Funds must be transferred directly by the IRA trustee to the eligible charity. For details, see Publication 590-B.

Good Records

The type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property. Visit IRS.gov and check out these useful resources:

·         Charities and Non Profits

·         Publication 526, Charitable Contributions

·         Can I Deduct My Charitable Contributions?

Notice 2016-72, Qualified Principal Residence Indebtedness

Application of Section 108(a)(1)(E)(ii) to the Federal Housing Finance Agency’s (FHFA’s) Principal Reduction Modification Program (PRMP) and the Home Affordable Modification Program^®(HAMP^®)

 

Notice 2016-72

  

PURPOSE

This notice provides guidance on whether qualified principal residence indebtedness is discharged “subject to an arrangement that is entered into and evidenced in writing before January 1, 2017” within the meaning of § 108(a)(1)(E)(ii) of the Internal Revenue Code if, before that date, a mortgage loan servicer sends a borrower-homeowner under the Federal Housing Finance Agency’s (FHFA’s) Principal Reduction Modification Program (PRMP) a notice in conjunction with a written Trial Period Plan (TPP) or, for a borrower-homeowner in an active TPP, a separate notice in a written opt-out letter outlining the terms and conditions of the permanent mortgage loan modification following completion of the active TPP.

This guidance also applies to a TPP under the Home Affordable Modification Program^® (HAMP^®).    

BACKGROUND

To help distressed borrower-homeowners lower their monthly mortgage payments, FHFA directed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to implement the PRMP, which offers mortgage loan modifications to certain seriously delinquent, underwater borrower-homeowners who are still struggling in the aftermath of the financial crisis, to help them avoid foreclosure and stay in their homes. The PRMP is a targeted, one-time offering for borrower-homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac and who meet specific eligibility criteria.

For a borrower-homeowner to take advantage of the PRMP, the mortgage loan servicer must solicit the borrower-homeowner’s participation by sending the borrower-homeowner a notice of PRMP eligibility in conjunction with a written TPP or, for a borrower-homeowner in an active TPP, a separate notice of PRMP eligibility in a written opt-out letter. The TPP and the PRMP notice set forth Trial Period and PRMP Conditions that the borrower-homeowner must satisfy for there to be a permanent modification of the mortgage loan. In the case of an active TPP, the notice in the written opt-out letter outlines the terms and conditions of the principal reduction feature of the loan modification. If the Trial Period and PRMP Conditions are satisfied within a required time frame, then the borrower-homeowner is offered a permanent modification of the terms of the mortgage loan. If the borrower-homeowner executes and returns the loan modification agreement, the mortgage loan is thereby modified. The modification includes monthly mortgage payments that are lower than or equal to those under the old mortgage loan and, generally, a principal reduction.

HAMP^®, currently available through the end of 2016, offers a similar program to help distressed borrower-homeowners lower their monthly mortgage payments. See Rev. Proc. 2013-16, 2013-7 I.R.B. 488, which discusses the federal tax consequences of principal reduction of a mortgage loan under the HAMP^® Principal Reduction Alternative^SM.        

APPLICABLE PROVISIONS OF LAW AND ANALYSIS

Under § 61, except as otherwise provided in subtitle A, gross income means all income from whatever source derived, including income from discharge of indebtedness. See § 61(a)(12).

Under § 108(a)(1)(E), gross income does not include any amount that (but for § 108(a)) would be includible in gross income by reason of the discharge (in whole or in part) of a taxpayer’s indebtedness if the indebtedness discharged is qualified principal residence indebtedness that is discharged (i) before January 1, 2017, or (ii) subject to an arrangement that is entered into and evidenced in writing before January 1, 2017.

Under §§ 108(h)(2) and 163(h)(3)(B), qualified principal residence indebtedness is any indebtedness that is incurred by a borrower to buy, build, or substantially improve the borrower’s principal residence and is secured by that residence.

Qualified principal residence indebtedness also includes a loan secured by the borrower’s principal residence that refinances qualified principal residence indebtedness, but only to the extent of the amount of the refinanced indebtedness. See §§ 108(h)(2) and 163(h)(3)(B)(i).

