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Saturday November 26, 2022

Washington News

Washington Hotline

Top Tips To Avoid Identity Theft

In IR-2022-25 the Internal Revenue Service explained the latest strategies that fraudsters use to steal identities. With the tax filing season in full swing, taxpayers need to be on guard for strategies that may involve a text message, email, phone call or potential unemployment fraud.

IRS Commissioner Chuck Rettig stated, "With the filing season underway, this is a prime period for identity thieves to hit people with realistic-looking emails and texts about their tax returns and refunds. Watching out for these common scams can keep people from becoming victims of identity theft, and protect their sensitive personal information that can be used to file tax returns and steal refunds."

1. Text Message Scams -- There has been an uptick in text messages that claim to represent the IRS. The fraudulent messages frequently have links to bogus IRS websites. The IRS emphasizes that it does not use text messages other than the IRS Secure Access service. The IRS also will not send text messages through social media.

If you receive a text message that claims to be from the IRS, you should take a screen shot and send it to phishing@IRS.gov. State the date and time you received the text message and your phone number. You can take a screen shot on an iPhone 13 by simultaneously clicking and releasing the side button and volume button. On other smartphone models, you may click the side button and home button or the top button and home button at the same time. The screen shot may then be accessed through your photos to email to phishing@IRS.gov.

2. Unemployment Fraud -- There is a surge in the efforts by organized crime rings to steal identities and file fraudulent unemployment claims with state agencies. Your state office will then issue IRS Form 1099-G, Certain Government Payments to the recipient and the IRS. If you receive a fraudulent or inaccurate Form 1099-G, you should report it to the state agency and obtain a corrected Form 1099-G. For information on unemployment fraud, go to DOL.gov/fraud. If you receive any communication from a state agency about an unemployment claim that you did not file or a notice from your employer about an unemployment claim that is improper, you should also report it on that same fraud page.

3. Email Phishing Scams -- The IRS emphasizes that it does not contact taxpayers through email to request personal or financial information. If you receive an unsolicited email, do not click on any links within it. Send the email as an attachment to phishing@IRS.gov. The Report Phishing and Online Scams webpage at IRS.gov provides additional information.

4. Phone Scams -- The IRS notes that it does not leave urgent or threatening messages on your phone or voicemail. Scammers will frequently threaten victims with arrest. They may also claim that law enforcement will be sent to your door, you could be deported or your driver's license could be revoked. It is possible to fake or "spoof" caller ID numbers. The scammer may attempt to spoof the caller ID number of a sheriff's office, a department of motor vehicles or a federal agency. The IRS emphasizes it will never call and demand payment through a prepaid debit card, gift card or wire transfer. It will also not ask for a credit or debit card over the phone.

If you receive a threatening call and do not owe taxes, hang up the phone. You can report the caller ID and callback number on phishing@IRS.gov. You may also report the call on FTC.gov and note "IRS Telephone Scam."

If you owe taxes or think you might have a bill with the IRS, you should nevertheless hang up the phone. You can create an online account on IRS.gov and review your information. There may be a phone number on a billing notice from the IRS or the general IRS number is 800-829-1040.

If you are a victim of identity theft and someone has used your Social Security number to file and claim a fraudulent refund, you may be contacted by the IRS. You should immediately respond to any IRS notice and call the listed number. You may file IRS Form 14039, Identity Theft Affidavit. If you are a victim of identity theft, you still must file and pay taxes. Many individuals use a paper form to pay their tax in this circumstance.

Editor's Note: IRS tax filing season always causes fraudsters to redouble their efforts. Taxpayers should be familiar with the principal ways scammers attempt to steal identities and file fraudulent returns.

Congress Attempts to Reform Donor Advised Funds


The Accelerating Charitable Efforts (ACE) Act had previously been introduced in the Senate by Sen. Chuck Grassley (R-IA) and Sen. Angus King (I-ME). It has now been introduced in the House by Rep. Chellie Pingree (D-ME) and Rep. Tom Reed (R-NY).

The ACE Act is primarily designed to update DAF rules created in 2006 when Sen. Grassley was Chair of the Senate Finance Committee.

Rep. Pingree stated, "The Coronavirus pandemic highlighted just how important working charities are to our communities. For countless Mainers and people across the country, charitable organizations are life-changing and lifesaving. Yet, one dollar out of every $8 donated to U.S. charities goes to donor advised funds (DAFs), giving the wealthy generous tax breaks for their charitable contributions but not ensuring those funds help anyone in need."

Rep. Reed emphasized the importance of distributions to fund current charitable purposes. He stated, "We will always stand with charitable organizations to make sure they have the resources that they need to better serve our communities. So many people depend on our charities and the help and care they provide that we want to make sure that they have the support that they need." Reed continued, "The reforms from this bill will make sure that charities will quickly receive contributions that will go to better the organization and those in the community they are dedicated to serving."

