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Taxes and IRS News, Regulations, and Scams

Why do we have to file a tax return, Congressman/CPA asks

Rep. Brad Sherman says the IRS already has all the information it needs

Did you ever wonder why you have to file a tax return? After all, the IRS already knows how much you made from the W-2 and 1099 forms filed by your employer and others. It knows how many dependents you have, as well as other routine information from your previous returns.

So, unless you itemize your deductions, why doesn't the IRS just calculate your tax for you?

Good question, and one that Rep. Brad Sherman (D-Calif.), a CPA, seeks to answer with a bill he has introduced...

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    The IRS is hiring debt collectors

    Raises possibility that scammers will try to impersonate them

    If you owe the Internal Revenue Service (IRS) back taxes and despite repeated reminders, still haven't gotten around to writing a check, expect a call from a debt collector.

    The IRS has started sending letters to what it calls “a relatively small group” of taxpayers who are severely delinquent. The letters will explain that the IRS has turned the account over to one of four private debt collection agencies.

    The IRS says the delinquent accounts are old and multiple attempts have been made in the past to collect them. Still, this effort could pose dangers for a wide range of consumers if scammers seize on this development.

    “The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John Koskinen. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

    How to avoid a scam

    That last part is key. Koskinen says the people who will receive calls from these legitimate debt collectors are well aware that they have an unpaid tax debt. They have dealt with IRS personnel on this issue in the past.

    That means if you are unaware that you owe the IRS money and get a call from someone claiming to be a debt collector, the IRS says you are being targeted by a scammer and should hang up.

    Okay, this bears repeating. If you are unaware that you owe back taxes and someone calls you claiming you do, you don't. It's that simple.

    Letter from the IRS

    The collection program began this week and the people who owe the money should have received a letter from the IRS, telling them to expect a call. If you didn't get one of these letters, you don't owe any money.

    Here's another clue – the IRS says people who owe money will always be contacted by the tax agency first, before they are ever contacted by a debt collector. So if the IRS hasn't contacted you, neither should a debt collector.

    The IRS reiterates that taxpayers should be vigilant for scammers posing as private collection firms. The IRS said it will also be watching for these schemes as the collection program begins.

    If you owe the Internal Revenue Service (IRS) back taxes and despite repeated reminders, still haven't gotten around to writing a check, expect a call from...

    2017 tax filing season just around the corner

    This time, you'll have an extra three days

    It's almost time to drag out that shoe box full of receipts.

    The Internal Revenue Service (IRS) says tax season will begin Monday, January 23, with the acceptance of electronic tax returns.

    The IRS expects more than 80% of tax returns will be prepared electronically using tax return preparation software with more than 153 million individual tax returns filed in 2017.

    The agency will also begin processing paper tax returns the same day, but notes there is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.

    Important change

    A new law requires the IRS to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until Feb. 15. In addition, taxpayers should be aware it'll take several days for these refunds to be released and processed through financial institutions.

    Factoring in weekends and the President’s Day holiday, many affected taxpayers may not have actual access to their refunds until the week of Feb. 27.

    “For this tax season, it’s more important than ever for taxpayers to plan ahead,” notes IRS Commissioner John Koskinen. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay.”

    Delayed filing deadline

    The deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday -- April 17.

    However, Emancipation Day -- a legal holiday in the District of Columbia -- will be observed on that Monday, bumping the nation’s filing deadline to Tuesday, April 18. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

    It's almost time to drag out that shoe box full of receipts.The Internal Revenue Service (IRS) says tax season will begin Monday, January 23, with the...

    Get that tax refund ASAP

    We have tips to help you avoid a delay

    If you overpaid your taxes this year (too much withholding is the main culprit), you'll have a refund coming. And, of course, you'll want that money as soon as you can get it.

    The first thing you'll need to do is have all the documents you need -- things like W-2s and 1099s -- before you file your return. You also may need a copy of your 2015 tax return to make it easier to fill out a 2016 tax return.

    Beginning next year, 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 Internal Revenue Service (IRS) will begin accepting and processing tax returns once the filing season begins.

    Updating your ITIN

    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.

    If you have an expiring ITIN and need to file a return in 2017, you'll have to renew it. It typically takes seven weeks to receive an ITIN assignment letter, but can take longer -- 9 to 11 weeks if you wait to submit Form W-7 during the peak filing season or send it from overseas.

    Taxpayers who don't renew an expired ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. You can get more information on the the ITIN information page on IRS.gov.

    Mandated delays

    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 get the refund you are owed by giving the agency more time to help detect and prevent fraud.