The maximum amount of discharged indebtedness that a borrower may exclude from gross income under the qualified principal residence indebtedness exclusion is $2,000,000 ($1,000,000 for a married individual filing a separate return). See § 108(h)(2). Under § 108(h)(4), if only part of the discharged indebtedness is qualified principal residence indebtedness, then the exclusion applies only to the amount of the discharged indebtedness that exceeds the amount of the loan (determined immediately before the discharge) that is not qualified principal residence indebtedness.

If an amount is excluded from gross income as a discharge of qualified principal residence indebtedness, the taxpayer must reduce the basis of the taxpayer’s principal residence. See § 108(h)(1).

            Congress extended the relief under § 108(a)(1)(E) to arrangements entered into and evidenced in writing before January 1, 2017, in the Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113, 129 Stat 2242, 3065-66 (2015) (PATH Act). Congress added this provision to protect a borrower-homeowner who is in the process of obtaining a permanent modification of the mortgage loan during 2016, although the permanent modification of the mortgage loan resulting in discharge of indebtedness would not occur until after 2016. For example, a borrower-homeowner who is in the process of obtaining a modified mortgage loan under the PRMP during 2016, because the borrower-homeowner is either in an active TPP or the mortgage loan servicer sends the borrower-homeowner a notice in conjunction with a TPP, might not complete the modification process until after 2016. The addition of § 108(a)(1)(E)(ii) by the PATH Act is designed to ensure that discharges of qualified principal residence indebtedness in these situations qualify for exclusion from income under that section.

A discharge of indebtedness that does not qualify for the qualified principal residence indebtedness exclusion in § 108(a)(1)(E) may qualify for another exclusion, such as the insolvency exclusion under § 108(a)(1)(B) or the deductible debt exclusion under § 108(e)(2). For example, a cash basis homeowner generally would exclude from income under § 108(e)(2) the discharge of any accrued but unpaid interest on the mortgage for his or her principal residence to the extent the interest would have been deductible if paid. See Johnson v. Commissioner, T.C. Memo 1999-162, and Lawinger v. Commissioner, 103 T.C. 428 (1994). For more information about income from discharge of indebtedness, the qualified principal residence indebtedness exclusion, the insolvency exclusion, the deductible debt exclusion, and other exclusions from gross income that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

FEDERAL INCOME TAX CONSEQUENCE

Qualified principal residence indebtedness is discharged “subject to an arrangement that is entered into and evidenced in writing before January 1, 2017” within the meaning of § 108(a)(1)(E)(ii) if: (1) before that date, a mortgage servicer sends a borrower-homeowner under the FHFA’s PRMP a notice in conjunction with a written TPP or, for a borrower-homeowner in an active TPP, a separate notice in a written opt-out letter outlining the terms and conditions of the permanent mortgage loan modification following completion of the active TPP; (2) the borrower-homeowner satisfies all of the Trial Period and PRMP Conditions; and (3) the borrower-homeowner and servicer enter into a permanent modification of the mortgage loan on or after January 1, 2017. A similar conclusion applies to a TPP under HAMP^®.    

DRAFTING INFORMATION

            The principal author of this notice is Sheldon Iskow of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about this notice, contact Mr. Iskow at (202) 317-4718 (not a toll free call).

IRS, Partners Warn of Online Threats; Protect Personal Computers

The Internal Revenue Service, states and the tax industry remind you that online threats and annoyances abound. There are viruses, worms, Trojans, bots, spyware and adware – all fall under the malicious programs (malware) umbrella.

How do you protect your computer from hackers and identity thieves? You need security software and to keep it turned on. You also need security on all of your digital devices, including laptops, tablets and mobile phones.

The IRS, state tax agencies and the tax professional industry are asking for your help in their effort to combat identity theft and fraudulent returns. Working in partnership with you, we can make a difference.

That’s why we launched a public awareness campaign that we call Taxes. Security. Together. We’ve also launched a series of security awareness tips that can help protect you from cybercriminals.

Tens of thousands of new malware programs launch each day, making the use of security software essential to safe internet use. These malware programs can disable your computer, install viruses that give cybercriminals control, steal your data, track your keystrokes to give criminals your passwords and many other malicious acts.

