Tax Identity Theft Victims Can Request Copies of Fraudulent Returns

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If you were a victim of tax identity theft, you likely had to mail a signed paper copy of your tax return for the year(s) affected along with Form 14039 (Identity Theft Affidavit).  You may also have reported your identity theft to the Federal Trade Commission and placed a fraud alert with the three major credit bureaus.  While you were able to take measures to detect and prevent future fraud using your identity, you were never allowed to see a copy of the fraudulent tax return that was filed using your identity to determine exactly what information was compromised, until now.  The IRS has begun allowing victims of identity theft to request redacted copies of the fraudulent tax returns that were filed at the request of U.S. Senator Kelly Ayotte.  In a letter dated 5/17/2015 to IRS Commissioner Koskinen, Senator Ayotte wrote that it was “deeply troubling that the IRS does not help victims by providing them with copies of the fraudulent returns so they can determine what information was stolen.”  As a result, the IRS posted detailed instructions on their website on how you can request copies of fraudulent tax returns.

Are You Keeping Adequate Records of your Charitable Contributions?

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If you are a taxpayer who itemizes deductions, you may take advantage of the deduction for non-cash contributions to a 501(c)(3) charitable organization. The IRS rules for validating deductions to charities are strict and to avoid having your deduction denied it is very important to keep detailed records. In a recent Tax Court case, a married couple had their $37,315 deduction denied due to lack of substantiation. Here is an overview of the recordkeeping requirements based on amounts contributed:

  • Gifts < $250: You should obtain and keep a receipt from the charity with a description of the items donated. For some charities, like Goodwill, that simply have an outdoor drop box where you can leave items, it is impractical and sometimes impossible to obtain a receipt. In this case, you should keep reliable written records which include the items contributed and how you arrived at the fair market value that you will use on your tax return. Many charities have a listing available with recommended fair market values for various items and conditions.
  • Gifts from $250-$499: Obtain a written receipt from the charity describing the property and whether or not you received any benefits in return for your gift. For example, you may have bought tickets for $300 to a charity event with a dinner that was worth $50. In this case, you would get a $250 charitable deduction. An acknowledgment is required for each contribution above $250 even if multiple donations are made to the same organization throughout the year.
  • Gifts from $500 to $4,999: When you contribute non-cash items with a total value over $500, you must complete Form 8283 with your tax return. On this form you must list each charity that you contributed to with its address, the date of donation, a description of the items donated, the items original cost to you, their fair market value, and which system you used to arrive at that FMV.
  • Gifts of $5,000 or more: When you contribute non-cash items with a total value over $5,000, you must complete Form 8283 and provide an independent appraisal of the donated property. When determining if your deduction is greater than $5,000, combine deductions for all similar items donated to charities during the year.

Also, be sure to obtain your written acknowledgements from the charities that you contributed to by the earlier of:

  1. The date you file your tax return
  2. The due date for the return (including extensions)

It is very important to comply with IRS substantiation requirements for charitable contributions. The best and easiest way to do this is by good recordkeeping. Please feel free to contact us at ARM with any questions on the requirements.

Amazon Starts Charging Sales Tax to Ohio Consumers

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Amazon announced that it will start collecting sales tax on online purchases shipped to Ohio starting today, June 1st, as a result of building three data centers near Columbus that are expected to create 1,000 jobs over the next few years.  Brick and mortar stores have long complained that Amazon held a competitive advantage because they were not required to collect sales taxes on purchases shipped to Ohio since the retail giant did not have a physical presence in the state.  The nearest distribution centers to Ohio are located in neighboring states (Indiana, Kentucky and Pennsylvania) and Amazon does not have any corporate offices in Ohio.  Amazon’s decision to start collecting sales tax creates a level playing field between the online retailer and local businesses around Ohio that have often served as showrooms where potential customers would often inspect the products in person only to buy them through Amazon to avoid paying sales tax.

Even though Ohio customers weren’t paying sales tax on Amazon purchases in the past doesn’t mean the purchases were tax-free.  The Ohio Department of Taxation states on their website “Ohio law requires residents to pay the use tax on untaxed purchases made from an internet or catalog (remote) vendor.”  Use tax is often reported on Line 19 of the Ohio Individual Income Tax Return (IT 1040).  The form also requires filers to certify that no sales or use tax is due, if true, by checking a box.  For more information on reporting unpaid use tax, please consult an ARM tax advisor.

2015 Tax Return Filing Deadline

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The IRS announced in Revenue Ruling 2015-13 the filing deadline for 2015 income tax returns for individual taxpayers will be Monday, April 18th, 2016 instead of the usual April 15th date most commonly associated with taxes, even though April 15th falls on a Friday in 2016.  The District of Columbia recognizes Emancipation Day as a legal holiday which falls on Saturday April 16th but is observed on the preceding day, Friday, April 15th.

In accordance with IRC Sec. 7503, filing and payment deadlines that fall on a Saturday, Sunday, or legal holiday are timely satisfied if met on the next business day.  Therefore, most taxpayers will have until Monday, April 18th to file their 2015 tax returns.  However, taxpayers who reside in Maine in Massachusetts will have until Tuesday, April 19th to file in order to observe Patriot’s Day, Monday, April 18th, which is a statewide legal holiday in those two states.