    By the way, you shouldn't 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.

    What to do

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

    Use direct deposit

    With direct deposit, the refund goes directly into your 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% 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.

    If you overpaid your taxes this year (too much withholding is the main culprit), you'll have a refund coming. And, of course, you'll want that money as soo...

    IRS unveils 2017 pension plan limitations

    There's no change in the limit for 401(k) contributions

    An increase is on the way from the Internal Revenue Service pertaining to income ranges and determining eligibility for making deductible contributions to traditional IRAs, contributing to Roth IRAs, and claiming the saver’s credit.

    You can deduct contributions to a traditional IRA if you meet certain conditions. For example, if during the year either you or your spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated -- depending on filing status and income. If neither is covered, the phase-outs of the deduction do not apply.

    Next year's phase-out ranges

    • For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000 -- up from $61,000 to $71,000.
    • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, versus $98,000 to $118,000.
    • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000 -- up from $184,000 and $194,000.
    • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The new income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household. This year it was $117,000 to $132,000.

    For married couples filing jointly, the income phase-out range is now $186,000 to $196,000, versus $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $62,000 for married couples filing jointly, up $500; $46,500 for heads of household, up $375; and $31,000 for singles and married individuals filing separately, up $250.

    No change for these limitations

    • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $18,000.
    • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $6,000.
    • The limit on annual contributions to an IRA is unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

    Details are outlined in IRS Notice 2016-62.

    An increase is on the way from the Internal Revenue Service pertaining to income ranges and determining eligibility for making deductible contributions to...

    U.S. Treasury enacts regulations to stop earnings stripping

    The new rules would make it harder for some corporations to dodge taxes

    One of the main political sticking points for candidates over the years has concerned taxes – more specifically, how to make sure U.S. companies pay their fair share of them.

    Many have called the tax system broken over the years because of how easy it is for a company or corporation to acquire a business overseas and move its tax address. This allows multinational businesses to engage in “earnings stripping,” which is the term that describes a company that pays deductible interest to a parent company or affiliate in another country that has lower taxes. Simply put, it allows a business to avoid paying as much as they should in U.S. taxes.

    But in an interview with CNBC on Thursday, U.S. Treasury Secretary Jack Lew announced new regulations that will limit companies’ ability to take part in this kind of “egregious” tax avoidance. The new rules will seek to end earnings stripping and mandate that corporations file documentation on interest deductions on related-party loans.

    “This administration has long called for legislative action to fix our broken tax system. In the absence of Congressional action, it is Treasury’s responsibility to use our authority to protect the tax base from continued erosion,” said Treasury Department Secretary Jacob J. Lew in a statement.

    “We have taken a series of actions to make it harder for large foreign multinational companies to avoid paying U.S. taxes and reduce the incentives for U.S. companies to shift income and operations overseas. Such tax avoidance practices are wrong and should be stopped.”

    Exceptions and exemptions

    The proposed regulations were submitted back in April, and were subject to months of scrutiny from stakeholders before being finalized. As a result, the finalized version allows for several exceptions and exemptions for situations where there is a low risk of earnings stripping.

    Feedback from the public also led to exemptions for foreign subsidiaries of U.S. multinational corporations, transactions between pass-through businesses, cash pools, and limited exemptions for financial institutions and insurance companies that are subject to regulatory oversight for their capital structure.

    The final regulations also include more relaxed documentation requirements than those suggested in April, as well as more exceptions for ordinary course transactions like stock acquisitions associated with employee compensation plans. The regulations will go into effect on January 1, 2018.

    Mixed reviews

    Republicans and Democrats have remained divided on the new regulations. Rep. Kevin Brady (R-Tex) claims the regulations were pushed through too quickly and may damage U.S. workers and the economy. “By rushing the review process – despite the extensive comments received – and finalizing these regulations so quickly, it appears the Obama Administration has ignored the real concerns of people who will be most impacted by these far-reaching rules,” he said.

    On the other side of the aisle, Rep. Sander Levin (D-Mich) said the new regulations were a step in the right direction towards restoring fairness to the tax system.

    “For years, companies have been inverting and engaging in earnings stripping to unfairly lower their tax bills. In the absence of Republican action on tax reform, Treasury has used its Administrative authority to help bring fairness to the tax system. Today’s regulations from Treasury—which took into account extensive comments from the public and intensive meetings with Republicans and Democrats in Congress—go straight to the core of that fairness issue by strongly limiting a company’s ability to use this tax avoidance strategy, which involves disproportionately leveraging a U.S. company with debt and ‘stripping’ the U.S. tax base through deductible interest payments,” he said.