Here are a few basic steps to help protect your computer:

1. Use pre-installed security software. Many computers come pre-installed with firewall and anti-virus protections. A good broad-based anti-malware program should be able to protect you from viruses, Trojans, spyware and adware.
2. Turn on automatic updates. Set your security software to update automatically so it can be upgraded as threats emerge. Also, make sure your security software is on at all times.
3. Investigate your security software options. Search out trusted sources to learn more about security software options. This will help you decide if you should invest in security software that gives you even stronger protections and options.
4. Consider encryption software. If you retain important financial documents, such as prior-year tax returns, on your computer, consider investing in encryption software to prevent unauthorized access by hackers or identity thieves.
5. Protect your children. If your children also use the same device, make sure it has parental control options to protect your children from malicious websites. Educate your children about the threats of opening suspicious web pages, emails or documents.
6. Set password protections for all devices. Whether it’s your computer, tablet or mobile phone, always set a password requirement for accessing the device. If it is lost or stolen, your device is still protected from access.
7. Protect your wireless network. Set password and encryption protections for your wireless network. If your home or business Wi-Fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer.
8. Never download “security” software from a pop-up ad. A pervasive ploy is a pop-up ad that indicates it has detected a virus on your computer. It urges you to download a security software package. Don’t fall for it. It most likely will install some type of malware. Reputable security software companies do not advertise in this manner.
9. Avoid downloads from suspicious sources. Never open a PDF document or picture attached in an email from an unknown source. It may contain malware.

The IRS, state tax agencies and the tax industry joined as the Security Summit to enact a series of initiative to help protect you from tax-related identity theft in 2017. You can help by taking these basic steps.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers.

Tax Preparedness Series: Tax Help for Self-Employed and Sharing Economy

This is the third in a series of reminders to help taxpayers prepare for the upcoming tax filing season.

WASHINGTON – As tax filing season approaches, the Internal Revenue Service wants taxpayers who are self-employed or involved in the sharing economy to know about free resources that are available to help them with their taxes.

Sole proprietors and independent contractors can get helpful information from the IRS Small Business and Self-Employed Tax Center. This resource includes online tools such as the Tax Calendar for Businesses and Self-Employed, which has key tax dates and necessary actions for each month of the year.

For those who provide services to consumers, such as rides in personal vehicles for a fee or the use of property, such as apartments or homes for rent, the IRS created the Sharing Economy Resource Center. It has tips such as:

• Income is generally taxable, even if the recipient does not receive a Form 1099, W-2 or some other income statement, but some or all business expenses may be deductible.
• There are some simplified options available for deducting many business expenses.
• People involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation.
• Alternatively, people involved in the sharing economy who are employees at another job can often avoid needing to make estimated tax payments by having more tax withheld from their paychecks. The Withholding Calculator on IRS.gov can also be a helpful resource.

The IRS also holds Small Business Events, workshops and seminars, at many locations throughout the country. Topics include paying self-employment and income tax on any net  profit, how to make estimated tax payments on income that is not subject to withholding, which expenses can be deducted as business expenses, and much more. The IRS Video Portal also has videos and webinars on many tax topics that may be helpful.

Visit the Small Business and Self-Employed Tax Center on IRS.gov and remember, IRS tax forms are available any time on IRS.gov/forms.

As Holidays Approach, IRS Reminds Taxpayers of Refund Delays in 2017

WASHINGTON –As the holidays approach, the Internal Revenue Service today reminded taxpayers to remember that a new law requires the IRS to hold refunds until mid-February in 2017 for people claiming the Earned Income Tax Credit or the Additional Child Tax Credit. In addition, new identity theft and refund fraud safeguards put in place by the IRS and the states may mean some tax returns and refunds face additional review.

Some Refunds Delayed in 2017

Beginning in 2017, a new law approved by Congress requires the IRS to hold refunds on tax returns claiming the EITC or the ACTC until mid-February. The IRS must hold the entire refund – even the portion not associated with the EITC and ACTC -- until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.

''This is an important change as some of these taxpayers are used to getting an early refund," said IRS Commissioner John Koskinen said. "We want people to be aware of the change for their planning purposes during the holidays. We don't want anyone caught by surprise if they get their refund a few weeks later than in previous years."

