IRS Announces New Way to Pay Tax Bills That Have Gone to Private Collections

IRS Announces New Way to Pay Tax Bills That Have Gone to Private Collections

IRS Stresses Convenience of New Payment Method

Taxpayers whose outstanding tax bill has been referred to a private debt collector have a new way to pay, according to a recent IRS press release.

The IRS launched the private debt collection program following the passage of the 2015 Fixing America’s Surface Transportation (FAST) Act, which—according to a TIGTA audit—”required the IRS to begin using private collection agencies (PCA) to collect inactive tax receivables.” This latest incarnation marks the third time Congress has attempted such a program.  

The latest development in the private collections program seems to emphasize convenience: PCA-referred tax debt can now be paid by preauthorized direct debit. Previously, taxpayers who had been contacted by a PCA would make payments by mailing a check directly to the Treasury or using the online payment tool on IRS.gov. That hard separation between the collection agency and making payments could make setting up the new payment option a little confusing since taxpayers have to schedule direct debit payments through the PCA.

The IRS said that taxpayers interested in using direct debit must first send a signed letter of permission to their collection agency “[containing] the payment schedule and bank account information.” Here is the contact information for the PCA partners listed on the IRS.gov “Private Debt Collection” page:

  • CBE
    O. Box 2217
    Waterloo, IA 50704
    800.910.5837
  • ConServe
    O. Box 307
    Fairport, NY 14450
    844.853.4875
  • Performant
    O. Box 9045
    Pleasanton, CA 94566
    844.807.9367
  • Pioneer
    PO Box 500
    Horseheads, NY 14845
    448.3531

After receiving a confirmation letter, taxpayers can begin coordinating payments with the PCA by phone. While direct debit promises to be a convenient way to resolve tax debt, officials warn that scammers might try to take advantage of taxpayers.

Scammers May Try to Impersonate Private Collection Agencies

When the program was first announced, TIGTA worried that scammers would try to impersonate PCAs. The IRS reiterated those concerns in this press release, emphasizing the importance of learning to spot fraud.  

A common scammer tactic is to ambush victims with angry phone calls demanding payment and threatening jail time. That’s why the IRS reminded taxpayers that they will not make demands or issue threats over the phone.

Moreover, contact from a PCA should not come as a surprise. The IRS initiates the process by sending a letter containing Notice CP40 and Publication 4518 to explain the situation, and the PCA follows up with an official letter of their own.

“Both letters will include a Taxpayer Authentication Number (TAN),” the IRS said. “The TAN will be used to authenticate the PCA and to verify the identity of the taxpayer, instead of using their Social Security Number.”

Finally, the IRS said that anyone who suspects they’re the target of a scammer should report the incident to TIGTA at Treasury.gov/TIGTA or 800.366.4484.

Sources: IR-2019-165, “Private Debt Collection,” Audit Report 2018-30-052

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IRS Marks National Work and Family Month

IRS Marks National Work and Family Month

October is National Work and Family Month, and to celebrate, the IRS is issuing informative tips on the work-life balance. Topics include family businesses, family tax credits, military tax benefits, scams and security issues.

National Work and Family Month was established by a 2003 Senate resolution. October was chosen to help communicate and celebrate progress towards creating more flexible work environments and helping Americans better balance their work-life commitments.

Employer Credit for Paid Family and Medical Leave

This credit highlights the spirit of National Work and Family Month. Eligible employers who provide paid family and medical leave to their employees in 2019 may qualify for a business credit. An employer must have a written policy to qualify. The policy should provide:

  • At least two weeks of paid family and medical leave annually to full-time employees, prorated for part-time employees.
  • Family and medical leave pay that is at least 50% of an employee’s wages.

For tax years 2018 and 2019, the worker must earn $72,000 or less to qualify. The credit ranges from 12.5% to 25% of wages paid to qualifying employees. Some employers, the IRS says, may be eligible to claim the credit retroactively.

