Free Tax Return Help

In IR-2016-35, the IRS reminded taxpayers that there is free tax help available. First, the Volunteer Income Tax Assistance (VITA) program is available for persons with incomes of $54,000 or less, disabilities or limited English proficiency. Second, Tax Counseling for the Elderly (TCE) is available for persons age 60 and older.

A key area of interest for both VITA and TCE is the Earned Income Tax Credit (EITC) and the child and dependent care credit. The EITC is refundable for qualifying taxpayers who have earned income. Last year, nearly $66.7 billion was refunded under this program. The amount per recipient was about $2,400. The maximum benefit for year 2015 is $6,242. You must file IRS Form 1040 to receive the EITC benefit.

For additional information on VITA or TCE, go to www.irs.gov and download Publication 3676-B. There is also a “locator” tool on irs.gov and the smartphone app “IRS2GO”. The locator tool will help you find the nearest location with a VITA or TCE program.

If you want to make use of VITA or TCE, you will need to take several items to the location.

1. Identification – You will need a photo ID. This is usually a driver’s license or similar document.
2. Social Security Card – Bring the Social Security cards of the taxpayer, spouse and all dependents. The birthdates of everyone must also be available.
3. Income Tax Identification Number (ITIN) – An ITIN may be an acceptable substitute for a Social Security Number.
4. Wages and Earnings – You will need your W-2s, Forms 1099-R or Forms 1099-MISC.
5. Banks and Credit Unions – Gather all of your income and dividend statements. If you have a mortgage and plan to itemize deductions, you will need that statement from your lender.
6. Health Insurance – You may have received Forms 1095-A, 1095-B or 1095-C. These will be needed to complete your Affordable Healthcare statements. If you have a Health Insurance Exemption Certificate, that also will be needed.
7. Daycare – If you have a child or dependent who is in daycare, you will need the total amount of payments and the daycare provider’s Social Security Number or business Employer Identification Number (EIN).
8. Tax Returns – You should have your prior year’s state and federal tax returns.

Members of the military may seek assistance from the Armed Forces Tax Council (AFTC). The AFTC assists members of the Army, Navy, Marine Corps, Air Force and Coast Guard. Many AFTC volunteers understand military tax issues such as combat zone pay.

Payments are due by April 18, 2016. You may use the “Direct Pay” system to make a transfer directly from your checking or savings account to the IRS.

Most taxpayers will file electronically and also receive an electronic refund, if applicable. You need a bank check with the account and routing numbers to receive an electronic refund.

New HR “Phishing” Scam

In IR-2016-34 the IRS warned payroll and HR staff to be on guard for a new “phishing” scam.

IRS Commissioner John Koskinen stated, “This is a new twist on an old scheme using the cover of tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments. If your CEO appears to be emailing you for a list of company employees, check it out before you respond.”

The new “phishing” strategy has tricked a number of HR and payroll executives into releasing employee data. A fraudster creates an email that appears to be from the CEO of the company. The “CEO” asks the payroll or HR person to send names, payroll information, Social Security Numbers and other information.

Some of the reported emails include the following:

“Kindly send me the individual 2015 W-2 and earnings summary for all W-2s of our company staff for a quick review.”

“Can you send me the updated list of employees with full details (name, Social Security Number, date of birth, home address, salary) as of February 2, 2016?”

“I want you to send me the list of W-2 copies for the employee wage and tax statements for 2015. I need them in PDF file type. You can send it as an attachment. Kindly prepare the list then email them to me ASAP.”

Editor’s Note: As Commissioner Koskinen states, any requests by high-level executives for payroll and staff information should be specifically confirmed. After obtaining a confirmation that the executive has actually requested this information, then it may be distributed with appropriate care to preserve confidentiality.

Estate Basis Reporting Proposed Regulations

In T.D. 9757 and REG-127923-15 the IRS published temporary and proposed regulations on basis reporting by executors. Under Sec. 1014(f) there must be a consistency of basis for both federal estate tax returns and for recipients of assets. A person filing a return under Sec. 6018(a) or (b) must file an information return with the IRS and provide a copy to each recipient with the estate reported value. Sec. 6035(a)(2) requires the filing to be within 30 days of the earlier of filing IRS Form 706 or the deadline, with extensions, for that filing.

For estates after July 31, 2015, Notice 2016-19, 2016-9 IRB 362, delayed the filing date to March 31, 2016. The taxpayer initial basis in property may not exceed the estate final value. See Reg. 1.1014-10(c). Property covered by Sec. 2031 or Sec. 2106 is included if it increases the federal estate tax.

There are several exclusions. Property is excluded if there is no federal tax, if the return is filed solely to elect marital portability or if the asset is cash or tangible personalty not requiring an appraisal under Reg. 20.2031-6(b).

If the executor is not able to determine property allocation by the statement due date, Prop. Reg. 1.6035-1(c)(3) mandates duplicate reporting of all potential transfers to beneficiaries. In addition, Prop. Reg. 1.6035-1(f) requires recipients who subsequently gift the property to also report the basis to the IRS and the transferee.

Applicable Federal Rate of 1.8% for March—Rev. Rul. 2016-7; 2016-10 IRB 1 (18 Feb 2016)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2016. The AFR under Section 7520 for the month of March will be 1.8%. The rates for February of 2.2% or January of 2.2% 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 2016, 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.