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should submit returns as they normally do. Even though the IRS cannot issue refunds for some early filers until at least Feb. 15, the IRS reminds taxpayers that most refunds will be issued within the normal timeframe: less than 21 days, after being accepted for processing by the IRS. The Where's My Refund? tool on IRS.gov and the IRS2Go phone app remains the best way to get this status of a refund.

Stronger Security Filters and Tax Refund Processing

As the IRS steps up its efforts to combat identity theft and tax refund fraud through its many processing filters, legitimate refund returns sometimes get delayed during the review process. While the IRS is working diligently to stop the issuance of fraudulent refunds, it also remains focused on releasing legitimate refunds as quickly as possible.

Recently, the Internal Revenue Service, state tax agencies and industry partners finalized plans for 2017 to improve identity theft protections for individual and business taxpayers. This comes after making significant inroads this year against fraudulent returns. Additional safeguards will be set in place for the upcoming 2017 filing season.

The IRS and its partners saw a marked improvement in the battle against identity theft in 2016. This is highlighted by the number of new people reporting stolen identities on federal tax returns falling by more than 50 percent, with nearly 275,000 fewer victims compared to a year ago.

"These increased security screenings are invisible to most taxpayers," Koskinen said. "But we want people to be aware we are taking additional steps to protect taxpayers from identity theft, and that sometimes means the real taxpayers face a slight delay in their refunds.”

For more steps planned for the 2017 tax season, see Security Summit.

Employers that hire Holiday Help: Understand the Health Care Law’s Rules Around Seasonal Workers

As an employer, your size – for purposes of the Affordable Care Act –  is determined by the number of your employees. If you hire seasonal or holiday workers, you should know how these employees are counted under the health care law.

Employer benefits, opportunities and requirements are dependent upon your organization’s size and the applicable rules. If you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, you are an ALE for the current calendar year.  However, there is an exception for seasonal workers.

If you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, your organization is an ALE. Here’s the exception: If your workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 during that period were seasonal workers, your organization is not considered an ALE. For this purpose, a seasonal worker is an employee who performs labor or services on a seasonal basis.

The terms seasonal worker and seasonal employee are both used in the employer shared responsibility provisions, but in two different contexts. Only the term seasonal worker is relevant for determining whether an employer is an applicable large employer subject to the employer shared responsibility provisions.  For information on the difference between a seasonal worker and a seasonal employee under the employer shared responsibility provisions see our Questions and Answers page.

See the Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca for details about counting full-time and full-time equivalent employees. You can also see our Health Care Law: Highlights for Applicable Large Employers video on the IRS YouTube channel’s Health Care playlist. IRS.gov/aca also has information that can answer your employees’ questions about the health care law.

Renewing Your ITIN? Here’s Where to Get Help

As the year-end draws near, taxpayers with an Individual Taxpayer Identification Number set to expire are encouraged to start the renewal process now. This will help to avoid delays at tax time. The IRS issues ITINs to people with a federal tax filing or reporting requirement who don’t have and cannot get a Social Security number.

Find help renewing an ITIN here:

• IRS.gov. The IRS website has information in several languages to assist with the renewal process. Taxpayers can download Form W-7, Application for IRS Individual Taxpayer Identification Number, and complete it following the instructions. Then attach the required documentation to the form and mail it to the IRS. Only original documents or copies certified by the issuing agency are accepted. The IRS returns documents to applicants via standard U.S. mail within 60 days of receipt and processing of the Form W-7.
• Acceptance Agents.  Certified Acceptance Agents and Acceptance Agents submit Forms W-7 on behalf of their clients. Rather than mailing the IRS important original documents, taxpayers have the option to work with an IRS authorized CAA. The CAAs review documentation for taxpayers and their spouses as well as passports and birth certificates for dependents. Acceptance Agents complete the Form W-7 and send the original documents or previously certified copies of the documents to IRS for processing.
• IRS Taxpayer Assistance Centers.  Taxpayers may submit W-7 applications in person with original documents at designated IRS Taxpayer Assistance Centers. Employees at designated TACs certify original and certified copies of passports, National ID cards and birth certificates. Service at the TACs is by appointment. Schedule an appointment by calling 844-545-5640. See IRS.gov for a list of designated TACs that offer ITIN document authentication services.