The ACE Act would create four different types of DAFs.

1. 15-Year DAF -- A DAF could be created with a duration of 15 years for each fund contribution. The donor would be required to designate a charity to receive the funds after 15 years if they have not been previously distributed. This provision would also limit charitable deductions for gifts of complex or nonmarketable assets. The deduction would not be based on the appraised value, but instead would be based on the cash received by the nonprofit when the complex asset is sold.

2. 50-Year DAF -- A second DAF option could last for up to 50 years. The DAF donor would be required to designate a charity to receive the contribution after 50 years, unless distributed prior to that time. With a 50-year DAF, the donor could contribute appreciated property and bypass capital gain. However, the income tax deductions would be deferred until the funds are distributed from the DAF to a charitable recipient.

3. Community Foundation DAF Under $1 million -- A community foundation may maintain a DAF that could hold up to $1 million in assets. This DAF would be subject to the current DAF rules. In essence, the community foundation DAF under $1 million would function with no significant change.

4. Community Foundation DAF Over $1 Million -- If the community foundation DAF is over $1 million, then it must either have a minimum 5% payout or distribute donations within 15 years of the contribution.

Rep. Katie Porter (D-CA) is a co-sponsor of the ACE Act. She noted, "The pandemic has been a powerful reminder of how important charities are to our communities. The tax code incentivizes charitable giving, but a loophole allows donor advised funds to hold onto donor's dollars, granting donors a tax break without actually distributing funds to charities that do the work of helping families."

Donor advised funds have grown rapidly over the past decade. The percentage of U.S. individual giving transferred to DAFs increased from 3% in 2009 to 13% by 2018. Approximately $150 billion is now held in donor advised funds.

Editor's Note: Sen. Grassley was the primary architect of the initial regulation of DAFs in 2006. The ACE Act is proposed legislation. However, Sen. Grassley has a solid track record of passing his proposed bills. The new guidelines are likely to be modified but may have significant impact on DAFs. The change on deductions for gifts of complex or nonmarketable assets from the appraised value to the cash received upon sale is significant. Many complex assets are not easily sold and the deduction could be deferred for an extended period of time.

IRS Emergency Effort to Clear Backlog


This week the IRS announced an emergency effort to reassign 1200 employees and clear a backlog of nearly 10 million tax returns and other documents. The IRS described the situation as a "cascade of problems" created for both taxpayers and the IRS. With the backlog, IRS computers are not able to process the information and therefore are sending incorrect automated notices to thousands of taxpayers. CPAs and other tax professionals are overwhelming the IRS phone lines with requests for assistance.

With the tax season having commenced on January 24, 2022, the IRS accounts management function is facing a huge challenge. The "unprecedented inventory levels" are a huge problem.

IRS Commissioner Chuck Rettig sent an urgent message to IRS staff. He stated, "With the 2022 filing season underway, our Accounts Management (AM) function is still facing unprecedented inventory levels, which will continue to contribute to higher call volumes and related inquiries. Despite steady progress, AM's current internal resources are not sufficient to overcome this challenge. A Service-wide initiative is underway to quickly establish an Inventory Surge Team that will help us address the inventory, recover from this tremendous challenge and improve the taxpayer experience."

Commissioner Rettig describes this as an "all-hands-on-deck" crisis. The 1200 employees include many who previously served with the accounts management department.

National Treasury Employee's Union President Tony Reardon indicated that his organization will accept the emergency transfers. Reardon noted, "Also, to state the obvious, this large-scale reassignment of employees is a temporary fix at best and would not be necessary if the IRS -- after a decade of budget and staffing cuts -- had the funding and the resources it needs to address the increased workload affecting every division of the agency."

National Taxpayer Advocate Erin Collins reported to Congress that these problems are "harming millions of taxpayers" and must be promptly addressed.

Paul Butler represents the IRS Small Business Self-Employed Division. At a virtual meeting on February 2, he stated, "The IRS is managing a backlog of millions of unprocessed paper returns with a workforce that has been depleted by a decade of budget cuts. Staffing was at all-time lows to begin with. Then Covid hit and the filing season got pushed back four months. Many of the people who process returns are also the people who answer phones during filing season, so they were delayed in being converted back to processing returns."

Applicable Federal Rate of 1.6% for February -- Rev. Rul. 2022-3; 2022-6 IRB 1 (18 Jan 2022)


The IRS has announced the Applicable Federal Rate (AFR) for February of 2022. The AFR under Section 7520 for the month of February is 1.6%. The rates for January of 1.6% or December of 1.6% 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 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.

Published February 4, 2022
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