    One tax expert found both positives and negatives to the new regulations, saying that some necessary steps were taken but that some parts were still worrisome.

    “On the plus side, the documentation rule’s applicability of 1/1/18 and the exception – for the time being at least – for foreign issuers were responsive to comments and were absolutely necessary. . . But the rules’ general response regarding cash pooling will still be highly burdensome where they apply as will the retroactive application of the re-characterization rules,” said Ronald Dabrowski, a principal of KPMG LLP, a Washington National Tax practice.

    So, based on the mixed reviews, consumers may have to wait and see if the new regulations save the tax system or lead to the collapse of the country as we know it. The smart bet may be to expect something in between. Consumers can learn more by visiting the Treasury's fact page here.

    One of the main political sticking points for candidates over the years has concerned taxes – more specifically, how to make sure U.S. companies pay their...

    Revised fees proposed for taxpayers using installment plan

    Some are rising, others remain the same

    If you're a taxpayer who uses the installment plan to settle up with Uncle Sam, you need to know that the Internal Revenue Service (IRS) is proposing a revised schedule of user fees that would take effect on Jan. 1, 2017.

    Federal agencies are required to charge a user fee to recover the cost of providing certain services to the public that confer a special benefit to the recipient. While some installment agreement fees will go up, the IRS will continue providing reduced-fee or no-cost services to low-income taxpayers.

    Changes on the way

    The revised installment agreement fees of up to $225 would be higher for some taxpayers than those currently in effect, which can be up to $120. However, under this revision, any affected taxpayer could qualify for a reduced fee by making a request online using the Online Payment Agreement application on IRS.gov.

    Additionally, there would be no change to the current $43 rate that applies to the approximately one in three taxpayer requests that qualify under low-income guidelines. These guidelines, which change with family size, would qualify a family of four with total income of around $60,000 or less to pay the lower fee.

    Also, for the first time, any taxpayer regardless of income would qualify for a new low $31 rate by requesting an installment agreement online and choosing to pay what is owed through direct debit.

    The top rate of $225 applies to taxpayers who enter into an installment agreement in person, over the phone, by mail, or by filing Form 9465 with the IRS. However, a taxpayer who establishes an agreement in this manner can substantially cut the fee to just $107 by choosing to make monthly payments by direct debit from their bank account.

    Alternatively, a taxpayer who chooses to set up an installment agreement using the agency’s Online Payment Agreement application will pay a fee of $149. Similarly, this amount can be cut to just $31 by also choosing direct debit.

    Proposed fees

    Here is the proposed schedule of user fees:

      Regular installment agreement$225
      Regular direct debit installment agreement$107
      Online payment agreement $149
      Direct debit online payment agreement$31
      Restructured or reinstated installment agreement  $89
      Low-income rate$43
    If you're a taxpayer who uses the installment plan to settle up with Uncle Sam, you need to know that the Internal Revenue Service (IRS) is proposing a rev...

    Tips for last minute tax filers

    Do as much as possible electronically

    Got plans for the weekend? You may have to put them on hold if you haven't gotten around to filing your federal income tax return.

    Though April 15 is normally the deadline for getting your return in the mail to the Internal Revenue Service (IRS), this year the deadline falls on Monday, April 18, since today is a holiday in the District of Columbia.

    If you'll be spending the weekend shuffling receipts and filling out forms, the IRS has some advice.

    Use the internet

    First, file your return online. It makes the tax agency's job a little easier and it will also get any refund to you a lot quicker. When you file electronically, the IRS says it normally takes about three weeks to process your refund – even faster if you have the money direct deposited into a bank account.

    The IRS offers this handy guide to individuals who are e-filing their own returns. If you file electronically, you won't be able to physically sign the return. The IRS explains here how to do it electronically.

    If you are going old school and filing a paper return, make sure all necessary forms are attached to Form 1040. The IRS would like them placed in order of the sequence number located in the upper right hand corner of the schedule or form.

    Don't forget to attach a copy of your W-2, which is a record of your compensation from your employer. If you received a corrected version of your W-2, form W-2c, make sure you include that.

    Where to send it

    When filing a paper return, it means you have to mail it somewhere. The address will be determined by where you live, and whether you owe additional taxes or are getting a refund. You'll find the the address you need here.

    If you owe additional tax, make the check out to United States Treasury. Make sure the check contains your name, address, taxpayer ID number, daytime phone number, tax year, and the name of the tax form you are submitting – such as Form 1040.

    If you are filing electronically, you can pay online by following the instructions in Form 1040-V.