Those who have received a renewal letter from the IRS can renew the family’s ITINs together. Family members include the tax filer, spouse and any dependents claimed on the tax return.

Additional IRS Resources:

• Form W-7, Application for IRS Individual Taxpayer Identification Number
• ITIN Tax Tip 2016-01, Renewing Your ITIN? Things You’ll Need
• IR-2016-129, IRS Now Accepting ITIN Renewal Applications; Taxpayers Encouraged to Act Soon to Avoid Processing Delays in 2017
• IR-2016-100, IRS Works to Help Taxpayers Affected by ITIN Changes; Renewals Begin in October
• ITIN Expiration Frequently Asked Questions

IRS, Partners Offer Tips to Protect Data from Online Threats

The Internal Revenue Service, state tax agencies and the nation’s tax industry urge you to join their effort to combat identity theft by doing more to protect personal and financial data from online threats.

Working in partnership with you, we can make a difference. That’s why for the second year in a row, we have embarked on a public awareness campaign called “Taxes. Security. Together.” And, we’ve launched a series of security awareness tips that can help protect you from cybercriminals. This is all part of the Security Summit effort, a joint effort between the IRS, the states and the private-sector tax industry.

Here’s an overview of basic steps to help protect your data:

1. Use security software. Security software can protect your computer – and your data – from numerous threats posed by malicious programs, also known as malware. Many computers come with security software already installed. Make sure to turn it on. Set it for automatic updates to allow for protection against emerging anti-malware threats. Also, make sure you add security to all your digital devices, including your laptop, tablet and mobile phone.

2. Use encryption software to protect sensitive data. If you keep sensitive financial data such as prior-year tax returns or important records on your hard drive, consider investing in encryption software to safeguard documents with password protection.

3. Use strong passwords. Use strong passwords of 10 or more digits that include letters, numbers and special characters. Do not use the same password for all your accounts, especially your financial accounts. Change your passwords every few months. Create passwords not only for your online accounts but also for access to your computer for an added layer of protection.

4. Avoid phishing emails. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. A favorite tactic of cybercriminals is to pose as businesses, credit card companies or even the IRS and ask to update your account or divulge your Social Security number. Reputable companies never ask for sensitive data over unsecured channels.

5. Back up your data. Periodically back up all the data on your computer via your protected cloud storage or a separate disk. If your data gets stolen or you suffer a disk failure, recovery is easy if you have routinely backed up your information.

6. Protect your wireless network. If you use a residential wireless network connection, make sure you have a strong password protection for it. And, if you use public Wi-Fi, never share sensitive data. If a public Wi-Fi hotspot does not require a password, it probably is not secure.

The IRS, state tax agencies and the tax industry joined together as the Security Summit to enact a series of initiatives to help protect you from tax-related identity theft in 2017. You can help by taking these basic steps.

To learn additional steps to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers.

Tax Preparedness Series: How to Avoid a Refund Delay; Plan Ahead

This is the second in a series of reminders to help taxpayers prepare for the upcoming tax filing season.

WASHINGTON – As tax filing season approaches, the Internal Revenue Service is reminding taxpayers about steps they can take now to ensure smooth processing of their 2016 tax return and avoid a delay in getting their tax refund next year.

The IRS reminds taxpayers to be sure they have all the documents they need, such as W-2s and 1099s, before filing a tax return. You may also need a copy of your 2015 tax return to make it easier to fill out a 2016 tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity. Learn more about how to verify your identity and electronically sign your tax return at Validating Your Electronically Filed Tax Return. The IRS will begin accepting and processing tax returns once the filing season begins.

Under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), any Individual Taxpayer Identification Numbers (ITIN) issued prior to 2013 or that haven’t been used for tax-years 2013, 2014 and 2015 will no longer be valid for use on a tax return as of Jan. 1, 2017. Individuals with expiring ITINs who need to file a return in 2017 will need to renew their ITIN. This process typically takes 7 weeks to receive an ITIN assignment letter, but the process can take longer - 9 to 11 weeks if taxpayers wait to submit Form W-7 during the peak filing season, or send it from overseas. Taxpayers who do not renew an expired ITIN before filing a tax return next year, could face a delayed refund and may be ineligible for certain tax credits. For more information, visit the ITIN information page on IRS.gov.

