In July 2022, the Internal Revenue Service (IRS) published Fact Sheet 2022-33. This IRS publication is designed to assist taxpayers in knowing whether an individual who contacts them is from the IRS or is a fraudster.
The IRS is concerned because there are continuing phone, text, email, and in-person scams taking place. The IRS emphasizes that it normally sends a letter or written notice to a taxpayer and generally does not initiate contact through phone, text or email.
With a growing number of fraudsters and scammers seeking to locate victims, it is important for individuals to be able to separate legitimate IRS staff from imposters. All taxpayers should understand basic ways to protect themselves from fraudulent text messages, emails, phone contacts, or in-person visits.
- Text Messages — The IRS does not send text messages to individuals with shortened links. The scammers will frequently send a text message that includes a bogus link. If you receive an unexpected text, you should NOT click on links or open attachments.
If you do receive a suspicious text message, you should send a screen shot of it as an attachment to email@example.com.
- Email Scams — The IRS does not ask for personal or financial information with an initial contact by email. The standard IRS contact will be through several letters by regular mail. The suspicious email should also be forwarded to firstname.lastname@example.org. There is a "Report Phishing and Online Scams" page on IRS.gov with specific instructions.
- Individuals Who Owe Tax — If you owe tax to the IRS, you can expect to receive several letters prior to a phone call. The IRS may follow up the letters with a phone call if you have an overdue tax bill, a delinquent tax return or have failed to make an unemployment tax deposit. The IRS emphasizes it will not demand immediate payment with a debit card or gift card, will not threaten you with arrest by the local police, will not demand tax payments without giving you an opportunity to appeal the claim and will not ask for credit or debit card numbers over the phone. These strategies all indicate you are talking with a scammer.
- IRS Agent In-Person Visits — Generally, IRS officers only make visits after you have received several notices by mail. The IRS Revenue Agent may make a visit for the purpose of education, investigation and appropriate enforcement steps. IRS auditors also may mail an initial appointment letter and generally will call and confirm the date prior to a scheduled audit appointment. If you have an in-person visit with an IRS representative, you should always ask for his or her credentials and HSPD-12 card. This is a standard government form of identification.
- Resolving Tax Issues — On IRS.gov, there are several helpful sections that may assist taxpayers in creating payment plans. You can pay taxes through the Online Account with IRS Direct Pay or with your debit or credit card. There are individuals who may qualify for a payment plan or an Offer in Compromise. The IRS again emphasizes it will not demand immediate payment, will not ask for credit or debit card numbers, will not threaten to have you arrested by local police and will always offer an opportunity to appeal. An IRS Appeals Officer may review your case prior to any further action.
Fraudsters and scammers continue to become more sophisticated. Many of them build a relationship with the victim through multiple emails or phone calls prior to taking action to complete a fraud. Individuals should be careful if they are in the midst of multiple contacts with a fraudster or scammer who claims to be from the IRS.
Inflation Reduction Act (IRA) of 2022
While the Inflation Reduction Act (IRA) legislation has not been passed by the House or Senate, Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) claim they have a compromise that will receive the required 50 votes in the Senate. The compromise bill is designed to produce approximately $300 billion in deficit reduction over the next decade. It includes sections on drug costs, health insurance, climate change and increased revenue.
- Prescription Drug Costs — The Medicare program will be authorized to negotiate prescription drug prices with pharmaceutical companies. This is estimated to save $28.8 billion per year over the next decade. The reductions are promised to be invested in reducing medication costs for seniors and creating a $2,000 out-of-pocket cap for their prescription costs. There also will be free vaccinations for Medicare seniors.
- Health Insurance Subsidies — COVID-19 pandemic legislation provided health care subsidies for millions of Americans. The IPA health insurance subsidy provision extends these benefits for another three years. This premium assistance will apply for individuals who purchase their own policies.
- Climate Change — There is a $369 billion investment over a decade that benefits both renewable energy production and the transition to electric vehicles. The clean energy manufacturing credit is $60 billion and there is a $30 billion credit for increased use of wind and solar energy. Consumers who purchase an electric vehicle (EV) will benefit from a $7,500 credit for a new vehicle and a $4,000 tax credit for a used vehicle.
- Increased Taxes — The major tax increase is a new 15% minimum tax on corporations with over $1 billion in annual profits. This tax will start in 2023 and is projected to raise $313 billion in a decade. There is also an additional $8 billion per year of funding for the IRS. This substantial increase in the IRS budget will enable increased taxpayer services and a large increase in the number of IRS auditors. The bill projects an additional $20 billion in revenue each year through an increased number of IRS audits. In addition, the carried interest benefit for many hedge fund managers who currently report earnings as a capital gain rather than ordinary income will require a five-year holding period rather than the existing three years.
Senator Manchin strongly supported the new bill, stating, "We must be honest about the economic reality America now faces. If we want to avoid fanning the flames of inflation, at its core the purpose of reconciliation is to get our economic and financial house in order. Contrary to foolish statements, America cannot spend its way out of the debt or out of inflation."
The claim of the authors of the bill is that there will be approximately $30 billion per year of excess revenue that can reduce the deficit. As a result, Senators Schumer and Manchin claim the bill will not be inflationary.
IRS Must Stop Phony Charities
On July 20, 2022, Representative Bill Pascrell Jr. (D-NJ), the House Ways and Means Oversight Subcommittee Chair, sent a letter to IRS Commissioner Chuck Rettig and expressed major concern over the existence of "phony charities."
The Pascrell letter was prompted by an article in a major news publication that described how a "convicted stock market fraudster" obtained exempt status for 76 phony charities. Many of the phony charities, over fifty, were granted tax-exempt status using Internal Revenue Service (IRS) Form 1023-EZ. The Form 1023-EZ requires very minimal information from the individual. The fraudster was apprehended after obtaining over $150,000 in gifts.
Pascrell noted, "Although Form 1023-EZ was developed to curtail an increasing backlog of exempt organization applications, it seemingly led to fraudulent applications being approved with lax oversight by the IRS. A 2019 study by the Taxpayer Advocate Service found that 46% of approved applicants did not actually pass the organizational test required by statute to establish legitimacy as a charitable organization."
Pascrell asked for three specific actions by the IRS. He requested that the IRS explain the number of exempt organization applications received since 2015, the number rejected and the number of returned applications. Second, the IRS must outline the procedures for processing IRS Form 1023-EZ. This explanation will include the specific timeframe and responsibilities of IRS staff. The IRS also must explain its steps to reduce fraud in the Form 1023-EZ process. Finally, the IRS should describe its overall oversight of the exempt process.
The Independent Sector, a coalition that represents philanthropic organizations, commented on its website, "In addition to hurting law-abiding taxpayers in diverting resources away from legitimate charities in the near-term, this Swiss cheese approval process risks undermining public trust going forward. While the vast majority of its people and organizations are committed to upholding the highest legal and ethical standards, even a few bad actors can do lasting damage to the charitable sector's most precious asset: public trust."
Applicable Federal Rate of 3.8% for August -- Rev. Rul. 2022-14; 2022-31 IRB 1 (15 July 2022)
The IRS has announced the Applicable Federal Rate (AFR) for August of 2022. The AFR under Section 7520 for the month of August is 3.8%. The rates for July of 3.6% or June of 3.6% 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.