    Of course, you might want to keep your weekend plans and file for an extension, giving you another six months to complete the process. It just requires filing the proper form by the Monday deadline, found here.

    If you owe additional tax, be sure to include the amount with the extension form, otherwise you'll face a penalty and interest. If you aren't sure how much you owe, it is better to overestimate on the payment. You'll avoid the penalty and get the balance as a refund when you do file.

    Got plans for the weekend? You may have to put them on hold if you haven't gotten around to filing your federal income tax return.Though April 15 is no...

    Time running short for many to take required retirement plan distributions

    First-timers must act quickly

    If you turned 70½ during 2015 you'd best get a move on.

    Seniors who have reached that age must -- in most cases -- start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by tomorrow, Friday, April 1, 2016.

    Under Internal Revenue Service (IRS) regulations, owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs, are affected by the deadline. It normally applies to those with various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

    What to do

    Keep in mind, the April 1 deadline applies only to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, if you turned 70½ last year (born after June 30, 1944 and before July 1, 1945) and receive the first required distribution (for 2015) on April 1, 2016, for example, you must still receive the second RMD by Dec. 31, 2016.

    Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014.

    The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

    Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions.

    Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

    More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

    If you turned 70½ during 2015 you'd best get a move on.Seniors who have reached that age must -- in most cases -- start receiving required minimum dist...

    Nine out of 10 tax refunds are issued in under 21 days

    When will you get yours?

    How fast do you want your federal income tax refund -- assuming you get one? Does three weeks work for you?

    According to the Internal Revenue Service (IRS), 90% of refunds are issued in less than 21 days.

    The best way to check the status of yours is online through the “Where’s My Refund?” tool on the IRS website or via the IRS2Go phone app.

    "As February approaches, more and more taxpayers want to know when they can expect their refunds," said IRS Commissioner John Koskinen. "There aren't any secret tricks to checking on the status of a refund. Using IRS.gov is the best way for taxpayers to get the latest information."

    Patience

    Many taxpayers are eager to know precisely when their money will be arriving, but checking "Where's My Refund" more than once a day will not produce new information. The status of refunds is refreshed only once a day, generally overnight.

    "Where’s My Refund?" has the most up-to-date information available about your refund. Taxpayers should use this tool rather than calling. You can use the tool to start checking on the status of their return within 24 hours after IRS has received an e-filed return or four weeks after receipt of a mailed paper return. It has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved and (3) Refund Sent.

    Try the app

    The IRS2Go phone app is another fast and safe tool taxpayers can use to check the status of a refund. In addition, users can use it to find free tax preparation help, make a payment, watch the IRS YouTube channel, get the latest IRS news, and subscribe to filing season updates and tax tips.

    The app is free for Android devices from the Google Play Store or from the Apple App Store for Apple devices. Users of both the IRS2Go app and “Where’s my Refund” tools must have information from their current, pending tax return to access their refund information.

    There's really no advantage to calling about refunds. IRS representatives can research the status of your refund only in limited situations: if it has been 21 days or more since you filed electronically, more than six weeks since you mailed your paper return, or "Where’s My Refund?" directs you to contact the agency. If the IRS needs more information to process your tax return, you'll be contacted by mail.

    The IRS continues to encourage the use of e-file and direct deposit as the fastest and safest way to file an accurate return and receive a tax refund. More than four out of five tax returns are expected to be filed electronically, with a similar proportion of refunds issued through direct deposit.

    Free File offers free brand-name software to about 100 million individuals and families with incomes of $62,000 or less. Seventy percent of all taxpayers are eligible for Free File.

    All taxpayers regardless of income will again have access to free online fillable forms, which provide electronic versions of IRS paper forms to complete and file. Both options are available through IRS.gov.

    How fast do you want your federal income tax refund -- assuming you get one? Does three weeks work for you?According to the Internal Revenue Service (I...

    IRS cuts 2016 standard mileage rates

    Rates are being cut for business, medical, and moving mileage

    If you use your car for things that are usually tax deductible, you're not going to like this.

    The Internal Revenue Service (IRS) is cutting the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

    Starting January 1, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

    • 54 cents per mile for business miles driven -- down 3.5 cents from 2015.
    • 19 cents per mile driven for medical or moving purposes -- down four cents from 2015.
    • 14 cents per mile driven in service of charitable organizations. The charitable rate is based on statute.

    According to the tax agency, the standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

    You have options

    Keep in mind, though, that you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

    A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

    In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

    These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.

    Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

    If you use your car for things that are usually tax deductible, you're not going to like this.The Internal Revenue Service (IRS) is cutting the 2016 op...

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