If you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on your tax return, the IRS must hold your refund until February 15. This new law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This change helps ensure that you receive the refund you are owed by giving the agency more time to help detect and prevent fraud.

The IRS always cautions taxpayers not to rely on getting a refund by a certain date, especially when making major purchases or paying bills. Though the IRS issues more than nine out of 10 refunds in less than 21 days, some returns are held for further review.

The easiest way to avoid common errors that delay processing a tax return is to e-file. E-file is the most accurate way to prepare a return and file. There are a number of e-file options:

• IRS Free File,
• Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs,
• commercial tax preparation software, or
• a tax professional

Use Direct Deposit.

With direct deposit, the refund goes directly into the taxpayer’s bank account. There is no risk of having the refund check stolen or lost in the mail. This is the same electronic transfer system used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits into millions of accounts. Direct deposit also saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each direct deposit made.

The IRS has a special page on IRS.gov with steps to take now for the 2017 tax filing season.

Tax Preparedness Series: Special Tax Breaks for U. S. Armed Forces

Note to Editor: This is the first in a series of reminders to help taxpayers prepare for the upcoming tax filing season.

WASHINGTON – As tax filing season approaches, the Internal Revenue Service wants members of the military and their families to know about the special tax benefits available to them.

IRS Publication 3, Armed Forces Tax Guide, is a free booklet packed with valuable information and tips designed to help service members and their families take advantage of all tax benefits allowed by law. Here are some of those tax benefits.

• Combat pay is partially or fully tax-free. Service members serving in support of a combat zone may also qualify for this exclusion.
• Reservists whose reserve-related duties take them more than 100 miles from home can deduct their unreimbursed travel expenses, even if they don’t itemize their deductions.
• The Earned Income Tax Credit may be worth up to $6,269 for low-and moderate-income service members. A special computation method is available for those who receive nontaxable combat pay. Choosing to include it in taxable income may boost the EITC, meaning owing less tax or getting a larger refund.
• An IRA or 401(k)-type plan might mean saving for retirement and cutting taxes too. Service members who contribute to a plan, such as the Thrift Savings Plan, may also be able to claim the Retirement Savings Contributions Credit.
• An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Also, those serving in a combat zone typically have until 180 days after they leave the combat zone to file and to pay any tax due. For more information see Miscellaneous Provisions — Combat Zone Service.
• Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after the April deadline. Service members who prepare their own return qualify to e-file their federal return for free using IRS Free File.
• Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation’s legal office may be able to help.
• Those leaving the military and looking for work may be able to deduct some job search expenses, such as the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.

The IRS has a special page on IRS.gov with Tax Information for Members of the U.S. Armed Forces.

Report Phishing and Online Scams

The IRS does not initiate contact with taxpayers by email, text message or social media to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.

Report all unsolicited email claiming to be from the IRS to phishing@irs.gov. If you have experienced a monetary loss because of an IRS-related incident, report it to the Treasury Inspector General Administration (TIGTA) and file a complaint with the Federal Trade Commission (FTC).

Renewing Your ITIN? Things You’ll Need

Some Individual Taxpayer Identification Numbers (ITIN) expire at the end of 2016. The IRS issues an ITIN to those who have a filing or reporting requirement but don’t have and are not eligible to get a Social Security number. If you need to renew your ITIN, you should submit a complete application this fall to avoid delays.

The following list includes the documents you’ll need to renew your ITIN:

1. Form W-7. You must submit a completed Form W-7, Application for IRS Individual Taxpayer Identification Number (Rev 9-2016). You don’t need a completed tax return for the renewal application. You must include the identification documents with the form.

2. Proof of foreign status and identity. Several documents satisfy this requirement. These are:

• Passport. (Note: You can use a passport as a stand-alone document for dependents with a U.S. date of entry. Otherwise, an additional ID from the list below is required)
• National ID card (must show photo, name, current address, date of birth and expiration)
• U.S. driver's license
• Birth certificate (required for dependents under 18)
• Foreign driver's license
• U.S. state ID card
• Foreign voter's registration card
• U.S. military ID card
• Foreign military ID card
• Visa
• U.S. Citizenship and Immigration Services (USCIS) photo identification
• Medical records (only dependents under 6)
• School records (dependents under 14, or under 18 if a student)

Only original documents or copies certified by the issuing agency are accepted. If you would rather not mail original documents, you may use the IRS Certified Acceptance Agent (CAA) Program or make an appointment at a designated IRS Taxpayer Assistance Center.

