In IR-2016-119 the IRS reports new attacks on professional tax preparers. In a dozen cases, identity thieves gained access to the computers of a professional tax preparer. The thieves then e-filed returns and directed the refunds to their personal financial accounts.

IRS Commissioner John Koskinen stated, “This latest incident reinforces the need for all tax professionals to review their computer settings as soon as possible. Identity thieves continue to evolve and look for new areas to exploit, especially as our fraud filters become more effective.” Koskinen observed that there often is an increase in identity theft prior to filing deadlines. For taxpayers who extended their 2015 returns, the filing deadline is October 17, 2016.

The IRS outlines several steps for the protection of tax information. These steps are also good advice for all taxpayers.

1. Virus Software – You should periodically run a “deep scan” with your virus software. This will search for a virus or malware.
2. Passwords – Use passwords with 8 – 14 characters. A strong password includes both uppercase and lowercase letters, numbers and symbols and is changed periodically.
3. Phishing – If you do not know the sender, be careful not to click on links or attachments. The link or attachment could download a virus or malware on your computer.
4. Remote Access – If you permit access to an internal computer network from outside your office, use appropriate security measures. It is best to have an experienced IT person review the security of your remote access system.

IRS Publication 4557, “Safeguarding Taxpayer Data, A Guide for Your Business” is available on www.irs.com.

Election Clock Ticking

Congress is back in Washington for a shortened legislative session. All 435 Members of the House and one third of the Senators are diligently preparing campaigns for the November election.

The House of Representatives will not complete work on all of the appropriation bills prior to the start of the new fiscal year on October 1, 2016. Therefore, a continuing resolution (CR) will be required. The House Republicans scheduled a caucus meeting on September 9 to discuss the CR and the 2017 budget.

Several Members of the House have been discussing the potential for a tax extenders bill. There are four interest groups who are seeking a potential extension of laws that will expire on December 31, 2016.

Native Americans are hopeful that the Indian Employment Credit and accelerated depreciation provisions will be extended. Dante Desiderio is Executive Director of the Native American Finance Officers Association. He stated, “The accelerated depreciation is really one of the only incentives for outside capital coming into Indian country for good jobs. We have been doing this for quite a while and it is so much less effective when we are having to advocate for these things every year, retroactively.”

Low-income urban and rural areas have historically been designated as empowerment zones. There is a $3,000 tax credit and a $20,000 expense allowance in these areas. In addition, many facilities in empowerment zones have been constructed with tax-exempt bonds.

Mortgage relief is still of concern. In some parts of the country, there are significant numbers of homeowners who are “underwater” on their mortgages. If they sell in a short sale after the end of this year, they could be required to pay a substantial tax on their debt relief.

The Hollywood film industry will potentially lose a $15 million expensing benefit. This benefit has facilitated production in the United States rather than overseas. Finally, there is bipartisan support for extending the $3,500 per track mile credit for maintenance of rail lines.

These tax extenders are not likely to be in the continuing resolution that may be effective from October 1 to mid-December this year. Sen. John Thune (R-SD) stated, “At this point, that would muck the CR up in a way that would prolong its consideration around here and would be very controversial and probably make it difficult to pass.”

House Ways and Means Chairman Kevin Brady (R-TX) repeated the opposition of the House taxwriters to a new extenders bill. He stated, “As far as tax legislation on the CR, I am unaware of any in the mix.” He continued to note that the House “strongly objects” to passage of a new tax extenders bill, even during the expected lame-duck session in November.

Editor’s Note: The PATH Act of 2015 made many of the tax extenders permanent. Both House and Senate taxwriters hope to pass only permanent tax legislation in the future.

Relief on Individual Mandate Penalty

On September 8th, the House Ways and Means Committee passed the CO-OP Consumer Protection Act of 2016 (H.R. 954). Under this bill, persons who lose health insurance due to failure of a federally-backed nonprofit CO-OP will not pay the individual mandate penalty.

Chairman Brady explained that there originally were 23 federally-backed healthcare CO-OPs. These organizations offered health insurance under the Affordable Care Act. Of the 23, 16 have now closed and seven continue to function.

When the 16 CO-OPs closed, some taxpayers obtained health coverage from other providers, but many younger persons have not obtained health coverage. These individuals could be subject to the $695 Shared Responsibility Payment for 2016. Chairman Brady suggested that the best solution is to exclude these persons from this payment. He stated, “As we work to turn our plan into legislation, it is only right to offer immediate relief from this tax penalty to Americans who lost their insurance – or lose it in the future.”

Ranking Member Sander Levin (D-MI) suggested that there also are other options for individuals who have lost coverage. He quoted a letter from Andrew Slavitt, Acting Administrator for the Centers for Medicare and Medicaid Services. The letter stated, “In addition to the options for continuous coverage, consumers may also qualify for an exemption from the individual shared responsibility payment. Consumers experiencing short coverage gaps (less than three consecutive months) or for whom coverage is considered unaffordable based on income and the plans available to them may be eligible for an exemption.”

Editor’s Note: Your editor recognizes there are strong feelings on the Affordable Care Act by many Americans and Members of Congress from both parties. This information is offered as an educational service to our readers.

Applicable Federal Rate of 1.4% for September—Rev. Rul. 2016-20; 2016-36 IRB 1 (18 August 2016)

The IRS has announced the Applicable Federal Rate (AFR) for September of 2016. The AFR under Section 7520 for the month of September will be 1.4%. The rates for August of 1.4% or July 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 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.