“Jock Tax” Update: Cleveland Files Motion for Reconsideration

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Cleveland city attorneys filed a motion for reconsideration in response to the Ohio Supreme Court’s decision that the city’s method for taxing professional athletes is unconstitutional (click here to read our previous article regarding ruling).  Hunter Hillenmeyer, formerly of the Chicago Bears, successfully took the city to court and is due to receive a partial refund as a result of the recent ruling.  Among several reasons shown in the city’s motion for reconsideration, they provide a strong argument that the United States Supreme Court case precedent says that an apportionment method must only be reasonable and that their method does not grossly distort the result  The city even cited Tom Brady’s ongoing “Deflategate” controversy as support in their attempt to maintain their historical method for taxing athletes.

While it is a common occurrence for losing sides to file such motions, it is very unlikely the Court will reconsider their 7-0 unanimous ruling in favor of the former NFL player.  The city of Cleveland has not yet announced what new method they will adopt now that their preferred method has been struck down.

To read the complete motion for reconsideration filed by city attorney’s, click here.

Professional Athletes: State Income Tax Planning

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The NFL recently held its 2015 draft in Chicago, Illinois for the first time in 51 years where 256 former college athletes were selected by 32 teams.  The three other major professional sports leagues in the United States will conduct their draft next month: MLB (June 8-10), the NBA (June 25) and the NHL (June 26-27).  As the newly drafted players begin negotiating and signing their first professional sports contracts, which can be worth millions of dollars for the top selections, properly establishing a state of residency with a low state income tax rate can result in millions of dollars in savings for the highest paid athletes.

Click here to view our white paper on professional athletes: Athlete – State Income Tax Planning.

For more information on state income tax planning for professional athletes, please contact an ARM tax professional.

State income taxes rates by state:

State Income Tax Rates

IRS Releases HSA Adjustments for Tax Year 2016

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The Internal Revenue Service released Revenue Procedure 2015-30 on May 4th, 2015 providing the 2016 inflation adjustments for Health Savings Accounts (HSAs).  The annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,350.  The deduction for an individual with family coverage under a high deductible health plan is $6,750.  An individual age 55 or older is allowed an additional $1,000 toward their annual limitation under both self-only and family coverage.

For 2016, a high deductible health plan is defined as a plan with an annual deductible of not less than $1,300 for self-only coverage or not less than $2,600 for family coverage, and where the annual out-of-pocket expenses do not exceed $6,550 for self-only coverage or $13,100 for family coverage.

For tax year 2015, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,350 while the deduction for an individual with family coverage under a high deductible health plan is $6,650.

Cleveland’s “Jock Tax” Under Scrutiny

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Several professional athletes have questioned the method that the city of Cleveland is using to tax their income earned when working for short periods of time in the city.  On Thursday, April 30th, the Ohio Supreme Court ruled that the method is unconstitutional because it violates athletes’ due process rights.

Hunter Hillenmeyer, formerly of the Chicago Bears, is due a partial refund because the city unfairly imposed a 2 percent tax on his income based on games played in the city as a percent of total games played.  Cleveland uses a games-played method which treats professional athletes salaries as earned only when playing games even through they are also being paid to attend training camps, practices and team meetings.  The method used by most cities takes into consideration the days spent in a city compared to the total days in the season.  For example, a visiting football player who spent 2 days in a city for a 160 day season would be taxed on 1.25% of his salary.  Per Cleveland’s method, 5% of the total salary would be taxed by the city because a player played 1 game out of a 20 game season in Cleveland (16 regular season and 4 preseason games).

Sport leagues including the NBA, NFL and NHL disagree with the law because they feel that athletes are being taxed unfairly.  Cleveland’s defense of their method was that they believe they are taxing athletes on what they are primarily paid to do, which is to play games, but their argument didn’t stop the method from being ruled as unconstitutional.    Cleveland spokesman Daniel Bell said that the city will look further into how the decision will affect the city’s economy.

Where’s My Refund?

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If you have not received your federal income tax refund, you can check the status here.  You will need your Social Security Number, filing status and exact refund amount in order to access your information.

You can also check your Ohio income tax refund here.  Beginning this year, the Ohio Department of Taxation implemented an identity theft quiz that you may be required to successfully complete before your refund will be issued.  The Ohio Department of Taxation will mail an identity verification letter to you if you have been selected for this process.  Additional information regarding the identity verification quiz can be found here.

Anthem Security Breach and How It Affects Your Taxes

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Anthem was the target of a sophisticated external cyber-attack in which personal data for as many as 80 million (1 out of every 4 Americans) records for current and former customers has been exposed.  This was caused by a database breach on February 4th.  According to the company, the stolen information includes names, birthdays, social security numbers, street addresses, email addresses and employment information.

The type of information believed to have been stolen is ideal for various forms of identity theft, including federal income tax return fraud, the most common type of theft, in which criminals use stolen personal data to file a false tax return with the IRS. The criminals might also look to open new lines of credit and obtain new credit cards in your name.

According to the U.S. Department of Justice website, stolen identity refund fraud prevents hundreds of thousands of American taxpayers from receiving timely income tax refunds each year and costs the U.S. Treasury billions of dollars in fraudulent refund payouts.

Anthem has already begun individually notifying those who are impacted by this breach in the form of a letter and will continue to do so within the next two weeks. Taking some precautions now can help protect yourself from the misuse of the stolen data.

If you receive a letter from the Internal Revenue Service informing you that they are reviewing your 2014 tax return, you should contact your accountant right away, especially if you have not filed your 2014 tax return.  If tax fraud was committed using your personal information, you will be required to file Form 14039 Identity Theft Affidavit with the IRS.

To learn more, Anthem has created a dedicated website (www.AnthemFacts.com) where you can access information such as frequently asked questions and answers.