3. Dependent requirements. If you need to renew your ITIN, you have the option to renew ITINs for your entire family at the same time. For dependents from countries other than Canada or Mexico or dependents of U.S. military members overseas, a passport with a U.S. entry date may serve as stand-alone identification. Along with the passport, dependent applications require:

• U.S. medical records for dependents under age 6, or
• U.S. school records for dependents under age 18
• U.S. school records for dependents age 18 and over or,
• Rental statement with the applicant’s name and U.S. address or
• Utility bill with the applicant’s name and U.S. address or
• Bank statement with applicant’s name and U.S. address

To claim certain credits and to receive a timely refund, renew your ITIN before you file your taxes.

Additional IRS Resources:

• Form W-7, Application for IRS Individual Taxpayer Identification Number
• IR-2016-100, IRS Works to Help Taxpayers Affected by ITIN Changes; Renewals Begin in October
• IR-2016-129, IRS Now Accepting ITIN Renewal Applications; Taxpayers Encouraged to Act Soon to Avoid Processing Delays in 2017
• ITIN Expiration Frequently Asked Questions

IRS, Security Summit Partners Expand Identity Theft Safeguards for 2017 Filing Season, Build on 2016 Successes

WASHINGTON – The Internal Revenue Service, state tax agencies and industry partners today finalized plans for 2017 to improve identity theft protections for individual and business taxpayers after making significant inroads this year against fraudulent returns.

Public and private sector leaders announced today that their collective efforts through the Security Summit initiative have led to a marked improvement in the battle against identity theft during 2016. This is highlighted by the number of new people reporting stolen identities on federal tax returns falling by more than 50 percent, with nearly 275,000 fewer victims compared to a year ago.

At a Washington press conference, Summit leaders also detailed new and expanded safeguards for taxpayers in the upcoming 2017 tax season. The 2017 focus revolves around “trusted customer” features that will help ensure the authenticity of the taxpayer and the tax return - before, during and after a tax return is filed. The additional protections will build on the 2016 successes that prevented fraudulent returns and protected tax refunds.

“We’ve made remarkable progress this year in our efforts to protect taxpayers following the unprecedented coordination with the states, the tax industry and the financial sector,” said IRS Commissioner John Koskinen. “Working together, this coalition has expanded its activities in many different areas, and we are focused on strengthening our systems and processes even more for the upcoming tax season.”

“It is gratifying to see how many different ways we have already identified and begun to implement changes,” said Dawn Cash, Commissioner, Oklahoma Tax Commission and President, Board of Trustees of the Federation of Tax Administrators. “Taxpayers in states across the country are benefiting from this important work.”

Summit Helps Produce Successes in 2016 Against Identity Theft; Victims Down by Half

Security Summit initiatives put in place in 2016 had a dramatic impact on the collective ability to identify and stop fraudulent returns. Key IRS statistics show decreases because Summit efforts were successful at preventing fraudulent returns from entering tax processing systems. This meant fewer bad returns, fewer bad refunds and fewer taxpayers becoming victims.

Among the examples seen by the IRS:

