Tax Tips: Keep personal information safe under digital lock and key
During the ninth annual National Tax Security Awareness Week, the IRS and its Security Summit partners want to assist taxpayers in recognizing tax scams and fraud to keep their information safe and out of the hands of identity thieves and scammers. By following these tips, taxpayers can reduce the risk of losing their identity, money or accounts to criminals.
Always protect personal data
If someone is requesting a taxpayer’s personal information – their date of birth, age, address, Social Security number or bank account information – the taxpayer should be cautious. Ask why the information is needed and only provide what’s absolutely necessary. It’s also a good practice not to respond to emailed, texted or other requests but instead to seek out the requestor’s website or to contact them directly.
Shop at reputable retailers
When shopping online, taxpayers should confirm they’re on a reputable and secure retailer’s website and avoid sites with invalid digital certificates. Don’t assume that a web address is legitimate just because it includes "https." Criminals can purchase valid security certificates and attach them to fraudulent websites.
Use security software
The IRS encourages taxpayers to take the time to ensure all family members have comprehensive anti-virus protection for their digital devices, particularly on shared devices. When a taxpayer stores sensitive files – such as tax records – on a digital device, they should backup and encrypt those files for additional protection.
Choose strong passwords and enable two-factor authentication
Use strong, unique passwords for each account and enable two-factor authentication where possible. Remember to never re-use passwords for online accounts and never share passwords with anyone.
Know the risk of public Wi-Fi
Connection to public Wi-Fi is convenient and often free, but it may not be safe. Criminals can easily steal personal information from these networks. People should always be cautious and use a virtual private network when connecting to public Wi-Fi.
Be aware of compromised accounts
Once a criminal hacks an email or social media account, they may try to scam the victim's contacts by posing as the victim. Everyone should be suspicious of unusual, out-of-character requests or messages, even when the account belongs to a friend, colleague or family member.
Act fast if identity theft happens
If a taxpayer was targeted by identity theft, they can take action to protect their tax information.
... See MoreSee Less
Tax Tips: Charitable contribution scams on the rise; taxpayers beware of those promoting fraudulent schemes
The Internal Revenue Service today warned taxpayers to avoid promoters of fraudulent tax schemes involving donations of ownership interests in closely held businesses, sometimes marketed as “Charitable LLCs.”
These promotions often target higher-income filers and are considered abusive transactions by the IRS.
Taxpayers should remember they are always responsible for the accuracy of information reported on their tax return. Participating in an abusive scheme to reduce their tax liability can result in assessment of the correct tax owed, penalties, interest, and potentially fines and imprisonment. Charities also need to be careful they do not knowingly enable these schemes.
While taxpayers can properly deduct donations of closely held business interests, unscrupulous promoters sometimes lure taxpayers into schemes involving false charitable deductions.
These schemes typically encourage higher-income taxpayers to create limited liability companies (LLCs), put cash or other assets into the LLCs, then donate a majority percentage of nonvoting, nonmanaging, membership units to a charity while the taxpayer maintains control of the voting units and reclaims the cash or asset(s) directly or indirectly for personal use. The promoter sometimes has control over the charity that receives the donation.
IRS investigating abusive transactions
The IRS is currently using a variety of compliance tools to combat abusive donations, including thorough audits of tax returns and civil penalty investigations. The IRS has seen hundreds of tax returns filed using this abusive charitable contribution scheme. IRS active promoter investigations and taxpayer audits in this area have resulted in a promoter pleading guilty and others being criminally convicted of this scheme, including a donor who pled guilty to obstruction.
To avoid penalties, interest, and potential fines or imprisonment, the IRS encourages taxpayers to watch out for abusive transactions marketed by unscrupulous promoters.
Abusive scheme design
In the “Charitable LLCs” scheme, promoters create documents establishing the LLC for a fee. They then assist in the transfer of the taxpayer’s assets to the LLC and create documents that purport to transfer membership units in the LLC to a charity. The promoter might supply an appraisal supporting the valuation for the claimed gift and might even provide a list of charities willing to accept the membership units or identify a single charity that will accept the donation.
Promoters might incorrectly advise clients that they can retain control and legally access the cash or other assets transferred to the LLC for their own personal use after the donation. Promoters might also execute an “exit strategy” for taxpayers to buy back their contributions at a significantly discounted price after a period of time.
Generally, taxpayers cannot deduct a charitable contribution of less than their entire interest in property, and retaining rights to control the donated interests or buy back assets will disqualify the transaction as a deductible charitable contribution.
... See MoreSee Less