Wages qualifying for the credit should have been paid in tax years beginning after Dec. 31, 2017, and before Jan. 1, 2020. Tax year 2019 is generally the last year most employers can claim this credit.

Family and Medical Leave Act

FMLA traces its roots back to 2003 and requires covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons. The law specifies certain types of employees who qualify for up to 12 weeks of unpaid, job-protected leave per year. During the leave period the employee’s group health benefits are also protected.

FMLA is designed to help employees balance their work and family responsibilities by allowing them to take reasonable unpaid leave for specific family and medical reasons.

For more information, check out “Employer Credit for Paid Family and Medical Leave,” available at IRS.gov. Other resources include the “Highlights of Tax Reform for Businesses” and “Employers may Claim Tax Credit for Providing Paid Family and Medical Leave to Employees” web pages.

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IRS Tax Tip Addresses Extension Deadline

IRS Tax Tip Addresses Extension Deadline

IRS to Taxpayers: Don’t Miss Next Week’s Filing Deadline!

The IRS this week reminded taxpayers that the filing deadline for those with a tax extension is Tuesday, October 15, 2019.

Generally, taxpayers who request an extension are given an extra six months to file their tax return with the IRS. While most tax extensions will need to be filed by October 15, the IRS noted in their tax tip that there are some exceptions—highlighting two groups in particular: members of the military and natural disaster victims who meet certain requirements.

Military members returning from combat zones usually have an extra 180 days to file and pay. The areas recognized as combat zones for the purposes of this extension and other requirements can be found on the IRS “Combat Zones Approved for Tax Benefits” web page.  

Taxpayers with a residence or business in a federally-declared disaster area may also qualify for tax relief, which generally means extra time to file their tax return and pay their tax bill. While disaster-related tax relief is automatically applied to qualifying taxpayers, taxpayers who aren’t sure about their status can contact the IRS. Recent tax-relief announcements and resources can be found on the IRS “Tax Relief in Disaster Situations” and “FAQs for Disaster Victims” pages.  

The release also reminded extension filers about the new Form 1040 for tax year 2018, how they can pay any tax owed, and the benefit of tax planning for tax year 2019.

When it comes to the new Form 1040, the IRS said, “[It] consolidates Forms 1040, 1040A, and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.” To assuage worries about needing to learn updated forms (like the new Schedules 1 through 6), the agency said that tax software tends to make the transition “seamless.”

A major misconception about getting a tax extension is that it also gives taxpayers more time to pay tax owed. Every year, the IRS reminds taxpayers that the deadline for payment remains April 15 (unless a federal holiday bumps Tax Day), and that any delay in submitting payment can mean owing penalties and interest.

To help taxpayers get square with the IRS, the agency provided links to several online resources for those who still need to pay their tax year 2018 taxes:

The IRS said that taxpayers can check their account on IRS.gov for more information about their tax situation: “[Taxpayers can] view their balance, payment history, pay their taxes, and access tax records through Get Transcript.”

Finally, the IRS recommended that taxpayers perform a “Paycheck Checkup” before the end of the year. Many taxpayers found that they owed a surprise tax bill when they filed their tax year 2018 return due to Tax Cuts and Jobs Act-related changes in withholding. They said that there’s still time to avoid a similar situation on their tax year 2019 return.

The updated Tax Withholding Estimator on IRS.gov can help taxpayers discover if they need to withhold more money from their paychecks—though “taxpayers should have their 2018 tax return available when using the tool.” That means filing an extension return on time will help taxpayers better prepare for next filing season.  

Source: IR-2019-163

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Safe Harbor Clarifies QBI Deduction for Some Rental Properties

Safe Harbor Clarifies QBI Deduction for Some Rental Properties

Taxpayers interested in taking the section 199A qualified business income deduction (QBI) for their rental property will be happy to learn that the IRS announced a finalized safe harbor rule this week.

QBI was introduced in the Tax Cuts and Jobs Act as tax relief for businesses not eligible for the new 21-percent C corporation tax rate. According to the IRS fact sheet, owners of passthrough entities can “deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.” For new deductions like QBI, safe harbor accounting methods can help address uncertainty.