• Identity theft affidavits fell sharply. The number of people who filed affidavits with the IRS saying they were victims of identity theft dropped 50 percent during the first nine months of this year compared to 2015. The number of new affidavits filed fell to 237,750 compared to 512,278 for the first nine months of 2015.
• More fraudulent returns stopped before processing. IRS statistics show a nearly 50 percent drop in the number of fraudulent returns that made it into the IRS tax processing systems– another sign the Summit efforts are working up front in the tax process. Through September of this year, the IRS stopped 787,000 confirmed identity theft returns, totaling more than $4 billion. For the same nine-month period in 2015, the IRS stopped 1.2 million confirmed identity theft returns, totaling about $7.2 billion.
• Fraudulent refunds fell. The number of bank partners grew to 620 institutions from 514 institutions in 2015, enabling internal processes to continue improving. The number of suspect refunds stopped by banks and returned to the IRS dropped by more than 50 percent, to 108,539 in 2016 compared to 243,361 in 2015, demonstrating our improved ability to stop fraudulent returns before refunds are paid. The dollar amount of suspect refunds dropped to $239 million from $829 million in 2015.
• Shared information stopped more bad returns. Industry and state partners provided information that helped improve IRS fraud filters and stop additional bad tax returns, including 57,000 that would have bypassed IRS processing filters without Summit assistance.
• Shared data elements helped identify new areas. Several new data elements shared on tax returns from Summit partners helped the IRS stop over 74,000 suspicious returns, representing over $372 million in refunds that were prevented from being paid.

“We've come a long way in a short time following the creation of the Security Summit,” Koskinen said. “But much more work remains to be done, and the partnership has agreed to take even more steps to protect taxpayers in 2017.”

More Steps Planned for 2017 Tax Season

For the 2017 filing season, the IRS and Summit partners will take additional actions. As with 2016, many of the new features will not be visible to taxpayers but will provide the IRS and states with the information they need to identify and stop fraudulent identity theft returns.

Among the new or expanded features for 2017 that will protect taxpayers and the tax system:

• New data elements transmitted by the tax industry with every tax return have been updated and expanded. In all, 37 new data elements will be added for 2017, providing additional information to strengthen the authentication that a tax return is being filed by the real taxpayer.
• The tax industry will share with the IRS and states 32 data elements from business tax returns – extending more identity theft protections to business filers as well as individuals.
• More than 20 states are working with the financial services industry to create their own version of a program that allows the industry to flag suspicious refunds before they are deposited into taxpayer accounts. Also, private sector partners are enhancing efforts to identify the “ultimate bank account” to ensure that the refunds go into the true taxpayers’ accounts – not fraudsters.
• The Form W-2 Verification Code initiative started by the IRS last year will expand to 50 million forms in 2017 from 2 million in 2016. When completing a tax return, the 16-digit verification code should be entered when prompted by tax software used by both individuals and tax professionals to validate the information on the Form W-2. The IRS anticipates the verification code will be expanded in future years for all Forms W-2.
• The software industry will continue to enhance software password requirements for individuals and tax professional users – providing additional safety prior to filing.

Taken together, these “trusted customer” features will help the IRS and states do an even better job of detecting fraudulent returns and protecting taxpayers.

As part of that effort, the Summit partners will launch a new Identity Theft Tax Refund Fraud Information Sharing and Analysis Center, or ISAC. This project, in its initial stages for 2017, will serve as an improved early warning system – identifying emerging identity theft schemes and quickly sharing that information among Summit partners so that all of the participants can enact safeguards.

Summit partners believe an ISAC ultimately promises significant gains in detecting and preventing identity theft refund fraud and will provide better data to law enforcement to investigate and prosecute identity thieves. This effort will provide all Summit partners with a threat assessment capability, early warnings about problems and insights about identity theft fraud schemes through nimble and agile information sharing.

Education Campaign Continues for Taxpayers, Tax Professionals

The Security Summit will continue its campaigns to increase awareness about data security to both taxpayers and tax preparers. Last year, the Summit partners launched the “Taxes.Security. Together.” campaign to encourage taxpayers to take greater data security precautions and to learn how to recognize and avoid phishing emails that seek to trick people into providing sensitive data such as Social Security or credit card numbers.

This year, the Summit partners expanded the campaign to include tax professionals, who increasingly are being targeted by criminal syndicates. Summit partners initiated a new campaign called “Protect Your Clients; Protect Yourself” and urge tax professionals to use the best security practices available. Tax professionals should review Publication 4557, Safeguarding Taxpayer Data, to see an action check-list for ensuring data security.

As tax season approaches, the IRS and Summit partners will share more tips for tax professionals in upcoming weeks. And for taxpayers, the “Taxes.Security.Together” campaign will resume for a second year in the weeks leading up to the opening of the 2017 filing season in January with important information that taxpayers can use to protect their sensitive taxpayer and financial data.