A safe harbor is essentially an IRS-defined set of guidelines that taxpayers can follow when determining eligibility for complicated tax benefits. If the subject of the tax benefit falls within that set of parameters, the IRS will not challenge the position taken on the tax return. To claim the QBI safe harbor for rentals, the IRS says the rental property must tick all of these boxes:

  • Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
  • For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
  • The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
  • The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.

Even if the rental falls short of the safe harbor requirements, the IRS reminded taxpayers that they may still be able to claim the QBI deduction—though the process won’t be as clear cut.

To learn more about the finalized QBI safe harbor rules, review Revenue Procedure 2019-38 and the IRS web page on tax reform.

Sources: IR-2019-158; FS-2019-8

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Tax Relief Available When Disaster Strikes

Tax Relief Available When Disaster Strikes

While current weather patterns point to an active hurricane season, the IRS wants taxpayers to know that disaster assistance and tax relief measures are in place should a natural disaster strike.

Before the Internal Revenue Service can authorize tax relief, though, the president has to declare the event a federal disaster. Once that occurs, tax relief measures can be set in motion.

Here’s a few of the tax tools taxpayers may be granted in a federally declared disaster.

More Time to File and Pay
Taxpayers located in a disaster area may receive extra time to file returns and pay taxes. The IRS Twitter account and disaster assistance page provide disaster updates and links to resources. Taxpayers can also call the IRS disaster line at 866.532.5227. 

Qualify for a Casualty Loss Tax Deduction
People whose property was damaged or lost in a federally declared disaster may qualify to claim a casualty loss deduction. They can claim this on their current or prior-year tax return and may get a larger refund. The IRS says it will process these returns quickly.   

File for a Disaster Loan or Grant
The Small Business Administration offers financial help to business owners, homeowners, and renters in a federally declared disaster area. To qualify, a taxpayer must have filed all required tax returns. 

Request a Tax Return Transcript
People affected by a disaster can get copies or transcripts of past tax returns for free by submitting one of two forms. These are Form 4506, Request for Copy of Tax Return, and Form 4506-T, Request for Transcript of Tax Return. The taxpayer should state on the form the request is related to a disaster. They should also list the state and type of event to help speed up the process.

Submit a Change of Address
After a disaster, taxpayers who might need to temporarily relocate should notify the IRS about their new address by submitting Form 8822, Change of Address. 

The IRS encourages affected taxpayers to review all federal disaster relief by visiting disasterassistance.gov

Additional Resources

The IRS has a number of other resources that can help map a course of action after a natural disaster:

Reconstructing records after a disaster
Tax relief in disaster situations
Around the nation
FAQs for disaster victims
Publication 2194, Disaster Resource Guide for Individuals and Businesses
Publication 584, Casualty, Disaster, and Theft Loss Workbook
Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook

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New Process Lets Expats get Square with IRS

New Process Lets Expats get Square with IRS

The Internal Revenue Service says it has new procedures in place that can help certain expatriated American taxpayers come into compliance with their U.S. tax obligations and get relief for back taxes.

Relief Procedures for Certain Former Citizens apply only to those individuals who have not filed U.S. tax returns as American citizens or residents, owe a limited amount of back taxes to the U.S. and have net assets of less than $2 million.

Lack of compliance by eligible taxpayers must not have been willful in order to take part in this program. The IRS acknowledges that many of the taxpayers in this group have lived outside the U.S. for most of their lives and my not even been aware they had American tax obligations.

To qualify for the program, the IRS says taxpayers have to file their missing tax returns as a first step:

“Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes,” the IRS press release states.

Individuals who qualify for the procedure will not be assessed penalties and interest. These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities are not eligible.

No specific termination date was issued for this new program, although the IRS says it will issue a closing date before it decides to shut the program down.

Taxpayers who relinquished their U.S. citizenship any time after March 18, 2010, are eligible – as long as they satisfy the other criteria of the new procedure.

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